“Instability In The Marketplace” Continues: CEO
Some housing bubble reports from Wall Street and Washington. “KB Home reported Thursday that first-quarter profit dropped 84% and cautioned that problems in subprime mortgages and imposition of stricter lending standards may put more stress on what’s already a wobbly market. ‘It is hard to predict when the housing markets will stabilize,’ said Chief Executive Jeffrey Mezger.”
“‘Profit margins on our 2007 first-quarter deliveries were constricted due to the persistent imbalance in housing supply and demand that is fueling intense competition and pricing pressure among home builders and other participants in the new home and resale markets,’ the CEO said in a statement. ‘We believe these conditions will likely continue for at least the remainder of 2007,’ he said.”
“‘Moreover, recent problems in the subprime mortgage market combined with tightening credit requirements could exacerbate the already-difficult conditions in the home-building industry,’ the CEO said.”
“‘The rise in delinquency and foreclosure rates may increase the supply of homes on the market, generating additional downward pressure on prices,’ he added.”
From Bloomberg. “‘Having now entered the spring selling season, we continue to observe instability in the marketplace,’ Mezger said.”
“Orders declined 12 percent to 7,677 because of weakness in Arizona and the central U.S., which the company defines as Colorado, Illinois, Indiana, Louisiana and Texas. The average selling price fell 5.4 percent to $261,400 a year earlier.”
The LA Times. “As risky home loans soared in popularity in recent years, federal banking regulators were repeatedly warned that more borrowers were getting trapped in mortgages they could not afford. The Fed and other regulators issued stricter lending guidelines. But observers were stunned that the rules excluded adjustable-rate mortgages with low initial teaser rates.”
“‘Nobody was home,” said housing policy expert Michael A. Stegman. ‘None of the regulators were home.’”
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah, chief economist of the National Assn. of Realtors. ‘I’m not a lender though. I kept on saying to myself — I guess they know what they’re doing.’”
“Two years ago, former New York Atty. Gen. Eliot Spitzer launched an investigation into mortgage lending practices. But instead of backing Spitzer’s demand for lending records from three national banks, the Comptroller of the Currency filed suit seeking to block the probe.”
“In October 2005, a federal judge forced Spitzer to drop his investigation. ‘Spitzer was concerned about the consumers — and the federal regulators were concerned about the banks,’ said John Taylor, president of the National Community Reinvestment Coalition, which took Spitzer’s side in the case.”
“‘Abusive’ lending and fraud helped fuel a surge in subprime mortgage defaults, the regulator of the biggest U.S. banks told senators probing federal agencies’ response to trouble in the markets.”
“Emory Rushton, the U.S. Office of the Comptroller of the Currency’s senior deputy comptroller, told the Senate Banking Committee in Washington today that the OCC is working to correct lending standards that have slipped.”
“‘It is clear that some subprime lenders have engaged in abusive practices, and we share the committee’s strong concerns about them,’ Rushton said in prepared remarks. ‘We are now confronting adverse conditions in the subprime mortgage market, including disturbing but not unpredictable increases in the rates of mortgage delinquencies and foreclosures.’”
From Reuters. “Sen. Christopher Dodd on Wednesday laid blame for the subprime mortgage market crisis at the feet of federal regulators. The chairman of the Senate Banking Committee said in a statement that ‘a pattern of neglect by federal bank regulators … precipitated the subprime mortgage crisis that could cause 2.2 million homeowners to lose their homes.’”
“Dodd said that in late 2003 and early 2004, the U.S. Federal Reserve’s internal analysts noticed lending standards were slipping, raising default and foreclosure risks.”
“At around the same time, he said, Fed leadership was encouraging the development of alternative mortgages, such as adjustable rate mortgages.”
“‘Soon thereafter, the Fed embarked on 17 consecutive interest rate increases, meaning that people with ARMs were now facing substantial payment shocks in the future,’ he said.”
The Associated Press. “Dodd said he wanted to know why it took the regulators more than three years to act ‘despite evidence that they themselves identified problems in the subprime market.’”
From MarketWatch. “Roger Cole, the director of the Fed’s banking supervision and regulation division, warned in congressional testimony that more borrowers may face problems. ‘Some borrowers are clearly experiencing significant and personal challenges, and more subprime borrowers may join these ranks in the coming months,’ Cole said.”
“‘Our nation’s financial regulators were supposed to be the cops on the beat,’ said Dodd.’Yet, they were spectators for far too long. The fact that the country’s financial regulators could allow these loans to be made for years after warning flags appeared is…unconscionable.’”
“The chairman of the U.S. Senate Banking Committee said on Thursday that he plans legislation on predatory lending, but that the solution to the problem of Americans facing foreclosure on their mortgages may not be legislative.”
“‘The solution to this problem may not be legislative. Instead, I would seek to ask leaders from all the stakeholders … to come together and try to work out an efficient process providing some relief for these homeowners who will be caught in this bind,’ Sen. Christopher Dodd said.”
“Congress should not bail out subprime lenders and brokers who made risky mortgage loans to borrowers with bad credit, but lawmakers can take several steps to protect consumers going forward, a representative of the Conference of State Bank Supervisors said on Thursday.”
“‘I strongly encourage Congress to avoid using taxpayer funds to bail out the subprime lenders, brokers and investors that generated our current problem,’ Joseph Smith, the North Carolina Commissioner of Banks, said in remarks prepared for a Senate hearing.”
“Some traders who predicted declines in shares of New Century Financial Corp., NovaStar Financial Inc. and Accredited Home Lenders Holding Co. say such stocks may fall further as loan delinquencies increase and demand for mortgage-backed securities wanes.”
“‘The subprime guys are history,’ said Steven Persky, CEO of the $1.1 billion Los Angeles-based hedge fund Dalton Investments LLC, which began shorting shares of subprime lenders two years ago. ‘They’re ultimately going to have to file’ for bankruptcy.”
“‘The lending standards had loosened to the point where virtually anybody could get a loan and the borrowers had little or no skin in the game,’ said Brian Horey, general partner at Aurelian Partners LP in New York, which has shorted New Century, Accredited, and Fremont General Corp.”
“‘If you couldn’t sell something, you wouldn’t do it either,’ UBS analyst David Liu in New York said. Part of the problem is falling demand for ‘piggyback’ home-equity loans used to make down payments, he said.”
“Citigroup will no longer buy home-equity loans made to borrowers who won’t prove their incomes and want more than 95 percent of their home’s value, according to e-mails from salespeople.”
“Countrywide Financial, the nation’s top home lender, this month stopped making any loans with down payments of less than 5 percent when borrowers are ’stating’ both income and assets.”
“‘People are adults and made choices in their lives because they wanted to own a home of their own,’ Countrywide Financial CEO Angelo Mozilo said. ‘America’s great because people can make those decisions for themselves. The complaints about the loans only came when the opportunity for enrichment was gone’ because home prices flattened out.”
‘I remain interested in facilitating market-based solutions to market-generated problems,” said Sen. Richard Shelby’
Just a reminder; this was the guy who as then-chairman, shot down a multi-state petition asking congress to make it clear Fannie and Freddie wouldn’t be bailed out if they went under.
The discussion is now on CSPAN 3. http://www.cspan.org
No surprise. these politicians are like communists.
watch what they do, not what they say.
Yeah, don’t you just love the MSM. Biggest fool trap invented.
One of the business channels just had three RE experts on (shills for RE complex). The NYC bitch Cochran said NYC was out of the woods. LMAO, she said that a “fool” would come along and buy. I couldn’t believe she referred to new buyers as fools!!!!
They banter about where the bottom is, or if we are passed it, with these bad loans. As all of us well know this is just the tip of the iceberg!
Same with the stupid shit politicos ranting about new legislation. Sooooo funny, all the money for these crap loans is gone and the sub prime industry is dead—-now they want to pass laws.
The depth of this corruption is astounding! The dead weight in the US is a cancer that has spread throughout the entire system. The only thing that now suprises me is that ignorant foreigners are still proping us up.
How stupid are you to buy a 5% bond from a government expanding its money supply by more than 10% a year!!!
I swear this shit is driving me into the arms of the gold and ammo croud.
“How stupid are you to buy a 5% bond from a government expanding its money supply by more than 10% a year!!!
I swear this shit is driving me into the arms of the gold and ammo croud.”
