“Seeing The Tip Of The Iceberg As The Iceberg”
The Chicago Tribune reports from Illinois. “Nearly 29,000 foreclosures were filed in the six-county Chicago region in 2006, a one-year jump of 36 percent and the highest level in at least eight years, according to a study. ‘The popularity of these complicated and risky products, combined with loose mortgage underwriting standards, have driven foreclosures to record highs’ in the region and the city, said Geoff Smith, research director for the non-profit Woodstock Institute.”
“‘Adjustable rate mortgages and no-interest mortgages have also gotten affluent people in trouble,’ said Jeff Metcalf, CEO of Record Information Services. ‘Interest rates were so low for so long,’ Metcalf said. ‘Something had to give.’”
From ABC News in Illinois. “On Aberdeen Street, on Chicago’s South Side, there is a new and unwelcome neighbor as home foreclosures alter the neighborhoods. The growing number of abandoned homes with plywood nailed to the windows is prime evidence that the foreclosure crisis has moved in.”
“‘Here’s a nice bungalow that’s boarded up,’ says Deborah Moore. ‘So that’s two on this block.’”
“Mark Hill is already feeling the impact at his South Side residence. In the year since he and his wife purchased their first home, five neighboring houses have gone into foreclosure. He said he wonders what the value of his house is, after a year in which five homes were boarded up right next to his home. ‘We don’t know what to do,’ says Hill.”
“In 2004 there were more than 13,000 foreclosures in the Chicago area. This year that number is expected to nearly double.”
Reuters reports from Michigan. “In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure.”
“Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston.”
“‘Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside,’ says Guzek.”
“In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac began tracking data.”
“‘Everyone’s looking at subprime. The rock they aren’t looking under are the adjustable rate mortgages and teaser rates and low money-down loans,’ said Mark Kiesel, a portfolio manager for Pacific Investment Management Co. ‘It’s going to affect prime as well.’”
“Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start. ‘To define the problem as a subprime problem is short-sighted,’ Rosner said. ‘It’s really seeing the tip of the iceberg as the iceberg.’”
“Increasingly, Guzek offers different advice than devising financial plans to save her clients’ homes. ‘If they can’t afford it, sometimes the best thing for them is to walk away,’ Guzek said.”
The Enquirer from Ohio. “New Century Financial Corp. has agreed to halt all foreclosures in Ohio while state regulators and law enforcement officials determine if any of the loans violated predatory lending laws, Ohio Attorney General Marc Dann’s office said.”
“‘New Century has taken a good faith step by agreeing to let us review its documents before any further foreclosures are acted upon in Ohio,’ Dann said in a statement. ‘I want to make sure consumers are in a mortgage loan they can afford and not one agreed to under false pretenses.’”
“If bad business practices are discovered, New Century will be obligated to postpone action on that loan until the company makes corrective measures that are approved by the state, the attorney general’s office said. One option might be reworking the original loan to make it affordable for the consumer, it said.”
The Star Tribune from Minnesota. “Subprime mortgage defaults will continue to hurt Residential Capital’s profits this year, company executives told investors Wednesday.”
“The Bloomington-based company, one of the country’s largest mortgage lenders, plans to slash expenses and significantly reduce its subprime loan portfolio in reaction.”
“ResCap earned $182 million in 2006, compared with a profit of $1 billion the previous year, as bad subprime mortgages played havoc with the company’s balance sheet. For the fourth quarter, the company lost $651 million.”
“Philip Kibel, an analyst with the credit rating agency Moody’s Investors Service, said ResCap’s troubles likely will persist into 2008 as the company cycles through bad subprime loans made in 2006.”
“‘Subprime is a delicate market right now,’ Kibel said. ‘ResCap still has a lot of exposure.’”
“‘ResCap did not move quickly enough to reduce exposure in the face of this downturn,’ CEO Bruce Paradis said. ‘ResCap was too slow to reduce infrastructure and modify business processes in the face of new conditions.’”
“New Century Financial Corp. has agreed to halt all foreclosures in Ohio while state regulators and law enforcement officials determine if any of the loans violated predatory lending laws, Ohio Attorney General Marc Dann’s office said.””
Looks like New Century finally cought a break. They get to hold a few dollar of returns off the books as they file BK. I realize it’s not much of a break …LOL
It looks like the regulators and officials are going to slide a tiny edge of Pandora’s box aside and take a peek inside. Like Pandora, I don’t think they’ll like what they find.
got a feeling it’s gonna look a lot like sasquach droppings….
I think Pandora’s box has a glass bottom. We’ve been seeing that’s inside for 2 years. The people looking from the top have no idea what’s in store.
The new official role of government: to protect stupidity and greed.
Ohio Senate Bill 185 went into effect Jan 1, 2007. It is supposed to be the a very strict mortgage lending standard, and Ohio is just saying “Hey you want to foreclose on us? Just make sure you didn’t break our shiny new law.”
At this point, no one’s hands are clean. Fraud is that thin red line between stupid and evil.
“Fraud is that thin red line between stupid and evil.”
Well said. Priceless.
Well….
“of the people, by the people and for the people“
I truely think that a bail out is doomed. I’m sure we are aware that it’s really a plan to save the banks, not the borrower. However, it must be painted as saving the little guy: we can’t bail out the big corporations!
Look at the political ramifications. Say I’m a hard working Joe, hanging on by my financial fingernails. I’m trying to save and denying myself and my family because I’m responsible. Now some politico give MY tax money to bail out someone who is irresponsible with their money? Where’s mine?
Here’s your’s, bub:
- A bigger tax bill because the jerk down the street ran up the housing values.
- Higher insurance rated because the home is worth more.
- Worse government services because money is going to bail out.
- And a recession no matter what!
The bubble can’t be saved. Those who bought at bubble prices can’t be saved. The economy can be saved, but it will be painful for many.
Why does that surprise you? The whole finanicial system and policy making of this government has been stupidity and greed.
In Finance it doesnt work that way…
The market now will compensate with an increase in interest rates due to risk~ higher risk of default…. this is a default on payment.
This should remind us all that we in “flyover land” are also impacted by bubble economics.
it trashes the “RE is local” BS we’ve heard of late.
Interestingly, I had no idea that ResCap was located here.
That is because, even though RE is local, lending is NOT local. I am 100% convinced that this was a total lending bubble, and RE was just the only asset class you could buy with all the cheap money (and therefore it felt the impact of the lending).
Yes, some places went up more. I think the places that went up more had a “better story” to fuel the fire. Like “all the boomers are moving here” or “we are running out of land”. However, all that said, everything went up to some degree, just because the removal of lending standards.
I have long said, if we had the same lending standards on any asset (cars, for example) we would see exactly the same thing happen. If you could finance a car for 30 years, interest only?? Everyone would try to buy a Bently tommorow. And then, 3 days from now, Bentlys would cost 2X as much. And the bubble is off to run!
We DID have that with cars. Remember 0% financing and employee pricing?
The difference is cars don’t “always go up”, the way the stock market did in 1995-99 and RE did 2001-05.
right….
If they did, people would have borrowed as much as they could and bought as many as they could, more than they could ever use themselves….. hey, wait a minute that sound familiar!…….
Actually, a grading contractor in OC told me back in 2005, a used Caterpillar tractor sold (in good shape of course) could sell for as much or more than a new one; there was a 12-24 month waiting list (backlog) for a new one from Cat. When I heard that, it was the final straw in confirmation of the madness brought on by monopoly money - I bought in Portland (20% down fixed 30 yr) rather than a take on a suicide loan in OC.
