Bits Bucket And Craigslist Finds For June 16, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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Comment of the day, yesterday:
“The lenders, including JPMorgan Chase & Co. and Option One Mortgage Corp., urged the Fed to require simpler consumer disclosures and to issue guidelines instead of rules. ‘We recommend that the board be cautious,’ said Faith Schwartz, senior VP at Irvine-based Option One, a unit of H&R Block Inc.”
Give me a break. Faith, do you mean “cautious” as in 20% down payment cautious, 80% LTV cautious?
Or do you mean cautious as in “Fog a mirror, give’m a loan cautious”? You know, 0% down payment, 1% teaser rate, $200,000 cash back, then sell the loan to some RMBS chumps, cautious?
H&R Block is the biggest predatory organization there is. I had two friends work there part time doing taxes in 2006, just for fun. They could not believe the fees and programs to separate clients from their money. Outrageous.
Faith, here is my recommendation: You idiots be put out of business, or made to do it right. Full doc, full disclosure underwriting, all loans w/ at least 5% down, all loans with impounds, and all appraisals ordered thru a state pool of appraisers which is blind and anonymous to the lenders & borrowers. That will be a cautious start.
Full doc, full disclosure underwriting, all loans w/ at least 5% down, all loans with impounds, and all appraisals ordered thru a state pool of appraisers which is blind and anonymous to the lenders & borrowers.
..add in requiring a deposit equivalent to three months mortgage and taxes…..plus a DNA sample…
And 20 % down.
You guys are proposing to take the fraud potential out of mortgage lending, and that would be terrible for the housing sector.
DNA would help stop all the fraud. Too bad the lenders can’t just do a reasonable job of qualifiying and documenting the borrowers…..
Too bad the lenders don’t have any regulatory incentives to do a reasonable job of qualifying and documenting the borrowers, despite the Fed’s rather unconvincing recent spate of jawboning on the subject. Incessant saber rattling on inflation and lending standards without follow-up action could actually make the problems of inflation and absent lending standards worse rather than better!
I disagree with even 5% down. The down money should be based on credit scores - the way it used to be! There is no reason why someone who has very good credit (800+) and who qualifies for 100% financing on a 30 year fixed rate should not get it.
If the buyer knows all of the facts - whats the problem? The problem has been 100% financing that starts at 1.25%. Also with the views expressed above 5% down is meaningless in todays markets as many places will easily drop 5%. The important think is qualifying the buyer on fixed rates and not adujstable rates that start out with negative amortization from day one!
There is no reason why someone who has very good credit (800+) and who qualifies for 100% financing on a 30 year fixed rate should not get it.
How about the fact that these “good” borrowers can close on three homes in a short period of time and it won’t affect their credit score in a timely manner, so the loan issuer misses the borrower’s true risk.
Or the fact that credit scores can be manipulated and bought.
Credit scores are great, but they are just one piece of someone’s financial portfolio. I’d like to see a return to bank statements and W-2’s, crazy things like that.
“There is no reason why someone who has very good credit (800+) and who qualifies for 100% financing on a 30 year fixed rate should not get it.”
I can think of a reason. Assuming such a borrower exists, they would be stupid to waste their good credit rating in competition with subprime borrowers who were able to qualify only because they could fog a mirror.
You tell’em G/S!
WAman: My FICO is 801 and has been as high as 816. I am not going to be so stupid as to apply for 100% financing. Doing so would most likely lower my credit score & rating. Why would I want to do that???
Speaking for myself, when I buy its probably going to be a full cash payment or a 15 year fixed.
~Misstrial
“15 year fixed”
Banks won’t like you for that. You pay lots less interest on a 15 year fixed than on an I/O option arm with minimum payment option (assuming that you stay the course in the latter case!).
Not owning a home can also lower you credit score. And I have not been stupid in getting a 100% loan. My fico score went up when I paid off visa debt - all the while I had a mortgage at 110% of original price. When I bought my last house just last month my fico score was 834 about 18 months ago it was 720.
Full cash payment now that is stupid - When you can easily get 5% in a non-MBS money market why would you tie up thousands in a depreciating asset?
Hah! You should see me in action when a contract is put in front of me - I cross things out….line out clauses I don’t like…write in conditions that suit me…and so on. My husband just laughs.
~Misstrial
I think the lenders and holders of bad mortgages should lose money if the loan goes bad. That will stop no doc loans. And the FED should not monetize these loses. If the Government wants to add regulations I suspect that will cause strange distortions, like Gov workers can qualify easy and everyone else better have FICO of 750 + 20 percent down.
Not owning a home can also lower you credit score.
I don’t think this is true. I have never owned a home, nor had any debt such as a car loan, but my FICO is above 800. All I have are two credit cards with relatively high limits (over $20k each), which I pay off in full every month, and I have a perfect payment history. That’s all it takes.
The zip code where you live does effect your credit score. I had a FICO of 800+ in California, but following a move to rural eastern Washington state nudged it down to 790+, and I have never had any late payments (nothing over 30 days) in 480+ months of credit history. I have money in various savings instruments, and $80k+ in home equity. All it took was the move to lower the credit score!
We rent and have 800+ FICO scores. Never heard of “not owning a home” lowering your score.
Oh and agree with Jingle’s suggestion (even though 5% down seems a bit low to me — I’d prefer to see 10-20% down):
Full doc, full disclosure underwriting, all loans w/ at least 5% down, all loans with impounds, and all appraisals ordered thru a state pool of appraisers which is blind and anonymous to the lenders & borrowers. That will be a cautious start.
If credit score are manipulated and bought are they good credit scores? Trash goes in trash comes out. I have never gotten a loan without producing W2’s and bank statements. I just closed on a house with a 75/25 loan. The 25% is a 5 year balloon feature that I wanted that way as I will pay it off in 5 years.
There will always be someone who trys to get around a system and if some fool goes and buys three houses in a month I hope he/she gets what coming to them!
There will always be someone who trys to get around a system and if some fool goes and buys three houses in a month I hope he/she gets what coming to them!
If the banks start to take these risks seriously after they get burned, they may start making everyone have skin in the game. It’s their money (well kinda) so they can make the rules.
“I disagree with even 5% down.”
I disagree with programs to debase the lending system by waving downpayment requirements. The lending market’s preference for requiring downpayments was doing a great job of screening out unqualified buyers until Washington decided to dynamite it through the one-two punch of government-sponsored monopolists Fan and Fred’s low-interest-rate mortgage securitization business coupled with a program to eliminate downpayment requirements for unqualified borrowers (ADDI).
http://www.hud.gov/offices/cpd/affordablehousing/programs/home/addi/
Forgot punch number three: AG’s pedal-to-the-medal period of negative FFR in the early 2000s made it possible for strawberry pickers, hairdressers and cabdrivers to enrich themselves through second careers as real estate investors in a high home price inflation environment. Now that prices have stopped rising, I guess we get to see the down side of this experiment in encouraging rampant real estate speculative fervor.
GetStucco:
I would like to see some evidence of that - I cannot believe that a strawberry picker lives in a 450k house. And don’t give me one example - I want hundreds of examples - because that’s the way you make it sound.
I used to live in a very poor area - I still teach in this area (Yakima Valley). There are no farm workers living in nice housing. Me thinks you dwell in an ivory tower. I do enjoy reading your posts and your insights, but you might need to get around a little more.
“I would like to see some evidence of that - I cannot believe that a strawberry picker lives in a 450k house.”
I suggest you read more and post less, then.
‘Strawberry pickers Alberto and Rosa Ramirez claim Avila scammed them by promising to refinance their $720,000 Hollister home - a promise they say was never fulfilled, and now leaves the home heading for foreclosure.’
http://www.gilroydispatch.com/news/contentview.asp?c=215680
WAman:
This happened all over NoVA. I have many realtor friends and they tell of how unbelievable the last two years of the run-up have been in that people making 35k were getting no down loans on 800k homes. This was not uncommon, in fact it was rampant. The line around here was that you look at your payment (IO loan of course) and flip the house in two years for a profit. Neighborhoods once considered to be relatively safe SFH type of neighborhoods began to be shaken by multi-family housing and 7 cars per house type of situations.
My point is that it is much more common that you think.
My “handyman” bought a house in 2006 for $300+k, which was a foreclosure in ex-exurban DC area. The man has no credit due to past problems. He cannot get a credit card or a car loan. He is now in jail for DUI.
WAman also needs to know that having a mortgage does not improve your credit score. (Nothing to do with owning a house; yes 35% of houses are allegeldy owned “free and clear” in this country.) A lot of people like myself own property outright and the credit agencies don’t have a clue about this. All they see is your lines of credit, how much debt you have, and payment on these lines of credit and debts.
