Surge In Exotic Mortgages Created An Artificial Demand
The Star Tribune reports from Minnesota. “Banks are foreclosing on three condominium projects in downtown Minneapolis, adding to the growing list of canceled or postponed condo developments. Each of the three projects being foreclosed on has its own set of issues, but the deteriorating condo market appears to be the common backdrop.”
“Minnwest Bank M.V. is in the midst of foreclosing on one completed and another proposed condo project. The Minnesota bank recently was the high bidder at a sheriff’s sale of Mill Trace Condominiums, a 50-unit project that was developed by Niles Schulz of Dolphin Development.”
“Schulz said the problems are due to sluggish sales, with only 16 units sold so far. ‘We think we’ve corrected that problem,’ he said, with the installation of a new sales team.”
“Mary Bujold, president of (a) Minneapolis multifamily housing consultant, said she does not believe that foreclosures will become a widespread problem with area condo developments. Unit owners in developments that are foreclosed typically aren’t affected much unless they want to sell their units quickly, she said.”
“That’s because foreclosures usually result when developers have failed to sell enough units to repay their construction loans. ‘Obviously, it’s going to be more difficult to obtain financing [to buy a unit] if there are a lot of other unsold units in the building,” she said.”
“Bujold said it’s likely that the soft market will cause more developments to be put on hold. That already has happened, with some projects canceled altogether and others redrawn to eliminate or reduce the number of residential units planned.”
The Star Phoenix from Canada. “Saskatoon’s real estate market is showing signs of stability after an $11,000 drop in the average price of a home from August to September.”
“As homeowners put their properties up for sale in preparation for a move to a new home or condo, people looking to buy have a larger inventory of houses to choose from, easing the rush to purchase and lowering prices, said Harry Janzen, executive officer of the Saskatoon Region Association of Realtors.”
“September’s average price was 49 per cent higher than what was seen in September 2006, rising to $242,091 from $162,116 last year, Janzen said.”
“‘With more listings available, people can go about their business in what we would call more of a normal fashion.’ he said. ‘Right now we’re hoping, and we’re always hoping, that a levelling in the marketplace will take place and that’s certainly what seems to be happening.’”
“Sales in the rural residential sector saw a 28 per cent drop to 63 sales from 87 in 2006. While the average rural residential selling price reached $209,494 in September, up 51 per cent from $138,550 in the same month last year, Janzen isn’t sure why sales are off outside of the city.”
“‘We’re not quite sure why that is, outside of the fact that there’s a little less demand for the rural residential and certainly demand for city residential property remains high,’ he said.”
“‘From an industry perspective we’re happy to see that the average sale price isn’t going that much higher because it will certainly allow us to create a stability in the marketplace and not have to worry about some of the sustainability issues that might accompany a steady increase in the market,’ he said.”
The Calgary Sun from Canada. “Calgary house prices sank $10,000 last month, the fourth decline in a row as inventory jumped and sales slumped, according to statistics.”
“The median price of homes fell to $420,500 last month, down from $430,000 in August, said the Calgary Real Estate Board. Yet, despite the falling prices, CREB president Ron Stanners said city home prices are still higher now than they were last year at this time.”
“‘The market place is very good right now, but it has slowed down over the last three or four months,’ said Stanners. ‘It’s beginning to move more towards a buyers’ market but even still, sellers are still getting much more today than they were this time last year.’”
“The number of single-family homes on the market jumped 5.15%, but sales slipped 19.03% in September from August, CREB figures say.”
“The pattern was identical in the condominium market, where more supply and fewer sales also resulted in more affordable prices. The number of condos going up for sale in September increased 10.88% over August, while there was a 12.66% decrease in units sold.”
The Canadian Press. “There’s still plenty of room for ‘exotic’ mortgages to grow safely in Canada’s real estate sector, despite the U.S. subprime meltdown, says a senior economist.”
“The U.S. is in a mortgage crisis because of an overuse of atypical mortgage products, many sold to subprime, or high-risk, borrowers, Benjamin Tal of CIBC World Markets said Monday in a report. Exotic mortgages include those with low introductory interest rates, interest-only payments, and amortizations periods of up to 40 years.”
