Bits Bucket And Craigslist Finds For August 29, 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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http://chicago.craigslist.org/nwc/gms/407625485.html
“While predatory lenders were driving low-income families into financial ruin, 10 of the country’s largest mortgage lenders were spending more than $185m (€136m, £92m) lobbying Washington to let them get away with it.”
Shades of the S&L scandal.
The way to make the lenders eat it is to MAKE THEM foreclose on the unsustainable mortgages on the overpriced houses, then MAKE them sell those units at market on a NON-RECOURSE basis. Subsequently, some kind of FHA type program could be created to allow former FBs to purchase the now cheaper houses using CONFORMING LOANS at 3X ACTUAL INCOME and 30% FOR HOUSING EXPENSES with some kind FHA second to bring down the downpayment percent. Even if they screwed up in the bubble.
Any bailout BEFORE housing prices and loans on them are pushed back to affordable levels bails out the lenders, not the borrowers.
I’ll say it again.
Any bailout BEFORE housing prices and loans on them are pushed back to affordable levels bails out the lenders, not the borrowers.
They’ll still by FBs. And we’ll all by F’d taxpayers.
you were on a roll
how about we get rid of FHA ,FNM,FRE and ALL the contributors to this mess
subsequently, some kind of FHA type program could be created to allow former FBs to purchase the now cheaper houses using CONFORMING LOANS at 3X ACTUAL INCOME and 30% FOR HOUSING EXPENSES with some kind FHA second to bring down the downpayment percent. Even if they screwed up in the bubble.
Don’t you wish the Fed would take up serious issues, like those you raise here, at their Jackson Hole conference? Instead, I expect them to spend the time trying to grade themselves on recent panic containment efforts.
No 2nd TDs, just 3% down and full documentation!! Nuff said!
Preach it brother!
No “privatize the profits and socialize the losses” politics for us taxpayers.
Well, if they were stupid enough to sign the papers once, do we really want them doing it a second time?
I have no desire to reward anyone for poor choices no matter how they can about them.
WT, Excellent! Simple solution for one of the many problems to be faced in the coming depression. But how do we convince the powers-that-be to agree to it?
It seems to me that we have to somehow convince the citizens of this great country that we have a far greater number of things in common with each other than members of our Congress and “Conservatives” would have them think. We are all in this together - idiots, realt-whores, day traders, etc. We are gonna have to speak with one very large voice if we are ever going to be heard.
SUPPORT YOUR LOCAL MILITIA!
“For, in the final analysis, our most basic common link is that we all inhabit this small planet. We all breathe the same air. We all cherish our children’s future. And we are all mortal.”
John F. Kennedy
Interesting, I know a mortgage broker who lives right down NW Hwy (14) in Fox River Grove - will have to find out if that’s his place of work - he said he worked nearby.
Also, friend’s little bro went to see a condo last night:
My friend: “How has the summer been?”
Agent # 1: “Horrible”
Friend: “Nothing movin’, huh?”
Agent # 1: “No, but its going to pick up this fall”
Friend: “Really, in the fall?”
Agent # 1: “Well, we’re hoping it does, anyway”
Agent # 2: “This place is a great deal @ $215k - the guy downstairs paid $238k a few months ago”
Me: “Uh-huh”
Agent #2: “Yes, first floor units always go for more” “The developer also has a storage space to sell - he wants $7k…or $5k…he’ll settle for $4k”
This was in “West” Andersonville - Ravenswood Ave. North Side of Chicago. 2/1 condo small rooms - no parking.
Agent # 1: “No, but its going to pick up this fall”
That’s what the NAR tells him/her so it must be true.
Yeah, she was a neophyte - you could tell in her voice she really wanted to believe it - really she did.
West Andersonville for $215k…used to sell for $238k. What a joke. Talk about catching a falling knife. With prices falling that fast the barrio closeby on Lawrence will overtake the entire neighborhood.
I wonder what the converted apartments used to rent for…$700 for a 2-bedroom?
I pay $850 for rent in my apartment on the NW side of Chicago. Nice area off the Iriving Park stop on the Blue Line. $850 x 120 months rent = $102,000. My unit as a ‘converted condo’ (1/2 of my building went condo! yeah, that’s right, half!) -
It sold for $273,000 in ‘06. I pity those fools who bought that unit.
The Obama plan…
http://www.ft.com/cms/s/0/9fd5e4de-558e-11dc-b971-0000779fd2ac.html
He added that “Washington needs to stop acting like an industry advocate and start acting like a public advocate”.
Testify. I am wary of BO, but his proposal is a step in the right direction, targets the correct culprits and would make them pay, instead of the taxpayer. If there must be a bailout, something like this is the only bailout I would even halfway support.
“Unscrupulous lenders who deceptively sold subprime mortgages to millions of Americans should be fined and the proceeds used to help bail out borrowers facing a wave of foreclosures…”
OK, so which buyers do you believe when they say they got suckered?
Some did get suckered. Many didn’t. They people who say they didn’t know what they were signing, which are many, didn’t get taken. They failed to do their due diligence as a consumer. There are plenty of predatory lenders out there…and even more predatory borrowers. Both need to be taught a lesson. I’m sceptacle that every borrower that gets in line with their hand out will get help wether they deserve it or not. I don’t like it, it’s still a bail out.
I couldn’t care less where the money goes. Do it. You start punishing lenders and the whole lending system will tighten even more! I don’t give a snot who’s to blame, nor who gets screwed. If it ain’t me (taxes going to idiots), then I’ll just sit back and enjoy the results - California houses for 125k again.
Amen, We Rent!
If the lenders are taking the fall, doesn’t matter who is standing in line for the handout.
What worries me most of all is increased FHA exposure to FB’s mortgages & Fannie/Freddie increasing caps & being “forced” to take the loans of the lenders’ books — WTF, as if $417K isn’t enough???????
This doesn’t look all that bad. I doubt he will be able to go after the jerks that did this to get them to pay up. Most have boarded the windows and fled with the cash. But every time we see a competing plan it means the longer the timeframe for doing anything. That means it will help fewer people. Keep stalling boys. Time is on our side.
“It favours less radical steps such as expanding a loan insurance scheme already operated for decades by the Federal Housing Administration.”
This line struck me as odd. If you can refer to it as a “scheme” then it probably isn’t a good idea.
Scheme is commonly used in British english in a much more benign sense that we use it.
That is why I don’t trust any of those scheming Brits.
tee hee!
“Unscrupulous lenders who deceptively sold subprime mortgages…”
It takes two to Tango.
And since when was charging a higher interest on risky borrowers illegal?
I’d like to see the details. Overall, I personally like Obama.
There are laws against usury in each state so in fact charging higher interest rates can be illegal.
http://tinyurl.com/37v5y5
Charging higher interest rates wasn’t the problem. “Qualifying” naive, uneducated people for loans which they had no hopes of paying back was the problem.
If lenders simply required full-docs and determined acceptable DTI ratios on the highest possible payments during the life of the loan, then prices couldn’t have gotten anywher near what we’ve seen.
Lenders knew what they were doing…it was their job. Borrowers often had NO experience with getting a loan and relied on the lenders to tell them what they could afford (like it or not, that is how lending used to work).
Lenders are the only ones who should take the hit for the bailouts. NO taxpayer money should be used, either directly or indirectly.
Not a word about greedy borrowers who thought they could flip and HELOC their way to prosperity. Not a word about the majority (yes, MAJORITY) of people who FLAT OUT LIED on their stated income loans. In these transactions there were two parties to this fraud, not just one.
I am sick of this pandering to distressed homoaners. I feel sorry for the honest family who is losing a house due to financial hardship, but with each day I am convinced that the majority of people who are in danger of foreclosure committed blatant fraud. Sure, they think they are “honest” and “everyone else was doing it.” So the f*** what. There is right and there is wrong. There is no excuse for lying on a mortgage application and the sanctions are clearly spelled out.
Pandering to the loan liars is a recipe for disaster since the vast majority of us didn’t commit mortgage fraud. Obama’s political opponent should simply phrase the issue this way: Why should we expect the American public to bail out people who committed fraud?
“Why should we expect the American public to bail out people who committed fraud?” You’d have to find another way to approach it but the concept is spot on. It’ll take the right candidate approach it too. BOB could swing it and if done right, it could do wonders for JE, but it would be a freaking third rail for HC.
Edwards makes me wanna gag.
This is from a doctor suing plantiff lawyer who lives in a 17,000 SF house.
http://www.wlos.com/template/inews_wire/wires.regional.nc/22b7034c-www.wlos.com.shtml
Take a hike, Jack.
“Why should we expect the American public to bail out people who committed fraud?”
You’re right Lou, no bail-out…of any kind!
Let’s send them a TAX bill on the additional stated income they wrote down ! hehehehehehe schadenfreude smells so good in the morning.
I worked for FEMA for a couple of weeks after Katrina (finally quit in disgust, but that’s a different story).
The blatant attempts to defraud were astounding, but nationwide bailout of FBs? You ain’t seen nothing yet.
Yeah, the article didn’t say what would happen to FBs who lied on their apps. I’m pretty sure that those people wouldn’t qualify for any help, though. I’m thinking of writing a letter to the editor of my local newspaper about this. Anyone else?
Also, borrowers who didn’t read or understand the loan documents, but signed them anyway should NOT be bailed out either. Rewarding this lazy/dumb-downed behavior would just increase it. If someone thinks they are adult enough to get a mortgage, they need to act like an adult and read the documents and/or higher a lawyer to do it for them. If they can’t do this, NO DICE.
I’m not including people whose documents were altered after signing, deceptive, etc.
ugh higher = hire
The problem is that many of these subprime lenders are out of business. Good luck getting money from them. For the ones that are left, what do they fine them? Enough to make up the difference between what the mortgagee can afford each month, and what their payment is, for the next 28 years?
exactly…. FIne the companies that have already been liquidated? The money is gone. It was used to buy cheap crap from China, then used to by MBSs that was loaned to the FBs.
So, the FB has to pay back their loan so that there is money avaiable to fine someone, to help the FB payback their loan.
Don’t we already have laws to deal with deceptive contracts?
I agree that lenders who broke the law should be fined. I’m sure we already have laws on the books to take care of most of these fartknockers. But I want to know how these FBs are going to be “bailed out”. If they will be allowed to keep their homes, then I say no way. Perhaps they can be forgiven the tax burden on the amount forgiven on the short sale. Make the unscrupulous lender pay for that.
Look, anyone here who doesn’t think there’s going to be some type of attempted bailout is in denial. That’s why I’m writing, calling my representatives and telling them the only way to fix this mess is instant inflation: eliminate the 10% and 15% income tax brackets for 2, maybe 3 years (retroactive to 1/1/07) If you don’t work, you don’t get a tax cut. If you’re in the 35% bracket, you’re getting a tax cut, too. If you rent, you’re getting something, too. At the end of the day, once the Fed raises rates to counteract this tax cut, we’ll have more money to put into CDs that pay higher rates. Who’s opposed to that?
mortgage apps down:
CHICAGO (MarketWatch) — The number of mortgage applications filed last week slipped 4.0% from the previous week, while the average interest rate on one-year adjustable-rate mortgages shot up, the Mortgage Bankers Association said Wednesday.
http://tinyurl.com/yulzlj
Only 4% down? That’s not nearly as bad as I’d expected, even though it’s just a week-to-week comparison. Oh wait, that’s the applications that were FILED. Did they mention how many mortgages were APPROVED compared to earlier?
And also, the resubmit of applications after refusal from one lender! This is ugly guys. Jumbo loans are gone so the houses priced over 417K will not sell or take ages to sell. The Jumbo is usually the higher end so when the higher end houses get to 417K price, other price point will adjust. FBs who are wishing for price they paid +10% per year for their shoe boxes will be greetign people at Wallmart coming Holiday season.
nationwide drops 40k florida homeowners:
Anika Myers Palm | Sentinel Staff Writer
August 29, 2007
Florida’s fifth-largest homeowners insurer said Tuesday it will drop more than 40,000 of its policyholders.
