The Credit Pendulum Was Stuck At Easy
Some housing bubble news from Wall Street and Washington. Associated Press, “Countrywide Financial Corp., the nation’s largest mortgage lender, has begun laying off staff as part of its effort to ride out the credit crunch that has rocked the home loan industry, according to a report published Monday. Countrywide is the largest mortgage lender by volume, accounting for more than 13 percent of the loan servicing market as of June 30, according to the mortgage industry publication Inside Mortgage Finance.”
From Reuters. “NovaStar Financial Inc, a subprime mortgage lender, said on Friday it will fire about 500 employees, or 37 percent of its work force, as it reduces home loans, given tough capital markets conditions.”
“NovaStar has said second-quarter loan volume fell 73 percent from a year earlier to $773.7 million, and that third-quarter volume should be ’substantially’ lower.”
From Bloomberg. “Thornburg Mortgage Inc., forced to stop taking home-loan applications last week because of a cash crunch, sold $20.5 billion of mortgage-backed securities at a discount to pay down debt it couldn’t refinance.”
“The company will post a loss of $930 million on the sale in the third quarter, resulting in a probable net loss for the full year, President Larry Goldstone said. Thornburg specializes in adjustable-rate ‘jumbo’ loans of more than $417,000 to people with good credit.”
“‘Investors’ confidence in the mortgage financing space is not doing well,’ said Larry Goldstone, in an interview with CNBC television on Monday.”
“Luminent Mortgage Capital Inc, which has struggled with liquidity problems because of mortgage investments, on Monday announced a bailout in which it would sell a majority stake in itself at a deep discount.”
From Dow Jones Newswires. “Luminent shares plunged last week after the company said eight of its creditors have declared defaults under lending agreements.”
“Luminent said the lenders alleged that the company has failed to meet margin calls or repurchase financial assets under these agreements. The lenders are now demanding immediate payment of roughly $1.6 billion, the company also noted in its filing with the Securities and Exchange Commission.”
From MarketWatch. “Mortgage-buyer Fannie Mae will skip a benchmark debt offering for the first time since May 2006, the company said Monday. Fannie is permitted to pass twice a year on the offerings.”
“On its web site, Action Economics said the move ’suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency.’”
The New York Times. “As far back as 2001, advocates for low-income homeowners had argued that mortgage providers were making loans without regard to borrowers’ ability to repay. Some of these players now find themselves in a dual role as enabler and victim, like the legions of individual borrowers who were convinced that their homes could only keep rising in value and were confident that they could afford to stretch for the biggest mortgage possible.”
“‘All of the old-timers knew that subprime mortgages were what we called neutron loans – they killed the people and left the houses,’ said Louis Barnes, a partner at a mortgage banking firm in Lafayette, Colo. ‘The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at ‘Easy.’”
“Solent Capital Partners LLP, the $8.8 billion U.K. hedge fund manager, may be forced to sell assets in a unit that invests in mortgage-backed securities after lenders refused to provide it with short-term funding.”
“Companies are finding it ‘difficult to get the cheap funding they’re used to,’ said Priya Shah, a structured credit analyst at Dresdner Kleinwort in London. ‘We will see more of these.’”
“SachsenLB, the second German bank to be hit by difficulties stemming from the U.S. subprime mortgages crisis, must be sold as part of a state-led rescue deal, sources familiar with the matter said on Monday.”
“The potential sale is the first clear signal the subprime mortgage collapse could accelerate the consolidation of government-owned banks in Germany.”
The Telegraph. “Switzerland’s top banker has warned of massive losses from the unfolding credit crisis. Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world.”
“‘We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,’ he said. ‘Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,’ he said.”
“German banks’ assurances that they hold only top-rated debt securities amid credit market turmoil may not shield them from expensive asset writedowns. Credit rating agencies have already downgraded hundreds of mortgage-related securities and warned more could follow.”
“‘High ratings alone are no guarantee that something is good,’ Joerg Schneider, chief financial officer at German reinsurer Munich Re, said earlier this month.”
“The correlation of U.S. subprime mortgage risks may be much bigger than originally assumed across ratings grades because a higher share of debtors could be affected by a decline in house prices, he said.”
“‘I have potential impairments of some AA- and AAA-rated assets in my worst-case scenario,’ Schneider said.”
“U.S. legislators will ask rating agencies why they made ‘mind-boggling’ decisions to award investment grades to questionable mortgage-backed securities, Senator Richard Shelby said on Monday.”
“There will be hearings…, there will be calls for more regulation,’ Shelby told a news briefing in Brussels. ‘How did they reach the conclusion that these packages of subprime questionable loans could be deemed…investment rate bonds?’ he said. ‘It’s just mind-boggling.’”
“Shelby said banks would increase their mortgage rates in the coming weeks, exacerbating a credit crisis that has snowballed in recent weeks as defaults on risky U.S. subprime mortgages hit banks across the globe.”
“‘I think it will get worse before it gets better,’ he said. ‘There will be firms that will not survive, I don’t think we should bail them out.’”
“The Fed’s discount rate cut on Friday and injection of billions of dollars into the banking system earlier in the week alleviate only some of the stress. Wall Street observers say there is still plenty of risk out there, and the aftershocks from the failure of billions of dollars in subprime loans have yet to be felt.”
“‘What the Fed did was about consistent with putting a Band-Aid on a gunshot wound,’ said Chris Johnson, founder of Cincinnati-based Johnson Research Group. ‘You have a situation where the subprime concerns have spread, and there are still a lot of things going on in this market that are just wrong.’”
The LA Times. “Pep talks were not on the agenda this weekend as beleaguered mortgage industry professionals attended an exposition in Long Beach. After all, the keynote speaker was William Dallas, whose Ownit Mortgage Solutions Inc. was one of the first lending companies to fold last year amid a sharp downturn in the housing market.”
“‘People ask me why I don’t get back into the mortgage business,’ he told a crowd of about 200 on Saturday. ‘Because I’m not stupid.’”
“‘As brokers and originators, we need to decide what to do,’ he said. ‘Everybody likes a murder, everybody likes a tragedy. And this is clearly a tragedy today.’”
“It was a theme echoed repeatedly at the expo, where strategic financing and charting a course for the future were popular catchphrases. With about 1,500 attendees and 220 exhibitors, the event capped off a three-day convention of networking opportunities and workshops with titles such as, ‘Shut Up, Stop Whining and Get a Life!’”
“‘The general mood of the convention is ‘upbeat-stunned,’ said Peter Ogilvie, president of the California Assn. of Mortgage Brokers, on Saturday.”
“Patrick Griffith, a senior loan officer from Hermosa Beach, said he came to the expo to ’see what lenders are still out there, see who’s left.’ ‘It’s just got to shake out,’ Griffith said. ‘Real estate is always cyclical. Every 10, 12 years the same thing happens.’”
“But he said the current cycle is worse because of the ‘exotic loan products’ that flooded the market during the housing boom, making it easy for those with low credit scores to gain approval for loans.”
“‘We have yet to see the worst,’ he said. ‘It’s just starting now.’”
“John Phung of Irvine said he didn’t think the market would ever return to what it was just a few years ago. These days, the loan originator said he closes just one or two loans a month and that the Newport Beach-based mortgage brokerage where he works has cut back on promotions.”
“Phung said he and his wife, a mortgage broker, have been focusing on ‘just making ends meet.’ ‘This is the first time we’re experiencing hardship,’ he said. ‘We’re trying to take it in stride and hope for the best.’”
“On Sunday, Dallas agreed that the mood at the convention had been subdued. ‘It was almost like a going-out-of-business sale,’ he said. ‘It was as somber as I’ve seen.’”
