Definitely A Lot Of Discounting Going On
Some housing bubble news from Wall Street and Washington. USA Today, “At the end of July, Reeves Williams, a home builder in the South, began offering $20,000 in incentives or cash assistance. In the first week, 22 buyers had signed contracts for new homes. Then the mortgage market fell into a tailspin. ‘We lost 17 of them. It was a huge hit,’ says Martha Fondren, VP of sales. ‘It was a credit issue. They did not have horrible credit. But they didn’t have the credit scores to get (a loan), and six months ago they would have.’”
“‘Based on activity since early August, our experience is worse’ than the past two corrections, Robert Toll, CEO of Toll Bros. told investors at a recent Credit Suisse (CS) conference. ‘Who can’t be concerned, with what we’re looking at right now?’ Toll says.”
“KB Home said its cancellation rate jumped to 58% for its third fiscal quarter, which ended in August. ‘There was a significant deterioration in the housing market, and this accelerated dramatically toward the end of the quarter,’ said Jeffrey Mezger, CEO of KB Home. The number of buyers touring model homes and signing contracts hit ‘the lowest levels of the current housing downturn.’”
“Half of Ryland’s buyers backed out of their contracts in the most recent quarter, says Gordon Milne, CFO. ‘There is definitely a lot of discounting going on in some cities,’ Milne says, adding that many builders are offering 5% to 20% in incentives and price cuts, depending on the community.”
“‘It’s hand-to-hand combat out in the field,’ Milne says. ‘We look at the competition down the street, what they’re doing, and we’ve got to match it.’”
“Stuart Miller, CEO of Miami-based Lennar, says he thinks some builders’ price cuts have been ‘unrealistic, maybe even ridiculous.’ Lennar reported the worst quarterly financial results in the company’s history and a surge in cancellation rates.”
The New York Times. “Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas.”
“Whether buyers like Mr. Miglin and Mr. Mills close on their condos will be a crucial indicator for Corus Bankshares. Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag.”
“‘We’re at the riskiest point of the condo lending cycle as these projects are being completed,’ bank analyst Jefferson L. Harralson said. ‘In the coming weeks and months, we’re going to find out what the demand for these condos really is.’”
“Then there are smaller markets like San Diego, where developers are also struggling to sell units. Corus helped finance 11 condo projects there. Downtown San Diego is scheduled to have 3,000 units completed by 2008.”
“Among the projects is the Icon, where Jeanette Graham bought a one-bedroom apartment last year for $374,000. She said that her building sold 80 percent of its apartments. But she said that the building is now offering even better incentives.”
“Still, she questions whether there will be any takers, especially since her building feels empty. ‘I can go a whole week without seeing a neighbor,’ Ms. Graham said.”
From Bloomberg. “Thornburg Mortgage Inc., the Santa Fe, New Mexico-based mortgage provider, lost $1.1 billion selling bonds backed by adjustable-rate home loans as rising defaults eroded demand for the securities.”
“Thornburg, which has sold $22 billion of ‘high quality’ adjustable-rate mortgages since Aug. 10, concentrates on so- called jumbo loans, which exceed the $417,000 limit that government-chartered Fannie Mae and Freddie Mac can buy.”
“‘The global dislocation of the mortgage finance and credit markets this past summer has had a greater impact on our balance sheet than we initially estimated,’ Larry Goldstone, Thornburg’s president and chief operating officer, said.”
The Associated Press. “Thornburg Mortgage will also take a $286 million writedown on the value of its portfolio for the quarter, more than the $262 million it initially planned on writing down.”
“The company will report a $16 million loss on loans funded during the third quarter, due to fundings made in September on loans where the interest rate was locked before August.”
The Street.com. “‘Despite the greater than previously reported losses, we believe we have adequate liquidity to support our current borrowings portfolio and excess capital to continue to fund new loans and to opportunistically purchase and finance other high-quality mortgage assets, provided market conditions do not deteriorate further,’ said Thornburg COO Goldstone.”
“The expanded losses are primarily due ‘to the receipt of actual sale price documentation for asset liquidations conducted by third-party financing counterparties as opposed to those sales conducted by the company,’ Thornburg said.”
“Ellington Management Group LLC, the Old Greenwich, Connecticut-based hedge-fund firm that focuses on mortgage securities, suspended client redemptions from two funds because it’s too hard to value their assets.”
“Setting asset values wouldn’t be ’simultaneously fair both to investors redeeming from these funds and to investors remaining in these funds,’ CEO Michael Vranos and Vice Chairman Richard Brounstein wrote.”
“The letter said ‘enormously wide spreads have developed’ between the asking and selling prices for some subprime-backed bonds.”
From MarketWatch. “Banks should strengthen underwriting standards on loans including those that are sold to third parties, the Comptroller of the Currency said in a speech Monday.”
“‘Bank underwriting standards for these products, in many cases, moved too far away from what they would have been if the bank had held those loans on its own books,’ Dugan said.”
“Dugan said in prepared remarks that banks ‘need to strengthen their underwriting standards so that they move back towards the fundamental principle of maintaining a reasonable expectation that loans will be repaid, even if the loans are to be sold to third parties.’”
“However, Dugan also noted that despite the current credit market turmoil, federally regulated banks have ‘weathered this period remarkably well’ so far. The OCC supervises about a quarter of the nation’s banks.”
“On the subject of credit rating agencies, which have been accused of failing to give investors adequate warning of the risks associated with mortgage-backed securities, Dugan said that ‘legitimate questions have been raised about just how well they assessed and understood the risks’ of mortgage securities made to borrowers with shaky credit.”
“Fitch Ratings cut ratings on two Asian collateralized debt obligations linked to company debt, indicating an increased risk of default, the company said today.”
“Investors are shunning CDOs and other credit assets on concerns that losses on U.S. home loans to buyers with poor credit records are spreading to other credit markets. Sales of CDOs, once the fastest-growing part of the debt market, fell to $16 billion worldwide during September, the lowest in 21 months, according to Morgan Stanley.”