LOL, I’ve been drifting that way myself lately. It would seem the best place to be in an inflationary environment isn’t cash or Treasuries but in Gold and housing. Did I just sell my house simply to have my realized gain inflated away?
check our GRS. Gonna post their first profit this quarter. I know the stocks (gold) may suffer in a gereral collapse, a managed dollar devaluing will let them rise fast.
You say “gold and ammo crowd” like it’s a bad thing.
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah, chief economist of the National Assn. of Realtors. ‘I’m not a lender though. I kept on saying to myself — I guess they know what they’re doing.’”
Anyone else notice how CYA is beginning?
Yeah, but it’s gonna be hard to C that big of an A.
“How stupid are you to buy a 5% bond from a government expanding its money supply by more than 10% a year!!!
I swear this shit is driving me into the arms of the gold and ammo croud.”
Welcome, theres plenty of room.
Lereah has been issuing CYA statements as early as Q4 2005.
But, FYI, “guessing” is sufficient for an economist of his position.
(meant to say “not sufficient”)
National inventory numbers as of today (vs a month ago)
Single Family: 1,660,232 (+50,998)
Multi Family: 107,041 (+3,627)
Condo: 474,039 (+27,239)
Land: 480,575 (+8,959)
Those numbers look really low. Where did you get them? (I have seen 4m tossed around in recent news stories…)
Where do you get your numbers?
I see large inventory on ziprealty, but 1.059M for national. (I don’t bother to break own my type.)
Those condo numbers are scary. Almost 1/3rd as high as SFR?
I hope to buy one… in about 2011.
Got popcorn?
Neil
Zip’s national inventory only factors the markets they cover. It doesn’t include markets like New York & 44 other states
What’s your source for those #’s?
FWIW - Zip is a fair amount lower (running 1,059,000 right now) but other numbers I’ve seen (I think put out by NAR) are quite a bit higher - like about 4 - 5 million homes for sale.
Neil - you are quick on the draw!
I would be fairly certain that these are not the end all be all numbers. This is a summation of the inventory counts from about 300 MSAs across the country.
As for the source of the numbers, it comes from an application some folks and myself wrote as a demonstrator for a new kind of web technology. At present we are still working to get it set up and in a state where we are comfortable opening the doors to access. Once it is I will be happy to post the URL for folks here to take a look. You can get stats for National, Regional, State, MSA, down to most towns and cities. Over the next year or two it should tell us quite a bit about what the MLS side of the market is doing. We will be working to refine it and expand what it can show over time as well.
I agree the actual numbers are possibly higher. One thing that is clear is the ramping inventory getting ready for the spring selling season.
sorry to reply to my own comment - we are only tracking MLSs we can get to via the web. So I am certain that there are quite a few properties that don’t make it into the sieve at this time. We are working to find ways to improve coverage, including bulk data purchase rights with folks.
Oh yes - sorry again.
GetStucco, we are tracking price per sq foot. I actually have referred to this as the GetStucco feature, as you have said many times how important that is.
Sorry to hijack the discussion - but I would assert that price per square foot actually isn’t a very good measurement, at least for long-term trends anyhow, for several reasons -
- Lot sizes have become smaller over time; thus over time thus causes the true price increases to be understated.
- Newer homes tend to be built more shoddily than older homes; thus to get the same quality home as an older home you have to pay more $$ per square foot.
- Newer homes generally have more stories than older homes (I think - to some extent), e.g. a 3,000 sq-ft home built today would typically be 3 stories whereas the same size built in 1970 would typically be 2 stories. A 2-story 3,000 sq-ft home costs more than a 3-story, since it has less common walls and utilities tend to be more spread out.
The first factor is probably by far the biggest of the three.
IMO if you want to be truly precise, the only true measure that can be used for price vs. time comparisons is same-home sales comparison. Even this can be skewed somewhat by wear-and-tear, but this is offset to some degree (probably about 100%) by remodeling.
Guess what I’m saying is that if possible it would be really nice to mine the data such that it shows a price trend comparisons based solely on same-home sales. I don’t mean same-home vs. new-home, I mean same-home previous sale vs. same-home previous-previous sale (if you know what I mean). The data is out there, it just needs to be mined in the right way.
“- Lot sizes have become smaller over time; thus over time thus causes the true price increases to be understated.”
Subprime loans and Alt-A loans which allowed new home buyers to purchase McMansions have had a market-distorting effect on valuations of new homes relative to existing homes. I predict that when the dust settles on the bubble, and more well-built existing homes on spacious lots enter the market competition against used McMansions, then traditional metrics of worth will reassert themselves. In fact, I predict that prices of shoddily-constructed McMansions built on small lots will fall relative to older homes of similar square-footage built on larger lots. Darwinian forces eventually will have this effect.
“I predict that when the dust settles on the bubble, and more well-built existing homes on spacious lots enter the market competition against used McMansions, then traditional metrics of worth will reassert themselves.”
Especially here in the bay area of CA where the McMansions will be turned into boarding housing with cars lined bumper to bumper along the curbs.
Last 2 weeks inventory climb in CA, AZ, and NV has been scary. Most numbers in these areas have already passed the highs of late summer of ‘06. Remeber, all the cheerleaders of the spring bounce/’07 recovery were predicting a major reduction in these numbers by spring time, bringing the supply/demand ratio back in balance. Even they knew high inventory meant no recovery (even idiot Watts admitted as much) So here we go - record breaking inventories, subprime meltdown, foreclosures and defaults off the map, tighter lending standards no excluding most if not all firsttime buyers, and a whole new negative sentiment toward housing in general. Hmmmmmm……i wonder how this is going to turn out?
I have to wonder just how much inventory will pile up before the folks sticking to high prices will throw in the towel. With the real estate community trying to keep prices as high as possible, it would seem this will only draw out the slow grind down.
I would imagine the REO flood (whenever it hits) will help clean up that approach. As you rightly point out I am sure the removal of first time buyer incentives (like 100% finance) will help that too.
“I have to wonder just how much inventory will pile up before the folks sticking to high prices will throw in the towel.”
You can just feel the the back breaking in the “permanently high plateau” crowd. I think the “real estate only goes up” crowd has been stomped out and put to rest. Now all we have left is the “run for the exits” crowd. The problem is the exits are blocked (inventory). What has recent history taught us about burning buildings with blocked exits? Time to start stacking up the real estate casualty body bags.
Here is the single most important point as to why we’re seeing such a “standoff”:
People have paid almost zero principal on their houses in the past few years.
Keep that in mind. Zero principal reduction, and in many cases negative amortization. With zero principal reduction, any price drop below the original purchase price requires that the seller bring money to closing (or get the bank to agree to a short sale). Now, in the case where people have paid almost none of their principal, do you think these are the people who are saving up money?
The reality check that’s in effect here is this– people who bought in 2003, and to some effect 2004, can still sell their houses at a profit. Later this summer I doubt that will be the case. People who bought in 2005 and 2006 are confused; I’m sure that the number of sob-stories in local papers will do nothing but go up, because people just can’t comprehend the financial pitfall that they have gotten into. Nevermind the price standoff: these people don’t even know if they are able to lower prices below their original purchase price.
Nvmtg has it right. These people are looking for an exit that they can understand. I suspect bankruptcies will jump through the roof just as soon as the word gets out that the consequences of BK aren’t as bad as the consequences of foreclosure. Prices will plummet, people will get a short-term loan to bring to closing, and then immediately declare BK and move into an apartment.
“These people are looking for an exit that they can understand. ”
Great point. I agree that, once people conceive of BK as a “reasonable” option, that is, as so many stories circulate about the phenomena that all the shame normally associated with admitting such a “failure” will evaporate.
Considering the fact that “shame” as a concept has virtually disappeared, I don’t imagine it will take many MSM stories to turn foreclosure/bankruptcy into a new “norm” like…….having kids without marriage.
Visiting Tahoe this week, and there are “for sale” signs everywhere. We’ve also noted a large number of businesses for sale, too.
North Tahoe has had quite a run since the mid-90’s, first benefitting from all the Bay Area dotcom funny money in the late 90’s and then, of course, from Easy Al’s 1% FFR in 2003 and 2004.
Despite what newbies think, the place does experience economic cycles and I think some longtime locals are now voting on its future with their feet.
SD ziprelaty SFRs+Condos = 16,022 as of today (up by about 1000 since beginning of 2007 — slightly under 100 additional homes per week).
