“We Are Not Expecting A Rapid Recovery”: CEO
Some housing bubble news from Wall Street and Washington. Bloomberg, “Hovnanian Enterprises Inc., the sixth- largest U.S. homebuilder by revenue, reported a loss for the fiscal first quarter as sales slumped and Florida homebuyers canceled orders. It was the second consecutive quarterly loss for the company after nine years of gains.”
“Homebuilders such as Hovnanian are struggling as inventories of unsold properties swell while speculators, who propelled the five-year home boom in places like Florida, cancel contracts and drop out of the market.”
“‘Once the housing market bottoms out, we are not expecting a rapid recovery,’ Chief Executive Officer Ara Hovnanian said.”
“‘Builders like Hovnanian got blindsided,’ said analyst Alex Barron. ‘There was a frenzy of buying and selling that caused prices to rise dramatically, as much as 30 percent a year in Florida at the peak. Now it seems the homebuilders got caught selling to speculators.’”
“The company wrote down $93 million in the quarter on plummeting home prices and a growing inventory of unsold houses in the Fort Myers-Cape Coral area of Florida, Hovnanian said. When Hovnanian bought First Home Builders of Florida in August 2005, every house that came on the market in Fort Myers and Cape Coral sold immediately, Hovnanian said.”
“‘We made that acquisition an hour and a half from the market peak,’ Hovnanian told the conference on March 6. Within 18 months, the number of homes for sale in the area went from 2,000 to 22,000, he said. As a result, home prices in Cape Coral and Fort Myers, Florida, slid 12 percent to $258,900 from $293,100 a year ago, according to the National Association of Realtors.”
“‘Buyers are afraid to buy and a ton of people in Florida canceled,’ Barron said. ‘So you’re at a standstill. A number of builders experienced negative sales — cancellations exceeded the number of homes bought.’”
From MarketWatch. “New Century Financial Corp. said late Thursday that it has stopped accepting loan applications because some of the subprime-mortgage specialist’s financial backers are refusing to provide access to financing.”
“New Century also said that it has received $150 million worth of margin calls from its so-called warehouse lenders. It has satisfied about $80 million of those calls, but $70 million remains, according to the company.”
“‘As a result of the current constrained funding capacity, the company has elected to cease accepting loan applications from prospective borrowers effective immediately,’ New Century said in a statement. ‘The company expects to resume accepting applications as soon as practicable; however, there can be no assurance that the company will be able to resume accepting applications,’ it added.”
“‘Once you get hit with one of these crunches, warehouse lenders don’t want to lend to you, so you’re really done,’ said Joseph Mason, associate professor of finance at Drexel University and a visiting scholar at the Federal Deposit Insurance Corp.”
“‘These firms that rely on funding mechanisms like securitizations are like sharks — if they stop moving they die,’ Mason added.”
The New York Times. “New Century estimates that it lost money for the six months that ended in December but it has yet to release detailed financial statements.”
“‘New Century is at the center of the subprime storm,’ said analyst Matthew Howlett. ‘Bankruptcy is not an extreme outcome here. They are in a tremendous liquidity crunch.’”
“The company said yesterday that it had significantly tightened its lending standards in the last few months and was no longer allowing borrowers to take out loans without putting any money down.”
“Recent dealings in shares of Fieldstone Investment Corp. suggests that the subprime lender’s agreement to be acquired by Credit-Based Asset Servicing and Securitization LLC could be renegotiated lower or even called off, analysts said this week.”
“‘Given the deteriorating condition of the subprime sector recently, investors fear that C-Bass may try to negotiate a lower price or back out of the deal,’ Scott Valentin, an analyst at Friedman Billings Ramsey, said on Tuesday.”
“The main concern is that Fieldstone may be forced to repurchase some loans that it previously sold on to other investors, according to Valentin. ‘The wild card is the early-payment default issue,’ Valentin said. ‘If Fieldstone saw a material increase in loan repurchases, that would cut the value of their loan portfolio and could give C-Bass an excuse to withdraw.’”
The Pioneer Press. “At its peak Maribella Mortgage had 125 employees, operations in Chicago and Milwaukee and investors eager for the subprime mortgages it bundled together at $20 million to $50 million a pop.”
“Maribella’s Edina headquarters are empty now but for three remaining employees. The company officially shuts down March 15, the latest casualty of escalating turmoil in the $1.36 trillion subprime mortgage market as rising defaults, weakening home prices and a get-tough approach by investors hammer the industry.”
“‘I never thought it would get to this,’ said Mark Kiewiet, Maribella’s executive vice president of operations. ‘If we got through the fog, I figured we’d be fine.’”
“‘The whole industry has imploded,’ said Maribella co-founder Keith White.”
“White said Maribella was crushed by rising buyback requests that began in late 2005 and just got worse. People defaulting on loans early was the prime culprit, White said. White blames poor loan servicing by other companies for the early defaults on about half of the loans he was asked to buy back.”
“White said Maribella employees who bought home loans from mortgage brokers diligently checked documents for fraud. Nonetheless, people lied about incomes and inflated home values. He estimates that about 5 percent of his buybacks involved some kind of fraud.”
“‘If there was fraud, we were a victim,’ he said.”
“Other small traditional prime lenders may go by the wayside as the restrictions shrink the pool of potential buyers, he said. ‘A day doesn’t go by that I don’t get guideline restrictions from investors,’ White said. ‘Products are going away every single day.’”
“Federal Reserve Chairman Ben Bernanke and other policy makers were warned that rising mortgage foreclosures are likely to get worse, as the central bank reported the slowest pace of loan growth in four years.”
“‘We have found neighborhoods with abandoned homes, 200 at a shot,’ said Louise Gissendaner, director of community development in Cleveland at Fifth Third Bancorp, the 10th-biggest U.S. bank by assets. She said abandoned housing has ‘devastated our city to a great degree.’”
“Consumer advocates at today’s meeting said poor underwriting standards in the subprime market were behind the rising foreclosure rates. ‘We are facing a foreclosure crisis in this country,’ said Stella Adams. ‘There is a distinct problem in the subprime market that is contributing to the foreclosures.’”
“While several council members painted an ominous picture of the future, they offered praise for recent guidance from federal banking regulators that could result in fewer borrowers qualifying for subprime loans.”
“The proposed guidance, issued last Thursday, would instruct lenders to be more conservative when underwriting certain adjustable-rate mortgages. At the time, regulators predicted their proposed guidelines would likely ‘result in fewer borrowers qualifying for the type of subprime loans’ that they are targeting.”
“Mark Metz, a member of the council and senior VP at Wachovia Corp., said ‘it’s very hard to argue with a lot of the guidance.’”
From Business Week. “The 2/28s now coming up for their first reset were made in early 2005. It seems crazy now, but when the loans were made, nobody worried much about the reset. But home values today are flat or falling. What’s worse for many subprime borrowers, the escape route of refinancing at long-term rates is pretty much sealed off.”
“Regulators allowed this problem to develop and only now are cracking down.”
“Chances are the Fed will stay hawkish on inflation in spite of the harm to weak borrowers. Says Mark Gertler, a New York University economist: ‘I don’t think the Fed is going to base monetary policy on distributional considerations. Once the Fed loses its focus on maintaining price stability, all hell could break loose.’”
“Americans continued to load up on mortgage debt last year, even though the housing market was stalling, according to data released on Thursday by the Federal Reserve.”
“Owners’ equity as a share of the total value of their property edged down to 53.1 percent at the end of 2006, from 54.4 percent in the fourth quarter of 2005. Homeowner equity was almost 58 percent of housing value in 2000, and nearly 70 percent in the 1980s.”
“Rising mortgage defaults by subprime borrowers may add more than 500,000 homes to a residential real estate market already beset by slumping prices.”
“‘We estimate that the effect of looser lending standards could translate into another 533,000 homes coming onto the market as borrowers default — an unwelcome phenomenon given the existing supply surplus,’ Sarah Rowin and Frank Lee of bond research firm CreditSights wrote.”
“‘Not only do we have a lot of supply in the new home market, the existing homes are sitting much longer on the market,’ said Edie Ousley, a spokeswoman for the Florida Home Builders Association. ‘That increases competition for a new home to sell.’”
“‘Probably the gain in home ownership over the last four, five years, is almost entirely due to looser lending standards,’ said James Fielding, a homebuilding credit analyst at Standard & Poor’s in New York.”
“Fielding said the number of new homes on the market also is understated because when a customer cancels a home contract that house does not go back into the inventory of unsold houses. ‘There’s a lot more shadow inventory out there,’ Fielding said. ‘It’s just a quirk of the statistics. They never get recaptured.’
“Cancellation rates for new homes have surged to nearly 40 percent and that has boosted the inventory of unsold houses, said Margaret Whelan, an analyst at UBS AG.”
“‘Probably the gain in home ownership over the last four, five years, is almost entirely due to looser lending standards,’ said James Fielding, a homebuilding credit analyst at Standard & Poor’s in New York.”
