Seven Month Price Drop A Record
Some housing bubble reports from Wall Street and Washington. “The National Association of Realtors reported Friday that price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006. It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago.”
“Total existing home sales are 3.6 percent below the 6.94 million-unit pace in February 2006.”
From Reuters. “Freddie Mac, the No. 2 U.S. mortgage finance company, reported a $480 million net loss for the fourth quarter of 2006, the company said Friday.”
“For all of 2006, Freddie’s mortgage guarantee business grew 10.6 percent to about $1.5 trillion, the company said. That growth came despite a ‘challenging year for housing and mortgage finance,’ said Richard Syron, the company’s chief executive.”
“Freddie Mac and Fannie Mae were created by Congress to pump money into the $8 trillion home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street.”
“Countrywide’s subprime mortgage defaults for 2006 loans may exceed the company’s highest on record, a company executive told a government panel examining mortgage lending.”
“‘We believe that declining home prices and other factors … may produce foreclosures numbers on 2006 originations approaching or exceeding those on loans originated in 2000,’ Sandor Samuels, the company’s executive managing director said in remarks.”
“Samuels urged Congress not to ‘lose sight of the reality that more than 90 percent of Countrywide’s subprime borrowers will not lose their homes to foreclosure.’”
“Samuels also warned lawmakers not to create overly tight restrictions on high-risk mortgages, saying that could lock out many would-be homebuyers.”
“H&R Block Inc. said its Option One subprime mortgage unit renewed a credit line with Bank of America Corp. for a year, but the size was cut in half.”
“H&R said last week it has written down the value of the subprime lender’s assets by $29.2 million before taxes, because of the ‘extreme volatility in the mortgage market,’ according to H&R Block CEO Mark Ernst.”
The New York Times. “The rise and fall of the subprime market has been told as a story of a flood of Wall Street money and the desire of Americans desperate to be part of a housing boom. But it was the little-noticed tool of automated underwriting software that made that boom possible.”
“Subprime lenders like automated underwriting because it is cheap and fast. ‘You don’t have to chase every lead — just greenlight ’em,’ Edward N.. Jones of Arc Systems said in an interview.”
The Globe & Mail. “Members of Congress are pointing angry fingers at Alan Greenspan and other U.S. bank regulators for fostering a mortgage market ‘on steroids’ and failing to thwart a predictable subprime meltdown.”
“Witnesses said the real villains in the subprime meltdown aren’t regulators, lenders or consumers, but Wall Street, which had an insatiable appetite for mortgage-backed bonds. ‘The real market demand for bond services is on Wall Street,’ explained Irv Ackelsberg, a Philadelphia real estate lawyer and consumer advocate. ‘That’s the real market and the real culprit.’”
“North Carolina bank commissioner Joseph Smith told the hearing that lending standards lapsed because of a ‘fee-driven, volume machine’ that pushed mortgage brokers to sell mortgages to people who they knew could not afford them. ‘The animal instinct took control,’ he said.”
The Washington Post. “A top Fed officer defended the agency but acknowledged it could have stepped in earlier to curb risky lending. ‘Given what we know now, yes, we could have done more sooner,’ Roger Cole, the Fed’s director of banking supervision and regulation, told the committee.”
“Greenspan, in an interview later in the day, declined comment on whether the Fed was a lax regulator. But he disputed the senators’ other allegations that he encouraged homebuyers to take on nontraditional mortgages.”
“At one point, committee Chairman Christopher Dodd, held up three large blue charts that demonstrated the Fed was aware as far back as 2003 that lending standards were deteriorating.”
“About the same time, Dodd said, Greenspan was touting adjustable-rate loans. ‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgages,’ Dodd quoted Greenspan in a speech in early 2004.”
“Greenspan noted Thursday that he retreated from those remarks about two weeks after he made them, saying he meant only ‘a narrow segment’ of households might benefit from nontraditional mortgages.”
“Greenspan also took issue with Dodd’s criticism. ‘To suggest the Fed was pushing subprime mortgages or even adjustable-rate mortgages is just not accurate,’ he said. ‘I was merely identifying an arithmetically obvious issue, that some mortgage borrowers, admittedly a very small segment, would do better with a different product.’”
“In June 2004, the Fed embarked on a two-year campaign of raising short-term rates to tame inflation. But Dodd said it also hit homeowners who had loans with adjustable rates. While interest rates were going up and questionable lending practices were spreading, federal banking regulators were not ‘protecting hardworking Americans from unscrupulous financial actors,’ he said.”
“‘In my view, these actions set the conditions for the perfect storm that is sweeping over millions of American homeowners today,’ said Dodd.”
“The expansion of the lending industry was part of a nationwide push for homeownership. Now the real-estate boom is unraveling, with about $160 billion in mortgages falling into delinquency, regulators said at Thursday’s hearing.”
The News & Observer. “The city of Charlotte does not count foreclosures. Neither does Mecklenburg County, the state of North Carolina or the federal government. Even the Federal Housing Administration, which insured many of the failed loans, didn’t track the concentrations.”
“About 8,700 homes have foreclosed in Mecklenburg County over the past four years. An Observer study found almost 30 percent of the foreclosures in 2003 and 2004 were associated with loans insured by the federal government.”
“The share of Americans who own homes rose to almost 69 percent last year from 65 percent in 1996. The FHA was responsible for a share of the increase. So were subprime lenders, which make loans with high interest rates to the same people traditionally served by the FHA.”
“But now the number of foreclosures also is pushing into record territory, driven by defaults on FHA and subprime loans, according to estimates made by the lending industry.”
“‘The mortgage industry has said they have increased home ownership,’ HUD’s inspector general, Kenneth Donohue, told a U.S. House committee last week. ‘However, at what cost to the American people?’”
Where is that poster that chimes in every month saying prices have never dropped in the US? BTW, this post will be updated if neccesary.
The prices don’t even take into account all the improvements and incentives. After factoring those, it’s probably down at least 5% yoy.
Also sales numbers. Feb. 2007 is 3.9% higher over Jan. 2007 all right, but Feb. 2007 is still 3.6% LOWER than Feb. 2006. When you think about it, of course Feb. is higher than Jan., because of one month lag in registering sales.
Associated Press is a bitch for NAR, reporting with a bias on the upside.
‘Total existing home sales are 3.6 percent below the 6.94 million-unit pace in February 2006.’
I agree, what is the AP trying to do? Every month they pull this/
The piece by AP titled “Home Sales Rise Unexpectedly in Feb”. First of all, Feb on Feb is down 3.6%, so this rise is half false. Secondly, the rise of Feb over Jan is totally EXPECTED. There is nothing unexpected about that.
The media, with AP as an example, is an accomplice in this housing crime syndicate.
“… reporting with a bias on the upside.”
They can’t hide the declining values. I can’t wait to see the S. Florida numbers in particular. Should be pretty ugly in this guy’s opinion.
Ugly? Oh, that’s a very polite way of putting it.
S. Florida is on the list of areas that will see depression. By that I mean greater than 25 percent unemployment and economic decline due the end of this credit bubble.
Neil
25 PERCENT UNEMPL??? I don’t think those numbers were even seen in the 1930’s. What makes you think the numbers will get that high?
Yes unemployment hit 25% in the 30’s - nationwide as a matter of fact. Some areas were worse.
In 1933 the unemployment rate was 25% in the U.S. Also, there were many fewer two-income families– often the unemployed worker was the sole income earner for the family.
And it proves that even in depression, 3 out of 4 people were working. Takes a lot of pity away from those on public assistance.
“Comment by Rob in WPB
2007-03-23 09:49:09
25 PERCENT UNEMPL??? I don’t think those numbers were even seen in the 1930’s. What makes you think the numbers will get that high?”
Technically unemployment did not hit 25% during the depression at least nationally on an annual basis, but 24.75% is within rounding error…
http://www.u-s-history.com/pages/h1528.html
“Associated Press is a bitch for NAR, reporting with a bias on the upside.”
CNN, at least, went ahead and whipped out the good old ‘peak-to-current’ number: “while the year-over-year decline may seem modest, it is 7.6 percent below the record high hit just last July.”
Maybe that’s the number to go with, as a compromise between MoM and YoY.
(NAR says…)
Yeah right, trust their numbers. Didn’t they recently drop $40,000,000 on a nationwide brainwashing-subliminal message campaign to boost sales and keep the party going? They need to show a +return on that investment.
That really isn’t that much money. That’s only about 60 California homes in price.
Regarding the $40M campaign…. In retrospect, I think the NAR campaign will be seen as equivalent to the 2001 Superbowl, in which hordes of dot coms advertised–on no or limited profitability–and were boarded up within a year or so.
also total housholds increase every year w immigration etc
try the 05 number…….
“…all the improvements and incentives.”
Also important: Where did the building take place in the past six years?
Answer: In the McMillionaire price range ($500K on up McMansions).
Implications:
1) Quality-adjusted prices have fallen by more than the national median.
2) The (quality-adjusted) OFHEO index will miss this as well, due to the upper bound on the size mortgage they include in their sample (see footnote 3 on p. 2:
http://www.ofheo.gov/Media/Archive/house/hpi_tech.pdf ).
