The Boom Was Bound To Bust
The Boston Globe reports from Massachusetts. “The number of Boston residents who lost their homes in foreclosure was four times greater last year than in 2005, according to a new report, and the rate is accelerating this year. This year the city is on pace to exceed 2006 numbers. Of the Boston residents who faced foreclosure last year, just under half had purchased their homes with mortgages from five major lenders that specialize in subprime loans, the city said.”
“Last year, the median price for a single-family house in Roxbury, Mattapan, and Dorchester declined between 7 percent and 8 percent. When lenders seize properties, they auction them for sale, often at bargain prices, which can drive down the sale prices of other properties on the market. ‘It’s going to add to the problems,’ said William Apgar, senior fellow at Harvard University’s Joint Center for Housing Studies.”
The Banner from Massachusetts. “The slump in real estate prices has spilled over into the Outer Cape construction industry, causing jobs to dry up and a jump in competition from up-Cape builders for local projects.”
“‘In the last five or six years, it was a contractor’s market. We could pick and choose projects and set our own prices,’ said Frank Deschaine, owner of Deschaine Construction out of Wellfleet and North Eastham. ‘Now it’s just the opposite. It’s a buyer’s market and contractors are dropping their prices.’”
“Many builders…are still worried that the downturn in their industry, which began last fall, is not over. Peter Page operates out of Provincetown. One of his regular clients, a real estate investor who purchased homes in Provincetown told Page he is no longer looking for properties to buy.”
“‘I’ve been hearing for close to a year that things had been slowing down [in the Cape Cod construction industry]. But I didn’t see it in my business until this winter. I had work for the winter but the inquiries are down, which is future work,’ Page said.”
“Leif Johnson, a custom home builder based in Wellfleet who has worked on projects stretching from Orleans to Provincetown for the past 48 years, said his business ‘is not as good as it was, that’s for sure.’ Johnson has seen an increase in competition from up-Cape builders, who are traveling hundreds of miles round-trip in search of work.”
“‘We’ve got a lot of competition. For me as a builder, for all these years in business and doing all the estimates, I’m not very successful lately in winning the jobs,’ he said.”
“Individual tradesmen have been inundating Deschaine and Provincetown contractor John Lisbon with telephone calls asking for work because their regular employers have laid them off. Lisbon said he has received calls from masons, shingle installers and painters looking to join his crew.”
“Painters in particular are hurting, he said, because clients are looking to do some of the construction work themselves. ‘People are constantly asking me, ‘Is that your best price?’ Lisbon said.”
“‘I get three or four calls a week from shinglers, masons and painters. They’re all scared. I’ve had few of them say they’ve never seen it like this,’ Deschaine added.”
“All the contractors interviewed cited the high cost of real estate as a primary reason for the downturn in their local industry.”
“Page said he is optimistic about a turnaround in the market because he has begun to see an increase in the number of bank foreclosures on homes. ‘If foreclosures start and [homes] go up for auction and sell for less, investors might be willing to get back into the market,’ he said.”
The Times Ledger from New York. “More homes were sold at foreclosure auctions in Queens than in the other four boroughs combined during the first three months of the year, and they were concentrated in the southeast part of the borough, according to a report.”
“The report shows 319 foreclosure auctions in Queens during the first quarter, more than 57 percent of the 554 citywide. The figure is almost double the number of foreclosures for the last quarter of 2006.”
“Of the 20 zip codes with the most foreclosures in New York City for January through March, 16 of them were in Queens and 12 were in the 114, an area that includes Jamaica, Hollis, St. Albans, Laurelton, Cambria Heights and Queens Village.”
“The Neighborhood Economic Development Advocacy Project report mirrors the growth of foreclosures in Queens. Through the middle of March, more than 1,200 foreclosure notices were filed in the borough, compared to 3,600 in all of 2007, Ludwig said.”
The Star Ledger from New Jersey. “In an echo of the savings-and-loan industry collapse of the 1980s, a growing number of lawmakers and consumer groups are calling for measures to bail out homeowners who are at risk of losing their homes in foreclosure. Yesterday, it was New Jersey Assemblyman Neil Cohen’s turn to take a whack at what is fast becoming an increasingly controversial topic.”
“‘What’s going on in the subprime market affects nearly every segment of the economy,’ said Cohen. ‘The subprime market was wonderful when it was good, and now there are problems with it and there is an enormous rippling effect that could cause a meltdown in the state.’”
“Earlier this month, Cohen called upon the state’s attorney general to impose a 180-day moratorium on subprime mortgage loan foreclosures, to give the state time to investigate and address the problems.”
“‘Blaming the borrower for the foreclosures and calling the current crisis a mere market correction as lenders have done is unconscionable,’ said Phyllis Salowe-Kaye, the executive director of Citizen Action.”
“She said that while 7.6 percent of the subprime loans originated in New Jersey between 1998 and 2001 ended in foreclosure, a recent study predicts that 19.6 percent of the state’s subprime loans originated in 2006 will end in foreclosure.”
“‘For most subprime borrowers, the nightmare is only just beginning,’ she said.”
