Stalled Prices And Rising Defaults Have Revealed A Mess
Some housing bubble news from Wall Street and Washington. Reuters, “Accredited Home Lenders Holding Co., a struggling subprime mortgage lender, said on Monday it agreed to be acquired by private equity firm Lone Star for $400 million. Accredited Home cut 1,300 of its 4,200 jobs in the first quarter, when lending volume sank 47 percent from a year earlier and delinquencies tripled.”
“‘It’s the end of the specialty mortgage player, for now,’ analyst Matt Howlett said. ‘You need a big balance sheet to compete, and diversified sources of funding. It’s everything the pure subprime lenders don’t have.’”
“The terms value Accredited Home at $15.10 per share, 72 percent below where it traded one year ago.”
The News Tribune. “Noting an operating environment that is ‘more challenging than it has been in recent years,’ Federal Deposit Insurance Corp. Chairman Sheila Bair warned that regulators and bankers ‘need to ensure that new global capital standards do not threaten the safety net.’”
“That net of capital on hand stretched during the first quarter as bank income fell. The FDIC said income fell because of ‘the housing slump, unfavorable interest rate conditions, slower growth in the U.S. economy and higher levels of problem loans.’”
“‘Higher expenses for credit losses at large banks and narrower net interest margins at smaller institutions posed the biggest challenges,’ Bair said.”
From Bloomberg. “In the options market where the savviest investors take apart conventional wisdom, the Federal Reserve is facing growing pressure to consider raising interest rates as soon as December.”
“Options on Federal Fund futures at the Chicago Board of Trade indicate a 41 percent chance the central bank will lift its target rate for overnight loans between banks to 5.5 percent from the current 5.25 percent, according to data compiled by Bloomberg. A month ago, they showed no expectations for an increase.”
“‘The economy is in better shape than people give it credit for,’ said Jamie Jackson, who oversees government debt trading at RiverSource Investments, which manages $100 billion of bonds. ‘People exaggerated the pass-through effects of the housing weakness. If the Fed were to do something by year- end it would be a tightening.’”
“The chance of at least one cut in the overnight lending rate between banks has fallen to 29 percent from 83 percent since the start of May, options prices show.”
“UBS AG, among the biggest bond bulls this year, changed its forecast on June 1 for the Fed to begin cutting rates in October from August.”
“UBS, along with Merrill Lynch & Co., Goldman Sachs Group Inc., had been predicting a housing-led recession would result in at least three rate cuts this year.”
“‘The case is building more and more’ for Fed rate increases, said Richard Schlanger, who manages $4 billion in fixed income. ‘We are definitely seeing more and more people moving away from the Goldman and Merrill argument that the Fed is going to cut multiple times.’”
The Associated Press. “Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 house in Weston, Fla., a few miles west of Fort Lauderdale.”
“Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.”
“The growing practice is sending shivers through the mortgage industry. Federal regulators are also reviewing the practice. And after being contacted by The Associated Press for this story, Fair Isaac Corp., the developer of the widely used FICO score, said it will change its credit scoring system beginning later this year in a way it contends will end this little-known but potentially high-impact mortgage loan loophole.”
“Ginny Ferguson, a credit expert for the National Association of Mortgage Brokers, considers the practice mortgage fraud, and the trade organization is about to release a policy statement against it.”
“‘These companies are encouraging consumers to commit fraud. On a standard home loan, there’s a clause that says the consumer is not omitting pertinent facts that could impact his or her ability to repay the loan,’ Ferguson said.”
From Forbes Magazine. “These days just about every mortgage is flipped by a lender to another one or sliced up into pools of securitized packages that are sold on Wall Street. The financial engineering helped oil the housing boom by making credit more available.”
“But stalled housing prices and rising defaults have revealed a mess: In the rush to flip paper, lots of the new lenders or pools don’t have the proper paperwork to show they even hold the mortgage.”
“There is a case in Kansas with no documents to show a bank owns the loan it says it does. In another, ownership of a loan was recorded on a single date in the name of two different lenders.”
“For the lenders, a possibly bigger threat on the horizon is that homeowners’ lawyers will bust up the ‘holder in due course’ doctrine that makes it easier for subsequent owners of an IOU to collect. The rule is enshrined in many federal and state statutes, but a judge could nonetheless find a way to side with the homeowner, particularly if a loan is purchased after it goes into default.”
“‘It’s clearly the direction to go,’ says Ohio Attorney General Marc Dann. He recently announced he’ll amend his suit against defunct lender New Century to possibly list as defendants the banks overseeing pools that bought its loans. ‘These pools are more than innocent holders.’”
From Crains Detroit Business. “Subprime mortgage lending decimated many of Detroit’s older neighborhoods 40 years ago as an ill-conceived federal response to the 1967 riot. Today, private lenders are promoting the same potentially damaging practice.”
“Detroit was picked as the principal target. HUD directed tens of thousands of subprime loans into the city’s changing neighborhoods to individuals who could not afford the cost of maintenance or resale, resulting in massive foreclosures, abandonments and wide- spread destruction of stable blocks of housing.”
“Today, history is repeating itself. Detroit leads the nation in foreclosures, and subprime lending is seen as the principal cause. With property values down, many subprime borrowers cannot resell their homes without a loss. Nor can they pay the broker’s fees, repair costs or closing expenses involved in a resale.”
