Bits Bucket And Craigslist Finds For August 5, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Exotic Mortgages…
I read another article this morning that states many lenders will now require a down payment. We have raised a whole generation of zero downers, this will not set well with many folks! Now it’s going to get very interesting indeed.
http://www.marketwatch.com/news/story/risky-mortgages-were-very-popular/story.aspx?guid=%7BB164A336%2DA000%2D48C5%2DA9D1%2DFEE96F0DFD35%7D&siteid=yhoof
“California led the nation in originations of payment-option ARMs, with about 24% of all its refinanced and first mortgages falling into this category last year”
As I was saying before, these include “prime” pay Option ARMs, because yes, hard as it is to believe, Option-ARMs and Negatyive Amortization loans can indeed be classified as PRIME.
Countrywide is still hawking its Payment Advantage 5/1 ARM and its PayOption ARM (”If you’re looking for a low start rate for a purchase or refinance, this might be the loan for you.”)
People are so mistaken if they assume that this credit meltdown won’t touch prime.
“People are so mistaken if they assume that this credit meltdown won’t touch prime”.
I could not agree more! There is not enough lipstick on the planet to pretty up this pig.
“Spiderpig, Spiderpig! Does whatever a spiderpig does!”
And just as insane as thinking this thing won’t touch prime.
PRIME!!
Are you kidding? I’m not disputing you (I’ll believe anything in this mess), but do you mean to say that some of the Neg-Am loans that people were just barely able to make the initial payments are PRIME?
I could see a Neg-Am loan being made to a rich guy with tons of assets being Prime, as that was the initial purpose of these loans, as the rich guy may be able to back up the loan with something other than that piece of real estate (i.e., maybe $2M in the bank, for example). But if you mean Neg-Ams the way they were given out in this insane bubble, then we’re even more hosed.
Prime just means that you haven’t made any dumb money mistakes that you couldn’t take care of yourself (or with help from others) in the past. It doesn’t mean the next decision you make won’t cause personal financial armageddon.
PS - In honor of Cramer, I challenge everyone to use armageddon in a post today. I think he deserves it, no?
How ’bout this? “As soon as them banks opens up on Monday, armageddon me one of them-there subprime loans so that I can be an investurd too!”
Beer — ROFL — really funny.
I just got a mortgage (early May) and I am prime (6.125% 30 year fixed), but I was offered a mortagage where I could choose from one of 4 payment choices. No doubt that a certain percentage of prime buyers would take this type of loan. no doubt a certin number of these prime buyers would choose the smallest amount to pay some months or every month.
Thanks to this blog I took the 30 year fixed.
“Thanks to this blog I took the 30 year fixed.”
Oh yeah, way to dodge a bullet there, pal!
(Really, it’s your own personal business, but IMHO buying a home right now in pretty much any market is pretty sketchy.)
“No doubt that a certain percentage of prime buyers would take this type of loan. No doubt a certain number of these prime buyers would choose the smallest amount to pay some months or every month.”
That’s because these buyers consider themselves endowed with market savy. They have convinced themselves that it is better to keep their payments low so they can invest the difference in higher paying sure-thing stocks or commodities or whatever.
Financial genius is a rising market, which is what these people have been enjoying for the last several years.
A designation of “prime” has nothing to do with a borrower’s income or assets. It’s strictly a credit history label. A person who carries debt and makes regular payments will have a high credit score and will be a prime borrower even if his income is $3,000 a month and his house payment is $2,000 a month. On the other hand, a person with an income of $20,000 a month who always misses payments and sometimes forgets to pay his utility bill will be a subprime borrower. The general public, and investors, have the mistaken notion that a “prime” borrower is a high income, high net worth individual.
By borrowing money from different banks and paying one loan back with another you can get the credit computer to label this borrower prime. And then default on 5 homes in Las Vegas. Happening right now to a friend of a co-worker. Stated income loans. I guess this guy is going bankrupt so he can dodge the tax man as well.
Thanks all - then it’s just dictated by credit score.
Real smart of the lenders - if you have 800 (or some lower number) credit, then you have (essentially) unlimited borrowing potential, regardless of whether you can pay back the loans.
“If you want a loan real bad, we’ve got a real bad loan.”
that is poetry, brilliant!
“We have raised a whole generation of zero downers”
You certainly nailed that one. Where the fun begins is the fact that the next generation is also zero downers. So, when they manage to shut off their IPOD for 5 minutes and check their savings account balance (if they even have an account), they will realize that they are years away from ever being a first time owner (and meanwhile, the oldest generation of homeowners continues to get older and leave their houses for other places).
If that alone doesn’t freeze up the housing market, I’d be shocked.
And yet, even with all the craziness that has gone on the last few years–what are people predicting, maybe 20% (at most) foreclosure rates on the subprime/alt-a loans?
There were many criminals involved with this, there were many idiots, but still, most people that took out loans and bought houses are paying their bills.
The article mentions that 90% of the loans that were non-conforming have disappeared. Let us assume they were talking about types of loans. (e.g., 20% down Jumbo remains).
This is going to further cut Southern-California sales in half.
I can only hope. When I buy, I have zero desire to compete against some idiot who couldn’t save 10% to 20% down and is making an impulse purchase.
Got popcorn?
Neil
I know a fellow up here in Seattle who recently bought a million dollar home with zero down. I could not believe it. He’s a doctor, so I guess he’ll make that 8Kmonth payment every month, but it struck me as an incredibly stupid thing to do.
It will sit well with anyone who is honestly concerned about affordable housing, as one of the key reasons housing became so unaffordable was waiving of downpayment requirements.
In a matter of a few months, affordability won’t be a problem because valuations are going to get destroyed and will be affordable to those who have money in the bank. Valuations on real estate will collapse and it’s gonna happen fast this time because of all the zero-down guys and equity strippers have no skin in the game. The banks will be puking REO “Exorcist” style. There was an article in a California paper this week regarding foreclosures that aren’t selling at auction and going back to the lender.
Just Curious - does anyone know if lenders have started to clamp down on the 80/20 loans? I have heard a lot about option arms but has the blow back made its way up to 80/20 loans - or are these still widely available?
80/20 loans have basically gone away as well since no lender can sell the “20″ loan. The only way to get 100% LTV is with a lender willing to take on the full 100%, and these are starting to go away as well. Nobody is willing to do a 20% second.
I am very sad to announce that USAA Federal Savings Bank is still advertising exotic loans on its website. For example:
Other Low to No Down Payment Loans:
Combination Loans
A good choice if you don’t have cash for a large down payment, prefer to save your cash, or want a financing option that doesn’t require PMI.
Use fixed or adjustable rate mortgages for up to 80% of the purchase price.
Use a USAA equity loan to finance all or a portion of the remaining balance.
Flex Loan Option
This is a good choice if you want to purchase a home with the use of funds from sources such as a gift to cover down payment and closing costs. There are two flex loan options:
A loan with no down payment required; however, the borrower must contribute a minimum of $500 toward the closing costs with the remainder paid with a gift or other flexible funds.
A loan that requires a down payment of three percent of the purchase price, where the down payment and closing costs may be paid using a gift or other flexible funds.
Interest-Only Loans
Interest-only loans may allow you to purchase more home for your money because you pay only the accrued monthly interest for a certain period.
This loan may be the right choice if you:
Live in a high-value area.
Plan to stay in your home less than 10 years.
Want to maximize your monthly cash flow in order to use your money for other purposes.
Will have an increased income in the future, but need lower payments now.
I am disgusted. Now, please note that I’m not sure if these are available to anyone or only to members. The last time I checked, anyone could use the bank, but only members could get insurance. That may or may not still be the case (ie. it may be that only members can become new bank customers). Current or former members of the US military or their dependents or former dependents are eligible for USAA membership. I’m a member because my Dad was active duty in the air force in the early 60’s.
Things are moving so quick in the secondary market that it’s likely USAA’s webmaster is working overtime this weekend to remove these offerings.
Combination Loans
A good choice if you don’t have cash for a large down payment, prefer to save your cash, or want a financing option that doesn’t require PMI.
Use fixed or adjustable rate mortgages for up to 80% of the purchase price.
Use a USAA equity loan to finance all or a portion of the remaining balance.
Am I missing something here or wasn’t PMI created to protect the banks if someone defaulted on a low downpayment loan?
Are they cutting off their own hand?
I joined USAA as an officer in the mid-’60s, during ‘Nam. At that time, membership was open *only* to commissioned officers in the military services and their direct dependents. Later, they loosened the definition, allowing (as best I recall) GS-x and above from the Civil Service, then later they formed USAA-CAC, a separate corporation under the USAA umbrella that covered enlisted personnel. I don’t know about the bank, which has provided me good credit-card and car-loan service in the intervening years, but I think the quality of service and pricing by the insurance company has suffered as the company grew.
Had they stuck to the original model, they’d have relative little to worry about regarding bad mortgage loans. The military is very tough on officers who have credit problems and a bankruptcy should be a career-ender. The fear of that should have dissuaded most officers from taking on too much loan debt; further, they have the unpleasant option of signing up for hazardous assignments (and more pay) to feed their alligator. But if the USAA bank is open to as many non-officer customers as Polly indicates, then they have a far smaller hammer and I’d hope they extract themselves from such loans and NOD customers as quickly as possible.
Remember the bank and the insurance company are required to be separate by operation of law. I’m not up on all the regulations - way beyond my area of specialty which is taxes. But the bank is a savings bank, not a credit union, so it isn’t required to limit itself to a particular interest group or region.
I bet a lot of their customers come to them through membership, even if it isn’t required. They definitly tell us about their great customer satisfaction ratings, but I don’t see them advertising for new customers among the general population.
The military should be tough on anyone with credit problems. It is a big no-no on security clearances, and I hope most members of the military can qualify for clearance even if they don’t need it for the job they are doing at any given moment.
Agreed — the security clearance is the key issue.
I predict that one thing this will do is make the VA Home Loan a valuable benefit again for those of us who served in the military. Not that I need it now, but it’s how my wife and I bought our first house in the early 90s, back when we just got to the point of having a decent income but hadn’t quite saved 20% down.
va loans have a limit of $417,000. try to buy a starter home in compton ca for that amount. it will work here in kingman az new homes start at $150,000
OMG, there are houses for 150K in Kingman, AZ and you’re sharing that secret? Now that it’s out in the open people are gonna get some sweet loans, swoop in there, and pick up 10 or 20. You better buy now and get in on the ride early.
Not gonna happen, Mike. The easy money is gone.
CalVet has up to $521,250 and they are great loans and should be better than any other.
“…many lenders will now require a down payment…”
This brings to mind the question, “Which lenders will still not require a down payment, and why?”
as mentioned before, some big US lenders still don’t require downpayments, loan documents or good credit history for non-USA home buyers …
Not only a generation who expected to buy a home with no money down, no closing costs, and cash back at closing to pay off other bills . Then they expected to REFI and take money out to pay for everything under the sun. Cars, boats,vacations, etc. They were conditioned to ” free” money.
They are in for a rude awakening. The party is over and all that is left is the hang over.
BJ — I agree — so what if the VA loan limit is $417K — that is too much, anyway. Who makes the kind of income that supports that much debt and needs VA in order to qualify? Heck, I never ever needed VA financing and I am not about to pay over $400K for a house in the market that is unfolding before our anticipating eyes.
OT, but I thought some folks on the HBB might find this article on diversity and sense of community very interesting:
….A massive new study, based on detailed interviews of nearly 30,000 people across America, has concluded just the opposite. Harvard political scientist Robert Putnam — famous for “Bowling Alone,” his 2000 book on declining civic engagement — has found that the greater the diversity in a community, the fewer people vote and the less they volunteer, the less they give to charity and work on community projects. In the most diverse communities, neighbors trust one another about half as much as they do in the most homogenous settings. The study, the largest ever on civic engagement in America, found that virtually all measures of civic health are lower in more diverse settings.
“The extent of the effect is shocking,” says Scott Page, a University of Michigan political scientist.