Columbus, Ohio-based Nationwide Insurance will not renew about 39,000 homeowners and 1,600 commercial-property policies beginning in January.
http://tinyurl.com/22qrvm
Another bad sign for Florida. Hey, Crist and Tallahassee, how’s that insurance reform working out for everybody?
About as good as property tax reform.
rofl the perfect reply.
“In an unrelated story, FEMA is now on the hook to provide disaster coverage for 40,000 more Florida homes.” That is great that they get to pick and choose who they insure and then just toss the dangerous stuff to the government.
The system is broken!
Privatize the profits, socialize the risks.
Why don’t other insurers step in? Isn’t there plenty of money to be made?
I still say that the answer to our insurance problems is to set up a non-profit organization to provide insurance for hurricane-prone areas. We would contact every city hall within 50 miles of the coast from Brownsville, Texas to Richmond, Virginia. They in turn would notify their citizens of the new program. The billions in profits now being sucked out of the system by shareholders and executives would be used to reduce premiums.
There are a lot of smart people on this blog. We need to start coming up with some answers for the huge problems we are all going to face in the coming depression. Somebody’s got to do something…
“Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.”
Margaret Mead
US anthropologist (1901 - 1978)
I think you would need Congressional action to authorize that as a charitable purpose.
People who choose to live in dangerous locations are not currently a charitable class.
Non-profit organizations can be formed for almost any purpose. It would not be set up as a charitable organization.
Of course, your solution would also work. We could just tell everyone who lives in dangerous locations to move to your hometown.
The solution is to levy taxes on lots based on the insured value of the fixed improvements, essentially forcing everyone to consider insurance as part of the ownership costs.
This would result in prices going DOWN to accomodate the known, fixed, and attendant insurance costs.
Troy, ummmm, what?! How will this force insurance companies to continue providing coverage at affordable premiums?
Sweeny,
Non-profits cannot be set up for “almost any purpose.” They can be set up for the purposes authorised by the various subsections of section 501(c) of the Internal Revenue Code. Only the IRS can grant tax-exempt status. The form used is 1023 (for charities) and 1024 (for other non-profits).
I would be fascinated as to which section you think would be appropriate. There are two sections that do allow insurance companies. One is the section that authorizes USAA. Congress added that section because, at the time, members of the military (actually, it was restricted to officers) had a very difficult time getting car insurance as they were moved from state to state. The other section authorizes extremely small insurance companies (very low income and some other restrictions) that are often set up by car dealerships to protect their inventory.
The non-profit you describe would not be approved under either of these sections. Which section of 501(c) would you apply under?
Insurers are removing coverage because premiums that would actually make actuarial sense aren’t affordable. The reason they’re not is because of our lovely court system and the whole “wind blown water” fiasco, that anyone with half a brain knew would cause this reaction.
Flood insurance is federal because private concerns can’t make money on it (so, your taxes go to rebuilding coastal mansions and financing idiots who build on flood plains / ex-swampland). The “wind blown water” settlement change the risk model for insurers, which is why FL premiums went up at first and then went away.
For a group of people that typically don’t seem to appreciate the government stealing their money to give to fools, you seem keen to force private concerns to have to raise everyones rates to subsidize fools who live in high risk areas. It’s a big country, you don’t HAVE to live in a place that’s high risk.
Polly, 501(c)15 should do it. But you don’t even need a tax-exempt structure to make this work. You minimize income tax liability by matching expenses to income by returning excess premiums collected to policy-holders.
Mad_renter - Since you obviously don’t live in a high risk area, none of this concerns you. It’s not gonna cost you one penny. You can just keep paying All-State or State Farm their ever increasing premiums as normal.
Check the Code, Sweeny.
501(c)(15) is restricted to insurance companies that have “gross receipts” that do not exceed $600K per year. Now there is a notice that modifies the meaning of “gross receipts” so that return of basis of certain investments are not included (if you paid $100 for a share of stock and sold it for $110 you only include the $10 in your gross receipts not $110) but you couldn’t BEGIN to cover homeowners in the hurricane zone of the US under 501(c)(15). Not a chance. Not in a million years.
You want to start an insurance company that doesn’t make any money so it doesn’t have to pay any taxes? Go ahead. You will have a heck of a time finding your start up money, but you can try. I don’t know what the insurance regulators of the states you are covering will say. They might have some problems with the fact that one bad storm will cause you to default on all the policy holders that live in their states, but you could try.
Just don’t apply to be tax exempt under 501(c)(15). Won’t work. Trust me.
I do trust you, Polly. You seem to be very bright. What would be your solution to the coming insurance crisis?
Don’t have one. If I did, I’d be working for an insurance company, solving all their problems and getting a lot more money than I do now. But not having a solution doesn’t mean I don’t know about a few things that won’t work.
Some of the Google gazillionaires (and some other high tech people) have tried an alternative to setting up charities with their excess money. They have set up regular corportions, but are just running them without any idea of making any money any time soon - possibly not at all, though that isn’t the goal. Basically very high risk venture capital doing the sort of R&D that is so far from being practical that a public company with a responsibilty to shareholders (and, much more importantly, a CEO whose bonus is based on this year’s profits and share price) won’t do. They could probably do it, but I think they are much more interested in using their cash do hard science, than provide insurance.
Insurance companies need big bucks to start. It is hard to enter that field.
By the way, bright is nice. Thank you for that. But in this case, well informed in the area is more important.
Sweeny/Polly.
I salute you both for caring.
You might want to consider setting up an inter-insurance exchange in which all the policyholders place a specified amount into an escrow account against claims made. Might also work for earthquake-prone, tornado, terra-ist attack, tsunami etc. homeowners. Underwriting would be key. But it would take the profits out of big insurance companies and put them into whomever acted as attorney-in-fact for the exchange.
Does anyone know how it works when you get dropped from insurance?
If you’ve been paying premiums, the insurance company has been investing them. When you get dropped, does the insurer keep all those premium payments? Do you get anything back?
Generally speaking, you get nothing back, but each state has their own set of laws.
The insurers in FLA took such a bath in the last few years that they can’t afford to do business there. If the companies could figure out what the costs are and then charge enough money to cover the expenses and profits, then they’ll stay. I’m not sure if the state will let them charge what it costs.
IMO snowbirds in FLA will be fleeing for cheaper/safer places to live. Many will be left holding the bag, which is a house whose value is depreciating at a rapid pace. In this case the supply will be a lot larger than the demand. I also hope that many come to live in AZ, because as we all know, we’ve got plenty of houses out here.
When I lived in Hawaii, Huricane Iniki came through and wiped out Kauai. The govt. then reclassified Hawaii as a state at moderate risk of huricane, to high risl. Govt. has regulations limiting insurance companies exposure to high risk areas as a multiple of thier assets. So, the reclasification put the insurance companies over exposed to high risk areas, so they HAD to stop renewing policies.
So, the state govt. jumped in with a new regulation trying to get the isurance companies to drop policies in other states and start writing in HI again. They made a law that an insurance company couldn’t sell auto insurance unless they were activly writing home insurance. Result: It became VERY difficult to get auto insurance.
Anyway: is there a point. Yes. Insurance companies are limited on the amount of exposure they can have based on their assets. Insurance compnies take premiums and invest them in things like bonds and securities. If those investments take losses… like maybe if they invested in MBS and CDOs… the insurance company would have no choice but to reduce their exposure to loss.
Expect higher premiums and harder to get coverage in high risk areas based on the losses.
If they cancel you, do you get anything back? NO. But, you also don’t have to pay thier losses.
Not living in Florida, I’m not sure how the insurance stuff works. Are the insurers dropping just hurricane insurance coverage? Do they still provide fire, etc. for homeowners? If your mortgage loan requires insurance (they all do) what’s a guy to do?
I thought Nationwide was on your side? (Unless you live in Florida)
Good news keeps coming. An article in today’s WSJournal (Page A3) suggests that the home prices are yet suffer the consequences of recent turmoil in credit market. I’d say 30 - 40% haircut from peak prices is minimum that we will be granted by the gods ruling Economics.
“Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor’s Corp. The decline was sharper than the year-to-year decline in the first quarter… Moreover, the latest S&P/Case-Shiller survey covers the April through June period, prior to the sharp deterioration in the health of the nation’s mortgage lenders that came to light this month. That trend, which has been unfolding for months, picked up pace in August as Wall Street cut off funding to mortgage lenders and mortgage companies sharply curtailed their lending to consumers, squeezing a number of buyers out of the market. That could lead to further deterioration in home prices in the future…”
Metrowest Boston
Wife and I have looked at 6 houses in the last 3 weeks. Two of thise have gone under agreement, both have fallen through due to finances.
We consider ourselves bottomfeeders in good towns with good schools.
house sold next to me at a new low in 1997
take your time
I bike from Auburndale to Boston for work. I wind through the back roads to avoid traffic. I’ve seen two sale pending signs removed in the past month. There is a third that I’ve got my eye on as it’s price was way above assessment.
Hey Hobo:
I’ve noticed that, in my neighborhood, it’s becoming in vogue to take the for-sale sign down, even though the house is still for sale. Probably the agent’s idea. It makes the street look better and also makes potential buyers more dependant on the agent.
Try not to catch yourself a falling knife while the roof is caving in on bubble prices.
Steep Home-Price Drop Stirs Fears
Market May Get Worse Still
As Effect of Stricter Lending
Has Yet to Show Up in Data
By KELLY EVANS
August 29, 2007; Page A3
The decline in U.S. home prices accelerated in the second quarter as a glut of unsold homes and tighter lending standards continued to weigh on the market.
Home prices nationwide tumbled an average 3.2% from a year earlier, according to an index compiled by Standard & Poor’s Corp. The decline was sharper than the year-to-year decline in the first quarter, when the S&P/Case-Shiller national home-price index dropped 1.6%.
Lehman Brothers Holdings Inc. economist Michelle Meyer attributed falling home prices to a “huge imbalance” in the housing market: “There’s a high presence of risky [mortgage] loans and a massive overhang of homes for sale,” she said.
Home prices have been falling for more than a year and economists had widely expected the S&P/Case-Shiller index to reflect that trend. But the size of the latest decline was worrisome in part because it was larger than that of competing home-price indexes. A separate report released Monday by the National Association of Realtors found that the median sales price of existing homes slipped to $228,900 in July, down just 0.6% from a year earlier.
Moreover, the latest S&P/Case-Shiller survey covers the April through June period, prior to the sharp deterioration in the health of the nation’s mortgage lenders that came to light this month. That trend, which has been unfolding for months, picked up pace in August as Wall Street cut off funding to mortgage lenders and mortgage companies sharply curtailed their lending to consumers, squeezing a number of buyers out of the market. That could lead to further deterioration in home prices in the future.
“These pricing pressures have not been seen in post-World War II history,” said economist Brian Bethune at Global Insight. “It’s very difficult for the markets to be able to deal with that kind of stress.”
BY METRO AREA
The S&P/Case-Shiller Home Price Index includes data on major metropolitan areas. January 2000=100.
Metro area June 2007 level % change from year earlier
Atlanta 136.12 1.6%
Boston 171.30 -3.7%
Charlotte 135.05 6.8%
Chicago 165.96 -0.7%
Cleveland 118.54 -3.6%
Dallas 126.53 1.6%
Denver 138.09 -1%
Detroit 109.57 -11%
Las Vegas 221.86 -5.1%
Los Angeles 262.12 -4.1%
Miami 264.89 -4.8%
Minneapolis 164.35 -3.8%
New York 208.52 -3.4%
Phoenix 212.52 -6.6%
Portland 185.76 4.5%
San Diego 231.37 -7.3%
San Francisco 209.48 -4%
Seattle 191.92 7.9%
Tampa 219.37 -7.7%
Washington 233.52 -7%
Source: Standard & Poor’s
http://online.wsj.com/article/SB118831907938011082.html?mod=googlenews_wsj
Thanks for this info, GS. I am watching the Boston area, got a vulture fund flush with cash.
