A Drag On The Economy Rather Than A Plus
Some housing bubble news from Wall Street and Washington. Forbes, “On Wednesday, 1,300 home builders will call on Capitol Hill as part of a legislative conference organized by their trade group, the National Association of Home Builders. They’ll do so against a grim industry backdrop.”
“‘For the first summer in many summers, we’re not helping to keep unemployment numbers down,’ says Jerry M. Howard, 51, the NAHB’s CEO. ‘For the first time in six years, we are a drag on the economy rather than a plus.’”
“‘Our strategy is to remind policymakers of our importance in economic and societal terms,’ he says, ‘and to convince them to take no action that would exacerbate this downturn in the housing industry.’”
The Associated Press. “Georgia builder Meyer-Sutton Homes Inc. filed for protection from creditors Monday in the U.S. Bankruptcy Court in Newnan, Ga., the result of a ’sudden and dramatic’ decline in business.”
“‘The housing market has suffered a dramatic decline in demand with the result problems of excess inventory and compressed profit margins,’ (owner) James W. Buchanan said in court papers. According to its bankruptcy filing, the company has cut new construction starts to two per month from 25 per month.”
“Home furnishings retailer Bed Bath & Beyond Inc. late Monday warned that its fiscal first-quarter earnings may come in below Wall Street’s expectations.”
“‘Based upon what we have experienced and has been reported by others, the overall retailing environment, especially sales of merchandise related to the home, has been challenging,’ CEO Steven Temares said.”
“American Woodmark Corp. shares fell Tuesday morning after the kitchen cabinet maker reported weaker-than-expected fiscal fourth quarter sales, and forecast a smaller fiscal 2008 profit than analysts expected.”
“‘Given management’s core sales forecast, it appears this rough patch will continue well into fiscal year 2008,’ said analyst Peter Lisnic.”
From Reuters. “Bonds backed by residential mortgages that can be ‘modified’ to stave off foreclosure may get lower ratings since the changes may result in reduced protection for debtholders, Fitch Ratings said on Monday.”
“‘After the servicer modifies the loan, the loan is shown as current. Our concern is it’s still a pretty high-risk loan,’ Fitch analyst Glenn Costello said.”
The San Francisco Chronicle. “When borrowers run into trouble, repayment and forbearance programs are still the most popular loss-mitigation strategies. Loan servicers are offering them in 50 to 75 percent of cases, Fitch says. Nevertheless, servicers report that ‘repayment and forbearance plan effectiveness is decreasing.’”
“Servicers also told Fitch they are having a harder time contacting borrowers who are delinquent or likely to be when their adjustable-rate mortgages reset. One probable reason is that more people today have caller ID and can avoid answering calls from creditors, says Diane Pendley, a Fitch managing director.”
“Also, many people who took out subprime loans in the last few years did not have to document their income. They might be afraid they would have to prove it now. ‘The servicers are trying to convince them’ that won’t happen, says Pendley.”
“A bigger problem: To get a lower interest rate, some borrowers said they were planning to live in a home they were really buying to rent or flip. For obvious reasons, they don’t want a servicer showing up at the door.”
“Despite the Fitch forecast, people who work with troubled borrowers are not seeing a big increase in modifications yet. ‘We have seen 35 cases in the last six months where folks are in a subprime mortgage that is about to adjust and would like a modification,’ says Jane Duong, homeownership program manager with the Mission Economic Development Agency in San Francisco.”
“‘A few of them, less than five, got a forbearance or repayment plan. I have yet to see loan terms modified,’ she says.”
“Duong says the main reason servicers can’t modify a loan is because it is in a security that prevents or severely limits a servicer’s ability to alter terms. Fitch says tax laws and accounting rules also might prevent some modifications.”
The New York Post. “A big hedge fund on one whopper of a winning streak is picking a bitter fight with Bear Stearns over whether renegotiating loans for homeowners struggling with subprime mortgages is fair play.”
“At issue is the motivation behind efforts by Bear’s EMC Mortgage unit to renegotiate subprime home loans, and whether it’s solely to prevent homeowners from losing their houses, or, as Paulson’s general partner John Paulson told The Post, simply ‘to artificially inflate the value of derivative securities.’”
“Federal Reserve Chairman Ben Bernanke predicted Tuesday the economy will rebound from an anemic performance at the start of the year even if the housing slump continues.”
“The Fed chief did make clear once again that the painful residential real-estate bust, which started last year, ‘appears likely to remain a drag on economic growth for somewhat longer than previously expected,’ he said.”
“Residential construction will likely remain ’subdued for a time’ until builders can pare down a backlog of unsold new homes, he noted. But, thus far, the problems in the housing market haven’t spread through the broader economy in a significant way, Bernanke said.”
“‘We have not seen major spillovers from housing onto other sectors of the economy,’ he observed.”
“Bernanke acknowledged that problems in the subprime market can be traced in part to loose standards, which in some cases allowed people to get mortgages with little documentation. Facing criticism from Congress about lax regulation in the subprime arena, Bernanke again said the Fed will consider tougher rules to crack down on abusive practices and improve disclosure.”
From MarketWatch. “Bernanke devoted most of his speech to developments in the housing market. A close reading of data on the housing market indicates that demand for housing weakened over the first four months of the year, he said.”
“Housing prices remain quite soft, but for the most part outright price declines have been concentrated in markets ‘that showed especially large increases in earlier years,’ Bernanke noted.”
From Bloomberg. ” Economists say Fed policies contributed to the housing boom and bust. Former Chairman Alan Greenspan, Bernanke, at the time a Fed governor, and others were concerned in 2003 that deflation could hit the U.S., as it did Japan for a seven-year period. They cut the key rate to 1 percent and held it there for a year.”
“When they did raise rates, from June 2004, the Fed committed to a ‘measured’ pace of a quarter percentage point per meeting. That helped ‘hold down long-term interest rates,’ said Brian Sack, who as a Fed staff economist in 2004 helped Bernanke research the effect of communication on interest rates.”
“As borrowing costs stayed low even as economic growth accelerated, home-buyers took on a record amount of mortgage debt. From 2004 to 2006, lenders wrote a $2.8 trillion in new home loans, unprecedented for any three-year period.”
“‘The Fed was too easy for too long,’ said Ethan Harris, chief U.S. economist at Lehman Brothers and former New York Fed staff economist. The Fed’s gradual pace of lifting rates ‘contributed to the lack of bite from monetary policy.’”
The Star Tribune. “A trick that some borrowers have used to boost their credit scores is about to lose its punch. Fair Isaac Corp. won’t include the practice of including ‘authorized account users’ when it calculates its FICO credit scores.”
“Lenders are increasingly worried that the practice artificially boosts FICO scores, making it harder for lenders to determine whether borrowers are good credit risks. Experts suspect inflated credit scores are at least partly to blame for the recent rash of delinquencies in the subprime mortgage market.”
From Broker Universe. “Two more managers for All Fund Mortgage have stepped forward and told National Mortgage News that they have not been paid in several weeks. (Typically, All Fund used to pay within 48 hours.)”