Got diversified assets?
Hold on! I thought the 0% financing was for (in fine print…you know….the teeny paragraph at the bottom of the TV screen) the people with uber-high FICO scores. Not sure what was required to get the employee pricing though.
Of course, I didn’t go for any of it so I may be wrong. Please feel free to correct me.
BayQT~
You got that right! It is the dearly held belief, among the “monetarist” economists (read: Greenspan) that money supply is the key to economics. They (read: Greenspan) believe the Great Depression could have been diverted with a monetary expansion. Heck, they’re probably right.
So when the ’90’s stock market bubble burst, the monetarist (read: Greenspan) Fed effectively flooded the streets with money to avert a severe downturn. The trouble is, the Fed can control the money supply, but it has no control whatsoever over where the money goes. That it went to real estate to the extent it did is nothing more than accidental. Buy you’re right, this whole thing is ultimately a credit bubble. And as credit tightens, the consequences will be terrible.
“That it went to real estate to the extent it did is nothing more than accidental”
I think not…what asset can you inflate by $100,000 chunks and distribute (vector) to millions of consumers in a short period of time?
Houses / real estate property…is the only asset… that fits the template.
I think that the Fed intended the money to go into business investment. However, it did not. The wise thing would have been to choke off the supply when it appeared that money was not going where intended. But the money needed to get spent to get us out of a recession and make us forget about 9/11.
Housing is the second choice, and AG must have thought that was fine.
As I recal…..spending money was the patriotic thing to do in days after 911.
thats right the FED panicked and lowered interest rates like crazy. The FED doesn’t fear inflation because foreign outsourcing keeps US wages low.
The permanent solution to inflation:
Create credit cards based on actual assets. For example, gold, silver, oil, land, stock whatever. A mutual fund holding silver that you have invested in, would give you a credit card. When you spend $100, the fund pays your bill but deducts one hundred dollars worth of silver from your account.
This completely bypasses the insane government printing of money. If silver gains value, which it will when the government prints money from thin air, $100 of silver will be LESS silver. Your purchasing power stays the same. When you spend $100, LESS silver will be deducted from your account.
I am 100% convinced that this was a total lending bubble,
Agreed. And it is more than that. It is a worldwide credit bubble.
Ever wonder why:
stocks are near all time highs
gold/silver near all time highs
commodities (pick any one) near all time highs
RE near all time highs
Oil near all time highs
and so on?
too much money sloshing around everywhere, from every Central Bank.
The RE bubble was the latest manifestation. But until we get tightening, it will not be the last manifestation. I fully expect EITHER a stock bubble to reappear now, or a Gold bubble.
That money has to go somewhere, now that it’s flowing from RE.
only way we don’t get a tertiary bubble (after stocks then RE) is if enough credit is destroyed with RE collapse… which is doubtful because the fed will drop the FFR to 1% or lower again.
sigh
If the US was a creditor nation then you would be right. I doubt that there will be another bubble.
The problem is that the dollars are churning, China buys with its dollar holdings the produce from Brazil, Brazil (to get out of dollars) buys hard assets with dollars, price of hard assets rise. Owner of dollars then tries to buy out publicly traded company to get out of dollars. Buyout is succesful and company downsizes and moves manufacturing to Chin-dia. Wash, rinse and repeat.
In normal economic theory the US dollar would collapse immediately. In practice China is supporting the US dollar to generate Chinese job growth - not to make money but to avoid massive riots. China needs 15 million jobs a year growth.
“too much money sloshing around everywhere”
Which makes me visualize the effects they recorded on earthquake waves in Monterey Bay CA, seems the wave went across the bay…then reflected itself right back the other way…
from the stock market into 2000 to…Housing 2006…back to the stock market in 2007?
“too much money sloshing around everywhere”
” I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.”
Friedrich August von Hayek
Moneys are created when loans are made. As banks tighten lending standards, no loans are made and no moneys are created. We are at the beginning of this cycle. We have lots of years to go.
I agree with Bill Gross at Pimco. What comes next is going to be a bubble in anything to get out of dollars.
House Inspector Clouseau wrote gold/silver near all time highs
Not with respect to inflation. In 1980 dollars, gold is around $380 per ounce.
Not with respect to inflation. In 1980 dollars, gold is around $380 per ounce.”
..and in current dollars the peak in 80′ would be $1500!
Ragardless I think the Fed can’t lower rates, it would tank the US$, and if anything they will need to raise rates to keep Foreigners buying our treasuries. Remeber Foreigners now hold 52% of our debt. The Govt, is up to it’s eyes and needs more coming in. If it lowers it kills housing,but stocks will rise, further inflation, which is about rampant to me after getting gas,and groceries…Rock-anda-hardplace…
Hope ‘they’ can pull it off, then again we’re because of ‘them’…..
> the Fed can’t lower rates, it would tank the US$, and if anything they will need to raise rates to keep Foreigners buying our treasuries.
“Tanking” the dollar might actually be the path chosen by Bernanke to get our of this mess AND avoid deflation. Remember, Roosevelt tanked the dollar intentionallly relative to gold, at that time an internationally accepted currency. Assume the FED fund rate gets reduced and the dollar looses 50% relative to the other major currencies:
- imports get more expensive, driving CPI up
- foreigners with dollar denominated debt get hosed, but better foreigners than Americans
- long-term interest goes up a bit but not too much, because Americans who finally have to save prefer treasuries to junk bonds
- with a normal yield curve, bank earn more money again
- outsourcing is slowed, more jobs stay here, but get paid relatively less
The only question remaining would be if the FED can control the process without run-away reaction, without creating the expectation of deflation or high inflation.
How can you “tank” the dollar when every Asian Central Bank basically pegs its currency against the US$? The yen can appreciate a bit from here. AUS$, NZ$ Euro & GBP are all at close to all time highs. China has boxed itself in a corner. Best bet is gold, although it doesn’t pay interest. But can the Euro appreciate another 25-50% from here? I guess it can, but they won’t be able to export a single widget and the tourism dollar from Asia & America will plummet as well. (already, the rack rate for the average Paris 5-Star hotel room - basic room that is, is over US$800 per night). Interesting dilemma.
In one of Galbraith’s books he argues bankers are ‘instrumental’ during manias and other financial fiascos. IOW, when people want to speculate, bankers develop the products to allow them. In this instance, pay option arms and other hybrids were instrumental.
I agree that this is a lending bubble.
I’ve been thinking about this. it’s an inflationary(and in the commodities type of inflation like the early 70s) lending bubble, you can actually tell that by LOW INTEREST RATES. what does that mean? there is so much money out there it actually drives down interest rates because there are few places to park large amounts of money- like what the chinese have done. we are at a weird period where we have “real” inflation of the commodity kind but interest rates are low. very interesting.
if I’m not mistaken, the early 70s had interest rates of 4-5% before they made their march upwards and actually topped out at the same times gold, silver and etc did.
“That is because, even though RE is local, lending is NOT local.”
Excellent point!
Someone once said on this board that there is a housing bubble where ever there is easy credit…and that’s everywhere. The degree of the bubble may vary but the fact that there is one doesn’t.
In some places the bubble could be measured in price appreciation and in others the number of new buyers — demand.
“Mark Hill is already feeling the impact at his South Side residence. In the year since he and his wife purchased their first home, five neighboring houses have gone into foreclosure. He said he wonders what the value of his house is, after a year in which five homes were boarded up right next to his home. ‘We don’t know what to do,’ says Hill.”
