The Early Stages Of The Cleanup
Some housing bubble news from Wall Street and Washington. Bloomberg, “Countrywide Financial Corp., the largest U.S. mortgage company, said late payments at its servicing unit rose, foreclosures doubled and new loans fell 44 percent as housing sales slowed. Overdue loans as a percentage of unpaid principal increased to 5.85 percent in September from 4.04 percent a year earlier, the company said. Foreclosures climbed to 1.27 percent from 0.51 percent.”
“Total employment fell by more than 4,900, with most of the reduction among staff that handles new loans, said a report by Credit Suisse Group.”
Dow Jones Newswire. “Countrywide President David Sambol said the drop in lending volumes ‘is reflective of current market conditions and more restrictive underwriting.’”
“Countrywide also continued to cut its loan pipeline, which should lessen the stress on its near-term funding needs. It had $42 billion of in-process loans as of the end of last month, a drop of 35% from a year earlier and of 19% from the previous month.”
The Associated Press. “With rising delinquencies among subprime mortgages, Countrywide has nearly abandoned that type of loan completely. Subprime originations fell to $255 million in September, from $3.1 billion during September 2006.”
“Funding of adjustable-rate mortgages was drastically reduced as well. Countrywide originated $3.8 billion in adjustable-rate mortgages in September, down from $15.8 billion last year.”
“U.S. home foreclosures doubled in September from a year earlier as subprime borrowers struggled to make payments on adjustable-rate mortgages, RealtyTrac Inc. said.”
“There were 223,538 foreclosure filings last month, including default and auction notices and bank repossessions. California had the most with 51,259 and Florida was second with 33,354. The national foreclosure rate was one for every 557 households, RealtyTrac said.”
“As many as half of the 450,000 subprime borrowers whose mortgages will re-set through November may lose their homes because they can’t afford the higher payments, according to a report by Credit Suisse Group.”
“‘The truth of the matter is that borrowers are going into default as soon as they hit their adjustments,’ said RealtyTrac VP Rick Sharga.”
“Foreclosures on loans made in 2005 may ’start to wind down’ at the end of the year, while loans made in the first half of 2006 will probably lead to additional foreclosures in the middle of 2008, Sharga said. ‘This wave ends in December, and another wave starts in May,’ he said.”
“Prices in 20 U.S. metropolitan areas fell 3.9 percent in the 12 months through July, the most on record, according to the S&P/Case-Shiller home-price index.”
From Reuters. “Downey Financial Corp said it expects a third-quarter operating loss of about $23 million, or 84 cents a share, as it increased allowances for loan losses due to loan delinquencies and losses from foreclosures in a continued weak housing market.”
“The savings and loan holding company said in the quarter it posted an about $82 million pretax provision for credit losses, which boosted the allowance for loan losses to about $144 million.”
“Downey said the housing market issues, disruption in the secondary mortgage markets, hurt its borrowers and the value of their loan collateral in the quarter. The single family loan delinquencies and losses from foreclosures rose significantly during the third quarter, CEO Daniel Rosenthal said.”
“Goldman Sachs Group Inc., the world’s biggest securities firm, said its holdings backed by pools of bonds and loans dropped 53 percent in the third quarter, the second consecutive decline amid a global credit contraction.”
“The ‘fair value’ of retained interests in collateralized debt obligations and loan obligations was $1.77 billion at the end of August, down from $3.79 billion three months earlier, the firm said in a regulatory filing.”
“‘There was nothing in the mortgage space that didn’t decline in value,’ David Viniar, Goldman’s chief financial officer, said in an interview after the Sept. 20 earnings report. ‘Anything we had was down.’”
“Beazer Homes USA Inc., the homebuilder under investigation by the Securities and Exchange Commission, will restate earnings going back to 1999 after an internal probe found its mortgage unit violated federal regulations.”
“Employees violated U.S. Department of Housing and Urban Development rules related to the agency’s down payment assistance program, Beazer said. Beazer shares fell to a seven- year low this year as the SEC and the FBI started investigations of its accounting and lending practices.”
“‘They’re not going to fight. They can’t win,’ said Peter Henning, a law professor at Wayne State University Law School in Detroit. ‘You admit your accounting is wrong and there were problems in your loan documentation, there’s nothing to fight about.’”
“The FBI opened a potential fraud probe of Beazer after the Charlotte Observer reported in March it sold homes to low-income buyers who couldn’t afford them. The loans were based on the assumption the buyer’s income would rise, a practice restricted by the Federal Housing Administration.”
“The company’s FHA-insured mortgage origination business may have violated ’standard representations made to mortgage purchasers,’ according to the statement today.”
“HUD ended the down payment program this month after saying it led to higher prices and more foreclosures for home buyers.”
“The program let nonprofit organizations including AmeriDream Inc. fund down payments for low- and middle-income home buyers and be reimbursed by the sellers of the homes. It was used by more than 100,000 consumers last year and accounted for a third of all Federal Housing Administration loans.”
“Sellers sometimes try to recover the cost of the fee they pay nonprofits by raising the price of the house an average of 3 percent, a 2005 study by Congress’s nonpartisan Government Accountability Office found. The higher prices helped to double the rate of foreclosures on homes paid for with FHA-backed assistance, agency audits found.”
“Beazer issued preliminary financial results for the fourth quarter and said home closings fell 39 percent to 3,940. New orders plunged 52 percent to 990 homes as the cancellation rate surged to 68 percent due ‘in large part to the pronounced tightening in the mortgage markets in August and September.’”
“In August, the company’s credit rating was cut by Moody’s Investors Service on concern the housing recovery won’t occur before 2009.”
From Forbes. “Moody’s Investors Service lowered its corporate family ratings on homebuilders Centex Corp, Lennar Corp, and Pulte Homes Inc to ‘Ba1′ with a negative outlook.”
“Moody’s said it sees no sector recovery beginning before 2009 at the earliest, due to elevated new and existing housing inventory levels, disruptions in the mortgage market, thus prolonging the companies’ underperformance on key financial metrics against prior expectations.”
“Existing home sales this year probably will fall to a five-year low, worse than forecast, signaling the U.S. housing market is far from hitting bottom. New-home sales may decline 24 percent to a 10-year low of 804,000 and existing home sales will fall 11 percent, the National Association of Realtors said in a news release.”
“It was the 10th time this year the Chicago-based group lowered some part of its monthly housing and economic forecast.”
“The decline in new home sales forecast for 2007 by the Realtors is 37 percent down from the record of 1.28 million sales in 2005. That would exceed the 25 percent three-year drop that ended in 1991, the last housing recession.”
“Housing starts in 2007 probably will tumble 24 percent, on the heels of a 13 percent drop last year, the real estate trade group said. ‘A cutback in housing construction is a positive sign for the market because it will help lower inventory and firm up home prices,’ Lawrence Yun, an NAR economist, said in the report.”