Before anyone starts singing the praises of Richard Shelby, I’ll remind that when he was presented with a petition from several states to pass a bill making it clear that Fannie and Freddie were not federally guaranteed, he single-handedly shot down the idea as head of the responsible committee (at the time).
See Richard, I told you I have a long memory.
Right, and the same pols blasting the regulators for not cracking down harder on lenders were probably blasting regulators for inhibiting innovation and home ownership five years ago.
LMAO!!
The tsunami is coming ashore. Its too late for these clowns to head for higher ground, I hope they all drown in the BS they were spewing…
Hey Crispy what is happening with your namesakes? Mssrs. Crisp and Cole.
They are avoiding the media like the plague.
Last sighting was at our local airport where someone I know called the local TV station and told the reporter they were coming back from LV and meet them at the terminal. They did and they ran to their car - LMAO!!!
They also have a few more NOD’s on the books in the last few weeks…
Same old crap. Trying to make political hay in an election year.
They don’t want the Democrats to co-opt this issue. It will be a big one in the elections. I personally don’t think they need to worry about that too much unless the Dems convince Al Gore to run.
Re-elect Al Gore!
Shelby is a politician - what did you expect?
I’ve given up on holding politicians responsible - they are creatures of the moment and and can be counted on to dash out in front of the mob and claim leadership, even if that means a complete change of stripes. But their stripes will change as needed when the new mob appears.
What, me cynical?
Shelby is a complete idiot — even when grading on the “all politicians are idiots curve,” he’s still at the wrong end of the distribution.
He must be up for a vote in ‘08
Tee hee.
Enjoy, Mr. Jones. If anyone deserves their moment of public vindication t’would be YOU!
“There will be hearings…, there will be calls for more regulation,’ Shelby told a news briefing in Brussels. ‘How did they reach the conclusion that these packages of subprime questionable loans could be deemed…investment rate bonds?’ he said. ‘It’s just mind-boggling.’”
And this moron isn’t making a peep that US treasury bonds are AAA rated? Talk about subprime, or making loans to folks with no hope of paying them back. CONgress should get it’s own financial house in order, it’s their job.
“there will be calls for more regulation,”
And therein lies the problem, CONgress can pass all the laws and regulations they want, but without enforcement, laws and regulations are a joke. Unfortunately, there is a climate of deep lawlessness in this country that comes from the top down. It is rampant in many areas, not just mortgage and ratings fraud. What else can people expect, if breaking laws is sanctioned and even rewarded? If politicians are in bed with business? If special interest groups can whine and scream for their “rights” to break or bend the laws of the US?
Just enforce what is already on the books, thoroughly and with gusto. Deputize decent citizens to assist.
Hear, hear. The mechanism is already there. The feds and California have “False Claims Acts” which allow private citizens to bring suits on behalf of the government for fraud against government entities. The citizen-plaintiffs get a percentage of the government’s recovery.
California has an almost identical statute allowing private citizens to bring such “qui tam” suits based on insurance fraud. Why not add mortgage fraud to the list of qui tam actions?
Seriously — I think I need to put together a detailed proposal to legislators. (I got a halfway decent grade in Legislation in law school.) Does anyone know some CA legislators who are interested in the mortgage-fraud issue?
“And therein lies the problem, CONgress can pass all the laws and regulations they want, but without enforcement, laws and regulations are a joke. Unfortunately, there is a climate of deep lawlessness in this country that comes from the top down. It is rampant in many areas, not just mortgage and ratings fraud. What else can people expect, if breaking laws is sanctioned and even rewarded? If politicians are in bed with business? If special interest groups can whine and scream for their “rights” to break or bend the laws of the US?
Just enforce what is already on the books, thoroughly and with gusto. Deputize decent citizens to assist. ”
Palmetto, you are the man. This is the critical issue facing the US today. Its progress, or failure, hinges largely, if not entirely on this issue.
DP
‘Shut Up, Stop Whining and Get a Life!’”
I’m sure that was a popular workshop along with “You are Ugly. Get Over it,” and “You are a Loser.”
“On Sunday, Dallas agreed that the mood at the (mortgage industry) convention had been subdued. ‘It was almost like a going-out-of-business sale,’ he said…”
Um, yes. It IS a going-out-of-business event. Don’t know if I’d call it a sale, however.
being in the business for 24 years, i can envision a total collapse of the mortgage brokerage business. since products are now confined to one sheet, who needs to deal with the risk of working with a predator. market share and products could be concentrated to six or eight money center banks (not countrywide), none of whom would take the risk of dealing with brokers is they don’t have to. we had 200,000 in the industry in 2001 up to 600,000 by the end of 2006. given the state of the industry, it would surprise me to see that number to drop by half (of the 200,000 not the 600,000). gonna be ugly, imho.
Lets see soup lines 1929, soup lines 2007, wonder if Cambell Soup has enough on hand to feed everyone?
“Campbell’s Liquid Soylent Red - Nourishment from people’s lives everywhere, every day”
Nummers.
“Campbell’s Liquid Soylent Red - Nourishment from people’s lives everywhere, every day”
Nummers.
You forgot “Paper or Plastic? Your next career.”
LOL
“Budgeting basics on $7.25 an hour.”
My favorite was:
“‘People ask me why I don’t get back into the mortgage business,’ he told a crowd of about 200 on Saturday. ‘Because I’m not stupid.’”
Wow, I bet that went over huge with this crowd.
2007: “Shut Up, Stop Whining and Get a Life”
2008: “Get a Gun, Get Drunk, Pull the Trigger”
The stock market is hissing air again. Time for an afternoon injection?
I just took a glance at the five-day charts, and it seems like the end-of-the-day spike in volume is having less and less upward effect, and is encountering difficulty in keeping the market above 13,000. If this manipulation tool fails, and the downward pressures and liquidations continue, then the way is clear for the market to take a major dive.
The chart readers say we’ll try to go up a couple more weeks (or less), then down to March 2006. If we can’t find support there, it’s hello summer of 2006.
Sorry, March 2007. On the way to the airport, a little distracted.
We’ve already been to March ‘07
Yep, and we’ll keep going back until we fall through.
How about fall of 1929?
Stocks Soar As Bank Aid Ends Fear of Money Panic
By W. A. Lyon
The stock market strode out from under the shadow of a panic in call money that so lately threatened, revived in all its old strength yesterday. Assured that the New York banks were ready with their boundless resources to prevent a money crisis, the public and the professional trader set out to repair the damage done to prices on Monday and the major part of Tuesday.
Stocks in the aggregate, though bucking a 15 per cent rate for loans, enjoyed the greatest advance they have known in a single day in the last two years. Not even the surging bull markets of the memorable year 1928 saw such a day of heavy buying.
– New York Herald Tribune, March 28, 1929
Sounds like the Wall Street brokers managed to pass the devalued shares on tho the little guy before the Great Crash. Seems like much the same is happening just about now…
Certainly is….down about 70. maybe lose all them Friday puffed up gains, too.
Interest rates of 1/2% or even zero is not going to save any of this phony paper (CDO’s, derivatives, etc.)….it will all be marked to market sooner or later….or totally reneged on in the Cayman islands.
Professor Bear is correct again….
I see the afternoon spike…errr…manipulation is going on again…down almost a hundred then back up 170 points in an hour.
Crony capitalism…rigged parlay…too big to fail….
3 month T bill down a full percent today to 2.95. The bond market doesn’t seem to buy the stock rally.
I predict the DJIA will hold the line at 13K until the miracle rally strikes in the final 1/2 hour…
I’ve been watching for the PB
When it went under the starting tick I figured it would happen sooner.
Prof. Stuc: Get (more) Bearish
Seriously, open market Ops on a daily basis….expected, lay offs, expected…..
transparancy….unexpected.