“‘It’s true that the surge in exotic mortgages since 2004 created an artificial demand in the housing market south of the border, and was primarily behind the current mess in the subprime space. A sharp deterioration in underwriting standards in those years and extremely easy ways of passing on the risks were the main catalysts there,’ said Tal, noting neither of the two latter factors is an issue in Canada.”
“Borrowers with poor credit histories hold 20 per cent of the U.S. mortgage market, whereas subprime borrowers represent only five per cent of the market here. That means there is still space for unusual products to evolve without the market imploding here, Tal says.”
“Tal wrote his report in response to recent comments by Bank of Canada governor David Dodge, who said certain mortgage products, such as loans with long amortizations, have overheated the real estate market. ‘And who can blame him, given the experience south of the border?’ Tal wrote in his report, which he called ‘Dodging Innovation.’”
“‘Not only are mortgage innovations important to a normally functioning market, but their role in Canada should, in fact, grow over time. Those new products are largely about serving under-served populations through more effective market segmentation and niche marketing,’ Tal wrote.”
“Alternative lenders in Canada include companies like Home Trust, operated by Home Capital Group Inc., which targets low-income applicants who are still often rejected by banks, such as new immigrants without a credit history, and the self-employed.”
“‘Limit mortgage innovation in Canada, and you shut out those fast-growing segments of the population from the housing market,’ Tal wrote.”
“But Vince Gaetano, a senior consultant with MonsterMortgage.ca…pointed to teaser products, such as CIBC’s ‘better than prime mortgage,’ which offers a introductory rate of 1.01 per cent below CIBC prime (now 5.24 per cent) for the first nine months and a low 0.25 per cent below CIBC Prime rate after than for a five-year term. Overall, that works out to 5.88 per cent interest on a five-year term, which is a discount of only 0.37 per cent below prime.”
“‘That marketing ability to entice people with teaser products makes the banks more money,’ Gaetano said. ‘There’s an associated cost with these exotic products that is cost-prohibitive.’”
“And while Tal has dismissed suggestions by Dodge that amortization periods of more than 25 years, reflected in 40 to 50 per cent of new mortgages taken out in the last year, are a major driver of inflation in the Canadian real estate market, Gaetano agrees with Dodge, noting the average mortgage extended by MonsterMortgage.ca has jumped from $250,000 to $315,000 in two years.”
“‘It pushes people into brackets where probably, they shouldn’t be,’ Gaetano said. ‘They’re just extending themselves to as much as they can afford. There seems to be a lot of people over-buying. They’re saying: let’s skip the starter.’”
“As for longer amortization periods, the 40-year-amortization has been available less than a year, Nick Kyprianou, chief operating officer of Home Capital Group, said they are creating ‘better affordability.’”
“‘They added a little more legs to the market,’ Kyprianou said. ‘People who couldn’t get into the housing market now can,’ he said, adding owning a home results in forced savings.”
‘As for longer amortization periods, the 40-year-amortization has been available less than a year, Nick Kyprianou, chief operating officer of Home Capital Group, said they are creating ‘better affordability.’
‘They added a little more legs to the market,’ Kyprianou said. ‘People who couldn’t get into the housing market now can,’ he said, adding owning a home results in forced savings.’
IMO, one of the most interesting things about chronicling the housing bubble has been seeing the same trends happen at about the same phase, in completely different areas. Remember how everybody was talking about 40 and 50 year mortgages in California right before the turn?
‘They added a little more legs to the market,’ Kyprianou said. ‘People who couldn’t get into the housing market now can,’ he said, adding owning a home results in forced savings.’
That assumes that you’re actually PAYING on the principal, not just the interest. And, that also assumes that you don’t have a negative AM loan, and aren’t even making the IO payments.
Frankly, for many people who bought towards the peak a home is a “forced spending plan” not a forced savings plan. They are unable to even cover the interest payments, and just fall further and further behind every month.
Same old story - prices start rising, people can’t afford the house with 15/30 fixed rate mortgages. Cue lenders dangling loans with teaser rates - tools for speculators marketed as affordability tools. The terms become more exotic, culminating in the negative amortization loans, wait 24 months, and watch your credit market implode. The wait for a government bailout of the lending industry because it’s too big to fail.