“E. Bob Levy, the executive director of both the state’s Mortgage Bankers Association and the Association of Mortgage Brokers, said the market has already started correcting the problem. Lenders have dramatically cut the availability of risky products.”
“Terry McEwen, the director of the New Jersey Department of Banking and Insurance, raised a possible snag to many of the solutions being offered. State regulators, he noted, have limited authority when it comes to regulating national banks. Just this week, the U.S. Supreme Court ruled that state financial regulators have no authority over subsidiaries of national banks.”
“Although the ruling did not directly involve subprime lending, it raised a big question as to how states can enforce their own consumer protection laws when dealing with national banks.”
“‘As a consequence, federal institutions can engage in aggressive lending activities through their subsidiaries that would otherwise violate state law and yet remain insulated from liability for those activities,’ McEwen said.”
The Record from New Jersey. “Rose Mortgage CEO Ralph Vitiello and two colleagues were the only ones left last week at the 7-year-old subprime mortgage banking firm in Parsippany, which in January employed 60 people. ‘We’re taking care of loose ends,’ Vitiello said in a telephone interview in which he described the credit crunch that caused the company to unravel.”
“Wall Street investors could not seem to get enough of these high-risk, high-yield loans just a couple of years ago. But with houses on the market longer and default and foreclosure rates climbing, many such loans are being sold on the secondary market at bargain-basement prices, often below the borrowers’ cost.”
“Investors started to become leery of a softening housing market two years ago, and over time they were paying less and less for the loans that Rose Mortgage made to high-risk borrowers, CEO Vitiello said. The company also had to tighten its lending standards to satisfy investors, which resulted in a reduction in volume.”
“By 2006, it could not maintain a strong enough capital base to qualify for the wholesale funding it needed to make new loans. In January, Deutsche Bank withdrew the company’s last lifeline, a $50 million line of credit, and Vitiello sent a letter to employees urging them to ’start looking for other employment.’ In February, all but a few were let go.”
“‘Once they cut the line, the oxygen was gone,’ Vitiello said.”
“Vitiello said he was fortunate that partner bought out Rose Mortgage’s last bundles of loans at a price that allowed him to give employees their last paychecks, including commissions. Rose Mortgage could not afford severance pay, and ‘guys that worked for me are still looking for jobs,’ Vitiello said.”
“The boom in high-risk mortgage lending was bound to bust, said Joel Naroff, economist for Commerce Bank in Cherry Hill. ‘The people working in an industry that was artificially pumping up the housing market were working in an industry that had very little job security,’ he said. ‘It was like working in a dot-com in the 1990s.’”
GUYS! IT’S THE PRICE! People would actually choose to live in Taxachusetts if you made it cheaper for them to do so.
If i’d only know that the Ivy League schools had this going on, the smoke signals would have pointed me out east, surely.
“Harvard University’s Joint Center”
Not another Kimberly Blanton article. My bleeding heart just clotted a few days ago. Now I must hear about the poor victims again. …Let me get my tissue……..What about the children?!?!?!
I was thinking about the “children” angle this morning. I’ve said before on this blog that I’m tempted to take a leave of absence from work to lobby for the children of parents who’ve been priced out of housing. Aren’t they a sob story, too?
Anyway, this morning I thought of another way to spin it. I’ll start a movement for higher child support. MUCH higher child support. Because the current figures do NOT factor in the huge run-up costs of housing. (In fact, PA lowered child support about a year ago.) But, hey, if we aren’t going to get back down to true housing affordability, then someone’s gotta’ pay to get these poor children *sarcasm* a decent place to live, right? I mean if we’re going to save the homes of kids who’s parents are facing foreclosure (who, btw, were probably worse off financially to begin with than I am), why not help kids not yet in homes GET into them?
I would be such a target. I can feel the hatred now.
Yeah, that annoys me to no end.
Stupid people make stupid parents. Who thinks people get better ethics and more brain cells when they become parents?
I knew about a woman with a terminally ill child who received a “wish” from Make-A-Wish, to go to Disneyworld, etc. She left the child in the hotel room, took the vacation cash, went out and got tanked in several bars.
People with no money who sign on for big houses, go in debt to buy their kids Blackberrys, tattoos, and a Lexus when they turn 16 are no better.
That’s one of the worst things I’ve heard in ages. Tell me the child got to go to Disneyworld eventually!
The level of self-absorbtion involved there is mind-boggling.
Isn’t it horrible?
What happened, is the child got to go again, with her father(parents divorced), and the mother was billed for hotel and expenses. I know that the Make-A-Wish people weren’t about to damage their excellent reputation and good work for children and they swiftly took action and they do try to screen applicants very well…but there is always some selfish parent ready to take advantage.
This bailout idea has me so friggin’ p***ed off.
Even though I’d take the Dems over the Repubs in a NY second, I’ve been feeling more and more like our whole political system is corrupt.
Historically, America has worked best when the conservatives and liberals balance out each others’ excesses, creating a rough equilibrium that generally approximates the best course. If you look back at historical events and imagine what would have happened if we’d taken the course urged by the extreme voices on either side, or look at situations where we DID take that course, I think it’s pretty clear that the genius of the American system is the triumph of the “ugly” compromise that nevertheless does the job.