The stock market is now like a coke addict taking a hit after lunch to end the day on a high note.
been mainlining 100B over a few weeks period, serious habits are tough to break. We may need Betty Ford on this one.
Air? Are you sure? It doesn’t smell like air to me.
Roidy
Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world.”
“‘We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,’ he said. ‘Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,’ he said.”
- Thank you Jean-Pierre … you took the words right out of the horses mouth.
just wait until the Swiss carry trade collapses; I wonder if this Swiss banker has something clever to say about that. A lot of cheap mortgages and company debt in Europe (especially in commercial RE) is financed in cheap Swiss Francs or even cheaper Yens.
Nhz - that interests me, too. I was about to go shopping for come Swiss Franc CDs when I read what you’re describing, so will hold off a while.
If the Swiss franc carry trade collapses, the currency will rise. So in that scenario, your Swiss Franc CD would be a wise investment.
Will it actually unwind? Hard to say, so far most of the unwinding has been with the Yen.
GHD - probably too late for a reply, but would you guess that if the Swiss carry does not unwind, their CDs are nonetheless worth holding, at least as a 5-10% part of a portfolio?
It’s not all gloom & doom over @ Countrywide…
I heard all employees laid off, were each given a dozen sessions at the tanning salon of their choice~
BAHAHAHAHA
LOL
And such a compliment to those ridiculous white-framed big-lenses sunglasses!
Mozillo can afford to go without a session or two for a while.
“Mozillo can afford to go without a session or two for a while.”
It’s from walking around on the sunny deck of his yacht with his accountant and lawyer in tow. You can spot the crooked lot with their “Ralph Lauren” tans a block away.
he’d make a good stand in for anthony hopkins in the movie “The Greek Tycoon” about Aristotle Onassis.
CapitalOneFinancial Barbarians running around all over the place asking the Countrywide employees: what’s in your wallet? Countrywide employee: a pink slip.
–
“The Credit Pendulum Was Stuck At Easy”
Now it may get stuck at the other end — Tight, as in no mass, amigo.
Jas
“Phung said he and his wife, a mortgage broker, have been focusing on ‘just making ends meet.’ ‘This is the first time we’re experiencing hardship,’ he said. ‘We’re trying to take it in stride and hope for the best.’”
WAHHHHHHH! Sell the the 7 series beemer and quit trying to tell yourself you’re a tycoon!
Hard to feel sorry for these folks when my wife and I struggled to make it on an enlisted man’s pay in San Diego for 5 years. What dues did he have to pay to try and build up some savings and afford a home for his family? What kind of hardship could they be facing? Non-renewal of the golf club membership maybe?
I thank God I grew up with next to nothing and had to struggle because it is making life SO much easier now
It is tough to give up the country club and the two BMW’s. They may even have to drive a Toyota now. No more $ 200 dinners twice a week. They may actually have to make a budget!!
I’m right there with ya.
Mugsy, my hat’s off to you. Making it on an elisted person’s pay, married, in San Diego. Yikes!
Just another reason to love the military types.
Tough to feel sorry for these people when they’ve likely been making their livings over the past few years talking their fellow citizens into making terrible financial decisions.
Instant karma gonna get you…
What is going to be classic is whenever these Mortgage Broker gurus have to come up with their taxes next April, since it is obvious that all of these 1099ers are now spending whatever cash was set aside from earlier in the year to keep the Escalade, home, second home and investment home until things improve. Most of the people that I knew in this industry were making a killing and living like it could never come to an end. Now it has, and I think this will be the first a lot of these brokers will have experienced tough times.
What comes around goes around.
I wonder how long it will be before the typical mortgage broker will burn off all the big, easy money they made during the boom? I would guess that by the end of this year the well will run dry for most of these clowns.
Long may they rot.
I also wonder how many of them, like their real estate agent contacts, bought into the hype and over-speculated in properties themselves. And who is going to buy their Hummers?
My experience with these slimeballs in Western Pennsylvania had monthly nuts approaching 5k. Which, I know is very, very low by most of the countries standards but there are very few jobs in Western Pennsylvania that can support a 60k yearly after tax outlay.
I had a hard time at first believing that these kids were making 150k a year selling loans to out of state borrowers with IO/NA loans. They acted like anyone in an area of appreciation would be crazy not to refinance into one of these schemes.
Yay, Mugsy. Hats off to you. Perhaps Mr. Phung should enlist now.
“‘I have potential impairments of some AA- and AAA-rated assets in my worst-case scenario,’ Schneider said.”
I have that in my best case scenario.
I agree. I’ve discussed current affairs with lenders who issue only “A” paper. They’re distressed because they’re getting defaults on A paper. Defaults on lower quality paper are inevitable.
Once you have price declines across the board to the level of affordability — let alone an overshoot — AA and AAA paper will experience losses on prime mortgage defaults, let alone subprime.
And in non-recourse states, you might see people who don’t have to walk away walk away.
yeah, especially the ones who watch that Cramer guy…he *told* them it was the wise move to walk away if they’re underwater! I’m still amazed at that. Not, if you can’t pay your bills, but just straight-on, best to walk away…
Yep… his words… Consider it a bad investment, just like a stock or bond. If you’re under water, just walk away with the loss you’ve already taken. Don’t try to ride it out.
Nice.
When someone gives you a call option it’s silly not to use it. For a low credit quality borrower the premium is exceedingly low.
“As mortgage lenders get squeezed, home buyers are expected to keep feeling the pain. Those with weak credit will be cut off completely while other borrowers will face higher costs, according to Tim Drayson, international economist at ABN Amro in London.
Highly indebted companies are also going to have trouble raising funds for at least several more quarters, Drayson said. “On the corporate side, aggressive leveraged buyouts and deals - they’ll stop. Those companies borrowing heavily will be less able to invest.”
http://money.cnn.com/2007/08/20/markets/credit_fed/index.htm?cnn=yes
I though that using “leverage” in business was a tool to be used sparingly not a strategy to survive by.
Gee, to think that the only leverage I’ve ever used in business is a credit card. Which I pay down to zero every month.
Beyond their fancy algorithms and $10 words used to baffle the unitiated, leverage has been the entire business model of the private equity and (much of) the hedge fund world. Despite all of the self-congratulatory coronations to the contrary, this is why Stephen Schwarzman is now a multi-billionaire.
“NovaStar Financial Inc,…will fire about 500 employees, or 37 percent of its work force, as it reduces home loans”….”NovaStar has said second-quarter loan volume fell 73 percent from a year earlier to $773.7 million, and that third-quarter volume should be ’substantially’ lower.”
Nova is going Supernova. But no worries; as Stephen Hawking assures us, “Black holes ain’t so black.”
Luv,
Jen
Wasn’t “The Black Hole” a 70’s porno starring Lola Felana?
Try Googling it; Paul Reubens doesn’t post here.
Luv,
Jen
I guess the financial holes are black because of all the black helicopters that get sucked into it.
Loan volume down 73 percent and going lower, seems like more than 37 percent would end up being laid off.
37 percent of employees that remain…. Most of the people that had been sitting in their offices doing loan originations were independant contractors, not employees.
Like Tupperware or Avon “laying off”. Few of the people on the street pushing their products are “employees”.
“‘This is the first time we’re experiencing hardship,’ he said.”
I feel your pain! (sarcasm off)
Ok Mr and Mrs Smith you want to buy a 500k house, you make just under100k and want to put down 200k, with a 30 year mortage and you are credit worthy i see, lets do business. Next:
Mr and Mrs Jones you want to buy a 500k house and you make 48K and you want to put down 50k, your credit score is marginal and you want a creative loan, lets not do business on a 500k home? Simple gang really, none of this could have happen if it wasn’t for the funny business of easy money,create a pent up demand and over price the market by builders, lenders who went unregulated (where was the Feds when all this was hapenning) and the flippers who saw a rainbow when their wasn’t any rain?
