August 3, 2007

One Of The Biggest Bubbles We’ve Ever Had

Some housing bubble news from Wall Street and Washington. Reuters, “Standard & Poor’s on Friday changed its rating outlook on Bear Stearns Cos. to negative from stable, indicating a greater chance of a downgrade over the next two years, as it warned of problems that could hurt the firm’s performance ‘for an extended period.’ ‘Bear Stearns has material exposure to holdings of mortgages and mortgage-backed securities, the valuations of which remain under severe pressure,’ S&P said in a statement.”

“The cost to insure Bear’s debt with credit default swaps rose to around 163 basis points, or $163,000 per year for five years to insure $10 million in debt, from about 115 basis points at Thursday’s close.”

“‘We believe Bear Stearns’ reputation has suffered from the widely publicized problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses,’ S&P said.”

From CNBC. “Bear Stearns and several members of its senior management repeatedly misled investors in two sub-prime hedge funds to keep them from withdrawing money even as the funds were losing much of their value, according to an arbitration claim obtained exclusively by CNBC.”

“The investor, whose named is being withheld, allegedly lost $500,000 in the high-grade structured fund after listening to the advice of Cioffi, and his other Bear Stearns employees, during a series of conference calls that began in late 2006 through approximately June 2007, the claim says.”

“American Home Mortgage Investment Corp plans to close most operations on Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn.”

“American Home originated $59 billion in loans last year, and mostly to people with better credit than risky subprime borrowers. About half of those mortgages were adjustable-rate loans.”

“American Home this week said that its own lenders cut it off, it faced escalating margin calls, and might liquidate assets. It also said it stopped taking loan applications. American Home’s collapse shows how problems in the U.S. mortgage market are broadening.”

From Bloomberg. “Union Investment Asset Management Holding AG, Germany’s third-largest mutual fund manager, halted redemptions from a fund holding subprime mortgages after clients withdrew about 10 percent of the assets in the past month.”

“‘A lot of the subprime debt lies with European managers,” said Iain Beattie, a consultant at Watson Wyatt Worldwide Inc. in London who advises pension funds. ‘There could be more news to drip out on this.’”

“Union Investment has taken the steps ‘because of illiquidity in the market,’ spokesman Markus Temme said in a telephone interview today.”

From MarketWatch. “Accredited Home Lenders Holding Co. lost almost half its market value at one point on Thursday after the company warned that turmoil in the mortgage market could put it out of business.”

“A big chunk of Accredited’s revenue used to come from gains it made when it sold mortgages at a premium in whole loan transactions. However, there are fewer of those buyers now. HSBC bought 30% of Accredited’s mortgages in 2006, while CIT Group purchased more than 12%. But in April, HSBC stopped buying subprime loans and CIT stopped in July, Accredited said on Thursday.”

“‘We cannot assure you that we will continue to have any purchasers for our mortgage loans on terms and conditions that will be profitable,’ Accredited warned.”

“IndyMac Bancorp Inc. is joining rival lenders in making ‘very major changes’ to home-loan standards and charging higher rates because of a slump in mortgage securities, the company’s CEO said.”

“The market for mortgage bonds has become ‘very panicked and illiquid,’ CEO Michael Perry wrote in e-mail to employees. National City Corp. this week stopped buying second mortgages from other lenders and making some stated-income loans. Wachovia Corp., the fourth-biggest U.S. bank, decided to stop making Alt A mortgages through brokers.”

“‘Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so, our industry and IndyMac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself,’ Perry wrote.”

“The credit tightening by Pasadena, California-based IndyMac, the ninth largest U.S. mortgage lender, and competitors on loans considered less risky than so-called subprime, comes when it’s ‘difficult’ to trade even AAA-rated mortgage bonds that aren’t guaranteed by government-chartered Fannie Mae and Freddie Mac, or federal agency Ginnie Mae, Perry wrote.”

The Palm Beach Post. “First NLC Financial Services is laying off nearly half of its 1,340 employees nationwide, including more than a third of the headquarters staff of 323, in what company officials say is an attempt to turn around the money-losing business. Employees of the subprime lender were notified of the layoffs Wednesday.”

“‘The market conditions required we restructure and downsize,” said Bernard Beckerlegge, chief legal officer of First NLC Financial, referring to the upheaval in the sub-prime mortgage industry. ‘We all understand the conditions of the mortgage market,’ he said. ‘I can’t believe anyone was completely surprised.’”

“Friedman, Billings put First NLC Financial up for sale in March after the company incurred a net loss of $124.2 million in the first quarter of this year as the subprime market collapsed.”

The LA Times. “Giant title insurer First American Corp. posted a second-quarter loss Thursday because surging mortgage foreclosures indirectly increased the number of claims filed on policies sold by the company.”

“First American said its title claims jumped 62% in the first half of this year from the same period in 2006. Frank McMahon, the company’s chief financial officer, said he expected claims to climb even more in the second half of 2007.”

“‘Many of these claims are arising in connection with sub-prime loans, and it appears many of these claims involve fraud, forgery and other factors often seen where loans are made to borrowers in financial distress,’ CEO S. Parker Kennedy told investors and analysts.”

“Like lenders, title insurers were so busy during the boom that they weren’t as diligent as they should have been in examining records, said Gerald B. Glombicki, an analyst at Fitch Ratings, which rates insurers and corporate borrowers.”

“‘Those years in particular, First American and many others in the title industry weren’t doing their homework,’ he said.”

From MarketPlace. “Tom LaMalfa is an economist who advises mortgage companies.”

“LaMalfa: ‘I almost fell out of my chair when I was going through Countywide financial statements last week. Countrywide is one of the largest mortgage companies in America. Right now, almost one-quarter of its subprime loans are delinquent, and subprime lending represents almost half of Countrywide’s total business. To me, that’s shocking, we have never seen numbers like that.’”

“Countrywide’s credit default swap spreads widened by almost 100 basis points, reaching more than 300 basis points, or $300,000 per year for five years to insure $10 million in debt, from 215 basis points at Thursday’s close.”

The Wall Street Journal. “Jittery home-mortgage lenders are cutting off credit or raising interest rates for a growing portion of Americans, extending well beyond the market for subprime loans for people with the weakest credit records.”

“Lenders are tightening standards and ‘raising rates like crazy,’ said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week.”

“Tom Lamalfa, managing director of Wholesale Access, a mortgage-research firm in Columbia, Md., expects that half or more of the market for no- and low-documentation loans will disappear.”

“National City Corp., another large lender, said yesterday that it is suspending originations of stated-income loans. Wachovia Corp. said it had stopped making Alt-A loans through brokers. Wells Fargo told brokers this week that it was making ‘day-to-day’ decisions on the pricing and availability of Alt-A loans amid reduced investor demand.”

“This credit squeeze ‘will further crimp the effective demand for housing, and will make the late summer home-sales season even worse than the dismal spring season,’ said Thomas Lawler, a housing economist in Vienna, Va.”

“Lawler said he expects the credit squeeze will make ‘the late summer home-sales season even worse than the dismal spring season.’”

“The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ‘got a long way to go,’ said Jim Rogers.”

“‘This was one of the biggest bubbles we’ve ever had in credit,’ Rogers, chairman of New York-based Beeland Interests Inc., said.”

“‘This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,’ Rogers said. ‘So this bubble is the worst we’ve had in housing and it’s going to be the worst before its over cleaning it out.’”




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313 Comments »

Comment by ThomasPS
2007-08-03 09:47:37

“American Home Mortgage Investment Corp plans to close most operations on Friday and said nearly 7,000 employees will lose their jobs as the lender becomes one of the biggest casualties of the U.S. housing downturn.”

Flashback … pets dot com closed its doors and laid off 100 works..
Its seems the dot.coms laid off 100 or 200 employees each while the lenders and realtors are laying off in the thousands from each firm….seems the unemployment will be far deeper in the RE business.

Comment by dba
2007-08-03 09:50:17

dot coms didn’t have any employees because they were tiny. this is a 20 year old company

Comment by implosion
2007-08-03 13:53:53

This was a …

 
 
Comment by TimeTraveler
2007-08-03 09:56:30

My dog still chews on my authentic pets.com sock puppet. Shoulda kept it mint in its box.

Comment by polly
2007-08-03 13:30:31

The whole “collectibles” market is going to go south along with all the other luxury items in the near future. I’d say the pets.com sock puppet is worth much more making your dog happy than it would be anywhere else.

Comment by Wickedheart
2007-08-03 13:49:02

That’s what I keep telling the hubby. Slow down on buying the baseball cards, there should be some great deals soon.

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Comment by San Diego RE Bear
2007-08-03 20:06:29

Thank goodness I have my Beanie Babies to cover my retirement! :D

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Comment by Front Range Bob
2007-08-03 10:30:45

I’m not sweating any of this news, and neither should anyone here… The BLS’ birth/death model will show these layoffs to be the fallacy that they are, i.e., net layoffs cannot exist in the face of contradicting government numbers. Besides, CNN told me this morning that the Fed’s gonna lower rates, and they said lower rates are great for the market! It’s all good! ;-)

 
Comment by packman
2007-08-03 10:31:41

Very true. Though employees-wise the tech boom affected the networking companies far worse than the dot-coms. Nortel and Lucent for instance laid off about 70,000 employees each.

Comment by MacAttack
2007-08-03 11:24:47

My company in the fiber manufacturign biz grew from 70 employees in 1999 to 250 in 2001 to 30 toward the end of ‘01 - they’re still at 30. After layoff round 5, I figured I was next, so when a headhunter call came, off I went. You don’t get rich in accounting, but you can earn a living.

Comment by Inland Empire
2007-08-03 12:18:58

Amen! That’s what I tell my wife all the time. If she wanted to marry someone who makes a lot of money, she should find a salesman in a tech company.

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Comment by salinasron
2007-08-03 10:33:50

How many ancillary jobs are these 7000 employees supporting? One thing for sure this is not a linear loss in the job market going forward.

Comment by spike66
2007-08-03 11:06:17

AHM had been one of the largest employers on Long Island.

Comment by chicken little CT
2007-08-03 11:53:03

They also had offices in Westchester & Rockland Counties in NY

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Comment by SoBay
2007-08-03 11:33:03

I think there were two pyramids;
1- Housing
2 - Residual Employment (which I consider way, way under reported, especially in So Cal)

 
Comment by CA Guy
2007-08-03 12:37:48

“How many ancillary jobs are these 7000 employees supporting?”

Ron, is the $64,000 question and one I often pose to friends and family. Unfortunately, that is the type of thinking most people cannot or will not do. It is the trickle down effect, and the economy is going to suffer big time.

Comment by spike66
2007-08-03 15:56:40

Actually, it’s all good. The 3 network news shows did a lot on the bridge collapse, but the Sect’y of Transportation said all the bridges are fine, no worries. Now the congressman in charge of Transportation, from MN no less, wants 250b+ to repair the bridges the Bush admin Sect’y says are just fine.
Round up those Mexican labor gangs–there’s bridge repair work in their future.

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Comment by GH
2007-08-03 10:56:43

WOW, I thought it was different this time, because we did not have the early 90’s job losses. How obvious is it that the vast sums of monies generated in real estate related transactions over the past few years have kept the whole economy afloat.
the accurate term for what we see happening now is the domino effect, or more accurately, a cascade avalanche, in that each event triggers multiple secondary events and so on … I am unsure in an economy the size of the United States how long it would take once it all goes critical, but historically, economies collapse like unmaintained bridges once they go. Speaking of unmaintained infrastructure, can this not be considered a form of national debt? Now where do we stand?

Comment by Chad
2007-08-03 11:17:15

“economies collapse like unmaintained bridges once they go.”

