“This Is Not The End, This Is The Beginning”
Readers suggested a topic on subprime woes. “Is the credit crunching subprime meltdown thingy over OR are we just getting started?”
One replied, “I think we’re just getting started and it is going to get worse before it gets better. A lot worse.”
One looked at the secondary market, “It depends on whether someone with $$$ thinks they can hedge their way around it. They’re probably working on that as we speak. The ‘returns’ are very enticing and institutional investors have high expectations. So many hedge funds depend on this. My guess is a fix will be forthcoming that will ultimately fail too.”
A reply, “Oh, that’s practically a given! It just postpones the pain and makes it worse in the long run by putting it off.”
One brought up who might be affected. “We might explore how far the rings go out from the Sub-prime implosion. Clearly the ‘investors’ who buy the mortgages and package them into mortgage backed securities and sell them are affected. The buyers of the MBS are clearly affected particularly since defunct lenders can’t honor their obligations to re-purchase loans previously sold when they default early.”
“What does the holder of an MBS do when loans default and the originator can’t buy them back? Foreclose on them himself? Does the organizer/packager of the loan pool have an obligation there? How about the pension funds who hold MBS? They are already seriously underfunded in many cases. How about realtors?”
“People who had inadequate income were buying homes. But the lenders are tightening the rules and that will shrink the pool of potential buyers of homes. The surviving lenders will be hit two ways; their originations will decrease with the tighter rules and they are experiencing cash drains as they repurchase the early defaults they sold previously. So even if they somehow survive business ain’t going to be good.”
“I am sure these are just a few of the considerations of what the subprime meltdown means, so let’s discuss it and see what others know about the situation. It truly is the key issue of the day, it seems to me.”
Another asks about a bailout. “Will the ’subprime meltdown’ begin to affect the BIG banks and financial institutions who are involved with securitizations and derivative insurance? If so, are they ‘too big to fail’ and how would they be bailed out? At whose expense? Anyone think there will be some major lawsuits against the ratings agencies?”
The Houston Chronicle. “The easy flow of home loans to borrowers with spotty credit is becoming a memory, as these mortgages become far harder to come by. It used to be that ‘if you breathe and have a Social Security number … you were going to get a house,’ said Mark Cady, executive vice president for Market Street Mortgage.”
“David Starke has experienced the change firsthand. With a credit score below 620 and a recent history of unemployment, he needed a 100 percent financed subprime loan to be able to buy a home.”
“Starke was approved for the loan he wanted late last year, but by the time he decided on a two-bedroom, one-bathroom home near the Heights, his lender said it was no longer offering such loans. His mortgage broker found another lender that would, but warned him that he had to close by Friday, after which the lender will stop offering such loans. Starke closed on Thursday.”
“While he’s found a good-paying job now, and says he needs the tax deductions that come with home ownership, he is still getting over the financial damage caused by two recent stints without a full-time job. ‘I really needed this loan to repair old credit problems,’ Starke said. ‘It will be terrible for people in my situation if they stop making subprime loans.’”
From Reuters. “Countrywide Financial Corp., the largest U.S. mortgage lender, on Friday told its brokers to stop offering borrowers the option of no-money-down home loans, according to a document obtained by Reuters.”
“‘Please get in any deals over 95 LTV (loan-to-value) today!’ Countrywide said late on Friday in an urgent e-mail to brokers. ‘Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12.’”
“The general pullback in credit to riskier borrowers will take a toll on the overall economy, economists at Goldman Sachs Group Inc. said in a research note this week. More cautious lending could cut annual new home purchases by 200,000 units in ‘a relatively conservative scenario,’ the economists wrote.”
“Losses on more than $2.6 billion in loans issued by WMC Mortgage, a Burbank, California-based unit of GE Money Bank, are expected to top 15 percent, the highest projected rate of any bond in the widely watched ABX derivative index of bonds issued in early 2006, a UBS Securities model showed.”
“Thirty-day delinquencies rose to 9.62 percent in February, from less than 2.0 percent six months ago, on WMC’s loans backing one of the 20 bonds in the ABX 06-2 index, according to Morgan Stanley, whose Morgan Stanley ABS Capital I Trust packaged the loans into home equity ABS.”
“WMC issued $21.6 billion in loans last year, making it the ninth-biggest issuer, according to trade publication Inside B&C Lending. In 2003, WMC reportedly originated $8.2 billion. WMC on Friday said it stopped making 100 percent loan-to-value mortgages.”
From Bloomberg. “The nation’s banks are just beginning to feel the pain of defaults on risky mortgages they made at low introductory rates when housing prices were soaring, said U.S. Federal Reserve Governor Susan Bies, who has been the Fed’s top banking policy official in her tenure at the U.S. central bank.”
“‘In the housing markets and bubbles that occurred in some areas, to afford housing, people pushed their limit to afford a house,’ Bies said. ‘And in doing so, lenders tried to create products to meet those demands.’”
“Bies said today banks are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments.”
“‘What’s happening is the front end of this wave of teaser- rate loans that are coming into full pricing,’ Bies said. ‘So what we’re seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning.’”
Bies says “So what we’re seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning.”
What does she mean by “narrow segment”?
Even the idiot Cramer from CNBC says that sub prime are “working class loans”.
Don’t you have to work to be considered working-class?
I’m sure a lot of these loans went to the unemployed and unemployable. The media and Wall St. are about 6 months behind this blog. Go back to September and October and I bet we predicted where we would be at now. I think the meltdown was slated for late summer. The media will be just as shocked at the all-out housing meltdown as they were by the subprime meltdown.
Ho-hum. Just sit back and be right. We predict the future. They can’t even predict the past.
“They can’t even predict the past.”
LOL…good one.
Here is a taste of what we were predicting roughly 6 months ago (sept/oct) and I think already some are bringing their mommies into the fray:
The day of apocalyptic reckoning is upon us. The perma bulls and Sheeple are quietly being laid to rest. Prime rib and racks of lamb for the doom-sayers. I hope you’ve got strong stomachs to digest the upcoming plague of market misery.
YOY prices were down for existing and new homes this past week and now this bombshell from the fed [Tigther lending announcement]. It may not save the Sheeple from yesteryear but it will steepen the fall of future housing demand. As a result, grown men will cower and cry, wring their hands, and plea for their mommies.
God help us all. The pain will be unbearable.
Maven, your rants are compelling.
I hope the hell you are wrong. The numbers say IMHO, that it will be bloddy, but the economy will survive and there will be money to be made in RE in the next 2 to 5 years.
…but I have to admit that at times I get a bad feeling.
The housing market was already contracting before MBS investors pulled the plug on subprime borrowers. Subprime borrowers account for 14 pct of all US household mortgages. Without refinancing opportunities, recent subprime borrowers are going to add to already bulging supply. Likewise, without future financing opportunities, would be subprime buyers are going to subtract from future and already waning demand.