“Boston 171.30 -3.7%”
Basis was 100 in the year 2000. Allowing for appreciation of about 4% per year, the Index should read about 137 in 2008. So the correct price for a home in this area in 2008 will be
80% of the price of a comparable home sold in Apr-Jun 2007 quarter.
However, allowing for downward momentum, one must buy only if the prices are even less, may be 70% of 2007 prices. That’d be safe, wouldn’t it?
RE: There’s a high presence of risky [mortgage] loans and a massive overhang of homes for sale,”
From John Wasik @ Bloomberg News
7.5 million subprime borrowers for $1.4 trillion
Interest rate resets scheduled for November (onset of winter)
and April (taxes due)
Center for Responsible Lending of Durham NC predicts a 20%/30% foreclosure rate with 2 million losing their homes.
Question is…if subprime is subprime…who’s to say there won’t be a 80%/100% default rate, once a recession brews up and the phoney economy starts shedding the millions of jobs based on consumer discretionary income purchasing.
Throw in the non-subbie HELOC/ATM addicts and it looks like crunch time to me.
A liar, is a liar, is a liar, is a liar…
My brother has a friend who’s a financial advisor who emails him daily International Strategy and Investment reports for him to forward to me because he knows I’m into this stuff. Three of the 8/28 conclusions jumped out at me:
1. The primary drag on GDP has moved from the loss of residential construction to the hit on consumer spending caused by the housing crisis.
2. They anticipate at least a five year timespan from the top of the bubble (2005) to the bottom (2010)
3. My favorite quote: “we defined house prices moving into ‘bubble territory’ when their ratio to income moved above 3.0 in 2003 (prior peak level).
I did a little math for L.A. County. Median household income here is about $61,000 per year. Median house price is around $570,000. Even if we figure 4 times median income — which is about what it was in 2000 when the median house price was $211,000 and the median income was in the mid-fifties, we’re looking at something like a 50% haircut…and that’s if it doesn’t overshoot.
Ouch!
An Rochester, NY, Democrat and Chronicle editorial page essay about what to do for the poor homeowner who was taken for a ride by lenders:
Get help for homebuyers
Washington and Albany lawmakers must intervene
http://tinyurl.com/2bvlol
I plan to respond to this plea by stating some facts that while some borrowers who were abused should have recourse, many were flippers, refi’s for new toys, greedy, gullible, and looking for a free ride with 110% financing without any regard for a possible correction. Since this blog is a great source of information about what’s wrong with the system, could you offer some reasons why bailing out so many of these people only perpetuates a bad system and puts the taxpayer in harms way without holding the responsible parties accountable? Thanks for any suggestions and I’ll certainly reference this blog in my response. Thanks.
Last I checked you could get a house in Upstate New York for about $50,000 or less. They still haven’t recovered from the Depression of ‘92. If you need to go subprime in Upstate then you shouldn’t be spending anything.
You can “get” a house for that less because nobody tears anything down up here. But is that what the average home buyer is purchasing? No…I read an article this week that said the average Syracuse area home was $150k. That’s with the low areas pulling the others down.
My town as in realtordotcom:
Average Home Qualities
Home Price: $246,189.07
Age: 52 yrs.
Sq/Ft: 2500 sq/ft
Lot Size: 5.36 acres
Funny I went to get this info from a recent link offered in our local town discussion forum. Today someone posted that they noticed all the homes for sale in our town. There was a link to a bubble story.
One responded: That article is great and all and may have a relation with (our town) but (our town) is often in its own “bubble” of real esate compared to other markets in the US.” (In other words, it’s “different here”.)
Then the site administrator went on to say “I think the lake properties are part of a bubble, but I think the rest of town - while values will remain slightly higher than most of the rest of CNY or Madison County - is susceptible to regional and national trends.” (I got news for this guy. Although the town next door is more bubbly than ours, I went north of the city and found a town with an amazingly low # of for sale signs. And I’ve thought for over a year that they were getting higher prices for comparible homes up there too. )
I’ll have to track that thread.
Carrie, there is still an assumption among users on this blog that upstate NY never experienced a run up in prices. Just because those prices aren’t in line numerically with Boston, NYC, philly or LA for that matter doesn’t mean prices didn’t double.
Thanks, CarrieAnn. While the upstate region is not a bubbling place like NYC, AZ,CA, FL or NV, we still have housing issues that could prove to be costly to many. A map of subprime borrowing shows Upstate NY as one of the many subprime locations. Rochestrer has 3% more homes on the market this year than last and prices are stable. In Rochester, I think the average home price is about 122k. My location has the following averages, but there are more foreclosers, new homes, FSBO and bank owned than there were last year.
Home Price: $350,233.92
Age: 33 yrs.
Sq/Ft: 2753 sq/ft
Lot Size: 1.17 acres
wow! Those are impressive stats. I knew there were some really hot Rochester neighborhoods as many of my h’s co-workers are from that area. The foreclosure increase you mentioned is eerie huh? I never saw it here until this month but its here now too. A realtor acquaintance recently confessed her concern w/foreclosures to me.
I posted a note earlier in the week about a local agent with 20 years experience in the area who said she has never seen sales so slow or credit so tight. Could get ugly over the winter. The stats you saw were from Pittsford, a burb of Rochester.
The editorial begins with a basic problem - it assumes that home ownership is a right, therefore that any impediment to home ownership, such as ability to repay the loan, must be removed, It also assumes that any default on mortgage payments is the fault of the lender, not the borrower.
Lenders and mortgage brokers were at fault. No doubt about it. Some committed outright fraud, including kiting the borrower’s income. But so were borrowers at fault, who contributed by ‘fudging’ their stated income. Wall Street investment banks and large investors who slurped up MBS with no real due dillgence funded the Ponzi scheme. Ratings agencies (Fitch, Moody’s Standard and Poor’s) slapped ridiculous ratings on the MBS, leading the ultimate investors to buy them and thus provide the source of funding necessary to keep things going. Appraisers were willing to ‘meet the numbers’ in order to get the next assignment. Realtors had zero comprehension of what was actually going on and just resorted to fuzzy warm words to persuade buyers they would miss out on the chance of a lifetime if they didn’t sign up right away. Flippers became so numerous that two satellite/cable channels still carry programs on flipping, today. How many of them obtained loans based on shaky practices?
Were the lenders the only culprits? No. Should they be the only ones to pay? No. We hear squeals of pain from investors, from lenders, from reators, from appraiser, and from buyers. In other words, the market is finally working as it should.
The loan standards have improved, removing the ‘weak hands’ from the buying system. That should cause housing prices to fall. As housing prices fall more people will be both willing and able to buy.
The American dream comes at a price. Recently a lot of people were told there was no price, just sign up and move in. That has always been wrong, and it remains wrong today. The idea is being corrected today. Corrections are always painful.
/rant off
Good rant. Excellent points.
Ditto -good post de .The one person on our block that got in on zero down financing wants a short sale in spite of enough money in the bank to bring money to the table ,(they own three other houses with alot of equity ). So many of these purchases during the boom were low down speculation purchases .Strange how sellers need to sell so soon after buying . Real estate was never meant to be a short term investment purchase and the closing costs are high .
The banks don’t need another REO and won’t approve a Short Sale unless your credit report shows you are destitute. The “short sale” is really a fraud by realtors that think this is another sales route. Short sales are almost impossible to get done anywhere.
Housing Wizard wrote: “Real estate was never meant to be a short term investment purchase”
But that’s exactly the assumption that this bubble was based on - ‘the average American moves every 5 years.’ If you’re moving every five years then who needs a 30 year mortgage?
Just do serial refinancing.
But that only works as long as housing prices rise.
As has been stated frequently on this blog, the financial fundamentals related to home-OWNING were thrown out the window because of this 5-7 year then move myth.
That’s right. One of the assumptions (which worked great while real estate always went up) was that anyone who got into a bind could sell their home at a short term profit and get out with no harm to themselves nor their lender.
The article starts by referring to home ownership as a “dream” and then asserts that sellers of exploding loans should clean up that mess. All of this stuff about home ownership as a right you made up in order to act as an apologist for scammers. For shame!
Yes, good points.
I missed all the excitement yesterday, what with the stock market taking another “dump”. But it does seem that the declines are pegged at 300 points or just shy. Boring. Do I hear 400, anyone?
Ok, so Wall Street had a bad day. The trading was light, wasn’t it? It seems that everything that wanted to sell or buy was done. That is the correct level for liquidity isn’t it? So why would the FED lower rates. Is the commercial paper market still having problems?
I just don’t get it. There is enough credit around if you can afford it. Also, the price is higher but not that much higher than the peak say in 1980. I was around then and that my buck’o was an interest rate - 16% or more for a house loan.
Roidy
There is still a small problem with commercial paper. Although most commercial paper will not reset until late 2008, most paper that goes into default happens 2 -4 years after issued. We are smack in the middle of the 2 - 4 year period. Many companies cannot pay the higher interest rates. A lot of companies borrowed moneys to buy back stock. I want a lot of risk premium to buy any commercial paper.
Ok, so it really isn’t the stock market per se. It’s the companies that took out a “teaser rate” and that is reseting? How is this the FEDs problem again?
Roidy
RE: 16% or more for a house loan.
With average prices in the $30 to $60k range.
Big dif than 6% for $500k.
The Bernanke put seems to be at about 13250 on the Dow.
~275 certainly seems to be a magic number. It is also interesting to watch things yo-yo during the day and then, right at 3:00 PM, either a quick 100 point plunge or surge.
Looking for 1300 S&P. That might torch a few bonuses
http://www.hamzeianalytics.net/
I want 1,200 before I buy in.
Wait until Sept. when everyone’s back from vacation.
Also when, write downs occur for banks and financial institutions and when reports filter down of new mortgage lates. I have not done anything in 2 weeks! Just watching in case….
Imoved 100% to treasuries the first week of July. I’m sitting there for atleast a year.
Of course, my investments are my savings, not my job.
I’ve made 80% of my income this year on the W bottom in Feb/March and this up and down thing in August. If we crash and burn in Sept/Oct, I’ll be done for the year with a great year having participated less than half the time. I could get used to this
Robert Pretcher just came out saying that during the last century there was generally a severe decline during September-October in the 7th year of the decade, unless there was a severe decline during the 6th year. The next couple of months should be interesting.
“…during the last century there was generally a severe decline during September-October in the 7th year of the decade, unless there was a severe decline during the 6th year…”
Sounds very scientific.
Are hemlines trending upwards, or downwards?
“Are hemlines trending upwards, or downwards?”
I just used this very example in class two days ago to describe a signal with absolutely no relationship to the underlying state of the world (which was whether the stock market was going to go up or down in my example). But on reflection, perhaps the hemline indicator is meaningful, if they are an indicator of stock market wealth-effect luxury spending on pleasurable activities.
Yes but that’s only been true if the first day of August of that 7th year is on a Monday, Tuesday, or Friday. Since it’s on a Wednesday this time, I think things will be different.
Prechter on CNBC is usually a buy signal. He generally gets trotted out in October. Bubblevision must be worried.
But there was a decline in the 9th year once. . .
October, anyways.
I still have friends who think that their homes will rebound in value and still worth around 400K.
I don’t want anybody to get burned but it seems inevitable at this point.
I also have a cousin that pulled out all the “equity” out of his place and now has four renters including himself in order to pay the mortgage. If he wasn’t family I would report him to code enforcement since this is what causes places to turn into ghettos.
They will “rebound” in about 15-20 years.
And then, the owners will say “see, we were right, real estate always goes up!”
A good example of downward pressure on apartments rents. That’s 3 less apartment renters in the market…
I also have a cousin that pulled out all the “equity” out of his place and now has four renters including himself in order to pay the mortgage.
Ah, that’s nothing. My neighbor rented his place out to seven college kids from Europe and moved himself into the garage! Thankfully the kids were only here for the summer… I am a bit worried as to who will move into that place next.
As an aside, a neighbor told me that they contacted the city about seven people living in a 1,000 sq. ft. condo, and the city said that there was nothing illegal in that, although the neighbor was breaking code by living in the garage.