But this depends on politicians mostly driven by a sense of duty and integrity; once they become sufficiently servile to the self-serving elements of our society, whether it’s Halliburton or Al Sharpton, the compromises the politicians reach tend to be worst of all worlds, rather than the best. I think the truly catastrophic failures of our history (i.e. slavery) come from that former type of trade-off.
It looks like Iraq is shaping up to be one of these tragic failures. The Neocons got too much control and led us into a war that never would have happened if the right political equilibrium were in place. But now it looks like the worst of the Democrats might gain enough control to engineer a disastrous retreat that will send the middle east into a tragic tailspin.
The same thing is taking place in the mounting housing crisis. Here we have a disaster brought on by laissez-faire republicans, letting the shady financiers enrich themselves by destroying the lives of millions, and the solution being offered by the Democrats is to give billions of the taxpayers’ money to those same shady financiers, in the guise of “helping people keep their homes.”
The problem here, underlying the whole meltdown, is that houses are unaffordable, overpriced by 40%, and the markets are telling us that loud and clear. The hocus-pocus that was required to keep houses selling at that price level has been resoundingly exposed as the pyramid scheme that it was.
Everyone with a brain knows that the best long-term solution is to let the purging take its course, as unpleasant as that would feel short-term, and then go forward with better regulation of lenders in the future. But the Democrats would rather fight for their biggest donors or grandstand for the most ignorant voters. So what we are likely to wind up with is 25 years of nausea rather than 1 year of violent vomiting, if you know what I mean.
To summarize your excellent post with just three words: Rome is burning.
Yes, We need a K winter
word
A fine, fine post. Word is right.
Everything must fall apart, to begin fresh.
Postwar Germany and Japan were blown to bits and not neccesarily a bad thing.
Renewal Happens.
Germany and Japan had the US to rebuild thier countries.
Who will we have to help us?
Ourselves.
Yes, a post full of great wisdom - in the beginning was the word.
“So what we are likely to wind up with is 25 years of nausea rather than 1 year of violent vomiting, if you know what I mean.”
*******
Japan tried to avoid vomiting and has had 17 or 18 years of nausea.
Lesson not learned, apparently.
I wonder if a Japanese style, two decade nausea is possible in the United States for the following reason: Japan had a vibrant industrial sector, coupled with a a very homgoenous and virtually crime free society. Low to nonexistent crime has several cultural and economic benefits. We need not get into the cultural aspects of a low crime society, but clearly the economic benefit is the cost savings in police and judiciary. Plus, there is a sort of “savings” so to speak in that those who have money can actually hang onto it rather than having it forcibly taken. These are two significant benefits the Japanese enjoyed throughout their 20 year illness which America clearly lacks. The question is how beneficial were these benefits to Japan. I doubt we can quantify these beneficial effects, so we are left with mere speculation. I bet these difference between Japan and the US will make all the difference. We won’t be able to enjoy a 20 nausea - it just won’t be possible. We’ll sink straight into a state of ordered chaos, held together only by a powerful police state. The troops will come home from Iraq but begin yet another sort of occupation.
Finally, I just thought of this, consider our present culture as compared to the Depression era culture. Huge difference between then and now. The grit that got us through the tough times then is probably not present nowadays.
let’s just all move to Japan…
Brilliant, and absolutely spot on. I can’t think of a word I would change of your analysis.
I would only hope that a few politicians or their aides would read this.
I sent this to Kimberly and tied into her article Sunday about the bottom being here and prices rising 2% in Q4:
Kimberly,
As you reported in your article Sunday, there is no more need for a bailout because home prices are going to rise 2% in the fourth quarter. So all the people in trouble can flip their house for a profit and pay off their loan. Yes, this is what your 25 year old Economist predicted.
Thanks for doing that. I had emailed Kimberly last week, pointing her to the Credit Suisse chart and saying that if she already knew about it, she must be lying on behalf of the REIC. She sent a polite reply stating that last weekend’s article was mostly about high-end property in downtown, and that she thought they might not be affected by the subprime mess. She also said, “You might be right; we’ll see.” Which I thought was fairly decent of her. Her article posted by Ben today pleases me a little more, because at least she’s admitting there is a problem. Right, I don’t sympathize with the FBs, but keep in mind the Globe is a big liberal paper. When my husband and I were writing a “draft counseling” column back in the Vietnam era, we were delighted that the Globe consented to publish it twice a week. Nobody else would’ve.
“If foreclosures start and [homes] go up for auction and sell for less, investors might be willing to get back into the market,” he said.
It’s gonna take a while for prices to come down significantly. You have all of these investor clowns on the sidelines just waiting to get back in to the RE market, and bunches of other people looking to buy a new house to live in at a good price.
As we’ve seen from posts on other sites referenced on this site, there’s a bunch of people who think that an offer less than 5% off the asking price is a lowball offer, and that a 10% reduction off of a house overpriced by 20% is a bargain. The investors are betting on this mentality, and I’m sad to admit that they will probably do ok betting upon the stupidity of the American public. P T Barnum’s words ring true to this day. Amazing when you think about how many people in this country graduate from high school, go to college and grad school.
