March 19, 2007

“We Might See A Little More Deterioration”

The Boston Herald from Massachusetts. “The subprime-mortgage sector’s sudden implosion is putting some frost into forecasts for the Bay State housing market’s crucial spring season. ‘I was looking for a recovery, or at least stabilization, in Massachusetts home prices this spring, but now I think we might see a little more deterioration,’ said economist John Bitner of Boston-based Eastern Bank.”

“The Center for Responsible Lending estimates 17 percent of Massachusetts home buyers who got subprime loans in the past two years will ultimately lose their properties. Economist Jim Campen of the University of Massachusetts-Boston said that translates into thousands of extra properties for sale - and he thinks the CRL figures ‘may turn out to be conservative.’”

“Experts add that bad publicity surrounding the subprime market might prompt some house hunters to stay on the sidelines this spring. ‘The knee-jerk reaction will be: ‘There’s going to be a lot of foreclosed properties coming onto the market. Maybe we shouldn’t be so hasty about buying,’ Eastern Bank’s Bitner said.”

The Boston Channel. “The turmoil in the mortgage market for homebuyers with poor credit history could put tens of thousands of Massachusetts residents at risk of losing their homes in a state where foreclosures already are spiking.”

“‘For most people in foreclosure, even if they can get good credit counselors, more often than not they can’t be helped,’ economist Jim Campen said.”

“Lenders and homeowners are now paying for lax lending guidelines that allowed people with poor credit to move into homes amid a booming housing market where financing was readily available, said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association.”

“‘Those lending guidelines were much more attractive then to Wall Street than they currently are,’ Cuff said. ‘In the last 60 days, we have seen a tremendous resetting of those guidelines. What goes up, must come down.’”

The Worchester Business Journal.’Worcester investor Harold Avery says the stratospheric home prices of the past couple years have made it harder and harder to make a fast buck in real estate. Apparently, he’s not alone. According to the Massachusetts Association of Realtors, multi-family sales volume in Central Massachusetts fell by 22.6 percent in 2006, while prices dropped by just 1.4 percent.’

‘Everything’s come down now, price-wise, but even the crack houses in Main South are $350,000,’ he said.’

From Fosters Online in New Hampshire. “Foreclosures nearly doubled last year in New Hampshire and are on track to double again this year, at least in part because of defaults on subprime loans, experts say. Charley Farley, president of Compass Mortgage in Bedford, said climbing default rates on subprime loans will affect the real estate market.”‘He said investors in the bond market, where mortgage-backed securities are sold, are coming to realize default rates will affect the value of bonds they buy. ‘Investors are not going to bid on mortgage-backed security pools that have a high risk of default, unless they are going to get a higher rate of return,’ he said.’

‘Subprime loans are already possibly the riskiest type of mortgage-backed security in the stock market, he said. The lending industry is re-evaluating underwriting guidelines and tightening loan requirements, he said. ‘The industry will make adjustments themselves,’ he said. ‘The subprime lending industry is realizing the error in its ways.’

‘He said loose guidelines that gave loans to people with poor credit scores, coupled with the leveling off or decline in property values, has contributed to more foreclosures. But, he added, the real estate market typically is cyclical. ‘This is normal,’ he said. ‘Property values can’t go up all the time.’

The New York Times. “Lawyer David Volman has handled enough divorces to know that many marriages collapse under financial strain. So when his practice, in Shelton, began receiving an unusually large number of divorce cases last summer, Mr. Volman took it as an omen. ‘Divorces go hand in hand with foreclosures and bankruptcies,’ he said.”

“Sure enough, in the first two months of this year, Mr. Volman took on some 50 bankruptcy cases, an ‘enormous amount,’ he said, given that in all of 2006 he handled 19.”

“Many of the cases involve working-class couples in the Lower Naugatuck Valley who can no longer afford their mortgages. ‘People are walking into my office and saying: ‘Here are the keys. Do whatever you have to do. I just want to get out of this so I can sleep at night,’ he said.”

“Preliminary figures for February gathered by RealtyTrac Inc., a national online marketplace for foreclosure properties, show a total of 1,451 foreclosure filings in Connecticut, a 61 percent increase over the corresponding period last year.”

“That surge followed a steep rise in January as well. The 1,287 foreclosure filings in Connecticut that month represented a 67 percent increase over January 2006, according to the company’s figures.”

“‘Connecticut uses the same underwriting guidelines as everyplace else, so what’s happening here is the same as what’s happening in New York, Rhode Island, Massachusetts,’ said Thomas Egan, president of the Connecticut Mortgage Bankers Association. ‘Lending was just a little too loose, along with a real estate market that isn’t growing.’”

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Comment by txchick57
2007-03-19 10:36:36

Snark Alert!

