The Housing Bubble

Good Morning America had a quick discussion about the housing MTG collapse.

The most amazing thing, they did a poll asking what people are more worried about.

Their home losing a significant amount of value.

or

The price of gas going to 3 dollars per gallon.

Guess what was higher on the concern list?

How stupid can people be?? I drive ALOT for work, and let me tell you, gas going to 3 dollars a gallon would have exactly NO effect on my finances. Honestly, if gas went to 5 dollars a gallon, I am still not sure if it would have the SLIGHEST effect on my personal finances.

But my home losing 10% of value over the next year? Well, that would have a dramatic effect. And then knowing that this trend of deprecation is going to continue for another few years???

I think the idea that Americans are not that bright concerning their own economy should have come through loud and clear over the last few years.

prime vs subprime financial reits

plus

time to revisit the november conference call from new century when the stock was at 40$ and the issued debt to buy back shares and almost no analysts raised questions ….

http://immobilienblasen.blogspot.com/

“If you don’t buy it, I will…”).
Quote from this Craigslist ad in Carmichael (Sacramento):
http://sacramento.craigslist.org/rfs/291494525.html

From Marketwatch

http://tinyurl.com/2cb37l

“The rise in mortgage delinquencies in the U.S. has to be one of the most predictable events of the century so far, but has nevertheless provoked a further reaction in financial markets,” said Paul Donovan, an economist at UBS, in a note to clients.”

Anyone know UBS’ exposure to MBS’s, Subprime, etc…I haven’t heard anyone on Wall Street other than Barry Schiff predicting what is currently unfolding.

There is plenty to quote from in the WSJ this morning, including a front page right column article on the mortgage collapse, and a front page of section C article on the stock market collapse.

Two other articles interested me more. First, it appears that mortgage REITs other than subprimes are being marked down by the stock market. Analyst called this indiscriminate selling; I see it as pricing in the possibility of spreading defaults and home price declines.

They also had an article on a guy who makes money taking foreclosed houses from banks and pennies on the dollar and reselling them, and how his business is about to pick up. It occurred to me that perhaps many of those “I was on welfare and now I’m rich due to buying houses” stories come out the bottom of busts. And then, the real hustlers make even more money selling books, instructional videos and seminars to Greater Fools at the peaks of bubbles, when there is no way to make money. They score on both ends!

You’ll know when we’re at the bottom when people are scared to buy houses.

Anyone remember October 2002 in the stock market? I was buying things like AMAT at $10 and Cisco at $9 and being a little scared doing it. When you look back at it now, it seems so comical but that’s what it feels like when you reach the bottom of a bear market.

National City to keep $1.6 bln of loans that were for sale

said Wednesday that its remaining $1.6 billion of non-comforming loans held for sale are currently not salable at what management considers an acceptable price due to “adverse market conditions.”
As a result, the Cleveland financial-services company plans to retain the loans and transfer them back into their portfolio this month.
National City said in a filing with the Securities and Exchange Commission that it has recorded $11 million in write-downs through the first two months of the year and believes a further write-down is “likely” before the loans are transferred.
In addition, the company said its net interest margin for January and February totaled 3.7%, consistent with expectations for the first quarter overall.
National City said loan growth in its core portfolios has been offset by declines in the non-conforming mortgage and national home-equity runoff portfolios. As a result, the company expects net interest income to decline slightly in the first quarter, compared with the fourth quarter ended Dec. 31.

I’m scared at even considering the possibility of purchasing any sort of real estate now. My guess is that’s not because we are at the bottom, but I’m on the edge of a financial cliff looking down.

OT: (way OT)

Halliburton is moving to Dubai. I’m glad we gave them all those non-compete bids. That sure made them loyal to our country.

The only way I can make it sortof pertinent:
looks like Dubai’s RE market will get some steam, and Houston’s will take a fall, given all the high paying jobs that will move to Dubai now.

http://abcnews.go.com/Business/wireStory?id=2941931&Business=true

Mortgages up despite subprime woes
Industry trade group’s index says application activity increased 2.8 percent in the week ended March 9, the highest reading since December.
March 14 2007: 7:49 AM EDT

NEW YORK (Reuters) — In the wake of the ongoing subprime lender shakeout, mortgage applications rose last week, with both new purchases and refinancings driven up by the lowest long-term home loan rates since early December, an industry trade group said Wednesday.

http://money.cnn.com/2007/03/14/real_estate/bc.usa.economy.mortgages.reut/index.htm?postversion=2007031407

A last rally before the change in lending standards…?

