“This Liquidity Crisis Is Continuing”
Some housing bubble news from Wall Street and Washington. “New Century Financial Corp. became the biggest subprime mortgage company to go bankrupt in the past year after the lender, which specialized in loans to people with poor credit records, was overwhelmed by customer defaults. The company filed for Chapter 11 bankruptcy protection from its creditors today in federal court.”
“The largest creditors included Wall Street firms that financed New Century’s lending operations.”
“‘They’re clearly going to be the poster child for bad practices in the mortgage industry,’ said analyst Matthew Howlett. ‘When all is said and done, the management team will be to blame.’”
From Reuters. “New Century, like many lenders focusing on people with poor credit histories, was forced to buy back loans from investors that went bad just months after they were made, straining its finances.”
“‘We are only at the very beginning of the problems facing subprime,’ said analyst Brad Hintz. ‘What you are seeing is that this liquidity crisis is continuing in the marketplace.’”
From Bloomberg. “M&T Bank Corp. said low bids for the Alt-A mortgages it planned to sell will cut first-quarter profit by $7 million. Lenders this month have found demand falling for riskier mortgages even apart from so-called subprime ones.”
“A unit of Cleveland-based National City Corp. that makes home equity loans through brokers today undid much of a loosening of guidelines it introduced only Feb. 28, rolling back standards further in some ways, as a result of demand from loan buyers ‘evaporating quickly,’ according to an announcement obtained by Bloomberg.”
“‘Unfavorable market conditions and lack of market liquidity impacted M&T’s willingness to sell Alt-A loans in the first quarter,’ the company said in the statement.”
The Associated Press. “Many of the media reports on M&T Bank Corp. Monday will no doubt focus on mortgage loans. Actually, though, mortgages represent a relatively small slice of the bank’s problems.”
“Only about a third of the shortfall can be blamed on a shrinking appetite for mortgage debt. The remainder of the shortfall relates to an old story for retail banks in the U.S.: higher costs to raise money.”
“At a recent auction of Alt-A loans, fewer bids than normal were received and pricing was lower than expected, M&T said. Meanwhile, the bank also said it would have to repurchase problem loans sold to investors.”
“Barclays Bank Plc said on Monday it had paid $76 million for subprime lender EquiFirst Corp., about two-thirds less than its original offer, as a rising tide of delinquencies hurts the market for risky mortgages.”
“A Barclays spokesman said the lower price reflected slowing housing prices and higher mortgage delinquencies in the subprime sector.”
“The price declined from $225 million (to) $76 million and may be adjusted during the second quarter, London-based Barclays said. EquiFirst is the 12th-biggest subprime wholesale mortgage originator in the U.S, the bank said Jan. 19 when it announced the deal.”
“‘The original contract had provisions to ensure the credit quality of what we took on was as expected,’ spokesman Peter Truell said in an interview today. ‘The closing price was modified’ due to a reduction in reserves, he added.”
From USA Today. “The crisis in risky mortgage loans is shedding light on aggressive lending practices by some of the largest U.S. home builders, which stand accused of using lax standards and illegal sales tactics to arrange financing for buyers.”
“The Department of Housing and Urban Development is taking more actions against home builders and their affiliated lenders, says Brian Sullivan, a spokesman for HUD. ‘We are seeing increased consumer complaints about builders,’ Sullivan says. ‘Including kickbacks and illegal referral fees, phantom incentives and other violations of our real estate laws.’”
“The subprime mortgage crisis is likely to spread to a higher tier of loans known as Alt-A, according to an economist affiliated with the University of California at Los Angeles.”
“‘The question is to what extent,’ said David Shulman, a senior economist with the UCLA Anderson Forecast in Los Angeles. ‘That could be the next shoe to drop. We suspect the problem in the subprime area is just the tip of the iceberg for the mortgage market as a whole.’”
From Fitch Ratings. “Today, many properties are purchased and financed with virtually no equity. Loan to value ratios often exceed 100% and, when considering the entire amount of debt on a property, Fitch is seeing more loans where actual debt service shortfalls exist at the outset.”
“Recent struggles, and in some cases defaults, in the condo conversion market are viewed by Fitch as an indication of the danger of relying on valuations predicated on significant future value growth.”
“Fitch has begun to see delinquencies and defaults of condo loans in the CMBS market. Sales of condos have slowed or stalled in many markets, including South Florida, Manhattan and Las Vegas. Many projects have been canceled (some mid-construction) and others have been turned into or reverted back to rentals.”
“The rental value of the properties is usually significantly less than the anticipated conversion value, and therefore many developers are not able to meet debt obligations.”
“A massive wave of defaults is set to hit the CDO (collateralised debt obligation) market following the sub-prime mortgage meltdown in the U.S., although this could take a year to play out, a fund manager told Reuters.”
“‘I do think a massive default cycle is about to start in the CDO market. It’s mad. Sub-prime will create massive defaults,’ Francois Barthelemy told Reuters. ‘The event that will destroy the CDO market has already happened. But it will take another year to trickle down. They (the holders of the CDOs) don’t realise what’s going to happen.’”
“Sales of bonds backed by subprime mortgages are tumbling as investors and bankers, concerned about rising delinquency rates, pull back from what had been one of Wall Street’s fastest growing businesses.”
“About $79.3 billion of securities backed mainly by loans to people with poor credit or high amounts of debt were issued this year, down 37 percent from $125 billion in the same period last year, according to a Citigroup Inc. report.”
“‘Right now the CDO machine has essentially been put on hold,’ said Bill Martin, a portfolio manager of $35 billion in mortgage bonds at TIAA-CREF.”
“Moody’s on Monday said it may cut its ratings on Technical Olympic USA, Research) deeper into junk, citing expectations the company may further amend its credit agreements to account for lower interest rate coverage. The homebuilder last month swung to a large quarterly loss compared with a profit in the year-ago quarter.”
“Technical Olympic is also expected to be challenged in 2007 to pare back its land and housing inventory to turn its free cash flow positive on an annual basis, Moody’s said.”
‘Increases in U.S. commercial real estate cash flows over the past several years suggest a new paradigm to some lenders. The recent subprime downturn should caution investors about the dangers of mixing aggressive underwriting with reliance on continued price appreciation. This combination will lead to 15% greater defaults on the 2007 vintage loans, according to Fitch Ratings.’
To their credit, Fitch did come out early (late 2005?) and say the conversion were going to fail in big numbers, but that’s about all they did. No real follow-up. I believe they predicted a 30% default rate for the loans as a whole.
The important thing about the Fitch report, to me, is that it talks about aggressive underwriting in ALL segments of the commercial real estate market — retail centers, office, etc. It’s seeing LTVs in excess of 100%, generous assumptions about future leasing rates and cash flows, etc. You’d think that since the gigantic RESIDENTIAL real estate bubble is going bust, investors and lenders would be more cautious about how they go about doing business in the commercial sector. But apparently, that isn’t the case.
Check out a few REIT charts and get back to me . . .
Because neighborhoods full of foreclosed homes have so many customers to do their shopping in that commercial real estate.
How would one ever go about insulting honesty?
Its insane! Even though we are in one of the foreclosure epicenters on the country, they are building commercial and retail space at a break neck pack.
This place:
http://www.promenadeshopsatcenterra.com/
Opened little over a year ago. Other than the multiplex and a few key shops and restaurants, the place is a ghost town (you should see the old outlet mall accross the freeway, its even worse). In spite of this, they are expanding it!
Not to belittle your post but the wife and I were in Fresno, Ca this friday night to look at some furniture, (Riverpark area). We decide to get a bite to eat and all of the resturants (at least the ones we braved) were all a one hour wait. There were people galore with bags of goodies just shopping away. Fresno will be in dire straits as most know but when I hear people claim here that “Lowes was empty, Costco was empty, Applebees was empty” well that is NOT the case in Fresno at least as of April 1st 2007!!!
“People look out your window, you are sitting right in the middle of the tracks but fail to see the freight train coming right at you.”
Never underestimate the power of a credit card.
Yeah, Riverpark, or “Devil Town” as we like to call it, is where all the money in Fresno goes to shop. I know that sounds like an oxymoron but out of half a million people, there are enough people with money to cram those places. Fresno is getting ready for the “Big Hurt” though–I’ll be there this weekend to investigate!
