What Is The Value Of A Tennis Racket For A Rugby Player?
Some housing bubble news from Wall Street and Washington. “Fannie Mae executives on Friday defended a change in the way the mortgage finance company calculates losses on home loans, responding to analysts’ concerns. Using the new method, it reported, on an annual basis, a credit-loss ratio of 4 basis points for the first nine months of this year — meaning the company lost money on four of every 1,000 mortgages it holds on its $2.4 trillion book.”
“Yet the Fortune article points out that if the old method were retained, the credit-loss ratio for that period would be 7.5 basis points — far exceeding Fannie Mae’s forecasts.”
“Several analysts asked the executives in the conference call why the company couldn’t disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default. ‘The problem is that we don’t have the underlying information,’ said Credit Suisse analyst Moshe Orenbuch.”
From Dow Jones Newswires. “When Fannie Mae released its earnings last week for the first three quarters of the year, it reported an additional unrealized loss of $955 million in the value of private-label securities backed by subprime and Alt-A mortgages through the end of the third quarter. This was in addition to $376 million the company had previously accounted as a loss for these securities this year.”
“The company said it hadn’t recorded ‘any impairment’ on the $955 million in securities, “as they continue to be investment-grade and we have the intent to hold these securities until the realized loss is recovered or the securities mature.”
From Bloomberg. “Freddie Mac, the second-largest source of money for U.S. home loans, joined Fannie Mae in introducing or raising fees on mortgages the company buys from lenders because of the increased risks in slumping housing and mortgage markets.”
“Freddie Mac is primarily setting new fees for mortgages made to borrowers with credit scores below 680, whose loans exceed 70 percent of their property’s value. The changes take effect March 1.”
“Freddie Mac’s changes are ‘in response to continuing volatility and turmoil in the mortgage market, including the deteriorating performance of higher-risk mortgage products,’ the company said in a letter on its Web site.”
“It also said mortgages from markets with falling prices must now have loan-to-value ratios at least five percentage points below normal requirements for mortgages with the same attributes.”
The Financial Times. “Residential Capital, the beleaguered mortgage lending arm of GMAC, said it was close to breaching its bank loan covenants, sending the price of its debt tumbling.”
“ResCap’s bonds were among the most frequently traded in the debt market on Thursday, tumbling to nearly 60 cents on the dollar, down from about 64 cents on Wednesday and about 80 cents a month ago, according to MarketAxess.”
“Kathleen Shanley, analyst at GimmeCredit, said: ‘If credit conditions in subprime continue to deteriorate, ResCap may have trouble staying in compliance with its bank debt covenants.’”
“She said the company’s non-performing construction loans had jumped to $324 million in the third quarter, up from just $20.9 million a year ago.”
From MarketWatch. “Huntington Bancshares said Friday that it would take up to a $300 million charge in the fourth quarter, becoming the latest financial institution to report the impact of mortgage loan losses. The Columbus, Ohio-based group is feeling pain not through loans made directly to customers but rather from lending to another institution.”
“The charges are related to loans made by Huntington’s Sky Financial unit, a Pittsburgh-based bank that Huntington bought in July for $3.6 billion. Sky had lent to New York-based Franklin Credit Management, a firm that specializes in investing in the riskiest of mortgages.”
“Franklin invests in mortgages for multifamily homes that don’t meet Fannie Mae and Freddie Mac standards. Most of Franklin’s loans are so called ‘no-doc’ loans, where the borrower is not required to document income.”
“Also Thursday, Franklin delayed its third quarter earnings report and said it would stop originating loans after Huntington, its main source of bank funding, cut off credit.”
The Canadian Press. “The Bank of Montreal is booking $320 million in writedowns arising from disorder in world credit markets, joining the array of big banks hurt by the U.S. subprime mortgage crash.”
“Analyst Michael Goldberg of Desjardins Securities noted that BMO’s decision to support the SIVs with up to $1.6 billion is ‘an indication that there are no other willing buyers and BMO feels that it has an obligation as sponsor to support these two SIVs.’”
“The net asset value of structured investment vehicles, companies that borrow short term to buy higher yielding securities, has fallen to 69.7 percent as the credit slump erodes their holdings, Fitch Ratings reported.”
From Reuters. “A wave of recent ratings cuts may mark the start of nearly half a trillion dollars in losses for banks and pension funds, as complex securities bring the U.S. subprime mortgage crisis crashing back to Wall Street.”
“Derivatives once heralded for spreading risk and underpinning the resilience of financial institutions are rapidly deteriorating, threatening to choke lending. In the past two weeks ago, more than a dozen collateralized debt obligations have suffered a technical default. Standard & Poor’s on Wednesday said it may cut four more CDOs, due to even more ‘Event of Default’ notices as write-downs increased for what was perceived to be the safest part of the bonds.”
“‘Despite their high initial ratings, even AAA rated securities can be at risk of losing some or their entire principal,’ according to Jeffrey Rosenberg, head of credit strategy at Bank of America in New York. Write-downs of CDO positions are ‘increasing fears of the expanding implications of subprime losses to the financial system.’”
“Banking auditors are watching carefully to ensure bank valuations based on in-house mathematical models are not, in the phrase coined by Warren Buffett, ‘mark to myth.’”
“‘You are definitely seeing an environment in which the audit firms are being more rigid and conservative in their approach to valuation,’ said Alex Willmot-Sitwell, co-head of global investment banking at UBS. ‘I think that’s inevitable in an environment where there is bound to be a greater degree of scrutiny and where we are all aware of the potential risks vis-a-vis litigation etc.’”
“For some CDOs, the only buyer, and a reluctant one at that, has been the bank that created and sold it in the first place. ‘Banks are not in the business of holding these products for ourselves,’ said a senior European banker. ‘What is the value of a tennis racket for a rugby player?’”
“That means the few market prices available for comparison for many CDOs are based on fire-sale conditions. Nevertheless, ‘if there is a price out there, it cannot be ignored,’ said Colin Martin, a partner at KMPG’s FS Technical Advisory. It is extremely difficult to prove that prices are the result of a fire sale, he added.”
“If a hedge fund sells at 35 cents on the dollar when a bank sees the value at 65, or if the last comparable trade took place weeks ago, ‘you can’t ignore that a trade has happened,’ said an accountant at a major European bank.”