From MarketWatch. “Defaults in subprime mortgages have led some lenders to adopt stricter standards in approving loans, imposing more discipline on borrowers and the lending industry alike.”
“But the biggest shift in mortgage trends has come from consumers themselves, who have been fleeing to the relative safety of fixed-rate loans over the last 15 months.”
“ARMs made up a 41.9% share of all mortgage originations in January 2006 but have ‘plummeted’ since to an 18.4% share in March 2007.”
“A survey recently released by TransUnion’s TrueCredit.com also showed a year over-year decrease in the number of those with ARMs. According to the survey, 24% of American homeowners with a mortgage said they were concerned about the monthly cost of their loans; 13% are worried they’ll end up owing more than what their home is currently worth. In addition, 11% are worried about a payment increase when their ARMs adjust.”
“Citing statistics from a recent Federal Reserve survey of loan officers, Doug Duncan, chief economist for the Mortgage Bankers Association, said that 56% of loan officers were tightening their standards for subprime mortgages and 45% were tightening standards on nontraditional or Alt-A loans. Subprime loans are made to borrowers with weaker credit histories; Alt-A loans often are low- or no-documentation loans.”
“‘You can still get a no-down payment (mortgage),’ he said, ‘but you’re going to have greater wealth…and more evidence of that (financial) strength than you had a year ago.’”
“The TrueCredit.com survey also spotted some borrower misconceptions about the true cost of a mortgage, finding that 62% of those surveyed think the average homeowner with a 30-year fixed-rate mortgage will make interest payments of no more than 100% of the loan’s face value over the life of the loan.”
“In reality, a homeowner with a 6.75% rate will pay closer to 150% more than the amount of the loan itself, said Lucy Duni, director of consumer education for TrueCredit.com, in a news release.”
“‘On a $200,000 mortgage, that would mean payments totaling $466,000,’ she said.”
wow, lots of carnage in this batch of articles.
Yeah. This is the start of the “ugly” people here have been predicting.
Neil, popcorn is not going to ct it. Got whisky?
“ARMs made up a 41.9% share of all mortgage originations in January 2006 but have ‘plummeted’ since to an 18.4% share in March 2007.”
Hmmm…think this has anything to do with plunging sales in so many markets? Funny money going away. IO’s finally getting the terrible rap they deserve. Who’s left? The few buyers that can actually qualify for a fixed rate loan and handle the full P+I payment.
The difference in rate between a fixed and an ARM over the past couple of months has been nominal (less than 25 basis points) so why would anyone go for the ARM right now? An ARM only makes sense (even for the short-term) when there is a bigger spread between the rates. Therein lies a big part of the drop + most of the option ARMs have gone bye-bye.
you’re forgetting the option arm, which allows for payments of much less than the fixed.
“ARMs made up a 41.9% share of all mortgage originations in January 2006 but have ‘plummeted’ since to an 18.4% share in March 2007.”
That’s a huge drop. Wonder want it will be in June 2007.
What a difference a couple of years makes! I read in the SD Union Tribune yesterday that 80%+ of loans made in the SD market during June 2005 were ARMs, which are due to start resetting two years after their origination date (i.e., about right now). I personally don’t understand how most would-be buyers can possibly afford to purchase at current lofty prices using fixed rate financing, as the main reason to use ARMs, no doc and I/O loans was to qualify buyers to purchase homes they could not otherwise afford on fixed rate terms.
I personally don’t understand how most would-be buyers can possibly afford to purchase at current lofty prices using fixed rate financing….
Uh, they can’t.
I disagree. Stupid rich people (inheritances, trust funds) will simply be stupid when this is said and done. Right now they’re buying “investments” at 20% off 100% overvalued prices.
And 2 years from now when their ARM resets, the cycle begins again. That’s why this is going to be such a long unwinding.
There is a limited supply of stupid rich people.
The stupid rich people’s “investments” of choice are more expensive than the average, hence the rising median, reduced volume.
“There is a limited supply of stupid rich people.”
Bingo. Moreover, all the “stupid rich people” I know are not stupid, and they are already comfortably housed. Maybe KirkH knows of a deep pool of stupid rich investors whose paid financial advisors are also too stupid to realize the game, set, match and tournament have ended?
You’re all right, there are a bunch of stupid rich people in this coutry. Example: “Parents spend $8000 to fly their kid to summer camp”. … really….
http://tinyurl.com/33sfxh
And to think my parents could off me for a week, @ ymca summer camp, for around $100.00, back in the day~
I thought I was reading The Onion for a minute there. I seriously had to double check.
No surprise, Mom’s a money-grubbing land developer. Kinda hot though.
I wonder if that kid hates herself.
She’ll just cry in the bathroom if her nails don’t get done before the flight lands
According to the article, the kids demand it.
Too funny!
Full disclosure:
The bus ride part did suck, in the summer camp o’ my yout~
That’s a good point. I would if it has to do with the bottom falling out of the markets, i.e. those that are still able to buy are moving large amounts of equity from existing purchases so they can “afford” fixed rate terms. I would think that there are still some people like that out there that can still move up, but the numbers are shrinking fast.
“In reality, a homeowner with a 6.75% rate will pay closer to 150% more than the amount of the loan itself, said Lucy Duni, director of consumer education for TrueCredit.com, in a news release.”