Hardtack showing (increases in the last month)
SFH: 11,574 (+470)
Condo: 5,285 (+182)
Total: 16,859 (+652)
So at least for San Diego the numbers seem to align (slightly higher with Hardtack). A bump of 652 in the past month is pretty impressive. I am curious so see where it is going to top out this year.
I have to wonder how many empty (read “never lived in”) homes in SD are not on ziprealty inventory. Just driving around my own hood, I would guess there are at least 1000 empty new homes, offered (and valued on somebody’s books) at $1m+ a piece on average — $1b worth of inventory facing a future writedown unless housing price inflation gets rolling again soon… (And I am guessing similar comments apply to many other overbuilt parts of SD county — just don’t get around that much to see them).
I get 18,294 active homes for sale from Zip. I’m confused.
http://tinyurl.com/2jsht5
Excuse me if this shows up twice. I’m kind of confused about the numbers. The number I get from Zip is 18,294.
http://tinyurl.com/2jsht5
The art of boiling down a set of MLSs for any given area and coming up with a number after eliminating duplicates is quite tricky. Zip may have access to listings we have not discovered yet, or we may be throwing out things we think are duplicates that are not, or maybe they are not throwing out dupes.
I am not sure if it is possible to use an MLS to get an exact number of properties offered for sale. This is especially true with some of the realtor tricks that take place, such as having one listing in the MLS twice. One is active and one is not, and they bounce the “active” flag between them to keep the number of days on the market low.
I just love this “I knew it all along” / “I told you so” attitude we’re getting now, from people who were actual participants or silent observers through this whole run-up.
It doesn’t bother me really. I’m happy to let them put on an I-told-you-so face as long as the clean-up begins (ie, back to 20% downpayment kinds of numbers.)
I think it’s the pragmatic path to cause the bandage to be ripped off quickly, rather than the slower Japanese-style 18 year decline of real estate.
Very good point JP.
But the problem is, there are an awful lot of loans not scheduled to reset until 2010-11. Implode-o-meter on 3/19/07 has a graph of scheduled resets, peaking around the beginning of 2008, then falling off, then peaking again in 2010-11. All the jerks that are hanging on, hoping to re-fi before the reset, will be foreclosed on in 2010-11.
“If the left one don’t get you then the right one will…”
Or they will walk away sooner, without any appreciation on the horizon their willingness to pay will wither and die.
The “recasts” may eclipse the “resets”, and those start kicking in around 5 years after the origination should the FB make only the minimum (NegAm) payment throughout.
Alot of those who won’t be foreclosed on until 2010-2011 will run into problems because of employment, medical bills, CC debt,divorce, etc and many will walk away because they will be living in half empty neighborhoods with declining equity. Some on the other hand will always have a ‘Pollyanna’ view of lift and hold out to the bitter end.
“I knew it all along”
Yup, but I remember some of us predicting the “I knew it all along” a year and a half ago, along with the finger pointing…and the proposed bailout…and etc. etc. etc.
Are you seeing any significant hits on LA prices? I’m tracking Altadena inventory, and we’re still in “two steps forward, one step back” mode. However, I have yet to see inventory increases reflected in prices.
I’m tracking W. LA and South Central, oddly enough, and I don’t see prices going up anymore, but no big price reductions either. In Santa Monica, houses seem to go into escrow pretty quickly. Small reductions in Venice. Still lots of flipping in the ghetto. We have a lot of waiting to do.
Maybe SM landlord can weigh in.
What I see in Santa Monica is a lack of transactions. See the numbers I posted last weekend in the Local Markets thread.
The numbers are so small that the medians have been become meaningless - they are bouncing all over the place.
Some one I know, reduced their price by 10%. West LA SFH. Got 2 offers. One 5k over price with a verified 150k in cash down. I was surprised.
Why? There are plenty of dumbasses that are going to lose a ton of money by buying on the first drop. Oooh, 10%, honey, now we can buy our dream home for 1.3m instead of 1.45. The people buying in 2007 here will be among the biggest losers - the people without patience, with a nagging spouse, or who simply must buy and who did not own a home that enjoyed the run-up somewhere else. Nobody will lose their ass like those who bought in 2006, but 2005 vs 2007 is a tossup.
The market hasn’t gotten truly ugly here - yet. When it does, you’ll see very few houses for sale because nobody wants to realize a huge loss. People die, move, divorce, lose their jobs, etc, and those will be the homes going for 40% off of peak. I doubt SM will see many people who can’t meet their mortgage payments, more like they will be house poor.
But SM will not be immune. I grew up there. My mom sold our house in Sunset Park for about 600k right before the crash and I think it resold for 300k a few years later. I’m sure it has been appraised at 1.5 mil or more now.
What person that anyone knows will willfully eat a 300k loss or more on their most important asset with an emotional attachment? Even if doing so is a sound financial move? I just don’t know many dispassionate, rationale people willing to do that.
If your moving up in about the same market the exact price is not important as long as you put all the unearned equity into the new home. To some extent at least if your not making to big a jump or are trading basically sideways to change areas.
So if the equity in the new place comes out to the same if prices where not inflated its sensible to move regardless of the price.
So the market now is people trading for location with a few GF’s keeping it going. Understand that each time one person enters 3 or four up sells result as everyone moves up. Its the initial home buyers helocers and people not putting the unearned equity in the new home or over-reaching that are screwed.
Right on!
Also, go Joseph Smith - we don’t no stinking bailout!
Note that Dodd wants to blame regulators, not banks or Wall Street. I guess regulators don’t contribute enough. If he blames regulators, I blame him - he was a Senator three years ago, and he could have made it an issue then .
Finally, I’m not impressed by Mozilo, but there’s a lot of truth in this:
‘America’s great because people can make those decisions for themselves. The complaints about the loans only came when the opportunity for enrichment was gone’ because home prices flattened out.”
By blaming regulators, i.e., the Government, for the problem it gives Dodd the justification for a taxpayer-financed bailout for the mortgage lenders and FBs … If he blamed mortgage lenders or the finance industry then he alienates his huge contributors, and if he blames FBs, then he may alienate many voters (except, of course, readers of this blog).
“‘Moreover, recent problems in the subprime mortgage market combined with tightening credit requirements could exacerbate the already-difficult conditions in the home-building industry,’ the CEO said.”
Without home equity appreciation or loans to help households purchase homes they cannot afford, I don’t see the light at the end of the tunnel, either. Who can afford to buy a McMansion under the circumstances?
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah,..”
This guy really needs a pie in the face!
“I kept on saying to myself — I guess they know what they’re doing.”
Reminds me of Sgt. Shultz form the old sitcom “Hogan’s Heros”:
“I know nothingk, NOOOOTTTHHHHHHIIIINNNGGGGGKKKKK!”
Or Manuel, the spanish kitchenhelp in Fawlty Towers!
“I know nothing…”
“I’m going to sell you to a vivisectionist!”
Que?
A pie in the face? He needs a subpoena to divulge the actual NAR data, not the “seasonally adjusted” garbage he’s been foisting off on the public. Then he needs a grand jury indictment for fraud. Then he can go to prison for a while, then I’ll think about getting him with a pie when he gets out.
Exactly! He needs a “tea bag” in the face.
LMAO!
Look, I try to be a good person and not wish harm on others, but I want DL to be diagnosed with pain-suffering terminal cancer for justice to be served!!
“I kept on saying to myself…”
How about if he had said it out loud during one of the 32637 press releases or interviews he did in the last 4 years?
Check Out David Lereah Watch on how this statement contradicts a previous statement.
http://davidlereahwatch.blogspot.com
wow, this idiot is trying to avoid taking responsibility. Amazing, how this guy never had a glue that home prices were hitting levels that no one with realistic earnings could honestly and safely purchase without homes appreciating 10% at least a year.
Well, we know the answer. Everyone in the business knew, and they just decided to burn that bridge when they go to it! Freaking bloodsucking F#ckers
“‘People are adults and made choices in their lives because they wanted to own a home of their own,’ Countrywide Financial CEO Angelo Mozilo said. ‘America’s great because people can make those decisions for themselves. The complaints about the loans only came when the opportunity for enrichment was gone’ because home prices flattened out.”
I guess your “opportunity for enrichment” came a year or so ago, eh, Angelo? You’ve been selling CW stock with one hand and luring the suckers in with the other for years. I can’t believe I used to work for this chump.
If CFC CEO & Co-Founder A. Mozilo is a chump, what does that make the rest of us?