Let’s not forget REAL inflation (not the faked Fed numbers) is running at about 7-9% or higher. So in real terms, prices dropped even more than the NAR is letting on.
revise down January, February looks strong compared to January, then revise down February, March will look strong compared to February…
what ever happened to comparing February to February?
“Total existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 3.9 percent to a seasonally adjusted annual rate1 of 6.69 million units in February from a downwardly revised level of 6.44 million in January, but are 3.6 percent below the 6.94 million-unit pace in February 2006. Last month’s increase was the biggest monthly rise in three years – sales also rose 3.9 percent in March 2004.”
if the numbers are bad, make them sound good
companies use this when reporting earnings all the time. if growth is less than expectations than the first thing you read in the press release is record earnings and you have to do your own math to figure out the growth. and if things are really bad then there is no mention of future earnings guidance and the execs are really touchy on the subject when asked about it on the conference call
There needs to be a criminal investigation into the NAR.I do not believe the numbers for 1 second.I believe half of their staff would be in prison if a full blown investigation was done.
The NAR is facing an [unrelated] anti-trust lawsuit. It was filed by the DoJ back in 05 or so and a month or two ago a federal judge cleared it to go to trial. It will probably happen this year, I’d guess.
It will be at the Federal Courthouse in the Northern District of Illinois, if you’d like to keep track.
Because YOY doesn’t sound as good as MOM. (Ever hear of a mom who sounded bad?)
Well, there was that one on the Springer show.
In in Colorado Springs, where, I’ve been assured, “It’s different” and therefore better, total home sales last month were down 10% YOY, and foreclosures were up more than 30%. Since “sales” were based on signed contracts, not closings, and the cancelation rate is running higher than 30% for new houses, the sales numbers are even softer than reported.
Issue with the NAR. We know their data does not include direct sales by builders or FSBO. What about foreclosures?
The higher sales numbers is due to cancellations that fell out in january being shown as sales for february.How much more can they cook their books?
Also, where is Geko???
I thought Ben banned him weeks ago . . . but maybe he’s in jail?
He’s around….just not here.
I don’t think he was banned. IIRC he got torqued one day and left in a huff.
It was your “club Casey” comment.
Seriously, I love that phrase for flippers you coined.
Got popcorn?
Neil
aren’t you the wine connoisseur?
What’s on tap this weekend? (I know technically wine is not on tap, but why stand on ceremony. Hope I spelled connoisseur right)
Naw he and A.E. Newman are on sabbatical
he is busy $ cost averaging the s&p
Ben didn’t ban Gekko. He took his ball and went home. He still hangs out in the SDCIA forum, I think. He might also be living in TxChick’s garage, but that’s just a rumor.
LOL!
“Our view is that the tightening in the subprime market will have a negative impact on home sales,” Lereah said. “It probably won’t postpone the recovery (in housing) but it will slow it.”
Classic doublespeak. How can you slow something but not postpone it?
Blame it all on subprime,c’mon david lereah step up to the plate for once and tell the truth.
The problem technically isn’t subprime. It’s exotic loans. The fact that so many exotics were handed out to subprime households is not really relevant. Yes, it’s the subprime exotics that will default first (hence the collapse in banks that were mostly subprime), but the rest of the exotics will crack eventually. The middling exotics (Alt-a) just need a little more time. The heloc gravy will dry up just as the Alt-A’s reset.
Some banks will swallow the hit, but in the end, exotics will go right back to what they originally were — cash flow tools for the rich.
oxide- great point.
Forgive me if this post shows up twice (can’t see my 1st attempt) — I agree with oxide and have been pointing everyone I know to a graph of ARM resets that appeared as a 2007-03-19 post on implode-o-meter. It shows ARM resets to rise from about $25B/mo this spring to about $50B/mo at the end of ‘07, then fall off for awhile, but another broad peak from late 2010 through most of 2011. Presumably the foreclosure peaks will lag the reset peaks by about 6 months, if it doesn’t all just turn into chaos and noise.
Remember that that graph was a snap-shot as of Jan 1. New ARMs are being written all the time even with the sub-prime meltdown so new upcoming resets are being added to the graph even as we speak. Only once ARMs stop being written will we be able to begin to predict when the light at the end of the tunnel will appear.
> New ARMs are being written all the time even with the sub-prime meltdown so new upcoming resets are being added to the graph even as we speak.
I wonder how it would look if foreclosures are subtracted. Borrowers could conceiveably default even before the reset. Probably 5% of the exotics?
I agree with oxide about the exotic loans. I’ve been pointing everyone I know to the 2007-03-19 post on implode-o-meter that shows a graph of ARM reset schedule. (Something from a Bear Stearns - Credit Suisse document.) ARM resets go from $25B/mo this spring to about $50B/mo at the end of this year. Then they drop off, with a second broad peak from late 2010 through most of 2011. Presumably two mountainous foreclosure waves will lag the ARM-reset peaks by maybe six months, if it doesn’t all just turn into chaos and noise.
That is a very interesting graph, but I have a couple of questions:
(1) A rough perusal of the first 12 months indicates an average monthly reset of $40B or less, or an annual reset total just shy of $500B. Yet, I’ve heard $1T+ bandied about many times as the total reset volume in 2007. Why the discrepancy?
(2) What are “agency ARM” and “unsecuretized ARM?”
Thanks!
probably because a fraction already refinanced before the reset anticipating the problem. i remember the number started abuot 1.7t late 2005.early 2006, to about 1.0t by the end of 2006.
Thanks, Jose. That makes sense.
In the space-time continuum of Liareah’s mind, it is possible.
Actually, I know what he is trying to say, but he is still absolutely wrong.
It will not keep the recovery (rising prices again) from happening on his timeframe (end of year, as of the last crap spewed from NAR) but will slow down the appreciation once the rise starts again.
It’s still wrong. I think once the recovery happens, we are going to go back to normal appreciation. However, for that recovery to happen, we have to bleed off all the BS appreciation from the last few years. Subprime is going to accelerate the price declines; but I think we still have 2-3 years before we get anywhere near the bottom. Only if the lending was firmed up tommorrow would the recovery happen sooner.
Agree. This will take at least 3-5 years AFTER the lending standards are tightened. We need to allow for all the FBs to run through their credit cards, family money, etc. They will try to hold on to their homes, and lenders will try to re-work many of these loans. Add in an attempted govt bailout, etc. and you have a farily large delay before things hit bottom, IMHO.
“It probably won’t postpone the recovery (in housing) but it will slow it.”
As if there even is a recovery.
“From Reuters. “Freddie Mac, the No. 2 U.S. mortgage finance company, reported a $480 million net loss for the fourth quarter of 2006, the company said Friday.”
Considering that Freddie Mac has issued more then 2 trillion dollars in mortgage backed securities, I expect that will be $480 BILLION net loss by next year…
You can take a look at my post ,Seattle Real Estate Market Conditions Jan 2007 where data from ZipRealty shows that the average sales price in Seattle declined 4.6% between Dec 2006 and Jan 2007.
The US Census’s figures for King County show that the county’s population increased by only 5% between July 2000 and July 2006. That’s 5% total, not 5% per year. Likewise, the Census also estimates that between July 2005 and July 2006 King County’s population increased 1.5%. So population growth has not been a driver of increased home prices in King County at the rates that have been seen.
Thanks for the graph Scott. You might want to post that on the Seattle Bubble Blog. Then sit back and wait for the trolls to start bashing.
Where is that poster that chimes in every month saying prices have never dropped in the US?
He’s back at the State Hospital, drinking that special hot chocolate that turns his peaks and valleys into gently rolling hills.
“‘The mortgage industry has said they have increased home ownership,’ HUD’s inspector general, Kenneth Donohue, told a U.S. House committee last week. ‘However, at what cost to the American people?’”
We’ll be able to give you a total in a number of years from now…
“We’ll be able to give you a total in a number of years from now…”
Or not. Apparently no one tracks foreclosure totals the way they track home sales and prices.
How do you propose they track it? Have someone camp out in front of every county recorder’s in the country and check the daily/weekly totals?
This does nothing to help NAR members sell more homes and collect more commissions, so they certainly aren’t going to pay to dig up the stats.
“Witnesses said the real villains in the subprime meltdown aren’t regulators, lenders or consumers, but Wall Street, which had an insatiable appetite for mortgage-backed bonds. ‘The real market demand for bond services is on Wall Street,’ explained Irv Ackelsberg, a Philadelphia real estate lawyer and consumer advocate. ‘That’s the real market and the real culprit.’”
They’ve found the perfect scapegoat: They can rage endlessly at ‘evil moneychangers’, demand regulatory changes, create wonderful theater and in the end, point to their abiding concern for the ‘little guy’ while doing exactly zero. Ah, the political life.
Yup, they’ll rage at the “evil moneychangers” as they bail the moneychangers out.
They can have all the theater they want as long as they hold to that last part: “doing exactly zero.” I would be pleased in that case. And hey, Greenspan is getting the attention he deserves!
I hope people had a chance to watch CSPAN yesterday to see Irv Ackelsberg in action. This guy spelled out, in plain english, exactly how this game was rigged by all the players to rip ma and pa off. It was a sight to see. He called out these loans for what they are - predatory loans. Teaser rates? A complete deception. It was a classic.