At least you are not throwing away money on rent. Oh, and then there is a wonderful thing called property taxes.
I bet there isn’t a SFH in Cali that no matter how it’s financed, or not financed at all, can give a competitive return. But I guess it’s all worth it.
This was sort of an odd example. It’s true 133% ($266K/$200K) is “closer to 150%” than to 100%, but the phrase “closer to 150%” seems like an intentionally slanted way of talking about 133%. My clients, on the other hand, are ostensibly on the hook for interest closer to [but NOT] double the original principal.
E.g., SFH, 8.5%, 30 years, interest about 180% original loan, i.e., total payments about 280% of original loan. However, very doubtful these interest payments will all be paid. After a few years, such a creditor repairs his/her financial condition and gets a lower-cost loan from somebody else. Of course, if prevailing rates rise, my heirs and assigns might be still carrying these folks.
After a few years, such a creditor repairs his/her financial condition and gets a lower-cost loan from somebody else.
This only works in an environment of rising collaterals. Otherwise, all bets are off, and the risk premium increases. Can’t extrapolate from the fat years onward.
max, what about the tax consequences?
I was hit with that one this weekend by a Real Estate TURD! Along with the LOW interest rate scam! He just stared blankly at me when I told him I would gladly pay a higher interest rate and less for the house. Doesn’t his make sense in the “Tax” savings argument? If I pay a higher interest rate, I’ll get a higher deduction?? Plus I can always refinance to a lower rate and since I did not pay top price I will not owe that much $$ and can pay off the mortgage in 15 yrs!
I was hit with that one this weekend by a Real Estate TURD! Along with the LOW interest rate scam! He just stared blankly at me when I told him I would gladly pay a higher interest rate and less for the house. Doesn’t this make sense in the “Tax” savings argument? If I pay a higher interest rate, I’ll get a higher deduction?? Plus I can always refinance to a lower rate and since I did not pay top price I will not owe that much $$ and can pay off the mortgage in 15 yrs!
“Sub prime mortgage lending dicimated many of Detroits older neigborhoods.” I see this happening to small towns too. An example is Belgrade Mt.
Subprime lending isn’t the cause though; it’s a symptom. Detroit has some major, major problems (I lived in the suburbs for many years). These neighborhoods would have been decimated anyways.
“These neighborhoods would have been decimated anyways. ”
True, particularly because of the mayor at the time - Coleman Young. However, this round of sub-prime has impacted all the Detroit suburbs not just the city. FB’s seeking to flee the city’s problems and school district “bought” the house of their dreams - with stated income and nothing down. Given that some of these people were the root of the city’s problem, Detroit’s mess has been exported to the burbs. That said, the metro area probably has less toxic loans out there - the market didn’t have alot of velocity during the big sub-prime years, at least not to the extent of CA, AZ and FL. Prices have been falling hard for a few years so that anyone who bought in this decade is underwater. Either sell and bring money to the closing table or get foreclosed. In the old “hot markets” it’s only serial refi’ers and FB’s who bought after 2004 that are in that position.
You are right- the reason for the sub-prime experiment in Detroit was to attempt to foster some ‘pride of ownership’ in blighted neighborhoods, to try to prop up property values (and tax base).
Failing to take into account human nature, it turns out that those who had none of their own equity in their houses, and no good history of building equity, saving, or paying back their loans, also did not care for their new houses.
Lack of good paying jobs destroys neighborhoods.
People don’t need subprime loans. They need paychecks.
Amazing how the powers that be just don’t get it. I’m sure that they are celebrating (behind closed doors) our collapsing standard of living. After all, lower wages will make us “competitive” with 3rd world sweat shops.
“Lack of good paying jobs destroys neighborhoods.”
Exactly. This is precisely why I have balked at the ridiculous prices being paid for rural properties in western WA which are several hours away from any decent jobs. People talk about an areas “potential”, but I look at the here and now, and housing was the ONLY thing making money in many areas. The cities and towns with poor economies are going to get hammered. There is no way around it.
Which is good in my book, BanteringBear–I’d love to pick up a place in “rural” western WA sometime during the coming downturn.
They also need houses that they can buy and live in based on the income of the neighborhood at 30 year fixed, 20% down.
Amen to dat.
I was just thinking that Dr. Chaos. As productivity in America was on the rise, those with influence substituted easy credit for income for most workers while the upper echelon pocketed the difference.
Most people accepted that situation like nothing was different. I wonder how many will never even realize what happened.
Glenn Beck and Mary Matilin (Rep Rah Rah Girl) were exclaiming last night how horrendous it was that some people thought CEOs should feel any guilt about their compensation packages. I keep wanting to vote Republican but that party just continues to repulse me at every turn. These people just don’t get it. Even Iaccocco is disgusted.
http://www.bordersstores.com/features/feature.jsp?file=wherehavealltheleadersgone
Excerpt
Where Have All the Leaders Gone?
By Lee Iacocca with Catherine Whitney ——————————————————————————–I
Had Enough?
Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder. We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, “Stay the course.”
Stay the course? You’ve got to be kidding. This is America, not the damned Titanic. I’ll give you a sound bite: Throw the bums out!