If the definition of a chump is to build a world-class, Fortune 500 company and reap several hundred million dollars in the process, then I’m all about being a chump.
Where is the borrower’s responsibility in all of this?
Has no one heard the axiom, “If it sounds too good to be true, then it probably is?”
Does paying $1,000/mo to borrow $600k seem too good to be true? Might it worthwhile to ask some questions, maybe even read a book about borrowing money and buying real estate first?
Data Angel, I have no qualms with you having your opinions, I just want to highlight my opinion that there are several factors to the RE price action of the last 5 years, not just loose lending.
‘a pattern of neglect by federal bank regulators … precipitated the subprime mortgage crisis that could cause 2.2 million homeowners to lose their homes.’”
Not to mention precipitating artificial price inflation that shut out another 2.2 million buyers who otherwise could have afforded these homes.
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah, chief economist of the National Assn. of Realtors. ‘I’m not a lender though. I kept on saying to myself — I guess they know what they’re doing.’”
HA! HAHAHAHAHA!! ‘Golly, I thought that things seemed a little weird, but how would I know? I’m just the CHIEF ECONOMIST FOR THE NATIONAL ASSOCIATION OF REALTORS and the big, bad bankers said it would be OK…’ Throw them under the bus, Dave!!
The finger-pointing parade is in full force!
“It was clear that standards detiorated”, but nevertheless the whole time you have been saying David is there is no bubble, prices will keep going up, the worst that can happen is that prices will flatten out, and the prices will start going up again soon. Liar.
“It was clear that standards detiorated”, but nevertheless the whole time you have been saying David is there is no bubble, prices will keep going up, the worst that can happen is that prices will flatten out, and the prices will start going up again soon. Liar.”
Masses were told for the last few years that it was market fundamentals that drove prices to the moon…baby boomers at peak income years…refuge in home ownership after 9/11….stock market seen as too risky…blah…blah….
All bullshit. People are in debt up to their eyeballs for nothing.
Does this mean he’s calling the bottom again?
I could swear I remember him defending these BS loans. Lereah Watch must have something on their archives regarding that.
How about, ‘Buy now or be priced out forever!’
Yep, get ready for the blame game to start. DL has just fired the first volley. Pretty soon the blame game will be in full swing.
Methinks DL best be polishing up his resume. I don’t think he’s going to last too long.
I always tought he’d make a really good JC Penneys catalogue model. Or maybe, if he’s really hard up, the Kmart Sunday supplement rag.
One thing we know for sure, he’s no economist.
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah, chief economist of the National Assn. of Realtors. ‘I’m not a lender though. I kept on saying to myself — I guess they know what they’re doing.’”
How does this guy sleep at night?
I can’t believe it! I actually agree with Sen. Dodd:
“‘Our nation’s financial regulators were supposed to be the cops on the beat,’ said Dodd.’Yet, they were spectators for far too long. The fact that the country’s financial regulators could allow these loans to be made for years after warning flags appeared is…unconscionable.’”
Yeah, well, where was Dodd when the regulators were asleep?
After all, he should regulate the regulators, right? And, even when he was in the minority, he still could have made it an issue, but I don’t think there’s any record that.
Here is a BIG TIP:
They NEVER hire people like me, who read blogs like this……
Their staffs are full of idiot Morons from Harvard Yale Ivy leagues WITH NOT AN OUNCE OF STREET SMARTS……
This is the common factor in dumb statements like Dodd is making.
“They NEVER hire people like me, who read blogs like this……
Their staffs are full of idiot Morons from Harvard Yale Ivy leagues WITH NOT AN OUNCE OF STREET SMARTS……”
Amazing, isn’t it? Why do people have any respect for these “leaders?” When first out of college, I interviewed a couple of times with public agencies, and I would have to agree that they are looking for a lower caliber of sheeple who will just go with the flow and not do any independent thinking. They make me ill.
AND These are the SAME Clueless Highly Edumakated Idiot MORONS that give us the “1984 style” Hillary commercial….
anycdj - what does that have to do with housing?
umm… the people in the banking, lending profession are educated, certified and the reason for their existence to to count the beans and don’t let more beans out than they are getting in… really? they need to be regulated to assess a borrower’s ability to repay?
really? so why all the education, certification of competence?
Is the reason for being in banking to make money? and to make sure that your business pencil’s out… don’t make jumbo loans to people and not see their income or proof of payment ability!
Why do we need regulators to make people who claim to be professionals actually do their job?
Let the banks collapse from their own stupidity and next time around make sure you hire someone who actually understands basic P&L
“Yeah, well, where was Dodd when the regulators were asleep?”
In the minority.
On the way to lunch homeless people always smile and call me “sir”…before asking for my money.
Same principle at work here.
“Yeah, well, where was Dodd when the regulators were asleep?”
A Democrat in one of the most shrill Republican-controlled Senates in history. They were a little busy trying to fight for little things like habeus corpus.
Dodd was a happy homeowner in a community where not a lot of flipping was going on. He never had to tune in to this until it was right in his face. Most of us are on this blog because we have some level of interest.
The bottom line is our legislators are only in touch with the things that are in their face, or of interest to them. I’m sure they’ll be new staff positions for people to stay on top of the real estate market and credit standards.
Clearly Dodd is an opportunist politician. I’m just restating the obvious here.
Sen. Dodd wants to know why nobody did anything about loose lending standards.
If the good Senator is so frickin’ smart why didn’t HE do something about it?
I knew about this mess back in 2004, and I’m just and old country car mechanic (damn it Jim! I’m a mechanic, not a Senator!).
Dodd and Biden are two of the most egotistical, insulting people in Washington (besides Boxer). For Dodd to posture and ask “why didn’t you know” questions is absurd.
Lest we forget, Dodd has also proposed plans for a subprime bailout.
love it.
You do know which political party has been in control of the Senate for the past decade, don’t you?
And you obviously don’t know much about how the Senate works.
When this subprime thing was in full swing in 2004, the Republican party “controlled” the Senate-by one vote. Dodd, if he wanted to, could have had a big impact on the issue.
Both parties are to blame. Pres. Bush is the most at fault, since he nominates the various heads of federal government departments and they make up his cabinet.
As soon as President Bush opens his big mouth on the subprime/loose lending standards issue rest assured that this Republican will tag him as the dunce he is.
And don’t get me started on his handling of illegal immigration.
Just look at Santa Barbara and Oxnard for illegal immigration…
the pro-business republican party would have done nothing on this issue no matter what Dodd said.
Isn’t it the “job” of Democrats to “protect the little guy”?
So, if they aren’t in the majority they simply shut up?
This theme is nonsense. Dodd didn’t do anything because there was nothing to do, as long as housing prices went up, the game was fine. Now Dodd can make political hay out of it, fine. But don’t please don’t insult anyone’s intelligence here with the notion that if the subprime was imploding in 2003, Dodd (being in the “minority”) would somehow been “silenced”.
Day to day politics is about opportunity. If handling foreseeable economic problems were of interest to Dodd (or any other congressman) then social security wouldn’t be a problem today now would it?
I knew about this mess back in 2004, and I’m just and old country car mechanic (damn it Jim! I’m a mechanic, not a Senator!).
Great Captain Kirk Dr. McCoy star trek reference there. LOL.
I agree with most of the comments above; however, the primary responsibility for this debacle rests with the FED and the subprime lending industry. There is no way to deny the subprime lending industry was writing bad loans and the FED, in addition to keeping interest rates too low for too long, cheered the ‘new underwriting technology.’
The Federal Reserve and FDIC are in constant communication and coordination with the Department of Treasury, are they not?
If you and I and everyone else on this blogsite knew back in 2004 that this no money down, interest only, adjustable rate ball of crap was trouble, why didn’t some bright Harvard grad in the Treasury Department get the word DOWN to the Fed to get these lenders to knock this garbage off?
There’s lots of blame to go around, but it’s the Commander in Chief that’s got to take the bull by the balls and run the country.
And that’s coming from a third generation Eisenhower Republican.
My 2 cents: I worked for a State of Texas regulatory agency for 5 years. As most of us know, a legislative body will create some broad based regulations and then leave it to an agency it to assess and enforce the specific tenants of the regulations. The employees have some latitude as to what is included in a definition, how a value is calculated or what is required. My agency was responsible for implementing and enforcing environmental regulations.