“One in five managers of CDOs is likely to be forced to cut costs or go out of business as investors avoid the securities following losses on subprime debt, Fitch Ratings said.”
From Reuters. “The U.S. subprime housing crisis will not peak until 2009, rating agency Standard and Poor’s said on Tuesday, adding it had underestimated the extent of fraud in the industry.”
“‘We underestimated the extent to which fraud was occurring in the industry,’ said David Wyss, S&P’s chief economist. ‘It looks, based on some surveys that had been done, the extent of frauds increased sharply in 2006.’”
“‘We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009,’ Wyss said. ‘We are not halfway through with this crisis yet.’”
National Mortgage News News. “The secondary market for delinquent second liens isn’t getting any better these days — unless you’re a buyer. Traders tell us that seconds that were part of 80/20 loan structures are selling for 10 to 15 cents on the dollar. Unsecured seconds are fetching just one to two cents on the dollar.”
“‘Debt collection agencies are the ones bidding on this stuff,’ said one investor.”
So did we pass some kind of significant date?!?! I haven’t been this excited in a while. In the areas of LA, OC, and SB counties that I am looking, I just ran across several jaw dropping price discounts on homes. Over here, you never see a decent house for sale under 500k and I saw five with massive discounts. One house in particular that my wife and I were watching just went from 520k to 450k. Another home on my brother and laws street just went from 515k to 439k. Comparable homes were selling for around 600k last year. Yup, the slide has finally started. Incredible.
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You are looking at a minimum of 50% decline, on home you might be looking at, from the current lowered prices. You should set your target for a decent home at $199,999. Until then, rent with style. Good luck.
Jas
“rent with style.”
Good one–I love it! It sure is nice to have a little discretionary income unlike some of my FB’d co-workers.
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I know of cases where people were able to rent near-ocean (with ocean view) SFHs for $2,000 a month. Excess supply means good for renters. It would take another year’s worth of pain of carrying empty homes and then rents will start to come down seriously. Patience is the name of the game.
Jas
i sold my home in oc a good 40 miles away from the office back in fall 2004 and rented a house 7 minutes from work and 1/2 mile from the ocean for $200 less than my mortgage alone. not to count taxes and insurance and gas! this is great! fall baby fall! i’m going to shop for something decent in PV when this is over.
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Let me know if you need help in PV or PVE (when the time is right). My little bro, who lives in PVE, is on top of the RE there.
Jas
Try not to get so caught up in your excitement that you catch yourself a falling knife.
Try not to get so caught up in your excitement that you catch yourself a falling knife.
From one Bear to the other Bear: DIDO on you comment!
“One house in particular that my wife and I were watching just went from 520k to 450k.”
pffffffft…… Barely a 15% reduction. When it’s overpriced by 2 or 3x, what the hell is 15%? Nothing.
“what the hell is 15%?”
It’s a start.
“It’s a start.”
So is this
“One in five managers of CDOs is likely to be forced to cut costs or go out of business as investors avoid the securities following losses on subprime debt, Fitch Ratings said.”
One down, four to go.
You’re going to love this : )
http://www.mondaq.com/article.asp?article_id=53060
Fair enough but raise your expectations young man.
The significant date is August 9, 2007. That’s the day the lending industry awoke at the helm to find its ship was was approaching Niagra falls. The anchors went down but can’t seem to get a bite on the soft mud bottom. Meanwhile Realestate has reentered the earth’s atmosphere, deployed chutes for splashdown, and realized there are no chutes.
Priceless!
You, too, eh?
Here in Maryland, the land of the “Silent Bubble” (It’s different here because we’re all 2-income rich households who get free money from DC… right!), larger and larger price drops have also shown up rather suddenly. Maybe some people are starting to see the light.
‘I haven’t been this excited in a while. In the areas of LA, OC, and SB counties that I am looking, I just ran across several jaw dropping price discounts on homes. Over here, you never see a decent house for sale under 500k and I saw five with massive discounts. One house in particular that my wife and I were watching just went from 520k to 450k. Another home on my brother and laws street just went from 515k to 439k. Comparable homes were selling for around 600k last year. Yup, the slide has finally started. Incredible’
Most of those land constrained coastal areas take the longest and move down the slowest. I’d venture to say a 3-4 year slow and steady more is most likely though if continued weak dollar policies without ramifications continue it might end much sooner. There are a few parts of this country where prices have crashed over 50% already thanks to the high level of speculators without enough end users in those overbuilt hoods..
“The U.S. subprime housing crisis will not peak until 2009, rating agency Standard and Poor’s said on Tuesday, adding it had underestimated the extent of fraud in the industry.”
“‘We underestimated the extent to which fraud was occurring in the industry,’ said David Wyss, S&P’s chief economist. ‘It looks, based on some surveys that had been done, the extent of frauds increased sharply in 2006.’”
These idiots could have saved themselves millions with the investment of about 30K a year in some mullet to do nothing but read Craigslist ads add day. Cripes, the fraud was leaping off the pages like fleas off a rug!
We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009,’ Wyss said. ‘We are not halfway through with this crisis yet.’”
So we are on the third inning of the game? Judging by the credibility of S&P, I’d say we are in for extra innings. Spare me the $8 hot dog, just wake me up when we get to the eighth inning or so…
How could they miss it? Are they this stupid or just blind? How many of us were screaming everyday that this was going on?
These rating agencies add ZERO value. The funny part is I see their hits (IP address) all the time on my blog, so I know they are fully aware now. MORONS!
C&C its so EASY:
Just hire the dumbest clueless Paris Hilton clones in HR, and they will hire their own kind.
This is what i face everyday, you start talking “Smart” and you won’t get a job in America.
If you don’t hire people like you or me then what is left?
=======================================
How could they miss it? Are they this stupid or just blind? How many of us were screaming everyday that this was going on?
I posted this awhile back, but me thinks it’s in cyber heaven.
