A Further Reduction In The Universe Of Qualified Buyers
Some housing bubble news from Wall Street and Washington. Associated Press, “Shares of Hovnanian Enterprises Inc. fell Friday after the luxury homebuilder reported it fourth conscutive quarterly loss and said it would slash prices on homes across the country beginning late next week to try to sell off excess inventory. Hovnanian reported it lost $80.5 million in the quarter ended July 31, citing continuing problems of credit availability and high inventory.”
“‘Credit tightening in the mortgage market has reduced the number of qualified home buyers, existing home inventory levels remain persistently high in many of our markets and buyer psychology has been negatively impacted by a steady stream of news related to falling housing prices, foreclosure rates, and mortgage availability,’ CEO Ara K. Hovnanian said in a statement.”
“Hovnanian also blamed the tightening of lending standards in the mortgage market beyond those made to subprime lenders. ‘This is leading to a further reduction in the universe of qualified buyers for our homes,’ he said.”
“‘Right now the game is who can cut the prices the most,’ said analyst Alex Barron. ‘They have a lot of debt that they need to service and in order to service that debt they need to have some cash coming in the door.’”
The Street.com. “Revenue fell 27% to $1.1 billion, matching analyst estimates. New contracts dropped 24%, excluding those from joint ventures. The losses stemmed from $109 million of land impairment charges.”
“‘Our sales pace fell further in many of our communities, and we reacted by offering further price concessions and incentives. This created additional downward pressure on profit margins and led to additional land-related charges in the quarter,’ Hovnanian said.”
The Toll Brothers 10-Q. “Beginning in the fourth quarter of fiscal 2005 and continuing throughout fiscal 2006 and into the fourth quarter of fiscal 2007, we have experienced a slowdown in new contracts signed.”
“We believe this slowdown is attributable to a decline in consumer confidence, an overall softening of demand for new homes, an oversupply of homes available for sale, the inability of some of our home buyers to sell their current home and the direct and indirect impact of the turmoil in the sub-prime mortgage loan market.”
“We attribute the reduction in demand to concerns on the part of prospective home buyers about the direction of home prices, due in part to many home builders’ advertising price reductions and increased sales incentives, and concerns by the prospective home buyers about being able to sell their existing homes.”
“In the three-month period ended July 31, 2007, we recognized impairment charges of approximately $139.6 million on communities in which we were currently selling and on land owned, primarily located in California, Florida, Nevada, and Virginia.”
“At July 31, 2007, the fair value of the inventory in the 28 current communities and owned land subject to write-downs in the three-month period ended July 31, 2007, net of the $139.6 million of write-downs, was approximately $344.1 million.”
From Reuters. “Home builder Beazer Homes USA Inc said on Friday it received default notices related to senior notes from U.S. Bank, the trustee for the notes”
“Independent credit rating firm Egan-Jones Ratings Co. said there was ‘blood in the water.’ ‘The delay in the 10Q filing is a concern,’ Egan-Jones said in a research note. ‘Beazer needs to provide answers on its credit strength soon.’”
“Beazer said on August 15 its delay in filing its third-quarter Form 10-Q was due to internal probes into the company’s mortgage origination business.”
From Bloomberg. “IndyMac Bancorp Inc., the second- biggest U.S. mortgage company, expects to eliminate about 1,000 jobs over the next ’several months,’ the Pasadena, California-based company said today in a statement. IndyMac also said it may report a third- quarter loss of as much as $36.8 million.”
“IndyMac plans to keep ‘prudently rebuilding our mortgage franchise which has been damaged as a result of the illiquidity in the secondary markets.’ The company eliminated all subprime loans except those it can sell to U.S. government-sponsored enterprises, it said today. IndyMac also ’substantially cut all other non-conforming products’ and curbed lending to homebuilders, according to the filing.”
“The tighter restrictions was necessary because of ‘panicked and illiquid markets,’ IndyMac said.”
From Barrons. “National City is hosting a conference with investors in New York today. In the first presentation it was indicated that the company would be taking a $200 million pretax charge related to its mortgage activities. The losses may continue into the fourth quarter, suggesting that earnings estimates for the fourth quarter are suspect.”
“The reason for the 2007 write-off in the mortgage division is that the bank has been unable to sell the subprime mortgages that it has put up for sale some months ago. Consequently, these loans had to be placed back on the bank’s balance sheet and written down.”
“The breakdown of the loans being reacquired is as follows: $1.6 billion of jumbo first mortgages; $1.2 billion of Alt ‘A’ firsts; $900 million of seconds; and 600 million of loans in the pipeline.”
