The Cause Of The Problem Is Decreasing Values: CEO
Some housing bubble news from Wall Street and Washington. “NetBank Inc. will try to stay afloat by selling assets to EverBank Financial Corp. The sale will cause a loss of $60 million to $70 million, said NetBank. Regulators are ‘increasingly concerned’ about NetBank’s losses and capital level and told the company to ‘find an alternative immediately’ to cover its deposit obligations, the statement said.”
“‘The company isn’t done, but it’s close,” said analyst Christopher Marinac. ‘It’s a very unfortunate casualty of the mortgage market because the deposits at this company have been rock-solid for the last three years.’”
From The State. “In March, when CEO Steven Herbert talked about focusing NetBank on core banking and mortgage activities, he likened the company’s journey back to profitability with traveling through a tunnel. On Monday, Herbert all but conceded that instead of seeing a light at the end of that tunnel, he now faces the glare of an oncoming train.”
“‘What we were doing was not working,’ Herbert said of the past few years. ‘We needed to make some changes.’”
“But the company reported in March a $168 million loss for 2006, and that cash situation has not improved. Federal banking regulators were worried, Herbert said. ‘They made it pretty clear that if we did not take action to resolve our deposit issue,’ he said, ‘they also were not going to hesitate to step in.’”
From Fitch Ratings. “Though subprime closed-end second-lien (CES) RMBS transactions represent a small sub-sector of the overall subprime RMBS universe, these transactions are proving to be some of the worst performers through the first four months of 2007.”
“At this time the cumulative exposure to subprime CES RMBS transactions in these CDOs is not sufficient to cause Fitch to place any tranche on Rating Watch Negative.”
“However, as Derivative Fitch expects this negative performance trend to continue, the potential for negative actions on both high-grade and mezzanine SF CDOs increases dramatically where there are significant exposures to 2006 subprime CES RMBS and limited asset manager flexibility to sell assets.”
From Inman News. “The downturn in the housing market appears to have caused more layoffs in construction and mortgage lending than real estate sales, the Mortgage Bankers Association reports.”
“While the National Association of Realtors reported that there were about 1.3 million Realtors at the end of 2006, the MBA report relied on Bureau of Labor payroll statistics, which counted 386,000 real estate agents and brokers at year-end.”
“‘Thus our estimate, which excludes self-employed workers, understates the actual employment in housing-related industries and could underestimate the extent of the decline in housing-related employment,’ the report said.”
The Chicago Tribune. “USG Corp. on Monday disclosed plans to eliminate about 500 white-collar jobs, or about 10 percent of its salaried workforce, as the nation’s deep housing slump continues to take a financial toll on the Chicago building-products company.”
“The maker of gypsum wallboard, citing adverse ‘current market conditions,’ outlined the cost-cutting plan in a Securities and Exchange Commission filing. The company has already scaled back its operating capacity, as a drop-off in U.S. housing starts has dampened previously white-hot demand for wallboard, a spokesman noted.”
From Bloomberg. “Five banking industry groups unveiled a set of principles, including more clearly disclosed loan terms, they’re advocating for lenders, lawmakers, and regulators trying to protect borrowers with subprime housing loans.”
“Lenders should issue loans only if borrowers can afford to repay them and should work with consumers to prevent foreclosures, the groups wrote in a statement released yesterday.”
“‘There’s going to have to be some form of uniform standard by which the consumer and the industry can abide by and live with,’ James Ballentine, the American Bankers Association’s director of housing, said.”
From Reuters. “Little can be done to change the terms of subprime mortgages to prevent foreclosure because of the way loans that were packaged and sold to Wall Street investors, mortgage industry executives said Monday.”
“‘For the future, we may be able to rewrite those documents so that they’re more modification and remediation-friendly, but unfortunately (today’s mortgage-backed security) deals…and the servicer’s hands, in many respects, are pretty tied,’ Michael Marriott, a co-head of Credit Suisse’s mortgage group, told a secondary-mortgage market conference organized by the Mortgage Bankers Association.”
“Surging defaults on subprime mortgages, which cater to borrowers with poor credit histories, and more than two dozen collapsing lenders are exacerbating the already precarious U.S. housing market.”
“Countrywide CEO Angelo Mozilo said depreciating home values are the main culprit.”
“‘The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,’ he said at a Mortgage Bankers Association conference.”
“‘First-time home buyers were begging us to make them loans because they thought home values were going up significantly, and so they put a lot of pressure on us to make them loans,’ he said.”
‘In spite of our best efforts to improve the company’s operating profile through the restructuring plan we undertook last year, our company has remained very vulnerable and at risk due to the weakened fundamentals of our core businesses,’ said Steven F. Herbert, CEO, NetBank, Inc. ‘Our mortgage operations continue to struggle in the face of a highly competitive marketplace, especially the third-party origination channel. Bank earnings have also fallen sharply as we have had to de-leverage the balance sheet in order to maintain risk-based capital ratios within appropriate regulatory guidelines.’
‘Our effort to manage and address these pressures was further complicated by the delay of the annual audit and greater day-to-day regulatory oversight and involvement.’
This is whats killing the market “Lenders should issue loans only if borrowers can afford to repay them”
So with this ‘new guidance’ every lender will have half the deals going forward 4eva.