He made it clear there was plenty of blame to go around for the FB, but he put the real blame exactly where it should have been. Wall Street, Mortgage Brokers, and AWOL regulators.
Way to go Irv!
The only way to stop this madness is to sue the heck out of the Wall Streeters. They have deep pockets and will be around long after the subprime lenders disappear.
““Witnesses said the real villains in the subprime meltdown aren’t regulators, lenders or consumers, but Wall Street, which had an insatiable appetite for mortgage-backed bonds. ‘The real market demand for bond services is on Wall Street,’ explained Irv Ackelsberg, a Philadelphia real estate lawyer and consumer advocate. ‘That’s the real market and the real culprit.’”
“North Carolina bank commissioner Joseph Smith told the hearing that lending standards lapsed because of a ‘fee-driven, volume machine’ that pushed mortgage brokers to sell mortgages to people who they knew could not afford them. ‘The animal instinct took control,’ he said.”
“About the same time, Dodd said, Greenspan was touting adjustable-rate loans. ‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgages,’ Dodd quoted Greenspan in a speech in early 2004.”
“Greenspan noted Thursday that he retreated from those remarks about two weeks after he made them, saying he meant only ‘a narrow segment’ of households might benefit from nontraditional mortgages.”
What a goddamned loser. Alan Greenspan should be in jail. Period.
Look on the bright side, we won’t be hearing the word maestro in the same sentence as Greenspan any more.
And maybe he’ll learn to keep his mouth shut more often.
I find it interesting that a Senator and a former Chairman of the Fed are debating issues that were discussed on this blog years ago.
Yeah, doesn’t it just give you the warm and fuzzies to know we have such an on the ball group running the show? I’m so glad they’re right on top it!
I tell people all the time that this blog is like owning a crystal ball.
I know we’ve been hammering on Dodd the last couple of weeks, and rightfully so. His suggestions of a bailout are moronic. But I have to say it was pretty entertaining watching him do some good old fashioned ball-busting on the Fed yesterday morning. Talk about ripping them a new one, he was having no problem fingerpointing the Fed as “the problem”. Of course, it still makes him no less the loser. It’s easy to figure out the obvious when it’s staring you in the face. We here on this blog have been calling out the underlying problem that is the Fedral Reserve for some time now.
Yes, I agree, ex-nnvm, although we gave Dodd a pretty good dissing, we also have to acknowledge people when they do the right thing.
Even if it’s purely based on political motives? On the one hand, this subprime meltdown was “obviously going to happen”, the Fed knew they were creating this bubble, but Dodd did nothing till a month or so ago? Doesn’t that make him part of the problem?
Unclear. IIRC, committee chairmen are drawn from the majority party in power. They are the ones with the authority to call hearings.
Yeah, how much of a megaphone did Dodd have back in 2003?
Deev - exactly right.
I can’t believe people (like implosion) would actually believe that any senator has no power. If that were the case, the minority party might as well pack up and go fishing.
The problem is that if any politician spoke out against lending practices in 2003, or at any other point before the downturn, he would get blamed - by the Republicans in Dodd’s case - for the downturn itself. And the voters would probably buy it, since they would want to blame anyone except those most responsible - the idiot buyers.
Remember that the majority of the population, and an even greater percentage of the voters, are homeowners and they don’t want to hear politicians telling them their houses are overvalued. If the voters were willing to face reality, so would the politicians.
At least somebody is finally on them about it in a public forum.
Dodd is just another grandstander. He (or his staff minions) have yet to respond to my letter against an FB bailout, but now I’m getting all these sickly-sweet pitches asking me to donate to his campaign. Sorry, my donations are going to Ron Paul and Tom Tancredo.
“What a goddamned loser. Alan Greenspan should be in jail. Period.”
I don’t want to pay for his jail time. He is a goddamned loser though, and I think a fitting punishment would be career and legacy castration through the media outlets. Expose him for the fraud that he is, the blower of bubbles. No more $100K speaking engagements for that a$$ hat. Just seeing a photo of him makes me nauseous.
I disagree.
Yes he kept interest rates too low for too long, which definitely helped fuel the bubble. And maybe we can say that he was the biggest single culprit in fueling the bubble.
But to think his statements about ARMs actually induced FBs into overleveraging themselves via ARMs is a bit of a stretch. I would guess that the vast majority of people in ARMs barely know who Greenspan is or that he made the supposed recommendation.
Like you, I do wish his reputation/legacy as this great “Maestro” of the economy would be destroyed, but why should he go to jail? Because of a failed interest policy? Because of bad investment advise? Or because you hate him?
Ah, FVAR, you are probably correct that most sub-prime borrowers did not know Greenspan made comments pushing the use of exotics but I can guarantee you >90% of mortgage brokers did and they ran with his cue to push the exotics.
The pushers out here were using that Greenspan comment for radio ads pushing ARMS.
Greenspan is the king of obfuscation. If he were ill, he would explain away the vomit trickling down his chin as, ” an unforseen rejection of a previously desired commodity, the expulsion of which could not be forseen or contained.”
You’ve been eating your own waste again haven’t you Greenie!
Oh, that’s a good one, santacruz!
OK, If you say so… Brokers used Greenspan’s comment to push ARMs
But do you really think that was a significant factor in an appreciable number of cases where the FB got an ARM?
FB to Broker: “I am torn between the 30 year fixed and the ARM… Greenspan says it makes sense? Oh, then give me the ARM.”
I think most FBs got into ARMs because it was the ONLY way they could buy at inflated prices.
I agree with you Fairfax, but I can only tell you that is what I heard on the radio during my morning commute. The lenders knew that an ARM was the only way most buyers could qualify, but quoting said “Maestro” certainly may have helped with easing the fears of a buyer that approached an ARM with trepidation or to a greater extent: ignorance.
I doubt it.
I think the larger commission $$ associated with “exotics” are what lead to brokers pushing them.
Robotic Broker: “Greenspan told us to push ARMs. Must sell ARMs, must sell ARMs.”
“I think the larger commission $$ associated with “exotics” are what lead to brokers pushing them. ”
But sh*t rolls down hill. Green says ARMs are good. He keeps interest down. Bank execs like this, as they see the potential for more $$. Then, they push the ARMs on to their brokers (quota or not, they still push). Hence, the brokers push them on to consumers, touting all of the benefits, none of the pitfalls.
FB believes Broker believes Exec believes Green. Green may have only been the spark, but without the spark, there can be no fire.
Ah, FVAR, you are probably correct that most sub-prime borrowers did not know Greenspan made comments pushing the use of exotics but I can guarantee you >90% of mortgage brokers did and they ran with his cue to push the exotics.
—————————-
This needs to be repeated. We don’t need the FBs to pay attention to Greenspan. The mortgage market was listening, and that’s all that matters.
I have heard several different RE radio programs in South Florida tout Greenspan’s endorsement of ARMs as proof that adjustable-rate mortgages were bonafide borrowing strategies. This was as recent as two weeks ago. I don’t recall them mentioning his retraction…
I disagree with you. In 2005 a Doctor friend of mine told me to invest heavily in ARM’s. I said I had no Idea what an ARM was. My Doctor friend told me all about the Fed, Alan Greenspan, and how to use leverage and ARMs to make my fortune. Glad I didnt take that advice and then investigated on my own and found Ben’s blog. You can be a Doctor and know nothing about the stuff we know about. So therfore, respectfully, I dispute your assertion that nobody was talking about Greenspan or his advice in past years.
So therfore, respectfully, I dispute your assertion that nobody was talking about Greenspan or his advice in past years.
I’d second that, Captain Jack. “Political extremist and conspiracy theorist” Lyndon LaRouche [the media wouldn't label him that if it wasn't true] warned very explicitly, to those who cared to listen, that Greenspan was creating a dangerous housing and derivatives bubble.
http://www.larouchepub.com/pr/2003/030611fed_and_fred.html
An Emerging Danger: Mortgage-Backed Securities Market Could Repeat Its Blowout of 1994, But on a Much Larger Scale
June 11, 2003 (EIRNS)—Freddie Mac and Fannie Mae have, along with Fed chairman Alan Greenspan, built up a huge housing bubble. They can carry out this operation by issuing three types of highly risky obligations: 1) corporate bonds that Freddie and Fannie issue; 2) Mortgage Backed Securities (MBS), in which Freddie and Fannie pool a group of mortgages together, put a guaranty on it (for which they earn a fee), and then they package these MBS to insurance companies, pension funds, and international investors; and 3) derivatives, which Fannie and Freddie have.
[Article continues]
Trust.
I’m not a fan of public lynchings, but I kinda like the image of Greenspan sitting across a 2×4, carried by a mob of FBs towards a barrel full of boiling tar, through a street lined with McMansions for sale.
I hope Marshall Dillon and Festus are out fishing with Doc Adams so they cant get back to Dodge City in time to save Greenie. Hey I guess I can have my own fantasy too.
This type of talk is how the term “bitter renter” came to be. Don’t prove those people right.
In 2001 Alan Greenspan was awarded the “Enron Prize” for excellence. 19 days later Enron declared bankruptcy, unleashing the largest financial scandal in American history.