“For the first in at least a decade, the world’s biggest financial institutions are paying more to borrow in the corporate bond market than industrial companies.”
“Bonds of banks, brokerages and insurance companies yield 1.49 percentage points more than U.S. Treasuries, matching a record high set in October 2002, according to indexes compiled by Merrill Lynch & Co.”
“Investors are demanding extra compensation for the risk of owning Citigroup Inc., Merrill Lynch and Barclays Plc on concern that the $50 billion in losses already reported from subprime mortgages will increase.”
The Wall Street Journal. “Even the Trump name isn’t bigger than the calamitous condo market. Donald Trump’s reputation as a real-estate developer could take a hit as some condominium projects emblazoned with his famous name run into trouble.”
“At Trump Tower Tampa, which began its marketing in 2005, sales initially soared. The local development company, SimDag LLC, sold all 192 units and then, as the market skyrocketed, returned buyers’ deposits, raised the units’ prices and sold out again.”
“Many of the buyers feel that they were led to believe that he had a much larger stake. ‘The only reason we bought into this was because of Trump,’ says Don Wallace, whose wife has interests in two units. ‘He’s bashing Rosie O’Donnell, and we’re twisting in the wind.’”
“Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the subprime crisis and a ‘mess’ left by former Federal Reserve Chairman Alan Greenspan.”
“‘Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time… He encouraged people to take out variable-rate mortgages,’ Stiglitz said in an interview in London today.”
“Stiglitz, who stepped down as the World Bank’s chief economist in 2000, and now works as professor of economics at Columbia University, estimated U.S. consumers borrowed up to $950 billion last year against the value of their homes to finance spending.”
“‘That game is over,’ Stiglitz said. ‘As house prices are going down, people are not going to be able to take more money. We are looking at a major slowdown.’”
From Marketplace. “In an effort to make sure the subprime mortgage meltdown doesn’t happen again, the House was set to vote today on a bill that would lay down rules for lending. Stacey Vanek-Smith reports.”
“STACEY VANEK-SMITH: Three years ago, Lucy Hadley was looking for a condo. She’d been saving up and the market was going gangbusters. But it wasn’t easy to buy in super-expensive Los Angeles. Hadley had excellent credit, but her salary was on the low side, so her bank wouldn’t offer her the roughly 400 grand she needed to buy a one-bedroom apartment.”
“LUCY HADLEY: ‘I didn’t owe any credit cards or anything, cause I’m kind of sticky about that kind of stuff. I couldn’t understand why I couldn’t get a loan.’ So Hadley turned to a small, subprime lender. She says she started getting uncomfortable when she saw how the lender was trying to qualify her for the loan she wanted.”
“HADLEY: ‘They find money that you don’t even know you have. They looked at my savings, my 401K and all that. They include all of that and they consider that part of your income. And they would say stuff like, you know, you’re in a prime area and property is going to keep going up and up and up, and you’ll be building up equity.’”
“The interest on Hadley’s loan will soon triple to more than 11 percent, and her condo has gone down in value.”
“The thing is, a lot of the organizations doling out the shadiest loans were not banks, and they won’t have to follow federal rules. David Lereah is the former chief economist for the National Association of Realtors.”
“DAVID LEREAH: ‘It was the mortgage brokerage companies that were out there trying to sell a lot of these irresponsible type loans.’”
“Still, Lereah says reigning in the banks will make a big difference. That’s because there won’t be many organizations left to buy up risky loans from lenders like Countrywide. Lereah says the bill is also an important feel-good measure.”
“Meanwhile, homeowner Lucy Hadley needs to take out another loan to cover her new mortgage payments. But she’s scared she’ll end up in an even deeper hole. HADLEY: ‘I don’t know how high my loan could go. I really don’t. With all that paperwork, I don’t understand. I know it’s going to be difficult, so…’”
“The company said it hadn’t recorded ‘any impairment’ on the $955 million in securities, “as they continue to be investment-grade and we have the intent to hold these securities until the realized loss is recovered or the securities mature.”
translation:
We didn’t feel like booking a Billion Dollar loss, until pressed on the issue.
Do Ben Bernanke and Chuck Schumer really want to give these guys more business?
Sick, sick, government fools. Want to know why we are in this fix? Government wants to help us “again”!
That’s the Japanese approach to bad loans = 15 years of price declines and stagnation.
We prefer death by 1,000 cuts, now go away.
Congress knows how to solve this problem; raise the caps so they can buy more!
Right. Higher fees and bigger loans with much higher down payments.
The profit margin on the big loans is much better than on the ton of junk they now have/are getting.
The need the money from the higher end loans to stay solvant… IMO.
Unfortunately, Congress doesn’t own stock in either of those companies. In the end, the ones the companies answer are stockholders. If they raise the limint, the stockholders will vote with their feet…..even more than they already have.
There’s alot more alt-a paper in their portfolio than they are letting on. I routinely saw approvals of their “easy step” or “fast and easy” programs- stated income/stated asset. I also saw underwriter gaming their desktop originator software to get approvals. 65% debt to income ratios- no problem as long as their “artificial intelligence” approved it. It was a bass ackwards way to underwrite but everybody was gaming the system.
“Stiglitz, who stepped down as the World Bank’s chief economist in 2000, and now works as professor of economics at Columbia University, estimated U.S. consumers borrowed up to $950 billion last year against the value of their homes to finance spending.”
“‘That game is over,’ Stiglitz said. ‘As house prices are going down, people are not going to be able to take more money. We are looking at a major slowdown.’”
********
Hey!
It’s about time - HBB’ers and iTulip predicted just this years ago.
Now a Nobel winner agrees…. and I have to like his Greenspan perspective.
Vanity Fair has an article this month by Stiglitz on the economic consequences of the Bush administration. Read it and weep. Of course, as sf jack points out, these things were recognized by Ben and many of us years ago. Now come all the “learned laureates”, being paid big money for their post-mortems. Sure, it’s easy to take shots at Greedscam now, but the silence was deafening as recently as a year ago.
http://www.vanityfair.com/politics/features/2007/12/bush200712
The economic destruction this group as wrought on us is far larger than any sound, reasonable mind is willing to admit. I only need to harken back to Jan of this year when Ben Bernanke, in front congress, under oath said “there is no evidence that tax cuts increase revenue”. Yet, the entire premise of these sickos is founded on “tax cuts are good, taxes are bad”. They neglected to tell you want group they’re good for. Hint….. it’s not the group we belong to.