The word “Gridlock” comes immediately to mind. And if Gridlock becomes the self fulfilling prophecy in the real estate and RE debt markets, can the global stock markets be much further behind?? Perhaps one needs to turn much more of one’s stuff in to cash than appears evident so far. Remember that an ounce of prevention is worth a whole lot more than a “ton” of cure. Nothing is worth anything till it is turned in to cash.
Just like childbirth, people will discover that they can bear much more pain than they can currently imagine.
This thing will end somewhere between:
1-Armageddon and
2-the NAR’s “Pay no attention to the man behind the curtin”.
The truth and reality always lies somewhere in the middle. IMHO we will have below market RE prices for a while and 3 to 5 years of sluggish sales in the RE market as we chew through the inventory.
The total subprime loans represent at the most 10% of the existing mortgages and not all of them will go bad. The problem with the subprime lenders is that their margins are so low, that a 3% to 5% default rate kills them. Subsequently, most will die or suffer serious pain.
RE prices are and will continue to come down due to historically high inventory from overbuilding, speculators walking from overpriced houses, etc. Foreclosures will flow into the market over time as the rates adjust up and the FB’s can’t pay. They are beginning to hit now but won’t hit all at once. If ARMS were done in 2006, they will adjust over 07,08 and 09 and not ALL subprime loans will default. 04’s and 05’s are beginning to adjust now and a portion will default but not ALL. I do not believe that there were a significant number of sub prime ARMs written before 03.
At anyrate these factors will cause inventory to remain high for a while, prices will depress below normal for a while, we will eventually eat up all the excess and the whole cycle will repeat itself.
As far as who owns the Repo’s, that’s on a case by case basis. Yes, most lenders who bundle Morts and sell them as securities have a “if it goes bad you buy it back” provision. Investors are S**T out of luck if the subprime is tits up. There are all kinds of legal scenarios that in some cases will take years to sort out. As a result a lot of properties will sit vacant for years until their legal status is sorted out.
…and then it all begins anew, and everyone who lived through this, was to busy watching American Idol and isn’t paying attention will jump at the chance to become RE millionaires and the circle of stupidity will continue.
Ben, keep this Blog going. This will all happen again. This is the 4th cycle I’ve lived through, admittedly this is the worse one, but hell, just one more record to break.
“The problem with the subprime lenders is that their margins are so low, that a 3% to 5% default rate kills them. Subsequently, most will die or suffer serious pain.”
Unless they have another revenue stream to tap into, single line subprime originators are already dead. The only thing left is for the WSJ to write the obituary.
I agree.
This will be a most interesting year…or two…or five
The difference in this cycle of downturn is the amount of debt that people are financing. I’ve never seen so many people in their 30’s and 40’s owe so much money. 500k and up all over the nation. In the 90’s prices were 1/2 that. Most 30 and 40 year old people are not at the peak of their career earnings and have kids or kids on the way. Soccer, dance and schooling are practically a mortgage payment unto themselves. Even the people who don’t crash and burn and default on their subprimes are going to be dripping tears of financial frustration into their bowls of ramen as they watch their home values plummet. And this all the while Merril Lynch ads about saving for your retirement golden years and your kids college education plays on the no-cable plasma tv with rabbit ears.
I worked in subprime for several years during this bubble and kept hearing “the mortgage industry is cyclical, but subprime is far less vulnerable than the rest of the industry to these ups and downs.” It was my first experience working in the mortgage industry and even I knew that after hearing the same “its different here” mantra so frequently that some one had to be dishing out some high quality kool-aid. What’s scary is that these were all very intelligent people regurgitating this garbage, and they completely believed it.
Anyhow, I forget the exact underpinings of the logic in this statement, but it had something to do with market size versus prime and Alt-A. Did anyone else hear this BS? Has this line of reasoning been around for awhile, or is it exclusive to this bubble?
Statement of the obvious here, but subprime is MORE vulnerable to economic cycles. The same way the poor and unskilled are always, ALWAYS, the most vulnerable to recessions.
I don’t know if it exclusive to this bubble, but it is bulls**t.
In previous bubbles, there was no real subprime problem as I recall. There were other causes that were primarily external, recession, gas crunch, high interest etc.
The problem we have here is that this presant situation was almost entirely caused by the market’s various segments, i.e lenders, realtors, etc, but PRIMARILY by the entire landing industry.
The idea that subprimes are less vulnerable is absurd. You’re lending to the demographic with the highest credit risk. You were smart not to drink the Kool Aid.
I think what you are alluding to is segment growth rate compensating for cyclical vulnerability when compared to the broader market.
Until recently subprime was an under-served market segment while prime and alt A were fully served segments within the lending industry. Therefore, subprime had more growth potential than the heavily served prime and alt A market segments. As a result, the subprime segment attracted big players like GM, HSBC, GE, and other growth chasers.
Most markets mature and competitors adjusts accordingly. However, in this case the product was fataly flawed from the start and not properly underwritten to meet the needs of target consumers within the subprime segment. The initial terms were easy but not realistic. Consequently, we have the mother of all market meltdowns and a burgeoning scandal.
Maven; well said!!
That about sums it up.
“While he’s found a good-paying job now, and says he needs the tax deductions that come with home ownership, he is still getting over the financial damage caused by two recent stints without a full-time job. ‘I really needed this loan to repair old credit problems,’ Starke said. ‘It will be terrible for people in my situation if they stop making subprime loans.’”
“needs” 25-cent tax deduction for every dollar of interest paid… “needs” to go into deeper debt to fix credit… does… not… compute… error… confused… world… spinning… head… exploding…
Nice logic. What a dumbass. Do these people listen to themselves? Dumb question, I guess.
this man a shlump. everyone know if you have credit problems, get loan at Prosper dot com and fix problems
this man will never even figure out which side of Hummer gas cap is on
He needs a punch in the head
LOL. Nice summation.
The standard deduction married filing jointly is $10,500. You have to pay a lot of interest to itemize. So the firts $10,500 in interest really isn’t tax deductible. All of the geniuses that preach the benefits of tax deductability overlook this minor, inconvenient, truth.
Oh yeah, and in a place like Florida (and I think Texas) you don’t have state income tax. So that doesn’t count towards your deductions. Brilliant!
don’t be silly. this man knows it “take money to make money” he make twenty-five American cents, on every dollar he spend. he need to “up spending”
man is also patriot
Quite right, no state income tax in FL or TX. I file in AZ and despite a (low) six-figure income, I’m not stupid enough to think that avoiding some current tax payments would make up for the (NON-DEDUCTIBLE) losses I might incur by buying a home now.
The horrible thing is that these people are paying $50-60K in annual interest on these giant mortgages.
“I cut myself with a small knife years ago, so now I need to cut myself with a bigger knife and everything will be fine.”
man in wrong section of store… he needs to leave housewares. man needs to look at power mowers… get job done faster…
They have them on solar power nowadays, so it won’t add to
global warming…
Unfortunately, the new BK laws ensure that when his creditors stake him out and run him over with the riding mower, they’ll do it feet first so that he’s alive and bleeding as long as possible.
