Difficult Housing & Mortgage Market Conditions To Persist
Some housing bubble news from Wall Street and Washington. MarketWatch, “Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans. ‘The company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home-equity loans,’ CEO Anthony Mozillo said in a press release.”
“Results were hurt by impairment charges totaling $417 million and a loan-loss provision of $292.9 million.”
“Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier. ‘The impairment charges on these residuals were attributable to accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans,’ the company said.”
The Street.com. “‘During the quarter, softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories as a result,’ said Mozilo.”
“‘Looking to the second half of 2007, we expect difficult housing and mortgage market conditions to persist,’ Mozilo added.”
From Dow Jones Newswires. “Countrywide said a sharp jump in past-due home-equity loans forced it to write down the value of its ‘residual’ holdings by $388 million. The lender also noted increased volatility in prices paid by investors who buy mortgages in the secondary market as well as plunging investor demand for bonds backed by risky mortgages.”
From Bloomberg. “Mozilo has tightened standards for approving loans to the company’s riskiest borrowers as part of a plan to cut subprime lending to as little as 4 percent of total mortgages, half the level at the end of last year.”
“Now he must address an increase in missed payments in prime loans, or those granted to borrowers with good credit histories. ‘Credit performance has surfaced as a bigger risk factor than we expected,’ Morgan Stanley analyst Kenneth Posner wrote.”
“‘What really surprised people was the guidance,’ said Paul Miller, an analyst at Friedman Billings Ramsey Group. ‘I don’t think any investor is going to be that confident with mortgage banking earnings until ‘09.’”
The Globe & Mail. “Canadian Imperial Bank of Commerce could be forced to take a hit of about $100-million this quarter because of its exposure to securities related to the U.S. subprime mortgage market, analysts say.”
“‘The continued weakness in securities related to U.S. subprime housing will likely force CIBC to mark down its exposure to the space, as most of its securities are held in its mark-to-market trading book,’ RBC Dominion Securities Inc. analyst André-Philippe Hardy wrote. ‘We believe that a $50-million to $100-million markdown is possible.’”
“Corus Bankshares Inc’ 2007 second quarter earnings were $42.4 million, down 11% from the second quarter of 2006. ‘As has been widely reported, the United States’ residential housing market continues to see significant weakness throughout many parts of the market. With a loan portfolio consisting, almost exclusively, of condominium construction and conversion loans, this nationwide slowdown has clearly impacted Corus and its lending business,’ said CEO Robert J. Glickman.”
“‘Evidence of this slowdown can be seen in recent trends in loan originations and loan balances outstanding, as well as credit quality trends. The current quarter’s earnings declined as a result of these adversities, and it would not surprise us to see an even greater impact on earnings over the next several quarters, or even years, depending on when the market improves,’ said Glickman.”
“The slowdown, the company said, is apparent not only in loan originations and loan balances outstanding but also in ‘credit quality trends,’ or problem loans.”
From Reuters. “Building materials maker USG Corp said on Tuesday it expected a ‘multiyear downturn’ in the U.S. housing market and posted sharply lower earnings as it cut more jobs to trim its wallboard output.”
“‘The housing recession is entering the second year of what is likely to be a multiyear downturn,’ CEO William Foote said in a statement.”
“The company, the world’s top producer of gypsum wallboard, said its sales and earnings suffered during the most recent quarter by an excess supply of both new and existing homes on the market.”
“‘The unusually large inventory of unsold homes will depress new construction and put continued pressure on volumes and prices of building materials until the excess inventory is absorbed,’ Foote said.”
The Chicago Tribune. “In the latest quarter ‘the housing market continued to deteriorate,’ noted Foote.”
“During the latest quarter, Foote said, USG eliminated about 500 salaried positions; combined with earlier cutbacks in hourly staffing, the compahy has cut more than 1,100 jobs over the past twelve months. It has cut back its output, and will shut down an additional 350 million sqare feet of wallboard capacity at its Detroit facilities in the third quarter.”
“The disparity in credit behavior between U.S. REITs and homebuilders continued unabated during the second quarter, and will likely persist into the foreseeable future, according to a recent report published by Standard & Poor’s Ratings Services.”
“U.S. homebuilder prospects darkened, however, as the sector strives to find a trough in the market’s current downturn. ‘Most rated builders, however, still face very challenging operating conditions, which meant that rating activity in this sector was high and decidedly negative for the fourth consecutive quarter,’ said credit analyst Elizabeth Campbell.”
“‘Our builder rating bias remains emphatically negative,] noted Ms. Campbell. ‘Given the sector’s ongoing inventory correction and as-yet indeterminate recovery, we expect builders to remain pressured well into 2008, and possibly into 2009.’”
“Home builders had hoped the spring would provide some relief to a troubled housing market, but that key selling season has been a bust and demand has weakened even further so far this summer, Wall Street analysts said.”
“‘Our recent conversations with builders around the country find that housing demand has continued to wilt in the summer heat, with conditions sequentially worsening in the past four to six weeks,’ wrote Deutsche Bank analysts Nishu Sood, Lou Taylor and Rob Hansen in a research note.”
“‘Pricing pressure persists, with many markets in list-price reduction mode, as builders struggle to find demand that continues to slow as a result of mortgage-market contraction,’ they added.”
“‘Many of the public builders appear headed for break-even and even negative operating margins excluding charges,’ said the analysts. The high number of existing homes for sale on the resale market is giving competition to new-home builders, they added.”
“‘The impact of mortgage market contraction appears to have accelerated in recent months, with builders reporting greater rates of sales loss due to the inability of buyers to qualify for mortgage products currently available,’ the Deutsche analysts wrote.”
The LA Times. “In its letter to clients, Bear Stearns reminded the rest of Wall Street what was happening with investors’ perceptions of mortgage-backed bonds, even those purported to be of high quality.”
“Its funds were obliterated, the brokerage said, in part because of ‘the unprecedented declines in valuations of a number of highly rated — AA and AAA — securities.’”
“For a AAA-rated bond, a serious decline is a drop in the market price from $1,000 to $950 in a matter of days. It may not look like much, but for a security that had the highest possible credit rating, that’s a disaster.”
“The Wall Street money-machine known as collateralized debt obligations is grinding to a halt. Sales of the securities dwindled to $9.1 billion in the U.S. this month from $42 billion in June, analysts at JPMorgan Chase & Co. said in a report yesterday.”
“‘We’re walking on thin ice,’ said Alexander Baskov, a fund manager who helps oversee $25 billion of high-yield debt in Geneva. ‘People are trying to find value and the right price and right now nobody knows what it is. Pretty much everyone is in the dark.’”
