Adding To The Downward Pressure On Home Prices
Some housing bubble news from Wall Street and Washington. “U.S. foreclosure filings surged 90 percent in May from a year earlier as more homeowners fell behind on their monthly mortgage payments, RealtyTrac Inc. said. There were 176,137 notices of default, scheduled auctions and bank repossessions last month, led by California, Florida and Ohio.”
“A jump in foreclosures at a time of year that traditionally is the busiest for home sales means the slide in prices probably isn’t over, said James Saccacio, CEO of RealtyTrac. ‘Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year,’ Saccacio said in the report. That will add ‘to the downward pressure on home prices in many areas.’”
From Bloomberg. “Federal Reserve Governor Randall Kroszner said the central bank ‘will seriously consider’ tougher rules to prevent abuses in consumer credit, including whether it should ban some mortgage lending practices.”
“Kroszner’s comments show the Fed is now balancing its previous preference for unenforceable guidance and improved disclosure with the threat of new rules, which would give consumers the power to litigate against abuses.”
“‘Any rule should be drawn sharply with bright lines to avoid creating legal and regulatory uncertainty, which could have the unintended effect of substantially reducing consumers’ access to legitimate credit options,’ Kroszner said.”
“Still, his remarks are the most conciliatory to date toward congressional demands that the Fed toughen up restrictions.”
“‘The board is keenly aware, however, that disclosures and financial education may not always be sufficient to combat abusive practices,’ Kroszner said. ‘The board also has the responsibility to prohibit other practices by issuing rules.’”
From MarketWatch. “Prompted in part by troubles in the subprime mortgage market, banking regulators on Wednesday called for greater powers to fight unfair and deceptive lending practices and said they’d consider prohibiting some practices.”
“Sheila Bair, the chairman of the Federal Deposit Insurance Corp., called for a national standard for subprime mortgage lending.”
“The House Financial Services Committee is exploring improved consumer protection in financial services. The hearing comes a day before the Fed is to hold a hearing about how to curb abusive lending practices in the subprime market.”
From Marketplace. “The nation’s foreclosure problems may only be getting worse. RealtyTrac says there were 176,000 new foreclosure filings nationwide in May.”
“Thomas Lawler is an independent housing economist. Thomas Lawler: ‘What the foreclosure numbers are suggesting is that many of those delinquencies are entering what you might call phase two. A lot of lenders are feeling that these loans are not easily salvageable.’”
From Business Week. “Investors in a 10-month-old Bear Stearns (BSC) hedge fund are learning the hard way the danger of investing in risky bonds with borrowed money. The investment firm’s High-Grade Structured Credit Strategies Enhanced Leverage Fund, as of Apr. 30, was down a whopping 23% for the year.”
“The situation is so bleak that Bear Stearns’ asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that’s got some hopping mad.”
“‘At the end of the day, I’d like someone to be honest with me about what’s going on,’ says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages.”
“An investor in Europe, who didn’t want to be identified, says he’s been trying to get his money out of the hedge fund since February.”
“In a June 7 letter to investors, Bear Stearns says it’s suspending redemptions because the ‘investment manager believes the company will not have sufficient liquid assets to pay investors.’”
The Associated Press. “Millions of Americans with weak credit who took out mortgages the past few years are caught in a tug of war between hedge funds and lenders on Wall Street.”
“Who wins the dispute could have more impact on how many homeowners get financial help to avert default and foreclosure than anything Congress or regulators are contemplating in the near term.”
“Publicly, officials at banks and hedge funds say they want to do all they can to help distressed homeowners. Privately, however, a debate simmers over whether banks that sold bundled mortgages to institutional investors can legally pluck loans out of those bundles for workouts to help keep the default rates down.”
“Hedge funds argue that the real motive might be to avoid paying what lenders owe on complicated financial contracts negotiated on the mortgages.”
“Instead of having to pay on a contract at as much as 100 times the value of the underlying mortgage, ‘it becomes cheaper for some folks to buy worthless loans,’ says Harvey Pitt, a former chair of the Securities and Exchange Commission who represents a hedge fund.”
“Unregulated hedge funds effectively assumed some of the risk lenders faced when they issued mortgages to borrowers with risky credit histories. Lenders, in turn, agreed to pay hedge fund investors if the value of defaults soared on bundled mortgages sold to institutional investors.”
“Pitt says it would be market manipulation if lenders are trying to avoid paying on swaps. ‘So far people are talking about wanting to do this, but I’m not aware yet that anybody’s actually tried to do it…the important thing for folks to realize is that it’s unlawful,’ Pitt says. ‘There can be litigation if anybody tries,’ he added.”
“Josh Tullis, who in his eight years as a senior loan officer rarely felt compelled to reject a first-time home buyer’s mortgage application, is sending people away empty- handed in 2007.”