The study comes at a time when the future of the American melting pot is the focus of intense political debate, from immigration to race-based admissions to schools, and it poses challenges to advocates on all sides of the issues. The study is already being cited by some conservatives as proof of the harm large-scale immigration causes to the nation’s social fabric. But with demographic trends already pushing the nation inexorably toward greater diversity, the real question may yet lie ahead: how to handle the unsettling social changes that Putnam’s research predicts.
http://iht.com/articles/2007/08/05/news/diversity.php
I have to chuckle when I read studies like this. If you have money you don’t want to live next door to poor folks. Just like the animal kingdom, we prefer people of our own ilk. Why do socialists have such a hard time wrapping their brain around this fact?
They know it, of course.
It is simply their way of making life miserable for achievers.
I just finished a book called, “The Price of Priviledge” by Madeline Levine, PhD. Chapter 2 is entitled, The Not-So-Hidden Mental Health Epidemic Among Privileged Youth
The book describes how materialism, individualism & perfectionism often get in the way of the affluent’s children developing a healthy sense of self.
Also from the book:
…”when community cohesion is low and values are highly competitive and indivudualistic, its members feel unsupported and wary of each other. (My community experiences this in spades) Affluent communities suffer from both a lack of cohesion and a lack of values that stress the needs of the community. In this environment, individuals come to feel that it’s “every man for himself.”
After reading this book I’m not so sure I want to live among the achievers.
Wealth does not necessarily come from “achievement”, unless you define achievement solely as obtaining wealth.
I was a public high school teacher for a while in LA. I tried to learn about why the “poor kids” were such freakin’ spoiled brats.
Some research has been done on three basic parenting types:
- controlling (I said SHUT UP! ),
- authoritative (Quiet down or go to your room, I’m on the phone), and
- permissive (Kids will be kids! Haha… )
The one that causes the most long term damage on kids is the permissive style. Kids don’t learn to behave in a social setting, considering that other people are affected by what they do. This leads to selfish, impulsive, and obnoxious behavior that stays with them for life. Poor or rich, permissive parents end up with bratty little snots.
Having taught a generation brought up this way, I am terrified for our future.
Anyone who lives or has lived in an affluent community with children knows this. It is a constant environment of ruthless competition and you see the results of this in lack of real intimate friendships, all social movement is thought out as strategic moves in order to advance. As these children become teens they demonstrate a lack of concern for others and for themselves unless it relates to accepted standards of achievement. When you go out at night in these communities you can witness some serious vandalism and general destructive behavior from these priviledged youths.
Madeleine needs to go back to school. It’s “privilege”. Also, I’d be curious about her definition of “affluent”–in general it’s a very fluid term that means nothing specific. Is she talking about the children of well-to-do but frugal old Yankee families with community service in their DNA or the got rich yesterday kids of hedge fund scuzz or celebrities.
Is “affluent” a cover word for white and ruthless, the sort of folks who made fast cash as RE agents or bucket shop mortgage lenders?
And how does she define “achievers”? Successful, self-employed electricians and plumbers who own their own shops, debt-free and value-conscious? Many of these guys have serious money, as noted in “The Richest Man in Babylon”.
A lot of this recently arrived, heavily leveraged trash will get washed out with the tide.
AK-LA
In fact the author (from Marin Cty, btw) got into parenting types and mirrorred your sentiments.
Authoritarian (or controlling) parenting often “leads to low self-esteem, poor social skills, and high rates of depression. They also lack curiosity. Thinking outside the box is not encouraged.” (maybe how the bubble got missed–sounds like Enron thinking)
Permissive parenting results in likable, social and high self-esteemed(paraphrased here) kids. OTOH, they tend to be “impulsive, immature and have difficulty understanding consequences. They tend to be manipulative and have lower rates of academic achievement. They also suffer from higher rates of substance abuse.” (manipulative? have trouble understanding consequences? sounds like our current banking leaders—more blame for the bubble?)
So there you have it: the denial of our sad state of affairs is all due to poor parenting.
Nothing wrong w/author’s spelling. Sorry for typo, Spike 66—too many margaritas last night. Head still recovering.
Author did national study after seeing what was going on in her own practice in Marin Cty, CA. There are profiles of kids in trouble (emotionally) from all over the country.
One of the stumbling blocks may be that once “wealth/success” has been built up, the family feels the need to protect their hard work and often doesn’t want to admit they have any problems. (Perfectionism) So smaller problems go w/o help until they build into something more serious and more difficult to reverse.
I know a school psych who worked simultaneously in Malibu and Van Nuys. He said that without question the kids in Malibu were consistently more screwed up than the ones in Van Nuys.
Carrie,
Hope you’re feeling better. But this jumped out at me:
“Author did national study after seeing what was going on in her own practice in Marin Cty, CA.”
Marin County!! Ground zero in the 80’s for soft drugs, consumerist hype, food snobbery, and sexual gamesmanship, and that e-z california money made possible by reagan’s tax breaks. And their kids are screwy? Surprise, Surprise.
If Marin County is this author’s ground zero, she would have zero insight into the mores of established communities in the Northeast. Pardon my contempt, but I see little value in this sort of sociological drivel, edited no doubt with a PC consciousness.
You want serious insight, try Paul Fussell on class distinctions.
Marin City is disadvantaged by any measure, so your stereotyping is way off. Marin City is not hot tubs, pet therapy, or art galleries; it’s working poor, check cashing services, and fast food joints instead of supermarkets. Perhaps the exception defines the rule, but that location is definitely the exception.
Exactly!
Only by crushing achievers can they keep them in line and make sure that they obey and don’t make any trouble or think any thoughts aside from what they are told to think. Putting trashy “no money down” liar-loan bums in nice homes while pricing out honest workers, savers, and investers who should be middle class is just another example of this tactic.
“I have to chuckle when I read studies like this. If you have money you don’t want to live next door to poor folks.”
That’s true. And also based on a fallacious assumption: that wealth equates virtue.
My sister had a home custom built so’s she wouldn’t have to live with the riff-raff, only to learn the hard way that rich white trash behaves just as badly as poor white trash. Worse yet, the rich white trash generally has connections at city hall, so calling the cops on them doesn’t accomplish anything.
This sort of pop study assumes that current behavior is caused by something the parents did or did not do.
But what about the parents? What is it about how they were brought up that led them to do the things they did or did not do? And what about the parents of the parents- what about their upbringing?
If things were so simple then bringing up kids in a certain way would always lead to a predictable result. Pretty soon the entire population would bring up their kids in exactly the same way as a result of the way they themselves were brought up.
Therefore, I don’t buy the just-look-at-the-parenting-style generalities, and there is too much variance other than just to look at pretty broad-brush trends.
RE: I have to chuckle when I read studies like this. If you have money you don’t want to live next door to poor folks. Just like the animal kingdom, we prefer people of our own ilk. Why do socialists have such a hard time wrapping their brain around this fact?
…
maybe you missed the point. The actual article does not mention wealth or money as you do.
I have to agree with the article. I trust people who talk like me, that grew up like me and have the same values and beliefs as me. Blacks, latinos, asians, whites and middle easterners have learned all of these things slightly different than the rest and therefore cause more doubt. We understand our ethnicity, we trust our ethnicity first and foremost. Think about the last car salesman you’ve been drawn to? The last telemarketer you’ve trusted….
Amen.
That was a good read Hondje. I received my degree in anthropology and can tell you that you learn early on during any reading in the cultural aspects of anthro that people are inherently xenophobic. I find nothing wrong with this and the article made sense to me. Eventually though, people tend to warm to other races. Hell, my mother’s father was an Irish immigrant and my fathers parents were both Italian immigrants, now they all get along where I grew up in NJ. As a matter of fact, Irish / Italian family mixes are quite common where I grew up.
A lot of it is to do with exposure to other people/cultures too. If people don’t mix with others, then they tend to be more distrustful through ignorance.
One of the things I noticed the most when I first moved to Los Angeles was the seperation of people into different enclaves - the Latinos live with the Latinos, Blacks with the Blacks, Whites with the Whites, etc, with almost no overspill.
Despite everyone telling me how ‘diverse’ the Angelinos were - I hardly ever see a black face in Westside, and the only Latino people I see are servicing the houses and grounds of rich white people.I know that there is a huge minority of blacks, asians, latinos etc… but I hardly ever see them around, as co-workers and neighbours.
I grew up in a poor part of London - where the ethnic mix was something like 50/50 whites/minoirites. I’m not saying that the UK doesn’t have a problem with discrimination and racism - it does - but its a lot harder to glomm people who are different than you into a faceless threat of ‘otherness’, if your kids go to school together, you ride the same bus to work every morning, you go to the same pubs, eat at the same restaurants and even live on the same streets as each other.
Anyway, long and short of it is, if you spend time with people who are different from you, you soon learn that - all in all - they’re realy not that different from you.
@Dukes - I’ve heard that Irish/Italians are often the first to mingle - do you think this has anything to do with them both being largely European Catholics?
Speeding — I distill it to the simple concept of “tribes.” Tribes are anathema to government, because they represent independence with a bit of clout. The European colonists, for example, screwed up “royally” by dividing Africa by “logical” geographic boundaries rather than by long-established tribal ones — and Africa pays a large price for that to this day.
In South Africa, the Afrikaners believe themselves to be the “White Tribe,” because they inhabited most of the territory before any other Africans beyond a small number of Hottentots. Yet, because they are white, their views are dismissed as not worthy of consideration in a hand-wringing world fraught with a need for self-recrimination.
I wonder how many hot-dayum political views will be out the window when the window itself, and the house to which it is attached, are in foreclosure.
Well, Hondje, you seem to have provided the grist for a lively discussion. The text of the report *relatively* disparages, by omission, the Confederate States Army with regard to desertion rate, by not mentioning it at all. Not surprising, so I’ve asked a good friend, who is a Southern heritage historian, for some data about that. My wager, obviously, is that proportionally far more Yankees deserted than did Confederates.
Chip,
I found that interesting, but would bet that Yankees deserted in far higher numbers. Worst riots in the country’s history were in NYC when northerners could no longer buy their way out of military service. Starving Irishmen were recruited with free passage to America if they joined the Union army. Southerners were fighting to defend their home ground. Rebels had much smaller numbers, but were probably much more committed.
The rates on 30 year fixed rate mortgages are now getting “interesting”.
http://tinyurl.com/23uca9
The rates of 30 year ‘conforming’ loans (stuff that can be sold to the GSEs) are going down, while the rates for 30 year ‘jumbos’ (those that can’t be sold to Fannie and Freddy) are going up. An interesting divergence, to say the least.
I think that as the “flight to quality” continues, investors are competing for Fannie and Freddy debt because of the implicit (if not explicit) guarantee offered by the US Government. However, non-Fannie and non-Freddy debt (jumbo loans) are seeing less investor interest because of a perceived “flight from risk”.
As an aside, 30 year fixed 20% down fully amortizing mortgages are so “old school” in California…it’s interesting that even this old stalwart is seeing increasing risk premium when it doesn’t have the (implicit) backing of the US government.
I wonder how many folks have 20% down saved up? If the negative national savings rate is any indicator. This move will crush the housing market, there will be howls in D.C. The “it’s not fair” cry will be heard nation wide!
Yep, the party is over. What is the Fed going to do? Drop rates and stoke inflation? This isn’t ‘01 when oil was $20.
http://tinyurl.com/29egn6
It certainly looks like some people believe that is exactly what they will do. The Wall Street shysters walked away with millions and billions of dollars in personal income from this crime. Now they will get a Fed bailout to allow them to make more millions and billions. I really hate this country some times. If Bernanke does this, his name will be _______ (fill in the blank).
‘The Wall Street shysters walked away with millions and billions of dollars in personal income from this crime.’
- By the time the public learns of a new investment, get rich scheme via the media - the smart money has already made it and will now close there positions selling to the newly informed public.
SoBay is right, how many times do we have go through this before people realize the smart money is ALWAYS many steps ahead of them. Like Chomsky said…it’s a huckster nation.