You might think I’m getting senile, that I’ve gone off my rocker, and maybe I have. But someone has to speak up. I hardly recognize this country anymore. The President of the United States is given a free pass to ignore the Constitution, tap our phones, and lead us to war on a pack of lies. Congress responds to record deficits by passing a huge tax cut for the wealthy (thanks, but I don’t need it). The most famous business leaders are not the innovators but the guys in handcuffs. While we’re fiddling in Iraq, the Middle East is burning and nobody seems to know what to do. And the press is waving pom-poms instead of asking hard questions. That’s not the promise of America my parents and yours traveled across the ocean for. I’ve had enough. How about you?
I’ll go a step further. You can’t call yourself a patriot if you’re not outraged. This is a fight I’m ready and willing to have.
And he’s for amnesty. Earned income credit and free healthcare, education, chain migration for the illegals. To hell with Iraq. Protect our southern (all) border and deport the illegals. There will be 50 million in 10 years and your taxes will have doubled or tripled. Wonder if I can work for cash?Oh well, the vacant houses will all be occupied and Horton stock will be $150 per share.
The Auto worker’s unions and the welfare system destroyed Detroit.
Duane,
I was born there. Grew up in Billings. Grandparents still live in Churchill. Are prices finally starting to drop around there. I’m tired of living here in southern California and would like to move back to the Gallatin Valley, but I thought prices were just stupid high. I can at least get a good engineering job down here to pay for insane rent, but up there? I doubt it. What are prices doing on the properties by the mountains on the east side? Thanks.
The boom is happening in Livingston too. People think some shack there should bring a minimum of $200,000. Livingston is now a bed room community of Bozeman, because nobody that has to work for a living can afford to live in Bozeman. At least the what I read in our local media. Well, that isn’t a exact Quote, but that what she (a realtor) meant.
Ps. Belgade isn’t the same place you grew up in. I compared it to Detroit because the same prosseses that screwed up Detroit are at work there. The city is getting filled up with a lot of marginal people. The number of criminals ( I mean felones) that live there is unreal. If there is a bugulary, car thieft or robbery, anywere in the valley, nine out ten times the perp lives in Belgrade.
Bozeman = “Boz Angeles”
Belgrade = “Bo Vegas”
Lots of crappy homes in and around Belgrade going for high prices during the boom. Are you seeing capitulation in Belgrade? I always figured the condos and outlying areas would tank first, followed by the “in town” more desirable areas.
I haven’t see any capitulation yet. Construction is still at full speed ahead. But that whats is expected as long as the money tap from the banks are still open. Two things, the Chronicle has not had very many stories about homes, real estate or developers lately. A few articles, but not near as much as there has been. My experience over the years, living in Bozeman, is when the Chronicle stops publishing stories about a subject, there is a lot bad news they don’t want the public to know about. If you were living here during the Art Center fiasco, that was an example. Two, remember that laywer that set up the corporations for that contactor with three unfinished homes in Elk Grove. Another client of his has a subdivision on South 19th, about 150 lots. They have sold seven. They are desperatly trying to get out of state investors (Californians) to buy lots. What is unreal around here, how little people understand the problems that California’s economy is having now, and how it is going to affect Bozeman. Of course the local media helps in this ignorance, I can’t recall a single story published, in the Bozeman, Billings or Great Falls paper about the fall of the California market. This really bothers me because a lot contractors are not the most worldly guys, lot believe everything they read in the local papers. I can see most of them wiped out, broke, and bankrupt.
Buddy of mine I went to school with in Wyoming (I came here to California while he moved to Bozeman after graduation) joined the Belgrade Volunteer FD. Tells me everyone he meets is in construction. I keep asking my grandfather what everyone does around there that can support that growth and those prices. He says that there is a lot of small businesses, tele-commuting, etc. I look at my job and think that I still have to go into the office for my job and am sure that these people have to also. I can only assume that it is just a dragon that is feeding itself. One day, it will end.
We’re not even in recession yet and FDIC is getting streached. I’ve mentioned it to my family already. That FDIC guarantee isn’t something I’m willing to put all that much faith in. In the end, having a paid off house may still beat out money in the bank. It’s part of why I still haven’t joined the sell and rent crowd.
FDIC is an insurance corporation. Its reserves are quite minimal. Go to their website and do some research. Five minutes of time is quite enlightening.
FDIC is backed by the US treasury. The taxpayers are on the hook.
Here is a link to the FDIC. They have a fund of 49 billion covering 3 trillion in deposits. I didn’t say it, they did. That is 1.6% by my math. They receive no money from Congress. Please read the link. It may not be accurate, but it is what the FDIC says they do.
http://www.fdic.gov/about/learn/symbol/index.html
From the link: “The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities.” But what happens when premiums are insufficient? As far as I know, the federal guarantee will kick in. It’s similar to FHA mortgages - so far, they don’t cost the taxpayer, but wait until they default in large numbers.
But what happens when premiums are insufficient? As far as I know, the federal guarantee will kick in. It’s similar to FHA mortgages - so far, they don’t cost the taxpayer, but wait until they default in large numbers.
see my post below…
FDIC is currently funded at much better than historical levels because bank closings have been few and far between in the past 10 years. Troubled banks are sold before they fail and the FDIC doesn’t have to pay the tab.
If the reserves aren’t sufficient to cover mounting losses in the future, they just raise the premiums we (banks) have to pay. In the end of course, banks will raise fees to consumers to cover the increased premium.