“Tullis’s latest clients are a married couple that banks ought to love. Between them they make $70,000 a year and they’ve been renting the same apartment for three years with zero late payments, he said.”
“Lenders won’t approve them because they don’t have enough money in the bank, said Tullis, Virginia sales director at A. Anderson Scott Mortgage Group in Falls Church. With mortgage companies cracking down due to rising subprime defaults, Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.”
“‘Six months ago, these folks might have qualified, a year ago, definitely,’ Tullis said. ‘It’s a lot, lot harder than it used to be for first-time home buyers.’”
“‘It all comes back to the first-time home buyer,’ said Gary Balanoff, a real estate broker in Oviedo, Florida. ‘If they could buy, we’d see a much better housing situation for everyone because it would start the domino effect.’”
“About 20 percent of U.S. mortgages issued last year were subprime loans to borrowers with bad or limited credit histories. One in four subprime home purchasers the last two years was a first-time buyer, according to the Mortgage Bankers Association.”
“Countrywide Financial Corp., the biggest U.S. mortgage lender, made 60 percent of its subprime loans for home purchases to first-time buyers in the fourth quarter. The bank will reduce that to about 16 percent, Chief Operating Officer David Sambol said in a conference call.”
“About 5 percent of the loans issued by Countrywide Financial this year will cover the full price of a home, down from 25 percent in 2006, Sambol said.”
“Countrywide CEO Angelo Mozilo said in an interview that the cutback was made in response to concerns about the viability of subprime loans issued last year. ‘We need to take a step back and make sure this readjustment hasn’t gone too far,’ Mozilo said.”
“First-time buyers have a delinquency rate of up to 40 percent higher than other borrowers, said Andy Chawla, senior VP for risk management at IMPAC Mortgage Holdings Inc.”
“Simply requiring a down payment of as low as 5 percent will disqualify one in four of the first-time buyers who were IMPAC customers a year ago, Chawla said. ‘We’re asking for skin in the game,’ Chawla said.”
The Street.com. “Toll Brothers CEO Robert Toll said on the company’s recent earnings call that sales of the company’s Brooklyn condos have been going ‘pretty strong,’ but he made no mention of the pricing problems at the developments.”
“In recent weeks, the homebuilder slashed prices by nearly 20% to sell a block of condo units that have less-than-desirable views in the first tower of Northside Piers, TheStreet.com has learned.”
“What’s more, the company appears to be having trouble selling the remaining 11 units that also suffer from poor views at North 8, a nearby project that has had these units on the market since October 2006.”
“‘I think that some of the big buildings being built on the water will not appeal to everybody,’ says Lior Barak, who handles new Brooklyn condo sales for real estate firm Prudential Douglas Elliman.”
“Two-bedrooms and three-bedrooms have been a ‘challenge to sell,’ says David Von Spreckelsen, a VP at Toll Brothers who heads the New York City office. ‘It’s a younger market than we thought.’”
This news should be great for Bear Stearns’ Everquest IPO. Sure hope it crashes and burns. Next they’ll be sued by the online gamers for stealing the name.
“‘At the end of the day, I’d like someone to be honest with me about what’s going on,’ says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages.”
I will tell you: the fix is in and those who WERE in the know (and in a position to pull out their winnings) left you holding the bag, that is what happened.
Your description of “bag holding” is right on! There is going to be more and more of this, and the outrage stories are just beginning.
how about this for honesty
“You’re safer taking a ride with Lindsay Lohan than being in homebuilder stocks,” said David Lichtenstein, chief executive officer of Lightstone Group LLC in Lakewood, New Jersey, which owns malls and hotels. Actress Lohan was arrested May 26 for driving under the influence after crashing her car.”
Correct me if I’m wrong — wasn’t it recently reported that Bear Sterns was trying to peddle highly leveraged financial instruments to public employee pension funds, against which public employees generally have ironclad claims that taxpayers are obligated to fulfill regardless of the consequences (see NYC in the 1970s)?
Yes. Yes it was. As I have said many times, it was the unwinding of leverage which caused the big crash of 1929, and it will be the unwinding of the ridiculous levels of leverage which we have currently which will cause the next financial catastrophe. Right now, it is only a question of what will trigger the stampede for the exit. I’m sure any number of Wall Street gurus are carefully considering the traditional wisdom: “Never panic, but if there is a panic, be the first.”
It was Bear Sterns, they had a Bloomberg story on it. In the story some shill was trying to tout the safety of the investment and the ratings on it. The ratings company in the story said that they don’t rate the underlying components in the investment. A total and complete sham and fleecing of other people’s money OPM.
What Bear & Stearns is doing is nothing else but mortgage fraud.
Here’s the similarity:
Seller dumped the value-losing house to a straw buyer (setup by seller) at
high above market price. Straw buyer then just walk, leaving the
mortgage lender hoding the bag on the lesser-worth house.