Thank you Captain Obvious!!!
another day,
another cherry picked street with multiple foreclosures.
today we go to San Elijo Hills in costal north county San Diego. the developer sold 43 homes on Hollowbrook Court in 2005, currently we have 5 foreclosures on that street, that’s 1 foreclosure per every 8-9 home sold.
There are 100% financings, there are multiple refis, there are first payment defaults.
read more at BMIT: Let’s Cherry Pick Another Street with Multiple Foreclosures
That’s pretty funny.
And what about the gain in home prices, Senor Fielding?
where were these guys 3-4 years ago???
That said…I got a new post up yesterday.
BUT stay tuned as I am putting together a truly ‘inside’ look at the subprime mortgage industry. I pulled out all the rate sheets and flyers that I saved from my time in the industry. I will be making the first of several posts on Sunday night. I have rate sheets and loan programs from about 15+ lenders that I will be sharing. I am taking actual photos of the documents and posting big pictures…so people can actually SEE the nonsense that was going on. It will be a real eye opener for some of you…
Stay tuned…
SoCalMtgGuy
forgot to add the link for those of you that don’t have it…
http://www.housingbubblecasualty.com
Make ‘em puke — we’re in the revulsion phase!
I read your article last night and thought it was great. In it, you point out that there’s still a good trillion dollars of resets out there. Does it drive you crazy to hear officials and economists talking about “bottoming out” about now when they must know about that trillion bucks?
And in 2008, that $Trillion or so grows to $2 Trillion. We are a long way from the bottom.
Right. Talk of a bottom right now is hysterical. The future is looking quite dismal for the industry. Bad news will beget more bad news and lower prices beget even lower prices until this ship lies in pieces on the rocks.
Can’t wait.
It’s obvious to us on this blog, but NAR has been screaming from the rooftops for the last few years that it’s income gains, Boomer wealth, shortage of housing, no more land to build, etc.
Finally, we have a quote in MSM that this boom had absolutely nothing to do with fundamentals or financial genius and everything to do with lending insanity.
Builders like Hovnanian got blindsided,’ said analyst Alex Barron
Listen up, you idiot analyst!! If you had been doing your “due diligence” you would have found the Housing Bubble Blog about 12 months ago, where a chorus of contrairian thinkers were presenting facts about the real estate bubble that should have given any analyist and any builder a moment to reflect on what might happen based on the history of cycles and the facts that were being manipulated by the media and the NAR. In your arrogance, you said “screw you” to anyone who issued a warning sign. And here is what I have to say to your plight now “Kiss My A$$”
Unbelievable!! More Real Estate Industry Propaganda, this time from the Center of Real Estate Studies at the University of Florida–
“GAINESVILLE, Fla. — Hopeful home buyers in Florida should not wait. The price is right as the state’s single-family residential housing market bottoms out, according to a University of Florida study released today.”
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” said Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
archerw@ufl.edu
Here is this idiots email. Here is what I sent this clown:
Shame on you…
And your organization if this quote is actually in context:
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” said Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
If so you should be ashamed of yourself for spewing such lies. You do know that google caches every quote/statement you make so there will always be a history of your lies and BS. You should be embarrassed by your actions regarding the RE bubble.
Shame on you!
Gainesville is at least an hour’s drive from a settlement of more than 20,000 people. The low end of the market is packed into trailer parks. Only a madman would own apartments that were not immediately under their nose in order to supervise and astonishingly immature and hedonistic student population.
Real estate has gone up 3X in the last ten years… guess where it is going in the next three… back to negative territory after inflation is factored in!!!
Ha ha ha… still drinking a bit of koolaid, eh Tulkinghorn? Unless we have massive inflation in the next several years, we will be in negative territory without taking inflation into account.
“UF’s Bergstrom Center for Real Estate Studies.”
These shills for the RE industry can join their Harvard pals at the Joint Center for Housing and their brethern at George Mason U.
All of them are in the business of delivering info that will cushion any threat to the housing industry. The have the same credibility as the Tobacco Institute set up by the big cigarette makers.
Screw ‘em.
Unbelievable!! More Real Estate Industry Propaganda, this time from the Center of Real Estate Studies at the University of Florida–
“GAINESVILLE, Fla. — Hopeful home buyers in Florida should not wait. The price is right as the state’s single-family residential housing market bottoms out, according to a University of Florida study released today.”
http://www.cba.ufl.edu/fire/docs/news_Housing03_02_07.pdf
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” said Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
You might want to check out who the major donors are for UF’s Bergstrom Center “study”. You may find a list similar to UCLA Anderson’s–packed with REIC companies and banksters.
Obvious now, but when Ben started this blog that was THE topic, and it was fiercely debated and doubted.
During the Soviet era in Russia, in the 1970’s, the commisar in charge of the state manufacture of shoes had a dilemna, he was told he needed to increase production, yet, he had not enough leather, to be able to do the job…
So instead of making 500,000 shoes in normal adult sizes, he produced 1,000,000 shoes, all in the smallest ladies size, thus making his quota.
We’ve produced the equivilent of 1,000,000 of that smallest size of ladies shoe, in a financial sense, with the brave new world of “We have found neighborhoods with abandonded homes, 200 at a shot” leading the charge~
aladinsane,
I recall also reading a story about nail production in the former USSR. Bigger nails are obviously easier to make than smaller nails and as one could have easily guessed, there was a shortage of small nails yet large nails were in abundant supply. The issue was investigated and I remember reading that the study concluded that if possible, a Russian would make a single 10,000 pound nail and be done with his quota. What the MSM failed to mention and what took me several years to realize after reading the article (I was in high school then) was that the real culprit was state planning. What Americans don’t realize is that we have had the exact same type of Soviet era state planning in our financial economy thanks to Commisar Greenspan and gang. That same sort of attempt to defy market forces will leave us in the exact same position as the state planners left the Soviets. How ironic that we are so similar to our cold war advesary yet purport to be so different!
frcp et al:
Here’s a downright astonishing appraisal of the collapse of the Soviet Union, vs what a former resident, sees coming our way, and his thoughts on how we’ll do, vs a much better prepared Russia of 18 years ago~
Dmitry Orlov is his name.
http://www.energybulletin.net/23259.html
Thanks for the link. The scary thing, is I have heard other former Soviet Union residents say the same thing. That conditions in the USA in 2007 are remarkably similar to the Soviet Union before its collapse.
you mean, surrounded by the highest level of prosperity in human history? I didn’t realize the Russians experienced that before the fall.
bradness:
We save at a negative rate of 1%, thus, if we have any do re mi, we spend it just as quick as we get it, as a society @ large.
We are indeed “prosperous” in that we all seem to have garage fulls of crap, and some of us have to resort to renting more space, for yet more crap.
The USSR was a backwards ass hellhole prior to its collapse. The USA is a technological, financial, agricultural, industrial and military superpower. Regardless of any coming housing collapse, it will always remain so.
Exactly.
All you loony bins: give it a rest, will ya?
“Always” is a long time.
If you’re fortunate enough to live another 30 years, you’ll see a serious decline in US power, influence, and affluence.
I agree with creamofthe. That’s why I’m so happy with my Brazil bonds and Australian stuff. I don’t think US will collapse abruptly like Soviet Union, at least not in the near term. More like decline of Britain over some number of decades.
I have seen the standard of living drop from #1 to #7 (and early projections [2006] are now #14) over the last 30 years and I see nothing to prevent a continuing drop in the standard of living. Every baltic state as well as Japan and the major euro nations have a higher standard of living. many socio economists expect to see a diminishing life expectancy iin the US.
I don’t think US will collapse abruptly like Soviet Union, at least not in the near term. More like decline of Britain over some number of decades.
I’m vacationing in Britain as I write this. In some ways I feel like a third-world citizen, given the exchange rate of nearly $2 to the pound. Everything here (not just housing, but certainly that) is about twice as expensive as it is in San Francisco. The purchasing power of the British is phenomenal - no wonder they come to places like New York and San Francisco for “inexpensive” vacations. They’re obviously doing something right.
85% of our citizenry has no passport, thus they’ve never been anywhere, outside of perhaps Canada and Mexico…
Most, if not all of the industrialized world has caught up and passed us by, in terms of lifestyle.
Most, if not all of the industrialized world has caught up and passed us by, in terms of lifestyle.
Specifics please.
Most children would not have a passport. Most old people would have no passport because they traveled in their younger years. Everyone on welfare would have no passport. All legal aliens and illegal aliens would not have a passport. That cuts out a large chunk of the population. As for me, I’m 33 and I just got a passport last year. I didn’t have money to travel to Europe or Japan when I was younger or when I was in college getting my graduate degree. Anyway, a passport and travelling does not mean that you are superior to other humans (Paris Hilton).