One caveat: if Starke received cash back at closing, and has every intention of living rent free until foreclosure, then he’s not the idiot, the lender is.
I doubt he ran the numbers. Most homeowners here don’t pay enough in interest to get the deduction.
This is the first bearish RE article I’ve ever seen in the Houston Chronicle, at least since I was a teen in the 1980s. This was front page news this morning. It is gonna get bad here. They’ll be using descriptive words like “tsunami” and “tidal wave” to describe the foreclosures.
I posted about this this morning. A Realtor(tm) didn’t like it.
“I doubt he ran the numbers.”
This guy sounds like the type of guy that would need to take off his shoes and socks, and drop his pants, to count to 21.
I have to dispute this. Now “I need the deduction” is always stupid, it assumes that somehow it’s better to pay money in interest than in taxes. But at todays prices, it is difficult for me to imagine a first time homebuyer NOT exceeding the standard deduction when you add together state income taxes*, property taxes, and interest. Now of course you effectively only get to deduct the amount by which those three together exceed the standard deduction, so it is WORSE than 25¢ on the dollar, but it’s there.
*State income taxes are usually not enough in themselves to equal the standard deduction. As a renter their deductability benefited me not at all. But after I bought, they DID add to the pool of deductions to bring me into the itimizing zone.
People should stop referring to this decuction as a mortgage deduction. They should use the full term, mortage INTEREST decuction. Maybe this will reinforce the reality that the deduction is only large because they’re “throwing money out the window” on interest.
“‘What’s happening is the front end of this wave of teaser- rate loans that are coming into full pricing,’ Bies said. ‘So what we’re seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning.’”
it is not a wave, it is a tsunami!!!!! run for your lives
ot-i am in the market for a new computer for my home.
i am leaning towards a laptop in $1000 range (cash will be paid for it of course) can anyone suggest a make or model that will get me the most bang for my buck. it will be used for home stuff,bills,blogging, loading of music etc any help will be appreciated. tia
If you’re only gonna use it for home, don’t get a laptop. Get a bigass hard drive for all that illegal music you’re downloading. (Hey I do it too.)
I’ve seen HP have the best deals. Also check out slickdeals.net to see what coupons they might have for places like Dell.
HP is crap. Go with Sony or Toshiba. Even Dell, although I have a problem with their service. Remember to use a credit card that pays you points, then pay the card off at the end of the cycle.
Amen. I’ve got a Sony VAIO and have been extremely happy with it.
I tried to help a friend of mine who has a Dell. Their customer service is a joke. Dell’s customer support from India/Pakistan can not help anybody, even if you CAN understand what they are saying (you won’t).
I’ve been using Dells for 4 years now. Much better than my old Gateway and my old Toshiba. For the last 7 years all my desktop PCs where I work at have been Dells. That says it all. Never had a problem.
I like my Toshiba well enough ( just agreeing w/ jerry)
thanks guys
btw jerry i will do just that
i get cash back from amex
thanks
I have had a Sony VAIO laptop for the last several years, and it’s great. But it was fairly expensive, I think it cost about $2K two years ago. If you really don’t need a laptop for home, but want something small but powerful, look at this Shuttle.
As for this being the beginning of the tsunami, I’m still waiting for the next shoe to drop, but this might be a good time to start running. I still have a saving account at FED, but I’m getting worried. Looking for a safer place to put money, but haven’t found it yet.
toshiba satellite is the business machine
I recommend an apple Macbook. Perfectly suited for your listed purposes. No technical hassles. I learned my lesson the hard way after getting wife a Dell laptop, and then a high-end IBM Thinkpad. Typically I would get atleast 1 tech support call at work due to all the little and big problems with windows XP. Bit the bullet, bought her a powerbook and the number of tech support calls is more like one a year.
I am typing this on a thinkpad, but if all I wanted to do was what you listed, I would definitely get an apple laptop.
I’m an apple person myself. For $1,000.00, the ibook does wonders and you need zero support. I don’t think they make it any more, though, I’m not sure.
The Macbook is the new version of ibook, with Intel chips.
Just my two cents. My Toshiba Satellite ($1700 new) has been in the shop 3 times in two years. The screen oftentimes goes black for no reason at all (still hasn’t been fixed). The power supply failed once. Also had to have the actual receptor resoldered. Sometimes, the computer just shuts off for no reason, losing all work. No more Toshibas for me. Or windows OS for that matter. Actually went out and bought a Mini Mac desktop to get me by since the warranty work takes weeks. I am going to buy a Macbook when my Toshiba finally gives up the ghost.
Wait 6 months or so for Michael Dell to fix everything his predecessor ruined, then it might be safe to buy Dell. I bought my 2nd Dell 18 months ago, nothing but problems - they forgot add-ons I had requested like tv tuner card, then sent me one that doesn’t work with Media Center; the motherboard fried after 6 months but it took weeks of talking to the Bangladesh help desk to get it replaced. Your basic nightmare; stick to some local vendor you can go back and yell at, if need be.
“While he’s found a good-paying job now, and says he needs the tax deductions that come with home ownership”
Sometimes I think that these people believe that home mortgage deduction is a tax credit. This guy has bigger things to worry about….. like buying a declining asset with a high interest loan that probably has prepayment penalties!
Rents are dirt cheap in Houston. A friend lived in one of the nicest neighborhoods (Galleria I think it is called) in a small gated condo development with garage parking, pool, elevator. Small 1 BR apartment but only $650 a month or something trivial like that.
I’ve noticed that many of my borrowers think of their tax deduction as a big deal — despite their very modest incomes. I don’t try to disabuse them of this notion. In fact, becoming a lender has made me less irate about the deductibility of mortgage interest. Ideologically, though, I think it’s asinine.
Right, you start with close to a $5000 deduction each (around $10000 married) so first you only get the benefit beyond that. And up to arount $60K a year you do not really get into very high tax brackets at all. At my highest bracket which I sometimes hit with OT, I am taxed at 56% for State, Federal etc, which probably would make it worth while if I was way over that, but for the majority of people the home deduction is not all that and I still cannot justify San Diego prices, so I rent anyway.
This idiot Bies is lucky to be leaving the Fed at end of this month. God knows how much carnage this dumbass will leave behind.
I don’t think Fed governors are stupid per se. The bigger problem is, like college professors, they’re stuck in their ivory towers with their PhDs doing multi-regression analysis with data that’s all seasonally adjusted and chain-weight deflated and blah blah blah and have no idea what’s really going on “down there”.
Exactly. She knows what’s coming and wants to leave the other board members holding the bag. Just like Hank Paulson and Alan Greenspan did.
Get out while the gettin’s good.
Some people have a knack, a sixth sense for knowing when to bail. I had a friend like that, he would cause all sorts of trouble and never be around when the cops showed up. It was uncanny.
maybe he calls cops just before he leaves…
he’s done partying, so “everyone” done partying…
Buffett: “The hangover is always proportional to the binge.”
is there really anything new under the sun?
if this is the case, someone better order some dumpster sized barf buckets to place next to many peoples beds
The streets are gonna be flowing with barf.