“Lenders should issue loans only if borrowers can afford to repay them … ”
No Shit!
someone mentioned this awhile back but I think they were on to something. Up until recently banks only granted the loan if they were resonably sure you could afford the loan. This meant buyers never really had to think about ‘can I afford this?’ because banks did that thinking for them.
The new paradigm is that buyers need to do the jobs that lending institutions used to do. While this might seem like a ‘no big deal’ kind of thing I would argue it is. Very few people are financially literate enough to understand anything beyond a simple loan. A small number of savy buyers can understand the pro’s and con’s of exotic mortgages but for most buyers it sails over their heads.
I am not trying to let the buyers off the hook, but I do think it should be recognized that there was a massive shift from lending institutions performing due dilligence on loan apps (which buyers expected) to ‘fog a mirror’ standards on loan approval (something completely new) and that buyers got caught unaware they the a bank might give them several hundred thousand dollars without really thinking about the consequences to the individual and to the bank.
I see this as similar to the shift from pensions to 401k’s … why the avg person is expected to manage a large stock portfolio over 30 years, when they can barely manage their check book, is just setting allot of people up for allot of pain later on.
There has been a real paradigm shift for banks. Since they are no longer the bag holders of the debt, it doesn’t behoove them to perform any sort of background checking or even really care.
“…it doesn’t behoove them to perform any sort of background checking…”
It does now that they can’t unload the toxic declining-value debt on another bagholder anymore.
Right on. But not only did lenders stop worrying about loan affordability, many new lenders/brokers jumped into the market and actively pushed toxic loans just to make the fee income. None of these players were portfolio lenders, so they didn’t have any incentive to see that the loan would be repaid. So the borrower went from being prevented from borrowing too much (old paradigm) to encouraged to borrow too much (new paradigm).
Before Social Security, over half of America’s elderly population lived in poverty. If thinks continue as they are, this is our future.
I thought they lived with their kids, which was the tradition at the time. “The Waltons” was impossibly cheerful, but not just imagination.
Yup, my cousin’s husband died, she is house-broke, so her 48-yo son will come from Fla in a few weeks to live with her and bring in a salary and he’ll then be nearer his own kids anyway.
“There’s a man that turned this country upside-down
With his old age pension rumor going ’round.
If you want in on the fun,
Send your dime to Washington,
And that old age pension man will be around. “
And your mothers are moving in when? My mom dosen’t even want to live with any of us kids. She prefers her own space. But I guess we are destined to go backwards…again
The 401K was originally intended to supplement ones traditional pension, NOT to serve as a replacement.
And in the not too distant future the “company match” will be artifact of history as well.
Good good post.
how stupid do we want to be treating everyone? most people generally get upset if i treat them like an idiot. if you cant read a contract that you are signing or understand it, do you sign it? 401k’s? you are telling me that you cant read the folder or online information about your 401k plan at work if its offered? this is very scary stuff if this is an actual problem.
………..and so they put a lot of pressure on us to make them loans,’ he said.”
I guess that is the way the world works. If you want money, you just put a lot of pressure on someone and then viola, they loan you money.
A lot of stock investors think like condo flippers which means they care more about stock price growth than dividends(rent). The shareholders don’t care that a bank will go under in 4 years because they will have sold their stock by then.
Most growth stocks don’t even pay dividends. In fact, until a company becomes mature (i.e. slow growth) they usually don’t pay dividends.
Which is exactly why the last time I had more than 10% of my money in equities was 1975 (when I had 100% of it in equities).
The difference is that paying dividends is very tax inefficient (even with the low 15% rate on dividend payments). I would much prefer a company generating lots of cash to strategically buy back shares than to pay out dividends.
However, with real estate, you get a nice depreciation write-off, which shelters much of the rent, so receiving the money isn’t so painful on an after-tax basis.
That’s really a side show to the real point, however. The bottom line for both companies and real estate assets is that CASH FLOW IS KING, and will enable you to weather downturns. What you do with the cash is another story. Buying real estate that won’t cash flow is equivalent to either a) buying a piece of art (if a trophy property), and relying upon uniqueness or scarcity to drive the value, or b) buying an internet stock, hoping that the value rises because someone else thinks it’s worth more.
And so you don’t think I’m crazy, a trophy property is NOT a nice $3MM house near Fashion Island. True trophy properties are about as rare as a fine piece of artwork. An example of what I consider “trophy”–A home with permanent private beach and private pier on Lake Tahoe. They truly aren’t making any more of these, what you can achieve as a rental is completely irrelevant for this asset.
For the last mf’ing time: CASH FLOW IS NOT A VERB.
I can immediately identify some nouveau riche school jackass by hearing them talking about “my property cash flows at $2k per month”. Hey, moron, learn how to speak the language, not this idiotic bizdev-esque “make-me-sound-important” bs.
“Cash flow” is a noun.
The correct statement is “Buying real estate that won’t GENERATE cash flow (…)”.
39.5 years isnt what I would call a “nice depreciation write-off”
I was like 16 (1986?) years old I think when the tax code was so drastically altered to reflect the new depreciation for residential income producing real property. As I have learned from this blog, real estate took a little hit right about that time.
and cash flow is a noun.
residential real estate is depreciated over 27.5 years for tax purposes.
commercial real esate is depreciated over 39 years.
The condo- (stock-) flipping mentality takes on extreme proportions when share price gains go parabolic…
http://www.bloomberg.com/apps/news?pid=20601080&sid=avc8sRgqgRlU&refer=asia
Those same first-time buyers are putting alot of pressure to get a bailout.