WCI HALTED NEW PENDING - BK FILING????
Wouldn’t be surprised..they were making the bucks selling homes without even MODELS to look at..people bought off a little mini house on a map!!! Didn’t even care what the heck it looked like..and flippers were gallore in their communities when things were hot..
A couple media sources including WSJ reporting new revolving credit agreement. No word on BK filing.
ICHAN board appointment, false alarm, I still think these have one foot in the grave…
Latest news I see is Carl Ichan joining the board…. He must have a lot of money in there and needs to take control… Control of a sinking ship?
Read the story… Yep, he holds 15%.. maybe more.
Had to ammend a credit facility to avoid fefault.
Guess it is true. If you owe the bank $5K they own you. Owe them $5M, and you own them.
Ammend my loan, or I’m bankrupt and you get nothing…. Okay, we’ll waive the equity agreements so you don’t have to worry about a margin calls. We do this in hopes you can find someone else to lend you money so you can use it to pay us back…
Or…is it more like this:
Bank: “Margin call… give us our money back!”
WCI: “Can’t pay you back, so I’ll be filing bankruptcy later today.”
Bank: “Oh… Well, let me waive the equity requirements in your agreement so that I can delay having to book this loss.”
I’m thinking the latter.
OK — fess up - which of you posters is Kenneth Thomas?
“‘It was a rookie mistake,” said Kenneth Thomas, a lecturer in finance at the University of Pennsylvania’s Wharton School in Philadelphia. The Fed ‘underestimated liquidity needs’ of investors and the fallout from the housing recession, he said, adding, ‘This demonstrates the difference between book-smart and street-smart.’”
http://tinyurl.com/2zqgk4
I hope to be able to read Thomas’s dire warnings — and his own street smarts — about the housing and credit bubbles waaaay back to, say, the earlier days of Ben’s blog. Surely he’s not another academic Monday Morning Quarterback - is he?
“‘We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,’ he said. ‘Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,’ he said.”
This guy’s comments could almost be construed as a sales pitch for American citizens to open Swiss bank accounts.
Which might not be a bad idea. The SFR should rise as the carry trade collapses.
“‘We have yet to see the worst,’ he said. ‘It’s just starting now.’”
It’s a relief to see there are at least a few optimists left out there.
Anyone else catch Senator Dodd on CNBC say that the Fed move on Thursday was a step in the right direction?
Thursday????????? Um, guess it was Friday for the unwashed masses.
He was probably one of the elitists that were tipped off ahead of time….can you say Freudian slip???
Money for nothing and their tips for free….
OMG THIS IS SO GOOD!
http://biz.yahoo.com/tm/070820/16205.html?.v=1
The HOUSING business is in the 2nd or maybe 3rd inning of its downtrend. I find it amazing that calls for a bottom continue. Who do these people think they are kidding?
The FED did what they are NOT supposed to do…their move was purely to lift the market. How do I know? They made the move on option’s expiration day…forcing the hands of the shorts and the puts. Why not wait until Monday? It is now scary that the Fed is trying to game the markets. This move was not to help Aunt Mary and Uncle Bob…it was to help the hedge funds that were getting massive redemptions…in order to prevent a meltdown.
So, when does the rest of the world “get” that point? I mean, how can the move be interpreted as anything but precisely trying to game the markets? Aunt Mary and Uncle Bob might foolishly believe that the Fed need merely lower rates to make it all okay again, and the realtors might have pipedreams to that effect, but the market players themselves can’t believe it, can they? Do they expect the Fed to continue to play such a role?
Shel and Tom thank you. Thank you very much. Last week there was a firestorm of the PPTers vs. the non PPTers. We can argue the specifics all we want. We can argue about circuit breakers all we want. We can argue till the cows come home about panic and whether I should be allowed to sell everything in such a state. However, the bottom line is this system is gamed. Sure, some will arguw that I should then dabble in this market if I know wo much. Nada. I have cash and I will sit on it if I have to. You see, no one wants the fed to intereven when things are sky high. But as soon as the Dow plunges to 12K levels we need injections of cash and circuit breakers to go off.
Well. TOO FREAKIN BAD. Time for everyone to call in the loans and start from there. Too much of the system is rigged and too many gamblers in the stock market.
Time to majorly flush the system of all this mess.
I am just so sick of this fake economy.
GOT CASH?! (and not numbers on financial statements, either)
Here is the full quote. Gotta say I think it is accurate.
“The FED did what they are NOT supposed to do…their move was purely to lift the market. How do I know? They made the move on option’s expiration day…forcing the hands of the shorts and the puts. Why not wait until Monday? It is now scary that the Fed is trying to game the markets. This move was not to help Aunt Mary and Uncle Bob…it was to help the hedge funds that were getting massive redemptions…in order to prevent a meltdown.
Yes…I saw that action on Thursday and yes, the move off the Fed cut started Thursday…not Friday morning. Why do I say that? Simple! There was massive illegal insider trading on Thursday…but no one will get caught because as usual, no one is watching. The evidence: out of nowhere, FINANCIALS were bought in big blocks…and the Fed struck the next morning. I would love to hear the tapes of the Bernanke/Paulson phone calls before the rate cut. THE NEWS WAS LEAKED…CASE CLOSED! Do you think anyone is going to audit the “out of nowhere” massive FINANCIAL stock buying? Doubt it! Even people that are not skeptical have to raise their eyebrows at Thursday’s action. Did you notice that on Friday, there was not a shred of bad news announced by anyone? HMMMM!”
Professor Bear noted the anomaly Thursday afternoon (go to the bits bucket if you don’t believe me).
Comment by Dawnal
2007-08-20 11:28:03
Here is the full quote. Gotta say I think it is accurate.
“The FED did what they are NOT supposed to do…their move was purely to lift the market. How do I know? They made the move on option’s expiration day…forcing the hands of the shorts and the puts. Why not wait until Monday? It is now scary that the Fed is trying to game the markets. This move was not to help Aunt Mary and Uncle Bob…it was to help the hedge funds that were getting massive redemptions…in order to prevent a meltdown.
Yes…I saw that action on Thursday and yes, the move off the Fed cut started Thursday…not Friday morning. Why do I say that? Simple! There was massive illegal insider trading on Thursday…but no one will get caught because as usual, no one is watching. The evidence: out of nowhere, FINANCIALS were bought in big blocks…and the Fed struck the next morning. I would love to hear the tapes of the Bernanke/Paulson phone calls before the rate cut. THE NEWS WAS LEAKED…CASE CLOSED! Do you think anyone is going to audit the “out of nowhere” massive FINANCIAL stock buying? Doubt it! Even people that are not skeptical have to raise their eyebrows at Thursday’s action. Did you notice that on Friday, there was not a shred of bad news announced by anyone? HMMMM!”
Yeah, I was short big on the financials and got my a$$ handed to me. I had done great all day Thursday, but logged in in the afternoon to see a big loss. I thought it was a mistake at first! That’s when I realized just how corrupt this system is. More hokey than a carnival hawker who refuses to give you that big bear after you knock down the cans with the ball… fukem.
CP
I make money… I’m a genius!
I lose money… the markets are rigged!
Sounds just like the whiney FBs to me.
The Fed’s move wasn’t meant to force the hands of anyone; rather, it was meant to aid an adjunct move by the omnipotent Plunge Protection Team. There are no such events as short squeezes in the markets anymore, merely the work of secret financial cabals bent on world domination.
Damn you, PPT, my ancient nemeses!
We see you, Front Range Cramer.
What we know:
Carry Trade is unwinding and horrific rate!