As our fearless dictator said, “bring it on”. My dream is a 65% haircut from the top. After reading up on Japan, it might just happen. Granted the situation is different, but poor countries don’t have expensive real estate, and the U.S. is heading down.
I think we’re heading for hyperinflation, whereas Japan had deflation. Stagflation a comin’.
If home prices drop by 65% who would have any money left over to buy stuff? The home ATM would be broken and shut down as it already is in many places. So where does this hyperinflation come from?
Foreigners who hold a lot of dollars, I suppose.
So where does this hyperinflation come from?
The dollar collapses and all those cheap foreign goods become expensive foreign foreign goods. Say hello to $50 generic sneakers.
Nah, China would just drop the hourly wage of the poor bastard who’s making the sneakers from 50 cents an hour to 25 cents an hour and keep selling them at the same price.
But the labor is only a small part of the cost. The raw material prices will still skyrocket as will the shipping costs (in dollars).
Anyway, we are not the only market in which to sell generic sneakers.
Well, when people are struggling to pay for the necessities of life, they will be making do with old toys and clothes. Inflation is usually not a problem in those areas where there is no demand.
True, but they do eventually need to be replaced.
Sweeny:
I think folks are worried that the Fed will reduce interest rates to the point were inflation is a problem. Otherwise, you’re right, it doesn’t happen when people aren’t spending a lot.
Yours is a common misconception about falling home prices. When the price of anything falls, you spend less money on it and, therefore, have more money to spend on other things.
I think our economy would be much better off if we weren’t spending so much damn money on mortgage interest and instead could use that money to buy other stuff.
John:
I’m not sure that will be the case this time because most folks haven’t actually been paying their full mortgage payment. They’ve been paying the minimum option on their ARM, and when the loan resets, they will most likely sell or be foreclosed upon. Then they will rent for just a little less than what they were paying in mortgage, but will actually spend less because they’re not counting on pulling in all that equity (or can’t borrow from it).
Believe it or not there was a time when you could only get a home equity loan to actually improve or remodel your house. It was called a second mortgage. They inspected the work before releasing the money. There was also a time when you could not deduct home equity interest on taxes unless you could prove it was used on the house. Boy how times have changed.
Can you recommend any of your favorites, awaiting wipeout?
Asian stocks took a hit in early trading but rebounded.
I always compared the US stock market to a mental patient that never gets enough drugs to control their mood swings.
It seems that anytime a squirrel farts in Afganistan oil prices shoot up.
Just like this housing market its all emotional. People still think their homes are worth millions and its a sad state of denial.
Me personally I never thought my home (purchased back in 2000 for 130K) was worth more than 170K even at the peak.
I bought my house in 1994 for 120k. At the peak I felt it was worth about 180k. The neighbor bought a similar one for $400k at the peak. I wasn’t moving so I just thought “what a bunch of bs.”
New fashion statement: being poor. If we’re going to be poor, let’s make sure we’re really good at it and have some fun with it. After all, a sense of humor is important in getting through rough times. As I’ve posted before, if TSHTF, it is important not to call attention to yourself. Here are some suggestions:
1) Drive a beater. This works better than any car alarm at preventing break-ins.
2) Pull your pants pockets inside out and walk around that way. This lets people know you’re already tapped out. Besides, it makes a better fashion statement than wearing your pants down around your butt.
3) Drive up to the day laborers hanging out at Home Depot and ask them for work insistently. Then start panhandling them. This will break them up faster than complaining to the store manager and it will probably be more fun.
4) When you see a bum approaching you for spare change, shuffle toward him and ask him for a dollar. Guarantee he’ll leave you alone.
5) Ask for a ‘line of credit’ at the Piggly Wiggly.
6) Burn anything you find lying around the house for fuel (old flannel shirts, cereal boxes).
Good ones, watcher. I’m looking for suggestions. Maybe we could start some fires for warmth (during the fall and winter) in those old metal barrels and form “a capella” groups in front of sales offices at housing developments.
LMAO PAlmetto
“Burn anything you find lying around the house for fuel”
Why not the legs of the chair you sit on?
Hold a garage sale, continuously.
4) When you see a bum approaching you for spare change, shuffle toward him and ask him for a dollar. Guarantee he’ll leave you alone.
not the ones in Santa Monica, that is for sure!
LOL, M.B.A., that got me to thinking that Florida’s population will grow after all, as homeless people come south for the winter. The “new” snowbirds. Heck, they should be able to find plenty of squats here, come November.
We used to say the homeless gravitated to FL, because they could sleep outside without freezing to death.
Guarantee he’ll leave you alone. (bums)
That’s assuming it’s not one of the mental health patients the states have been dumping back on the streets. Then his reaction is up for grabs.
You ain’t kidding. My part of Chicago is a big area for dropping off those folks. Girlfriend saw a fellow last weekend cursing a nearby church/shelter when they denied him entry:
Yelled something like: “you’d let me in if I was an illegal” “y’all a bunch of child molesters”
Ahhh, and all those parents in MI, WI, OH, IN, MN & IA who bought their kiddies condos here - so they could experience the “big city”. Welcome to the party pal!
Hey, I’ve actually started taking a bike to work to save subway fare. Well, actually it’s to improve my health since I have a monthly pass, but in the spirit of the soon-to-be times I can always pretend.
Perhaps I’ll switch from canned beans back to soaking and cooking dry as well.
Riding a bike to work in Manhattan? I don’t have enough health insurance coverage to make me do that. These yellow cab animals will run you over and get mad that you scratched their bumper.
I am almost mowed down weekly by BA transplants and students in my crappy little college town. Biking on the mighty isle? You are either freakishly brave or not very bright >; )
Come on WT, if you want to join the frugal club (a.k.a. The Value Crowd) you’ve got to rephrase that post.
“I’ve actually started taking a bike to work to save subway fare. Well, actually it’s to improve my health” …becomes…….
I’ve actually started taking a bike to work to save money on my future health care, and it’s cheaper than joining a health club. At least that’s the reason I suffer the miles on my bike. I won’t comment on your high fiber diet.
Got gas?
P-Man…LMAO!
Panhandlin’ from the bums and day labor squattors!
Your fookin’ killin’ me…
You need to be a guest on LENO!
subprime mortgages by state: (cool map)
http://tinyurl.com/yuelsg
Burn SoCal, burn…
Ca looks like a pit of fire, and rightly so.
What’s the red in the middle of FL? Is that the Orlando area?
Not getting this map… If I’m looking this correctly, California, which seems to be on fire with all the red, only has a subprime percentage of 25% of all new loans in 2005. Why do states like Missouri, Georgia, Alabama, etc… have a higher percentage (27%, 28%, 28%) and still show no red, or at least much less so than Cali? What am I missing?
What is the definition of “Subprime”, that might answer your question.
Whatever the definition was that was being used by the graph.
Stay tuned for leaked announcements from the Fed’s annual Jackson Hole pow-wow. I expect veiled clarification on whether the Greenspan put policy has morphed into the Bernanke put, and perhaps also on whether Cramer has a say in monetary policy.
SUBPRIME FALLOUT
Bernanke staring down ‘make-or-break’ moment
SCOTT LANMAN
Bloomberg News
August 28, 2007
WASHINGTON — Ben Bernanke’s critics from Washington to Wall Street are starting to ask whether the Federal Reserve Board chairman is ready for a prime-time crisis.
The global credit crunch is proving the severest test of Mr. Bernanke’s tenure atop the U.S. central bank as he tries to avoid a recession while steering clear of bailing out those who made risky investments.
Some seasoned Fed watchers say he should have avoided the optimistic assertion that the damage caused by subprime mortgages was “contained” before the collapse of credit in the world’s money markets prompted extraordinary central bank intervention earlier this month. Now, as he resists demands to cut the benchmark interest rate, the faultfinding, some from former Fed policy makers, has escalated to charges that he’s behind in the game and losing his credibility and effectiveness.
“This is a make-or-break moment for Bernanke,” says David M. Jones, a former Fed economist. “It is an early and maybe ultimate test” for the Fed chairman, who finds himself in “a position of weakness, not strength.”
http://www.theglobeandmail.com/servlet/story/LAC.20070828.IBBERNANKE28/TPStory/Business
Tight Course Lies Ahead For Bernanke
By Justin Lahart
Word Count: 507 | Companies Featured in This Article: Altria Group
Forget about Scylla and Charybdis. In the next few days, Federal Reserve Chairman Ben Bernanke has to set a course between market mayhem and the “Greenspan put.”
http://online.wsj.com/article/SB118834982273711742.html?mod=todays_us_nonsub_money_and_investing
After witnessing the short seller massacre, massive injections of liquidity, and exceptions to historical banking rules, I’m not buying the argument BB is behind the curve.
…behind the
curvecurtain.even greenspan didn’t cut rates right away. he always waited for the crisis to really get going. people used to call for a rate cut right away back then as well so there is really no difference.
contrary to popular belief, there is no bailout yet. the Fed is just trying to avoid a cascading financial failure where one BK causes everyone else to fail and another depression to start. otherwise look for at least one I-Bank to fail or be sold and one major bank to have a lot of problems.
my guesses are bear stearns, barclays and Citi which always seems to get into trouble no matter which decade it is
It seems the Fed is most concerned about keeping markets liquid. But one would assume liquidity would be a given during a “liquidation sale.”
“and perhaps also on whether Cramer has a say in monetary policy.”
Never underestimate The Punch Bowl Caucus (shamelessly stolen from Daniel Gross on Slate)
Countryslide is living up to its nickname, perplexing Wall Street commentators.
HEARD ON THE STREET
Why Is Countrywide Sliding?
It’s Unclear, That’s the Issue
By JAMES R. HAGERTY and KAREN RICHARDSON
August 29, 2007; Page C1
Bank of America Corp.’s $2 billion investment in Countrywide Financial Corp. last week was supposed to put an end to fears about the financial strength of the nation’s largest home-mortgage lender. So why does Countrywide’s stock keep falling?
Countrywide’s stock price is down nearly 12% since the purchase of convertible preferred shares was announced last Wednesday. That’s largely because investors still don’t know how badly Countrywide has been wounded by the recent credit crunch. At a minimum, Countrywide faces a hit to near-term earnings; some analysts expect a loss in the current quarter. At worst, the company could be forced to dump assets at fire-sale prices or seek another emergency infusion of capital, potentially slashing the value of its stock further.
“Two billion dollars from Bank of America is not a lot compared to what they may need,” says Stuart Plesser, an equity analyst at Standard & Poor’s in New York.
http://online.wsj.com/article/SB118834716029611686.html?mod=todays_us_nonsub_money_and_investing
Stock dilution isn’t good for the price? Shocking…
Geez, has everyone gotten amnesia? Same thing that happened to telecom companies that did convertibles etc. Whatever the strike price was for the preferred stock or whatever, it was magnetized toward that price and when it broke under, that price was resistance until it was all unwound. CFC is in the hands of short sellers and arbitrageurs now for the forseeable future.
Dilution does not seem to help the value of currencies much, either.
Did you all read the story on Countrywide in this weekends’ New York Times? Maybe their stock is dropping because they can’t be profitable without taking advantage of people.
LOL, short that crap to ZERO! BofA is gonna get rich doing this! ROFL!!!!!!!
Roidy
It’s not complicated. If you hold high-leverage loans to less than stellar credit, every time the Case-Schiller index comes out and says prices are down, your assets are worth less, regardless of how your new deal originations are coming along.
Dude:
I heard on the news on Friday night that regulators would not approve the part of the contract that allows BAC to convert the bond into stock. Did that change? WTF?