My cousin and (ex) husband were using a HELOC product in 1998. I was unaware of what the heck it was…he explained to us that it was a line of credit on your home and they even (bank) give you a checkbook.
My husband an I exchanged a look, as long time loves do, able to read the other’s thought.
They live in Columbus OH, and we were stationed at Dayton at the time.
After they left, hubby and I were whispering among ourselves at the stupidity of said product, and how not to bright folk would by into such a scam.
Best,
Leigh
Hey, there are rare times when a HELOC is perfectly legitimate. My mother has owned her condo outright for 20 years. She took out a $50K HELOC to make some desperately needed repairs and renovations (me and my brothers were rather, uh, rough on the place when we were teenagers).
Agreed CVG,
My point is this product was gaining popularity in 1998.
Humble appologies for the brevity.
My cousin and her husband had no business (not that it’s any of mine, but hey, he was the one sharing!) using this product.
They both have great careers and were living beyond their means IMHO. Golf, nails, clothes, new cars, etc. Again, not my affair, but hey, he put it out there!
Your mom is the rare exception.
Best,
Leigh
“S&P estimated that, on a purchasing-power parity basis, the United States would contribute only 9 percent of world growth in 2007, compared with China’s 33 percent and India’s 12 percent.”
9% of world growth would be awesome in the current environment, but the US dollar has to recover its losses for the year just to get back to “purchasing power parity”. US GDP is negative for the year in Euros.
So much for the US being the growth engine for the world. Sigh.
Leave it to the Chick to get to the heart of the matter.
I can think of no known insult for the word “honesty”
“The truth is that it is the honest guys who have always been losers.”
Sarah Britten
got me
‘adding it had underestimated the extent of fraud in the industry.”
- We don’t call it fraud in SoCal … we call it Mexi-Math. Everyone is entitled to a Driver License, Health Care, College Tution, American Dream…..
New York is heading in the same direction.
Mexi-math? hardy har
Why not just call it beaner-math, Mr Racist?….oh, I’m sorry…hho knows, maybe you’re just a mean little chick.
Take a chill pill and have that limp wrist of yours looked at.
much is being exposed, too much
You make me laugh sooooo hard … keep on posting!!
No problemo!!!
So… you’re claiming that most illegal immigrants aren’t Mexicans? I want a citation for THAT pearl of wisdom. Accusing someone of being racist for pointing out a documented phenomena (aka illegal immigrants using/abusing public assistance, lending, etc.) is plain anti-intellectual. And I’ll note that you are the one who coined the phrase ‘beaner-math’. Witty.
He got that from
Carlos MenciaNed Holness.“‘We underestimated the extent to which fraud was occurring in the industry,’ said David Wyss, S&P’s chief economist.
When the company is making tons of money the ETHICS often go out the window. When the same company gets caught red handed, the ETHICS continue to go out the window, but the breeze blows in lame excuses!
Ben:
It’s interesting how when you get a lot of brainpower on here, it drowns out the element that wants to be the “first” post(hope i’m not 1st), or other nonsense, that other blogs let pollute themselves with.
You’ve done a great job, keep it up
oh,
Send him some do re mi, people.
Newspapers look to really overpay their employees, in comparison.
‘First’ posters would be hissed off the board. Come with information or don’t come at all.
“First” posters HAVE been hissed off the board. Well, maybe not literally, but I did it once and won’t do it again.
You want to the play the “First” game, take it to Exurban Nation.
First!
(sorry, couldn’t help it)
some have a combination of information and inflamation…
stay away from the combustibles
–
“Stuart Miller, CEO of Miami-based Lennar, says he thinks some builders’ price cuts have been ‘unrealistic, maybe even ridiculous.’ Lennar reported the worst quarterly financial results in the company’s history and a surge in cancellation rates.”
Why are such morons get to be CEOs of public company?
‘unrealistic, maybe even ridiculous’ were their projections of demand.
Jas
Miller’s just mad that someone else with deeper pockets beat him to the punch. Darn market fundamentals.
No need to ask how Milller’s realistic and unridiculous price cuts have fared thus far.
“Lennar reported the worst quarterly financial results in the company’s history and a surge in cancellation rates”.
rob
“Stuart Miller, CEO of Miami-based Lennar, says he thinks some builders’ price cuts have been ‘unrealistic, maybe even ridiculous.’ Lennar reported the worst quarterly financial results in the company’s history and a surge in cancellation rates.”
Maybe he meant to say:
Stuart Miller, CEO of Miami-based Lennar, says he thinks outrageous CEO compensation packages in the housing industry have been ‘unrealistic, maybe even ridiculous.’ Lennar reported the worst quarterly financial results in the company’s history and a surge in cancellation rates.
This, my friend, is his daddy’s company.
Wait, I am confused: why don’t our glorious executives deserve to be paid (notice I didn’t say “earn”) more money in a year or less than the average working stiff could hope to earn in several lifetimes? After all, civilization would fall apart without their idiotic beliefs, vapid press releases, garbled management-speak, narrow and selfish world-views, and their mind-numbing greed and arrogance. The sheer value added by one executive who plays golf all day and who couldn’t last 5 minutes at a real job cannot be measured in mere dollars, so surely these paragons of business deserve every dollar they are paid!
HAHAHAHA!!! Sorry, I just couldn’t post that nonsense without laughing! Yep, maybe if the builders didn’t have to line the pockets of their grossly overpaid executives (while at the same time paying illegals $3 an hour to build McCrudshacks) they’d have lower costs!
“KB Home said its cancellation rate jumped to 58% for its third fiscal quarter, which ended in August.”
“HALF of Ryland’s buyers backed out of their contracts in the most recent quarter, says Gordon Milne, CFO.”
“In the first week, 22 buyers had signed contracts for new homes. Then the mortgage market fell into a tailspin. ‘We lost 17 of them. It was a huge hit,’ says Martha Fondren, VP of sales.”
“Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas.”
WOW!!! And so much more just in this thread….heavy losses, purchases at pennies on the dollar……is this like a bad news tsunami??
is this like a bad news tsunami??