I do have a question for you. Since the tax cuts and even with record spending the deficit is shrinking every quarter with record tax receipts. Why do you think the government is taking in now more revenue than ever?
No my friend. Revenues have increase only in the last 2 quarters. And now you want to attribute that to the raiding of the US Treasury? And Ben Bernanke was flat out wrong? Not to mention Hank Paulsons acknowledgement of the fact that “we cannot spend our way into prosperity”?
Nice try though.
Sorry but the U.S. treasury seems to disagree with you.
“Government receipts in full-year 2007 were up 161 bln usd, a 6.7 pct increase over the prior year’s receipts. Treasury said full-year 2007 was the third consecutive year in which growth in receipts outpaced growth in GDP.”
Treasury said receipts from individual income taxes increased by 11.4 pct over the fiscal year, while receipts from corporations increased by 4.6 pct.
09/29/2006 8,506,973,899,215.23
09/28/2007 9,007,653,372,262.48
Hmmm. And the national debt ‘only’ increased by 500 billion.
Take a look at the states.
“Sorry but the U.S. treasury seems to disagree with you.”
My friend, you can spin a temporary “evidence” all you’d like but it’s been long established that the borrow and spend ideology is a failure.
An interesting read, but not exactly unbiased:
“Once Franklin Roosevelt assumed office and reversed Hoover’s policies, the country began to recover.”
Recover?? 1933?? Surely you jest.
Revisionist History just accept as it is much easier that way. The millions riding the rail ways and families begging for food at the backdoors was better off under Roosevelt they just didn’t know it.
Ummm…. Hoover was the same clown who sent troops to gun down WW1 veterans who gathered in DC to demand redemption of their war bonds that Hoover chose not to honor.
I don’t deny your point, but what does that have to do with FDR?? I think you can agree that the country did not recover economically in 1933 as Stiglitz claimed.
The Doughboys of WW1 wanted their money in 1932, was was to be given to them in starting in 1945…
A few army guys were responsible for cleaning out the riff raff.
Mac Arthur, Eisenhower and Patton were their names.
http://en.wikipedia.org/wiki/Bonus_Army
And we’ll probably see something similar in the next year or 2.
This time it will be people wanting their Social Security money a few years in advance, of their first payment…
No defense of Hoover here. He helped make what would have been probably a bad recession into the depression. Roosevelt came in and continued with his own bad polices which continued to deflate the economy.
He helped make what would have been probably a bad recession into the depression.
Yeah, right. Considering that:
1. The US was coming off a massive stock bubble.
2. World governments were seriously debating whether capitalism was dead and communism was the future. Honest belief in communism dominated many academic circles and much of Europe well into the 1980s. Only when the East Germans started smashing the Berlin Wall did the dreamers on the left get the point.
To a degree the world economies between WW1 and WW2 were like Venezuela under Hugo Chavez–people with money to invest didn’t know if their businesses were going to be nationalized and given to the peasants.
Only in the last 20 years has the world adopted a middle of the road approach between ideologies. Robber Baron capitalism is broken. Communism is broken. No more debate.
RE: Recover?? 1933??
The recovery started in 1941 when the Japs bombed Pearl Harbour.
No way. The recovery started after 1939 when the Germans invaded Poland and England sent off lots of orders for war supplies.
Lend Lease… the end of the Depression.
The recovery started when 50 million debt-ridden peasants were wiped off the face of the earth.
The recovery from this fiasco will take at least ten times that.
The US economy was headed into the toilet again in 1938 until WWII came along and the demand for armaments produced jobs for Americans. FDR’s programs did not end the Great Depression. There was little Hoover could do about the Great Depression as most of the speculation occurred before he was in office. Clinton inherited Bush Sr’s recession and Bush Jr was left with the dotcom/tech bubble cleanup and the next President will be left with the housing/credit bubble cleanup.
“. Inequality is now widening in America, and at a rate not seen in three-quarters of a century. A young male in his 30s today has an income, adjusted for inflation, that is 12 percent less than what his father was making 30 years ago. Some 5.3 million more Americans are living in poverty now than were living in poverty when Bush became president. America’s class structure may not have arrived there yet, but it’s heading in the direction of Brazil’s and Mexico’s.”
Preach it.
“Sure, it’s easy to take shots at Greedscam now, but the silence was deafening as recently as a year ago.”
On the other hand, isn’t it kind of nice to know that Nobel laureates are signing on to viewpoints expressed here back when only a few voices crying in the wilderness (e.g. Robert Shiller) were willing to speak out against the mainstream consensus?
I just want to add, as someone familiar with the particular flavor of the capitalist religion practiced by the dean of Columbia Business School, Glenn Hubbard, I think it took some guts for Stiglitz to speak out. These views may seem obvious and uncontroversial to us now, but you a rock solid basis if you want to openly criticize Greenspan or Bush to this extent and keep your job and reputation as a Columbia econ professor. Right up until a couple of months ago (September, I think) Professor Charles Calomiris was working with Hubbard on a yet another piece of “research” that had no purpose other than to further corporate or political interests. The gist was to be that, with some sleight of hand, it could be shown mathematically that home prices were in fact NOT declining. The goal was to refute Shiller’s index. I’m not sure who the client was in this case, but I know of a piece of Hubbard’s previous research that was done at the behest of an insurance company, so I’m skeptical. What intellectual interest could they have in data mining to sustain the illusion that everything was fine with housing? Anyway, I’m sure things are politically difficult for someone like Stiglitz at Columbia. I don’t mean to imply that I think Stiglitz is shy or waited until it was completely safe to speak up. I’m sure he knew what he was getting into when he joined the Columbia faculty, and I’m glad he did it. I don’t blame him for waiting until he wouldn’t look like a kook in front of his professional colleagues. This could pave the way for other academics to finally agree that the emperor has no clothes.
RE: “Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the subprime crisis and a ‘mess’ left by former Federal Reserve Chairman Alan Greenspan.”
“‘Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time… He encouraged people to take out variable-rate mortgages,’ Stiglitz said in an interview in London today.”
Complete vindication for all the tin hat followers on this Blog.