Rinse, repeat.
Loans with teaser rates or negative amortization loans should be regulated like machine guns.
Doesn’t matter the country… scoundrels are scoundrels, with the same old arguments. The monthly payment difference on a 40-year vs. 30-year mortgage is next to nothing - but the extra ten years of interest are a killer. Forced payment, not forced savings. Buy now or be priced out forever.
Forced payment, not forced savings.
Exactly. Figuring out how being a homedebtor for an extra 10 years results in any “savings” is maxing out my relator shill-speak decoder ring.
i have one thought.
Let’s be straight forward about this. We both know you are not going to outlive this mortgage. Your kids will inherit it.
But by that time, it will be paid down to almost nothing and you’ll be providing them with a wonderful home at practically no cost!
And you do care about your children’s future, don’t you?
I don’t want to be rude, but …
Assuming a constant interest rate (say 6.4%), balance (say $100,000) and looking at 30, 40, and 50 year amortization periods, the principal remaining after 30 years is $0 (logically), $51163, and $75193 for the amortization periods respectively. That is, after paying for 30 years on a 40 year mortgage, you have not even paid off half of the principal. On the 50 year mortgage, you will not have paid off even 25% of the principal. The mortgage payments would be $625.51, $578.35, and $556.20 respectively (which is a monthly discount of about $47 and $69 from the 30 year mortgage for the 40 year and 50 year note.) This ASSUMES that you can get the same interest rate for all three, which is highly unlikely.
The bottom line: 40 year and 50 year mortgages are for suckers and won’t leave much beyond more mortgage payments for your heirs.
Thanks a lot, Dad!
?? Numbers! Discounts! How can you bring up simple numbers when we’re talking about the future welfare of your children and grandchildren? With your meager income and low FICO score, the only other option is you will rent for the rest of your life!.. and you will leave them nothing but a bill for the funeral!
scarcasm / off
Sorry Joey. In my haste to reply, I didn’t notice the sarcasm in the first post. We are on the same team.
don’t you think you are going to ruin your children/grandchildren by thinking this way. why would you want them to look forward to profiting off your death? that only tells them not to make something of themselves in life. i have seen a way to much of this, and it makes me sick! what do you think is going to happen if your house gets taken due to medical bills, etc? they will have absolutly nothing then!
Statsman
i’m not very good at cyber-sarcasm.. I am sorry bout that. But you did extremely well, imo, in restraining yourself.
same goes to you, riding-the-wave..
Not just forced payment… forced payment on *interest*. The monthly payment diff between 30 and 40 is not much, but it’s much more heavily weighted toward interest vs principal.
It’s also why going 30->15, your monthly bounces up more than a little, but you’re paying a hugely higher portion towards principal.
We got a 15 year. It was paid off before we knew it. Now I just sit back and laugh!
“‘Not only are mortgage innovations important to a normally functioning market, but their role in Canada should, in fact, grow over time. Those new products are largely about serving under-served populations through more effective market segmentation and niche marketing,’ Tal wrote.”
If the Canadian govt acts on this moron’s advice, then they can soon have their own homegrown subprime crisis to deal with.
Alt A and subprime mortgages, teaser rates and 40 and 50 year amortization schedules…can these folks not look at the bank write-downs that Citibank and Deutsche Bank took just this week and reconsider? How about RAMS in Australia and Northern Rock in the UK? Not willing to learn from others’ mistakes? Well, ok then. Go for it.
If you follow the Canadian reports, most really do think they are immune to price corrections. They have a lot of reasons, but the fact is prices are just too high for the incomes.
Well, if another Republican takes the White House next year, there may actually be a lot of people from the US headed their way. They may be onto something.
But for me personally, socialism and sub-zero temperatures don’t earn you the right to think you are immune from a huge price drop.
SUB ZERO? Not for long, friend. Not for long. The frozen tundra is melting. Areas of the arctic ocean that were covered by ice are opening up to shipping. We may all be forced up there just to get out of the heat and have water to drink. I just thank God my husband’s one of ‘em.
Good riddance to them.
And I hope they take that Alec Baldwin idiot with them.