As evinced by the boarded up houses that surround you, nobody wants to buy your house. The fair market value of a thing for which there are no buyers is zero. You can take it from there, I hope.
Here’s a similar situation we northsiders face too often: Ever stand outside Wrigley Field trying to sell Cubs tickets… in September? Well, it’s August 29 for the housing market right now, and we’re 15 games behind.
“The fair market value of a thing for which there are no buyers is zero”.
100% correct! You can not imagine the number of blank looks I’ve gotten through the years by making that statement.
That is why, btw, when computing one’s net worth, one should never include appliances, furniture, teevees, clothes, or anything else one can only sell in distress for pennies on the dollar or less.
What about my new 52″ flat screen plasma and my 24″ chrome wheels? : -) : -)
However, you should document full replacement value (and serials–need to get on that, damn) for the insurers.
Unless of course it costs money to keep or get rid of it, in which case the fair market value is less than zero.
That’s what abandonment is. You don’t abandon something worth nothing — you keep it and hope it becomes worth more.
Another Chicago parallel: There came a point when my car had negative value. It’s blue book value may have been $3000, but it would have taken $4-5000 in repairs to get it to that selling price. Add to that registration, insurance and city sticker. That’s just to HAVE it, forget about actually driving it.
So I left it parked on the street until the city towed it. Little did they konw they were doing me a favor.
A few months later I got a letter from the city saying I was on its boot list due to too many parking tickets. Yeah, good luck enforcing that. I guess they could still boot my left foot.
I know when to use it’s and when to use its; I swear.
in cali they’d probably send you a bill and then attach your state tax refund….
Not “probably”, they will.
That would never happen here. The state and the city make it a point never to get along on anything.
Hah! I did the same thing back in the 80s. the city sent me a bill for towing, storage, parking tickets, etc. I never paid it because I moved out of state for a couple of years. Probably had a hundred parking tickets that I never paid either. I had friends that stuck in the city that ended up paying thousands.
Not according to the IRS
forgot the quote:
“The fair market value of a thing for which there are no buyers is zero”.
“The fair market value of a thing for which there are no buyers is zero”.
The single most important thing I have learned on this blog is that buyers can just say no! For so long I kept looking at house prices and sweating and wondering how high I could go, forgetting that as a buyer I, too, get to call the shots and simply NOT BUY ANYTHING until/unless prices come down. Once I empowered myself in this way, the formula was so simple: decide what I can very comfortably afford and only buy a house in that price range that I would actually want to own and live in. Otherwise rent! Duh!
“He said he wonders what the value of his house is, after a year in which five homes were boarded up right next to his home. ‘We don’t know what to do,’ says Hill.””
Pay it down or walk away…those are your choices.
‘It’s really seeing the tip of the iceberg as the iceberg.’
Short, simple, and to the point - thank you, Josh Rosner, for the perfect retort to the “subprime containment” crowd. The long, painful trip back to fiscal sanity has just begun.
Quote for the ages.
I like this one better:
“It’s not the American Dream anymore,” said Fran Napolitano, a county clerk in Hackensack. “It’s ‘who can I stab next.”‘
Apologies to those who have seen me post this five times before: the volume of ARM resets right now is $25 Billion/month. In the autumn and winter this year it will be $50 Billion/month. Source: see 2007-03-19 post on implode-o-meter. Hence, “tip of the iceberg” is now.
http://www.smugmug.com/photos/136440158-O.png
X-axis is months starting with January 2007, so we’re ending month 3.
That’s interesting. Can you tell me who eats it for the 6 categories of ARMS if they go bad? For example, who eats the “Unsecuritized ARMS” - the lenders that still hold those loans?
Ah yes, Ivy Zeman’s Ex 42. The way I read it, the game really starts in, say, Sept. Then with processing time (NOD to REO) being 4-6 months, long about March ‘08 prices REALLY start to crash.
“Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start. ‘To define the problem as a subprime problem is short-sighted,’ Rosner said. ‘It’s really seeing the tip of the iceberg as the iceberg.’”
*********
Maybe Californians are beginning to see the iceberg.
Today’s market rally on very dated GDP news is ridiculous.
Look how sentiment in the Golden State has changed just since January:
“The poll found that half of all adults and nearly as many likely voters now believe bad economic times are ahead for California in the next year, up from 39 percent just two months ago. The overall direction of the state is also a growing concern, with 47 percent of Californians now convinced the state is moving in the wrong direction, up from 37 percent in January.
Among likely voters, only 30 percent now trust state government to do the right thing at least most of the time, a number that slips to 24 percent when the federal government is involved.
The loss of confidence “is a big change in a couple of months,” said Mark Baldassare, president and pollster for the policy institute. “It reflects anxiety about the stock market, the slowdown in the housing market, rising gas prices and concerns about possibility of home foreclosures due to subprime loans.
‘All of a sudden, there are a lot more things for people to worry about.’”
From:
“Many see bleak future for state, poll shows
Confidence ebbs in politicians’ ability to handle problems”
John Wildermuth, San Francisco Chronicle Political Writer
Thursday, March 29, 2007
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/03/29/BAGOGOTI7N1.DTL
Or:
http://tinyurl.com/36dt3e
Accepting that California prices will plummet, What’s next? Here is a question I’ve been pondering: Will Californians be forced to give up the property tax cap? I believe that this tax cap has played a role in the price run-up as it has kept supply low. Why? People don’t sell who have extremely low tax rates based on 1970-2000 purchases. But now that city and county budgets have been fueled by the run-up in RE prices, how can they cut back? It seems to me that what will set up is a new populist vote to repeal the tax cap. People who purchased after 2000 and are managing to hold on to their homes, will see new buyers paying a whole lot less in RE taxes. I mean what can California do, go to a top income tax rate of 15-20%?
“people who purchased after 2000 and are managing to hold on to their homes, will see new buyers paying a whole lot less in RE taxes….”
You just get your property reassessed down to the new lower comps. It’s easy to do on your own, one meeting with the assessors office.
It was a hot business last downturn. Companies sprang up offering to do it for a fee, trying to make it seem like a big legal process.
So this is the law? The homeowner can request a lower assessment when prices drop, but the county cannot request one when prices go up? Amazing. Then the state income tax will have to keep rising.
yes read up on prop13. It has made two classes of citizens.
group 1: Ca is the cheapest state of all to live in, I pay $400 a year in prop tax on 2.5 million beach house!
group 2: I just bought a 2.5 million beach house taxes are KILLING ME omg this state is so expensive (but worth it!!)
they both live in same model house on same street.
Right, two classes: (1) homeowners when Prop 13 was passed vs. (2) latecomers. Will current latecomers revolt? They didn’t care when they thought they had a wealth accumulation machine. Will they revolt now? Won’t Californians be looking to fill empty tax coffers in many ways? Frankly, I think the irony is that this will make California home prices drop even lower. But, this is probably better for the state as a whole.
You just summed up Warren Buffet when he had a beach house in Laguna or somehwhere in OC and Calvary Chapel Costa Mesa pastor Chuck Smith. Both of these guys had or currently own (Smith) homes that were bought for less than 30K in the 60s and are now worth millions, but taxed at 1.1% of less than 30K. SUcks buying there now. Even if you could pay cash for the entire home, who wants to pay 20K+ a year in taxes, esp. to this god-forsaken state.