“The 10-year U.S. interest rate swap spread widened to a five-year high on Tuesday as concerns about shaky credit markets prompted investors to flee riskier securities for government bonds, analysts said.”
“‘We are having a flight to quality,’ in which investors favor Treasuries over riskier assets including swaps, said Eric Liverance, head of U.S. rate derivatives strategy with UBS. ‘Credit in general is blowing out,’ he said.”
“Soaring defaults in the subprime mortgage market are spreading into the U.S. credit markets, producing a ’sudden liquidity crisis’ in the high-yield bond sector, according to widely followed bond manager Bill Gross.”
“A lack of confidence has ‘frozen’ the markets for lending and backed up new junk-bond offerings, and the tide appears to be going out for leveraged equity investors, Gross, manager of the world’s largest bond fund at PIMCO, said in an August investment outlook letter.”
“‘Stuffed!’ he said of the current state of the credit markets.”
From Broker Universe. “At the SourceMedia Nonprime Symposium in Las Vegas, our roundtable participants said all bets are off when it comes to subprime.”
“Moderator Brad Finkelstein: ‘During a panel at the conference, Blaise Dietz, CEO of Creative Mortgage Lending, said something that I found interesting. He said wholesalers need to educate their brokers to the new reality out there. Has it been hard for originators to understand that subprime today is not the same as it was on Nov. 1, 2006?’”
“Blaise: ‘With the products going away, they are either learning to market better or they’re educating their borrowers to what other options they have or they are committing fraud to get that loan placed. It is not just the originators, but the wholesale account executives, they are salesmen also and a lot of them don’t understand the changing landscape….It is the new unfolding landscape, and you are either going to educate yourself and your customers, or you’re not going to be in this business.’”
“David Matthews, chief information officer, Federal Home Loan Bank of Chicago: ‘I suspect a lot of them are leaving the business, just as you saw people leave the business when the prime market fell out. Those that shifted from prime to subprime are now realizing they are not going to make it in subprime and they’ll go back to being mailmen or auto mechanics or school teachers or whatever they were before they got into the mortgage business.’”
‘just as you saw people leave the business when the prime market fell out’
This is the little acknowledged event in 2003 that set up the whole subprime mess, IMO. It was when the prime originations fell hard that year that the industry should have sat back and called it the end of the cycle. But instead they charged into the subprime arena full force.
“But instead they charged into the subprime arena full force.”
With the encouragement of Fed Funds Rates at negative real levels, this was somehow unsurprising.
But it practically guaranteed the massive defaults we are seeing now. Subprime borrowers are not really failing to pay at an unusual rate right now. 12-14% is typical. The big difference is this usually happens a few years down the road, not almost immediately like the 2006 loans. It was all this stuff that got me blogging on this topic.
I agree with you. But I have to wonder whether the charge into subprime could have happened without ultra-low interest rates.
They will be charging high interest rates soon. No doubt, the yield has to increase to cover the losses they are now incurring.
If they do, what happens to programs like CFHA? Will that be the turnaround event for first-time buyers? I ask because I will be one, with a downpayment and documented employment of course.
You’re forgetting that those sub-prime loans were hardly low interest compared to prime. Lowering and eliminating the documentation and required FICO’s as well as doing 100% loans was the death knell.
Not sure… I imagine as long as you have good credit still and you put a down payment, that those programs will be in force.
“They will be charging high interest rates soon. No doubt, the yield has to increase to cover the losses they are now incurring.”
It is true that this is what market forces would dictate, but I don’t think this is in line with the Federal Reserve’s market engineering blueprint.
Yes, so there will be federal programs and guidelines to help FB’s out. Except, it won’t really be helping them, but it will help the banks who made the loans at the tax payers expense. The borrower will still be stuck in a house they don’t want.
“The borrower will still be stuck in a house they don’t want.”
And can’t afford.
2004: Smart under-30 somethings buy houses to add a third income to the two-worker family.
2007: Formerly-smart under-30 somethings take a third job to cover higher reset ARM payment on declining-value home.
Most of the people I know with declining housing values and increasing loan payments are walking. Just like last time. They are having a hard time getting the banks to foreclose however, banks don’t want to do this it seems. Its kinda funny really banks are tring to help out home owners who don’t want that kind of help. Don’t want to keep all these homes now that they are worth less and less every month. These “investors ” are hot on to the next big thing “credit repair”.
“Its kinda funny really banks are tring to help out home owners who don’t want that kind of help.”
Not necessarily their idea — they have been asked by federal monetary system regulators to extend forebearance:
‘Feds Issue Final Subprime Rules
by Broderick Perkins
Federally regulated banks started the week with new rules governing how they write subprime loans.
Critics consider the rules too-little too-late because they don’t apply to mortgage brokers and lenders that are not federally regulated. Also an estimated 2 million homeowners, many of them saddled with subprime loans they can’t afford, are already in or destined for the foreclosure pipeline.
Effective immediately, the “Statement on Subprime Mortgage Lending” is the work of the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision and the National Credit Union Administration, federal monetary system regulators.
The new rules were spawned by waves of failing subprime mortgages.
…
Offering workouts. Where warranted, lenders are encouraged to offer struggling borrowers loan modification or workout arrangements.‘
http://realtytimes.com/rtcpages/20070703_fedissue.htm
My understanding is that a lot of banks are less-than-willing to accept short sales (which is their option, and I don’t fault them for it). But they’re going to be “okay” with reducing or suspending or otherwise modifying loan agreement with PEOPLE WHO ARE ALREADY HAVING TROUBLE MAKING PAYMENTS?
I don’t see it — trying to reinforce failure is generally a counterproductive idea.
Not to mention the impossibility of doing this with loans which have already been sold/repackaged in some way.
‘I have to wonder whether the charge into subprime could have happened without ultra-low interest rates.’
Well, of course it makes sense that the largest asset bubble in the history of man would need to be enabled by a confluence of factors.
Yes - but I don’t think the subprime mess is as strongly linked to interest rates as Get Stucco suggests. I feel that a lot of subprime borrowers would have taken a home loan out at 18% provided the 1-year tester rate is 2%. A certain percentage of our population is just not that thrifty - it’s a sad fact of life. Just like a certain portion of our population are alcoholics that should not be drinking but do in anycase, there are people whom have trouble with their finances and really don’t need to be taking out loans. They are sucked into the enthusiasm of purchasing a new thing and not thinking about the pain of making payments.