“Yep, the party is over. What is the Fed going to do? Drop rates and stoke inflation? This isn’t ‘01 when oil was $20″
I am leaning toward the fed actually dropping rates. The fed and the repug administration will do anything to keep employment and the stockmarket from tanking, for political reasons. The will lie about the real inflation numbers to assuage the general mass of sheeple while allowing hyper inflation to run rampant. The big business interests, wall street, all debters(98% of thge people), homehowners,ect want inflation. Only fixed income folks such as retired will get hurt by inflation but the gov’t does not care about them. They only serve the big corporate interests who benefit from inflation.
The gov’t only does what is politically expedient, in the short-term. Inflation is the soft political option, though mild, managed deflation is the wiser choice economically in the long run. Since when does the fed/gov’t make hard economic choices based on economic rationality.
The Dude: Yeah, well. The Dude abides.
Different opinion, based on nothing but thought and a conversation with a friend who studies this stuff: I think that the Fed will protect the mega-rich, who have already exited the risky part of the market, are in cash or equivalent, and are poised to buy up a huge amount of real estate at rock-bottom prices. The media coverage is pap. I have enough gold to cover me if I am so wrong that we have hyper-inflation, but am ready to pounce if the uber-rich, abetted by Fed-rate inaction or even an increase, drive housing prices back down to where they should have been and beyond. All IMHO, of course. No companies, individuals, or animals benefitted, or stand to benefit, from this oopinion.
“I wonder how many folks have 20% down saved up?”
(hand raised)
But, I do get your point - and agree. Look for democrats’ campaign promises to slowly incorporate the class warfare slant.
We Rent — I am in the (disappointing to me) minority who believe there is not a worthwhile bit of difference between the Republicans and Democrats on this issue or on foreign intervention, yada, yada. To me, “Republicrats” is an appropriate term for what we see pretending to represent us in Washington these days. I tried to figure out a way to phrase it in the reverse, but couldn’t come up with one that works well enough to me “rememberable.”
20% down = armageddon (a nod towards Cramer on that one).
Honestly, if 20% down (and a seasoned 20% down would be even worse) was the only way to buy a home the market would just collapse overnight. How many people have 100K availiable, can qualify for a 400K MTG note, have good credit scores, verifiable income and most importantly DON’T ALREADY OWN A HOME????
I have that kind of money or very close to it. I don’t have a house. And I probably COULD qualify for the 400K note, but I DON”T WANT TO. That is why I have cash in the bank. I like living below my means. That PITI would be close to 75% of my take home (general guess, it would depend on the insurance and the taxes). I could live on the last 25%, I think (and assuming limited future inflation), but it wouldn’t be any fun.
And it wouldn’t leave any room for future extra payments to principle to get rid of the note early. I want that flexibility too.
This country needs at least 10% down loans. Lending will never be stable until the buyer has a stake in the property. Lots of us made it when the norm was 20-33% down. Maybe it would make some people grow up and take responsibility, instead of living for the next dinner out, vacation, and high tech fix. We did without lots of things, got our house and then we could vacation every year, eat out occassionally and buy our electronics. If you don’t have to sacrifice, you don’t learn a lot about responsibility.
Thanks for the info on jumbo loans. Looks real good for California and luxury builders like Toll Brothers.
The big question is how long will this dichotomy last? Will folks continue their unsceptical faith in the GSEs, especially in light of all the accounting problems? Fannie and Freddie have over $4 trillion either in their portfolios or guarantees. This is protected by (at most) $60 billion in capital but we won’t really know until they give us an annual report for 2006. With the huge mess from their accounting scandals, Freddie just gave us their report and Fannie expects to “by the end of this year.”
It’s called an implied guarantee since the government never actually promised anything.
Here is another article from the WashPost on mortgage loans, zero down specifically. Its as if we had to go through all of this to realize 20% down fixed was the right way to go all these years!!
http://tinyurl.com/2odehw
the lenders still have not realised 20% down fixed is the way to bo! They are simply moving on to greener pastures. The Dutch newspapers reported this week that there is a surge in the last months in subprime, zero-down and ARM lending from American mortgage companies to Dutch home buyers. At the same time mortgage rates in Netherlands are declining across the spectrum (probably because of increased competition to sell mortgages). Home price appreciation in Netherlands is far bigger than in the US (+600-1000% over 15 years. I guess the US lenders take the risk because they see strong support from the Dutch government for the Dutch housing bubble, compared to the US where the market is finally working as it should to correct the excess.
So the US is exporting inflation to Holland via mortgages. Japan has been doing this to the US for years. Japan really should raise their interest rates this carry trade is a confiscation of the savings of a whole nation of savers in Japan.
Comment by nhz
the lenders still have not realised 20% down fixed is the way to bo!
“Selec-tah!”
Sorry, couldn’t resist
With 600% to 1000% gains over the past 15 years, perhaps it may be about time to revisit the Tulip Bulb Mania of the 1630’s and where it all started. In the final analysis, the bigger the top, the bigger the drop, and since i think we are the very start of an intergenerational credit implosion and corresponding Grand Supercycle Degree Bear Market, it may well behoove one to get the H out of Dodge wrt to real estate in the Netherlands. In time this may get so bad that it may become the “Netherworld”…….
Very ironic that we are exporting to Holland, the land of the first infamous bubble (Tulip Bulbs), the product that has procduced the largest asset bubble in modern history!!
WOW - I mean WOW - this is huge!!!!! In Texas, most of the new subdivisions - even the high end luxury places have a large sign at the entrance indicating “Zero Down / Zero Move In”. If these 80/20 loans truly dry up, its going to be a disaster not only for bubbly places that caught the media’s attention but for most of the country. About 1/3 of Austin’s housing market is financed with zero down loans. Imagine 30% of the market going away all of a sudden.
msm pitches Austin as RE Nirvana
That just means you have to pay PMI instead of a second note, I doubt it will change much - will still be a repeat of the late 80’s disaster.
Mortgages really get tight when PMI dries up. At that point everyone needs 20% down. It may happen.
Skip — IMO, PMI quite suddenly may be very hard to obtain for many would-be borrowers. What they won’t know, for some time to come, is that they are better off for having been disapproved.
Crisp and Cole preyed on people:
http://www.bakersfield.com/hourly_news/story/205712.html
Defaults now at 80 homes
Read this entire story - some serious accusations here of fraud, straw buyers and cash back at closing
$14 an hour worker gets $1.9 million worth of homes and a promise of cash back at closing - then the roof falls in…
http://people.bakersfield.com/home/Blog/Bakersfieldbubble/12903
http://people.bakersfield.com/home/Blog/Bakersfieldbubble/12903
sorry for the double post - too much coffee
We understand. It must be very exciting to finally see your nemesis, and namesake, circling the bowl. I want to see you post the article when they finally flush this turd.
So do I. LOL.
As a former long time resident of BK I get a real charge out of reading this as it unwinds. I still have a lot of friends and relatives down there that feel their houses are worth 3X their true value. I can remember when $300-$500K bought a quality house in the Oaks or Seven Oak Country Club Estates.
One BIL still defends Crisp saying that he was duped by Cole. Another living up on Panorama thinks his $200K house is worth $800K and that he should be able to sell for that and buy a better one in foreclosure for a discounted price. Another friend said she looked at a house out in the area of Rosedale and Seventh Standard where the builder was begging her to buy one of his houses. Here again she said that she could sell her’s for $800K and buy one of his for $400K because her property was ’special’. As for me, I have gone from a home owner to a happy renter.
There are lots of people who are holding on to the dream of not losing this price appreaction. Unfortunately, with defaults & foreclosures up 2,000% YOY, I think they are dead wrong.
Someone claiming to be Cole’s son keeps posting on my blog that David screwed his dad. Hopefully these guys will turn on each other and we will get the truth.
‘Holding on to their dream’
I know some people who well grounded in the BK economy who were buying what Crisp & Cole were selling. I couldn’t believe what they were telling me a year ago when I told them that the high rise by CSU wasn’t going to materialize. I think the thoughts of RE riches is somewhat akin to gold fever; all rationality it totally vaporized.
Do people in bakersfield actually abbreviate it BK? If not they will soon I guess!
What do they call Fort Collins? j/k
too much coffee
No such thing. It is the elixir of life!
U S A… NUMBER 1!!!!
U S A… NUMBER 1!!!!
U S A… NUMBER 1!!!!
Hunger a growing problem in Lee County
More in need of food as work disappears
http://www.news-press.com/apps/pbcs.dll/article?AID=/20070805/NEWS01/70804039/1075
Mired in debt, more people 55 and older face bankruptcy
http://www.heraldtribune.com/article/20070805/NEWS/708050695
U S A… NUMBER 1!!!!
U S A… NUMBER 1!!!!
U S A… NUMBER 1!!!!
We should all be very ashamed.
‘We should all be very ashamed.’
We should all speak for ourselves, IMO.
AGREED!!
I’m in my 3rd house - each 20% down, 30 year fixed. I lived in California for 10 years and never dreamed of buying anything more expensive than a car - they could take those loans and shove them. People like Charles Manson also lived in California at the time. I’m not ashamed, as I didn’t know them, and I had nothing to do with them.
There are things that I’ve done that I am ashamed of, but, so far, nothing that’s made it to the newspaper.
…and Ben’s been screaming from the hills about this mess, long before (virtually) anyone would listen.
Your posting about being ashamed of ourselves is valid, but it belongs on a Realtor or Mortgage Broker forum, not on this site.
I agree, Ben. I don’t force anybody to have children. I don’t force anybody to live beyond their means. I don’t cheat anybody out of their money. I have nothing to be ashamed of. Collective guilt is bull–it.
“Collective guilt is bull–it.”
I agree, I don’t subscribe to the “we of society are to blame” think. It is a sociological effort to degrade people as a group and make them taken on the shame and blame for effects brought about by others. As a result, we get horrifying manifestations like political correctness.
Having said that, as citizens of the US, each of us shares at least some tiny responsibility on a micro level for what happens in the country on a macro level. For example, speaking up when you see a neighbor doing something potentially harmful, or acting like an idiot. That’s something I struggle with all the time, because you run into these things every day in life. Or giving government representatives a phone call to protest something or even to acknowledge when they’ve done a good job.
I think I recall Ben posting that he started the blog because he saw what was happening with housing. That’s what I mean about taking responsibility. Not all of us can start blogs, but those who support the blog, either with money, informational posts, technical advice, etc. are also taking responsibility and using the references on this blog to try help friends and family see what is going on. There are many, many seemingly small ways people can take responsibility. The pitfall is thinking that what you do or don’t do doesn’t really matter.
I’m not meaning to sound preachy here, because I can think of many times I should have at least spoken up about something and didn’t.
I agree, Ben. I don’t force anybody to have children. I don’t force anybody to live beyond their means. I don’t cheat anybody out of their money. I have nothing to be ashamed of. Collective guilt is bull–it.
Thanks Cityboy. (Queens is in the house BTW). I didn’t expect any pats on the back when my wife and I got our college degrees, worked hard, saved our money, lived in a small apartment with no car, and chose not to have kids. So I won’t cry a river when Crackerbitch with the C+ average learns her first hard lesson about life in her 30’s.
“It used to be that we would finance a loan up to $1 million with no down payment for a first-time home buyer,” said Daniel H. Aminoff, a senior loan consultant at Washington Mutual Home Loans in Alexandria. “But as of March, we will only finance a loan of $417,000 with no down payment.”
That’s still a breathtaking amount in my opinion. I wonder what the requirements for approval are.
The profiles in the post story are more of the same old, same old. Wanted the house, didn’t have cash saved. Consequences being part of the equation are going to take too many by storm…..Armageddon soon to ensue! (Got mine in!)
I am some of the time. Over 40 percent of our kids live in poverty, we’re the number one polluter of fossil fuels in the world, we’ve declared a war on lies. we have leaders that are shredding our constitutional rights and mindless consumerism seems to be our chief preoccupation. We build fat homes with too much in it. We’ve grown fat and debt wridden. We don’t save enough. We consume more natural resources than any other country. Our military budget is larger than all the military budgets of the world combined. We are the arms merchants for the world. We’ve allowed large corporations to take over our air waves and our thought waves. Millions of us don’t have health care. We should be doing better, we’ve certainly the genius for it.