Over time, industry tends to pressure the government into hiring specific people for the top leadership jobs. At times, an agency leader can be a hand pick of the industry, which has been very generous with campaign money. The leader will then promote people whom will adapt the interpretation of the rules to specific industry needs. All of this is subtle but over time, it really dilutes the agency’s mission. Also, the people whom are proactive in their interpretations tend to get hired away by industry at considerably higher salaries. So there is a lot of subtle pressure to refine agency’s mechanics to better conform to industry’s needs.
Also, since the government officials want to be better stewards of the tax dollars, they tend to pay rock bottom prices for labor. Often times, the only person that can be found for a specified salary is under qualified or completely unmotivated. Over time, this also erodes the effectiveness of the agency. Often the agency has no ability to fight sophisticated industry engineers, accounts and lawyers. Many times, a federal or state agency is asleep at the wheel with no clue of what is really going on in the field.
The point of all of this is that regulations, no matter, how well intended can be circumvented over time. I don’t know of a better solution but regulation, at times, is not the magic silver bullet.
What he said.
Yup. The flow of capital is the agent of change in financial markets. The holders of MBS secutities brought the subprime train to a grinding halt. Admittedly it was the MBS holders’ stupidity that allowed this mess to percolate in the first place. The secondary mortgage market is way ahead of Chris Dodd, the Fed, and regulators.
I remember having a discussion with some assoicates about their thriving real estate business around ‘99/2000. Their comment was that Wall Street was throwing money at them, the problem was that there weren’t enough places to invest it. I guess they found some.
I remember that too. The thinkng then seemed to be that the money was fleeing the stock exchange and looking for more profitable places to park itself, i.e. real estate.
glad you’re doing something elase
gov agencies big and small are worthless- and expensive
“Tenets”, not “tenants”.
Tenants is what most of home-buying America is right now and what many a FB will soon become.
That’s exactly how it works.
From the NY Times — securitization will make the private sector solution — workouts and write downs — more costly, while fraud and not having nearly enough income makes it less likely.
http://www.nytimes.com/2007/03/22/business/22workout.html?_r=2&ref=business&oref=slogin&oref=slogin
“Myriam Philemond says she knew almost from the start that she and her husband could not afford the nearly $500,000 house they bought in South Boston more than a year ago.”
That says it all. A lot of FBs knew they were boned from the get-go. But did it anyway.
Hard to feel any sympathy for people who basically admit they are idiots. Bail them out? F@%# that!! I am getting so sick of the stupidity that seems to be running rampant in our society. This is not calculus, just some basic math.
“‘…I would seek to ask leaders from all the stakeholders … to come together and try to work out an efficient process providing some relief for these homeowners…’ Sen. Christopher Dodd said.”
In Beavis voice:
“Yeah! Yeah! Heh-heh! Heh-heh! Do it! DO IT! Heh-heh-heh-heh-heh!”
stakeholders = bagholders
It’s definitely looking like a case of letting the fox into the henhouse. Who is this Comptroller of the Currency that blocked Spitzer’s investigation? This bubble-n-bust didn’t have to happen. Regulations exist to ensure a less volatile marketplace. Someone obviously was ignoring this function for their own gain. In my book, that’s criminal. I’m not in favor of any blanket bailout, but I’d at least like to see Sen. Dodd find the crooks…
yeah, who is/was the Comptroller of the Currency??
“In October 2005, a federal judge forced Spitzer to drop his investigation. ‘Spitzer was concerned about the consumers — and the federal regulators were concerned about the banks,’ said John Taylor, president of the National Community Reinvestment Coalition, which took Spitzer’s side in the case.”
http://www.occ.treas.gov/ftp/release/2005-52a.pdf
here ya go. there’s a different Comptroller now, it’s just another rotating hood-ornament position that’s corporately-owned like the rest of DC.
Exactly. The crooks are everywhere. And true regulation has a place in our society and without it you get this debacle. Still cracks me up reading people claim - even now - that regulation is bad.
Talk about some STRONG Kool-Aid!
Go Dodd! Shine that light!
I am sure there are laws already in place under which these crooks could be brought to trial. I’m not convinced we need new ones. The problem is that the regulators don’t give a rip about enforcing them so long as they get theirs. Mr bacon nailed it above: “…just another rotating hood-ornament position that’s corporately-owned like the rest of DC.”
“find the crooks”….
Here’s one: “Myriam Philemond says she knew almost from the start that she and her husband could not afford the nearly $500,000 house they bought in South Boston more than a year ago.”
Apparently they overstated their income by 40k……sounds like fraud to me, no?
Somehow, however, I don’t see Dodd finding the crime HERE.
Do you?
“‘The subprime guys are history,’ said Steven Persky, CEO of the $1.1 billion Los Angeles-based hedge fund Dalton Investments LLC, which began shorting shares of subprime lenders two years ago. ‘They’re ultimately going to have to file’ for bankruptcy.”
At least one smart dude in the crowd of talking heads.
These loan industry apologists and scape goaters are like the German’s located in the villages which had the extermination camps. in them.
They all saw the trains and the smokestacks but “knew nothing” until paraded in for a look-see.
Rednecks discuss foreclosures.
http://forums.thedieselstop.com/ubbthreads/showflat.php?Cat=0&Number=3275126&page=1&fpart=1&vc=1
Its interesting that they are starting to notice. Some seem to understand what is going on.
Yes, the term “dumb rednecks” is sort of a canard. Many of the people around here that others would consider “rednecks” are pretty damned smart. And also well informed. Sure, they drive trucks, motorcycles, go fishing and a few might even have an appliance or two on the porch, but they’re no dummies. There may be a shotgun in the corner, but there’s a computer on the desk, too. (and if they don’t have a desk, you’ll find it on the kitchen table).
Tweed, that’s a great site. Seems like some of those guys have $260K in their pick-up trucks!
I like to tell folks that I am an example of what happens when a redneck gets an MBA. Who’s the greater fool? Me, the redneck? Or the educational system that allowed me into the game?
Appeal to lenders to save their own @ss and loss potential by restructering loans sounds like a good idea to me .There will still be massive loss because of the the hopeless nature of some of these loans that relied on real estate going up .
Restructure into what? How can they make the terms any more bagholder-friendly than they already are? And who on the secondary market is going to buy all these loser loans? Lenders can’t hide them in a bundle anymore — the secret is out, the game is up.
I’m talking about the loans the MBS bagholders are already holding . There are a certain % of them that can be saved from foreclosure but it would be at the cost of the higher yield on the interest on the loan .For instance if you rewrite the loan at 7% for 7 years and at the end of that time you recast the note into a market rate for 30 years you can at least give the FB time to grow into the payment .Its better than the lender bagholder losing the entire amount loaned .
At least for people who really dont want to lose their home it might be a answer if the lenders are willing to rewrite the terms of the loan to be more favorable to the borrower.
In other words ,would you rather get a 4% yield on you MBS account for 7 years or lose the money totally .
“‘I strongly encourage Congress to avoid using taxpayer funds to bail out the subprime lenders, brokers and investors that generated our current problem,’ Joseph Smith, the North Carolina Commissioner of Banks, said in remarks prepared for a Senate hearing.”
Joseph Smith, YOU ROCK! I wonder if he is a descendant of the Joseph Smith who founded the Mormon church? Mormons are big advocates of personal responsibility, and a taxpayer-funded bailout which asked nonparticipants in reckless borrowing and lending to make the participants whole would generally be frowned upon by LDS church leaders.
Stucco,
Before you fall in love with him too much, he *did* say something about a borrower bailout:
GS was talking about Smith, yours is Brown. (I made same mistake at first reading of the article)
Good grief. They don’t even identify this Brown person in the article.
At any rate, I feel absolutely sick about what I’m hearing at these hearings.
Please share! We need to get the blog meme machine cranked up to preempt Congressionsal efforts to continue prosecuting the War on Savers…
“Lawmakers should also take the step of requiring lenders to consider a borrower’s ability to repay a loan before making one, he said.”
If “lawmakers” have to “require” lenders to do what’s in their BEST INTERESTS then what else do they need to legislate?
Not driving when blind?
So what is his position on sbuprime borrowers?…
GetStucco I’m afraid that was earlier generations of Mormons. Right now the Utah market is still going bonkers with igneernt (or crooked) brethren paying $500K+ for A-frame shacks out in the middle of BFE. (Heber area, if you know it.) My older relatives up there are disgusted by all the guys who make their wives work because they can’t find a job they “deserve” and guys who are just plain lazy. This generation is a totally new model, sad.