Now, here what Bear-Stearns is doing:
Bear-Stearns is dumping the money-losing subprime bonds at a high price to a straw company (set up by Bear-Stearns). Bear-Stearns then bring
this company (EverQuest) IPO, selling its share to the public (401K, funds),
the public now holds the bag.
Of course they will make the book look good before the IPO,
and will have their 401K fund manager friends buying the IPO (watch for kickback here).
The SEC should be on this. WallStreet is full of scams.
It is in Bear’s best interest to value Everquest’s holding as high as possible.
The valuation of most of these holdings is “mark-to-model”.
Bear controls the design and inputs to the model.
Clearly no conflict of interest here, move along.
In summary:
In April, the Bear’s internal hedge fund HGSCSEL “posted an 18.97% decline”. Another internal fund posted a 5% decline. Both suffered by making leveraged bets in subprime mortgages. The solution: create an IPO, Everquest Financial, stuff it chock full of this toxic garbage, and pawn off these “marked-to-model” securities to the public: “Nearly two-thirds of Everquest’s portfolio of CDOs were purchased from two hedge funds”.
Go long securities law firms, ’cause Bear’s gettin’ sued! The perps will be long gone by then, having gotten theirs.
U.S. foreclosure filings surged 90 percent in May
That’s nothing - the big resets are just beginning; wait six months and we’ll see some serious numbers.
Just wait until the 75 bps correction in l-t bond yields translates into a 75+ bps increase in mortgage rates, applied to payment resets. You ain’t seen nothing yet.
“Tullis’s latest clients are a married couple that banks ought to love. Between them they make $70,000 a year and they’ve been renting the same apartment for three years with zero late payments, he said.”
… Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.”
$70K income. $500K townhouse. Don’t have two months of payments saved.
The insanity isn’t over by a long shot.
And these are the people banks “ought to love”? I’d hate to see all the marginal buyers who got approved.
They should not be buying a 500K townhouse, though no townhouse should cost 500K in the first place.
and after a while they won’t cost $500k !
While I have been a real estate bear for quite some time now statements like this “no townhouse should cost $500K” is a ridiculous statement. Studios in NYC cost $500K (I think that is ridiculous). Its all relative. Townhouses in NYC…well, you would have to throw in at least 1 more zero.
I agree completely. I also think people making $70K should be looking for a house that cost $250K.
SOMD:
Unfortunately, there is probably not even a single home or condo in Fairfax selling for 250K. If so, I don’t even think cockroaches would live there. This area has a long way to go.
I won’t blame the borrowers here. The $500K rowhouse they want probably should cost $250K.
Then again, with $70K in income they ought to be able to save up $25K over three or four years.
$250k buys a 20 year old, one bedroom condo in Northern Virginia.
Now. But with a little patience, that price will drop.
The “Copermine Crossings” townhomes in Herndon were starting at $459K when I lived there in 2005. They were selling for over 550K when I left. I just saw five of them listed on homesdatabase.com for 379-399K. NoVa is getting spanked as we speak.
Oh not you Nova Sidleliner. Getting spanked I mean. Unless, well, you know….
where is auger… :rolleyes:
Here is a listing for Coppermine Crossings at $520K!!!
http://washingtondc.backpage.com/realestate/classifieds/ViewAd?oid=oid%3A643508&name=homes%20for%20sale
What are people thinking . ..? I would not pay $250K to live there. . .
With all the proposals to bail out subprime borrowers, how the heck are they going to bail out the people who bought $500k homes with $70K of income before credit standards tightened?
Let’s say banks are forced to replace those subprime ARMs with fixed-rate loans. Even if the loans were offered at the 5.25% (the current Fed Funds Rate) interest only, these type of borrowers would not be able to afford their homes. With PITI, their monthly mortgages would far exceed their 50% of their net income.
There simply is no way to bail out someone trying to pay for a $500k home with $70k of income short of giving them grants. That’s certainly not going to happen.
That’s why I think people will walk (if they can). Especially since people like this couple, making mid-to-upper five figures can easily find an affordable rental, in most areas. People will FINALLY do the math, realize there’s no way to make it work, take the credit hit and move on with their lives.
Geez, if the banks love this couple they’d be positively orgasmic over most of us.
renting is looking better and better every day
Nah, banksters don’t want to have *anything* to do with the regulars from this blog. Instead, they want idiots they can saddle with a toxic neg-am that generates the maximum amount of origination fees and commissions (before they offload the loan and its default risk to the FCBs, hedgies & pension funds). All of us are sitting on cash and would demand a conventional, amortizing FRM at a decent rate and low fees, which doesn’t generate nearly as much profit for them.
We are all mortgage “deadbeats” to the banksters. Kind of like how credit card companies consider people who pay their balance in full every month “deadbeats”.
Not really. Banks always love the littler guys especially if they have a BK on record. To the banks that means they can’t file again. Secondly they are the ones that wind up getting the CC’s only to make the minimum payments. These probably make up 40% of a banks assets.