If anyone is truly concerned about an FDIC meltdown (extremely unlikely event IMO), do some checking on your individual bank’s capitalization and/or don’t put more than $100,000 in any one bank.
Traditional banks typically don’t hold many long-term mortgages, so their risks are tied primarily to construction and other short-term borrowings.
The safest way to hold dollar based savings is to open a Treasury Direct account. After that you can buy a treasuries only mutual fund. That way you choose what type of securities your money is in instead of the banks.
Taxes are politically untenable. The holders of $US-denominated obligations are on the hook.
10-4
no debt is a good hedge
even the wife isn’t worried about a bigger house anymore
“In the options market where the savviest investors take apart conventional wisdom, the Federal Reserve is facing growing pressure to consider raising interest rates as soon as December.”
*******
Yes.
I say: “Do the Volcker and drain the liquidity cesspool!”
Let’s see…5.5% would probably mean Vanguard Prime Money Market would yield 5.35%. Not bad! T-bills are primarily where my Treasury investments are. I was expecting interest rates to be up to 7.25% by the end of this year. Since this is the half way point, my prediction is wrong. My strategy with treasuries is still the same, nonetheless - stay mostly in T-bills but get an occasional ten year note. when I see rates on notes increasing, I’ll add more of them.
No kidding. Bring on the hikes. The more the better.
Not that they will, of course.
What’s a fellow gotta do to start a good old fashioned run on the bank?
From Wikipedia:
“In The Count of Monte Cristo the protagonist Edmond Dantes, in disguise as the fabulously wealthy Count of Monte Cristo, takes revenge on Danglars by withdrawing huge sums of money under a letter of credit from another bank which gives ‘unlimited credit’. This, combined with rumours of insolvency, leads to the bank’s collapse and disgrace for its founder Danglars.”
Or
“In the film Sneakers, it is discussed that one of the abilities of a code breaking device is to cause bank runs.”
“Noting an operating environment that is ‘more challenging than it has been in recent years,’ Federal Deposit Insurance Corp. Chairman Sheila Bair warned that regulators and bankers ‘need to ensure that new global capital standards do not threaten the safety net.’”
To mix metaphors - apparently the FDIC safety net wasn’t made to handle the simultaneous falling of dozens of elephants that were standing in the room.
Lieutenant Dann saving all the Forest Gumps, across the land…
“‘It’s clearly the direction to go,’ says Ohio Attorney General Marc Dann. He recently announced he’ll amend his suit against defunct lender New Century to possibly list as defendants the banks overseeing pools that bought its loans. ‘These pools are more than innocent holders.’”
Forrest Gump saved Lieutenant Dann. But then, Lieutenant Dann invested Forrest’s Bubba Gump Shrimp profits in some kind of fruit company and made him a millionaire.
“Lieutenant Dann…Ice Cream, Lieutenant Dann!”
A hypothetical question given some of the previous comments: for those of you who have significant money in a bank, what events or data would have to come to surface in order for you to start withdrawing money from the bank?
There is a lot of half-joking regarding bank runs and the FDIC, so maybe it is worth doing a thought experiment about what it would take the posters on this board to do something that most would presently consider a tin foil hat move.
Of course, keeping in mind that if you are going to panic it is best to panic first.
FDIC covers deposits up to 100k. If you have more in an account, it’s not covered (except some type of retirement accounts up to 250k). FDIC also doesn’t guarantee liquidity, because it may take some time to sort out the failed bank, and you have to wait for your money. Also, as far as I know, FDIC doesn’t guarantee interest, so your high yielding CD might come back to you with zero yield or the low yield the new bank pays.
You can do what I did: diversify.
I have savings accounts at:
1. a local bank
2. Wells Fargo
3. emigrantdirect.com
4. HSBC.com
5. INGdirect.com
6. local credit union.
The hope is that no more than one of them will fall at the same time.
If banks start failing en masse, I would assume that cash will be relatively worthless and we’d probably return to a bartering system for a while.
if it got to the point where I was really worried, I would buy some form of hard asset. Perhaps Gold or Silver. Or perhaps things like guns, ammunition, cigarrettes, canned food goods, etc for barter.
that said, i doubt we’re anywhere near any of that. We’ll probably see a big bank or two go down, but I think that will be it.
the FDIC will try to save the day, but be unable. They will then have a Senate hearing about “systemic risk” and a bailout package will be done.
it’s like past bailouts, where not only did the FDIC/govt bailout all the FDIC insured accounts, they ALSO bailed out all the other accounts too to “keep faith” in the system. rediculous.
privatize profits, socialize risk. Trademark of the USA.
Read about Continental Illinois Bank Bailout. (it was once the 7th largest bank in the country).
there are some good case studies on this.
But basically, the bank made a lot of bad loans/deals, an obvious bank run was going to happen. They thus whined to regulators and congress, which led to not only a bailout of FDIC accounts, but ALSO to all the Non-FDIC accounts, AND the bondholders. ONLY the stockholders “lost” and even then they didn’t for reasons too complex to go into now.
It was then Govt owned (80%) for 10 years until BofA took it over (at substantial discount to its worth).
http://www.answers.com/topic/too-big-to-fail-policy
In the case of CI, there was also a funding problem. All short term “hot money” because of the one branch banking in Illinois. When the loan portfolio started to crack the large interbank deposits fled.