All At Once
Scott Reamer
Mar 19, 2007 11:26 am

Mortgage marketing campaigns have been changed from “Money? Free!” to “Last four years of W2’s – notarized!”, font sizes have been reduced in print ads, get-rich-on-real-estate infomercials have been moved from prime time to 2am, your brother in law has finally clammed up. Indications, all, that something has changed – really changed – in the housing market.

Official news over the last several weeks that lenders from Countrywide (CFC) to Freddie Mac (FRE) would be tightening their lending standards in the subprime sector of mortgage originations positively begs the question: what’s changed?

But before we can attempt to limn even the faint outlines of the answer, we need to countenance the conclusion that such question asking as: “Do you have an income?” and “Can I see proof?” has one and only one effect on credit supply and demand: a decrease.

And that means liquidity is drying up in the mortgage market.

The particular exit strategy of someone-will-buy-it-from-me-at-a-higher-price rests squarely on the next Mensa reject wrestling the required funds from a banker before he can exercise his herding instinct, sate his brain stem, and flood his circulatory system with endorphins. And if those bankers are now equipped with stethoscopes as they claim, that next buyer won’t ever get his golden ticket. Which means someone is stuck with $2,350 per month in maintenance, taxes, insurance, and mortgage costs on an ‘investment property.’ And $3,775 when the re-set comes in late 2007.

When home prices stopped going up12-18 months ago, the frustration was palpable but hardly fear inducing. Timelines were stretched for ROI, ‘we’ll use it as a vacation home’ rationales started flooding forth, and travertine backsplashes suddenly went wanting. But things are different now, measurably so. And that difference is not just that the demand for credit to speculate on housing has declined. It’s that supply is now contracting. And when a credit cycle starts seeing supply contract (liquidity declining), all sorts of things start to happen: speculation gets robbed to pay a tax to prudence.

But, really, what has changed? What has really changed?

It’s not as if bankers don’t have money laying around to extend or sweeten the terms of the new loans these home speculators now need. Hell, the Fed and Treasury just need to print it into existence. And certainly Senator Dodd has played his cards: he thinks Congress should help 2.2 million home owners who are getting squeezed from buying a home they couldn’t afford in the first place (and apparently who are not English speakers also because existing federal regulations demand that every possible term and contingency in lending be laid out for borrowers).

So you have the Federal government’s legislative AND executive branches (if you know which branch the Federal Reserve comes under please email me) wanting to help these folks. But, still, liquidity wanes.

Why? Time preference. Specifically aggregate time preference.

The bankers who sign the checks, the appraisers who value the property, the retiree who speculates on the property, the investment bank that pools the mortgages and tranches them, the rating agency that rates those pools, the other investment bank that securitizes the tranches, the rating agency that rates those securitized pools, the other investment bank that sells insurance on the securitized tranches, the pension/hedge fund that buys the pools/tranches/securitizations. All have the means to keep the game going – to effectively go back in time to the halcyon days of 2004 or the even the salad days of 2005. But that’s not what’s happening.

And it’s not going to happen either. Whomever it was that first came to his/her senses in this credit madness is moot; it’s the fact that his/her action – that mortgage banker, that CDO trader, whoever – catalyzed the opposite trend toward probity. After an orgy of credit-based risk taking, incented in almost every conceivable fashion by monetary and social institutions, the negative feedback effects of reduced liquidity are almost certain now to run their course in the opposite direction with potentially equal (or greater) costs. Booms turn to busts not because something ‘happened.’ They turn to bust because there is simply no other path.

It is said that when men go mad they do so all at once. But they gain their sanity slowly and one by one.

That credit supply is being tightened means we’ve passed the ‘one-by-one’ stage and we’re approaching ‘all-at-once.’

No positions in stocks mentioned.


Scott welcomes your comments and feedback at

Scott Reamer runs Union Tree Capital, a Denver-based hedge fund, as well as Scout Research Partners. Previously, he was a sell-side analyst for nine years covering the technology, media, and Internet sectors for Prudential Securities, Bear Stearns, Donaldson Lufkin & Jenrette and SG Cowen.

Comment by RJ
2007-03-19 10:42:27

“(if you know which branch the Federal Reserve comes under please email me)”

ahhhh, try the London phone book. Or perhaps Tel Aviv.

Comment by Kane
2007-03-19 11:59:11

Right on RJ.

Comment by sohonyc
2007-03-19 12:10:22

Try Geneva.

Comment by palmetto
2007-03-19 10:47:48

Great stuff, thanks.

Comment by ex-nnvmtgbrkr
2007-03-19 10:48:04

“They turn to bust because there is simply no other path.”

And there it is, the end of the line for the “funny money” game. Can you say major turning point in American history?

Comment by edgewaterjohn
2007-03-19 11:53:30

“simply no other path.”