“I think we’re just getting started and it is going to get worse before it gets better. A lot worse.”
Gee, ya think?
“2007 is going to suck” was far more succinct.
But Tomnitz also added.
“I believe we are having an orderly and reasonably profitable liquidation of excess inventory in the marketplace,” chief executive Don Tomnitz told the Citigroup Industrial Manufacturing Conference. “I don’t think ‘08 is going to be a great year, but it’s going to be much better than ‘07.”
This guy wants to have it both ways. If it improves he is covered. If it gets worse he is covered.
This is sleaze at the highest level. This is the type of stuff usually reserved for smarmy politicians. Corporate America at its worst, once again.
Amen! and DR Horton’s candor is already causing seismic waves in la-la land. Our local fishwrap, the Colorado Springs Gazette - which kow-tows to its RE advertisers and quotes “experts” invariably tied to local RE interests - featured Horton’s claim on page one (today, rather than March 7th when it came out). There’s no way the NAR shills can sugarcoat such bluntness from such a leading RE industry titan.
Yeah, but you know those turd polishing rat bastards are going to try….
From the Dallas Morning News:
“His sugarless comments stood out because others haven’t been so forthcoming. That doesn’t mean there hasn’t been talk of the housing or mortgage business going south, but little has been so direct and to the point. ”
“Bloggers have been quick to pounce on the National Association of Realtors for spinning its assessment of housing conditions. ”
“For instance, last summer NAR chief economist David Lereah said that new home sales were “stabilizing.” But that turned out to be untrue, a result of the trade group relying too heavily on economic data and underestimating how psychological factors were affecting home purchasing, said NAR spokesman Walter Molony. ”
omg omg omg OOOOMMMMMGGGG!
http://www.dallasnews.com/sharedcontent/dws/bus/stories/031107dnbushorton.15a36ea.html)
scary, weird, delussional
From the Dallas Morning News:
“His sugarless comments stood out because others haven’t been so forthcoming. That doesn’t mean there hasn’t been talk of the housing or mortgage business going south, but little has been so direct and to the point. ”
“Bloggers have been quick to pounce on the National Association of Realtors for spinning its assessment of housing conditions. ”
“For instance, last summer NAR chief economist David Lereah said that new home sales were “stabilizing.” But that turned out to be untrue, a result of the trade group relying too heavily on economic data and underestimating how psychological factors were affecting home purchasing, said NAR spokesman Walter Molony. “
Ok, that was my comment. It was in response to mrktmaven’s question about do people think there will be a recovery in the subprime market (perhaps due to manipulation) and the subprime implosion will be over, or are we just getting started. What’m I supposed to say, “Oh, by all means, there will be a white knight for the subprimes and everything’s going to be OK”?
“‘In the housing markets and bubbles that occurred in some areas, to afford housing, people pushed their limit to afford a house,’ Bies said. ‘And in doing so, lenders tried to create products to meet those demands.’”
NO! The lenders allowed the FB’s and specuvestors to get easy money, therefore the price of homes increased. A vicious brutal cycle kept going until the reality hit!.
The typical FB or homebuyer was only rounded up and hearded into the slaughter house by their own ignorance/arrogance and proding by the people like David Liar and the stupid realators chanting to the Realestate Gods “Housing always goes up”, “Buy now or be priced out forever”
Oh well, I’m with Neal and many of the others on this board. I’m making pop corn and passing it around too!
I LOVE THIS BLOG!
“Bies said. ‘And in doing so, lenders tried to create products to meet those demands.’”
Where was the FED when these benevolent financial alchemist were at work? They did not create any new products. The financial geniuses altered an existing product, changed the packaging, then advertised and marketed it like new to the most unqualified segment of the home buying market while the FED mused at its own genius.
As I understand it, the Fed is typically blamed for increasing the money supply to such an extent that extreme competition was created among investors. Lowering interest rates led to an increase of available investment capital which resulted in a false scarcity of investment opportunities, which in turn caused investors to progressively lower the bar for investment worthiness. I think the argument is that these investors end up buying the mortgage-backed securities, and that the artificially high demand for MBS’s enables the “benevolent financial alchemists” to create these absurd subprime loans.
So far, so good, I think. But I have trouble with the next step of this line of argument, which is that if the Fed did not exist, and money supply was not artifically regulated, this type of scenario would never happen because “the market” would price risk appropriately. But if investors were that astute, then they could have properly priced the risk of the Fed doing exactly what it did. In that respect, I don’t see why pricing the risk of the Fed’s action is any different then pricing the risk of, say, crop failure due to freak weather phenomena. (I understand there is a philosophical and ideological difference, I just don’t think there’s an effective difference.)
In my opinion, the market reacts to Fed influences in exactly the same way as it reacts to, say, weather and war, and it does not detract from the so-called efficiency of the market. Even in the absence of government meddling (although the Fed is not a governmental institution), a free market can still be driven by greed and fear instead of rational self-interest. Even a completely unregulated market will sometimes wander on an unsustainable path, and it will “correct” itself in exactly the same way as the subprime industry is now “correcting” itself: with great carnage and lots of collateral damage.
“Cartel:
A small group of producers of a good or service who agree to regulate supply in an effort to control or manipulate prices. One example is OPEC (Organization of Petroleum Exporting Countries) and another is the Federal Reserve System.”
or simply put why should I trust the Federal Reserve any more than I trust OPEC - They are acting in my best interest or theirs?
Remember the Federal Reserve is privately owned.
nowandfutures.com
We shouldn’t trust the Fed any more than we should trust OPEC, or any other business.
Cartels are always going to exist. In my opinion, in a market completely devoid of regulation, it is in the rational self-interest of every business to become a cartel. If you had a choice between competing openly on the strength of your product vs.positioning yourself to control and manipulate prices, which choice is in your self-interest?
I view the Free Market is a useful academic device, much like the philosophical constructs of the Social Contract and the Original Position. A free market of autonomous individuals has never existed because it is a natural tendency for some of the individuals to group together and try to control the market using both economic and non-economic means of influence (ie, physical theats and violence). Hence, cartels are inevitable.
What? You don’t believe in a market composed of small players, none of whom has market power, all of whom have instant access to perfect information?
Yes, the Free Market is nothing but a philosophical construct, but to call it a useful academic device is being too kind. Kool-aid is more like it.
Let’ say you are going to swim in area where you have rip tides that get very dangerous a few times a month. You will self regulate when and when not to swim. However because some of the powers that be want to stimulate tourism in the area they downplay the frequency of the riptides. Are you safer with or without the powers that be?
But I have trouble with the next step of this line of argument, which is that if the Fed did not exist, and money supply was not artifically regulated, this type of scenario would never happen because “the market” would price risk appropriately.
——————————
If the Fed didn’t exist, and didn’t bring interest rates down (causing investors to look elsewhere to invest), they money probably wouldn’t have been available to loan to J6 to “buy” houses.