Our standard of living is not that bad, but it is going down. There is no doubt of that.
jerry,
a-insane is one of this blog’s resident self-hating Americans. He has posted his anti-American sentiments before. I clearly remember one day on which his sweeping generalizations were shot down both by European posters and well-traveled American bloggers.
His factoid about 85% of Americans not having a passport is pretty meaningless. My passport is expired. Technically, I don’t have a passport. I’ve had one since the age of 15. Some of us are regular travelers abroad, and to say the least, disagree with a-insane’s conclusions about the USA “lifestyle” somehow being inferior to his paradisical vision of the rest of the world.
I served on the USS Yorktown, a guided missile cruiser that was decommissioned last year. In ‘92 we participated in Operation Northern Handshake which meant we visited Svermorsk, headquarters for the Russian Northern Fleet. Their fleet was in shambles. The Kirov had no propellers because they were stuck in some shipyard and not being tended to on account of the shipyard workers not having been paid in months. There were ships sunk at the pier and generally, there was no money for any sort of operations at all. But the physical state of their Navy was sharply contrasted with the character of the people. It was readily apparent that Russians are used to hardship and they have the “mettle” to survive a lot. Americans on the other hand really are soft and weak. Some are not soft, re: our soldiers and Marines. But many of us would go into an immediate tailspin if the local supermarket suddenly ran out of food. Or there was no gas available. Or a secret police kept tabs on private communications (that’s on our way with Bush’s war on American citizens). The Russians might have collapsed economically, but they had the advantage of a tough and hardened people to survive. Americans on the other hand have to experience the economic hardship and relearn how to be tough. That’s a lot of maturing to do in such a short period of time. Picture how the Russians would have handled a Katrina and then look at Americans. Do you think there would have been all the rapes, murders and general lawlessness in the Superdome had it been Russians? Enough said.
I think that part of a good retirement plan is keeping yourself in top condition so as to avoid (1) the expense and (2) subjecting yourself to healthcare system unless you absolutely have to. Unfortunately, most everyone is addicted to comfort so that’s not feasible.
I am in total agreement…
We are in for the biggest shock of our lives and in total denial.
Today on drudge, the breaking news was about katie couric~
I’ve done everything I can to prepare myself and what I think, will be dozens of family and friends that will be able to live on our 10 acres away from the maddening crowd, with multiple fresh water sources and plenty of room to grow stuff. We live in the midst of around 2,000 head of grass fed cattle and buy 1/2 a cow and keep it in the deep freeze. I’ve bought boucoup canned food, more with an eye to the 10/09 expiration date, than anything else. Rice is giveaway cheap, $7 for a 20 pound bag.
For me the X factor that I have no idea will pan out, is the hundreds of millions of guns in the hands of people, with a sense of false entitlement and a mouth full of hunger?
“Do you think there would have been all the rapes, murders and general lawlessness in the Superdome had it been Russians? Enough said.”
Hmm, that never happened in the Dome. It was just the rumor mill going full blast and nothing more.
Roidy
P.S. I know 9th ward people. If that had been going on they would have stopped it, and the perps would have been none to nicely treated.
Health care and health maintenance (not the HMO variety, I mean maintaining a healthy living) are two things completely lost in our society of government “protection.” We as a country really believe that the mother state would never allow an unsafe drugs to be marketed or allow unsafe pesticides or unsafe food processing methods to be used in food production. The Russians never really believed the pious dream of true communism. Americans, however, are so content to gorge themselves on whatever line of BS that comes stamped with the seal of the Federal government on it or the seal of the Federal Reserve. There is little to no effort whatsoever to critically evaluate and draw their own conclusions. The Russians had no blogs or freedom of the press, so what’s our excuse?
“I think that part of a good retirement plan is keeping yourself in top condition”
Great advice txchick, probably the best I’ve read here yet. Seriously, if you don’t have your health - what do you have?
Were all a little comfortably numb, some moreso than others.
“Were all a little comfortably numb”
You do indeed dig that classic rock.
Ted Nugent accidentally penned the name for our saga, about 26 odd years ago, with perhaps the best named album ever… (for the record, i’m no Nugent fan)
The title?
“Intensities in 10 cities”
How about Wango Tango Uniform?
Hey! I resemble that remark!
““Do you think there would have been all the rapes, murders and general lawlessness in the Superdome had it been Russians? Enough said.” Hmm, that never happened in the Dome. It was just the rumor mill going full blast and nothing more.”
Roidy is correct. I have a friend who got stranded in New Orleans (flew in Friday, tried to leave Saturday - no planes leaving, only arriving - no bus service - no train service - very very screwed up system.) Spent four days in horribly uncomfortable conditions. However, no murders, no rapes, no fights, people sharing what they had. He heard about one attack but could never confirm it. Could not believe the reports coming out because he did not see any of it. Be very careful about the “facts” you believe.
we’re moving toward their model w free-er healthcare and subsidies for all
I’m scared to death of doctors, hospitals and needles so I am highly incentivized to do what I have to do to avoid. I understand that sometimes genetic things happen and you have no control, thankfully not to me (yet). But I have friends who are medmal plaintiff lawyers and the stories would scare anyone.
Right on, TxChick! I am also scared of the same medical things that you are. And about keeping yourself in good health as a retirement plan, good point. My father did just that. He’s still going strong at 82. And working.
Here also…
I’ve backpacked the Sierra for almost 25 years now and I always pop a smile when I see a 72 year old backpacker, on the trail, as it’s how I see myself, 30 years from now.
Fit, Vital and Able is a good way to go through this game we call life.
aladinsane, when catastrophe strikes, we will all need people like you. I hope you keep visiting this blog (will we still have electricity?)
We are spending some fiat moolah, putting in solar, and as long as satelites still fly, (back off China!) I should be around.
Good, someone has to make it.
That was a pretty insightful link.
I have to say one reason behind my taking my home off the market last year was that I was afraid the tin foil hatters might be onto something. If I rented I had to rely on the system for our food. Here I can have my cow/goat and grow my own veggies….Strawberries and apples are grown down the street. I just need a damn good freezer.
The one thing that does scare me about staying out here for the long haul is that if the internet had a problem, we’d be pretty isolated as far as information….at least the town is full of doctors, nurses and teachers, and there is the college.
My husbands picking up his rifle this summer….he’s doing it cuz he wants to; I’m thinking phew! another hedge skill.
Who ever knew when I was enjoying soirees at the Boston Copley that that same young girl would one day be hedging her bets for something like this….and those NH outdoor skills would come in handy again. Unbelievable!
frcp, in spirit I agree with you. The Russians are indeed a tough, hardened bunch. However, based on what I’ve seen from the recent arrivals in this country, the law is such a joke to them that much of their suvival depends on cold blooded victimization. I’m not going to get into a philosophical discussion of why that is and the right and wrong of it. We had Russian neighbors, one of whom had a real estate license. I have no doubt in my mind that despite the outward smiles, had I listed my home with them, I would have found myself trapped in a nightmare of intimidation and criminal maneuvers.
We are a nation of laws where the laws are breaking down fast, from the top to the bottom. Many of the recent immigrants, both legal and illegal, from all different countries, have not had the luxury of living in a nation of laws, ever. In our rush to “globalize”, we’ve left ourselves open to these people without understanding the “business model” on which they survive. But I do know that for many of them, “decency” is a luxury they can’t afford and “win-win” is not part of their lexicon. I am not making a moral evaluation here, but a practical one.
“I just need a damn good freezer.”
Drying and canning and a good root cellar is a better bet, if the grid breaks down.
“Drying and canning and a good root cellar is a better bet, if the grid breaks down. ”
Nah… invest in solar
“I do know that for many of them, “decency” is a luxury they can’t afford and “win-win” is not part of their lexicon. I am not making a moral evaluation here, but a practical one.”
Palmetto, this jibes with my experience. And of course, with amnesty on the table, and the failure to enforce immigration laws, we have trained them to view American laws as optional. If Bank of America extends cc to illegals, and states offer benefits and homeowner programs, and using false ss numbers and other fraudulent documentation is not punished, then why should they believe that we are a nation of laws? The question is are we really, and if so, for how long.
That is an American hating anti-oil kook website.
The doom and gloomer enviroweenies claimed we were at peak oil 30 years ago. Technology continues to find and exploit new fields for gas and oil that were unreachable just 10 years ago.
The article was part survivalist, booga booga try to scare you while claiming the US is anywhere similar to the USSR of the 1980s. Utter garbage. Is the US vulnerable to a systemic technological and financial shutdown if there is a major interruption in fuel supplies or due to some other major catastrophic event like a nuclear attack? Yes, and so is the rest of the world. So what. New Orleans was effectivley wiped off the map, Port Fouchon and the LOOP terminal was baddle rattled by a CAT4 storm. We are still here and oil prices are far off their speculative highs.
Do I agree that petroleum and gas sources are finite? Yes. But high prices and diminishing supply will force technological invention and change to other energy sources, most likely a resurgence in nuclear power.