I guess it’s different there?
One of my best friends is a private equity guy in Canada. You’d think he’d know better but he informed me last week that there will be no US style correction there. It’s all based on fundamentals and justfied.
Okay.
This is what angers me about these liars.
That CIBC World Markets guy is just a mouthpiece for CIBC’s mortgage division. He will never ever discuss real concerns such as:
* What is the difference between incomes and average prices?
* Is the sharp increase in demand resulting from much higher populations due to immigration, and does this in turn cause rental markets to sag because all these renters are buying?
* Does a 40 or 50 year mortgage, which was unheard of in Canada until 4-5 years ago and rightly criticized by Bank of Canada governor David Dodge, consider periods of unemployment, ability for the average first time buyer to continue buying in later years, or the aggregation of wealth away from consumer purchases and towards financial institutions?
* Why are prices decreasing now in these supposedly indestructible markets like Edmonton and Calgary?
* What will happen when demand for Canadian goods like lumber, oil and base metals goes down as the demand for housing and construction in the US (Canada’s biggest customer) goes down?
This guy isn’t an economist. Anyone with basic macroeconomic knowledge should be able to pick this guy off very easily. Unfortunately for us in Canada, we continue to have disproportionately high house prices relative to incomes and/or ridiculous taxes without deductions (read: Ontario). These chickens will all come home to roost, and they’ll just shuffle Dr. Stupid to a less prominent position as he’s proven dead wrong.
I hear you. Glad you have some background on his organization. I read posters complain about how long the correction is taking in the US, but you guys have it a lot tougher. Hang in there.
Ben,
First off, thanks for the great blog. I’ve been telling people everywhere to just use their brains and think instead of getting pulled under the water by the “social undertow” of media and friends putting pressure on people to own homes since I’ve started reading this blog. Heck, I’ve warned my relatives in Greece about the same dangers there and to think carefully about why it’s better to rent than to buy for now. Income-to-price ratios are 6x-8x, and it’s not making sense.
Large spikes in price of anything - stocks, commodities, real estate - are macroeconomic signs of high volatility and need to be ultimately justified by fundamentals as opposed to group psychology. And yet, that’s exactly what we’ve had with this housing bubble. Nobody in the financial community wants to point this out because they’ll undermine their own short-term economic performance. One hand washes the other. But these big reports aren’t just coming from CIBC, but from all of Canada’s major banks (Royal, TD, Scotia) whose investment divisions are spouting the same garbage off. Even the unreal estate drones here in Toronto (Royal LePage) recently said that prices are going up by 10% in the next year. Well, does that mean that salaries are going up by 10%? I certainly wouldn’t ask my boss for a 10% raise lest I get my ass booted. And yet, people just take it at face value. They just don’t get that, without corresponding increases in salaries, these income-to-price ratios are going to kill us in the end. One other point that is largely unknown to US and other readers of this blog: Canadians have emptied their RRSPs (our version of 401(k)) and using their parents’ savings to buy these overpriced houses too.
But they won’t tell you that any time soon, because…there is also a big anti-American cultural factor that somehow things are different here and we’re better than Americans. I’ve lived in the US (SF Bay Area, California for 3+ years), and I saw the stupidity that was going on there and simply stayed out of the housing market. After coming back in 2004, I saw this ridiculous run-up here and said to myself “wow, we’re making the same damned mistakes and THEN some.” We certainly have very high taxes and, despite a $17B federal surplus this year, I don’t see much movement to really reduce our overall tax burden. You can’t deduct mortgage interest, property tax or school tax, and that makes it all the more ridiculous to pay a 40/50 year mortgage. At least in the US, you have that luxury of those deductions on a long mortgage (30 year vs. 20 year traditionally in Canada for that reason). They won’t point that out readily and just say that things are going well because of the price run-ups. We’re not the US, we’re riding high, sitting pretty, we’re smarter than Americans, we’re this that and the other thing better. But when it comes down to it, we aren’t learning from the mistakes the US housing market is now learning and the Canadian market is just starting to feel some of the effects of.