“The eighth straight downwardly revised forecast from the National Association of Realtors calls for U.S. existing home sales to be 10.8 percent below last year as housing market woes persist.”
“Despite the bleaker outlook, the group maintains an optimistic message. Its senior economist, Lawrence Yun, noted in a statement that…2007’s home sales will be the fifth-highest on record.”
“‘The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains,’ Yun said.”
The Wall Street Journal. “An analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.”
“The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans.”
“Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.”
“The Journal’s findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography.”
“The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish.”
“‘We had an aggressive home-mortgage industry trying to get people into homes they couldn’t afford at a time when home prices were very high. It turned out to be a house of cards,’ says Karl Case, an economics professor at Wellesley College. ‘We’re in the early stages of the cleanup.’”
“Kristine McMahon has a six-figure income as a mortgage broker and lives in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced last year to turn some of her home equity into cash.”
“Ms. McMahon says that at the time of the refinancing, a conventional lender would not allow her to take out as much cash during the refinancing as her subprime lender, New Century Financial Corp., which is now operating under bankruptcy-court protection.”
“Ms. McMahon chose a subprime loan that carried a fixed-rate of 6.45% for the first two years before turning into an adjustable rate. She plans to sell the house before the higher adjustable rates kick in.”
“Last September, Darla Ball purchased a $460,000 home in Las Vegas using an adjustable-rate subprime loan with an initial rate of 8.2%. At the time, she says, she expected to refinance before her interest rate resets to 14% next year, which will raise her monthly payments to $8,000 from $3,700.”
“But in the past year, she says, prices of comparable homes in her subdivision have fallen to $310,000, which means she would not qualify for a new $460,000 mortgage, unless home values go back up to that level, an unlikely scenario.”
“She says she has stopped paying her mortgage and is trying to negotiate with her lender. ‘I’m going to lose my home anyway,’ she says, ’so why pay?’”
“Despite the bleaker outlook, the group maintains an optimistic message. Its senior economist, Lawrence Yun, noted in a statement that…2007’s home sales will be the fifth-highest on record.”
“‘The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains,’ Yun said.”
He just keeps on spewing the snake-oil jargon, day after day.
The facts speak louder than Yun’s silly words.
As long as “prices remain near record highs” is true, it cannot also true that “The speculative excesses have been removed from the market”. You cannot have a healthy market while prices remain near their peak-insanity levels.
Lawrence Yun: “… 2007’s home sales will be the fifth-highest on record … [yadyadyada] … while prices remain near record highs.”
Despite the doublespeak in between Lawrence, thanks for pointing out the facts that 1. demonstrate the remaining excesses, 2. that prove we are still very near the top and 3. that this is an awful time to buy.
I for one will wait until you announce that we have the twentyfifth highest annual sales on record and prices are 50-70% below record highs. I’ll then send you a thank-you card to your new address at the van-down-by-the-river, for saving me from making a foolish mistake now by providing these insightful facts.
And this just in from Leslie-Appleton-Young via my sibling at the CAR convention in Anahiem this week (this is in my brother’s words not mine BTW)….”CAR’s Chief Economist, Leslie Appleton-Young did her Market Forecast for 2008 at the luncheon yesterday. She’s like the ‘Messiah’ of this group. They all scramble to listen. While her forecast for 2007 actions in the market were somewhat close, the percentages of what happened were not. She forecasts another 4% decline in the market but the high end (over $1 million dollar home sales) will continue to be robust……..” Yadda, yadda, yadda…..sorry I can’t take anymore of the “share the kool-aid” drivel. This gathering is a Appleton-Youngstown isn’t it? Quick, someone get the helicopters and get these people out of there before it’s too late!!!
at the CAR convention in Anahiem this week…
“This has to be the busiest and most prosperous convention ever” said the alcohol vendor.
2008 will be the 6th year on record, 2009 will be the 7th best year on record and etc until the bottom.
The Patient is dead but the Surgery was successful.
“Last September, Darla Ball purchased a $460,000 home in Las Vegas using an adjustable-rate subprime loan with an initial rate of 8.2%. At the time, she says, she expected to refinance before her interest rate resets to 14% next year, which will raise her monthly payments to $8,000 from $3,700.”
Oh my god. I am nearly speachless looking at those numbers. How incredibly bad does your credit need to be to have a 14!!!!% interest rate on a secured loan. I have credit cards that have a 8% fixed rate on a REVOLVING/unsecured line of credit. Even her inital rate was incredibly high.
And the payments!! 8000 dollars for a 460K home? The typical rule would say that the entire home (MTG/taxes/insurance/main) is about 1% of value. Just her NOTE is 2% of value every month!
Ever 4 years (48 months * 8000) she just about pay the ENTIRE COST of the home!!
Now that’s SUBPRIME folks!
Yes, something is wrong with the number. Using a mortgage calculator, a 460K mortgage (0 down), at 14% fixed 30 years should be
5450.41 (Without tax and insurance)
So about $6K per month with PITI estimated.
Perhaps she got an (negative amortizing) adjustable-rate subprime loan. Still, that number is just absurd.
qt, you need one of those double-secret mortgage calendars that Doublewide Mortgage and the rest of the debt peddlers use to calculate payments. Your calculator doesn’t have enough keys on it.
Yeah, my calculator tends to use real numbers and produce real results: none of this realtor 2 + 2 = subprime payments forever stuff! Hehehe…
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Don’t we have laws against usury?
Jas
Some of the states used to have them. CA still might have some, and I don’t know how the CA lenders get around them. My Phoenix lawyer didn’t raise any red flags when I charged a few people more than 10%. His knee-jerk issue is whether I might appear to state regulators to be a “bank,” which would subject me to a lot of filing requirements. But since I don’t have “depositors,” this seems to be a non-issue. Also the total amt of my mortgage loans all together is less than $1M, what kind of a bank is that!!
Check out some of the payday-loan and advance check-cashing places. The effective rate relative to use-of-the-money is worse than ‘ol Sarge used to charge during Vietnam.
I used to work for one of those outfits. The effective APR (and this is actually disclosed to customers) approaches 1000% (one-thousand percent).
BTW, it’s closer to 5 years
“Here’s your loan, Ms Ball. Congratulations. You own a house. And here are some foreclosure documents you may as well sign now..”
I didn’t come here for this abuse, I came here for an argument!
Oh, terribly sorry, this is abuse. Arguments are two doors down the hall.
Got popcorn?
Neil
“I didn’t come here for this abuse, I came here for an argument!
Oh, terribly sorry, this is abuse. Arguments are two doors down the hall.”
Why did you say good morning when you knew perfectly well it’s mid afternoon?
