Builders “Already Seeing Subprime Shakeout”
Some housing bubble news from Wall Street and Washington. “Builder confidence in the market for new single-family homes receded in March, largely on concerns about deepening problems in the subprime mortgage arena, according to the National Association of Home Builders/Wells Fargo Housing Market Index, released today. After rising fairly steadily since its recent low last September, the HMI declined three points from a downwardly revised 39 reading in February to 36 in March.”
“‘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 NAHB Chief Economist David Seiders.”
From Bloomberg. “‘We’re seeing a second wave of negativity hitting the builders as the subprime mess starts to constrict credit to potential homebuyers,” said economist Christopher Low. ‘We’re not getting a bounce in sales that would lead to a recovery in housing starts.’”
The Associated Press. “Technical Olympic USA Inc., a homebuilder, said Monday it swung to a fourth-quarter loss, hurt primarily by charges related to a joint venture, but also by a declining housing market.”
From CNN Money. “About 1.1 million additional home foreclosures are expected over the next six years as adjustable-rate mortgages - which made home buying more affordable to U.S. buyers in recent years - reset to higher payments, according to a study by research firm First American CoreLogic.”
“The expected $112 billion in losses won’t break the mortgage industry but will inflict pain on lenders and borrowers affected by the defaults, said the study, released Monday.”
“The percentage of loans resetting with negative equity is expected to leap from 12.9 percent in 2007 to 24.4 percent in 2008. That’s when some of the most frequently used 2/28 mortgages and 3/27 mortgages are scheduled to reset.”
“Subprime mortgages have been generating a lot of attention, and worry, among investors, economists and regulators, but those loans may be only part of the threat posed to the housing market by risky lending. Some experts in the field are now concerned about the so-called Alt.”
“Standard & Poor’s estimates that the Alt. A market has gone from less than $20 billion in loans in the fourth quarter of 2003 to more than $100 billion in each of the last three quarters. Overall, new Alt. A loans totaled $386 billion in 2006, according S&P’s estimates - up 28 percent from 2005.”
“By comparison, subprime loans reached $640 billion in 2006, according to trade publication Inside Mortgage Finance.”
“Mitch Ohlbaum, president of mortgage broker Legend Mortgage whose business was about 55 percent Alt. A, said he’s seen a dramatic change in the business the last few years, and its now swinging back away from the loans.”
“‘All that nutty stuff is going to disappear,’ said Ohlbaum. ‘Everyone today is shying away from the 100 percent of value loan. But anytime there’s a big change in the market like there is now, everyone will overcompensate for a while. I think this will last for 12 to 14 months before things are back to normal, and I think you’ll see more foreclosures, more people in trouble in the meantime.’”
From Reuters. “U.S. financial markets are likely to experience some fall-out from the subprime mortgage lending woes but they are likely to be limited, the chief investment officer at the biggest U.S. pension told Reuters on Monday.”
“The subprime sector ‘is an important weakness in the economy and it is likely that there will be a measured impact in other sectors. And there is likely to be some contagion,’ said Russell Read of Calpers, which invests about $232 billion for California state workers.”
From Fortune. “Amid the chaos of the escalating subprime mortgage crisis, the three major credit-rating agencies, Fitch, Moody’s and Standard & Poor’s, have been voices of calm. But what if they’re wrong? It’s not just their reputations, already tarnished by their failure to give investors timely warning of the Enron or WorldCom implosions, that are at stake, but possibly the housing market itself.”
“Critics have their doubts. A paper co-authored by Rosner and Joseph Mason, a visiting scholar at the FDIC, argues that if home prices depreciate, even investment-grade CDOs will suffer ’significant losses.’”
“Janet Tavakoli, who runs Tavakoli Structured Finance, points out that AA-rated tranches of CDOs backed by subprime mortgage paper now yield far more than AA-rated debt backed by other assets - a sign that the market doesn’t trust the ratings.”
“‘No one believes the ratings have any value,’ she says. Opined Grant’s Interest Rate Observer: ‘We are willing to bet that the agencies assigned too little weight to greed, ignorance, and soft criminality.”
The LA Times. “Relatively few of the CDOs sold in recent years have been downgraded. ‘No one can say we’re not aware of the risks,’ said Kevin Kendra, an analyst at rating firm Derivative Fitch. ‘It just hasn’t materialized yet’ in the structure of CDOs, he said.”
“Yet many analysts say the market prices of the diciest mortgage bonds, those backed by so-called sub-prime loans, indicate that still-rosy CDO ratings aren’t reflecting reality.”
“Some mortgage bonds rated BBB, the lowest investment-grade rating, ‘are going to see real losses of principal soon,’ predicted Janet Tavakoli.”
“Risk premiums on investment-grade corporate bonds are at their highest level in more than three months on concern rising delinquencies by subprime borrowers will slow the U.S. economy.”
“‘This period of volatility is likely to continue as long as there is divided opinion about the magnitude and resulting financial impact of the subprime problem,’ said Edward Marrinan, head of North American credit strategy at JPMorgan Chase & Co. in New York. ‘Subprime risks and accompanying fears of a spillover into the broader consumer sector are the catalysts for the heightened volatility currently exhibited by all risky asset classes,’ he said.”
“Fremont General Corp., the California thrift trying to sell its home-lending business, told the unit’s staff they may be dismissed in two months.”
“Shares of subprime lender Accredited Home Lenders Holding Co. fell on Monday after the company said it still had not landed a financing deal to boost its liquidity.”
“New Century Financial Corp. said Monday it has received cease-and-desist orders from more states, restraining the company from taking new applications for mortgage loans.”
National Mortgage News. “What exactly are criminal investigators looking at in regard to New Century Financial? One source familiar with these matters said investigators are focusing on some of its loan trades.”
“‘Typically, they would do a trade before the quarter’s end,’ he said. The key to such trades, the source noted, is ‘counter-party’ risk. Counter-party risk means there’s a company on the other side of the trade, typically, an investment banking firm.”
“Another item being looked at is how much cash New Century said it had on its balance sheet. What New Century said it had, and what it really had, is a whole different matter.”
“In case you missed it: What’s the going price for delinquent second liens in the secondary market? Answer: 15 cents to 25 cents on the dollar.”