Never mind the fact that I’ve been saying that Canadian retailers and car companies have been utterly raping the Canadian public for years where the dollar valuation should have resulted in a decrease in the prices of consumer goods. That didn’t happen, and people are just now realizing that Canada is no idyllic paradise and that our cultural complacency and hubris has cost us as Canadian companies and subsidiaries of foreign companies have slowly boiled the Canadian cultural frog. They’re starting to wake up now with some lawsuits against car manufacturers’ draconian measures to limit imports into this country from the US, but it’s far more than that and it’s just starting to surface for those who were asleep for the last 4+ years of the current Canadian dollar run-up vs. USD.
Now, I’ll admit things aren’t exactly stellar in the US at the moment, and the currency valuation is certainly a side effect of the economic policies that continue to dog the US. However, Canadian and US economies are tied at the hip whether we want to believe it or not, and we really can’t afford to lose our biggest customers. Things will change, slowly but surely, and we’ll have our own version of a housing crash. I peg it to be at most by the end of next year, and then it will really start gaining momentum. Even if the Canadian housing crash isn’t as big due to tighter lending rules, it’s a bit like saying there’s a “minor” nuclear war going on. No such thing as minor. It’s going to hurt, it’s going to create turmoil, and we in Canada will pay a hefty price, guaranteed.
Chris,
Thanks for the info. When I drove through Canada a few years ago, I saw many of the things you described. One thing I remember in particular; on the evening news, great pains were made to mention US news last and almost downplayed in importance.
I did an interview with a Montreal magazine that never got published (I guess). Asked about the resources boom and whether that would support house prices, I told them it didn’t work out that way for us in Texas in the 80’s.
BTW, Canadians are some of the nicest people I’ve ever met.
My entire family is Canadian and I have a house in the Maritimes. That said, I get sick and tired of the anti-American blather that is spouted there daily. Hell, I remember my parents dumping on the U.S. while they lived here and collected U.S. Social Security by the way.
I don’t know what it is but they really dislike us for some reason.
Canadians live in America’s shadow and thus have an inferiority complex — they have to put down Americans to imagine that they’re somehow different and better. The reality is that, aside from owning fewer handguns and bibles, we’re really not much different.
I don’t know what it is but they really dislike us for some reason.
Envy. Resentment.
The key to happiness is be grateful for what you’ve got.
The key to misery is to envy others. Canada will always be inferior, in many ways, to the USA yet there will always be many things Canadian to admire. Focus on what others have, resentment. Focus on what you have and making it better, you’ll be a lot happier.
Why do Canadians hate Americans so much?
A radio station in the 1970s ran a contest to find a Canadian version of “As American as apple pie.” (The very fact that such a contest has any appeal at all tells you volumes about the resentful younger sibling complex that is integral to the Canadian psyche.)
The winner was “As Canadian as is possible under the circumstances.”
What will happen when demand for Canadian goods like lumber .. goes down
i did a quick search last week and it’s already falling along with prices.. one page mentioned lumber mills closing. I think the website was a Canadian lumber association of some sort.
Yes, lumber mills are closing all over.
Chris,
Thank you for your posts, really informative. I think the US is very lucky to have Canada as our northern neighbor. I spent 3 weeks this August up in Muskoka, and was stunned at the RE prices for lakefront cottages. Truly beautiful area, but way overpriced, imo.
Canada was already having some problems with commercial paper, and Bay Street was sweating it in August until the Fed cut…sorry, would be nice if you could skip the pain.
I was talking with a Canadian Forest Service employee this week. He said the lumber towns are already feeling the pinch of the US housing bubble burst and high Canadian dollar.
He’s working on some program to keep these towns afloat given the likelihood that Canada will never be able to compete with traditional lumber products - prices here are too high. (They’re thinking specialty products and “nanotechnology”.)
Schulz said the problems are due to sluggish sales, with only 16 units sold so far. ‘We think we’ve corrected that problem,’ he said, with the installation of a new sales team.”
So, what did they do, hire Tom Hopkins to be the personal salesman. Or did they get a gaggle of girls from the local ‘gentleman’s club’ to promote these - and include unlimited lap dances? Or did they hire Bubbles the Clown (we miss ole’ red nose) to sell em? They must be really talented.