This behavior is not centered in logic but in a deep need. It has nothing to do with the ARM interested rate.
“They are sucked into the enthusiasm of purchasing a new thing and not thinking about the pain of making payments.
This behavior is not centered in logic but in a deep need. It has nothing to do with the ARM interested rate. ”
The deep need for tax-free casino money, enabled through 2/28 ARMs. When the free money stops, and these “investors” cannot refinance into a new teaser, they will eventually walk away.
No sympathy here. Crash and burn.
Yes - but I don’t think the subprime mess is as strongly linked to interest rates as Get Stucco suggests.
Sorry, but you’re wrong. Low interest rates are what got the party started, and easy credit was the only way to keep the party going once the low rate adrenaline started to wear off.
The quick drop in rates effectively doubled purchasing power, since buyers only consider the payment. The subsequent run up in prices fueled the belief of never-ending appreciation upon which the whole bubble was built.
Additionally, the low rates are what caused **investors** to seek out more risk (and higher yields).
Ultimately, it wasn’t the borrowers who “caused” the bubble, but the lenders. They were put into a position (historically low yields) where they HAD to throw money to anyone who was willing to borrow. Many of these investors have income models (think pension plans) and absolutely needed higher returns than they were getting when rates were so low.
Getting FBs to borrow was easy…fill their heads with contrived fantasies of “The American Dream” and tell them they will make 20% or more, return on asset (much higher ROI), and you have the makings of an historic asset bubble.
BTW, it’s not only housing that’s been affected by the credit bubble…look at the stock market, bonds, energy, etc. EVERYTHING’s been bid up.
The big difference is this usually happens a few years down the road, not almost immediately like the 2006 loans. It was all this stuff that got me blogging on this topic.
When the borrower has 100% or greater financing, the person has no vested interest, thus making it more attractive to the borrower to walk away from their obligations. The investors and Flippers were the first to walk away.
I think it was less to do with interest rates and more to do with the flood of money coming in and its demand for better-than-treasury yield, combined with the presence mis-rated securities.
And, like our friendly economist Mr Thornberg says, it’s not the interest rate that drives housing prices up, it’s the change in interest rates. So, by the end of 2003 interest rate should have been a factor against housing appreciation, all else being equal (which it wasn’t of course).
I feel that it all comes back to the bond ratings. If they’d been rated correctly the extra yield (from default rate and fraud) would have to have been reflected in the interest rate charged to subprime borrowers. Only the eerily blind eye of bond ratings toward 100% no-doc / neg-am / teaser rate / short-term ARM / PPP / POA (all of which are only distantly affected by FFR) could have enabled the machine to grind up loans and drive up prices.
yes, they were junk.. but the “machine” took in this crud, and made varying tranches out of it and spit out AAA- investment grade plus some junk. the premises being that if the return sours than the junk would take the hit first while the AAA stuff would be ok. nobody thought what happens if there is more $hit than what can be absorbed by the junk rated stuff.. well than the AAA begins to stink, and that’s where the whole affair smells like a rotten egg.
got cash?
Interesting discussion Gavekel posted this over at Vic’s site yesterday. There was demand for highly rated paper with real characteristics that were closer to junk.
http://dailyspeculations.com/Hermes-L.pdf
This is exactly like Long-Term(sic) Capital. The hedge funds built models to measure and profit from risk. Their models turned out to be flawed, the risk much greater and things went haywire. They were caught overleveraged, on the wrong side of the trade and insolvent with creditors breathing down their neck.
The biggest differences? LTCM was one fund doing esoteric leveraged trades. There are hundreds of hedge funds crowded into “spread trades” buying risky, high-yield debt with borrowed money today. LTCM was designed by Nobel Prize winners. Hedge fund growth has diluted the talent even worse than major league pitching. When LTCM blew up, the main damage would be to low-rated foreign government bonds like Russia and Thailand, with Treasuries getting splashback. This time the brunt of the damage is in mortgages, rapidly spreading to consumer credit, corporate bonds, M&A lending and commercial RE - basically, the heart of the US and global economy.
Basically, we are looking at LTCM but with hundreds of funds, more money, less talent and consequences far more dire for America and the global financial system. But it’s “contained” so no big deal.
I wouldn’t give too much credit to Nobel economists. they are great in the theoretical world, but lacking in the real world.
Jerry, I respect your contributions, but this is a very ill-conceived opinion. The vast majority of nobel laureates will contribute more to the world than you and I ever will. Dr Merton is also known for formulating and solving the problem of deciding the optimal balance of bonds, stocks and personal consumption of an investor through his lifetime (and NO, it wasn’t “invest it all in hedge funds” hah!). Sometimes one will make a bad call, but that becomes far more publicized than their contributions on the whole.
The entire nature of science is to expand the insight of humans while narrowing the focus to theories that have not been disproved. To be honest, LTCM should have saved us from this debacle by showing that dispersion of risk actually increases aggregate risk when demand is flooding in. Leave it to ordinary humans to not learn the lesson. Here’s a good quote from Dr Merton that explains the balance between what is gained and what is lost (by leveraging into the demand):
“When you get a safety improvement, you of course could use that to make yourself safer. But how else might we use it? We use the safety tools not to actually make ourselves any safer than we were but rather to get the benefit we can do things even more efficiently, faster, more conveniently, more reliably and we take the benefit in that form… ”
Sadly, you are right in one sense. The problem resulted from a mathematical mis-calculation of risk– conflict of interest and greed (producing mortgages more efficiently, quicker, more conveniently, laws aside thanks to ratings agencies)– humans are so predictable, are they not modelable?!
zee, you know what is really scary about your post? A huge amount of the more recent CDO were acutally synthetic derivatives of CDOs rather than investments in asset-back securities.
So, for instance, we have a high enough default rate to completely wipe out up to the A tranche in a CDO investing in MBS… well okay, lots of angry people, but the senior tranches still get paid. But now you consider a synthetic CDO that has invested, say, in solely the BBB tranche of a large number of other CDOs, a large portion of which will be rated AAA and all of which might be wiped out. This exaggeration of risk mis-evaluation is big trouble when the flood sinks the whole town and not just a house or two…
It’s always about “fees” and what the main players could make. Wall St. makes its money by selling, turn over. You expect the Wall St. big boys to act differantly?
To be honest, I wasn’t aware that prime lending hit the wall in 2003. But I certainly remember thinking we were on the edge of a downturn in Bozeman, then suddenly everything took off into crazy land.