Vintage P.T.
“Without promotion something terrible happens… Nothing!”
Mikey (2),
Don’t be so sure the real investor group is that deep. The 100% LTV sub prime “specuvestors” will be sent to the sidelines in a year or two. Cash will be king soon enough. Witness this from above:
“….One of his regular clients, a real estate investor who purchased homes in Provincetown told Page he is no longer looking for properties to buy.”
Two more years of this kind of action and a few of us will be ready to test the water. No one with any brains and real money is going to chase the market down today. And when it does hit bottom, the market will not turn in a week and start appreciating. It will linger on the bottom for many years. When the “specuvestors” start dropping houses back to the lenders, because the $5,000-$10,000/mon negative is eating them alive, we will have about 12-18 months before the true bottom. Then we will only buy on cash flow. No negative carry. Buy a property at 10xs annual rent, w/ 6% financing or better, and it starts to work (provided there are no bonds, which really renders the REO to be worthless by about $50-80K).
Be patient. It is coming. The avalanche is coming and it will create some decent opportunities to get a 4-5% cash return on your down payment. If you buy below reproduction cost, eventually you will get some appreciation to add to your return.
I’ll have to pass this on to my wife. She’s pushing me to buy a bigger home and believes that prices will not come down (it’s different here, you know). Sadly, I’m starting to believe what she says - we live in area of mostly old construction where “old world charm” trumps the market value of new construction in surrounding areas. I can’t tell you how many stories I’ve heard about people spending new-home prices per sf for some big old house and then are surprised that they need to rewire the knob-and-tube and replace the galvanized and lead pipes. It’s funny, because I started looking for old homes in need of repair because I thought I could get more square footage in exchange for condition, not because I wanted some trophy property.
please I live in the Florida Keys , its doesn’t get much more “it’s different here” then on these islands and prices are coming down here.
I 2nd that opinion of Jingle,
The market may very well give us a temporary bounce, sorta like some stocks do right before the death spiral. This is the point where the “wannabe” investors jumpin looking at the rear view mirror thinking of the next run-up, but unfortunately for them the fundamentals havn’t changed. I got bitten by this same psychology back in 1999, and made a perfect buy at the peak, it took 4 years to recover. But I am very skeptical of this bounce primarily because of the drying up of the easy money well, i.e sub-prime lenders. Anyone with enough cash for a downpayment isn’t gonna be stupid about their money, thats the reason they actually have a savings. I am infact expecting to see the prices meander around the same level for another 6 months (this time frame may be different for diff. markets), with an increase in the listings , primarily driven by the REOs. Its may take the banks about 6 - 9 mo. to realize (under pressure to clear their books) that they better discount by 40% - 60% if they want to get rid of these alligators. These REOs will be setting the new comps, and we will be finally coasting down hill towards a sensible market.
Looking at some REOs in my market, it seems like we passed the peak early last year on these particular properties. The median pricing for the area has stayed pretty flat for the entire last year and this year, although the inventory have more than quadrupeld,and the sales activity is back to the 2003 level. Part of this inventory is ppl. who can’t lower the price becaue they bought at the peak, and the only way to move these houses would be through the REO route.
In my opinion the best thing to do right now would be to take a long siesta, i.e use patience and wait.
got cash?
In my opinion the best thing to do right now would be to take a long siesta, i.e use patience and wait.
It sounds like mikey2 is willing to do what you suggest but he is facing extreme pressure from the spousal unit.
Hey mikey2 if you’re out there still: you’re probably also aware that if you buy into this declining market in order to keep wife happy, that’s just beginning. After you move in you’ll probably have to do a total rehab. (didn’t you post that your wife is a compulsive re-decorator?)
She’s become a compulsive re-decorator because I’ve been putting off buying for so long. Now that the inside is done, she’s looking at EP Henry patios….You’re right about the rehab; that’s why I’m hanging tough here.
No one with any brains and real money is going to chase the market down today.
Amen.
Hey - wait a minute…that must mean I have some brains and real money! And to top it off the sun is shining for the first time in about 3 weeks and the temperature actually cracked 60 degrees.
Good weather and ego strokes - what a great way to start the weekend!
check out the NJ bubble blog low ball page
20-25% off is standard action
That’s nice to see, but I’m skeptical about whether such lowballs are representative of the typical buyer. Sure, the investors lowball, but Joe Average is afraid to offer too little and either insult the seller, lose out to another buyer, or make a fool of himself. Lots of people pay the sticker price for a car, fer cryin’ out loud.
Public perception is that houses are always priced at somewhere near their actual market value based on some sort of scientific analysis, as opposed to the “throw-it-up-there-and-see-if-sticks” process that is typically used.
A bit more P.T. cruising…
“Money is a terrible master but an excellent servant.”
“More homes were sold at foreclosure auctions in Queens than in the other four boroughs combined during the first three months of the year, and they were concentrated in the southeast part of the borough, according to a report.”
For those who do not know, Southeast Queens is one of the largest middle-class Black areas of the nation. It’s basically where the Harlem etc. middle class moved to when unofficial segregation ended in NY.