This just in:
‘Subprime lender NovaStar Financial Inc. will cut 17 percent of its workforce, laying off 350 workers at its Kansas City, Mo., headquarters, and at operations centers in California and Ohio.’
Novastar announced those job cuts that Friday evening. Here is the press release that went out:
http://biz.yahoo.com/bw/070316/20070316005716.html?.v=1
jb
Where are the CA operations located ?
They have an office in Lake Forest…that could be it.
http://www.novastarmortgage.com/corporate/career/CompanyOverview.aspx#ch
–
NAHB — Traffic of Prospective Buyers Very Bad Since June 2006
Just looked at some details, especially, Traffic of Prospective Buyers. A number below 30 means Very Bad. The value of 31 for Feb’07 was revised down to 29 and March number is 28. This means that this component has been below 30 since June 2006.
Yeah, housing has bottomed. Most Americans suffer from a chronic case of Optimistis, a very bad mental disease for the future. Cautious people have brighter future!
Jas
it has not bottomed…..i would say we are nowhere near bottom yet
“Most Americans suffer from a chronic case of Optimistis,”
Pretty true and it has stood us in good stead over the many decades. We should have been toast long before, but we’re still standing. Barely, but we’re still standing.
Only thing wrong with the US is its involvement in the affairs of other countries. Globalization: a really bad social experiment.
globalization and regime change. didn’t cheney say that iraqis would greet our soldiers with flowers? he must have meant IED.
with all the bad news, i am amazed dow jones still up, up and away. that’s optimism for you.
The NAHB Index has been a 100% reliable recession indicator, at least going back to 1985…
http://bigpicture.typepad.com/comments/2007/01/real_consumptio.html
Liz Ann Sonders at Schwab has been showing similar chart.
“Builders already seeing subprime shakeout”
And yet this was an email I received this weekend from a HB. It is unbelievable what they will do to keep this party going just a little bit longer. (shaking my head)
———————————————————————
Below are just two of the many recent news articles that talk about the trend in today’s mortgage market that makes zero down loans much harder to find. Like all market cycles, this too will not last forever, BUT in the mean time, most lenders need at least 3%-5% down to get a borrower into the American Dream.
The good news is that lenders like Taylor Woodrow Mortgage are coming up with creative ways to get buyers (especially first time home buyers) financed during this transition period. A great example is Taylor Woodrow’s 3% FHA Down Payment Assistance program that Taylor Woodrow Mortgage is offering right now. Basically we use $6k-$8k of our buyer’s $40,000 builder incentive as a builder contribution to the buyer’s down payment. This fantastic loan program does two things . . . First, it gets the buyer into the home with no money down*, Second, the buyer walks into the home with 3% equity in their property!
While the mortgage market is going through this transition period, go with a home builder & lender that stays ahead of the curve . . . offering creative solutions to help homebuyers get the home of their dreams!
“Basically we use $6k-$8k of our buyer’s $40,000 builder incentive as a builder contribution to the buyer’s down payment.”
Basically they give the homeowner a way to finance the 3% downpayment on the mortgage note, making it a 0% downpayment, with taxpayer-funded insurance. What a scam!
“‘All that nutty stuff is going to disappear,’ said Ohlbaum. ‘Everyone today is shying away from the 100 percent of value loan. But anytime there’s a big change in the market like there is now, everyone will overcompensate for a while. I think this will last for 12 to 14 months before things are back to normal, and I think you’ll see more foreclosures, more people in trouble in the meantime.’”
How are these builders handing the buyer a downpayment in the form of a 3% equity stake not offering a 100 percent LTV loan? Can any of the lenders out there comment on the legality of this? I thought a downpayment meant money in the bank, not builder financing of sham equity?
When I bought an existing house 3 years ago in Ohio, I used 100% financing via a special downpayment program. I had 30% of the purchase price in the bank, but had other uses for my money. So the mortgage broker hooked me up with an FHA loan where I borrowed 97% and received 3% from “community organization”. (this was not a first-time buyer program). We just changed the purchase price of the house by 3% higher, and everything was fine. Note - this was a FSBO where the owner had undervalued the house by a good 10%, so the appraisal came back well above the modified selling price.
So there are ways to fund the 3% downpayment thru special local financial intermediaries.
Can you tell us about the loan process compared to subprime?
I had bought a house several years ago in Upstate NY using traditional 30 yr fixed, 20% down, lots of paperwork, etc going with a local bank. I sold that house and relocated to Ohio, temporarily staying with family.
When I found the place to buy, a friend suggested I call a local broker to discuss financing. I talked to him on the phone, told him my financial plans and he suggested the path I outlined above. I gave him some basic info (ssn, employer, etc) over the phone. Later I copied bank statements, W2s, tax returns, etc and dropped them off at his local dropbox outside his office one evening. He faxed me the closings statements just before closing (with errors). We straightened everything out and closing went as scheduled. I never physically saw him but I did talk to him more than a dozen times. He filled out any paperwork that was needed.
This was a drastic change since I bought my first house 10 years ago using traditional methods. I do not know how this compares to subprime since I had an 800+ credit score and 30% of the money in the bank, and the house (actually a duplex I lived in and rented out the other unit) cost only 1.25 my annual salary.
Thanks. FWIW, some subprime products advertised No Income, No Job, No Assets (NINJA), no problem.
Sounds like the NONo loans; no down no closing costs loans of Christmas Past.
I can’t speak to your past experience, but I can tell you the builders are hiding a drop in the market value of their homes with their incentive programs; better yet, with the help of the FHA, they are getting the buyer into a mortgage for more than the market value of the home with taxpayer-provided insurance, and milking the 3% downpayment and other up-front goodies for the buyer (which the buyer finances as part of the loan).
Bingo GS ,you hit it on the nose . The property will have a inflated appraisal and the builder will give cash back and it will look like the borrower has a down payment in the deal when really it will be a over 100% loan . When is this industry going to stop the scams that will end up put pension plans at risk as well as require a tax bail-out . Do I care that the builder makes a sale this way so he/she can keep their profits up . Screw them,stop them , or they will screw us all like they already have .