This uptick in applications probably has more to do with re-applications (following rejections due to the upstream problems in the mortgage market ) than it has to do with a surge in buyer interest.

OT
what really caused STAGflation of 70’s - are we headed there now?
oil prices
guns n butter Nam then Great Society
first real impact of global trade and outsourcing
tia

“What, no more free money? What kind of country is this. It’s my right to be able to have a mortgage and not pay on it.”

Fucharist, keep an eye on Chris Dodd and Barney Frank on this. They’ve been making some populist noises that have the smell of bailout or at least enforced forbearance for the FBs.

I just got an unsolicitated offer in the mail for 1.25% fixed rate mortgage. So there was an 800 number and I called. I asked how many loans had they bought back - did not know. I asked if I have to actually make payments on the loan or can I just take the money and walk away (yes there was cash back). Silence on the other end- and then “well of course you have to make payments”. I said well I heard that others did not and I wanted to do this as well. I then said that loans like this will ruin the country and asked him if he knew what a snakeoil salesmen was - click.

Asian & Europe markets down pretty big last night -

Nikkei -2.92%
Kospi -2.0%
SSE -1.97%
FTSE -1.78%
DAX -1.86%

Trigged by American markets. It’ll be interesting to see what’s up for today, though early indications are up in pre-market.

So Senator Dodd of Connecticut is calling for a bailout of subprime borrowers. Now THERE was a head-slapping moment.

No wonder some people call them “Dumbocrats”. I say this as a person who is thoroughly disgusted with both parties right now and wouldn’t want to admit to belonging to either. From a purely cynical, not political, viewpoint, the Dems are really looking like a bunch of losers with no balls. They have a golden opportunity right under their noses and won’t take it because they are too busy being pandering pussies.

If I were in charge of strategy for the Dem presidential candidates, I’d be leaning on the House Dems big time to go ahead and impeach. You couldn’t BUY the kind of television exposure they’d get. Since all the action would be happening in the House, the Dem Senators campaigning for Presidential nomination could position themselves above the fray and let the House Dems do all the dirty work of eviscerating Bush and all the various Republicans involved in the many fiascos of the administration: Iraq, Katrina, Homeland Insecurity, DOJ, you name it, the possibilities are endless. As in the Depression, when the masses escaped into the entertainment provided by Hollywood, an impeachment would provide endless entertainment and a sense of vengeance, however misplaced, for those who have lost their homes and even jobs as a result of the housing bust. No bailout needed. For FBs, watching a bunch of crooks “get theirs” would ease their sore feelings, even if it doesn’t do anything about the empty wallets. It would certainly be a good diversion and the masses must have a diversion. It would definitely stave off a lot of social unrest in the streets, since there would be a good show on TV. Heck, maybe they could even get the producers of American Idol to jazz it up a little bit.

I am not arguing the merits of whether or not Bush should be impeached. In my cynical view, that’s beside the point. It’s the tremendous strategic opportunity the Dems are missing out on by not doing so. Which is why they are going to lose their butts in 2008.

From the Daily Reckoning

Bad things happen to good people who do stupid things.

That’s what the good people at New Century Financial - and the good people who lent them money - found out yesterday. After losing 78% of its value last week, the New York Stock Exchange halted trading in New Century stock, as America’s second largest subprime mortgage company “teetered on the edge of bankruptcy,” according to the Financial Times.

Whenever we see something teetering on the edge of disaster, we have an almost irresistible urge to give it a little push. But it is not within our power to destroy New Century or to save it. All we can do is get out some popcorn and watch.

“Subprime lending problems escalate,” is the headline on the Financial Times piece. It explains that when the subprime industry tumbles into the abyss, it could drag the whole U.S. mortgage industry - which it puts at $8 trillion - along with it.

Will that happen? No one knows. But the investment banking stocks are headed down, too - generally off more than 10% from their highs. They are the companies that own the stock in New Century and much of the debt that it and its subprime borrowers can’t pay.

Together, Morgan Stanley, Goldman Sachs and Citigroup all hold a big part of the subprime bag.