The Telegraph. “Hundreds of estate agencies across southern Spain have gone out of business in a trend that experts say signals the end of a buoyant housing market that has fuelled the country’s economy over the past decade.”
“Many British owners of Spanish homes are now facing major losses with some experts claiming the property market is overvalued by as much as 30 per cent. During the last decade Spanish house prices have risen by more than 200 per cent.”
“At the height of the construction boom in 2005 there were 7,000 estate agents on the Costa Blanca but 300 have closed this year, according to Enrique Llopis, honorary president of Alicante’s College of Real Estate Agents. ‘It is a symptom of the property bubble bursting,’ he said. ‘Demand is 10 per cent lower than it was a year ago and people are having to sell their property for less than they hoped.’”
“Eisuke Sakakibara, Japan’s former top currency official, dismissed claims that the economy is still in deflation, saying recent declines in the consumer price index were because of companies lowering prices amid ’stiff’ competition.”
“Low global interest rates were the main cause of the recent financial-market turmoil, said Sakakibara, who is now a professor at Waseda University in Tokyo.”
“‘Central banks including the Bank of Japan should be blamed for the credit crunch,’ he said. ‘The monetary policy makers and investors enjoyed too much of excessive liquidity.’ Low rates are also leading to a house price bubble in Japan, he said.”
“Recent credit market turmoil has increased downside risks for the economy, but the U.S. Federal Reserve would refrain from taking action to bail out investors who made bad decisions, top policy-makers said on Thursday.”
“Financial markets have been clamoring for the Fed to cut its benchmark lending rate at its next rate-setting meeting on September 18. But Fed policy-makers were clear to state that the central bank was not in the business to bail out investors who took risks.”
“Speaking in New Mexico, Dallas Federal Reserve Bank President Richard Fisher put it bluntly: ‘The job of the Federal Reserve is not to bail out risk-takers: You’re a big boy, you take risks, you bear the consequences.’”
The Courant. “Bruce Rose wasn’t taking meetings Thursday - at least not with the likes of Patricia Bullon, Al Ynigues or Christine Wright.”
“The three never got closer to the president of Carrington Capital Management than the sidewalk outside the hedge fund’s offices, where about 12 police officers monitored 50 or so people protesting the way the company is handling mortgages.”
“‘The CEO, Bruce Rose, has told us that if anybody asks, he is not coming out, nor are any of his employees,’ Greenwich police Sgt. James Marr told the protesters.”
“So there they stood in the hot sun for nearly two hours, shouting ‘Predatory Lenders, Criminal Offenders!’”
“The scene in Greenwich was an unmistakable sign of the collision between two powerful and unwieldy economic forces - the mortgage lending crisis and the rise of the hedge fund industry.”
The Connecticut Post. “Cindy Jenereaux, VP of ING Real Estate, said she called the police because she wanted to protect her company’s property from the busload of protesters who gathered Thursday on West Putnam Avenue.”
“The protesters said they came to ING’s property for the same purpose, protecting property, because one of ING’s tenants, Carrington Capital Management, is kicking families out of homes across the country, including in Bridgeport.”
The New York Times. “Even when Leon Maldonado was getting his real estate license three years ago, he saw that the red-hot housing market in San Diego was beginning to cool. But he decided to forge ahead.”
“Now, as the housing market slows to a crawl, those new agents and a good number of more established ones are looking for other employment.”
“‘When I tell people I got out, everyone understands,’ said Mr. Maldonado, who now collects a steady paycheck, from a health care staffing company. ‘It’s the best decision I ever made.’”
“‘It’s a perfect storm for real estate agents,’ said Glenn Kelman, chief executive of an online brokerage in Seattle. ‘Not only have unprecedented numbers flocked to the profession, but at the same time you have the mortgage meltdown, the housing bubble bursting, and online competitors attacking the commission structure.’”
The problem for most of these realtors is that their next best option is going to be so much less lucrative than what they were earning at the peak. I work in software development, and I get resumes once in awhile from former developers or testers who got out of the industry five years ago to become an agent or mortgage broker and now want to get back in-it looks terrible first of all, that they ditched their profession for something so dumb, but also their skills are now so out of date and practice that they basically look not much better than entry level, and in some ways worse, because that is probably a kid right out of college.
A lot of them will apply for sales jobs, but their experience really doesn’t transfer to selling something like pharmaceuticals or business equipment where you have to manage a client base for the long-term, not basically babysit a transaction. These realtors who may have been in six figures during the boom are in for the biggest wake -up call when they find out what their next best option is.