Re: builders manipulating market
“Screw them,stop them ”
Couldn’t have said it better myself. If there is one thing that really boils my blood, it’s spin doctors and interest groups who blatantly misrepresent reality. This inflated appraisal business is a bunch of crap. If the feds come galloping to the rescue of these crooks and dip$hit FBs, I am going to go ballistic. What a pathetic nation we have become…
my community mortgage/fannie mae is still doing all of the following as of Feb 2007. check out their site…always a way.
New: Interest-only options
New: 40-year terms
New: No minimum borrower contribution
New: Eligible for temporary 2-1 interest rate buydown
LTVs to 100% for one-unit properties
Available for two- to four-unit owner-occupied properties
Flexibility on credit histories, nontraditional credit accepted
Extra flexibilities with options to serve teachers, police officers, firefighters, and health care workers, and people with disabilities or a family member with a disability
https://www.efanniemae.com/sf/mortgageproducts/mcm/
I don’t understand how these builders/developers can afford their carrying costs while selling very few properties. How long can they hang on? There is a 3 phase development called Brighton Manor in Reno, which has completed the first stage, and looks like a ghost town. It is a complete disaster in my opinion. Prices start in the high $300k’s and continue to the $700k’s. All for ugly homes crammed onto lots which are smaller than 3000 square feet. They are in a marginal location with tiny yards and no privacy whatsoever. I drove by this morning and noticed a sign posted for the hearing on the development of Phase II. Phase II? Phase I is a flop. What are these guys smoking? Upon further investigation, I found this press release on their website:
http://tinyurl.com/38v7jk
Another disgusting example of builders and brokers trying to squeeze people into homes they cannot even begin to afford. These people are the scum of the earth.
Question:
If a buyer has a reverse amortization loan, and the lender is taking the unpaid interest as income on the note, can the borrower use the unpaid interest as a deduction?
Short answer is no. When you hear about lenders counting unpaid interest as income that refers to GAAP basis accounting for financial statements. For tax basis accounting (ie, tax returns), both lenders and borrowers report interest payments as income and expense, respectively, when received and paid.
I got the same message from a CPA I know. Basically, companies base their income on accrual method…individuals on cash based accounting.
“While the mortgage market is going through this transition period, go with a home builder & lender that stays ahead of the curve . . . offering creative solutions to help homebuyers get the home of their dreams!”
Ha! Good one. In their dreams. They are never ever going to to equal the volume they did using subprime funny money. RIP! Next!
Is this now legal ??? It used to be illegal for builder’s to give the borrower down payment money. The “community” funding down payment scams were set up as a way for builders to get aorund this–but it now seems that they do not even have to make this sham effort & money can go directly to the buyers.
“‘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 NAHB Chief Economist David Seiders.”
Are the builders worried that a sudden reluctance among lenders to make loans to anyone without regard to whether the money will be repaid might hurt their sales? How preposterous!
Overall, new Alt. A loans totaled $386 billion in 2006, according S&P’s estimates - up 28 percent from 2005. By comparison, subprime loans reached $640 billion in 2006, according to trade publication Inside Mortgage Finance.”
$386b + $640b = $1.026t in Alt-A + subprime loans for 2006. Move along, folks, nothing to see here…
So what is an estimate for total losses in the next 24 months?
Here’s my quick scribble:
25% percent of loans foreclosed.
50% recovery. (Any former RTC people know this number?)
= $250B
(For comparison, total $ volume of the NYSE is of order $20B / day?)
Total guesses. More info welcome.
Whoops. Should be closer to $125B = $1T x 0.25 x 0.5
Need. More. Coffee.
Note that the $1.026t is only for 2006 lending. The exposure is obviously considerably larger, especially when you factor in the combined effects of housing ATM cashout financing + declining valuations in moving far more households to the neighborhood of 100% LTV.
Any guesses for rolled up numbers?
Dodd has it at 2.2 million homes to be lost if each home is mortgaged at $175,000 or 385,000,000,000 Billion; the FDIC expects ~5 -7million with an avg mortgage of 200,000 (~$1,400,000,000,000) (Scenarios for the Next Recession: St Louis Federal reserve)
Numbers with 11 zeroes are really hard to comprehend.
Agree. Just use $M $B and $T, it is much easier to read.
I’m pretty sure that Hoz was firing, for effect.
Thanks for the numbers. (Was there a link for the FDIC report?)
So what fraction of the mortgage is lost? I’m guessing 50% recovery in my numbers above.
In Dodd’s case, that would result in $160B, in line with my $125B above.
FDIC is closer to $700B. Did they have a fractional loss number?
TIA
FYI: An Update on Emerging Issues in Banking
Subscribe Unsubscribe
Scenarios for the Next U.S. Recession
March 23, 2006
http://tinyurl.com/qm5rq
Well worth the read!
Thanks Hoz!
FYI, Due to lender re-calculations, Inside Mortgage Finance revised its subprime figure to $600b for 2006. Alt A volume was $400b.
“What’s the going price for delinquent second liens in the secondary market? Answer: 15 cents to 25 cents on the dollar.”
You mean that’s all they will pay you to take them off their hands? I’m shocked, I tell you, shocked!
Personally, I like the “cease and desist” orders from the states. I didn’t know those exisited.
I guess that means they are pricing in a 75% to 85% default rate on those seconds - using rough numbers and not accounting for partial recoveries.
I think I’ll pass. But when first liens are priced at 50 cents on the dollar, I might do some shopping
I’m actually surprised that there is even a market for a second lien right now. As the first deed of trust lenders are facing this liquidity crunch, there are going to be less and less apt to hold firm on pricing–especially when it doesn’t do them any good!
If they can squeeze the second out entirely, and still get 100% payback on the first, guess what they’re going to do? As liquidity issues get worse, first DOT lenders are going to be OK with getting back 95% on their first, now, the 2nd DOT lenders are in the hole.
I suspect the buyers of these notes think that this slowdown is temporary. They’re going to try to keep the foreclosure monkey off their back, or perhaps buy the first DOT and foreclose themselves. They get a 15% discount on the purchase of the home, and now try to re-sell it…
I’m guessing that by Q4 ‘07, this 15-25% will drop even further.
We are willing to bet that the agencies assigned too little weight to greed, ignorance, and soft criminality.
I’m hoping that a definition of ’soft criminality’ is forthcoming.
Soft criminality is the category used by politicians.