All should enjoy a cold Guiness (or 2 or 3) this weekend for your insight and astuteness.
Cheers!
I remember sitting in my kitchen in late February of 2004 and reading the news that The Maestro had just given his blessing to adjustable rate mortgages.
This at a time when rates were at all-time lows (or nearly so) in a white hot housing market environment. I knew the local (Alt-A Bay Area) REIC would run with his remarks all that they could, so that even if he nuanced his statement (as he usually did), nonetheless, the hallmarks of a disaster were set that day.
Vindication, now, I suppose.
Vindication is bitter-sweet at best.
Stiglitz is actually one of the economic heroes. He began countering the entertaining structural adjustments forced down the throats of emerging economies who just happened to contain commodities desirable to transnationals, particularly for pennies on the dollar.
He believes in globalization, but not as defined by the rape of the land, indigenous peoples, or duped taxpayers everywhere. Something of a bad-boy to the Robert Rubins, Hank Paulsons, et al out of GS.
And he has ethics/principles. How peculiar is that? This is the guy we need as head of Treasury….or the very least, as a chief economic advisor. Not a latecomer to the party. It’s he’s only just getting the press.
“Freddie Mac is primarily setting new fees for mortgages made to borrowers with credit scores below 680, whose loans exceed 70 percent of their property’s value. The changes take effect March 1.”
I wonder how many American Dreams, have more than 70% of their maximum property value (100-150% of current property value), lent out to their occupants?
What this really means is that the rate for LTV’s over 70% and FICO under 680 has effectively gone up. When you look at rate sheets provided by lenders using FNMA guidlines, you’ll see fee hits for loans that don’t meet certain parameters (ie, cash-out refi over 70% = .25 hit to the fee, N/O occupied over 70% = 1.5 to fee) This “hits” are usually passed on as a rate increase because it changes the par pricing. Doesn’t necessarily mean the loan is no longer there, just more expensive rate-wise. Higer risk = higher pricing.
“It also said mortgages from markets with falling prices must now have loan-to-value ratios at least five percentage points below normal requirements for mortgages with the same attributes.”
This has actually been in place with many for a little while. I got some announcements last Summer stating that if the appraiser checks the box on the URAR as “declining market”, then the lender will reduce the appraised value by an additional 5%. The way I saw it, a lot of our AE’s were just giving the brokers a heads-up announcement so they could be prepared to let their appraiser of choice know that future work will be dependent on them ignoring mass price declines and not checking that box (because really, what market isn’t declining?)
I also found snippet about Freddie Mac significant: Previously, lenders assumed that they can always sell a property for 80% of the originally appraised value, but suddenly they are not so sure anymore. With prices declining in many places, demanding more from people who put less than 30% down, seems a logical step. Expect more in this direction. It might look more like in Switzerland and Germany (prices there have been stagnant for some years): 60% is given as a senior mortgage with low interest and up to 20% as a junior mortgage with high interest.
“The problem is that we don’t have the underlying information,’ said Credit Suisse analyst Moshe Orenbuch.”
This is the deplorable state to which investment analysis has been allowed to devolve: Don’t conduct your own fact-finding and research; expect the company to provide you with data that amounts to nothing more than a cheerleading press release, and whine when you don’t get it; and conveniently ignore the fact that most of the information the company does provide is valueless from the perspective of judging future performance.
Pieces of Bernanke, most of them are.
My understanding of investment analysis was that it relies heavily on the company’s own information enriched by the impression the analysts get at the conferences: how candid is the companies response to critical questions, how reasonable seems the response? In this case, the analyst seems to say: They don’t give us the underlying information (which is the reason that I am assuming something bad and downgrade the company).
I recall a time, long past now, when analysts would dig through the companies books themselves, analyze past perfomance to extrapolate future returns, etc. In other words, they’d undertake a thorough, objective analysis on their own versus conducting this subjective, touchy-feely after-the-fact crap that is the norm today.
Argh… Our finanical system needs a justifiable loss of confidence, crash, and reboot.
“DAVID LEREAH: ‘It was the mortgage brokerage companies that were out there trying to sell a lot of these irresponsible type loans.’”
*****
Only now do the realtors start blaming the lenders…
It’s certainly laughable when the # 1 real estate industry cheerleader throughout the creation of this mess starts pointing fingers.
Leheah must have finally sold those Florida investments he bought. Time to stop cheerleading the industry, and start pointing blame. Talk about being the perfect Janus!
Didn’t Leheah get fired and replaced by Yun? Why’s he still yapping?
Nah. Yun was cloned from some of Lereah’s drool. These guys don’t get fired - they just fade away to reappear like crabgrass.
It sounds like he’s stumbling over his words…
“Mortgage brokerage companies”? (uh..you mean, “brokerages”?)
“Irresponsible type loans”? (not “irresponsible loans” but “irresponsible type loans”?)
Ya think it could have also been them irresponsible type Realtor agents?
The front line is the realtor. That’s the 1st contact most people have. they didn’t care what loan you used as long as they made the sale and collected their overinflated commission. What was it that was said the other day - “Why are you clapping, I’m including you,” at the NAR confabulation.
This is true that the realtor is the first contact. PBS’s NOW show did a follow-up on a story on about realtor in California. In the first episode, they showed a Hispanic realtor showing spec houses to strawberry-picker types. The buyer would say, Si Si I want this house, and the realtor did the deal on his cell phone right then and there on the sidewalk.
In the follow up episode, they went back to the same realtor. By this time, a lot of the FB’s were foreclosing, and they didn’t call up the bank. They called the realtor asking, could he help them out. He kept turning them down, saying he just did the deal, he can’t help pay the mortgage.
And on a non-PC note, this is where Hispanic realtors selling to Hispanics might run into trouble with the culture. My understanding is that in that culture, friends and family are very important. That realtor sold himself as friend/family. So of course the buyer is going to call his Friend the realtor. He’ll fix things! But by that time, the loan was probably in the hands of Northern Rock or whatever. The realtor can no longer fix it; he’s revealed as not really being a friend.
You’re going to have some very unpopular realtors.
> And on a non-PC note, this is where Hispanic realtors selling to Hispanics might run into trouble with the culture. My understanding is that in that culture, friends and family are very important. That realtor sold himself as friend/family.