I have accounts with American Express Blue Sky and Chase where I’m paying 4% for the life of the loan. I’m not planning on making any late payments, but I can pay them off if I make a mistake.
It’s odd that the Clark County Assessor has no record of any home being owned by a Darla Ball.
“The FBI opened a potential fraud probe of Beazer after the Charlotte Observer reported in March it sold homes to low-income buyers who couldn’t afford them. The loans were based on the assumption the buyer’s income would rise, a practice restricted by the Federal Housing Administration.”
cant you just see the lines at the local court houses. everyone who bought a home from these guys will have a lawyer by the end of the week! lol!!!
Again, kudos to the CO for doing this kind of investigative reporting…YEARS ahead of any other news organization. If we had more like them, we wouldn’t have this problem now.
ben, you are 100% right about that.
I agree, the Charlotte Observer has done a great job. Our sad rag The State in South Carolina still does it’s best to only print “happy” stories, or the it’s not the borrowers fault/it’s not fair stories.
Could be worse: you could get the Baltimore Sun, which makes Pravda look like an honest paper. It’s so far “out there” that I have no idea how they even find customers. Maybe the Sun makes better than average quality birdcage liner?
Ben, if you saw what kind of nightmare Charlotte is with overbuilding you wouldn’t be too high on the Charlotte Observer. Charlotte is owned by the developers and I never saw the Observer shouting that from the rooftops. The Charlotte NBA stadium was voted down 58 - 42 in a “non-binding” referendum and was built anyway. I don’t remember the Observer leading protests over that one. Mecklenburg County gets fleeced on property taxes to pay for surrounding areas but I don’t remember the Observer starting neighborhood watches to stop those robberies. We got to see firsthand the boondoggle that will be Charlotte’s light rail system. I don’t recall the Observer fighting to kill that nonsense. Bless you to anybody that will need to drive on South Blvd. when that thing is complete. I think the Observer is good on this one, but like so many other media organizations, their overall record pretty much sucks.
Maybe, but their reporters were digging hard into this in 2004.
I agree that they deserve some credit but geez if Charlotte isn’t turning into hell. They probably couldn’t stop it but I hope they will at least go on the record to say, “this ain’t right”.
Charlotte light rail.
If you want to see how useful light rail is, you need to visit the light rail that the wise (mafia) city planners of San Jose, CA built.
I think the construction costs in San Jose were a few $Billion and we still need to subsidize the cost of keeping the light trains moving. Rider fees pay 10% of the running costs and 90% of the costs come from gas tax or somthing similar. And of course the trains always have the right of way for any road crossings, city planners don’t care if it jams up the car traffic, they think cars are evil.
If they hadn’t fought BART many years ago, this would not be an issue.
Got you beat in LA. Greenline train that stops about 1 1/2 miles from LAX - you have to transfer to buses to get the rest of the way.
the city of angles has the worst public transport of a city it’s size, in the entire world.
” The Charlotte NBA stadium was voted down 58 - 42 in a “non-binding” referendum and was built anyway . . . ”
. . . that comment reminds me of when the Tampa Bay Bucs wanted the taxpayers to pay for their new stadium, BUT, it failed not one, but TWO public votes for financing. Wasn’t until the 3rd time the proposal was attached to a heartstrings school funding bill that it BARELY passed by a few points . .. and I remember seeing huge cement pilings already sunk while driving by on Dale Mabry Blvd at least a month BEFORE the vote, and telling my (ex) spouse that this thing will pass this time: the fix is in !
No way are the developers going to spend millions without knowing for sure it will pass later to recoup/make their $$$
Hence the final confirmation in my observation that Tampa politicians are crooked as hell.
I believe many of BZH’s legal problems stem from their Ardrey Woods development in Charlotte. That was just down the street from me in South Charlotte. That is definitely not “the hood”. It is in a booming area where the homes are nice and you would think people had money. This episode is one of a million that illustrates just how screwed up the lending practices had become in the past 10 years.
I’m glad they are finally going after the builder fraud ,with their special lenders .You can’t tell me that this housing boom wasn’t fueled by the builders in large part with the easy money get anybody into a new house rountine .
“I’m going to lose my home anyway,” she says, “so why pay?”
Multiplied by millions and you have the worst economic disaster in our history. Yet we, the HBBers, still have to deal with idiots day in and day out that tell us we are being too negative. To all of those people I give a big “f— you!”.
Hear, hear. If wanting home prices to return to being affordable is negative, well…
Regarding affordability, I contacted a ziprealty agent just to get his philosophy of the housing bubble and whether he thinks prices are too high. In response I got a long tirade about how a home is “not an investment,” “don’t worry about the financial part,” “it’s an emotional purchase and provides uutility,” etc. I canned his e-mail address immediately.
The only purchase I know of rcently is a former 1M fixer upper my buddy got for 770k with over 300k down (profit from last sale) so he has a conforming loan. That’s the only way he would do it. Not too many in his shoes.
a home is “not an investment,” “don’t worry about the financial part,”
oh, so i guess you are supposed to just cut your throat so this guy can make his commission!
300k down (profit from last sale ??
Yeah, and wait until the IRS starts doing audits on the “Flippers” who rolled these profits through a 1031 exchange which is not qulaified…Ordinary course of business = Ordinary income my friend…Get out the check book…
Wonder how many of them were dumb enough to do that and list their job as real estate developer?
It would be a very interesting stat.
Judging by the sound of that nut from Zipreality, house are impulse buys, like candy at the checkout lane. Maybe they should put the house buying forms next to the candy bars at the checkout aisle in grocery stores? People might walk out with a few houses - hey, even buy a few for the kids. Real estate “only goes up,” affordability is “bad,” and so on. Right!
“‘The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains,’ Yun said.”
‘While prices remian near record highs’…so how is that favorable to the potential home buyer that makes maybe, oh, I don’t know, 45K?? I do believe Larry Y. is a bigger liar and jackass than Davey L.
The “American Dream”, according to the NAR, is limited to those who make commissions on “record high” prices.
My wife absolutely HATES this site. She can’t believe I go to a site just about everyday where “people cheer others misfortune”. She thinks the HBB folk are jelous that we didn’t rake it millions during the housing boom.
I started this site to warn people because the press wasn’t doing so. Have her listen to this from the summer of 2005:
The Beginning of the End of the Bubble
Frankly, I wasn’t happy when I wasn’t crazy enough to jump in while my friend was sure that this was his ticket to making a lot of money. But this blog helped me keep myself still. Now, it is my turn to enjoy. I honestly enjoy the misfortune of greedy FBs including my friend! Serves them right!
“She thinks the HBB folk are jelous that we didn’t rake it millions during the housing boom.”
Well, I for one raked it in when I sold my BA home in 2004. And I love this site!! And I’m sure there are lots of others like me on this blog.