Also, most of the realtors I know who did well were very noveau-riche in their attitude toward money. I think a lot of them had had mediocre careers until that point (why else to jump into that) and finally felt they had hit it big, blowing cash on high-end cars, going to all kinds of stupid $500 a plate charity dinners to rub elbows with the class of people they now believed they were part of, etc, I don’t feel that most of them probably have a big nest egg built up. Also they were some of the biggest investor in crap real estate-often “scooping” new “hot deals” on the market before it got on the MLS, etc.
Very excellent post. I think some of the old timers are in pretty good shape. A lot of money was blown in this sector.
“Also, most of the realtors I know who did well were very noveau-riche in their attitude toward money.”
Sadly, that statement applies to most people, even those who haven’t done so well over the past several years.
Yeah, and don’t doubt that a lot of them have investment properties loaned out on stated 30k/month incomes… and probably they were actually pulling down that kind of money.
So it’s not just a matter of getting by on what they make now, it’s a matter of surviving a gang-bang of huge hungry alligators. I’m happy being on the other side of that cage.
“I get resumes once in awhile from former developers or testers who got out of the industry five years ago…”
Better watch out t-bone, some of these folks are going to end up being your bosses. Who would I hire, somebody with experience and the guts to try something different (in sales: where most developers lack skills) , or some snotty nose kid who thinks he knows everything?
In my experience, the snotty nose kids tend to be a lot more enthusiastic and willing to learn while the more experienced job-hoppers tend to be more inflexible in thought and established in their method (”When all you have is a hammer, all your problems look like nails”).
To be honest, building relationships with professors at nearby colleges and snatching up “the best of the best” before any job-fairs happen has been our best hiring strategy by far. In that same vein maybe I give the kids in general too much credit since the only ones I meet have already survived being weeded-out by both their peers (whom we’ve hired) and professors (who don’t pull punches).
I get your point…I know a former tech program manager who has been working in RE for a while that would be worth hiring back into tech. In most cases though the “experience”, “guts”, and “sales experience” I’m imagining would only get them hired into management in the least desirable of tech companies to work for, where they will proceed to somehow find a way to make it even worse.
It’s giving me Office Space flashbacks just thinking about it…if t-bone is a good employee that makes money for the company, the big boss had better be cautious about hiring the “experienced” and “gutsy” Mr. Smooth to manage him, or t-bone will shortly be making money for somebody else instead.
I’m not against someone trying something cool, like if they went into teaching math at an inner-city school, or tried to start their own software or business services company, or went and taught English in Japan for a couple of years. But giving up your career as an engineer to become a RE agent? What kind of real interest or commitment could you have had to your profession? I’d rather take the kid who just finished an EE degree.
I was reading on Broker Outpost recently about mortgage brokers’ “other jobs”. One was dismayed to say the least to learn that someone else had taken a waitress job. I forget what the exact quote was but it was something like, “With our experience handling clients and deals we should be able to run just about any company out there”. That has stuck in my mind because it makes me laugh & it makes my blood boil. But it seems typical of the attitude…
I have a friend who became a RE agent about 3 years ago. She had a couple good years, but is now struggling. She was complaining to me about the $730 per month her leased Lexus is costing her, and she has another 2 years on the lease. Ouch.
There was a rumor the fed was going to cut rates at 2 EST. When that didn’t happen, the bottom dropped out.
rumor?
thats a shill for the bankers bid.
Utterly laughable the way the talking heads and their guests on CNBC are screaming for a 50bp rate cut like it’s their G-given entitlement, when they’re the ones who got us in this mess to begin with.
Im begining to think a two part move may be in order, quarter point cut, lower the reserve requiremnts, lower the discount window even more….
F*ck it…..pull all the levers and push all the buttons….
There’s nothing to lower the reserve requirement to. The Fed surrendered that, their most powerful tool, years ago. The bankers hated the idea of non-earning financial assets.
FFR cuts are priced in already, as the Fed seems to be the only entity which is still in doubt as to whether rate cuts are on the way. Too bad for the Wall Street cargo cult that rate cuts are already priced in.
It will be interesting to see what the Fed does at the next FOMC meeting. I’m betting money on a 50-basis point reduction that will spark a HUGE rally, at least for a few days until it becomes obvious that the Fed is panicking because they’re behind the curve and have lost all control of financials (not that they’ve had any lately, except through expectations management).
We certainly live in interesting times.
Interestingly, CHC Helicopter (FLI) stock spiked on that rumor, and shortly after 2pm, started falling back to earth.
Hey look, I’m just sayin.
I’ve finally decided what I want to do with my life..after seeing all the economist from this morning who SWORE the job report would show an increase(Hmmmm..guess they never took in consideration all the layoffs)..I want to be an economist..