Nice…and which constitutional right has our government taken from you (and no second amendment examples please, they’re too easy)? Perhaps the right to protest against low-income housing being built next store, as was done Clinton, via federal lawsuits? That’s my example.
Other than the right for terrorists to openly operate in this country, what other rights have we lost.
http://www.postgazette.com/pg/07217/807147-85.stm
The third in a series about one of Pittsburgh’s RE scammers.
http://www.signonsandiego.com/news/metro/20070725-9999-1n25cvprop.html
Chula Vista (South San Diego) to place foreclosed houses’ upkeep on lenders.
I hope CFC has tons of money!
The ordinance will take effect in October. The program will be paid for by a $70 fee charged to title holders when they register an abandoned property with the city.
The rules kick in with the first notice of default. At that point, a lender must check to see whether anyone is living in the home. If not, it must hire a property management firm to prevent any sign of disrepair from popping up, said Doug Leeper, the city’s code enforcement manager.”
And which councilman’s son or relative will run the property management firm of choice. I see more potential here for graft.
I guess my problem with that is that the lender has no right of entry until after the foreclosure sale. can’t take care of what you can’t touch.
I suppose the next group we should feel sorry for are the strippers and limo drivers who are now out of work.
FED RATE CUT COMING THIS TUESDAY??
Could this be a serious possibility? And if the FED cut rates what would be the potential up/down sides to the overall market.
What do the futures markets say?
If I am reading the August meeting outcome chart correctly, then Mr. Market’s subjective probability of a Fed Funds rate cut to 5% (from its current level of 5.25%) has increased from 0% to 10% since the end of July. I am not sure the rightmost data in the chart is current?
http://www.clevelandfed.org/research/Policy/fedfunds/index.cfm
I am seriously thinking of closing out every put position I have by the end of tomorrow. I have done well in the past 2 months. I might want to stay clear of the possibility that the morons at Fed would actually precipitate Armageddon for the dollar.
I will sit in all cash in my trading account until after they announce. If they cut rates the DOW will go up 300 points in a matter of minutes. It will be a wondrous time to buy puts as the market will soon realize that a rate cut symbolizes very bad things from the American economy.
I love Cramer’s meltdown coming on the fact that the major indexes are still up 20% over the last year, due mostly to LBO activity. The sleaze on Wall Street is up to their knees and rising fast.
I know how you feel, same position for me.
The real question, as I see it, is whether the Fed can do anything at all about these loans out there resetting - these loans are vicious. I don’t think anything can work. The only chance might be to drop short-term rates to 1%, but I still don’t see it working…I think there’s still a long way to go on the downside.
(just my opinion).
I think, GotRocks, that the Fed could lower rates to 1/2 of 1% and it will not make much of a difference in the long run. Until the dollar is linked to gold or silver, they will spin this until we have a Weimar Inflation and 1 billion dollars will buy a loaf of bread.
Events in motion or soon to be will render anything Wall Street or the Fed moot….welcome to Great Dpression II.
Lower interest rates….the dollar is destroyed and its ability to buy oil. We need oil.
Raise interest rates…..real estates and derivatives and corporations that depend on this fiction papers go broke faster. At least we will be able to get better deals with a stronger dollar and we do need oil.
Keep the rates the same…..a slower road to hell.
The piper will be paid soon.
If the lower the rates, we’re screwed as an economy. The rest of the world will suddenly wake up to the jokers running the con game here and realize that the dollar is worthless. They’ll shift their reserves away from dollars at a faster rate… and I wonder what the world would look like with oil being priced in Euros per barrel or some other such thing.
A rate cut would help the Wall Street crooks (who are the only people who matter, of course), but would crush whatever is left of the consumer in this nation. $5+ a gallon gas, even higher food prices, etc. Oh, and no, your salary won’t go up, of course.
I expect the FED to change the wording of the speech, somthing like “inflation fears are balanced with slower growth because of the mortgage liqiudity problem” that may give you your 300 point rally. And yes its really bad news that the economy is getting hurt by the mortgage liquidity or the lack of it. Remember when BB said he didn’t think the housing slow down would spill over. Lets see what he says, I know what I would say ” tough we warned you about this flat pricing of risk and what happens when it unwinds, rates steady” I remeber Greenspan talking about this very thing one year ago and at that time I wasn’t really sure what he was saying. well Cramer has explained it to me
OT. Here is someones (don’t know who is behind the movie) tin foil recap of history and our monetary fraud. The first part is on religion (I found it interesting from a historical perspective, if it is accurate). The second part is making the case that 911 was a false flag event by criminal elements from within our gov’t. A compelling case is made mainly from the incompetence or oversight of the 911 commission. Although barring an omission from someone involved (assuming it’s true) it is destined to end up in the same locker as the kennedy assassination report.
The third part recaps the monetary fraud that we call our unbacked fractional reserve system. All in all I found it interesting and is certainly a different experience from most other movie options one could consider to watch on a saturday night. It lasts about 2 hours.
http://www.zeitgeistmovie.com/
“fractional reserve system.”
FRACTURED reserve system, IMHO. Anyway, augur, good post. On Friday night, I saw the Bill Moyers program on the selling of the Iraq War. Most enlightening. The behavior of the dinosaur media that was fostered during this period set the stage for the behavior of the media with respect to the housing bubble and other recent sociological/financial manifestations, IMHO. I have just recently watched this play out on the local level, with a story about the local bubble and bust that ran this week in the local fishwrap. The “reporter” did a good job of narrating what had happened to the area since 2001 for the first 2/3 of the story. He lost it in the last third, as he downplayed the effects of the bubble and the bust, wrote a love letter to a local real estate firm (which had a fat advertising insert in the same issue in which his story ran) and made the claim that in 2008, boomers “flush with cash” from pension and retirement funds would be moving to the area.
This made me think of Moyers’ comment that back in the day, newspapers and magazines were largely supported by subscriptions and so could afford to publish with some integrity. Advertiser driven media cannot afford this luxury. The reporters are in effect paid by the advertisers. However, here on a blog like this and other reader/viewer/listener supported media, the truth can come out. In a sense, blogs like this are a return to the good old days of subscription supported media.
agreed. I wish I could better understand how the media continues to overlook obvious inconsistencys in the world without asking the tough questions? Whether that topic is the motive behind going into Iraq (since the WMD story has been soundly refuted) or why the U.S. gov’t (read taxpayers) are paying interest to a private organization to print “our” money? ( to pick two topics at random) The big issues are always covered in a way that spins them to the credit of the gov’t somehow, if covered at all. I would like to pin this collective oversight on stupidity but even a blind squirrel finds a nut once in a while so I’m coming to the realization that it is intentional. I just can’t figure out how so many folks could be in on something like that? Perhaps I’m missing something but that doesn’t seem likely either. Definitely a conundrum. At any rate, the internet is a growing force in the awakening of our populace to the growing menace of our gov’t towards our freedoms (be it the suspension of Habeas Corpus or a multitude of other freedoms vis-a-vie the patriot act, presidental orders or signing statements). It isn’t a Demo vs. Repub issue either, both parties are in on this! It won’t be very long until we have to produce “papers” (chipped id’s) in order to transact any business with a bank or merchant. The citizens of the U.S. have already been brainwashed into thinking it is OK for the DHS to search them at bus stops for no reason (after all, if you have nothing to hide then why resist?), as I reported a couple of days ago from http://www.urbansurvival.com (it was “voluntary” this time but don’t expect that to last as I expect that exercise was merely a dry run to see how folks would react). It’ll be interesting to see if the internet stays around unimpeded/sensored. I’m guessing no, but I’m a “tin foil” hatter.
Have a nice day, I’m going fishing!
BTW, lots of RE for sale out here on the Cape (Cape Cod, MA)! Still wishing prices at 400K for small home up to multi-millions for ocean front stuff. Nothing is priced for the average income so this is just getting started out here.
I live on Cape Cod too. I am a structural repair specialist keeping moderately busy. I have a notion the Cape will be somewhat insulated from the coming severe downturn. People that already made their money are here on the Cape. They will need services and they have lot’s of money. Remember a lot of homebuyers pay CASH for their homes here. I also think the median price of homes will go up because in the upcoming credit crunch only the higher end will be able buy homes.
Here is the “profile” of (NYSE RDN) Radian Group, Inc.:
The Company develops and delivers innovative financial solutions by applying its credit risk EXPERTISE and structured finance capabilities to the credit enhancement needs of the capital markets worldwide. Its mortgage insurance business provides credit-related insurance coverage, principally via private mortgage insurance, and risk management services to mortgage lending institutions located throughout the United States and select countries overseas.
And the “profile” of (NYSE MTG) MGIC Investment Corporation:
MGIC Investment Corporation is a holding Company which, through its wholly owned subsidiary Mortgage Guaranty Insurance Corporation, is the provider of private mortgage insurance in the United States to the home mortgage lending industry. Private mortgage insurance covers residential first mortgage loans and EXPANDS home ownership opportunities by enabling people to purchase homes with less than 20% down payments. If the homeowner defaults, private mortgage insurance reduces and, in some instances, eliminates the loss to the insured institution.
Now here is how these two are in the (MarketWatch) news recently:
http://tinyurl.com/28k5×3
A $1 billion partnership between two of the biggest mortgage insurers appears likely to be the next casualty of the collapse in the subprime mortgage market…
C-Bass, in which MGIC and Radian each have a 46% stake, invests in mortgage credit risk by buying home loans and funneling them into various types of investments like bonds or collateralized debt obligations…
MGIC Investment and Radian Group both said they may lose their entire investment in C-Bass. MGIC has invested $466 million and Radian Group has invested $468 million. Both also extended a $50 million loan to the subsidiary…
“Much, if not all, of C-Bass’ value has been wiped out by the liquidity crisis in the subprime mortgage market,” Hochstim wrote in a client note…
Well my best guess is that the financial geniuses at Radian Group where not so EXPERT after all, and the coo coos at MGIC will not be EXPANDING home ownership opportunities for some time.
Got 10% down?
Another band of bull market geniuses goes down. My old boss always said:
“Any idiot can make money in a bull market and most of them do.”
TCM, you missed a very interesting discourse on C-Bass here, July 31 in the Wall Street/Wash thread. You will find it interesting based on your comments above. It is cut and pasted below:
____________________________________
Comment by Paladin
2007-07-31 11:24:36
I was in NY in February 2007 on business. Just for grins, I went to see the Director of Loan Survellience at C-Bass to discuss the loan fraud going on in the sub prime and Alt-A loan brokering on the west coast. I showed him a portfolio of bogus loans over encumbering the assets by 150%. The LTV fraud on 23 loans totaled $4,025,000, before you even factored in the borrower’s ability to pay. I suggested I could save them TENS of millions of dollars by opening up a west coast survellience office and reject the bogus loans out of the pools they bought, before they purchased them. I got a very nice, “Thank you for stopping by, but we know what we are doing. Our servicing group knows how to handle borrowers in default and our credit analysis models are better than anyone in the industry.”
I guess I should have said I could save them HUNDREDS of millions of dollars in losses. Sheesh. Half a billion in losses flushed down the drain for each investor. Hey Gomer: “Surprise, surprise, surpise”.
Reply to this comment
Comment by John Law(Duke of Arkansas)
2007-07-31 12:08:18
what is C-Bass?
Reply to this comment
Comment by Paladin
2007-07-31 12:25:21
C-Bass is the company owned by MGIC and Radian, the one that was worth $1 billion last week and is worth nothing today. It stands for Credit Based Asset Servicing and Securitization.
They had very, very big egos on their 19th floor Madison Avenue offices………………until yesterday. Nothing like losing a billion dollars to put you in your place….