The fact that CEO from Countrywide is blaming the declining market for the real estate defaults is funny . When you make loans you make sure people can repay long term so they can handle market cycles .To base loan making on real estate going up is a investment scheme or a refinance scheme for lenders take a chunk of the pie . In other words ,to put borrowers into loans that would force them to refinance every 2 years to avoid payment default ,while the lender takes a chunk of the pie everytime ,is not good faith lending .
‘Those same first-time buyers are putting alot of pressure to get a bailout.’
I haven’t heard that. Have a link? IMO, it’s political ambulance chasing that is falling on deaf ears. It’s likely the FB’s don’t want the houses if they are underwater.
I think the bailout concept ,or delaying foreclosure ,(such as in OHIO ), or offering a FHA refinance , or changing the current tax codes, is starting to gain public attention .You have posted many a article in which borrowers are calling themselves victims . IMHO this is putting the pressure on ,even if it’s actually a bailout for lenders.
You might be right that’s there is alot of lip service going on , but I would not be surprised if in spite of these borrowers not really wanting the up-side -down -house ,they want some form of bail out tax wise or short sale wise or waving of a judgement right or recourses for collection by the lender . I also think your right that the number of FB’s that don’t really want the failed investment is a high %.
Also the pressure to lower rates or keep them the same because of the housing problems instead of raising rates to save the dollar seems to be operative right now .
If I was an FB, I would want to be able to walk away with no consequences: not taxes owed, no balance owed and no damaged credit.
“If I was an FB, I would want to be able to walk away with no consequences: not taxes owed, no balance owed and no damaged credit.”
Makes a lot of sense. Which probably is why the Credit Suisse guy said, “‘For the future, we may be able to rewrite those documents so that they’re more modification and remediation-friendly, but unfortunately (today’s mortgage-backed security) deals…and the servicer’s hands, in many respects, are pretty tied,’ Michael Marriott, a co-head of Credit Suisse’s mortgage group, told a secondary-mortgage market conference organized by the Mortgage Bankers Association.”
In other words, “We really feel sorry about your taking our toxic loans, you drowning piss-ant, but we’re not going to throw you a life preserver because we just didn’t structure the deals for that contingency. We’re sure the next group of lenders will, though. Good luck, sucka!”
Exact translation, Chip.
But the bailout talk is meant to ‘untie’ the hands of the servicers.
Bailout talk is lip service and political cover. These peeps can’t be saved, only have the end game postponed. The political benefit will not outweigh the political risks. therefore nothing will get done.
“If I was an FB, I would want to be able to walk away with no consequences: not taxes owed, no balance owed and no damaged credit.”
This is the type of bailout measure a politician who cared about FBs would propose, not the lending industry bailouts represented in “Save Our Homes” trial balloons that some lawmakers have recently floated.
“it’s political ambulance chasing that is falling on deaf ears.”
I’m starting to agree. Finger in the dike, just to show “we care and are doing something”. When the dike breaks (as it looks like it surely will), they will wipe off their finger and say “well, at least *I* tried to do something.”
Finger in the dike.
I have not heard language that filthy since “Ward, dont you think you were a little hard on the Beaver last night?”
I even had to look up “dike” in the dictionary, to make sure I was spelling it correctly, so as to avoid the ‘other’ word. And see what happens with my hard work? Beavis and Butthead show up (LOL)!
Even I left that one alone (not that I didn’t mentally tryout a couple of one-liners)!
“Finger in the dike”
Isn’t there an extra space in that sentence?
Finger in the dyke.
Yep… they only hold loans if they have to. Otherwise its a fee-for-service gig now.
“…to put borrowers into loans that would force them to refinance every 2 years to avoid payment default ,while the lender takes a chunk of the pie everytime ,is not good faith lending .”
No, in fact it’s suicide lending, as we are beginning to observe. Countrywide must expect that they will be bailed out, or failing that, the execs can exit with their winnings and the company goes down. They can always start a new lending company, look how many have been created over the last five years or so.
I’m betting that Countrywide is looking to become the next Fanny Mae psuedo company that lives off taxes and doesn’t have a bottom line.
“They can always start a new lending company, look how many have been created over the last five years or so.”
Have you noticed that when lender CEOs go from one company to the next, they tend to sink deeper in the sleaze with each move. For instance, Paul Reddam went from founding Ditech to (gulp) found Cashcall. So I expect Mozilo to start a check cashing business any day now…
Anyone know of a cure for Continual Spin Fatigue Syndrome? Quotes like the one below are such utter BS that they make my head ache. This drivel would be pathetic if so many idiots didn’t believe this stuff.
“‘The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,’ he said at a Mortgage Bankers Association conference.”
Please, someone (i.e., politician or regulator) remind this guy that you don’t finance an asset like your home on an expectation of perpetual 10% appreciation.
It’s a very unfortunate casualty of the mortgage market because the deposits at this company have been rock-solid for the last three years.’”
Rock solid for “Three Years”, impressive.
It also shows that bankers (not just home buyers) were counting on a rapidly appreciating market for the next several years. Proof that irrational exuberance did move upstream.