Turns out I never understood any of that crap when I was in college and I would have been perfect for the job…anybody hiring …I want to get paid top dollar like the rest of the idiots..to talk out of my #$$!
IndyMac also ’substantially cut all other non-conforming products’ and curbed lending to homebuilders, according to the filing.”
Are you kidding me….They have finally stopped lending money to HOMEBUILDERS! This is pathetic. The inventory numbers have been rising for over 1 year, and they finally think it might be time to stop builders from building more homes. And these same mental midgets advertise financial advice for their depositors. Here comes another RTC to bail out these stupid banks. Disgusting
“IndyMac ………which has been damaged as a result of the illiquidity in the secondary markets.’
“The tighter restrictions was necessary because of ‘panicked and illiquid markets,’ IndyMac said.”
What Bull sh*t. They were damaged because they brokered loans for people who had no means of making the payments, and now their paper is considered toilet tissue on the street.
This has nothing to do with ‘illiquid’ markets, and it has everything to do with the consumers of their paper deciding they don’t want to be the bagholder anymore.
The RTC didn’t bail out any banks. It took over the assets of the banks (Savings and Loans) that were closed down by the FHLBB/OTS. The bailout was of the FSLIC which did not have the resources to pay off the insured depositors at all of the shut-down S&Ls (about 1,000 institutions, both stock and mutual).
Bad news this Friday on jobs, homebuilders, and credit. By Monday, all will be forgotten.
Spend on!
By Monday..the news will be ready for another week of CHAOS!
Bloomberg is reporting that a “sizable fraction” of ARMs are tied to LIBOR, which is now 100 bps higher than the FFR. It doesn’t show the chart though.
Link
Aw, shucks.
“Cindy Jenereaux, VP of ING Real Estate, said she called the police because she wanted to protect her company’s property from the busload of protesters who gathered Thursday on West Putnam Avenue.”
Bring on the pitch forks!
That cracked me up, protesters marching around a hedge fund office!
When I lived in Pittsburgh during the early 1980s, there was a group of protesters who distinguished themselves by crashing the church services of the well-to-do. The protesters were unemployed blue collar types who weren’t too happy about the decisions that the people attending these churches had made.
While there was a certain amount of cluck-clucking about the “out there” tactics of the protesters, there are was a lot of sympathy for them.
We’ll see more of this. It reminds me of a strategy a Bronx non-profit used against a sleazoid who was running hot-sheet hotels and strip clubs in the Bronx, patronized by people from tony Westchester, while living in tony Westchester. They got busloads of Bronx residents to protest at his house, Bronx residents of a different skin tone than the neighbors were used to seeing.
This created heavy pressure from the neighbors for him to cease and desist from his activities.
This is seriously funny, ACORN organizing street action in Greenwich, Ct. The folks there must be just thrilled. If there’s anyone those hedgies don’t want to see in the flesh, it’s those subprime serfs. And these Carrington guys own 100k subprime mortgages. Guess they didn’t plan on the peasants showing up in their ‘hood.
I don’t much like ACORN, but I am starting to think we lost something in this country when Sam Adams’ more vigorous methods of dissent passed into history.
Any public official who doesn’t entertain at least a subtle fear of being tarred and feathered is a potential tyrant.
I think it’s a very good thing.
These funds are leveraging investments that are collections of investments consisting of other investments. There are so many levels of it that no one really knows what they are investing any more, its all abstract theories and computer models.
Hence, no one sees how ridiculous it is to make a hugely leveraged bet based on the assumption that housing prices never go down.
Get some people out there throwing rotten vegetables at them and maybe they will take five minutes to sit down and connect the dots and figure out what exactly it is they are really trading, what the effect of that is on the overall system, and what effect it has on the lives of everybody around them.
Ah, who I am kidding… it’s not ignorance, it’s willful denial. But hey, at least they still get crap thrown at them.
My family has been in farming for generations in the midwest,and my grandfather told me about repo auctions during the depression. Some farm would get reposessed, the auction would be announced, and all the farmers in the area would show up and basically harass all of the “suits” who showed up to bid. Like some huge farmer would walk up to one of these banker types and tell them if he bought it, the buildings on it would get torched, all the equipment wrecked, no one in the county would work it, if he brought in sharecroppers they’d get their ass beaten, and he’d finally have to sell it to a local for pennies, and it’d go right back to the family that lost it. All these bidders would cruise, a local would bid a super low amount, then give it back to the original family, screwing the bank.
Wonder if you’ll start to see riots or other mayhem at foreclosures, where you will have all of a family’s friend’s neighbors and relatives jammed in the house, refusing to come out for days in some standoff that the local media will be all over.