Comment by HelloKitty,
“It has made two classes of citizens.”
You miss the disparity:
group 1: age > 65+ driving a modest car that is paid for.
group 2: age…27- 50 wearing $320.00 Oakley glasses.
I find it mind-boggling that anyone would actually move to CA. But there are people still buying into this? Can’t be any of those existing CA residents with the old still-sane tax rates.
Boils it down a bit.
“group 2: I just bought a 2.5 million beach house taxes are KILLING ME omg this state is so expensive (but worth it!!)”
Sorry Kitty, but if you cant handle 25K in property tax then dont buy a 2.5M home… What do you think the insurance is like? What do you think maintenance cost will be?
Heck even your car repairs will be higher because people will see you a being affluent and rich and can afford for the premium service fees and charges you are unaware of ( gauging the rich )…
Even the rich pay more and dont even know it, not by choice, get it ?
In case anyone missed it Prop 26 was passed a few years ago by voters in CA. I remember it clearly because after it was passed my wife and I decided it was the last straw. Soon after we began with plans to sell our home and leave the “golden” state as soon as possible.
Prop 26 changed the percent of votes necessary to pass a bond, that is paid for by property owners, to 50% from the 120 year old 2/3rds majority. I believe that every CA bond pretty much passes now, no?
The politicians and alot of California voters have slowly gutted the advantages of Prop 13.
I always hated the fact that people who didn’t own property in CA got to vote on bonds that they would never have to pay for personally. To switch an old phrase: Representation without taxaction.
Renters do pay property taxes, through rents to their landlords. If bonds increase property taxes, less rentals are built and rents go up. I always hate that feeling of homeowners to be better than renters and to want to exclude renters from the political process.
Disagree. Renters should have no right to vote on property taxes. In certain California special assessment district elections, a mail-in ballot is done which gives a weighting to the value of the property. And the occupant doesn’t vote; the property tax payer does.
To weigh a tax ballot by property instead of by residency (one man, one vote) is discrimination. I am even more disgusted with California now. Has nobody tried to challenge this dicrimination in court?
Come back and tell me about it when you become a homeowner. I would bet that you will agree with me.
I think Cali sells bonds instead of raising taxes? The funny thing is the bonds are paid back by the income stream from taxes. So I bet Cali will just issue more bonds to pay back the old bonds. lets see how that goes.
‘I want to make sure consumers are in a mortgage loan they can afford and not one agreed to under false pretenses.’
How does a guy making $40K a year afford a $400K house, because I am sure New Century has a portfolio full of those types of loans?
“In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent..”
But, but…I thought this was just a sub-prime, slum neighborhood problem.
—
You must read this piece from safehaven. You will love it.:
http://www.safehaven.com/showarticle.cfm?id=7237&pv=1&ref=patrick.net
This guy (a realtor) has a great technique for drumming up business. Scare the s*&^ out of people, so they’ll put their houses on the market NOW. It’s a great read, and could have been written by some of the more bearish posters here!
I think my favorite part is:
“The fact is, we have officially entered the frightening, post-NASDAQ-bubble, post-subsequent-real estate-double-bubble, credit-contracting, asset-deflationary portion of the 75 year cycle. So buckle-up for Mr. Toad’s Wild Ride, people, because there is no looking back at this point. Mark my words, it’s going to be nauseating.”
******
That should put that up in lights that stretch from the Bay Bride to the Embacadero Center towers so that all the REIC jackasses around here can’t miss it.
Ha! “Bay Bride” = “Bay Bridge”
And that would be the bridge over the “Alt-A Bay”, formerly “San Francisco Bay”.
Mr. Toad’s Wild Ride…no, no,
The spinning tea cups…faster, faster, faster…
He is probably independently wealthy beyond most of our dreams and actually has ethics since he can afford them.
If he has been doing RE for as long as he says in SF he would have to be retarded to not be a gagillionaire.
Also most realtors who need business try to state its good time to buy or sell and that the market wont go down or no down much. The problem with trying to get listings now is that they wont sell !
Having 1 buyer in your pocket now is worth 2 listings.
That being said you can’t trust any salesmen but when EVERYONE says RE must go down thats pretty much game over, who is left to buy? Rich people and suckers.
We dont have a high invetory, we have a sucker shortage right now. Government/REIC needs to help produce more suckers.
The myth of subprime being all low income comes to a screeching halt.
No bailout!
*******
“Where Subprime Delinquencies Are Getting Worse
SUBPRIME MORTGAGES have been cropping up in surprising spots. Typically, these loans to home buyers with the weakest credit were concentrated in lower-income or economically depressed areas. But over the past few years, a large chunk of the subprime-loan market has shifted to higher-income metropolitan areas. In many of those wealthier areas, the delinquency rate has increased quickly.”
See the map and table
The Wall Street Journal Online - 3/29/07
http://online.wsj.com/public/resources/documents/info-subprimemap07-sort2.html
Or:
http://tinyurl.com/2xwrat
Are you kidding?
once people realize that it’s not really the poor minorities who are losing their homes, but “hardworking middle class america” the bailout will come even faster.
example:
look at the disaster relief after Katrina. Lots of poor black folk. Lots of pledges. In the end, much of it was just talk.
think of what the bailout plan would have been if Katrina happened to Martha’s Vineyard.
Same here. When it’s poor minorities, everyone gives lip service to how “something must be done” so that they look good on TV. But nobody really cares so few will follow up on the pledges.
when it’s middle class America, and even moreso if it’s upper middle class America who is hurt (regardless of race) you’ll see a TRUE bailout plan.
It’s like crime. When a murder happens in north minneapolis (impoverished), we get a blurb on tv. When a murder happened in Uptown Minneapolis (affluent) suddenly it’s a hot ticket issue, we have the Mayor and Governor with plans, there are MN Senate Hearings, we increase police officers, and we talk about the crisis of homicides in Minnesota.
I can’t see how greedy higher income earners and (your term) “hardworking middle class america” who can’t repay their subprime loan obligations can be compared to people who have suffered through Katrina or a crime in Minneapolis.
To begin with, the former acted by choice.
It’s not just murder. It’s everything. Here in Philly (like everywhere) if ANYTHING happens in any “new”, “trendy”, “gentrified” neighborhood it makes news. Somebody keys a couple of cars and slashes their tires in a formerly black neighborhood now occupied by youngish white folks you hear cries of “where are the cops?”. Some boogy man walks by women in “gentrified” areas on the street and pinches their butts the news is all over.
“Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start. ‘To define the problem as a subprime problem is short-sighted,’ Rosner said. ‘It’s really seeing the tip of the iceberg as the iceberg.’”
These Days is a KPBS Radio Program in San Diego. They ran a discussion on subprime loans today, and Dominick, a caller who identified himself as a “former loan officer,” raised the issue of the prevalance of suicide loans reaching far beyond subprime. He basically said that a majority of San Diego borrowers in recent years could only get into a home with ARMs, as they would have been priced out if they had gone fixed rate. Though he expressed it differently, he would concur with the point that all the REIC propaganda / denial about subprime representing the extent of the lending problem amounts to “seeing the tip of the iceberg as the iceberg.”
This show features an excellent discussion, as the interviewer is unafraid to ask politically incorrect questions regarding the nature of the situation. Audio is to be posted this afternoon (the show is on live at the moment):
“Subprime Mortgage Problems
Mar 29, 2007
Audio will be posted the afternoon following the program.