I could never understand how recent homebuyers were able to afford what they were buying. This blog has made it crystal clear to me that they couldn’t, but they bought anyway.
And I’m sure one day, maybe in 2009 or 2010, Ben’s blog will help those of us who got out in time figure out when it’s safe & smart to own a home again.
And it’s not just “other people’s misfortune.” I’m sure lots of readers on this blog wanted to buy houses, but didn’t because they said no to being a debt serf and no to suicide financing.
“I’m sure lots of readers on this blog wanted to buy houses, but didn’t because they said no to being a debt serf and no to suicide financing. ”
Spot on Lisa. This blog reminds me of the phrase “An awakened one is Zarathustra: what wilt thou do in the land of the sleepers?”
DP
Right on Lisa.
We too sold our house in early 2006 after owning it for 25 years. We saw this bubble for what it was and concluded its time to get out. We’re sitting on the side line and are now renting a great 3 bedroom house for less than our monthly mortgage payments, which was quite low anyway. We owed less than $20,000 on our mortgage and sold for nearly $300,000. Unbelievable price, we still pince ourselves. We owned a 1,000sf 2 bedroom, 1 bath house with no basement. Still can’t believe we sold it for nearly $300,000. We figure in the next few years it will be worth about $200,000 or less.
We won’t buy again for at least 3 + years, perhaps longer. Prices are sure to decline further, this is only the tip of the iceberg.
We don’t wish ill on anyone, however people must take personal responsibilty for their decisions. If they lived above their means they are about to learn a valuable lesson. Save your money and live BELOW your means.
The people I laugh at now are the people causing misery and misfortune on me when I wanted to buy a house at the beginning of this year. It caused several fights with my wife, who would get pissed when I would suggest waiting until 2010 to buy. I finally talked her into waiting until 2008, and now SHE says “I bet we can find something nice around 2010!” I dodged a bullet by holding out for six months until my wife agreed to wait another year. That was in June. Two months later, TSHTF and she’s glad we dodged the bullet, too!
Not jealous at all - got in and got out and did fine. I read because it’s the only place where I can find mostly like minded, intelligent people who can speak about the bubble issue, strategize for the future and keep each other laughing. If I hear own more stupid fool say they didn’t know they had to pay back a HELOC because it’s their equity - I’m going to go postal.
Silly wage-slave: the American Dream is for flippers, other-people’s-money traders, etc. Not wage-slaves - nope!
That’s what I was thinking, lather,rinse,repeat a few million more times. Anyone that thinks RE will turn around in 2008 is an honest to God fool.
This points to the real motivation behind bailouts. It is not about helping to ’save the homes’ for poor souls who bought houses they cannot afford so much as to lean into the tsunami tide of foreclosures which results when so many people collectively realize they have no hope whatever of repaying their debts.
“…they have no hope whatever of repaying their debts…”
———————–
And absolutely no reason to pay it off, either. We have very high FICO scores, and have no debts; however, I can understand the mentality of those who choose to toss the crushing burden from their shoulders and move on. After all…”everybody’s doing it.”
While the FBs should be foreclosed on and have their credit trashed, it’s the lenders who really should have known better.
Hello??? “no-doc” loans???? 60% DTI ratios (or more!) for $80K earners???? Hope we never have to see those lending standards ever again.
“I’m going to lose my home anyway,” she says, “so why pay?”
Pretty soon a majority of the herd will come to this exact conclusion. When they do, no amount of happy talk will stop the stampede. Market psychology will shift to survival from aspiration. Members of the herd will question your mental state if you decide to buy a home.
“Members of the herd will question your mental state if you decide to buy a home.”
When this happens, it will be safe to buy a home again. We’ve got a few more years to go, however.
From the Hamptons, to probably camping
The bigger they are, the harder they fall…
“Kristine McMahon has a six-figure income as a mortgage broker and lives in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced last year to turn some of her home equity into cash.”
If she has a 6-figure income, why on earth did she need to get her hands on so much cash that she had to get a loan with an interest rate 5% higher than market rate for prime loans?
Oh, because she doesn’t really have a 6-figure income, or she has been living as if she has a 7-figure income.
if this happened back in the 80’s i would say she has a cocain habbit. i really dont know whats on the streets these days, but with debt like that shes got to be taking something.
She could make $105k and technically have a ’six-figure’ income. However, she would not be able to afford that house.
Because this is probably the third or fourth property in her investment scheme, and she needs the cash-back-at-closing to use for the next twelve months of mortgage payments before she flips the property.
Also, she’s probably had to pay for the privilege of going no-doc — which she would of course need to do in order to get a loan at all.
To afford that home, she should be cracking agasint a 7 figure income.
1M X 3 = 3M dollars
3M dollars about the max of what you should borrow with a 1M dollar salary.
“HUD ended the down payment program this month after saying it led to higher prices and more foreclosures for home buyers.”
wow they finaly figured it out!
That was the best thing I’ve seen in an article in a long time!
I hope what comes out of this housing bust is a complete removal of any and all home buying incentives. If you got rid of every tax break, down payment assistance, federal mortgage guarentees, and Freddie and Fannie, we’d see affordabilty improve DRAMATICALLY. If we could add to that the SEC regulating tranching/MBS slicing and dicing/mortgage mixing so that you couldn’t load toxic loans into AAA securities anymore, well, the 15 year mortgage might be back in vogue in no time!
We can dream, can’t we?
Further reducing the pool of potential buyers (over 100,000 buyers took advantage of such programs last year) and closing off another avenue of financing the very marginal buyer.
“Beazer issued preliminary financial results for the fourth quarter and said home closings fell 39 percent to 3,940. New orders plunged 52 percent to 990 homes as the cancellation rate surged to 68 percent due ‘in large part to the pronounced tightening in the mortgage markets in August and September.’”
Maybe the true Achilles heel for any housing recovery. A Chapter 7 collapse of a major builder with substanial stock on the ground would lead to some serious liquidations; and in timelines and quantities that will suck future air out of any ‘recovery’. The NAR’s opinion be damned - you don’t need a recession to further stomp this market, just old time market forces acting on poor business decisions.
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“She says she has stopped paying her mortgage and is trying to negotiate with her lender. ‘I’m going to lose my home anyway,’ she says, ’so why pay?’”
Yes, “Walk Away!” parade will keep getting longer and longer.
Jas
Countrywide news
http://biz.yahoo.com/rb/071011/countrywide_results.html?.v=6
Ooops missed first story on Ben’s lineup! Sorry.
Do they have tanning beds in prison?
no, but i found out they have dialysis machines if his kidneys start to fail.
SPF: Not Needed
This may be dumb question, but as home prices fall, would PMI have to kick in if owners holding traditional loans move into negative equity? What other issues must be considered when home loans and home equity loans are no longer fully backed by home values? Essentially, we probably have a lot of home equity loans no longer backed by equity. Is their any data on this? Sorry for all of the random thoughts!