Problem is that a huge number of these foreclosures are investor properties, many of whose investors bought multiple houses. They can’t very well barricade themselves in three houses at once. As for speculators’ “friends, neighbors, and relatives,” they’ll probably be running away from Mr. FB Speculator as fast as their legs will carry them.
That was a little house on the prarie episode. The Ingalls lost the farm, and the townsfolk barracaded the road from the city, and bought back the whole thing for like 20 bucks, and then gave it back to the Ingalls.
Wont work today, what with the reserve auctions, and the shill from the mortgage company bidding it up.
‘Course it will. All you have to do is bribe someone on the inside of the mortgage company to “out” the shill, and get Big Bad John to grab him on the way in and lock him in a broom closet for the duration of the auction.
Shares of Hovnanian Enterprises Inc. fell Friday after the luxury homebuilder reported it fourth conscutive quarterly loss and said it would slash prices on homes across the country beginning late next week to try to sell off excess inventory.
Shh. Listen. Did I just hear a shoe drop?
Price is no longer an issue…
Used to be~
Had a discussion with a lady that wants to sell her house in Queen Creek (40 milies outside what was the edge of PHX 7 years ago). Complained she couldn’t compete with builders that were “giving them away”.
If she thinks they’ve been giving them away the last few months, she should be shocked by what they’ll be giving them away for in the very near future.
said it would slash prices on homes across the country
I don’t understand this. Countless “journalists’ and REIC bobbleheads have assured me over the last 2+ years that this was impossible. They all insisted that homebuilders would *never* slash prices out of fear of offending previous buyers and equity-loving neighbors.
Putting business interests ahead of FBs’ delicate feelings –how is this possible? (_snicker, snicker_)
“At July 31, 2007, the fair value of the inventory in the 28 current communities and owned land subject to write-downs in the three-month period ended July 31, 2007, net of the $139.6 million of write-downs, was approximately $344.1 million.”
Am I reading this right, that fair value of Toll’s inventory was $483.7 million, and is now 344.1 million, a 29% haircut already??
Just a personal anecdote:
We were at some good friends’ house last night. (This is in a bedroom community of Nashville, TN, where the bubble mostly missed.) The homes in the neighborhood range from $800K to $3.5M. (Realize that $800K in TN will get you about 6000 sq feet, 1/2 acre or more lot, swimming pool, and the finest in cabinetry and finishes. An $800K home would likely go for about $4M in LA).
Anyway, the friends commented that about half of the homes in the neighborhood were vacant and even the neighbor was being pushed out due to overextending their spending on a house. The remaining neighbors get together monthly to have parties, and more than half of the homes are sparsely furnished at best - many rooms without furniture at all. Our friends were unsure of exactly what was unfolding, but they could see the symptoms with their own eyes. (Thank goodness that they are extremely well-prepared for this.)
Another friend was there that asked me what I thought he should do with his business. My comment “Tighten up - run lean and mean - you are going to need the extra cash soon enough.”
Was I off base?
When I was growing up, not having enough furniture to fill the house was a major “living beyond one’s means” red flag.
Everyone starts out house-poor, so I’m not sure I agree. However, here in NYC there is enough used stuff around (and stuff inherited from relatives) that it was never an issue.
I would say that the bubble didn’t miss it ,they missed and are still currently not getting the bubble..if half the homes are empty and current homeowners are being squeezed…me..I would tell them to get out, consolidate and otherwise…PRAY!
Guy behind me is a real estate agent. He’s trying to sell his house after living in it for just one year. It was purchased in an all-cash deal early in 2006. I suspect that the “all-cash” was actually a parental HELOC, as the young man was still a college student when he moved in.
House is on a flag lot, which means that it has no street frontage. And, for the first three months, he had the “for sale” sign posted in his front yard. A little hard to see from the street. And, guess what, no buyers.
During July, he had nice-looking wooden window shades installed. He also had a landscape company in to spruce up the front yard. Good thing, as the bermuda grass from his yard had been sending runners over here for quite some time.
Well, the landscapers weed-eatered the bermuda grass down to the ground, then dumped crushed rock on top. Bad move. The monsoon season cranked up a few days later, and boom! the bermuda grass came back with a vengeance.
In late July, I had a handywoman in to do repair work on my fence. Her work was loud enough to bring the Real Estate Genius running outside. Once he was satisfied that she wasn’t invading his space, he started asking her about getting rid of grass.
She found his questioning to be quite odd. She also found the bermuda grass to be quite lush. ‘Twas coming up through the crushed rock, which proved to be no deterrent. When we settled up on the bill for her work, I told her the asking price of the property, and she laughed. “Way too high” was our consensus.