Is it illegal to pretend to have a BK on your record?
I was thinking the same thing. That’s just over 7 times what they make and all they want them to have saved is two months worth of payments. These people shouldn’t be looking at houses that costs half that.
Shouldn’t they be required to at least have a 10% down payment?
Should be about 5% at this point.
I wonder what they would qualify for, that would give us a better picture where lending is at the moment.
I we are back to 3x income, that townhome is toast. also at 5-10% downpayment that = 35k-70k cash set aside……OUCH.
Between them they make $70,000 a year. Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax. So no one thinks the fact that they are trying to buy a house that is more than 7x annual income is a problem. What happens if one of them loses a job, how do you service a $500k mortgage on 35k a year. I don’t think two months worth of house payments are going to make these numbers any less ugly. Clearly, there are still greater fools out there.
I want to know where they found a 500k townhouse in Fairfax. That’s so cheap.
You… you’re joking, right? I’ve lived and worked in Fairfax for thirteen years. Wait another two and check the prices again. They will revert.
It wasn’t too hard for me to find one. I searched 22030 and found several right away. Here’s one for $479k: http://tinyurl.com/2ekgl9
My only limit was that it must have a garage.
With a little more effort, I found these on ZipRealty:
$380k: http://tinyurl.com/252xgp
$410k: http://tinyurl.com/2klkzy (in Burke, but close to VRE).
$450k: http://tinyurl.com/2vcdf9 (pretty nice, but still way overpriced).
And, I wonder if these people realize that they just dodged a bullet to their skulls.
Hopefully, by the time it takes them to sock away a couple months worth of mortgage payments (if they take that route), they or their loan officers will have figured out how to use a loan affordability calculator.
He used it! Fogged up real good.
I make more than this by myself and the last thing I’m thinking of doing is spending $500K on a house. Hell, I think $250K is too much for a house.
Is this all about telling your friends that you “own” a $500K house?
I guess it just highlights the fact that, in this bubble, people ignored the price in favor of the payments.
Probably they don’t want to ‘throw away money’ paying rent and, instead, want to build up their ‘investment’ in a huge way by buying 500 K house. If one considers the house as a long-term investment, it is better to go for the most expensive house for which the bank will give a mortgage. I think it all makes sense for the greater fools.
how do you service a $500k mortgage on 35k a year
For that matter, how do you service it on $70k per year? Generously assuming a 30-year fixed mortgage at 6% interest, the payments alone will be $3k per month, against a $5800/month gross income. Literally impossible if they have any expenses such as, oh, food or transportation.
Also, someone earning $70k/year will be lucky if they manage to save $500k in their entire working lives. Spending that on a house means no retirement savings at all.
P.S. Even as a renter with no debt of any kind and a good income, I would literally not be able to sleep at night if I didn’t have at least six months’ living expenses in the bank. According to this article these dumbasses don’t have even $6k (two mortgage payments) to their names. And they think they somehow merit a half a million dollar loan. Amazing.
“Bear Stearns says it’s suspending redemptions because the ‘investment manager believes the company will not have sufficient liquid assets to pay investors.’”
Maybe if they hadn’t paid out those multi-million dollar bonuses…
Locking the bank doors will stop a run on the bank temporarily, but it doesn’t work long term.
That $642 million is gone, never to be seen again - poof!
“Maybe if they hadn’t paid out those multi-million dollar bonuses…”
That’s a joke, right?
I had forgotten about those big bonuses. I remember the media making a bit of noise about it. I even remember the TV newsman saying something to the effect of; “Hey, that’s the way it is. Tell your kids to become investment bankers and they’ll get the big bonuses.” Now Bear Stearns have no funds for redemptions?
High-Grade Structured Credit Strategies Enhanced Leverage Fund
aka: Housing Bust Credit Tightening Lose Your Investment And Avoid The Margin Call Becasue The Fund is in Receivership Fund.
PIGS GO BROKE!!!!!
One of the most emphatic housing market bears has been Peter Schiff. I think fellow bloggers on this site will get a kick out of what he has been saying for the last year or so.
Check out some of these video clips from his appearances on CNBC and Bloomberg. These tasty treats go very well with a fresh bag of popcorn.
http://www.europac.net/video.asp
Great clips, thanks for the link!
http://www.europac.net/video.asp
‘Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.”
“‘Six months ago, these folks might have qualified, a year ago, definitely,’ Tullis said. ‘It’s a lot, lot harder than it used to be for first-time home buyers.’”
Would you lend your money to a couple that, not only has no down-payment, but can’t manage to show an average balance in their bank account to back a 2 month reserve requirement. C’mon! Actually, a two month reserve requirement is pretty lenient. 4 to 6 month reserves were normally required back in the days of sane lending. Anyone that can’t manage to keep at least an average of what would be equal to 2 months worth of house payments in the bank shouldn’t be uying a home. Just my opinion, though.