I have to make a once in awhile pilgrimage to fresno this week…
In search of Trader Joe’s~
“Never underestimate the power of a credit card.”
Do you know where I can get one that does not require repayment of what I spend?
B of A. Tell them you want the card where you don’t need the ss number.
Keep in mind that we had our real estate bust 3 years ago, and we never even had the crazy appreciation. Think of us as a “leading indicator”.
and we never even had the crazy appreciation
huh? Prices were flat from the 1990s to 2003, then spiked up 100% over 2004-2005. In late 2001 I had my eyes on a nice place off Van Ness Ext that sold for $300k, same place moved for $600k last month.
This place:
http://www.promenadeshopsatcenterra.com/
Opened little over a year ago. Other than the multiplex and a few key shops and restaurants, the place is a ghost town (you should see the old outlet mall accross the freeway, its even worse). In spite of this, they are expanding it!
(Comments wont nest below this level)
We have one of these in Marlton, NJ. Same thing … Ghost Town.
We know there are negative amortizing interest only loans that go to 120% before they reset. Those must be juicy sweet deals to sell to Wall Street as MBS. Someone who couldn’t even pay an amortizing payment, now is deeply underwater even if prices were flat (not to mention declining). Sign me up.
remember, don’t they book as earnings the FULL payment and not the small payment most make on some of those loans?
Yep.
I see lots o’ earnings restatements in my crystal ball.
I asked my dad, the professor of accounting about that. He said that booking the full accrued interest is a GAAP (Generally Accepted Accounting Principle), and thus pretty much required. However, it would also be a GAAP to set aside some of that revenue to cover the obvious inability of the borrower to repay the loan payment in full each month.
Thanks for clarifying David. And what would be the formal title/classification on that set aside?
‘reserves’
the problem comes when all of the sudden you have loans where people have to pay the full amount. then wouldn’t your YOY comparison be terrible because people will actually have to pay a full mortgage payment?
if an average payment is $2000 and then credit standards make it $1700, doesn’t that hit earnings?
I wonder if the banks have to pay taxes on that phantom income? I wouldn’t think that the “reserves” would be an offsetting expense for non-performance until utilized as such. Anyone know about this?
Yes they do. This is also the case when an individual investor buys something called a “strip bond”, that’s a bond where you just get one big payment some time in the future. The accrued income is taxable each year even though you don’t get it till later.
It really has to be done this way, otherwise all sorts of tax avoidance loopholes would be opened.
The loss Reserve, or Allowance is a balance sheet item, a contra-asset netted out of loans. The “set-aside of revenue” is called a Provision for loan losses; it’s deducted from interest income, so it is tax-deductible. Why don’t banks max-out their loss provision for the tax benefit? Because it would be a signal to investors and regulators that the bank is making too many risky loans.
This may be more than you want to know, but the accounting goes like this: The Provision is taken out of (debited) Income, and added (credited) to the Reserve. When a loan is written off as a loss, its principal is taken out of both Loans (credited) and the Reserve (debited).
Why don’t banks max-out their loss provision for the tax benefit? Because it would be a signal to investors and regulators that the bank is making too many risky loans.
That would be one interpretation and I suppose the likely one. If I was the owner, I run that sucker up until I owed no taxes, but then I’m one of those nasty “tax avoiders”.
SF Bay,
A minor point but the provision for loan losses is only tax deductible from a GAAP perspective, NOT from a cash (that is, “reality”) perspective. Only actual charge-offs are tax deductible from a cash perspective. And I don’t know about you, but my only concerns are (1) where is the cash, and (2) how do I get it. (Pardon my concern with the minutiae but I used to write bank research on Wall Street, so I’m a stickler on these issues.)
On MBSs. One of the truly painful parts about holding MBSs now is that a major component of successful gambling (hee hee) on these is guessing how many will be payed off early. Excess prepayment is good if interest rates are rising, because prepayment releases money that can be invested at a higher interest rate, unanticipated at the time the MBS was originally bought (so not priced into the bond). If interest rates rise and prepayment rates go down, that hurts, because money is sealed into the low interest loans and that was not priced into the MBS at purchase. So… if people cannot refinance, even if they hang in there, they are not prepaying, so there could be a lot of losses beyond any defaults if interest rates are rising.
Am still curious- it is a usual claim in MBS marketing that default risk is not the main source of risk as it is usually covered by gov’t or private mortgage insurance. I am guessing that this would not help much if prices drop a whole lot, because even loans with (nominal) 80% LTV (which, by law, will not have PMI) could end up underwater.
it’s funny how everything is contained in it’s nice little box. subprime. the effect of the housing bust on the overall economy. commercial from residential. the dollar. the deficit.
And of course we have to take that as an article of faith, since Alt-A is stated income. If they lied, and their debts are a greater percentage of income, then Alt-A is really subprime without a subprime interest rate. Sign me up for some Alt-A MBS.
The Box?
http://en.wikipedia.org/wiki/Pandora
It’s only contained on the down side. On the up side, a rising tide lifts all boats.
“Unfavorable market conditions and lack of market liquidity impacted M&T’s willingness to sell Alt-A loans in the first quarter”
Are they going to wait for the start of the MBS “spring selling season”, when all of the investors will come back?
(M&T said it plans to keep $883 million of Alt-A home loans instead of selling them because management believes the bids don’t reflect their value.)
looks like they are chasing the market down, just like the people who own the homes!
can you see the cycle here? they’ll probably sell these loans each quarter for a few years at a loss each time. each time will probably be worse than the last. maybe they don’t have the cash to sell these loans now? maybe it’s too big of a loss?
They’re not going to “GIVE THEM AWAY” you know! Hehe.
maybe they don’t have the cash to sell these loans now? maybe it’s too big of a loss?
Here’s the link to their cash flow statement.
cash flow
Stock is down 8% today.
Since this is my bank I have more than a passing interest in this story. Bryn Mawr Trust and Malvern Federal look like better places to park cash IMO. They’ve catered to this area’s moneyed class since the late 19th century, and are pretty conservative. I may not get the best return on my money, but at least I won’t have to worry about shady loan exposure.
Wikipedia had some interesting entries regarding Allied Irish Bank, M&T’s major stockholder at 24/22% depending on source.
thanks, I will check it out.
Have been on the yahoo finance message board…doesn’t look too encouraging. Right now it appears to be an issue for shareholders rather than depositors, but I’ve already made my mind up to get TF outta Dodge.
My favorite quote from a thestreet.com article (http://tinyurl.com/2d64n4) about M&T’s problems:
“We were just surprised that an M&T came out and said this is an area of weakness,” says Tim Ghriskey of Solaris Asset Management. “We really didn’t think it was going to spread beyond” the subprime lenders.
I wonder if Mr Ghriskey is really being sincere or if he just isn’t very bright by making that statement? Does Upton Sinclair’s quote apply here? “It is difficult to get a man to understand something when his salary depends upon his not understanding it”.
“It is difficult to get a man to understand something when his salary depends upon his not understanding it”.
Upton Sinclair, Sinclair Lewis,who cares, this quote should be banned from this site.
Desmo’s feeling a bit touchy.
That quote has been around this blog for nearly a year and it is as appropriate as ever.
That quote has been around this blog for nearly a year and it is as appropriate as ever.
That is my point, overused.
The readership of the blog turns over quite a bit, so I think it is appropriate still.
If you tire of it, please write an FAQ for Ben to post with that and other tiresome topics such as: California’s Prop 13, recourse vs. non-recourse loans and quotes.
Thanks.
He was one of the Dot Com Pushers.
NEW layoffs today - 3,400! Per implode-o-meter.
http://www.autodogmatic.com/forum/viewtopic.php?t=386&sid=690aa5d5d207f4af0ea012bdb282c6d7
Confirmed @ OCRegister . com
The Orange Curtain is doomed. All the faux-rich employees from NEW and others are waking up to a suddenly competitive job market and their own personal debt. I wonder how much a used Maserati goes for?
Those employees will be fine. I’m sure they all invested in OC properties, perhaps in SD, IE as well.
It’s not just the LEND employees that are toast — it’s all the high-flying young independent mortgage brokers accustomed to earning $200K per year originating loans for LEND that are ready to be buttered and spread with jam.