1) 2 months ago, Bear Stearns hedge funds blow up, creating market volitility, but the crunch is isolated to sub-prime players.
2) 4 weeks ago a German hedge fund with limited exposure to sub-prime blows up, shocking people awake to the very real risk in the debt markets outside sub-prime… Investors GREATLY cut back purchase of anything that may be close to mortgage backed.
3) A week and a half ago, Countrywide releases a quarterly report. It says it can’t sell a lot of the loans it was holding for resell, so has to devalue them and put them on their books as long-term holdings.
4) A week later (Wednesday, two days prior to options expiration) an analyst downgrades Countrywide to a sell, saying there is a possibility they could gop bankrupt. With 40% of their deposits not FDIC insured, a run occurs.
5) Overnight Wednesday, Countrywide goes to every lender it can get ahold of and says they need money, lots of it. Those lenders go to the Fed looking for assurances that they are going to keep Countrywide solvant long enough for them to get their money back should they make the loans. They get the assurances. They make the loans.
6) Thursday morning, Countrywide announces it has gotten $11 billion from 40 banks, trying to stop the run. The run continues. Finaicials are pounded, everyone is afraid the run will spread.
7) Thursday, First Magnus shuts down, laying off 6000. This feeds the run on Countrywide.
9) Noon, Yen falls as Carry Trade unwind reverses. Financials start to recover. Few hours later Steve Lesman on CNBC is asked what is going on, and he says that he thinks the Fed is going to drop the discount rate.
10) On my local news at 10PM, there is a story of the big run up late in the day, and credits it to speculation that the Fed will be droping rates that night. I comment to my wife, “it isnt’ going to happen. Fed has repeatedly said it is not going to drop rates.”
10) Next morning (day options expire) Fed anounces the drop in the discount rate.
I see three possibilities:
1) Run on Countrywide was unfortunate timing for Options players.
a) The events leading up to the run on Countrywide were in no way planned to allow the short squeeze. The news looked bad, and the run began on its own.
b) The banks were running scared on Thursday fearing the run would spread as the Carry Trade unwound too quickly. They again contacted the Fed, and the Fed agreed to live by its charter and keep the banking system (including Countrywide) solvant. It agreed to drop the discount rate despite its desires to hold rates steady. Its hand was FORCED by the run and the Carry Trade.
b) The news leaked that the Fed would drop the discount rate. The big boys see an oppertunity for a short squeeze. They run and borrow a bunch of Yen, and the short squeeze begins.
c) Rumor leaks to the point that a flapping head on CNBC even hears it and goes on the air with it.
2) Big Boys planned the run hoping to create a squeeze oppertunity.
a) The timing of the downgrade on Countrywide was perfectly timed to Wednesday to start a run. This dropped the financial stocks and allowed the big boys to dump their options at huge profits.
b) Once they had the financials low enough and dumped all their short positions, they started the short squeeze.
c) The Fed’s action was a fortunate coincide that doubled the effects of their short squeeze. They may have even hoped to force the Fed’s hand from the beginning, but didn’t collude with the Fed knowing the fix was in.
3)The big boys made an agreement with the Fed ahead of time.
a) Like 2 above, but before issuing the downgrade of Countrywide, the big boys already knew the Fed was going to help them screw the little guys by piling in on top of their short squeeze with a drop of the discount rate.
Now, which is most likely.
Heck, I don’t know. It is odd for a big boy to downgrade Countrywide and mention the possibility of bankruptcy. Even if true, these guys rarely tell the truth when the truth can destroy the financial markets overnight.
I have a hard time believing that the Fed would allow the big boys to take the massive losses they’ve already taken, then turn around and work with them to create a short squeeze.
I doubt the big boys would have risked everything if they didn’t know the fix was in.
None of these seem likely?
However, one explaination, the unfortuante timing for the shorters, seems the most simple. It requires the fewest number of people working together and risking everything.
When presented with options for which there is insufficient data to form a conclusion, it is usually safest to assume the simplest explaination.
In my, and occam’s, opinion.
“Pep talks were not on the agenda this weekend as beleaguered mortgage industry professionals attended an exposition in Long Beach.”
“It’s not our (loan industry’s) fault, the fed should have kept rates low forever” - Repost from what I posted in BitsBuckets:
Brokers Outpost going ‘gaga’ over a post that states that the reason for the fall of the mortgage industry is not high home prices and the mortgage industry pushing exotic loans, but the Fed raising interest rates over the past years since 9/11 and property taxes (aka “we’re not the bad guys, it’s the feds fault for raising short term rates”):
The TRUE Story Regarding the Mortgage Crunch
http://forum.brokeroutpost.com/loans/forum/2/155511.htm
“The TRUE Story regarding our current mortgage crunch, at least in Central Florida if not all of Florida and I’m sure many other states as well. All of this mortgage meltdown really started in August of 2004 for Florida and it has absolutely nothing to do with predatory lending or the so called “teaser rates”, which is a totally incorrect analogy of the product. ”
…
“Subsequently, the worst thing imaginable happened, all of a sudden there are 25,000 houses on the market in Central Florida and home prices start to plummet. Sellers can’t sell and get their asking price because of the increase in HOI, property taxes and cost of living that is making their homes way to expensive. ”
…
“So, it’s not the Mortgage Brokers, Sub-Prime Lenders, prime lenders or even the Banks that are at fault in this market, it’s the government and the Federal Reserve… I will leave the HELOC’s “Home Equity Line of Credit” for another day. However, I will say that those that got them in 2003 and 2004 found their interest rate doubling because the Fed increased the Fed Funds and Prime 17 times and the first mortgage rate became too high to get them out of the HELOC with a refi, creating a “Captive Audience” that is stuck with a HELOC over 9.5% that started out at 4.5%.
If the Fed can exist in 2003 and 04 with Fed Funds at 1.5% and Prime at 3.5%, why can’t they do it now? At least mortgage brokers would be able to refinance some of those in trouble into a lower interest rate mortgage and save them a few bucks to buy food, pay their mortgage and maybe have enough money left over for school supplies.”
—-
And almost everyone on Broker’s Outpost is high-fiving this person, congradulating him/her on his/her insight, and wanting to forward this on to congress so that they can “fix” things and get the loans flowing again (’turn those machines back on!’)
*Sigh*. Yeah, that’s it…house price “mysteriously” dropped, which “trapped” people into low loan to value situations…and people were “trapped” by the seduction of low short term interest rates, instead of taking advantage of historically low *fixed* interest rates. All HBB should read the thread, it is truly sad.
Yeah, lend them more money, let them buy school supplies!
maybe their kids are better off not going to school.. they might not be as stupid as the parents
Everyone ready for Federal Direct Home Loans?
They already do this for student loans, with far-below market interest rates locked in for 10, 15, 20 years - as in 2% when market rates are 6 or 7%.
The first Democrat to propose this will get the “glory” - and it will be a Democrat that proposes this, because in the spirit of FDR, government is always the answer. So now the Fed loans out hundreds of billions at 2% while paying 5% to borrow that same money back. No, it won’t save every FB, but it will help enough to allow certain Congress-people to play up their “savior” role.
Of course, since this bypasess the brokers, they will not support it as much as they would an actual lowering of rates across the board.
“We pay property taxes in the rears, which means our 2005 tax bill is due in 2006.”
ROFL! It’s “arrears,” fella, but your version works too, these days.
Ben, your article quotes the New York Times, but the link goes to the “newstribune?”
IHT is the NY Times. You don’t need a subscription, so some people use it instead of the NYT.