Not dumb questions at all. It’s really simple, though. All of these issues are the LENDERS problem. They can’t slap PMI on a borrower after the fact.
Historically, in this so-called, “upside down” scenario, where borrowers owe significantly more than the house is worth, they “mail the keys back” to the bank and walk away. Anyone who continues to pay his mortgage gets to keep his house.
Typical AZ Deeds of Trust (mine, in particular) state that “insufficient collateral” is a sufficient condition to define a default. In other words, I could presumably foreclose on someone who is actually making all the payments if I could show the equity is negative. But I’d be a major AH to do it, obviously.
Hey, Lender, the mere thought of that scares the heck out of me. Could you imagine that happening?
Nobody would do that. If somebody’s house drops in value to below what it is worth, yet they keep paying you, you keep your godd@mn mouth shut is what you do. If you foreclose on an underwater house, you are GUARANTEED to lose money.
“to below what is owed on it” I should have said. Sheesh. Sounded like a Realtor for a second there.
I think it is an excellent question, but I don’t know the answer. But what about “PMI” itself? Here is what I found as a definition of PMI.
This special insurance protects the lender if you default on your home loan. It makes it possible for you to purchase a home with as little as 3-5 % down.
My question is, isn’t PMI going to be overwhelmed with requests to cash in from lenders who have gotten stiffed by borrowers? Where does PMI get the money to pay a lender if a borrower defaults, and how much do they have?
Or is this like the FDIC, and the “insurance” is a figment of the imagination and the money would have to be created out of thin air?
You’re correct. Capital ratios for PMI insurers are inadequate; much lower than for insured depository institutions. A not-so-sharp rise in PMI claims would break most PMI insurers, especially those whose reserves are in mortgage-backed securities. Don’t just take my word for it. Get the 10-Qs for some publicly held PMI firms and calculate total equity to total assets. Insured depository institutions average currently about 8% and the legal minimum is about 5%.
PS: The capital ratios for FNMA and FHLMC, based on unreliable balance sheets, are 2-3%.
A lot of people were taking out 80/20 mortgages so that they could get out of paying PMI (an added extra expense when after all house prices only go up), therefore I think the insurers are going to get off “more lightly” than if people were being held to strict lending standards.
If people were held to stricter lending standards, PMI companies would have raked in because the borrowers would presumably have had incomes to make mortgage payments. Also, house prices would have been more realistic.
Usually in PMI contracts,the PMI company does not have to pay on the default if fraud was involved with the loan application .Also,When PMI companies underwrite a loan they usually have higher underwriting standards .
Also in the WSJ article, as traditional subprime lenders backed away from the mess they made in 2006, newbies jumped into the business keeping the ball rolling one more year.
If you can, check out the article’s map showing the areas where subprime loans are the highest percentage of total loans. The worst areas include the middle of the Florida peninsula running from one coast to the other, the Miami/Ft Lauderdale region, the eastern panhandle of West Virginia (!), greater Denver, and California’s entire central valley. There are also a number of small areas.
As with much of the country, our area on the map is uncolored. I don’t know whether it’s because it wasn’t part of the survey, or the subprime percentage is really that low. I do know that foreclosure.com currently lists no foreclosures, preforclosures or bankruptcies in our ZIP code. There have been one or two when I’ve looked in the past.
Looking at that map, I believe an overlay of percent Hispanic population would show they received a special hosing in this bubble.
That’s because their taking the loans Americans won’t take.
“Prices in 20 U.S. metropolitan areas fell 3.9 percent in the 12 months through July, the most on record, according to the S&P/Case-Shiller home-price index.”
That 3.9 percent drop averages in months when the S&P/Case-Shiller index was still positive, and also reflects pre-credit-crunch conditions. Price changes will get more interesting from August forward. Does anyone still say the overall drop off the price peak will be contained to less than 10 percent?
Running the numbers, should the CS continue to erode at its current rate, it would lead to a -5.64% YOY drop. The peak to though would then be about 10%, probably the origin of Yun’s numbers. The CS negative rate change has decelerated in the last 6 months, yet its YOY change of rate still leads to around a 14% drop nationally. And all this with damn little history as to the August sub-prime melt. Cripes, 25/30% nationally is not out of the question.
“Kristine McMahon has a six-figure income as a mortgage broker and lives in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced last year to turn some of her home equity into cash.”
So, subprime was only for the poor?
she refinanced last year to turn some of her home equity into cash.
sound like Ms. Mcmansion has a pretty bad habbit.
Aint that the truth.
a conventional lender would not allow her to take out as much cash during the refinancing as her subprime lender, New Century Financial Corp.
So just how much of that 2.7 million did she need? And for what? Even Hummers and plasmas don’t add up to that kind of squib. (rhetorical question, i can think of few things.)
Probably bypassed silicone and went directly for helium.
Don’t worry…
Justice will be served
(would you like fries with that?, please pay at the 1st window)
It still bothers me that most stories about the sub-prime implosion talk about those with little means, when as noted, those with more money were using these loans as well.
And for what? Condos in _____? Paying off debt? Expanding their RE business?
As I have said, for those who were purchasing homes for flipping, the obvious better loan to use was an Option ARM, as their profit would come from flipping, not paying down their equity. It would have made no sense to use a conventional loan when your profit was to come from expected appreciation.
“The program let nonprofit organizations including AmeriDream Inc. fund down payments for low- and middle-income home buyers and be reimbursed by the sellers of the homes. It was used by more than 100,000 consumers last year and accounted for a third of all Federal Housing Administration loans.”
Isn’t this what is commonly referred to as a ‘kickback scheme?’ And isn’t it illegal?
I posted a reply I made to an email from Schumer’s office a couple weeks ago. Central to his “bailout” plans was the beefing up of non-profits. Is there anything more disgusting than “non-profits”? All a non-profit has to do is spend every dollar that comes in. Bingo, no profit. Administrators of non-profits can make huge amounts of money. You can bet Schumer, Hillary, Dodd, etc. all have pigs lining up at the trough to start those kindly non-profits and collect huge sums of money from them.
“But nobody has any respect
Anyway they already expect
You to all give your check
To tax deductible charity organization”
Have to disagree my friend - I don’t think you can say ALL non-profits are disgusting. IMHO you have to look at intent when judging anyone or anything. Many who work for non-profits choose to give up bigger salary because they are genuine do-gooders and believe in the cause. I you want to talk about real non-profit rip offs - take a look at churches. I’m just saying when you lump everyone together you get folks saying all HBBs are bitter renters.
This was a blatant but legal end run around the no gifts from sellers to buyers rule. I was amazed the first time I heard of it a few years ago and surprised it wasn’t being challenged.