It is the CREDIT market which drove prices up. Psychology was part of the feedback loop (easy money, more buyers, prices up, easy money, more buyers, prices up, etc.). Without EZ credit, the specuvestors could not have driven up prices like they did.
‘I really needed this loan to repair old credit problems,’ Starke said. ‘It will be terrible for people in my situation if they stop making subprime loans.’”
This cretin should be sitting on the porch of his group home, a placid smile on his moon-like face, waving bye-bye to the passing traffic. A “loan to repair old credit problems” is like a ready supply of booze to cure the DTs.
What this moron really needs, besides a minder, is a long interval to get his financial house in order, say, by renting while he increases his savings, pays down debt, and avoids needless expendiures.
Use it up
Wear it out
Make it do
Do without
Use it up
Wear it out
Make it do
Do without
Sammy describe “cycles of marriage”
LMAO!
The way the FICO score system works he is correct. Showing that you can make payments does improve you’re score. I just don’t think you need to buy a house to do that, a simple secured credit card would have done the same thing.
Improving your credit is usually a good thing, but in this guys case, whats the point?
What’s he going to do when his credit is repaired? He’s going to keep on borrowing/charging etc. and most likely ruin his credit again.
Try acting responsibly and you won’t have to repair your credit. With the exception of a medical catastrophe, etc a responsible persons credit doesn’t need repair.
this is a guaranteed foreclosure…… its in the bag
Improving his credit to what effect? Since buying a house, buying a car, unemployment, catastrophic uninsured medical expenses, are the only thing that you NEED credit for why does he need to improve it? Better to service/decrease the debt that he has, than to increase it.
My favorite quote, Brigham Young, BTW.
Say what you will about the LDS, they do preach an aversion to profligacy and a high degree of preparation for unexpected bad times.
OT
One of my tenats Daughter is in a movie that is being released this year. The name of the movie is “An American Crime”. Her name is Haley McFarlin - So go see the movie! or don’t.
“An American Crime”
It’s the story of a 23 year old hairdresser with a 500 FICO making $12/hr, who purchases two San Diego condo’s with I/O pay-option ARM’s, both having 100k cash back deals under the table.
LOL - GOOD One -
Check it out on the IMDB
“:“‘Please get in any deals over 95 LTV (loan-to-value) today!’ Countrywide said late on Friday in an urgent e-mail to brokers. ‘Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12.’””
That just means more fraud. It means the number the appraiser have to hit if 5% over what the house sells for. This is why David Lereah predicts that housing has bottomed and they will start to appreciate again.
95 LTV, what a joke anyway. As if the likely future price decline were limited to 5%. Have posted before, I am not doing anything over 70 LTV now, and am feeling that may be a little high.
Wouldn’t a 95 LTV require Personal Mortgage Insurance? I thought the primary risk with loans like 80/20 was that it allowed the borrower to skip PMI. In principle, as long as the borrower purchases PMI, would you not be able to price the risk of default into the PMI premium? How does this work?
LTV is typically based on lower of appraised value or purchase price, so inflating the appraisal doesn’t really help the zero-down crowd.
Seller kickbacks, however, will be all the rage.
Tom- FYI, for months now lenders make loans only on contract price regardless of appraised value. Yes, there are jimmied contracts and there always will be. But I think we are going to see a wild swing back to standards of lending more akin to the ones of old. If not you will have nowhere to sell the note and the note is what it is all about.
Just a comment. In normal markets, if there is no resonable comp, the appraiser will usually appraise a house for the offered price. The reasoning being that the price of a house is what someone is willing to pay and if someone signed a contract than the house is worth the contract price. That is how RE prices change.
This concept got warped way out of reality but if you were an appraiser and had a signed contract for a house where someone was willing and able to pay “X”, you could justify “X”.
The problem with RE is that there are so many differant segments to a transaction, each controlled by a differant individual that its hard to pin blame and it’s also easy to “jimmy” the deal. Lots of fraud.
Lenders should only lend on appraised value.
“:“‘Please get in any deals over 95 LTV (loan-to-value) today!’ Countrywide said late on Friday in an urgent e-mail to brokers. ‘Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12.’””
That just means more fraud. It means the number the appraiser have to hit if 5% over what the house sells for. This is why David Lereah predicts that housing has bottomed and they will start to appreciate again.
Got skin?
As of yesterday, 100% financed loans no longer exist.
Countrywide, largest sub-prime lender, said all loans must be at least 95% loan to value.
Simply put, if you want to buy the median priced house in California, you’re going to have to put down $25,000 at closing plus (probably) another 1% for closing costs, loan origination fees, etc or another $5000.
And BTW, that $495,000 the mortgage outfit will lend is subject now to their appraisers opinion. You will no longer have sole discretion over which house you buy. If their appraiser says the house isn’t worth but $450,000 then you’re going to have to make up the difference.
Or find another house… one they like.
So be prepared to come to closing with about $80,000 cold hard cash for your dream home as outlined above.
Buyers will think long and hard now that they have to put a pound of flesh on the table.
“Buyers will think long and hard now that they have to put a pound of flesh on the table.”
Two ounces of flesh will be more than most borrowers can afford.
assumable mortgages?
seller 2nds?
Yes! Back to the ’70s.
And the ’80s.
Yes - but the Countrywide requirement only applies to people with bnad credit - cirrect? People with good credit can still get 100% loans - correct?
correct 620 and higher, you’re in. For now.
I saw this today on the Yahoo NFI stock message board:
——————————————————————
“Report from a foreclosure sale this past (1 Rating) 9-Mar-07 03:23 pm
Wednesday.
Brutal to say the least. My first one. We lend hard money and were at 60% LTV - 72% after all the costs and interest that was paid to our warehouse bank. 62 homes up for bid - Florida - the first 25 were taken by the banks with NO BIDDERS. Ours at least there were bids but way under our judgment amount, so we took the property back and have sold it to one of our appraisers.
My attorney told me that one year ago, there would have been fists fights for our property, now nothing, but laughs and lots of “good lucks”. I can’t even imagine the losses sustained by those banks that go no bids…nothing. Their lawyers looked like they were being lead off to the gallows. I had a meeting with my staff after this experience, and even as hard money lenders, there will be changes.
I won’t buy a subprime stock until the dust settles a bit “
Yours is a frightening story (to me). Just posted (above) I am lending up to 70% LTV. Guess I will move that to 50% for any future deals. Last fall I had pretty much decided to stop lending, but then people came to me wanting very small loans against properties that were ALMOST fully paid for (and where I held the senior note myself). So I got sucked in again … OK, no more deals after the ones I’ve already agreed to. (Famous last words?)
Exactly how the Bear (market) keeps you in. the only difference this time imho is that This Bear will be at least as bad as the Crash of ‘29, if not much worse. The net result therefore ought to be that the real “value” of stuff including real estate in such a scenario would totally astound even the most bearish of bears here. I’ve been just as guilty in my own dealings but finding Ben’s board has helped to refocus on reality. Good luck in cinching up the stirrups.