Of course you know thats when all the really naughty bits are blacked out. As in:
the loan applicant’s monthly income is X,XXX,XXX, or
the property appraised at X,XXX,XXX.
You mean:
Applicant’s monthy income: X,XXX
Property appraised at: X,XXX,XXX
“In case you missed it: What’s the going price for delinquent second liens in the secondary market? Answer: 15 cents to 25 cents on the dollar.”
OK everyone — let’s mark those turkeys to market!
Really, if you have 100% financing and lose 30% in a forecloseure, you lose 30%. If you have an 80/20 and the 80 forecloses, a 20% loss means a 100% loss for the second lien. So delinquent second liens are 15 to 25 cents on a dollar? That’s high!
The 2nd’s are garbage. Agree 100%.
Is it too early to call them “sloppy seconds?”
I hope the market abolishes the seconds. PMI can return and assess the risk of each borrower better.
“Fremont General Corp., the California thrift trying to sell its home-lending business, told the unit’s staff they may be dismissed in two months.”
“Shares of subprime lender Accredited Home Lenders Holding Co. fell on Monday after the company said it still had not landed a financing deal to boost its liquidity.”
“New Century Financial Corp. said Monday it has received cease-and-desist orders from more states, restraining the company from taking new applications for mortgage loans.”
_____________________________________________
These three stooges need to be shot, they are the “Night of the living dead” of the business world. They are like freaking zombies who won’t go away. Die you bastards!!
Patience, grasshopper
lol
Like Bernie, these bastards keep coming back to life. Perhaps the investment banks cast a voodoo spell on them.
Think Terry Schiavo — braindead, but on life support, up until the end.
I thought she still had brain activity? That was my diagnosis of her from the images I saw on TV.
LOL
“Think Terry Schiavo — braindead, but on life support, up until the end.”
I wonder if congress will be called back from vacation this time?
LOL
That’s how the people supporting termination spun it. The doctors who did the autopsy said they could not determine how conscious she was, only that her brain was severely damaged. They did not say, as did many who tried to exploit the autopsy, that she was non-conscious, or couldn’t feel anything. They NEVER said she was brain-dead. No doctor who actually examined her ever did.
Following up: I favor legalized euthanasia by injection where the alternative is horrible (total paralysis, for example), but, of course, the medical profession would ruin it, too, by turning it into a multi-billion dollar industry. Still, if it were me, I’d want someone to inject me, but hanging on is built in, and most people, actually faced with such a situation, probably would choose to stick around. I’ve been waiting to leave this planet since I was seventeen. Somehow, I think I turned left when I was supposed to turn right, and landed on the wrong rock.
even the termintator can be done in…patience!!!
FMT - just let these people go NOW. Move on!
LEND - Delist this fraud outfit, no saviour is coming to allow them to be “born again”!
NEW will file BK this week. I can feel it! LOL.
I feel it too Brother Crispy! Let us lay hands to the monitor and cast this demon called NEW to the eleventh circle of BK!
Dust off the ouija boards!
All the sub-prime lenders are crooks . They knew what they were doing . How would you like to shovel shit and have Wall Street call it ice cream and get away with it for years now ?
People seem to forget the stories we were all reading right here about them. You know, calling around to guarantee funding for a loan before they would go through with it, and then playing hot potato so they didn’t hold it more than 5 minutes. They seemed very nervous about those loans for some reason….
Yup! Some subprime lenders functioned like boiler-room outfits.
They were boiler rooms like in the movie Wall Street. The average age was about 28.
The Holy Hand Grenade of Antioch! ‘Tis one
of the sacred relics Brother Crispy carries with him! Brother Crispy!
Bring up the Holy Hand Grenade!
How does it, uh… how does it work?
lmfao ™
‘Oh, Lord, bless this thy hand grenade that with it thou mayest blow
thy enemies to tiny bits, in thy mercy.’ And the Lord did grin.
And the Lord spake, saying, ‘First shalt thou take out the
Holy Pin. Then, shalt thou count to three, no more, no less. Three
shalt be the number thou shalt count, and the number of the counting
shalt be three. Four shalt thou not count, nor either count thou two,
excepting that thou then proceed to three. Five is right out. Once
the number three, being the third number, be reached, then lobbest thou
thy Holy Hand Grenade of Antioch towards thou foe, who being naughty
in my sight, shall snuff it.’”
lmfao “(tm)”
“These three stooges need to be shot, they are the “Night of the living dead” of the business world. They are like freaking zombies who won’t go away. Die you bastards!!”
Hey, quit trying to interfere with their “soft landing”!
Psst…..Hey buddy, want to buy a phony Rolex, dirty post cards, a sub-prime book of business; Hey whe’re ya going?
In case you’ve been missing all the rumor mongering about which firm is troubled — and which is not — every single subprime failure has been foretold on National Mortgage News’ ‘Grapevine’ bulletin board. (mortgagegrapevine.com).
____________________________________________________
BAHAHAHAHHA.
LMFAO! This clown is pissed he was scooped over and over by the bloggers.
No Paul BU did not have them all. Several other places had them days/weeks before you had them. You have been sccoped and are pissed - too bad. BAHAHHAHAHA
BTW - this is his third stab at the bloggers who scooped him.
We want news NOW, not later! You and all the other MSM who are moving to the web need to work on your speed. Yesterday is too late, by then everyone already knows!
Does anyone else sense a collective effort on Wall Street to pretend the subprime meltdown is a figment of our collective imagination? Or am I just witnessing the evidence of massive denial that the party is ending? Hard to say exactly what is going down, but it is strange, rather like watching a headless chicken run around the barnyard…
Our entire economy is one big confidence game. That is the Fed’s job and everyone else involved.
Keep confidence in the system high. Otherwise it is implosion time.
It wasn’t always this way. There actually used to be a Main Street economy out there to back up the Wall Street financial sector.
Sad but true.
Fed created money for this bubble. Blame others like banks/lenders who were just the “puppets” and real estate reps all cashing in. You won’t see any fed member being called on the carpet asking why they created/printed so much money? Keep blaming all the second/third players as that is where all the attention will focus. Why lower standards for toxie loans etc? The main culprit[federal reserve] will go scott free. Just wait and see!