More recently, better off Blacks have either been moving in (to nabes like Ft. Greene where Spike Lee is from) or moving out to the burbs. This bust could be very painful for SE Queens.
This is a very important statistic. There are large section in Queens that are poor or lower middle class. As far as I can see, real estate in those areas has completely collapsed. This leaves whatever sales there are in the more affluent neighborhoods.
So when Newsday reports that the median price has gone up in Queens, what has really happened is the only activity in the lower end is forecloses. The “median price” goes up while real prices fall.
It would be much more helpful if they reported the change in price of comparable houses YOY.
this is pretty much impossible especially in NYC since all the homes were built decades ago and a lot of people have done custom renovations.
one nice thing about NYC that i haven’t seen anywhere else is that there is such a huge selection of things like tiles and other junk to renovate with. there are so many small tile stores with such a variety that picking stuff out is a challenge. and almost every house is different.
I have no idea what you are talking about. Here in Astoria, and in places like Forest Hills and Sunnyside there are street after street of row houses, all priced around the same. The variation due to tiling of kitchen updates is a very small percent. I have been looking for 3 years and I can tell you there are loads of comparable houses.
How the f*ck does “diffrent tile” in the kitchen make a house “different?” Queens is the original cookie cutter neighborhood, for Christ’s sake. In fact, I had a friend who grew up thereabouts. His family moved there when he was little. His dad would get into his cups at the local bar and wander up and down the block on the way home, yelling his wife’s name ’cause he couldn’t tell which house was theirs. Different my foot.
why is stock market going like way up when at same time housing appears to be going to new lows?
Please.
Stock market is going way up only when measured in nominal terms of US$. When measured in gold, the US stock market has been going down steadily for quite a few years now.
PS. Why do you think stock prices were measured in 1/8 increments in the past? Because that’s what a dollar is divided into. Eighths. Pieces of Eight. A dollar is a silver coin with 371.25 grains of fine silver, roughly equivalent to the Spanish Real, or pieces of eight.
If you compare the stock market to the hogs feet derivatives it is even more drastic of a decline. Which of course goes back to the old saying “A pig in the poke.” Think about it!
Yes, yes. S&P 500 hitting six years highs, Sterling and New Zeland dollar hitting 20 years highs.
That may be true, but it was also priced in 1/8 ths so the broker could pocket the indivisible fraction of a dollar in his favor.
I believe the stock market action reflects a coordinated effort to “contain” the potential contagion from a Chinese stock market on the brink of a meltdown. Just MHO here…
BTW, that big spike on all the headline indexes at the opening followed by a temporarily-high plateau certainly casts no any inner doubt on my maintained hypothesis. It looks as though a flood of liquidity was dumped into the meat grinder as “insurance” against whatever might drift our way from China. And it is really great to inflate the stock market at points of heightened crisis risk, as nobody thinks of “stabilization” to “contain” risk as tantamount to spiking the punch bowl (aka creating inflation). Above all, the top 1/2% of the U.S. wealth distribution are richly rewarded by stock market inflation, as they own the shares, while the rest of us are taxed in a way that few understand, especially when inflation risk premiums on long-term Treasury debt are conundrumishly supressed.
http://www.marketwatch.com/tools/marketsummary/
after the big scare in february things have quieted down. a lot of ibanks have reported great earnings. a lot of the subprimes and alt-a lenders reported better than lowered expectations. and so far the data isn’t that bad and points to a soft landing.
google reported a nice number yesterday and that is a barometer of advertising on the internet and business. more advertising means business is OK.
inflation is moderating and there is hope that rates will fall soon, but i haven’t seen it in the financials. the charts look pretty bad on most of them and that’s something to worry about.
next good batch of news is going to start around august or october. 3Q is when the loans start adjusting so by then or in a few months the financials will start to report an increase in problem loans, late payments, etc. and by then we’ll have a few months of summer data from NAR which so far isn’t that bad. so far the data is a soft landing and this means price stability and lower interest rates.
foreclosure rates are around 2001 - 2003 levels on average which is also not that bad. so far the story is mispriced risk and a soft landing as things improve.
around 3Q we’ll also start getting the first evidence of what the christmas season is going to be like from the back to school shopping season and 3Q earnings calls. once retail sales start to fall and the financials report bad numbers, watch out.
i’m in the market, making decent gains and watching things closely for a nice exit point to park my 401k into cash for what i think is going to be a bear market soon. buy and hold is for suckers.
these things take time, have patience
“…watching things closely for a nice exit point to park my 401k into cash…”
Make sure you don’t get trampled on the way out the exit door.
The Zimbabwe stock market was up 17,000% last year. Why? It was the only thing that retained value with the currency tanking. Now the US dollar is tanking. The stock market is still down about 50% from the 2000 top, if measured in gold. US inflation is much worse than the CPI numbers. Perhaps that is one reason why stocks keep going up…
“If foreclosures start and [homes] go up for auction and sell for less, investors might be willing to get back into the market,’ he said.”
smart money won’t be back in the game for a while, dumb money (idiot 23 year olds with 100% financing)don’t have the money no mo.
i bought single family homes for $60K in the mid 90’s on the cape. sold them for $175K in early 2000. they are currently selling for $225K, which is a “steal”, since some knucklehead paid $275k last summer. the cape is cold and dreary 9 months of the year.