“One manager, requesting anonymity, said she has not been paid since April and is owed close to $8,000. ‘They are not returning my phone calls or e-mails,’ said the manager who is based in the South.”
“One manager, requesting anonymity, said she has not been paid since April and is owed close to $8,000. ‘They are not returning my phone calls or e-mails,’ said the manager who is based in the South.”
Time to loot the office supplies to the tune of $8000.
the most mean reverting income in the world
most broker= overpaid maneguins
this industry will pay less than 1/3% tops when it’s reassembled by congress
Isn’t it hilarious that almost everybody credits the housing boom as being a huge chunk of the economy the last few years, but a significant downturn (no more atm out of house equity) will have a negligible effect.
Common sense dictates there will be pretty big ripples as consumer spending decreases and the easy credit dries up, no?
Not to mention the job losses in the construction and other related industries as well as furniture stores, appliance stores, Circuit City, etc.
Circuit City is covered as they fired several thousand stupid a few months back and hired even stupider people to help you NOT find what you’re looking for in the store.
American business at its finest!
CompUSA is also shedding a lot of stores.
this is the new job creation!
fire expensive employees and hire noobs at half the salary.
“Home furnishings retailer Bed Bath & Beyond Inc. late Monday warned that its fiscal first-quarter earnings may come in below Wall Street’s expectations.”
I live in a town that has had a lot of forclosures recently. Pier 1 Imports just closed. Maybe that was why.
Comp USA closed all of their MA stores except 1, in Holyoke.
Yes indeed, it is all connected. The real estate boom and subsequent spending mania has been the only thing propping up the economy over the past 5 years.
Where to next? - personally, I am hoping for a precious metals run
didn’t Bed Bath and Beyound just issue an earnings warning.
You will really see this as car sales dry up… especially since the low rates and incentives in the past few years have resulted in a very young average age for automobiles on the road. I think new car loans are now around 7%… just 2 years ago there was tons of 0 to 2% financing… of course just for “qualified” buyers.
I got the following type of pitch from two different dealers on two completely different types of vehicles within two weeks of each other in April - There is a lot of demand for your current vehicle (insert vehicle name here). Please come in and see if we could put you in a new vehicle (or words to that effect).
The first vehicle was a 2006 Honda Civic. The second a 2003 Jeep Wrangler. This tells me dealers are struggling to move anything new, not just overpriced gas guzzlers.
Isn’t it hilarious that almost everybody credits the housing boom as being a huge chunk of the economy the last few years, but a significant downturn (no more atm out of house equity) will have a negligible effect.
Expect this moreso when people have maxed out their credit cards one last time.
“Federal Reserve Chairman Ben Bernanke predicted Tuesday the economy will rebound from an anemic performance at the start of the year even if the housing slump continues.”
“The Fed chief did make clear once again that the painful residential real-estate bust, which started last year, ‘appears likely to remain a drag on economic growth for somewhat longer than previously expected,’ he said.”
Is it me - or aren’t those two statements contradictory?
Just to repeat what is both shocking and obvious: The FED lies, again and again.
There is no 2% inflation. Come on. The S&P was at 500 12 years ago, housing is 3X what is was 12 years ago. Education, healthcare, gas, milk! are all much higher.
The drag is longer than previous expected. What a bunch of bull. There is no longer an ‘credit’ ATM. I’m surprised it’s not much worse.
arlingtonva,
I’m more or less on your side, but it depends what housing you look at. The (very high end) rent on the house we occupied in Pasadena increased about 20% in 10 years (1996-2006).
Housing costs are tied to rents on the CPI. Personally, I think that it is right because rents act as an anchor to prices (thus defining the current bubble). The irony of it is that, as housing prices fall, the deflationary effect will not show up in the CPI. Therefore, the FRB will not be able to justify rate decreases based on their own data.
“The irony of it is that,…”
Is it a safe bet that the CPI will soon be revised to properly account for falling housing prices?
That won’t help because no matter when it is revised, the monthly nut for PITI and other expenses is still going to be way more than the equivalent rent. So the CPI will still see a sharp rise. Unless they wait until there is a 50% drop to do it. Then it won’t matter anymore. Gotta love how they are caught in their own trap now.
“The FED lies, again and again.”
Are you looking for an honest assessment, like perhaps “The U.S. economy and the housing market have become inextricably linked in recent years”? What conclusions do you think the general public might draw from this when they also hear that home prices, construction and sales are all falling?
“The Fed chief did make clear once again that the painful residential real-estate bust, which started last year, ‘appears likely to remain a drag on economic growth for somewhat longer than previously expected,’ he said.”
Ben (Helicopter Ben), We on this blog expected this. Maybe you should hire Ben Jones as your housing sector consultant. He clearly is better in touch with whats going on than you and your army of economist and bankers.
Bernanke’s speach is the same one he gave a couple weeks ago.
1) We’re not dropping interest rates and may raise them, so global community, please don’t kill the dollar on the money markets.
2) We’re going to tighten lending standards, while not tightening lending. Make just as many loans for just as much money, but stop making loans to people that can’t afford to pay them back.
Impossible yes, but he HAS to say this. If they tighten lending standards, the housing market crashes faster and further. If they don’t tighten standards, then money stops flowing into MBS, and the housing market crashes faster and harder.
In short, we want you to keep lending as much as possible, to as many as possible to keep foreclosures from killing the market, but let’s pretend they are safer so that funds will buy the securities.
Darrell,
You hit the nail on the head. I agree with everything you said 100%. Be ready for an interest rate increase late this summer or next fall/winter around Christmas.
Actions speak louder than words Greenscam…let’s see you raise rates to 5.5%. That will make a believer out of me!
Actually, he retired last year. Now, it’s “HeliBen” or “B-52 Ben”, or “Bendover Ben”.
yeah, i know. Al, Ben what’s the difference?
Just jaw boning the dollar……..Ho-hum
WASHINGTON (AP) - Georgia builder Meyer-Sutton Homes Inc. filed for protection from creditors Monday in the U.S. Bankruptcy Court in Newnan, Ga., the result of a “sudden and dramatic” decline in business.
Meyer-Sutton, of Fayetteville, Ga., listed total assets of about $44 million and debts of $40 million in its bankruptcy petition. Meyer-Sutton Homes and affiliate Meyer-Sutton Land Acquisition Inc. filed for Chapter 11 protection. Both companies are owned by James W. Buchanan.
“The housing market has suffered a dramatic decline in demand with the result problems of excess inventory and compressed profit margins,” Buchanan said in court papers.
According to its bankruptcy filing, the company has cut new construction starts to two per month from 25 per month.
“The decrease in construction activity, along with a decrease in closed sales” forced Buchanan to put his company into Chapter 11, he said in court filings.
listed total assets of about $44 million and debts of $40 million in its bankruptcy petition.
Do you think those total assets might be INFLATED RE valuations based on them selling at “wishing price”???