Yes same here. I remember being happy that my home value had increased by about 50% since I had bought it (in part due to various improvement projects) in 2000 and thinking “I’m sure it’ll level off now” - only to be shocked when it changed to the *opposite* direction upward.
Ohio talked about passing laws in 2003 for mortgage brokers. They had to have so many classes, a license, and were liable for fraud. Here it is 2007 and now the new Attorney General is suing these companies. Had it been contained with the previous administration, some of these mortgage brokers literally selling loans out of the trunks of their cars would not have been in business. Foreclosure rates might not have been as high either. Always late to the party.
From Financial Times on MSN. Pretty scary.
“The stricken US subprime mortgage market is likely to suffer further setbacks in the coming months as $500bn of risky home loans sold with initial low “teaser” interest rates are reset at much higher levels, analysts warn.
Over the next 18 months, adjustable-rate home loans sold at the peak of the high-risk lending boom in 2005 and 2006 will be reset. Given a recent tightening of lending standards as banks try to rein in their mortgage exposures, this raises the prospect of further serious losses. Christopher Flanagan, strategist at JPMorgan, estimates up to 45 per cent of borrowers facing resets will not meet criteria to refinance into new home loans.”
Some housing bubble news from Wall Street and Washington. MarketWatch, “Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans. ‘The company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home-equity loans,’ CEO Anthony Mozillo said in a press release.”
But according to Henry Paulson and Ben Bernanke, subprime is contained, so no need to worry Angelo, just keep making loans.
Next release from Paulson, Bernanke:
“No worries. While subprime’s not contained, it’s ‘restrained’.”
How about, “The credit market is contained and won’t spill over into a recession or job losses.”
re-Stained: Painted a different color to fit the current mood.
Every single time I read about containment.
I think of the term Spreading Santorum.
If you are easily offended don’t google the former senator from PA’s name.
“But according to Henry Paulson and Ben Bernanke, subprime is contained, so no need to worry Angelo, just keep making loans.”
And all the talking heads on CNN, CNBC and Fox have also said the same thing. Last Sunday, I heard one of them say that no one is talking about AltA or Prime because nothing is happening there. Can’t wait to see what he says next weekend. Or maybe he won’t be available for comment.
“…said Eric Liverance, head of U.S. rate derivatives strategy with UBS.
‘Credit in general is blowing out,’ he said.” and then…it went dark
“Now he must address an increase in missed payments in prime loans, or those granted to borrowers with good credit histories. ‘Credit performance has surfaced as a bigger risk factor than we expected,’ Morgan Stanley analyst Kenneth Posner wrote.”
How many months (years?) ago was this problem of missed payments in prime loans predicted here?
At least as early 2005 which is when I began reading.
When this all blows out banks will go back to the traditional lending model: don’t trust anyone.
1) More than anything else, regardless of your FICO score, they will want buyers to have a substantial amount of skin in the game. You have financial problems, you want to walk away, fine. We have 20% down to cover potential losses on the foreclosure.
2) No more no doc. No more lending 7x income. You want to be reckless, do it with your own money.
When these changes hit home, we will finally see the big leg down. I’m thrilled to think these changes might not be that far off… perhaps even this fall?
2) No more no doc. No more lending 7x income. You want to be reckless, do it with your own money.
Hey, 7x income can be done! In California that level hasn’t been seen in a decade and lending has never dropped below 7x for several decades. In the recent past lending was closer to 10x-12x income. If it FALLS to 7x the CA market should be sustainable. Honest.
How often over several decades have California home prices fallen (as they are presently)?
It falls every ~15 years to 6X income.
But we also accept 1/2 the population will never own. So the median isn’t a great statistic in California. Cest la vie.
Last time LA county fell ~18% in prices. But the most overpriced areas fell 40%!
This time? Look out below. Either that or all the jobs will go to CO and TX.
Got popcorn?
Neil
We’ll take the jobs but please sapre us the Californians!
In California that level hasn’t been seen in a decade and lending has never dropped below 7x for several decades.
Current bubble set aside for the moment, CA has long been more expensive than other states for a number of reasons (Prop. 13 = fewer sellers, illegal immigration = massive added demand, NIMBY anti-development restrictions, sky-high builder fees, etc.). However, this is slightly overstating the magnitude. Back in the 1960s, housing here cost roughly the same vs. HH incomes as everywhere else (3X), so the ‘paradigm shift’ is more recent than many think. If you average out the median price-to-HH income ratio since then, it averages ~5-6X incomes.
“Hey, 7x income can be done! In California that level hasn’t been seen in a decade and lending has never dropped below 7x for several decades.”
Not sure I agree with that. I bought a brand new home in Marin County for 3x my gross income in 1996, and I am not a huge earner.
FWIW, I remember new homes for sale in Petaluma for $185K in 1996-1997 when I transferred there for work.
At the time, I made about $50K. And I thought $185K was out of reach…………
The San Fernando Valley median home was under $200K before the boom.
Hey, 7x income can be done! In California that level hasn’t been seen in a decade and lending has never dropped below 7x for several decades. In the recent past lending was closer to 10x-12x income. If it FALLS to 7x the CA market should be sustainable. Honest.
That is because the CA has incomes that can sustain 7x earnings whereas in Florida, incomes are much lower for the working class and those on fixed incomes. This will not work in Florida and is why so many are defaulting on their loans.
California “had” incomes that can sustain 7x earnings. Here in the Research Triangle of NC we can’t relocate people escaping/cahsing out of California fast enough. I have had two post docs in the cancer research area turn down offerds in California because of the insane cost. Bith have nice jobs with Wyeth Labs in King of Prussia, PA. Meanwhile keep sending us those high paying jobs guys…no bust here. We never had an out of hand boom.
I have said it before, and whenever this conversation comes up, I will always remind everyone of my view on the possibility of a return to tradional lending standards.
If we ever returned to 10% down, max loan at 4X documented income it would be a total armageddon in the housing market. Total cratering; break the back overnight of the entire industry.
Now, just because it will be devestating to all these debt slaves/home builders does not mean that it will not happen. I just stand by my prediction that if we ever get to the point where you need 10% in cash, a 700+ FICO, and documentable income you will see an immediate return to normalcy in the housing market (which in some bubble areas will be an instant halving of property values).
Is there a petition somewhere that I can sign to make this happen?
Has to happen, too. Nothing else can mitigate the inherent risk of mortgage lending in a normal environment, let alone a bad one.
Let it happen.