No kidding. Still, many a war, financial crash, and all manner of social calamity has been similarly rationalized.

Should we again find ourselves in good times after all this I’ll be keen to remember that despite all the claims of the stuffed shirts, intellectuals, and politicians - the best they can ever really come up with in times of crisis is to collectively cry “uncle”.

Comment by Catherine
2007-03-19 10:54:30

awesome, txchick…thanks. Such great articulation.
However, what does “probity” mean?

Comment by eastcoaster
2007-03-19 10:36:50

“Baby boomers who in recent years finally bought that beach house they always wanted also will find that the tide has turned, Zandi added. ‘If they were hoping to rent the home to cover expenses, they will not be happy,’ Zandi said. ‘Most of them will give up and start selling their properties.’”

It will be interesting to see what happens at the Jersey shore this summer. Last year I couldn’t believe all the “For Rent” signs up and down Long Beach Island. Historically, these places are easily rented for the entire season. I have a feeling it will be even worse this summer.

Comment by ex-nnvmtgbrkr
2007-03-19 10:56:29

It’s interesting, you can just sense the massive liquidity created by by housing over the last several years being mopped up. It’s not just through declining values, but massive carrying costs of all these properties going unreinbursed is acting like a massive, sucking whirlpool empting the pockets of the of the would-be-tycoons. All the “money” flooded through the system and into the hands of those who had no idea of what to do with it is vanishing like smoke in the wind. Rags-to-riches-to-rags in a blink of an eye. What a time to be alive!

Comment by Sammy Schadenfruede
2007-03-19 12:54:09

Well said.

Comment by Home Pwner
2007-03-19 10:58:37

Lets keep out eye out for good deals down the shore this summer. I want to rip off a flipper

Comment by manraygun
2007-03-19 11:36:34

ya mean Flipper the TV dolphin bought down at the shore too!? jeez nobody escapes this. poor dolphin

Comment by Neil
2007-03-19 11:40:54


Cute itellegent non-biped mammels who flipped do get my sympathy. Lassie would deserve a bail out too.

Everyone else? Schadenfreude.

Got popcorn?

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Comment by palmetto
2007-03-19 12:04:56

I want to rip off a flipper, too. Or an FB or GF or whatever. I plan on paying cash. I have this little bubble routine that I do for my friends. I make a V with my index and middle finger of my right hand, and then I point them inward toward my eyes and move them from side to side and I say “I want to see their eyes darting back and forth with fear as I negotiate with them.” Always gets a laugh along with joking comments of “you’re just too cruel”. The fear I’m referring to is the fear that I might not buy their property. Too early now for the price I want to pay, but I can wait.

Comment by Sammy Schadenfruede
2007-03-19 12:56:44

I can’t wait to lowball - or should I say ‘ultra-lowball’ - flippers on general principle.

“It takes a big man to cry, but a bigger man to laugh at that man.” — Jack Handy, DEEP THOUGHTS

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Comment by Doug McGuinn
2007-03-19 11:54:32

I’ve concluded that all this talk about the mega bucks the Baby Boomers are going to inherit in the next few years is nothing but pure-tee BS! I’m a Boomer (born in 1947). My parents died about 15 years ago, and I lost what little I inherited from them in the dotcom bust. Recently, I attended a retirement party for a friend of mine. A lot of the people at the party, whose parents are still alive (now in their 80s), had all these sad stories to tell about how they are having to spend big bucks to keep their parents in nursing homes or to pay the medical bills of their ailing parents. By the time their parents die, they said, there won’t be any money to inherit, because it all will go to the medical profession, the drug companies, and the nursing homes.

Comment by palmetto
2007-03-19 12:21:12

“A lot of the people at the party, whose parents are still alive (now in their 80s), had all these sad stories to tell about how they are having to spend big bucks to keep their parents in nursing homes or to pay the medical bills of their ailing parents.”

Been there, done that. Twice. But we were fortunate in that my parents planned pretty well. I miss them. The worst part is when they are completely disabled, can’t even move or communicate and you know they are suffering. And it just goes on and on that way. A living death. If modern medicine can keep people alive for so long, they ought to be able to keep them alive in good shape. The whole system is a racket, IMHO.

Comment by verjeep
2007-03-19 17:57:49

Dude, research how to make a living will. It’s easier than you think and will help take the weight off your family’s shoulders should you develop a disastrous medical condition. A big part of the reason many of the elderly continue with medical care that simply prolongs their suffering is that their families feel like they are giving up on them if they make them DNR/DNI (do not resuscitate/do not intubate) or CMO (comfort measures only). If you specify in advance under what conditions these kick in it makes it much easier on your family when it comes time to make these decisions.