WAman is a former REIC minion. Fox in sheep’s clothing on this blog.
“Fox in sheep’s clothing on this blog.”
There’s nothing wrong with that, provided he does not follow the REIC’s standard operating procedure of sowing the seeds of disinformation.
Here’s an illiterate carpenter with a $750,000 house in NoVA:
http://www.hispanic.cc/foreclosure_wave_bears_down_on_immigrants.htm
FOLKS what I said was a 30 year fixed - NOT TOXIC loans. It should be illegal to put someone in a house with a mortgage rate of 1.25% when the real rate is 5.25% or maybe even 8.25% for that buyer. Many of you have said that you should put 20% down - well would that have saved people in Ft. Myers? Where we have read about prices down 43% I don’t think so!
If these strawberry pickers had not been preyed on by unscrupulous lenders there would be no problem.
And yes during the mid 90’s in Denver I flipped two properties - but those days are long gone - I am in your camp!
“Linda nearly swooned with pleasure as she looked around the interior.”
These FB stories are getting downright racy!
WAman, in answer to your question/statement:
“Many of you have said that people should put 20% down - would that have saved people in Ft. Meyers?”
YES. It would have saved the people in Ft. Meyers, and everywhere else for that matter. Here’s the reasoning: 20% down would have weeded out *most* of these people from buying in the first place, ergo, there’d be no house to “lose” to foreclosure. Or, conversely, 20% down would have prevented prices from rising as high as they did, enabling most of these people to buy within their incomes’ true safety zone.
The 20% down is one (very) small way to ensure that the price of homes stay in line with incomes, thereby ensuring that people who want to keep their home can do so. The SUREST way to find out the true value of these houses (relative to incomes) would be to have everybody paying cash for the whole amount, period. Since the banks want to make a bundle on mortgage interest, that won’t happen. But really, 20% down is hardly an exhorbitant amount and does a decent job of keeping *some* sort of realistic lid on home prices.
5% down is ridiculous, why bother. Frankly, I wish it’d go to 50% down. Wasn’t it there during the Depression?
And the Afghan supermarket cashier who bought a $410k house in the same hispanic.cc article:
Instead, Azimi, a cashier at Giant who makes $2,400 a month, found herself strapped into a no-down-payment loan with payments of $3,800 a month. She knew it would be impossible to make the payments, but the mortgage broker promised to refinance her loan to make it more affordable. Azimi couldn’t qualify for the refinance, however, so she got a second job to try to cover the costs, borrowed money from her friends and tried unsuccessfully to sell the house. Then one day in November, she collapsed at work, in part because of the stress.
Well, I got here a little late, but as many of you know, I ALSO disagree with 5% down … I ONCE made a loan of more than 95% LTV, and of COURSE it went bad. My disagreement with 5% down is, five percent is not enough. Especially in a declining market. Try 20%. My minimum now is 30%. Credit scores are sooooo irrelevant.
In lending money large down payments speak largely to quality.
I don’t think the down payment is as important as the job and payment history. I was always told that people who never had a late payment were a better bet than people with downpayments but a splotchy credit history. Some people will always make every payment on time, no matter how much they have to cut out of their budget. Those are the best people to give loans to. It’s an honor thing.
Downpayments put a natural brake on bubbles. That is why they are a good idea. Payment history is just that - history. You want to know whether the FB will be solvent if the market turns. I think the answer is not to ban 100% LTV mortgages, I just would not allow them to be securitized (i.e. put into REMICS/MBS). If the bank doesn’t want a downpayment, the bank holds the mortgage.
The whole point behind having a 20% down payment is so the lender doesn’t take a loss if the borrower stops paying (the asset can be sold for an amount greater/equal to the borrowed amount. It gives the lender a 20% buffer for depreciation, legal & administrative costs, etc.
Personally, if it were **my** money, I’d insist on 30% down right now. That would still leave some risk, IMHO, but a person with 30% down has some incentive to keep paying bills.
Also agree with Seattle price drop…all cash deals would let us know the **true** value of real estate. Otherwise, the amount of credit available dictates price.
This whole debt/credit thing has taken on a life of its own (an understatement). Credit should only be used when the borrower expects to make money off it (i.e.: to start a business or invest) OR for emergency purposes (need life-saving surgery NOW, but don’t have the money = OK to take on some debt).
Credit markets are just another way for the elite rich to make profits off the poor/middle class. Hopefully, people will wake up to that fact someday…but I doubt it.
I’ve read over at Calculated Risk that downpayments (or lack thereof) are the number one risk factor for defaults. I believe it — if you haven’t got sufficient “skin in the game”, you’ll walk, regardless of the credit score. It’s human nature.
IMHO ,if your going to make loans at less than 20% down than they should be insured and very strict underwriting should be applied .
If a borrower puts 30% down or more than I think you can let up a little on the strict underwriting and maybe even require less income information .
Also the appraisal has to be solid on any loan . A big part of the problem with the RE market going wacko was the sub-prime lenders hitting any appraisal with borrowers that didn’t qualify ,which drove up the comps .
I have no problem with allowing no-doc on 30% down given a stable market and a solid appraisal. Of course, we won’t see a truly stable market for at least another decade.
And a simple cover sheet with a 30 (or 15 or 40 or 50) line chart with 13 columns. First column indicating the year, second through thirteenth indicating the maximum payment that could be required in each month of that year. At the end, a simple declarative statement as to whether the borrower will actually own the house at the end of the payment schedule or will still owe a balloon payment of $X.
I don’t think a lot of people really understand the term “fully amortizing.”
John Bularz might lose his 17-year Town of Eagle home to the very man who offered to help him save it.
Faced with foreclosure in December 2005, Bularz signed a contract with James A. Black, a Milwaukee police officer with a sideline in what its purveyors call “foreclosure rescues.”
http://www.jsonline.com/story/index.aspx?id=620551
Your trying to take the fun out of swindeling people.
Floriduh tax amendment in trouble from the start.
http://heraldtribune.com/article/20070616/NEWS/706160307
Good. I hope it dies an ugly death. It’ll never pass.
I live in a low property tax part of the state, and am having a hard time being convinced the new tax plan is going to actually do anything for me. We aren’t planning on moving anytime soon, and I’ve got a hard time seeing how the plan is going to cut $1300 from my tax bill when I’m only paying $1200/year to begin with.
Because we bought in 2001 and immediately homesteaded, we still come out ahead under SOH than we would under the superexemption formula.
Wonder if Ivy Zelman’s departure from Credit Suisse has anything to do with her producing that reset chart which has informed and amused the housing blogosphere so greatly for the last month or so.
(Just thinkin’ out loud…)
Nah. It probably has more to do with the whole Morgan/Lennar lawsuit. Someone had a link to the website a few days ago.
This is the link to Morgan’s website on defective Lennar homes, and reports on the ongoing lawsuit and Ivy Zelman…
“In an attempt to put more pressure on this website, Lennar Corporation deposed Wall Street’s top housing analyst, Ivy Zelman of Credit Suisse. Lennar is suing to squash the First Amendment Rights to this website, threatening to take the depositions of more than 20 analysts, hedge fund managers and business publications in an attempt to force the shut this site down. …
Ivy Zelman’s deposition took place even though the deposition took place beyond the judge’s own order for the end of discovery, and despite Lennar failing to comply with the judge’s order regarding deposition practices. It just goes to show how powerful Lennar is, when they can get around court orders and depose one of the top analysts at Credit Suisse.”
http://www.defective-homes.net/wallstreet
They won’t be so powerful once the tail end of this bubble crushes their bottom line.
Poor me.
http://louminatti.blogspot.com/2007/06/poor-me.html
Aw, Lou…*virtually, Misstrial passes Lou a cup of morning coffee*…
Things could be worse: think of Casey, for example.
~Misstrial
It was a quiet morning, waiting for the rain to end so I could tackle the lawn. I figure I am the only person here who’s not a multi-millionaire so I was feeling sorry for myself.
Seriously, if the average BB reader/poster is as wealthy as they claim to be, Ben should sign up with a high-profile ad agency. He could get more money than relying on Google Ads.
I think he ought to anyway.
Even if HBBer’s aren’t all rich, we do represent a desirable demographic!
Although there are a few posters who seem to have money (talking about spreading their money around in 9 banks, so they’re covered by FDIC!)
most of us are just regular folk, from what I can tell.
Seriously, Lou. If you’ve got a good spouse & good kids, you’re better off than most. If you’ve got some good friends in addition to that…you’re gold.
Hope you’re feeling better about it. We’re all very fortunate people in this country.