Subprime loans proved to be a massive product failure. They were not engineered for the masses. So, don’t worry. There will be very little if any subprime stock to buy in the near future.
Unless mainline subprime originators are able to immediately switch their product offering, advertisements, and retrain brokers and employees, they are all dead. It’s hard to re-align a single product company (new competitor and consumer research, new product concepts, new advertisement budget planning, and so on) when everyone within it is disoriented .
Don’t think the lenders in the Alt A and prime space are just going to let them have it either. There will be a fight and last I read subprime lenders were out of cash. So, there is no way they are gaining a toehold in the prime space.
I suspect that all that will remain will be a small amount of private financing available on a case by case basis. Tiny LTVs like the above cases.
“It used to be that ‘if you breathe and have a Social Security number … you were going to get a house,”
LOL! Since when was it a requirement to have a Social Security number?
You can use someone elses.
From the imploder forum - on LEND:
I know and have talked to an Accredited employee several times in the past several days. This person is a sub-prime loan officer. They have not had any new leads for three days. Other branches have also not gotten new leads for days. Something major is going on, but none of the managers will talk about it. It doesn’t look good.
http://www.autodogmatic.com/forum/viewtopic.php?t=178&sid=cb636a41dc9511124beed5a08017b86a
Credit contraction? Every mania ends when credit cycle ends…
Its even more funny to read the posts on brokers outpost. The word PANIC is being used a lot. 100% loans are gone and so are subprime.
http://forum.brokeroutpost.com/loans/forum/1/2.htm
Well that was fun. There are certainly some old hands talking reason, but plenty of idiots there to laugh at.
Where’s the LA times story?
Did you guys read it - “Loan Turmoil Closes Door for Buyers”.
Front page of business section. A step in the right direction, atleast.
Read it online.
Pretty good wrap-up.
Party over for Ms. Lewis. Repeat that same scenario about a million times in the Valley and Inner Los Angeles and it gives you a preview of whats coming.
Ah, there’s going to be much sadness in the Big City tonight. Not to worry, those who miss out on a loan can rent cheap and save a down payment and buy a place a whole lot cheaper in a year or two. The disappointment now will pay big dividends in the future.
Another way to look at the subprime market meltdown is to compare it to a major pharmaceutical product recall. After a handfull of subprime borrowers started keeling over, the authorities said oops! we made a bubu and ordered a recall.
Now, the manufacturers (MBS under-writers), the manufacturers’ suppliers (MBS buyers), and retail distribution centers (Originators like NEW, CountryWide) are ending production, pulling funding, closing shop and taking the subprime product line off the shelves.
The only thing left to do now is monitor and bury the bodies of all product users. Exposure is generally terminal.
Interesting analogy…but the product users got “vendor financing”, so who in the supply chain bites the big one when the user dies and can’t pay? Probably the MBS buyer, right?
“David Starke has experienced the change firsthand. With a credit score below 620 and a recent history of unemployment, he needed a 100 percent financed subprime loan to be able to buy a home.”
He NEEDED a loan? He NEEDED to buy a house? And the mortgage broker and realtor and appraiser and lender NEEDED to make some money off David.
Unbelievable. If this is what’s propped up our economy since 2001, be afraid. Be very afraid.
He needed a cheap apartment or better yet room rental and a savings account!
from John Mauldin’s newsletter today:
———————————————————–
“The following note is from good friend Dennis Gartman (The Gartman Letter). He could not reveal his source or vouch for the accuracy of the story, but it is like other anecdotal stories I read.
Let’s say you have a good credit history. You pay your bills and get a nice credit score. But let Dennis tell the story:
“However, in the past several years, mortgages were made to people who should never have gotten one. Homes were built for people who could not afford them. Decisions were made that shall prove to be utterly ill advised and in some instances almost evil in intent, and were it not so sad, some of these loans would be comical in nature. Some are already going bad. These are the first ‘cockroaches.’ More shall… indeed many, many more shall. These are the other ‘cockroaches’ hidden now from view, but which shall come sadly to view over the next many months.
“Thus we note for our clients a piece sent to us by one of our readers yesterday which may or may not be factual, but which tells the story of what has happened in the mortgage business in recent months, and which tells us what is about to happen. With that in mind, please read on:
“A ‘customer’ bought his house in ‘05 for $650,000. The house was new and he blatantly over-paid. He put no money down and the builder paid his closing costs. Just so we’re clear, he didn’t bring one red cent to the deal at any point. He got a no-doc loan. Just so we’re clear about what no-doc is, he didn’t even fill out the income or asset sections of the 1003. This man didn’t lie about how much he made or had. He simply made no representations on the subject. He had ‘perfect’ credit. Just so we’re clear, ‘perfect’ credit in this case consisted of +24 months of clean payments on two credit cards with high limits of $3K and $4K.
“There is no consideration about how much credit he could or had been able to handle. He received 80/20 financing. The 80% first is a negative amortization loan. Today he wants to get a fixed-rate loan to pay down principal. The problems: He made the minimum payments on his negative amortization first. He now owes +$37K more than he originally did. On top of the fact that he overpaid, the house hasn’t appreciated. He probably owes in the neighborhood of $100K more than the house is worth (and that’s before estimating any negative impact on price if he goes to foreclosure), and 37 houses are for sale in his immediate neighborhood. The big punch line? He is a 26-year-old, single busboy for a catering firm. He makes $33K per year.
“Heaven help us!!!! What more really can we say, other than ‘What’s your bid for this busboy’s house?’ Our bid is something south of $300K, and we are not all that certain that we’d make that bid stand for more than a day, fearful of being hit… fiscally and physically… by the busboy…. AND the lender.”
The lower end of the housing market is going to find a dearth of buyers, as they will not get financing and a lot of homes are coming back onto the market. It is going to be very hard to get a floating-rate mortgage turned into a fixed-rate mortgage, and consumers are going to see their payments soar. Foreclosures area at an all-time high and rising. Cue the congressional hearings, stage left. “
You know the REVULSION hearings are coming. A scandal is brewing. There will be hell to pay when all is said and done. You think stock analyst got a bad name after the dotCom implosion. Wait — Lenders are next. They will be lucky the masses don’t ask for their heads.
“usel i see worm sign the likes of which God has never seen”
Gurny Halleck, Dune
But wait, Maven. Stock analysts did get a bad name after the dot bomb, but they’re baaack! Remember Abby Joseph Cohen? She’s pontificating on CNBC again. Oh well, either “investors” are very forgiving or they have short memories.
What I remember most about Abby Cohen during the last stock market bust was, Whenever she opened her mouth on CNBC, the markets biggest down days followed. I think her presence alone on CNBC, May be the industry insider secret sell signal.
I really liked the story, may it be true or not:
> A ‘customer’ bought his house in ‘05 for $650,000. (…) he didn’t bring one red cent to the deal at any point. (…) This man didn’t lie about how much he made or had. (…) He made the minimum payments on his negative amortization first. (…) He probably owes in the neighborhood of $100K more than the house is worth (…) He is a 26-year-old, single busboy for a catering firm. He makes $33K per year.