You were close. We peaked in 1970.
Peak Oil is trustworthy, in that one can only see it, in hindsight, years after the fact.
Our local oil production is around 1/2 of what it was, 37 years ago.
Nuclear is all we’ll have left, as our electrical grid is powered largely by fossil fuels.
If one were to be brutally honest with him/herself, the parallels between the soviet leadership and the current crime syndicate running the U.S is scary. Very scary.
The sharade has worked well…
Keyword: CHARADE
Aladinsane, by the looks of your posts, you appear to be an end-time gloom and doomer. I’m a bear but I don’t see the hard times you do. Not to say we couldn’t use a good dose of truthful economics (no more soviet style central planning by the fed reserve, treasury, and whitehouse) but I don’t see it.
Kane,
Call we what you’d like, i’ll be laughing in the hills…
What sort of future do we really deserve, based upon past performance?
I do not disagree. As stated, a dose of reality would go along way and I welcome it. I just don’t think it will happen as the Fed in conjunction with the crime syndicate running the WhiteHouse will do anything do preclude a 1930’s meltdown which is what you’re talking about.
Here’s my scenario:
The prices of houses fall back to a reality based level, that coincides with what our citizenry, (and much of the rest of the industrialized world, save the Germanic speaking countries, which haven’t participated in the housing bubble) is truly capable of earning.
In my mind, it means that if you own a house in L.A., it’s “really” worth $100k, Phoenix, maybe $50k, Vegas, fugggedabout it.
Almost the entire individual wealth of our country consists of real estate wealth (poof!)
p.s.:
That’s the deflationary model. You don’t want to see the hyperinflation version, 2.007
I’m with your scenario and I think that is possible. I hope it happens. No I’m not interested in buying a house (thank you RealtWhore) but some hard truth and reality struck right between the eyes of everyone would be nice. I’m so friggin fed up with the happytalk that now sounds like StupidTalk from retards who say “my house went up in value 50/yr over the last 5 years”. Dumb asses……
Kane
Crime syndicate?
Moon battery is non-flattering, and diminshes your attempt at a comparison.
Interesting but I don’t think freeing all prisoners is a good idea, most of his solutions are silly like that. But yes the Soviets were tough and made it . Hope we in the USA don’t have to although one could say the great depression in 1930’s was similair ? I think a sub prime housing blow up is not a full scale depression.
“At its peak Maribella Mortgage had 125 employees, operations in Chicago and Milwaukee… and Maribella’s Edina headquarters are empty now but for three remaining employees.”
I remember these guys. They used to show up at the same restaraunt for fish fry fridays. They were players in the massive condo-craze building on the Mil-Yuk-ee River. hmmm… maybe now they’re my waiters? lol
Mil-Yuk-ee River
I haven’t heard that in years! LMAO! I remember now!
Who wants to live on the river anyway? The only thing more ridiculous than that is “New Condos on the old industrial wasteland of the Detroit River” in beautiful Downtown Detroit, MI…from the mid $200’s. What a deal!!!
Was looking at a home decor magazine in the dentist office the other day. It was a current issue (March 2007) Feature story the loft market in Detroit. All the blather on how people want to live the urban life blah, blah, blah - no commute, walk to restaurants, culture events…Many of the condos are bought by people who use them to entertain when they come to the city. Guess suburban living still much safer. Some of the prices were $1 million. I have never been to Detroit but to other rust belt cities. A milllion for a downtown apartment in a semi dead city! To quote one of the posters on Ben’s Blug : no bubble here move along folks. A few days after seeing the magazine saw a USA Today story about someone in Detroit beat to death or within inches of his life. His description sounded like the urban pioneer demographic. It was a randon crime the guy got off the bus and was beaten. Guess the boys in the hood had nothing better to amuse themselves with that day.
“‘If there was fraud, we were a victim,’ he said.”
I call “Pant’s onFire”!
“At its peak Maribella Mortgage had 125 employees, operations in Chicago and Milwaukee and investors eager for the subprime mortgages it bundled together at $20 million to $50 million a pop.”
“Maribella’s Edina headquarters are empty now but for three remaining employees.
COMING TO A HOUSING MARKET NEAR YOU IN 2007
“‘If there was fraud, we were a victim,’ he said.”
There it is. The anthem of 2007. Everybody’s a victim.
Be ready for all manner of reality shows, news specials, book deals, etc. It’s the new Katrina.
Exactly. Makes me sick. If these lenders had done any due diligence rather than rubber stamping loans, they would have found most if not all of the fraud. Victims my a$$.
I’m afraid you’re right though, we’re going to see these tards all over the media crying about how they were taken advantage of. Reminds me of all the people in FL following the ‘00 election: “I’m too stupid to vote, somebody help me!” I better get some blood pressure medicine just in case, because I’m going through the roof when this hits Oprah.
Next up…Bono doing a concert for the mortgage “victims”.
“Maribella employees who bought home loans from mortgage brokers diligently checked documents for fraud. Nonetheless, people lied about incomes and inflated home values.”
You are now lying again. What a joke. They knew this shit was going on. They all did. Now comes the coverup…
NO NO NO THEY REALLY DID NOT KNOW THIS…. WHY C&C?????
Ever talked to a loan offer?
DUMB little chicky poos and clueless gamers….. HIRE THEM DUMB, so they dont ask questions……
Sorry but that is why i call this “THE MORON GENERATION”!!!!
I have talked to many. They claim “everyone is doing” (fraud) so it must be ok.
“DUMB little chicky poos and clueless gamers”
Spot on for the most part. A couple of intelligent ones post here, but I must say that whenever I have met realtors or loan officers I have been less than impressed. Actually that applies to the title business as well. I guess it is because the field requires so little in terms of education and training. I was at a bbq last summer and a number of the guests were female realtors. They were all really good looking, but man were they dimwhits. I would bet my next paycheck that none of them had college degrees, and maybe not even HS diplomas in a couple of cases. Lots of jewelry and expensive handbags, big shiny rims on their Escalades and Beemers, etc. When they spoke, you could immediately tell they were not refined in any fashion; more like ghetto playing at success.
You know, if we were able to bust out of our “sue somebody society”, as a result of the unfolding mess, i’d be ok with it~
“You know, if we were able to bust out of our “sue somebody society”, as a result of the unfolding mess, i’d be ok with it~ ”
You’re funny! We’re going to go further into that type of society. People will now say, “I got duped into taking that liar loan.” or “I’m not responsible, you loaned me the money” or “My real estate agent lied to me.”
All with juries that will eat it up like candy.
Once you seen a civil society that refuses to allow ruinous lawsuits to be the law of the land, it changes your mind a bit…
Last year in New Zealand, we saw many motels with trampolines and swimming pools, with diving boards and slides.
Just like when I was 7 years old, back in the Golden Age of our country.
“Once you seen a civil society that refuses to allow ruinous lawsuits to be the law of the land, it changes your mind a bit…”
The majority of our lawmakers have made their living by filing those ruinous lawsuits. What makes you think they’d ever overturn the rules that made them riches?
Much of the fighting is done over who pays for . . . medical bills and ongoing medical expenses from injuries.
If we had universal healthcare, there would be far fewer lawsuits.
“If we had universal healthcare, there would be far fewer lawsuits.”
I want what you’re on. How many “medical bills” are really the issue? It’s the pain and suffering/punitive damages that drive up the final $ettlement/verdict.
Also bankruptcy - a lot of medical cost-shifting happens when people file bk, and other debts get wiped out too.
If so much cost is being covered anyway, just suck it up and pay for universal coverage.
I love the ads on TV which asks if your baby was born with certain conditions. They are trying to find “victims” in order to sue doctors for birth defects. No questions about Mom’s smoking, family history, Dad’s cocaine use, either’s drinking, diet, exercise patterns, drug use or other risk behaviors. Nope, if your child was born “wrong” sue the doctor!
The world was better when lawyers couldn’t advertise on TV. (And I am all for free speech - it should be legal - it just isn’t better.)
That said the medical industry needs to clean up its act too - $500 for a ten minute exam and prescription is ridiculous.
think of the Three Blind Mice tune and sing it: Sue Whine Blame …. See how they cry, See how they cry. Has a ring to it that fits so many these days.
Kinda like this:
http://www.boston.com/realestate/news/articles/2007/03/07/cape_couple_wins_a_round_against_subprime_lender/
..
..
Interesting- they filed this in the business docket, so they may have a sound case after all. Van Gestel’s is known as the ‘rocket docket’ - not the place I would consider going to for a consumer protection case unless I knew I was going to win, because the cost of defense will be limited.
If they did not get the required disclosures, they may prevail on a ‘fraud in the execution’ theory.
“‘Builders like Hovnanian got blindsided,’ said analyst Alex Barron. ‘There was a frenzy of buying and selling that caused prices to rise dramatically, as much as 30 percent a year in Florida at the peak. Now it seems the homebuilders got caught selling to speculators.’”