You’re doing a heck of a job, Greenie!
That’s Sir Alan Greenspan to you!
The traitorous bastard was beknighted in 2002 for his contributions to “global stability”!
typical cya strategy. blurt out something egregious and then a retraction a few days later when nobody is listening.
I don’t care about the percentage increases the RE community reports now. All I care about are the number of foreclosures and defaults and the national median price.
With the way those indicators are going, a huge recession is baked in the cake.
It does seem that in the debate on home prices, the NAR doesn’t matter much anymore.
medians are flawed measures in the case of homes because they don’t adjust for mix shifts and quality adjustments over time. The case schiller and (I believe)OFHEO indices do make these adjustments.
“…do make these adjustments.”
To bad the ceiling on the home prices considered in their index ($417K?) pretty much excludes SFRs in all of California…
Reference please? I’m kinda familiar with the indices and this is the first I’ve ever heard of such a ceiling. Thanks.
Footnote 3 on page 2:
http://www.ofheo.gov/Media/Archive/house/hpi_tech.pdf
Sorry. I was asking about a ceiling on the Case-Schiller indices. But, in light of your info … wow! those OFHEO numbers are less than meaningless for CA.
Nah. It does exclude *mortgages* exceeding the loan limits, but not *properties* exceeding the loan limits. There are (believe it or not) still a lot of people that don’t finance > $417k on $600-800k homes (e.g. me). So these homes are still included in the mix, and drive the index. From what I’ve seen - CA has pretty much followed other bubble areas - FL and DC for instance, with regards to height of the bubble and current decline, in the OFHEO numbers.
Otherwise if the HPI excluded all homes actually *priced* above $417k, then CA would simply have gone from rapidly-increasing to just flat several years ago, or else just been marked as “N/A” in the stats.
A deep recession when consumer savings rates are so low and with most people relying on their home equity for cash, would probably push an historically large number of the middle class into bankruptcy.
What middle class?
Make that “…will push…”. Too bad the bankruptcy laws have changed.
Why are there so many ‘official reports’ on home sales and the economy in general that never reflect what all of us here report on daily? Sales are UP? That’s sure not what the anecdotal evidence is saying. Or what I read in any of the local market reports.
I get the feeling many of these reports are ‘generated’ to keep us calm in the face of increasingly troubling real world experience.
The inflation numbers in particular are a good example of this official lying. I find these home sales statistics suspect as well.
Here in San Diego, ole George Chamberlin immediately jumped on the radio (and every 5 minutes afterwards) to cheer the news. Sales up! Didn’t mention the part about it being driven by the NE nor the part about the median decline.
Chamberlin is doing his best to try oust Watts as number one __________. (I’ll let you guys fill in the blank. Let’s see what you come up with)
Also fails to mention the SD exodus numbers. Not a word.
He knows the vast majority of SD folks get their RE news from his quickie radio/TV snippets on the way to work. Many many people kept misinformed.
sales up????? must be the weather.
The Northeast saw a huge jump in sales figures. Yet - all we hear from the media is how difficult the RE market is in the NE. It’ll be interesting to see if the revised figures hold true.
Sales volume in my zip code was up around 40%, YOY, in both January and February. Median prices were down, 19% and 27%, respectively. Numbers that dramatic were due to some lower-end condo sales, but still, the trend is really not debatable.
Someone remarked this could be all that Wall St. bonus cash going to work. Closings in Feb reflect deals around year end. Makes sense to me.
Wow - Nation wide inventory for single family rocketing higher now. Over 13,000 properties hit the MLSs in the last 24 hours. Maybe everyone waited to St. Patrick’s day to list?
Yesterday Single Family: 1,660,232
Today Single Family: 1,673,425
Spring selling season in north county San Diego seems to have a lot of seller and buyer activity. I am seeing people moving houses to the “sold” category at a noticeable pace. I think (and someone help me out) that the offer is accepted by the seller, but it does not mean that there is funding in place yet. I wonder if the conditions in the mortgage market are going to torpedo some of these sales.
I am convinced that San Diego still has a healthy supply of people who don’t know enough to get off the tracks until the train passes.
ain’t it plumb near imposs-a-bull to git off dem tracks after ya been runned over?
No way does an accepted offer translate into an auotmatic sale, especially now. With the loose lending standards of yesterday, almost all pendings turned into closed transactions. But now your going to see a lot of these “pendings” falling out of escrow due to tighter lending standards. Years back, it was quite common for deals to fall through due to financing issues. It’s just been rare as of late. But it’s back to reality now.
I wonder how many people remember those times. My mothers knees have been going bad; last year she finally had to have surgery. The next day their bi-level house was on the market and they started the search for a ranch with no stairs.
Lucky for them, they got an offer. Their plan all along was to go House -> apartment -> house, because there was no way in hell they were committing to buy a thing until after closing. They wouldn’t so much as sign the apartment lease until they left the closing.
They were in that house for 11 years, to them the only way to approach the market was the way they did it before.
“now your going to see a lot of these “pendings” falling out of escrow due to tighter lending standards. ”
I’ve seen several homes sporting SOLD signs in the last few months only to watch them go back on. One could have been inspection issues as it was a 100+ year old home. But two by the lake recently sold and within 2 or 3 weeks they were both back on the market. I always wonder if these buyers somehow see the light before closing and find a way to back out.
I have to admit that the overall, nationwide sales numbers for February were stronger than expected. Even if you exclude the potentially anomalous surge in the Northeast (weather impact?), the overall sales number wasn’t bad. The problem goes back to inventories — while the sales rate rose 3.9% MOM from January, inventories rose more quickly, 5.9%. On an absolute basis, inventories are also closing in on their multi-decade high from July 2006. So we still have a mega-supply problem to deal with.
See the chart here for a visual representation if you want:
http://interestrateroundup.blogspot.com/2007/03/surprisingly-good-news-on-existing-home.html
sigalarm,
I am seeing what you are seeing. In our area (south Carlsbad), I’m seeing sales move at a faster pace than at any time since mid-2004. As much as I was hoping for BOMs due to the credit tightening, I’m not seeing them. Of all the houses I’ve been watching go into escrow, all have made it to close.
The lower-end markets, however, are stalled (east O’side, Escondido, etc.).
I’ve seen this same thing. My guess is that we are seeing people trying to get in before their ability to get a loan they shouldn’t be getting anyway goes away.
Most commenters on this are neglecting to consider the rush to hang people with suicide loans before the cut-off on tightening standards.
3.9% increase? Looks like we’ve already bottomed out and things are taking off again.
What’s that you say? Last month was exceedingly horrible and just wait for the adjusted numbers to come out?
BTW, are the revised numbers ever reported as much as these initial numbers which seem to almost always show some kind of nominal increase? Hell, if you relied on the initial numbers you’d be David Lereah and think there’s no downturn at all.
The sales are still down year-on-year. Yet stock and bond markets rally since sub-prime woes are so obviously behind us.
The rally has fizzled already.Once they looked deeper into the numbers they could see how crooked they are.
The price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006.
Could someone please tell me where or who is buying all these homes under median price. Could NAR be including trailer homes sold by FEMA?
Nah, its houses in the midwest and south. Those areas had bubbles too but nothing like the coasts and northeast.
“Members of Congress are pointing angry fingers at Alan Greenspan and other U.S. bank regulators for fostering a mortgage market ‘on steroids’ and failing to thwart a predictable subprime meltdown.”
Steroids huh? First pump it up, then cut the fat and just when things start looking fine rage sets in. Mr. Dodd, where was your rage 5 yrs ago?
I always thought Alan Greenspan looked like he was on the juice.
Sorry, gang, but the spinners are going to have a field day with these numbers–price drops notwithstanding. I’m long until Q3. It’s all noise until then.
I’ve been running these lines of thought for weeks now. Long til Q3? Seems optimistic to me, but I’ve been wrong before (Fall of ‘87 comes to mind). Personally, I’m on the sidelines for the market by April Fools, though I’m holding metal mining and oil til the Q3.
Sales up.
Inventory up.
Prices down.
That’s not a positive report; it’s just continuing weakness in the market. Also, they are going to revise the numbers down again. Sales can always show “up” when you release them, then revise down, then release the next month (and compare to the revised down number).
This is not good news for housing.
Better than price up and sales disappearing.
Existing home sales are based on closings, which seem like pretty easy data to measure each month. How do these numbers get revised?
“The spring foreclosure season is in the bag!” -DL
“The share of Americans who own homes rose to almost 69 percent last year from 65 percent in 1996.”
You don’t own crap until you have a paid up deed in your hands. What you do have is leverage for your rental dollars which translates to a share of property value inflation when you terminate your property rights for being a good property caretaker if all goes well (no floods, hurricanes, earthquakes, etc).
I’m curious how many times Casey is counted in those stats.
I’m curious how many other investers like Casey used liar loans to buy multiple houses. Will Senator Dodd’s bailout help the Casey Serins of the world out of their jam?
