This Multifaceted, Jenga Tower Of Hurdles
Some housing bubble news from Wall Street and Washington. Bloomberg, “Home prices fell in one third of U.S. cities last quarter as stricter lending standards caused a 14 percent decline in sales nationwide. Prices dropped in 54 of 150 metropolitan areas in the third quarter and the median sales price tumbled 2 percent nationwide, the National Association of Realtors said today.”
“Home sales, including single-family properties and condominiums, slid to 5.42 million at an annualized pace from 6.29 million a year ago.”
“Palm Bay, Florida, had the biggest price decline in the third quarter, tumbling 12.4 percent from a year earlier. Sacramento, California, fell 10.5 percent and Sarasota, Florida, dropped 10.4 percent.”
The Associated Press. “The Realtors though saw a silver lining in the data, noting that home prices rose in 93 of the 150 metropolitan areas surveyed.”
“‘Some metro areas are hot while others are experiencing localized problems,’ Lawrence Yun, the group’s chief economist, said in a statement. ‘Home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.’”
“Freddie Mac, the second-largest U.S. mortgage-finance company, may need to raise as much as $6 billion to bolster its capital amid the worst housing slump in at least 16 years.”
“The government-chartered company yesterday said it would seek more reserves in a ‘large transaction,’ after reporting its biggest quarterly loss. The amount may be $5.5 billion to $6 billion, according to Fox-Pitt Kelton analyst Howard Shapiro. Friedman Billings Ramsey analyst Paul Miller and Gary Gordon, an analyst at Portales Partners LLC in New York, predict $5 billion.”
“‘It’s not going to be a small number,’ said Gordon.”
“‘This is a disaster for the broader mortgage capital markets,’ said Shapiro. ‘To the extent that Fannie Mae and Freddie Mac cannot grow, you are taking even more liquidity out of the markets.’”
“Shares of Freddie Mac plunged almost 30 percent after it said it must set aside $1.2 billion to account for bad loans. The mortgage market shuddered at Freddie’s loss, coming just days after a $1.4 billion quarterly deficit was revealed by Fannie Mae, its bigger government-sponsored rival.”
“Especially troubling to investors is that the remedies Freddie Mac is considering would add to the strain on the housing market, analysts say.”
“They ‘have provided essential liquidity in a time of crisis,’ Shapiro wrote. The loss of their role to ensure the mortgage markets are liquid will result in ‘a further exacerbation of the housing downturn — even less credit available and steeper downturns in home prices.’”
“Despite Freddie’s own bleak assessment of its performance, equity and debt analysts still questioned whether executives were being overly optimistic in forecasting future losses, and investors punished the company’s shares as a result.”
“Ratings agencies also chimed in: Fitch Ratings and Standard & Poor’s Ratings Services both warned that they may cut Freddie’s AA- credit rating on its preferred stock.”
“‘These guys are supposed to be the best credit evaluators in the world. And it looks like they’re getting caught a little off guard along with everyone else,’ says equity analyst Paul Miller of Friedman, Billings, Ramsey.”
“In all, Freddie recorded $4.4 billion and $4.3 billion, respectively, in unrealized losses on its securities and derivatives during the third quarter. Those are losses the company generally considers temporary and do not flow through earnings.”
“Analysts worry that Freddie’s default and loss assumptions might be too optimistic and that those losses may not be temporary.”
“‘The loss severity they talked about was 26% to 30%’ on all loans says Joshua Rosner, managing director of Graham Fisher & Co. ‘While it sounds like a very high number, relative to history, that’s not the peak,’ he adds.”
“Loan loss rates of ‘25% to 30%, given the historically unprecedented bursting of a real estate bubble, is not either conservative nor would it be unrealistic to expect. Given the deterioration in conditions, the severity could be significantly higher than that.’”
The LA Times. “Freddie Mac would play a key role in plans to provide more funding for home loans. One proposal would lift the current $417,000 ceiling on mortgages that Freddie Mac and its sister company Fannie Mae can buy, a move long sought by lenders in states such as California with high home prices.”