Reply to this comment
Comment by paladin
2007-07-31 18:25:38
One more item about C-Bass: They kept the high risk tranches and sold the rest to investors. That is why their net worth of $1 billion evaporated “overnight”. But keep this in mind. They only had the top 3% of the loan tranche in the pools. If the sub prime loans they banded together and sold to investors is worth less then 97% of the “face value”, there are a lot of other investors who will soon realize they are left holding the bag! Let’s see, 120% financing, asset loses 30% of value, chip in another 10% in foreclosure costs, 7% in resale and holding costs….poof, the value of the $1 in the pool is about 44% of the original offering. Hmmm, C-Bass lost $1 billion on the top 3%, so some other investors must have lost about $11 billion on their tranches. I bet you will see a lot of fighting over who takes the losses when and how. A mess years in the unraveling. A billion here, a billion there, pretty soon…..
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Reply here
Comment by flatffplan
2007-07-31 12:12:33
cool- tell his boss !
Reply to this comment
Comment by Arizona Slim
2007-07-31 12:21:26
Good to have you back among us, Paladin!
Reply to this comment
Comment by Paladin
2007-07-31 12:32:19
AZ, Thank you. I am often here reading, but not posting much. My real efforts are mostly behind the scenes now. There is a lot going on, but now that sub prime has melted down, I don’t need to be so public in my work. I am keeping a journal and will post it, or a link to it, when all the dust clears. You will have fun reading it. Some real nominees for the Darwin Borrower’s Awards.
Reply to this comment
Comment by Olympiagal
2007-07-31 12:59:07
But I don’t want to wait that long. It could take a while for all the dust to clear, and fully reveal the blood sloshing in the streets. Why not just post a teaser, for those of us with ADD?
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Reply here
Comment by arroyogrande
2007-07-31 18:32:04
“I am keeping a journal and will post it”
Methinks that you should do a book. I’d buy it.
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Reply here
Comment by SunsetBeachGuy
2007-07-31 12:40:56
Good to have you back and great story. The C-Bass losses of $1B is a good start. F’em.
Reply to this comment
Comment by spike66
2007-07-31 12:44:36
Paladin,
just for fun,you should contact carolyn baum at bloomberg with that story…I bet she’d love it.
Reply to this comment
Comment by Paladin
2007-07-31 14:19:30
Evidently, it is Caroline Baum. Done. We will see what happens now.
Reply to this comment
Comment by Thomas
2007-07-31 14:41:16
Paladin,
Would you be interested in doing something … spectacular with the information you’re finding? I’m an OC attorney with a pet project brewing. More if you’re interested.
Reply to this comment
Comment by Paladin
2007-07-31 15:00:28
Thomas, I am always interested in doing something spectacular. Why, I just fell off a ladder yesterday and it was spectacular! Seriously, I am open to your proposal. You may reach me at paladin@paladinreports.com . I will respond.
Reply to this comment
Comment by arroyogrande
2007-07-31 18:29:20
“reject the bogus loans out of the pools they bought, before they purchased them. I got a very nice, “Thank you for stopping by, but we know what we are doing.”
BWAH HAH HAH HAH HA HA HA HA HA HA!
Well, at least you tried, Paladin. Nice business idea though.
Reply to this comment
Paladin, you are a hero.
Fedspeak: Don’t expect any bailouts from us — just yet…
Don’t bank on Bernanke riding in on white horse
New Fed chairman not likely to bail out credit slump soon
By Rachel Beck
ASSOCIATED PRESS
August 5, 2007
Face it. Risk-taking doesn’t come with guarantees. That means no one should count on the Federal Reserve to bail us out of the current credit slump so fast.
As stock and bond markets swoon over worries about weakening debt, more investors seem to be thinking that the Fed will soon come to the rescue by lowering interest rates.
Investors may be getting ahead of themselves. There’s a new sheriff in town: Ben Bernanke. As long as the credit fallout doesn’t look like it is spilling over into a full-fledged economic collapse, the central bank might not be quick to meddle.
…
No doubt that the Fed is carefully watching for any signs that credit woes are spreading and intensifying. But right now it seems to think that what has been going on is a normal shakeout of an overextended credit market, where loans were made to borrowers who shouldn’t have gotten them.
“Most of these upsets stabilize on their own, but some do not. I’m not saying that the Fed should ignore what happened last week – we need to understand what is happening,” William Poole, governor of the St. Louis Fed, said in a speech Tuesday. “However, it is important that the Fed not permit uncertainty over policy to add to the existing uncertainty. The market understands, I believe, that the Fed will act in due time, if and when evidence accumulates that action would be appropriate.”
http://www.signonsandiego.com/uniontrib/20070805/news_1b5fed.html
Bernanke got up on his soap box 6 months ago and told the kids to knock it off or there would be big trouble.
But the kids just looked at each other, smirked and went on with their shenanigans.
Said the chairman, “I’m serious this time. I’m going to count to three. One … Two … Two and a half … Two and three quarters”
But the spitballs and paper airplanes and CDOs just kept flying.
So, the chairman turned off Fed credit machine.
And oh the howling that arose, and how quickly the smirks turned to fake contrition, “Please, please, please Uncle Ben, we’re dying here. We promise. We’ll be good. We’ll never do it again. Just open up the Fed window one more time so we can bail out of our positions.”
I guess we’ll find out on tuesday if Uncle Ben thinks the boys have learned their lesson or need further beatings to get back on the straight and narrow.
Even after all the lip service to inflation fighting as the top priority, and no bailouts in the works, the temptation to reflate the bubble must be nearly overwhelming. If he does this on Tuesday, the cargo cultists on Wall Street might be able to spark a rally that takes the economy right on through election season 2008, and lets W’s second term end on an unprecedented stock market bull run. Wouldn’t that be a pretty picture?
I suspect that it’s not going to be possible to reignite a stock market bubble.
My guess is that a lot of the selling pressure is coming from players needing to raise cash to cover their credit default swaps. Couple this with decreased 401K and mutual fund buying as FBs start raiding the retirement fund to keep the house and I think there’s still a lot of selling to come.
Check out this loser couple in the Orlando Slantinel.
This is the perfect example of people that are able to live like kings,
but have palpers salary.
sorry…link
http://tinyurl.com/2mqr8h
“The couple has had negative cash flow for several years, and they will have to cut expenses or take on second jobs to turn that around.”
There really is no comment for this continued level of stupidity on the part of adults.
NYCB you have said these kindas people should not be allowed to breed. I would add (for good measure) they should not be allowed to vote.
Got 10% down?
They thought they could retire when they are 55 and 57 and only had a net worth of about 50K? How does anyone get that idea? Has early retirement become a constitutional right?
“Has early retirement become a constitutional right?”
Do you mean it’s not????
What’s really annoying about this couple is they filed for bankruptcy in 1994. They should have learned their lesson the first time.
Serial bankruptcy filers are now admired by some, and their advice can be highly sought after.
Got 10% down?
Report from Northern Virginia.
I rarely check up on my old neighborhood anymore but I did this morning out of curiosity. The zip is 20164.
As things began to slide this was one of the first neighborhoods to see big price cuts. There are tons of foreclosures in these neighborhoods whether in townhomes or SFHs.
Today I noticed that bank owned SFHs are undercutting townhomes by a lot. You are beginning to see the bank owned SFHs slip under 300k. Of course they are sold ‘as is’ but I believe this is a new low, so to speak.
I’ve also noticed that those serious about selling in 22180 and 22043 (in Fairfax Co., closer in, nicer neighborhoods) and are selling older SFHs, they are pricing their homes under 500k which also is a new low. This spring and summer is the first time I’ve seen any movement in closer.
At times, over the last 2/12 years, I have begun to think there’s no way DC housing will ever be affordable. But now with credit tightening, I believe we really might see some movement across the board.
Two things stand out when I type that zip code into yahoo foreclosures.
(1) Wow! The sheer number that comes up is amazing! I’ve been tracking several zip codes, but none have nearly that many listings.
(2) There are no higher prices homes listed: all are $500k and less. Compare to the first page of listings in 20152
What is the story behind 20164?
“What is the story behind 20164?”
A hellish commute.
Worse than that. A large illegal immigrant population and MS-13. There are a lot of people who bought “investment” properties and packed the houses up. It’s a mess out there.
My ex-neighbor had no green card and got a loan from the bank. It was at a horrendously high interest rate but he got a loan.
20164 is going to become a slum, sadly.
Good to see lower prices creep in. There is a woman at my office who is always envious of everything other people have. She envies me because I finished my LLM this year. She envies someone else because she is getting training in project management because of her assignment. She envies another person who got a promotion.
She wanted a house for a long time and bought one last year with the help of an inheritance. When she bought, she thought she was getting a good deal because it was an old house, entirely outdated, and in desperate need of work. If the prices in her neighborhood in northern Virginia go down, it is going to eat her up from the inside like nothing else.
I think it is a fitting punishment for someone who spends her time envying rather than doing.
From today’s Seattle Times:
Of the 240,000 jobs created in Washington between 2002 and 2006, almost 70 percent were in fields where the average weekly pay was less than $832 a week (or $43,264 a year). That’s the income calculated as a “living wage” in Washington for a family of two adults and two children, according to Penn State’s Poverty in America project.
I don’t know how a family that makes that wage can afford a house in the Seattle area. I have a bad feeling about the October reset time. Two years ago I talked with several other teachers who lived in the Seattle area who could only buy a house with a I/O arm. This is going to be painful.
Images of the Titanic came to mind when I read this…
What slowdown?
High-rise developers take bashes over the top
By Roger Showley and Carl Larsen
STAFF WRITERS
August 5, 2007
(Tower (right), the 97-unit, 32-story condo tower north of the Santa Fe Depot downtown, is due to open in the fall of 2008.
Ah, the high life.)
Forget what you’ve heard about the real estate slowdown. The wine is still flowing this summer, at least downtown.
Some of those downtown high-rise condos share one common perk – the coming-out party.
And what a pair of parties there were last month, one costing the developer more than $500 per person, the other important enough to justify a mayoral appearance.
At a party thrown by the developer of Sapphire Tower, Mayor Jerry Sanders and his wife, Rana Sampson, viewed a model of the high-rise with Centurior Partners’ Greg Henderson.
In a market that is clearly sputtering, many builders may be seeking ways to cut corners as they scramble to reverse losses caused by overbuilding and falling sales. But downtown, there’s a different story. There, belt-tightening seemingly isn’t the fashion.
Take developer Doug Wilson. He said he spent more than $325,000 to entertain 650 guests at the July 14 opening of The Mark, a 244-unit, 32-story condo project at Eighth Avenue and Island Avenue, two blocks north of Petco Park.
“We’re not dealing with subprime buyers,” said Wilson, who previously developed the Symphony Towers offices and Park Loft, a shorter condo tower immediately south of The Mark. “It allows us to establish a buzz among the right people.”
http://www.signonsandiego.com/uniontrib/20070805/news_lz1h05hirise.html
And everybody who is a prime borrower wants one of these! Well maybe they do, but there is a big problem with buying one of these. Many would have to sell their house first and with the new lending requirements that is going to be a tough thing to do.
I’m sure they’ll enjoy the hip, elite smell of bum piss downstairs.
Don’t buy yet, unless you are wealthy enough to catch a falling knife without killing of $100Ks of net worth without feeling much regret.
Bargain-basement home seekers can take heart
By Emmet Pierce
STAFF WRITER
August 5, 2007
While buyers have found few large discounts among foreclosed homes in San Diego County, opportunities for bargain hunters are likely to improve if mortgage defaults continue their trend upward.
As the inventory of distressed properties grows, “the lenders will want to offload the homes and will discount them to do so,” said Rick Sharga, vice president of marketing for RealtyTrac, which monitors defaults nationally.
Lenders will become more open to offers “to avoid the expense and hassle of repossession,” he said. “You’ll see Realtors start to promote the fact that some of their properties are ‘bank-owned homes’ as a way to generate sales.”
http://www.signonsandiego.com/uniontrib/20070805/news_1n5tips.html
Check this Craigslist out.
http://baltimore.craigslist.org/lgl/384644613.html?ref=patrick.net
30 properties!!!
“We are experiencing home price depreciation almost like never before, with the exception of the Great Depression,” Angelo Mozilo, chief executive officer of Countrywide Financial Corp., said last week in a conference call after the biggest U.S. mortgage lender reported a 33 percent decline in second-quarter net income because of late loan payments.
Maybe that means we are going to have another Great Depression?