I can assure you that not everyone else who posts here is even a single (much less a multi-) millionaire.
“On the internet, no one knows you’re a dog.”
More on that Cedar Hill story Ben posted about a month ago:
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/061607dnmetlakeridge.2f80e43.html
That really is a beautiful area. I have found a 500K house there in an absolute auction that I am going to bid 200K cash for.
Do you mean you found a $200k house, for which some GF is asking $500k…..???
No, I found a 500K house that is going at absolute auction by an auctioneer. The FB is the bank now.
Wow. Million-dollar eyesores.
Da ‘burbs is the new ghetto.
Buying at the bottom requires buying ugly. I still am not hot to own anything but if I can get something cheap enuf that I could sell it if I wanted to, might bite.
Me too.
I just think it’s interesting that where/when I grew up a 1/2 Million-dollar home basically bought you isolation from all of that nonsense. Not anymore.
Which reminds me, I was going to a party at a very nice, gated waterfront house in the Tampa area, and I had to stop and wait for a bunch of tattooed, thug 20-something white guys to shuffle their European cars around the street, all while they were making a “whatcha gonna do ’bout it?” look at me.
The new paradigm…
Yep, get used to it. Every day is an episode of “Jackass”.
“Buying at the bottom requires buying ugly.”
Yes! Our foreclosure purchase was liveable when we moved in, not much more. But the price was so low that we could spend the bux for upgrades and repairs while still remaining under comps.
With so many foreclosures to choose from, they should be everyone’s first choice for the next couple of years.
But be careful with foreclosures. There are many hidden defects and banks do not have to disclose anything about them. The house up the street from us had mold on the walls, which the buyers could see, however the septic system was bad but they didn’t know.
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Warren Buffett
My new definition of the bottom of the bubble is when posts like this on the HBB don’t trigger thoughts of scheduling an “Intervention”
That’s funny Matt, my feelings exactly. I’m curious to see how this will shake out when the fraud starts getting unravelled and interest rates are up up up.
Does the Fed cast an imperius curse on the bond market on days like Thursday and Friday this week when they fear a hedge fund blowup could cause uncomfortably high market volatility? (Perhaps they use the same strategy on BB capital hill testimony days?)
http://en.wikipedia.org/wiki/Unforgivable_Curses#The_three_Unforgivable_Curses
Methinks I smell blood in the water — and higher mortgage lending rates in the near future. Could someone please remind me what was the “first blowup” alluded to in the article? (I assume the writer is not referring to the implosion of the entire subprime lending sector
http://ml-implode.com/ )
A ‘Subprime’ Fund Is on the Brink
By Kate Kelly
Word Count: 773 | Companies Featured in This Article: Bear Stearns, Merrill Lynch, UBS, Goldman Sachs Group, Bank of America, Deutsche Bank
Concerned that an internal hedge fund at Bear Stearns Cos. wouldn’t be able to meet a margin call, Merrill Lynch & Co., one of the fund’s biggest lenders, seized $400 million of its assets and is preparing to auction them off.
The auction, in the coming week, could trigger the fund’s dissolution — the second blowup in recent months of a hedge fund that made dicey bets on the market for risky home loans, known as subprime mortgages.
The surprise move involving the two Wall Street firms came as the Bear fund’s managers, led by bond-sales veteran Ralph Cioffi, scrambled Thursday and Friday to sell hundreds of millions of dollars in bonds to satisfy demands for cash and assets from creditors and stave off liquidation. Mr. Cioffis’s group had successfully auctioned off almost $4b in “high-quality” mortgage bonds Thursday morning. Later that afternoon at Bear’s New York offices, the fund mangers presented lenders with a 30-day plan for selling more assets, a blueprint for meeting new margin calls that appeared to have been well-received.
Merrill opted not to wait. Friday afternoon, the firm’s bond traders began circulating a list of securities that had served as collateral, or security, for the credit it had extended to the Bear fund, High-Grade Structured Credit Strategies Enhanced Leveraged Fund.
Bids for the securities are scheduled to be negotiated starting at noon on Monday.
The seizure by Merrill — which could spur other lenders to seize fund assets — may well mean the end of Mr. Cioffi’s two funds.
http://online.wsj.com/article/SB118195157416137321.html?mod=home_whats_news_us
“High-Grade Structured Credit Strategies Enhanced Leveraged Fund”
Whoever came up with that fund name should be awarded with triple bonus pay this year. LMFAO!
That sounds like a thesis title not an investment opportunity.
The wording about a second hedge fund blow up was weird. At first I thought she was talking about Amarnath, but the part about “made dicey bets …” appears as if it is attributed to both funds, so I’m confused since Amarnath was an energy hedge fund.
“Amarnath”
Amaranth blew up in Fall 2006 due to bad bets in the natural gas market:
http://www.nytimes.com/2006/09/19/business/19hedge.html?ex=1316318400&en=2732df67691f17e9&ei=5088&partner=rssnyt&emc=rss
The writer in the article I posted was talking about a “first” hedge fund to blow up on bad subprime bets, which suggests something that occurred during the period from mid-December 2006 to the present.
“That sounds like a thesis title not an investment opportunity.”
Where did you do your thesis?
More blowups to come? Is the fall of 2007 going to be like the fall of 1987?
I think many of these leveraged Funds are going to blow up. How bad it gets I don’t think anyone knows?
“I don’t think anyone knows?”
The Fed knows it will all be contained…
GS, I realized that article wasn’t talking about Amarnath, but it was the only other hedge fund that I could think of that publicly and spectacularly crashed. Perhaps there are others we don’t know about.
I did my Master’s thesis at Nevada (Reno) in hydrology. Working on my PhD thesis/dissertation now (Iowa). I don’t have a title yet but it probably won’t be much longer than the title of that Bear Stearns Hedge Fund. Unlike Bear Stearns however, I plan on actually doing some serious research before slapping my name on something.
Well, at least give us the title of your hydrologic master’s thesis !
Cami — Are you still in hydrology? I am curious if you have read Atchafalaya by John McPhee? Hurricane Katrina hit NOLA only days before this timely excerpt was reprinted in the New Yorker:
——————————————————————-
The Sunken City
by John McPhee September 12, 2005
(From “The Control of Nature: Atchafalaya,” which ran in the issue of February 23, 1987.)
New Orleans, surrounded by levees, is emplaced between Lake Pontchartrain and the Mississippi like a broad shallow bowl. Nowhere is New Orleans higher than the river’s natural bank.
http://www.newyorker.com/archive/2005/09/12/050912ta_talk_mcphee
Great book - I love his books and Geology.
“Could someone please remind me what was the “first blowup” alluded to in the article?”
That first blow up was UBS’ Dillon Reed hedge fund. They lost $300 million so fast, UBS just fired everyone the next day and shut down the fund! About 30 days ago. The contagon is spreading….more rapidly….and with bigger effects…
Thanks. Somehow I missed the financial headlines that mentioned this subprime hedge fund blowup.
I found a link.
“UBS’s attempts to launch a hedge fund business using its proprietary traders ended in failure on Thursday when the Swiss bank announced it would fold Dillon Read Capital Management back into its investment banking arm less than two years after it was set up.”
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=FT&Date=20070504&ID=6837674
GS,
Glad I’m not the only one confused by that. Read John Mauldin’s e-mail today referencing the same “second” blow-up and was wondering where the first blow-up went.
Like to think I’m on top of these things, so glad to hear you didn’t know either. That puts me in good company.
I wonder if the persons employed in the lending industry are aware of the “implode-o-meter” website. I figure that the smart ones have already exited the industry.
“smart ones have exited the industry”
Well, you know, I kept trying to say “no” all year, but the requests that came at me in Oct through Feb were actually too sensible to turn down. Then, in March, the loan demand suddenly went dry dead departed. It happened after I made one of my clients read this blog for a few days. Most of my clients and potential clients are acquainted with one another (few trailer parks in same area), so maybe they all got our true religion and aren’t buying anything any more. So, if I wasn’t smart enough to exit the industry, I was smart enough to make my clients smart enough to desist.
It would be nice if the larger operations would figure out that education beats swindling to the bottom line (a focus on business perpetuation and keeps their customers from becoming distressed due to other swindlers). Will only be important when they can no longer sell the risk, of course.
I participate on another forum (about spaceflight) where a young Danish student pontificates about how you can’t fail to make money investing if you just know what you are doing, because it is a science rather than luck. (If you lose money you must be doing it wrong.) He seems to have missed the significance of comments suggesting that mass pyschology can be a disruptive factor.
Ah, to be that young again.
“… where a young Danish student pontificates…because it is a science rather than luck.”
********
Beacon_st - this reminds me - where are you?