“‘First-time home buyers were begging us to make them loans because they thought home values were going up significantly, and so they put a lot of pressure on us to make them loans,’ he said.”
yea, everyone knows how terrified of the 25k a year crowd, CEO’s of Multi billion $ lending institution are. When strawberry pickers and car attendants whistle, CEO’s like this always jump…
I can see them now, outside Countrywide’s headquarters, pitchforks in hand, torches burining, chanting “give us loans, give us loans.”
There is some truth to that. Every $7 per hour w-2 slave was screaming for a loan even though they knew there was no way to pay it back. I really think some people got into this knowing they were going to default eventually and just soaked up the refi cash and planned on a few years free rent.
That said, Bronzilo knew he was going to exploiting a certain sub-set of the market. He’s far from off the hook.
““‘First-time home buyers were begging us to make them loans…and so they put a lot of pressure on us to make them loans,’ he said.””
That quote made my day. Countrywide CEO Angelo Mozilo, you are truely one of a kind…a job in stand-up comedy would be a perfect fit!
Borrower: “You’d better give me the loan, or I’ll hold my breath and turn blue!”
Angelo Mozilo: “OK, ok, I give up, here’s your loan, stop holding your breath. Sheesh!”
Angelo, come clean, we all know it was more like:
Borrower: “I have a pulse and a FICO score, but I don’t have enough money for a down payment, don’t have a job, and don’t have any assets.”
Angelo Mozilo: “Don’t worry, housing prices always go up. We sell the more risky loans off to investors anyways, so we don’t really care. Here’s your loan. NEXT!”
LOL….You hit it on the nose .
Yeah, I knew a girl in high school who said something very similar when asked by she had so many dates. In the end, she ran into a declining value issue as well.
To compound matters…she probably married one as well.
We had a girl like that in my High School too. She was the undertaker’s daughter. They say she buried more stiffs than her daddy.
Dude is the boss of the Casa Nostra!
“pressure to make the loans”… wonder if higher fees, commissions, and bonuses had anything to do with it? No, they were just doing it because they were nice and it was their job to help as many home buyers as possible.
http://www.whiskeyandgunpowder.com/Archives/2007/20070521.html
Seeing double double Tunnel Vision…
“In March, when CEO Steven Herbert talked about focusing NetBank on core banking and mortgage activities, he likened the company’s journey back to profitability with traveling through a tunnel. On Monday, Herbert all but conceded that instead of seeing a light at the end of that tunnel, he now faces the glare of an oncoming train.”
We have acquired Ian Anderson, J.T., in lieu of Arthur Anderson, to double check on our math…
‘Our effort to manage and address these pressures was further complicated by the delay of the annual audit and greater day-to-day regulatory oversight and involvement.’
Thick as a brick.
In honor of Tull…
In the shuffling madness
Of the dubious Loan Motive breath
Runs the all-time loser
Headlong to his death
He feels the a.r.m. scraping
Sweat breaking on his brow
Old subprimes, we can no longer handle and
The bad loan train wont stop going
No way to slow down…
Steven Herbert Hoover
“In March, when CEO Steven Herbert talked about focusing NetBank on core banking and mortgage activities, he likened the company’s journey back to profitability with traveling through a tunnel. On Monday, Herbert all but conceded that instead of seeing a light at the end of that tunnel, he now faces the glare of an oncoming train.”
Fannie Mae redemption…
http://biz.yahoo.com/prnews/070522/netu025.html?.v=8
what does this imply? trying to learn.
It seems odd. Normally one uses a cash surplus to redeem or retire higher-interest debt early to create a long-term savings. Why hang on to cash earning 4% when you can retire debt which is accruing interest at 6%?
Problem: the rates on the securities listed don’t seem all that high. I would deduce that Fannie a) has too much cash on hand, b) can’t send it out the door fast enough, and c) has already retired most of its debt. These conclusions would be inconsistent with what most folks around here see as an inevitable housing slide, however. Under those circumstances, Fannie should be hanging on to cash for the crisis.
Unless… unless Fannie expects the overnight rate to be cut at the next Fed meeting. That’s the only circumstance under which retiring 5.3 and 5.65% debt makes sense. If the fed brings the rate down from 5.25% into the high 4% range at the June 27/28 meeting, then Fannie can take out all kinds of new debt at lower rates, a housing crisis will be muted, they won’t need the cash or can get it from the new, lower-rate financing, and the move makes perfect sense. Wowzer. Does Fannie know something we don’t? What do other folks think?
As long as gas keeps going up, and pushing up the costs of groceries as such, I really doubt the Fed will cut rates.
I don’t know what Fannie’s usual cash-flow picture is, but maybe this is cash that “would have” gone to purchase a bunch of new mortgages, if a lot of new mortgages were being written. We know the writing of new mortgages has greatly slowed.
It means they can borrow new money at less than 5.3 and 5.65% (probably including a new call option).
I love the description of Fannie Mae.
“Fannie Mae and Freddie Mac were created by Congress to pump money into the mortgage market by buying home loans from banks and other lenders, to keep interest rates low and make home ownership affordable for low- and moderate-income people. They bundle the mortgages into securities for sale on Wall Street.”
“Lenders should issue loans only if borrowers can afford to repay them.” “The cause of the problem that we have today is decreasing values.”
OK, let’s put these together to understand the past and present reality.
“Lenders should issue loans only if borrowers can afford to repay them when values are decreasing. When values are increasing, on the other hand, you can lend them more than they can repay, suck all the fees and interest payments you can out of them, and then foreclose, toss them out, and repeat.”