NOW! What a suprprising revelation Mr. Barron — there was speculation in Florida Real Estate. This happens when you stick your head in the sand and suspend disbelief.
Another group joins the rank of “Victims”:
“the homebuilders got caught selling to speculators”
Hovnanian: cancellations exceeded the number of homes bought
I’m not in the homebuilding buisness but that doesn’t sound good.
“‘These firms that rely on funding mechanisms like securitizations are like sharks — if they stop moving they die,’ Mason added.”
beautiful.
and works on so many levels.
Isn’t that exagerated biology? I thought sharks just sink when they stop swimming - couldn’t they sink to the ground instead of dying?
They need water flow over their gills - but some sharks do indeed sleep on the bottom of the ocean - but currents provide the water motion.
Agree, the word “VICTIM” will be everywhere on the sub-prime issue
No doubt we will soon be hearing socialist-style “lets pass a law” alleged solutions from the Presidential candidates
The reality is: ok companies are greedy and some engage in fraud, then prosecute them, however many borrowers were idiots, asian savers for various reasons have been happy investing in massive american consumption , however americans continue to whine about having too little
Of course it was a bubble, and it was led by a credit bubble - and prices will adjust, and maybe next time some of the borrowers will wise up
“…maybe next time some of the borrowers will wise up”
Harry, you’re a riot. Why would borrowers wise up? We live in a society where people blame everyone else for their problems. Why would they suddenly get smart?
Who else wants to take a stab at how many years go by before this who scenario (meaning the housing bubble) plays out again?
I say 7. And, I bet the same big actors will push the same subprime loose lending practices just so they can make a buck without regard for the consequences.
That’s what this society has become, “I got mine.”
Sorry for the glumness today. Bad mood.
Homebuilders such as Hovnanian are struggling as inventories of unsold properties swell while speculators, who propelled the five-year home boom in places like Florida, cancel contracts and drop out of the market.
It’s not just Florida. Friends of mine who bought (at peak, ouch) at a Hovnanian development up in Maryland last year are seeing their new neighbors coming in with very negotiated deals. What was selling for over $300k last year is now going for mid-$200k range now. That’s a drastic price change in six months — and for the very same product!
In fact, my friends need to worry even more than they are already because Hovnanian still owns the majority of lots and buildings in their development, so further price dumping seems unavoidable. Not a worry if you’ve bought in but can afford it and want to stay long term. Unfortunately for the, they can barely afford it and hoped to move on in a year or so after cashing in by flipping their current place. Ha! Slim chance.
This morning’s emails included one from a borrower “looking for a way to get $10-12,000 in equity out of the property” and arguing that the property is probably worth $120K+ (she owes $40K right now). Since I hold the first mortgage, and since she’s paid regularly for a number of years, I don’t mind advancing her $10K, but her argument that so-and-so’s comparable place just sold for $155K doesn’t impress me at all.
NEW down 20%. Guess nobody believes
Well, almost nobody. What a great contrary indicator this guy is:
http://www.thestreet.com/_yahoo/funds/stoptrading/10343303.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
Shill.
LOL!
That link scared me. There was an imbedded ad halfway down the page that said “Try Real Money Silver free”. For a second I thought that whore was actually advocating buying physical silver, not touting his sewage. Thank god I was wrong and he’s still a prostitute.
This guy is economically, politically, legally, and socially deaf. Already the social and economic signs of the housing debacle are evident. What’s more, this thing is about to break wide open on the political/legal front. Governments around the country are writing predatory lending legislation as we speak. Popular revulsion toward the lending industry is mounting. He is a pump and dump retard.
Last nights e-mail mail from New Century;
“We want to apologize for any delays or disruptions in service you may be experiencing due to the instability of the non-prime market. As a valued partner of New Century, we assure you that we are committed to resolving these issues in this challenging environment.
As you all know, our industry is experiencing rapid change. The demand in the secondary market for certain loans has softened considerably, increasing the difficulty for all lenders within our sector. This has created increased pressure in meeting the requirements for our warehouse lines and exit strategies. We are taking certain actions in response to these circumstances.
Today we announced that we are in discussions with lenders and certain other institutions regarding refinancing of our borrowings and other alternatives to obtain additional liquidity to fund the loans we originate.
In order to pursue this opportunity we have elected to suspend new loan submissions effective immediately. We will lift this suspension as soon as we are able to identify a liquidity solution.
During this time, we will continue to fund our approved loans as permitted by our lenders. This includes the prioritization of purchase transactions with the exception of 80/20 Combo and 100% One Loan products.
We thank you for your continued patience and support. Contact your local production center or your account executive with any questions.”
“‘The whole industry has imploded,’ said Maribella co-founder Keith White.”
Funny how the Implode-o-meter has penetrated the industry’s consciousness, and will likely spread to the general public too. I remember reading subprime articles in WSJ using that word twice atleast just this week.
New Century is on the front page of today’s WSJ. Yee-haw!
Funny how the implode o meter came from privateers on cyberspace and not responsible journalists ! We were the ONLY ones to see this coming ! All the economists, builder CEOs, mortgage CEOs, etc. THEY ALL MISSED IT !
Its really ,really funny how much these people are paid and how very poor they are at forecasting anything.
The CEOs may feign astonishment in the media, but they didn’t miss anything. Most of them have been dumping their own stock for a couple years now.
This a.m. I showed implode-o-meter to my 30-something-year-old guy at Merrill. He loved it and hadn’t seen it before.
“Rising mortgage defaults by subprime borrowers may add more than 500,000 homes to a residential real estate market already beset by slumping prices.”
Gulp! And it does not include cancellations and other market bailing maneuvers. Hold your breath. She is going under.
This will be the case all over the country. Those crazy loans contributed to this mess. Now that the borrower is screwed, they’re are going to be keys left on counters everywhere you look.
These REIC Piranhas had a great feast on the red meat of Greedy and Stupid Buyers for the last few years. Now that the last of the Free Lunch Sheeple have been devoured and Common Sense and Economics 101 has pulled plug in their Dream House cesspool, perhaps they will EAT each other when the FED’s finally come fishing .
“investors fear that C-Bass may try to negotiate a lower price or back out of the deal”
Dumb & Dumber.
“Kick his ass C-bass!”
You think there’s any chance they’ll come up with some new short term way to hedge these things? I just can’t help being skeptical when I see sentiment going so hard in the opposite direction. We’re supposed to believe they’re just going to abandon this lovely pool of (ephemeral) returns? Or that they’re willing to liquidate here rather than at higher (bullshit) prices?
I don’t think there’s a lot of upside in these assets or the originators; just downside risk.
Remember Robertson Stephens, the high-flying tech i-bank? They sold to BofA, made a ton of money, underperformed . . . sold to Fleet Bank, made a ton of money (again) . . . Fleet enjoyed the hefty returns from the business during the go-go tech bubble.
But once the implosion happened, what did they do? They shut Robbie down. Fired everyone and closed the doors.
Why? They made a ton of money, but blew their brand name and were about to be sunk under waves of investor lawsuits. Pull the plug, dry your hands, and walk away.
I think that’s analagous, in some ways, to the present situation. Even if you want to play in this space, why do it with a legacy corporation saddled with massive potential liability? Might as well buid a new house for yourself on an abandoned mercury factory; sure it’s “cheap” now, but you better believe that the true costs are coming down the road.
“Chances are the Fed will stay hawkish on inflation in spite of the harm to weak borrowers.”
I’ll believe it when I see it. How can they when more than 70% of this wondrous NEW economy depends on consumption - MUCH of it from the economically marginal?
A quick anecdote that told me we were in trouble years ago:
1999 - as a mechanic at ORD I remember riding the employee bus and watching as it picked up various workers. You could tell who had what job by their uniform of course. We stopped and picked up a first officer who ran to the bus from his old Ford Escort hatchback. A few moments later a baggage handler ran to the bus after closing the door on his new Lexus. Yeah, we’re boned.
Waddya wanna bet that the baggage handler had a pharmaceutical dealin’ business on the side?
Well Slim, hard to make that Lexus or house payment from a “goverment three hots and a cot” room that follows most of those “sideline” jobs.
What does this mean for corporate profits?
Current stock prices are supported by market innovations to beat Karl Marx’s “contradiction” — that every business can make more money by paying ITS workers less, but then business in general has to turn around and sell things to those same workers. Profits have soared as workers borrowed the difference — using homes as collateral, evidently.
Exactly, WT - to put it succinctly - we’ve been runnin’ on fumes. The fumes being the savings of previous generations of savers. While no one can predict how this particular episode will play out - one thing is for sure, we’re taking another step to some kind of reckoning. Especially when so many fell over themselves to cash out hard won equity for mere baubles.
I lived in an apartment a few years ago, where it seemed like everyone had a Lexus or a BMW. It was a nice part of town, but the place was not high end. The roofer who lived next to me had a brand new truck and a 7 series beemer. A guy who “worked construction”, but I’m pretty sure just sold dope had a high end BMW. I was the odd man out with my Corolla.