Yeah, he deserves at least 5x the bailout cuz he’s at least 5x as f’d
If you go to foreclosure.com and click on the preforeclosure tab, then you’ll see the name of the defendants. You can sort the names by clicking on defendant. There are a lot of multiple entries (make sure you edit out the obvious repeats = same address and price). In my hood (92107) there is a “Kenzelmann,e T” with 5 NODs on properties totalling around $4.4M, “Cook Darrick” with at least 3 (maybe 5) NODs on properties totalling around $2.3M (maybe $3.8M) and the winners are the “Tisdales” with 9 NODs on properties totalling around $6.3M. Maybe these guys even have properties in other ZIPcodes as well?
I have a feeling these people weren’t totally honest on their loan applications…..
go to preforeclosure list for runningsprings ca 92382 there seems to be a lot of homes in 1 century 21 reality agents name.
Ted and Carla, huh? I wonder what they discuss at the dinner table.
True, but you won’t hear that coming out of too many mouths born after 1950 - and the number shrinks with every subsequent generation - my own (X) being one of the worst. “Whaddya mean I don’t own my $300k condo, I have $40k in equity built up?”
Eminent Domain … I’d argue we never really own anything
The government just allows us to rent it from them
Good point, funny how gov’t powers of eminent domain were bolstered by the court just a few years back. Good timing, they might need it.
I disagree with you. The Supreme Court clarified the issue - it is up to each individual state to decide how much power a municipality had to take property.
We may or may not agree with them, but they certainly did not expand government powers.
The Kelso case not only confirmed that states and localities who had such legislation could take property from private owners and give it to other private owners (eliminating the “public” from the requirement), it gave a greenlight to other states and localities who never even dreamed of doing such things. Oh, and it completely gutted the last clause of the Fifth Amendment - because it’s just a darn piece of paper, after all.
Don’t forget property taxes and HOAs.
IMO, you don’t own anything if someone is allowed to take it away for non-payment of X.
We don’t own anything in this country.
Lies, and the lying liars who tell them. I’m sick of the whole thing at this point. Tired of gamed markets and spun data. You can’t trust any of it. I’ll give Dodd this, at least he called out Greenspan. It’s time somebody did. Greenspan deserves to be exposed for the useless old hack that he is. Quite a different reception than the one he got in Ft. Liquordale.
I agree. I watched the entire CSPAN coverage yesterday and I thought Dodd did a good job. First, there were some good people on the panels, especially Irv. And Dodd, Reed and Shelby asked some really pointed questions. Glad someone is FINALLY shining the light.
Armando Falcon tried to shine the light a couple years back and got fired 24 hours later. And he was only telling the truth.
So this is progress IMO. Shine that light!
“some mortgage borrowers, admittedly a very small segment, would do better with a different product”
Maybe, BUT NOT WHEN YOU SUGGESTED IT. Those ARM based products ONLY makes sense when interest rates are very high and are expected to drop. Hardly the case when rates were already at all time lows.
Greenspan needs to shut up before he gets called in for hearings.
“Those ARM based products ONLY make sense…”
The other dirty and open secret is that these alternative mortgage products were intended for use by financially sophisticated households with high but volatile earnings streams. Instead, they were mass-marketed to idiots, who Senator Dodd is now proposing are deserving of a bailout. I don’t mind a bailout, so long as the costs are eaten by the lenders and investors who made the inappropriate loans to the Casey Serins of the world.
——————————————————————————
America’s housing market
Cracks in the façade
Mar 22nd 2007 | NEW YORK AND WASHINGTON. DC
From The Economist print edition
America’s riskiest mortgages are crumbling. How far will the damage spread?
CASEY SERIN knows all about the excesses of America’s housing bubble. In 2006 the 24-year old web designer from Sacramento bought seven houses in five months. He lied about his income on “no document” loans and was not asked for anything so old-fashioned as a deposit. Today Mr Serin has debts of $2.2m. Three of his houses have been repossessed; others could share that fate. His website, Iamfacingforeclosure.com, has become a magnet for those whose mortgages are in trouble.
Mr Serin and people like him are Wall Street’s biggest uncertainty just now. How many Americans are saddled with mortgages they cannot afford on houses that are losing value? The answer matters to anyone who bought high-yielding mortgage-backed securities when a booming property market made mortgages look safe. It also matters to investment banks, which packaged the securities and often own subsidiaries that originate mortgages. It may determine whether America’s economy falls into recession. It could even affect the outcome of next year’s elections.
Is Casey under federal investigation for fraud?…
There are rumors surrounding the mortgage industry about stealth federal investigations going on… maybe someone from the industry can give an insider’s view.
got cash?
The advent of the internet and what is made possible through blogs such as this are making it nearly impossible for the nastiness of society to remain hidden. When we’ve got folks like ocrenter and paladin, to name but a couple, uncovering fraud and deception for everyone to see, the ones who regulate cannot ignore or not address the problem for fear of facing the ire of the people. What’s even cooler than seeing these hard working sleuths uncover the “problem”, is reading the reaction of those who seem to be woken up for the first time to the corruption that exists under the surface of what they thought was perfect order. Yes, the internet is removing the veil of denial for many, although most still prefer the blindness that keeps them ignorant.
“the internet is removing the veil of denial for many, although most still prefer the blindness that keeps them ignorant.”
So timely exnnvmbroker: Tonight after dinner, my mil informed me she was sending a copy of a local columnist’s rant to me. It was dissing blogs. She knows I spend hours on this site.
She told me this writer claimed if all the newspapers in the world refused to print for a day the blogs would shut down.
After pointing out to her that the blog was predicting in Feb of last year (1st time I found it) what is just starting to happen now, its actually the MSM that is behind.
I went on to describe the frustration many of you have expressed in regards to the fact that too many of the MSM only print statements from industry cheerleaders. But it was too late. I was tuned out. All she had to say was ah huh, ah-huh…not even listening.
I don’t know if it has legs but I’d like to suggest as a weekend topic “how much longer until John Q Everything is Great Public finally has his eyes opened?”
“It may determine whether America’s economy falls into recession. It could even affect the outcome of next year’s elections.”
Oh, thats why Dodd is so hot on this topic, its a vote getter. I dont think for a minute that Dodd is looking out for the little man, he’s trolling for votes.
As far as the toxic/exotic/suprime/altA buyers out there— too bad, learn to read.
“I don’t mind a bailout, so long as the costs are eaten by the lenders and investors who made the inappropriate loans to the Casey Serins of the world.”
GS, that is exactly what Dodd is saying. Did you watch the CSPAN coverage yesterday? Dodd repeatedly said the lenders and investors need to work with the borrowers on this.
Of course, this is exactly how it is going to go regardless. Investors have no interest in watching their investments plunge, so they will work something out. But prices are still going to fall. They are just buying time. I guess it’s time to keep those bad loans on the books ala Japanese style.
For those of you not familiar with North Carolina newspapers, the motive behind the N&O story isn’t just the Charlotte housing market. It’s a subtle jab at (1) the city of Charlotte and (2) the rah-rah sunny-skies Charlotte Observer, which is incapable of seeing anything ever going wrong in the city of Charlotte.
“Samuels also warned lawmakers not to create overly tight restrictions on high-risk mortgages, saying that could lock out many would-be homebuyers.”
Including killing the industry’s cash cow. These guys are salivating at the prospect of future revenue potential. As the number of loan originators decrease through bankruptcy and otherwise, these guys will increase market share, gain pricing power, and capitalize on other goodies.
“Samuels also warned lawmakers not to create overly tight restrictions on high-risk mortgages, saying that could lock out many would-be homebuyers.”
——————————-
As has been mentioned many times before on this blog, where does this belief come from that everyone is **entitled** to own a home?
How many people here RENT even though we are fully able to qualify for a loan using traditional standards?
If it’s good enough for us, shouldn’t it be good enough for those who would not qualify to buy a house based on these better standards (like being able to pay the mortgage off without having to refinance over and over again during the mortgage term)?
I note that nowadays the talking heads quote month-over-month statistics when it comes to housing - existing home sales were up 3.6% over January. During the boom they quoted year-over-year statistics - prices increased at a 20% annual rate. Sneaky little buggers don’t quote year-over-year anymore because year-over-year is now negative.
Nice catch. When they spin that much it can be difficult.
Let them have fun with their game.
I’m curious how they’ll handle a traditionally down month like October or November. Its going to be down MOM, YOY, etc.
Besides, more and more people are waking up to the fact we’re in crisis. Funny thing about a layoff notice, it wakes people up to reality fast.
Got popcorn?
Neil
They’ll handle it like they did last year - “Yeah they’re down, but they’re always down in the fall. We expect them to be back up in the spring!”
Or there is the tried and true, up in the original report, revised down a month later.
I believe there will be many “bottoms” to this as it works out over the next 12-24 months. I think it was the same thing with the stock market before the Great Depression.
It’s a classic symptom of a bubble. It also gives people a false sense of security at times and delays their inevitable exit as they ride the bubble all the way down.
I think the “human factor” and the psychology of these thing is the same… only the genre of the bubble market and the names of the “innocent” change.
jct
“Greenspan noted Thursday that he retreated from those remarks about two weeks after he made them, saying he meant only ‘a narrow segment’ of households might benefit from nontraditional mortgages.”