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Comment by flatffplan
2007-03-19 10:46:03

BULL - MA prices are 15%+ off peak
, while prices dropped by just 1.4 percent.’
the only possitive counties in USA are next to drilling rigs or corn

Comment by Mr Vincent
2007-03-19 10:49:17

‘Everything’s come down now, price-wise, but even the crack houses in Main South are $350,000,’ he said.’

When the economy tanks and more people turn to drugs to feel better, crack-house investing might be the next big thing.

Comment by Neil
2007-03-19 11:44:00


Too funny today…

Yep. But I’d prefer to invest in a beer company; less graft. I bet there will be a lot more demand for the services that crack ‘ladies’ can provide too… Organic growth market…

Got popcorn?

Comment by mrktMaven FL
2007-03-19 10:52:41

“‘For most people in foreclosure, even if they can get good credit counselors, more often than not they can’t be helped,’ economist Jim Campen said.”

Yup! Witnessing this first hand with FB buddy Bob.

Comment by txchick57
2007-03-19 11:00:29

and why should they be “helped” if being “helped” means gaming the old credit record so it looks like nothing ever happened? I’m particularly sensitive to this as we are having to play stupid games (i.e., obtain credit card, use it to pay for something, pay it off a few times) to ratchet up the credit score (low because of an exit from the system years ago as opposed to crash & burn)

Comment by mrktMaven FL
2007-03-19 11:24:18

In my FB buddy’s case, when you do the math his total income is less than total expenses and that is before the August reset and includes paying the minimum; moreover, it does not include the balloon at the end of the term. He’s an idiot.

I agree; it sucks having to maintain several open lines of credit just to keep your FICO above deadbeat standards.

Comment by az_lender
2007-03-19 11:01:50

“turmoil in the mortgage market … could put tens of thousands of residents at risk of losing their homes”
What BS. They put themselves at risk when they signed up.

Comment by tarvos
2007-03-19 13:19:40

That poor maid won’t have her 8 properties to sleep in. Mrs Pena won’t be able to live on her $500k house either. That’s so horrible…shame on us.

Comment by OlympiaGal
2007-03-19 10:57:33

‘Thurston County foreclosure rate highest in Washington’
• Foreclosures in Thurston County increased nearly 8 percent last year, from 413 in 2005 to 446 in 2006.

• Statewide, foreclosures increased 25 percent, from 14,865 in 2005 to 18,527 last year.

• Nationally, foreclosures increased 41 percent, from 885,468 in 2005 to 1.25 million last year.

South Sound real estate agents and mortgage lenders blame some of the increases on programs that enticed buyers into the market with mortgages that required no money down or allowed buyers to pay interest only for several years.

“If you could fog a mirror, you could get a loan,” said Jeff Crandell, designated broker with Abbey Real Estate in Lacey.

Adjustable-rate mortgages also might have contributed to the rise in foreclosures, said Dan Yerrington, president and CEO of South Sound Bank.

The aftermath of watching all those DR Whoreton horrid tickytacky subdivisions replacing the farmland and forests is…this.

Comment by geeah
2007-03-19 10:58:14

We might be a little pregnant….

Comment by mrktMaven FL
2007-03-19 11:35:51


Comment by Arizona Slim
2007-03-19 11:39:54

Is it a girl FB or a boy FB? Or is it still too early for ultrasound?

Comment by Sammy Schadenfruede
2007-03-19 13:00:06

FBs aren’t born. They are spawned.

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Comment by GetStucco
2007-03-19 11:00:17

‘He said loose guidelines that gave loans to people with poor credit scores, coupled with the leveling off or decline in property values, has contributed to more foreclosures. But, he added, the real estate market typically is cyclical. ‘This is normal,’ he said. ‘Property values can’t go up all the time.’

This is normal? If so, I would sure like to see a working definition of abnormal.

Comment by House Inspector Clouseau
2007-03-19 11:11:21

More importantly:

he states “This is normal… Property values can’t go up all the time”

that’s not what I heard from 2001 until 2005. I was told most definitely that they will not only go up all the time, but they’ll do it at 20%/year indefinitely.

I remember arguing with a person about this around 2004. I pulled out my pen and said.
-Ok, you buy it today for $500,000. That means it will be worth:
-$600,000 in 2005
-$720,000 in 2006
-$864,000 in 2007
-$1,036,800 in 2008
$1,244,160 in 2009
-$1,492,992 in 2010

they looked at me and said “Yep, that sounds about right”.

I new we were doomed with that conversation.


Comment by Sammy Schadenfruede
2007-03-19 13:02:31

This is normal? If so, I would sure like to see a working definition of abnormal.

Got one for you - David Learah and Casey Serin, a.k.a. the Normal Brothers, Sub and Ab.