Hope that Boston market you spoke so fondly of held up well for you and your PhD bosses.
… where a young Danish student pontificates…because it is a science rather than luck.
Sounds like someone who needs a copy of “Fooled by Randomness”.
I guarantee persons employed in the lending industry are aware of that site.
Heck, they probably open it while having breakfast to check that they still have a job.
LMFAO
It’s odd, but I have yet to talk to a mortgage industry professional in Phoenix who knew about the Implode-o-Meter before I mentioned it to them. I was just talking to a supervisory level employee for Bears Stearns’ origination operation. They apparently went through a large layoff last week, but she had not heard of the Implode-o-Meter.
Is the takeaway here that creditors are trying to freeze everything to get the most principle back out? (Less than went in.) (Major “vote of no confidence” in the scrambling management not to make things worse, or line their pockets any more on the way down.)
Can this may be how a hedge fund crisis is to be “contained”?
Setting a stop loss, then the assets are dispersed and no longer in a “hedge fund” category such that their further future decline is no longer linked to that particular “contained” crisis?
See The Washington Post
Wednesday June 13, 2007
The Takeover Boom, About to Go Bust
“…The recent decline in home prices and the meltdown in the market for subprime mortgages are the first signs that the air is coming out of the credit bubble. Already, those factors have shaved half a percentage point off the economic growth rate. And you can be sure that there will be a much larger impact on jobs and incomes from a broad decline in stock and bond prices, a sharp tightening of credit and the turmoil that both of those will create in the murky derivatives markets.”
Stephen Pearlstein
http://tinyurl.com/2dojow
and
It’s Official: The Crash of the U.S. Economy has begun
by Richard C. Cook
Global Research, June 14, 2007
“…Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.
In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic. …”
http://tinyurl.com/2q2all
“…turmoil that both of those will create in the murky derivatives markets.”
Future financial headline: Derivatives turmoil is contained.
Thanks for the links, Hoz!
Looks like some people are starting to get a bit more realistic.
Even though this home is still over priced IMO it certainly is more realistic than what I have seen in PSL:
http://treasure.craigslist.org/rfs/350238064.html
Hey, thanks for that. That’s definitely progress!!! BTW, over here in East Tampa Bay, the new Centex development scarring the landscape is advertising “From the 100,000s!!” Centex may still be building, but it seems they at least know where the market is headed. Undercutting by $100,000 to $150,000 the older (2 years older) developments in the area, which are only half sold, from the looks of them. The net result of this is, anyone who wants to buy in such a development, is going to wait. I’m watching this with amusement, because I have a very weird feeling it will never be completed. I feel sorry for anyone that has put a deposit down, but they should know better.
That is great, I also got this in my mailbox today:
“TownPark” new homes that were selling for 460,900 now selling for 327,705. http://www.mintofla.com
The Minto site won’t let you return to your previous site (HBB) after you click on the Minto link. I refuse to do business with jerks who set up web traps that way. I have not time for such Idiots.
Keep clicking fast, you can get back. Don’t ask me how I figured that one out, lol.
That thing is FUGLY. Looks like military housing.
LOL txchick,
I certainly wouldn’t want it, I do have my eye on a house in PSL it is now “reduced” to 339,000. It only needs another 120,000 reduction and I am in with my 200K offer.
$77 per square foot overpriced? Come on that’s a steal - unless it is shoddy construction.
” unless it is shoddy construction.”
Shoddy construction in Florida? Heaven forfend!!!
The post-2000 new construction Florida homes actually do very well when it comes to standing up to hurricanes. But when you start to look at interior fit and finish issues, only thing you can do is cringe in horror.
Our Sarasota home, built in 2002, had totally satisfactory workmanship. It was done by a mid-size builder, and we never had a single problem with it. Oops, forgot, the water heater in the garage sprung a leak and was replaced under warranty. We sold in 2005.
$77 per square foot overpriced?
Can’t value something based on its replacement cost…Some suburbs of Detroit come to mind….
You have to know PSL. I could have bought hundreds of lots 8 years ago for 1000 to 3000 dollars a piece! Of all the places I have ever been to it truly has the worst planning. That same house would have gone for $80,000 and it might again.
Merrill executes the NUCLEAR option on Bear Stearns: From the WSJ
A ‘Subprime’ Fund Is on the Brink
Concerned that an internal hedge fund at Bear Stearns Cos. wouldn’t be able to meet a margin call, Merrill Lynch & Co., one of the fund’s biggest lenders, seized $400 million of its assets and is preparing to auction them off.
The auction, in the coming week, could trigger the fund’s dissolution — the second blowup in recent months of a hedge fund that made dicey bets on the market for risky home loans, known as subprime mortgages.
The surprise move involving the two Wall Street firms came as the Bear fund’s managers, led by bond-sales veteran Ralph Cioffi, scrambled Thursday and Friday to sell hundreds of millions of dollars in bonds to satisfy demands for cash and assets from creditors and stave off liquidation. Mr. Cioffi’s group had successfully auctioned off almost $4 billion in high-quality mortgage bonds Thursday morning. Later that afternoon at Bear’s New York offices, the fund managers presented lenders with a 30-day plan for selling more assets, a blueprint for meeting new margin calls that appeared to have been well-received.
Merrill opted not to wait. Friday afternoon, the firm’s bond traders began circulating a list of securities that had served as collateral, or security, for the credit it had extended to the Bear fund, High-Grade Structured Credit Strategies Enhanced Leverage Fund.
Bids for the securities are scheduled to be negotiated starting at noon on Monday.
http://online.wsj.com/article/SB118195157416137321.html?mod=home_whats_news_us
The article also mentions that the other hedge fund could be forced to lower the values of their own subprime assets if the Bear Stearns securities fetch well below the booked value.
“Concerned that an internal hedge fund at Bear Stearns Cos. wouldn’t be able to meet a margin call, Merrill Lynch & Co., one of the fund’s biggest lenders, seized $400 million of its assets and is preparing to auction them off.”
Reminds me of a beloved childhood game my sisters and I used to play when we were kids:
KerPlunk! Game by Mattel
http://www.playthingspast.com/mt506.html
Excellent!
Does anyone else have the sense that working at the Fed right now must feel something like sitting on top of a volcano that is about to blow?
http://www.fs.fed.us/gpnf/mshnvm/digital-gallery/before-after.html
No, I suspect it’s more like watching “Seconds from Disaster” and thinking “Boy, I’m glad that we’re not the ones in that plane!”
With Florida’s tax wars, much has been made of people living in similar homes paying vastly different tax rates. Feh. What about people living in the exact same type of homes in the same development paying vastly different prices? That’s gotta cause some major resentment. Maybe the FAR could put on some “anger management” seminars.
Florida could solve its tax/income flow problems overnight by just selling oil leases off its coast. Same with California.
(Misstrial offers a virtual apology to any greenies that may be offended at her suggestion)
~Misstrial
Florida could solve its tax/income flow problems overnight by auctioning off FBs as indentured servants.
The Chinese nouveau riche would probably pay top dollar to have a couple of American FBs underfoot as houseboys and kitchen maids.
(Spike offer no apologies to anyone offended by the idea that FBs ought to work off their debts).
LOL! Love it, Spike!
I got an invitation for a seminar in the mail…It was for the Donald’s
son….The Donald said his son has the Trump family sucess as his
experience and that he can teach me how to make money in realestate….I cant believe how fortunate I am…This is a $145 value for free!!
I got the same offer from DT Jr. The only reason I considered going was to get the free book, which I could possible sell on Amazon.
Then I realized I would have to pay for parking and lunch so the $145 value went down to $125. Not worth it, really, at any price, even “free.” All it is is a lead generation tool for the presenters.
RH, No way!…It said that I am a VIP, an exclusive offer…I cant believe there were other VIPs??…Seriously though…What could a snotty nosed kid teach us about realestate…And will people really go to learn and start investing now??
Just because someone is related to someone in some field of expertise, doesn’t mean that they can also act, write, invest, etc. I get sick of these people trading on their names.
Ditto. I didn’t notice that it was Trump Jr. though as it went straight into the trash. I also got a “hot tip” in the mail for a “can’t lose” pink sheet stock. It was postmarked from Long Island and the company is a mortgage broker……. Ha-ha!
Fave story of the week. If the shoe fits…
http://rawstory.com/news/2007/Turds_found_in_Capitol_but_no_0615.html
Must be someone protesting the bailout.
San Diego realtor’s mantra: “The strong local jobs market will keep home prices unaffordably high forever.”