Major mortgage lenders are tightening their standards in response to the rising number of defaults by homeowners with subprime loans. We talk about what a subprime loan is, the options available to those who are tied into a subprime mortgage, and the impact this will have on the regional real estate market.”
http://www.kpbs.org/thesedays?id=7756
I heard it this morning, and I was delighted that the guest in the studio this morning was Kelly Bennett from Voice of San Diego. A nice change from the usual RE-industry “experts” with their cheerleader BS.
Link to audio file:
http://www.kpbs.org/radio/these_days?id=7848
“Increasingly, Guzek offers different advice than devising financial plans to save her clients’ homes. ‘If they can’t afford it, sometimes the best thing for them is to walk away,’ Guzek said.”
This solution seems to be gaining broader acceptance.
You don’t even know how common that will be. What kind of bailout is going to keep people making payments on a depreciating asset?
Not to mention, if prices are propped up and buyers don’t qualify… migration and abandoned housing.
Got popcorn?
Neil
All foreclosures in Cook County (pop. 5,376,000) take place at Daley Center in downtown Chicago. The Chancery division consolidated all the foreclosures into a single department about two years ago because of the deluge of foreclosure filings. Occasionally my job takes me to the 28th floor of the Daley Center and I sometimes get to hear the daily default foreclosure call. The default foreclosure call means that you were served with foreclosure papers and you don’t bother to show up to court. The judge finds you in default and about four or five months later your redemption rights expire and the property gets sold at judicial auction.
The judge always announces the address of the property in the courtroom before entering final judgment. He does so just in case the homeowner decides to show up at the last minute. The court abhors default and does everything it can to give a homeowner one last chance.
I would guess that a significant majority of the addresses are on the southside of chicago, with the rest being in poorer collar suburbs. Rarely do I hear an address from a wealthier or even more middle class suburbs. What made me tell this story is that the Trib article mentions Aberdeen street on the southside, which is described quite accurately by the journalist. There are plenty of other streets that probably look the same.
Now bear in mind that these are defaults; the moment the homeowner or their lawyers appear in court, the case gets transferred down the hall to another room.
“I would guess that a significant majority of the addresses are on the southside of chicago, with the rest being in poorer collar suburbs. Rarely do I hear an address from a wealthier or even more middle class suburbs.”
I think you’ll start seeing more foreclosures in River North, LV, LP & the Gold Coast in the next couple of years. I won’t be as bad as the south side but it will pick up. I know plent of twenty somethings that mortgaged themselves to the hilt (zero down, ARM’s, IO’s, 40%+ monthly nut) to buy in those areas in ‘04-’06.
Weakest hands fall first. When they are gone the next rung of FBs become the weakest hands. The economic neutron bomb has gone off and the epicenter is the poorer and newly gentrified neighborhoods. Give the “cloud” some time to spread to the better off areas.
“If bad business practices are discovered, New Century will be obligated to postpone action on that loan until the company makes corrective measures that are approved by the state, the attorney general’s office said. One option might be reworking the original loan to make it affordable for the consumer, it said.”
That is one heckuva of a workout, the entire state. Wow! It blows my mind reading what I just read. That is one ginormous workout.
What’s more, has it ever been done before? Will other states follow? Will other lenders agree or be forced to agree to this unprecendented accord? What will be the future impact of this new precedent across the nation. Will there be any limits? Can New century actually agree to this workout? What about the bondholders and their interests?
and they’ll be BK anyway- then who pays ? a state w a printing press ?
It may be the best option the lenders have for legitimate buyers induced to overpay with exploding mortgages. It could minimize the loss.
But it can’t work with flippers, fraudsters and people who bought so beyond their means it is hopeless. And those foreclosures will push down the market.
The question is — do the legitimate folks keep paying in the face of that, even at a reduced rate?
Yeah. You raise another question. Will the broader public cry foul or forfeit so they can renegotiate the terms of their loan?
so you give better rates and terms to loan holders who aren’t paying……so everyone stops paying….
brilliant business model…
dude you are right!
Start a new campaign now called :
“STOP MAKING MORTGAGE PAYMENTS NOW SO YOU GET A BAILOUT CHECK”.
All homeowners regardless of situation should DEFAULT NOW to make sure they dont miss out on that sweet govt bailout check! Put the $ in CD’s at 5.5 % and when u get your bailout check you made BANK. Or better yet use use $ to short lender stocks.
There is no way reworking loans that were 8, 9, 10, or even greater times the annual income are going to get reworked in a way that people can afford them, let alone hope to repay them, UNLESS the interest rate goes to 0% on the loan.
Case in point, regular Joe in flyoever land making 30K a year, wife does not work), buys home for inflated value of 200K (I know that is very low, but work w/me). That means he is paying 1200/month on that loan if it is 100% financing @ 6%. At 30K a year he is making 2500/month BEFORE taxes. After, well that’s another story. Figure he takes home 75%, so he is bringing in 1800/month. remember, home is 1,200/month, so in essence, he is at 67% on housing AFTER takehome. WOW! Now, if that same loan was 0%, he would be paying off at say, almost 600/month, which means his housing is at a normal 33% AFTER TAXES.
In the end, I don’t see any bailouts and I don’t see any banks resturcturing loans to a full 30-years at 0-1%. These banks got the FED cash and have to cover their proverbial butts. They are not gonna let people slide on this.
Then again, maybe re should just have a biblical jubilee ot debt amnesty program in this country. Let ALL debt be forgiven and start over. I know that wouldn’t be fair to us who are waiting since some people would get their McMansions for nothing. However, sometimes this just seems so confusing and mindboggling to me, a restart seems like a good alternative. Just my $000.02 on the debt forgiveness part.
Sounds like you might agree with this group then (checkout #4 on their reformation plank).
http://www.nesara.us/pages/home.html
I read this and groan…
So many people will stop paying to reduce payments. The states that impliment this won’t be able to get mortgages for years. This is the Smoot-Hawley act of housing.
Neil
Let ALL debt be forgiven
Don’t you think savers have been robbed enough already? One person’s debt is another person’s savings.
Anyway “stealth” debt forgiveness has been around for a long time - it’s called inflation.
I thought this exercise was only with New Century?
Figure these people will be getting a rent-free place to live for awhile at a minimum.
All foreclosures in Cook County (pop. 5,376,000) take place at Daley Center in downtown Chicago. The Chancery division consolidated all the foreclosures into a single department about two years ago because of the deluge of foreclosure filings. Occasionally my job takes me to the 28th floor of the Daley Center and I sometimes get to hear the daily default foreclosure call. The default foreclosure call means that you were served with foreclosure papers and you don’t bother to show up to court. The judge finds you in default and about four or five months later your redemption rights expire and the property gets sold at judicial auction.
The judge always announces the address of the property in the courtroom before entering final judgment. He does so just in case the homeowner decides to show up at the last minute. The court abhors default and does everything it can to give a homeowner one last chance.
I would guess that a significant majority of the addresses are on the southside of chicago, with the rest being in poorer collar suburbs. Rarely do I hear an address from a wealthier or even more middle class suburbs. What made me tell this story is that the Trib article mentions Aberdeen street on the southside, which is described quite accurately by the journalist. There are plenty of other streets that probably look the same.
Now bear in mind that these are defaults; the moment the homeowner or their lawyers appear in court, the case gets transferred down the hall to another room.