Comment by GetStucco
2007-03-19 11:10:45

Home builders just can’t seem to visualize the rosy picture that Wall Street bulls have in their minds…
U.S. home builders’ index falls to 36 in March
By Rex Nutting
Last Update: 1:00 PM ET Mar 19, 2007

WASHINGTON (MarketWatch) - U.S. home builders were less optimistic about the housing market in March, according to a monthly sentiment index released Monday by the National Association of Home Builders. The NAHB/Wells Fargo housing market index fell to 36 in March from a downwardly revised 39 in February. It was the first decline in the index since September. The index shows that about one-third of builders have confidence that the housing market is healthy. “Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity,” said David Seiders, chief economist for the industry trade group.

Comment by GetStucco
2007-03-19 11:17:58

“The index shows that about one-third of builders have confidence that the housing market is healthy.”

Oh — so that is what it means? The glass is not 2/3 empty, it is 1/3 full. Something about this explanation seems a bit fishy.

Here is a link to the time series data. It shows the real story, which is that the index just came in below 40 for the ninth straight month. The last time the index spent any length of time below the level of 40 began in April 1990; the economy was in recession as of July 1990 (but this time is different!).

Comment by WT Economist
2007-03-19 11:32:50

Is the data adjusted for the fact that only 2/3 of those in real estate are sane?

Comment by Arizona Slim
2007-03-19 11:41:15

I think that 2/3 sanity figure’s a bit high. Try 1/3. Or less.

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Comment by Neil
2007-03-19 11:46:11

1/3rd think the market is healthy?

Did Prozac go over the counter?

Got popcorn?

Comment by P'cola Popper
2007-03-19 11:43:02

With all the grade inflation these days getting a reading in the 30’s nowadays is probably like getting a reading in the 20’s back in 1990.

Comment by GetStucco
2007-03-19 11:31:42

Is this a permanently high plateau moment?
Bullish home-builder analyst sticking to guns
Citigroup’s Kim says subprime’s fallout on sector may be overblown
By John Spence, MarketWatch
Last Update: 1:26 PM ET Mar 19, 2007

BOSTON (MarketWatch) — One of most consistently bullish Wall Street analysts covering home builders during the housing downturn argues that the hand-wringing over the subprime-mortgage market and its potential impact on the already beaten-down group may be exaggerated.

“The threat from the subprime issue on home builders is obviously large, but somewhat indirect,” wrote Citigroup analyst Stephen Kim in a research note this weekend. “It is also widely discussed and prone to hyperbole.”

Comment by manraygun
2007-03-19 12:09:29

“…widely discussed and prone to hyperbole.”

top notch analysis there.

wait there’s more:

“More reasons why the analyst says he’s upbeat include the following:

* “Fence-sitters” who are worried about the housing market’s uncertain direction may buy homes this year if they see signs of stabilization.
* There will a lag before subprime foreclosures impact the industry.
* Lenders may allow borrowers in danger of foreclosing to refinance.
* Many subprime borrowers already have their existing home on the market, so inventories of unsold homes may not rise significantly.
* The government may step in to help subprime borrowers.”

sorry, this list contains more fanciful notions than a bjork cd.

Comment by P'cola Popper
2007-03-19 12:16:50

“There will be a lag before subprime foreclosures impact the industry”

I guess those 30 plus subprime lenders which have been eaten by the Implode-o-Meter will trail off their originations in an orderly fashion over the the next six months or so—-NOT!!

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Comment by James
2007-03-19 13:02:31

I guess the fraud will become more sophisticated and intense over the next year or two. More CYA from the brokers.

Comment by Ben Jones
2007-03-19 11:31:33

BTW, a glitch in the software has put some of the timestamps off.

Comment by WT Economist
2007-03-19 11:33:55

From the NY Times, wealthy parents helping their kids buy at inflated prices in New York, including some from India.

I wonder if it will affect parent-child relationships if the “investment” doesn’t pay?

Comment by aladinsane
2007-03-19 11:37:05

What a gift for a precious few…

I’ve waited over 20 years for this bubble to burst and am ready for the carnage, as I have my fallout shelter, made out of gold.

You, my people, have a week or 2, maybe a month (who knows?) to buy gold and secure your financial future.

Wish i’d known it would take so long, i’d have just swooped in, just before the fireworks show was scheduled to begin. You have that chance.

Comment by Mo Money
2007-03-19 11:54:46

Ah Gold, last refuge of the crackpot.

Comment by aladinsane
2007-03-19 12:22:46

The new golden rule…

Those that have the gold, make the rules.

Comment by tarvos
2007-03-19 13:28:51

New goldilock economy…
Those who have the gold….hmm, sorry, I thought I could make something out of this. I’ve got nothing.

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Comment by Chad
2007-03-19 13:44:33

Many of us already in - and heavy. Don’t preach.