Poor Goldman! No company made more out of the liquidity bubble…and no company is better placed to protect itself. Goldman’s man, Paulson, is now the head of the U.S. Treasury. In theory, no one stands to lose more when the liquidity whooshes out. But when the bubble finally deflates, we’ll see how good the wizards of Wall Street really are. Have they laid off all the risky debts and dubious assets onto widows and orphans? Or are they still stuck with a lot of it themselves? We note, for example, that someone sold the New York State Teachers Retirement System a 3.6% stake in New Century Financial. That salesman should get a special bonus.

Bloomberg News tells us, “the deepest U.S. housing decline in 16 years is about to get worse.”

“A year of pain ahead as American housing dream sours,” trumpets the headline.

“Lenders may foreclose on as many as 15 million more American homes, another 100,000 people in housing-related industries could be laid off, and another 100 mortgage companies that lend money to people with bad or limited credit may go under, according to real estate experts, economists, analysts and a Federal Reserve governor.”

The article tells us “the spring season, when more than half of all U.S. homes sales are made, has been disappointing…”

But wait a minute. Spring hasn’t even begun yet. Bloomberg is getting ahead of itself.

“The correction will last another year,” says Mark Zandi.

“If this slump follows the same pattern as the last one in 1991, it will persist for at least another year and may fuel a recession. Sales of new homes declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession…”

Recession? Alan Greenpan puts the odds of recession at one in three. Bloomberg notes the inverted yield curve; it says the odds are higher - one in two.

Delinquencies are rising. Foreclosures too. CreditSights, a N.Y. bond research firm, predicts that defaults will dump more than a half a million more houses on the market. Ken Rosen, an economist at U.C. Berkeley adds that 1.5 million houses, out of a total of 80 million, will be foreclosed.

Many of these houses were sold to people who were not asked to prove their income nor their work history. “Liars loans,” they were called in the industry. The epithet was unflattering to the mortgagees. But now it’s the mortgagors’ turn for ridicule and abuse. For if the borrower was a liar, the lender was surely an idiot.

Hello,

I was thinking this morning about what effect the housing meltdown will have on local communities.

County/City/Town Services cut back. Forget the rants on fancy townhalls. Librarys, schools, parks, police, fire, EMS

How many people who provide the above services are over extended already? Do you really think a nurse or cop who is getting foreclosed or working 80 hours a week to pick up the slack of a laid off spouse is going to do the same quality job?

Basic civility? Overstressed people over react.

Racism, xenophobia, and nationalism?

Here’s something I don’t get - why do market woes cause companies to delay they earnings? Ergo H&R Block announced yesterday they were delaying announcing their quarterly numbers due to mortgage market woes. Surely this stuff is computerized by now, right? It should be just bigger numbers.

Seems like often the bean counters look forward to or even cause financial turmoil, just so they can claim they have more work to do and make more $$$.

Lereah Calls Bottom For At Least The Fourth Time

http://tinyurl.com/yp4m6u

David Lereah Watch

From a Washington Post article -

http://tinyurl.com/2nfaw6

“Several lawmakers, including House Financial Services Committee Chairman Barney Frank (D-Mass.), said they would offer legislation to rein in risky mortgages.”

Oh yes that’ll work well. At this point it’s like pointing a water pistol at a forest fire. Something tells me this legislation wouldn’t be so good for the long term economy.

“Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) told reporters that Congress will have to consider providing several billion dollars of aid to at-risk homeowners.”

Oh yes, that’s *really* nice. I give to charity - a fair amount actually. But I like being able to select how much I give and who I give to, based on who I think can benefit the most. What I *don’t* like is being forced by the Federal Government to give charity - a lot of charity - to people who do stupid things, based on their criteria and with them skimming off their portion. It really, really pisses me off. Especially when it’s only prolonging pain, and not serving to educate people.

On Jepardy last night one of the answers was STAGFLATION!
Interesting.

I’m getting a little edgy with people using the term “predatory lending”.
No one held a gun to these folks heads to sign on the line.
I rather feel this whole debacle is a result of a lack of financial education and a true sense of entitlement among my peer group of 30-somethings.
One of my younger friends (21) believes that American Consumers will always have access to credit.
What about the 1 Billion debt free (for now) consumers in say, China?
Perhaps if more Americans believed in working hard , saving for the future and keeping themselves educated this whole mess would not have occured.
I’m guessing the global financial system went haywire in summer 2001.
Thus, a false flag op , the lowering of interest rates to 40 yr lows and the transfer of liability to the “homeowner”.