I didn’t see you post but I was trying to say to same thing up above that you said .Also, the fact that real estate was going up was hiding the default potential of these loans . It was costing these borrowers a ton of money to refinance into another teaser rate ,burning up equity everytime on loan costs . If you have to sell a original loan based on the premise that the loan isn’t good enough to stay in ,and imply that money will be available to get a better loan ,than you are leading people into becoming refinance addicts just to stay afloat because they could never afford the adjusted payments to begin with .
Like I have said many times , the lenders were making loans based on real estate going up, which would hide all faulty lending practice.
“you are leading people into becoming refinance addicts just to stay afloat because they could never afford the adjusted payments to begin with .”
I know some home owners that had planned to play the serial refinance game FOREVER. This was an actual financial strategy, one for which many people patted them on the backs for being ‘financially smart’.
Let me guess, these idiots also bragged about their “equity”.
Did your “financially smart” home owner friends factor in the cost to refinance ? The lenders were getting such a big chunk of the “real estate goes up pie” that it was a joke, and I feel it drove the prices higher . There are alot of costs in a refinance that should be considered in determining the “real cost of money “.
About 500 people got gypped…
“USG Corp. on Monday disclosed plans to eliminate about 500 white-collar jobs, or about 10 percent of its salaried workforce, as the nation’s deep housing slump continues to take a financial toll on the Chicago building-products company.”
Ha HA Gypped — Gyprock I Get It!
Mozilo: “‘The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,’
No kidding Mozilo!! Look up Ponzi scheme buddy! Guy lacks a little common sense, no?
Right on Angelo. Real estate always goes up and borrowers always come back for more.
Hmm… been on the fence about my Everbank accounts for a while. Liked the gold funds. Liked being able to take physical possession and custody of the gold. Liked the guaranteed “top 5%” interest rates which adjusted their money market rates to stay in the top 5% in the nation. Not liking their balance sheet so much anymore. Might relocate funds. Suggestions?
Why anybody would add an unneccesary layer between and betwixt their precious metals, by having a faceless named entity having 100% control of your future, is beyond me…
Demand your physical rights~
The mattress….
“Might relocate funds. Suggestions? ” What is the risk of staying?
What is the reward of not staying? (If you have to ask the question, you already know the answer). The time to take action was about an hour ago.
I’ve been hearing that Everbank was stretched thin, but haven’t seen anything concrete. They bought Netbank, right? Is that inherently a problem?
Netbank was, by all accounts, a troubled institution with a lot of mortgage-based liabilities. Everbank (hopefully) studied all of those and bid for the company at a (hopefully) suitable discount. Otherwise, Everbank may have taken on more liability than it expected, which could further strain its resources.
Key quote: “‘The company isn’t done, but it’s close,’’ said analyst Christopher Marinac.
That’s a bit worrisome, but they’re still out there soliciting new accounts! Pretty nice interest rates, as well. For now. But I don’t think you’ll be getting interest while your money is tied up for months if the FDIC has to take ‘em over and bail out the account holders. Doh!
Everbank didn’t buy the whole company, just some of its assets.
Check these guys out, they are slow but pay well.
https://www.fnbodirect.com/01d/html/en/
First choice is gold coins hidden in the area of your choice. Second choice is goldmoney.com or Perth Mint, in which your gold is fully allocated and protected and can be redeemed. I just got the following word from goldmoney.com:
“We have opened Customer Segregated Funds Accounts for four
different currencies with our banks. Thus, you will be able
to deposit money into these segregated customer accounts in
US dollars, British pounds, euros or Canadian dollars, and
use this money to purchase gold and silver from GoldMoney.
When you decide to sell metal, the proceeds can be
deposited into these same bank accounts. Importantly, you
will earn interest on your deposit at very competitive
rates, and have 24/7 access to your deposit and your metal
through the Balances page in your Holding.
You will earn interest on your currency balances in the
Customer Segregated Funds Account. There is no minimum or
maximum deposit. Interest based on your average monthly
balance will be paid monthly, regardless of the size of
your deposit.
The fee GoldMoney charges for this new service will reduce
the interest income you receive by 1/4th of 1% per annum.
Thus if the interest rate paid by our banks is 5%, the
interest income you earn on your deposit is 4.75% after
deducting the administrative fee. Interest rates are of
course subject to change, but the present interest rates
per annum after deducting the administrative fee are:
US dollar 4.18%
British pound 5.00%
euro 3.14%
Canadian dollar 2.75%
CDs from State Farm or MetLife.
“‘There’s going to have to be some form of uniform standard by which the consumer and the industry can abide by and live with,’ James Ballentine, the American Bankers Association’s director of housing, said.”
Ballantine’s tends to be blended Scotch, a no go.
Make mine Lagavulin, on the rocks.
That’d be my uniform standard mission statement, of sorts.
gosh you think ?
‘Thus our estimate, which excludes self-employed workers, understates the actual employment in housing-related industries and could underestimate the extent of the decline in housing-related employment,’ the report said.”
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_berry&sid=a0jvfQesFpp8
Nice little column on the problem. So, if the GDP drops to 1.5/2.0% on hidden unemployment, at what point does the bell really start to toll?