In Russian the word for jar (a glass container with a screw on lid) is bank. There is a joke that the best bank is a “bank” meaning to put your money into a jar!
That jar-saving strategy won’t protect you from getting burried in a blizzard’s worth of helicopter drops.
I can not believe we are back to talk of financial armageddon.
Fractional reserve banking, dirivatives and hyper inflation etc. etc.
I just want to wait for 10x rents in my part of town.
If banks start failing en masse, I would assume that cash will be relatively worthless and we’d probably return to a bartering system for a while.
The very opposite, cash will be king. Ever hear of the Great Depression? When banks fail, money goes away (deflation). If you still have cash, you can name your price for what you want to buy.
Red Pill,
First, if your state has an income tax, I would put a lot of money in T-bills. I have T-bills maturing every week and just roll them back in from a bank account. I’m like House Inspector Clouseau. I have a couple bank accounts from different banks and two credit unions. Also since a good chunk of my savings bonds are more than 5 years old, I have liquidity in them and can redeem them at my bank. It’s easy to beat the $100,000 limit. The final safe place is an alternative currency to the dollar - precious metals. You should have a good amount in PMs.
Keep your balances below $100k. If you want to keep liquidity, buy 3-6 month treasury notes. That’s my strategy for keeping cash safe.
Do it now. No reason to wait if you have liquid assets.
I honestly don’t even get the very idea of “bank run” in the age of electronic fiat currency. After all, the govt has a virtual printing press, and can always print more. Inflation risk is another story.
90 day agency discos
“For the lenders, a possibly bigger threat on the horizon is that homeowners’ lawyers will bust up the ‘holder in due course’ doctrine that makes it easier for subsequent owners of an IOU to collect. The rule is enshrined in many federal and state statutes, but a judge could nonetheless find a way to side with the homeowner, particularly if a loan is purchased after it goes into default.”
Be still, my heart! Anyone for a Schadenfreude Party?
Judo, or jujitsu. Using the strength of the opponent against him.
Anyone see the movie “Body Heat” with Kathleen Turner and William Hurt? Well, as a result of all this news, I have a song in my heart and want to do the Ted Danson/Gene Kelly dance across the condo parking lot, Florida humidity and all.
Ah, yes, the blanket hath descended on Florida, by which I mean the tropical storm dragged in our summer humidititty season. My car has been shorn of its love-bug beard. And yet, the reporting here on this blog gives me hope that all’s right with the world…
Ah, yes, the blanket hath descended on Florida, by which I mean the tropical storm dragged in our summer humidititty season
Humid titty was always my favorite season!
Can anyone provide more info on these “internet companies” that somehow are able to pump up a person’s credit score for a fee?
How does that work anyway?
I’m kind of interested in upping my own credit score too, although not through such shady means. I’m just wondering if there is anything in their technique that I might find useful…
go to creditboards.com and read everthing they say to do to increase your score. i went from a 482 fico 3/2004 to 705 middle score now. it helped when i bought a new home in nw az. about 6 months ago. i got a 30 year fixed 6.25% loan with no prepayment penalty.
Also creditnet.com
also myfaircredit.com
also Buddhibbs.com (local guy I also know and can totally recommend)
I guess you are entitled to call yourself azrenter even though you are no longer a renter, if I am entitled to call myself az_lender when I keep trying to stop lending. (Last = 4/1/07)
i was a renter after selling in aug 2005. i finally found a builder last fall who gave me what i wanted. 1/4 acre 3/2/3 car garage in city limits for $192,500. he built to my specs, like colors, tile ,landscapeing, 6″ exterer walls, block walls around house, ccrs that i can live with. after i moved in i had him build a single car garage in back yard for a workshop. he is still selling homes here, when everyone else in town are looking for buyers. he sells off of 2 models and starts building when you make a large deposit. nice homes at a fair price.
The way it works is people who have great credit will add you as an authorized user to one of their accounts without actally giving you access to it. Then their long history of consistant payments will be on your credit record boosting your score. It is outright fraud in my opinion and the FICO people are setting up a way to change the rules to prevent it.
Email me off line and I’ll give you the link to a lawyer who does that stuff exclusively. I can personally recommend him, he’s very good. Also has access to the “rent-a-tradeline.”
gymnastgal32 at yahoo dot com
This was when people were being added as an authorized user to someone else’s credit card. The trade line was being reported to all three reporting agencies and giving the person a boost in their credit quickly. This practice is now being terminated.
“‘You can still get a no-down payment (mortgage),’ he said, ‘but you’re going to have greater wealth…and more evidence of that (financial) strength than you had a year ago.’”
Gee, do you think if these folks had ANY wealth to begin with that they would need 100% financing? Everyone I know who did these loans had no money saved and took out an ARM.
Tell me about it! Our first home was purchased with an FHA loan, and I remember working a second job to save up for the downpayment (3% IIRC) and closing costs. I also recall that we had to provide all sorts of documentation and needed to show some cash reserves. I recall that we had to show about 12k in the bank, and a paper trail to show that it was “earned” income.
All this to buy an 80K townhouse in 1988.
What is especially funny about that purchase was that my coworkers chastised me for “aiming low” and that I should have gone out on a limb and bought a house (150K minimum back then).
Or were gambling on speculative property with Other People’s Money, a Stated, No Ratio IO loan, and about 10 other properties. If debt-to-income were baked into FICO somehow, I think a lot of problems would go away. Luckily, a lot of that no-ratio crap is drying up but there are always cracks for the slime to flow.