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Comment by aladinsane
2007-03-19 13:53:56

Trying to save a few souls, nothing more.

Comment by mjh
2007-03-19 17:17:14

New rules? ISo it’s different this time?

Where have I heard that before?

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Comment by Muggy
2007-03-19 15:29:02

“What a gift for a precious few…”

aladinsane, give me a break, please.

Comment by aladinsane
2007-03-19 16:26:43


Where would you put your assets?

Got a better idea?

Comment by SteelCurtain
2007-03-19 11:41:23

‘1 in 5 sub prime mortgages will go belly up. Maybe 2 in 5. ‘

This quote got me to thinking, we assume that most of the loans that go bad will be a result of involuntary defaults. In other words the borrower can’t make the payment.

Lets assume for a moment that the catastrophic collapse that some here believe is coming happens. Suppose house prices go down 50%, your 700K house is now only worth 350K. You make a good salary and pull in 100K a year. Are you really going to pay that 350K of your 700K loan that you now believe you will never see again knowing you will never be able to pay it off.

If prices drop 50% I suspect 50% of the borrowers will mail in the keys whether they can make the payment or not.

Comment by simi.uber.alles
2007-03-19 12:27:44

I’m not sure about that. A lot of people only consider their monthly nut, and as long as they can comfortably pay that, they will. The foreclosure route might seem like the only way out at this point, but if the FB can ride it out for 7-10 years, they’ll probably come out no worse than even. I mean, RE will recover eventually, right? FC is simply not a rational decision for people who aren’t struggling to make the mortgage payment. It’ll lead to years of bad credit and a long time before they’ll ever be able to buy another home.

Now, the real subprime people who can’t afford the payment after the ARM reset are another story entirely. They will walk in a heartbeat, because they had no skin in the game in the first place. They won’t be able to buy again anytime soon, but to them, that’s okay, because without loose credit, they wouldn’t have been able to buy in the first place.

Comment by DC_Too
2007-03-19 13:29:30

I saw people who were perfectly able to pay just walk away in the last bust. Year after year after year of being under water - despair sets in, and people walk. How many? Lord knows, but some will walk, that’s for sure.

Comment by LinQ
2007-03-21 10:34:07

My uncle bought during the last high at the end of the 80s. During the mid 90s he was perfectly capable of maintaining his mtg pmts. The problem was that his neighborhood had severly deteriorated from all the lower income people who could now afford to buy places similar to his. He had a family & didn’t want to stay in an area that was ’slumifying’ (slumification = the opposite of gentrification). He bought (got a loan on) a new place & then handed in the keys on his old place. Since his credit was good he had several years to clear off the FC & he was able to buy again recently.

Comment by mike
2007-03-19 11:41:53

As a continuation of the above. My wife does some part time CPA work for a couple of small (under 50 employees) companies. Those working in these companies have been crowing gleefully about how their 401k accounts have been growing. I trade the stock markets and have done so for over a decade and I told my wife that the Wall Street Financial Gangsters “Giveth when they want but also Taketh Away When they Want” and you can bet your mother’s wedding ring that they WILL start taking back at certain time. Gee, guess what? In the last few weeks they have been taking away. There’s more to come especially (as I suspect) we are going into a recession. Why do I think we are heading into a recession when most of the financial pundits say we are not? Good ol’ Mister Magoo Greenspan. He’s the greatest ass covering Washington Hack who ever drew breath. It gets better. Magoo ALWAYS throws in a one liner PRIOR to the event to cover his wrinkled ass. He uttered the “R” word quite recently. He semi-denied it a little later but the crap hit the wall and it sticks. I know he isn’t Fed Chairman anymore but Magoo still wants people out there know he’s smart. Smarter than Helicopter Ben because it helps his reputation on the highly paid rubber chicken curcuit and he wants to keep his “Maestro” reputation.

How far are we going down? That’s the unknown but the property bubble burst will lead the way. One can judge it roughly (very roughly) by assuming the Wall Street Financial Gangsters will let those 401k’s increase around 5%. That’s the end number after they have sucked $ in and then sucked $ out to get their million dollar + bonus money.

Hey! You didn’t think they were looking after YOUR interests did you?!!

Comment by txchick57
2007-03-19 11:46:19

Gee, this is a relief:

Credit Crunch Is a Sham
By Tony Crescenzi Contributor
3/19/2007 1:24 PM EDT

For more commentary from Tony Crescenzi and his instant reactions to the latest economic news, check out his blog on For more information about subscribing to RealMoney, please click here.

Whenever investors begin to obsess over a particular factor and their anxieties start driving market prices, it’s time to take a step back and assess whether the market’s movements are justified by fundamentals.