I wonder how he went about “retreating” from those statements two weeks later? I couldn’t find anything using Google. I did find a site w/links to quotes and speeches he gave in 2004:
http://www.dallasfed.org/news/speeches/greenspeak.html#2004
The speech he gave with his ARM advice was on Feb 23 2004. There’s no way you could arrive at the conclusion from reading the transcript that he was referring to a “narrow segment” of the market.
That should be headline news. The Greenspan is a liar.
he was talking to and about his target audience… the financialy well off and sophisticated movers and shakers..
its not his fault that the average shmuk on the street thought he has a friend in Greenspam.
Wrong. “Non-traditional” mortgages have ALWAYS been available to those “financially well-off and sophisticated movers and shakers.”
If a lender could see that you were able to pay off your loan, or that the equity in the property covered them if you didn’t (like a LTV of 60% or less), you could get any kind of mortgage you wanted.
The ONLY market that would have opened up, based on Greenspan’s speech, would have been the market of moronic, unqualified Casey Serins of the world.
He’s a liar. He deserves another Enron award.
“‘We believe that declining home prices and other factors … may produce foreclosures numbers on 2006 originations approaching or exceeding those on loans originated in 2000,’ Sandor Samuels, the company’s executive managing director said in remarks.”
According to the “experts”, isn’t the strong job market was supposed to save us from this.
Not if all those jobs are realtors(R) and mortgage brokers abd builders, or consumer spending jobs fueled by Heloc money, or consumer spending jobs fueled by credit card money.
Just came across this — subprime woes hitting office markets in selected areas.
http://www.realestatejournal.com/propertyreport/office/20070319-dougherty.html
Jo Anna Bonkowski, a 25-year-old in Tustin, Calif., started at subprime lender Encore Credit Corp., in January 2005 at $13 an hour as a receptionist but moved up in the company to earn $42,000 a year — plus a lot of overtime.
“Ms. Bonkowski started eating at restaurants several times a week, often ordering $30 filet mignon at the Cheesecake Factory. She was laid off late last year, a month after Encore agreed to be sold to Bear Stearns Cos. Ms. Bonkowski is seven months pregnant, gets $1,800 a month from unemployment, and spends about $430 of that on health insurance for herself and a daughter. She hasn’t been to the Cheesecake Factory in months.”
Where’s my hankie?
Am I supposed to be impressed with
1) Cheesecake Factory
2) $30 filet mignon?
Unemployment sucks, but I bet her taste buds have never been in better shape.
So, if she was making money, where’s her savings account and her rainy day fund? Certainly she wouldn’t have gotten pregnant without getting all her financial ducks in a row. After all, she’s an experienced member of the financial services industry.
Well played, sir!
“Where’s my hankie?”
Where’s the father? (I know its too much to ask anymore whether there’s a HUSBAND).
If that’s really her name!
Opening graphs from the Economist:
“Cracks in the façade - America’s housing market; America’s housing market”
“America’s riskiest mortgages are crumbling. How far will the damage spread?
“CASEY SERIN knows all about the excesses of America’s housing bubble. In 2006 the 24-year old web designer from Sacramento bought seven houses in five months. He lied about his income on “no document” loans and was not asked for anything so old-fashioned as a deposit. Today Mr Serin has debts of $2.2m. Three of his houses have been repossessed; others could share that fate. His website “Iamfacingforeclosure.com” has become a magnet for those whose mortgages are in trouble.
“Mr Serin and people like him are Wall Street’s biggest uncertainty just now. How many Americans are saddled with mortgages they cannot afford on houses that are losing value? The answer matters to anyone who bought high-yielding mortgage-backed securities when a booming property market made mortgages look safe. It also matters to investment banks, which packaged the securities and often own subsidiaries that originate mortgages. It may determine whether America’s economy falls into recession. It could even affect the outcome of next year’s elections.
“Most of the damage so far is in the “subprime” mortgage market, which lends to people whose income is too low, or whose credit history too patchy, to qualify for an ordinary mortgage. On March 13th the Mortgage Bankers Association reported that 13% of subprime borrowers were behind on their payments. Some 30 of America’s subprime lenders have closed their doors in the past three months. The cost of insurance against default for the riskiest tranches of subprime debt has soared. The worst effects may not be felt until the mortgage payments of many borrowers with no equity in their homes rise sharply.
“Is this a mere irritant in America’s vast economy, or the start of something much worse? Opinion on Wall Street is divided. Most argue that the mortgage mess, though a blight on anyone caught up in it, will not spread. The number of mortgages at risk is too small for defaults to threaten everyone else. Even if a fifth of the $650 billion of adjustable-rate subprime loans went bad, that would be a blip in the $40 trillion market for debt. If repossessions extended the housing downturn, it would not derail an economy that—housing apart—remains healthy, with unemployment of 4.5% and jobs growing strongly.”
“About the same time, Dodd said, Greenspan was touting adjustable-rate loans. ‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgages,’ Dodd quoted Greenspan in a speech in early 2004.”
Does anyone recall Robert Cote and me having this debate? GS?
I don’t actually remember the debate (remind us of your respective positions) but there have been numerous comments here about the encouragement AG gave in his speeches for homeowners to use alternative (read “exotic”) mortgage products, not to mention for homeowners to use cashout financing to tap into their home equity wealth. I guess it was all about trying to increase the number and fatten up the host population for the banking industry’s lending parasites.
We’ve come a long way GS. Lower half of September’s milestone thread: http://thehousingbubbleblog.com/?p=1380
It is strange that Cote made such a strong claim that AG did not encourage the use of “alternative mortgages” in the face of overwhelming evidence to the contrary (including AG’s speech transcripts and his own admission).
it’s important to note that greenspan said something like
“to the degree that households want(or can?) to manage interest rate risk, ARMS would be ok for some people”
that’s very important because he has carefully crafted that statement to exclude the non-sophisticated buyer who thought their 2% max adjustment rate meant the payment could only go up 2% and not the interest rate. he used an example of the past and how that would have helped but didn’t say much about the future beyond covering his butt.
the problem is, everyone knew interest rates were going up(he said the famous desirous of losing money a few weeks later).
Like many of the other posters here, Robert is brilliant and I really wish he would start posting again. Like Pointilism, however, when you get really close to a subject, you lose sight of the big picture:
http://en.wikipedia.org/wiki/Pointilism
I remember hearing greenspan in 2004 and thinking…Why would anybody in their right mind want an adjustable when fixed rates are at record lows and the how-much-a-month wasn’t that different betwee the two products. I remeber thin king back then that it was a scam to give the mortgage lenders more business.And in retrospect, it’s just as obvious.
Actually, it wa a scam to keep the bubble inflating and thus the psuedo-economy rolling. Greenspan could give a rats ass about mortgage lenders. To him they were just a conduit, like drug dealers are to drug lords, to keep the punch bowl spiked. Yeah, he knew what he was doing. What i’m surprised about is that he still shows up in public. I always felt that he timed his exit perfectly before the bust, so he could jump ship and hide out on some island in the South Pacific.
What irritates me about Greenspan is that he carefully crafted this image of an oracle, where the press and the public were forced to hang on every word and nuance. Then, when asked if he really said something, he pretends like you shouldn’t listen to everything he said.
Maybe he is really just the Peter Seller’s character in ‘Being There’, and all the marvel is being directed at a very lucky idiot savant.
“Subprime lenders like automated underwriting because it is cheap and fast. ‘You don’t have to chase every lead — just greenlight ’em,’ Edward N.. Jones of Arc Systems said in an interview.”
Unfortunately, you get what you pay for…
Can you even quess at these names??!! Jones of Arc…at the burning stakes of sub-primes.
So the FED is changing their tune? What about what NY FED head Peach, in an email exchange I had with him last year:
You stated the following in the current Time Magazine article:
“My view is that the run-up of home prices has been driven by the fundamentals,” says Dick Peach, an economist with the Federal Reserve Bank of New York. He figures we’ll have a soft landing.”
I reviewed your resume and you worked for the NAR and MBA. Sounds like you are very impartial to me?!?!
___________________________________________________
If you are so convinced that there will be a “hard landing” why haven’t you sold you home and rented?
Richard W. Peach
Vice President
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
Phone 212-720-5654
email: richard.peach@ny.frb.org
Nice…
OMG, that’s too funny, crispy! ROFLMAO!!!!
There is lots of money here in the NE, so the increase in sales doesn’t surprise me much. That doesn’t mean, however, that these people want to pay more for a house than it’s worth; but it makes it easier for them to jump back in at what they think the market has bottomed. Whereas in the poorer areas, sales are likely to continue to show a steady drop out of the population’s fiscal inability to buy, in the weathier areas (in my grossy unscientific estimate) sales will fluctuate up and down with each new perceived bottom with an overall downward trend over time. People with money are just looking for when it’s safe to get back in.
Don’t know if that makes sense, but I’m always looking for the impact of the economic divide in this country.
Anyone agree with National City’s methods and map?
http://www.nationalcity.com/corporate/EconomicInsight/HousingValuation/default.asp?WT.mc_id=100206
Includes a spreadsheet with quarterly prices back to 1985: nice to have. Housing is related to income adjusted for interest rates, with some markets assumed to be inherently more or less desirable as well based on past trends.