It seems we have passed “the event” day. Part of this is seasonality. As the hours of sunlight decrease in the Northern hemisphere winter, people inherently become more pessimistic.
Much of it has to do with the fact no one wants to be left the bag holder on mortgages. Find a GF? Great. No find them a mortgage while keeping them excited to buy during the time it takes to close.
Whom was it who labeled this the “Winter of discontent?” We’re there. Imports down, closings down, retail starting to edge down… I’d say we’re in a recession.
Got popcorn?
Neil
“Winter of Sleeping in Tents”
got soup line?
I wonder for how many former home owners it’s about to be ‘the winter of their discount tent’.
sorry - couldn’t resist.
Funny and sad.
Homeless families are rising populace housed in many city shelters.
Yeah, I have a big, neon, *gullible* sign flashing on my forehead.
But we do what we can, and support the local shelters in goods and dollars.
On a lighter note…that was funny : )
Best,
Leigh
You guys just wait. The Spring Selling Season is around the corner. An awesome and glorious market bounce back awaits us all! 15% price appreciation is already in the bag for next year.
Souper Bowl
sshhhhhhhh … you’ll wake Wall Street!
So, capitulation and really big nominal price declines in the spring, as a recession forces more sales, banks start dumping REOs, and some homeowners decide to sell at market before things get any worse?
And, truth of the matter is that more prudent buyers know that things are going to get uglier so they will stay put. Market will find hard time to find the bottom. It will feel like a bottom less bottom.
Two houses that were priced at 1.1 million 8 months ago were reduced to 899 yesterday, so it looks like panic is now setting in with the flippers. People were coming around as early as this morning were as at 1.1 these homes never got a look.
We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009,’ Wyss said. ‘We are not halfway through with this crisis yet.’”
Everybody thinks the showers are pretty good until they turn on the gas… then they find out the doors have been locked. FBs, you are the weakest link… goodbye.
Then the mortgage market fell into a tailspin. ‘We lost 17 of them. It was a huge hit,’ says Martha Fondren, VP of sales. ‘It was a credit issue. They did not have horrible credit. But they didn’t have the credit scores to get (a loan), and six months ago they would have.”
A few years from now my guess is that those 17 people will be thanking their lucky stars that they had low credit scores and couldn’t get loans.
Sorry to be a wet blanket, but certain analogies… aren’t appropriate. I do not want the MSM “cherry picking” through these comments to put us bears into the wrong light. But hey, its just my two cents.
I prefer to note that the FB’s have self inflicted the Joshua tree treatment.
Got popcorn?
Neil
“‘It’s hand-to-hand combat out in the field,’ Milne says. ‘We look at the competition down the street, what they’re doing, and we’ve got to match it.’”
I live for this sh!t. Competitive market battles are the best. We get to see who lives and who dies. Gentlmen, slash your prices!
Bring it on! Battle of the builders.
Homebuilder y Homebuilder
may the one that creeps to the bottom first, “win”
We are finally exiting the “transition market.”
This is what a buyer’s market is truly like. Fear that your neighbor will undercut your selling price drives the home seller to drop their price.
This is the prisoner’s dilemma. Everyone does better as long as no one “breaks.” Well… The problem is there weren’t two prisoners, but rather thousands. They did well for a while, but soon it will be a rush.
I expected this a year ago. Between then and now I’ve learned a lot about real estate market trends thanks to blogs like this one. One lesson, get out of the way of the herd. They aren’t just moving, but they are spooked. We could have a stampede before end of the month.
Got popcorn?
Neil
“The problem seemed to intensify, industry experts said, after popcorn makers started using extra-buttery and theater-style popcorn”
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“Bring it on! Battle of the builders. ”
Don’t be surprised to see hand-to-hand combat between neighbors trying to sell their homes. There are going to be neighborhoods where more than half the homes would be for sale (mostly built during 2004-06).
Jas
With characters like Randy Brown in California, no doubt.
The minor political action this fall concerning FB bailouts should morph into a wonderful presidential debate show this spring. Wringing hands and evicted babies competing with the harsh reality of a full-blown correction. 4 X the foreclosures and 2 X the sales backlog in a town near you.
We looked at 4 homes in Westport, CT. They all needed to be torn down (sloped floors, roof bowed in the middle, Kitchens not renovated in the last 30 years). Prices varied between $950k-$1.1m.
Everyone of the owners expressed a variation of the same theme:
“See that house over there? The original house sold for $1.2m last year. A builder tore down the original and built that 8k sqft mansion and sold it for $3m. So if you buy this house you will easily double your money!”
Nobody seems concerned that there are 65 brand new homes for sale in a community of 30k people where average monthly sales are 15 homes. And, these brand new homes are being discounted heavily to the point where the $/sqft price is less than what these delusion sellers are asking for tear downs.
I am giving up for a few months.
Not so fast, I am a bear, but I live in this market, in a neighboring town. While I believe Westport does have a tear-down problem, fundamentals in this area are extremely strong. Median HHI is north of $160k (in my town atleast, Westport may vary a bit as it has its eclectic elements).
You won’t see massive reductions like CA and FL. If anything this market slowed last year, and I think we have already seen 10%+ corrections which should put us closer to where we should be.
Not so fast, I am a bear, but I live in this market, in a neighboring town. While I believe Westport does have a tear-down problem, fundamentals in this area are extremely strong. Median HHI is north of $160k (in my town atleast, Westport may vary a bit as it has its eclectic elements).
You won’t see massive reductions like CA and FL. If anything this market slowed last year, and I think we have already seen 10%+ corrections which should put us closer to where we should be
And its illegal to build rental units in Westport….no 2-3 family homes allowed.
“Traders tell us that seconds that were part of 80/20 loan structures are selling for 10 to 15 cents on the dollar. Unsecured seconds are fetching just one to two cents on the dollar.”
Bwaaaahaaaaahaaaaah! HA! HA! ROTFLMAO! Bwaaah!