Too bad economic reality is rearing its ugly head in today’s SD Union-Tribune business section. BTW, an increase in the unemployment rate from 3.7 percent to 4.2 percent roughly translates into a 13.5% increase in unemployment ( (4.2/3.7-1) X 100% ), assuming the size of the labor force has not changed by much over the comparison period.
———————————————————————————-
S.D. is seeing little growth in work force
By Dean Calbreath
STAFF WRITER
June 16, 2007
San Diego payrolls grew an anemic 0.3 percent between May 2006 and May 2007, as the county continued to suffer the effects of a declining real estate market, according to data released yesterday by the California Employment Development Department.
At the same time, the local unemployment rate, which was once far below the national average, has risen from 3.7 percent to 4.2 percent, just a fraction below the national rate of 4.3 percent. In April, San Diego had a 4.1 percent unemployment rate.
“The unemployment numbers are not too bad, although they’re rising,” said Kelly Cunningham, economist for the San Diego Institute for Policy Research. “The economy just seems to be ‘lulling’ right now, with job growth continuing to slow. I still don’t foresee us going into a recession, either in San Diego or in Southern California. But we are in a lull.”
Alan Gin, economist at the University of San Diego, said that the new job figures were “bad news.” He noted that during May, local employers added only 2,400 workers to their payrolls, compared with a monthly average of 10,200 workers for the first four months of 2006.
“The rate of job growth has slowed considerably,” he said. “What I see is that the fallout from the housing market is spreading from construction and real estate into other sectors.”
…
Most hiring last month occurred in the leisure and hospitality industry, which was gearing up for the summer vacation season. The sector added 2,000 jobs, including 1,300 restaurant and bar workers.
“Tourism is one of the healthier parts of our economy, and it seems that things are still doing OK,” Cunningham said.
Retail stores added 1,000 workers, which also included some seasonal hires. But that gain was offset in the county by a loss of 1,300 professional services jobs, related to the end of the tax season in mid-April.
In general, the growth level was anemic, with a total of 4,200 jobs added from May 2005 to May 2006. The 0.3 percent growth rate in jobs lagged far behind the 0.8 percent growth of the population.
http://www.signonsandiego.com/uniontrib/20070616/news_1b16jobs.html
“Tourism is one of the healthier parts of our economy, and it seems that things are still doing OK,” Cunningham said.”
Hey, no fair Cali stealing Florida’s tourism thunder. Yessir, gimme one of those $8.00 an hour ticket taker jobs.
A job in the tourism sector is a sure ticket to qualify for a mortgage loan on a $600,000 San Diego starter home.
Sad to see San Diego on the decline. It’s been many years since I’ve been there, but I recall thinking it had to be the most ideal city in the entire US. Beautiful city with the best weather anywhere. At least, that was my impression. Never lived there, just visited.
BTW, how is it that SD has managed to avoid the same fate as LA?
“Beautiful city with the best weather anywhere.”
Weather is still great, but traffic is terrible and housing is still unaffordable. Life is a tradeoff…
Yeah, I laugh when people talk about the “great weather” in Fla. If I had to invent the perfect weather (for me) it would be SD.
“perfect weather”
I guess you prefer boring to exciting weather phenomena like twisters and hurricanes? (BTW, I was born in FL, and by my parents’ report, slept through a hurricane when I was a baby…)
The sparkling, clear, mild weather of SD is boring? I call it delightful. Gimme some of that more often in Fla. We do have that kind of weather occasionally, for a brief few weeks during Fling or Sprall or Sprautumn(Florida doesn’t really have a winter, it has two seasons, summer and a sort of merged Fall/Spring.)
“Sad to see San Diego on the decline.”
I have news for you and anyone else who reads here. The best thing that could possibly happen to the San Diego economy would be for housing prices to fall to a level where they line up at least reasonably well with incomes. Right now we are pricing out the proverbial goose that lays golden eggs from the local labor market thanks to unaffordably-priced housing. San Diego’s economy will boom again once the housing market corrects to normalcy — it’s in the bag.
If you can vote out the corrupt city officials, unpaid billions of pension funds overdo, none reporting/absence budgets reports as know one knows for sure all of the debts that are past due as San Diego bonds are going up,35% increase in sewer rates, etc. Nice weather does have a price but as homeowners send in their monthly checks, they are feeling better as they don’t have to worry about checks being late due to storms etc. Great weather makes for happy homeowners!
I cannot help but wonder how many people will not go on vacation this summer? I think that many people will just stay home and do some work around the house. This is going to be interesting to see if the resort communities are busy this summer.
My husband and I are in New Hampshire this weekend. The three airports we traveled through weren’t crazy, and there were empty seats on both legs of the flights. I was unexpectedly upgraded to first class. Had no trouble making a last minute hotel reservation in Manchester.
Short ratio for the HB stocks I am following are going through the roof
HOV is now sporting a 44.8% of the float as short
BZH is 41.9%. For a typical blue chip stock it is ~ 1%. Both have high debt ratios 50% or > , analysis rating of “hold” or worse, massive declines in profits (or outright losses), … Knowing the way of the boyz, good candidates for a SQUEEZE, like Iomega (sp) a few years back ?
Good analogy…Iomega manufactured the Bernoulli box and
HOV/BZH makes $hit boxes…Is that the same Iomega you were
referring to?
Yup! The stock was subject to a MOTHER of a squeeze.
http://en.wikipedia.org/wiki/Iomega
Maybe a squeeze, but probably not. Since most of the short sellers are interest rate plays, the stocks will become pegged. The open interest in the HB “put” options and futures more than offset the short in the stocks. An incredible amount of money has been made in the last year by shorting the stock and selling “puts”, buying calls or buying the index. Derivatives at work.
I don’t see what good it would do to sell a put on a stock you have shorted, if the price goes seriously up. Or is it that you expect the price of the stock to stay flat and you are just collecting income by selling puts on your short positions?
The technique is called a “reversal”.
A few simple examples:
a: 1) short stock 2) sell put 3) buy call
collect interest on the short stock in the HBs, the current apy is 13%
b: sell 2 puts for every short sale (assuming puts have delta .50 = delta neutral - it may be 3:1 or even 5:1.
c: Sell puts and calls - (straddle) short the stock against the straddle
d: Sell puts short stock buy phill futures (futures are trading at a discount) again delta neutral.
The goal is to be delta neutral & gamma neutral over a predetermined period of time - generally 1 -6 months and to collect the interest from the short sale as well as premium from sale of puts/calls etc.
At option/future expiration the position should be flat (aka non existent).
Wall Street bulls partied hearty yesterday on the report of low inflation from the BLS. But somebody forgot to invite Main Street to the party.
Maybe it is time to shorten the Labor Statistics Bureau’s acronym by removing that pesky L in the middle?
——————————————————————————— Inflation news spurs stocks
ASSOCIATED PRESS
June 16, 2007
NEW YORK – Wall Street barreled higher again yesterday after the week’s most anticipated economic reading indicated that inflation excluding the price of gas remained tepid last month, easing some concerns that have jolted stock and bond markets in recent sessions.
The Dow Jones industrial average in the past three days has surged more than 344 points, the biggest three-day point gain since November 2004. The blue-chip index is now less than 40 points below its record close reached June 4.
http://www.signonsandiego.com/uniontrib/20070616/news_1b16market.html
————————————————————————————
Gas, food costs put bigger hit on wages
By Jeremy W. Peters
NEW YORK TIMES NEWS SERVICE
June 16, 2007
Americans felt the pinch of higher gas prices and eroding wages last month, even as an important gauge of inflation drifted lower, government figures showed yesterday.
Overall, the consumer price index rose 0.7 percent in May, the Labor Department reported. The core rate, which excludes food and energy, was up just 0.1 percent, a welcome development that encourages the Federal Reserve to keep interest rates steady.
…
…for consumers, the news was hardly reassuring. Prices for staple household purchases such as gasoline and food rose to even higher levels last month, effectively causing most Americans to take a pay cut. After taking inflation into account, the average weekly earnings for workers in nonmanagement jobs – some 80 percent of the work force – fell for the second consecutive month in May.
Consumer sentiment readings are reflecting some of that unease. A closely watched survey by the University of Michigan released yesterday found that consumer confidence this month has dropped to the lowest level in 10 months. Americans also now expect significantly higher inflation than they expected a few months ago, the survey said.
Wall Street viewed the diminishing core rate of inflation as something that would put central bankers at ease. Core inflation, which economists and Federal Reserve officials consider a better measure of underlying price pressures because it excludes volatile food and energy prices, rose at a slower annual pace for the third consecutive month.
What Wall Street sees as good news, however, is not always good news for the average working American.