Too soon, dude. :(

Comment by Red PIll
2007-08-03 12:14:06

Not at all too soon. We need to have hard discussions in this country. We are the-don’t-fix-it-until-it-collapses culture. Sacrifice now? Think ahead? No way!

The bridge collapse is a perfect metaphor.

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Comment by CarrieAnn
2007-08-03 12:48:36

All our surplus went into pork barrel spending and still does while our infrastucture has been left to decline. In the future, when something does fail they’ll be few resources to replace it with. Not good.

 
Comment by polly
2007-08-03 13:32:53

Now that Ted Stevens is under investigation, maybe they can cancel that bridge to nowhere and use at least that much money to save a few bridges that are actually used to move people to jobs and goods to market.

 
Comment by Carlsbad Renter
2007-08-03 14:00:41

The “bridge to nowhere” was cancelled years ago. The money allotted went to the Alaskan DOT for uses they deemed fit.

Stevens needed to go a long time ago.

 
Comment by Hold Out in LA
2007-08-03 16:47:15

The Twins Stadium that was supposed to have a Grand Opening, postponed by the tragedy, cost around 1 billion. That is what wrong with this country. Wrong priorities.

 
Comment by MaryLee
2007-08-03 19:00:39

truer words…

 
 
 
Comment by HARM
2007-08-03 12:04:36

Yes, in CA in the early 1990s, the aerospace layoffs were primarily what triggered the recession and led to the end of that housing boom. This time its the other way around –sheer debt/price exhaustion has consumed a large chunk of future housing demand, while creating a huge overhang of unsold, unoccupied inventory for many years to come.

This time the cart is leading the horse.

Comment by ThomasPS
2007-08-03 13:09:59

In SoCal the aerospace layoffs yes, I agree 100%.
However in my region of NorCal it was different. Prices for tech products declined, and could not support high cost labor in PC and Semiconductor business. Also we had intense competition form Japan in Tech industry. They cut prices and we went bust. The same is true even today. Not much has changed expect now the competition is in cheap (cost of living ) and more pro business states. Other states like to woe California business with tax breaks and cheap labor.

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Comment by sparkylab
2007-08-03 12:18:21

Yeah. That analogy is a little close to the bone. :(

Comment by joe shmoe
2007-08-03 13:07:44

As an analogy, metaphorically comparing the credit collapse to the bridge collapse sounds inappropriate.

But let’s shift from analogy to analysis.

40% of home loans (sub-prime and alt-A) the past couple of years have been funny paper, and 50% of bridges in the country are classed as “structurally deficient” by the US Dept of Transportation. This is what you get when Govt regulation and sensible public investment are trimmed and cut and undermined on the theories of supply side economics and endless tax cuts and unbridled free market theory.

Yes, every individual liar who took a liar’s loan is responsible for their bad judgment, but collectively this becomes a social problem, and tanking economy will hurt us all. Regulating credit and financial markets is a public problem that requires government involvement. History since the 18th century shows this again and again.

Likewise, infrastructure - bridges, roads, education, human capital, health care - are also public needs, requiring public action. Katrina showed this, now the bridge in Minnesota.

The free market does not fix everything. Government waste is not the only important issue.

Joe

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Comment by Deron
2007-08-03 14:09:10

Joe
Infrastructure is almost entirely a state and local responsibility. The major exception is the interstate highway system which is shared Federal and state. The correlation between federal tax cuts and infrastructure spending is essentially zero.

If you’re looking for an actual reason rather than a scapegoat, check the payrolls of state and local governments over the last 30-40 years. Government featherbedding and vote-buying schemes have consumed too much of the tax revenue, leaving little left for essential services. Take any state budget and compare the breakdown of spending to what it was in decades past. The problem will jump out at you immediately.

 
Comment by Steve in Flyover Land
2007-08-03 15:35:41

The evidence that supply-side economics works is irrefutable. All it’s supporters claimed is that it would increase goverment revenues, which it has every time it’s been tried.

Local and state governments have had windfall revenues (especially with inflated real estate valuations) for years. The problem is not in how the money is collected, it’s in how it’s spent; the free market has little influence on how Government spends it’s money.

No company could allow it’s infrastructure to deteriorate, put it’s customers at risk and expect to stay in business; only a government could fail it’s customers so completely and still expect to survive.

 
Comment by spike66
2007-08-03 16:01:04

Bridges are just today’s news–remember the blackout in the northeast a few summers ago when the aging grid just blew out…with no effort to upgrade has been made despite all the handwringing at the time. Wait for the next disaster, and all thoughts of bridges will disappear as well.

 
Comment by CA renter
2007-08-04 04:33:08

Excellent post, Joe!!!

 
 
Comment by GH
2007-08-03 14:25:06

No disrespect was intended to those who lost their lives, rather it demonstrates the depth of decay in our country today. I pass over a bridge along the 101, just south of Del Mar in SD County. Bits of concrete routinely fall off of it to the ground below and the visible steel is all rusted … It is rated as one of the structurally unsound bridges in our area, yet no funds are available to fix it.

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Comment by dba
2007-08-03 09:49:14

“‘A lot of the subprime debt lies with European managers,” said Iain Beattie, a consultant at Watson Wyatt Worldwide Inc. in London who advises pension funds. ‘There could be more news to drip out on this.’”

maybe this is why Barclays is trying to buy ABN Amro? Maybe Barclays has this junk debt and they need a nice plus on their balance sheet before it blows up?

 
Comment by lainvestorgirl
2007-08-03 09:49:51

“‘This was one of the biggest bubbles we’ve ever had in credit,’ Rogers, chairman of New York-based Beeland Interests Inc., said.”

Do all of these financial people share a brain or something? It is really bizaare the way they all choose to notice this all at once, as if there were no signs this was going on prior to July 2007. Meanwhile, laymen like those on this board could see this coming?

Comment by Ben Jones
2007-08-03 09:53:03

Actually, Mr Rogers did a brief email Q&A with me that I posted on back in the spring of 2005, where he came straight out and called it a bubble. I’ll try to dig it up and post a link here.

Comment by wmbz
2007-08-03 09:57:58

Yep, I remember reading that. Jim Rogers has been calling this exactly what it is for a long time now.

Comment by Bill
2007-08-03 11:01:43

Rogers has been short builders and brokers for a long time.

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Comment by Northeastener
2007-08-03 11:58:40

Not only that, but I read recently that Jim Rogers put his money where his mouth is and sold his US residence and moved to Asia…

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Comment by travanx
2007-08-03 12:30:42

I did something similiar. I kept telling everyone how to be careful on buying a place right now and kind of spread your money around. Well I ended up taking half of my downpayment money and putting it into SRS. Moved my mutual funds in my different IRAs into SRS. Been very happy with that and will watch the housing prices come down and hopefully be able to have a larger downpayment when I can finally afford to buy. I said it before, when I make a certain amount I will donate a little to the site. =)

 
 
 
Comment by lainvestorgirl
2007-08-03 09:59:01

Okay, he gets credit for that (if that’s the same Jim Rogers that Neil Cavuto is always interviewing, he’s actually quite intelligent), but I’m talking about all the hundreds if not thousands of financial experts that are suddenly coming on CNBC and other news stations, and quoted by Ben, who are just now noticing the problem. It’s just weird that it wasn’t obvious before now, unless of course they chose to ignore it because they were too busy cashing in on it at the time, of course.

Comment by sleepless_near_seattle
2007-08-03 10:07:31

Well, its akin to rats jumpin’ off the sinkin’ ship at this point, no? Look at all the politicians backing off the war. A year from now they’ll all be saying “I told you, I told you.”

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Comment by arroyogrande
2007-08-03 10:27:34

Truly I believe that they all believed the “it’s the economy, stupid” argument…Goldilocks economy plus low unemployment equals no problem for the housing (and by extension) mortgage markets.

Going back to my “grey pigeon” vs. “black swan” theory of history…

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Comment by SunsetBeachGuy
2007-08-03 12:00:40

I think it is more of a brown trout theory.

 
Comment by ET-chicago
2007-08-03 12:28:03

Going back to my “grey pigeon” vs. “black swan” theory of history…

care to explain that in brief?

it has a nice ring to it.

 
Comment by arroyogrande
2007-08-03 13:01:31

“grey pigeon…care to explain that in brief?”

http://thehousingbubbleblog.com/?p=3171

First post in that section…

 
Comment by ET-chicago
2007-08-03 13:36:20

thanks.

that clarifies things.

 
 
Comment by Housing Wizard
2007-08-03 10:38:13

I have notice the very thing your talking about lainvestorgirl.
My take is that they knew and they were cashing in .So much for objective business reports by the talking heads for most part .

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Comment by spike66
2007-08-03 11:11:18

“Tom LaMalfa is an economist who advises mortgage companies.”
“LaMalfa: ‘I almost fell out of my chair when I was going through Countywide financial statements last week… To me, that’s shocking, we have never seen numbers like that.’”

Whatever they paid this guy LaMalfa, they should sue to get it back–he’s clearly incompetent. Where’s anycdj–here’s a job opportunity–print out your posts to this board, and send them to whoever’s been paying this clown–you have more advisory expertise than this fool.

 
 
Comment by madisonian
2007-08-03 11:03:39

I think you just answered your own question.

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Comment by vannuysrenter
2007-08-03 11:33:58

their is a giraffe interviewing people with bad skin now on CNBC

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Comment by rms
2007-08-03 11:41:43

“It’s just weird that it wasn’t obvious before now, unless of course they chose to ignore it because they were too busy cashing in on it at the time, of course.”

When the Titanic began to list it was time to lock the steerage passengers within the holds so the “tall hats” and ladies could make their way to the life boats. It’s like Bear Stearns shutting down “investor redemptions” so that the dignitaries have adequate time to participate in after hours trading, first.

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Comment by eaton98
2007-08-03 11:41:58

I don’t have the dedication that Ben has and I don’t click through and read every article he posts, just the highlights. So I wonder if it has just been Ben’s preference lately, or if things have changed that much.

I’ve only been visiting here for about six months now, but when I started I saw a lot of quotes from realtors remarking that asking lower prices were an insult to sellers, now most of what I see is realtors remarking that sellers need to accept the offers made.

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Comment by ThomasPS
2007-08-03 13:13:29

“who are just now noticing the problem”

Your damn right! Saw some guy on Bloomberg give a 5 minute summary on what we been saying for years.

LOL! I guess they must have been reading Bens Blog and our comments all this time. Hot damn ! We beat the experts to the punch!

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Comment by watcher
2007-08-03 11:06:04

Jim Rogers and Marc Faber have been right about the bubble, and many other things, for years. I have made money listening to them.

 
 
Comment by Dennis
2007-08-03 10:35:12

Just goes to show you about people. Almost all are SHEEPOLE! even the financial people are afraid to call reality when they see it. The markets will head SOUTH like migrating birds. Look up,Look at, Look DOWN!!!!

 
 
Comment by tim916
2007-08-03 09:51:22

Today is the first day that I am actually fearful of what is going to unfold over the next few years. Housing is going to be absolutely crushed like has never been seen. We will all be reminded of why homes used to be purchased with a 20% down payment and a 30-year fixed loan. I also don’t see how Ford and GM will both be able to weather this housing crisis. One of the two has to go. We could probably do with a couple less airlines as well.

Comment by GetStucco
2007-08-03 09:57:22

I guess you don’t have much faith in Fannie Mae’s and Freddie Mac’s last ditch efforts to ride to subprime’s rescue, then?

Comment by tim916
2007-08-03 10:53:42

Deck chairs + Titanic

Comment by spike66
2007-08-03 11:12:45

At the end, even the deck chairs were in short supply.