“This generation is a totally new model, sad.”
They are ignoring their profit and next in line to the presidency. Both Hinckley and Monson have warned on the perils of taking on too much household debt.
“prophet” not “profit” (althought they were likely igoring both…)
Stucco,
Don’t cheer these guys; that’s industry PR trying to get ahead of this debacle. They’ll publicly side with taxpayers while robbing them blind.
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah, chief economist of the National Assn. of Realtors. ‘I’m not a lender though. I kept on saying to myself — I guess they know what they’re doing.’”
Yeah he didn’t pay much attention to it, because his industry was the direct beneficiary of such practices. This wasn’t a case of “Oh well, I guess they know what they’re doing” as much as a case of “this is crazy, let’s cash in on it before it dries up”.
The guy who drives the getaway car is still an accomplice.
You are so right Sohonyc ,well said .
You can watch the Washington RE mortgage hearings live at:
http://banking.senate.gov/live.ram
AHH! My ears! The last woman just said “we need a foreclosure rescue fund!”
Can we also have a stock investor “rescue fund”. Because I’d like to go guns blazing into the stock market with 10,000% of my net worth without having to worry about the possibility of losing my money.
Exactly, Soho! Eff all of these D.C. wonks and the FBs they are trying to rescue. Responsibility is dead in this country. Foreclosure rescue fund? Hell no! I’m really starting to understand why people try to avoid paying taxes. It winds up being blown on sh*t like this and Iraq. Whoever that speaker was, they can suck it.
As long as it is funded by taking away ALL the commisions and fees on all homes that end up in foreclosure. This bail out should be funded by Realtors and Loan Companies and no one else.
Don’t forget the kingpins (investment banks and hedge funds) which funneled in the money.
I propose a “priced-out renter” rescue fund, which provides all renters in high-priced markets with a free 20% downpayment on a home of their choice.
I agree wholeheartedly.
Me too. Bring it on.
Amen, I’ll vote for that one!
During the portion I watched, Sen. Dodd had most of the lenders squirming in their seats with questions he was asking. I couldn’t help laughing though parts of it. When he asked who among them was qualifying borrowers on the basis of the starting rate vs. the fully indexed rate, the room was totally silent. When he asked for someone to give him a ballpark estimate on a borrower’s DTI after the loan had switched to the fully indexed rate, not one of them could provide an answer. Sen Dodd concluded his remarks by strongly suggesting that the lenders implement changes immediately, and hoping to keep everyone who is or could soon be foreclosed on “in their homes.”
After watching this, I can’t help but feel that a Japan type slide over many years is becoming more likely if he gets his way. The magnitude of the bailout, once the tide really starts going out, is going to be far beyond what he had in mind. We’re only just starting to see the effects of the lending standards Dodd is upset about.
There won’t be a bailout. Too many stories like the Philemond’s of Boston who lied about their income and borrowed 100%.
The two thirds of the country (full owners of homes and renters) who didn’t get caught up in this game won’t be sympathetic to the many egregiously greedy examples that are sure to come out.
The message Dodd and the Fed are sending to lenders is to start acting now to sort out the “loser” stories of a simple family getting swindled by abusive lending from the CROOK stories like the Philemond’s.
No one likes to send a family to the curb. A youngish couple, a speculator…….who cares about them? And, frankly, if the feds, congress and the banks can manage to make these distinctions without some massive “foreclosure prevention bill” the country and the economy will be the better for it.
Losing a home does NOT equal becoming homeless. Just RENT! Where is the tragedy? Particularly for no money down loans, what does a foreclosed buyer really lose?
“‘It was very clear that the standards had deteriorated,’ said David A. Lereah, chief economist of the National Assn. of Realtors. ‘I’m not a lender though. I kept on saying to myself — I guess they know what they’re doing.’”
Marvelous lines in the film Casablanca, one of the best comes during the scene in which the captain of police, played by Claude Rains, shuts down Rick’s Café Américain.
“I am shocked, shocked to discover gambling is going on here,”
he tells saloonkeeper Rick (Humphrey Bogart) — just as a cashier hands Rains his roulette winnings for the evening.
Pepe, Round up the ususal suspects.
The thing is, they *did* know exactly what they were doing.
The debt business hasn’t changed over the years in terms of labeling different products with different levels of risk. We’ve always had “class A bonds”, and “class C bonds”. The thing that has changed is the appetite/aversion ratio for risk, and this is where the problem lies. The issue actually isn’t standards at all as many people claim — these were considered “high risk, high return” debt instruments. These were risky bets and they didn’t pay off. But had they paid off, the profits would have been enormous. There is only one systemic problem here and its not the existence of high risk financial instruments — its the failure to accept the losses (and just about any math student could have told you *exactly* what the probability of default was).
The reason certain debt instruments carry higher returns — is PRECISELY BECAUSE THEY CARRY A HIGHER LIKELIHOOD OF DEFAULT.
Where’s the “surprise” here?
I fully agree, if the top of the pyramid scheme insures with CDS, a risk premium is paid.
At the bottom the borrower also paid a risk premium(extra margin on interest rate.
So let them sort it out…
the Demand side (RE SFH buyers) are going to be a smaller more affluent pool in the coming months and years. They will tend to purchase homes in the better neighborhoods that are in the best condition and priced correctly. The flipside is that the inventory of homes will build in the other lower value communities and new construction areas (palmdale for example) creating a situation were the bulk of the REO homes will be in the worst areas and the buyer interest is slim or none at all.
Your ‘lower value communities’ will truly be ‘affordable housing’ in the future. You just moved a segment from Compton out into the desert.
“Citigroup will no longer buy home-equity loans made to borrowers who won’t prove their incomes and want more than 95 percent of their home’s value, according to e-mails from salespeople.”
LOL. So if someone can’t prove their income they can still get a loan for 94% of a home’s value? Well, you’re certainly “iron clad” now!
I generally agree–it’s not the tightening that we would do.
BUT, consider that anyone who actually saves up a 6% downpayment is showing some sort of financial discipline and in the face of negative headlines everyday is less likely to be reckless with that money…or not.
The real risk is going to be for kickbacks, etc. that get the 6% down payment from somewhere else…
LOL. No kidding. Keep those crazy loans coming. Let’s make this a long, drawn out nuclear melt down!
“‘…I would seek to ask leaders from all the stakeholders … to come together and try to work out an efficient process providing some relief for these homeowners…’ Sen. Christopher Dodd said.”
Hum! Isnt this guy from Conneticut?
Isnt that state full of Insurance companies?
Heck if the CT insurance companies paid for this they may actually go bust and layoff off all his constituents?
Where would Dodds be then?
Joe Lieberman and Christopher Dodd. Blech!
Connecticut may just give Arizona a run for its money as the state with the two sleaziest senators
“Isnt that state full of Insurance companies?”
Full of hedge funds — the kind that buy MBS chock full of subprime debt.
Senator Richard Shelby (R-Alabama) was just on CNBC. Just after coming out of hearings on subprime he stated unequivocally that he wants to make sure that there aren’t any taxpayer-financed bailouts.
Do you agree with this?
Do you think Shelby will waffle on this subject?
Shelby’s better than most, and “taxpayers” as a group is a huge special interest group, so I’d venture he’ll stay the course until the whole state of Alabama goes into FC.
Smartest thing a Republican has said since 1999.
The best thing is to:
1) Let the “investors” and those who lent to them sink.
2) Allow the 100% down people who didn’t have the income to afford a home to walk away without prosecuting them for fraud, since they may have been talked into it.
3) Negotiate a huge cramdown in which legitimate owner-occupants who overpaid with exploding loans because of the bubble to refinance into a tolerably affordable fixed with a write down based on realistic housing values.
That leaves all the former legitmate homeowners who HELOCed their way to the poor house. I’m not sure what to do about those.
I like it, but if you think about it, anything you do creates the a huge bureaucracy just to figure out who is who in this mess. This situation is almost like Irak, you are damned if you do, damned if you don’t. If we lived in a perfect world, I think the best would be to allow all FB’s to declare bankruptcy and let the banks deal with the consequences of their own recklessness. I guess that would mean huge losses for the banks which would then translate into huge costs and restrictions for the remaining borrowers. That is bad, but I still think it is better than spending millions to put a band aid on this catastrophe.