“Everybody has to eat, and everybody has to drive to work,” said Mark Vitner, senior economist for Wachovia. “For households, the headline number truly is the more important number, and clearly the run-up in gasoline prices in the last few months has left consumers with less money to spend on everything else.”
http://www.signonsandiego.com/uniontrib/20070616/news_1b16prices.html
What is it that Wall Street bulls don’t get about “The party is over now. Go home and sober up.”???
Monetary policy
Closing the valve
Jun 14th 2007
From The Economist print edition
Central banks around the world still have some tightening to do
TO THE surprise of no one who was watching, on June 14th the Swiss National Bank raised interest rates by a quarter point. Next week Sweden’s central bank will probably do the same. Central banks almost everywhere are in a similar mood. Last week the European Central Bank (ECB) put rates up for the eighth time in 18 months. The Bank of England refrained but will probably continue tightening policy this summer. And the Reserve Bank of New Zealand (RBNZ) lifted its official rate to no less than 8%.
America, where the federal funds rate has stood at 5.25% for almost a year, is an exception. But even there markets have gradually accepted that the Federal Reserve is not about to ease policy. The plummeting bond market is one obvious sign. The path of Fed futures is a more explicit one. In March the market was pricing in a quarter-point cut by September and another by December. Now it says rates will be flat all year.
http://economist.com/finance/displaystory.cfm?story_id=9340731
“Central banks around the world still have some tightening to do”
“America, where the federal funds rate has stood at 5.25% for almost a year, is an exception.”
********
Better late than never…
I say: “‘Do the Volcker’ and drain the liquidity cesspool!”
Before we all drown.
BBC; are global bubbles about to burst?
http://news.bbc.co.uk/1/hi/business/6748803.stm
Buttonwood
Signs of the beast
Jun 14th 2007
From The Economist print edition
Three things investors should be fretting about
http://economist.com/finance/displaystory.cfm?story_id=9340715
China is selling treasuries (finally)
http://tinyurl.com/2be22j
Selling treasuries should help strengthen the yuan against the dollar, giving U.S. politicians who have been clamoring for a stronger yuan exactly what they wanted. Unfortunately, higher U.S. bond yields and mortgage interest rates are part of the deal, along with increased risk of a hard landings in the housing market and the debt-fueled U.S. macroeconomy.
There is little reason to fear a wholesale pullout by China out of U.S. government bonds, former Federal Reserve Chairman,
Alan Greenspan said on Tuesday….such a withdrawal was unlikely was that China would not have anyone to sell the securities to….”
http://tinyurl.com/yqw887
Morning All
That’s the problem with buying illiquid securities like U.S. treasuries — hard to find someone to sell them to…
China doesn’t have to sell them. They hold short-term treasuries and can hold them until maturity.
“Alan, can’t you lecture something helpful for a change? Throw me a bone here!”
Buh-buy conundrum…
Bond markets
Not so risk-free
Jun 14th 2007
From The Economist print edition
Rising bond yields could spell trouble for the economy and the markets
Satoshi Kambayashi
GOVERNMENT bond markets are supposed to be the accountants of the financial world: calm, steady and rational. They are not supposed to frighten the horses. But in the days following June 7th, bond investors had a traumatic experience. The yield on the ten-year Treasury bond rose from 4.96% that day to reach 5.33% during trading on June 13th before closing just below 5.2%.
What makes the slump in bond prices all the odder is that Treasury bonds are normally regarded as the risk-free asset, the one that investors buy when they are really worried. What could have prompted the sell-off?
…
The big question, however, is whether Asian central banks have lost their appetite for American Treasuries. Part of the reason for the rise in yields was a disappointing auction of ten-year bonds, with foreign investors buying just 11% of the issue. Asian central banks had been buying Treasury bonds with their foreign-exchange reserves in an attempt to prevent their currencies from appreciating too rapidly against the dollar. Some analysts have estimated that these purchases had pushed bond yields between a half and a full percentage point below the level they would otherwise have reached.
The result was that yield curves were “inverted”—long yields were below short-term rates. When he was Fed chairman, Alan Greenspan described this state of affairs as a “conundrum”: such curves had traditionally been a harbinger of recession, but perhaps Asian central bank policies meant this signal was no longer valid.
…
Whoever has been selling Treasury bonds, the result is that the conundrum has disappeared; yield curves are now sloping upwards. Sometimes a steepening of the curve can be benign, when central banks cut rates to try to stimulate the economy. But Richard McGuire of RBC Capital Markets points out that this is a “bear-market steepening”, caused by bond yields rising faster than short rates.
http://economist.com/finance/displaystory.cfm?story_id=9340670
So the bond market bubble is finally deflating.
“Though leaves are many, the root is one;
Through all the lying days of my youth
I swayed my leaves and flowers in the sun;
Now I may wither into the truth.”
Yeats
Lovely metaphor for the sad demise of the bond market’s conundrum, Hoz.
Hoz, a Yeats fan! My favorite is the Second Coming. Yeats wrote that poem around the end of WWI when all of the empires and social/economic structures seemed to be crumbling (and he was wondering what was to rise from the ashes)- so it is fitting for this time, too:
THE SECOND COMING:
Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of Spiritus Mundi
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
The results of an ill spent youth, studying classic greek instead of girls.
ResMae rises from subprime ashes
ResMae Mortgage Corp. became one of the first subprime mortgage lenders to emerge from bankruptcy today, one week after winning court approval for a reorganization plan.
The Brea-based lender said it is emerging from Chapter 11 status as a wholly owned unit of Citadel Investment Group’s RMC Mortgage Holdings subsidiary. The company said the restructuring helped it bolster relationships with brokers and improve its loan origination process and credit reviews. That should improve loan quality, the company said.
More than 50 mortgage companies in recent months have announced plans to seek a buyer, close or file for bankruptcy. The changes have come as late payments on U.S. residential loans have approached a 17-year peak. ResMae specialized in lending to borrowers with the riskiest credit profiles, a category with the highest default rate.
Court records show that ResMae’s reorganization plan allows the company to pay between 7 percent to 14.6 percent of the amount owed to unsecured creditors.
Why is it so hard to read the handwriting on the wall? Subprime is financial and political toast. The game, set, match and tournament is over for you. In fact, why don’t you boyz try out another sport besides tennis? Your skills don’t seem very well suited for the tennis court.
Are Citadel and Cerberus the private face of the PPT? The reason I ask is that these names keep popping up as buyers of last resort of failed subprime lenders and automakers.
Sorry, tinyurl not working. JL’s OCR blog. $20 billion committed to the subprime market? Is that some sort of bailout?
Insider Q&A gets Freddie Mac’s view on housing
The folks at Freddie Mac, the government-sponsored mortgage buyer, certainly have a stake in the housing market. Calvin Schnure, Freddie Mac’s economic operations and analysis director, was kind enough to share his thoughts …
Us: How would you describe the state of the national housing market today? What’s a reasonable time frame for a turnaround?
Calvin: The housing market is finding bottom. Demand stabilized last fall, but may have weakened a bit more early this year. While there are no signs of a rebound, there are no signs of another leg down, either. Excess inventories weigh on the housing market. The sharp decline in housing starts has brought new supply to a level that will eventually work off these stocks, but at current sales rates, it will take all of this year and much of the next.
Us: What about Orange County/Southern California?
Calvin: California has continued to enjoy reasonably strong job markets – supporting housing valuations – but unemployment in Southern California has trended up a bit recently. This is contributing to weakness in housing prices.
Us: How would you describe the availability of mortgage money today vs., say, a year ago? Obviously, the marginal buyer-borrower is finding loans are much harder to get.
Calvin: There is quite a bit of liquidity in the prime mortgage market, as indicated by the recent strength in mortgage applications. Subprime borrowers are facing more stringent standards – the Fed’s Senior Loan Officer Survey reported that a considerable share of lenders had tightened standards on these loans.
Us: Outlook for troubled mortgages?
Calvin: Some rise in delinquencies is normal as an economy cools and interest rates rise. The deterioration of underwriting standards with the 2006 vintage of subprime mortgages adds to the trouble. We expect foreclosures to rise to 1 million in 2007, and a majority of these homeowners had subprime mortgages. While the recovery will be uneven and some neighborhoods will be hurt by rising foreclosures, we don’t see this spreading into a macroeconomic crisis.
Us: Is Freddie Mac taking any steps to ease troubled borrowers’ issues and make sure new mortgage money is available?
Calvin: Freddie Mac committed $20 billion to the subprime market; restricted our purchases of mortgages that expose borrowers to undue payment shock; and has been a strong advocate of consumer education programs to help borrowers understand the advantages and risks of different mortgage products.
Us: What events or trends might change your outlook, good or bad? Any less-than-obvious numbers you’re watching carefully?