“fetching just one to two cents on the dollar.”
______________________________________________
I guess these items have acutally reached the bottom. Finally, the NAR can say something has bottomed and I will believe it.
Pshaw. My parents’ dog wouldn’t even condescend to fetch for so little.
Hey, at a penny on the dollar, its worth the shot that someone pays something! (Assuming you buy loans in large batches.)
So yea… we’ve hit our first bottom. Many more ahead.
Got popcorn?
Neil
Hey, at a penny on the dollar, its worth the shot that someone pays something! (Assuming you buy loans in large batches.)
You know, a clever person might make some money on this… in a non-recourse state the seconds would be selling for squat (a cent or two on the dollar), BUT if they could show mortgage fraud, they might be able to sue for the debt and try to have the non-recourse lifted. A lawyer and/or PI could take this up as a hobby…
Shoot. The NAR couldn’t find a bottom if it used both hands.
“I guess these items have acutally reached the bottom.”
Au contraire. They have to PAY me to take that junk off their hands….
Considering the top 10 lenders for 2nd lien residential mortgages in the US are for the first 6 months 2007:
Wachovia $11B
1) Bank of America $44B in new 2nds first 6 months 2007
2) Chase Home Financial $28B
3) Countrywide Financial $23B
4/5) Washington Mutual $18B
5/4) CitiMortgage $19 B
6) Wells Fargo $18B
7) National City Bank $11B
9) GMAC RESCAP $5 B
10) National City Mortgage $2B
There is no problem, everything is contained.
yikes
OMG…I am thoroughly speechless! (not an easy feat, my friend!)
Leigh
Wonderful, B of A just ate up my main bank - LaSalle on Oct. 1 - formerly of ABM AMRO. Ain’t deregulation grand?
Don’t mind me - I’m going to go mill around over there near the lifeboats - and I’m taking a few deck chairs and Mae West’s with for company.
and banks make 2% on assets in good times
margins are kinda thin for these write offs not to have an impact
I give up
inserting the fork
Amazing that some of these have already reported possible issues and their stock took off, to the upside. Makes no sense. Also placed my puts in the rubish bin.
They have not reported earnings yet.
If the banks do not make enough to cover dividends, then the FDIC will cancel the banks dividend. It is not up to the bank - it is up to the FDIC. Backtracking one large banks problems, it is easy to see that they will not make enough to cover their proposed dividend. The announced write downs are large.
Thanks Hoz, I wil have to add the 2nd mortgages onto my $1T estimate of writeoffs.
“In the greater metro area of Tulsa, sales rose more than 7% in August to near-record levels. Prices also climbed. The real estate markets are solid, too, in most parts of South Dakota and Texas, for example.”
Guess they missed yesterday’s Texas news. But Tulsa and S Dak are still doing well — what a relief.
ngas and corn/wheat
that’s all folks
“Setting asset values wouldn’t be ’simultaneously fair both to investors redeeming from these funds and to investors remaining in these funds,’ CEO Michael Vranos and Vice Chairman Richard Brounstein wrote.”
“The letter said ‘enormously wide spreads have developed’ between the asking and selling prices for some subprime-backed bonds.”
I say the “enormously wide spreads” have occurred between your investors butt-cheeks as you had them the reeming of a lifetime.
LOL! You are killing me, Ex.
Hint: the SELLING price sets the value, the asking price doesn’t mean squat.
“…But if liquidity injections are insufficient to restore money markets to normal, or deleveraging starts to occur at a rapid pace, the crisis will cease to be a purely financial one and will start to have clear economic consequences.
In such circumstances, central banks will feel that they have little alternative other than to cut their policy rates.
There are questions about how effective cuts in policy rates will be in improving financing conditions if as is likely there is a general tightening of lending standards following the excesses of the past few years….”
from: Heading for the rocks
Will financial turmoil sink the world economy?
Economist Intelligence Unit
“KB Home said its cancellation rate jumped to 58% for its third fiscal quarter, which ended in August. ‘There was a significant deterioration in the housing market, and this accelerated dramatically toward the end of the quarter,’ said Jeffrey Mezger, CEO of KB Home. The number of buyers touring model homes and signing contracts hit ‘the lowest levels of the current housing downturn.’”
At what point does a ’significant deterioration’ get reclassified as a crash?
‘We underestimated the extent to which fraud was occurring in the industry,’ said David Wyss, S&P’s chief economist. ‘It looks, based on some surveys that had been done, the extent of frauds increased sharply in 2006.’”
“‘We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009,’ Wyss said. ‘We are not halfway through with this crisis yet.’”
However, a bit more honesty in MSM comments like Wyss’s could potentially speed up the correction process by a considerable measure.
P.S. Assuming the housing bubble began to deflate in late 2005 and 2009 was the halfway point, I guess we would be looking at an end to ‘the crisis’ by 2013?
I guess we would be looking at an end to ‘the crisis’ by 2013?
Your estimate could be close based on the past declines in the late 80’s.
Truthfully, barring massive wage inflation and some sort of sudden turn around in the war against the middle class in this nation, I don’t think that the market will EVER recover. Things to consider: the Baby Boomers will eventually die off, most of the rest of the nation will be stuck in Mc-jobs after the gutting of the middle class is complete, and even hordes of illegals jammed 12 per house aren’t going to “fix” the bubble.
We may see other types of real estate bubbles, but it could be a long time before another one like this shows up based upon long-term trends. Now, if everyone decides to “get stupid” again in 2013, that’s one thing, but with a rather negative long-term outlook for America, I don’t see massive amounts of money rushing into residential real estate.
Again, I find myself asking the same question. Why is the stock market doing so well?
Based on the banking/real estate/credit crisis, shouldn’t it be tanking right about now??? Or last month, for that matter???
i keep asking myself the same thing. But remember the powers that be need to inflate another bubble in order to fleece main street with the bill for the housing crisis. My feeling is this can only happen via a rise in equity prices. Market performance is now disconnected from economic fundamentals.