Oh, I forgot one other small detail. A 500K home for a 70K household. Need I say more?
How about a 500K house on a 70K income? That’s mindboggling.
Great stuff, eh? I love how the “senior loan officer” (whatever) cries foul over the fact that his borrowers have been in an apartment for 3 years and never made a late payment. What an idiot! What, $1200 - $1500 rent in comparison to a $3200 house payment. Yeah, that’s apples to apples. It’s the equivalent of some dude walking into a Porsche dealership and telling the manager to “give me your best, ’cause I’ve had this Toyota Corolla for three years and I’ve never had a late payment.”
Hey! That is just what I want to happen in 2 years. I want to go into the Porsche dealer (who I hope is salivating for customers) and say:
I want that low mileage Cayman S for 25,000!
What about furnishing the house after the purchase? New drapes, furniture, etc. I’m sure it would all go on the CC if they were to actually find a lender.
And around here, most lenders require you to pay a full year’s home owners insurance in advance of closing. Wonder where they expect to get the money for that.
I just furnished my new place
new furniture both bedroom and livingroom and spare bedroom
also an office i am making for myself, (new flat screen 42″ i had too im sorry) area rugs, window treatments and some new small apliances as well as realtor fee 1st and last month rent and all the other misc. stuff
just south of 20k (all in cash)
I furnished the Arizona Slim Ranch with cash, checks, and a credit card that was paid in full every month. Mind you, I had most of the furniture when I moved in, but there were a few things that I still needed.
I went to the furniture place and they were offering no interest for 3 years or 2 or 1 year and each one got progressively lower until i said how about i pay cash right now? you should have seen his face! and i proceeded to pay $1800 less then the 3 year option.
cash is still king sometimes
In my neck of the woods (sacramento), you can find a whole lot of Pottery Barn, Crate and Barrel, Z Gallerie, etc on CL cheap. Furnishing a new place just became a whole lot more affordable.
Does the median FB have good taste?
“…can’t manage to show an average balance in their bank account to back a 2 month reserve requirement.”
How draconian! That is almost as bad as requiring a downpayment.
lmao
“In a June 7 letter to investors, Bear Stearns says it’s suspending redemptions because the ‘investment manager believes the company will not have sufficient liquid assets to pay investors.’”
I’d like to see what fees have been paid upfront to the managers of this fund; also what bonuses were paid last year such that they have no money for redemptions. Taking a look at BSC’s latest quarterly report, that’s very hard to believe.
Business as usual. It’s always about money for the “boys on Wall St.” Who do you think comes first? Fees, up front “costs” all have to be paid now. The future will take care of itself. Investors never learn the game, even the intelligent ones.
Exactly Jerry. If BS (funny isn’t it?) ever went belly up, you better believe all the higherups would be taken care of. Of course, the investors, well…that’s another story.
Everyone is a bagholder except the upper insiders. Everyone. The fix is in.
I think the motto is “when morons are throwing money at you, take it.” And hope the government doesn’t make you give it back later.
…but where are the customer’s yachts?
Unbelievable that BS have no accountability here. Guess the investors didn’t read their documents. No wonder hedge funds don’t want any oversight.
“About 5 percent of the loans issued by Countrywide Financial this year will cover the full price of a home, down from 25 percent in 2006, Sambol said.”
Translation: “We’ve done about 8% of the loans for the year ‘full price of a home’ and since we cannot pass on the risk, we’re done doing those stupid loans.”
People cannot even come up with two months payments in the bank… how the &*%! will they come up with 10%+ 2 months?
I stand by my prediction that 25% down payments will be required during the darkest days of this bust.
Got popcorn?
Neil
Neil,
Mozilo is alread crying…”‘We need to take a step back and make sure this readjustment hasn’t gone too far,’ Mozilo said.”
Angelo, Save your breath and wait a couple of more years for the real tightening. When you are puckered up a little, then you are allowed to whine. In the meantime, Neil will send you some popcorn to keep your jawbone muscles in shape.
Tooooo much already?
Funny thing is, a few weeks ago, Mozilo was saying how all of the first-time buyers were pressuring the lenders for the loans (http://thehousingbubbleblog.com/?p=2835). I guess the iddy biddy Mozilo is finally going to stand up to those big meanie first-time homebuyers.
This guy has sold hundreds of millions of stock last couple years. He is only defending the industry so he can sell more stock!
Neil,
I really hope you are right about the 20% deal. That is also going to flush out the commercial guys who bought on a 3% down with 98% occupancy during the rush. I have my eye on 2, 10 unit buildings that will never cash flow in Cape Coral once completed.
Not to mention a couple of bigger units two streets over. If this whole thing gets that bad i might actually be able to triple the rentals we own…Whohooooo.