The true ratio is probably assets of $30million and liabilities of $40 million.
“‘The Fed was too easy for too long,’ said Ethan Harris, chief U.S. economist at Lehman Brothers and former New York Fed staff economist. The Fed’s gradual pace of lifting rates ‘contributed to the lack of bite from monetary policy.’”
*********
No kidding.
Hey Chairman Bernanke - it will soon be time to be the man.
I say it again:
“‘Do the Volcker’ and drain the liquidity cesspool!”
“‘Do the Volcker’ and drain the liquidity cesspool!”
Hallelulah and Amen to that brother.
Let the Deflation and Credit Contraction Begin….
That’s right. In all honesty, do the Volcker thing and raise rates to just 10% and watch it all dry up. This country needs a good economic enema right now. Old line fundys should return to home buying. AT LEAST 20%, 30-yr., or if possible, 15-yr., fixed rates. ARMs only in the rarest cases of exceptional credit history and circumstances.
Enough of Lennox Financial and thir ilk. I am so sick of these 20-something douchbags bragging about how they make zillions in commission and all they know is how to play video games. Full disclosure, I do play video games with my son. They care nothing for the good of the country. let alone the economy. As an aside, it is time to clean out all the people who bought with these exotic mortgages and thought they were stickin’ genuises. The REIC needs a great big a$$-whoopin!
drain the liquidity: over his dead body, you can be sure of that. For Bernanke there is only one real threat in the economic universe and that threat is deflation. Anything else is irrelevant; he must be itching to drop rates below 0% ASAP.
That really does not compute. He is the Chair of the Fed, so he has to soft play every move. So far his plan seems to be ratcheting rates higher and higher, but slow enough not to totally panic the herds.
what did BB expect ?
6 years up and 1 year down ?
a drag on economic growth for somewhat longer than previously expected,”
Jerry M. Howard, 51, the NAHB’s CEO. ‘For the first time in six years, we are a drag on the economy rather than a plus.’”
But, it does’nt matter! The downturn in the housing market will have little or no effect on the overall economy right? That’s what Ben Burnhackey has been saying.
“‘For the first time in six years, we are a drag on the economy rather than a plus.’”
No, you were also a drag on the economy when you built all those overpriced inefficient McMansions made out of styrofoam, stucco and particle board using illegal labor. It will take years to clean up the mess.
“‘Our strategy is to remind policymakers of our importance in economic and societal terms,’ he says, ‘and to convince them to take no action that would exacerbate this downturn in the housing industry.’”
This statement is truly unbelieveable. If these yahoos had managed their businesses with any prudence whatsoever they would not be in position of appearing hat in hand looking for legislative “relief” or any intervention at all. Specious beyond belief!
Abolish chapter 11 and you solve the problem.
Right then we’d have to have Lawyer Aid. Think we could resurrect Alice Cooper for that one?
What about Willy Nelson?
Boy, is that true. I drove through Tampa’s so called Channelside district (formally known as “The industrial wasteland”) yesterday, and could not believe the massive hideous structures that look like welfare housing from the 1960s Soviet Union. Never before have buildings of this size been permitted here (this is obviously yet another New York import), but I guess the builders wanted to cram as much as possible on the cheap, polluted, toxic land they got for nothing. And they’re asking a fortune to live on one of these dumps. The worst architecture I’ve yet seen in Tampa, and I’ve been here a long time. Doubtless, all of this will end up as Section 8 housing (it’s got the style down pat), but till that happens, fools in Tampa will pretend that the Emperor is wearing really nice clothes.
(this is obviously yet another New York import)
Isn’t it amazing that people leave the New York area because they say they want to to get away from the crowding, high taxes and other problems and then immediately try to build the same thing in their new location.
See also: CA —-> OR, WA, ID, MT
It is amazing, and infuriating. The rudeness of these people is beyond comprehension. You should see what they’ve done to Florida, especially Naples, which they’ve transformed from one of the most beautiful towns in the world to one of the tackiest, junkiest, and ugliest. They’ve also destroyed Sarasota, and are nearly done with destroying St. Petersburg and Tampa. These people should have been sterilized at birth and put in a penned enclosure with armed guards.
What “they’ve” done to Florida? Did “they” overthrow the local governments? Did “they” take the land at gunpoint and build the places themselves?
Always easy to blame the outsiders, isn’t it?
Incredulous do you have any idea what happened to the wallstreetbear.com website?
“Incredulous do you have any idea what happened to the wallstreetbear.com website? ”
No, never heard of it.
I think we can hold our own as far as ugly structures go. See this trendy project, for example. It’s on 3rd St. within easy driving/walking distance of the oh-so-hip Wild Oats Market:
http://indigomodern.com/
This thing redefines butt-ugly, IMHO. And it’s not exactly cheap. I hear that one of these cutting-edge condoze will set you back around $200k.
You don’t know ugly until you have seen a row of flat faced Baltimore row houses without porches, trees, windowboxes, balconies, or any other redeeming detail.
I think they’re kinda cool. If they can build things like this with some environmentalism (solar heating, etc) I would buy one. But not there.
I live in northern VA, and think a “colonial” townhouse is odd. I didn’t know Washington had a two-car garage and 35 gable-roof.
One thing these builders don’t understand is, in the last six years, they have done ten, twelve, sixteen years worth of building. It is going to turn out that a lot of what was built is going to be the wrong type of building, in the wrong place, for the wrong type of customer. They are going to be a drag for years and years.
This is precisely why a bubble is bad for the economy. People invest (build) in the wrong things, they go into the wrong line of work, and there is a world of hurt when people adjust as they find out that prices are overpriced. It’s a massive misallocation of resources.
…they go into the wrong line of work…
Now there’s an interesting parallel to the dotcom bust.
During the late ’90’s, companies were hiring warm bodies to maintain the server farms - people with degrees in nutrition or no degrees at all constantly rebooting Windows servers because that was their one and only IT skill.
During the late ’90’s, companies were hiring warm bodies to maintain the server farms - people with degrees in nutrition or no degrees at all constantly rebooting Windows servers because that was their one and only IT skill.
And they were paid $100k+ to do it. Then they didn’t understand why they couldn’t find work again after 2000.
Then they didn’t understand why they couldn’t find work again after 2000.
I’d say, yes-and-no. I think a degree in nutrition, say, was worth more than a job history of server rebooting in late 2001/early 2002.
But yeah, the heady days of six-figure incomes for people with Big Red Button skills was definitely over.
I find that it’s a real drag to look at the poor quality crap these home builders have been making for the last several decades. They’ve been a drag and an eyesore for a long time.
Well, at least when they fall apart and/or are torn down, there won’t be any lead paint or asbestos. That’s about the only silver lining…
Oh man - this really hurts. What is happening to all those yahoos who got in over their heads investing in things they didn’t understand with funds they didn’t have. They are being rewarded with loan modifications. Do rational people who got fixed rates get this freebe? NO. Dam I knew I should have listened to AG when he said to use ARMS. If I have to listen to my relative who did everything wrong financially crow about getting his morgage reworked I’ll be sick.