Are prime borrowers and lenders safe from subprime fallout? According to John Weicher’s opinion piece in today’s WSJ:
From a policy standpoint, the subprime problem is certainly serious, but it is a short-term problem, mainly involving mortgages originated in the last three years and playing out over the next two years or so. It will be mitigated by public and private efforts to help the families in distress. There is no reason for it to spread to the prime market. Homeowners who are able to make their payments are not going to lose their homes because other homeowners are losing theirs. The roof is not caving in on housing.
http://online.wsj.com/article/SB118835560053011923.html?mod=todays_us_opinion
Au contraire; the roof is caving in on bubble prices, which doesn’t bode well at all for Alt-A and prime exotic loans with resets scheduled over the next four years.
Nation’s home prices plunge
S.D.’s 7.3% drop 3rd biggest in U.S.
ASSOCIATED PRESS
August 29, 2007
Prices of U.S. homes fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor’s began its nationwide housing index in 1987, the research group said yesterday.
San Diego’s 7.3 percent drop from the second quarter of 2006 ranked it third among metropolitan areas with the biggest price declines, behind Detroit’s 11 percent decline and Tampa’s 7.7 percent pullback.
MacroMarkets Chief Economist Robert Shiller said the declining residential real estate market “shows no signs of slowing down.”
http://www.signonsandiego.com/uniontrib/20070829/news_1b29housing.html
Weicher’s Op-ed piece could not have been better timed, given that it coincides with black-swan-guano-bomb headline news of falling home prices on a nationwide basis.
BTW, his assertion that the OFHEO Index is “best” is highly questionable, given that the OFHEO Index is limited to Fannie and Freddie purchased loans. Given a conforming limit of $417,000, the OFHEO index pretty much excludes all local coastal bubble markets formerly known as “a bit frothy.” By contrast, the Case-Shiller/S&P does not exclude the bad news coming from the high end of the national U.S. housing investment market price range.
‘Everyone knows that the “housing bubble” has burst, like the Tulip Bubble of the 17th century, the South Sea Bubble of the 18th century and of course the dot-com bubble. Yet prices are still rising, on average.
The best measure of house prices is the index produced by the Office of Federal Housing Enterprise Oversight, based on the millions of loans purchased by Fannie Mae and Freddie Mac over more than 30 years. The index shows that prices continue to increase, as they have in every quarter since 1993. Over the past year, prices have risen by about 4% — much more slowly than the double digits of 2004-2005, but still an increase.
Four percent is a national average and all housing markets are local. About 10% of U.S. metropolitan areas (30 out of 282) have seen a price decline of 1% or more — a slow leak, at most.
…
From a policy standpoint, the subprime problem is certainly serious, but it is a short-term problem, mainly involving mortgages originated in the last three years and playing out over the next year or so. It will be mitigated by public and private efforts to help the families in distress. There is no reason for it to spread to the prime market. Homeowners who are able to make their payments are not going to lose their homes because other homeowners are losing theirs. The roof is not caving in on housing.
I pull in resolution, and begin
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.
I think the line between sub-prime, alt-a and prime is quickly disappearing. A prime borrower with an 800 fico earning 60k/yr still can’t keep his head above water on a 400k+ stucco box but he got approved and signed for it anyways.
Sounds like you live in Sacramento because that is exactly how it is falling out here.
Also many prime mortgage holders heloc’d to buy all the toys. How many of them can make the equity payment as rates rise.
Mr. Weicher is directer of the Center for Housing and Financial Markets at the Hudson Institute. From 2001 to 2005 he was Assistant Secretary for Housing and Federal Housing Commissioner at the U.S. Department of Housing and Urban Development.
No amount of spin will obviate the clear evidence that the U.S. mortgage lending market is in a credit-crunch-fueled death spiral which is not contained to subprime, but will contagiously infect Alt-A and prime mortgage holders.
Hudson Institute, Manhattan Institute, AIPAC, AEI, the Hoover Institute, the Discovery Institue, the various Fed districts, all heads of the same beast.
The common denominator across all loan types is collateral.
The key right now is to get the middle class wannabe sheeple to believe that there is no problem except for with subprime, in other words poorer people: white trash and mostly people with darker skin, etc. Then the sheeple will keep spending and the execs of these big co’s will make some more money this year. But the fact is that the markets most susceptible to prices going down are from $400,00 to $1mil. Those are the people who had good credit but overspent. Many are higher wage earners ($75K to $150K), true but they are also some of the first to go when times get tough and company sales slow. They have higher health costs for the companies as well. Beancounters who are watching the bottom line always look to cut those who are in their mid to late 40’s and older, then try to replace with younger, single employees who may work longer hours and are happy to have a slightly higher wage. This is especially true in banking, finance, etc.
Its always about perception more than reality. If the MSM can keep the sheeple thinking “if I just hold on longer and keep spending - everything will be okay”. NOT
“The key right now is to get the middle class wannabe sheeple to believe that there is no problem except for with subprime, in other words poorer people”
Who was it that stated that it is easier to imagine yourself wealthy than to accept the fact that you’re poor?
The older I get, the more I realize that I am poor. LOL
opinion piece in today’s WSJ
LOL before even reading it.
What John fails to recognize is that “prime” borrowers are simply those with good credit and high income. There is nothing about being prime that prevents one from receiving a pay-option ARM that will eventually reset to an unpayable number.
“People are screwed.”
-Big V
Just got an email from eBay - No listing fees from now until the end of September!
I guess they have seen a dropoff in listings as stuff is not selling. Is this another sign of the coming recession?
Got the same notice WAman…..must like my lousy old cameras and junk I sell occassionally on their stupid website…..no mention of “tranches” anymore eBay….hmmmmm….
EBay is just another retailer.
If stuff is not selling on E-Bay they need to eliminate the reserve price on most of the items, people are basically just listing thier wish price or selling as a store. They also need to limit the Buy it Now stuff that has no bid option, IMO. It is an auction site right? everything needs to be sold that way. I would also like to see a ban on items that have been listed many many times. I look at certain cars and their respective parts, and there are several, that keep cumming up. I am also very careful about the shipping prices. It is this activity that keeps me away and I am sure that I am not the only one. However, It has been quite helpfull finding often times rare or obscure car parts.
Business might be off because of the TV interview where ebay is being accused of letting stolen goods from many stores be sold on their site. Those type of sellers may try to fly under the radar for a little while.
It’s true. I got sold a stolen good and I reported it to E-Bay. They did NOTHING, even though the seller was in jail by the time I reported it. He ended up going to jail again, and that’s where he is now. But he can still sell stuff on E-Bay. Didn’t even have to change his user name.
“If home prices drop by 65% who would have any money left over to buy stuff? The home ATM would be broken and shut down as it already is in many places. So where does this hyperinflation come from?”
The same place the low inflation and interest rates came from — China, India, Brazil, etc. In a trend that has many positive aspects, China and India may both matter more than the U.S. economically in a decade or two. They’ll have 300 million people who are as rich and dynamic, on average, as Americans. They’ll also have the burden of 700 million poor people, inadequate infrastructure, environmental degradation, etc., so quality of life equivalency may be an additional century away. But still, we are becoming a big fish in a small pond with lots of other big fishes and not much room.
Inflation comes from more expensive imports, on which we are dependent, and competing with exports for things we produce ourselves as the rest of the world stops lending us spending money and the dollar falls. Heck, foreigners might even outbid Americans for housing if we allow them to move here.
The flip side is, if housing values really did fall 65%, people would have more to spend on things other than housing in current income (as opposed to debt). Borrowing doesn’t mean you get to spend more in the long run. It means you get to spend less.
Inflation comes from more expensive imports, on which we are dependent
Nope, there is only one cause of inflation - too much money. More expensive imports are a result of inflation, not the cause, beacause if you print too much of your own money it becomes cheaper compared to other countries’ money (your exchange rate falls).
And there are $8T overseas in foreign governments hands. That is your fuel for inflation.
If housing crashes, and most people on this blog think it will, then I do not see any reason why the foreign governments will want to drop their dollars, since the dollars will be increasing in value.
Good point.
Absolutely. But you need to keep in mind that we don’t print money, we increase the credit supply. And since the source of the increase in credit (money supply) for this round of inflation came from the housing boom (which created about 10 times more money supply than the war, at least as of last year), then the housing bust will cause a deflation in the money supply, eventually leading to a general deflation. This is not to say that we will see across the board even deflation, some items will deflate and others may not, but take a look at Japan’s RE bust - they experienced deflation.
I would agree with you except the money has already been printed but not spent.
We may not be able to buy anything, but other countries need our grains and raw materials and they have moneys. There are not $8T worth of raw materials readily available in this country. Food is already exploding up 45% over the last year, some of the metals I follow are up 300% in the last year. Milk mailbox money is up over 100% in the last year. Cheese companies are shutting down because average Americans cannot afford $8/lb for a decent cheese. Sure its hedonic inflation, you can always substitute “Pasteurized processed cheese food” which has about as much resemblance to real cheese as a bar of lead. But China will buy every ounce of milk I can produce. India will buy every egg laid in the US. Americans will eat less nutritious food and health risks will grow.
Hoz, don’t you think this is the “small potatoes” of the deflation argument? I would think that the loan defaults which lead to CDO and Derivative default are where the “rubber meets the road” for FED action?
The FED appears to be allowing for a “slow burn” deflation right now and hasn’t had to really tip it’s hand on what it’s plans are (although some would point to the FED lowering it’s discount window rate as a “tip”). However, we are at the point where rating downgrades, mark to market and derivative issues start making a massive impact (IMO). This is going to force the FED into the open on either side of this question of inflation/deflation (again, imo). If the FED allows this credit crunch to devolve much further into the black hole of deflation without taking massive steps to thwart it then it is quite possible that any future moves will be rendered mute (not to imply there is a long term fix). Being a political body, the FED will probably blink in fairly short order or all bets are off and this could meltdown quite quickly into the greater depression. To date the deflationists have appeared correct because the FED hasn’t HAD to act in the open. I’m also voting for hyper-inflation, because of the political angle mainly, although it is quite possible that I’m incredibly ignorant of the end game plan and this is the final gambit to get our nation to accept the NAU (sorry, tinfoil moment). I am not expecting this so soon so it’ll be quite shocking if the FED just let’s us go straight to depression without much of a fight (just some for the camera’s). It is going to suck either way.
When you say that the money is already printed, that is what I was saying, except it is more accurate to say the credit was created. I object to saying that money was printed because that gives the impression of a physical item with relative solidity. Credit is not physical and it can disappear as quickly, or ever more quickly than it was created. When a person pays off their mortgage, that amount of money disappears. When the bank takes a 100K loss on a repossessed home, that 100K disappears from the money supply immediately. I don’t know what you mean by the money being printed but not being spent. It has been spent, that is why China, etc, has it. It was created over the last several years through the housing boom and is already in circulation. The $8 cheese and increase in metals is a result of it. The housing bust will have the opposite effect, but the results lag, so just as we are now seeing the inflationary results of the housing boom that peaked in 2005, we will not see the deflationary results of the bust show up in non-housing related items until at least a couple years more, and the deflation will probably continue until a couple of years after housing prices start to recover.
Auger,
I don’t know about hyperinflation or deflation. I know there is a world wide party and the US is not invited.
If inflation is mucho dinero, then we don’t have any. The world does have a lot of moneys. The US is the only country that does not include food in its CPI calculations. China gives food a 34% weighting in its measure of CPI; in the US it should probably be around 8% of the CPI. The Federal Reserve has, in the last two years, been trying to battle inflation. The slow fed fund rate increases probably would have worked, but world wide inflation as a result of floating dollars has resulted in 900% increases in Uranium, 300% increases in Cobalt, 600% increases in Rare Earths - the list goes on. These are critical metals. The pass through from these increases has not been felt yet. Uranium is obvious, but the Cobalt and Rare earths are used for Prius Batteries, computer batteries, cell phone batteries as well as for industrial metals such as airplane engine turbines.
The Federal Reserve does not wish for deflation, the US owes $9T. Deflation would effectively increase an unsupportable debt.
The Federal Reserve has two tools. The first tool is control of the reserve requirements of banks. The reserve requirements for banks were eliminated in 1994. The Federal Reserve probably cannot lower the reserve requirement below zero. The second tool is the Fed Funds rate which should have been raised last fall to 6%, but was kept at 5.25%. The effective Fed rate is now about 4.75%. There is not much room to maneuver. Even if the Fed fund rate was dropped to zero, the Federal Reserve still would have to find ready, willing and able borrowers.