Investor “down payment” for a Countrywide loan now 30% with a 1 point add on. The investor class that thinks they can get those Stated Income, no PMA 80/20 loans are behind the curve. Can’t see how 30% down in a falling market will bring any investors back. So called “Investors” talk alot, smart investors are quietly on the sidelines
Wow! 30% down? The stock market isn’t even close to discounting the slowdown that is coming.
Stick this in your cirque de soleil, mute moderns of the midway…
“More persons, on the whole, are humbugged by believing in nothing, than by believing too much”
Another great quote I saw recently by late activist Peace Pilgrim:
“If you knew the power of your thoughts, you would never have another negative thought again.”
Leave it to Peace Pilgrim to get to the point!
She was the greatest…I try to read a little out of her book every single day. Talk about walking the walk…she was amazing
Wow, Cape Cod, back in the day it was my favorite summer stomping grounds, when I was a college pup and two years after college as well. Back then I thought the summer traffic and tourist crowds were horrendous (late 1970s). I can’t imagine what kind of hell it must be like now, if they’ve been building like the article says. I have friends who have a second home in Wellfleet and they love it, but they tell me the traffic on weekends really sucks.
When I was a pup, it was bad up through Hyannis, but the outer parts of the Cape were beautiful. Great dunes at Truro and I used to take a dip in the spring fed pond at Cahoon’s Hollow after spending time at the beach in Eastham/Orleans. It was always a bit of a chore scaling the sand cliffs to get back to the car, but good exercise. We used to take day trips to Monomoy Island off Chatham. It would be sunny one minute and then a wall of fog would roll in. I loved the Cape, but it sounds like hell now. Although I understand that retirees from New England who choose not to move to warmer climates like to retire to the Cape so I guess there’s now a year round market for retired New England boomers.
“…E. Bob Levy, the executive director of both the state’s Mortgage Bankers Association and the Association of Mortgage Brokers…”
WTF, can’t these idiots get a little white out to use on their stationary and combine these two organizations? No wonder these idiots can’t police their own……What does the MBA do the AMB can’t do?
Brokers vs. Bankers–maybe one writes mortgages that they then sell to investors, while the other represents banks that hold mortgages.
This just in from the Sacramento County Assessor:
“…A housing slump that has wiped out countless millions of dollars in Sacramento-area home equity is soon to give a few million back.
Letters to 50,000 Sacramento County homeowners are being mailed today announcing cuts of up to 10 percent in their fall property tax bills, said Sacramento County Assessor Kenneth Stieger.
The rollback will erase about $15 million in revenue for schools, the county of Sacramento, its seven cities and numerous special districts, Stieger said. It affects 12.8 percent of the county’s 390,000 residential parcels….”
I wonder if people will start to get it now. The county is voluntarily giving up $15 million in revenue because they have identified 50,000 FB’s from the last 2 years. Hello….are people still looking to buy in this market??
Oops…thought I was in the Bits Bucket. Will move it over there.
Amazing. A county willing to send out lower tax bills. I would have thought they’d raise the millage to compensate for the lower assessments.
Or am I missing something here?
Proposition 13 sets a maximum millage throughout CA, I believe.
‘Upside Down’ Home Sellers Owe More Than They Get”
Take away ……
“Jeffrey Taylor and his wife bought their dream home in Purcellville for $538,000 last August. Now they have to sell it because they are getting divorced and neither one can afford the mortgage alone.
The most they could get for it was $430,000. After paying all the real estate commissions and taxes, they will still owe the bank $118,000.
“Five months later, I lose $100,000,” Taylor, a high school teacher, said. “I don’t think I can take $100,000 into the stock market and lose it faster.”
Such a scenario, known as a short sale, was unthinkable during the real estate boom of recent years. In the course of five months, a person could buy and sell a property and walk away with tens of thousands of dollars. Now, instead of receiving large checks at the settlement table, many sellers are writing them.”
Washington Post
http://tinyurl.com/23xuub
Purcellville?
Isn’t that where they make the hand & land sanitizer lotion?
The Purcellvile that they are talking about here is most likely in northern Virginia and in this case southwest of D.C.
If some developer across this mighty land had named one of their developments…
“Phineas Taylor Estates”
That’d be funny.
Phineas J. Freak Estates. Where ALL the houses have gone to “pot”
“‘As a consequence, federal institutions can engage in aggressive lending activities through their subsidiaries that would otherwise violate state law and yet remain insulated from liability for those activities,’ McEwen said.”
Similar to the situation in the War on Drugs, the War on Subprime Lenders will not be won unless law enforcement agencies go after the kingpins. But it seems the Supreme Court has upheld the right of federal institutions to break state consumer protection laws at will, which should enable predatory subprime lending to continue, so long as the activity is generated at the federal institution level.
credit crunch= putting anything down and or actually paying for something
“Vitiello said in a telephone interview in which he described the credit crunch that caused the company to unravel.”