I’ve been asking myself the same thing. But I’ll take the gains in my investment portfolio. For now, at least.
One theory may be that many see the write downs as a sign of normalacy. Take a look at the big write downs, and look at how the stock went up after said writedowns!!
It’s like rewarding a naughty child.
Shaking head.
Leigh
The banks’ share prices were already low due to (1) anticipation of losses and write downs, and (2) uncertainty of the magnitude of the said losses and writedowns. When the large banks finally announced their writedowns, share prices went up due to the reduced uncertainty, and maybe because the writedowns were not as large as the market had anticipated.
Wow, these curve-fitting exercises are fun!
More seriously, though, banks will probably announce even bigger writedowns in the near future, as the extent of their losses in secured and unsecured junior loans becomes known.
Please to meet you Diego! P’Bear (I believe) said something similar a few days ago. The banks will let the air out slowly.
I pray she’s right!
Best,
Leigh
Maybe I’m wrong - but aren’t the trading volumes waayyyy low for this time of year? Yesterday’s tallies looked like something one would expect in August.
Yes trading volume is pathetic. The market is not doing well. It is a last gasp beached whale. It is still huge and dangerous, but its thrashings are not going to get it back into the high seas.
Market = frenzied beached whale. Great analogy.
Compare the stock market to the housing market. Median house prices continued to climb while sales volume plummetted. Then prices began to slide….
The stock market is just trailing the housing market a little is all. Patience will be rewarded, grasshopper….
Yesterday was Columbus Day. That may explain one of the reasons why volume was low.
October 9 2007: 2:23 PM EDT
NEW YORK (CNNMoney.com) — Stocks ticked higher after the minutes from the most recent Federal Reserve meeting seemed to confirm bets that the central bank is likely to cut interest rates again this year.
2 comments:
1) “The expanded losses are primarily due ‘to the receipt of actual sale price documentation for asset liquidations conducted by third-party financing counterparties as opposed to those sales conducted by the company,’ Thornburg said.”
! Better run that through the Orwellian doubletalk Babelfish: We put our stuff on the auction block and it sold for a lot less than we thought it would and now we gotta adjust our balance sheet uh-oh.
2) Dugan said that ‘legitimate questions have been raised about just how well they assessed and understood the risks’ of mortgage securities made to borrowers with shaky credit.”
Shaky credit?!? Does NOBODY realize that FICO has zero-zip-nada to do with whether or not somebody can pay a mortgage back? Paying that $50/month cell phone bill does NOT mean you can pay a $2600/month mortgage! It all has to do with price / income. Couple that with an exotic mortgage or exotic cashout re-fi, and it doesn’t matter what the FICO says. When that I/O ARM adjusts, Joe Engineer will default on his $1M home just as surely as Jose Strawberry Picker will default on his $400K home.
The media seems to forget what REALLY started the credit crunch. They all say “subprime meltdown,” but I recall that it was the beginning of defaults in ALT-A that made hedgies nervous enough to ask for their money back. (do I remember that right?)
720+ FICO or not, an expensive ARM is an expensive ARM. Wait until the those prime McMansion HELOC’s start getting 60-day notice.
Thornburg last reported shareholder equity is only about $2.3 Billion, and mkt value 1.48B….
pfft 1/2 gone ……..
————————————————————–
“Thornburg Mortgage Inc., the Santa Fe, New Mexico-based mortgage provider, lost $1.1 billion selling bonds backed by adjustable-rate home loans as rising defaults eroded demand for the securities.”
I remember in mid-August some jerk on CNBC was going on about how undervalued Thornburg stock was because their loans are all high quality, not subprime. Idiot.
That was their president Larry Goldstone on 8/15/07:
“The market has a hard time distinguishing high quality assets from low quality assets. We have 58 delinquent loans in 38,000 loans in our portfolio. That is a high-quality lender. We are being painted with a very ugly brush right now, and it’s been painful,” said Goldstone said yesterday.
They must have been some big-a$$ed loans!
“Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag.”
There is the other shoe. The worst is behind us, they say. Right…
When these guys start losing money, the butt cheek spreads will — Oh, the humanity!
But lenders are STILL giving builders money. How stupid can these guys be?
We had a local builder who had to shut down his operations this summer due to an inventory overhang. This month he had a knife catcher buy five homes at a “discount” and got off the hook. So does he exhale a sigh of relief and pull back? Of course not, he pulls another five construction loans and is ramping up construction again. First, the builder is absolutely determined to put his head in that noose. But really, this builder is putting the lender’s neck in the noose and the lender effectively says “prime + 1 and I’m in! Let’s party dude!”
I can’t wait to see these stupid developer-enabler lenders go under. Alarion, Millennium, I’m looking at you.
Okay, people, it’s Slim weighing in with some hot gossip from the neighborhood. If you’ve been following my threads on the Bits Bucket, I’ve been telling the story of an elderly friend/neighbor who just joined an MLM fee that sports a lifetime membership fee of two grand.
One of the people who recruited her into this opportunity is a real estate agent. One of her current listings is a flip attempt that her live-in boyfriend bought a couple of years ago. It’s down the street and ’round the corner from the Arizona Slim Ranch, and it was the scene of an open house this past Sunday.
Alas, that open house wasn’t too successful. Yesterday evening, while I was on my way to the grocery store, I noticed that the flopping flip property’s “For Sale” sign has a new friend. It’s a sign that says “For Rent.”
Methinks that the combination of house-flipping, real estate agenting, and MLM-ing isn’t working out very well.
Are you safe, Slim?
http://www.youtube.com/watch?v=M41pIhJRBWw
Sure am! I just got out of a policy meeting where they were offering someone else as a treaty.
One national RE Co. in my area no longer uses “Price Reduced” - they now say “New Price”. Ha, like that makes a difference!
“Investors are shunning CDOs and other credit assets on concerns that losses on U.S. home loans”
It almost sounds like the only victims of the mortgage mess is going to be the CDO’s. Like somehow people don’t matter, just business. When a company loses they have insurance and nobody uses their own money. Where’s the real loss?