“New Century Financial Corp. has agreed to halt all foreclosures in Ohio while state regulators and law enforcement officials determine if any of the loans violated predatory lending laws, Ohio Attorney General Marc Dann’s office said”
This kind of coerced foreclosure moratorium is going to send another shock wave through the capital markets. First the people who buy the loans notice that the security is declining in value, and now their actual recourse to the security is being rendered questionable.
A huge part of what makes mortgage securities attractive, is that even with a default, the noteholder can recoup at least some of his losses by foreclosing. When that remedy is lost, a person who calculated on a maximum 50% downside risk faces the possibility that his investment can go all the way down to zero. Those Ohio regulators, and anyone who imitates them, have the ability to sink this market faster than they can imagine.
The question stands: Can New legally agree to postpone or forego foreclosure on loans it does not hold on its books? I don’t think they can fulfill such a promise unless they usurp the rights and interest of the bondholders they service.
Maven you are right, they can’t foreclose unless they own the debt instrument . . . would only happen if they portfolio’d it (couldn’t tranche it out) or had to buy it back due to early payment default. There would be very limited cases IMO that they could postpone a foreclosure. In those cases, they could just write down the loan amount, re-write it and then try to peddle it off.
A little OT but I happen to watch this show about realtors on the fine living channel last night, this big haired blond that works in Beverly Hills. She went to these FB’s house, FB’s because they bought another place in San Diego and now had two mortgages. Well the place in BH had this room that was completly hidious, like a forest made of plaster. She told the owners they would have to remodel the room that they were so in love with before she’d commit to selling the place for 3 mil. It was classic the look on the owners face when they were told their “fantasy room” would have to be redone. If anyone saw it I swear they were on LSD when they designed it. For any from BH that reads this BLOG see Romans 12:3
There was a home like that for sale in my neighborhood. They had a huge jungle mural covering the entire dining room. It was on the market for nearly a year. They lowered the price several times but it didn’t sell until they painted over the *cough* masterpiece.
29k filings, but how many actually go through? Sold at an absolute auction. How many housing units are there in the 6 county region? Trere are what 8million people in this region.
I mean when we hear a 3% forecloure rate nationwide, is that just the filings, or when an actual foreclosure takes place?
Scarier yet: sometimes when you can afford it, the best thing is to walk away.
As the meltdown eats its way up the food chain, I’m betting you’ll find not-really-assetless homedebtors who have run the numbers and see that it represents decades of transfering their wealth to somebody else, with the real possibility of a net negative return. The more sophisticated the debtor, the better chance that he or she can shield, hide, transfer, or even give up some assets in bankruptcy and still mitigate the pain involved in “walking away”. The whole business of moral/ethical repurcussions is likely to change as well, as businesses decide that a solvent worker with a clean slate or a clean 4-5 year history, even with the bankruptcy “stain”, beats the pants off of having a somewhat desperate employee on ulcer and anti-anxiety drugs, and half-asleep at work from moonlighting.
But returning to my point, I think the real terror starts when lenders see keys returned by FBers who could certainly pay, for 30 years or at least for awhile, and won’t. Then they have to wonder if they will be looking at a tipping point, where an unmanageable majority of loans originated in recent years will default on a widespread sentiment that “Of course if you have half a brain, you’ll bite the bullet and save yourself!”
yes this is called common sense.
It has been rare for a few years but it is returning, it will become common again.
This attitude was EVERYWHERE in ca in the mid 90’s. Even though it was a ‘fantastic’ time to buy (prices bottomed) most people already owned and were underwater. So in fact for these people the best solution was to mail in the keys and buy the same/similar house back from the bank! Or rent for a while then find a better house even cheaper! AND THESE PEOPLE PUT DOWN PAYMENTS DOWN. Imagine how many people will do this with thier zero down situation. OR if thier down payment was ‘funny money’ from thier 500k tax free gain on thier starter home they sold for 700k. Yes even downpayment money is not respected anymore it mostly ALL is from people overpaying for your previous home.
Its a downhill rolling snowball we are watching. Or an avalanche or tsunami…
(Scarier yet: sometimes when you can afford it, the best thing is to walk away.)
Known as the “borrower’s put” in commercial real estate, if you have a non-recourse loan.
Memphis,
I have made this argument for a couple of years now. Considering homes in the 600K+ range, you would spend over 2 million on the entire alligator over 30 years. Really, do you think anyone will pay more than 2 million to live in Fontucky, Ca or Rancho Cucamonga, Ca, or even run of the mill Rancho Santa Margarita, Ca in 2037? Even with inflation, I can’t see it happening, esp. if wages don’t keep and the neighborhhods deteriote. Bottom line, rent and save your wealth rather than make some investor or LO’s retirement secure.
This used to happen in Japan. Companies quit paying their debt, because their competitors did. Then US investment banks came in, bought the debt at some 30 cents on the dollar or so, went to the debtor and settled at 60 cents on the dollar. Morgan Stanley made a 100% return in the space of probably a year, the company got a 40% haircut on a loan he could afford to pay in the first place, and those screwed were the banks, the bank shareholders, and the taxpayers who funded the bank bailout via their govt.
I wouldn’t be surprised to see something similar happen here as well…..I don’t support it, but never underestimate the stupidity of the government to do the wrong thing.
Another longtime friend:
“The only sure thing about luck is that it will change.”
Bret Harte
aladinsane, cut it out…you’re making me nerrrrvous’.’.’.’.
“The only sure thing about luck is that it will change.”
Go UCLA!
Damn, it really hurts to go for UCLA but better them than USC.
“Mark Hill is already feeling the impact at his South Side residence. In the year since he and his wife purchased their first home, five neighboring houses have gone into foreclosure. He said he wonders what the value of his house is, after a year in which five homes were boarded up right next to his home. >‘We don’t know what to do,’ says Hill.”
Well, I would guess that he could live in it.
After all, isn’t that the reason why one would buy a home - to live in it? Or was this person expecting to make a short-term profit off it?
Well maybe the idea of living next to a bunch of abandoned houses with crack heads squatting in them doesn’t sound too safe?
Can somebody in Chicagoland help me out here? What is this part of Chi-town like? I imagine its one of those places that 30 years ago was poor and now has lots of trendy little coffee shops, nannies pushing 10 month olds in strollers and filled with “trendy” “LOOK AT ME! I’M A WHITE PERSON LIVING IN THE CITY!!!! LOOK AT ME! LOOK AT ME!!!!”.
This guy wanted to be cool for a few years and then walk away with a cool 50% earnings on the sale of his house. Sorry for being so cynical.
To quote a famous folk singer:
” On the south side of Chicago, in the baddest part of town, and if you go down there, you better just beware, of a man named Leroy Brown…..” - Jim Croce
Sorry, you imagine wrong. I saw this last night, and the man they are quoting is African-American.
Really? What part of Africa was he from?
The tip of another iceberg?
——————————————————————————–
Merrill Subprime Risk May Be Understated, Report Says (Update2)
By Shannon D. Harrington
March 28 (Bloomberg) — Losses from subprime home loans may make Merrill Lynch & Co. bonds riskier than debt issued by Bear Stearns Cos., the biggest U.S. underwriter of mortgage bonds, Bank of America Corp. analysts said.
Merrill may have the most potential for losses from so- called collateralized debt obligations, or CDOs, that repackage bonds backed by mortgages, analysts led by Jeffrey Rosenberg in New York wrote in a research note dated yesterday. Among those mortgages are subprime loans.