Subprime Dumpty sat on a wall
Subprime Dumpty had a great fall
All the foreclosed houses and all the ailing loanmen…
Couldn’t put subprime back together again.
LOL
Just make sure you leave 1 person hired to turn out the lights and lock and check all the doors. Of course that person may not get a paycheck though.
A friend of mine used to work at a place that had paycheck races. When the paychecks came out (late), people would RUN to their cars in the parking lot and RACE to the bank that the funds were drawn on. Everyone knew that the last people to try to cash their checks would end up bouncing them.
Survival of the fittest! Hilarious.
So THAT’S why the lending co. employees all bought Maseratis!
This is just what investors neede more great news> Look if you are holding over priced property and you can’t hold out from this firestorm you better start to realize the house of cards is falling quickly and cut your losses, lower your price to bargin basement before you end up in the basement?
“‘I do think a massive default cycle is about to start in the CDO market. It’s mad. Sub-prime will create massive defaults,’ Francois Barthelemy told Reuters. ‘The event that will destroy the CDO market has already happened. But it will take another year to trickle down. They (the holders of the CDOs) don’t realise what’s going to happen.’”
If you believe this, buy long dated puts on brokers or the BKX
do we believe it?
Sure, it’s possible. I have some puts.
I believe it. Time to get my stock option account set up.
You’ll know this is all over when Russ Winter urges buying RE. I remember in Oct. of 2002, he was making up his “mother of all buying opportunity” lists in stocks after being bearish for years.
Who is Russ Winter?
Russ Winter’s blogspot
http://wallstreetexaminer.com/blogs/winter/
http://wallstreetexaminer.com/blogs/winter/
Russ Winter was actually bullish? I’ve been reading him since 2004 and that’s hard to imagine
Ben:
Cue the Humpty, please.
http://en.wikipedia.org/wiki/Humpty_Dumpty
If crowd psychology is true, there will be a massive stampede out very soon.
This will dwarf what happened in Argentina a few years back…
The spin PhDs will try to doctor all the news and house price reduction will never be below 10% but in reality, on the field, there will be 70-90% reductions once foreclosures and BOAs need to be unloaded in a falling market.
I am preparing popcorn.
As luck would have it…
I’ve prepared myself for whatever comes my way (I think)
And i’m a popcorn fiend
(corn oil & p.c.p.c. (Orville Man, myself) on a stove in a pot)
Just noticed last night my 8 pound O. Redenbacher’s plastic jug, is running on empty…
Yee Gads!
Check again. I’m willing to be your 8lbs jug was really 7.6lbs. Secret inflation.
LOL, you’ve noticed that BS too, huh?
That’s funny, I remember watching some housing bear interviewed on MSNBC economics-for-dummies type of program. And he’s giving her the real story that she’s not used to.
Finally she’s like “You seem very gloomy, is there any good news you can give us?” And he looks at her curiously and says “Well, we’re not Argentina.”
I couldn’t stop laughing. I wish I had a link.
That is pretty funny ( for us economic historians here ).
it’s important to know why Argentina was so bad. they had a dollar peg. an argentine peso was the same as a dollar, if I remember right. obviously this wasn’t true and everyone who loaned in dollars and paid in pesos was screwed, as was the rest of the economy shortly thereafter.
Viewpoint: ‘Our dreams have been stolen’
http://news.bbc.co.uk/2/hi/americas/1750411.stm
Argentines barter to survive
http://news.bbc.co.uk/2/hi/business/1977804.stm
Argentine pensioners turn to prostitution
http://news.bbc.co.uk/2/hi/americas/2136564.stm
Argentina was reamed twice, trying to follow IMF dictated austerity and ‘banking privitization’ rules that were a true disaster. Expect them to keep heading left and to increasing treat us like a leaky barrel of plutonium…
That was Paul Krugman. He said at least we were not Argentina because our national debt is denominated in our own currency. A luxury Argentina did not have.
“Don’t cry for me, Sarasota …. the truth is, I never left you ….. all through my wild times, my so-subprime times …. I would refinance - you would approve me” etc.
“We” (that is, the US government) won’t have that luxury much longer either.
Today, after reading this blog, I’m beginning to get a little scared, and I don’t scare easy.
The California economy is going to take a big, big hit. The rest of the country where housing prices didn’t run up so much, I believe, will do OK.
California, Florida, Nevada, Arizona. These four states are going to be in for a world of hurt in 2008.
“The California economy is going to take a big, big hit.”
Repeat until you feel calm: Subprime lending is a negligible share of overall lending activity, and only a small fraction of subprime loans are in trouble.
OK, I’m going on line today to change my retirement allocations to cash.
“…to cash.”
In what currency?
There is no “cash” option. I have only Fidelity funds and some state-managed funds available to me. I have had the lions’ share in equities and somewhat less in a bond portfolio. The “cash” option is actually mostly short-term treasuries. 80% of our retirement savings is in 403B plans, which give limited options. But having more options would probably not help me, as I am not a savvy investor. Just a good saver.
Did that last week!
It’s interesting, I had a talk with someone yesterday. We went over all the facts, what’s happened and what’s going on, and it’s like the imaginary light bulb finally went on over his head. But you’re right, it is scary. In fact, the friend said I ruined his day. It’s liked they’ve finally been unplugged from the Matrix, and what they see is scarier than hell. Reminds you of the movie where some would prefer being “plugged in” than to face the reality of what really is the truth.
“Reminds you of the movie where some would prefer being “plugged in” than to face the reality of what really is the truth.”
I am seeing a lot of this…a LOT of this.
I’ve had similar experiences regarding the lightbulb effect. I also discovered I can convert only one person at a time into thinking this meltdown scenerio through; if more than one person is present then my argument is blocked by the GroupThink phenomena.
I love Group Think, but I like to get it here. Your Group Thinks smarter than the Bullish(t) Group.
My good friend picked up “The Secret”, a book which has been #1, I believe, on the Best Seller’s list. “If you have positive thoughts, good things will happen to you”, is the message.
She told me dark thoughts attract others who think the same and pretty soon there is only negative all around you—-I think she might have been referring to the blogosphere on that one.
Funny I thought I’d been laughing more now that the blog showed me I wasn’t losing my mind.
I too am besieged by people that I know about how great “The Secret” is!! It is almost like a cult. Of course, these are the same folks who never miss the Real Estate Wealth Expo when the Donald, et al. are in town.
I haven’t read the book, but I’ve certainly heard enough about “The Secret” — the funny thing is, all things being equal, it probably does work to some degree. Not in any mystical sense — but rather, if you lighten up and try to be a little more oprimistic and positve in your life, things will probably improve in some (but certainly not all) cases.
I should market my “the REAL secret” book — here it is in it’s entirety:
try to lighten up and have a little fun.
don’t be a jerk. be good to people.
save some money, OK? don’t spend it if you don’t have it.
eat and drink a little less. if you’re already pretty fat, eat and drink a good bit less.
get your ass out of bed. work hard enough that you don’t have to worry too much how much you have to do tomorrow or over the weekend.
watch less TV. read a book or take a walk. or both.
when things get tough, hang in there. ask your friends and family for help. return the favor when they need help.
did I mention “don’t be a jerk - be good to people” already? I did? well, it’s worth mentioning twice.
Very nice words to live by.
Norman Vincent Peale wrote The Power of Positive Thinking in 1952; there’s nothing new in The Secret - just a rehash of old ideas.
It all works to a degree - fortune favors the brave and the prepared - but it works best in a 1st world country with an up market, and it suffers from survivorship bias: the losers don’t show up in the (largely anecdotal) evidence.
My simple philosophy of money. How much is enough? If you don’t have enough,you lay awake at night worrying where your next meal is coming from and how you are going to pay your bills. If you have too much, you lay awake at night worrying someone is going to steal it from you. If you have just right (middle-middle Class ) you have peace of mind.
Well get some collateral damage in NY. We wont lose as many jobs, but lower Wall St. profits and bonuses mean fiscal damage to the city and state. We won’t have as many foreclosures but we’ll have lots of people underwater and priced in forever.
Investment possibility — a firm recreating the furniture that used to allow large families middle class families to live in small apartments. They don’t make much of that anymore.