How about the term “Predatory Borrowing”?
You know, where our “leaders” borrow money that future generations will have to pay back.
Selling future generations into debt slavery seems kinda unsavory.

A Recession is imminent because some recent borrowers will be licking their wounds after foreclosure while a majority stop spending to make their monthly mortgage payment.

commission structures can give loan officers incentives to put borrowers into high-cost loans, regardless of their ability to repay them.

“If consumers are shopping for a neg-am (negative-amortization) loan, many salesman try to sell them on the start rate alone,” Krystofiak said. “The commissions are based on the note rate, and many consumers don’t pay attention to the actual interest rate. With neg-am loans, there is a large incentive for salesmen who don’t care about the client, to get them an exorbitantly high interest rate. There are banks that advertise to originators they will give up to 3.5 points for yield spread — that’s a $17,500 commission on a $500,000 loan.”

“All of this is very lightly disclosed at signing,” Krystofiak said. “There is a smoke-and-mirrors effect. You’re dazzling them with this nice low monthly payment, and the real interest rate can be in the high 7s, low 8s, and that’s what the commission is based on.”

It’s amazing how many housing bubble related blogs are out there now claiming to be the first to see this thing coming. I remember starting back in late 2003 googling housing bubble and getting maybe a handful of articles until that faithful day when Ben Jones showed up on my screen. Ben, as far as I’m concerned, you the man!

And then there’s this from this morning’s Arizona Republic: Another Condo tower planned for downtown Phoenix:
http://www.azcentral.com/business/articles/0314biz-condos0314.html

would you pay $400 per square foot when you can get an ocean view house along the northern California coast (clean air, lower crime, no drought) with acreage for less? I won’t tell you where on the coast.

From Briefing.com

A growing sense that yesterday’s broad-based downturn was an overreaction is prompting some early bottom fishing. Investors are also finding comfort on the subprime mortgage front after it was reported that Goldman Sachs (GS 199.95 +0.92) and several Wall Street firms are bankrolling subprime lenders with credit in anticipation of a rebound in the troubling sector.

They just don’t get it do they?

I’ve been reading this blog for about a year and a half and i’m amazed to read statements in the msm that could have easily been a post a year ago by Robert Cote, John Law, TxChick and the list goes on. However, yesterday spooked me…really spooked me. I pulled out of the market in 2005 and took ALOT of cash with me that’s since been sitting in various interest bearing accounts. I need some input from some of the more astute posters on here. Is this the safest place for my money to be? I could actually see a collapse of our banking system by Q3. The FDICs never really been put to test. Do I move my money into bonds, gold? Any input would be greatly appreciated. Thanks.

GPS-message to PPT

If possible, make a legal U-turn!

http://money.cnn.com/data/markets/dow/?

It’s only 7:00am here on the west coast, and already 119 posts.

Here come the bleeding hearts wanting to bail out the GF’s with your tax $$. From the Wall Street Journal-

http://online.wsj.com/article/SB117381491552635821.html?mod=hpp_us_pageone

Although I never post, I have followed this blog for almost two years and have learned a lot. Actually, it convinced me not to follow the herd and get into speculative buying frenzy. I am in the military and “own” a house in the Otay Ranch community of Chula Vista. I have to endure daily discussions of how I am wasting my equity by not putting it in good use like buying a second home or driving an expensive SUV. I thank this blog and all posters for the great information. I look forward to the time when discussion on this blog transitions into ideas on how to help prudent people on this blog to come up with a strategy or a plan on how to benefit from this housing mess and be able to buy a house in the future

Q4 ‘06 Federal reserve debt numbers are out -

http://www.federalreserve.gov/releases/housedebt/default.htm

Key item is the second to last column - mortgage debt looks like it’s finally peaking.

That to me is a key indicator of the state of the bubble - that prices won’t be going back up anytime soon. The last peak was in late ‘91 / early ‘92 - prices didn’t start going up again until 5-6 years later. And that was a much lower peak. If even the same timeframe is applied now - prices won’t start going up until 2012 or 2013. In my opinion it’ll be probably 2015-2017 since this bubble is much larger.