Jerry you got it all wrong…it is the dirty Mexican illegal who is to blame for all of this. NOT J. Pennington Wentworth III, nice pink shiny republican banker. Gotta give the mouth breathers somebody to hate while you take every thing from them doncha know.
“Does anyone else sense a collective effort on Wall Street to pretend the subprime meltdown is a figment of our collective imagination?”
Remember all the reasons we heard why the stock market wouldn’t crash in 2000? Too much money in the market. Too many IRA accounts. People wouldn’t panic and pull money out. None of which turned out to be true.
Same thing with housing. Don’t expect anyone to announce “We know you’re in debt up to your eyeballs, we told you it was the smartest investment of your lifetime, but we all knew the tide would turn. Real estate has always been cyclical. Sorry you didn’t sell your house in 2005. For anyone who bought since, double sorry.”
Of course I don’t expect anyone to announce the reality of the situation. Nonetheless, I am never cease to be amazed by the extremes of mendacity which emanate from Wall Street’s spin team.
Wall Street feels vunerable to lawsuits in my view .
I was thinking the same… the large brokerages who have been packaging and selling the MBS… GS, BSC, LEH….
The Shadow Knows
Well the $55 billion in NY Fed working group money injected into the primary dealers last week isn’t hurting the market at all. I don’t know if I’d call this PPT action but it’s pretty close. It’s only being lent to the dealers for a week or two but this is a lot of money to stage these idiotic low-volume rallies (like today.) Then we’ll see this money returned slowly at opportune times. Unfortunately for the PTB (PTT?), they haven’t had a real solid rally to sell into recently and all of this work to trash the yen has had only limited results. JPM just games the market at supposed key support levels (txchick?) and makes it look as if the market has bounced off support, but in reality being a primary dealer they can see the huge money coming in and just time their trades accordingly. The market looks very sick here, to be honest.
I like your headless chicken analogy but pushing-on-a-string also works. The FCB have been buying MBS like mad but the market for mortgages is tightening nonetheless. I wonder why?
http://wallstreetexaminer.com/blogs/winter/?p=531#more-531
Yahoo Marquee
Homebuilder confidence sinks though woes won’t spread”
I wonder what people won’t be affected- when I call prospects these days the owner answers- that’s bad
20-50 employee companies w the owner answering ?
“‘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 NAHB Chief Economist David Seiders.”
You think Tony Cresenzi and Stephen Kim might give a call to the NAHB before opening up their fat trap. Those two guys should have their pay docked this month based on the two articles on the last thread about how the subprime blow up will not hurt builders or the housing industry. Their articles had a half life of exactly one HBB thread!
They did exactly what they are paid to do, which is to confuse the sheeple with stories that have little if anything to do with reality on the ground.
“… A DESTRUCTIVE HOUSING BUST IS NOT IN THE CARDS…”
David Seiders Oct 20, 2005 Testimony before the Joint Economic Committee
“Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line…”
Uncertain about the consequences? WTF kind of kool-aid are those guys on? Tighter lending standards equals fewer potential buyers, which translates into lower prices in the face of ever growing inventory. Is it really that difficult to connect the dots? The annoying thing is that the average person just absorbs and reiterates this crap!
One thing i’ve noticed the past month has been a willingness to tell the truth about what has been going on, amongst people in the know…
This is NEVER a good sign.
True.
Nice title on this one: ‘Liar loans’: Mortgage woes beyond subprime
http://money.cnn.com/2007/03/19/news/economy/next_subprime/index.htm
“There’s a reason they ask on the application do you intend to live in the property,” said David Berson, chief economist for mortgage financing firm Fannie Mae (Charts). “People who live in a property are less likely to default than investors.”
LOL, he is clueless! What % of investors state they will live in the property? I bet its pretty high.
Doesn’t Mr. Berson know whats been happening or has he been hiding in his ivory tower office? We just heard from Nevada that maids are “all in” for multiple properties.
Lets look at the loan apps and see how many of these props the maid planned on using as a primary residence.
“Stated income borrowers were typically self-employed people who write off a lot of income, so their tax returns really don’t reflect what they’re earning,”
TRANSLATION - Illegals that don’t file
Translation: … Stated income borrowers were typically self-employed people who took a lot of their income in cash and hide under the mattress, so their tax returns really don’t reflect what they’re earning …
Hint for IRS: go after those claiming mortgate interest that is greater than 50% of their reported income.
“Time for a mortgage bailout?”
http://money.cnn.com/blogs/generationrisk/2007/03/time-for-mortgage-bailout.html
I’m feeling a little nauseous right now, I realized I agree with Hillary on something:
“Hillary Clinton wants to make it easier for people to refinance out of onerous loans. From Bloomberg:
Clinton proposed eliminating pre-payment penalties that she said are “designed to trap borrowers” by imposing high fees for paying off loans ahead of time. Such penalties apply to 70 percent of subprime loans and less than 5 percent of prime loans, she said.”
Sounds a lot better than the “FHA picking up the tab” idea…..
OT, but I don’t know what this Indian has put in his curry
http://www.indiadaily.com/editorial/16095.asp
….but all of a sudden Hillary is not the worst case scenario:
“A major question in the mind of many people is what if US President George Bush can continue his term for another four years. According to US constitution, it is not possible. It will be very difficult with Democratic Congress. But some think tanks argue it is possible if terror strikes America in 2007-2008 and the country needs the continuation of strong leadership.
The biggest question in the mind of investors is – what happens to stock market then?
A George Bush Presidency during 2008-2012 can be very bullish for stock market. During that time America will do everything possible to dismantle the Al-Queda and Islamic terrorists. Budget deficit will increase and more tax cuts will be in place. The infusion of new money will boost the stock market. The job market will continue to be stronger for the low end jobs. Technical jobs will get further outsourced. Migration from Mexico and other emerging nation workers will increase rapidly.
The economy may actually recover from a recession and look strong for that time period.
Obviously the problems in the economy and the market will be further shifted out by another four years.”
“if terror strikes America in 2007-2008 and the country needs the continuation of strong leadership”…. hmmm let’s see, Cheney, Rove, false-flag-operation… no, that would be illegal.