A busboy can live in a “palace” for two years by paying minimal rent, before getting foreclosed, through the generosity of a lender. Isn’t that like a fairy tale? I hope that the stupid lender has no recourse to the busboy’s future earnings and has to eat the loss and that my 401k has no stake in that lender either.
That was beautiful. Tears to my eyes. This is going to be better than my wildest dreams. Curtain up …
“…he needs the tax deductions that come with home ownership…”
What he needs to do is to purchase a copy of Turbo Tax, plug in the numbers to find out exactly how much money he’ll be “saving”, and at what cost over the long haul. Why people are so hell bent on going into irreversible debt to prevent paying taxes is beyond me. Whatever happened to the whole “support our troups” thing?
If he was so worried about saving money on his taxes, he would have started to put money into a 401K, IRA or some other type of tax sheltered investment. This would help him lower his gross income and therfore pay less imediate taxes.
This will impact everyone.
Last week we were approved by two banks for about 30k less than we were in 05, one online shop did more. My rep. at WF who did our last loan said with all the problems they are starting to have to roll back some and everybody is going to be a little less giving, maybe a lot less.
I think this will have a overall impact because we have it all, very high fico’s great jobs, 20% down and plenty of cash and savings, etc.
Don’t worry, the property is part of an inheritance and will be deeply discounted. However, if we were trying to buy the typical house in OC any tightening would have a big impact on our ability to buy at the current price. Something has to give.
When I contemplate future home prices, I picture the image of a tall water park slide — you know the kind that flattens out half way down and pushes your body into freefall. Home prices are going to trace that image. Sadly, after it hits the water, a lot of people are going to pop their eyes wide open in shock and bubble their last breaths as they and home prices wrestle solemnly all the way to the bottom.
“Losses on more than $2.6 billion in loans issued by WMC Mortgage, a Burbank, California-based unit of GE Money Bank, are expected to top 15 percent, the highest projected rate of any bond in the widely watched ABX derivative index of bonds issued in early 2006, a UBS Securities model showed.”
This is going to hit the market HARD ! This and GMAC’s losses. GE is a tight operator and they make most of their $$$$ on finances, not manufacturing. To hear of them taking this kind of hit is going to make this problem real to the market. Before it was just the fly by night mortgage originators getting too lose. GE is a major Wall Street entity.
“Thirty-day delinquencies rose to 9.62 percent in February, from less than 2.0 percent six months ago, on WMC’s loans backing one of the 20 bonds in the ABX 06-2 index, according to Morgan Stanley, whose Morgan Stanley ABS Capital I Trust packaged the loans into home equity ABS.”
So the delinquencies are rising fast ! They aren’t going down or going away and the rates have yet to reset on those loans. This problem isn’t getting smaller, its getting bigger and it will get HUGE as the spring season comes and goes with people being unable to move their houses.
Another thing is that in the near future all the new lending guidelines are going to hit the sales stats. And the foreclosure sales are going to make it into the comps. The cycle has just begun.
“WMC on Friday said it stopped making 100 percent loan-to-value mortgages.”
Yeah, a little late on that move ! Did it have to head butt you before anyone thought there was a problem ? Sheesh.
Something else is coming to mind here. For the last few years Wall Street has been recording record profits. I’m beginning to wonder how much of those profits were tied to mortgage activity. For GE and GM, probably a lot. Also Bear Sterns, Morgan Stanley, Goldman Sachs, Lehman Bros, etc. Not to mention all the mortgage companies themselves. And those are just the ones that are directly affected.
This is going to get very, very ugly. Very ugly. People still aren’t connecting the dots.
Over 50% of the S&P 500 earnings are from financial companies. This doesn’t include GE Cap, Ford credit, or GMAC (last year). It is a financial house of cards and real estate will not be the only measure of wealth to fall.
Like a hawk, I am watching the financials now, particularly the bigger ones. Dominoes are falling all around them. Pretty soon, one of them is going to get nailed.
Most of the quarterly reports I read on Calif. regional banks for 4th Q 2006, even in bubble areas, talks about lots of increased loan interest revenue, and only small increases in bad loan provisions, and their stocks continue to rise. I wonder if this is the turning quarter for many of them..
Oh, and don’t forget the 800 pound gorilla, Fannie Mae that hasn’t even reported for what, 2 years now? It’s probably rotted out right to the core.
I think you are forgetting HSBC, the third largest bank in the whole wide world and the number one in Eurasian land. It took a whopping 11 Billion dollar charge and set off the alarm bells all around the globe. What’s worse, it cannot sell off the American unit responsible for the losses because of a falling dollar. Even worse, there is the real possibility of future losses.
“For the last few years Wall Street has been recording record profits. I’m beginning to wonder how much of those profits were tied to mortgage activity. For GE and GM, probably a lot. Also Bear Sterns, Morgan Stanley, Goldman Sachs, Lehman Bros, etc. ”
Don’t worry. The execs at those companies already received their bonuses for those record profits over the past few years. When things head south, they can simply blame “market conditions.” Even if they get fired, you can live off a $20m bonus for a long, long time!
Pay-for-performance is a good idea, but when exercised to its extreme, it can lead to very shortsighted behavior …
But strangely GE started recently(I think dec.2006) with lending bussiness in France. I/O and other stuff…
http://www.credit.gemoneybank.fr/offre_speciale_immobilier.htm
“Intérim,CDD ou CDI”
(An interimjob, shortterm jobcontract or longterm contract)
“Peu ou pas d’apport”
(Little or no money down)
“Devenir propriétaire, c’est possible”
(To become a homeowner is possible)
Sounds like…voir Paris et mourir (visit Paris before dying)…
All the hot-shot financial computer model whizzes think they got a handle on all this…
WTF do their models know about scores of superadequate, shoddy quality McMansions built in a dirt-bag neighborhoods and overappraised by some some incompetant hack and underwritten by some old hag intimidated by a band of greedhead mortgage dweebs.
The simple single act of a Russian currency devaluation made mincemeat Capital Fundings research and modeling.
Way, way, too many variables operating in this Ponzi scheme circus
to have all the bases covered.
Amen, whistling past the graveyard at best.
Models are only as good as the data and modeler’s assumptions. Who in their right mind assumed a 24 yr old with 30K annual income could afford a 500K home with a 30 yr note? You’d have to make some pretty positive lottery winning like assumptions for it to work. It’s laughable.
But when he purchased the property, his family and freinds knew he was a financial genius because he was now a 1/2 millionair (ON PAPPER).
LMAO- hahhahahahahahah Sucker.
30K of income just about makes it possible.
2200$ of interest per month so a 30 yr/5.5% IO gets you there.
You would have almost zero $$ for food and after 30yrs you have what????