The part of the NY metro area that includes NYC comes in 20% overvalued, Long Island 35%, California, Arizona and Florida through the roof.
One issue — it may be that in “fairly valued” markets you got a construction bubble instead of a price bubble, which could drive prices down below long term fair value.
In addition to the spreadsheet, I recommend getting the graphic for your region.
Another point — real value as they measure it has been helped by lower interest rates, compared with a decade ago. Those are unlikely to go lower, so it will be harded to catch up with just flat prices and income growth. And if mortgage rates rise, it’s trouble.
Good site and good method — except it doesn’t recognize that “it’s different this time.” Perhaps they could add supply/demand with building permits vs. household growth, and some interest rate scenarios.
I agree with your concept of construction bubble. In the Austin suburbs developments are going up everywhere. It’s actually depressing the price of homes. In Pflugerville, the tax assessor’s analysis has shown that home prices have deprecated 1% due to all the new construction. Why buy a 7 year old house when you can get a brand new one for the same price???
Funny thing is - in nearly everone of the green areas (shown as “fairly valued”), the median price is still over the estimated value, in some cases by quite a bit. It’s only if the median is quite a bit over the estimated value that it goes to yellow.
Still though - a good map showing where the biggest bubble areas are.
Those kind of spreadsheets are like crack cocaine to me. Thanks for helping me waste the better part of the morning.
“It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago.”
I would like to propose a new mantra for the NAR: Real estate always goes down.
Catchy. I like it.
Already trademarked in Japan.
Sounds good to me. Its a depreciating asset, like cars. Things break and need to be fixed.
Of course houses don’t depreciate as fast as cars, but take away the effects of inflation and the only way you’d ever have equity is by paying off your mortgage.
“Samuels also warned lawmakers not to create overly tight restrictions on high-risk mortgages, saying that could lock out many would-be homebuyers.”
This is a mischaracterization of the problem. Restoring traditional underwriting standards would fix the problem, but CFC spokesmen will not suggest it, as they have profited handsomely from helping unsophisticated borrowers purchase homes they cannot afford.
I LOVE Easy Al! He’s the greatest, a*ss covering hack ever to come out of Washington. Most of the survivors are good but Easy Al is the master. He always covers himself by either tossing in as one liner sound bite, (remember “Irrational Exhuberance” in the tech debacle), so that he can quote it when trouble appears and someone is naive enough to blames him.
This is his latest: When it was suggested yesterday that he encouraged loose mortgage lending and a lot of the sub-prime mess was his fault, he replied, “I retracted that statement 2 weeks after I said it.”
Great stuff! That’s like the buffoon we have in the White House House saying (now Iraq is a disaster) “Three days after I decided the USA should invade Iraq, I said to Laura we shoudn’t do it.” Mr. Magoo is good because if someone cares to check his record, you can be sure that somewhere back when, he DID retract that statement. You don’t have to be smart to rise to the top in government (Bush proves that) but you do have to know how to cover yourself. It’s the #1 talent needed.
Anyone have a link to his retraction? I’ve been on housing bubble blogs for years, and have never seen nor heard of it.
Perhaps he was in the men’s room at the Federal Reserve building and mentioned to the towel guy (I’m sure they must have them there) that he was only referring to the rich when he made that statement about ARMs.
When it was suggested yesterday that he encouraged loose mortgage lending and a lot of the sub-prime mess was his fault, he replied, “I retracted that statement 2 weeks after I said it.”
Well of course the great-granddaddy of such lines came from Nixon’s press secretary during the Watergate scandal, when asked about a lie that Nixon had told about his role in the coverup:
“That statement is now inoperative”.
I suggested yesterday that subprime problems would soon wash up on England’s shores. I was not a day too soon in this remark…
———————————————————————————–
Shares of U.K. subprime lender Kensington tumble
Rising late payments, increased competition, less demand for its loans impact
By Steve Goldstein, MarketWatch
Last Update: 8:56 AM ET Mar 23, 2007
LONDON (MarketWatch) — Shares of British subprime lender Kensington Group tumbled as much as 23% on Friday as problems in the U.S. subprime sector made it more difficult to sell its own loans, leading to a profit warning.
The problem for Kensington Group, the U.K.’s leading player in the subprime segment, isn’t exactly the same as its American counterparts.
Late payments from its customers are on the rise, but not massively — the number of accounts 90 days or more in arrears in Kensington Mortgages as at Feb. 28 was 9.8%, which is up from 9.1% in November but down from 10.5% last year.
Loan defaults haven’t been as much a problem in Britain amid still-rising house prices, fewer interest-rate hikes and solid economic growth. See recent story.
But the problem for Kensington is that there is now reduced appetite from other financial institutions to buy its loans through securitized offerings.
“If they try to securitize now it’s at significantly higher premium, which will cut into profit,” said Irfan Younus, an analyst at NCB Stockbrokers.
http://www.marketwatch.com/news/story/uk-subprime-lenders-shares-stumble/story.aspx?guid=%7B8A6B4BA4%2D6340%2D4DD8%2DA65E%2DCB2DB0C0D748%7D
But isn’t all real estate local? ..or so I thought until I started reading this blog.
hmmmmm that’s some pretty long range spillover- that can’t happen !
Thought UK and Europe didn’t have any subprime?
There was (still is?) a lot of 100% mortgage and stated income mortgage activity going on. I even remember 105% mortgages in my time there. This and stated income was the only way for some people to get on the housing ladder, what with home prices at 5 or 7 times income. Perhaps they have avoided the “teaser” loans, at least. And so far, the increasing prices have protected that market from defaults.
The test will come if and when prices level out or drop. A further test for the UK would come if BoE rasies rates slowly but steadily; so far the indications are that they might be able to avoid that.
In a word, yes there is subprime, but no, it’s (probably) not as explosive as in the USA, at least for right now.
SALES ARE NOT UP! Sales are down compared to Feb 2006. These crook heads are trying to trick us by comparing Feb 07 to Jan 07.
When the numbers work they use YOY when they do not work they pick something else. Deceiving it is.
“Total existing home sales are 3.6 percent below the 6.94 million-unit pace in February 2006.”
That’s deceiving ?
“‘The mortgage industry has said they have increased home ownership,’ HUD’s inspector general, Kenneth Donohue, told a U.S. House committee last week. ‘However, at what cost to the American people?’”
Did Donohue mention the role of this program in the increase in households facing foreclosure? Because letting people buy with no skin in the game seems like a sure-fire way to increase the number of future foreclosures…
http://www.hud.gov/news/release.cfm?content=pr03-140.cfm
“‘The mortgage industry has said they have increased home ownership,’ HUD’s inspector general, Kenneth Donohue, told a U.S. House committee last week. ‘However, at what cost to the American people?’”
Putting someone in a home with no downpayment, IO loan (therefore no equity) is way, way worse than renting. The FB has all the responsibility of homeownership and is on the hook for hundreds of thousands of mortgage debt, without ANY of the benefit of owning a home, namely the safety net of building equity and the eventual possibility of outright ownership with no more payments.
Homes have become so disconnected from income that there’s NO way any of these loans could possibly be paid off, unless someone wins the lottery. It’s just decades and mountains of debt.
Think of it from the banker’s standpoint: A zero-downpayment loan means future interest payments on the full sales price, not just 80% of the sales price…
I find it really funny to say they put more people into homes. More people do NOT own their own homes ! Banks own more homes. The only way more people could own their own homes is if they had a higher income and/or the price of homes went down. Instead, the housing bubble droves things the opposite way ! Incomes stayed flat, house prices went up and home equity actually DROPPED !
How stupid this has all been !
We need a 25 to 50% correction in housing prices to fix all this. We don’t need a rescue plan.
Most of these new homeowners own a large share of the price risk on their homes at the expense of money which they rent from the bank.
I would personally rather rent a home than rent money.
A lot of actionable information is lost when you aggregate data.
This whole debacle will be remembered for one and only one thing: people thought they were richer than they really were.
When most people realize how poor they really are we are going to see some real finger-pointing in the press. Heck, Nancy Grace could get a whole month out of that storyline alone.
Yep, paper home equity is not real money, just like stock options that have not yet vested and been cashed was not real money, and paper stock gains are not real money.
What is real money? Unfortunately, after the stock market bust lots of people thought real estate was real money.
Then home builders showed us all that even “real estate money” could be subject to debauchery of its value.
“…people thought they were richer than they really were.”
That is part of the Fed’s highly successful “War on Savers,” along with a negative national savings rate for the first time since the 1930s, despite all the ostensible signs of economic strength. Thanks to the Fed’s highly successful propaganda campaign, debt is currently mistaken for wealth.
“H&R said last week it has written down the value of the subprime lender’s assets by $29.2 million before taxes, because of the ‘extreme volatility in the mortgage market,’ according to H&R Block CEO Mark Ernst.”
As i remember the CEO was snottily remarking that OptionOne was worth about $1billion a few weeks ago, and he was sure to get a sucker to buy it… i couldn’t find the article but it was posted on this blog… so he’s selling it at 29cents on the dollar… please correct me if i’ve my facts mixedup..
this is really gonna leave a mark..
got cash?