As we type and read Wall Street continues to hit new highs. The dollar continues to weaken. The trade deficit had a huge drop to $57.6 billion last month (yes, month). Gold is at a 27-year high. The volume on the indexes is very low so this rally has very little conviction.
The funniest part of the Wall Street rally is that it does not help FBs one bit. They don’t own stock. They don’t put into 401k plans. They have no real assets. But the government says, “it must all be good. Wall Street is going up.” It helps Mr. & Mrs. NYCityBoy far more than it helps Mr. & Mrs. Subprime Mortgage. And Mr. & Mrs. NYCityBoy think it’s a big old steaming pile of crap and continue to do everything to best protect ourselves from this long-term mess that the Bernankes, Paulsons, Bu$hes and Greenspans have created.
The stock market always goes up, in the long run.
“In the long run we’re all dead.” - Keynes
so does true inflation if you count every dollar printed as depreciating the ones that are already in circulation
Financial Fascism bears no resemblance to it’s war-like cousin…
Let me ask this about the stock rally in the face of concerns about earnings. Is this a case of foreign holders of U.S. dollars buying the country at prices that (in their currency) seem cheaper to them than they are to us?
The US stock market is the world’s laggard and relative to other markets is down for the year when adjusting for currency translations. A rising US stock market would be a good thing for the economy if the increase in values were to be used for corporate expansion. But as we saw from Alcoa yesterday, the companies are buying their stocks back by borrowing moneys instead of investing for the future.
These two graphs give a glimmer of the world economy compared to the US.
The first graph is the Real compared to the dollar
http://tinyurl.com/2henvq
The second is the Bovespa compared to the S&P500
http://tinyurl.com/yq9qa9
From the 1 yr graphs, The dollar has dropped in value by 17% against the Real and the Bovespa is up 60% while the S&P 500 is up 13%. Just by converting to Real and not buying any Brazilian bonds one is ahead of the S&P500. From an international traders viewpoint, this makes the S&P500 look cheap. Any time the stock market drops 50% in a year which is what the US stock markets have done, bottom pickers will emerge.
The mooring ropes this time, being in the guise of a Gulfstream V
From the sublime to the subprime and back again…
Enjoy the ride?
I just had a brilliant idea; though, I’m sure others have thought the same. But maybe all of this job loss in the mortgage funding industry could just be a transfer of resources. Perhaps those losing their jobs in mortgage funding could just slide over to the mortgage collection side of the business. Maybe that’s why the job news out of Wall Street is showing no negative impact in the aggregate?
Your story does not hold water unless negative balance sheet impacts of the subprime implosion and credit crunch can be hidden under the rug indefinitely, or merely shrugged off when written down in $3b chunks.
I thought of that also. There are plenty of new opportunities in managing REO properties, working for auction houses, tracking deadbeat FBs in recourse states.
What else? Anybody? Anybody?
Hummer reposession.
i think providing hummers might be more appropriate for some of these folks…
Could be lots of opportunity, as a friend of mine found when he got sacked from the mortgage origination end of things. Collections was the obvious step, especially because he had a background in that! Or so it seems at first thought.
Thing is, the collections jobs hadn’t materialised quite as fast as the decline in lending, and so he ended up in another line of work (spreadsheets for the government).
Oh yeah, he was terrified of being in collections and finding himself having to foreclose on people who he’d just sold mortgages to a couple of years before! “Hi, remember me? I’m baaaaaack!”
As for managing REO, seems like not much job opportunity there, given how little work and management seems to go into those abandoned places.
Another friend of mine drives by an REO on his street, been that way almost a year now. The bank had to fix the pipes and all the water damage inside come last springtime because they didn’t even spend enough to have anybody prepare the house for winter.
Yeah, I thought about trying to learn the auction business myself in case my Forex adventures don’t work out…but so far, so good.
“This wave [of resets and new defaults] ends in December and the next wave starts in May” [said a RealtyTrac exec]
This info corresponds more closely to last January’s Credit Suisse chart that we HBBer’s were all in love with last spring. Since then, there have been various commentators saying the “worst” months will occur in 1Q08, and I have never been able to understand the discrepancy. In any case, the inventory buildup and the time needed to complete a foreclosure will probably smooth out the small waves, and it is clear there will be no Bounce in 2008.
If I recall correctly, the prime and Alt-A resets in the Ivy Zelman chart did not crest until 2010 or so (four years out from January 2007)?
I think you’re right although I don’t have it in front of me.
Yor’re right (2010/2011), and at amounts nearly as high as the sub-prime totals.
That chart shows a big peak in Nov, Smaller peak in May 08, and a still smaller one in Sept 08. It’s not until Novemeber of 08 that the subprime ARMs disappear, dropping us down to miniscule resets, and in June of 09, we see the Prime ARMS come in with a small wave, then a build up to another double wave in Aug 10 and May 11 of Option ARMS, then a complete drop off of ARMS as we’ve gotten past the 5 year ‘reset’ window for most ARMS.
Now… keep in mind that we have to ADD IN every mortgage originated between Jan 07 and now, and we know the bad stuff didn’t start disappearing until August, so we should see an big increase in resets between Jan 08 and Aug 09, with a lot of the popular 2 year resets falling between Jan 09 and Aug 09.
This means that that big ‘breathing dip’ in Jan 09 might not be such a big dip.
The other thing is that those Option ARMS could be resetting a lot sooner if the LTV falls and the ‘fully amortizing’ clause kicks in. A lot of those will be ugly as they may have been used as ‘interest only’ or Neg Am loans, and will reset sooner as the LTV covenants are breached. And when you suddenly go to a 25-27 year loan with a high interest rate and 30 years of interest packed into the 25 years, you’ll see some impressive mortgage payment increases.
“An analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.”
Is subprime still contained these days?
As someone said earlier today, contained to planet Earth.
i have not heard of these subprime problems in Africa or Antarctica
It wouldn’t surprise me to hear that someone from the Yukon Territory, Canada defaulted on his/her subprime loan!
Brandon’s question is good. Pmi won’t kick in because no policy was written. It’s murkier on the Equity Withdrawal.I am reading that many have call provisions if the security is impaired. Do crashing prices count?
Would that be their chance to beat the first liens, or would the first mortgage have a cross-default?
“There was nothing in the mortgage space that didn’t decline in value” [said Goldman Sachs's CFO]
Likely true if one had to sell any existing notes. I have instructed my heirs not to sell any of my notes if I’m hit by a bus. None of the borrowers is in default (yet), so just sit still and collect the 9% or whatever. Glad I don’t need to mark to market or model or myth. Book value is unaltered if there is no default.
How many resets are lurking in your portfolio?
You don’t have to conform to GAAP and aren’t a publicly listed entity. Big difference. There are good reasons for this.
Warren Buffet the other day said, “I wish I could ‘mark to model’ my weight.”