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Comment by sleepless_near_seattle
2007-08-03 10:12:15

I vote for Ford.

My fear meter has been moving up faster in the last month. I’ve been wanting to move some money into foreign currency and PMs and am making plans to do so. I’m in the “housing deflation, general economy inflation” camp.

I also plan to start throwing out some serious lowballs, with the intent of being rejected. That way, 6 months from now, I can lowball even further with the intent of actually buying something.

Comment by steve
2007-08-03 10:23:43

Don’t lowball….the only thing working is return on investment. If rent doesn’t pay for a high priced mortgage payment and operational costs, and doesn’t earn a LARGE return on your downpayment, it isn’t worth the time.

Comment by jungle_man
2007-08-03 10:37:37

houses are not investments, they are places to live.

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Comment by manraygun
2007-08-03 11:32:11

houses are not investments, they are places to go bankrupt.

 
Comment by Drowning Pool
2007-08-03 12:05:04

Houses are places to eat ramen noodles before barfing them up on the floor realizing you STILL won’t be able to make that next exploding-arm payment.

Let the bodies hit the floor…….

 
Comment by Northeastener
2007-08-03 12:06:57

Let’s be clear on this, Single Family Houses (SFH’s) are not investments, if they are a primary residences. Multifamily property is an investment, and like any investment, requires certain due dilligence, proper market timing, and management to be profitable.

Lastly, hoping for asset appreciation to make your “investment” pencil out is not an investment strategy, rather it’s alot like gambling…

 
Comment by Rental Watch
2007-08-03 12:56:18

Well said Northeasterner.

When it comes to real estate investing, cash flow is king. Appreciation is a bonus.

 
 
Comment by sleepless_near_seattle
2007-08-03 10:49:00

That’s why I have to lowball. Nothing has penciled for 5 years in Portland unless you want a 26-plex (slight exaggeration).

But, if you’re not willing to get out there and engage the “enemy” you’ll never get what you’re looking for.

I look at it as my duty to set the expectation for where prices should be. Until sellers realize what reasonable people with reasonable salaries can pay and get financed, they’ll continue to chase high prices.

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Comment by phillygal
2007-08-03 11:43:25

The only problem is, they will see your lowball offers as unreasonable. Have you ever seen the CL ads where sellers write:
“All reasonable offers entertained”?

 
Comment by WAman
2007-08-03 11:45:49

Why lowball when prices are going to be 30-50% lower by 2010? If you offered anyone 30-50% off of the price of their house this weekend they would either laugh at you or get very upset with you and maybe punch you out!

 
Comment by travanx
2007-08-03 12:38:14

I was actually thinking about going around offering 1/4 of some the listings. That is still more than what the places around where I live went up in the last 4-5 years. Amazing huh. This is Glendale, CA which was listed with number 5 of LA and Long Beach for most bubble places on MSN a few weeks ago.

A condo I was trying to offer $320k on 5 months ago (short sale at $370k, owner owed over $400k from HELOC and mortgage) guess didnt sell in the short sale and is now back on the MLS as a REO for $350k. Seems cheaper to sell to me instead of letting it sit there. Oh well now I am waiting for a decent sized house in my same price range. =)

 
Comment by sleepless_near_seattle
2007-08-03 13:13:01

Like I said, you never know if you don’t try.

I’m not going after people who bought in the last 5 years. I’m also not going after people whose houses are even on the market.

 
 
Comment by RenoDino
2007-08-04 12:24:58

There were several pundits predicting the sub prime debacle long before it hit. John Mauldin to name one.

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Comment by tbgpalisades
2007-08-03 10:43:13

The time to move into foreign currencies was 4 - 5 years ago. Robert Rubin told us that 6 or 7 years ago. “The dollar will never go back up”

Comment by BubbleViewer
2007-08-03 11:02:56

Sure 4-5 years ago would have been better, but better late than never. The dollar still has at least 40-50% farther to fall on the $USD index. Why do you think now is too late?

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Comment by watcher
2007-08-03 11:08:25

Dollar index now 80.15. It’s never a bad time to get off the Titanic (USD) before she sets sail below 80.

 
Comment by sleepless_near_seattle
2007-08-03 11:19:25

I asked this question over at bits bucket (thanks to those who responded there), but since it’s come up here are there baskets of currencies that people have bought?

I’ve been looking at Merkx (mutual fund of currencies) and Everbank’s currency CD’s. Anybody own these? Are there other ways to buy a basket of currencies that you would recommend? Thanks.

(I’m also looking at the Rogers commodity index.)

 
Comment by Grant
2007-08-03 11:25:57

I own an Austrailian dollar Everbank CD. It’s done quite well this year. Pretty much anything along the lines of NZ, Aus, Can (or any resource-rich countries) might be good choices. I would stay away from yen because the Japanese central bank is more corrupt than the U.S.

 
Comment by watcher
2007-08-03 11:28:06

Why try to pick the least worst fiat currency? Gold is the only real store of value.

 
Comment by WAman
2007-08-03 11:48:31

When deflation hits I will trade your gold for a fresh quarter of beef and some rice.

 
Comment by sleepless_near_seattle
2007-08-03 11:54:34

I have some funds set aside for gold and other PMs as well.

 
Comment by WAman
2007-08-03 11:59:41

Sounds good I live in the Yakima valley where I farm - so keep me in mind and I will continue to offer you the food you need for your Gold. I prefer Eagles, but I am not too picky.

 
Comment by watcher
2007-08-03 12:12:21

Even with inflation raging the deflationists’ cry ‘wait till next year’ rings out.

 
Comment by Chad
2007-08-03 12:13:15

“Gold is the only real store of value. ”

Agree 100% ;)

 
Comment by sparkylab
2007-08-03 12:29:19

Not an expert by any means on PMs, but I have a feeling that there are a lot of people speculating in the Gold market (at least a lot more than there were). I think, if there is some sort of bigger sell off (5-10+%), Gold will go down with everything else in an immediate rush for liquidity. The crucial difference being that, on the other side - Gold is going to be one of the only things to do well (or a least weather the storm).

On the currency question I have mostly been in Euros and Sterling for the last 8-10 months. Have done OK when you add in the interest (currently 6% for my sterling).

 
Comment by joeyinCalif
2007-08-03 13:00:12

when things get bad, i’d much rather have 2 pounds of Glock than two pounds of gold.

 
Comment by exile
2007-08-03 17:03:54

Gold is going to be one of the only things to do well (or a least weather the storm)

Do you remember what Roosevelt did with gold in 1929 ?

 
Comment by Hold Out in LA
2007-08-03 17:12:10

All those high wealth investors that will soon find all of there investments frozen by their brokers will have to sell out of their gold posistions to fix all the other imploding problems and cover the car payment. When the liquidity crunch is petered out, jump in and ride it to the top.

 
Comment by bill in Phoenix
2007-08-03 21:33:11

If you’ve been buying gold and other PMs over the years, as well as government securities, you will be fine in inflation and deflation. Some of you posters literally think there will be blood in the streets. I doubt that. In the next ten years most of you will still earn a living doing what you are doing. Spend little and save much in complementary investments.

 
 
Comment by Roanoke_Steve
2007-08-03 11:44:48

Well then, get out of USD or be priced out forever!!!

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Comment by Roanoke_Steve
2007-08-03 11:45:14

Well then, get out of USD now or be priced out forever!!!

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Comment by Arizona Slim
2007-08-03 10:14:46

In the automotive realm, my bet’s on Ford going 404. As for airlines, I think US Airways will be history. Possibly Northwest (unless it can find a merger partner like the rebounding Delta) as well.

Comment by arroyogrande
2007-08-03 10:31:05

“going 404″

LOL. Is that now part of the American lexicon? Geekspeak rules!

Comment by MacAttack
2007-08-03 11:26:39

And are you 420 friendly?

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Comment by Brian
2007-08-03 12:33:40

This post just cost me $15. I had to find a “404″ shirt.

http://store.northshoreshirts.com/404notfot.html

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Comment by CincyDad
2007-08-03 10:18:58

I remember the moment a couple of weeks ago when I was reading this blog at work shortly after lunch. I suddently had the conclussion that 8 years of Stagflation are ahead of us. Although I’ve shared the view of most on this blog that housing will lead to a recession, the sudden vission was no less depressing. I got up from my desk, went outside, and took a long walk before settling back into my work day.

Comment by AmazingRuss
2007-08-03 11:46:06

They’ll be calling her “Hillary Carter”, just you watch.

 
 
Comment by Fuzzy Bear
2007-08-03 10:31:43

Housing is going to be absolutely crushed like has never been seen.

This has been seen in the past. If you look up the 1925/1926 Housing crash in Florida, it was actually worse than this mess.

Comment by WAman
2007-08-03 11:50:56

Fuzzy Bear - You think that this is the mess? Wait a few more months. October is going to real interesting for quite a few reasons.

Comment by Bill in Carolina
2007-08-03 12:09:20

Oh stop with the, “wait a few more months.” Posters have been saying that here for WELL over a year now. There will be no sudden crash, just a slow, continuous drop.

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Comment by CarrieAnn
2007-08-03 13:00:48

Now that’s it’s getting messy I don’t know that I want to watch a sudden crash. Thanks to the blog I’ve been expecting it but I’m still surprised by how horrible I’m starting to feel.

 
Comment by joeyinCalif
2007-08-03 13:05:57

“..just a slow, continuous drop. ”

agreed.. everything about real estate is slow as molasses compared to other markets.

 
Comment by cfoofmofo
2007-08-03 13:20:44

“Oh stop with the, “wait a few more months.” Posters have been saying that here for WELL over a year now. There will be no sudden crash, just a slow, continuous drop.”

OK, “just wait a few more months and the market will be lower,” is that better?

 
 
 
 
Comment by VT_Dan
2007-08-03 10:32:09

With things getting this bad all restaurants will be hurting as people need to eat at home more. This will cause large numbers of layoffs in the minimum wage jobs. Cable/Satalite TV and cell phone providers will start to lose customers by the millions. I cannot fathom how low things will have to go in order to find equilibrium.

There will be a demand for basic food, shelter and clothing and not much else. We keep talking about how the housing bubble is not “contained”, but have we really considered how “uncontained” it will be.

I want to know what the floor to this entire mess is? How many dominoes have to fall before we can start setting them back up again?

I keep hearing about areas that have been built up with money “imported” from other areas. Where are the local jobs? How many of our towns can support their own economy with local production and exportation of goods and services?

Where does it stop and why?

Comment by Arizona Slim
2007-08-03 10:49:55

Restaurants and retail have been hurting in Arizona for about a year now.

Comment by bill in Phoenix
2007-08-03 21:37:43

I plan to frequent this place a couple of times a month. Would do more, but I’m a vegan 6 days per week:

http://www.heartattackgrill.com/

Had a double bypass today. The scenery while eating was incredible.

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Comment by Fuzzy Bear
2007-08-03 11:03:48

Where does it stop and why?

The buck stops at the consumer. The consumer controls 3/4 of the economy and therefore can be the driver to put a stop to this mess. The problem is big business and Wallstreet know that people are sheeple. They also know that the majority of the consumers fall for their spin tatics. Unfortunatly, the only way to send a loud and clear message to Wallstreet, big business and the politicians is through a consumer lead downturn in the economy and pulling your money and investments from the corrupt Wallstreet banks. The downside is many people will lose their jobs and could drag the economy down further. Right now big business, Wallstreet and the politicians want employment kept high because they know what the negative impact would mean to their bottom line and image.

Comment by SoBay
2007-08-03 11:39:03

‘The buck stops at the consumer.’