“Negotiate a huge cramdown in which legitimate owner-occupants who overpaid with exploding loans because of the bubble to refinance into a tolerably affordable fixed with a write down based on realistic housing values”
WHY let the investor and who lent to them sink while bailing out idiots who over paid. I have been pressured left and right to buy, I refuse to pay for an overpriced POS, I have a family, a very very good income but I CHOSE to rent. so screw anyone who overbought.
GOT SOME PERSONAL RESPONSIBILITY.
I am not in favor at all of writing down the loan amounts . I think lenders can only go as far as writing down the interest rate on the current loan note and perhaps make it fixed for 5 to 7 years and recast the loan at the end of that time to a 30 year note . If a FB can’t even be saved by this sort of rewrite of the loan than maybe that loan was just way to fraudulent to be saved . You can’t mess with the loan balance for people that overpayed after the fact ,but you can give more favorable loan terms/interest rates .
The lender and the FB deserves to go BK if you ask me but I’m thinking of all the MBS holders ,banks accounts , saving accounts , pension funds etc. and innocent parties that didn’t even have anything to do with real estate investment that might be harmed .The stupid borrowers that got conned into buying real estate thinking real estate always goes up might be able to make the payments on more favorable terms , thats all I’m saying .This would not require a tax bail out ,but a lender bail out of the FB requiring the lendr to accept a lower yield on those notes that they re-write .
>to add they can kiss their FICO score goodbye for 10 years…
You have to love these politicians! Now the crap is hitting the fan, according to these as*holes It’s everyone elses fault - but not there fault. They are now sitting up in Washington are doing EXACTLY what I predicted several weeks ago. That is, holding hearings, looking concerned (before they break for expensive tax payer lunch) and grimly shaking their heads about the way citizens have been suckered in by con-men, scam artists, greedy banks, crooked appraisers, crooked realtors, crooked brokers, crooked builders, crooked mortgage brokers, etc.
Let me tell you EXACTLY how concerned about the average citizen these a*shole politicians really are. This mess has been going on for at least 3 to 4 years. NOT ONE OF THEM - I repeat - NOT ONE OF THEM has stepped forward to express their concern over that period. They are acting as if they were away on a mission to Mars for the last 4 years, have just returned to earth and new nothing about it yet many blogs, and this is one of the better ones, have been hammering away at this growing problem and recording case after case of abuses (Casey Serin being a classic example and Las Vegas waiters buying 4 or 5 properties and illegal immigrants making $18,000 a year and buying $600,000 properties being other examples) of the madness taling place. This stuff has been all over the internet for years. Did ANY politician say anything? Not one.
This has convinced me to do one thing. In the future, I’m going to stick my voting rights where the sun doesn’t shine. Voting in this country (even when the results are cooked) means you are simply trying to guess which of the 0000.1% of honest, decent politicians you should vote for. The system is a sham.
“They are acting as if they were away on a mission to Mars for the last 4 years…”
LOL! Awesome rant dude. I agree with all of it, and while I do vote, I agree that it’s pretty much a waste of my time because I sure as hell don’t vote for any of the a$$ wipes who win.
What about the fact that a group of apparaisers tried to go to congress or some government agency and address the appraisal fraud and they got a deft ear .
Sending the entire government to Mars would be the best (and cheapest, in the long run) solution to America’s problems.
Senator Dodd is right, of course. The regulators failed miserably mainly because they are bought and paid for by the very same industries they are supposed to regulate.
Take Armando Falcon, for example.
He was an honest regulator. As head of the OFHEO, he presented a report which basically presented most of the arguments we read here every day for why the sh!t is going to hit the fan in real estate.
What happened to him? A Clinton appointee in 1999, Mr. Falcon was fired by the Bush White House 24 hours after presenting his report. There is no future for an honest regulator in the admin.
Actually, the current regulators didn’t fail. They did their job, which today happens to be protecting the very same industries they should be regulating.
Mission Accomplished. Check please!
Ill Keep repositng this till you all get it………..
They hire the WRONG people on thier staffs….they hire morons from Harvard Yale Ivy leage “Good schools” who have NO STREET SMARTS WHAT-SO-EVER!
How can you inform a Clueless Government Regulator if your staff is also clueless???????
You are kidding yourself. They don’t hire morons. They hire people who know exactly who they work for.
The industries they regulate.
Deregulation = No rules. See Enron.
Joe Momma is right. If you are not going to go along, you don’t belong.
“But instead of backing Spitzer’s demand for lending records from three national banks, the Comptroller of the Currency filed suit seeking to block the probe.”
————————————————————————-
Not surprised! The Comptroller of the Currency is also supposed to regulate the banks which have replaced the US Mafia as the premier loan shark business model (i.e. credit cards at 40% interest rates). When I saw the Frontline episode last summer on the credit card industry, I realized then that Senator Dodd and the Comptroller-Currency are basically bought shills for the banking industry.
Funny how people are now showing outrage when politicians shine the light on this debacle. Let me get this straight. When the Republican admin fires the honest regulators and hires the shills, not a word do we hear about the political aspect. But the second the Democratic politicians start asking basic questions, the whole thing is being played for political gain?
Dodd has every right to shine the light on this. The sooner he does, the more people will realize this was a house of cards. And the faster that happens, the faster prices return to sanity. Dodd is doing all of us a favor.
Put your hatred for fellow Americans aside (Dem’s are Americans, remember?) for one minute. And as far as bailouts go, give me a break. You cannot bail this mess out. It is too big. It’s not going to happen.
Relax.
“Dodd has every right to shine the light on this.”
I just hope he also looks in the mirror while he is trying to figure out where to cast the blame.
“Thou hypocrite, first cast out the beam out of thine own eye; and then shalt thou see clearly to cast out the mote out of thy brother’s eye.”
Matthew 7:5
Not into religion, but well put. Expose this house of cards for what it is, but don’t try acting like some righteous savior, Senator Dodd. I won’t relax until it is plain and clear that there will be no bail outs or legislation passed that will prop up the FBs in some fashion.
Not into religion, either, but that does not mean I disagree with all the accumulated wisdom of scripture…
I always find it amazing how quickly Dems blame a Rep administration and vice versa. Truth of the matter is, they both are one and the same. Just different eye-liner.
Recall whose administration was during the dot-com boom? A lot of people lost a lot of money there.
I case you are wondering, the next administration is going to screw up somewhere too.
I agree there is plenty of blame to go around in both parties. But to think for one second that the crimes of the Republican party are on par with the Dem’s is outrageous.
Not even in the same ballpark.
You’re right there. The Dem’s are far worse.
You seem to quick to blame things on someone else eg. one political party over the other. In truth Mr. Dodd is just another political power hungry politician trying to cloak himself as a self righteous do-gooder fighting for the rights of the wronged, abased property owners all the while wanting to propell himself to the top with a quick solution to a complex problem and never once intertaining the ‘Law of Unintended Consequences’ that will bite him in the ass down the line!!
The banks have significant exposure to RE and MBS paper.
The is also true of of Investment Banks via their interest in such firms as FMT and CFC. Its not clear today but a year of two from now the pile up of REO homes in less then desirable areas will reach crisis levels and banks and other financial entity’s will have to mark to market the value of their holdings in such lovely spots as Compton, Gardena and new but empty developments out in the Inland Empire. While the gov’t may sing the song of no bail out today it will be interesting to see what happens to the banks down the road.
DL meet senator Dodd,
Let me proceedings begin.
You are now under oath and you will be transcripted.
DL: “Then I said to myself: RE is getting really expensive, buyers should make sure they can afford it”. “And then I said to myself: RE doesn’t always go up”. “And then I said to myself: Those guys are buyers, I guess they know what they’re doing, I’m just a economist”
so far all of the price declines are high end housing - when will we get back to 100,000 and under homes that normal folks can pay for?
When the high end falls, any housing of lesser value in the same area gets squashed. Think substitution effects (if buyers can purchase a really nice place for a little bit more than a dump located nearby, then they will go for the nice places, reducing the price of dumps).
“Dodd said he wanted to know why it took the regulators more than three years to act ‘despite evidence that they themselves identified problems in the subprime market.’”
I can answer that. Three years ago it was all good, because real estate always went up, which hid the problem of loaning people money to buy homes their labor income would have never enabled them to pay for.
Now that real estate is going down (and home equity income has turned negative), the problem of loaning people amounts in excess of ten times their household labor income to buy homes they cannot afford is suddenly a big deal.