Can some one tell me or point me in the right direction. What will be the BOTTOM LINE COST of the mess - when you add the subprime + HELOC + walking away from house + etc.
Marky Mark
I am betting on about $1 trillion - and the S&L mess was $150 billion in 1988 dollars. Please help with some sources!
The total cost will be equal to the total profit off all this financial ‘engineering’ x 2.
I think I calculated that the decline in housing prices required to restore affordability, if applied to every owner-occupied home in the country, is about $5 trillion. Add to that transaction costs and accelerated depreciation and you have an outside measure of the damage.
But most of that extra $5 trillion of “value” was not real, just a paper concept, an illusion. For everyone living in a house bought before the bubble that didn’t use a second mortgage to extract equity, the lost false value matters not at all.
So the question is how many houses were sold at the peak, HELOCed above real value, or built at a cost that cannot be recovered? That is the total value of the loss.
Thanks - it is a start. I am suprised this is not an easy stat to find…
>
Just like our Federal Reserve notes and hence our entire economy.
‘But most of that extra $5 trillion of “value” was not real, just a paper concept, an illusion.’
I am guessing it felt pretty real to the likes of Robert Toll or the Tan Man, who cashed in reams of bubble-valued stock options at the top.
“So the question is how many houses were sold at the peak, HELOCed above real value, or built at a cost that cannot be recovered?”
In a way I’m wondering not so much about the financial losses facing all of the above, but really the outcome after the losses. What will be different after financial institutions lose money? Will it be a “brave new world”?
WASHINGTON (Reuters) - All members of the U.S. Federal Reserve’s policy-setting committee agreed a half-percentage point federal funds interest rate cut was necessary to shield the economy from credit disruptions and an intensifying housing slowdown, minutes of their September 18 meeting released on Tuesday showed….
Without such a move, policy-makers were afraid that tightening credit conditions and the deepening housing slump that had been triggered by a spike in mortgage foreclosures would lead to “significant weakness” in business activity and hiring…….
The Fed discussed “additional policy options” to address strains in money markets at the meeting, but no decisions were taken at the time, the minutes said.
***************************************
no dissenting votes.
additional policy options, appear to include carpet bombing savings accounts of all reasonable Americans, Orderly Bank Failures, Liquidity Actions, Thumbing the nose at the Foreign CB’s as inflation crushes the unwashed masses abroad, Options Friday Roulette wheel spinning for suprise cut at the disount window, finger pointing, and of course, plenty of lever pulling and button pushing.
This really worries me that they have completely ignored momentary stability (i.e. inflation) in their zeal to manage the economy rather than the money supply. Worse yet is that it was unanimous. As an instead, it’s interesting how the Brits handle their credit squeeze: All the credit a bank wants is available, but at a higher penalty rate, not a lower moral-hazard rate.
stock market has to price in more unanimous good news rate cutting going forward……into the breach
Voz, I am still digesting their report and am still trying to decide why they lowered the Fed Fund rate at that time. (IMHO a waste of the only Fed bullet remaining).
This report may go down better with some soy sauce or hot salsa, it is thoroughly indigestible as it is. I bigger piece of garbage has not come out of the Federal Reserve since 1991 or 1992. “….They also agreed that the inflation situation seemed to have improved slightly and judged that it was no longer appropriate to indicate that a sustained moderation in inflation pressures had yet to be shown. Nonetheless, all agreed that some inflation risks remained…”
Increasing personal incomes, more favorable business conditions and lets lower the rate?
They know that a tsunami is about to hit and there is nothing they can do about it. The problem is not in the regulated banking sector, it’s the unregulated hedge funds. As soon as all the crap paper the hedgies are holding is marked to market there is going to be a huge credit deflation. The low rates in the bond market are practically screaming of an imminent slow down.
“As soon as all the crap paper the hedgies are holding is marked to market there is going to be a huge credit deflation.”
Why can’t this problem be indefinitely postponed, especially with a bevy of extra behind-the-scenes life support measures from highly concerned central bankers?
fear
Wow guys…this is going to get real interesting soon…food prices are going thru the roof and further cuts will in effect slow the economy down. It appears the Fed is content to induce another stock and commodity bubble but don’t realize it will have the inverse effect on main street of higher prices for the things we need (food, energy) and less consumption of other things (ipods, consumer electronics, cars, homes). Bubbles bubbles everywhere !
Great insight, Shake.
Sitting on a sofa on a Sunday afternoon
Going to the candidates debate
Laugh about it, shout about it
When you’ve got to choose
Ev’ry way you look at it, you lose
“‘Based on activity since early August, our experience is worse’ than the past two corrections, Robert Toll, CEO of Toll Bros. told investors at a recent Credit Suisse (CS) conference. ‘Who can’t be concerned, with what we’re looking at right now?’ Toll says.”
The only Credit Suisse report you need to know about…
Is 24K, yellow in color, with meaningless certificate of authenticity (You really can’t fake the look of high Karat Gold, not possible, and no other Gold Bullion coins come with certificates) and comes in bite sized wafers
And best of all, they contain no high fructose corn $yrup
Where do you get 24K bullion?
“”But they didn’t have the credit scores to get (a loan), and six months ago they would have.’”
So why don’t you try selling to people who CAN qualify for a loan now instead of depending on the bottom of the barrel buyers you’ve relied on for so long ?
That’s easily explained. For a given level of permanent income, bottom-of-the-barrel buyers make higher offers than households making the “mistake” of exercising financial prudence.
Concur. When you live hand to mouth and you’ve never saved so much as a plug nickel, the promise of financial security through home ownership instantly seems “worth it” (”It” being massive risks and crushing debt).
On the other hand, when you’ve worked to save the money necessary for a downpayment, and you have to hand over a check representing about one year’s take-home salary, an amount that took you several years of sacrifice to accumulate, a different mental calculus comes into play — “I can buy this house now or take the next year off from work… maybe in the long term buying the house makes sense, but damn…” replaces “No money down and how much a month? Where do I sign?”