A few days after the handywoman’s visit, the “for sale” sign was moved out to the street. Still there, in fact.
A couple of days ago, I saw a little U-Haul trailer behind a car that looked like the same one that our resident Real Estate Genius drives. Was it him moving out? Might be, because I’ve seen no signs of life back there.
I’ll keep y’all posted!
Atlanta-based Beazer in a press release said the notices allege the company is in default because it has not yet filed its quarterly financial report with regulators for the period ended June 30. The notices allege the defaults will become events of default if not remedied within 60 days, Beazer said.
The company said it does not believe it is in default and the notices are “invalid and without merit.”
Same thing happened to my neighbor. They got their NOD on August first. They told me they don’t believe they are in default and are not moving.
Sounds like there is a contagious disease that involves people getting told they need to pay up but the they don’t believe they need to do it.
NIH and CDC have been tracking this new disease that they now call “subpriminitus”.
Denial is not a river in Egypt.
Peter Schiff argues it’s too big to bail:
On the low end, any comprehensive government bailout would easily surpass the $1 trillion mark. Where will the Federal government get the money, particularly during a severe recession?
http://www.howestreet.com/articles/index.php?article_id=4684
Really good article Market_maven. Boy, this guy doesn’t hold back any punches.
To all on this blog, I have been reading this blog EVERY DAY for the last 2.5 years +/-. Thank you Ben - and everyone for the great education and validation. I don’t feel like the doom and gloom crackpot some take me for when I’m around you guys.
I’d like to recommend a weekend topic of what price and area people are going to buy in. What are they going to consider a buy signal and what will make them hold off.. I think I’m going to get a condo in maimi, downtown san diego, and vegas for vacation rental biz.. maybe even a home in costa rica once they dry up like a dead dog.. the condo’s would have to be buy one get one free for me to jump.. I think if they want to move property they will get better action that way.. one to live in and one to rent. Can it get that bad.. yea still have copper mountain stock at 1.30 vs. 120 a share.
We are in the second inning of a perfect game.. the only thing that can keep it from a perfect game is the kool aid buyers diving in front of the fast ball!
‘…Not only have unprecedented numbers flocked to the profession, but at the same time you have the mortgage meltdown, the housing bubble bursting, and online competitors attacking the commission structure.’”
523,000 real estate agents in California…there will be just enough for each one to sell x1 foreclosed property in the next 12 months…next… the business lunch hour…hope the staff isn’t counting on tips to cover the increased HELOC payments.
This may be be a dumb question - but do arms ever adjust “down”?
I realize that most (even prime ones) are designed to spike up at least a couple points after whatever the fixed period is no matter what the current market condition (or index used) — and I would guess that they are also set up to be sticker on the way down.
Just curious. Happily, I’m not an arm-holder myself.
Yes, and they did so throughout the period of short term interest rate declines that ended about 2004. Just remember that ARMs have a floor rate through which they can’t fall (they also usually have a ceiling: the FNMA/FHLMC ARMs all have caps).
Certainly! I had an ARM in the mid-’80s when fixed rates were double digits. As inerest rates fell the ARM stepped down every year until I sold the place.
My family has been in farming for generations in the midwest,and my grandfather told me about repo auctions during the depression. Some farm would get reposessed, the auction would be announced, and all the farmers in the area would show up and basically harass all of the “suits” who showed up to bid. Like some huge farmer would walk up to one of these banker types and tell them if he bought it, the buildings on it would get torched, all the equipment wrecked, no one in the county would work it, if he brought in sharecroppers they’d get their ass beaten, and he’d finally have to sell it to a local for pennies, and it’d go right back to the family that lost it. All these bidders would cruise, a local would bid a super low amount, then give it back to the original family, screwing the bank.
Wonder if you’ll start to see riots or other mayhem at foreclosures, where you will have all of a family’s friend’s neighbors and relatives jammed in the house, refusing to come out for days in some standoff that the local media will be all over.
I dunno, were I to be in that situation (able to buy farms at pennies on the dollar in bulk), I’d probably just hire armed private contractors (which these days == ex-military security companies) to shoot trespassers on sight. I don’t care how big you are, a high caliber round will drop you.
But, yes, I too wonder how long before people who feel they’re entitled to their houses start doing crazy things.
I’d probably just hire armed private contractors to shoot trespassers on sight.
Disgusting.
How would you like to be the sheriff that kicks people, out of their homes… upon foreclosure?
I suspect we will be hearing from local law establishments soon about how they don’t think this isn’t part of their job description and would like somebody else to do the act.
These type of comments are part of the reason the MBS securities market is dead. what’s around the bend is what scares the hell out of the investor class.