No amount of space-efficient furniture is going to cure the problem that most newer residences have - an utter lack of thought placed on interior design. I moved from a tiny apartment built in 1925 to an apartment built in 2005 that was 50% larger. Somehow, I have less room for storing my clothing and other crap. On the other hand, my kitchen is larger than it needs to be (though I barely have room for my pans and dishes) and my bathroom has plenty of useless floor space.
It seems that as we increase our ability to transmit, share, and access information, we place greater and greater importance on simple measurements. We look at a house on the internet and care only about the square footage of it, despite the fact that space efficiency gives a better idea of how useful that space is. We compare cars by using their peak horsepower and torque ratings, despite the fact that horsepower and torque are instantaneous measurements that vary based on engine RPM, not to mention that the transmission and other drivetrain parts affect how much of it is put to the wheels. Most people will never have their engine in a position where it is producing peak horsepower - why buy based on a comparison of those peak numbers?
I once saw a new 3,000 sq ft plus house that was for sale, it looked great, I went into the Master Bedroom and something seemed strange. After looking for a bit a realized that there was not one good place to put a kingsize bed and nightstands. No matter where you put it, there would be a door or window, or closet or something in the way and which would be blocked.
When we added on to our house about 10 years ago, my wife and I used rope to mark out where the rooms would be, how the doors would open, where the windows would be, and how the furniture would fit. After many adjustments we came up with a layout we liked and used those measurements to have the blueprint created
The final result was a very comfortable, space efficient, 500 sf addition.
Off Topic- So I’m merging on the Freeway today, and a brand new Lexus with some 300+ hp engine decides to slow down to 45 mph to merge behind a truck in the right lane instead of punching it to get in front. There was at least 250 yards of free and clear ahead, beside and behind and they slow down instead. They might as well been driving a freaking YUGO!
Just like you shouldn’t buy a house you can’t afford, don’t buy a fast car if you don’t know how to use it!
You are male, santacruz. You sound like my sons! Except that they think that all cars should be driven fast.
That is nothing. I had a BMW 3 series almost kill me with the same move at the base of the grapevine headed south last week.
Can you say 90 to 30 as fast as 4 wheel disc brakes possible?
At least I know the ABS is still working on my car.
Your just jealous! BMW RULES THE ROAD
Wasn’t it on this blog that I read the comparison of BMWs and hemorrhoids?
YES! I absolutely agree with you on this … It’s extremely frustrating to be moving from a 570 sq ft condo to a 2BR 1600 sq ft townhouse and the living room is the same size. And I have a 7×10 kitchen!
What the heck are people thinking? Where is all this space going?
Bottom line is new design just plain sucks. Doesn’t make me all that interested in paying $300k for a TH outside of Denver just so that I can get one that’s designed intelligently.
And yes, I know that I shouldn’t complain considering that TH is probably $800-900k in parts of CA.
Regardless, I’m going to rent.
Not to drag the topic too far off topic, but I think that it’s possible the golden age in home design was in the 1950s and early 1960s. I grew up in a city with lots of super modern 1950s ranch homes and my parents owned one. Oh, were they great. Small houses but designed by great architects that gave the impression of large, open rooms. In all my years living in one of those homes, I can say that there were only two problems with such houses. First, window technology wasn’t quite up to snuff for the size and quantity of windows used. Second, pocket doors weren’t as durable as needed (yeah, kids are rough!).
Both of those problems are non-existent with what’s available on the market right now. Which really confuses me - why aren’t pocket doors more common??? It’s absolutely amazing how much of a difference they make with small bedrooms and bathrooms. And now they are very reliable and not too expensive either!
Are architects even involved in your average suburban home these days???
We moved to a circa 1950 ranch house with pocket doors. The rooms are moderate size and the ceilings aren’t too high so we save energy. I look forward to living in this house until I drop dead, as did the original owners from whom we bought it. They lived in it for more than 50 years.
Brian in Chicago,
Good point! I think back right now to my wife’s family’s house, a pretty basic 3-bedroom, 2-bath house built in 1960 or so. It’s not quite like the rest in that neighborhood, so perhaps it’s an architect-inspired design, but it is remarkable how well that house works considering its size. Personally, I’d like a much bigger kitchen where more than one person could work, but even that could be accomodated. If I were designing a new house, I’d consider starting with theirs as a base design.
Are architects even involved in your average suburban home these days???
Yes, and one of my friends dabbles in that when his firm lets him. However, he gripes endlessly about the marketing aspect of it, and how half the mandated design is for “show” rather than for function. He hates the huge foyers, great rooms, and massive closets, along with how they bulge out and make him relocate all the other important bits of the house, pushing them to where he doesn’t want them.
But the “useless” dramatic parts are what sells the house, not the function. And would you expect differently when sometimes the very reason a couple selects a given house is to wow future visitors in 15 minutes rather than appreciate the subleties of functional, efficient living? How boring!
In the 1960s we peaked as a species… simply. The Concorde is from that era. Today unless you’re military there is no way to get from A to B faster than the sound, even if you are a billionaire.
This is also the era of the mooshot, overall optimism with the Detente and green revolutions.
Housing was affordable, it was the peak of the middle class, of good public schools, of new social programs to reduce poverty that actually seemed to work…
Today we’re in between that and Soylent Green.
We peaked “as a species”? Only if you define Americans as a separate species.
The United States benefited in the quarter century following World War II because its competitors had either (a) bombed themselves into rubble or (b) barely evolved past the oxcart stage. Labor could demand and get high pay, because there was no effective competition: The rest of the world was still rebuilding its shattered industrial plant, had taken itself out of the global economy for ideological reasons (see China), or was too undeveloped or politically unstable to be relevant.
“Detente” didn’t kick in until the 1970s. The sixties were pretty cold warrish, what with Kruschchev’s “we will bury you,” Kennedy’s “missile gap” rhetoric, and all that.
The Concorde was economically irrational — a kind of prestige project by the governments that subsidized it.
So where do you think the US is relative to itself in the ’60s?
I was born in 1971, so I can only go by the data, but real income has gone up since the sixties. If all the talk about “the rich get richer, the poor get poorer” and “the vanishing middle class” were true, the middle class would have vanished entirely.
On the other hand, medical care, housing, and education have gotten a lot more expensive. With the former, we’ve at least gotten something for our money — cancer survival rates are way up, for example (my mother would probably be dead by now if she’d gotten sick in 1965). Housing quality? Not so much new value. Education? We’re getting less for more.
In California, in particular, I do think the sixties were better. It’s just gotten too crowded here, with all the high costs, crime, taxes, dysfunction, traffic, restrictions, etc. that causes. The 1965 immigration reform had a lot to do with that. Racial issues aside, it simply added a lot more bodies — and California, being the room closest to the door, got an awful lot of them.
To the extent that America was a better place in the 1950s and 1960s than it is today, keep in mind that the prosperity and “optimism” of those times was unsustainable. The sixties were pregnant with the seventies. The unsustainable aspects of the American culture and economy were going to come to fruition sooner or later — just as the piper had to be paid for the unsustainable prosperity of the late nineties. (Except it wasn’t — the dancers refinanced and kicked the problem down the road until…now.)
WT, foreclosures are set to double NYC — from just 2 years ago’s figures. If by “we” you mean a few privileged Manhattanites, then yeah, “we” will get buy. They other 95 percent of the city is going to be hurting. And in our close quarters, the hurt in one neighborhood has a way of spilling over into others.
http://www.nydailynews.com/news/2007/03/28/2007-03-28_set_up_for_a_fall-3.html
I went to Ontario Mills Mall (Inland Empire, SoCal) on Friday night. There were several stores closed (vacated) and pedestrian traffic was very light. Also on Sunday, while out driving around the I.E. the Mrs. and I noted very (almost eerie) light traffic, possibly due to $3.23/gal gas. I agree, this has only begun, and it is going to be very visually challenged (read ‘ugly’).
$3.40/gal for lowest grade gas in Eureka, CA. I think rising gas prices are more our friend here for falling house prices than the subprime blowup and negative publicity about the housing market. MLS inventory has fallen 22 in the past week…I think we need higher gas prices so people can start feeling poor!
It’s almost funny that people who think nothing of buying a 500K home (with a mortgage payment that is almost impossible to pay even in the early teaser rate days), will then think twice about the wisdom of that choice when gas goes up 30 to 50 cents per gallon.
It really does go to show you MUST have some skin in the game to take the transaction seriously, in this case the cost of a gallon of gas. How pathetic.