Finding borrowers is the hard part. The American consumer is tapped out, businesses are having a tough time paying bills. This is insolvency while rates are historically low! Companies borrowing moneys to buy back stock, is so incredibly short sighted that I almost despair.
What Kime and others, with very good reasons, suggest with regard to deflation is correct. However, IMHO, we are now subject to demands from other countries that wish to purchase what we have. These other countries have a desire to improve their standards of living and rightly so. China and India have 40% of the world’s population and have the moneys to buy food and materials previously unobtainable and unaffordable.
It is a wonderful thing that the world standard of living has been raised up so dramatically in the last 7 years, but it has left us a bankrupt nation - we paid for the world SOL rising by going into massive debt. Is there hope? Yes. Somehow, the US will muddle its way through this, but there will be a lot of pain.
Yep you got it. deflation is already starting and I guess the FED will do just about anything to stop it including dropping interest rates again. Try and jump start the credit machine again. good luck with that as hoz pointed out the US consumer is tapped out.. Loan to fast growing countries over seas maybe? Japan has been investing over seas for years now in the “Yen carry trade” because of extremly low interest rates at home. I wonder how they like all our AAA CDO’s ?
“Credit is not physical and it can disappear as quickly, or ever more quickly than it was created.”
Credit = hearsay money
Questioning credit = money heresy
“if housing values really did fall 65%, people would have more to spend on things other than housing in current income…”
Actually people would have huge debt for houses which are worth much less than they paid. This would not stimulate spending IMO.
–
Why can’t they default, live for free for 6 months or so, and then “Walk Away?” The excess supply of homes means that rents will come down during recession/depression. Cash will be king and having a job would make one feel like a queen. The asset owners (not counting a mostly paid off modest home) will be proven to be fools, especially those who own what I call scams, aka stocks. Debt would be the killer for most households.
Jas
You can walk away but you will owe the IRS for the loss on the sale of your house. That’s not good for spending either.
IRS hit is a one time hit and stops continuous bleeding. Those who can’t meet the payments will be forced to walk away. IRS is quite willing to negotiate a payment schedule with those who don’t have the money from what I hear.
Jas
I wouldn’t want to make a payment schedule to repay a hundred thousand dollars or more. That may not be a slow bleed but it is a sliced aorta. Fatality!
Just keep in mind that while you are in a repayment plan with IRS, the interest on what you owe is still accruing, which is hovering around 5%. This assumes that the lender lets you walk without garnishing wages from deficiency judgment.
Default with recourse, the gift that keeps giving…
Actually people would have huge debt for houses which are worth much less than they paid. This would not stimulate spending IMO.
Not everyone. A lot on here rent. The only people taking a bath would be the ones buying in the last 3-4 years. I think probably 75% of them bought out of greed and they’ll have to figure their own way back
Reno - Home Sales Decline Again in July (Down 12% YOY)
http://news.rgj.com/apps/pbcs.dll/article?AID=/20070828/BIZ12/708280331/1071
And even with the median sales price in Reno falling 12.1 percent in the second quarter of this year from a year earlier, it’s not catastrophic, Kaiser said.
“Reno’s still got a positive job market, and the population is still rising 1 to 3 percent,” he said. “As long as you’ve got bodies coming in for jobs, you’ll have home sales. And the absorption rate for new homes is still pretty solid.
“Reno’s in a unique position that the rest of its economy is solid.”
How is that unique? That’s not unique.
Rest assured that Chinese banking sector subprime problems are contained.
Liquid Chinese banking sector absorbing subprime
Exposure thought limited; investors still see sector as play on China growth
By V. Phani Kumar
Last Update: 6:16 AM ET Aug 29, 2007
HONG KONG (MarketWatch) — In almost any other country, investors would have bolted for the exit.
But revelations last week of exposure among some leading Chinese banks to the U.S. subprime mortgage market — and some fears about what’s yet to be disclosed– were swiftly digested, and the appetite among investors for such shares has remained intense.
That’s partly because of a deep-seated confidence the country’s largest banks can handily absorb the subprime meltdown, despite some hefty exposure. As well, investors see the banks as a growth play, and just don’t want to miss out.
Bank of China’s disclosure that it had exposure of $9.7 billion to the U.S. subprime mortgage, the largest of any bank in Asia, was an initial market stunner.
‘It is quite fortunate that a big chunk of these subprime assets ended up in China. It is one of the countries that can more easily absorb the losses due to its rapidly growing economy.‘
— Matt McKeith, First State Investments
Almost simultaneously, two other large state banks, Industrial and Commercial Bank of China and China Construction Bank , said they, too, had exposure of over a billion dollars each to the subprime mortgage market.
However, once the news was digested, analysts and rating agencies said these banks would likely absorb the shock. “It is quite fortunate that a big chunk of these subprime assets ended up in China. It is one of the countries that can more easily absorb the losses due to its rapidly growing economy,” said Matt McKeith, head of equity dealing at First State Investments in Hong Kong.
http://www.marketwatch.com/news/story/liquid-chinese-banking-sector-absorbs/story.aspx?guid=%7B5BF478BD%2DE321%2D4DE5%2DBE74%2D1301ADC81E59%7D
After reporting the Countrywide bailout as an investment, Hagerty at the WSJ finally does some fundamental analysis and answers the following question:
Bank of America Corp.’s $2 billion investment in Countrywide Financial Corp. last week was supposed to put an end to fears about the financial strength of the nation’s largest home-mortgage lender. So why does Countrywide’s stock keep falling?
http://online.wsj.com/article/SB118834716029611686.html?mod=todays_us_money_and_investing
http://www.kereport.com/index2.html
Take a listen to Dr. Martin Weiss’ interview (8/22). He has a good explanation how the sub-prime melt down spread in the financial markets globally.
I was thinking (ouch, that hurts) about the term “ATM” as it was applied to the housing equity extraction, and that term is wrong to me. ATM transactions are generally for $ you have, whereas what was happening was more credit card borrowing (creating a liability). For some reason, that ATM analogy just bothered me.
My credit card company is happy to let me take a cash advance from an ATM. (And I am happy to tell them to not even give me a PIN to allow such a thing).
Obviously more people than Christopher Wood saw this debacle coming. However, “The Bubble Economy and its description of the Japanese debacle helped shape my expectations as I observed and researched today’s housing bubble. Hats off Mr. Wood. Anyway, according to the WSJ:
Mr. Wood’s take on the current crisis isn’t encouraging.
“In the credit world I think we’ve been in a bubble every bit as big as the one in technology in 2000 and in Japan in the 1980s,” he says. The chief culprit, Mr. Wood believes, is securitization, which he thinks “has been basically running amok” in the U.S. in recent years. Securitization in the housing market, he says, has led investors to ignore legitimate financial risk by pretending that it is too spread-out to matter.
http://online.wsj.com/article/SB118834109137811484.html?mod=todays_us_money_and_investing
“…has led investors to ignore legitimate financial risk by pretending that it is too spread-out to matter”
They’ve not been led…they’ve been convinced…the “leaders” are just standing next to the cliff saying: …don’t worry…don’t worry…it’s o.k.,… now jump!
If you read the Countrywide article carefully no one knows what the various prime, alt A, subprime, CDO and other securites that Countrywide is holding are worth. They can’t be sold in today’s market. My guess is that they are not worth what they paid. There are going to be some big writedowns.
$34 billion of loans that were due to be sold to investors. That includes prime-quality loans, subprime mortgages for people with weak credit records, and Alt-A loans, a category between prime and subprime. Frederick Cannon, an analyst at Keefe, Bruyette & Woods, says the total amount of loans waiting to be sold may now top $40 billion.
Countrywide also had about $23 billion of “trading securities,”
Countrywide’s savings bank held about $15.7 billion of mortgage securities, excluding those guaranteed by Fannie or Freddie, and may have to mark down some.
That is almost $80 billion, if they have to mark those down by 10%, that would be an $8 billion hit.
I think B of A didn’t value the non-performing assets at current value, NOT at the value Countrywide is carrying them on their books. Enron accounting, anyone?
Take a look at Countrywide REO inventory holdings. Google “Countrywide REO” They only have a few listed with real estate agents, most are still in their inventory at The Trustee’s Deed Value..They need to be marked down to market, and I believe they are forced to do this by the regulators the last week in Jan 2008.
Why ugly people should not be allowed to have dogs that…look better than their owners.
http://biz.yahoo.com/ap/070829/helmsley_s_pooch.html?.v=1
http://tinyurl.com/2mmfju
Adrien Brody to buy Oneida Castle? Earlier last week another well to do paid 4x the previous purchase price for an Island in the Thousand Islands area. These purchases skew the Upstate median, huh? Just when you thought second home sales were going to drag things down.
OT–I’m not the fawning/star obsessed type but if its Adrien Brody I could be spending a little more time on the Oneida Shores LOL. (Sorry hubby)
Looks like a Chernobyl baby to me.
It wasn’t about the looks.
Carrie:
I don’t think the median can be skewed by one large or small number. The median is the number at which 1/2 of the prices are lower, and 1/2 are higher.
Ok folks. I’m thinking bout bidding 50k on a c0untrywide REO that has a fantasy price of 340k……
Your thoughts….(laughing but serious)
Go for it. What the heck??
You’re wasting your time.
Explain why txchick.
–
Please don’t, chick!
Jas
There may be a time when you’re not wasting your time, but it’s not here yet. Wait until banks are so deluged with properties they can’t maintain the go for it.
Agreed.
Calls Grow for Foreigners to Have a Say on U.S. Market Rules
“…The United States is exporting financial products, but losses to investors in other countries suggest that American regulators are not properly monitoring the products or alerting investors to the risks.
“We need an international approach, and the United States needs to be part of it,” said Peter Bofinger, a member of the German government’s economics advisory board and a professor at the University of Würzburg.
While regulators in the United States have not been receptive to the idea in the past, analysts said that Europe and Asia had more leverage now. Washington might have to yield if it wants to succeed in imposing bilateral regulations on government-owned investment funds from emerging economies.
“America depends on the rest of the world to finance its debt,” Mr. Bofinger said. “If our institutions stopped buying their financial products, it would hurt.”
New York Times
http://tinyurl.com/26g57a
If foreigners want to buy U.S. debt, they have to play by U.S. rules — end of story. Nobody is holding a gun to their head to make them buy (are they???).
–
Yes, debtors rule!
Creditors, weren’t you stupid to lend to debtors you can’t control? If you can’t use force over a debtor, or have access to force by laws, you are out of luck and must rely on the good graces of the debtor.
Jas
Helmsley’s Dog Gets $12 Million in Will
NEW YORK (AP) — Leona Helmsley’s dog will continue to live an opulent life, and then be buried alongside her in a mausoleum. But two of Helmsley’s grandchildren got nothing from the late luxury hotelier and real estate billionaire’s estate.
Wonder is her grandkids call her the “Granny of Mean”?
Does the dog have to pay death taxes?
I’m sure they were educated at the best schools money could buy. If they can’t make it on their own with all the contacts they should have accumulated in that time then I certainly won’t be feeling sorry for them.
How big is the mortgage crisis risk? No one knows.
http://www.msnbc.msn.com/id/20480991/
Indeed, that is scary. In the 1990s we had people who bought at the peak and got in trouble. But now all those who HELOCed their way to the poor house to live large are on top of that. How many?
The looming food crisis
Rush for Biofuels
“…In the US, where nearly 40 million people are below the official poverty line, the Department of Agriculture recently predicted a 10% rise in the price of chicken. The prices of bread, beef, eggs and milk rose 7.5 % in July, the highest monthly rise in 25 years.
“The competition for grain between the world’s 800 million motorists, who want to maintain their mobility, and its two billion poorest people, who are simply trying to survive, is emerging as an epic issue,” says Lester Brown, president of the Washington-based Worldwatch Institute thinktank, and author of the book Who Will Feed China?