You’ve got that right, Lionel! The nicest cars around these parts are driven by those in the illicit pharmaceutical sector.
And talk about stupid. The drug-thug criminals like to drive around, blasting their bassmaster-boom stereos at top volume. Nothing like calling attention to yourself while engaged in drug trafficking.
“Nonetheless, people lied about incomes and inflated home values. He estimates that about 5 percent of his buybacks involved some kind of fraud.”
You mean you not only didn’t verify their incomes, you also let them pick their own home values? Right. You should be able to make a bundle suing all your customers for that.
5% ?????
Now there is an underestimation if I ever did see one.
We’re seeing lots about sub-prime. What about people with good credit who qualified on teaser rates that are resetting, or people with good credit that lied about their income to qualify. Presumably neither of these categories will qualify for a 30-year fixed under the stricter standards, and if their home value hasn’t grown. Aren’t there a large number of 2004-2006 buyers in these categories? Or are all teaser-rate and/or no-doc loans considered sub-prime?
This to me is the question of the year. I’d guess many of us interested readers/lurkers would love to hear from someone in the biz what actually makes a loan/borrower “subprime,” “Alt-A” or “prime.” Are these loan categories based solely on the borrowers’ credit scores?
Obviously people with 580 FICOs who took out Pick-A-Payment 2-year ARMs at 103% LTV are going to be screwed. That’s what’s happening now. I’d like to know if people with say 750 FICOs who played the same scale of leverage are considered “prime” or what.
This is the question on my mind as well. Common sense says that with affordability at an all time low, but home sales at a high, a significant percentage of borrowers who would be considered “prime” who bought in the past few years were put into loans that they truly couldn’t afford in order to buy the unaffordable house.
A 720 FICO doesn’t automatically mean you can make the payments on an $800k mortgage. I suspect on average, the overextended “prime” borrower will hold on a bit longer, but there will eventually be significant pain in the prime markets as well.
For the mortgage brokers (and ex-mortgage brokers) out there, any sense as to the percentage of “prime” borrowers who used exotic loan programs to buy their homes?
Here’s the cliff notes:
“Prime” is great credit with sane loans
“Alt-A” is great credit with toxic loans
“Sub-prime” is everything else
They don’t call them liar loans for no reason. I much prefer the No Doc loan. You don’t even have to lie about those.
How will subprime bleed over into Prime? Several ways. House prices drop so those with good credit who bought ten houses are screwed. But with more people losing homes, rents will go up. You will see investment and hedges perhaps buy all this distressed inventory and complete it for rentals??
Not sure where this will go from here. All I know is I’m not buying… not even close to buying.. yet…
Rents will not go up. Rents are going to go down
They are already dropping in bubble areas. Below $.50/sf in Sacramento. Section 8 welcome! In 1993, we had lots of apartment foreclsoures. The 1986 tax reform act was the first blow, but rising costs, lower rents and dropping occupancies caused the 1990-1996 bubble finished them off rapidly. Sell apartment REITS.
Cramer said NEW was a BUY!!!! BOOOOYAAAAAAAA
Oh wait,, TIMBERRRRRRR
lmao
Yes, ..and on CNBC this morn the guy at MerillLynch? was called on him saying day before yesterday NEW was a hold…Experts ~Pffft*.
…Hold this…..
In the interest of fairness, Cramer has been saying for a few days now that one shouldn’t touch the sub-primes. Admittedly that’s a day late and a dollar short.
Yesterday he was hawking payday lenders and pawnbrokers. The next hot sector. Ha ha.
I call BS on Cramer - one week before the subprime mortgage debacle he was saying buy. Just last month he said the worst in the housing was over and listed a few home builders as buys and as take over candidates. I finally felt safe shorting Horton, Toll and others. Cramer has a horrible track record. His claim to fame was his massive bull call in 1996. His claim to shame was his bull calls from May 2000 to March 2001. And when he finally reversed his bull position the NASDAQ was down 80+%
Some heavy duty AUSTERITY better be a primary governing principal and keyword for American Families, Corporations and the Gov’t if they are to survive the economic fallout of this Housing Bomb
(quote) “Implosion” (quote)”.
Oh..and Dad, gas is already up over $3.00 a gallon for when your teenage daughter makes the daily SUV run from your McMansion to the Mall for that new and improved lip gloss to impress the boys. Good Luck with that ONE !
“Sub-prime” as a category includes much more than just tradional “disadvantaged” categories (e.g inner city single mothers) - that category we will soon be hearing OPRAH and all the Politicians playing the violins for
It overlaps with “no doc/stated income loans, downpayment loans via various mortagage vehicles, as well as option ARMS (neg equity) and the other 900 varieties -etc and many other categories - all basically higher risk and certainly much higher risk than would have been tolerated 20 to 30 years back
So in effect thee Yuppie couple making 150k and buying that 900k brand new oversized house (they had no business buying in the 1st place) - who ended up getting a downpayment loan along with an option ARM - who then defaults - will soon be tagged another “VICTIM”
will soon be tagged another “VICTIM”
I’m feeling sorry for them already. I think the new BK laws should be scrapped and remade. Let’s make them truely “liquidate” if they want to file. I want everything except the clothes on your back for now. Send me the clothes by the end of the week and we’ll issue you a government barrel.
LIBOR 1 month 5.32
LIBOR 2 months 5.33
LIBOR 3 months 5.34
LIBOR 6 months 5.29688
Rates holding steady - no relief in site for the resets…
Add a big spread of 200-500bps and you have the rates.
With volumes continueing to plumet, at some point very soon when tightening for quality does not generate enough new business(Investor purchasing) and more players shake out the few left will increase spreads. Once the first does, more will follow. The historic norm on spreads will crush the market.
In tune with your comment and what I learned this week. A friend of mine bought 2 years ago and he was bragging about how his mortgage was less than his rent. Now, what bugged me, is we talked about the housing market over our workout and golf outings, plus I own a building supply company in Florida, and I’m an ex-finance guy who follows markets–so I’m at least informed.
So, he and his wife buy at the peak in ‘04; arm, no money down.
His arm adjusts this April. Of course, he and his wife didn’t bother to read the mortgage papers. They had to have the house.
This week I went online and reviewed the mortgage papers. I’m floored!! His new rate: 7.70 over 6-month Libor. But is capped for the first reset.
The money guys made a fortune on this pos loan. I’m just gonna talk golf when we get together. It’s amazing to me how my friend, after hearing me out for so long, committed financial suicide.
my customers in FL are hurting bad…….how’s biz
Hey flatffplan. I appreciate your posts. Business stinks. However, my costs are mostly variable since my products are custom. My customers buy fancy and custom mouldings and such. So this big boom was good for me say 2002-03. Say in 2000, in Palm Beach, California money and people came to reno and flip. The speculators, when they came, did not bother with decoration. The national home builders are not my customers. Sometimes being lazy and not greedy is a good thing!
Another story. At a New Year’s Eve party, after midnight, me and two other guys talked real estate, late night, for two hours. One of the guys was a mortgage broker. I wasn’t giving advice just b.s.ing. Thought I gave a friend something to think about. Wrong Again. One month ago my girlfriend says you’ll never guess who told me they put an offer on a house, without even selling their first. They are expected to close—Today! I don’t think they will get financed on account they will have to go sub prime. But I wouldn’t be surprised.
7.70 OVER LIBOR!!!!!!???????@@@@!!!!!!
Did they by chance drink the kool-aid offered at the closing table? That might be grounds to challenge the loan if they did.
Hey Bad Andy. He’s a work’n man and she’s a school teacher. They both had previous credit problems. The people they bought from, builder to mortgage rep, from friends to family, all had their palms greased.
7.7% over LIBOR! I don’t know if I’ve ever seen one that high. Even the most ignorant of my acquatainces have perhaps 5 or 6 above it.
If his credit can in any way allow it, he really, really needs to get out now, while “normal” mortgage rates are decent. If he let’s that thing bump along to the adjustment ceilings every year (or six months), he’ll be doomed. Typical ARMs will bump only 2% per year, but if his is adjusting next month, he can go from 6% today to 12% by April 2009. Ouch.
And if it’s only his first reset that’s capped, he’ll have even bigger problems. He knows he has to act on this, right?
“He’s a work’n man and she’s a school teacher.”
Sounds like my situation. I would have never touched a 7.7 over LIBOR. I hesitated when 1.5 was put on the table when I was in MI. I didn’t even bother when we bought our house in FL. We got 30 year fixed at 5.75%.
He knows he has to act on this, right?
I’m not sure what his thinking is. The April adjustment will go to it’s cap limit of %11.87, and then every six months it can be bumped up 1%, to a max limit of 15.87. With two car payments, two young children, I can say his debt to income ratio is not good. I’m only going to give a suggestion if he asks.