OT-Has every body been keeping up with the bailout news. USA Today yesterday-Fannie Mae is pledging 20 Billion to convert subprime to more affordable motgages, Country Wide has thier own 2 Billion dollar plan. I am afraid to say, as Gary Watts says”Its in the bag”. I hope this does not prolong the inevitable.
Not going to happen, it would kill the MBS market.
http://money.cnn.com/2007/04/18/real_estate/barriers_to_solving_subprime_problems/index.htm?postversion=2007041812
matt:
too true. most of the ranting about bailouts is paranoia. can’t actually be done
Interesting article, maybe there is more to it. Did you guys check out that video of the female comedian who had nothing and borrowed 900K, it is on the same page, wild.
I did check that out.
I paraphrase, and she wasn’t joking:
“I was one windstorm away [from financial disaster as a subprime borrower] and they were willing to give me $900K. Imagine! $900K!”
She said she’s making her payments. And then added “moron” who lent the money shouldn’t be bailed out.
“They looked official. Offices, pens, desks, calculators… you’d think they would have done the calculations.”
I wish. “New Deal”, all I have to say really.
From the “better close and lock the barn-door dept.”:
The PMI Group, Inc. has issued a news release.
Title: The PMI Foundation Fights Predatory Lending With $25,000 Sponsorship
Date: 4/20/2007 11:00:00 AM
Don’t Borrow Trouble Campaign Kicks Off in San Francisco
WALNUT CREEK, Calif., April 20, 2007 /PRNewswire-FirstCall via COMTEX News Network/ — Through a $25,000 sponsorship of the Don’t Borrow Trouble campaign in San Francisco, The PMI Foundation, the philanthropic arm of The PMI Group, Inc. (NYSE: PMI), is helping to raise awareness of predatory lending and provide resources for homeowners who are the victims of predatory lending practices.
A coalition comprising the Mission Economic Development Agency (MEDA), the Mayor’s Office of Housing, the County Assessor-Recorder, and Freddie Mac will kick off the campaign Friday, April 20, at a press conference in San Francisco’s Bayview neighborhood.
“We are committed to promoting opportunities that help families maintain sustainable homeownership. Our goal is not only to help people get into homes, but to make sure they have the knowledge and tools they need to succeed in homeownership,” said Jesse Rivera, PMI’s Vice President of Marketing and Primary Products. “In addition to The PMI Foundation sponsorship, PMI is strengthening communities and expanding homeownership opportunities worldwide by advocating sustainable lending practices and homebuyer education.”
and fre isn’t government ?
see them spend your doughhhhhhhhhhhhh
They need to replace the ‘dancing mortgage people’ ads on cnn.com with a ‘dont borrow trouble’ ad that is equally annoying.
AHHHH ….I have been applying for Paralegal jobs in White area…DUMMY ME!
===========
More homes were sold at foreclosure auctions in Queens than in the other four boroughs combined during the first three months of the year, and they were concentrated in the southeast part of the borough,behind on so-called “subprime mortgages,” according to housing advocates., are disproportionaely common in black and Hispanic neighborhoods - the same neighborhoods with
Embrace Black Swans to Avoid Financial Disaster, Urges Taleb
By Mark Gilbert
April 20 (Bloomberg) — A slump in Chinese stocks on Feb. 27 triggered the worst week for U.S. equities in more than four years and the biggest one-day jump in volatility ever — the financial equivalent of a butterfly’s flapping wing in New Delhi causing a hurricane in North Carolina.
In “The Black Swan: The Impact of the Highly Improbable,” Nassim Nicholas Taleb argues that we are dangerously blind to the possibility of unlikely events, and reluctant to accept their unpredictability when they do occur. It is a seductive thesis.
A Black Swan, in Taleb talk, is an incredibly improbable event with a colossal impact, be it 9/11 or the rise of Google Inc. Our response to such events is to rationalize them, making them appear more predictable than they were, the author argues. In short, we kid ourselves.
Our global economy gives “the appearance of stability” even as it “creates devastating Black Swans,” he says. “We have never before lived under the threat of a global collapse. The financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one falls, they all fall.”
Taleb comes across as a guy who says what he likes and likes what he says. He paints himself as a Renaissance man, a polymath as conversant in music and literature as he is in mathematics and finance. Abundant examples and playful turns of phrase make this a fascinating, challenging read. His concept of “Umberto Eco’s Antilibrary,” where intellectual wealth lies in unread books rather than well-thumbed volumes, is a lovely abstraction.
Splashes of Arrogance
His investment fund, Empirica Capital LLC, made him rich enough to spend his time contemplating life from “dilapidated but elegant cafes in regular neighborhoods as undiluted with persons of commerce as possible.” Arrogant splashes like this stain more pages than is necessary; I don’t imagine Taleb suffers editors gladly.
Taleb has a couple of claims to fame. His 2001 book, “Fooled by Randomness,” has been published in 18 languages. In April 2002, he was the subject of a Malcolm Gladwell profile in the New Yorker magazine that ran to almost 8,000 words, outlining his theory that luck plays a huge, unacknowledged role in success for traders and investors.