Chris
Was there actually a time when 25% was required in the past? I’m not all that young (but not that old either
) and I don’t remember one.
the goofy instruments of today were availalbe, just no one was dumb enough to use them before
az_lender, the fairest lender in the West, has been requiring 25% down payments for almost all deals in the past two years. Or, below 70% LTV if it’s a cash-out re-fi. An exception was a house that I myself needed to sell; there I settled for 13% down. Could still get burned. Happily, today I am back to being able to report that nobody is behind, not even 1 day.
az_lender, the fairest lender in the West
Aha, so you’re the fairest. Is that in the realm of lending-deals or prettiness?
Do you know if there was a period back in time where banks typically required 25% ?
In the 1970’s, 25%+ was required except for “entry level” units.
I consider that fair. Heck, I have no problem with entry level homes having FHA loans…
But if you’re going to buy a $800k home… some meat in the game is required.
As to those with $200k saved… I know a bunch.
Amazing how many are out of the game right now.
Got popcorn?
Neil
thanks. That’s what I was asking above.
Neil, good! Once we get back to a strict 25% down, housing in the most bubblicious areas (IE, OC, Boston, BA, yes even the BA) will go down 50%. They will have to. No buyer in their right mind who has saved any $, let alone 200K is going to throw it way on a falling knife, which is listed at 700K. Look, if I have 200K in the bank earning a cool 5%, that’s 10K a year. Even at $1500/month rent, I have 7 months of rent in interest alone plus that money in the bank. Only a fool would spend that kind of money for a downpayment, unless you are very rich and want a true mansion. Additionally, how many people are going to have $200K saved? Of course, on this blog we have savers in all brackets, but the bottom line is, the more you have saved, the less likely you want to part with it quickly. You know how hard it is to save, even w/o the toys.
Therefore, as Neil points out, when 25% down is the norm I believe that we will see housing come back to the $200K-300K range. It has to.
that’s more than a 50% cut, about 60-70% I would say with a 25% downpayment required that is.
“I stand by my prediction that 25% down payments will be required during the darkest days of this bust.”
When I bought in 1996, lenders wanted at least 10% down, preferred 20%, PLUS no credit card debt, 6 months cash reserves in the bank, homeowner’s insurance paid for the first year, etc. People spent several years getting their finances in order to be able to qualify for a mortgage.
I also remember in the Bay Area, around the mid ’90’s, banks weren’t writing big mortgages without massive down payments, as so many got burned in the early ’90’s bust.
So, you may absolutely be right about 25% down. If the banks can’t sell of their junk loans, standards will get very, very strict.
And yes, 25% down will mean a return to pre 2000 pricing. Hardly anyone will have that kind of money saved up.
“Federal Reserve Governor Randall Kroszner said the central bank ‘will seriously consider’ tougher rules to prevent abuses in consumer credit, including whether it should ban some mortgage lending practices.”
I have a few suggestions. How about if they ban liar loans, payment option ARMs and I/O loans to people who cannot otherwise afford to buy the home they have their sights on?
That’s not going to happen GS the dirty little secret is no bank wants to do a 30 yr fixed rate instrument anymore. They all want the variable rate products because it allows them to make more money over time and keeps the hamsters on the refinance wheel.
So you are saying the Fed advocates making loans to help people buy homes they cannot afford?
That’s it!! I’m never taking off my tin foil hat again!
Surely you’re not asking me that question when you are well aware of Greenspans remarks about taking out adjustable mortgages. Have you seen BB take any steps to the opposite? I don’t recall seeing any.
You would think these two CB chairmen would lose sleep over the risk that history will hold them responsible for encouraging households to buy homes they cannot afford and creating a foreclosure crisis.
History may hold them responsible but history is not their master…
As posted by Neil, if 25% becomes the norm and 30 yr. fixed is done away with, then we have a whole new paradigm, which I believe will be the end of RE bubbles. Look a 15 yr. fixed at 6% = $860/month for every 100K borrowed. What do these banksters think we are? Please, don’t answer that, I already know (slaves for them). Fine, if that’s how they want to do it I will rent for life. Screw them. Never another loan or debt. And screw the local tax (wo)man. RENT! It saves you a lot of headaches, esp. the way things are going in the financial world now.
Just to be clear,
Its only during the darkest days of the downturn that I predict the 25% down payments. It won’t last more than 18 to 24 months.
Unfortunately, there will always be RE cycles. There will be another speculative boom in 15 to 20 years. Cest la vie. We seem unable to learn from the past…
To me its a question of when (and where) to buy. How much?
The answer is don’t buy before 2009 (unless you can buy 50%+ off as in some of the FL auctions… at some point the tax benefits are worth stepping in early, assuming you can use the added space).
But I know not to buy until Joe Sixpack screams that buying is stupid…
Then its time to negotiate!
Got popcorn?