“I’m not sure what his thinking is.”
Does it involve rope and a high place?
“I’m floored!! His new rate: 7.70 over 6-month Libor. But is capped for the first reset.”
What?? That has to be capped for more than one year. Or that dude is toast sooner than later.
The first reset cannot exceed 11.87. Quote from public records:
“Before each change date, the Note Holder will calculate my new interest rate by adding 7.770 to the current index. Thereafter,my interest rate will never increase or decrease by any given change date by 1.00% from the rate of interest I have been paying for the preceding months.” The change date is every six-months.
Question to mortgage pros: How much was made by the money guys through the chain, the house cost 160K?
It’s capped over the life. He can get a one point swing either way every six months. FYI it’s a stupid loan for j6pack. But you knew this. The loan broker probably pulled a minimum of 3 points front and back. So $4800 min.
LIBOR plus 1.5% isn’t a bad deal! That’s what I had in MI when I financed on a 3/1 ARM. I sure didn’t take a very big hit when it adjusted. I’m glad to be out of there and instead in my house in FL with a 30 year fixed rate. Anyone adjusting higher than that (most of the GF’s) are in for a real beating.
In retrospect it did seem a bit suspicious (for example) in cases where a no doc/no down payment/option ARM borrower was buying a 400k urban condo, claimed to be making 90k per year as a self-employed “entrepeneur”, when he was actually working as a minimum wage degreaser at Burger King, was borrowing money weekly from the local PAYCHECK LENDER, and still renting his sofa, kitchen table, bed, and TV.
Those facts would be a dead giveway today
“‘We have found neighborhoods with abandoned homes, 200 at a shot,’ said Louise Gissendaner, director of community development in Cleveland at Fifth Third Bancorp, the 10th-biggest U.S. bank by assets. She said abandoned housing has ‘devastated our city to a great degree.’”
No need to worry Louise, I’m sure there’s a bus full of investors headed your way from NYC!
“… I’m sure there’s a bus full of investors headed your way from NYC! ”
NO! The investors are headed over from FL! Cleveland is the next big boom!
SIlly, everyone knows the real investors come on buses from NYC.
“the real investors”
That’s right! The buses from FL carry bagholders.
Wait, is Louise saying that Cleveland is no longer the idyllic paradise it once was?
Cleveland’s a beautiful city! I love what they did with the flats. I espcially love what’s become of the flats since then.
We have found neighborhoods with abandoned homes, 200 at a shot
Given that she is talking about Cleveland, this is probably an improvement.
Yeah, immediately west of downtown is surprisingly nice, the east side of Cleveland was a pit last time I drove through. I can’t believe any of the doctors at the Cleveland Clinic bought up those townhouses they plopped down over there.
The (crazy) “investor bus” full of yuppies headed to Baltimore which was talked about somewhere around 2005 or maybe early 2006 - now that was truely a sign of a market top
Oh yeah. I remember those guys. Back in 2005 or very early 2006, the Philadelphia Daily News had a photo on the front page (for those of you that don’t know about the Philadelphia Daily News, it is a tabloid style paper) of an bus full of New Yorkers visiting Philly to scoop up “cheap” houses that they could flip. I can’t remember the headline.
Every quote in the article went something like “Gee! Houses here in Philly are waaaay cheaper than they are where we live in New York City!”. They were all smug, like they discovered a free pot of gold, or some guys wallet filled with Franklins on the ground. It said they even went door to door in some neighborhoods offering cash for homes.
I would love to see an update now that we are 18 months later in the year 2007.
recent college grads- from liberal arts schools no dought
“no dought”
I think you meant “no dough”
I always loved hearing flippers say that they were grabbing a great deal because the homes in wherever were so much cheaper than their home market. Ummm, did you ever stop to think there might be a reason for that? How frigging stupid do you have to be!
Tim, do you live in center city? I was there today for the flower show, and while I sat looking out a cafe window saw plates from VA, CT, MD (ok all those are normal) - but CA - and a big ol’ F250 from Texas…???
I knew out of staters had propped up our market, but seeing a TX plate really threw me. Our RE is not cheap in comparison.
If others are interested in your potential investment… walk away.
If random people in the same room are interested… run away.
An investment tour bus… is right out.
Mortgage broker friend in Marin/Scottsdale (22 year industry veteran) reports you can still get 100% financing from Wells Fargo w/a 620 credit score, A paper 680. So apparently the door is only shut to the worst credits.
I think the trend is clear, and this door will be open a small crack in six months, the way it way 5 years ago.
“We believe New Century has most likely put up the vast majority of its remaining unencumbered assets [to secure $265 million in financing] and as a result, we believe there will be little if any assets left in the event of liquidation for common shareholders to lay claim to,” J.P. Morgan analysts said in a research note Friday.
Zed’s dead baby, Zed’s dead. So is the gimp who, ironically, is kinda like the FB. Zed and his rent-a-cop buddy being the Sub-prime lenders…
Can’t anyone live within their means.
Back in 1987 when I bought my first house
we had to have 10 % down, 2x’s salary,
and didn’t do any improvements til we had the
cash. But, it wasn’t stressful either, no adjustable rate mortgage, no Heloc, just a small
appreciation……..not bad
Why are they just cracking down on purchase money ? I think they need to tighten up on refinancing also . They should stop “cash out” for bad risk borrowers and have a longer holding period for these borrowers to prove they wil be a good pay.If they want cash out these sub-prime borrowers need to prove they can afford the payment. I don’t mind it if they refinance the loan without cash out to put a borrower on a better loan to save them from BK ,but NO CASH BACk ,until these borrowers prove they are worthy .
The bus is cancelled; try Jet Blue
“…try Jet Blue ”
Off topic, but did you hear they are using an RV mocked up like the inside of one of their planes to market the airline?
In other news, the RV is 95% more likely to get you to your destination on time than the planes.
I just love it when all the housing “paperwork” millionaires quake and shake in the Spring breeze.
“Casey..Are you there ?”
” I’m SHAKING it Boss..Still Shaking it here Boss….”
Cool Hand Luke is my favorite movie!
‘General Electric Co.’s U.S. mortgage unit will curtail lending and fire 460 workers, or 20 percent of staff, amid a rise in defaults by people with poor credit. WMC Mortgage, the fifth-biggest subprime lender in the U.S., this week stopped making mortgages without down payments or to borrowers with credit scores below 600. WMC last year had $33 billion in new loan volume, according to industry newsletter Inside B&C Lending.’
‘We’ve realigned our resources to fit the size of the market,’ said Brandie Young, a spokeswoman for Burbank, California-based WMC. The lender is adjusting underwriting policies amid a ‘fluid market,’ she said.’
Remember the good old days when GE used to make light bulbs and GM used to make cars?
Um, well now GM is in the sub-prime lending business. About 77% of GMAC’s loan ‘folio ($59 billion) is in sub-primes. GM has been moving their metal by offering low, low, low interest rates to all the deadbeats, and now the deadbeats are living up to their reputations; their current default rate is said to be around 14%.
GM sold about 50% of GMAC to Cerberus Cap management, but Cerberus is now asking GM to fund these losses!
Man, it was much better when GM was simply building cars!
^
^
^
forgot to post the source…
March 8, 2007 editorial in The Truth About Cars.com
Ohhhhh WMC is a big hit. They were big on the fog the mirror stuff.
I heard last night that Goldman Sachs has about $265M in New Century. Probably lost it all.
Now we start hearing about WMC. Hmmm… very interesting. I can’t wait for the news on GMAC. I think its going to be a doozey. The $1B number has been floated around, but I suspect that was just a trial balloon. I suspect the number will be more like $2B !
I wonder how many more dark horse mortgage related companies are out there, just waiting to report some big damages and proclaim they couldn’t see it coming.
“Builders like Hovnanian got blindsided,’ said analyst Alex Barron. ‘There was a frenzy of buying and selling that caused prices to rise dramatically, as much as 30 percent a year in Florida at the peak. Now it seems the homebuilders got caught selling to speculators.’”
1. save that nonsense for the Oprah crowd
2. of course the builders understood it, however it wasn’t in their interest (e.g stock price valuation) to acknowledge it, nor in the analysts interest (in many cases) who were recommending riding these stocks to the end
3. “Analysts” making such comments are beyond laughable
4. never has there been any business that paid so much for so much nonsense as the stock investment and management business, and I say this as an “affiliated” party to precisely this business
Maybe Hovnanian did get blindsided:
“‘We made that acquisition an hour and a half from the market peak,’ Hovnanian told the conference on March 6.
Time for a new CEO maybe.
“Time for a new CEO maybe.”
No kidding! And the scary thing is that Hovnanian is not exactly a newcomer to the housing game, he’s been around a long time. Imagine what kinds of purchases were made by the younger, less experienced execs. Some of the land prices paid by the builders were beyond insane.