Can you elaborate on this? Sounds vague to me.
I really hope you are joking. One’s heirs deserve better treatment than to be stuck with losses.
“It was the 10th time this year the Chicago-based group lowered some part of its monthly housing and economic forecast.”
I started to make some smart assed remark but whatever.
This indicator tells us, that we are far from bottom. As long the mind is behind the market it will go down further.
“‘The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains,’ Yun said.”
As long as #B remains true, #A cannot be correct.
Test
There still too many correction-is-over believers…good contraindicator.
Good to see that we can now expect the law to come in and take these ass clowns to the clink. Not to mention these scumbag RAs in southern cal who are using cash back at signing fraud to get money out of houses. It is so simple to see also list for 600k 9 months later reduced to 500k then a week later sells for 890k…what is wrong with this picture and of course no money down. But let us worry about the police chases and the 711 robbers, as these guys taking MILLIONS are not a big concern. Throw them all in the same room and see if Orangzillow will be the shot caller in the cell block?
Sorry, the powers that be are too busy suing single moms downloading songs off Kazaa to worry about this.
Everything I know about the REIC, I learned from housing blogs (thank you Ben)
Subtitle: The Four Horsemen of the Housing Apocalypse
And I saw when the Lamb opened one of the seals, and I heard, as it were the noise of thunder, David Lereah saying, Come and see.
And I saw, and behold a white horse: and he that sat on him had The Exemption; and two hundred fifty thousand dollars was given unto him: and he went forth conquering, and to conquer.
And when he had opened the second seal, I heard Lew Ranieri say, Come and see.
And there went out another horse that was red: and power was given to him to securitize mortgages, and that they should leverage CDOs: and there was given unto him a great sword called the rate reset.
And when he had opened the third seal, I heard Robert Shiller say, Come and see. And I beheld, and saw a black horse; and he that sat on him had the Fed funds rate in his hand.
And I heard Alan Greenspan in the midst of the National Association of Realtors say, a measure of abundant liquidity for a penny, and three measures of low risk premiums for a penny; and see thou hurt not the oil and the gold.
And when he had opened the fourth seal, I heard the voice of Chris Thornberg say, Come and see.
And I looked, and behold a pale horse: and his name that sat on him was Fraud, and Casey Serin followed with him. And power was given unto them over multiple primary residences, to inflate with false appraisals, and with negative amortization, and with no money down, and with low initial rates.
classic
Good one!
And finally, in September of 2012, there came a great voice out of the temple of heaven, from the throne, saying, It is done.
And appreciation resumed at a modest pace of 3% per year.
Some housing bubble news from Wall Street and Washington. Bloomberg, “Countrywide Financial Corp., the largest U.S. mortgage company, said late payments at its servicing unit rose, foreclosures doubled and new loans fell 44 percent as housing sales slowed. Overdue loans as a percentage of unpaid principal increased to 5.85 percent in September from 4.04 percent a year earlier, the company said. Foreclosures climbed to 1.27 percent from 0.51 percent.”
Those Option ARM loans where the “deferred interest” was being counted as income will start blowing more losses onto the balance sheets soon too.
US foreclosures double in September
By Ben White in New York
Published: October 11 2007 18:36 | Last updated: October 11 2007 18:36
US home foreclosures doubled last month from a year ago and the nation’s biggest mortgage lender said late payments rose, suggesting that the mortgage crisis is not abating.
The number of foreclosures jumped to 223,538 in September, 99 per cent higher than the number last year, though down 8 per cent from August, according to RealtyTrac, which compiles housing data. California had the largest number of foreclosures, with 51,259, and Florida was second, with 33,354.
Nevada, which has seen explosive housing growth around Las Vegas, had the highest rate of foreclosures, with one for every 185 households. The overall foreclosure rate was one for every 557 households.
http://www.ft.com/cms/s/0/88747b04-781e-11dc-8e4c-0000779fd2ac.html
don’t worry, the calvary is riding in - “Hope Now”
‘A cutback in housing construction is a positive sign for the market because it will help lower inventory and firm up home prices,’ Lawrence Yun, an NAR economist, said in the report.”
Yup. Thats just what your business sector needs is higher prices. Way to go DUMBASS..
all i hear is how “dumb” one would be to buy a home right now…
yes, i can understand that in many areas, especially where prices are just SO over inflated. i mean a 3/2 in sunrise florida should not be 370k.
but i seem to have found a good deal, or so it seems…someone tell me if they think this is a bad deal or a good one.
brand new built home in sebastian florida,many many upgrades for 205k.
it feels like a great deal to me but you guys know the market more than i
do.
thanks!
But nobody knows your situation like you. Can you afford it (30y fixed)? The area, the schools, its future? You can almost never time the top or the bottom, so can you live with an average win?
If you have an income of 50k or more, plan to stay in the property for a long time, don’t expect the neighborhood to change for the worse, and have a 30-year, fixed-rate loan, then go ahead. Just make sure you hire a home inspector. Construction during the last 5 years has been of extremely poor quality. Even if the inspector passes on the house remember that he does what is called a “cursory” inspection. Make sure you have an adequate cash reserve for any major fix-ups.
Before you buy read your sales contract. Most likely you waive all claims against the builder for poor workmanship. If there is a problem with the property your only recourse is against the home warranty insurer (policy purchased by the builder). Home warranty firms typcially have no capital and payout pretty much only if the house falls down. When I bought new, when times were tough for builders, I got the builder to strike the non-recourse clause and add in that he warranteed that the house was built in a proper, workman-like manner. Also, I had the contract co-signed by the corporate parent. Typically a builder creates a no-asset subsidiary to actually build and sell the house. So a Centex home development called, say “Meadowbrook,” is acually built and sold by Centex Meadowbrook LLC which has no assets other than the lots.
Because of all of this stuff I will never again buy a new home (which I sold in November, 2005).
thanks for the info!
i think they may have a little more time to build quality homes now, maybe not. my best friends husband is an inspector and he will do an inspection at the end.
plan to stay around 5-7 years (portland is in my future plans) lives on the west coast for 15 years and love it…still too pricey for us.
over 50k 30 year fixed of course! the home is built by mercedes and from what i have heard seem reputable and do quality work.
i can’t begin to tell you how many new homes i looked at by centex, kb, maronda etc and how poor the workmanship is. i mean at least the model should be perfect…mercedes was and we are hoping for the best!
the builder also is a mercedes company.
i appreciate all the information~
m
Michele,
My cousins live in Sebastian, but I will admit that I don’t know the RE market there as well as I do in S. FL.
How many SQ/ft is that home? Is the construction CBS? Is there an HOA (and if so, how much is it)?
At first glace, the price does seem pretty good. 205K for a 3/2 (I am assuming 2000+ sq/ft) would have me very interested.