Just the workload alone will kill them in some parts of the country-they will have to hire more deputies just to handle it, and guess what, when you have a county with 25% of the houses in foreclosure, the property tax money is not really there for that. Plus, when you have a subprime neighborhood that goes to hell all at once, that’s not a place where you send just one guy out and figure the family will listen to reason. The police are hated enough as it is.
Slash prices…now that is a nice verb to hear again. So any bets on how long until the other builders all start down this road?
MoT Test
Left Right
Left Right
Knee to the head
Knee to the groin
Left Right
End.
You forgot the…
Boot to the head
“The breakdown of the loans being reacquired is as follows: $1.6 billion of jumbo first mortgages; $1.2 billion of Alt ‘A’ firsts; $900 million of seconds; and 600 million of loans in the pipeline.”
Read link. Something wrong. When did Alt A become subprime?
Data point from the Palm Springs area. Know a small developer who has done quite well the past few years. Has about 10 homes for sale currently, and none are selling. Only offers are extreme lowballs (>50% off, and give me a car, too, etc). These are not high end homes, probably list for 300-400K, which is nice but modest for the area. So, it seems the average joe in CA is now well and truly aware of the distress in RE market. I think those 50% off offers are actually pretty close to fair-market value.
So, it seems the average joe in CA is now well and truly aware of the distress in RE market.
Maybe in zombified markets like the high desert & Inland “Empire” (of dirt), but most Kalifornicators are *still* under the influence of some pretty string stuff where I’m at (Pasadena/L.A.). Some modest reductions (5-10%) off peak 2005 prices, but most listings still reflect a Kool-Aid mindset. We have a loooong way to go here before the “bargaining” or “anger” phase really sets in here, much less “depression” & “acceptance”.
Wall street so happy now, a housing crunch which of course leads to job loss of loser loan officers, and crooked RE agents, and bank appraisers, so now the Fed is suppose to ride to the rescue cut rates a little and all is well the cancer will be gone, hardly???
“So there they stood in the hot sun for nearly two hours, shouting ‘Predatory Lenders, Criminal Offenders!’”
I would form my own picket of THEIR picket, shouting “Idiotic Buyers, Mortgage App Liars!”
On both ends of the spector this was fraud from everybody but let me leave you with this, not a police officer worth his salt that doesn’t call in your licence number for wants and warrants, it was just as easy for the loan officers and agents to check a loan app to see all was well?
Credit Crunch and Private Equity.
“White smoke may soon be emerging from Kohlberg Kravis Roberts’ headquarters on 57th street in Manhattan.
The private-equity firm and its banks continued to work feverishly on terms for the loans that will fund its $26 billion buyout of First Data. According to the Financial Times, KKR may accept greater interest rates and some covenants on the payments processor’s debt to help the banks draw investors to the paper.
The addition of covenants could be important because the banks — Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Lehman Brothers and Merrill Lynch — are committed to funding the deal if investors won’t, and KKR is notorious for taking a hard line with its lenders. The financing consists of $16 billion in loans and $8 billion of junk bonds.”
http://blogs.wsj.com/deals/2007/09/07/crunch-time-for-kkr-first-data-banks/
I read on Seeking-Alpha that ARMs were not the only problem. The number of negative-amort (NA) and interest-only (IO) loans in the past three years were going to cause a lot of homeowners to go belly up.
http://seekingalpha.com/article/46644-negative-amortization-and-interest-only-the-next-mortgage-bomb
Here’s my question. Are these loans not usually one and the same as the ARM loans?
I would have thought that most IO and NA loans would be ARMs, requiring a reset at some point. Could it be that a good percentage are fixed? We could have a second round of tsunamis if that is true.
Could somebody please clarify this situation. Thank you.
An ARM loan is one where the interest rate floats. If the loan is fully amortizing then the payment will change as the interest rate changes. IO and NA are terms that reference the payment only. An ARM can be full-amort, IO, or NA. An IO or NA can have a floating interest rate or a fixed interest rate. If fixed, the term usually is 5 years but some go out to 10 years.
Most financial writers, like nearly all “reporters,” don’t know much about what they are writing. Plus, they usually have poor writing skills. Writers who use the terms ARM and IO/NA in the same article should be specific and distinguish between fully amortizing ARMs and IO/NA ARMs. If they don’t, they simply confuse knowledgeable readers like yourself, and more importantly, fail to convey the relevant information that’s the heart of the story.
If the writer is a PR person for the holders of the instruments then beware. The press release may be hiding something in the guise of disclosure.
Thank you! You helped substantially in my understanding.
I wish we would have a clearer picture of how many IO and NA loans are not ARMs, because those loans are also likely to be toxic.