They don’t sell interest-only, no-doc gasoline.
LOL
Humboldt foreclosures up 135% YOY:
http://www.humboldt.edu/~indexhum/realestate/foreclosures_humboldt.GIF
This is gonna be hand to hand combat, up close and personal and the word is “no prisoners”. FHB
And if you aren’t afraid you should be.
Welcome to individual combat training.
Oh well, I suppose there will be good deals on Calif vacations
“The California economy is going to take a big, big hit.”
More and more I’m swinging to the deflation/recession side of the equation. Hyperinflation can’t save people when they’re unemployed.
Don’t forget Colorado
clearview,
Sure, AZ, CA, FL and NV were the super-bubbly areas (and the areas that get the most coverage in this blog), but let’s not forget about the bigger picture.
Paul Krugman wrote an article about a year on the housing bubble and by his calculation, the markets that were in super bubble territory (which he descibed as pretty much any metro area along the east and west coasts and Las Vegas), represented something like 50% of the total Real Estate value of the USA, and that these areas could see some pretty dramatic price declines.
Then you add places like OH, MI and IN, where home values have held up despite the weak macro economic picture, and places like Dallas and Colorado, which lead the nation in default rates.
I dunno, but I think this is a much bigger problem than the 4 states you refered to in your post.
My fear arises from the unknown. I believe that the four states I’ve mentioned will suffer more than others simply because they are where most of this crap was taking place. However, I do not know how bad it will be and who will suffer the most.
When I say that Cali is going to be hard hit that is the pessimist in me. I fear the unknown, so I expect the worst, hope for the best and try to be prepared for any outcome.
“New Century, like many lenders focusing on people with poor credit histories, was forced to buy back loans from investors that went bad just months after they were made, straining its finances.”
The subprime lender business model is coming into clear focus through the rear view mirror: Once the gig is up, go out of business quickly before you are forced to buy back all the bad loans you made.
Next question: Who is the bagholder for the loans that will not be bought back?
we are
anyone who owns parts of the bond funds or hedge funds that gave the money for the loans
bank makes loans, wall street securitizes them. anything not sold off is the problem of the bank and wall street banks
I dumped all the mutual funds I have and switched to foreign companies that extract basic commodities like methanol and metals
My broker is pissed off I did better than him by a factor of 10 last year!
I worry about some commodities because the housing bubble propped up the prices of many commodities.
As for foreign vs. domestic, I think diversification is great especially in today’s global economy. However, many on this board talk about the housing bubble as being an American phenomenon (especially when talking about “greedy Americans”). It is not at all. This is world-wide. Many European countries have bubbles that are even more massive (per capita or per house) than the US bubble. Asian countries are not immune either.
If we have a severe economic fall due primarily to the housing bubble (trade deficits excluded) the you can expect to see similar fallouts in Europe and Asia.
Uhhh, Ian, why do you have a broker?
Also, some of the MBS are insured against loss (PMI or gov’t MPI). Which means, pretty much, that we will pay for the losses.
not much different than dot coms. get IPO money, party, go chap 11
in this case it’s borrow from warehouse lines, take fees, go belly up. the execs and the loan brokers made a killing
Yep, they were nothing more then shell companies, all the money they made went out the door in salaries, commissions and dividends. I bet even most of their offices were leased along with the office equipment.
On a side note, I wonder how much of the RE industry who were saying that RE always goes up was operating out of leased office space.
My answer is the same answer that I got when I asked people for the past two years:
Q: Who the hell is buying all of these crappy mortgages?
A: Everyone (more specifically, anyone with lots of money to place in fixed income…pension funds, hedge funds, banks looking for yield, etc.)
I personally moved all my cash to short-term government bond funds. I couldn’t figure out exactly what the other MM funds held, even when looking through the prospectuses.
“Barclays Bank Plc said on Monday it had paid $76 million for subprime lender EquiFirst Corp., about two-thirds less than its original offer, as a rising tide of delinquencies hurts the market for risky mortgages.”
Moral of the story: Whether buying houses or subprime lenders, delaying a purchase sometimes pays handsome dividends.
You make loans to dopes you should lose your @$$!
You make loans to dopes you should lose your @$$!
“‘We are only at the very beginning of the problems facing subprime,’ said analyst Brad Hintz. ‘What you are seeing is that this liquidity crisis is continuing in the marketplace.’”
Liquidity crisis? It still is not that hard to get a toxic loan. I am still seeing, what should be 400k houses go for 750k here the the San Gabriel Vallety.
What will happen when liquidity REALLY tightens up?
I say we are only at the beginning of an unwinding to the credit bubble overall, not just sub-prime.
I am still getting bi-weekly, automated messages on the machine at home. “You’ve been pre-selected for a mortgage refinance a the incredible rate of 1%.”
Whatever. This goes on until the easy money’s gone.
This doesn’t mean they’re actually processing these loans.
All the subprimers are still TRYING to originate the low doc 100% financing… but they’re having a hard time selling.
This is why we’re seeing stories of a bunch of people not being able to close on their new purchase… the loans aren’t being funded.
this 1% rate is probably a teaser, and I doubt anybody actually gets it.
Sorta like when car dealers say “Priced from $15,000″ and you get there and realize none of the cars cost that little. It was a bait and switch move
Very interesting point House Inspector — so can a subprime broker collect a fee in advance of the close? that’d explain a lot about all the bogus ads I’m still seeing for these loans in nyc
You are right again Clouseau. My BIL is a mortgage broker in Fresno. Was laid off from MLN in December but is currently working at another subprimer. He said every loan he submits is now getting returned, as of early March. He’s pulling his hair out because he doesn’t know how to get these things approved. The easy money days are just about over.
If that’s true, why would they waste all the advertising dollars for something they can’t deliver? The people they are courting would not be able to qualify for anything more expensive so I can’t see it being a case of bait-and-switch.
I thought the stories of people not being able to close were from people who started the loan process before the credit tightening started. What incentive would a lender have in going through the paperwork knowing that it would fall through?
I was wondering if someone in the trenches can answer this for me. I have a friend who is trying to buy a house (I know, I know, I tried), but he has a FICO of about 650, probably 3% down, and the broker, employed by Countrywide, who originally stated that he would make the loan has been very “difficult” to get a hold of since making that statement. Is he trying to find someone to buy the loan? I have been wondering if it is just taking that long, and if, after 1 week, the environment has changed so quickly, that it is unlikely to be done?
Any thoughts out there?
Mr Vincent,
I see the same thing happening all around me (Alhambra,CA). Houses that 5 years ago were going for $250K are all listing and CLOSING at $600-650K. I just mentioned a couple days ago, one in escrow $550K with 100% financing to a very subprime buyer. How on earth are lenders still touching this stuff?
The subprime plot sickens… from Herb Greenberg’s blog:
————————————————————————————-
Beyond Subprime, Continued
How bad will it get? Is the worst over? Follow the bouncing ball:
1. Last Thursday IndyMac’s (NDE) CEO Michael Perry said, “Alt-A is not ’slightly’ less risky than subprime, it is a lot less risk.”
2. The, on Friday, after the close, M&T Bank (MTB) issued a news release saying that because of “unfavorable market conditions,” it’s having trouble selling Alt-A loans. It also said auction pricing “was lower than expected.”
…
http://blogs.marketwatch.com/greenberg/2007/04/beyond_subprime.html
More troubling: M&T said it was forced to take a loss on loans it had sold into the market but was being forced to repurchase because of early payment defaults by borrowers.
I posted above that M&T is my bank. This certainly is troubling. I should have seen it coming though, because all through 2004 and 2005 there was a big mortgage marketing push aimed at young marrieds. And HELOCs to existing homeowners.
The link also includes a bit about Citigroup having upgraded M&T a couple weeks ago. I don’t know if that makes me feel any better.
Stucco, thanks for this link. There’s some informative comments from the trenches.
Ya’ll see this this weekend?
http://www.nytimes.com/2007/04/01/magazine/01wwlnidealab.t.html?_r=1&ref=magazine&oref=slogin
It reminds me of a coworker who once told me should couldn’t afford to save any meaningful amount in her 401K. So I asked her if she could handle saving 1%. She said yes she could. So I told her to start at 1% (plus the match of course). Then when she gets a raise next year, to add another 1%, and to repeat until she was saving 10%. Her response was, “you have got to be kidding, it will take 10 years to get to 10%”. My reply was, its still better than what you are doing now. I asked her how she planned to retire (she was a 20 something) and she admitted that she had no idea.