Yes, I realizze this is stupid and overstressed but I fully expect the FED/Gov bailout will offer people some kind of 40yr/3.5% loans. Of course I get to eat this as saver/investor/tax payer…
Flood of BK/forclosures will be slowed… the MAJORITY that owns wil be happy.
I of course as a tax payer/saver/conservative investor will get taken for a ride.
Most people in a good financial position to buy (many of the regulars here) aren’t buying, and for good reason. These people are the ones smart enough to save, invest and know when a market is due for a significant correction. Sometimes you have to wait things out, but patience is often rewarded handsomely.
Sometimes it’s better to do nothing because opportunities are easier regained than losses.
You said, maven, I’d rather miss the bottom by a bit than buy when there is no bottom in sight.
Another Epiphany. Sincerest thanks.
I can only relate to the old S and L crisis when we had this type of craziness in the commercial side. At the time we were all wondering how far it would go. Not far actually. Most people did not even know what was happening in the commercial market. But make no mistake about it people were literally killing themselves.
Then I think about the 1986-89 values of the properties affected. Most were in the $500,000-$1,500,000 range and a city like Orlando had maybe 50 bad deals marketwide.
NOw we have 1000,s of properties going belly up with so called values of the about the same on a property by property basis. The difference is the SL stuff had income producing potential. There was an upside. This has none.
The bottom fell out when the legislation passed and the tax benefits were taken away in the S&L deal. Now we have a similar implosion of the same issues with the added potential of no financing availability. The investor who was hit by the last bust was a totally different animal than the one in this blowout. This guy is Joe Sixpack and he has little to no understanding of the market.
Oh but then perhaps he does as he will go buy another case of beer, pull his hat on backwards, throw the ol’ lady in the truck and go to the woods, sayin “fu#* the bank baby, we ain’t payn um’ ”
Buy stock in mobile home manufacturers who meet FHA guidleines.
my favorite line in this posting: “‘I really needed this loan to repair old credit problems,’ ”
ay yi yi….NO. You REALLY needed some SAVINGS! Note his logic. A new loan (more debt) will get him out of the trouble from his old debt.
Who does this guy think he is, the U.S. Government?
‘So what we’re seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning.’
This is not the end, and it is not the beginning, it is the beginning of the end.
I concur.
The sheeple are just starting to wake up. Did you all notice the nice spike in national inventory on zip realty? We now have, for the first time in this bubble, over a million homes listed on zip’s site.
Most of 2007 will be the beginning of the end. I expect credit to keep tightening.
Any predictions on when 90% LTV is the minimum? Hmmm… I say June.
Now, supposedly 15% of the 2.0M to 2.5M homes in LA were bought zero down option ARM. Bwa ha ha! Collapse at the bottom, extra weight on the top…
And the talk at work is all about companies in California who cannot keep technical workers due to the outrageous cost of living… But its not just here… Florida will be the worst. DC will be bad…
The show has started.
Got popcorn?
Neil
“…told its brokers to stop offering borrowers the option of no-money-down home loans…”.
Wow, this is weird, I almost cannot imagine a world where you would actually have to have money to buy a home.
As a long-time reader of this blog, and sometime contributor, it occurs to me that in the last month or so the discussion has moved almost entirely from housing prices to the collapse of the sub-prime mortgage market. Obviously, the two are closely related, and the pending meltdown which would occur when the ARMS reset has long been noted here. But I don’t recall all that much discussion of the prospect of a sharp credit crunch. Obviously, in hindsight it makes perfect sense -and I’m sure some folks predicted it - but the discussion for the most part had been about the prospect of prices dropping, perhaps crashing, and the idea that the bubble was as much (or more) a credit bubble than an asset bubble seems to be the more recent focus.
I guess what I’m wondering is, what really is happening to prices? Pulling up the mortgage ladder (i.e., requiring actual downpayments, etc.) has to be hitting the prices of houses on a real-time basis (i.e., this week…). The idea that the the Bear Stearns’models assume flat prices seems ridiculous.
My guess is that in a month the discussion on this blog will once again be about housing prices rather than the evaporating mortgage market. And my guess is that notwithstanding the usual noise in the housing price statistics (the use of medians, etc.) prices will start sliding fast.
In my recollection, we did speak frequently about the debt bubble (or credit bubble) as the underlying cause of the housing bubble, as early as the beginning of 2006 (I came to the blog in Nov 2005). What I do not remember anybody write, however, was the actual order of the housing bubble popping. I believed that, after the housing appreciation would have exhausted itself, the wave of resetting exotic mortgages in 2007 would make holding on impossible for many homeowners, increase supply and press prices down again. Instead, rising defaults have made bond buyers already now risk avers and are reducing demand with every day that goes by - demand as in buyers being willing and ABLE to buy, not only willing. And many mortages will still reset in 2007 and 2008.
A few of us were talking about the credit bubble even in 2003 and 2004 (on other blogs, prior to Ben’s).
It was also predicted that we only needed housing prices to stagnate in order for the credit bubble to begin popping — because home “owners” could no longer cash-out refi and HELOC their way out of trouble, and the defaults would finally commence.
IMHO, there are a number of posters here who have called it almost exactly as it’s happening. And they were predicting this two or more years ago.
We needed housing prices to slow (affordability ceiling reached — even with exotic financing) so the credit bubble could implode.
I LOVE this blog!!!!
“Obviously, in hindsight it makes perfect sense -and I’m sure some folks predicted it - but the discussion for the most part had been about the prospect of prices dropping, perhaps crashing, and the idea that the bubble was as much (or more) a credit bubble than an asset bubble seems to be the more recent focus.”
This isn’t a hindsight type issue at all - the credit bubble as enabler of the real estate bubble was focused on by many in these blogs for several years (current and predecessor blogs), and many commentators in the outside world
A fire needs fuel, and the credit bubble was the fuel - this was seen prospectively as a key issue
I guess my point was that the focus recently had been mostly on the fact that the easy credit is drying up (”crashing” so to speak) rather than on the decline in house prices. I recall lots of skepticism about the “affordability” mortgages (pay option, 100% LTV, stated income, etc…), but not that much discssion of the idea that the capital markets would pull the rug out. I for one certainly didn’t see that the headline triggering event would be a slide in the MBS markets rather than a rapid fall in house prices.
My point was really just that the chatter on this and similar blogs is less focused on reported housing prices these days. But I certainly agree that there was always discussion of the risk of “toxic” mortgages and predictions of waves of foreclosures.
“The total subprime loans represent at the most 10% of the existing mortgages and not all of them will go bad.”
Perhaps in total, however the trend is much more ominous. For example the NY Times Sunday is claiming in 2003 that 13% of loans were subprime whereas by 2006 it was 35%
Many think of subprime as high risk urban poor, when in fact the category now is much broader including certain type of negative amortization option ARMs, stated income loans, and 100% financing./down payment loans etc - meaning the defaults will be relatively widespread by demographic group
These analysts are grabbing at hope like someone falling down stairs grabs for the railing. This thing is going down fast and I still hear them minimizing it day after day.