Reading that statement gave me a serious headache, I thought to have rammed it into the basement wall to cure said headache.
New sales team…WTF!
OH NO not Kal’s Kittens agin!
http://www.youtube.com/watch?v=oouQbcXdyH0
———————————
Or did they get a gaggle of girls from the local ‘gentleman’s club’ to promote these - and include unlimited lap dances?
If anyone can sell homes, it is Tom Hopkins. He once sold 365 homes in a year (many yrs ago). He has now been the most sought after sales trainer in the country, written several sales books, and hired by many top corporations to train staffs. But Tom probably has enough moral fortitude that he would be running away from selling toxic products. He has integrity. I have met him personally and taken his classes - best sales training one can get.
It will help that a bunch of the proposed condos are halting, per the article.
OT — This week’s post at the Santa Barbara Housing Bubble Blog provides YTD inventory, DOM, and median-price data for the South Coast (Santa Barbara, Goleta, Carpenteria/Summerland, Montecito, and Hope Ranch). Bottom line: a buyer-seller standoff when it comes to houses, and a meltdown for the condo market.
Carpe diem,
Saint Barbara
Santa Barbara Housing Bubble Blog
“Schulz said the problems are due to sluggish sales, with only 16 units sold so far. ‘We think we’ve corrected that problem,’ he said, with the installation of a new sales team.”
“That ought to do it,” Captain Smith said confidently as he finished rearranging the deck chairs of the listing deck of the Titanic.
LMAO! Good one!
Blame game has started and it’s a political blame game. This might freeze future loans from lenders who wait to see what the bailout costs them. I am not sure the best way for the correction to go, but not being a GF or FB I hope it’s not a politcal solution. Otherwise, i’ll be a FR (renter)
What ‘this’ are you referring to?
The lenders were also to easy on the builder financing ,so this was another reason why builders were coming out of the woodwork and getting permits .If you look at how many contracts have been cancelled on new home/condo projects ,I bet the lenders are kicking themselves for loaning high amounts based on speculator deposits .Look at Trump how he tried to get his family and friends to sign up for his pre-construction numbers to hit .
The whole dang industry was based on passing on the risk .
As far as bail outs go ,no government agency should be allowed to propose a bail-out unless they can state what the potential cost to tax payers will be . This BS about passing on the risk of bad loans to FHA/Fannie /Freedie before anybody figures out the costs and risks is horsesh*t.
is this why trump is sceaming about gas prices being to high? maybe that was the excuse people were using to back out.
“The median price of homes fell to $420,500 last month, down from $430,000 in August, said the Calgary Real Estate Board. Yet, despite the falling prices, CREB president Ron Stanners said city home prices are still higher now than they were last year at this time.”
Good heavens. Why would anyone want to pay 400K to live in an ordinary (median) house in Calgary? My wife once lived in nearby Saskachewan (sp?) and she said that they used to joke that there were two seasons out there: July and Winter.
LOL. I was in Calgary on August 3rd in 2002, and it snowed. Really.
Sure, it was a rare occurrence, but WTF?
The prices here are bad, but in Saskatoon they’re ridiculous. It’s about time they started dropping.
I think I read somewhere that 5% or less was the traditional level of non-conventional mortgages in the U.S. Please, please let us in Canada keep it below that level and not explode into stupidity. I would much rather have a fixed cost per month and pay the darn thing off within 15 years. (Saving up to buy items - what a concept!)
I have a friend in Alberta who is frantic not to miss out on the housing boom. He bought a house about 5 years ago, before prices really took off, but now he’s seen his cousin make huge paper profits (no real profits yet, mind you) on to-be-built condos, and so my friend cannot resist: He’s bought in!
About two months after he signed the papers, he crowed that the real estate sales agent told him his being-built condo is already worth $40k more than the day he signed! Oh happy day!
But me being an old curmudgeon, I told him to sell it is ASAP to the next sap in line. But of course, he’s hanging on to triple that profit by the time it’s built… and maybe buy another in the meantime. God help him.
Anyone out there familiar with the central Alberta condo market?
“Central Alberta condo market?” You have got to be kidding.
Just when you think you’ve seen it all….