But people resist saving for retirement. They make up excuses: the stock market is unstable, i’m better of “investing” in real estate (whoopsie!). It does no good to remind them that they are leaving cash on the table (401K match). They live only for today.
Ahh, retirement is a massive heart attack or stroke “In Media Res”.
Great job fk!!
When I got my first job out of college, one of my mentors on the job did the same for me. I have been meaning to call him and thank him as 10 years later I can’t believe how far along I am.
I often tell newbies the same advice. (Pay it forward)
An 30ish accountant told me two years ago that he would use his house as his retirement. He lives in D.C. We had a slight disagreement over that plan. I would love to ask him how that’s going now, but I’m too polite.
Plenty of people in their 40s and 50s where I work who haven’t put anything in their 403b. They figure the DB pension will take care of them. Maybe.
Knew a guy and his wife who were both over 50 pulling in >$250k combined and still had not put anything into a 403b. They had the best excuse, “The paperwork was too much”. I finally filled it out for them. He was my manager.
The guy was truly the largest shopaholic I ever met. Tells me he can’t survive now on his $90k year retirement income. Wife left him, blah, blah, blah. Maybe a good weekend post about the craziest shopaholics, accumulators, and other climbers you know.
Here is some gloomy commentary from a normally permabulllish web site:
——————————————————————————–
Move on
Now that housing has blown up, and the U.S. economy appears well on the way to nowhere, how can investors protect their portfolio
from inflation? Our team has ideas: from playing the summer driving season to a rally in gold. All this and more in the April edition of Trading Strategies.
http://www.marketwatch.com/news/features/trading_strategies/
The ability of the average person (I know we are all above average!) to successfully trade into and out of an asset profitably is close to zero. The #1 most common investor mistake is overconfidence. Websites are there to instill a false sense of confidence and take advantage of it.
Agreed.
The trepidation gestalt we’ve got going here for better or worse may lead PMs to the MSM and in the end GFs. But doesn’t this have a ways to play.
yo Brad Hintz…
Hate to single you out, but you made for a rather convenient Brad, in a world of Dumb Brads, that just didn’t get it~
http://en.wikiquote.org/wiki/The_Rocky_Horror_Picture_Show#Brad
buy sell buy sell….one big country of money grubbers.
Dear Employees:
It is with great regret and sadness that I must announce that SouthStar is ceasing its mortgage lending operations today, April 2, 2007. We are canceling any pending closings and will not close or fund any new loans going forward. All pending loan files will be returned immediately to our customers.
This decision was brought upon by events that developed toward the end of last week. Two of the primary purchasers of our loans refused to fund pools that were already locked and committed until we reimbursed them up front for all of our existing repurchase obligations – something that we were financially unable to do. Another purchaser only bought a portion of loans that they had previously committed to, kicking out a significant portion of loans for various reasons unrelated to underwriting guidelines. We rely on the cash from the sale of these pools to fund our operations. Without the funds from the sale of these loans, we are approaching an insolvency situation. We identified two potential buyers of our company that would have allowed us to continue operating but were notified on Friday and Sunday respectively that this would not be a viable option. This leaves us no choice but to cease operations.
Our first priority is to protect employee compensation: salaries, bonuses, commissions and severance pay. At this point, we cannot guarantee that we will be able to do this but we will make every effort humanly possible.
Senior Managers will be meeting with everyone within the next hour to formulate a plan for the remainder of today.
It is an extremely difficult thing to see a company that you have put in so much effort, time, blood, sweat and tears fail. Personally, it feels to me like the loss of a loved one. The most difficult thing to handle is having to say goodbye to so many wonderful friends and extended family. Mike, Brian and I appreciate everything that you all have done for this company and want to sincerely thank you for your efforts. We should all be very proud of what we accomplished over the years and today’s events cannot diminish that.
It has been an honor to work with each of you. I wouldn’t have changed anything for the world.
Kirk Smith
President
SouthStar Funding
Methinks that Mr. Kirk Smith will end up smelling like a rose.
great stuff crispy!!!
Yep!
Translation:
“I am sorry, but the Ponzi Scheme has to end; and the Money Tree is no longer bearing fruit. So, it is with great regret that I am kick your asses to the curb. It must hurt. We will try to pay you what we owe you but there is no guarantee. Rest assured, however, that me and my partners saw this thing coming long before you did and have cashed out all our stocks and options….so we’ll be OK. Good luck finding a new job !”
.
Kirk needs to add:
P.S. Please don’t worry about me and the executive staff, we have been cashing out with bonuses and saving most of that money just in case this unlikely day came about. So, please look for a new job right away and don’t worry about me.
“Our first priority is to protect employee compensation: salaries, bonuses, commissions and severance pay. At this point, we cannot guarantee that we will be able to do this but we will make every effort humanly possible.”
Likely not even enough cash for current payroll. Just like the people a paycheck away from being homeless.
Most of those companies will close just before payday so as to extract the maximum amount of work for free.
Also employees are always at the bottom pecking order for the assets… after the IRS, banks, and shareholders. And shareholders won’t generally see one cents on a $ for that matter.
Wow, I always thought the current payroll was first. Have to go back and reread that stuff.
P.S. - Please vacate the premises in an orderly fashion by 5 p.m. today. At approximately 5:05 p.m., we will relay the order to our security team to “release the hounds.”
A girlfriend once worked for a restaurant that was going under. She knew it, and I told her that she should, on the last day, take her wages from the cash drawer, and leave an IOU, payable against her last paycheck. She declind and never saw her last paycheck.
Sometimes, you just have to muscle up. My landlady was foreclosed on. I didn’t pay the last month rent. She has a deposit equal to that amount. Who is she to complain (she complained anyway, no wait, She Bitched!). Anyway, buck up and look at it from the judge’s perspective. He knows what is right, and if you are flexible and polite, you can make the bed that you’ll sleep in. The othe parties just become the street noise while the judge tucks you in.
Better to beg forgiveness than ask permission. A done deal cannot be undone without an inordinate amout of effort.
Paul
Yeah, it is very scary, just looking at housing. It only gets scarier if you then toss in peak oil–the passing of the peak, and where oil is located, to suggest it is time to wave bye-bye to current U.S. lifestyles as they cannot be afforded with the debt already being carried. It gets even more scary once you toss in elites total disdain for the people, which means our “leaders” will continue to behave like the narrow-minded, save themself and screw everyone else fools they are, when with leadership we might actually make it through okay, better even–by elites I mean to label all political parties and fortune 500 corporate heads. And it is downright bone-chillingly frightening once you realize all these non-elites liberated from the farm know nothing about repairing machines, growing food, or anything like that. They do know how to load and fire a gun, though, or how to swing a baseball bat at someone’s head and, given the self-esteem focused education they received, they will probably blame their troubles on whomever happens to be closest–of course it could never have anything to do with anything they may have done or not done (say, like buying all those SUVs and moving 2 hours from work, to just scratch the surface).
So, yes, it is getting a bit scary, if you dare look at what’s coming down the pike. And I haven’t even mentioned anything like, say, declining ecosystems that mean polluted air, water, and soil, or the larger international environment (save for the note of the location of oil) and its implication for the coming challenges.
So, yes . . . kinda scary.
Some say, may you live in interesting times, but I think it is meant as a curse.
IAT
you left out the black helicopters
Ah, dismissive humor, the last refuge of those so afraid they cannot admit they are afraid.
IAT
Some see the glass half empty, some see it half full. Predictions of imminent disaster have always been with us and have always been mistaken. They always leave out the human ability to innovate and adapt. Crisis brings opportunity. Storm clouds bring needed rain. I am very optimistic about the future, and well prepared.
The world is not going to hell in a handbasket.
The New Yorker Magazine used to frequently have cartoons featuring some guy in a long beard dressed in rags standing on a street corner holding a sign that said: “The end of the world is near.” That was in the 60s and 70s. Not much has changed.
It’s going to heck in a hummer.