“We are experiencing home price depreciation almost like never before, with the exception of the Great Depression”
Robert Shiller’s chart of inflation-adjusted U.S. home prices, 1890-2005, shows no home depreciation from 1930 to 1940. Commercial and agricultural real estate may have tanked, but there was no overall home price depreciation during the Great Depression.
http://en.wikipedia.org/wiki/Image:Shiller_IE2_Fig_2-1.png
George
Shiller’s chart is inflation-adjusted. While housing prices fell sharply, they were only keeping up with deflation, not falling in real terms.
Another four hedge funds blowing up here due to subprime:
http://tinyurl.com/yuj6pl
NEW YORK (Reuters) — Second Curve Capital LLC, the fund group managed by high-profile financial stock investor Thomas Brown, has been hammered by ongoing problems in the subprime lending sector, where he has been outspokenly bullish in the past.
Four funds in the Second Curve portfolio are down between 38 percent to 42 percent in the year through July, according to investors who have seen the numbers.
Repeated calls and e-mails to Brown were not returned. It is unclear how much money the firm has under management.
We see a bit more of the tip of the submerged hedge fund ice berg each day…
I was talking to a hedge fund guy on Friday here in Manhattan. He seemed like a decent guy. I asked him if his buddies were nervous about what’s going on. He said, “everybody is nervous”. People are already losing jobs with the investment bankers. How long before these dogs start eating each other?
- Baby Boomers will buy up Florida
- The Wall Street guys will keep buying up Manhattan
D’OHHHHHHHHHHHHHH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
I think there will be an MBA bubble next. All those out of work MBA’s with no job in NYC and a condo they can’t afford.
New York Times magazine ran a cover story in the last wall street slow down about all those guys fighting each other for jobs at the Gap. Their wives eventually told them that since the networking wasn’t producing results they could spend less time on it and bringing home a few hunred bucks a week was better than nothing.
I have figured out what MBA really means. It stands for “Money Badly Allocated” in most instances. The MBAs I know just love when I tell them this. I have found that most MBAs know about as much about finance as I know about the reproductive habits of African frogs.
It’ll be like the local CNY economy where the secretary supporting the volunteer town supervisor and the guy in the auto dealer’s bookkeeping office all hold MBAs.
NYCB,
do you know which ibanks are cutting? Haven’t heard anything myself yet.
Reminds me of the “All in the Family” episode where a Ph.D. could not even get a job as a blue collar line worker. He got so despondent that he was threatening to jump until Archie talked him out of it. Exaggerative, but that was how the early 70’s was being depicted in TV sitcom. Who would think a Ph.D. could not get a white collar job today?
I don’t know anything about ibanks. I fear that banking is going to get creamed in the next couple of years. We will see a massive amount of forced consolidation. If it does happen, I will be out of New York.
Most MBAs really are badly educated about finance and markets. They’ve been taught crap theories like ‘random walk’ and ‘efficient market’ for so long at those schools.
When we got a new one in, we’d sit him on the trading desk for a couple of weeks to beat all of that nonsense out of him and show him how the market really works. Those who couldn’t adapt to reality were gone in 6 months. Unfortunately, some firms let guys like that get their hands on real money and we see the kinds of idiocy that prevailed in the late 1990s and today.
Sales of new homes and conversions decline
August 5, 2007
Sales of newly built homes and condo conversions dropped 17 percent in the first six months of the year, according to MarketPointe Realty Advisors.
The San Diego consulting firm said there were 4,525 net sales opened through June, compared to 5,472 for the same period last year.
http://www.signonsandiego.com/uniontrib/20070805/news_lz1h05sales.html
Vegas housing slump continues
ASSOCIATED PRESS
August 5, 2007
LAS VEGAS – Analysts see no end in sight to a housing slump in Las Vegas, where home sales are off by 40 percent, prices continue to fall and home builders have sharply cut back on construction.
Experts said the downturn has particularly hit areas that had the most rapid run-up in home appreciation. Foreclosure filings are highest in states such as Nevada, California, Florida and Ohio.
“I walked into the office of the title company I use and they were down to less than half their normal staff. People are losing jobs in this market,” Robin Comacho of Direct Access Lending said.
http://www.signonsandiego.com/uniontrib/20070805/news_1h05vegas.html
Don’t worry. Ben Stein said it’s no big deal. Go back to the craps tables.
Subprime is contained. Nothing to see here. Carry on.
Take developer Doug Wilson. He said he spent more than $325,000 to entertain 650 guests at the July 14 opening of The Mark, a 244-unit, 32-story condo project at Eighth Avenue and Island Avenue, two blocks north of Petco Park.
So I guess if you went to the party, you were the Mark!
HOUSING SCENE
LEW SICHELMAN
Biggest builders take more of the pie
August 5, 2007
WASHINGTON – There is no question that 2006 was a tough year for the home-building business. But not necessarily for the nation’s 100 largest residential building companies.
Together, the top 100 increased their market share from 36.6 percent to 43.6 percent, according to Builder, a trade journal. This occurred despite a decline of 231,000 overall sales in the new-home sector, from 1,380,000 units in the previous year.
http://www.signonsandiego.com/uniontrib/20070805/news_1h05sichel.html
10 years from now the big builders in this country will be the few small local survivors of this bubble. The big names that we know now will join Eastern Airlines and others in the history books (if they’re lucky).
And another…
This family is begging for work.
http://fortmyers.craigslist.org/lbs/384038402.html
They can do a lot of things, EXCEPT turn off the damn caps lock key.
LOL, You at least know which post is their’s. They seem to have an ad every day. If they were smart, they would try and save up enough money to move out of Florida. Hawk the appliances if they have to. Oh wait, there was an Appliance bubble too. I bet the market is flooded. Need a cheap fridge?
OK, but unless they are shysters, at least they are looking for work. What’s wrong with that? I admire it.
What the hell does this have to do with the bubble? The ad says they are renters. There is no indication that they are flippers or specuvestors.
Never had to hustle to get over a rough patch? Enjoy looking down on others? How pathetic.
It goes to show you that the Economy of Ft. Myers, which was built on housing, is faultering.
Why don’t you get some sense. I wasn’t glorifying the family’s troubles but pointing out how bad things are.
So why don’t you take your pathetic assumptions and keep them to yourself.
Story in SD U-T on foreclosure sales in San Diego:
http://tinyurl.com/ytw93s
“Today, of the nearly 24,000 listings of resale houses, condominiums and mobile homes, roughly one-fifth were identified by Sandicor, a local multiple listing service, as distressed properties either in foreclosure or approaching the stage where owners could lose their homes.”
“During the second quarter of this year, the proportion of foreclosure sales shot up to 9.7 percent of all resales, compared with just 1.7 percent a year earlier. But that’s still off the peak of nearly 15 percent seen twice during the mid-1990s, according to DataQuick Information Services, which has been tracking real estate transactions since 1988.”
“While there are bargains to be found, REOs aren’t selling far below market values, said Rose Avedisian, a longtime foreclosure specialist based in Mission Valley. ‘There are no fire sales out there. These banks are pricing homes competitively.’”
“Don’t tell that to Rich Garrett, a general contractor who’s convinced he got a steal on a 1,900-square-foot home that sits on an acre in Fallbrook. He bought it in June for $470,000.”
“Garrett acknowledges, though, that the house made a poor first impression.”
“‘My wife thought she could never stay in a dump like this,’ he said.”
“The lot was overgrown with 40 oak trees, many with dead branches. The house, which had been vacant, had cobwebs everywhere, soiled carpet and brick-veneer kitchen flooring stained from cooking oil.”
“Garrett and his wife, Ratta, have been fixing up the house, putting in hardwood floors, painting and installing new baseboards and door casings. They had the oak trees trimmed and the lot cleared of poison oak, weeds and trash.”
“A conservative appraisal of the house put the value $110,000 higher than the purchase price, Garrett said.”
“’Foreclosures are great,’ he added. ‘For people willing to put in sweat equity, this is a good deal. So far I’ve spent $30,000, I’ll spend another $50,000, and it will be worth $850,000 when I’m done.’”
Another knife catcher. Hope he has a long time line if he’s planning on reselling for $850k.
http://forum.brokeroutpost.com/loans/forum/topic.asp?TOPIC_ID=148501&whichpage=1
Blake HC
Pretty big lender. Don’t want to say the name on here. Anyways, he called and said he wanted to give us some “scoop.” He went on to say that there were some “meetings” going on with FNMA, Fitch, Moody’s, S&P, etc…He said within a few weeks ALL lenders will stop offering Flex 100, My Community, SISI (completely), SIVA to 90%, Full doc maxed at 95%. NO stated on ANY seconds.
This may be BS, but this guy has ALWAYS been right on the money with his info. He runs the whole SE (has a lot of AE’s under him) for a LARGE lender.
jresn02
no 100% product full doc will mean your house will be worth 1/2 the price over night.
I guess the true value of housing finally shows? When people who have no idea how to value a house rush in and drive up prices, the rest of us back off. Once they exit the market, we find the true value of housing is after a 50% haircut.
no 100% product full doc will mean your house will be worth 1/2 the price over night.
When houses start selling for 1/4 of what they now want for ‘em then maybe I will entertain buying my first house. (Cash buyer here
) If they never get that low then I will not buy. Somebody else can get these maintenance/insurance/tax headaches. Simple as that.
Got 10% down?
There will be a Gold bubble. Just saw a commercial selling it. Some guy in a vault is saying, the US govt just released this gold LOL.
Calls it U.S. gov’t gold.
So, what will the price of Gold go to? Is it near $600 an ounce now? It was $300 a few years ago.
The guy just said it will go to $2,000 an ounce.
It was an infomercial on CNBC : )
Then in small writing it says, (we are not affiliated with the U.S. gov’t).
Anybody that forms their opinions on the basis of television commercials, knows what they are doing…
Who can buy gold at $670 an ounce? Well I know of only one Bill in Phoenix. However I person does not make a market. Gold has been in a bubble for quite a while. As these foreclosures hit in large numbers people will be selling their gold to eat. If you doubt what I say look at ebay listings for gold and you will see that listings for gold are higher than a year ago. I have tracked coin prices (silver and gold) on ebay since 2001.
“Gold’s been in a bubble quite a while.”
Let’s examine that comment. The peak of gold’s price was back in 1980 at $800 per ounce (somewhere in that neighborhood). The lowest it was since then was around 2000 when it was around $270 per ounce. The bear market for precious metals was 20 years. Commodities bull markets usually last 20 years. This is year 6, of the gold bull market. And you can call it a bubble if you want, but this one could have 14 more years to go up. Ben Bernanke may be revving up the helicopter engines any time.
here’s what i don’t get about buyinig gold now..
When times get bad, holders sell their gold to buy stuff. Doesn’t a sell-off mean the price of gold drops?
Buying gold when there’s a good chance that of lots of people will soon be selling gold seems like a bad idea to me (except perhaps as a hedge against full blown Armageddon).
Very good point. Unfortunatly for us logical people, most (illogical) women would literally rather starve than hauk their jewlery (wedding rings heir looms) out there, especially after they’ve already lost their homes, cars etc.
The reason gold will rise has more to do with the declining value of the US Dollar (inflation). There may be other better investments out there but you can be assured the dollar with drop in value. If you invest in gold at least you will have something in a few years instead of some rough toilet paper.
ahh.. inflation.
But are we not now in a period of high inflation? I mean, right now it takes about 500,000 dollars to purchase a home that’s worth about 150,000 dollars. And this situation is correcting itself.
Why are we not headed for a period of deflation, where most if not all products and services will be available for fewer dollars than they are today?
Joey,
I suspect that in deflationary times, not everything goes down in price. But quite a lot goes down in price. Similarly in inflationary times, not everything goes up in price, but quite a lot goes up in price.
The thing missing right now is wage inflation. It just is not happening, due to world competition.
Inflation in energy prices has been mild. But giant oil fields are about to be depleted to the extent that it will be uneconomical to extract any more oil from them and they will be capped. We will run out of cheap oil.
On the other hand I see severe deflationary pressure by house prices falling and boomers not spending.