- Agreed.
When Juan Sixpack runs out of dough, the end is upon us. The media will no longer be able to swallow all of Wall Streets hyperbole.

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Comment by rms
2007-08-03 11:52:08

“When Juan Sixpack runs out of dough, the end is upon us.”

The average family is already out of dough; witness the negative family savings rate. With expenses for housing, transportation, healthcare and education all increasing at rates above 10% annually while inflation adjusted incomes are flat the time to pay the piper is rapidly approaching, IMHO.

 
Comment by sparkylab
2007-08-03 13:12:22

RMS has it right. Only thing I would add is the level of home equity ‘gasoline’ that was poured on the consumer fire. People were buying crap that they never could have really even come close to affording (boats, jetskis, etc) AND continuing to spend all of their income at the mall.

IMHO the drop off in consumer spending from those levels is going to be stupendous.

 
Comment by exile
2007-08-03 17:18:44

” the drop off in consumer spending from those levels is going to be stupendous.”
And it will sink global economy, at least large part of it.

 
 
Comment by VT_Dan
2007-08-03 11:43:29

I agree, the consumer is the key. The problem I see is that the consumer has been set up and had the rug pulled out from under them.

The consumer depends upon the economy for work so that they can spend. Once consumers can no longer spend profits fall, jobs are cut, more consumers cannot spend, more jobs are cut…

I guess I am looking for some fundamental measures that are outside of this cycle. Like with housing we look at the jobs and local rents to determine how far prices will fall (we don’t look at other houses on the market)

Ultimately someone has to produce something people need. This person will “always” have a job and will “always” have money to spend. Only when consumer spending falls back to levels supported by the real producers will we be able to start growing again.

I am constantly looking at employment options and I have noticed the following categories:

1) Government Funded Jobs (School/Research&Grants/Defense)
2) Service Jobs (Food/Retail)
3) Construction (Electric/Plumbing/…)
4) Financial Jobs (Banks/Brokers/Real Estate)
5) Marketing/Advertising
6) Entertainment
7) Farming

With 50% of our GDP being driven by government spending I can only imagine that that number will grow.

Many towns, like mine, are dependent upon government funding of Virginia Tech and Research Grants given to small businesses. Without that funding almost everything else dries up except for the local farming / mining.

At what point will college towns take a hit as enrollment drops because parents no longer have the money to pay for their kids and credit is so tight they cannot get loans?

I may have a bit too much of doom and gloom, but I am only looking for the foundation of our economy and haven’t really found one yet.

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Comment by phillygal
2007-08-03 11:47:14

Cable/Satalite TV and cell phone providers will start to lose customers by the millions.

Ain’t gonna happen.

My tenants, most in low-rent areas, had cable TV and cell phones long before I did. I think folks will go without food before they give up their MTV or wrestling or Animal Channel.

Comment by Vermonter
2007-08-03 12:08:56

I have to agree with phillygal. Cell phone service and cable/satellite TV seem to fall in the category of “need” for most people.

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Comment by phillygal
2007-08-03 12:11:57

I think it’s even gone past the “need” category. There’s probably a fair amt. of peeps out there that believe they are entitled to those amenities.

 
Comment by VT_Dan
2007-08-03 12:15:59

Yeah… my mother-in-law works for social services and sees people that cannot afford food for their children spending money on cell phones and cable.

For me, broadcast HD TV is more than enough to get by and I save $100/month.

The question is, how will the middle-class-made-poor respond to tough times? I would think(would hope) that they would have a little more sense than the generational poor and make smarter judgement calls.

 
Comment by SoBay
2007-08-03 12:23:01

TOTALLY AGREE! I have seen folks that look like hobo’s yammering on their cell phone.

 
Comment by Chad
2007-08-03 12:31:36

OMG, from my perspective, that is hard to believe. We cancelled our cable (’cause we hardly ever watch TV anyway), and I want to get rid of my cell phone (I hate this $%*&*#@ thing!). I guess it depends on how bad it’ll get. If they can’t eat, they die. A dead customer is not a paying customer.

 
 
Comment by Northeastener
2007-08-03 12:15:30

Haha, don’t forget beer and cigs phillygal. Always wondered how my tenants could sit there and tell me they were going to be late with my rent, and yet they always had money for smokes…

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Comment by Chad
2007-08-03 12:32:58

“Always wondered how my tenants could sit there and tell me they were going to be late with my rent, and yet they always had money for smokes… ”

They are not addicted to paying you. :)

 
Comment by phillygal
2007-08-03 12:53:15

A cold one trumps landlord (or lady) any day of the week…

Now that I’m older and mellower I sometimes think that my career tenants had the right idea…let someone else own the house and have all the headaches.

Just give me 1 bourbon, 1 scotch and 1 beer… :-)

 
Comment by combotechie
2007-08-03 18:38:29

The cell phone, cable, smokes, etc being cut off is an immediate happening for these folks, an event. Eviction from a rental is a process.

An annoying event has priority over an annoying process. The event causes immediate discomfort; the process will cause discomfort somewhere in the the future.

These people live for the moment. They respond only what is happening to them during that moment. Any problem beyond that moment is dismissed from their mind.

IMHO.

 
Comment by bill in Phoenix
2007-08-03 22:10:28

Beer? Cigs? Diageo and Altria (DEO, MO). They pay dividends. Also, rather than traveling, people will go to movies more. Dump airline stocks and buy DIS perhaps?

 
 
Comment by diemos
2007-08-03 12:15:43

Cable TV will be provided free by the government as a basic necessity. Gotta keep the masses anesthetized.

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Comment by VT_Dan
2007-08-03 12:17:47

God forbid they stop watching propaganda and start thinking for themselves!

 
Comment by Chad
2007-08-03 12:33:59

LOL

 
 
Comment by Bill in Carolina
2007-08-03 12:21:22

I also agree. Cable providers may see users turn in their cable boxes and just go with the “expanded basic.” I think there will be a rather large migration from expensive, “almost unlimited” cell phone plans to prepaid cell use. We still pay just $15 a month plus sales tax (no other add-on charges) for each of our two prepay cell phones. That’s for 150 minutes each, and the unused ones roll over.

BTW, all you recent HDTV purchasers: I found that we can receive the local HD channels on our cable system without a cable box or “cable card.” Just a plain old coaxial cable connection to the TV. Watching sporting events in HD is great, and I can’t wait for football season. If you haven’t ordered the HD cable box yet, let your HDTV do a “channel search” and I bet it’ll find those channels as well.

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Comment by oc-ed
2007-08-03 19:29:00

I agree, just spent time driving around a lot of Pittsburgh showing my son where the steel mills used to be. I noted that even the most run down houses had dishes hanging off of the outside walls. DTV and probably cell phones may have moved into the “need” category. Cell phone providers may find themselves in a price war at some point to retain subscribers. I recall hearing that Pac Tel Cellular in the early 90’s spent over 50% on acquiring customers - subsidies, etc. So I imagine there is some room for lower prices if it comes to that. Plus, a lot of people are dropping the land lines and use cellular as their only phones now. At some point if there are job losses the money for even these “needs” disappears, but based on what I saw in PGH at least satellite TV is well entrenched even at the lower economic levels.

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Comment by CarrieAnn
2007-08-03 13:07:07

I’ve been wondering about cell phones. Do you really think they’ll get dumped? Or will the masses not paying their bills prefer their cell phones while dropping those address identifying land lines.

Comment by Chad
2007-08-03 14:37:07

Just a few years ago they used to say, “No phone, no loan”. LOL, I KNOW that’s not the case anymore.

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Comment by Hold Out in LA
2007-08-03 17:20:47

Retail Big Boxes will start shuttering newer stores not far from older established ones. The little shops left behind will turn into tumblweeds. The HomeATM was the only reason why so many malls exist.
I think you are wrong about cableTV/Sattlelite, they will thrive because all these poor J6P have left to do is sit in front of the TV and eat frozen dinners.

 
 
Comment by lavi d
2007-08-03 12:24:47

Today is the first day that I am actually fearful of what is going to unfold over the next few years.

Houses are going to get cheaper, people will be able to afford them. Manufactured goods and fuel will get more expensive, meaning it will be more cost-effective to produce them locally rather than ship them long distances, lower trade deficit, lower energy costs.

Everything’s going to be fine…

Right?

Comment by joeyinCalif
2007-08-03 13:14:06

i can see that..
China and India and other mfg. slave economies tank .. small and maybe large manufacturing returns home to provide goods and much needed employment.

might wanna short environmental-related concerns.

 
Comment by CarrieAnn
2007-08-03 13:18:52

“Houses are going to get cheaper, people will be able to afford them.”

Although I totally agree with that 1st point, I’m not 100% convinced that the 2nd point will go with it. For that to happen everyone’s job and pay situation would have to stay static and as we saw today, that’s not a done deal.

Comment by MaryLee
2007-08-03 19:45:23

Not only not a done deal, but if unemployment devolves seriously, wages will fall as the competition for what jobs exist rises….

I’m vacillating about the future price of oil, given the realities of peak oil (available supply/demand) vs a precipitous drop in demand in the U.S…… Going to be interesting…..

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Comment by rms
2007-08-03 19:29:46

“Manufactured goods and fuel will get more expensive, meaning it will be more cost-effective to produce them locally…”

When your wages drop 90% then you’ll be competitive again. :)

 
Comment by AKRon
2007-08-04 00:29:28

“Today is the first day that I am actually fearful of what is going to unfold over the next few years.”

Politically, there is an infinite difference between a country where most people realize they will never get rich vs a country where most of the people can still dream of wealth. In the former, the temptation to kick the rich’s butts is ever present. One of the effects of the housing bubble was that most of the people looked at their house ‘values’ and thought “wow. we are becoming rich.” Ergo, they sympathized with the rich. Maybe the powers that be want lots of immigration so that J6P can look at the immigrants and think “I’m well off— compared to THEM”…

 
 
Comment by Houstonstan
2007-08-03 13:14:38

Tim : it scared the crap out me a few years ago when it clicked what would happen. It upset me no end.

I’ve now accepted it and swim with it.

I see plenty of investing opportunities on the down side. For example today, I bought some long term puts on Black and Decker.

 
Comment by Deron
2007-08-03 14:17:43

Yes Sleepless. I guess folks will stop laughing at their grandparents’ fear of debt and dedication to savings. Every generation seems to be incapable of learning from the mistakes of others.

 
 
Comment by wmbz
2007-08-03 09:55:17

“Bear Stearns and several members of its senior management repeatedly misled investors in two sub-prime hedge funds to keep them from withdrawing money even as the funds were losing much of their value”

What? You mean that Wall St. hucksters would “mislead” someone to fatten their wallets? What is the world coming to, next thing you know we’ll find out that politicians lie.

Comment by qt
2007-08-03 10:00:51

NOOOOOOOOOOOOOOOOOOOOOOOOO!!!!! You LIE!

Comment by LA-Architect
2007-08-03 10:20:10

A suit and broker’s license is the only thing separating these brokers from the hustlers on the street.

Comment by txchick57
2007-08-03 10:37:03

I hope they didn’t buy anything with those bonuses from last year because they might be giving some or all of it back.

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Comment by tg
2007-08-03 21:24:43

hey you called this selloff a couple weeks back.

 
 
Comment by SimpleSimon
2007-08-03 11:43:07

It’s so important to be able to distinquish between people who make a living OFF the market vs. those who make theirs IN the market. Big difference.

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Comment by Northeastener
2007-08-03 12:22:17

Anyone here every see the movie Boiler Room with Giovanni Ribisi? One of my favorites next to Wall Street. Best quote from the movie was in the intro: “I picked the white boy’s way of slinging crack… I became a stock broker” or something like to that effect.