Calvin: The biggest threat would be if housing market weakness were to spill over to demand in other sectors of the economy. Not only has there been no sign of such contagion, the fundamentals of the rest of the economy – solid growth of jobs and incomes, healthy balance sheets, and moderate levels of interest rates – support our forecast that the overall economy hangs in there while the housing sector heals. The Fed’s Flow of Funds data released last week confirm this. Household balance sheets remain in good condition, with net worth relative to disposable personal income steady at an impressive 570 percent – not much below the peaks reached in the late 1990s/2000. Rising values of equity market holdings are likely to offset much of the impact of soft housing prices on household net worth.
Home Depot is expected to get offers for contractor unit
From Bloomberg News
June 16, 2007
Home Depot Inc., the world’s largest home improvement retailer, will receive separate offers of about $10 billion for its contractor-supplies unit from two private equity groups, people familiar with the negotiations said.
Bain Capital, Carlyle Group and Clayton Dubilier & Rice Inc. make up one group, and the other includes Thomas H. Lee Partners and CCMP Capital Advisors, said the people, who declined to be identified because an agreement hasn’t been reached. Final bids were due Friday, they said.
Chief Executive Frank Blake is reversing predecessor Robert Nardelli’s plans to expand the unit, which sells lumber and tools to contractors, to focus on retail stores.
“It’s a sign they see more opportunities in retail,” said Sarah Henry, a Berwyn, Pa.-based analyst with MFC Global Investment Management.
Selling the unit would show that Blake, who took over in January, “sees ways to invigorate that part of the business,” said Henry, who helps oversee $370 billion of assets, including Home Depot shares.
The company may reach an agreement as early as next week, the people said.
Shares of Home Depot rose 16 cents to $37.95.
Paula Drake, a spokeswoman for the Atlanta-based retailer, declined to comment. Representatives for Bain, Carlyle, Clayton Dubilier, Thomas H. Lee Partners and CCMP also declined to comment.
In case this wasn’t posted..
Cooling housing sector takes toll on employment
The unemployment rate edges up. The construction and financial services sectors remain weak.
By Lisa Girion, Times Staff Writer
June 16, 2007
What the housing boom giveth, the bust taketh away.
The slump in California’s once-effervescent real estate market is taking its toll on jobs, a state report released Friday showed.
Mounting losses in construction and financial services — the two sectors most dependent on home building and sales — contributed to the second increase in the state’s unemployment rate in two months.
The rate rose to 5.2% in May from 5.1% in April, the California Employment Development Division said.
By comparison, the rate in May 2006 was 4.9%.
The uptick further widened the gap between the state and national jobless rates, the latter of which held steady in May at 4.5%.
The divergence illustrates the relatively large role real estate has played in California’s economy in recent years. Superheated housing markets from the San Francisco Bay to Beverly Hills pushed prices up faster and higher in the state than almost anywhere else in the country, putting the shine on the Golden State’s recovery from the last recession.
“Housing was a really big part of our economy,” said Howard Roth, chief economist at the state Department of Finance. “Housing carried us for quite a while there, and it even made the recession milder. Some years housing accounting for 40% of the growth in jobs.”
Having that much of the state’s economy tied up in a hot market meant there was that much more to lose when it cooled. That was apparent in the financial activities sector, which recorded the greatest loss, on a nonseasonally adjusted basis, in May, down 1,100 jobs.
Many of those were the result of layoffs by troubled sub-prime mortgage lenders.
The construction sector posted the loss over the previous year, down a seasonally adjusted 6,700 positions. Specialty trade contractors — the construction workers who put the finishing touches on a home — were hardest hit, losing 5,200 jobs over May 2006.
Stephen Levy, director of the Center for Continuing Study of the California Economy at Palo Alto, said that the economy appeared to be slowing and that latest job report was another piece of evidence that “the housing downturn is for real.”
The uptick in the jobless rate is an indication that the workforce was growing at a faster pace than jobs. Indeed, the state’s employers added 10,800 jobs in May after a revised gain in April of 4,800 jobs. A separate survey of households showed the number of Californians holding jobs in May rose 18,000 over the previous month. The household survey tends to show more employment because it picks up casual and off-the-books work.
The number of Californians unemployed in May was 944,000, up 10,000 over April and 65,000 over a year earlier.
“The unemployment rate has risen enough now to be considered a real trend,” Levy said. “Since population growth is slowing, the data — if real — indicate that people have come back into the labor force [at] higher participation rates during the past 12 months.”
Although construction has been shedding jobs since the sector’s peak employment late last year, UCLA Anderson Forecast economist Ryan Ratcliff said the losses had been more gradual than in past housing slowdowns. Ratcliff said the UCLA forecast group continued to view this slowdown differently than past cycles in one other significant way: They don’t expect it to push the economy into recession.
That’s because, unlike past housing downturns, this time there are no other sectors poised for a decline.
“Our rule of thumb is you need two separate sources of weakness,” he said. “So if you have only one, the scenario looks much more like a near-miss than a full-blown recession.”
The state figures showed that several sectors that have been fueling California’s job engine remained strong: Job gains were seen in education and health services, the leisure and hospitality category and government.
Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., found a bright spot in the report, noting that the area added 4,000 jobs in television and motion picture production in May compared with a year earlier.
“Job gains were seen in education and health services, the leisure and hospitality category and government.”
Right-o. I wonder how many of those “education” jobs are in the private sector? Probably near zero. And how about health services? Maybe more than zero, but surely not near 100%. Where is the tax base to support all the public services?
How are the second quarter Mexican remittances running, one wonders?
http://www.safehaven.com/article-7775.htm
More Bond market China connection reading. I like the point that China is buying Blackstone pre IPO and selling treasuries. Makes sense to buy the companies and sell the debt if you think the currency you invest in is going to fall. After all the companies can raise their prices, Exxon, etc.
Looks like some Senators don’t particularly like the idea of wiring the spoils of corporate tax loopholes over to China…
————————————————————————–
Tax Plan Adds To the Pressures On Buyout Firms
Senate Bill Would Raise Levy Just as They Face Rising Interest Rates
By HENNY SENDER and SARAH LUECK
June 16, 2007
Wall Street’s new masters of the universe, hedge funds and private-equity partnerships, are suddenly finding the universe a less-hospitable place.
The latest pressure arose this week when the Senate Finance Committee decided to introduce a bill to tax financial-services partnerships that are publicly traded, as giant Blackstone Group soon will be, at the same higher rate paid by corporations.
http://online.wsj.com/article/SB118195651141637425.html?mod=home_whats_news_us
IMHO, China spending $3B for a minority interest in Blackstone,which is less than they forgave in African debts last week, is just a means to acquire US companies without being subject to US government oversight. China (nor any reasonable country) wants to have another CNOOC - Unocal. I would not be surprised to see other countries go the same route. Because well run foreign companies have the money and no debt and 75% of the US companies listed on the stock exchange are within reach of BK (aka. a 2% jump in interest rates = the company does not pay bills, debt is rated bb or worse), expect to see more foreign purchases without congressional intervention.
“a means to acquire US companies without being subject to US government oversight”
Exactly. And I am guessing that was the deal hammered out by HP at the recent high-level meeting in DC.
Are there any apologists for the subprime lending concept out there in blog land today?
Because for the likes of me, I cannot begin to fathom the financially- and politically-suicidal insanity of funneling money from the pockets of extremely wealthy people into the hands of low-income borrowers with spotty credit to qualify them to buy homes they cannot afford — aka subprime lending (or if you prefer, newfangled usury). How could this ill-conceived scheme have possibly failed to blow up?! And how could legions of clever politicos and financial wizards have failed to foresee a disaster in the making? Please explain this if you can.
But they had insurance!
There is always a bigger shark. In this case, a systemic shark, itself dying of mercury overload.
Thanks for your input, Matt. I was hoping to hear from someone about the societal benefits of subprime lending (other than helping loan sharks eat po’ folks for lunch). I guess there either are no such societal benefits to subprime lending, or else no readers here who understand these and would care to elucidate us on what said benefits are?
The short term benefit was that lots of middlemen and women made big bucks fast, and boosted the economy by buying BMW’s, Hummers, granite countertops, etc.
Most of the sophistimacated rich folks did not get burned because the crappiest loans and tranches of securitized loans were offloaded to pension funds and Everquest and such. Although this process may not be completed as satisfactorily as they would like, they will do OK.
I don’t believe anybody was thinking long term, but maybe some poor folks will be able to benefit by squatting in abandoned exurban housing developments.
I’m thinking home producers of marijuana and methamphetamine may benefit from having many abandoned McMansions to choose from as future production sites?