What happened with FDR back in 1940? Wasn’t that the start of an unprecedented third term? Watch out for the sound system at the next Republican convention…
‘Third term, 1941-1945
The two-term tradition had been an unwritten rule since George Washington declined to run for a third term in 1796, and both Ulysses S. Grant and Theodore Roosevelt were attacked for trying to obtain a third non-consecutive term. FDR systematically undercut prominent Democrats who were angling for the nomination, including two cabinet members, Secretary of State Cordell Hull and James Farley, Roosevelt’s campaign manager in 1932 and 1936, Postmaster General and Democratic Party chairman. Roosevelt moved the convention to Chicago where he had strong support from the city machine (which controlled the auditorium sound system). At the convention the opposition was poorly organized but Farley had packed the galleries. Roosevelt sent a message saying that he would not run, unless he was drafted, and that the delegates were free to vote for anyone. The delegates were stunned; then the loud speaker screamed “WE WANT ROOSEVELT…THE WORLD WANTS ROOSEVELT!” The delegates went wild and Roosevelt was nominated by 946 to 147.’
http://en.wikipedia.org/wiki/Franklin_D._Roosevelt#Third_term.2C_1941-1945
Never ever happen…it is part of the return built into the deal and there will be no way the investors will agree to lose even more than they will due to the market. These are all red herring ideas as the people who decide what they will accept are greedy bastards and they would rather see em’ on the street than give em’ a break.
These things are in a vault and the govenment will be hard pressed to break them out.
Has anyone else read Roubini’s rant? Don’t go now. Wait. It’s pretty long but very thorough. Give yourself a good 10-15 undisturbed minutes. Here is the link:
http://www.rgemonitor.com/blog/roubini/184125
WOW, that was one monster of rant by Roubini…holy crap.
‘The way a senior and unnamed market participant put it in a bit exaggerated terms this was “an unregulated scam where a bunch of con artists fooled a bunch of clueless deadbeat borrowers”.’
LOL, thats rich…and accurate!
“an unregulated scam where a bunch of con artists fooled a bunch of clueless deadbeat borrowers”
I cant stop laughing…its soooo true!
Roubini is usually pretty good, but in this case I can’t agree that it is “unregulated laissez-faire capitalism” that is to blame for this mess. No one would lend sound money on such absurd terms. It was only the flood of “liquidity” from the Federal Reserve that allowed it to happen. Of course, private interests were only too happy to take advantage of the opportunity, but it couldn’t have happened without the Federal Reserve. Whether or not the Fed is a government agency, it certainly isn’t any part of “laissez-faire capitalism”!
It was a system built on providing ample liquidity to support the tax base of a deficit-spending welfare state and a Federal Reserve banking system and board designed to continually inflate the system to the upside. The President’s Working Group and the Federal Reserve Board are fancy names for an economic cartel whose job it is to keep the markets from self-adjusting in an appropriate time and manner. The coming correction should have happened years ago.
I am disgusted at the “feel good” economics and politics practiced these days. In a true “laissez-faire” environment, we never would have reached such a distorted point.
Houses cheaper than cars in Detroit !
http://www.reuters.com/article/domesticNews/idUSN1927997820070319?src=031907_16_TOPSTORY_houses_cheaper_than_cars_in_detroit
One house appraised for $525K sells for $135K at an auction. That really has to hurt comps ! I wonder what NAR will say about that ! These house prices get into the comps, right ?
THIS is the bursting of the bubble. Expect that sort of action to happen all over as the year goes on.
Cars let you can escape to better neighborhoods.
They appear to have reached the “revulsion” stage in MI. Totally amazing. Love that guy who “winced as he handed over his 35K check for the property in Oak Creek”.
Coming soon to an area near you.
You can live in your car, but you can’t drive your house
Which is why I’m gonna buy an RV…
“Clinton proposed eliminating pre-payment penalties that she said are “designed to trap borrowers” by imposing high fees for paying off loans ahead of time. Such penalties apply to 70 percent of subprime loans and less than 5 percent of prime loans, she said.”
How do subprime borrowers pay off ahead of time? It’s a good idea for everyone - but many don’t have downpayments –so why would they be able to pay off ahead of time unless they suddenly made a lot of money…
By refinancing they are able to payoff a loan ahead of its term.
But with 100% financing none of them have equity. They won’t be able to refinance so the waving of prepayment penalty will have little or no effect to reduce default.
I thinkl this may be the best action to take. It is standard practice for the politicos to do something that seems to help the common man but in actuality helps no one at all.
“They won’t be able to refinance so the waving of prepayment penalty will have little or no effect to reduce default.”
The FHA & homebuilders have forged a solution to this problem: Pay for the 3% FHA downpayment requirement out of the loan procedes. (This raises the question of whether the 3% is actually a downpayment or not, which depends on what the definition of is is…)
Pre-payment penalties are there for one main reason: to secure the sleazy brokers commision. I would love to see the broker and the lender fight over who takes the hit if the pre-payment penalties were eliminated.
“How do subprime borrowers pay off ahead of time?”
Monopoly money maybe?
Powerball!! “High risk is linked to high yield in our minds, because risks like staging a coup or making a power play are often worthwhile…a casino is just the racy poster girl for a multibillion-dollar industry that flourishes from the office betting pool to the PowerBall jackpot—anywhere we defy logic and statistics in pursuit of an easy payoff.”
Psychology Today by Nando Pelusi Ph.D.
or a couple things you might not wish to do.
Believe in any ideas before doubting and dissecting the whole critically, therefore rationally.
Believe in any formula invalidated by data or concrete/logical facts.
Ion Saliu
I could be wrong, but I thought that if government interferes with a contract between private parties (e.g., making the lender forego the pre-payment penalty), then the parties (in this case, the lender) could seek redress against the government (i.e., the govt would have to pay the lender for the damages caused by waiving the pre-payment penalty). Could the govt really afford this? The govt could outlaw pre-payment penalties on a going forward basis (i.e., not allowed on loans entered into after the date the law becomes effective) without it having to pay because those contracts would have been entered into with the knowledge that the pre-payment penalties were not allowed. But just outlawing them on a going forward basis would not do anything to stem the tide of foreclosures from all of the existing loans that have the penalties.
Most of that junk was sold predicated on certain investment terms to a pension plan perhaps, which expects a certain return over a specified time. Investment banker is certain to get sued.