Carl “the fool” Icahn is at it again. He is trying to buy WCI for ~ 923 Mil. I would think the boyz in mahogany row at WCI would gleefully take him up on this. Just like Continental Airlines did when they let him buy them out ! He will discover now as he did back then what FUN it was to run a struggling company . Where does this joker get all his dough ? Doing the carry trade from Japan ?

Meanwhile, in other news, the builders stocks are UP, UP, UP !!

Time2Buy!!! : http://www.marketwatch.com/quotes/quotes.aspx?symb=tol+kbh+len+ctx+dhi+fnm

Fed, OCC Publicly Chastised Few Lenders During Boom
Bloomberg 14 March
“…. The subprime industry’s woes have their roots in the tenure of former Fed Chairman Alan Greenspan. The Greenspan-led Fed cut its benchmark rate to 1 percent in 2003 and kept it there for a year, helping foster a housing bubble.

Philosophically Opposed

At the same time, Greenspan was philosophically opposed to heavy-handed intervention or rule-writing, and favored self- regulation and the primacy of markets. The former chairman declined to comment.

As Wall Street’s appetite for high-yielding mortgage bonds drove demand for high-risk loans, lending standards declined. Subprime mortgages almost doubled to $640 billion in 2006 from $332 billion in 2003, according to the newsletter Inside B&C Lending.

In response, the Fed and other regulators issued non- enforceable warnings, advising bankers and federal examiners about best practices in mortgage lending. Agencies issued guidelines defining unfair and deceptive practices in 2004, on home-equity lending in 2005, and on non-traditional mortgages in 2006. …”
“… One witness at a June 9 hearing in Philadelphia was Ackelsberg, who received a 2001 award from that city’s bar association for his work for the public interest.

Ackelsberg told former Fed Governor Mark Olson and Consumer Affairs Director Sandra Braunstein that the subprime market was “fundamentally broken,” and presented an example of a loan that left a Social Security recipient with about $10 a day to live on after she paid her mortgage.

He and other critics say the lack of public action is symptomatic of a too-cozy relationship between the overseers and the overseen, with consumers and the U.S. economy paying the price….”
http://tinyurl.com/2jsk5e
`Fundamentally Broken’ - pretty succinct description.

The invisible hand is struggling mightily to shake off the shackles of plunge protection…

http://www.marketwatch.com/tools/marketsummary/

God does have a sense of humor. GM(the co. or north american operations or whatever I don’t remember) actually made some cash last year. however, it had to “infuse” GMAC with $1 billion! the irony.

two things.

1. I read that some of these mortgage bonds don’t have to be marked to market until they are downgraded. so we have a bunch of bagholders who suddenly will report a steep decline in their bond values out of the blue. no?

2. secondly, remember that with accounting procedures you can collect the whole loan amount as earnings even though the borrower might only pay a teaser rate and etc.(or something close to that). so not only will a company make less loans, if credit standards tighten, we’ll see they’ll probably be for less money. new accounting standard may allow for less total amounts being borrowed because of increased lending standards. I hope that reads well.

instead of making an IO loan and booking earnings on a $4,000/per month payment(even though the borrower pays $2,000/month and they also book the neg am earnings?), they book a loan of saw $3,000.

either way, I see a few suprises in a form of a “gap down” in earnings and the value of these bonds.

Good PBS video on subprime-

javascript:open_video(’http://pbs-newshour.onstreammedia.com/cgi-bin/visearch?user=pbs-newshour&squery=%2BClipID%3A3+%2BVideoAsset%3Apbsnh031207&template=player.html&inputField=%20&ccstart=2402859&ccend=3110794&videoId=pbsn’)

Don’t lose the faith!!!

http://snipurl.com/1czpe

B of A … ethics are abundant in the professional world…and so it goes!

Here’s a useful economic word: disgorgement

http://biz.yahoo.com/rb/070314/bankofamerica_sec.html?.v=2

The second-largest U.S. bank agreed to $16 million of civil fines and $10 million of disgorgement, the U.S. Securities and Exchange Commission said. It will also hire a consultant to review internal controls and stop leaks of research reports.

Dictionary.com Unabridged (v 1.1) - Cite This Source
dis·gorge /dɪsˈgɔrdʒ/ Pronunciation Key - Show Spelled Pronunciation[dis-gawrj] Pronunciation Key - Show IPA Pronunciation verb, -gorged, -gorg·ing.
–verb (used with object)

1. to eject or throw out from the throat, mouth, or stomach; vomit forth.
2. to surrender or yield (something, esp. something illicitly obtained).
3. to discharge forcefully or as a result of force.
–verb (used without object)
4. to eject, yield, or discharge something.