I see no benefit to all the Bubble idiocy that has been going on. People living paycheck to paycheck, shuffling debt around, worrying about the ARM reset - how is any of this GOOD for the economy? Oh, yeah, sure - churning homes and taking out HELOC loans was fun for a while, but now the bill is due and it will not be any fun at all.
You hint at a wonderful point - the typical profile of a “prime borrower” as changed significantly over the last few years. The definition use to be a person with several thousand in reserves, a low income to debt ratio and at least 20% in home equity. These days, a prime borrower is a person with a pulse, whom as a FICO score above 670, all credit cards current (albet 15K in debt with two maxed out), a BMW on lease and at least $500 in a savings account. Quite a paradigm shift.
The shame of it is that Stephen Roach (sp?), also of Morgan Stanley has been on top of the mortgage problems for years.
Another “perma-bear” who was thought to be “wrong”.
“‘The housing recession is entering the second year of what is likely to be a multiyear downturn,’ CEO William Foote said in a statement.”
Note that the declaration of a current state of recession is presented as a given fact, without need for explanation.
At least the stated, unexplained fact is qualified as a “housing” recession. Just wait until MSM commentators are making similar statements w/o qualification…
Uh hello the median is up in Orange County, so obviously there are no problems here. We will just be cruising along making more money, in fact we will see flipping become popular again in a couple months and see TV shows on every block. Then Tinkerbell will fly down from the Matterhorn and sprinkle fairy dust on all the good people of the OC. Yes, this is exactly how it will go according to the average mindset in OC.
It shames me that I have family there still in _that_ industry. My cousin has a MBA from Northwestern, fer christ’s sake, and he just can’t see the writing on the wall. As you can guess, I’m the life of every large family gathering >; )
“MBA from Northwestern, and he just can’t see the writing on the wall.”
Lots of education, not enough common sense. We need more government regulation to protect the victims. If people with MBAs cannot logically come up with the most likely scenario of what is going to happen, then God help us.
(sarcasm off)
I’m pretty sure he knows but won’t tell on since we’ve been staring at each other across the housing inssue fence since 2001.
tell = let
Gwynster –
Know what you mean. The guy who was almost my father in law runs an int’l company (Ivy League MBA) and his two sons just went to two Ivy league business schools (not playing the “Ivy League” snob card here, just trying to cloak my identity for deniability…) Argued with them about RE until blue in the face and they always had an answer. But as said at the end of Lethal Weapon, “Who is the d**khead now?”.
Covered my CFC short today. Thanks, Angelo (500 lb Gorilla in the room) Mozillo!
MrBubble
Mozillo >> Mozilo
“Then Tinkerbell will fly down from the Matterhorn and sprinkle fairy dust on all the good people of the OC.”
At least that has a snowball’s chance in Hell of happening!
You’ll notice that there’s alway snow on the Matterhorn.
exactly….check and mate! (lol)
Scratching my head at that one. Is he saying it’s possible to be in the second year of a single-year downturn?
No, no, he accidentally admitted that the downturn may last more than two years.
“For a AAA-rated bond, a serious decline is a drop in the market price from $1,000 to $950 in a matter of days. It may not look like much, but for a security that had the highest possible credit rating, that’s a disaster.”
This is exactly what the drop in BBB- rated bonds looked like last December…
(Scroll down the linked article to see the chart…)
http://economist.com/finance/displaystory.cfm?story_id=8424086
How does that same index look now? It was at 95, but now is it not something like 45? Would that be the future of the AAA junk?
45? That’s so last week. 42 yesterday, and after today, bet on sub 40. http://www.markit.com/indices
“NOT FOUND”
CONSPIRACY!!!
Just kidding
http://www.markit.com/marketing/indices.php :).
Here is a page with graphical evidence. Markit.com has taken down the graphs that showed the time series since late last year (the ones that resembled Niagra Falls in appearance) and is now limiting the view to only include the past several days. It also appears as though containment policy may have been extended to stabilize these ABX indexes. Pretty soon, everything will be contained…
http://www.markit.com/information/affiliations/abx/history
There’s still access to those graphs. It looks like they just introduced the latest series, the 07-2, so you can’t view the 07-1 graphs from the history link… you have to click them one-by-one from the main indices page.
Thanks for posting that link back to December. It cracks me up to think “if only they could have seen the rest of it…” while reading that article!
07-01 are first half bonds of 2007
07-02 are second half bonds of 2007
etc etc
Looks like the market is anticipating losses in credit supported securities, which means a total wipeout for the lower tranches.
This may be an over-reaction, but perhaps not. Losses at 25% or more, given costs, are not uncommon in foreclosure if prices are stable. Losses in collateral value would be on top of that. And, of course, those with negative equity and seeing falling prices are more likely to default.
This gets back to something another poster said — defaulters living in their units for months, if not years, and banks taking back houses rather than selling and writing off the loss. How long will that go on? What is the accounting here?
“A lack of confidence has ‘frozen’ the markets for lending and backed up new junk-bond offerings, and the tide appears to be going out for leveraged equity investors, Gross, manager of the world’s largest bond fund at PIMCO, said in an August investment outlook letter.”
Next up: Time to see who was swimming naked?
Does this mean Blackston, KKR, and various other private equities that overpaid are now screwed?
Wonder how BX looks today…
It’s basing along near it’s (short) historical lows. I would guess this is in preparation for another leg down.
Well they were all starting to get old. I guess this was their way of cashing out or (retiring).
Looks like China picked a dandy time to invest in private equity. I wonder what they’ll do with all their dollars when they realize that nearly everything US is overpriced.
Probably start using it as packing material?
China is loaning the moneys to Barclay’s to buy ABN Amro.
China is buying Yen.
negatives:
Germany is going to pass a bill preventing foreign buyouts as are most of the European Union. This is to keep China from buying anymore companies. China pays dollars.
Japan did the same thing, was it back in the 80s? Buying all those “trophy” properties turned out to be “catas-trophy” for Japanese investors.
“I wonder what they’ll do with all their dollars”
They’ll shred it into little pieces…and sell as $1,000,000 US dollars in a can for 39 cents at the $ Dollar stores.
Confetti!
Puts are looking up : BSC, FED, DSL, IMB.
Don’t know when the PPT will step in.
From the link above. The Fed is going to have to tighten sooner or later.
Investors are concerned that the mess in the U.S. subprime-mortgage market will become more contagious,” said Ryan Sweet, economist at Moody’s Economy.com. “Interest-rate differentials are also moving against the dollar, as the Fed keeps its target rate on hold for while other major central banks are tightening.”