Think about it thought. Banks and other servicors who have sold loans in securitized packages would much rather extend a 30 to 40 or reduce the interest rate a few ticks and keep the loan on the books as current than deal with REO. Since they don’t own it and get paid for servicing the incentives are all screwed up. And for all you who are going to say that there are laws and GAAP to prevent that I say bullsh$^t. There were the same controls to prevent $500k loans to people without jobs or credit and they were able to push those through. This sucks.
Global demand and growth are going to be strong enough that the FED is not going to have to do anything about the liquidity swamp and all of us rational people are going to have to listen to some relative at a family get together sipping a Bud from a foam can cooler say “hey did I tell you they took a percent off my mortgage rate so I could make the payment - man I told you you should have got an adjustable rate.”
Don’t sweat it. These people will now be stuck with 40 or 50-yr. ortgages. Might as well rent. On top of that the asset is depreciating. No bank in the world can stop that from happening. So, the bottom line is your pal may have a 40-yr. fixed at 6% on 550K, which is reality would only fetch 300K. Still no genius! Renting is still the better way to go than buying right now!
“Renting is better”… very true but remember banks/lenders love those 6% and higher for 40/50 years. “We are here to serve you and will do amything it takes to keep your home”
My, what a friend.
There’s some pretty good info about this subject on Calculated Risk. It is not clear that servicers have actually done many modifications yet. It is also unclear as to whether the servicers can do modifications; apparently it depends upon the servicing agreement as well as some legal and accounting issues (FASB 140). Fitch basically punted on the issue (said that each servicer will have to look to its own lawyers and accountants to determine whether modifications are allowed).
And you may see some hedge funds screaming (as some already are) if servicers start to do mods because those HFs have bet on defaults. You might also see some of the buyers of certain tranches of MBS and CDOs screaming (and suing) at the servicers if they do mods since the mods may have different impacts on different tranches.
The servicers are apparently in a tough spot on this one since Fitch states that there is no good data on whether mods are beneficial to the pool (they don’t know how well they perform after modification, so they can’t compare losses from foreclosure vs. modification).
And, don’t forget, that the servicers may have different financial interests in modifications vs. foreclosures than the holders of the MBS. Modifications are cheaper and keep the servicing fees coming in. Foreclosures are more costly and the servicing fee on a foreclosed loan ceases. But servicers typically get to recoup all of their foreclosure costs (which would count as income), so they might have some incentive to foreclose.
All in all, it is unclear how servicers will deal with this issue. But you can bet that whatever they do will be what they feel is in their best interest (so long as they can reasonably justify it to the MBS bag holder). Should be lots of screaming about this no matter what they do, since so many people have bet on different outcomes.
You said it better than me. Hornets nest at best. Said very shortly:
1. Current agreements generally tie servicers’ hands.
2. Not everyone who owns MBS/CDO positions want servicers to act inconsistently with their agreements noted in #1.
3. If servicers act inconsistently with their agreements they will be sued.
My understanding is that 1) those agreements restrict servicers actions with respect to loan modifications and 2) the servicer is better off dealing with foreclosures as they come and keep the rest of the servicing revenue than breaching their agreement, potentially risking the bulk of the servicing revenue.
True, but in finance as in other areas, power really does come from the barrel of the gun (apologies to Mao). The Fed has made a statement to the effect that any modification taken by banks to mortgages that increases the stability of the system will be looked upon favorably. Really, if it comes to the hedge funds/foreign investment in MBS going under vs the banks and FB going under, the regulators (and congress) will side with the latter. And the hedgies know it (actually, the rich have been divesting from hedge funds over the last year, and the hedge managers have been piling up their cash for a fast escape. They probably know that they are in an untenable position, too).
“Really, if it comes to the hedge funds/foreign investment in MBS going under vs the banks and FB going under, the regulators (and congress) will side with the latter.”
Yes, but the important question is “Who would the courts side with if the modifications are a clear breach of contract?” Not the borrower or servicer…
Boil it down to one borrower/one lender. I lend you $100. I pay a third party $0.25 per year to manage the loan (a servicer). The servicer has a negotiated right to defer 3 months of payments to the end of the loan to keep the loan paying (and collecting his fee) before he is required under the contract to proceed with foreclosure.
What happens when the servicer decides to breach their agreement and extend the amortization period for 10 years and lower the rate by 1% to try to fix the loan?
1) I sue them for breach of contract and try to get a judge to rule that the loan modification was improper.
2) The servicer never works again as a servicer, their name is mud.
The only tenable way forward for the servicer is to convince me that their suggested modification is in my best interest.
The problem lies with having multiple investors, all with differing interests. Get them to all agree on a modification. Forget about it.
Let’s just say that the federal government fixes all that by changing the rules, giving broad powers to servicers to modify loans. Then what? (I think this is your question)
Well, then the US government is seen as tantamount to a third world country, where existing contracts between borrowers and lenders can be circumvented by legislation. Mortgage rates go up, making the crash faster and harder.
OT, but I should pull out the achilles heel of the MBS bondholders:
“Remember that, if you are within a year of the transaction, a HOEPA violation gets you statutory penalties in addition to the basic TILA penalty of $2,000. See 15 U.S.C. §1640(a)(4); Newton v. United Companies. It also gets you rescission within three years of the transaction. 15 U.S.C. §1639(j); Reg. Z §226.23, n. 48. A lesser known, but extremely important, consequence of a transaction being a
HOEPA loan is that all claims and defenses, up the amount of the indebtedness, that exist against the original lender can be asserted against subsequent holders of the mortgage. 15 U.S.C. §1639(d).”
(from - WARNING PDF - http://www.michbar.org/consumer/pdfs/Ackelsbgforeclosuredefense.pdf)
[HOEPA= Home Ownership and Equity Protection Act- already law of the land]
Note the last sentence. The bondholders (read ‘deep pockets’) are potentially liable for penalties and/or recession of loan if fraud occurs in mortgages. Expect lawyers to notice this provision. I expect that the group that will soon be whining for protection from legal consequences will be the bondholders and not the servicers.
“1) I sue them for breach of contract and try to get a judge to rule that the loan modification was improper.
2) The servicer never works again as a servicer, their name is mud.”
IMHO most of the time there is no contract between the bondholder and the servicer. To use the example of 2002-22H, the bondholders have a contract with the securitizer, and the securitizer has a contract with servicers. So, at best, you could sue the securitizer to force them to force the servicer into default. I don’t really know what contractual leverage the bondholders have to do this.