PPT is early today 1:30

Lots of big WS investment banks are licking their chops at future subprime bottomfishing opportunities.
————————————————————————————
Lehman sees more subprime woes
But Wall Street bank says meltdown in segment of mortgage industry may open up opportunities.
By Grace Wong, CNNMoney.com staff writer
March 14 2007: 1:01 PM EDT

NEW YORK (CNNMoney.com) — Lehman Brothers said Wednesday that turmoil in the subprime mortgage business is likely to persist but that could open up some opportunities for the firm.

“[The subprime mortgage business in the U.S.] will continue to face headwinds in the near term,” Lehman CFO Chris O’Meara told analysts during a conference call.

But Lehman is seeing the return of pricing power and “we expect to see various opportunities from the market dislocation,” he said.

The exposure investment banks have to the subprime market has come into focus as some of the nation’s largest subprime mortgage lenders have fallen to the brink of bankruptcy amid a sharp rise in defaults among borrowers.

Shares of Lehman (down $2.72 to $69.28, Charts) fell 4 percent in midday trading amid a broad market selloff triggered by ongoing troubles in the subprime mortgage market.

Wall Street firms have their hands in all segments of the subprime market, where lenders make home loans to borrowers with weak credit. Wall Street banks not only provide financing to mortgage lenders, but also buy these loans, repackage them and sell them as securities to big investors like mutual funds and hedge funds.

http://money.cnn.com/2007/03/14/news/companies/lehman/index.htm

Forgive me if this is a repost, but:

$1,300…$2,000…there goes your mortgage
When they bought their home in 2004, the Sanons had a feeling they were getting in over their heads - they were right.

http://money.cnn.com/2007/03/14/magazines/fortune/sanon.fortune/index.htm

“Fast forward a couple of years, and the Sanons, like so many other subprime borrowers today, are struggling to keep their heads above water. As the housing market boomed, refinancing or selling your home was a simple solution for borrowers who had trouble making the mortgage payment. Now that the housing market has stalled, subprime borrowers are stuck with loans they really couldn’t afford in the first place.”

Sounds EXACTLY like what we had been saying…ok, which of you is Ellen Florian Kratz?

Subprime woes may hit capital
Tightening lending could make the region’s home-sales slowdown worse, experts predict.
A meltdown in the subprime mortgage lending market might mean trouble for a Sacramento-area market many believe is slowly coming out of its housing slump….

http://www.sacbee.com/business/

Boy, the market is still working…see that updraft due to all the “Good” things that are helping investors to see a “wonderful tomorrow”

Are these guys bulletproof? Can they really walk on water?

March 14 (Bloomberg) — Lehman Brothers Holdings Inc., the second-biggest U.S. underwriter of mortgage-backed bonds, said risks posed by rising home-loan delinquencies are “well contained” and will have little effect on the firm’s earnings.

Making loans to borrowers with poor credit histories, packaging them into bonds and trading those securities accounted for 3 percent of revenue in the past six quarters, and the firm is hedged against declines in the market, Chief Financial Officer Chris O’Meara said today after the New York-based firm announced a 5.5 percent increase in first-quarter earnings.

http://www.bloomberg.com/apps/news?pid=20601087&sid=acfyXogcSmvs&refer=home

NEWS ALERT from the Netherlands:

for the very first time, the woes in the US mortgage (and housing) market made it to the Dutch TV news (yesterday it was briefly mentioned in some national newspapers). From a contrarian point of view that might signal a short term bottom …

Pundits from the Dutch banking and mortgage industry were quick to assure us that although the EU stockmarkets look a bit terrified now (down far more than the US markets), nothing like that can happen in Europe although it might shave some points from the extremely optimistic EU growth forecasts. Someone from Dutch bank ING (down 3.3% today, broke its four-year uptrend with full force) explained that we hardly have sub-prime mortgages in Europe and that lending is far more responsible here. LOL! ABNAMRO got lucky because they just sold their US mortgage holdings two weeks ago, but they got punished by the market just the same.

just for the overseas perspective … from a country where a big chunk of one of the major cities has been shut off from the rest of the world for another day because of riots. These riots have a lot to do with RE as well (big property developers that are demolishing cheap rental homes to build luxury homes and apartments for the rich - and of course local government knows which side to choose).