Writing regional reports around the country, I have found that in places where resident employment increases (including the self employed) based on the household survey exceeded payroll employment increases (not including the self employed) based on the establishment survey, the reverse is now true. Los Angeles County is a great example.
Unemployment number goes down, lower income jobs are being taken but now count on gov’t payroll stats. Self-employed housing contractor used to make $40 hr., now takes $12 hr. job at Home Depot. Example, Denver Post today reports unemployemnt in Denver just went to 3.5%.
Isn’t there some rational way to check this against income tax and sales tax receipts. Even if you’re getting paid cash under the table, you still go spend it and that gets a sales tax. Some one a few weeks ago reported that cash remittances to South of the Border were down significantly in the past few months.
The Buck Melanoma stops here…
“Countrywide CEO Angelo Mozilo said depreciating home values are the main culprit.”
Hey, Angelo, how much Countrywide stock did you sell today? Oh, all your stock is sold, now you want a welfare program for poor, old Countrywide. What a crybaby!
I would like to know what CFC is serving in the executive lunchroom because every time Bronzilla returns from the bathroom he has a share certficate in his hand.
The soul brother of subprime sold 46,000 yesterday.
http://biz.yahoo.com/ap/070522/countrywide_financial_insider_transactions.html?.v=1
Low down can’t lend no mo’ subprime blues…
Yes, it was like an earthquake or monsoon- an act of god completely unforeseeable by a CEO of a large corporation, who would otherwise be responsible for coordinating such ridiculous notions as planning and risk management.
Candy that didn’t rot your teeth…
http://www.youtube.com/watch?v=NmTiGS8YGjw&mode=related&search=
“‘For the future, we may be able to rewrite those documents so that they’re more modification and remediation-friendly, but unfortunately (today’s mortgage-backed security) deals…and the servicer’s hands, in many respects, are pretty tied,’ Michael Marriott, a co-head of Credit Suisse’s mortgage group, told a secondary-mortgage market conference organized by the Mortgage Bankers Association.”
I call BS on this. The trustee of the MBS pool (read Credit Suisse) could modify the Pooling and Servicing Agreement (”PSA”) for greateer servicer latitude if it is in the best interest of the bondholders. The problem is not all bondholders are created equal. The “AAA” piece is sold to say a pension fund while the residual is held by the securitizer (read Credit Suisse). Modifying the terms of the loan to squeeze out X more payments as opposed to a short sale works to the benefit of the residual holder to the detriment of the higher grade pools. When the loan ultimately goes over the cliff (REO) the loss ratio is 60 cents on the dollar as opposed to maybe 30 on the dollar as a result of the short sale. But hey its all good, that residual holder got an additional x months of interest paid while the higher graded tranche that would have been whole if the loan was mitigated at a 30 cent loss as opposed to a sixty cent just got hammered.
Marriott is trying the oldest political argument in the book: If you say it, maybe it will come true.
That’s all he is doing. He is hoping you’ll buy his m@nure and not look too closely. He knows you can renegotiate the service agreement — he’d just rather not do it, and he’d also rather you not know from him that he can/should do it.
Such information cuts into his bottom line, you know…
Actually there are limits to how much they can renegotiate anything, even in future deals. These things are carefully structured to be passive so they don’t incur taxes or other potential liabilities as a business entity. Active management of the loan pool negates that.
I don’t think active management by the indenture trustee would affect their bankrupty remote status. Now if the originator of the loan got involved that would be different.
My Favorite Credit Suisse Report?
It’s maxed out, karat wise…
And serial numbered.
“‘For the future, we may be able to rewrite those documents so that they’re more modification and remediation-friendly, but unfortunately (today’s mortgage-backed security) deals…and the servicer’s hands, in many respects, are pretty tied,’ Michael Marriott, a co-head of Credit Suisse’s mortgage group, told a secondary-mortgage market conference organized by the Mortgage Bankers Association.”
“‘For the future, we may be able to rewrite those documents so that they’re more modification and remediation-friendly, but unfortunately (today’s mortgage-backed security) deals…and the servicer’s hands, in many respects, are pretty tied,’ Michael Marriott, a co-head of Credit “Suisse’s mortgage group, told a secondary-mortgage market conference organized by the Mortgage Bankers Association.”
One of the underlying creeds in the mafia:
“Keep your enemies close…keep your friends… even closer”
What does it say when bankers feel they need to give you a bit of their “friendly help”?
Keep your enemies close…keep your friends… even closer
Sorry. You got that backwards
Feh.
Italians vs Chinese…
Did you know that the Chinese read right to left and bottom to top?
‘Shares of NetBank, a self-described online banking “pioneer” founded in 1996 during the Internet boom, sold for more than $78 in 1999 adjusted for splits. They dropped $1.16 to 59 cents today, a 66 percent decline, in Nasdaq Stock Market trading.’
You have to give NetBank some credit though, seems they’ve been able to burst in both bubbles (dot.com and housing). Way to go, kids.
Reminds me of a song of my generation, “Double Shot (of My Baby’s Love).”
Countrywide’s Comeback
“After getting crushed as problems in the subprime market came to light, Countrywide Financial has regained most of its lost ground.
Bears focused on the lender’s exposure to risky loans (it was the No. 3 largest originator of subprime loans in 2006, according to Inside Mortgage Finance). Another bit of upsetting news: a 19 percent delinquency rate on subprime loans that one mortgage news publication called “shocking.” Earnings plunged 37 percent plunge in the first quarter.