Why non PC? I find friends and family very important, too, and the behavior of the realtor to appear as a friend reprehensible. The fact that we were trained to be more suspicious of salespersons seems more a judgement of our culture.
Excellent observation Peter T.
RE: You’re going to have some very unpopular realtors.
I would seriously be investing in some bodyarmour and gettin’ a concealed to carry permit If I were a big volume Realtwhore or indie L/O who peddled bubble mania.
I would seriously be investing in some bodyarmour and gettin’ a concealed to carry permit
I’m not a realtor and I’m in the process of doing all that anyway, as the breakdown of social order seems likely in the not-too-distant future… massive foreclosures, economic recession, high inflation in energy and food. The number of random assaults I’ve heard about recently from friends and coworkers is very concerning. It’s getting scary out there.
Just as a point of reference, I’m looking at Dragonskin concealed vests and a Springfield 1911 .45. Probably pick up an Armalite AR-15 and a 12ga as well. Never know what you’ll need until you need it. Anyone have any favorites they would recommend?
“DAVID LEREAH: ‘It was the mortgage brokerage companies that were out there trying to sell a lot of these irresponsible type loans.’”
ASOLUTELY CORRECT…………most every buyer had a Realtor(tm) holding their hand after hearing the Suzanne “you can do this” commercials……….
to help them get a step up on the property ladder.
Remember Dave’s book??? Are you missing the property boom???
I was in a mortgage seminar yesterday where the instructor dissed the realtors — in the conference room next door was a realtor seminar — I was hoping for a rumble.
“Freddie Mac is primarily setting new fees for mortgages made to borrowers with credit scores below 680, whose loans exceed 70 percent of their property’s value. It also said mortgages from markets with falling prices must now have loan-to-value ratios at least five percentage points below normal requirements for mortgages with the same attributes.”
Do I hear a 30% downpayment? I guess there is a limit to the haircut they want to take in markets where prices could fall 40%. This is a killer.
“‘Despite their high initial ratings, even AAA rated securities can be at risk of losing some or their entire principal,’ ”
If you are talking about the re-securitization of the lower tranches of a securitization of subprime mortages, as I found out about a week or two ago (still can’t believe it), you are talking about all.
“Do I hear a 30% downpayment? ”
Impressive! I would have guessed that it would go back to 20% down.
I’d even be OK with 100% down, if it involves GSE.
Snicker.
As I’ve noted before, I strongly believe in the darkest days of this downturn that 25% down payments will be the norm (only been typing that for a year…). This is but the start. For Jumbos it will grow to 30% as you note.
Something has to be done to restore confidence for the bondholders. This move must be due to the GSE’s having trouble selling the bonds.
This could get scary fast.
Got popcorn?
Neil
“This could get scary fast.”
It’s already scary.
I, for one, would feel much more confident buying a home if I knew everyone who did so had to put 30% down. Prices and neighborhoods would become extremely stable.
Fannie/Freddie have been implementing that 5 points issue here for months. It first started showing up around March or April. Doesn’t matter how much down you have either…..if you have 20%, now you need 25%, and so on.
Anecdotally, it’s killing most marginal deals and/or ones where the buyer can’t come up with any more cash, even if they have skin in to begin with.
Thanks for the insight.
I’m hearing 35% equity for Subprime and Alt-A refinances in bubble areas (which is everywhere), or else really expensive fees which might as well be 35% equity.
This includes almost everybody who bought since ~2002, and every single cash-out refinance since 2001 or so. (excluding of course the few responsible deadbeats with fixed morts, or who refinanced only the interest rate and pulled no cash.)
Everyone sounds desperate for more true grade-AAA paper from people like us “on the sidelines.” They need our paper to prop up the crap paper. No dice!
when i first got into the business in the 80’s, i worked for one of four non gse lenders in the market. at that time anything above 60% ltv was considered high risk and had to signed off by a higher vp. by the way, the collection department, the underwriting department and sales were all in the same building, can you imagine?
There is no equity for Subprime and Alt-A refinances. Those who bought or refi-ed in the 2004 to 2006 (mid-2007?) insanity are toast.
But let’s get back to first time buyers. The equity requirements will take them out of the market.
Of course, there is another alternative to convince once-bitten, twice shy investors to buy mortgage backed bonds. MUCH HIGHER RATES.
BTW, a decade before we bought, my Brooklyn neighborhood was redlined. Banks wouldn’t lend because they thought property values would keep falling. A neighbor was only able to buy because of long ties in the neighborhood and a friend at a local savings bank (do those even exist anymore)?
Anyway, I get the feeling large parts of the United States have now been redlined.
“Everyone sounds desperate for more true grade-AAA paper from people like us “on the sidelines.” They need our paper to prop up the crap paper. No dice!”
I’m in - when I can get a 30 year fixed at 3% with no closing fees.
I’d rather buy with a 40% haircut, and refinance to lower interest later. Actually, my plan (eventually) is to buy with a 30-year fixed, but pay it like a 15. I get the benefits of a 15 (the difference in interest isn’t THAT much), but if something happens, I can pay the lower 30 payment if I have to.
As I wrote in a comment above:
Banks lended 80% of appraised value, because they expected to be able to get 80% back on a possible foreclosure. With prices more volatile, mortgages as in Germany and Switzerland could become the norm - 60% senior mortgage with low interest, 20% junior mortgage with high interest.
I meant:
60% senior mortgage with low interest, up to 20% junior mortgage with high interest. The downpayment must be at least 20%.
This must be why it is unusual for Germans to buy houses before they’re about 40.
However, my bank was willing to consider “just” a 15% downpayment (boy am I glad I changed my mind - I’m paid in USD, which has taken a 20% plunge against the EUR since that conversation)
At Ben’s HBB some say… the Super Bowl…some the end of Wars…some refer to a credit crunch…but remember the NAR spent 40 million USD $$$$$$$$$$ to say:
“it’s never a better time to buy a house”
Don’t you need qualifying buyers to purchase BB’s 1 million dollar houses?
“…that without the money now, drastic steps would have to be taken in anticipation of the shutdown, including plans to freeze contracts and to furlough about 100,000 government employees.
Notices to some union employees would start going out in mid-December”
http://news.yahoo.com/s/ap/20071116/ap_on_go_co/us_iraq
good riddence
Bernake’s houses are not 1 million dollars- that’s the mortgage. Bernake’s houses are more like 1.1 or 1.2 or 1.3 million dollar houses.