What role can blog posters play in stopping a mania in its tracks? This is explained very well in James Surowiecki’s marvelous book, “The Wisdom of Crowds.” I quote below from a chapter with the colorful title, MONKEY SEE, MONKEY DO: IMITATION, INFORMATION CASCADES, AND INDEPENDENCE:
… it does seem clear that intelligent imitation depends on a couple of things: first, an initially wide array of options and information; and second, the willingness of at least some people to put their own judgment ahead of the group’s, even when it’s not sensible to do so.
Do such people exist? Actually they’re a lot more common than you’d expect. One reason is that people are, in general, over-confident. They overestimate their ability, their level of knowledge, and their decision-making prowess. And people are more overconfident when facing difficult problems than when facing easy ones. This is not good for the overconfident decision makers themselves, since it means that they’re more likely to choose badly. But it is good for society as a whole, because overconfident people are less likely to get sucked into a negative information cascade, and, in the right circumstances, are even able to break cascades. Remember that a cascade is kept going by people valuing public information more highly than their private information. Overconfident people don’t do that. They tend to ignore public information and go on their gut. When they do so, they disrupt the signal that everyone else is getting. They make the public information seem less certain. And that encourages others to rely on themselves rather than just follow everyone else.”
Much of the above passage applies quite well to many posters here. The one exception is the bit about ‘relying on their gut.’ That comment applies more to the Wall Street cargo cultists. Those who post here generally base their views on actual published data rather than hearsay.
Puttin’ lipstick on an old pig: timeshare concept remarketed as ‘fractional ownership’.
“Fractional real estate, or shared ownership, is growing rapidly, increasing to $1.65 billion in sales last year for the United States, Canada and the Caribbean, up more than 30 percent from 2005. Unlike time shares, fractionals carry a title of ownership and are marketed as high-end vacation homes, typically costing an average of 10 times as much as a time share.
In addition, owners get a designated number of weeks of use each year based on their ownership. “The younger generation of buyers is viewing it as an alternative to full ownership because of the ease. You’re not paying for when the property is vacant,” said John Melicharek, head of the tourism industry practice at the law firm Baker Hostetler in Orlando. “It’s become a convenient way to own a second home without all of the problems.”
The units come furnished and carry annual dues, which can be as high as $18,000, for maintenance, insurance, utilities and property taxes.
For $280,000, the Hideys bought a 12th share in a two-bedroom residence, which includes daily housekeeping service and lift tickets, for three weeks a year. If they cannot make it one year, they may exchange their time for stays at one of Ritz’s three other fractional properties in places like Jupiter, Fla., or the Virgin Islands.
“We could not afford to buy a home there for all the time. It would be a waste of our investment money,” said Jeannie Hidey, 50, whose primary home is in San Juan Capistrano, Calif. “This is a long-term investment that we can pass onto our two daughters.”
Full story at
http://www.startribune.com/417/story/1248860.html
Amazing. I am taking a nephew on a safari to Kenya at Christmastime. Total price for me and the nephew, $16000 including airfare from NYC. I think I am getting a better bargain than the Hideys. Oh, I forgot, they’re making an “investment.”
Wow. Awesome for you and your nephew. Hope you’ll be staying for quite a while, based on that cost! (gulp)
Still, a much better investment than a timeshare.
“We could not afford to buy a home there for all the time. It would be a waste of our investment money,” said Jeannie Hidey, 50, whose primary home is in San Juan Capistrano, Calif. “This is a long-term investment that we can pass onto our two daughters.”
Oh my God - What fools - $280,000 for 1/12 ownership - How can a 2 bedroom residence be worth 3.3 million?
Mighty strong koolaid at work here.
How is the decision to sell off the white elephant made if everyone owns it?
I would assume they are bought free and clear and with the FFB’s paying the annual dues, these are money makers unless some fraction of the 12 shares default on the dues. First thing that comes to mind is the clause mentioned here in the past from New York Co-op’s where the assessment would rise on the remainder of the FFBs, turning their Fractional investment into a serious drain.
I like my timeshare. Never believed they were a good idea until I stayed in a friend’s timeshare down in Baja. I suppose I put liptstick on the pig.
You know, financially they are a crappy deal, but I can see the point. We had been going to Rehoboth Delaware and staying at the same rental condo every year, but this year it was apparently sold and there doesn’t appear to be anything as nice in the same price range on the market, even though the market is supposedly crashing. It might be worth it to pay a little extra for predictability if you like to visit the same place every year.
“It might be worth it to pay a little extra for predictability if you like to visit the same place every year.”
That’s the kicker. My time share is on a point system. I don’t have to visit the same place every year. I have about 20 different places in Hawaii, USA, Canada and Mexico to go to. I’ve been to one in Kauai. It rocks. If it wasn’t for the point system - the flexibility, I would not be in a timeshare. Going to the same place all the time is boring. People here can go ahead and say “timeshare owners are fools.” But they are making a stupid generalization and don’t know Shell Vacations Clubs or Hilton timeshares. Yes, large hotel chains are getting in the business too. Accomodations, as you say, albrt, are better than top hotels.
Future of U.S. housing?:
“It looks like a shipping container. It _is_ a shipping container. But open the doors, roll out the wood floor, tip up the solar panels, arrange the tent fabric on the roof to catch rainwater, and, presto, like a magician’s box, it becomes instant infrastructure.
Dubbed the Clean Hub, the 8-by-8-by-20-foot structure provides a compost toilet, electrical power and filtered water. Sixteen University of Minnesota architecture students designed and built the prototype after researching the essential needs of a disaster area or refugee camp.
“This was a practical application of all we learned,” said Alissa Kingsley, one of the students. “Every sanitation problem is a lack of infrastructure. This is infrastructure in a box.”
“There are shipping containers everywhere in the world, and we can use used ones,” Dwyer said. “Once in production, we could build them for $20,000.”
Full story at
http://www.startribune.com/462/story/1249637.html
IMO, “green” building is the next bubble…including everything that goes into it (solar panels, good rainwater catchment & water recycling equipment, very efficient insulation, etc.). Good ideas!
Real Estate Roller Coaster video:
http://www.recharts.com/videos.html
I just sent that to my sister in CC Pa. - she had her house for sale for 379K and it did not sell - so she recently took it off the market. However she says real estate is doing just fine in CC Pa.
“I’m just here for the free food.”
LOL
http://jacksonville.craigslist.org/rfs/352935587.html
I had the most horrifiying and almost epiphany type of thought tonight.
This whole thing that we are seeing unravel right now, is going to happen all over again.
However you feel about the current immigration reform, imagine it goes through. 20 million, more or less, potential buyers. You know this ponzi scheme is going to happen all over again. My ex-neighbor didn’t have a green card when he got a loan.
FWIW, I just want the government to secure the borders. If they come up with some kind of process that can be carried out to put current illegal immigrants on the books and they become tax paying individuals like the rest of us, fine.
I’m not trying to turn this into a political thread but you all know that there are people salivating over this right now. Not the least of which are the banks and mortgage brokers toying with how to revive this entire scheme.
I think I’m going to be sick.
novasold
Just a few things, and the whole immigrant issue could be solved:
1. build a wall (only where needed) and bring the troops back to the U.S. to DEFEND OUR BORDERS (isn’t that their job in the first place???). Have cameras, and various outposts along the border with a good network & cooperation from local residents to notify agents of new paths, etc.
2. Allow local law enforcement officers to request proof of residency/citizenship whenever they deem necessary (maybe require that they ask ALL people they pull-over/question/arrest?)
3. FINE business who hire illegal labor. Conduct sweeps (like they used to) and immediately deport those here illegally.
4. Immediately deport all illegal immigrants currently in our prison system (except seriously violent offenders serving life sentences, etc.).
5. Require proof of legal residency/citizenship for student enrollment at public schools.
6. Eliminate “naturalized” citizenship — what on earth actually justifies that???
———————–
Once all that’s been done, and the slate is wiped clean (many/most illegal immigrants have been deported/left), THEN we can get to the business of allowing LEGAL immigration, perhaps speeding up/simplifying the process so they will be more inclined to move here legally.
I would require a totally clean criminal history, proven ability to work & have skills needed in this country.
One felony conviction (would add membership in a gang) = automatic and permanent deportation.
No “family reunion” stuff. Either your whole family qualifies, or you have to live separately.
HOWEVER, I would also send a delegation to Mexico & other Lat Am countries to help them get their sh(t together & work on infrastructure, eliminating corruption, law enforcement issues, etc. Also, show them how to build a strong economy through a combination of capitalized (desired goods and services) and socialized (necessary goods & services) methods.
Opps, meant capitalist, not capitalized.