These PTHD (Post Traumatic House Syndrome) Horror and War stories among the Dazed, Confused and “Blindsided” REIC veterans just tugs at my heart strings. May I suggest free medical care and counselling at taxpayer expense in the nearest Federal Prision for about 10-12 years !
Good News…..in the Tampa Tribune today it says the single- family market has indeed bottomed out and prices are expected to rise
this year. The report from the University of Florida urges potential buyers to act now.
(I guess it means …act dumb now…and buy.
I may have to cancel my subscription.)
What does it suggest they buy with? Bananas?
For the Tampa Tribune story go to TBO.com
It’s the University of Florida that is the brains behind this beauty of a story!
http://www.cba.ufl.edu/fire/docs/news_Housing03_02_07.pdf
The source is a prof by the name of Wayne Archer, who happens to hold the title of “Wachovia Fellow.” Need I say more?
http://tinyurl.com/2hljtx
Business Week:
Mortgage lender Fremont General Corp. disclosed Friday it was unable to estimate the cost of selling its subprime mortgage loan business, adding there is no guarantee of finding a buyer for the troubled unit.
Sizeable selloff on this news. I’m wondering where the next resistance is down. $6???
That jump yesterday on the rumor of several buyer sure looks like pump and dump to me. I was selling short above $8. We’ll see how it behaves from here.
Is “selling” really the right word? It appears as if Fremont is basically going to have pay someone to take its subprime mortgage loan business off it hands. Sounds more like paying a guy to haul your junk to the dump than “selling” a business. We saw this with another subprime lender recently (name escapes me) who had to pay the “buyer” about $6 million at closing.
Reuters via MSN:
New Century Financial Corp. shares plunged further on Friday after analysts said they expect the subprime lender to seek bankruptcy protection soon.
Want a laugh:
New Century kicked off the “New Shade of Blue Chip” brand identity campaign in February 2005, with the message that the company wants to be seen as a modern blue chip company, while striving to become a world-class mortgage company. New Century’s goal is to become one of the top 10 U.S. mortgage companies for volume and one of the top five for revenue. Helping the company reach those goals were two significant milestones near the end of 2005: adding the prime mortgage portfolio of RBC Mortgage to the New Century family in September, and the company’s Wholesale division becoming the number one non-prime wholesale lender, as tracked by National Mortgage News, in the third quarter. In early 2006, New Century acquired Access Lending Corporation of Sugar Land, Texas, to provide warehouse lending services to middle-market residential-mortgage bankers.
“We’ve achieved a lot in our first 10 years,” says Brad Morrice, Vice Chairman, President and COO, New Century Financial Corporation, “but as I like to say, for New Century the best is yet to come!”
From the horse’s mouth!
But wait there’s more:
The company has also been honored for the way it does business, receiving the Ethics in America award from the Passkeys Foundation and Chapman University in 2004. “Over the years, we believe we have earned the reputation with our customers and our investors for delivering results without compromising our values; this is the cornerstone of our corporate culture,” notes Bob. “To articulate that culture, in 2005 we adopted a new brand identity, ‘A New Shade of Blue Chip,’ and created a strategy to help us live up to that brand. We are proud of our results, but just as proud of how those results are achieved.”
Their new 2007 Award:
Ethics in America award from the “Pass-the-keys-back” Foundation and Chapman University”
Isn’t Chapman University where those two married economists reside who claimed there was no bubble and that prices were “affordable” because prices would continue to rise at double digit rates forever?
Yes, and New Century is 7 miles as the crow flies from Chapman in Orange…the circle is small…
If you can’t dazzle em with your brilliance, baffle em with your bullsh@t.
Chapman University ought to worry about its own ethics. It destroyed a lot of business in the area around it so it could buy homes and businesses cheap for expansion. Things like making all the street non-parking so people could not go to their businesses. They shut down my hairdresser who had a great shop but little parking. Suddenly all the parking in the area had red curbs.
Also, CU is a diploma mill. And yes, their economists whistle whatever tune is popular at the time. (Although I thought they had one bear?)
perhaps David Leerah can put this in his pipe and smoke it
Hinsdale, IL
Report Date: 02/16/07
Property Type: Single Family Only
Time Period: Jan 1 to Feb 16 for years 2006 & 2007
2007 Number of Sales: 14
2006 Number of Sales: 29
Comment: Appx 52% fewer sales.
2007 Avg Days on Market: 210
2006 Avg Days on Market: 147
Comment: Appx 42% more days to sell.
2007 Avg Sales Price: $945,000
2006 Avg Sales Price: $1,233,784
Comment: Sale prices are down appx 24%%.
Isn’t “average days on the market” calculated using actual sales? In other words, all the houses that don’t sell don’t count in this number.
Just like the un-employment statistics where you’re not counted if you’ve been out of work for a year.
Statistics is a wonderful thing.
This isn’t the weekend topic post, but I just thought of something.
Will the sub-prime meltdown allow the REIC to lure in more sheep?
Here’s how. It appears that the bottom is about to drop out of the market, which is usually the case in market downturns.
This means a lot fewer sales. But it also means the sales that do go through will be for more expensive houses, possibly pushing the median existing home prices of those that sell UP. Does the NAR count foreclosure auctions in its statistics? If not, it could show rising prices even as the downturn really gets going!
http://www.sddt.com/Finance/article.cfm?SourceCode=20070308cxg
“The number of homes in San Diego County that changed hands in the month of February as a result of foreclosure dipped to 408 compared with 457 in January, according to data released by the county.”
The graph hasn’t been updated yet, but I’m sure this drop is just a blip:
http://www.sddt.com/Finance/graphs/8257f41f2720400bb77ebd024fc.png
Trustee deed: A deed, or document that transfers the title of real estate, passes ownership of real estate in default to the buyer from the guardian of the trust deed. Tracks the movement of foreclosures in San Diego County.
There are a couple of other interesting graphs:
http://www.sddt.com/Finance/graphs/58b87ee52f7fe2592f147506a30.png
Trust deeds (looks like the party’s over):
A transfer of title to real estate or granting of a lien upon real estate of a debtor to his creditor. It is intended as security for the repayment of a loan. Indicates the movement of the number of issued mortgages in San Diego County.
http://www.sddt.com/Finance/graphs/f09e3046809bfba989d491576c4.png
Notices of Default (we’re higher than the mid ’90s now):
A notice recorded to show that the borrower has not made timely payments of interest and principal as required or met other provisions of a bond, mortgage, lease or other contract. Trails the performance of the San Diego County economy because it indicates borrowers cannot pay bills in a timely manner.
Don’t have time to read all the comments right now but, i wanted to post this incase you all haven’t seen it. This community is in the works right now and I did a drive by last weekend. (yes, I was the ONLY looky loo out there) Not a good sign.
http://www.khov.com/Home/HomeFinder/HomeFinderStep3.htm?Region=CASCRM&Brand=KHV&Search_Type=Communities&State=CA
Welcome to Westshore, a convenient and stylish new community planned by K. Hovnanian Homes. Westshore will be located west of El Centro Road, between Arena Boulevard and Del Paso Road in Sacramento’s growing Natomas area.
Westshore features a 26 acre lake, 31 acres of parks and a nature preserve along the south and southwestern borders. These communities will include a variety of home styles, from traditional single-family, to efficient bungalows, half-plexes and an active-adult neighborhood.
Subprime lending
Rising damp
Mar 8th 2007
From The Economist print edition
Will turbulence in America’s subprime mortgage market spread?
LAST November the American publisher of those bright-yellow books that claim to help “dummies” master everything from trigonometry to anger management released “Flipping Houses for Dummies”. It promised to teach would-be property moguls how to “lay the foundation for successful flipping and bring home the bucks”. Four months later, it is the seemingly indomitable housing market that has flipped. One of its main engines of growth, the subprime-mortgage industry, is in free-fall. Where it lands is anyone’s guess.
Subprime-mortgage lenders offer higher rates of interest to borrowers who have blemished credit histories. Almost three dozen of the lenders have gone bust or been sold in recent months, as loans have soured. Late payments swelled to around 12.6% last autumn, according to Morgan Stanley, up from about 7% at the end of 2003. The future for many other lenders looks scarcely brighter. On March 2nd Fremont General, a Californian lender, disclosed plans to dump its subprime business after regulators forced it to stop making loans that violated federal guidelines.
On the same day New Century, another battered lender, said it faced a probe into alleged insider trading. It may not be around long enough to defend itself. The firm, which expects to have lost money in 2006, has breached its contracts with many of the banks that lend it cash for day-to-day operations. The share prices of New Century and its beleaguered subprime brethren plunged on March 5th, the first day of trading after a torrent of bad news, although they later rebounded a bit.
http://economist.com/finance/displaystory.cfm?story_id=8829612
Tampa:
The guy across the street from my Mother’s house abandoned his home last week-packed up and drove off. I think he bought that house in early 2006 or maybe 2005, I will have to look it up. I had considered it since it was near my Mom’s, but thought it was way overpriced.