They will be bought by the wealthy. According to the Dem debate the other night, those making 95k/year are no longer middle class, and hence, being wealthy, will see their taxes increase (not even counting AMT).
Therefore it will be the wealthy, such as a policeman married to a nurse, who will buy Bernake Shacks.
As the former ramshackle ad-hoc shelters of the homeless were organized in locations and named after the then-current presidents, so will the newly declared wealthy schoolteachers married to shipping clerks live in the million+ dollar Bernakevilles.
“She said the company’s non-performing construction loans had jumped to $324 million in the third quarter, up from just $20.9 million a year ago.”
Almost 16 to 1 times as many bad loans, in just 1 year’s time.
At first I thought that was a typo. Ouch.
Well, this sort of financial writhing and flailing around will hardly inspire congress to permit Fannie and Freddie to raise the jumbo loan limit. Their accountants very clearly shouldn’t be allowed to keep track of and manage their own latte money. Instead, maybe their moms should carefully pin the precise amount in an envelope to the front of their suits.
Maybe mommie can just make the coffee for them, since there’s a good chance they might be bunking in the basement before long.
“Franklin invests in mortgages for multifamily homes that don’t meet Fannie Mae and Freddie Mac standards. Most of Franklin’s loans are so called ‘no-doc’ loans, where the borrower is not required to document income.”
“Also Thursday, Franklin delayed its third quarter earnings report and said it would stop originating loans after Huntington, its main source of bank funding, cut off credit.”
i cant believe that banks would still be participating in these toxic products!!?! does anyone know how many banks are still playing Russian Roulette?
“…why the company couldn’t disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default. ‘The problem is that we don’t have the underlying information,’ said Credit Suisse analyst Moshe Orenbuch.”
“and then…it went dark”
The terrorist don’t have to follow us home to destroy us, we are doing it all by ourselves. We’re screwed.
So this is the thread where 10’s of Billions of Dollar vanish, into thin air thread?
Every day, same bat time, same bat channel.
Next week will be huge for vanishing billions, as fewer people will be paying attention over the Thanksgiving holiday.
‘What is the value of a tennis racket for a rugby player?’”
To hit someone really really hard on the head with. Duh. Those dumb bankers obviously don’t know rugby.
No self respecting rugby player would be caught dead with a tennis racket. Besides, it’s a lot easier to wait ’til they’re at the bottom of the scrum, and then to rake them with your cleats.
And didn’t you just say you were a Mormon, on another thread? ‘I Am a Child of God, and He has sent me here…’, and all that? What does sweet Baby Jeebus say about trampling with cleats?
Wait just a sec, I’ll ask Him…
…I’ll be durned. It looks like He’s okay with it, as long as the trampled drink Coke or coffee and therefore deserve it.
You know, I’m going to have to re-evaluate my displeasure with the Mormon faith. It seems like it’s more exciting and reasonable than it used to be.
Whoa, whoa, Olympia, Devildog was just making a joke here, like many of us do.
I was just making a joke, too–I must have done a poor job of it. Sorry.
Olympiagal — Do you know what a reaction formation is?
http://changingminds.org/explanations/behaviors/coping/reaction_formation.htm
“You know, I’m going to have to re-evaluate my displeasure with the Mormon faith. It seems like it’s more exciting and reasonable than it used to be.”
Doesn’t seem that bad to me - stock up a year’s worth of food, take care of each other in the community, and that Donny Osmond is still cute!
‘What is the value of a tennis racket for a rugby player?’”
or:
“What is the value of a pen to Hannibal Lecter”
“What is the value of a pen to Hannibal Lecter”
Meh. Doesn’t amount to a hill of (fava) beans.
Now THAT’S funny.
From Reuters:
“The bank projected a charge of up to $300 million, or 81 cents per share, to boost reserves for losses stemming from its relationship with Franklin Credit Management Corp (NasdaqGM:FCMC - News), which had borrowed $1.5 billion from Huntington as of September 30.”
This can’t be right - $1.5 billion? Huntington only had $3 billion in net worth as of 12/31/06. They lent an individual borrower 1/2 of their friggin n/w? What am I missing?
I had not heard of either of these companies before today, I wonder how many other “relationships” like this exist?
Huntington is a real bank. They have branches and ATM’s all over Ohio. But still, lending 1/2 of it to buy “the riskiest of mortgages?”
Huntington is a regional bank, mostly Ohio I think but also in surrounding states.
I wonder if Huntington knew about Franklin though before the purchase.
It should come up in due diligence. Needless to say the due diligence manager should be shot.
LOL!!!
They even have an online presence. Huntington Direct. Sky Bank also has an online presence through UFB Direct. Guess we know what all these obscure online banks in the Midwest were doing with their deposits now.
they acted as a warehouse lender on the mortgages that franklin purchased. they probably had the collateral (the loans), not that anybody wants it, so their exposure was any losses on the sale of the scratch and dent loans seized, say maybe 40 cents on the dollar or so. no big deal.
Thanks for the explanation, I was really wondering what was going on here.
“It also said mortgages from markets with falling prices must now have loan-to-value ratios at least five percentage points below normal requirements for mortgages with the same attributes.”
And once they accept how much more prices will be falling, this will go to 10, 15, 20 percentage points below mortgages for other markets.
Neil’s right, we’ll see substantial downpayment requirements in CA, FL, NY, AZ, NV, etc. Good thing the U.S. is a nation of savers, otherwise I’d be worried -);
Hell, falling markets = all of U.S.A.
However, note that they aren’t saying they won’t loan or buy loans with crappy LTVs, but that they’ll charge higher fees/etc for those.
“However, note that they aren’t saying they won’t loan or buy loans with crappy LTVs, but that they’ll charge higher fees/etc for those.”
No, but they are demanding lower LTV’s in risky markets. How many first time homebuyers have 10% to put down? In the Bay Area, you’d be looking at a $50K - 70K downpayment, easy.
Good thing the U.S. is a nation of savers, otherwise I’d be worried -);
Coffee on the laptop, THANKS!
But the downpayments will increase. 25% will be the norm. But where will it be higher? Good thing that won’t slow MEW or purchases.
Got popcorn?