Hear about what is going on in T-bills? Unbelievable.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJbhFOZ2T.R4&refer=home
(Another Bloomberg article says money markets have subprime in them). “The yield on the three-month Treasury bill fell about 1.21 percentage point to 2.55 percent as of 12:47 p.m. in New York. It’s the biggest drop since at least 1983, when Bloomberg began tracking the data. The move eclipses that on Oct. 20, 1987, when the yield fell 85 basis points, or 0.85 percentage point, on the day the stock market crashed, and the decline of 39 basis points on Sept. 13, 2001, the day the Treasury market reopened after the attacks. The yield has fallen from 4.69 percent on Aug. 13.”
It does not appear that the monetary authorities have any control of short term rates either — Fed Funds is at 5.25%! They are saying 100% chance of a September cut, with 80% chance of 50 basis points.
I saw, the short end collapsed. My T-bill is up for renewal this week. Maybe keep a bit out until next week.
I went out and pounced on a couple of 5.4% 6-month CDs at a bank and a credit union this morning. Am hoping that by Spring, rates will be rising nicely.
HSBC has an online savings account paying 5.05% APR. And you can pull your money out anytime you want with a couple of clicks (after the first six months). How is that for liquid and safe in this market?
Generation gap, unfortunately. I like brick and mortar. These places are 10 minutes away.
The banks are sitting back with a bowl of popcorn as all their competition comes tumbling down..I smell a conspiracy…Hmmmm…
Hope the mortgage brokers are ready for the down grade to a lovely KIA..as those spreads are going to be spreading pretty thin…let see how much money they get on the back end with the bank now that they are back to calling the shots…Oh and appraisers..better watch the phoney “comps” those are not going to fly either…and realtors you are going to have to actually “prequalify” your buyer to see if they really qualify for the home “they want” not the one “you want” them to buy..
Back to doing business the right way for realtors, mortgage brokers and appraisers..now they will “make a living” just like everyone else and a honest and humble one at that..
In the body of some of those posts they were talking about Florida buyers not even being quoted the new tax bill that they would have to pay . Kinda weird that the lenders didn’t include the upcoming tax bill or new insurance that would be on the new purchase in qualifying the buyer . This practice is just plain misrepresentation to me .
Oh sorry ,this was suppose to be below arroyogrande post about the brokers outpost /
Its true..my aunt just had to add big money to her escrow..people are finally getting smart to calculate the taxes on their own(2% of the SALE price of the sale 500K=$10K taxes).. and the insurance well no Allstate,Nationwide and so on..state run garbage..6K a year with 50K deductible…Great place to visit..to expensive to live and salaries are low…
Wiz — I expect that that practice will change widely and soon.
What it all boils down to basically is no one wants to feel like a chump by playing by the rules when the game is rigged against honest, moral, hardworking people to lose, when you can lie, cheat & steal and have a pretty good chance of not only winning, but not getting punished if caught.
Anyone who loses is just unlucky or not clever enough to stay in the game.
New attitude for America.
Dont like it? So what! Just go back to your tv, order a pizza, & keep your unpopular, irrelevent self away from me.
Rich Dad/Poor Dad.
Rich dad… gets his hands on some “other peoples money”. Gambles with it. If he wins, he takes a cut and he’s rich. This allows him to get his hands on more “other peoples’ money” and gamble more. If he gambles and looses, enghhh, no big since it was other peoples’ money. Just figure out a way to get your hands on some more “other peoples’ money”.
Poor dad…. works for a living, and puts a chunk of his money into savings which quickly becomes “other peoples’ money” that rich dad gambles with.
Poor dad takes the risk, and the bulk of the wins and losses, while rich dad takes a cut either way. And, since rich dad is taking a big cut, over the long haul, the poor dad’s losses HAVE to exceed the wins.
And here’s an interesting take on that particular saga:
http://www.johntreed.com/Kiyosaki.html
thanks just crossed that book off my list. Millionaire Next Door, albeit dated, was worth my time though.
I agree 100% with your post. Here is a description of this from “Tragedy of the Commons,” which is a famous article on the relationship between human nature and the public good.
Pathogenic Effects of Conscience
The long-term disadvantage of an appeal to conscience should be enough to condemn it; but it has serious short-term disadvantages as well. If we ask a man who is exploiting a commons to desist “in the name of conscience,” what are we saying to him? What does he hear? — not only at the moment but also in the wee small hours of the night when, half asleep, he remembers not merely the words we used but also the nonverbal communication cues we gave him unawares? Sooner or later, consciously or subconsciously, he senses that he has received two communications, and that they are contradictory: 1. (intended communication) “If you don’t do as we ask, we will openly condemn you for not acting like a responsible citizen”; 2. (the unintended communication) “If you do behave as we ask, we will secretly condemn you for a simpleton who can be shamed into standing aside while the rest of us exploit the commons.”
Every man then is caught in what Bateson has called a “double bind.” Bateson and his co-workers have made a plausible case for viewing the double bind as an important causative factor in the genesis of schizophrenia. [17] The double bind may not always be so damaging, but it always endangers the mental health of anyone to whom it is applied. “A bad conscience,” said Nietzsche, “is a kind of illness.”
To conjure up a conscience in others is tempting to anyone who wishes to extend his control beyond the legal limits. Leaders at the highest level succumb to this temptation. Has any president during the past generation failed to call on labor unions to moderate voluntarily their demands for higher wages, or to steel companies to honor voluntary guidelines on prices? I can recall none. The rhetoric used on such occasions is designed to produce feelings of guilt in noncooperators.
For centuries it was assumed without proof that guilt was a valuable, perhaps even an indispensable, ingredient of the civilized life. Now, in this post-Freudian world, we doubt it.
Paul Goodman speaks from the modern point of view when he says: “No good has ever come from feeling guilty, neither intelligence, policy, nor compassion. The guilty do not pay attention to the object but only to themselves, and not even to their own interests, which might make sense, but to their anxieties.” [18]
One does not have to be a professional psychiatrist to see the consequences of anxiety. We in the Western world are just emerging from a dreadful two centuries-long Dark Ages of Eros that was sustained partly by prohibition laws, but perhaps more effectively by the anxiety-generating mechanisms of education. Alex Comfort has told the story well in The Anxiety Makers; [19] it is not a pretty one.
From The Plan to Protect Homeowners, Not Hedge Funds
“This proposal ensures that subprime borrowers will not be thrown out of their home because they cannot meet the terms of a predatory mortgage. The plan:
“1. Gives homeowners facing foreclosure the option of renting their home for as long as they want at the fair market rate. This rate is determined by an independent appraiser in the same way that an appraiser determines the market value of a home when a bank issues a mortgage.
“2. The proposal requires no taxpayer dollars or new bureaucracies. It would be administered by a judge in the same way that foreclosures are already overseen by judges. It simply changes the rules under which foreclosures can be put into effect.
“3. The proposal does not bail out in any way lenders who made predatory mortgages or made risky gambles in the secondary market.
“4. There are no windfalls for homeowners. They will have the right to stay in their house, but will no longer own the home. This means that there is no real incentive to abuse the program. The plan would be capped at the value of the median house price in a metropolitan area, so it will not benefit high income homebuyers.
“5. Rents will be adjusted in later years by the Labor Department’s consumer price index for rents in the area. If either the owner or renter believes that their rent is unfair, they can arrange, at their own expense, to have the court make a second appraisal.
“6. After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely.”
Um, I thought people who took out mortgages they couldn’t afford were already renting from the bank?
Seriously, this assumes that the loan is still with the bank, and not minced into a thousand sausages. Also, what is “fair market rate” rent? Probably half of the monthly mortgage. Would any investors accept half of what they’ve been promised? Who will ever buy a MBS again? What bank would ever loan money for a mortgage again? What FB wouldn’t go into foreclosure for this sweet deal?
I just reread #6. “After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely.” Holey majoley. So renters who didn’t buy foolishly in the run-up will STILL be screwed!