It’s hard to say which way it will go. I kind of think the political parties are so interested in the Immigration Bill to keep the spending going. They see the problem with financing social security and medicare, for one. The American public wants to have its cake and eat it too. They don’t want to privatise or abolish social security. So the only political way to solve it is to massively import cheap labor and destroy what was left of the western European culture in America. Accordion music blaring and 5 families per house in every neighborhood. Thank you!
Cramer throws his hissy fit on national TV as many of you have seen. Says, “You don’t know how bad it is out there.” He then says it’s Armageddon. Didn’t he tell people to walk away from their homes? I bet his hedge fund buddies and those at Goldman Sachs told him to flip out on national TV telling Bernanke what to do. People would panic and sell and their shorts would do fine.
I mean, why would he be telling people to walk away from their homes and also flip out like that?
Excellent point. I hadn’t linked the two Cramer remarks this week.
Many of us may take Cramer lightly (especially given his track record), but there are definitely hundreds of thousands of people on the edge with these mortgages, and it’s likely that Cramer’s words gave them the push that they need to bail out.
Given that, it shouldn’t be any surprise that Cramer’s Wall Street friends gave him a couple of phone calls and said that he needs to clean up what he said (i.e., get a bailout started). The only problem, as I see it, is that the bail out would be so big, that even the federal government would be pressed to pull it off. It will certainly make the S&L bailout look like a walk in the park.
It’s really simple: Cramer has gone way short. He wants to drive things down now.
Looks like the management at Freddie Mac isn’t too excited about the idea of committing financial suicide to bailout the subprime market. Can’t say that I really blame him.
“Freddie Mac chief executive Richard Syron said he was wary of calls for Freddie Mac and fellow mortgage finance company Fannie Mae to buy loans and securities no longer favored by private investors, the Times said.”
“”There are other loans that probably should never have been made and providing more liquidity will make that situation worse in the long term,” Syron told the Times.”
http://money.cnn.com/2007/08/04/news/companies/freddiemac.reut/index.htm?source=yahoo_quote
That last quote sounds like it came straight off this website.
One thing that seems to be left out of these discussions is the effect of inflation on the money. If or rather when the dollar really tanks and becomes worthless all of these scenarios about waiting for the right time to buy a house, or any other thing would seem to be useless in the real world. A man with a million worthless dollars would seem to be in the same boat as a man with ten worthless dollars, sure he might have some assets to sell but to whom? If the dollar tanks and it sure looks like it is on some shaky ground what will be the real outcome of that? Counting on dollars and thinking that even if the housing bubble finally comes crashing down it will take down the whole economy with it. Usually recovery from a recession or even depression starts with construction of housing, commercial, or industrial building. Since that appears to be leading this downturn and is way overbuilt, and the US is way over it’s capacity to service this debt, and the world is loaded with dollars, it seems to me that the collapse is going to be global and long lasting with the dollar suffering in the short and long term. Unless the true rulers of the world the central bankers decide to negate this and issue new currency with stated values that equal out across the globe. Might be far fetched but hey this whole mess seemed to be far fetched ten years ago. Now it is upon us and the whole world whether we like it or not is going to be affected. Just curious if any others see any of this or is it all housing and nothing else that will be taken down by the collapse of the housing market? Already banks are having trouble servicing their obligations and the CDO market doesn’t even exist in real terms. So the true outcome of this collapse is going to hurt everyone and mostly the ones on the bottom. Job losses are going to happen and will bring about some of the worst of the depression we are heading into. I don’t see a tolerable outcome to this, and this board doesn’t seem to address this past the idea that if the economy gets bad on the housing level everything else will be just fine and anyone can take advantage of it because they have 20% of purchase price saved up. If it is worthless money then it doesn’t matter does it?
You have not been reading this blog that long. Many here have talked about the coming serious recession or depression. A lot of these folks are on vacation right now and have not been posting.
If the dollar becomes worthless then one would rather have a house I expect. Kinda like a few years ago right? Now its deflation unless the central bank drops them out of helicopters.
goin over the weekend threads as I usually do on the Sun am, and I had a thought, few that they are.
Someone mentioned a quote from Donald Trump that went something like, “When you owe the bank 500k the bank owns you, but when you owe the bank 100 million, you own the bank.”
Now lets place that thinking into the debt markets for the US, I believe the largest holders are China, Japan, UK…now, whose in charge? Who owns who?
The US us still calling the shots, we’ll call them the “shot callers” (which is what prison gangs call their leaders in the joint)….
So, as the US really does own the largest debt holders (the foreign banks) in the same sense that the meltdown of the US economy would cause the financial meltdown of the foregin powers that hold the debt. Those foreign countries need our perceived ability to pay it back in the form of Protectionism/Consumerism.
Good times.
Voz, you are correct. If the American public would just wake the hell up and demand/purchase more domestic products we would see some real fireworks.
If we could just band together and pick one consumer product (vacuums-Oreck) and buy only from them the market would take notice quickly. Can you imagine the attention this would generate???
The recent publicity about defective and dangerous products made in
China has created is a rapidly growing resistance to buying anything made there by people like my wife. This will have a profound effect once it reaches critical mass.
I do not think it will have much impact. As we get into school shopping, people still will buy new clothes, pencils, notebooks etc.. Wal Mart, Target etc. will be where the majority of Americans will go.
If you wish to eat, your food is coming from Asia. (Bloomberg Aug 5)
Vozworth, I hope you are right; I fear you are wrong.
In the past when the US sneezed, the world caught a cold. Now there is a disconnect between the world economies and the US economies. The world is growing at 5.2% GDP, if you take the US out of the IMFs calculations the world GDP is growing at 6.5%.
The primary exportable product in the US is financial services. The world markets are catching up in quality of service. Citigroup laid off 28,000 workers in the US and hired 31,000 in India. India was not interested in coming to the US for work, Citigroup moved to the action arena. China does not care about its foreign trade, China is concerned about creating 15M new jobs every year. Domestic strife in China is the greatest worry for China’s ruling party.
The US is relying on a tremendous amount of oils from the Canadian tar sands, so is China which is building a pipeline to the coast and is a major developer of the sands.
There are thousands of other examples - some smaller, some larger; but all show the same general characteristic - it is a world wide party, the US is not invited.
Hoz
The US consumer IS the global economy. China is 35% exports and 45% capital spending, largely to grow the export sector. When, not if the US consumer goes down, China’s export sector will stagnate and a big chunk of the capex will simply evaporate. Simply stopping growth of exports to the US will be fatal for China’s factory bubble. 20% of their GDP could go with it. Their best case is Japan 1989.
Japan in 1989 listened to the US and devalued its currency. China is not going to allow that to occur. What most people in the US fail to learn is that 80% of the trade with China is “pass through”, a 20% drop in trade with China is huge, but it would affect the Chinese GDP so instead of growing at 10.5% the economy would grow at 8.5%.
The US consumer was the global economy, it is no longer a large part of it. See IMFs outlook June, 2007
Hoz
You’re ignoring the infrastructure build. They’re already building and have built far more than they need. Talk to any buyer or merchandiser that sources from China and ask them about competition among suppliers there. There is enormous overcapacity there but more is being built because of the wild optimism about future growth.
When that growth fails to materialize, China will realize they are saddled with 20-30% excess manufacturing capacity. The construction lead times will ensure that there is another 20% in the pipeline. Same psychological dyanamics that drove the network infrastructure overbuild in the late 1990s or the recent Miami condo craze.
Japan’s economy was going to stagnate regardless of what they did with the currency. Too much capacity is too much capacity when there’s no market for it. Just like with our current housing inventory, that market is doomed and it won’t require a devaluation for it to happen. When problems are that deeply embedded in the real economy, finance can’t fix them - only put a temporary bandaid on them.
Deron, I always respect your comments. It is well thought out, my only question is that I believe you to be under the assumption that the US is the buyer of last resort. “According to the Organization for Economic Cooperation & Development (OECD), China has overtaken the U.S. to become the world’s largest exporter of information- and communications -technology goods. Crossing the largely symbolic threshold should put to rest outdated notions of China as a manufacturer and exporter of cheap T-shirts, though the country won’t give up its thriving garment exports as it steps up production of laptop computers and memory chips.
Indeed, China’s ability to hold on to the labor-intensive segments of the global marketplace as it climbs the technology ladder is one of the unique features of the country’s ascent — and a remarkable source of resilience for its economy. It’s also a factor in the country’s $100 billion-plus trade surplus with the rest of the world and double that figure with the U.S.” JANUARY 19, 2006 BusinessWeek
If they did not buy from the rest of the world, this year China’s trade surplus with the rest of the world would exceed the US. China is not buying from the US because we have little they want. And what they do wish to have we do not allow to be exported.
China, India, Thailand, Australia, Vietnam (The larger APEC countries) are preparing to do without a US economic participation. At the APEC meeting last week the US did not send a credible representative. These countries are writing down US participation.
Hoz
China has only small domestic demand other than what is tied to the export sector. In terms of consumer spending, China is about 1/8 the size of the US with a much high proportion of non-discretionary spending. This is totally inadequate to sustain high economic growth by itself. Export growth and the capital spending to support it are THE key to China’s economy. Since they collectively represent 80% of China’s economy, I think it’s safe to say that any slowdown in exports will have a huge impact.
Especially on the capital investment sector. That area is sensitive to the second derivative of exports - the change in the growth rate. Zero export growth would mean the effective end of new factory construction once the effects filter through. That would collapse the 45% of the economy dependent on capital investment.
“China has overtaken the U.S. to become the world’s largest exporter of information- and communications -technology goods.”
This is simply another proof of their growing dependency on exports. It’s irrelevant whether they are shipping t-shirts or routers. What is important is the destination of the exports and the health of demand at the destination. Europe is also quite important and while their economies haven’t rolled over yet, the ECB is doing its best to push the continent into recession.
I’ll go ahead and predict that China’s growth will drop sharply (by around half) within 12 months of the official beginning of recession here. Unless they can find an enormous alternative source of demand for their industrial complex, growth will continue to fall - then the Japan scenario becomes the best case.
A good prediction. My prediction is that China’s growth will drop to 8% aa the result of loss of exports to the US. The US may stop buying 5 shirts per person but they will still buy 3 shirts per person. The product will still be made in China. China’s exports to countries other than the US accounts for 60% of all their exports. Those other countries are not likely to be as affected as the US. China will still be importing raw materials from Canada, South America, Africa and Australia and exporting finished goods to Japan, Europe, Canada and Australia. The US will still be importing foods from Asia, clothing from Asia and Autos from Asia.
China’s growth rate will go down, but it will not collapse until 2010. When it collapses then we really have problems.
Hoz
Sound like we pretty much agree on timing and likely the ultimate magnitude as well. Main source of disagreement is the estimate for the initail drop. I wish all debates could be this civil. Good luck to you.
I see a lot of the statements have been taken right out of the latest T Rowe Price Report’s front page article “China, India Lure Global Investors with Booming Economies, Robust Markets.”
In my opinion, China knows it must continue to reform its financial system to attract more investment. This shinola about defective products - well, let’s say there are faulty products out of China. This is a temporary unfortunate thing going on. Remember how the Hyundai from South Korea used to be a joke? No longer. China is going to understand it must refurbish its legal system and model it after the United States to provide a system of equal justice for producer and consumer. Some of you naysayers will laugh about this, but I’m not the only one making these statements, nor is T Rowe Price. However T Rowe Price is saying that China is rapidly becoming a self perpetuating economic engine and even if 300 million Americans stop spending on Chinese products, which I doubt would happen, it will be just a percent or two off their GDP, like the poster above said. Even so, China has other markets in the world, besides the U.S.
I didn’t mention India at all, but I’m in agreement about the profit potential by investing in India. The T Rowe Price article says in the next 20 years, almost 300 million Indians will move out of desperate poverty and India’s middle class will balloon from 50 million to 600 million. Americans will do well to lose its fascination with fame and adopt a fascination for becoming significant. The two concepts are very different from each other. Most famous people are hardly ever significant and most significant people are hardly ever famous. That’s the current tragedy in America.