It is not going to get any better, says Brown. The UN’s World Food Organisation predicts that demand for biofuels will grow by 170% in the next three years. A separate report from the OECD, the club of the world’s 30 richest countries, suggested food-price rises of between 20% and 50% over the next decade, and the head of Nestlé, the world’s largest food processor, said prices would remain high as far as anyone could see ahead….”
Guardian UK
http://tinyurl.com/2kjouf
Putting edible fuel (corn) into gas tanks never has nor will make sense to me, especially when fossil fuels are consumed in its production.
I’ve got a great idea. Stop eating things with faces to look at you.
Beans and vegetables are cheap.
Ribs from Tony Roma’s have no faces. Cow gets to live, pays the rent by getting slaughtered. I pay, and don’t mind paying, more for humane treatment of livestock.
I don’t eat the faces. Faces are for stewing.
Sorry, couldn’t resist. But seriously, salad is what food eats.
Vegetables and green stuff - it’s what food eats
“…”In the US, where nearly 40 million people are below the official poverty line, the Department of Agriculture recently predicted a 10% rise in the price of chicken”
You are really NOT asking me to believe a government projection, are you? Me thinks the Petroleum Lobby, with help from the Oil Men in DC, made this government agency poduce this for their buddies on the hill.
Nothing reported from DC is believable, NOTHING
Future Real Estate Agent?
http://tinyurl.com/2gnrg2
Future Real Estate Agent with some coaching:
http://tinyurl.com/33jnxu
Looks like the liquidity cannon was fired on the opening bell today. Gotta get those Pavlovian bulls primed for a calm weekend while the Fed meets in Jackson Hole…
http://www.marketwatch.com/tools/marketsummary/
Yeppers, it does look like the PPT gang is loose on Wall Street today…..told you Doctor BB would come up with another dose of Trash for them to oooouuu and ahhhhh about (just got my liquidity fix for the day…..feeeellllsss reeeaaalll gooooodddd)
Methadone for the markets…
ever seen a methadone clinic?
BTW, the American Public Media Marketwatch commentator on the Morning Report seemed puzzled by the stock market’s meteoric rise this morning on a dearth of market-moving news. I guess he did not get the memo that the stock market always goes up in the long run, no matter what.
Subprime Chuck’ Schumer Plays Fool in Crisis:
http://www.bloomberg.com/apps/news?pid=20601039&sid=awbeaibm0900&refer=home
The chairman of Congress’s Joint Economic Committee then called on the firms to “assist this country’s mortgage crisis” and “urge your clients to do their part to keep our housing markets afloat, by modifying subprime loans that are at risk of default.”
In so doing, Subprime Chuck made a blithering fool of himself, though he probably doesn’t realize why. So far, none of the four firms — PricewaterhouseCoopers, Deloitte & Touche, Ernst & Young, and KPMG — has responded publicly to his plea for lobbying help.
Slim checking in from Tucson. Looks like we’ve got our very own Enron:
http://www.azstarnet.com/business/198633
And much heat in the online comments:
http://regulus2.azstarnet.com/comments/index.php?id=198633
“Many of the company’s former workers have said they are facing dire financial problems, including eviction, car repossession or foreclosure, because they did not receive final pay checks.”
They “lose” x1 paycheck…then fall into the abyss?
“…and then it went dark”
I think that we are beginning to have…”spontaneous national rolling blackouts”
One of my favorite scenes in film discography:
When Cap’t Yellowbeard points the cannon down to the deck of his own ship while coming alongside of a ship that he’s fighting…he shots the cannon and yells: “Now…Fight or die”
Here’s a morsel from the online comments after the First Magnus story. (Now, which one of you is Merle?):
Too many employees operated on the same plan that FM had. They assumed that the money would just continue to roll in. If you never save for a rainy day, not just in a 401K plan, this happens.
Should our family income stop tomorrow, it will be a couple of years before it becomes a crisis. We have made saving, even when it was just a few dollars at a time, a priority. Ahead of new cars and other crap we could live without.
I feel bad for the employees of FM, but one paycheck is not the problem.
I love the part about violating W.A.R.N. How can they give a 60 day notice?
60 days would become 1 day hehe.
Crisp (& Assoc) now $53.5 million defaults
http://www.bakersfield.com/102/story/223381.html
“…Leon, a licensed real estate agent working for Santa Ana-based A-21 Su Casa Realty, used the L Street property as her Bakersfield office.”
Margarite should change the name of her business to: Sue u Su Casa Realty
When buying with interest only, 100% financing , what many Spanish speaking buyers should say to the bank is “Mi casa es su casa”.
LMAO!
It just dawned on me…she lives in Santa Ana…and has her “Office” in Bakersfried?…man, she must have missed the real estate evening class that taught: Location!…Location!…Location!
Did anyone catch the piece on dayworker migration to New Orleans in the Leher News Hour or the Nightly Business Report. Last nights NBR was the most bearish I have ever seen them.
During the summer, I’ve noticed a more bearish tone at NBR. (I try to watch when I’m at the gym.)
High Noon …3 hours in we got “High Voltage” but very little “Current”
Dow 13,183.62 Up 141.77 (1.09%)
NYSE Volume 878,019,000
Case-Schiller (same house sales) price index numbers are out for June 2007 (Microsoft Excel file):
http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/0,0,0,0,1145923002722.html
No real surprises, rate of decline in coastal Cali seemed to have slowed a bit in coastal Cali, but that was before the latest credit tightening…
Charlotte NC seems to still be going up…much flatter trajectory than the coastals, however.
Portland and Seattle are still up…comparing a graph of their house prices and Los Angeles, the “bubble run-up” wasn’t as bad as Los Angeles’ (using the ‘eyeball the graph’ method), so a reversion to the mean might not be as severe in the Pac Northwest.
http://www.boston.com/business/personalfinance/articles/2007/08/29/credit_crunch_means_more_foreclosures_and_much_tougher_loan_terms/
“By John F. Wasik, Bloomberg News | August 29, 2007
If you think the worst is over for the US home market, hold on to your hats.
The credit crunch is not only making mortgage financing tougher, it will force more homeowners into foreclosure. The surge of more bargain homes on the market will further depress prices. Along with a corresponding pinch on home equity, auto loans, and credit cards, this pullback doesn’t bode well for the economy.”
Foregive me if this was already posted
Financial Times, FT.com
Obama unveils radical mortgage plan
http://www.ft.com/cms/s/0/9fd5e4de-558e-11dc-b971-0000779fd2ac.html
“Unscrupulous lenders who deceptively sold subprime mortgages to millions of Americans should be fined and the proceeds used to help bail out borrowers facing a wave of foreclosures, according to Barack Obama, the Democratic senator running to be his party’s presidential candidate.”
The logistics of such an approach seem, well, quite daunting. How would you even begin to separate “deceptive” loans form “good” ones? And would you fine the loan originators (brokers), the loan packagers (including Freddie and Fannie), or the investors (including pension funds and foreign capital markets)?
I suspect BO will run the stump trail full of idealistic sounding solutions which, on close examination, would never be practicable. Such is the natural campaign style of newbie beltway outsiders.
Exactly. I just can’t get worked up about BO for this very reason.
another “rah rah” let’s help the little guy bullshit statement from another bullshit politician. nobody is gonna do jack, nor should they. here’s a hot newsflash: if you make 30K a year, you can’t afford a 200K house. in fact, you’re lucky if you can afford to buy a used car. all this “we got talked into it” is a bunch of crap, imho. welcome to the real world
I was listening to CNBC again this morning (God, why do I do this to myself?) and they had a special guest, whose purpose was to (get this) explain what ARM loans were, what the LIBOR is, and what a neg-am loan is. The anchor (don’t know her name) said several times during the interview that it was all new to her and she didn’t know what any of the acronyms meant. So, I guess that’s the state of knowledge on what’s touted as the number one source of business and finance news. They don’t know squat about mortgages.
If that’s really the state of knowledge and understanding on Wall Street, then this ride is going to be a bit more wild than expected.
On the bright side, the guest said that the neg-ams were the “heroin” of the housing market. So someone there knows what’s going on and what the likely outcomes of such an addiction are.
Bailout measures will be the methadone of the housing market.
An old friend from a life discarded that used heroin regularly for years once said to me “Once it [the needle] goes in, it never comes out.”
These American housing equity junkies who looked to mainline the image of the middle class status symbols (home, car, dog, steak on the grill) forgot that there is a reason one had these items. Our burgher past relied on forebearance, hard work, savings, and more hard work and savings to get to the good life. You can’t get a quick fix to make it unless your number’s up in a lottery.
I am reminded the old saying that one of the worst things in the world is wealth without work. These fools were fronted money and squandered it chasing a dream. Too bad we are gonna have to deal with their nightmare.
That anchor doth protest too much. Probably Maria Bartiromo taking a moment from pushing people in front of trains.
Post Market Close Headline from the AP: Stocks Surge As Wall Street Goes Hunting for Bargains, Anticipates Rate Cut
This infuriates me to no end. They make it sound like a bunch of schmoes are sitting around pouring over IBD looking for teacups.
The average financial journalist is either incredibly lazy, incompetent, or complicit in the fleecing of the public. While it’s true that some people like TXChick can make money daytrading most people look at the up and down of the market and don’t know that it’s huge Fund Managers and Goliaths like Morgan Stanley that are wiping out their retirement funds.
The Associated Press August 23, 2007, 8:18PM ET text size: TT
Dodd asks for FHA change
By MARCY GORDON
BW Exclusives
WASHINGTON
As bipartisan support grows for expanding the role of a federal housing agency in response to the mortgage market crisis, the chairman of the Senate Banking Committee on Thursday called on top administration officials to move quickly toward making that change.
Sen. Christopher Dodd, D-Conn., urged Treasury Secretary Henry Paulson and Housing Secretary Alphonso Jackson in a letter to “move expeditiously” with administrative changes to the Federal Housing Administration so it can be used to help struggling borrowers avoid foreclosure. The idea is to widen the mandate of the Depression-era agency, which insures mortgages for low-income borrowers, to allow it to guarantee mortgages for homeowners in default that are refinanced into lower-rate loans. The FHA cannot currently do so.
The administration is examining the possibility of such a plan for the FHA, part of the Department of Housing and Urban Development, and Paulson has asked Treasury staff to work with HUD on the matter.
“I want to urge you to move expeditiously in this direction,” Dodd wrote Paulson and Jackson. “Our nation is experiencing record foreclosures, and an unprecedented number of Americans could lose their homes. … At such a critical time, it is essential that the FHA act effectively … to preserve homeownership for as many Americans as possible.”
http://www.businessweek.com/ap/financialnews/D8R728H00.htm
Predictions for the course of future bailouts:
1) D_dd will stop harping about it, as the idea is massively politically unpopular. Nonetheless, he will push it relentlessly behind the scenes, with the plan to claim credit if anything good comes out of it (include passage of measures along the lines of his suggestions), or blaiming R-cans if bailout measures never pass.
2) HP and GWB will go along without fanfare. Expect some kind of announcement within the next three months, right at the point where everyone realizes the magnitude of the unfolding disaster (so far, awareness is largely limited to readership of the WSJ, NYTs, FTs and Economist).
Maybe move the predicted timing of a bailout announcement up to a matter of days?
Bernanke: Fed Ready to Act If Needed
Topics:Interest Rates | Inflation | Ben Bernanke | Employment | Consumers | Federal Reserve | Federal Budget (U.S.) | Economy (Global) | Economy (U.S.)
By CNBC.com | 29 Aug 2007 | 04:29 PM ET
Font size:
The following is a copy of a letter that Fed Chairman Ben Bernanke sent Sen. Charles Schumer on Monday in response to Schumer’s earlier letters calling on the Fed to cut interest rates.
http://www.cnbc.com/id/20499687
This is the part where Ben implies that he agrees with the FHA solution. I doubt he’ll do any more.