Good lord. That’s the solution?
“6. After the foreclosure, the mortgage holder is free to resell the house, but the buyer is still bound by the commitment to accept the former homeowner as a tenant indefinitely.”
Yeah, no way in HADES would I ever buy one of those properties. Of course, for a predatory lender, it is poetic justice. He thought he’d stick the homebuyer with debt slavery 4ever, now he’s been stuck with the homebuyer as a tenant 4ever. Sweet deal for the FB indeed. I guess it is too late for me to sign on.
Palmy
It might be too late to sign on for the fair homebuyer act mentioned but I bet Donny Trump will still make you a sweet deal in Downtown Tampa on those fantasy condos. See Casey Serin ASAP for invester info on how to do such sweet deals.
By the way I get a 3% referral fee so dont let that as*hat Casey bogart it all to pay for his divorce.
Aqius, priceless! How many people use the term “bogart” these days? Or is it “bogard”? I’m gonna have to wiki that one, I never really learned where the heck that word came from, but back in the Easy Rider days, everyone knew what it meant.
Just looked it up. BogarT, you were right, Aqius. Here’s a little lyric for Wall Street:
“Don’t bogart those funds, myboyz, pass ‘em over to me”.
Palmetto, you stole my thunder, you bogart….. : )
Hey There Palmy
Used to hear ” don’t bogart it, man ” a lot in FL in the 70’s when the dope smuggling planes ditched or tossed out bales of ganja by the ton, and my schoolmates lit up the HUGE CIGAR-sized joints . .. incredible the size o’ those things … it never really did much for me other than make me sleepy … then later the move to CA & laughing at the skinny things that passed for joints out here .. and the crazy prices!!
Never really was much into drugs but I’m a live & let live kinda guy and if average joe wants to partake in his domicile, then I say enjoy!!( Just dont rip off my stereo or VCR to support the habit.)
(( Ben is going to ban me fer going off topic so much ,, heh heh))
The phrase regained popularity about a decade or so ago thanks to Beavis and Butthead.
It was a play on how Humphrey Bogart smoked right down to the filter. He smoked so fast nobody else had a chance for a toke.
Hell, I’d buy one of those properties in a heartbeat. At a market rate based on the market rents. Let’s see, for a rental unit, how about a 7% cap rate on NET income?
The banks would need to cut their price, since no one would buy the house unless they did.
For the house I live in, that would mean my purchase price would be about 25% of the recent comp down the street.
So, I collect 7% (or more if I can leverage at less than 7%) on my investment, and ultimately, the home will be worth much, much more.
It’s like buying a rent controlled apartment that has a burn-off of the restriction. Ultimately, when that restriction is gone, and the tenant leaves, the value of the building jumps.
So the FBs get what amounts to a subsidized rent for an indefinite period of time. That will teach all of you responsible savers a lesson.
Debt is Wealth.
Saving is for Losers.
Subprime is Contained.
We’re from the Government, and We’re Here to Help!
sound very much like the current rental system in parts of Europe …
or course, if you don’t have any (official) money you can always choose between heavily subsidized renting or buying a home with lots of government subsidy plus other peoples money. And so the war on savers continues.
I see a couple problems.
1) Assumes the FB can pay the rent at full market value rent. I doubt many can. They bought with a 2% teaser, or cash back at closing that let them make the payments.
2) The banks(MBS holders) actually take a BIGGER loss. A $500K home that would sell for $250K, will have a FB locked in forever, so the place may only go for $150K… Someone will buy it, but for how much? Certainly not at market price.
3) NO incentive for the buyer to do ANY maintenance or repair on the place. It would be to their advantage for the FB to get fed up and move (after all, the FB is paying market rent.) SO, the way to make money is to lowball offers on these homes coming to market, be a slumlord, drive away the former FB that is living there, then bring it back to market once you’ve clearned them out.
Oh, I forgot #4. How do we make sure the place isn’t “sub-leased”? How do we ensure it was owner occupied before the foreclosure? Etc… etc…
Ammendment to #1. They most likely won’t be able to afford the rent when they are hit with the 1099 for forgiven debt.
C’mon folks. This is just a proposal from some nutty leftist (Marxist?) who has a soapbox on Huffington Post. Enuf said.
Unfortunately, someone like him is going to get elected President someday…this is our heads up.
Countrywide fallout
Mortgage group says psychological effect alone could sink consumers
By Amy Hoak, MarketWatch
Last Update: 5:43 PM ET Aug 16, 2007
CHICAGO (MarketWatch) — There’s more at stake in Countrywide’s health than the future of the company — if it isn’t able to keep making loans, the psychological impact of the loss would be felt directly by consumers, participants in a California Association of Mortgage Brokers news conference said on Thursday.
“The consumer will feel that there is no loan availability if companies like Countrywide can’t keep their doors open. This isn’t some small company that decided to start up yesterday that had a risky business plan. This is America’s leading lender,” said Ed Craine, the public relations chairman of the group.
“The credit crunch is working its way through the whole market, taking companies we’ve seen as solid companies that nobody would ever expect to have problems and putting them on the brink of disaster.”
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B82942748%2DB6DE%2D4152%2D8D97%2DE969E0ECF492%7D&siteid=nwtreal
cry me a river, Ed Craine, the public relations chairman of the group…..best sign on with another outfit, most likely in the alt-energy arena…..so as you can start sucking on some of those sweet gov deals in the pipeline.
The only possible solution is to require contracts to be legible & understood by purchasers. No hiding terms in tiny unreadable print. No more using arcane legal language. Make the contracts so that buyers will have hardly ( notice I said “hardly”, not “never”, theres always a loophole) any excuses to offer later as to meeting of minds, duplicity, fraud, whatever.
(Auto contracts underwent major revisions with terms highlighted in large bold text. Impossible to miss while reading & hard to hide by the seller. Of course dealers fought like hell against it but I bet the lawmakers finally got tired of consumers complaining about the shady paperwork & finally mandated a change)
Not a perfect solution but none ever is. At least it’s a step in the right direction.
NO!!! The real solution is for laws requiring a lawyer represent all parties for the contract to be enforcable.
This is the way it is wih pre-nup agreements. I can have my wife sign anything I want, drawn up by my lawyer or not. But if she didn’t get the advice of a lawyer that revied the doc before she signed, it is practically unenforcable.
You’re kidding, aren’t you Darrell?
Probably not. But it pertains only to wives, not husbands.
I see a minimal two-fold solution that should shore things up going forward:
1. Make it such that the broker/borrower relationship is held to a higher standard (fiduciary), where if the broker is found to not give all relevant information to the borrower, he’s liable and loses his ability to be a mortgage broker–this would require government action.
2. In the same way a reasonably underwritten loan requires 20% down, the buyers of the MBS should require that the underwriting bank keep 20% of the loan pools on their books. This, without dealing with Moody’s/S&P, would give all groups in the chain the incentive to make good loans, not just loans that they can sell.
One way is to put the onus on borrowers with no legal background to understand the loans. What I note above incents the lenders to make sure the borrower can repay the loan, no matter how much or little the borrower reads in the documents.
I think doing a bit of both would make sense.
Man - Fannie Mae (ie. govenment backed securies) cannot even get funding - this is really really bad. From now on, do we have to pay cash for houses?????
They have funding. There’s just no market for their “product” of large pools of loans.
If you have cash to pay for a house, you’ll be in great shape in 2011.
Yes - but don’t they have to sell these bundled loans to get cash to make more mortgages? No income from bundled loans - no cash for mortgages.
let me phrase this carefully.
Plenty of money in the pipeline, for QUALIFIED BUYERS using methods outlined for AFFORDABLE houses….the strawberry pickers may have to move out of the mansion, awww now I feel bad. NOT !!!