Long run, if you buying a home to live in at 100 dollars/sqft I think you will do OK long run. That home might be cheaper at some point over the next few years, but I don’t think you will ever see it at 100K, maybe a dip to the high 100’s at some point..
Sebastian (for those not in FL) is about 2 hours north of Palm Beach, and never got nearly as bubbly as we were in S. FL.
the home is 1970 sq ft. cbs construction, hurricane shutters, many hurricane features.
42′ birch cabinets
stainless appliances
screened porch, 275 sq ft (not counted in the 1970)
18 in tile, entire house except bedrooms
enormous master bath, garden tub…nicely done- not cheesy at all!
washer/dryer
numerous other upgrades
no HOA dues, deed free lot (don’t like rules!)
1/4 acre, nice area…
A+ schools, beach is close by but far away from all the commercial shopping goo. nice parks, lakes, the river. 8 miles to vero and 25 to melborne.
surfed Sebastian Inlet many times.
keep an eye out for sharks.
In 1980 my parents bought a house for a little less than 1x (one times) conbine annual income, and they’re income was maybe 15% more than most people in the area, and it’s a decent town. And it was actually a bit of a stretch for them at the time. Why 1x income? Because mortgage rates we 14% at the time. With the bond market and the trade deficit, we could be seeing those rates again, and more. What’s the average houshold income in that area. Multiply it by 1, that’s the price of the house in 5 years.
Multiply it by 1 and it stays the same. Is that what you mean?
Ambac gains after insurer reports derivatives hit
Operating profit to be below analyst estimates, but warning eases concerns
By Alistair Barr, MarketWatch
Last Update: 1:19 PM ET Oct 11, 2007
SAN FRANCISCO (MarketWatch) — Ambac Financial Group shares jumped more than 6% on Thursday after big, unrealized credit derivatives losses disclosed by the bond insurer calmed concerns about the impact of the mortgage crisis on the company.
Ambac (ABKAMBAC Inc
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ABK) said late Wednesday that it expects an unrealized loss of $743 million from marking its credit derivatives portfolio to market at the end of September. That will lead to a third-quarter net loss of as much as $3.50 a share, it added.
Insurers often report operating income — which differs from net income — because they say it’s a more accurate indication of the performance of their main underwriting businesses. Insurance analysts also frequently focus on operating income, which excludes unrealized gains and losses on investments and also credit derivative contracts.
Ambac said it expects to report third-quarter operating earnings of $1.85 to $1.90 a share in the third quarter. The company was expected to make $1.99 a share in the period, according to the average estimate of 13 analysts in a Thomson Financial survey.
Despite the unrealized losses and the lower earnings projection, Ambac shares rallied 6.6% to $72.19 during Thursday afternoon trading. Shares of rival MBIA Inc. gained 3.9% to $68.44.
Bonk!
Sucks when you buy the top tick in any market.
Supposedly the reason for the reversal is some mullet saying BIDU will have an inline quarter only.
What happened to the market at about 2:00 p.m. EST?
BIDU rumor. Of course the “fat fingered trader” excuse is also circulating.
“fat fingered trader” excuse
?
You know, where they same some idiot at some bank had an order to sell 100 s&p or ndx futures contracts and instead they sold 1 million of them. Nothing to do with the market being ridiculously overbought and running on fumes of course . . .
What is BIDU?
the problem with this market is that it will take a lot more new money to drive it higher. But what the heck…the Fed will save us all right ?
Yeah, ain’t that the truth. When the door shuts and the last idiot is at the party . . . .
State sales taxes flash recession warning
Thu Oct 11, 2007 12:25pm EDT
By Joan Gralla - Analysis
NEW YORK (Reuters) - About half of all states are collecting less from their sales taxes than expected, which could signal a recession lies ahead as the home market fades.
The receding housing boom could then reveal the underlying economic weakness it had camouflaged, according to Philippa Dunne, a co-editor with the New York-based Liscio Report, published by an economic research firm.
To Dunne, the recession warning light is flashing yellow.
“There are a lot of unknowns, but the state sales tax receipts are pretty much at recession levels,” she said, adding about 25 states are seeing disappointing sales tax revenues.
It’s not just jobs in construction, lending and real estate that are at risk. Less demand for materials, from cement to carpets, could cause malls and manufacturers to slash workers.
http://www.reuters.com/articlePrint?articleId=USN1137468020071011
“Kristine McMahon has(HAD) a six-figure income as (WHEN PREVIOUSLY EMPLOYED AS) a mortgage broker and lives (LIVED) in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced last year to turn some of her home equity into cash (NEEDED TO MAKE FUTURE MORTGAGE PAYMENTS).”
“Ms. McMahon says that at the time of the refinancing, a conventional lender would not allow her to take out as much cash during the refinancing as her subprime lender, New Century Financial Corp., which is now operating under bankruptcy-court protection.”
“Ms. McMahon chose a subprime loan that carried a fixed-rate of 6.45% for the first two years before turning into an adjustable rate. She plans (PLANNED) to sell the house before the higher adjustable rates kick in (BUT ENDED UP IN FORECLOSURE).”
Classic drug dealer addicted to very thing she tries to push.
She is the kind of borrower that I hope the lender goes after her for every penny she tried to steal from that home .
I once said, “We will bury you,” and I got into trouble with it. Of course we will not bury you with a shovel. Your own working class will bury you.
Nikita Khrushchev
“But in the past year, she says, prices of comparable homes in her subdivision have fallen to $310,000, which means she would not qualify for a new $460,000 mortgage, unless home values go back up to that level, an unlikely scenario.”
“She says she has stopped paying her mortgage and is trying to negotiate with her lender. ‘I’m going to lose my home anyway,’ she says, ’so why pay?’”
why not? Just take from others and reneg on a contract. The American unethical way.
We’ve plummeted a long way from the days of Truman. Truman, before he went into politics, was an owner of a failed men’s clothing store. He declared bankruptcy to get out from under the debt payments, but after he got back on his feet paid off all of his prior debt even though it had been discharged.
Fat chance finding anybody doing that today.
No SHAME in reneging on anything. what ever it takes.
Something tells me this cleanup is going to be more than we can handle. Consider that the dotcom blowup took out about $3 - 5 trillion over a couple of years. Another hit like that and you could capsize the economy, no joke. I’m concerned about the integrity of the whole economy even if we lose a mere $1 - 2 trillion over the course of the next six months. What else do we inflate? Gold? Commodities are overpriced, they were inflated with oil and everything else over the last few years. Personally, the entire housing bubble is mostly fraudulent in nature. I don’t buy that it was caused by lax lending standards or demographics or a growing job market (yeah right). These may have played into the bubble a bit but most of it is fraud and manipulation to me. Guess what happens when we find out most of the economic activity for the last decade was nothing but cheating and lying?