But braver investors were watching a different set of benchmarks and the stock, which had slid from $45 to a low point of $32 over the course of two months, is back above $40.”
BusinessWeek
http://tinyurl.com/25dwwe
” Dead Cat Bounce “
People think that Countrywide and Wells are the 2 strongest mortgage lenders, perhaps the only ones who have the ability to weather the storm.
The thought is that most of the others will go under, and countrywide/Wells will pick up the slack, increasing market share.
it is of course risky/delusional at best.
I’ve seen no less than 5 articles discussing this possibility in the MSM
“Countrywide CEO Angelo Mozilo said depreciating home values are the main culprit.”
“‘The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,’
??? WTF??? This guy is a CEO??? What dump was he found at?
The problem was that the prices got TOO HIGH and most people could realistically NOT AFFORD the homes. And as a banker, they should have known that.
As I understand Mozillo was the founder of the company–he has certainly been CEO for like 40 years and is pretty damn smart.
You all misinterpret Mozillo. He isn’t stupid.
He needs to cover his butt.
what did you think he was going to say? “Uh, we shouldn’t have given that illegal Mexican Strawberry Picker a loan for $750,000, and that’s why our loans aren’t performing”
Of course not. He HAS to discuss why the loans aren’t performing WITHOUT implicating himself or Countrywide, and WITHOUT leading the investors to fear the truth, that Countrywide’s risk assesment and underwriting models are crap.
We’re still working on the theory of “subprime contained”. He needs to keep up the facade that this is just a subprime problem, then Countrywide will be spared, because it is “diversified” into Alt A and Prime. Then they can swoop in and pick up market share as the little lenders go under.
Thus, countrywide and Wells Fargo’s stocks will go UP in price, because many see those 2 companies as the strongest out there who can survive the implosion of the rest, then pick up the market share.
Exactly, same with his comment: “buyers were begging us to make them loans”.
He’s covering his butt against claims of predatory lending, and he’s very smart to do so.
God, I don’t want to think about his butt!! His leathery face is enough of a gruesome sight to have lingering in one’s head…
Buyers were begging him for loans!
Not to beat a dead horse, but I don’t think we should be seeing Countrywide as a victim of falling home prices here.
It’s a little chicken and egg problem.
Is the problem prices falling from unsustainable levels? Or was the problem loose lending standards driving prices to unsustainable levels in the first place?
Lenders and loose lending standards were the problem, not falling home prices.
“The problem was that the prices got TOO HIGH and most people could realistically NOT AFFORD the homes. And as a banker, they should have known that.”
They know it. They’re just not saying it in public. Because that would be admitting the boom had nothing to do with fundamentals (income, rent-to-mortgage ratios) and everything to do with never-been-seen-before lending insanity.
Prices could never reached these levels if “traditional” standards had simply stayed in place.
“‘Thus our estimate, which excludes self-employed workers
Well WTF is this dude trying to say?
Nearly all real estate sales agents and brokers are rated as self-employed, independant contractor’s who always get conveniently left out of unemployment stats.
So how is this study any gauge of employment?
What would be more interesting is a self-contained independant poll asking how many real estate agents are currently starving to death?
Anybody can list a house.
But as the repeated articles here on Ben’s blog note…t’aint no more buyers to be found. So the whole crappy system falls on it’s face.
As I read more and more of these comments, I constantly ask myself=are people really gettin’ paid for this crap?
When I was in the lending business the default rate was under 1/2 percent and often times the default on payments didn’t result in a foreclosure .The current numbers on defaults on payments that Ben posts is just mind-blowing to me ,just mind-blowing .
“NetBank Inc. will try to stay afloat by selling assets to EverBank Financial Corp. The sale will cause a loss of $60 million to $70 million, said NetBank. Regulators are ‘increasingly concerned’
Nothing says it better than…
HOME.COM BUST !!!!!
Here’s one from Big D:
http://dallas.bizjournals.com/dallas/stories/2007/05/21/daily8.html
It’s different in Dallas….OUCH!
boy howdy, you using the whole fist Doc?
That aint my fist boy, its my boot!
mozillo angel, angelo mozillo
angleo mozillo, mozillo angel
you’re no angel to me
mozillo angelo, how I loathe him
how I frown a bit when he lies
Everytime he says he can’t loan
My heart is on standby
angelo mozillo how I want him to do time
He’s got nothing that I can’t resist
but if you’d like a subprime loan, he doesn’t exist…
Pigs get slaughtered: Great story from FL.
http://money.cnn.com/2007/05/22/magazines/moneymag/retirement_interrupted.moneymag/index.htm?postversion=2007052212
Yes…Good catch Shaub…They really caught the Greed Rush Fever…Ooops…IT caught them !
Cause all empty nesters need a 3,700 square foot home @ $670,000… I don’t feel bad for them, that is excess. Get a smaller home, spend less time there, and you can be like the neighbors you envy.
Plus a second $900k vacation home on the outer banks of North Carolina. Who needs to vacation on the coast of NC when you have a huge $670k primary home on the Florida coast?!
But…but…blub, splutter…she has an emotional attachment to it. It would just create a “situation” if they were to sell it.
So she stops taking her cholesterol medicine instead? I guess she’s not too attached to a functioning heart. The amount of greed is unbelivable.