The Fed will not tighten given the credit environment. They won’t want to exacerbate the problems on the home front and they would sacrifice the dollar if necessary. And it looks like the ECB will not tighten either, as the contagion spreads around the globe.
Sounds ass backwards. I thought the FED protected the dollar at all costs?
I tend to agree, because they will perceive that the bond market is performing the tightening for them. But if core inflation (ha ha) goes up, then the fed will get into the act.
OPEC to the rescue……hit the pumpers, boys, let the black gold rip…and, and, and…..housing is taking a dump.
Now about the pesky high prices in food…
So, expectations are contained, inflation continues to moderate…….may need a rate cut.
RIsk premiums pricing in for the LBO/M&A…. the blowing out of credit ,of you will, th returning to sanity standards in the housing market for qualification of loans, blowing out sub-prime, MASSIVE repricing of CDO’s and assorted other derivative credit bullsh*T, several down days on the big board.
defensive plays doing well…..
man its all good, whats on TV
The only reason the Fed would tighten is to support the dollar, and it appears they have abandoned it. IMO they are counting on competitive currency devaluation to save them. It’s a race to the bottom now.
Yep.
9 trillion dollars in debt = 4.5 trillion pounds.
5 years from now
9 trillion dollars in debt = 2.25 trillion pounds.
Wow, that makes it easier to pay off?
Also, what does that do for America manufacturing? Makes goods cheaper to export and also makes American companies look more profitable as the exchange rates are favorable to fudging the numbers.
Go ahead and explain all the exports we make, that the world wants?
Well computer gear and network gear is about all I can think and much of that is made out of the country. Who wants to buy our cars? Maybe caterpillar tractors, but I am kind of dumbfounded, but that is the thinking I guess? Maybe it will stop the outsourcing of jobs. I have no clue.
Airplanes & weapons.
Food
Financial Services (ie Goldman…), Aircraft engines (GE), and software/engineering (Apple, Microsoft)
Still something at least.
Higher education
We are still the largest manufacturer in the world. Steel, autos, etc all look pretty good when they are half the price of your local industry.
One of the biggest overlooked export is violence. By taking the war to the sand countries, they get the lions share of the leftovers.
Addtionally, the countries that are buying up the treasuries are also the ones with the greatest gains due to the American Police force against terror.
Call it a “loss leader”….for China, Japan, and the UK
The Chinese have already bought into the US Iron Mining Industry(30 %) with a joint venture, United Taconite, in Eveleth Minnesota bluto.
If the US isn’t importing enough Steel products from China, maybe we can buy it from them at home shortly. Kinda of like the Toyota and friends
http://corporateaffiliations.ecnext.com/comsite5/bin/corporateaffiliations_pdlanding.pl?item_id=60223&referid=5592&pdlanding=1
jungle,
largest export for “violence” is entertainment….see DVD/GAMES/VISUAL PROGRAMMING
though the war does have some positive effects, its never an answer to the problem.
I am sold. How do I buy pounds?
IMHO stay away from the pound and Euro, the risk at these levels are to great for the novice trader. If you were to take a small position in the foreign currency markets, the safest (not necessarily the best) is to go long the Swiss Franc and short the Euro. The Pound has a great deal of “carry Trade” moneys in it and when it unravels … The other side is that The 2nd least expensive place to borrow moneys right now is Switzerland and Euro traders have been borrowing Swiss moneys and buying Euros. The Swiss economy is doing well and they will be raising rates shortly.
9 trillion dollars in debt = 4.5 trillion pounds.
5 years from now
9 trillion dollars in debt = 2.25 trillion pounds.
Wow, that makes it easier to pay off?
What are you asking?
We don’t pay our international debt with pounds. International debts are settled with $USD. It’s in the guberment’s interest to pay its foreign (and domestic) debts with freshly printed, devalued bonars. Thus, continue watching the spot USDX flirting with the 80.00 mark…
http://quotes.ino.com/chart/?s=NYBOT_DX&v=i
are we managing the expectations of foreign debt obligations?
I would say, yes. If not, why buy the debt in the first place unless they want the US to spend the money “overseas”.
They’re gonna stay put. It’s Goldilocks remember!
Competitive devaluation and contraction from an extended period of excess credit both were keys to the Great Depression. All we need now is serious protectionism and more hedge/private equity failures (in lieu of banks).
I love this! I’m glad someone else has been noticing the similarity between the current halt of withdrawals in private equity and the old-school bank-runs from the 1800s. Hahaha, where’s your FDIC now, B****?
ajas
It’s very important because, hedge funds and CDOs are quasi-banks. They take in money and then lend it out, just like banks. The fact that they happen to do so in the form of bond purchases rather than loans isn’t terribly relevant. Many banks also purchase bonds and hold them just like loans. Just like banks, hedge funds create “money” (really credit) every time they lever up and buy another bond issue.
The credit market is shuddering from a few hedge funds going down. It will shut down when hedge funds and CDOs start blowing up in large numbers.
“Hahaha, where’s your FDIC now, B****? ”
Warming up the printing presses for the bailouts. Our currency had gold backing in the ’30s. Now it’s backed by nothing.
its backed on the backs of Americans.
quasi banks are the reason m3 has been going nuts not some printing press at the fed
bm, I’m with you. FED may have been buying up some treasuries occasionally, but when you factor in the evaporation of private equity along with the (coming) evaporation of demand for debt in housing… Mr B faces the equity trap.
Inflating away debt requires the inflatee to be a willing conspirator. In this case, it’s the foreign creditor (too heavily invested to sell $$$) and the American consumer and my guess is that the dependence on our increasing debt will abate. Ok, so it’s recession then (TRUE!)… It becomes this weird race between foreigners selling off dollars vs americans ceasing to spend (or borrow against) them.
It’s a question of adapting to an environment… if America is so bad at this, I guess we deserve what we get.
“Wall Street cringes as credit woes extend far beyond subprime”
http://www.marketwatch.com/news/story/other-shoe-drops-countrywide/story.aspx?guid=%7B0F6503B7%2D66B1%2D4143%2D8687%2D9BF906129314%7D
CONTAINED I SAY CONTAINED!!!!
Lol what a joke….here comes the biggest challenge to the American way of life in this Countries history….I do not think the Pepsi generation is ready for this like our ancestors of the 1930s.
Our soft, overweight, remote control additive TV audience is not ready for a 1929 depression where in the past 80% still lived and worked on the farms. Suvs, big screen tvs, cell phones are a must when working the fields. This is going to be a little harder this time.
How are they going to hide the credit woe elephant under the living room rug, especially when S&P’s and Moody’s are suddenly expressing a keen interest in doing a better job in rating credit risk?