When doing this exercise in the past, I’ve made my best calls on the markets, primarily because my macro approach forces me to look at the fundamentals of a given situation and gauge any disconnect between perceptions and reality. The goal is not necessarily to see whether the markets are wrong in terms of direction but to see whether their moves are excessive and unsustainable.

Right now, the hot topic is the subprime market. One of the biggest questions is whether this sector’s problems will spill over into other areas of lending. In other words, will problems in the subprime market crimp overall lending and cause a credit crunch, which would then harm economic growth and potentially lead to a recession?

On RealMoney, I report regularly on a variety of data that answer the question of whether any credit crunch question is developing. For example, the nation’s bank-lending statistics can either refute or validate the bears’ concerns that the subprime woes will spread to other areas of lending and cause lending activity to flatten or weaken. Fortunately, these data are available on a weekly basis.

In looking to answer the credit-crunch question, I closely follow data released every Friday at 4:15 p.m. ET by the Federal Reserve on the assets and liabilities of U.S. commercial banks. I’ve been reporting on them for a long time, mostly to assess the pace of economic growth, but I changed my focus when the credit-crunch question started to garner more attention.

These data are an excellent gauge of whether any change in lending conditions is occurring. In this report, the Fed sums up the total amount of money extended by the nation’s commercial banks to individuals, businesses and government entities via loans, leases and securities purchases. The data are comprehensive, meaning that if the problems in the subprime sector are broadening out, this will be obvious in the data.

The newest data released Friday squash the idea that a credit crunch is developing in response to recent subprime problems. The Fed’s data show that bank credit expanded strongly in the week ended March 7, increasing $23.9 billion to $8.437 trillion. The rise follows other large gains over the previous five weeks, which saw bank credit expand at a 13% annual rate, which is faster than last year’s gain of 11% and 2005’s gain of 10%.

Interestingly, recent increases in bank credit have been partly the result of steady increases in real estate loans, which reached a record $3.381 trillion in the latest week.

In addition to these data, it is notable that bond issuance has been very robust over the past two weeks, with issuance running several times the normal levels. Hence, many entities are looking for money (many of these have been financial companies), and investors have been very willing to give it to them.

This wouldn’t happen if there were a credit crunch. For now, that concept is still a sham.

Comment by mrktMaven FL
2007-03-19 11:35:11

He gets paid for this shizzle?

Comment by GetStucco
2007-03-19 11:52:51

I wonder why Crescendo and friends don’t feel the need to address the rather large count of subprime lenders who recently vanished from the map? It is easy to make up stories as long as you don’t feel compelled to reconcile them with actual data.

“Latest count of major US mortgage lenders that have croaked since late 2006: 41 lenders have now gone kaput”

Comment by GetStucco
2007-03-19 11:57:47

Wall Street is spinning like crazy to help us all forget the subprime collapse that has been underway for about three months now…

Comment by mrktMaven FL
2007-03-19 11:43:12

Cannot stop the bull. Watch your step!

Comment by Kane
2007-03-19 12:08:42

With all the anectdotal evidence suggesting that credit is drying up but we have a WallSt charlatan saying there isn’t a credit squeeze?

Comment by James
2007-03-19 13:10:21

I do not get that people don’t realize that debt exhaustion burned out the bubble. Not a change in perspective.

A huge portion of the loans were negative AM. What about that doesn’t say exhaustion. The debt is so big that we can’t even service it at zero interest rates. Not to mention the dollar started to unhinge.

Its beyond real estate… the credit bubble is everywhere.

Feelings/perspectives aside… the number of first time buyers that can qualify on even a normal 5yr ARM is too small. So, your asking people to jump in with an option ARM…

Debt exhaustion. The credit expansion is done. Unless we commit some kind of currencicide 100% inflation ish.

Comment by Chad
2007-03-19 14:21:55

At the end when he mentions that banks are looking for $, he fails to realize that they are looking for money BECAUSE they will be forced to buy back bad loans! It is NOT to lend it out to more GF’s! IMO.

Am I way off base?

Comment by Joe Momma
2007-03-19 12:04:28

Houses cheaper than cars?;_ylt=AqLiyiSnw1FHTAQ2bTLtTpwDW7oF

Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.

At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.

A boarded-up bungalow on the city’s west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000.

“You can’t buy a used car for that,” said Izairi.

Comment by mike
2007-03-19 12:06:55

We are simply watching pre-planned collateral damage as the bubble bursts.

Wall Street will NOT lose money. The Financial Gangsters (brokers) will simply manipulate the stock market and steal more of the 401k money to make up for any losses. 1 in 5 sub prime mortgages will go belly up. Maybe 2 in 5. Tough for some of the dummies who got suckered thinking the Fed was going to give them a “free lunch” but 4 or 3 in 5 will become (what was the governments intention in the first place) stable, tax paying cash cows.