How to Reduce the Risks in Your Mortgage

Don’t assume only risky borrowers with subprime loans are getting into trouble. Your mortgage may expose you to sudden payments hikes, too.

http://tinyurl.com/2cjree

just something to keep in mind.

“Under terms of its sale to a group led by Cerberus Capital Management, GM had guaranteed a minimum book value of $14.4 billion when the sale closed at the end of November.”

so is $1 billion just the beginning?

Already the banker jokes are being published. Knock yourselves out. The readers digest version of the debacle:
http://www.washingtonpost.com/wp-dyn/content/article/2007/03/13/AR2007031301733.html?referrer=emailarticle

Game of hot potato, anyone?
———————————————————————————-
Who will get caught holding the subprime hot potato?

In the wake of Tuesday’s market turmoil, which most analysts are attributing to the accelerating stream of bad news from mortgage lenders, it might be educational to recall some of the early explanations of why trouble for some subprime lenders was unlikely to spread more widely.

The big Wall Street investment banks that were giving the mortgage lenders the lines of credit with which to operate, and then turning around and buying the mortgage-backed securities that repackaged the risk of default inherent in those loans, were safe from harm, we were told, because they had protected themselves with “buy back” or “repurchase” clauses in their contracts with the lenders.

Typically, the repurchase agreement stipulated that if homeowners defaulted on their mortgages too quickly, the lenders would have to buy back the loans that they had sold off. So those subprime lenders that were unloading their loans almost immediately after making them weren’t really selling off the risk embedded in those loans. If the loans were bad, they’d still be forced to eat them.

The prevalence of buy-back clauses befuddled me when I learned about them, because I didn’t quite understand the point of handing off your risk of default to someone else, if you were still on the hook if anything went wrong. I was even more confused when informed that similar provisions applied widely in the entire hotly expanding universe of credit derivatives. As I’ve struggled to understand credit derivatives over the last few years, I’ve been told again and again that they make the overall financial system more resilient than ever before, because all this buying and selling of risk insurance has spread risk around so widely that the system can handle any shock. But if the sellers of protection can renege on their promises if something really goes awry, then what, actually, is being protected?

As it turns out, it’s not quite so easy for Wall Street to shrug off the excesses of the subprime lenders. As the Wall Street Journal pointed out on Tuesday, enforcing repurchase agreements can be challenging when the original party doesn’t have any funds to make good on its obligations. Credit Suisse and Goldman Sachs and Morgan Stanley can send subprime-debacle poster-child New Century Financial Corp. all the default notices they want, but you can’t get blood from a bankrupt stone.

The question of the day continues to be whether the subprime mess will spread its tentacles into the larger economy. Preliminary indications in the affirmative are thought to be what spooked investors on Tuesday, but I don’t think that anyone yet has a solid handle on what is going to happen. But one of the first lessons of the housing bust should be clear: Someone eventually has to pay the piper when a market goes sour, no matter how much protection is bought and sold. Wall Street’s biggest financial players were fundamental enablers of the subprime lending spree; to think that they can escape the “carnage” with just some minor flesh wounds seems unlikely.

UPDATE: MarketWatch has an alarming story on further deterioration in the mortgage lending industry, which might explain why, as of 9:35 a.m. Pacific, the Dow was down about 90 points.

http://www.salon.com/tech/htww/2007/03/14/subprime_risk_2/index.html

Long time reader. Been standing on the sidelines of this housing bubble watching in amazement for 4+ years, which just means I have horrible timing.

Lately I’ve hearing more and more comments that perhaps the federal government will step in and aid folks facing forclosure. I urge all you folks in this blog to write to your congressmen and senators and oppose any government bailout for folks facing forclosure. All that will do is waste government money and delay the housing market from achieving balance.

What is the record for the most number of posts in a day ? I bet today was it.

Gee, I’m shocked :

http://www.reuters.com/article/newsOne/idUSL1470530620070314?pageNumber=1

wow, one of the best articles I have read so far.

Wow!

“Why Your Home Isn’t the Investment You Think It Is”

http://online.wsj.com/article/SB117329581356629863.html?mod=homes_left_column_hs