Ummm….Lindsey Lohan got a DUI now that is news! Nothing to see here folks the stock market is setting records and the real danger is with the planes and the controllers, your investments are safe and there is no reset in sight! Just read the MSM and you would never know about this news…sad what a disgrace.
LOL… that girl has problems. I say throw her in Jail. I hope she gets the judge that put Paris there, only I hope that he gives her more than a 23 day sentence.
It’s a conspiracy. Bernanke and Paulson called Lindsay and told her to get a DUI so Americans could be distracted from what is going on now.
“nothing to see here, move along… everything is contained, OH LOOK! Lindsay got another DUI…”
sad but true
This means there is so much more downside when people wake up and start to panic, selling their 401Ks and IRAs off.
Don’t panic, but if you do… panic first!
The people around me that are retiring in 5 yrs are still using the same positions that had in 2002 and earlier. Thank the gods they can fall back on the sale of their house to fund their retirement.
/sarcasm off
he he
“Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier. ‘The impairment charges on these residuals were attributable to accelerated increases in delinquency levels and increases in the estimates of future defaults and loss severities on the underlying loans,’ the company said.”
My expectation continues to be that there will be a very high default rate for all categories of home loans issued during at least during the past three years (around and since the 2005 peak) . People who bought during this period overpaid significantly and borrowed far more than they will be able to repay. This is hardly just a subprime problem. These latest Countrywide results are just the tip of a very large iceberg. Any bets on how many life boats the S.S. Foreclosure has?
“Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier.”
I would really like to see their delinquency rates for prime mortgages ranked by State. I’ll bet Florida is near the top.
I wonder what the historic rate of default is for prime?
I believe it’s about a percent or two with a few spikes to three to four. I’m more familiar with sub-prime, but normally defaults trend at about 1/8-1/4 of 30 day lates.
My prediction: Nationally, by summer of next year, the number of homeowners losing their homes to foreclosure every month will excede the number of montly home sales. In the particularly hard hit markets the ratio of foreclosures/sales will be greater than two.
As a result, even if new construction comes to a complete stop, inventory will grow rapidly.
“As a result, even if new construction comes to a complete stop, inventory will grow rapidly.”
I say we go with the Thelma and Louise solution. Let’s give a hammer to every American aged 8 to 88, and just all build houses until we’ve completely obliterated Mother Nature in a final blaze of glory.
LOL!
dude. awesome. still chuckling.
I’ve long suspected that the endgame for humanity will be once we’ve paved over the whole planet - may as well do it with Option ARMs and funny-money loans!
“Those that shifted from prime to subprime are now realizing they are not going to make it in subprime and they’ll go back to being mailmen or auto mechanics or school teachers or whatever they were before they got into the mortgage business.”
Assuming that their prior jobs are still available. If not, the burger flipping industry is loaded up with help, so perhaps crack dealing and hooking would be an option.
Open Positions in the Fast Food business is at an all time low. Now sure where they will find jobs.
At least the minimum wage went up today.
LOL So did the price of a Big Mac. Coincidence?
as did a Latte at Starbucks…
Whatsa latte up to now? Shouldn’t have mattered, their employees always made more than min wage anyway.
…and they give their employees health insurance. My cousin has a severe heart condition, and if it weren’t for the benefits provided by Starbucks, she would be in a terrible situation right now. Thanks for the Lattes america!
Professional gambler!
They’ve already failed at that profession….
Those jobs aren’t their anymore.
We’re see this already, the flight to low-paying “stable” jobs. In the last 9 months, I had 3 positions open up for what I think of an 2nd tier admin staff where lots of RE folks applied. These position would have been severe salary reductions for them too.
For one position I had 9 apps, 4 were from RE or related industries. None of them got interviews as they didn’t even have the basic demonstrative skills for the position. And this was after HR weeded a bunch out so this was our cream of the crop LOL.
Now when the layoffs come, they will also be the first to go. Job industry flipping works only when the economy is on the way up and really hammers the middle class employee on the way down.
And this was after HR weeded a bunch out so this was our cream of the crop LOL.
Do you mean the cream of the crap?
and their = there. I’m having a hunger-induced ADD spasm apparently
Well hurry, eat something : ) but you will be paying more… min wage went up today.
two big down days in a row for the lenders, banks and builders. My housing put account is up 60% in the last two month (one year salary), 20% so far this week. DSL, which was a loosing position until two weeks ago is now up 120%. IMO, lenders and banks still have a long ways to fall.
Bill : Me too. What positions do you have ? I bought some WCI put leaps yesterday morning. Happily tanking thank you.
WCI is now $12, Icann bought in at $22, wonder if he got out on time.
And a BIG DOWN day for the DOW, over 220, not bad (but still under 2%).
Over the last 12 Months Mozilo Angelo R has Sold 4,466,999 shares.
Good pick up. After he sold does he actually let the bad news seep out.
Nope, over a year ago, Mr Mozillo said
“I’ve never seen a soft-landing in 53 years, so we have a ways to go before this levels out. I have to prepare the company for the worst that can happen.”
He warned then sold! Ok in my book.
…
“As I try to walk through what happened there and could a lot of this have been foreseen … nobody saw this coming,” Mozilo said.
Shares were off $3.93 to $30.12 after earlier touching a new 52-week low of $29.9
….
Not true, everyone on this blow saw it’s coming long time ago.
The “Wall Street and Washington” threads are getting more frightening every day. I mean, we’ve been predicting this stuff for a long time around here, but to actually see it ‘in print’, so to speak, is chilling. What is most shocking to me is how quickly things are falling apart. But then, it’s “all contained,” right?
Again, what is news to me is not the housing market but the mortgage and now broader credit aspect. Ben could rename this the credit bubble blog.
I know there was an financial catastrophe in commercial lending at the end of the 1980s bubble — we have had virtually no new office construction in NYC since then.
Was there a residential mortgage catastrophe too? I don’t remember anything like that. These are indeed uncharted waters.
Ben, thanks for keeping up with all the fireworks today!
Bill gross sees a credit crunch:
NEW YORK (CNNMoney.com) — Woes plaguing the subprime mortgage market are spreading to junk bonds, according Bill Gross, manager of the world´s largest bond fund.
Credit markets are facing a “sudden liquidity crisis” in the high-yield bond sector as a growing lack of confidence has frozen future lending, the PIMCO bond manager wrote in an August investment newsletter posted on the PIMCO Web site.
http://tinyurl.com/24h2lc
Pssst, hey Bill… your suffering from: HBB “déjà vu” :
“Economic implosion derived from illiquid assets alchemized by the credit expansion of global central banks using irrational exuberance to sustain a financial catastrophe of their own creation.”