Can anyone offer explanation of how the subprime industry has (supposedly) regained its footing before it even regained consciousness?
This must have been the most miraculously swift recovery in the history of industry; I guess the invisible hand of the market is working very efficiently now that we have deregulated everything to the point where the government no longer interferes with the free market.
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Subprime shakeout threatens specialists
Few independent subprime lenders may be left after mortgage crisis
By Alistair Barr, MarketWatch
Last Update: 2:36 PM ET Mar 22, 2007
SAN FRANCISCO (MarketWatch) — The subprime mortgage crisis will likely decimate the crop of specialist companies that sprouted during the boom years of the sector, analysts said this week.
Companies like New Century Financial (NEWC1.53, -0.14, -8.4% ) , NovaStar Financial (NFI6.36, +0.16, +2.6% ) and Accredited Home Lenders (LEND12.53, +0.57, +4.8% ) will probably be acquired or will shut down.
Bigger, more diversified mortgage banks such as Wells Fargo (WFC34.88, -0.60, -1.7% ) , Countrywide Financial (CFC36.33, -0.62, -1.7% ) and Washington Mutual (WM41.99, -0.94, -2.2% ) will take their place, along with investment banks including Bear Stearns (BSC150.32, -2.17, -1.4% ) , Morgan Stanley (MS80.90, -0.43, -0.5% ) and Lehman Brothers (LEH72.89, -1.31, -1.8% ) , the analysts said.
Subprime mortgages are sold to home buyers with lower credit scores. Surging house prices and record low interest rates earlier this decade, coupled with investors’ growing need for high yielding assets fueled a boom.
Last year, subprime mortgages were a $600 billion business that accounted for roughly a fifth of all home loans, according to industry publisher Inside Mortgage Finance.
But as borrowing costs climbed and the housing market cooled, the subprime sector spiraled into a crisis.
Several lenders in the business have gone bankrupt, including Ownit Mortgage Solutions, ResMAE Mortgage and Mortgage Lenders Network USA.
Others, such as Equifirst and ECC Capital’s (ECRO0.45, -0.02, -4.3% ) mortgage unit, have been sold and more firms are on the block.
“It’s unlikely that any of these mono-line subprime lenders will be around on a stand-alone basis in a year,” Robert Napoli, an analyst at Piper Jaffray, said. “Weak players will disappear and the originators that are left will be backed by much stronger players with more capital.”
http://www.marketwatch.com/news/story/subprime-mortgage-crisis-may-leave/story.aspx?guid=%7BB942AE28%2D9E07%2D472D%2D966E%2D1676CC0F6622%7D
“Subprime mortgages are sold to home buyers with lower credit scores. Surging house prices and record low interest rates earlier this decade, coupled with investors’ growing need for high yielding assets fueled a boom.”
Does anyone know what share of subprime loans went to investers buying 2nd, 3rd, 4th, 5th and so on houses? And will Senator Dodd’s bailout package ask renters and owners of only one home to bail out those who own two or more, thanks to subprime lending?
Subprime is a money machine as long as RE goes up 10% or more a year.
Just like the Yen carry trade is a money machine (as long as the Dollar stays stable).
Trouble is, the 28 year old traders think they are geniuses, they don’t even understand the concept of risk. I can’t wait to see one hedge fund after another crash and burn.
Many legislators probably did see this coming. They (and the regulators) didn’t act because they didn’t want to be perceived as the one who crashed the industry. Note I didn’t say “popped the bubble” because had the legislatures acted I’m not sure people would have admitted it was a bubble; instead they would blame those who passed new regulations / enforced the regulations. Only by allowing this thing to collapse under its own weight will the majority recognize that it was in fact a bubble.
I think we (as a whole not specific individuals), the voters, are to blame. Can you blame a representative for protecting himself/herself? I would take the high road but then again I wouldn’t be elected, and if I were elected, I probably wouldn’t last very long. Voters make sure only those who take politically safe positions are elected.
In turn, can you blame elected officials for being paid off by lobbyists? I blame the voters. We vote for those we see on TV over and over. We vote for those who can afford to fly from state to state and spend all their time and money campaigning. We reap what we sow.
Did anyone put a gun to the head of the Philemond’s of Boston?
Force them to lie about their income?
Force them to buy a house the wife knew they couldn’t afford FROM THE START?
The greed of the borrowers, lenders, brokers and investors all combined to make this mess.
Take out the greed in one of this chain and what would happen?
No investor greed, no market for loans. No broker greed, no sales of loan “products”. No lender greed, no loan, period. No borrower greed, no toxic loan, period.
Greed underlines every step of this process and no one involved has clean hands.
Fed accused of subprime ‘perfect storm’
By Eoin Callan, Edward Luce and Krishna Guha in Washington
Published: March 22 2007 18:50 | Last updated: March 22 2007 18:50
The Federal Reserve helped create a “perfect storm” in the US subprime mortgage market that could expose up to 2.2m more Americans to the threat of home repossession, Chris Dodd, chairman of the Senate Banking committee, said on Thursday.
Mr Dodd, who is also a Democratic party candidate for the 2008 presidential nomination, alleged that the Fed had failed in its oversight role at a time when the growth in high-risk “adjustable rate mortgages (ARM)” to risky borrowers was exploding.
In a tough interrogation of leading mortgage lenders and federal banking regulators, Mr Dodd also promised legislation to crack down on predatory lending in the US mortgage market, where a rising level of repayment delinquency has caused global market jitters over the past month.
http://www.ft.com/cms/s/8b229154-d8a2-11db-a759-000b5df10621.html
No spillover from subprime into the rest of the lending market is predicted to occur (CLICK)…
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WRAPUP 1-US officials downplay wider risks of subprime failures
Thu Mar 22, 2007 12:25pm ET148
By Chris Reese
NEW YORK, March 22 (Reuters) - U.S. government officials on Thursday minimized the broader economic impact of a crisis in the subprime mortgage market, but the largest U.S. mortgage lender said foreclosures in 2006 may be the worst yet.
A U.S. home builder also warned that increased foreclosures could prolong the housing slump.
A senior staffer for the Federal Reserve said the central bank is not seeing signs that problems in the subprime market are spilling over into other market sectors. The U.S. Office of Thrift Supervision said its 17 savings and loan banks with significant subprime lending operations were “well positioned” to absorb increases in losses due to foreclosures.
Credit deterioration in the housing market is focused on the narrow subprime sector, Fed Division of Banking Supervision and Regulation Director Roger Cole told a Senate Banking Committee investigating problems among lenders who write mortgages for people with weak or no credit histories.
“At this time we are not observing spillover effects from the problems in the subprime market to the traditional mortgage portfolios or, more generally, to the safety and soundness of the banking system,” Cole said.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-03-22T162512Z_01_N22192982_RTRIDST_0_USA-SUBPRIME-WRAPUP-1.XML
I guess Mr. Cole does not understand that sub-prime loans created demand for housing that resulted in overbuilding and price increases that exceeded local affordability .
“Citigroup will no longer buy home-equity loans made to borrowers who won’t prove their incomes and want more than 95 percent of their home’s value, according to e-mails from salespeople.”
No, no, no, no it’s not won’t prove their incomes it is their incomes don’t qualify them for the loans when they bring in their proof on income statements.
Nice try, but 1998 is a very bad reference year for comparing the current situation with past credit busts, as it was right at the start of the greatest mortgage lending credit bubble in U.S. history. 1990 would be a much more suitable choice…
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History a tricky guide for credit cycles and subprime
Thu Mar 22, 2007 2:05PM EDT
By Emily Kaiser - Analysis
CHICAGO (Reuters) - Flash back to 1998.
Wall Street is worked up over the sudden bankruptcy of Southern Pacific Funding Corp., a subprime lender that writes mortgages for people with poor credit histories.
Credit terms tighten and stocks of subprime lenders tumble as investors worry about popular but risky mortgage practices, such as lending 125 percent of the value of homes.
Delinquencies are on the rise, and there are questions about some lenders’ accounting practices.
“The subprime market is starving from lack of liquidity and many parched lenders are looking for last minute mergers for new capital infusions,” read an October 1998 article in Real Estate Finance Today, a now defunct publication of the Mortgage Bankers Association.
The similarities with the problems in the subprime sector this year are obvious, but if today’s investors are looking to history for clues on how the current subprime and credit cycle will play out, the devil is in the details.
http://www.reuters.com/article/reutersEdge/idUSN2245530320070322