“But that idea may be jeopardized by rising losses in the loan portfolios held by Freddie Mac and Fannie Mae, some experts said.”
“‘Their opponents will ask, ‘Why should we give them new powers when they can’t even manage the risks they have?’ said Jaret Seiberg, an analyst at Stanford Group in Washington.”
“Countrywide Financial Corp. survived the first phase of the mortgage meltdown this summer thanks in part to a $2-billion investment from Bank of America.”
“But the Calabasas-based lender suffered a major new setback Tuesday when mortgage giant Freddie Mac posted a big loss and said it needed new capital — which could curb Countrywide’s ability to make loans.”
“‘Countrywide’s survival strategy has depended on access to the secondary markets’ — the companies that, like Fannie Mae and Freddie Mac, buy loans and bundle them into securities for sale, analyst Shapiro wrote. The approach won’t work so well when Freddie Mac and Fannie Mae ‘are capital-constrained and may need to shrink.’”
“As losses mount at Fannie and Freddie, they will have to compensate by raising those fees to lenders, an extra charge that Countrywide may have trouble bearing, said Frederick Cannon, an analyst at Keefe, Bruyette & Woods.”
“‘The question is whether Countrywide can pass the extra costs on to borrowers,’ Cannon said.”
“BofA made a $2-billion investment in Countrywide to gain access to its efficient loan-generation and customer-service operations. The decline in Countrywide’s shares has now left BofA down $858 million at Tuesday’s closing price. BofA declined to comment.”
“The risk of banks defaulting on their debt rose to the highest on record as losses by mortgage finance company Freddie Mac fueled concern that lenders will add to more than $50 billion of writedowns worldwide.”
“‘Everything is signaling that the market may switch to panic mode,’ Philip Gisdakis, a credit analyst at UniCredit SpA in Munich, said in an interview today. ‘The news flow is so bad and there is no relief in sight.’”
From Reuters. “U.S. mortgage applications fell last week, with demand for both refinancing and home purchase falling, an industry group said on Wednesday.”
“‘We have this multifaceted, Jenga tower of hurdles starting from the dust and plywood production stage and running all the way through clearing the mortgages to their final investor,’ Gregory Miller, chief economist at SunTrust Bank, Atlanta, said of the precarious U.S. housing market.”
“Builders can’t move homes. Buyers are ‘left with gnawing fears that they’ll wake up with buyer’s remorse,’ that their home value soon drop in value even from the discount they managed to score. On top of that, ‘the purchaser has to go find a mortgage and standards are higher,’ he said.”
From Marketplace. “The Office of Thrift Supervision reported today that earnings for the nation’s savings and loans plunged 84 percent in the third quarter.”
“JILL BARSHAY: ‘Investors piled into savings and loan stocks in August. Back then they looked like a safe haven from the subprime mess. Scott Polakoff is the chief operating officer at the Office of Thrift Supervision. He says S&L earnings fell 84 percent in the third quarter.’”
“SCOTT POLAKOFF: ‘It’s been a long time since we’ve seen that kind of drop — almost 15 or 16 years ago.’”
“Polakoff says large thrifts who sell mortgages to investors took some of the biggest losses. They had to write down some of the mortgages on their books when they couldn’t sell the loans.”
“Polakoff says thrift execs think the housing market will get worse. They’ve diverted money away from this year’s profits to cover future mortgage defaults. Over the next 12 to 18 months, some consumers may find it a lot harder to get a loan.”
From Barrons. “ACA Capital. a leading insurer of sub-prime mortgage-bond securitizations, is drawing relentlessly closer to ‘bagel-land,’ that dismal place where a stock’s price is zero.”
“The proximate cause of this slide was the disclosure on Nov. 9 that Standard & Poor’s had put ACA on negative Creditwatch and might cut its credit rating from the current single-A.”
“Any rating below single-A-minus would force the insurer to post margin of $1.7 billion or more on its $25 billion book of subprime collateralized mortgage obligations, to reflect the mark-to-market losses that it has already acknowledged on this portfolio.”