Actually, that was WAY too flippant (had not had my coffee yet). The problem with suits is that damage would be hard to assess. Consider the MBS holder (typical waterfall-type tranche). Since interest rates are rising, they will gain from foreclosures (since the servicer will have to send the principal to the MBS securitzer, which constitutes a prepayments. This is equivalent of a person who bought a 5% 10 year bond and finding out that the maturity has been changed to 8 years and interest rates have moved to 6%. This makes them very happy). If a bank keeps the FB in the house without a formal refi (which would also release the principal), it will marginally hurt the bondholders and might violate the sales and service agreements (such as are posted on the SEC), so they MIGHT sue. However, if the number of forclosuers were substantial, the bank could argue that holding off forclosure is in the MBS bondholders best interest, as severe losses to the bank (assuming that the bank was the MBS guarantor and not a 3rd party) could result in default or at least a ratings downgrade of the bonds. This would also cause the value of the bonds to drop. And regulators could intervene. So I think the MBS bondholders are on a fairly weak footing.
BUT if the derivatives include such exotica as stripped (principal payment only) bonds, these could be so severely hurt by banks not foreclosing that they might sue anyway.
A specific danger to MBS bondholders is that if they make life too hard down the food chain, congress could pass bills that shift liability for fraud, etc., up to the mortgage pools, which would be a disaster for MBS holders (such a bill has been threatened). Personally, I think a good start to abusing the hedge funds/foreign investors AND covering our a$$ would be to have State pension funds divest of non-agency MBS.
Wait for it…
This is not a zero-sum game. Every time they rework a portfolio in order to minimize the cash outflow for the borrower, they hurt the guy who bought the riskiest tranche, and was entitled to that cash.
Here’s an important point. Not all investors in a pool of loans have the same incentives. The “A” pieces have an incentive for the servicers to make deals, so that the pool wouldn’t be considered “impaired”, and they can sell their note for the best price. The last tranche may be OK with some reworking of loans, but at a certain point, they would prefer to squeeze every last drop out of the borrower and take the house. They are on the highly leveraged end of the transaction–they’re cash flows are most effected by any reworking of the loans.
It wouldn’t surprise me one bit if some of those investors are hedge funds who are actually better off if there are defaults (as they have invested in default swaps as the hedge against their risky piece in the capital stack. You better believe they’ll be suing…there are already some articles about how some big hedge funds are starting to play hard ball with big banks regarding just this. If they were smart, they would own pieces of the risky tranches to have standing to sue the servicer if necessary…if not, I’m sure there are some holders of these notes that would gladly sell them at a loss so that the hedge fund can get standing to enforce the servicer’s obligations.
Servicers must play within the rules they agreed to, or there will be lawsuits. In the end, a servicer is better suited to let 20% of a pool default, follow the rules, and keep a job at 80% of the prior revenue, than to break the rules and be removed and/or sued.
This will work itself out. Balance sheet borrowers have the best chance of getting their loan reworked. Borrowers included in a securitized pool are much worse off.
“Servicers must play within the rules they agreed to, or there will be lawsuits. In the end, a servicer is better suited to let 20% of a pool default, follow the rules, and keep a job at 80% of the prior revenue, than to break the rules and be removed and/or sued.”
Servicers generally live off of
“Servicers must play within the rules they agreed to, or there will be lawsuits. In the end, a servicer is better suited to let 20% of a pool default, follow the rules, and keep a job at 80% of the prior revenue, than to break the rules and be removed and/or sued.”
Servicers generally live off of less than 1% of principal (their part of the interest stream as it is passed to the MBS). If 20% of the mortgages default, with, say 50% recovery, the servicer will have to pony up 20% of the entire principal to the bondholders, and then perhaps wait 2 or more years or more to get half of that back. They could run out of cash, go bang and default. Then the bondholders will lose their principal guarantees and will be holding junk bonds. Not a happy place for them. But, truth is, no matter what the servicers do, the MBS will be cr*p by the time the lawsuits see court anyway, so they should go for it and make some lawyers happy…
Long time browser - have learned a lot here. How long will they be able to carry these zombie bonds/derivatives ?
From Ben [jones]’s first Bernanke post above:
“Some analysts estimate that nearly 2 million adjustable rate mortgages will reset to higher rates this year and next.”
Two million actually seems a little low. Eyeball integration of the Credit Suisse chart suggests $900B of ARMs adjusting this year and next, and some other commentators have suggested $2T to adjust this year and next. The “2 million mortgages” figure then would mean that the average resetting ARM is for an amount between $450K and $1M. That seems high. Hence, maybe more loans than 2 million. (?)
The difference is “reset first time, vs reset”. The 2 million loans figure is how many loans will reset for the first time. $2 trillion in total resets.
At least, that is my understanding.
Quote:
The Star Tribune. “A trick that some borrowers have used to boost their credit scores is about to lose its punch. Fair Isaac Corp. won’t include the practice of including ‘authorized account users’ when it calculates its FICO credit scores. Lenders are increasingly worried that the practice artificially boosts FICO scores, making it harder for lenders to determine whether borrowers are good credit risks…”
Possible criminal charges involved against those who sell or rent out their stellar credit scores to other persons:
False pretenses, fraud, conspiracy, or aiding & abetting.
False pretenses is a specific property crime which is ‘obtaining property by false pretenses.’
Elements:
1. a representation
2. of a material fact
3. which the defendant knows to be false
4. and which he intends will and
5. does cause the victim
6. to pass title
7. of his property
Just a word to the wise. Please do not participate in this behavior. I do not represent in criminal cases, but if I did: $50k retainer.
~Misstrial
It isn’t illegal (yet). It is unscrupulous.
“It isn’t illegal (yet).”
Or so it seems. Emphasis on “seems.”
~Misstrial
does it seem more illegal than a parent AUing their college kid on their credit cards, then gifting a down payment?
Misstrial, are you an attorney in Real Life?
i think this is a sympton of the problem. Too much weight it given to the credit score. and not enough on basic fundementals. The credit score is/was a cheap easy way out of actually paying people who knwo what they are doing. now it’s coming to bite them in the ass.
Why shoudl someone with great money management skills be penalized because they’re smart enough not to use a credit card int he first place?
Yeah, tell me about it. My score isn’t as good as my doofus friend who has been through Chapter 7 and is in debt out the wazoo with credit cards and heloc. But he makes all his minimum payments on time by God!
I see that odd FICO effect as well. One day late on a credit card with minimal debt loading is worse than having a huge debt loading but slowly going under water.
Silly system that is getting worked. It deserves it.
Check this out http://www.creditbloggers.com/2006/06/buyer_beware_wi.html
What your neighbor boasts might actually be a worthless “consumer” score. The real score, used by the lenders is a different number altogether.
Until FICO releases the methodology used to compute the scores, you can never prove that making someone an ‘authorized account user’ resulted in anthing unscrupulous.
Hmmm, would that make one a participant in mortgage fraud, allowing a bagholder (lender) to sue? The suit could allege a conspiracy to defraud, and that a participant in these ‘credit schemes’ was a co-conspirator.
“Economists say Fed policies contributed to the housing boom and bust. Former Chairman Alan Greenspan, Bernanke, at the time a Fed governor, and others were concerned in 2003 that deflation could hit the U.S., as it did Japan for a seven-year period. They cut the key rate to 1 percent and held it there for a year.”