Man, if *everyone* had to pay cash for a house, I could be a RE mogul overnight. Heck, I could even hire a footman — “B’leeve I’ll have a glass of Port now, James.”
“Do you miss the mortgage business, James? No, I rather thought not. Oh, and please don’t forget to dust the black Bentley.”
“Pep talks were not on the agenda this weekend as beleaguered mortgage industry professionals attended an exposition in Long Beach.”
The wife and I went out with one of her girlfriends this last weekend. She is a loan officer from Newport Beach, and her BMW has a personalized plate that says “APPROVD.” When I asked her about business, she said she’s thinking about changing her plate to “DENIED!” because no one is making loans anymore. I felt bad for her….
I love it!
Back in 2001 when I graduated from college and moved up into the Chicago area, I frequently came across a Porsche in the local 7-11 parking lot with plates that said “BUY MOT”. That Porsche was in that parking lot way too often to be a customer.
Sorry if this has been posted…from JL’s blog in the OCR.
O.C. real estate/finance jobs take biggest hits since ‘93
Real-estate and lending job counts are off 5,200 in the year ended in July
http://tinyurl.com/lzgbg
It just hit the WSJ that Capital One is shutting down Greenpoint Mortgage…..another 1,900 jobs bite the dust.
–
Flight “from reckless to risk-less credit”! That was reported by my favorite reporter on CNBC, Rick Santelli.
Yes, the “Credit Pendulum” has swung from reckless to the risk-less.
Jas
unfortunately it is still stuck at reckless in Europe
That is the balance of a clock with pendulum. Europe is balancing the American pendulum that is stuck.
Jas
Its time everyone learn the phrase “revert to mean”
how bout “revert to absolutely steaming pissed beyond all comprehension”
Speaking of “credit stuck at easy,” can anyone explain the “Insured Revenue Yield / Insured G.O. Yield Curve / AAA G.O. Yield” graph that cycles at the bottom of Bloomberg’s Rates & Bonds web page? I am wondering if it is somewhat unusual to see the short end of all three of these “Yield Curve” variants stuck at a rate of 0%, and what would explain this?
http://www.bloomberg.com/markets/rates/index.html
My hunch: The 0% rate at the short end of these curves represents a tsunami tide of liquidity which the worlds’ CBs are currently dumping on the financial markets.
BOND REPORT
Short-term bond rally puts Fed to the test
By Nick Godt & Wayne Ma, MarketWatch
Last Update: 3:46 PM ET Aug 20, 2007
NEW YORK (MarketWatch) — A rally in short Treasury bills Monday, which sent their yields sharply lower, raised questions about the effectiveness of the Federal Reserve’s move to boost liquidity by cutting its discount rate on Friday.
“Investors and traders are not really confident,” said Kim Rupert, managing director of fixed-income analysis at Action Economics. “We’re not of the woods yet in terms of more credit-market fallout, and investors are basically staying parked in shorter-dated Treasurys.”
http://www.marketwatch.com/news/story/short-term-treasury-bills-rally-putting/story.aspx?guid=%7B759999A3%2DC0BB%2D43D5%2DB774%2DD89571975A0E%7D&dist=TQP_Mod_mktwN
Investors and traders not confident, wrong.
Investors and traders not playing rigged game, right.
Flight to safety hits Treasury bill yields
By Krishna Guha in Washington and Francesco Guerrera and Saskia Scholtes in New York
Published: August 20 2007 14:52 | Last updated: August 20 2007 22:46
Money market investors staged a dramatic flight to safety on Monday, knocking down yields on short-term US government debt, as top Treasury and Federal Reserve officials made behind-the-scenes efforts to maintain confidence in the credit markets.
The yield on the three-month Treasury bill fell 66 basis points to 3.09 per cent after being down 125bp during the day – a greater fall than in the October 1987 crash. The yield on the one-month Treasury bill fell 62bp to 2.33 per cent after being down 175bp.
The frantic scramble to obtain government paper, at almost any price, is a sign of extreme risk aversion and suggested that the Federal Reserve’s cut in the borrowing rate it charges banks from 6.25 per cent to 5.75 per cent – on Friday had yet to stabilise credit markets. This in turn encouraged speculation that the Fed will cut its main monetary tool – the Federal Funds rate.
http://www.ft.com/cms/s/0/699699f4-4f21-11dc-b485-0000779fd2ac.html
Everyones watchin for big down day, so FED can shoot its wad on a FFR lowering……….
if this is the plan, its weaker than puppy piss.
what’s in your wallet ?
–
AP
Capital One to Close Mortgage Unit
Monday August 20, 4:51 pm ET
Capital One to Close Wholesale Mortgage Unit; Charges Will Total $860M
MCLEAN, Va. (AP) — Capital One Financial Corp. said Monday it will close its wholesale mortgage unit due to woes in the secondary mortgage markets, resulting in $860 million in charges in 2007. The company, which said about 1,900 positions will be eliminated due to the closing of the unit, added that it will “cease residential mortgage origination” at the unit, called GreenPoint Mortgage, effective immediately.
http://biz.yahoo.com/ap/070820/capital_one_financial_wholesale_mortgages.html?.v=2&printer=1
Just saw that. They lowered their EPS estimate for 2007 from $7.15 down to $5.00. That’s a huge delta for being 2/3 of the way through the year already.
IMO that’s going to be a trigger for another big down day tomorrow in the markets. Sub-prime is one thing. When the single biggest credit card company (not tied to a major bank) starts having problems - it’s another thing altogether.
“When the single biggest credit card company (not tied to a major bank) starts having problems - it’s another thing…”
whats in my wallet?
toilet paper, masquerading as USD.
FYI … Capital One Financial is shutting down its GreenPoint Mortgage unit. Around 1,900 workers will be let go and the diversified lender will take a charge of about $860 million related to the move. Capital One scooped up GreenPoint when it acquired north Fork Bancorporation at the end of 2006. GreenPoint originated about $36 billion in mortgages last year, according to the National Mortgage News stats I have — making it the 20th largest such lender in the country.
“‘All of the old-timers knew that subprime mortgages were what we called neutron loans – they killed the people and left the houses,’ said Louis Barnes”
At least they’ve got a sense of humor. Reminds me of an old Gilbert Shelton comic strip (Wonder Wart-Hog or Furious Freak Brothers?) about the “Mexican Neutron Bomb”. It destroys all property but leaves humans untouched.
“Thornburg Mortgage Inc., forced to stop taking home-loan applications last week because of a cash crunch, sold $20.5 billion of mortgage-backed securities at a discount to pay down debt it couldn’t refinance.”
Anybody notice that the counter-party who purchased the $20.5 billion of bonds was missing from the article. Who’s got the hot potato? Who’s the new bagholder? Gotta be somebody big.
Chris Dodd on CNBC just called for a legislation to ‘keep people in their homes.’
He said there are ways for it to be done.
He just lost any chance he had of being a VP and he’s talking about propping up prices by helping people avoid foreclosure and thus drawing down prices.
No need to get Congress involved, its a simple solution, “RENT!”.
THEIR homes? Not quite unless they paid off the mortgage they were just renting it anyway. Mr. Loan Officer thanks you for his shiney new Porsche, thanks for playing.
Not only was the credit pendulum stuck on easy, the brain pendulum is stuck on stupid.
“Patrick Griffith, a senior loan officer from Hermosa Beach, said he came to the expo to ’see what lenders are still out there, see who’s left.’ ‘It’s just got to shake out,’ Griffith said. ‘Real estate is always cyclical. Every 10, 12 years the same thing happens.’”
Not like this time, moron. The last time we were in something like this in financials was, oh about 78 years ago.