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Comment by Chad
2007-08-03 12:40:43

“There’s no honor in getting that after school job a Mickey D’s. Nobody wants to work for it anymore. Honor’s in the dollar kid. Notorious BIG said it best, ‘Either ya slingin crack rock, or ya got a wicked jump shot.’ So I went the white boy way of slingin crack rock. I became a stock broker.”

Can’t count how many times I saw that. Sold it on Amazon. . . was it to YOU, Northeasterner??? :)

 
Comment by travanx
2007-08-03 12:57:27

I could never really wrap my head around the fact that I assumed Boiler Room was based on something that is or could be real. Then I started reading books about financing in the 80’s. Just amazing.

 
Comment by FINRA
2007-08-04 09:21:45

Boiler Room is a true-ish story. I work for FINRA (nee NASD) and know one of the examiners who busted them.

 
 
 
Comment by Drowning Pool
2007-08-03 12:12:33

You lie like a rug.

 
 
Comment by Ken Best
2007-08-03 19:56:22

Seen on BSC board:

2006 Bonuses
Ranking Goldman Morgan Stanley Merrill Lynch Lehman Brothers Bear Stearns

Total Comp $16.9 $14.0 $16.1 $8.7 $4.4
Bonus Pool $10.2 $8.4 $9.7 $5.2 $2.6
Employees 25,647 54,349 55,300 24,775 13,000
Average Comp $658,946 $257,594 $291,139 $351,160 $338,462
Average Bonus
$397,707 $154,556 $174,683 $210,696 $203,077
….

So , average BSC guy took 541K last year. From all the fantasy
profit. Poor bag holders.

 
 
Comment by aladinsane
2007-08-03 09:57:00

The new world hoarder rules will apply soon…

 
Comment by JP
2007-08-03 09:57:58

From the CNBC link: A third Bear-Stearns fund halts redemptions. Way to go BS!

http://www.cnbc.com/id/20027082

Comment by WAman
2007-08-03 11:57:19

They really need to change their stock symbol from BSC to what they really are BS.

 
 
Comment by Neil
2007-08-03 10:02:49

“Lenders are tightening standards and ‘raising rates like crazy,’ said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week.”

Bwaaa haaa ha! Get that listing price below jumbo. snicker…

Thankfully wifey has agreed that we don’t have to buy for ~18 months… now to convince he we’ll have to wait just a little longer. Luckily, she’s *very* happy with the new living room furniture (Hey, I’m saving more than the cost of the set, post tax, per month… gotta live and enjoy life.) :)

Got popcorn?
Neil

Comment by WT Economist
2007-08-03 10:12:56

(Bwaaa haaa ha! Get that listing price below jumbo.)

Can’t, because there are only two markets in this country right now — Jumbo and Subprime. Or perhaps three, including Jumbo Subprime.

 
Comment by arroyogrande
2007-08-03 10:33:25

“Thankfully wifey has agreed that we don’t have to buy for ~18 months”

That was part of the pre-marriage interview, wasn’t it Neil? Also the prenup: “We won’t be buying a house anytime soon.”

 
Comment by sleepless_near_seattle
2007-08-03 10:53:41

If she’s already on board for waiting 18 months, the next 18 months are going to provide all the evidence and convincing she’ll need! :-)

 
 
Comment by arroyogrande
2007-08-03 10:06:02

“She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week.”

Just another prediction to throw out there…prime lending (not subprime, not alt-a, but PRIME) will start to see major troubles above those reported by Countrywide. Reason: Option Arms (with their Negative Amortization component), and, to a lesser extent, Interest Only ARMs. Many PRIME borrowers in California wedged themselves into houses they could *barely* afford, or HELOC’d themselves to the hilt with “affordable” Option ARMs, and will soon be in a world of hurt as the ARM reset wave crashes against the shore (starting a few months ago, and ending perhaps 2-3 years in the future). I’m still looking up numbers for the % of prime mortgages made in my area that were option-arms, but preliminary data shows it was around 27%…I’ll have to verify to be sure. I remember that, at least in California during 2005 and 2006 that Option ARMs became a huge source of PRIME mortgage purchase loans and refinances, somewhere between 30% and 50%…I’m still looking for that data.

Mark my words…PRIME is going down, investors will flee prime as well, and the spread between safe bond investments (US Treasuries) and prime mortgages will go up.

Comment by LA-Architect
2007-08-03 10:24:25

Yeah but the sellers (quote) “will not give their properties away!”

Comment by XynamaX
2007-08-03 10:27:14

They don’t have to give them away, the lenders are more then happy to take them back.

Comment by MacAttack
2007-08-03 11:29:28

Yeah but the sellers (quote) “will not give their properties away!”

Reply to this comment
Comment by XynamaX
2007-08-03 10:27:14
They don’t have to give them away, the lenders are more then happy to take them back

Ding Ding Ding!!! Best line of the day!!!

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Comment by HARM
2007-08-03 12:14:38

Spot on, except in most cases it’s not the “lenders” who will be taking them back, but hedge & pension fund investors and FCBs holding MBSs & CDOs.

 
 
Comment by sweeny texas
2007-08-03 12:22:10

Any chance that lenders will become so overrun with foreclosures that they might start letting people stay in their homes even after foreclosure so that they don’t lose even more value by letting an empty house sit and depreciate?

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Comment by joeyinCalif
2007-08-03 13:19:31

i would… but there will need to be strings attached, and whoever is in there has already proven to be unreliable.

 
Comment by jonaskinny
2007-08-03 13:25:47

what about the legal liabilities of the lender in that scenario? No I think not.

 
 
 
 
Comment by travanx
2007-08-03 13:00:45

How do you look up what kinds of loans people have in California? I am curious at what point our neighbors move since they havent been paying their property tax according to the assessors website.

Comment by arroyogrande
2007-08-03 13:04:06

County recorder’s office…ask them how to do it, they should be able to help you.

 
 
 
Comment by boulderbo
2007-08-03 10:10:06

from the frontlines, every investor is on eggshells right now, from countrywide:

“As you all are aware, secondary marketing has tightened up on non-conforming loans to 100% CLTV and many of those programs have been pulled for other lenders. Countrywide has not announced any changes to these programs at this time, but the actions of our competitors indicate to me that changes are inevitable. I continue to urge you to lock your pipeline, not only for rate protection but for program protection. Please don’t hesitate to call the office to lock your loans should your loans be already placed in underwriting and you cannot lock online”

from one of my bank lenders:

I wanted to make you aware of some changes going on at xxxbank since it has been a “crazy” week in the Mortgage Industry.
We no longer offer Stated Income Second Mortgages or HELOCs they are Product #10.
We also will no longer offer our Alt A Solutions Product #11, and if you have looked at Product #6 Expanded, it looks as though that is going away soon too. Any loans currently locked under any of these programs will be honored through expiration date, no extensions will be given.
In addition to the elimination of several Stated Income products I wanted to make you aware of some changes to all Interest Only products. You now need to qualify Fixed Rate IO at the full PITI payment at the note rate, and for ARMs idex plus margin, fully indexed rate.

and on and on (national city is out of stated income loans completely).

a deal that i priced on monday would cost me 10 points today. i would say the system is approaching shut down.

Comment by WT Economist
2007-08-03 10:16:26

Here’s a weekend topic for you — in the race to make all this stuff go away who is ahead, the regulators or the markets? Because they are both barreling down the road in the same direction and burning rubber as they go.

Comment by Neil
2007-08-03 10:29:48

Good question. I’d say the markets are ahead. The regulators are more like “sweaper battalions” ensuring no retreat…. Or maybe I should say enforcing a fast retreat? ;)

Got popcorn?
Neil

Comment by Front Range Bob
2007-08-03 10:38:55

Yep, regulators invariably close the barn doors after the horse has escaped, and then do something afterward that punishes the sheeple for horse’s transgressions.

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Comment by txchick57
2007-08-03 10:39:54

Maybe the ultimate outcome will be all houses other than mansions are priced at no more than FHA limit +10% because you can’t get any other kind of loan.

This is just like 1990 now.

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Comment by travanx
2007-08-03 13:13:29

do you realize how low the FHA limit is/ how almost impossible it is to actually afford since its still high for normal wages!! believe it or not most people can’t even afford the $400k limit for a single income to qualify for FHA. Just look at CALFHA which I still never understood how people made that work.

 
Comment by txchick57
2007-08-03 14:04:01

400K is in California. It’s 206K most everywhere else. In Dallas, that used to buy you something decent. Not these days.

 
Comment by Chad
2007-08-03 14:52:39

Hey, TX, you’re here!

 
 
 
Comment by arroyogrande
2007-08-03 10:37:20

I’m with Neil…markets by far. Investors pulling out of the mortgage pig show are bring things to a halt *extremely* fast…as in a matter of weeks. Just in time for the very end of the Spring Selling Season…got school district?

Comment by polly
2007-08-03 11:36:39

Does this mean the iminent October market crash will come early this year?

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Comment by WAman
2007-08-03 12:05:01

No it may crash now, but the big crash will be in 3rd quarter earnings season.

 
 
 
Comment by Rental Watch
2007-08-03 13:10:09

I’d say Wells Fargo increasing Prime Jumbo from 6 7/8 to 8% almost overnight, the market is slamming the door faster than the regulators.

The regulators will only be in a position to make sure the door stays shut.

 
 
Comment by Kid Clu
2007-08-03 12:32:39

“You now need to qualify Fixed Rate IO at the full PITI payment at the note rate, and for ARMs idex plus margin, fully indexed rate. ”

Qualifying at the fully indexed rate was a part of the FDIC mortgage guidance issued last fall. When this guidance was issued, I brought it to the attention of the homebuilding company that I worked for at the time, saying they should plan ahead for losing a significant number of buyers within the next few months. The homebuilding company’s management laughed and basically said that I was a peon and therefore I didn’t know what I was talking about. Seems I got the last laugh.

Comment by CA Guy
2007-08-03 12:57:09

Kid Clu - thanks for the tale. I’ve been thinking that the builders must know what is going to happen, but only continue forward because they are committed to a certain project. How could they not see that the secondary market was eventually going to wake up and bring this game to a halt? Well, based on your anecdote many of the builders really are stupid. Many have pointed to the fact that many in the industry weren’t around for the last down cycle, but all it really takes is a little common sense. Unfortunately, that seems to be a dying trait and now we’re all going to end up paying for it in some form or another.

 
Comment by phillygal
2007-08-03 13:06:30

The homebuilding company’s management laughed and basically said that I was a peon and therefore I didn’t know what I was talking about. Seems I got the last laugh.

Ha! Now you can go back and tell former boss to kiss your ( insert ethnicity modifier) a$s.

 
 
Comment by CA renter
2007-08-04 04:52:36

Thanks for the insider’s perspective, Boulderbo!!!

 
 
Comment by arroyogrande
2007-08-03 10:18:48

“Lenders are tightening standards and ‘raising rates like crazy,’ said Melissa Cohn, chief executive of Manhattan Mortgage”

Also, this part of the vicious cycle, or the “credit tightening cascade” I was talking about a while back.

Loans go bad leads to credit tightening which leads to more loans go bad which leads to more credit tightening which leads to…

Oh well, you get the picture.

Comment by Bubble Butt
2007-08-03 11:27:27

Essentially credit is going in reverse.
We went from 2000 where prices went up, they came out with new mortgage products (Alt-A), and credit standards were lowered. As prices continued to go up, the continued to come out with more loan products (Subprime NINA, NINJA), and more reduced credit standards.