Through the rear view mirror, it appears AG shot himself in the foot, as a glut unaffordably overvalued homes are presently creating deflationary pressures on asset prices.
They will solve this by approving “a path to citizenship” for millions of illegals thus solving 2 problems at once:
1. Persons to buy the low-end housing that is sitting unsold.
2. Persons to buy mid and upper-end housing in locations to get away from those in #1 above.
Thus, they can “solve” the housing downturn AND keep Wall Street Republicans and PC Democrats (white people who hate others of their own race, i.e.: “white-outs”) happy, - thus keeping those important campaign contributions coming.
~Misstrial
I can move to higher rent apartments to get away from the #1 types and still live far cheaper than those paying mortgages in the neighborhoods where I live. I do see your point though. I think there is a liklihood that this immigration bill has been pushed through so fast to try to prolong this bubble to buy the bagholders enough time to make bigger profits before the bottom falls. Even myself, I hope this bubble runs another 3 years, since it’s also helping equities and I can accumulate more savings bonds and treasuries and gold to have another 2 years of emergency cash and alternate currency. I could sit out 8 or 9 years at some small coastal community in Maine, perhaps.
all this sounds sooo 1929 …
The world economy is many, many fold stronger now than in 1929. It may be strong enough to keep the US out of a recession (much less a depression), which is really amazing IMO.
the world economy is also many, many times more leveraged and connected than in 1929 - I wouldn’t be too sure about the strength with all this ‘financial innovation’ going on around the globe (in the late 1920’s the financial wizards were also very sure about the superiority of their innovative products, which proved to be dead wrong a few years later).
“The world economy is many, many fold stronger now than in 1929. ”
Yes, printing press technology has advanced quite a bit since 1929. BTW how does one possibly define what a ’stronger’ economy is? I’ll bet if a war shut off petroleum flows next year, a much larger percentage of the world’s population would starve to death now than they would have in 1929… so you probably don’t mean ‘more resilient’.
“A close reading of data on the housing market indicates that demand for housing weakened over the first four months of the year, he said.”
I love it! I believe most people could have figured that out with a CURSORY review of the data. If Bernanke actually did a close read, he’d be totally invested in precious metals!
I was thinking, has’t the FED policies made housing the real monetary base? How much of the M-3 expansion is from people being able to extract equity from their homes? Now that home values are no longer rising, though foreclosures and bankruptcy a lot of this credit is going to vanish, along with a equal amount of M-3 money. The FED by trying to avoid a mild deflation, has created a giant M-3/money destroying monster that they have no contol over.
M3 is still rising at ever increasing rate, only this time in the US most of the increase is coming from the financial markets (surging stock/CDO markets, LBO activity etc.) and less from the mortgage market. Outside the US housing still seems like the number one monetary base. Talking about a money destroying monster is very premature.
“Also, many people who took out subprime loans in the last few years did not have to document their income. They might be afraid they would have to prove it now.”
As Casey Serin would say, “It’s all good”.
What’s the problem, just “state” your income when the loan guy comes to the door. “Yeah, uh, I *do* make $300,000 a year as a janitor, I just don’t want the IRS to find out about it”.
Arroyogrande, You see part of it. But what about this..
“Servicers also told Fitch they are having a harder time contacting borrowers who are delinquent or likely to be when their adjustable-rate mortgages reset. One probable reason is that more people today have caller ID and can avoid answering calls from creditors, says Diane Pendley, a Fitch managing director.”
Caller ID?? Get real. It is just like Casey, none of these people are “home”. In fact, they are multiple states away from the collateral. When you buy 8 houses at the same time using owner occupied loans, there was never any intent to live in them. With $100,000 cash back on each one, you take the money and run. They never planned to live there, as it is physically impossible to occupy 8 homes. The houses are vacant, Ms. Pendley. You have been snookered.
maybe they just haven’t paid their phone bill?
Good point. That happens with FICO 520 borrowers. Casey had his phone disconnected. He even had his interet connection disconnected and he was a blogger. The lenders probably never ran a default scenario where the borrower had no phone service. Sounds like site visits will be the order of the day. I wonder how much more they cost vs. a phone call?
“Sounds like site visits will be the order of the day. I wonder how much more they cost vs. a phone call?”
Considering that the average bullet injury ends up costing upwards of $10k, could be pretty pricy…
http://findarticles.com/p/articles/mi_qn4196/is_20061114/ai_n168459
Ooops. Broken link. This is it…
http://findarticles.com/p/articles/mi_qn4196/is_20061114/ai_n16845987
“thus far, the problems in the housing market haven’t spread through the broader economy in a significant way, Bernanke said”
IAMAE (I Am Not An ‘Expert’), but I would expect spillover from the housing downturn to the general economy (through reduced consumer spending, unemployment in related industries, etc.) to take more than a few (6-12) months.
“So far, it looks like the fire is contained to just the couch and curtains, and we have high hopes that it will not spread to the rest of the living room”.
“Fair Isaac Corp. won’t include the practice of including ‘authorized account users’ when it calculates its FICO credit scores.”
It’s about time…when people see a loophole or weakness, they will (correctly) try to game the system for as much and for as long as possible. As far as I know, the practice wasn’t illegal, people were just taking advantage of a flaw that Fair Issac had in it’s system. Oh well, so sad.
“…. people were just taking advantage of a flaw that Fair Issac had in it’s system.”
Because Fair Isaac unintentionally had an omission does not show that they or their clients intended to be misled. A particular business policy does not trump the law. I am of the opinion that a crime has been committed relying on the elements stated above.
I spoke at length with Fair Isaac corporate yesterday. Other scoring changes are in the pipeline as well.
~Misstrial
“does not show that they or their clients intended to be misled”
No, but it *DOES* show that their clients place *WAY* too much trust in this one, single, single-point-of-failure number. If Fair Isaac’s clients had paid attention to OTHER indicators of credit repayment (documented income, documented assets, requiring down payments, reducing the number of “exotic” loans made to unsophisticated borrowers, etc.), this little credit repair gambit would not work. I blame Fair Isaac’s clients for placing so much emphasis on that one, little, game-able FICO score.
I’d be willing to bet that this little game has been going on for years, but it’s only being investigated now because in the past, the “system gaming” was shielded with rising home values.
One last point…I have two rental houses, and I would *NEVER* rent them out just based on FICO scores (far from it)! So why did FI’s clients think that one little score was all that was needed in order to hand out $600,000 to a janitor?
I blame FI and their clients, not the “gamers”.
wow, you said that much better than I tried to upthread.
What REALLY makes someone a good credit risk? While there are probably many factors all of us would agree on, some factors some of us would agree on, the problem in securitizing this idea is that it has to be boiled down to something easy to grasp as well as something that seems reliable or consistent. A “score” or “rating” then, in some fashion, is essential in order to transfer ownership, efficiently, of the loan.
The problem is, where FICO scores were once reliable and consistent, the “rules” of the game (no doc, stated income, 100% ltv) changed so radically that they became meaningless as they applied to the “new” game.