It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance. Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms. They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example. One public agency with considerable experience in providing home financing for low-and moderate-income borrowers is the Federal Housing Administration (FHA). The Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets.
More on Crisp and Cole:
http://people.bakersfield.com/home/Blog/boomtown/13886
So did he just over leverage himself? Did he drink his own Kool-Aid? You would think that these guys would take at least half of what they made and sock it away, instead of doubling down. Far too many RE professionals made bank during the run-up, but re-bet most or all of it back on real estate.
Look at Bernie Ebbers. My god, the money that was just thrown at that crook by IBs who gave him allocations of IPOs, etc. And before it was all over, he was being dumped out in margin calls.
I think people simply can’t control their greed. The money starts to become unreal. In the spring of 1999, I was making 15K - 20K a day just doing stupid stuff like buying YHOO or CMGI in the premarket and selling at the close. It seemed unreal and it was!
If the public doesn’t want to bail out the FBs (which is evidently the general consensus) then why not refuse to file your Federal Tax return. Which btw, is not a law under the supreme court, but is only enforced through the IRS by the lower courts.
You can watch a very good documentary at: http://www.tv-links.co.uk/listings/9/5081
You first. Let us know how it works out for ya.
We’re entering “self-fulfilling prophesy” mode, aka, the downward spiral.
In many markets, where inventory is so high that everyone knows housing is in the crapper and going down, the only way to stop the home price slide is going to be parity with respect to rents vs traditional mortgage costs. Fundamentals, a home is shelter, not an investment…
In markets with less for-sale signs (less supply), there will still be a slide downward, but, unfortunately for those of us in those markets, the slide won’t be as rapid, or as severe (IMHO).
I’m hoping that I’m wrong.
The key to this whole financial mess was the ratings agencies. It was the only way that such separate borrowers and lenders could conduct business. Otherwise, the securities were too complex for anyone to justify making an investment when the underwriter was a disinterested party.
I have a question, that I would love for someone to tackle.
For now, let’s set aside a major rating agency problem–the assumed default rate of each individual mortgage. Let’s also assume that the financial friction due to securitization (servicing fees, etc.), that would not be there if you just held the mortgages on the books is zero.
Presumably, the way ratings agencies worked, if you take all of the mortgages in a pool, and add up the expected losses, you get a number, call it “X”.
Then, if you take every downstream security generated from those loans (RMBS, CDOs, CDO squared’s, etc.), and based on the ratings, do the same calculation, you get another number “Y”.
If Moody’s/S&P/Fitch did their job correctly (ie. their math worked), X=Y.
The tranching was simply a reallocation of risk, not a reduction of dollars lost through defaults. If $1MM of dollars were lost through defaults, theoretically, at the note-holder level, $1MM of losses should be realized among all of the note holders (some more than others, based on this reallocation of risk).
So, my question is very simple. Does X=Y?
If it does not, something even more rotten is hidden in the ratings agencies models than poor assumptions about individual mortgage default rates.
If the rating agencies have a flawed securitization model (X is not equal to Y), they are either incompetent, or crooked. For now, without knowing if X=Y, I can only assume incompetent. Crooked wouldn’t be a stretch.
Does anyone know if the ratings agencies expect X to equal Y? If not, I’d love to hear the reasoning…
“If it does not, something even more rotten is hidden in the ratings agencies models than poor assumptions about individual mortgage default rates.”
I’ve posted the answer before, but briefly, at least some of the ratings industry didn’t allow the possibility of negative House Price Appreciation (negative HPA), aka falling house prices, in their rating models. I can dig up two articles, one from an investor that talked to one of the ratings agencies, and another from a rating agency itself, stating that the models were built with positive HPA in mind.
In other words, the “rotteness” was the assumption that the collateral (houses) would not go down in price. If the loan defaults, sure you incur transaction costs, but if prices always go up, you don’t have to worry about losing principal, just income stream.
Also, if you assume that prices always go up, even if people get in trouble and can’t pay their mortgage, they can most likely sell, even if they originally had 100% financing.
I can dig up the actual articles if you want…
That is the first part of the rottenness. I understand that.
What I want to understand is whether games were played with the securitization model.
Let’s assume that the expected loss on a loan pool is $100.
As you rightfully point out, that number could be wrong based on the poor assumptions of the rating agencies.
So, you have the expected loss of that loan pool (right or wrong). Now you break it into 4 securities:
AAA - 80%
A - 12%
BBB - 6%
“Equity” - 2%
There is an expectation of loss based on a rating–not all of this is market driven. So, does the expected loss of AAA + A + BBB + Equity = $100? Or something less?
My suspicion is that the sum of the expected losses for the parts magically is less than the the whole. You can’t diversify away this risk, there should be an equality there.
Now, calling a bad loan a good loan is a different part of the question. It just means that your expected loss should have been $200 or more, not $100. I’m wondering whether, based on the ratings, the expected losses of the securities was LESS than $100. It wouldn’t surprise me one bit.
If at first you don’t succeed, raise the price!
July 27th
http://rockies.craigslist.org/rfs/383285310.html
August 13th
http://rockies.craigslist.org/rfs/395899252.html
See attached video of Bill Gross on CNBC (just need to watch first part where he talks about buying when “blood is in the streets”:
http://www.cnbc.com/id/15840232?video=473335791&play=1
I wonder how much mortgage-backed paper PIMCO has bought at pennies on the dollar over the last few weeks.
It would makes sense that PIMCO’s Bill Gross did an about-face on his view of the mortgage mess (from ‘hooker in high heels” letter to “bail out/help the poor homeowners/FB’s”).
Could it be that a govt. bailout would significantly increase the value of the possible PIMCO purchased of heavily discounted mortgage-backed paper?
Just a theory, but it would be great if someone knew more about what injured assests PIMCO has been scooping up and if any of it is related to mortage-backed investments.
I mentioned that last week. That disingenous son of a bitch ought to be forced to disclose all his acquisitions over the past 6 months IMO.
Ditto for Cramer. What do you want to bet that he positioned his own portfolio to profit on Fed rate cuts before he went on the airwaves to clamor for them?
Tx, sorry, didn’t see your post. Glad I am not the only one who sees this as a bit smelly.
Anyone know more?
This is too good, the private sector created this mess and now it’s up to the fha to find a way out.
http://biz.yahoo.com/ap/070829/bernanke_mortgages.html?.v=2
It sounds like Dodd may have hypnotized Bernanke when they met over breakfast last Tuesday.
‘Bernanke said the Federal Housing Administration, a government agency that insures home loans, might be able to help.
“The Congress might wish to consider FHA reforms that allow the agency more flexibility to design new products and to collaborate with the private sector in facilitating the refinancing of creditworthy subprime borrowers facing large resets,” Bernanke said.’
Does BB’s bailout talk explain the bull run on Wall Street today?
The Greenspan put has given way to the Bernanke pledge.
Wall St rallies after Bernanke pledge
By Eoin Callan in Washington and Anuj Gangahar and Saskia Scholtes in New York
Published: August 29 2007 23:45 | Last updated: August 29 2007 23:45
Wall Street stocks rallied strongly on Wednesday after Ben Bernanke offered reassurance that the Federal Reserve was “closely monitoring developments” in financial markets and was “prepared to act” if required.
Investors were heartened by the assurances from the Fed chairman in a letter to Senator Charles Schumer that was circulated on Wednesday in Washington.
http://www.ft.com/cms/s/0/131a4566-567f-11dc-ab9c-0000779fd2ac.html
Bernanke promised diddly squat. He basically told the private sector that they ought not give stupid loans to stupid people, and that they will get nothing and like it.
Tomorrow should be a blowout day to the upside for headline U.S. stock market indexes. Also, look for a WSJ headline story announcing BB’s change of heart on bailouts.
Bernanke: Fed Ready to Act If Needed
By CNBC.com | 29 Aug 2007 | 04:29 PM ET
The following is a copy of a letter that Fed Chairman Ben Bernanke sent Sen. Charles Schumer on Monday in response to Schumer’s earlier letters calling on the Fed to cut interest rates.
August 27, 2007
The Honorable Charles E. Schumer United States Senate Washington, D.C. 20510
Dear Senator:
Thank you for your recent letters of August 8 and 22, in which you express concern about the potential effects of volatility in financial markets and the tightening of credit conditions on homebuyers, consumers, and the economy as a whole.
http://www.cnbc.com/id/20499687
P.S. Ben Jones, I recall a few months ago that you opined there would be no FHA-provided bailout. Do you still hold this opinion?
Hey, GS - I cannot answer for Mr. Ben Jones, but I am not worried about a bailout nor do I believe a bailout is possible.
IMHO this is like the abortion issue in 2004, the immigrant problem in 2006 and now the poor idiot borrowers in 2008. There will be a lot of talk and nobody will do anything because they cannot do anything. Trying to really stop this housing bubble market from collapsing will be political suicide. This is not a few hundred billions of dollars this is trillions of dollars for a bailout.
As for FHA it is so small and requires documentation that few if any of the FBs have.
Hey Prof:
FHA won’t help. It will give safe loans to credit-worthy subprime borrowers. That’s like giving hay to a unicorn.
“People are screwed.”
-Big V
Does it seem to others that BB is taking a lot more highly-publicized unsolicited advice from politicians than AG ever did?
Maybe because he wants to publicly defy them.
Though he is dropping hints about executing further bailout measures, at least BB is drawing a line in the sand at the proposed increase in the GSE conforming limit.
Big day on Wall Street
Stocks bounce back after Tuesday’s big selloff; Dow gains almost 250 points; oil prices spike on inventory report.
By Alexandra Twin, CNNMoney.com senior writer
August 29 2007: 6:06 PM EDT
NEW YORK (CNNMoney.com) — Stocks surged Wednesday, erasing the previous day’s losses, as investors took a big drop in the yen and encouraging comments from the chairman of the Federal Reserve as signs that the recent market turmoil is waning.
…
The stock rally found its second wind in the last hour of trade in response to the release of a letter Federal Reserve Chairman Ben Bernanke sent to Democratic Sen. Charles Schumer, of NY. In the letter, Bernanke again stated that the Fed was monitoring trouble in the financial markets, and was prepared to step in and take action if necessary.
This reassured investors unnerved by the outdated minutes from the Aug. 7 Fed policy meeting, released on Tuesday, in which the bankers seemed more focused on housing and inflation than the turmoil in financial markets.
Bernanke also stated that he saw no need for the government to lift the portfolio caps on housing finance leaders Fannie Mae and Freddie Mac, a move Schumer and other congress members have advocated for. Their argument is that the lifting of the caps would allow more people with good credit to get mortgages.
http://money.cnn.com/2007/08/29/markets/markets_0445/
Oops — maybe I misread “portfolio caps” to mean “conforming limits.” Would BB lift the $417,000 GSE conforming loan limit to respike the lending punchbowl? It would have the long term effects of (1) making unaffordable areas still less affordable; (2) tempting a few more unqualified buyers to put their households on the path to a future foreclosure, with a taxpayer-funded guarantee backing up the lender.
But the upside would be a short term bounce thanks to the respiking of the lending punchbowl. The moral hazard must be overwhelming…
Paul Krugman: “Biggest bubble ever…likely recession not out of the question…enormous trade deficit…could be significantly worse…not hard to get an UE rate above 6%…we’re not Argentina…our debt is in dollars…”
I guess having dollar-denominated debt is good because BB can always print his way out of a trade deficit (and other deficits)? And also print enough to provide a $100b mortgage bailout while he is at it? Or is he just bluffing with his hints about a possible bailout to appease Dodd and Schumer?
Not sure why we need tax cuts, so long as currency dilutions are infinitely available (aka helicopter drops of liquidity)…
“HP… halfway between the Bushies and an actual reasonable person…”
http://www.youtube.com/watch?v=qo4ExWEAl_k&NR=1
Hi GetStucco:
I know this has become an ongoing theme, but I have to disagree that Ben is hinting about any bailout. That’s just the way the permabulls are interpreting it. The way I read his statements, he seems to be telling the whiners to take a hike. Not like he can really do much for them anyway.