Hmm. The “things are always okay” theory, backed by the “they predicted that before” gambit. The question, of course, is not whether an outcome has been predicted, it is whether the basis of the prediction is rationall. We can disagree on the persuasiveness of the basis–reasonable people can easily disagree. But, that something has been predicted before is hardly evidence against a contemporary prediction, whereas irrational claims underlying the prediction would be evidence against the prediction.
As for the “things are always okay” theory, that sounds like a variant of the “its different here” claim, stated temporally rather than spatially. In the large scale of the universe things are always okay–or, long enough (15 billion years +) that it passes for “always.” But, in the small scale, i.e., in one nation on one small planet in one out of the way corner of one dinky little galaxy, things are not always okay, at least not for a particular set of living beings. Empires collapse, economies go to ruin, nations get overrun, plagues occur, and, in fact, entire species go extinct. I am not predicting extinction, but I would hardly cite the New Yorker cartoons as evidence one way or the other.
As for less deathly dislocations, I mean, we just saw an empire collapse in 1989. Do you think the people sitting there being oppressed by the Soviets were all believing it was going to fall apart as quickly as it did? Further, who said that was bad? It may have been bad news for the bureaucrats in the party, and the people who got executed, but it was good news for others. Major dislocations that create trouble for you and me in the US will not be bad for everyone on earth, and certainly not for every species on the planet. Again, small scale vs. large scale.
So, yes, in the large scheme of things, there is cause to be upbeat–life goes on, somewhere, somehow. But maybe not our life and society.
And, entertaining though it is, I really don’t think the New Yorker has been around enough eons to be a reliable source on the dynamics concerning the rise and destruction of societies.
Respectfully yours,
IAT
Hey Nero, forget the fiddle, ya won’t need it.
For what it’s worth, I share your opinion IAT.
Nobody expects the Spanish Inquisition.
Man, it sure sounds like a lot of FBs are being stretched on the subprime rack.
The advantage of the present high level of oil prices is that it shows us a glimpse of what we can expect if and when the effects of “peak oil” really do kick in. Because technologies exist to completely replace liquid fossil fuels as a distillate feedstock at dependable per-barrel price levels around $70. The sooner the Arabs pump their sand dry, the better for everybody.
And yes, I know how to grow my own food, slaughter a chicken, and load and fire a gun (rimfire and muzzle-loading.) But I don’t think I’ll ever have to do so as anything more than a hobby.
Remember this: SoCal real estate could take a 50% haircut, and we’d be no poorer (minus a few mauled credit scores — the negative effect of which will be discounted once they become common enough) than we were in 2001.
Because technologies exist to completely replace liquid fossil fuels as a distillate feedstock at dependable per-barrel price levels around $70.
BWAHAHAHAHAHAHAHA!!!!! Thanks for the laugh!
Thomas,
Amen, Brother! If we’d get the parasites and whiners off our backs, there’d be no limit to what we can do. Private capital, working around outside-imposed constraints has lifted the standard of living throughout history.
We need to dump the “Its for the chiiilllddrreeenn” or “THERE Ought TO BE A LAAWW” mentality. We can all make it, if we buck up and take responsibility.
Paul
Hoo hoo. Everyone think about the possibility that BOTH of the largest nuke-possessing countries could have societal meltdowns at the same time. (and anyone thinking that Russia did well after the collapse of communism has not looked at their life expectancy, birth rates and rates of alcoholism lately). Lock and load!
(It is very scary, just looking at housing. It only gets scarier if you then toss in peak oil–the passing of the peak, and where oil is located, to suggest it is time to wave bye-bye to current U.S. lifestyles as they cannot be afforded with the debt already being carried)
GIven the wealth and talent in this country, these problems would not be problems if Americans were not so addicted to “I want for me now.” It’s embarrassing we are in the situation we are in.
I agree that it is embarrassing. Adults are supposed to know better. That said, I’m more in tune with Brad’s outlook than I am with IAT’s…
…but I don’t discount the possibility of being taken out by an Iran-launched nuke. (after all I do live on the Eastern seaboard). So they’ll take me out in one swell swoop (as my malapropping aunt likes to say). Wait, that means the rest of the US will face the IAT scenario.
Oh f@ck.
Sorta funny that everyone is worried about Iranian nukes (which don’t exist) when all of these are already greased and ready for launch:
Country Strategic Nukes Non-strategic Total
China 20 390 410
France 384 80 464
India 0 60+(?) 60+
Israel 0 200+(?) 200+
Pakistan 15-25 0 15-25
Russia 6000 4000 10000
UK 185 0 185
US 7200 3300 10500
Iran 0 0 0
For some reason, I’m not particularly concerned that France is going to nuke me. Ditto the Brits, Israel, India, and us.
Nukes don’t nuke people. Ugly short bearded guys with apocalyptic fantasies nuke people.
Whew. You are right. I forgot that all computer and mechanical systems, along with all chains of command always work flawlessly. And I was sweating (hmm. Wonder how good the controls are on those 10000 Russian nukes? You aren’t worried about Russian technology and chain of command!?!?!)
I’d think that if there were a decent chance of missiles flying accidentally, it would have been during the actual Cold War. Of course systems don’t work flawlessly, which is why smart people have multiple redundant systems, especially when the consequences of failure include the end of civilization.
Nukes don’t nuke people. Ugly short bearded guys with apocalyptic fantasies nuke people.
Yeah, Like Truman!
Uh oh, ok…go to my room for unpatriotic time out…
Sheesh.
Paul
How is Iran going to deliver that nuke again? Or, maybe even why? I agree it’s a biggie if they do, but given US history, that pushes up the likelihood your country is toast after that, imo. I would also think Israel higher on Iran’s list than the US.
Why do that to the US when there are many other ways to “terrorize” the US and survive? Historically, the US has shown a large tolerance for its own human pain and financial cost given nukes have not been used.
Arguably, the fact that a scenario like that has entered your consciousness means they have succeeded in “terrorizing” you. The question then becomes, what are you willing to “spend” to mitigate your perceived risk?
IIRC, interesting stuff on the Korean War and the Chinese apparently finding out through the Soviets the US would not use nukes via information from the Philby, Burgess and Maclean Cambridge University spy ring. ~ 54k US troops killed.
~58k US troops killed in Vietnam. None of the US Presidents at the time apparently seriously considered nukes.
All just my opinion, of course.
Arguably, the fact that a scenario like that has entered your consciousness means they have succeeded in “terrorizing” you.
No, imp, in my personal network, I’m usually the one that does the terrorizing. Actually just tonight I scared the cr@p out of a supermarket clerk who didn’t want to give me my money back on an expired food product.
I did get the $3.50 back from the little punk.
That said, I’m more in tune with Brad’s outlook than I am with IAT’s…
phillygal,
Read “Financial Armageddon” and then you might reconsider.
Invest in the three F’s (fuel, firearms, and food).
Wait!
I thought that the three F’s were Fun, Food, and F**king!
Man! Now I have to start over!
Paul
Herb Greenberg was just on CNBC (I think that’s his name) talking about how mortgage woes are starting to trickle up the chain to Alt A and Prime. Loans getting more difficult for everyone as risk in those areas is getting more unattractive. Herb made the point that AltA and Prime borrowers are stretched as well with their adjustable loans.
AltA loans tend to have longer reset periods than Subprime, initial rate may last 3 to 5 years, whereas Subprime is 1 to 2 years. So it makes sense that Subprime went belly up first, but now I think people are starting to realize that AltA won’t be far behind.
Greenberg’s reasoning seems right. I think the bubble first got started with people with good credit scores and downpayment. Then the poorer people got envious and started joining the party. And this went on and on until it got to the people in the lowest rung of the market, such as subprime. This cycle/positive feedback loops just keep ampliying on its own. Envy, greed and easy bucks. Now the party is over, and the NEGATIVE feedback loop just got started. The subprime borrowers and FBs are stretched and broken under their own debtloads. But these are not alone; a lot of people with good credit scores and downpayment also stretch themselves out financially. They all will be finished in defaults and foreclosures.
What the wise do in the beginning, fools do in the end.
Yep. Check out this ARM reset schedule.
http://www.autodogmatic.com/forum/viewtopic.php?p=1226#1226
The market has the deer in headlights look going today.
lISA,
I agree. I know a lot of people, not just sub-prime and ALT-A have taken on a lot more debt than they can handle. A lot of people stretched under the illusion that their home would keep doubling in value. Now the party has stopped.