The new game was based on only one assumption: Prices of houses not only don’t decrease, they ALWAYS increase.
That was a wide-spread, societal, delusion. It explains why people took out stupid loans, why lenders recklessly provided them and why investors, ultimately, bought them.
Everyone thought, worst case, they’d be bailed out by rising housing prices.
You can point fingers everywhere for “blame” but had that delusion, that fundamental assumption, not proliferated there wouldn’t have been a housing bubble. And while its simple to lay the blame for the creation of this delusion on the REIC, all they were doing was mouthing what all too many people felt was a “fact” anyway.
And yes, the Fed did no one a favor by keeping rates too low, too long but the speed at which this bubble expanded can only be understood as a kind of perfect storm of factors that combined to create an unprecedented trillion dollar debacle.
Now the delusion is going bust as all delusions ends. Reality (in the form of basic affordibility) is going to be achieved as the market regresses (as it always does) to the mean. The Fed can’t stop this process unless it deliberately inflates the currency.
And the Fed cannot inflate the currency because it is completely dependent on foreign creditors to keep it solvent.
“What REALLY makes someone a good credit risk?”
Someone with $10 who wants to borrow 10 cents.
“the problem in securitizing…A “score” or “rating” then, in some fashion, is essential in order to transfer ownership, efficiently, of the loan.”
Bingo. Securitizing debt in such large volumes probably played a large part of why a single, “gamable” FICO score became THE way to judge credit risk.
“No, but it *DOES* show that their clients place *WAY* too much trust in this one, single, single-point-of-failure number. If Fair Isaac’s clients had paid attention to OTHER indicators of credit repayment (documented income, documented assets, requiring down payments, reducing the number of “exotic” loans made to unsophisticated borrowers, etc.), this little credit repair gambit would not work. I blame Fair Isaac’s clients for placing so much emphasis on that one, little, game-able FICO score.”
Funny when you think about it, we were supposed to become a service economy (credit verification is a service) and people don’t even want to do that shit and opted to have it half-assedly automated. Classic.
When I was a kid I used to watch a really cool TV show where everyone was given a number which determined everything they could do with their lives.
Can anyone remember the name?
At least Greenspan knew when to quit, and let someone else deal with the mess.
So did Robert Rubin. He left the Clinton administration a few months before the dotcom bubble burst.
Now i am worried that price of gas and Inland Empire housing bust will drive all of them back to the beach again. I mean, where would you go if they drove you out of your wind-blasted stucco box in the Dez? I also know a couple OC families who fled to Phoenix over the last few years. “We got a 4 BR house with a yard for only $270K, and there is plenty of construction work there!”
These are people who grew up in the OC, mean temperature about 76 degrees F. Something tells me, a lot of them will be back, and happy to rent for life. Nay, relieved…
Please, no…
The US homebuilders should move to Europe ASAP and get productive! The Dutch news reports that the Dutch homebuilding industry is red hot; many building projects are unfinished, delayed or cancelled because of a lack of builders (despite busloads of Polish constructions workers that are entering the country). Profits for builders and RE investment funds are booming like never before. As an example, three months after a contract for social housing was signed the builder wanted 50 million instead of 35 million for the job. Builders are arguing that material costs have surged (strange with the US bust …) so they have to increase prices, while at the same time the head of the statistics office explains that there is no inflation in the Netherlands.
I don’t know is similar things are happening in other EU countries, but maybe this is the start of the blow-off-top for the 15 year old EU housing bubble?
Most US builders would require five to ten years of training and a complete shift in mindset before they would qualify to do construction work in Europe. The idea that work sites might be inspected daily, or even several times a day would terrify most US builders, let alone the idea that building elements should line up correctly. The kind of shoddy construction that is the norm in the US is explicitly illegal in much of Europe where official construction rules norms are actually enforced using inspections. Outside of Italy, anyway.
I guess current US construction is worse than in Europe, but construction quality in my country (NL) has dropped like a rock too. Twenty years ago a new home would have maybe five minor problems when ‘ready’, now many homes (including the expensive stuff) still have hundreds of issues - including major problems - by the time they are officially finished. There is just too much easy money for construction companies to care about their work quality or their customers.
I think the only real surprise is that the RE meltdown started in 2006 . No one can make me believe they didn’t know what was going on.
I think they hoped to kick the can down the street and dump the problem on the next administration.
Then the next administration would develop a new shell game to mask the problem and the vicious cycle begins all over again
Every administration does it. Democrats or Republicans.
The question is when are we going to start “demanding” that our government leaders “solve” problems not just hunker down with their fingers crossed that they won’t be responsible for the mess?
BJ. Don’t hold your breath for any politician to do anything UNLESS it’s in their favor or it helps the corporations who are their paymasters. If they do anything it will be to paint a picture of themselves as the good guy trying to help the american people OR to use the opportunity as a tv/photo op.
IMO, the best possible action for any politician is to do nothing.
I think that the RE meltdown began during the summer of ‘05. I could see evidence during my bike rides around Tucson. More “for sale” signs cropping up as suddenly as our monsoon storms. And they were staying up for longer periods of time. In fact, I can think of a few that are still up.
I also saw the “for sale” sign pileups during autumn ‘05 trips to Michigan and Pennsylvania.
Michigan and Pennsylvania
Aren’t those streets off Golflinks?
Fannie and Freddie are booming, per Bloomberg. Their share of mortgage bonds is soaring, as somehow conforming mortgages are gaining borrower and investor appeal. And the sins of subprime make the sins of Fan and Fred look tame, giving the firms a political boost.
http://www.bloomberg.com/apps/news?pid=20601109&sid=axfeEvVeLwww&refer=home
It must be good for business to not have to bother filing those pesky annual reports.
“Servicers also told Fitch they are having a harder time contacting borrowers who are delinquent or likely to be when their adjustable-rate mortgages reset. One probable reason is that more people today have caller ID and can avoid answering calls from creditors, says Diane Pendley, a Fitch managing director.”
——————————————————————————-
I predict that the Mortgage Banker minds are already busy at work developing a strategy to outlaw “caller ID”! LOL
More likely they will work to repeal legislation that prohibts calling someone’s place of work… sigh… I already get at least one call a month for someone with my name but a different middle name (Michael W if I ever meet you and your soon to be repossed Ford Explorer, I might just get physical, and the same for Michael G and his missing Capital One payments… GRRRR)… I should really really add a middle initial to my listing, but by the time that fed up to the national databases, I’ll probably have moved… so next time, definately a middle initial on the listing… or better yet, unlisted.
Goldman Sachs now sees no Fed rate cuts this year
By Rex Nutting
Last Update: 1:36 PM ET Jun 5, 2007
WASHINGTON (MarketWatch) — Add Goldman Sachs to the list of Wall Street firms scaling back their expectations for the Federal Reserve to cut interest rates this year. Goldman’s economists, who had been expecting the Fed to cut the overnight target rate to 4.50% this year from the current 5.25%, now expect no cuts at all. “The absence of any tangible evidence of rising unemployment makes it unlikely that Fed officials will cut the funds rate target,” wrote chief economist Jan Hatzius, in an email. “We still think that the risks tilt toward Fed easing as growth remains modest and core inflation continues to abate. Early 2008 strikes us as the most likely time for such a move to commence, but our confidence in this outcome is low enough that we have elected to remove all easing from our baseline forecast.”