Here is the reverse scenario now going on:

The most recent new loan products go bad first (Subprime), the worst credit standard borrowers default first, and the ones who paid the highest prices (who were mostly the ones with the most recent loan products and worst credit standards) default first. Then second tier products go bad (Alt-A), and those with second worse credit / pay back capabilities go bad.

Prime is next.

Prices reversing has started. I imagine this takes longer as borrowers are entrenched in their getting 2005’s price psychology.

Anyone think this sounds right?

Comment by CA Guy
2007-08-03 13:01:58

I think you are dead on, bubble butt. I was reading an analyst quote the other day that said something to the tune of, “prime is not really prime.” Not to mention, many real prime borrowers undoubtedly bit off a bigger mortgage than they can honestly chew.

Comment by Bubble Butt
2007-08-03 13:54:45

So, if I read you correctly, they’ll eventually get hit too (there are prime borrowers that still have IO’s who cannot afford the debt load of the alligator they feed monthly) and have the incentive to walk once they owe more than their home is worth. Essentially we retrace what happened here in So Cal in the early - mid 1990s as the top tier loans as well were all pretty much traditional prime loans then.

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Comment by WT Economist
2007-08-03 10:18:53

“Interest rates on all types of loans are already rising. And LaMalfa expects home prices to fall by as much as 30 percent before this is all over…LaMalfa says as the chaos in the real estate market shakes out, a recession is almost unavoidable. Have a nice day.”

PBS listeners aren’t the type to stock up on canned goods, guns and ammo, but that report won’t make them happy.

 
Comment by steve
2007-08-03 10:20:10

Have to agree with Rogers……the largest bubble IN CREDIT ever. The title of Ben’s blog should read “the credit bubble blog with assistance from housing disguised of as ’secured collateral’”.

 
Comment by Cocoa Beach
2007-08-03 10:24:06

The American Home shutdown hit close to home for me today. A relative is under contract to buy a house and the loan was through American. Well, they get the word that their (and all others’) loan will not fund. The kicker: his wife works for American. Lost job, lost income from deals in the pipeline and lastly, lost new house, although that part may be a blessing in disguise.

Comment by arroyogrande
2007-08-03 10:42:11

“Lost job, lost income from deals in the pipeline and lastly, lost new house, although that part may be a blessing in disguise.”

Just think how bad off they would be had they closed on the house just 1 or two weeks before. Tell them that they should be counting their blessings that they didn’t get the house before she got laid off. *Whew*!

Comment by JP
2007-08-03 11:34:32

Yep. Definitely a disguised blessing!

 
Comment by jonaskinny
2007-08-03 13:29:49

hope they did not leave escrow with less than they came in with.

 
 
 
Comment by Bill
2007-08-03 10:24:42

I am making good money buying puts on RE related stocks (200% in last two months, 90K in last 10 days). The news on the tighening and drying up of mortgage lending is great for my current holdings, but I am starting to get worried about what the enconomy is going to look like in the next 6 months. I have been bearish enough to make big bets on the housing slide. However, I now feel that I may have been much too optimistic.

 
Comment by BubbleViewer
2007-08-03 10:26:02

Exchange from Broker Outpost forum:
Broker A: Who is carrying the best pricing theses days in Alt-a products?
Broker B: lmao, check the 1st 5 pages. If you even GET a rate, consider yourself lucky.
Broker A: Where do I find the rates for Imao, who are they?
Broker C: (After several flames at Broker A) It means …laughing my a** off…he was saying that because today was a rough day in our world. Almost every Alt A lenders stopped funding. You may want to read back a few pages and you will find out. And when you ask for a better rate, he basically had to laugh because rate was not that mattered anymore, finding someone that still could do the deal was more important.

Comment by aladinsane
2007-08-03 10:27:34

Alt-A

(Alternate-A, like 2nd string?)

 
Comment by arroyogrande
2007-08-03 10:39:42

Sounds like taking a sledgehammer to the kneecaps of California’s housing markets…

 
Comment by qt
2007-08-03 10:46:37

LOL (= laugh out loud) this guy is an idiot :-)

Comment by CarrieAnn
2007-08-03 13:49:09

sounds like he was making a bad joke….hence the flames

 
 
 
Comment by Fuzzy Bear
2007-08-03 10:28:40

“‘Those years in particular, First American and many others in the title industry weren’t doing their homework,’ he said.”

However, the senior management of these corporations keep their jobs or are walking away with millions of dollars while the rest of the employees get fired for their greed.

Comment by jungle_man
2007-08-03 10:58:28

its good to be the king

mel brookes

Comment by sweeny texas
2007-08-03 12:32:15

LMAO! “God has sent me down the mountain with these 15 (crash), oi, 10 … 10 commandments for all to live by.”

 
 
Comment by Kathy
2007-08-03 11:11:52

I used to do claims for a title co. That was the worst job I ever had.

Comment by JP
2007-08-03 11:36:23

For those of us on the outside: Why?

Comment by Kathy
2007-08-03 11:51:22

Lots of reasons: low pay, death threats (literally!), many, many confused people who didn’t know that the title insurance policy won’t cover their roof when a tree falls on it, lousy corporate management, and the aforementioned embezzling agents - a logistical nightmare. I met more nutjobs and headcases in 2 years on that job than I ever did in private practice.

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Comment by salinasron
2007-08-03 10:30:59

“First American said its title claims jumped 62% in the first half of this year from the same period in 2006.”

Ex-nnvmortgebkr: can you explain how claims are made against title companies or what fiduciary duties they abrogated in the loan making process.

Comment by Kathy
2007-08-03 11:19:54

Claims are tendered by the insured pursuant to the terms of the policy.

Off the top of my head I can think of a few things: Fraud (forgery), unpaid mechanics liens, misappropriation by title agents. This last one is a huge risk for underwriters. The agents often will embezzle the funds to pay off liens (such as previous mortgages). The title underwriter is left holding the bag because they insured the next lender as having a first lien position.

 
Comment by Ghostwriter
2007-08-03 11:20:56

Title companies responsibilities is to make sure there’s a clear title from the first owner all the way through to the last. The only thing I can think of is people buying properties and getting loans when in fact some 3rd party ends up being the ultimate owner.

 
 
Comment by RJT
2007-08-03 10:34:35

Everyone now calm down, take a deep breath, and repeat after me:

“Real Estate only goes UP!”

Comment by Pen
2007-08-03 10:48:58

I thought the only thing that comes down is rain!

 
 
Comment by Fuzzy Bear
2007-08-03 10:40:33

What? You mean that Wall St. hucksters would “mislead” someone to fatten their wallets? What is the world coming to, next thing you know we’ll find out that politicians lie.

These people don’t lie, they are just conducting business or politics with a spin to it to make people believe them as they suck you dry of your hard earned money. Its more criminal in nature than lies and criminal from the stand point of larceny, fraud and theft, not to mention other statues.

 
Comment by Michelle
2007-08-03 10:43:35

For all the mortgage brokers get ready to get a job…making $45-50K as a loan officer for the bank…I have been saying this for the last 6 months that lenders are going to go back to the traditional visiting the loan officer to get a home loan..and their rates will be competitive..it is cheaper to pay loan officers a salary than to buy back and service and do a forclosure on a bad loan…

Comment by Ghostwriter
2007-08-03 11:23:12

In our area most major banks pay their loan officers commission instead of salary. They’ve been doing that for the last 8 or 10 years.

Comment by WAman
2007-08-03 12:10:47

Oh so all of these folks are 1099 - The pigs are about to get slaughtered!

 
Comment by Michelle
2007-08-03 12:51:50

Still going to be 40-50K commission for the loan officers for banks to stay competitive..those $200K days are over..

 
 
 
Comment by txchick57
2007-08-03 10:45:04

“The investor, whose named is being withheld, allegedly lost $500,000 in the high-grade structured fund after listening to the advice of Cioffi, and his other Bear Stearns employees, during a series of conference calls that began in late 2006 through approximately June 2007, the claim says.”

Yeah, well, you want 35% returns, cowboy, you gotta take a hell of a lot of risk. Go tell it to someone who cares. If I were his arbitrator, he’d get a big goose egg and a copy of the Motley Fool Investment Guide.

Comment by Pen
2007-08-03 11:03:24

What kind of @$$ really thinks a 35% annual return is sustainable? Even drug dealers, pimps, loansharks and bookmakers don’t expect those sized returns.

Comment by Reuven
2007-08-03 11:15:26

Don’t you know anything? Thinhs are DIFFERENT now! We’re working in a DIFFERENT economy!

 
 
Comment by jungle_man
2007-08-03 11:05:12

spot on, ya’ll

 
Comment by WT Economist
2007-08-03 11:05:52

Sounds about right. You need to buy a lot of hedge funds, so the ones that go up 35% offset the ones that go bust. Then you make an average return, minus the excessive fees.

 
 
Comment by Pen
2007-08-03 10:47:46

“Lenders are tightening standards and ‘raising rates like crazy,’ said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week.”

Not sure what I am missing, but Wells Fargo’s website has this loan as having a rate of 7%.

Any thoughts?

https://www.wellsfargo.com/mortgage/rates/

Comment by lalaland
2007-08-03 11:00:33

This was addressed earlier on the blog by someone else, but apparently brokers (Cohn is an exec for a mortgage brokerage) are being quoted higher rates by Well’s Fargo than are borrowers applying directly. Could be because WF and other banks have figured out that brokers lie — hence more risk in using them — hence the higher rate.

Comment by Pen
2007-08-03 11:06:12

NTN..but why would one even use a mtge broker? is there really any savings there?

Comment by Pen
2007-08-03 11:06:44

make than NFN

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Comment by NoVa Sideliner
2007-08-03 11:44:34

Well, first time I bought a house, a helpful realtor was pointing us to his mortgage broker friend to set us up with a mortgage. I imagine a lot of people just “go with the flow” and follow along instead of searching their own deals. (We didn’t follow along, nor did we in the end buy via realtors, either.)

There was also once a case to be made that the mortgage broker could shop lenders for you, thus saving you some legwork, and find a mortgage company with a decent deal versus your sad credit rating. Anecdotally, it also sounds like some mortgage brokers could “help you out” by suggesting which numbers you needed to present to get the loans. Those days seem to be rapidly coming to an end.

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Comment by Tortious
Comment by zeropointzero
2007-08-03 11:57:59

Nice article - but one caveat: Business Week was on the bubble story as much as anyone during the run-up. Granted, most of their articles had a “could there be a bubble in housing?” slant - but at least they were ahead of most of MSM in questioning surging home values.

BizWeek is an underrated mag, in my opinion.

 
 
Comment by Precisiondan
2007-08-03 10:58:05

Wells Fargo is charging brokers those high rates, if you do the loan directly through Wells Fargo it’s 6.875%

 
Comment by Mike in Miami
2007-08-03 11:04:09

A bunch of Chicken Littles here.
It’s all contained! Don’t worry! Bernanke & Paulson said so. They would know, wouldn’t thay?

Comment by aladinsane
2007-08-03 11:08:13

Downnnn goes Bearzier…

The new Heavyweight Champ, by knockout

Chicken Little

 
Comment by arroyogrande
2007-08-03 11:09:38

“It’s all contained”

Kind of the same way that nuclear groundburst detonations are ‘contained’ to the atmosphere, but that is little solace as well.

 
 
Comment by Housing Wizard
2007-08-03 11:04:38

When banks raise loan rates like they are doing now ,they are really saying that they don’t want to make loans because the Secondary Market is speaking and saying ,”We only want golden low risk loans at a higher interest rate .” Some loan funders are cutting off some Mortgage firms and refusing to do business with them ,according to the news .