AND YET WE STILL HAVE $600K townhouses priced to sell in Los Angeles, Glendale, Pasadena, Burbank, etc….
I should restate this in every article posted…not that I’m trying to prove anyone wrong…but rather trying to understand why there are so many stupid people living in these areas STILL.
Because they have bought into the notion that the California “lifestyle” is “worth it”. Nevermind that they have the same restaurant and retail chains as everywhere else, and that a mall in Burbank in no different than a mall in Tulsa. Same movies, same Broadway on Tour musicals, same sport teams (oops, still no NFL in LA). That, plus nightmarish traffic jams and crime. The things that you spend 98% of your time on are no different than anywhere else. Plus most of it just plain ugly (Santa Ana is more representative than Mission Viejo or Newport Beach!)
“AND YET WE STILL HAVE $600K townhouses priced to sell in Los Angeles, Glendale, Pasadena, Burbank, etc….”
Ah don’t sweat it. I live in SFV. Inventory’s climbing like crazy. Banks are tightening. It won’t matter how much some dumbass wants to overpay for a property if the bank won’t give him/her the money. I think the market here will go flatline for the next few months…i think you’ll start to see your price declines (thought nowhere near the bottom) by the fourth quarter. Patience.
my mom’s neighbor in pasadena sold his condo for one million exactly. the new guy who bought the 2bd/3bath is in the film industry and turned his new condo into his office! he lives somewhere else.
Anyone watching Alphonso Johnson in front of the National Press Club live on CSPAN 1 now?
Alphonso just claimed that it costs 115,000 bucks just to get a lot approved in California.
That sounds about right (and that’s the main reason the coasts have seen huge appreciation while fly over states with growth haves seen cites spread out further and further). Pick your poison.
And SoCal hasn’t sprawled? At least in flyover country the sprawl isn’t in a place as ugly as the Inland Empire!
SERIOUSLY…the Inland Empire is perhaps one of the ugliest places on this planet. What an absolute SHTHOLE!
$115k is high. Now, this number is not out of the question if you are trying to develop a site on the coast (Coastal Commission), on landfill, with wetlands mitigation (Army Corp of Engineers). For a flat piece of property where a city WANTS development, the costs are far less. Now, city permits and fees, that’s a different story.
All over– catch it on the rerun, probably at 4am knowing CSPAN.
Jackson did say there will be no bail out but that there would be some “refinancing.”
Doublespeak?
Total doublespeak. So just as soon as every private subprime company is tightening standards, he proposes to have the gov’t loosen their standards. This guy should be chastied and fired (if we had actual leadership).
“…gov’t loosen their standards.”
Also wants to increase the conforming limit for FHA loans (as do numerous politicians) — the quickest way possible to pass the trash to the U.S. taxpayer, who will be on the hook for the FHA loan guarantees of FBs who bought homes they could not afford in coastal bubble zones.
Maybe relevant, maybe not…
STATEMENT BY HUD SECRETARY ALPHONSO JACKSON ON HIS PARTICIPATION IN THE U.S. - CHINA STRATEGIC ECOMOMIC DIALOGUE
“The U.S.-China Strategic Economic Dialogue taking place in Washington over the past two days has been very constructive. Discussing the mutual benefits of the growing connectivity between the economies of our two countries is an important topic. One statistic in the financial marketplace bares this out most of all: In 2002, the total Chinese investment in U.S. agency mortgage-backed securities was just over $100 million. By June 2006, this number had grown to over $107 billion — a nearly 1,000-fold increase in less than 5 years.
The Chinese economy is benefiting from high-yielding, safe investments in U.S. mortgage-backed securities. Here at home, American homeowners are benefiting from lower interest rates on mortgage loans resulting from greater Chinese demand for these securities. It’s a win-win for the U.S. and China and our peoples, and I look forward to further discussions with my counterpart when I travel to China to talk about integration of our capital markets.”
http://www.hud.gov/news/release.cfm?content=pr07-072.cfm
Highly relevant…
Jackson urges reforms to help subprime borrowers
By Robert Schroeder, MarketWatch
Last Update: 2:39 PM ET Jun 4, 2007
WASHINGTON (MarketWatch) — The Federal Housing Administration can now help “tens of thousands” of borrowers of subprime-mortgage loans, and potentially more, if Congress passes a law reforming the agency, the secretary of Housing and Urban Development said Monday.
In remarks prepared for a speech at the National Press Club, Secretary Alphonso Jackson said that about 20% of subprime loans are “headed for trouble,” with borrowers facing difficulty affording new, higher payments. More loan adjustments are due next year, he added.
The housing administration can help some of those borrowers by extending loan terms, temporarily reducing their payments or making a partial claim by the FHA insurance fund, according to Jackson.
“There are tens of thousands of homeowners whose reset rates are about to hit like a ton of bricks who could benefit from refinancing into federally insured mortgages,” he said.
‘I think the subprime-loan problem has given Congress the impetus to pass this legislation.’
— HUD Secretary Alphonso Jackson
http://www.marketwatch.com/news/story/jackson-urges-reforms-help-subprime/story.aspx?guid=%7BF053F8B8-334B-4CC1-9BCC-4C6AA380A00E%7D
everything BIG GOV LOV toches turns to sht
and the sheople want more !