I will have to read a T. Rowe Price newsletter, if they still recommend investing in US equities it will be misleading; but maybe they have gotten some sense.
The worst is probably going to be Latin America. Really easy money has made those economies actually look decent for a few years. But many of them are the subprime borrowers of the government debt market. Spreads starting to widen there, just as in every other risky credit. The region will sink back into its normal state of economic malaise when their bond spreads go from less than 2% to a more normal 5-6%.
Possibly, but when in SA last year, the cities were first world and renewed optimism in the population gives me hope. As an aside, I went with trepidation because of the perceived long standing fear of anti-Americanism. This was not the case. When I asked my hosts about this, their reply was, “The US has not been involved with South America for a decade, memories are short.” It was much like being in Europe in the early ’60s, most everyone loved us.
At the current time, Chindia regards South America as its resource location and Brazil as its farm. South America seems to have its financial act together. See this youtube video from PBS.
http://tinyurl.com/2yb5mt
Resource demand depends on industrial growth. Industrial growth requires final demand for the product. I just don’t see where final demand comes from. Without a large and growing importer, the export-driven model doesn’t works so well.
Keep in mind that there has been no significant decline in US consumer demand since China burst onto the export scene. The “history” that is being used by the economists has the same problem as the data used by the financial engineers. It covers a short period and doesn’t include a down period for stress testing. I suspect that a lot of the economic models based on it are going to prove to be just as flawed as the financial models used to value CDOs.
What happened to all those Apprentice contestants who wanted to be rich by investing in Real Estate?
“all those Apprentice contestants who wanted to be rich by investing in Real Estate”
http://www.kendratodd.com/
Blech. Good call, Kendra Todd, you tool-ette:
Is the Real Estate Market in Bubble Trouble?
By Kendra Todd, winner of “The Apprentice 3″
September 26, 2006
http://tinyurl.com/ydjfbp
“You can’t go anywhere without hearing people talk about “the real estate bubble.” Such talk drives me to distraction, and I’ll tell you why. It’s because there is no real estate bubble. Bubbles are for bathtubs.
Despite a thousand articles in Sunday newspaper real estate sections, the bubble is a myth. The real estate markets in many areas are going through a normal correction cycle. I’m going to tell you how to recognize the signs of a correction in your market, how you can avoid getting sucked into “bubble trouble” and how you can even benefit from the current environment.”
“Now is not the time to sell. But it is a great time to buy.”
http://www.larouchepub.com/other/2007/3430bank_failure_crash.html
Big Bank Failure Could Turn Credit Crunch into Global Financial Crash
I wish Larouchees would stop weighing in with their plausible insights. Their cult status suggests they risk becoming the equivocal fiends who lie like truth.
Unfortunately, advocacy by the likes of LaRouche will help to discredit a perfectly valid thesis.
For those of us who are saving that 20% down, where is a safe place to put our money. I am scared that the dollar will tank and my savings will lose alot of it’s value. Is it recommended to invest in Euro? If so, do any banks here in the US allow you to hold and account in a foreign currency? Thanks
Hyperinflation Haiku…
24k time
Financial security
Also peace of mind
how old is the Euro.. something like 5 years?
Not enough time and history behind it (or the EU itself) to declare it’s a safe haven, especially if global economic troubles are on the way, imho.
History never repeats, it just gets forgotten a lot…
http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm
A couple of odds and ends:
China to begin exporting “Panda Poo”: “Freshly minted entrepreneurs in China have found a market for their full line of souvenirs made from — and no, we are not making this up — panda poo.
Photo frames, bookmarks, fans and statues of little pandas have all been carved from 300 tonnes of panda excrement, reports ananova.com. There are even plans to create statues of pandas performing athletic feats that can be sold at the 2008 Olympic games in Beijing.
The poo, expelled by the 60 pandas living at the Chengdu Centre research station in southwestern China, is carefully selected, smushed, dried and sterilized at 300 C before it is fashioned into its numerous marketable shapes. Moreover, the souvenirs “don’t smell too bad,” said Jong Shimin, one of the poo carvers.” Edmonton Journal August 5
Half of all food imported from APEC tests positive for banned substances.: “You can’t test every single entry,” Jones said. “If you did, you wouldn’t have any food.” Bloomberg Aug 5
Consumer Bankruptcies climb 34%: “… But the economy is changing in a way that works against borrowers. Fallout from the subprime mortgage mess is limiting the availability of credit.
According to the American Bankruptcy Institute, consumer bankruptcies in July rose 34 percent over a year ago — a sign that the pendulum is swinging back again.” NYT Aug 5
I doubt Chinese panda-poo will be of any better quality than the other shit China sells.
LOL
NEW YORK (Reuters) - ACA Capital Holdings (ACA.N: Quote, Profile , Research) shares, already down 50 percent in the last two months, could fall further if the subprime mortgage crisis continues, Barron’s said on Sunday.
ACA, with a market value of about $260 million, has guaranteed $61 billion of collateralized debt obligations, including subprime and other instruments backed by various corporate and commercial mortgage debt, Barron’s said in its August 6 edition.
http://today.reuters.com/news/articleinvesting.aspx?type=hotStocksNews&storyID=2007-08-05T190141Z_01_N05331309_RTRUKOC_0_US-ACACAPITAL-SHARES-BARRONS.xml
What sort of Mad Hatter world allows One Dollar to have the power of over $200.00?
The CDO Mad Hatter world~
http://www.rentometer.com/
The rentometer this is pretty cool for all us renters.
I don’t know if this was already posted but here. Some interesting news about APex
http://www.state.nj.us/dobi/pressreleases/pr070802.htm
Spector resigns:
Aug. 5 (Bloomberg) — Bear Stearns Cos. Co-President Warren Spector resigned after credit market losses and eroding investor confidence increased pressure for management changes at the second-largest underwriter of securities tied to the slumping U.S. housing market….
“Spector is the person most associated with making decisions in the mortgage and fixed-income business at Bear Stearns, and that’s where the problems are,” said Richard Bove, an analyst at Punk, Ziegel & Co. in Lutz, Florida, who has a “sell” rating on the company’s stock. By ousting Spector, Bear Stearns is behaving as if it “didn’t know what was going on, and that is just totally unsupportable. If there is no oversight system, people should be looking at Jimmy Cayne.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=az.c2SSbsv8s&refer=home
In the UH-OH category, looks like people are oh so slowly waking up to what’s been discussed here– that is that your ‘insurance’ is only as good as who writes it. Seems ACA (market cap $260m) has issued guarantees on $61 BILLION of the CDO’s.
http://www.reuters.com/article/bondsNews/idUSN0533130920070805
Did someone just c**p their pants? Got a feeling it’s gonna be a BAD week in the market–As in THAT’S GONNA LEAVE A MARK.
From a fresh Bloomberg article”
“While investment bankers feasted on an unprecedented $8.4 billion of fees for arranging leveraged buyouts in the first half, the rest of the year may prove to be a famine.”
Link: http://tinyurl.com/ysr257
How in the world can anyone believe that more than eight thousand millions of dollars in fees in six months would set up any financial organization/bank up for a “famine.” That is insulting beyond words. Do they have a million employees who made only $8,000 each in fees? I think not. Screw ‘em.
From the UK Guardian,
http://tinyurl.com/2uojtu
“The average house price in England will rise by 40% in five years to break the £300,000 barrier, according to research published today by the National Housing Federation.”
“Home Truths, which was researched by Oxford Economics, described the current housing market as “distorted and dysfunctional” with the average house price nearly 11 times the average salary and more than 4 million people on waiting lists for social housing.”
“Regions hit hard by rocketing projections are the south-east, where the average house price will be £392,900 compared with £247,762 now, and the east, where the average house price will be £340,200 compared with £211,880 now.”
“The report says there are only seven areas in England where the cheapest homes cost less than four times average local earnings - Barrow, Burnley, Hartlepool, Hull, Pendle, Stoke-on-Trent and Wansbeck. The report’s forecasts show that in London, the average house price will be £478,300 against £318,864 now.”
“Mr Orr said that City bonuses and foreign investment meant that swaths of the capital’s housing market were becoming decoupled from the rest of the country. “Bonuses in the first quarter of 2007 were up nearly 24% on a year earlier and have increased nearly threefold since 2003. Some are being used to buy luxury homes or to invest in property.”
“Some foreign investors buy property, mainly in London, for letting purposes rather than as a main residence. According to London Development Research, two-thirds of all new homes built in the capital are being bought by investors. Mr Orr said London was particularly attractive to buyers from France, Italy, Russia and Saudi Arabia. Wealthy investors were driving price inflation for million-pound houses to more than 30% and the highest rate in nearly 30 years. “Ministers must ensure there is strong investment in social housing for people on lower incomes in the London region. Up to 700,000 people in the capital are on waiting lists for social housing.”"
From the (UK) Independent, story on use of foreign currency mortgages:
http://tinyurl.com/3dnkud
“At present, you can take out a loan that is fixed in euros, US dollars, Swiss francs or even Japanese yen to fund your UK property.”
“Alternatively, you can opt for a multi-currency mortgage, where you – or an appointed debt manager – can move your loan in and out of different currencies when market fluctuations make it wise to do so.”
“Foreign currency loans are offered by just a handful of mortgage lenders: financial analyst Moneyfacts currently lists only eight, including Investec, HSBC International and NatWest International.”
“Further, the criteria are strict: you will need to borrow at least £500,000 while requiring a loan of no more than 70 per cent of the property’s value.”
“That said, for borrowers who do qualify, interest rates on most foreign currency loans look very favourable. As the vast majority track the equivalent of Libor (the London inter-bank offered rate) in any particular country – typically with a loading fee of 1.25 per cent depending on your borrowing status – most seem very cheap compared to the price of today’s sterling mortgages.”
“For example, you would currently pay around 5.3 per cent for a euro mortgage and as little as 2 per cent for a yen mortgage, as the Japanese version of Libor now sits at just 0.6 per cent.”
“That said, the benefits of converting your UK debt into a currency that is weak against the pound should, in theory, outweigh these costs.”
“Brokers agree that the criteria for foreign currency mortgages are indicative of the type of borrower who opts for them in the first place - namely risk-takers with an appetite for finance.”
“… “This episode of turmoil is not enough to alter Fed policy,” says Laurence Meyer, a former Fed governor who’s now vice chairman of St. Louis-based Macroeconomic Advisers LLC. He sees the Fed holding its target for the federal funds rate at 5- 1/4 percent through the end of 2008.
By changing what it says, and not what it does, the Fed can show it isn’t oblivious to the 7 percent plunge in stock indexes since July 19 and the possible impact that could have on the economy. At the same time, the Fed can avoid being seen as losing its anti-inflationary zeal or as standing ready to bail out investors.
The risk is that such an approach may undercut financial markets still struggling to recover. It might also hinder the economy’s recovery to growth of 3 percent or so, from a sub-par 2 percent pace in the first half.
Sales Slump
Housing continues to slump, while consumer spending, until now the bulwark of the economy, is slowing. Auto sales in July were at their lowest level for the month in nine years. Payroll growth slowed in July, and the unemployment rate increased.
“The chances of a recession have now risen to 45 percent,” says Lyle Gramley, a former Fed governor who’s currently a senior economic adviser at the Stanford Group Co. in Washington. …”
Bloomberg Aug 6
http://tinyurl.com/2pylky
Very OT but I thought the cold war was dead.
If there is an escalation here what effects could this have on the markets?
Russia Starts Production of Ballistic Missile to Counter U.S.
“Aug. 6 (Bloomberg) — Russia will start producing an intercontinental ballistic missile for its new generation of nuclear submarines as it moves to counter a proposed U.S. missile defense system in eastern Europe.”
Very OT but I thought the cold war was dead.
If there is an escalation here what effects could this have on the markets?
Russia Starts Production of Ballistic Missile to Counter U.S.
“Aug. 6 (Bloomberg) — Russia will start producing an intercontinental ballistic missile for its new generation of nuclear submarines as it moves to counter a proposed U.S. missile defense system in eastern Europe.”
http://tinyurl.com/2kdnxc