What is happening now ,had to happen . The real estate spinners couldn’t get a rally going in real estate to keep the party going ,no matter how much they tried . The purchase loans and refinances the industry made from about 2004 to early 2007 were so bad that it’s frightening .The loan investor bagholders are starting to speak .

Comment by Pen
2007-08-03 11:09:30

“The loan investor bagholders are starting to speak.”

Give it a few months and they’ll be speaking in tongues, uttering total gibberish, as they watch their AAAs (ain’t anymore assets) swirl around the bottom of the bowl.

Comment by Housing Wizard
2007-08-03 11:36:39

lol. Pen ,you got me laughing so hard .

 
Comment by CarrieAnn
2007-08-03 14:01:21

“AAAs (ain’t anymore assets)”

beautiful!

 
 
Comment by arroyogrande
2007-08-03 11:11:51

“What is happening now ,had to happen”

Yeah, it’s funny that a year ago, we were screaming “how can they *still* be making these loans…this has to end sometime, and when it does, it won’t be pretty!”

Welcome to sometime.

Comment by Pen
2007-08-03 11:18:02

…and they’ll just say..even a broken clock is tight twice per day….or, if you wait long enough, all predictions come true…

well, here is one for them..”all bleeding eventully stops”

 
 
Comment by jonaskinny
2007-08-03 13:33:39

Yep…. and when the funding stops the sales force dies…. even if the Lender survives…. how many originators are getting paid via these relatively few funding sources?

 
 
Comment by Dennis
2007-08-03 11:11:14

I have a question. Why do the over seas markets follow the U.S. market so closely if they are the emerging markets? shouldn’t they march to their own economies? If U.S. markets are truly tied to these overseas markets then we will have a major decline around the world as the air comes out of our economy.

 
Comment by txchick57
2007-08-03 11:17:15

Didn’t we make fun of these folks a few years ago? They don’t need a house, they need a containment system.

http://news.yahoo.com/s/ap/20070803/ap_on_fe_st/17_kids

Comment by HellBoy
2007-08-03 11:20:54

Maybe they just haven’t updated their website yet?… At any rate, loan rates are headed higher!

 
Comment by WAman
2007-08-03 12:26:23

I saw that this morning and was disgusted. 17 kids - that’s just nuts.

 
Comment by bayparkwatcher
2007-08-03 12:56:18

One day that woman is going to get out of bed and her uterus will fall out on the floor.

Comment by phillygal
2007-08-03 12:59:40

The mind reels.

 
Comment by Tom
2007-08-03 14:21:41

She is 40. What if she pops out kids for the next 25 years? Umm Son… you just had another Aunt born.. yes.. I know you have your own kids but this is great news.

Before you know it, they will run out of names with the letter J.

 
 
Comment by Tom
2007-08-03 14:20:11

Man oh man. They just keep on breeding. That’s essentially what it is. She must like being pregnant and lactating.

 
Comment by jungle_man
2007-08-03 15:43:10

dude, when the babies are coming out sideways, weve got a problem the witch hazel aint gonna solve.

 
Comment by cmhappyrenter
2007-08-03 16:48:36

No need for lube, must use poly grip

 
 
Comment by Grant
2007-08-03 11:20:14

“‘We believe Bear Stearns’ reputation has suffered from the widely publicized problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses,’ S&P said.”

Gee, ya think?

Comment by Grant
2007-08-03 11:54:11

I want to be an S&P analyst when I grow up. From what I can tell, they sleep in until 10, roll into work around 11, read yesterday’s newspaper, write some BS “analysis” that simply summarizes yesterday’s headlines, and then blow off work at noon.

Comment by phillygal
2007-08-03 12:09:26

sounds like a plan

 
 
 
Comment by aladinsane
2007-08-03 11:20:35

“The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ‘got a long way to go,’ said Jim Rogers.”

Just as I was getting used to them losing money in the Billions, they upped the ante…

Comment by Hoz
2007-08-03 12:23:37

A trillion here a trillion there, pretty soon you’re talking about real money.

Comment by jungle_man
2007-08-03 15:44:29

lol

 
 
 
Comment by Pen
2007-08-03 11:20:44

OT…but I think this will get some great posts..

Do you care whether or not your friends, family, etc. homes plummet in value, if it means you get what you want at the price you want?

I’ll start..nope, I don’t care.

Comment by phillygal
2007-08-03 11:39:52

For the most part, my extended family own their homes, they never believed in having the bank’s name on the deed. They made sure they paid off the note quickly. I don’t have any friends whose goal it was to cash in on the boom, they just view their houses as a place to live. My personal network will not really feel the impact of declining house values. So no, I don’t care if RE prices plummet.

BF used to get annoyed when I told him RE was going to decline, even tho’ his house is paid off. Now he’s changed his tune. He’s starting to talk about getting a couple rentals when price is right. But he says at his work, no can discuss. No one wants to hear that their equity will shrink.

 
Comment by MGNYC
2007-08-03 11:44:11

well at the sumer bbq parties and what not there is not a peep on the real estate market. who could forgot summer 04-05 where everyone was a real estate maverick
oh how times change

renting never felt so good

Comment by MGNYC
2007-08-03 11:44:53

forget -summer sorry

 
Comment by jonaskinny
2007-08-03 13:36:21

I noticed the same thing earlier this year.

Interesting that it had become ‘hedge fund this’ and ‘hedge fund that’.

 
 
Comment by Grant
2007-08-03 11:46:54

I don’t care for this reason - if my house value goes down my property tax (theoretically at least) goes down. The only time a rising home value really helps you is if you sell and move to a lower price area. If you aren’t planning on moving to Costa Rica, then rising home prices just means rising expenses.

Comment by Housing Wizard
2007-08-03 12:27:23

……”then rising home prices just means rising expenses.”

Right Grant . Many people just don’t understand that there are many people who own a home long term and they have no interest in cashing out . Rising property taxes and insurance rates have caused some long term owners to be forced to sell .There are many people who just wanted to buy a house and retire in it after they paid off the mortgage as a retirement plan .Also there is something to be said for having a ‘Home Sweet Home”.

The way real estate investment has always been viewed in the past is simply a hedge against inflation ,a forced savings retirement plan ,that had some tax write off . It wasn’t the best return in the world ,but it was favored by the people .

When real estate turned into this recent investment scheme ,that was backed by easy money ,was when real estate strayed from fundamentals. Real estate has always been a long term investment ,not this quick flip ,churning real estate ,as we have seem lately .

 
Comment by kuga428
2007-08-03 18:31:52

Sadly this will not likely be true. Governments’ budgets are based on taxes of assessed property. If the property value goes down, then most often the government has to adjust the millage rate up to make up for the shortfall. The amount of taxes paid on property rarely goes down in good neighborhoods and even bad neighborhoods.

Such is life.

 
 
Comment by VT_Dan
2007-08-03 12:09:41

I care. My parents have a house they could pay off tomorrow in the DC area. The bought for 300K in 1997 and could probably get 600K if they sold now (800K two years ago)

They are about 7 years from retirement and no longer need a house as big as theirs. I wish they would sell it and take the profit while they still can.

I have a feeling that people are going to have to start depending upon family again in the decade ahead. We will all be living like the mexicans and packing several generations under one roof!

Comment by CarrieAnn
2007-08-03 14:18:03

“We will all be living like the mexicans and packing several generations under one roof!”

aka living like we did just a generation or 2 ago

Comment by jungle_man
2007-08-03 15:49:54

yeah, cmon man, multi-generational housing is so pre-indutrialization agrarian.

whered i put my techno-gadget that i dont need nor know how to use.

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Comment by Rental Watch
2007-08-03 13:25:47

I care. I want them to drop. The sooner we get back to a point where people with the available jobs can buy the homes that are available, the better. We can’t get there in the current global economy without home prices dropping.

My friends/family/etc. all heard my opinion on the matter for years, and they are all big boys and girls, making their own decisions. I don’t care if their home value falls.

 
 
Comment by jungle_man
2007-08-03 11:26:24

here comes the big friday sell-off….as usuall.

If you are not making money in this market, you have not been paying attention.

 
Comment by Fuzzy Bear
2007-08-03 11:34:23

Not sure what I am missing, but Wells Fargo’s website has this loan as having a rate of 7%.

Any thoughts?

Broker punishment! Why go to a broker when you can get a better rate directly through the bank that has controls in place to prevent fraud.

Comment by Housing Wizard
2007-08-03 11:47:14

You can always usually get a better deal by going to the funder directly . I guess the only reason to go to a Mortgage broker is to pay more for a fraud deal,( he he he he he he he) .

No really ,there are some wonderful mortgage broker companies that are a great service to the people . Let me try to count them on my hand ……..Oh ……..Stratch what I just said .

 
 
Comment by Ghostwriter
2007-08-03 11:41:41

If they went crazy during the bubble I don’t care either. If they worked hard to get what they wanted and bought pre-bubble with down payments I do care.

 
Comment by JJ
2007-08-03 11:46:06

I’ve have some questions for you all? Let’s say in 20+ years you see a similar bubble appearing in real estate.

1. Would you consider trying to take advantage of the bubble?
2. By the time you see it, is it already too risky?
3. Would you be confident that real estate bubbles typically take a while to run their course or is every bubble different thus making it too risky?

When fundamentals get close to the norm, I will probably buy a place to live in. I probably will not every buy investment properties because I do not want to be a landlord and I’m sure no flipper. However, I sold my house in 2003 after it had appreciated 100%. The main reason I sold is because I had a job change and it just made sense, but the fact that it had appreciated so much in a couple of years didn’t make sense to me either so I wanted to take my profit and get out. Needless to say, it appreciated another 50% (200% from the original base price) by 2005. The next time I may have children and selling may not be as much of an option. Even if it was, I think I’ve learned that real estate bubbles do take time to unwind and even if you wait for the unwinding to begin, you can still sell if you are willing to undercut others. So I think the one thing I would do differently is hold the house a little longer. But, then again, this last time I had non-financial reasons to sell the house.

Comment by JJ
2007-08-03 11:50:03

I meant to put this in bits and buckets.

 
Comment by Pen
2007-08-03 11:55:47

Depends, if I’m retired, as I hope to be, then I’d stay put in what will be modest place that’s what I want, where I want and paid for.

By then, I’m hoping my retirement will be well funded, my health will be intact, home paid for, debt free, etc. That being said, hopefully I’ll be just enjoying life, living free and not looking at bubbles, past, present nor future.

..have a great weekend one and all..I’m heading out…

 
Comment by Housing Wizard
2007-08-03 11:57:34

Remember , this was the mother of all bubbles that lasted alot longer than your normal run of the mill bubble . I have seen bubble in real estate before ,but they were somewhat capped by affordability because of the loan standards .

If you ever see a return to these sort of lending standards that we have had in the last 5 years ,than you might get a protracted bubble . But usually ,real estate bubbles are contained somewhat by the affordability wall stopping them .

 
Comment by SunsetBeachGuy
2007-08-03 12:49:59

I will buy spare RE (cashflow positive) to sell into the next CA RE price bubble, so I don’t have to speculate with selling my primary residence to profit from the RE cycle in CA.

 
Comment by jonaskinny
2007-08-03 13:39:35

yes i absolutely will. My wife and i have already decided to spread out whatever we can afford to lose x2 and let it ride.

I fully expect this to occur within the next 15 years

 
Comment by Bubble Butt
2007-08-03 14:01:17

Depends on the conditions causing it.

I hope that in 20 years, the loan I get from the home i am going to get when I buy 3 years from now will have been paid off 2 years prior (meaning I had a 15 year loan that was paid off). Wont need to sell.