Actually, we don’t know the original value of the assets so it’s hard to tell what % they are down.
However, $29M is SOMEONE’s money and I’m sure they ain’t happy they just watched it evaporate.
This ($29.2mm) is actually only ~3% of $1B, and this is the amount of the write-down not the residual value. Seems to me if it was worth $1B last week (as he claimed) then it’s still “worth” $970,800,00 today.
where’s my coffee… i missed a decimal point, so essentially the writedown is no big news…just yet.
They can’t sell OptionOne for the same reason San Diego sellers can’t sell their homes — the list price is too high compared to the market value!
Little off-topic Portland, OR. update… I drove out to Forest Grove (far western suburb) for a meeting yesterday. There’ve been a lot of somewhat higher-end places built out there in blocks of 20-40 or so. There are finished ones sitting, waiting… but no evidence of recent construction activity. Plenty of empty lots, too. I guess it wasn’t nice of me to cross out the $450,000 on the flyer and write “Now $369,199 :))
I thought that the propaganda being pushed in the Oregonian about how Portland is different because of the growth boundary and in-migration was a load of crap. Thanks for the confirmation.
The market is flooded with houses from people who “kept their powder dry” over the winter. A few are selling, but many new higher-end ones are just sitting, waiting for someone to blink (or someone with money?)
This whole discussion of “improved software models” being used to more effectively gauge mortgage risk has been making me laugh for months now. What a retarded statement!
Stone Age (1995): when computer models were “less advanced”, they had to turn some people down for mortgages because the lender wouldn’t tolerate the perceived risk for those people.
Golden Age (2006): now computer models are much more advanced, so the perceived risk on everybody is dramatically reduced. Everybody gets a loan (or multiple loans). Now we can loan money to the deadbeats, too!
Thank goodness I don’t rely on those computer models when the deadbeats in my life come asking to borrow money.
10 REM *** Updated computer model
20 PRINT “Your Mortgage Application is Approved! Woohoo!”
30 GOTO 20
LOL! Wow … BASIC … you ARE old, aren’t you? (tic)
Actually, no. I was trying to appeal to a wide audience without being MS-centric. (I last did BASIC in junior high. I’ve contributed c++ code to OSS projects, FWIW.)
“At one point, committee Chairman Christopher Dodd”
Has there been any speculation that the Democrats might only make a token bail-out response, but secretly plan for a somewhat controlled housing collapse, and use said collapse as a campaign issue (”the Republicans were running things for the last siz years, and this is the result”)?
You give the Democrats way too much credit for political savvy which they lack. Never forget that they are the party of political self destruction.
Yeah, unlike those financially savvy Bush folks. From The American Enterprise Institute, what the repubs are planning…
“one would hope that the Federal Reserve anticipates the coming housing induced-economic slowdown and that it stands ready to aggressively ease monetary policy as needed to soften the fallout from the coming housing bust. ”
http://aei.org/publications/pubID.25836,filter.all/pub_detail.asp
At least they know how to carry out their plans under the radar screen. Dodd risks becoming the messenger who gets killed, especially when all of his connections to the investment banking community that helped bring about the subprime mess are brought to light…
“At least they know how to carry out their plans under the radar screen”
And you think this is admirable?
More to the point, the bush admin has used the AEI many times in the past to flag their intentions…if so, then the bush team plans to lower rates and trash the dollar.
” somewhat controlled housing collapse”
Seriously, how would anyone manage this? Do you have a scheme in mind by which a catastrophe can be made orderly?
They will do exactly what Japan did (which they were slammed for doing).
1. Drop rates to zero
2. Let the banks keep bad loans on the books
3. Try to keep the party going
4. Cheerlead all the way down
The main difference is the Japanese are savers. They were able to ride out the storm, which has lasted almost 2 decades.
We will not be so lucky.
They will do exactly what Japan did (which they were slammed for doing).
1. Drop rates to zero
Ahem, are you aware that the US has to borrow $2billion+ from the rest of the world every day? Now just who is going to lend the US that money at 0%?
Japan was able to do it because it’s a lender, not a borrower.
According to Money, these are the most vulnerable places for foreclosures:
Top 10 subprime markets
These metro areas have the highest share of their loans as subprimes.
Metro area……State…..Subprimes as a % of all loans
McAllen……….TX……..26.8%
Memphis………TN…….24.0%
Sharon………..PA……..23.1%
Miami…………FL……..23.0%
Richmond……..VA…….22.3%
Brownsville…….TX…….21.6%
Merced………..CA…….21.6%
Sumter………..SC…….20.7%
Bakersfield…….CA…….20.2%
Jackson……….TN…….20.2%
Source:First American LoanPerformance
Top 10 subprime delinquency markets
These are places with the highest percentage of subprime loans 60 days or more late.
Metro area……State…..% of delinquent subprime loans
Cleveland………OH……..24.9%
Detroit…………MI……..24.6%
Jackson………..MS……..22.7%
Jackson………..MI……..22.0%
Youngstown……OH…….21.8%
Flint……………MI…….20.7%
South Bend…….IN……..20.3%
New Orleans……LA…….20.1%
Kankakee………IL……..20.1%
Akron………….OH…….19.7%
It seems that any city named Jackson in jinxed.. whether its in tn, mi, or ms…..
Don’t you guys find these figures very low? Especially for Miami.
For one thing, these figures only consider subprime, which is just a fraction of the alternative-financing market. A more useful set of data would be percentages of option-ARMs.
Greenspan: “I voted for ARM’s before I voted against them!”
LOL. Brilliant!
He should just use the constitution as an excuse. It does say that the right to keep and bear ARMs shall not be infringed.
A little off topic from here in the Inland “Empire” of California, where many McMansionites have very long commutes into LA & O.C.. The price of gasoline is increasing almost daily: (regular)
02/19/07 = 2.599/gal
02/25/07 = 2.759/gal
03/03/07 = 2.879/gal
03/06/07 = 2.999/gal
03/11/07 = 3.059/gal
03/19/07 = 3.099/gal
03/22/07 = 3.139/gal
And now with our Iranian friends abusing the British navy, how high will gasoline/energy prices rise?
Taxpayer Bailout Here We Come…………….
Huh? Are you just randomly weighing in on this for the first time, or reporting some late-breaking development?
‘’Given what we know now, yes, we could have done more sooner,’ Roger Cole, the Fed’s director of banking supervision and regulation, told the committee.”
They knew: http://www.federalreserve.gov/pubs/ifdp/2005/841/ifdp841.pdf
Anybody care to see the latest Senate Committee on Banking “statement”?
http://banking.senate.gov/index.cfm?Fuseaction=Articles.Detail&Article_id=125
I’ve already submitted a lengthy comment to the committee regarding the troubles I have with any FB bail out. I encourage others to do so as well.
“About the same time, Dodd said, Greenspan was touting adjustable-rate loans. ‘American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgages,’ Dodd quoted Greenspan in a speech in early 2004.”
“Greenspan noted Thursday that he retreated from those remarks about two weeks after he made them, saying he meant only ‘a narrow segment’ of households might benefit from nontraditional mortgages.”
“Greenspan also took issue with Dodd’s criticism. ‘To suggest the Fed was pushing subprime mortgages or even adjustable-rate mortgages is just not accurate,’ he said. ‘I was merely identifying an arithmetically obvious issue, that some mortgage borrowers, admittedly a very small segment, would do better with a different product.’”
Holy shizit Batman. Greenspan is being held accountable? I can’t believe it.
At the risk of being another random weigh-in, I’ll comment that I’m lately hoping that any recession or depression that this nation can not avoid, comes sooner, rather than later. That would be the bucket of cold water needed to focus the public’s attention on the fact that we can’t afford to bail anyone out.
Greenspan was hyping the wonders of “extractions” (”impressive) in 2003 and did say that other statement about alternative mortagage in 2004 - however one has to wonder whether ANYONE can protect morons from their own actions
Not all of these people duped were barely literate school teachers and other uneducated people - some were just morons who wanted to cash in
The great depression in fact was one of the greatest educators in history about the importance of saving, investing, and not living beyond one’s mean - that eventually led to the greatest middle class boom in the history of the planet beginning in america in the 1950’s
If you talk to people from that era, the vast majority seem to have an instrinsic understanding of the effort and diligence required to build wealth
Most importantly they usually appreciate the smaller things in life, instead of the massive and mindless accumulation of material goods (most never actually use) we see in America today
Less can be more and we as americans have at times have become very spoiled was well dependant upon much of the rest of the world to finance our greedy and endless consumption
When one things of a “soft landing” - THE HINDENBURG on May 6, 1937 comes to mind
Like welfare, a bailout will simply create more dependency and more idiocy, with the same mistakes being made by the same people in the future
“what middle class?”
FYI….a doctor I work with said “the poor,” then defined it as “anyone making under fifty thousand dollars.”
So…that said, the so-called “poor” —being the median income in San Diego…are supposed to afford a home 10X their income.
Yeah, well, companies being valued at 10x their value isn’t really all that far removed from homebuyers being given credit of 10x their revenue, with the possible exception that the home loan is secured to some extent, say at least 50%, while the stock is only 10% secured.