Kidding? That was the first thought that came to my mind when he told me about his fine investment. I thought he was kidding at first. No such luck.
I’ve told him: (1) If the $40k paper profit can be made real, sell it NOW, or (2) if the agent is lying, and prices are actually languishing, sell it NOW. Either way, the course of action should be the same, IMHO.
bubble! no doubt.
That sounds about as popular as Arizona coastal property.
grrr…five letter curse word.
Just a similar anecdote.
A coworker moved to Toronto from Calgary a couple of months ago. He’s trying to sell his condo he left behind, only he makes $15k a year now (yes - fifteen). It’s not selling, no showings, and he’s sleeping on friends’ couches ’til he can dump the mortgage.
He says the market stopped in July, nothing’s been moving since then. I don’t know what he’s asking for it but clearly it’s too much since he’s still got it.
Yeeeikes! That’s what I am afraid of. Or more precisely, what my friend should be afraid of. Seems like your co-worker is on the leading edge of the bust. Ouch.
test
I was just watching Chucky Schumer on Bloomberg. He wants Fannie and Freddie to raise caps 10% for them to buy subprime. It looks like between FHA and Fannie and Freddie a bailout is in the works. In the end, I bet all of these groups will end up buying no doc loans too. Loooosers!
They won’t qualify, IMO. The problem loans are already underwater in many cases. Check out my post later.
I hope you are right, but you know how those fools work. If they think it’s going to take down the whole ship they tend to do make irrational decisions. With election year they will say and do anything. I don’t think they realize that the majority of homeowners would be against a bailout.
Even a congressman can do this math; 40% own outright, 30% rent. IMO, all of this is political positioning aimed at target interest groups. That and a way to paint the opponent in a bad light. How many times do things get ‘promised’ during elections? Anyway, they don’t neeed higher limits, etc. Prices are already falling and they can’t stop that.
“Prices are already falling and they can’t stop that.”
How can you be sure?
This thing called economics that I studied.
“This thing called economics that I studied.”
Please offer a reference where it says that massive govt intervention cannot stop prices from falling. I am sincerely interested if you have one…
P.S. Ben — I am not disagreeing with you necessarily. I am simply not as confident as you are about the utter certainty of continued price declines from here no matter what Congress, the Fed and all the President’s men cook up…
Not quite housing, but off the top of my head I can remember the UK trying valiantly to fend of devaluation of the British Pound. They failed, despite heroic efforts, much to George Soros’ delight and profit. Like housing will be in the US, the defense of Sterling was a vain and expensive but hearty attempt to fight against the fundamentals even after market had irrevocably turned against them.
Pols imagine people staying with the sinking home “ship” as its value submerges.
Exactly what kind of fool, having bought at the top, will now be willing to continue to service a mortgage (at any rate) that clearly exceeds the value of the property?
There won’t be anyone to “save”. Who cannot see that paying off a mortgage of $300,000 doesn’t work on a property worth $200,000?
Grateful to be here…
Helocing got my house cashed in, keep Helocing
Like the hoi polloi, man
Together, more or less defined, just keep
Helocing on
Plenty of debt and disorder out on
Main street
Chicago, New York, Detroit it’s all on the
Same street
Your typical city involved in a financial
Bad dream
Heloc again and see what your house will bring
Dallas, got a soft housing scene, Houston, too humid for a human being
New York’s got the Heloc means, and they loan money, oh no
Most of the cast that you meet on the streets speak of true loan
Most of the time they’re sittin’ and cryin’ at home.
One of these days they know they’ll get foreclosed on
Out of the door and down on the streets all alone
Helocing, like the do-dah man, once told me you’ve got to play your Heloc hand
Sometimes your house ain’t worth a Dime, if you don’t double down
http://www.youtube.com/watch?v=vPNgjA4i6gM
In case there was any confusion…Minneapolis is not in lower Manitoba.
We southerners get confused, eh!
They can have it, though.
Might as well be.
Finally I see the word “artificial.” This is not a word used very often in reference to the surge in housing prices. If potential owners must use creative mortgages to get into a house, then it creates an artificial market. The media still refuses to report on the situation in that light. It was/is about bad mortgages…yes, but the bad mortgages were a symptom of a much, much bigger issue. There would have been far less bad mortgages had prices appreciated at a safe pace with inflation or slightly above. The mortgages were created to accomodate the high prices, not the other way around. Maybe that is where the reporting misleading.