Time to pay the mortgage, the insurance, the taxes and overall monthly recurring costs for running a big home. Wait till gas prices go back to $3 or $4 bucks a gallon. How much more can the consumer shoulder? This country needs to move away from a pop culture mentality and really re-think the way we live our lives both nationally and internationally. We need to promote savings.
“Wait till gas prices go back to $3 or $4 bucks a gallon.”
Already there. Wait till they go to $5.
I guess I can’t change my name to Carlsbad Renter when I move up this month from PB.
I totally agree and yet it won’t happen unless its forced on them. And the crying will be so loud you won’t be able to stand it !
I don’t get it. What makes you think a Prime of an Alt-A investor type wasn’t lying on his application like anyone else. I know there are a ton of prime loans out there with foreign investors on the line. Try to go and get the dough in Europe or SA. I know the Brazilians are laughing into their hats about Miami condos.
Good luck with international foreclosure laws.
Muiti beijos e rias
Are you talking about homes in the US which are owned by foreigners?
One thing I have not heard anything about– how are mortgage insurers doing? MBS, for instance, only operate because most of the risk has been insured out of them (so claim ‘experts’ in this area) with most of the risk in MBS coming from prepayment (when rates are dropping). Are these losses to CDO tranches coming from default on loans without MIP (gov’t mortgage insurance) and PMI? Are the mortgage insurers getting crushed? Inquiring minds want to know…
I wish I could get my boyfriend to read this.
I have decided to sell my place and already have a good offer for it.
My loan is subprime and I would rather cut my losses now.
I want to bank my 200,000 k in equity for a while and just rent.
I’m 30 years old, no debt and don’t want to worry about taking care of a house again until I’m married.
He is arguing that I should buy again. Meanwhile he is 15k in debt, few assets.
Am I making the best choice ?
Becky, No you are not making the best choice…That choice would be to kick your boyfriend to the curb!
Based solely on the information you’ve provided here - yes, you’re making the right choice. Bank your equity, try to live as cheaply as you comfortably can, and watch where the real estate market goes from here. It’s hard to be certain, but I think most observers on this board would predict prices will not be higher (and may indeed be lower, and maybe even much lower) in a lot of areas two or three years from now). Good luck. Let us know how it works out.
He is your boyfriend. Not your husband. Why does he play into the decision in any way whatsoever?
Nah Becky…That boyfriend is a very BAD choice..Dump the house, dump the boyfriend and call ME for a personal consultation on mikey’s Financial Hotline.
PS Do you have a boat ?
BB~
Grab your $200k and ditch the BF….quick!
Becky, your instincts are correct. Save money; rent something affordable, and you will get something better for less in a few years. Who is your boyfriend to argue, since he obviously has no skin in the game?
He just wants to crash at her place rent-free. And he wants to avoid the social stigma of dating a…a…RENTER!!!!!!
LOL
I am single and a wise investor, with no debt and a house I own free and clear. Also with interests in rockclimbing and sportsbikes
Where do you live?
Sounds like you should dump him. He has a bad head on his shoulders. Hope the sale goes through.
“My loan is subprime and I would rather cut my losses now.
I want to bank my 200,000 k in equity for a while and just rent.”
So where are the losses?
Take that reasonable offer and run! If I were even considering moving (I am not) I’d be doing the same thing now. Fortunately for me (or not?) I have a dirt-cheap mortgage rate and Y2K price paid on a place, good neighbors, good schools, and hence no desire to move.
The fact that you know your loan is subprime (you didn’t give details, but can we assume it is financially painful?) is worth gold to you — most people don’t seem to figure that out till it’s too late. You have a chance to get out — and with money in hand. Excellent!
As for the boyfriend, if he were in the same financially-solvent position, he might (only might) be worth listening to. As it stands, I’d ignore him. Or worse!
And very seriously: Move now, and fast, while your buyers can get financing. Mortgage money is getting harder and harder to come by, and even with an offer in hand, you have no guarantee they will go through financing OK, but it’s a better chance than what you might get by summer or beyond.
Becky, stay debt free. Patience. This market will take months to play out.
When I moved, 2 years ago…everyone was telling me to buy. If I did buy, I would be out over $100K+ on the house I wanted.
Oh, btw, did anyone catch 60 minutes? Looks like we should all be buying dirt cheap land in the central US. Call it the Lex Luthor syndrome; the scientist was claiming that within 30 years to coast lines will be flooded causing the largest relocation of millions of people ever to be recorded.
On another note, I am glad that they will be finally be investing all the scum bags in the mortgage business. There are a lot of rumors flying around. I expect the FED to step in very heavily. Much like the witch hunt after the dot com bubble.
Finally! The 10 acres of land my grandmother left me in Winnemucca, NV will be worth Millions!!!!
yeah, but, lunch will cost about 100k each.
Hey, this might be the solution for America’s weight problem.
There are maps out there indicating where the expected coastlines will be given certain amounts of ice melting. The central US is a bit extreme, but then again, it might be the only place where you can grow any significant amount of food.
the world was pretty warm during the roman empire and before the little ice age and even venice was dry land back then
Funny, no mention of the Yellowstone Caldera there…
Paul
coast lines will be flooded
hehehe…top dollar paid for coastal properties all gone.
’tis a pity.
Not so sure that the NAR won’t come out with a new slogan:
“Buy your Arizona ocean front property now, before you are priced out forever.”
or
“Acres of prime ocean fishing spots to choose from (pause for effect) Arizona, the best ocean front in AMercia, call your realtor today.”
at least you can stand on the London Bridge in Arizona (Sun City) and watch the ocean currents flow by.
The East and Gulf Coasts have to worry about this. Southern California, not so much, my geologist brother informs me.
Because the San Andreas takes a sharp left turn north of LA, everything south of the Transverse Ranges is being uplifted very fast. Faster, in fact, than even the fastest historic sea level rises. Which is why you’ll find claim shells on top of the San Joaquin Hills. Parts of the LA Basin were uplifted nearly a whole foot during just the one event of the 1991 Northridge earthquake.
Short version is, even if global sea levels rise the maximum 23 inches over the next century that the IPCC is modeling, SoCal will rise even faster. So the sea level relative to the actual coast will actually *fall*.
Florida’s a different story.
As I recall, that 1994 earthquake hastened the crash of Los Angeles real estate. Does anyone remember?
Lex Luthor syndrome>>>>>
I’m bad, that made me laugh.
becky you should believe your blog friends, not your stinky BF. Besides, I think Ian likes you.
You should hook up.
Sounds like you and Ian have financial philosophy in common, Becky. The rest you can figure out.
“Fieldstone Stockholders To Receive $4.00 Per Share In Cash And C-Bass To Provide Additional Liquidity To Fieldstone
NEW YORK, and COLUMBIA, Md., March 16, 2007 /PRNewswire-FirstCall via COMTEX News Network/ — Credit- Based Asset Servicing and Securitization LLC (C-BASS), the established leader in servicing and securitizing credit-sensitive residential mortgages, and an affiliate of MGIC (NYSE: MTG) and Radian Group Inc. (NYSE: RDN), and Fieldstone Investment Corporation (Nasdaq: FICC), a mortgage banking company that originates, sells, and invests primarily in non-conforming single-family residential mortgage loans, today announced that they have amended their previously announced merger agreement to reduce the per share purchase price to $4.00 per share. The reduction in purchase price reflects the cost to provide Fieldstone with needed additional liquidity, pending the closing of the merger. This additional liquidity will be provided through the sale to C-BASS, at Fieldstone’s option, of securities and mortgage loans owned by Fieldstone.”
“Michael J. Sonnenfeld, Fieldstone’s President and CEO, stated “The recent severe deterioration of the market for subprime loans has sharply reduced our liquidity and has required us to reduce our merger price in exchange for immediate added liquidity prior to completing our proposed merger with C-BASS.”
Keep an eye on these companies. Radian (another MGCI company) is the largest private mortgage insurer. They will be announcing their quarterly results on April 12.
http://put.elpasoco.com/NR/rdonlyres/3BE6A35A-85BE-441F-9D01-EB8DCED68F2F/0/ptstatistics.htm
Colorado Springs foreclosures hitting 17-year highs - up 45% YOY.