Do they see a stock market crash, then? Because the stock market has been hanging its hopes on helicopter drops…
The helicopters are still busy:
http://www.shadowstats.com/cgi-bin/sgs/data
M3 growth got another hike, to around 13.2%
Well gollleeee, Gomer. I predicted that in December of last year.
http://money.cnn.com/2007/06/04/real_estate/builders_taking_trade-ins/index.htm
Homebuilders betting resale prices won’t drop:
“Trade in that old house
Home builders are finding creative ways to sell new houses in the middle of a slump.”
“It’s a rarely used business model in the U.S. that addresses concerns for both buyers and developers. For the buyer, a trade-in eliminates juggling a new home while waiting to unload the old one during a slump.
“It’s a way to move the market,” said Steve Melman, the Director of Economic Services for the National Association of Home Builders (NAHB). “It addresses one of the main reasons that would keep you from buying a house.”
“Here’s how Barratt’s program works:
“Rule #1 is that the new home has to be a minimum of 20 percent more expensive than the old,” said Pattinson. “We then do an appraisal, sometimes two, and see what we have to do to recondition the house for sale. Then we make an offer.”
According to him, these offers tend to be quite fair, an average of 92 percent to 95 percent of the appraisal value. Considering the seller pays no commission, that could mean nearly the entire appraised value of the home.
“But if the builder has a big incentive to get rid of inventory, it can be even more,” he said. In addition, Barratt is prepared to close within 30 days and the seller doesn’t have to market the home through a real estate broker, saving the 6 percent or so commission cost.
“It’s a simple program,” said Pattinson. “People are surprised when they learn about it. And doing a trade-in gives them a great deal of certainty as to what the final price will be.”"
that my friend is a sucker bet.
Some brokers are complaining that they have not been paid. One said she is owed $8,000. When you think about hundreds of young American men and women being killed and maimed in Iraq, the starving millions in Darfur, the domestic FB’s struggling to hold onto their highly overvalued properties (which the brokers and realtors eased them into with promises of Niverna up ahead) and the strong possibilty of the US about to enter a recession despite the hype from Helicopter Ben and his gang of crooks, please spare a thought for the poor brokers and realtors who are suffering. They deserve and need our prayers.
Amazing, I was just looking at a Meyer Sutton community last weekend. They build homes only in the Atlanta metro, so this is telling for those around here that firmly believe the housing bubble doesn’t affect us. Atlanta is subprime heaven, and I was wondering how long it was going to take to take for people to start seeing the writing on the wall. There are new developments around here that have been up for a year or more with only 2 or 3 “Private Residence” signs.
Any input on this idea? I have been renting and have no investment interest in buying for another 2 years. However I believe long rates my drop once more to the bottom of the band and then may not see 6% for a LONG time. What about buying noe with a 15 or 30 year fixed and buying put options on your areas housing index. Anyone trade those futures and would the carrying cost kill you? All I would want to do is lock in at 6% and make enough on th options to make up for any equity depreciation over the next two years. I would se an end date and be out of the option at a certain date whether it worked or not.
If I was a F.B. I would tear the frikking phone off the wall! There! Don’t need no stinkin’ caller ID!
Boulder, CO to “ban” new McMansions:
http://www.denverpost.com/news/ci_6065891
Or the builders will just pump them out now while they still can LOL
uuuuuuuugggggggggggghhhhhhhhh!
this town just gets flakier every year.
“The good news is he [BB] did say this residential real-estate morass won’t leach out into the main economy.”
Famous last words!
All this darivative - based counter party risk just reminds me of Reservoir Dogs….remember the gun circle scene? This won’t end well in my opinion.
“You don’t need proof when you have instincts!”
-Joe Cabot
Reservoir Dogs
“Also, many people who took out subprime loans in the last few years did not have to document their income. They might be afraid they would have to prove it now. ‘The servicers are trying to convince them’ that won’t happen, says Pendley.”
Curious: Would the proposed FHA subprime bailout require income documentation to qualify for below-market-interest refinancing? Because in that case, it may not apply to all that many recent CA buyers…
“When they did raise rates, from June 2004, the Fed committed to a ‘measured’ pace of a quarter percentage point per meeting. That helped ‘hold down long-term interest rates,’ said Brian Sack, who as a Fed staff economist in 2004 helped Bernanke research the effect of communication on interest rates.”
What is holding down l-t rates now that tightening has stopped and inflationary pressures are mounting?
OK, maybe the answer as of today is “nothing is holding them down…”
http://www.bloomberg.com/markets/rates/index.html
Since mortgage rates pretty much move in lockstep with Treasury yields, mortgage rates are headed up. BUY NOW, OR GET PRICED OUT FOREVER BY HIGH INTEREST RATES!
Isn’t it interesting how the yield curve was breaking out on the high side mid-day, only to revert by day’s end at levels across the full spectrum very close to the opening bell level? Kinda reminds one of similar mysterious behavior in stock prices — a sell off is followed by a magical reversion to opening levels by day’s close. Of course, on some days the selling pressure must get a bit overwhelming…
June 05, 2007
Bernanke’s Economy Vs. the Real Economy
Once again, Fed chief Ben Bernanke, this time speaking in South Africa, has said there doesn’t appear to be “major spillovers from housing onto other sectors of the economy. The key words to watch are “doesn’t appear to be” and “major.” That pretty much gets him off the hook for what really may be going on — and I’m not talking just about warnings from the likes of Bed, Bath & Beyond (bbby), which late Monday warned of weaker than expected results in large part because of slower “sales of merchandise related to the home.”
As I reported recently, the head of the San Diego auto dealers’ trade group attribute softness in auto sales in San Diego, and the loss of 1,300 auto-related jobs, to (a drum roll, please!) slower housing sales.
http://blogs.marketwatch.com/greenberg/2007/06/bernankes_econo.html
“Bernanke devoted most of his speech to developments in the housing market. A close reading of data on the housing market indicates that demand for housing weakened over the first four months of the year, he said.”
“Housing prices remain quite soft, but for the most part outright price declines have been concentrated in markets ‘that showed especially large increases in earlier years,’ Bernanke noted.”
Too bad they didn’t post the whole article;
“Bernake then proceeded to cover the sun with the tip of his index finger and stated, “Look mommy, I can make the light disappear!”
“‘The Fed was too easy for too long,’ said Ethan Harris, chief U.S. economist at Lehman Brothers and former New York Fed staff economist. The Fed’s gradual pace of lifting rates ‘contributed to the lack of bite from monetary policy.’”
Where does that say for the bite of monetary policy now, given that rate increases are on hold against a backdrop of burgeoning inflation?