Neil
One of these days I’ll learn that beverages and this blog do not mix.
I am careful to avert eyes when tipping water to my face…it’s a good practice and has saved my ‘ol ‘puter more times than I care to admit
” ‘The only reason we bought into this was because of Trump,’ says Don Wallace …”
Don, you’re the main reason for the bubble. Without idiots like you, housing costs would still be in line with fundamentals.
Which idiot Don? Wallace or Trump?
“‘I don’t know how high my loan could go. I really don’t. With all that paperwork, I don’t understand. I know it’s going to be difficult, so…’”
Life’s tough when your IQ is 85.
BWAHAHAHA! Funny.
Awwww….Let’s not make fun of stupid people. They need love too.
“Meanwhile, homeowner Lucy Hadley needs to take out another loan to cover her new mortgage payments.”
Yeah, good luck getting that one, Lucy… In case you don’t realize it, it’s just about time to hold your “I’m about to go into foreclosure, let’s trash the place” party.
I’m not cheering on all the hurt that’s coming, still no matter how much I might try, I have zero sympathy for people like this. And multiply her by a bunch.
ROTFL !!
A financial Krakatoa is beginning to erupt, and the shock waves will be felt from Wall Street, to your street…
Social tweaking…less the meth…
“Freddie Mac is primarily setting new fees for mortgages made to
borrowers with credit scores below 680, whose loans exceed 70 percent of their property’s value. The changes take effect March 1.”
History 101
Lessons:
1. How America divides it’s citizens according to financial worth…
2. How the wealthy willing send their children to fight the Wars that keep America protected…
3. The “Republic” as a “Democracy” and “One Nation under God”…
maybe i’m just pissed off because of a bunch of lawyer sh*t that happened yesterday.. or maybe i’m just pissed about people dissing the USA on this blog.. i dunno.. but i’m tired of it and feel the urge to wipe the smilies off such comments..
JoeyinCA,
Your pain has a name…
http://www.lawyer-jokes.us/modules/mylinks/viewcat.php?cid=3
Arguably, one of the best things about the USA is that you can diss the USA.
you can burn the flag too.. so?
The purpose of this blog is to critique the catastrophe that is the current US financial system which led to the housing bubble. If you don’t like it make a counter argument stronger than a meaningless threat against emoticons.
When you learn to present an argument maybe your contributions will decrease the “dissing of the US.” Just whining about it though won’t do a darn thing. There are lots of pro-USA blogs out there that will never discuss a single financial issue with the current PTB and will never be critical of the USA even in a humorous way.
The purpose of this blog is stated at the top of every page. Read it.
Flippant, pointless, cutting remarks are unworthy of a “counter argument”.
For instance, I could say you’re stupid for taking sides or are just a big mouth who has no business in this thread but just couldn’t resist jumping in.
Would I expect you to then present a logical, factual argument that defends your stupidity? Or, one that claims you have some right to be in this thread? Or one that might convince me your mouth is tiny? No.
This is ouuuuuuurrrrr countryyyyyy!
Joey, you have repeatedly posted arguments that make no sense and have no logic behind them, usually just emotion. You can call me stupid if you wish, as I have no respect for your illogical assumptions I don’t really care. But you do not add anything of substance that I have seen to this blog and you are so reactive that few will bother with you soon. People are going to disagree with you. Obviously free speech offends you but tough. Grow up. Quit pouting. Don’t throw straw arguments out at MrBubble or anyone I like here. Or continue your childish rants. I’ve been here for years and have learned that posters who are as emotional as you are don’t last long.
But I’d love to hear about your experience with the lawyers that “pissed” you off so badly. I will happily assume you have as many problems playing nicely with others in real life as here on the blog.
“Lereah says the bill is also an important feel-good measure.”
Right that’s what everything is all about “feeling good” no matter you are past your eyeballs in debt. That should not be a problem, we need to feel good. What a load of BS, I see many lessoned being learned in the not to distant future, way,way past due!
Residential Capital, the beleaguered mortgage lending arm of GMAC, said it was close to breaching its bank loan covenants, sending the price of its debt tumbling.”
Remember when Cerebrus bought this pile of dung a few months ago? And how does Huntington feel about buying billions of dollars in losses? The smartest guys in the room turned out to be billion-dollar knife catchers. Let it be a warning to all of us; bottom fishing is dangerous.
GM’s probably wishing now they’d just ditched the whole thing.
They need to stick to cars. As in, making better cars.
Cerberus has purchased some crap recently, Chrysler will kill them!
And will also kill the underwriting banks still sitting on the loans.
If I recall correctly, the deal was conditional - GM might be stuck with the whole thing, Cerberus decides to withdraw and cut their losses.
They bought GMAC/ResCap at the top of the credit/housing bubble. Wachovia bought GoldenWest at the top of the housing bubble. Merrill bought First Franklin at the top of the housing bubble.
“‘…You are definitely seeing an environment in which the audit firms are being more rigid and conservative in their approach to valuation,’
Auditors: take one little “blue” pill and get in the “missionary position”
Auditors: take one little “blue” pill and get in the “missionary position”
They’re not that nice. The nicest way I’ve ever heard that position described is “take it like a lady.” Right now the auditors are still being somewhat timid. Watch out when everyone (included them) have to wear a dog collar. At that point a lot of people will wish they had kept to the old rules.
Got popcorn?
Neil
Delta Homes files for Bankruptcy
[the Deltas have been expelled]
Bluto: Christ. Seven years of college down the drain. Might as well join the f*cking Peace Corps.
Link???
http://www.msnbc.msn.com/id/21825539
There is new information on a Cape Coral homebuilder exposed by NBC2 for taking people’s money and not building their homes as promised. We have learned that Delta Homes has filed for bankruptcy.
Sucks to be a sheeple.
Got popcorn?
Neil
Thanks!!
“Lereah says reigning in the banks will make a big difference.”
Does he understand the sales volume and price level implications?
chuckle,
Hasn’t stopped them from claiming prices will go up soon.
Now they’ll learn credit drives sales volume (or doesn’t the NAR listen to Detroit or the HDTV sales folks)?
Got popcorn?
Neil
Slightly off topic but I did get some info on a person buying in the Bay Area. He paid 100k down 20% and then took a I/O loan because he could not afford the payments on a 30 year fixed. The 100k was inheritance money. So gives you some idea who is still buying. Utter fools.