“The relative exposure to Merrill is likely understated,” Rosenberg said in an interview. Underwriting data “suggest Merrill Lynch has the most exposure of the brokers to subprime through the origination of CDOs,” his team wrote.
http://www.bloomberg.com/apps/news?pid=20601087&sid=akwmWRlI5xZk&refer=home
The ‘plot’ thickens.
Hahahaha! I want the record to reflect that I, the trading monkey who wasn’t smart enough to cut it in NY according to our dearly departed friend Hedge Fund Analyst, suggested Merrill as a subprime short play lo these many weeks ago. Duh! They were a classic top ticker when they just had to get in right at the end of this mess.
Oh, and for the peace, love, granola crowd:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNSnhL5wGMck&refer=home
Senior management at Merrill = clowns.
Hedge Fund Analyst…….
What tool he was. Stocks were going ever higher and everyone who didn’t play was a “dope”.
Talk about drinking the kool-aid…..
“…who wasn’t smart enough to cut it in NY according to our dearly departed friend Hedge Fund Analyst…”
HFA said you weren’t smart enough? That guy was no Einstein, but he sure could dish out a thick nonstop stream of BS.
foreclosure question- there will be many more than 1990 ,but the invested dollars lost may be small due to the use of 0 down etc
back in 90 I don’t remember anyone getting a 0 down deal
good question.
Mortgage crisis hits million-dollar homes
Thu Mar 29, 2007 12:21 PM ET
By Walden Siew
NEW YORK (Reuters) - Sheriff Leo McGuire presides over foreclosure auctions in Bergen County, New Jersey, where the bidding for a home reached $1.2 million last June — a record for one of the wealthiest counties in the nation.
All this about NEW this and that by the Ohio Govt.
Start looking at ALL THE LENDERS. NEW was doing exactly the same loans as 99% of the competition!
It’s like Ohio is asking for a giant FB do-over.
To use a flying analogy, I know many of us are waiting for the huge mortgage resets of 07 and 08 to really push the nose over on this stalled market, get us into a dive to regain some velocity, and re-establish the lift to support a market bottom. But as the predictions of bailout talk start taking hold, and lawmakers realize how big of a problem foreclosures really are, I think we may start to see more and more of these “anti-foreclosure” laws and regulations come into effect for predatory lending. As a pilot, you learn early to actively push the nose over, and get out of the stall. The longer you hold the nose up, the more altitude you lose when you try to recover. And if you don’t push the nose over… well you see the plane fatalities on the news when that happens. But putting anti-foreclosure laws in place might effectively delay those resets from coming by forcing lenders to alter the jump in interest rates that the borrowers initially agreed to. The first thing that will cause to happen is a big drop in those supporting MBS’s as the projected yield rate gets ratcheted down due to the lower interest rates. That is how they will screw over the non-ARM buyers, because the good working class non-idiots have been saving into their 401k’s, which are in turn heavily invested in these MBS’s.
This whole thing just pisses me off to no end, and the only thing I can try to do to counter the idiocy of the system I’m in is to short the builders and lenders where I can, and try to save myself. I really feel under attack, and I also have family that I feel like I need to help, but man that starts to be a big task! Don’t fool yourself if you think this whole credit bubble was just an accident. This has been a systematic attack on the middle class with propoganda, marketing, and toxic “investments” of many kinds (including housing) designed to shadow the real profiteering of corporate interests. Damn I wish I could help elect someone who would speak out against these things and act.
“But as the predictions of bailout talk start taking hold, and lawmakers realize how big of a problem foreclosures really are, I think we may start to see more and more of these “anti-foreclosure” laws and regulations come into effect for predatory lending.”
Russia played this same game back in the fall of 1998 during the financial crisis. The Russian government forbid settlements in USD for a few months. During the hard currency payment “time out” the Russian banks reshuffled/transferred their assets to parallel structrures so that by the time the moratorium was lifted only the liabilities were left in the former banks. All assets had been transferred to new clean legal entities.
Not sure how this is going to play out in Ohio though since housing is neither liquid nor fungible.
You said it, math guy. With the repubs down below 35% in the public’s eyes and the demos blundering about, I am surprised that some populist party has not emerged to try to wedge its way into the two-party madhouse.
While I am not a fan of bailouts, in fact for the non-flippers it might be the best solution for the country. It can’t happen of course as so many contracts would have to be voided that the lawyers would be busy for longer then the lifetime of the FBs.
It just seems to me to be a long way around for joe6pk with his 500K mortgage to get forclosed on, the lender drops the price to 400K to lure another pre-FB, who gets forclosed on, the drops price to 300K etc etc till the price gets down to 150K and orginal FB buys it again because he actually qualifies for a 150K mortgage.
Round and round in the circle game.
“I really feel under attack, and I also have family that I feel like I need to help, but man that starts to be a big task!”
Welcome to the War on Savers.
I agree Math Guy.
Owning a home used to be a sense of acheivement. Now any person off the immigrant boat can get one.
The stock market bubble and real estate bubble were just ways to keep our economy going. Why? America places 8th or 9th now technilogically. Denmark beats us.
Wall Street is losing jobs to computers. We have no industry to speak of..look at the auto-industry. The Entertainment industry is horrible. When is the last time you saw an amazing movie that blew you away?
We have become a service economy. A service economy can only survive by creating artificial demand. Hence the bubbles. America has become a country built on cheap money and real estate. Real Estate is now busting and is going to take a ton of jobs with it.
Real Estate will become just like cars..disposable items.
Seen any new KB Homes houses lately? They’re a flimsy as a piece of paper towel and just about as disposable.
I haven’t seen a movie in quite awhile. My television is in my other bedroom and I haven’t watched it for 3 months. I never watched “Survivor,” nor “American Idol.” I get value in my Toyota and still lust for the new Mustang but I am not fooled by style anymore. As for KB homes, which Txchick brought up, I laugh even more about people signing up for several multiples of $100,000 for purchase price of flimsy houses with probable severe defects starting to appear in 5 years.
On the other hand, gold bullion, T-bills and savings bonds are far better values. Gold is $380 an ounce or so, adjusted for the devalue of the dollar since 1980. I enjoy stuffing that envelope with $1000 paper bonds. I don’t think these things will be disposable. I certainly do not want a disposable home.
We the few that know the wilderness, suffered greatly mentally, because of shows like “survivor”…
Their whole m/o was to take a bunch of city slickers into the wilderness and then in an updated version of “Lord of the Flies”,
set one upon another, and as only one person could “win”, the others plotted, like dumb beasts chasing the brass ring…
http://en.wikipedia.org/wiki/Lord_of_the_Flies
That bears no resemblance to what goes on, in Nature’s Realm.
You’ll learn.
Survior really happened in 1629 off west coast of Australia. horror story. Shipwreck of the batavia.
http://members.iinet.com.au/~bill/batavia.html
I’ve dealt in some of the Batavia coins, hadn’t realized just how bad things got…
Who wants a thigh bone?
Now any person off the immigrant boat can get one.
Or in California’s case, replace it with “fresh from jumping across the border”.
We need to go back to basics. Go agrarian. Every family has a farm works it to feed its family, etc. Get back to manufacturing plants and lastly get back to saving long term. Heck, buying all those toys. What good? The Egyptians taught us you can’t take it with you. I know saving is so 19th century when you can make millions daytrading, playing poker, being an overpaid spoiled brat of a jock (and I am a sportsfan), or flipping real estate or whatever otehr bubble is hyped on Fedroids.
thanks Kunstler!
“When is the last time you saw an amazing movie that blew you away?”