In his new book, Taleb says we’re all guilty of confirmation bias, tending to look for things that corroborate what we believe to be true. We’re also victims of the narrative fallacy, “our predilection for compact stories over raw truths.”
Tigers and Dynamite
A casino might look like a business where calculations of risk and probability determine success or failure. Yet the MGM Mirage casino in Las Vegas “spent hundreds of millions of dollars on gambling theory and high-tech surveillance, while the bulk of the risks came from outside their models,” Taleb says.
Consider the white tiger that mauled magician Roy Horn of duo Siegfried and Roy at the Mirage in October 2003, costing the casino $100 million, Taleb says. Or the disgruntled contractor who tried to dynamite the place. One employee failed to file tax returns on big-winning gamblers, resulting in “a monstrous fine,” while the owner violated gambling laws to pay the ransom on his kidnapped daughter.
“The dollar value of these Black Swans, the off-model hits and potential hits, swamp the on-model risks by a factor of close to 1,000-to-one,” he writes.
There’s an investment strategy to profit from improbability. “Be as hyperconservative and hyperaggressive as you can instead of being mildly aggressive or conservative,” Taleb advises. “Instead of having medium risk, you have high risk on one side and no risk on the other. The average will be medium risk but constitutes a positive exposure to the Black Swan.”
Killing the Turkey
The hand can feed the turkey for 1,000 days until, on day 1,001, it wrings the fowl’s neck for Thanksgiving. The trick is to be the butcher, not the turkey.
“A thousand days cannot prove you right, but one day can prove you to be wrong,” writes Taleb. “I am not urging you to stop being a fool. Just be a fool in the right places.”
With risk measures at or near record lows, including volatility indexes, corporate bond defaults, credit spreads and emerging-market yields, Taleb might help you dodge the next Black Swan. The book is from Random House (356 pages, $26.95).
(Mark Gilbert is a columnist for Bloomberg News. The opinions expressed are his own.)
I understand everything in this post except the frequent references to Black Swans.
a Black Swan is an outlier event, a rare event, and unforeseen event. Most Swans are white, so a black one is rare. Off the charts. 100 year flood or storm. Sometimes these rare events happen in credit or financial markets, a meltdown. The counterparty on the other side of a derivatives contract cannot pay, and this causes another party to be unable to pay, and there can be a cascading of events.
Somebody has never been to Western Australia where Black Swans are a dime a dozen…
Taleb uses black swans as an example or unwarranted confidence in a theory apparently confirmed by experience. Until the discovery of Australia in the 18th century, all swans ever seen were white leading observers to conclude, erroneously, that black swans were impossible. In fact, the theory that black swans were impossible could never be proven no matter how many white swans one encounters.
Blistering Barnacles!
The interesting thing about the financial version of black swans is how quickly they are forgotten in the days of “containment” of “financial contagion.” It was less than a decade ago that many U.S. tech stock investors lost a lifetime of wealth accumulation in a giant glob of black swan guano, and now many housing “investers” are facing the same fate.
Thanks, Brad. I will order the book this weekend. Looks like a fun, meaningful read.
a federal appeals court upheld a lower court decision that Lehman Brothers knowingly participated in fraudulent predatory loans being made to subprime borrowers.
In a recent ruling, the U.S. Court of Appeals reaffirmed a lower court decision that Lehman Brothers brokerage was guilty of knowingly participating in fraudulent predatory loans being made to subprime borrowers. In late December 2006, the 9th Circuit Court of Appeals ruled that Lehman Brothers was an assignee who could be held liable for “aiding and abetting” a multimillion dollar predatory lending scheme.
Most mortgage loans are sold after closing to an investor. An “assignee” is a party who purchases the loan. According to the Center for Responsible Lending, when “assignee liability” exists, the borrower is allowed to pursue legal claims against the assignee when the loan transaction involved illegal or abusive terms.
Lehman Brothers was the lender and underwriter for First Alliance Mortgage Company’s (FAMCO) debts. Famco was the defendant in lawsuits accusing it of deceptive and discriminatory practices in providing high cost subprime mortgages to homeowners.
According to the U.S. Court of Appeals, “First Alliance employees would … persuade borrowers to take out loans with high interest rates, hidden high origination fees, points or other ‘junk’ fees of which the borrowers were largely unaware.”
The Appeals court said the “key to the fraud” was that FAMCO loan officers would mislead borrowers into believing that the cost of the subprime loans were far less than the actual total, ignoring costly fees and points that often added 11% to the amount borrowers thought they had agreed to.
The court concluded that Lehman Brothers provided funding for FAMCO even while knowing that mortgages were made using fraudulent and deceptive techniques. The court said that without Lehman Brothers financing FAMCO would not have been able to continue funding its fraudulent loans.
FAMCO filed for bankruptcy in 2002 and settled with 18,000 borrowers. A jury found Lehman Brothers jointly responsible for the fraudulent activity. The court ordered Lehman Brothers to pay $5 million to borrowers, leading to the brokerage house’s unsuccessful appeal.
Can they be prosecuted under RICO for this?