100K….poof.
Amazing.
What do they say - “Money always finds its rightful owner”?
That 100k was uncomfortable in this guy’s possession.
chuckle.
$100k? Expensive lesson, but not that bad as things go. What, a 10% down payment in the bay area? It certainly wasn’t a 20% down payment.
No one informed is buying now. Salesmen hate informed cautious customers. Oops… we’re going that way!
Got popcorn?
Neil
That’s one helluva seminar.
Back in the late 90s I was working as a phone rep for a mutual fund/variable annuity company. One of our regular callers was a chap who worked bagging groceries who had inherited a $50,000 variable annuity. Every week he was trading the bulk of the funds into stocks, then bonds, then international stocks, then balanced funds, and so on. After 6 months he had turned his $50,000 into 30,000, and was still going strong.
It was my version of the ’shoeshine boy’ anecdote - completely unsuitable person and completely unsuitable investment all fueled by the hype surrounding a bubble.
There’s a reason why many people are poor: they have “money problems” just like alcoholics have “alcohol problems”
My M-I-L is the same way. Always broke, sponging and scamming. She inherited 30K a few years ago and proposed some scheme where we could “launder” it for her so she could continue getting SSDI. We told her to fuck off.
Anyway, she lost it all within a few months. She met a friend who was an “investment advisor” and steered her into these strange, risky investments sold by an insurance company. (This was during the dotcom boom.) She also joined a “day trading club” and lost her cash-advance max on her credit card.
“Still, Lereah says reigning in the banks will make a big difference. That’s because there won’t be many organizations left to buy up risky loans from lenders like Countrywide. Lereah says the bill is also an important feel-good measure.”
feel-good about me, now that Baghdad Larry is dispensing the new and improved measure of feel-good…
regards,
D.L.
“Meanwhile, homeowner Lucy Hadley needs to take out another loan to cover her new mortgage payments. But she’s scared she’ll end up in an even deeper hole. HADLEY: ‘I don’t know how high my loan could go. I really don’t. With all that paperwork, I don’t understand…’”
“I didn’t understand last time; I don’t understand this time; I don’t want to understand; you can’t make me understand.”
But hey, can you blame her? Fill a courtroom with borrower, lending company exec, investment broker, 401K/pension/MBS managers — the entire food chain, and I can only imagine they’ll be scrambling over each other to prove, “no, ***I** was the biggest dummy and dupe!”
Whatever accounting method is used, the banks will lose $50-60 Billions in 2007. That’s $150 Million every day !
“Several analysts asked the executives in the conference call why the company couldn’t disclose what proportion of high-risk mortgages it is able to refinance into fixed-rate loans and save from default. ‘The problem is that we don’t have the underlying information,’ said Credit Suisse analyst Moshe Orenbuch.”
HMDA
The Home Mortgage Disclosure Act (HMDA), enacted by Congress in 1975 and implemented by the Federal Reserve Board’s Regulation C, requires lending institutions to report public loan data. In this section of the web site, you can find out more about the regulation and its interpretation.
http://www.ffiec.gov/hmda/
Someone should tell some of these companies to track all of their moneys on a computer. I am sure excel is plenty powerful enough to keep a simple register of incoming and outgoing transactions. Can you imagine running a business and not knowing how much money you have spent and made?
Banks are in charge of money but can’t count it? What, huh??
fnm,fre employees get free lifetime healthcare after working there 5 years- - still hiring !
HADLEY: ‘I don’t know how high my loan could go. I really don’t. With all that paperwork, I don’t understand. I know it’s going to be difficult, so…’”
Why did they write this up as if she is a victim? She is a clearly a moron. If you cant afford the 30 year fixed, you cant afford the house. If you cant understand loan documentation, rent do not buy, or hire an attorney to dumb it down for you. These are not hard concepts. Realtors, lenders and brokers are not our friends or advisers. They are in the game to screw you for all you got. Use some common sense.
If you cant afford the 30 year fixed, you cant afford the house.
This very basic point seems lost on everyone. No “affordability loan” will help you with this because the interest rate on any ajustable loan is certain to rise to more than you can get with a fixed loan.
There’s only one way to “win” when buying a house you can’t afford and that’s to unload it to a greater fool while you still can. If you can’t do that, you’re stuck
“Kathleen Shanley, analyst at GimmeCredit, said: ‘If credit conditions in subprime continue to deteriorate, ResCap may have trouble staying in compliance with its bank debt covenants.’”
GimmeBankruptcy?
China State TV to its Citizens : Ditch the Dollar.
http://www.cnbc.com/id/21829883
We’re screwed.
“Selling dollar for yuan as soon as possible may be a safe approach,” the news program said, adding the yuan could then be used to invest in domestic mutual funds.
The third recommended strategy was to invest the dollars abroad, in search of higher yields, by buying into Qualified Domestic Institutional Investor (QDII) products offered by Chinese banks and fund managers.
Privately held dollars is something like $162.1 billion ..
Should be some really healthy commissions and fees on the currency exchanges and on all those trades. Get it while you can.
It’ll be a couple years before the Chinese people are too sophisticated to fall for such a scam.
If this advice pans out, will BB have a legitimate case for blaming the dollars’ woes on Chinese peasants’ household savings decisions?
High quality coverage from Fortune. ” …a credit-loss ratio of 4 basis points for the first nine months of this year — meaning the company lost money on four of every 1,000 mortgages it holds on its $2.4 trillion book.”
Uh, 4 bps = .0004, so .0004 x 1,000 = .4, not 4. And that’s not even what a 4 basis point loss ratio means.
The financial press knows nothing about finance.
How are Trump’s Tijuana-area condos doing? Now that was a smart play for the condo specuvestor. “Just an hour from San Diego, but a world away. Paradise starts at $375,000…”
How are Trump’s condos doing? Well the site is just north of a huge raw sewage pipe that flows into the ocean. And recently, there are lots of reports about paramilitary attacks on folks in TJ - at gunpoint, they steal your car, your money. And maybe, according to this (http://tinyurl.com/37xpou) they’ll steal your body if you are dead.
You are an IDIOT if you buy/bought one of these things.
I’ve lived in San Diego my whole life, and I vacation in Mexico all the time. And I won’t go right now.