Good points The lenders/investors themselves should agree to wave the pre-pays for anyone who might go into foreclosure to avoid loss . What good is it to charge the pre-pay if you lose the house to foreclosure or make it impossible for a person to sell . Again I say that the lenders should do this on their own to avoid foreclosures and lawsuits . In fact some of the lenders are already waving pre=payment penalties or reducing them from what I have heard from the grapevine .We don’t need no stinking bail outs . Very good point about how can the lawmakers make a new law and apply it retro to a contract unless it was a fraudulent contract which would be voidable .
ANswers to these should be interesting:
Active Trader Update
Kass: Tonight’s Special Is Grilled Greenspan
By Doug Kass
Street Insight Contributor
3/19/2007 10:47 AM EDT
I will be attending a private meeting with the former Federal Reserve Chairman Alan Greenspan this evening in Palm Beach, Fla.
Over the last week I have asked Street Insight subscribers to email me questions that they would like to be presented to Greenspan — and, as mentioned, I plan to pick out the two best, which I’ll share with you at the end of this column. I have received more than 250 questions for Greenspan from subscribers. Here are some of the best:
1. What is the best way for the banking system to deal with the large numbers of families and individuals who can neither afford their ARM reset payments nor a refinanced fixed-rate mortgage payment in order to limit bank losses and overall economic weakness (i.e., voluntary foreclosure, forced foreclosure, voluntary forced quick sale for a loss, etc.)?
2. Does Greenspan have access to the same information now as he did when in office? Is it as reliable?
3. Since 1975 the Fed has used margin requirements to exercise restraint or ease. Why haven’t we used this tool to prevent some of the volatility and leverage in our system?
4. Could it be possible that cutting interest rates would be bullish, not bearish, for the dollar because cheaper interest increases demand for borrowing dollars?
5. What does he think of his encouraging the second round of tax cuts now. Or don’t deficits matter anymore?
6. Why did he encourage homeowners to take out adjustable-rate loans in 2004? Didn’t such advice ignore long-term trends?
7. Why isn’t the Federal Reserve more proactive when it comes to federal debt, the deficit and the impact of inflation?
8. Why didn’t he encourage the general public to look at their own situation from a balance sheet perspective? Shouldn’t all investors understand their own capital and cash flows long before they ever start investing? Why doesn’t the chairman use his position to further the education of the general public?
9. Why doesn’t the federal government have audits and issue financial statements on every aspect of government? Why is the federal government exempt when almost every other public entity is required to have such an audit?
10. Why doesn’t the federal government hire CFOs and pay them appropriately to manage the assets of the public?
11. What are the biggest threats to the long-term health of the U.S. economy, culture and standard of living?
12. Does he take any responsibility for the Fed’s loose monetary policies and weak regulation, which resulted in a housing boom and bust? Is the Fed living up to its mandate of price stability?
13. Reflecting upon his chairmanship and the present state of the U.S. economy, does he believe that more transparency in his previous statements to Congress and the public would have helped prevent the exaggerated fund flows that led to the equity and mortgage loan market dislocations? Does he now support greater and more timely Fed disclosure of its economic assessments and recommendations vis-a-vis Fed monetary and regulatory policies?
14. How likely (or unlikely) is it that the subprime mess could cause a real estate crash that would trigger defaults and spread contagion to emerging markets?
15. Since he is no longer the Fed chief, why does he feel compelled to speak out on the economy? Isn’t he undermining Ben Bernanke?
16. What is the real reason why the Fed quit publishing M3 vs. the announced reason that it was too difficult to calculate?
17. Does he believe that Milton Freidman’s time frame for inflation to appear after the Fed expands the money supply is still valid? If not, what does he believe the relationship currently is?
18. Looking back on his tenure as Fed chief, what advice would he give Bernanke in regards to taking the air out of bubbles in a more laser-beam fashion so the entire economy/market doesn’t have to suffer when one industry or sector gets overheated?
19. If he had known how leveraged the homebuyer would become, would he have voted for the last two or three rate decreases in 2003?
20. What does he believe was his biggest mistake while chairman of the Federal Reserve?
21. Does he believe that rates should be lowered or will be lower by mid-year 2007? Does the U.S. subprime and homebuilder problem materially affect emerging markets, particularly Asia?
22. Hindsight being 20/20, does he believe the reaction by the Fed to the “Y2K-impending-doom” — the lowering of rates — was an irresponsible and ridiculous reaction to media reports?
23. Is Vice President Cheney correct in saying “Deficits don’t matter”? Does the deficit matter only as a percentage of the GDP?
24. Is the U.S. economy and national security on a sounder footing by investing in war as opposed to education?
25. Does he see the subprime problem as indicative of a class structure in the U.S. economy, where people at the lower tiers have to use economic tricks with huge risks in order to become part of the owning class?
26. Looking back, what would he have done differently regarding interest rates since 2000?
27. As former head of the Federal Reserve, is he concerned that his comments on economic direction have an unwelcome effect back at his old shop?
28. Does the Fed, or more accurately, did his Fed, have a view of itself as one stimulus in an infinite sum of stimuli that allowed the markets to be governed by stochastic (chance) events, or does the Fed view itself as the lead or primary element with the global goal of creating a “steady state”?
29. If the U.S. goes into a recession by year-end, how long does he think the recession will last?
30. The book, “Our Brave New World” by GaveKal Research makes a compelling case that we are in (or will soon enter) a global phase of deflationary boom. Would Greenspan agree with that assessment; if not, what does he think lies ahead — inflationary bust or boom; deflationary bust or boom? Why has the dollar lost half of its value relative to both gold and oil in the last six years?
31. Can the Fed really stop inflation when government spending is out of control?
32. Does the inverted yield curve imply a recession or, due to global capitol flows, is it less significant?
33. What responsibility do public officials have after serving office to stay out of the crossfire?
34. Because markets pretty much do the job of the Fed in anticipating the general directions of interest rates, why have so many hung on every word he has said over the years?
35. What would his current advice be for those who took his recommendation three years ago and went with adjustable-rate mortgages, especially since many of those people cannot afford their current mortgage payment and can no longer refinance their mortgage?
And the winners are:
1) Looking back on his tenure as Fed chief, what advice would he give Bernanke in regards to taking the air out of bubbles in a more laser-beam fashion so the entire economy/market doesn’t have to suffer when one industry or sector has gotten overheated? and
2) Why did he encourage homeowners to take out adjustable-rate loans in 2004? Didn’t such advice ignore long-term trends?