Neil
Lately when I ask someone about selling their property, almost everyone says “not in this market!”. The idea is to hold tight and wait out the downturn. The trick is no one really understands how bad and long the downturn will be.
Its only during the darkest days of the downturn that I predict the 25% down payments. It won’t last more than 18 to 24 months.
Those two statements are contradictory.
Stucco, how about we make the qualifying income only that which shows on your tax return. That would weed out the scammers and encourage everyone to declare all their income, if they ever want to own a home! You get two birds with one stone.
this has been advocated here before. i certainly think it fair
I second that.
Personally, why would someone want to loan money to a borrower who has proven to be a liar, cheater and unwilling to pay his/her obligations (lied on tax returns)?
Tax returns should be THE way lenders qualify a borrower’s income.
Who creates these loans? Maybe the loans need to qualify with some jackass board they have to bribe or something, maybe to just have on the surface some level of accountability?
What we really need is to stop allowing banks to create money, or should I say debt, on a computer screen. Sanity will only return when banks and everyone else is required to have adequate reserves. Just because I open a bank doesn’t mean I should be allowed to write million dollar mortgages, esp. if all I have in the vault is $125K. That is one of the problems with this whole credit bubble. If banks were required to have a 50% cushion in their vaults, these garbage loans would stop. Don’t lecture me on the 10% reserve rule, either. We all know that is a sham. Banks don’t even have that. Heck, my wife needed a cashier’s check for her work for $125K from WaMu about 5 years ago. The teller couldn’t do it. There would be a 5-day hold. I asked the teller, you mean to tell me you don’t even have 125K in cash at this bank. Teller was silent. That was one of the milestones on this bubble journey when I knew this country and system was screwed up!
Heck, my wife needed a cashier’s check for her work for $125K from WaMu about 5 years ago.
But they have that hip young minority guy as their spokesman!
Wamu is a douche bag company, try working with them from the inside out…I had to eventually write them off and not talk to them.
That oddly racist commercial with all the conservative white bankers in a pen.
Going to be interesting to see that in a couple of years. Perhaps the bankers will eat that guy.
The fractional reserve system might be heading for the big credit event real soon.
“I have a few suggestions. How about if they ban liar loans, payment option ARMs and I/O loans to people who cannot otherwise afford to buy the home they have their sights on?”
Maybe an answer would be to ban these types of mortgages from backing MBS. If the banks still want to offer these… what happens in the banks stays in the banks. Don’t let them pass the trash and they will get more conservative right away.
OT: Does anyone know if they retail numbers released today included gasoline purchases? If so, I guess that would explain the jump in retail sales.
http://news.yahoo.com/s/ap/20070613/ap_on_bi_go_ec_fi/economy_17;_ylt=Av44EYUFwbGMn2m8tGhznWYE1vAI
Sales would have been strong even without last month’s big jump in gasoline prices, which saw prices top $3.20 per gallon. Excluding sales at gasoline stations, overall retail sales would still have been up 1.2 percent.
Hey, perhaps the top 0.1% is spending enough to offset everyone else. Remember Reagan’s argument for leaving the rich with more disposable income — that they’d save and invest it?
Don’t be saddened. What we need to see if CC debt and other debt, i.e. auto, HELOCs, all the usual suspects are up. If that is the case we know what everyone else is using to buy stuff with. Also, we know then that we are in the final throws of this bubble. Eventually everyone who is willing to be a debt slave will be tapped out.
‘If they could buy, we’d see a much better housing situation for everyone because it would start the domino effect.’
This is the WHOLE problem. If they could buy, the housing situation would be much worse for everyone, as prices would go up and they would get foreclosed on since it is obvious a person, making 70K with no money in the back cannot afford a 500K house. It is becasue of the availability of easy credit in giant amounts houwses are so expensive today and affordability has long gone.
A lot of homes in Florida and other resort areas were bought as “second homes.” We all know there has been a great deal of lender tightening for subprine and Alt-A loans. Are second home loans still easy to get? Can you still get a no-money down loan for a second home?
I just want to ask, what happened to the term jumbo loan? I remember when we bought in 1996 that anything over $299,999.99 was a jumbo loan that carried a higher rate of interest because of the risk. When did these moronic LO, banks, etc. decide to raise the ceiling on these and couldn’t they foresee what woudl happen? Was the greed in their hearts and eyes that blinding to them?
Yeah! Jumbo or conforming. Now EVERYTHING seems to be jumbo and jumbo no longer means anything and the banks just self-lobotomized….
I think what happened in NYC was that the term “Jumbo Loan” was replaced with “Affordable Housing Loan.” There is nothing lower anymore. As for higher, it’s billionaires buying with cash.