HUD directed tens of thousands of subprime loans into the city’s changing neighborhoods to individuals who could not afford the cost of maintenance or resale, resulting in massive foreclosures, abandonments and wide- spread destruction of stable blocks of housing.”
http://itulip.com/forums/showthread.php?t=1404
How messed up is Detroit?
http://transport.seekingalpha.com/article/36597?source=feed
Yikes, pretty damning assessment of Ford and GM. I always thought that the current plight of those companies is an interesting preview of the U.S. Federal budget mess.
It is so interesting to look back on the recent history. In our local library I retrieved a Wall Streat Journal article dated May 27, 2005, that talked about some homeowners cashing out to realize their gains.
Quote1:
Then there’s the case of homeowners who cashed out earlier and have found themselves priced out of their local markets. Rick Ashburn, a chartered financial analyst in La Jolla, Calif., sold his three- bedroom home in 2002 for $910,000, 70% more than what he bought it for nearly five years earlier. He has been renting ever since, waiting for prices to come down. As of now, Mr. Ashburn says, “I was wrong by 20%.” But he’s sitting tight and “waiting for reality to resume.” If it doesn’t within a year or two, he says, he might leave California and look elsewhere for a home he can afford.
Some longtime bubble believers who recently sold their homes are looking to re-enter the game. Giselle Bisson sold her house in San Francisco last summer for $750,000 — nearly $250,000 more than she paid for the property in 2000 — and rented an apartment. By now, she says, the property is probably worth as much as $100,000 more. “I feel stupid,” says Ms. Bisson, 39, who is already back in the hunt for a new house. Still, she’s cautious: after Messrs. Greenspan and Buffett expressed their concerns about the market, she says she’s hopeful that conditions will change. But, says the software executive, “I’m scared that if I don’t buy it now I’ll never be able to.”
Quote2:
…But earlier this year, homes in the Browns’s neighborhood began selling for prices that Mr. Brown calls “just nuts,” (median home prices in the area had risen by more than 144% since 1999, according to Economy.com). He told his wife he wanted to sell their home and rent for a year. “I’m not a speculator,” says Mr. Brown, 70, a senior project coordinator at Aerospace Corp., “but I feel the market has to be reaching its peak as far as price.”
http://www.treasurydirect.gov/
This is the best! Just open an account linked to your checking an no cost to purchase. When mature the money is automatically put back in your checking. Very convenient. 13 week,26,week 1 yr your choice.
Don’t forget, they are not taxed at the state level either. I have multiples of $1000 3-month T-bills maturing every week. In essence, I have money flow coming into my bank account every Thursday. I manually request to buy more because I have odd amounts maturing. You can set up an automatic purchase plan to buy T-bills, Treasury Notes, Savings bonds, whatever. That is the best feature. Say you have $39,000 in T-bills where you buy $3,000 per week. You can just sit back and watch the net flow of money flow into your bank every Thursday. You’d get perhaps about $37.00 federal income taxable interest every Thursday. A good sum to take that sweet young honey (who works down the hall) out to lunch on that day.
I ordered a copy of my free credit report through my well known national bank. I was extremely unimpressed with the overall nonquality of the report. My first request for credit was reported to be in 1999 even though I am retired and have owned 4 different homes since 1966. My address since 2003 was wrong in all three reports and the only 2 negative credit events were 4 years ago when I sold my home and moved out of state and the cable TV company failed to turn off my cable service and claimed I owed $919 and the City failed to turn off my electricity when I moved even though they said they would and ran up a bill that I refused to pay since I had moved and notified them of the move. It is obvious that the cable company would cut me off long berfoe the bill exceeded $300 and not wait until it was $919. If the box was lost, comparable ones for Direct TV cost under $60 so that does not explain the high bill. With only 2 non pays in over 40 years, i was rated by all 3 credit bureaus in the bottom 20% with a score right in the middle of the range which does not make much sense either. Except for the incompentence when I moved, I had a perfect record. How could I be in the bottom 20% with all of the bankruptcies and foreclosures that happened and caused losses of tens or hundreds of thousands of dollars?
If the lenders are depending on these 3 credit bureaus for accurate information, I hope they have the sense to do an independent review of the loan documents and at least a walk through of the home that is the basis for the loan. Incompentence plus more incompetence plus more incompetence at various levels are a recipe for mass defaults, foreclosures and bankruptcies due to the poor quality of informaton accepted at all of these levels. The fraud was so easy that it is became widespread.
The appraisal review function broke down and became insignificant years ago due efforts to cut costs, and due to the pressure to hit the numbers so that the loan could be approved and the appraisers who tried to be honest got no more work. The Appraisal Foundation was established back in the 1980s in response to the Savings and Loan Crisis but it was toothless due to the refusal of the appraisal and broker organizations to take effective action to disipline the appraisers and brokers who were committing the frauds by misrepresenting the values of the properties being appraised.
I am not surprised at how this has evolved and saw this as a problem as early as 1995 when I served as a review appraiser involved with the highway program from 1970 to 2003 when I retired. If the appraisers and review apprasiers had been allowed to do their jobs back then, the crisis would not have esculated to be such a huge problem today. A few honest ones tried but were overwhelmed by the greedy people who wanted the commissions to be made from this fraudulent work.