It is annoying to read theWashington Post, NYT and other large city newspapers. It appears that their investigative reporters are unable to connect the dots. Turn on the TV and anchors are lamenting the “woe is us” about symptoms, not root causes. Only occasionally has there been a mention of what is truly behind the market of the last 4 to 5 years.
I own a house in my hometown. Have no intentions of selling. But I work with people stuck in some very bad economic situations because of the so-called equity they had in their homes. The equity was artificial, also. It was a mere blip on the radar. Once people began to see that blip as tried and true gospel and draw down on the inflated equity to buy cars and the like, well, it got them into deep trouble. It also created an artificial market for other goods and services.
Connect the dots. It is a simple game.
“Schulz said the problems are due to sluggish sales, with only 16 units sold so far. ‘We think we’ve corrected that problem,’ he said, with the installation of a new sales team.”
There’s a classic Calvin and Hobbes cartoon. Calvin doesn’t clean his room. Mom comes in, points to the stuff on the floor, and angrily says that Calvin needs to do a better job, and stalks out. After she leaves, Calvin says “I don’t need to do a better job, I just need better P.R. on the job I do.”
The housing bubble is like that. Actually, Calvin could be referring to most of the American business model since…Reagan.
In that vein, I like the one where Calvin actually does make his bed, and his Mom comes in and congratulates him etc. Hobbes asks him why he did it this time, and he says
” I like Mom to be impressed when I fulfill the least of my responsibilities.”
I see that attitude every day.
Contrary to popular belief, Minnesota is not part of Canada.
A few weeks ago, I contacted a housing reporter in Milwaukee. We’ve been e-mailing. Today she calls me for a phone interview!
I asked her to cover the other side (our) of the housing meltdown (I too grow tired of these oh woers me stories).
She’s going to write a story in a week or two. I’ll keep you updated!
This thread is great - mortgage brokers wigging out about the lender calling the borrower to confirm income - *even on stated income loans*.
The humanity !
Checking the borrows make as much as the mortgage brokers wrote on the loan docs…. is there no end to this madness!!!!!!
http://www.brokeruniverse.com/grapevine/thread/?thread=463527
“PS
If you are concerned about the stated income question
try this…ask your stated customer what he really feels
he makes a month for personal income and use that number
on the 1003 instead of what was needed to be made up
for him to debt ratio. That way when WAMU asks
the customer will know the real answer. ”
But if they use a real answer, no one will get a loan…. Well, no one that doesn’t know better than to use a sleezy broaker.
I own a house in my hometown. Have no intentions of selling. But I work with people stuck in some very bad economic situations because of the so-called equity they had in their homes. The equity was artificial, also. It was a mere blip on the radar.
But weren’t these folks just liberating their equity to put it to better use. The better use was to consume more ’stuff’, or take that deserved vacation on the house (literally), buy a Hummer, boat, whatever. They were being patroitic and heading to the mall. While I was staying at home and saving my money. Don’t make me pay for their bailout.
You will pay for it….just like you’re paying for the war…you’ll have no choice…but hey…this is a free country. Yeah…right.
I’ve been saying this to people for years…they were laughing at my face and saying no it’s supply and demand…everyone wants to live in California.
Uhhh…no.
“Lawmakers called on Wednesday for a ‘mortgage czar’ to help cope with an expected wave of foreclosures from the U.S. housing slump but Alan Greenspan said the credit crunch was past the worst.”
http://tinyurl.com/3y6vcc
Hmm, the credit crunch just started and now it’s already over ? I guess when I wake up tomorrow the housing crash will be over too ! Now excuse me while I click my ruby slippers together and chant “the crash is over, the crash is over”
Comment by Ben Jones
2007-10-03 13:07:17
“If you follow the Canadian reports, most really do think they are immune to price corrections. They have a lot of reasons, but the fact is prices are just too high for the incomes.” - Ben Jones
Maybe you should tell that to Vancouver blogger Rob Chipman. He doesn’t seem to get it.