Short answer…Yes
Well, and it was the smarty-pantses who bought into stuff like Bear Stearns’s imploding hedge fund. Get $200K from a hedge-fund investor, use it to borrow $1M in yen, use the whole $1.2M to buy a bunch of krappohla mortgages that yield 4.5% ($54K per year), hedge fund rake off $20K/yr, give “investor” $34K/yr an apparent 17% return on his investment. Works great until it doesn’t work at all. Someone who knows more can correct me if I’ve got the details wrong.
Jumbo is now above 412 or 415K. It might go up if the current housing bill (passed by the House) in the Senate (committee not yet full Senate) passes into law.
Toll House Cookie Crumbles…
“Two-bedrooms and three-bedrooms have been a ‘challenge to sell,’ says David Von Spreckelsen, a VP at Toll Brothers who heads the New York City office. ‘It’s a younger market than we thought.’”
Laughing Out Loud (”Toll House Cookie Crumbles”)
“Tullis’s latest clients are a married couple that banks ought to love. Between them they make $70,000 a year….Lenders won’t approve them because they don’t have enough money in the bank…Tullis needs them to sock away two months of payments for the $500,000 townhouse in Fairfax.”
So, folks grossing $70K are still trying to buy for $500K? That is over 7x their annual income.
Rule of thumb used to be no more than 3x for loan approval.
How many foreclosures is it going to take for banks to go back to sane lending standards??!!
Always make sure your hearing is heard first…
“The House Financial Services Committee is exploring improved consumer protection in financial services. The hearing comes a day before the Fed is to hold a hearing about how to curb abusive lending practices in the subprime market.”
Love that seemingly EVERYONE here noted the same thing I did - Josh Tullis is pissed because he cannot put his 70K/year clients into a 500K condo. Outrageous!!!! Remember Monty Python’s “The Meaning of Life” when John Cleese tells the pregnant woman, “You’re not Qualified!”? That, little Josh, is what you need to tell your 70K clients. Sack up, man, and do what’s right!
“The run-up in mortgage rates can lead to a short-term jump in sales, rather than a drop, as would-be buyers jump in to lock in rates before they move higher, said Lawrence Yun, senior economist with the National Association of Realtors.”
“Yun said rising rates are the biggest problem in the nation’s higher-priced real estate markets, where affordability has already become an issue.”
Why does he keep talking?
“Lock in rates” would seem to imply that would-be buyers are seeking fixed rate mortgages. Lawrence Yun made a funny!
“Instead of having to pay on a contract at as much as 100 times the value of the underlying mortgage, ‘it becomes cheaper for some folks to buy worthless loans,’ says Harvey Pitt….”
“Pitt says it would be market manipulation if lenders are trying to avoid paying on swaps….”
This is exactly why some of the big houses were buying POS BK loan originators in the first place. They were covering the swaps in the real market to avoid paying in the financial market. Burying the bodies. Working it out in house.
You are right. I used to wonder what kind of value these Investment Banks could see in these washed up Sub-Prime Boiler Rooms. Now it is becoming more obvious. You’ve got to hand it to these guys, they can make money no matter what is going on in the market.
I have no problem with rich, greedy bastaards getting what comes to them, but unfortunately they are the ones who seem to always be able to outrun the tsunami, while the pension funds, small investors, Joe6Packs and elderly get swept out to sea.
In my opinion the real turning point of the American economy probably turned back in the 70’s. Since then we have gradually left our standard of living erode, as we kept the spread filled with credit of all sorts.
Sad.
“Simply requiring a down payment of as low as 5 percent will disqualify one in four of the first-time buyers who were IMPAC customers a year ago, Chawla said. ‘We’re asking for skin in the game,’ Chawla said.”
Hmmmm, now where on Earth have I heard that little nugget of wisdom bfore?
I posted aomething similar on a different tread but here it is again. In January of 97 I bought a 3/2 SFH in Olympia WA for 132k. I made 60k and my wife did not work, if you looked at my tax return it was a bit over 70k but that was overtime money and I had the sence to know that that should not be counted on. The bank (WaMU by the way) prequaled me at 170k. I looked at the breakdown on what the payment would have been on 170k and told the loan officer, “you know I like to be able to feed my kids right?”. I then looked and found a house that I was comfortable with the payment on. I had the nuclear family at the time, 2 kids wife at home. I funded the escrow account for 6 months of taxes and one year of insurance, the loan rate was 7% after I paid points and this was a VA loan so no PMI and very little down. I still felt house-poor the first 2 years I remember as the house payment with escrow was $1088 a month. I only owned one car, didn’t take big vacation trips, put 6% in my 401k for the matching funds (had a pension on top of that, the good old days working for a fortune 500 company). Couples making that much COMBINED are looking at 500k homes, going interest rates are only about .5% lower, how people sleep at night I dont know. This is going to go so badly it isn’t even funny anymore to me. Personally I am going to look for the short squeeze in the Home Builder stocks then buy puts 6 months out. I like to limit my risk and I never liked shorting stocks verse buying puts, I like to know how much I am going to lose if I bet wrong.