“So she stops taking her cholesterol medicine instead?”
Yeah, forgot about that part. They have $600K+ “unreleased” equity in their vacation home and, having apparently sucked in the gullible journalist, she wants us to believe that she stopped taking her Lipitor because she’s so cash-poor.
I can’t figure out why this is even a story worth reading by the general public (I know we enjoy the schadenfreude of course). The simple fact of the matter is Carol’s “emotional attachment” to their vacation home is going to sink them unless Steve find his manhood again and does the right thing by selling it and using the proceeds to dump their investment properties at a price SOMEBODY will take (obviously well below their current list price). How did these people survive evolution?
To be fair, they may generate money or break even from that property. Those NC houses, they are generally rented out by the week at fairly high dollar values. They could sell it though, and be set, and then spend $3K to rent someone else’s for a week in the future.
I think they get $36k/year from peak season rentals which doesn’t justify $900k bound up in that asset. Assuming they could actually sell for $900k.
Except if a hurricane wipes it out this summer.
That is an unbelievable story. Steve and Carol Daimler made very good money both through real estate transactions (sold their VA home for $700k, made healthy profits on many other RE investments) and salary ($200k plus/year) for their entire lives, but retire in their early 60’s with a grand total of $260k retirement?
On the outside, these folks appear to be weathly: nice home, second $900k vacation home (do you need a vacation home in NC when you live in Florida?), high paying careers, etc… But in a couple of years they might very well be bankrupt.
Believe it. The “retirement years” are going to be ugly for a lot of the boomers.
Nothing like having >90% of your net worth in real estate, especially in geographically similar areas. Amazing.
Add +NAR/REIC and MSM Propaganda
Add +Massive Greed and Speculation
Add +Massive Fed Funny Money Flooding
Add +Preditory Lending
Add +Massive Consumer Debt
Add +Massive House Inventory
Add +Crushing Holding Costs
MINUS -the Next Bigger Fool
TOTAL
EQUALS = A Housing BUST
Marvin the Martian: Oooohhhh, that makes me soooooooooo MAD!
mikey,
Add +American’s all time low savings rate
“give it to mikey…he’ll eat anything”
“If I was an FB, I would want to be able to walk away with no consequences: not taxes owed, no balance owed and no damaged credit.”
I think this is the most likely bailout, if there is going to be one:
o 1099 forgiveness for those with an income of less than X.
o “Guidance” that banks will not face regulatory consequences of accepting short sales on the grounds that they would end up even worse off without them.
o Further “guideance” that bubble-era bankruptcies and defaults could be discounted in future lending decisions on grounds of mass temporary insanity. A credit “do over” in other words.
On the other hand, the financial industry expended a century’s worth of political capital to get the new bankruptcy law through to consign debeats to eternal servitude before lending like drunken sailors. Or lent like drunken sailors only in the expectation of being able to impose enternal servitude.
Fine, as long as it’s the banks and investors that are left as the bag holders. *That*, more than anything (regulations, etc.) would tighten up the crazy lending standards.
*That* is one reason I expect continued efforts from on high to pursue a taxpayer-funded bailout. If the free market were allowed to mete just rewards on FBs and lenders, then the crazy financing would quickly dry up, homes would adjust to affordable prices and the mania would end as a source of rich profits for REIC constituents that make campaign contributions (NAR, MBA, etc).
I suggest that the retired couple in that article get back to work. 200K a year in salaries and only saved up 260 for retirement? And then run up 31k in credit card debt? hahaha!
Drunk Driver: “Hey, I wouldn’t have hit those pedestrians if they wern’t wandering around on the sidewalk like that.”
Yes, if we were still having crazy insane appreciation, all these crazy insane loans wouldn’t be ending in foreclosure. Somehow I feel free to blame the people who wrote loans that were guaranteed to end in foreclosure unless appreciation remained at greater than 10% per year.
OT: CA Renter, sorry I didn’t see your comments regarding deregulation and stated income loans until now, but I wanted to acknowledge you. Thanks for the comments. It seems that you and I think a lot alike on many of these issues. And I do not think our views are radical. Just common sense.
And yes, I am from California too. Renting as well.
Cheers!
Cheers!
“Surging defaults on subprime mortgages, which cater to borrowers with poor credit histories, and more than two dozen collapsing lenders are exacerbating the already precarious U.S. housing market.”
“Two dozen” = 2 X 12 = 24. “More than two dozen” = 74 and counting (aka “more than six dozen”)…
http://ml-implode.com/
“more than two dozen collapsing lenders”
GS,
Reporters have mastered the copy & paste…their victims of their 28.8 Packard Bell modems.
“Countrywide CEO Angelo Mozilo said depreciating home values are the main culprit.”
“‘The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,’ he said at a Mortgage Bankers Association conference.”
“‘First-time home buyers were begging us to make them loans because they thought home values were going up significantly, and so they put a lot of pressure on us to make them loans,’ he said.”
tHIS FRIGGEN IDIOT SHOULD BE FIRED IMMEDIATELY BY THE SHAREHOLDERS OF COUNTRYWIDE.
“‘First-time home buyers were begging us to make them loans because they thought home values were going up significantly, and so they put a lot of pressure on us to make them loans,’ he said.”
Um, yeah. And how is this different from the wino who stumbles up to the bar and tries to badger the bartender into opening an unsecured tab for him?