If I have an investment property (part of the plan) 20 years from now (bought around the same time) then I would likely sell it.

 
Comment by bill in Phoenix
2007-08-03 22:25:14

JJ, in 20 years I’ll be 68. But hopefully this 6 day per week vegan / fitness enthusiast will have the fitness of a healthy 50 year old. That said, I would never put more than 1/6 of my net worth in real estate. In 20 years I would not care whether it’s a bubble or not. I could put $200,000 next week into the S & P 500 and be confident it would appreciate an average 10% per year by then. That’s a lot of moolah.

 
 
Comment by Sniggle
2007-08-03 11:54:11

Anyone see Cramer agitating for a rate decrease on CNBC? He was screaming at the screen, trying to get helicopter Ben’s attention.

To the credit of the chicky host, she did call him on the threat to our currency of a rate decrease, but he just kept on screaming. I think his buddies in the hedge funds are getting slaugthered and he is stepping up to bat for them.

Comment by Schnooks
2007-08-03 11:56:24

OMG.. he was almost in tears. “Bernanke… he has NO IDEA!!” Gotta find the video.

Comment by JudgeSmales
2007-08-03 14:22:04

Here’s the meltdown video. Strap yourself in for this one! I think I saw a puddle at Erin Burnett’s feet at the end.

http://www.cnbc.com/id/15840232?video=452808336

– Judge Smales
“You’ll get nothing and like it”

Comment by hllnwlz
2007-08-03 23:05:25

What an a-hole. Did you notice how he’s about to cry he’s so upset… but who’s he upset for? The Wall Street grifters who made millions of money are :::sniff::: losing their jobs! Oh NO! Where can I send my donation? Only after he cries for them does he mention that people are losing their homes. People? I thought they didn’t qualify as people unless they had Richistani passports?

Somebody at the top of the big investment firms must have serious dirt on Mr. Cramer. That’s the only thing that would explain the near-tears and his complete suspension of logic. “Bernanke needs to lower rates.” Great. Hyperinflation will save us all.

Effing tool.

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Comment by Housing Wizard
2007-08-03 12:04:12

IMHO ….This Cramer dude wants a bull-run in the stock market ,especially since he sold his real estate already .

Comment by txchick57
2007-08-03 13:03:46

He hasnt sold it. He claimed to be “all in” in December having bought it all back.

Comment by Housing Wizard
2007-08-03 13:17:47

Really txchick57….I’m getting bad information I guess . I read that Cramer just sold RE recently on three different threads . One thread I read said “he (Cramer ) thought his buyer of his real estate was a jerk “. Sorry ,if I passed on any bad information .

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Comment by Paul in Jax
2007-08-03 12:13:20

Cramer forfeited the right simply to do what he did, and I doubt CNBC is very happy about his performance. EB handled it well. Only four months ago Cramer was MAKING FUN of people who were concerned about housing problems, stating unequivocally that it was no big deal and that anyone who thought otherwise was full of S#*t. So he has lost any right he might have had to be screaming at people to do something.

 
Comment by jungle_man
2007-08-03 12:23:40

jobs coming in at 92k, I would start pricing in a rate cut.

Unfortunate that the dollar will be used to wipe @$$es with, but hey, its all good in my camp.

Comment by jonaskinny
2007-08-03 13:44:14

i dont know… bb is no ag. he is talking anti inflation alot and i know they say one thing and do another but a rate cut would put more blame on his watch…. i doubt he’ll do it this early.

 
 
Comment by Gwynster
2007-08-03 13:03:48

Was Cramer crying? wow

I’m tired of people screaming at BB to raise rates. What they should be doing to screaming at AG for making this whole mess possible.

 
Comment by kip
Comment by Paul in Jax
2007-08-03 13:37:37

“We have Armageddon. In the fixed-income markets we have Armageddon.”

No worries, though, it’s contained in the fixed-income markets.

Comment by P'cola Popper
2007-08-03 14:00:03

Hee, hee, hee. The Cramerites stampeded right into my putz. Thanks Cramer, let’s do it again next week!

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Comment by SimpleSimon
2007-08-03 14:03:10

Man of Manochevitz! I’ve never seen anything like that before on regular TV. This guy is absolutely pathetic…..

 
 
 
Comment by az_owner
2007-08-03 11:59:10

“LaMalfa: ‘I almost fell out of my chair when I was going through Countywide financial statements last week. Countrywide is one of the largest mortgage companies in America. Right now, almost one-quarter of its subprime loans are delinquent, and subprime lending represents almost half of Countrywide’s total business. To me, that’s shocking, we have never seen numbers like that.’”

“Countrywide’s credit default swap spreads widened by almost 100 basis points, reaching more than 300 basis points, or $300,000 per year for five years to insure $10 million in debt, from 215 basis points at Thursday’s close.”

Is Countrywide going to make it? I’ve done some CD business with them in the past, and they are hitting me 1 or 2 times a week with CD deposit offers - they are scrambling for “liquidity”. At the same time, I’m getting 2-3 offers a month for refi mortgages from them. They want to lend me my own money at 8% from a CD deposit that they’re paying me 5.5% on. I think AHM shows that when things go bad, they go bad at the speed of light with these lenders.

Comment by jungle_man
2007-08-03 15:54:24

5.5% on CD is an absolute negative signal… These guys are bleeding out. get the body bags ready cause countywide’s about to go under.

Comment by cmhappyrenter
2007-08-03 16:54:41

My Jan 08 puts are enjoying watching them circle the drain.

 
 
 
Comment by SimpleSimon
2007-08-03 12:04:14

My vote for August’s new bs buzzword:

“There’s nothing to fear, what were going through is simply a “REBALANCING”.

 
Comment by AC
2007-08-03 12:15:45

“Too Big to Fail”. . .

Guys, this has a long way to go, probably years with many attempts to staunch the bleeding. Remember LTCM? Amaranth? These are examples of the government/Fed/etc. identifying something as too big to fail and IMO the US housing and banking industry (10000 bigger than LTCM) won’t be allowed to fail without pulling out all the stops to save it. . .which will only delay the inevitable.

So. . .this is what I look to happen as this continues to fall:
1. Fed rate decrease. Cramer is right (for once) and this will happen soon. Stock mkt will stabilize temporarily.
2. Bail out. Massive tax dollars going to ‘help the poor homeowner’ in an attempt to stop foreclosures. This will take two forms:
- direct cash payments to select (low income) borrowers
- government agencies refinancing ARMs, etc. into 30& 40 year fixed,
low interest loans
3. New ‘blue sky’ legislation for mortgage brokers (similar to what came out after the depression for stock brokers)
4. Variety of class action law suits, BACKED by state governments against large mortgage companies and wall street firms (similar to the tobacco suits).

So, not that any of this will help - it won’t, but will prolong the misery. But if the government, Fed, etc, pulled out all the stops with secret back door meetings to save LTCM (which they did and is readily documented) imagine what they will try to do to “save” housing.

AC

 
Comment by spike66
2007-08-03 12:20:55

Credit Brothel Raided, Even Piano Player Not Safe
By Mark Gilbert
Aug. 3 (Bloomberg) — As the financial-liquidity police raid the credit-market brothel, even the piano player faces arrest. The malaise enveloping global markets is becoming increasingly indiscriminate in choosing its victims.
At the start of July, Tunisia hired Daiwa Securities SMBC Co. and Nikko Citigroup Ltd. to help its central bank sell yen- denominated bonds. By the time the fund raising finished this week, Tunisia’s borrowing costs had risen by almost a quarter of a percentage point.
So the taxpayers of an African nation suffer because Joe Blow in Detroit can’t pay his mortgage.
http://www.bloomberg.com/apps/news?pid=20601039&sid=a31pp7slShC8&refer=home

 
Comment by Nozferat
2007-08-03 12:25:44

Too bad a lot of low lifes made alot of money in the recent few years in RE. Alot of hard working, honest people who really WANT TO buy a home NOW can’t thanks to this group of stand up folk.

Comment by Housing Wizard
2007-08-03 12:35:20

Doesn’t it make you want to spit on them !

Comment by SunsetBeachGuy
2007-08-03 12:51:32

Not spit, another bodily function.

Comment by CA Guy
2007-08-03 13:15:51

BeachGuy: that was classic. Are you thinking #1 or #2 or both? I’m thinking both, and then spit when you walk away.

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Comment by Bill in Phoenix
2007-08-03 15:26:02

Nosferat, I’m not a betting man, but I think the profits will quickly disappear from the hands of the lowlifes and into the hands of proper stewards of th wealth.

We’ll see a reverse of what’s happened lately. That is, neighborhoods where $20,000 per year incomes bought $500,000 homes will turn to neighborhoods of $250,000 homes and incomes of $80,000 (different people). The responsible people with the savings will in five years move to neighborhoods where the people really can afford to live there and perhaps pay off their homes at once if they want to, but found investments paying higher rates of returns than the mortgage rate. I think in the future mortgage rates will be in the 10% range.

 
 
Comment by Darrell_in_PHX
2007-08-03 12:34:35

NOOOOOOOOO!!!!!!!!!!!!!!!!!!!!!!!!!!

http://tinyurl.com/34ff2v

“SAN FRANCISCO (MarketWatch) — The crisis in the mortgage market has increased the likelihood that the Federal government could intervene in some way to alleviate a credit squeeze.”

 
Comment by Bill in Phoenix
2007-08-03 13:57:07

Interesting article by
Peter Schiff:

http://www.kitco.com/ind/Schiff/aug032007.html

It’s the Fundamentals Stupid

“When reality sets in, housing prices will collapse. Today’s announcement that Wells Fargo is raising rates on prime jumbo mortgages (a significant percentage of California homes fall into that category) to 8% from 6 7/8%, will help accelerate this process. As potential home buyers will once again be required to fully document their incomes, provide 20% down payments, and pay 8% annually on fully amortized mortgages, home affordability will be out of the question unless prices fall sharply. ”

“When real estate prices collapse, trillions of dollars of home equity will be wiped out, with disastrous repercussions for an American economy addicted to consumer spending. Though many consumers will see their home equity vanish, their mortgage debt, much of which will become more burdensome once adjustable rates reset much higher, will remain. Flat broke and facing rising mortgage payments, as well as higher gas and food prices, consumers will severely pull back on discretionary spending. As millions lose their jobs as a result of this retrenchment, the recession will kick into high gear, causing even greater damage to the real estate market, the dollar, bonds, and the economy, resulting in even more safe haven flows moving into gold.”

Comment by Domi
2007-08-03 14:29:55

Do you think that Fed would raise rates?

Comment by Bill in Phoenix
2007-08-03 17:45:10

Yes. it will nail the coffin of the housing bubble and ruin many of Americans, but it will increase the value of the dollar, increase purchases of Treasury bills and raise revenue for our government socialist programs ($560 billion prescription medical benefit, for one), and set the stage for later stock booms.

 
 
 
Comment by joe momma
2007-08-03 14:25:56

Was this the greatest week ever, or what?

LOL

Wall Street Gangsters are taking it up the wazoo big time! Awesome.

Comment by Jerry F
2007-08-03 22:31:30

Greed. How do you like it? Wall St boys are getting hosed. Couldn’t happen to a better group. Maybe their Christmas bonus might not be as big this year. Perhaps they will have to settle for imported beer verses expensive wine. Let’s hope there are lay offs, cut backs now on Wall St. as the money men will suffer along with the rest of the foolish shareholders who bought into this dream of riches.

 
 
Comment by exile
2007-08-03 17:32:41

On the bright side - our life is getting interesting again . Everythi8ng will be OK. Get ready, folks.

 
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