When the smoke clears, a lot more people will have bought into the bs America Home Owner Dream than were in it BEFORE this pre-planned run up for suckers.

Think ahead and look for the hidden agenda. The USA was once a very mobile nation. Now, with energy prices at a premium (and unlikely to drop too much) and the new tech advances in communication, people will become less mobile. Thus, they will stay in their property longer.

Think further ahead and look for the next hidden agenda. Social Security programs cannot sustain the on-slaught of people living longer with increased medical costs, pensions, etc. That means “means testing” will come into effect. In some parts of “socialised europe” it already has been introduced. House “equity rich” owners will be drawing cash out of their houses as they grow older as their government/medicare benefits decline.

Think further ahead for the next “hidden agenda”. All the children of these equity rich parents will get zip, zero, nada when their parents die because there will be very little left. That means, instead of retiring at 50′ish on their inherited wealth, they have to remain (productive) tax paying members of society.

Are people so dumb that they at least wonder why nobody in government, over the last 6 years, stepped up to the plate and shouted, “Wait a minute!! This is financial madness!! History has shown that ALL bubbles burst!!” Of course, our great, honest, dedicated, truthful politcians are NOW stepping up to the plate (now the hidden agendas have been completed) and shaking their heads, holding hearings concerning the skullduggery which has taken place when - all along - it has been sitting in their laps where they couldn’t help but notice. They are acting as if they were away on a moon trip for the last 6 years and never heard a thing about the corruption and scams taking place.

Let us jump forward to 2017. Maybe even before that. That $600,000 house that went into foreclosure and sold at auction for $475,000 will probably be on the market for $700,000. Buyers might not be lining up outside the realtors office to buy - but after some negotiations the seller will settle for $685,000.

That’s the way the game works. That’s the way the game has ALWAYS worked. Now - what’s the NEXT bubble going to be?

Comment by sohonyc
2007-03-19 12:14:45

I highly recommend watching the Bloomberg Special Report “Phantom Shares”.

Its excellent — and you’re right: Wall Street *won’t* lose money. The average investor will.

Comment by GetStucco
2007-03-19 12:25:33

Cool — more of the highly-touted benefits of deregulation can be seen in that report…

Comment by Joe Momma
2007-03-19 12:07:49


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Comment by kThomas
2007-03-19 12:18:30

Ownership Society = Debtor’s Society.

Soon, Bush will declare himself emperor. For a safe and secure society.

Comment by Kane
2007-03-19 12:27:25

Wasn’t it his father who rightfully called out pro-growth economics as voodoo economics? His father was right. What sickens me is the barking nutjobs who continue to insist the we can spend our way into prosperity.

Very sad.

Comment by WT Economist
2007-03-19 11:31:17

Looks like his father was right about Iraq too, though it didnt’ seem that way at the time.

Comment by kThomas
2007-03-19 11:33:23

His father? Bush II listens to a “higher” father.

God is on his side. He can do no wrong.

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Comment by aladinsane
2007-03-19 11:41:50

The nazis felt they had a stranglehold on that “god” thing, as well…

Every wehrmacht soldier proudly wore a belt buckle that proclaimed “Gott Mit Uns”

Comment by P'cola Popper
2007-03-19 12:24:21

Got Mittens? —-I guess that was a pretty popular saying on the Russian Front.

Comment by aladinsane
2007-03-19 12:26:29

God, for some reason, didn’t come through for the 250,000 nazis, in Stalingrad.

Comment by bearbanker
2007-03-19 13:42:06

P’cola . . . that is one of the funniest things I’ve seen on this blog.

Verrry Nice!!

Comment by tarvos
2007-03-19 12:44:35

““Experts add that bad publicity surrounding the subprime market might prompt some house hunters to stay on the sidelines this spring. ‘The knee-jerk reaction will be: ‘There’s going to be a lot of foreclosed properties coming onto the market. Maybe we shouldn’t be so hasty about buying,’”

The “experts” are still out of touch with America. Buyers won’t be waiting on the sidelines because there’ll be a lot of foreclosures, but because the majority can’t afford current cost of living, including housing prices. The “experts” never seem to consider the lack of affordability of the average American household.

Comment by kThomas
2007-03-19 12:49:39

So true. Affordability? What’s that?

Comment by Sammy Schadenfruede
2007-03-19 12:51:39

‘People are walking into my office and saying: ‘Here are the keys. Do whatever you have to do. I just want to get out of this so I can sleep at night,’ he said.”

OK, so their marriages, credit, and mental health are destroyed. But hey, at least they weren’t throwing away money on rent.

Comment by tarvos
2007-03-19 13:09:03

I guess the strategy now at is not lending to anyone who owns a home. It’s become part of my underwriting.

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