1) Letters from Iwo Jima
2) Breach
“Real Estate will become just like cars..disposable items.”
A great comment. But, I think you are more accurate than you realize.
In an economy that’s becoming increasingly service-oriented and based on technology, having a significant portion of your total assets (say 30-40% or more) tied into something that’s illiquid as real estate puts you in a vulnerable position.
Nimbleness is key, I think.
California Investigates Subprime Mortgage Industry
http://www.bloomberg.com/apps/news?pid=20601087&sid=anGiev.gfQDc&refer=home
“‘Everyone’s looking at subprime. The rock they aren’t looking under are the adjustable rate mortgages and teaser rates and low money-down loans,’ said Mark Kiesel, a portfolio manager for Pacific Investment Management Co. ‘It’s going to affect prime as well.’”
wow, .. nothing like a one - two punch..
so right after the subprime mess gets the housing market down… get ready to be kicked in the … by the ARMS readjusting…
its gonna be a heck of a blood-bath/party.. depending on your point of view ofcourse.
got cash?
“We have become a service economy. A service economy can only survive by creating artificial demand.”
I agree—that’s why I get so pissed off when Bernanke keeps talking about how our “service” economy jobs are so strong, and manufacuring doesn’t matter anymore. Bernanke’s credibility is gonna fall off a cliff this year.
http://www.itulip.com/forums/showthread.php?t=1145
That’s one for the textbooks. Couldn’t draw it out prettier with a paper, pen, and ruler. Plus it’s the whole sector.
In a related note I have been keeping my eye on COH. Looks like it has potential for a double top.
From the Reuters link, I enjoyed someone finally reporting this;
“For those on the frontlines of the growing U.S. mortgage crisis, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground. The damage is hitting homes financed through jumbo loans for more than $400,000 and so-called Alt-A loans that are a notch above subprime and a step below prime.”
And;
“Everyone’s looking at subprime. The rock they aren’t looking under are the adjustable rate mortgages and teaser rates and low money-down loans,” said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world’s biggest bond manager. “It’s going to affect prime as well.”
New Century Terminates Freddie Mac Relationship; Bankruptcy Imminent
* |
* March 29, 2007
Signaling that a widely-expected bankruptcy filing is imminent, besieged subprime lender New Century Financial said late Wednesday that it has voluntarily terminated its eligibility to originate and service Freddie Mac-sponsored loans.
As a result, the company will not be able to sell or service loans for Freddie Mac. The company had disclosed on March 20 that fellow GSE Fannie Mae had terminated its selling and servicing agreement with New Century.
A source close to events taking place at the company told HW this morning that New Century officials decided to voluntarily terminate the agreement with Freddie. “If they didn’t, Freddie would have,” said one source, on condition of anonymity. “It was just a matter of time.”
http://tinyurl.com/3cg9az
“I agree—that’s why I get so pissed off when Bernanke keeps talking about how our “service” economy jobs are so strong, and manufacuring doesn’t matter anymore. Bernanke’s credibility is gonna fall off a cliff this year. ”
Our economy is floating on a sea of debt. Passing paper money back and forth is a strong economy. Our economy is going down and the media/ws or policiticans will not admit it.
Renter,
Money shuffling is the new economical engine, didn’t you know. Who really works in this country anymore? Why should I? I AM ENTITLED TO LIVE LIKE ROCKERFELLER, DAMMIT!
We are indeed the ‘Land Of The Deal’.
A while ago, someone published a paper that referenced the ‘value’ of various professions to the overall economy, in terms of the value they create. If I remember correctly, realtors and lawyers were at/near the bottom on the list. All they do is take a cut of money that they shuffle around. They don’t actually DO anything of value. In fact, lawyers are a negative to society in terms of creating value…they suck out $$ that can be better used to make money (investment) or produce new products via R&D.
The military, of course, was near the top of the list…creating more value for society than most other professions, especially on the R&D front.
I wish I remember who published that piece. It was really interesting.
Are Interest Only Home Loans A Good Idea? (Mostly No)
“Kim asks,
“‘I was wondering what you think of interest only home loans. i trust that you know your shit so a simple “good idea” or “bad idea” reply would be enough for me to decide.’
“Have you been reading the papers? Most of the time, Kim, they’re a bad idea. Interest-only mortgages are a driving force behind the collapsing sub-prime lending market.
“These loans work by making you pay only the interest on a loan for a fixed term. After that, you refinance, pay off the balance in full, or start paying down the principal, at which point the payments go stratospheric.
“In recent years, brokers aggressively marketed interest-only home loans to downmarket customers. By hook or by crook, they convinced thousands of borrowers to only focus on the affordability of the initial payments.
“The financial tool was developed mainly for executive types who earn a moderate income and then receive big bonuses. If you’re not one of those, an interest-only home loan probably isn’t for you. — BEN POPKEN”
Thank you, Math guy. I’m tired of reading so many comment here that everybody who bought in the last 2 or 5 years was greedy or dishonest, 2nd home boomer or flipper, illegally here, unable or unwilling to think or read, and deserves what they get.
I’m no finance whiz myself, although I probably am compared to some arbitrary “average” for the population. And I can’t count how many times over the last five years I questioned my own sanity insisting that this was the worst time to buy a house to my husband and anybody else I cared about. (I know, plenty of posters here have gone off about how they could have gotten rich by doing the wrong thing with the right timing between ‘00 and ‘06.) Even at this point, vindication doesn’t really mean much. I’m not so sure that someone buying today won’t get a hyperinflation debt reprieve, a favorable rework or at least a few years free rent, while poor sucker me finds out that FIFTY percent down won’t cut it in the new economy, unless I’m willing to move my family into a war zone.
Capitalism is a wonderful thing under a democratic government. When it becomes the government, it’s as hellacious as communism or any other -ism you can think of. Hey, the peasants are eating each other! (Stupid peasants.) But the economy is strong!
im sure this isnt a new thought, but the bailout may come in the form of ..Congressionally Approved, No Fee, Refinanced…. 40 and 50 year mortgages, for those caught in the adjustable rate fiasco.
That has been my highest-probably scenario for a couple months now (ever since I thought of it). And that refinance would be based on some definition of “current assessed value”.
That would only help in some cases though. A 50 year $500K mortgage at 5.75% is $2500 per month. Got ramen?
Bailout will come in the form of an increasingly worthless USD. That’s about the only thing that will work with this $5 trillion problem.
“Known as the “borrower’s put” in commercial real estate, if you have a non-recourse loan.”
Ahh, but how many have one of those? Many Californians who have refinanced in recent years have unwittingly traded non-recourse for recourse debt. They can’t just walk away without consequence. Going after this debt will be a boom industry for the sleazy collections business.
I wonder how the law reads in other states on “recourse loans”.
Is it a government bail-out? Growing number of U.S. states mull mortgage refinance . see the link http://news.yahoo.com/s/nm/20070327/us_nm/usa_subprime_states_dc
Regulatory shutdowns of foreclosures - is absolutely the #1 way for this prime mortgage mess to spread into the entire collaterized debt obligation markets
Then the entire economy goes with it
The (”use your house as an ATM”) home equity business has for years proclaimed the wonders of converting high interest rate credit card debt into (often) tax deductible home equity borrowing
The problems overlooked:
1. what was once unsecured debt is now secured debt, meaning when the borrower runs into problems - their home itself will be at risk
2. its quite common for people that convert credit card debt to home equity debt - to then (once again) max out their credit card debt