The former leads to sober analysis of the offer price. The latter is indulged by people who believe ‘I don’t have any money anyway, so what can they do to me if I don’t pay?’
They cant do that because pride is a powerful thing. The builders would have to admit that they were wrong and pride can not allow that. For example we made a offer to Ryland for a 350k home and wanted 83k off. They were not willing to go past 46,500 so now we wait and see if they are willing to be more reasonable come next year. I have no doubt that at some point they will call us up to see if can take one at our old price. They had their chance.
because A. they should not be in the business B. They cannot close quick to make their commission C. Too Much work…i have been in the trenches for 20 years…and what i saw the last 5 has been ridiculous. NIV for 700 credit score with no to little downpayment is not lending. couple that with neg am or arm and its all done!
So why don’t you try selling to people who CAN qualify for a loan now
We ran out of those in summer 2003, which is why they started scraping the bottom of the barrel in the first place. The only ones left who are qualified to jump in are too smart to do so.
Check out the Slide Show of “Americas wrost battered home builders,” a slide show no less. This is getting mainstream:
http://images.businessweek.com/ss/07/10/1005_builders/index_01.htm
“Setting asset values wouldn’t be ’simultaneously fair both to investors redeeming from these funds and to investors remaining in these funds,’ CEO Michael Vranos and Vice Chairman Richard Brounstein wrote.”
The ultimate in arrogance. Hedge fund managers who think they know how to price their paper better than the market. This is pure insanity. This just shows me how many bankrupt hedge funds are out there. They will have to come clean eventually, and when they do, it will get real ugly. This “crisis” has barely just began.
Nobody wants to set the price, to actually show how much of a reaming they’re going to get.
“selling for 10 to 15 cents on the dollar”
Ok, that really is more than a flesh wound!
“..Today, developers owe Corus $4 billion, $3.7 billion of which, or 92 percent, is in condominiums…”
Condos for everyone!
If the FDIC allows Corus or most banks to keep their dividends this year, I will be shocked.
“Ellington Management Group LLC, the Old Greenwich, Connecticut-based hedge-fund firm that focuses on mortgage securities, suspended client redemptions from two funds because it’s too hard to value their assets.”
Are many of the people who are sufficiently rich to qualify as hedge fund investors also sufficiently stupid to believe such inane lies? It is quite easy to value assets — just sell a few at whatever price the market will bear, and that will give a pretty good idea of what they are worth.
“It is quite easy to value assets — just sell a few at whatever price the market will bear, and that will give a pretty good idea of what they are worth.”
Thats too funny. When can we get up close and personal and watch this happen. They are all “chicken littles”. Lets make fun of the scaredy cats.
Also why can’t the stock markets take a moment to digest the real numbers that are coming up. Hell, poor old Intel and MFST are still where they were weeks before 911!
Rante’
Did you know…the hedgies are way smarter than the market. They are waiting for the market to conform to what they think it ought to be.
The only thing that will pluck their hubris are their clients running for the exits, lawyers ahead of them to open the doors.
One of the biggest problems in the mortgage business is that the current core group of loan officers (3-5 years exp) never bothered or were never trained in lending or marketing. Most of their day was spent talking on the phone. years ago our guys would meet the borrower face to face. Find out what their comfort level was for payment, how long they planned to stay, what type of goals they had and sell them the safest product ie 30 year fixed or 10/1 ARM which was basically a fixed product. However, those expectations of low payment were met and exceeded by the current core group of loan officers with interest only products, neg am products, arms. Alot of my friends exited the biz in early 2000’s when they simply could not educate the consumer enough about the problems with the whole toxic loan syndrome. Couple that with rising real estate prices and these products in the mid 2000’s were the only programs a borrower could qualify for. This is just deja vu for me circa late 80’s. Lending guidelines are not tightening…they are returning to normal. Housing prices will continue to decline….until the first upward sign of sales is achieved(not skewed). Then the whole party begins again and we are right back here…some of you for the second time and some for the third! btw..i bet my 6.5 and zero point 30 year loan is looking pretty good to the toxic arm crew now…and they scoffed at that for the past three years.
Hey Guys I found your blog in august, I was in Japan at the time and really wondering what was going on in American RE.
My family has dealt with rentals for years in Bakersfield and last christmas I was getting lectured by my uncle and his son that things are all over priced. That you couldnt cash flow anything. My uncle told me that the way it works is like this. People go into the market it goes up, then more people go into the markey and push it up higher than it should, then its a bubble…it pops…they then go to real estate repeat.
I am shocked that a you all have been calling it correctly in august you kept saying it wasnt a sub prime only issue. now it seems like people are slowly walking up to the what is going on.
Can anyone tell me what the trigger is that is making this floks come to their senses. I dont see what a difference a month makes.
Also wouldnt the people who care about this stuff REC read this place and try to up with the possiblitys of what could happen.
http://www.minyanville.com/articles/Fed-government-housing-bailout/index/a/14408/from/yahoo
The 2001 rate cuts caused the bubble that is now a crisis. Here we go again…
AP
Heating Costs Seen Jumping This Winter
Tuesday October 9, 4:16 pm ET
By John Wilen, AP Business Writer
Government Predicts Heating Oil Customers Will Pay 22 Percent More This Winter Than Last
http://biz.yahoo.com/ap/071009/heating_costs.html?.v=8
Pay for mortgage, pay for heat? Pay for mortgage, pay for heat?
(In NE I remember that heat was optional–my family never screwed up like that, but some of our neighbors did. Of course with Joe For Oil I suspect there’s some softness in the blanket and sweater market. Anyway, Southerner Dave Ramsey and former foreclosee says pay the light bill first. Of course, A/C isn’t as disposable as heat, if you live in a poorly constructed dwelling in the South. I’m curious to see which way people will go on that.)
Pay for mortgage, pay for heat?
Pay for nothing! The government will pay for it…at least that’s the FB way of thinking.