Mr. Gross has a specific agenda. What it may be is up to you to figure out.
may have something to do with higher yields.
“USG eliminated about 500 salaried positions; combined with earlier cutbacks in hourly staffing, the compahy has cut more than 1,100 jobs over the past twelve months. It has cut back its output, and will shut down an additional 350 million sqare feet of wallboard capacity at its Detroit facilities in the third quarter.”
More good news for Detroit
OT a bit but why is Pakistan complaining so much about how an airstike or incursion would really not be a good idea by the US? What do they know that we are not hearing?
Commercial construction deals have suddendly dried up in the Metro DC area. As in just stopped.
Can you elaborate on your Metro DC post?
Today, there’s a new push toward FHA. Assistant Secretary for Housing, Brian Montgomery, testified before a congressional committee in favor of modernizing the process for the benefit of “troubled subprime borrowers.”
Requested changes include: Eliminating a 3 percent down requirement, which would enable more low income borrowers to qualify; increasing the maximum loan to reflect the increase in home prices brought by the housing boom; assigning rates by risk to enable borrowers with higher credit scores to receive lower interest rates.
I about threw something at my screen when I read this
As long as he said “they still have to make their mortgage payment.”
A non event.
LOL
Finally starting to see the PPT rallies fail, this is encouraging. Think the foreign funds are starting to give up on losing USD plus sinking earnings?
QQQQ is dropping like a rock!!
Apologies if already posted, but saw this on Bloomberg just now:
Defaults on Some ‘Alt A’ Loans Surpass Subprime Ones
Not like they weren’t warned by us…
Most of the Alt-A crowd were able to get into much bigger loans than the Sub-prime crowd. When they see a relative 10-15% drop in the value of their property, the impact to their net-worth in absolute terms is much more, and hence they are more likely to walk away.
Everyone keep their hands and feet inside the roller coaster during the ride…arms up everyone and here we go!
OT, but what happened on Wall St. around 2pm today? PPT went out to lunch?
Maybe PPT members succumbed to their own respiking efforts, and came back from lunch too punch-drunk to act…
They’re trying to get their I-phones to work. But there haven’t been enough sold, in fact only 30% of what was projected. Oh no, Mr. Bill! Save me!
Musicosis for my good amigos
(to the tune of “Climb every Mountain”)
Short every uptick
sell every stock
the market has no buyers
and is due for a huge drop.
Screw a $600 phone. I don’t give a damn.
And neither do the 370,000 other people that were supposed to be buying I-phones. No money in their wallets to shell out $600. When sales figures are off by 70%, there is a huge problem. When ATT projects sales of 400,000 and in memos talks of 600,000 then reports sales of 130K - “Houston, we have a problem”.
IMHO this is what tanked the market.
the “PPT went out to lunch?”
Naw, they’re trying to make the Dow behave like this animal:
The pushmi-pullyu
(pronounced “push-me-pull-you”) is a fictional creature in the Doctor Dolittle stories. It is a llama which has two heads at opposite ends of the body. When it tries to move, both heads try to go in opposite directions.
http://en.wikipedia.org/wiki/Doctor_Dolittle
http://tinyurl.com/2qtxs5
Very nice MoMoney!
T I MMMMMM B EERRRRRR !!!!!
DataQuick reported on Tuesday that during the first half of 2007 San Diego County had 2,896 foreclosures compared to 445 during the first half of 2006, a 551 percent increase.
http://tinyurl.com/2avbw4
Off topic but hilarious and definitely full vindication… Check out the Philly housing index…. too funny. $HGX.X
“The Wall Street money-machine known as collateralized debt obligations is grinding to a halt. Sales of the securities dwindled to $9.1 billion in the U.S. this month from $42 billion in June….
CDOs are like a box of chocolate; you never no what you are going to get.
Down Jones average off just over 200 points. What’s the circuit breaker level?
curbs are in. down 240 and falling. S&P getting close to 1500 again.
NYSE Volume 3,926,645,000
Dow
Down - 223.54
Done
Updated:
NYSE Volume 4,086,349,000
So, was last week a dead cat bounce?
“What’s the circuit breaker level?”
See this:
http://en.wikipedia.org/wiki/Trading_curb
On broker outpost, some of the brokers are (yet again) complaining that eliminating stated income loans (”liar loans”) would decimate the California housing market. The most often stated reason for their prediction: “Who can qualify at these prices using their real income”.
I love it. That’s as close to honest as they are going to get.
“Who can qualify at these prices using their real income”.
Translation:
“I now qualify for food stamps”
This chick on CNBC is awesome. She almost started laughing when one of the experts on a panel interview said the time to buy housing is when prices are down 7-8% nationally.
She said prices are already down 25% in markets that experienced year after year of double-digit appreciation, and the problem with the national statistic is that it’s national and does not reflect local markets…
http://realtycheck.cnbc.com/
Fresh from msnbc.com after the Dow took a 200+ dump today: “The troubles among subprime mortgage lenders have periodically rattled Wall Street this year, leading to sudden plunges as investors feared that the sector’s problems would spread to other parts of the economy. The market has generally recovered in a short period of time, but as Tuesday’s trading showed, it remains vulnerable to any bad news about mortgages or housing.”
Geez…the bulls are starting to get turned into steers. Just goes to show what happens when you leave yourself exposed. Somebody might just come along and take the family jewels.
they’ll go back to being mailmen or auto mechanics or school teachers or whatever they were before they got into the mortgage business.’”
He forgot to mention the fast food industry!
Risk spreads blew out to the upside again today. Fear is sending money fleeing into Treasuries and the 10-year yield dropped 2 basis points (0.02%). It was fleeing from high-risk bonds and the yield of the Bloomberg High Yield Index rose by 16 bp to a multi-year high of 9.01% (vs 4.94% for Treasuries). The difference is the risk spread, which is a good proxy for investors’ level of default fear.
The junk to treasury spread has widened about 100 bp in just a few weeks and looks set to go even wider. It’s gotten a lot more expensive for risky borrowers
Just to add other confirming data, HYG - the junk bond ETF fell 0.6% today and Vanguard’s High Yield Fund was down 0.7%. And both of those funds deal mostly with the better grade of junk bonds.
Will someone please buy Robert Kiyosaki a comb and show him how to use it?
Brother can’t help it. He’s Japanese.