Thanks very much to everyone for such spirited responses.
“Why did he encourage homeowners to take out adjustable-rate loans in 2004? Didn’t such advice ignore long-term trends?”
That was criminal. Changing the BK laws right after setting up the sheeple was equally criminal.
Oh, don’t think for a second those BK laws won’t be an ‘08 campaign issue and they’ll be biting Madmoiselle Clinton in the ass. Assuming she gets far enough to encounter a debate; hopefully not.
> And the winners are: (…) what advice would he give Bernanke
Drop that question. If Greenspan would even attempt to answer this, he would get criticized from ALL quarters and loudly asked to shut up. Because Al seems to like the attention he’s still getting (and maybe also the hefty speaking fees), he will not answer that question.
Couple more goodies
http://www.realestaterealist.com/?p=90
http://bigpicture.typepad.com/comments/2007/03/rules_for_real_.html
Little known fact that 65% of all mortgages were based upon AVM’s or automated valuation models generated by the lender internally. No appraiser was involved and noone even knows for sure if the property exists as it has not been seen by a human.
I would be willing to bet there are mortgages on houses that burned down years ago.
Debating bailout…
http://money.cnn.com/blogs/generationrisk/2007/03/time-for-mortgage-bailout.html
“I can see one constructive thing that bank regulators can do: they can publicly note [to lenders] that foreclosure is an appropriate response to individual cases in which payments are not being made because idiosyncratic things have gone wrong with individual household’s finances, but that foreclosure is not an appropriate response to a systemic problem triggered by macroeconomic risks that have come calling.”
Macroeconomic risks = massive collective stupidity on behalf of borrowers and lenders? The simple solution would appear to be to let the borrowers and lenders who assumed the risk figure out a mutually agreeable sharing of the losses, and leave innocent third parties out of it.
Home Ownership causes unemployment:
http://www.slate.com/id/2161834
CNN’s “Where not to buy” list…
At a glance: Projected drop in median home prices
Stockton, CA - 9.7%
Merced, CA - 8.9%
Reno/Sparks, NV - 8.9%
Fresno, CA - 7.9%
Vallejo/Fairfield, CA - 7.8%
Las Vegas, NV - 7.1%
Bakersfield, CA - 6.6%
Sacramento, CA - 6.4%
Washington, D.C. - 6.3%
Tucson, AZ - 6.2%
http://money.cnn.com/popups/2006/biz2/newrules_wherenot/6.html
Question: Is it possible that there won’t be a bailout, because it would set way too dangerous of a precedent and that there may be the realization that a bailout really won’t save the FBs?
I suspect that because people are in so deep, that the only thing that would save them, would be the note holders accepting 70 - 80 cents on the dollar. I jsut can’t see this happening on an across the board basis. Sure, there will be some targeted programs here and there. BUT, how would an across the board writedown work? I just can’t see it. Assuming it did/could happen…I think this would cuase a glacier-like credit freeze. If the note holders got “stuck” for 20 - 30 percent, then I think 30 - 40 percent down-payments and personal guarantees would become the norm for a long time.
Now, maybe of the govt was to reimburse the note holders, the note holders might be amenable to the “refinancing of the bubble”. BUT, again, I don’t see the govt providing the funding.
Finally, there is the 1099s on the forgiven debt and the taxes due to contend with. I can’t see the IRS changing the tax code to “forgive” the taxes due on the forgiven loan amounts.
I think the whole thing is way too complicated for an across the board bailout.
thoughts?
Let us all remember, we would not have all these subprime or any really hard foreclosure and default problems if house prices had stayed affordable.
“Mitch Ohlbaum, president of mortgage broker Legend Mortgage whose business was about 55 percent Alt. A, said he’s seen a dramatic change in the business the last few years, and its now swinging back away from the loans.”
“‘All that nutty stuff is going to disappear,’ said Ohlbaum.”
So 55% of his business was “nutty”. I wonder if some of his soon-to-be-screwed former clients (and their attorneys) will like that characterization of what he steered them into.
What’s really nutty is that nobody learned their lesson during the last RE cycle…not the GOVT, not the bankers, not the borrowers, not the builders, etc.
or they just don’t care..and I suspect that it is the latter…
I can understand the urge to make as much money as possible, but to be so stupid as to make some of the statements these people are now making is hard to understand.
what is even more stupid is how many of these fools squandered the windfall…I’d bet my bottom dollar that not 10% of folks in the REMIC saved for the downturn. I’d bet they all thought it would go on forever.
It will be poetic justice when the “bitter renters” buy these scumbags’ homes and the scumbags become truly bitter renters.
Have you ever wondered what it would be like look inside the brain of a complete moron? Here’s a chance:
http://www.forbes.com/free_forbes/2007/0226/110.html
“Portfolio Strategy
Housing Boom!
Kenneth L. Fisher
Don’t buy it. For months now the debate has been over whether America will have a hard landing or soft landing, the answer hinging on how big 2007’s housing disaster turns out to be. Well, there won’t be any housing disaster. We won’t have a landing at all, soft or hard. Right now the U.S. and global economies are both accelerating.
You can see right through the housing crash story by looking at the prices of housing stocks. The market knows what the economic worrywarts do not, which is that the housing sector is already making a comeback. In the last six months housing stocks are up 24%, well ahead of the overall market. If housing were destined to fall apart in 2007 these stocks wouldn’t be so strong now.”
Here are his recommendations for Pulte Homes (far too cheap), Toll Brothers (will bounce back by 2008) and Beazer Homes (Too cheap for a well-managed company):
Buy, buy and buy stocks that have gone up, no way that strategy can fail, right?
What really gets me is that guy probably makes more in a year than I make in three. UGHGHH. I sure hope he put his money into those stocks.
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070319:MTFH78686_2007-03-19_22-20-05_N19309238&type=comktNews&rpc=44
Aren’t we forgetting Fannie and Freddie, how can their CEOs not be marched out there on Capitol Hill on Thursday. Unless they are already in jail…
Looks New Century is in its last gasps. Once they take away your license to make loans in California, they really should disconnect the life support and “donate” the organs.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a7gOmoTDwsqA&refer=home