Housing was the last bubble the government could inflate. What is left? Reality.
I have watched this unfold the last 4 years. Family members thought I was crazy. They called me names. Now the worm has turned. In all honesty I would have preferred being wrong. The pain people will experience will be intense.
Hopefully the ensuing fallout will force our fellow citizens to understand debt.
“Housing was the last bubble the government could inflate. What is left? Reality. “
Your almost right, they will create a bubble out of Realty TV shows, where everyone will be a contestant and make money by being on TV. Your 15 minutes of fame is here.
haha, they could slice up all the reality TV shows and make half-hour episodes that show 5-second clips. People on antenna TVs would only get to see the crappiest clips, basic cable folks would get slightly more entertaining clips and the premium cable subscribers would get to watch the best of all.
And having watched it, they would all decide they’d wasted their time equally.
I hope you are right that they learn about debt. Now they can live in crappy little apartments like some of us had to while saving up our downpayments.
“””“The company eliminated all subprime loans except those it can sell to U.S. government-sponsored enterprises, it said today. “””
Oh Great!!!. I as a taxpayer will get stuck holding the bag!
The GSE’s won’t be buying anything, foreigners just stopped buying their junk. Rumour is China is buying gold instead.
http://www.reuters.com/article/marketsNews/idUKNYD00007420070906?rpc=44
Sept 19th, the market goes nuts the Fed comes thru and the investors take their profit and run Sept 20th to deposit it in foreign banks. Down the road the subrime fiasco gets much worse, the wall street boys say after they cashed out, “well looks like the fed cut isn’t going to do it i guees we need a need the fed chairman to resign and a new game plan.”
“buyer psychology has been negatively impacted by a steady stream of news related to falling housing prices”
———————————-
How Orwellian (read the book 1984) are their quotes getting these days?
Let’s see… as a buyer, am I negatively impacted when I have to pay lower prices, or am I positively impacted by the thought of paying lower prices?
Ok, so I am still in the universe of qualified buyers as i have enough $ in savings and from selling my house back in May. But I am terribly afraid to buy right now - asking prices around here are still pie-in-the-sky. In July I made an offer on a house - 3% below their (reduced) asking price (dumb, I know - should have offered 30% under). The sellers refused my offer and another couple came along and offered them full price for it, plus agreed to allow the sellers to live in it rent-free after closing until their new house was built (suckers!). What gets me is their listing agent said the sellers “didn’t feel I loved their house enough”. WTF. Anyway - even if I do find a place I like for a reasonable price, I’m hesitant to buy unless the neighborhood is full of long-term owners and not going to turn into a ghost town of foreclosed houses.
First the !@#$% subprime madness let meth-cooking white trash “buy” the house next door to me. I don’t want to end up living next to FBs in soon-to-be foreclosed houses that will either become overflowing with roommates to help them make the payments, or squatters after the FBs are evicted.
Those sellers did you a favor in the long run. At tleast they didn’t ask you to feed the squirrels. At some point the white trash will go back to the trailer they crawled out of. Depending on where you are, it may be sooner rather than later.
so dont buy.
Calvin & Hobbs take the time machine back two years, fires up their computer, and find this piece of investment advice:
Toll Has Pricing Power Built In
By Jim Cramer
RealMoney.com Columnist
5/26/2005 11:52 AM EDT
Toll Brothers(TOL:NYSE) BULLISH
Price: $90.54 | 52-Week Range: $37.10-$91.19
Toll Brothers has shown this quarter that it can raise prices for its homes and still maintain strong demand.
This isn’t mentioned when people talk about a housing bubble, nor is it ever considered that Toll may be underpricing.
Toll may not be the ultimate long, but it remains a lousy short.
Position: None
If you want to see who has pricing power, if you want to know who can raise prices and still have them stick, go no further than this quarter from Toll Brothers (TOL - commentary - Cramer’s Take). This is a quarter that is all about raising prices and still having tremendous demand.
We spend a huge amount of time debating the housing bubble in this country and not enough time talking about pricing.
Toll Brothers seems able to raise prices at will. Obviously, this development is not what the Federal Reserve wants to hear. But the average Toll Brothers house, currently priced at $641,000, definitely can trade higher without discouraging demand.
In fact, I think that Bob Toll has some serious pricing decisions ahead of him. When I see the backlog, when I see the demand, I begin to wonder whether Toll is pricing his homes too low! Maybe they need to be higher to capture more of the earnings here. Could he be underpricing?
Hey, we all make mistakes don’t we? Apologies to Jim for picking on him, but we disagreed about this then, and I couldn’t convince him at the time. Oh well…….