“The demise of ACA would embarrass its roster of institutional owners, including Bear Stearns’ Merchant Bank, hedge fund Perry Capital and the Third Avenue mutual-fund concern.”
“ACA has long been a convenient dumping ground in which major subprime securitizers like Bear Stearns, Citigroup, Merrill Lynch and some 25 other prominent dealers could pitch billions of dollars of risky obligations for modest premiums. That let them gussy up their balance sheets and shift any potential mark-to-market hits to ACA.”
“If ACA Capital were to founder, more than $69 billion worth of CDOs, including the $25 billion in subprime paper, would come rumbling back to the Wall Street banks, and likely with heavy attendant losses.”
“Big-name investment banks are taking a financial beating this year, leaving many Americans to ask: Just how did all these Wall Street bankers in their $5,000 John Lobb shoes manage to step in you-know-what?”
“Individual investors frequently lose money by chasing past returns. Investment banks did just that amid the booming housing market. They mirrored each other’s moves as they raced into ever-shakier lending. Some estimates suggest that collectively they’ll lose more than $400 billion.”
“‘They are basically a herd of sheep. They all go into it together,’ said A. Gary Shilling, a financial consultant who warned in 2005 and 2006 of troubles to come. In the 1980s, banks followed each other into massive Latin American debt. Later, he said, they all got burned together by losses in manufactured housing.”
“In hindsight, the risks from an overheated housing market seem obvious. But in a now-famous July interview with London’s Financial Times, then-Citigroup CEO Charles Prince appeared to confirm the sheep metaphor when he shrugged off the imminent danger.”
“‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,’ he said.”
“Most Wall Street investment banks made the same fundamental miscalculation made by many average Americans who bought second homes or vacation properties as investments.”
“That mistake was assuming that home prices might flatten but wouldn’t fall. Individuals believed they couldn’t go wrong. Investment banks concluded the same, relying on complicated financial models dating back to the 1930s that showed that home prices defy the laws of gravity.”
“‘They didn’t realize that with rising house prices, things look very good, but they were lending to people that couldn’t afford chicken coops but were in four-bedroom homes,’ said Shilling.”
‘Palm Bay, Florida, had the biggest price decline in the third quarter, tumbling 12.4 percent from a year earlier. Sacramento, California, fell 10.5 percent and Sarasota, Florida, dropped 10.4 percent.’
This alone proves the NAR numbers are false. Many, many markets are down 20% plus. MSM, why don’t you call these guys on this stuff!
I went upstairs for lunch. Channel surfed a few news station…foreclosures on the rise!
They must have heard ya Ben!
Happy Thanksgiving Everyone!
Leigh
Ben;
Orlando is down over 20%. The real numbers are obscured by the NAR, so it’s hard to tell. I personally know of properties that are priced at 40 to 50% below the 2005 peak and not selling.
Single digit % drops in unit sale sand price, YOY would be a problem but not the presant disaster.
Ben:
The NAR does have credibility in their numbers, but only with other realtors. The NAR has no credibility on main street and in fact it is going to hurt them and their members in the long run as their lack of credibility stands out even more over time.
In your book you can refer to them as the NAR who cried wolf too many times when Yun, David L. and company continued to fool the public with false information. When the pickup in the market begins, nobody will listen to them because they cried the market is doing great, now is the time to buy one too many times.
End of NAR fairy tale.
Numbers
Are
Ridiculous
In Europe, the Big Freeze Is ON…
Europe Suspends Mortgage Bond Trading Between Banks (Update1)
Nov. 21 (Bloomberg) — European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region’s main source of financing for home lenders.
The European Covered Bond Council, an industry group that represents securities firms and borrowers, recommended banks withdraw from trades for the first time in its three-year history until Nov. 26. Banks are still obliged to provide prices to investors, according to the statement today.
Banks including Barclays Capital, HSBC Holdings Plc and UniCredit SpA took the step as investors shun bank debt on concern lenders face more mortgage-related losses. Abbey National Plc, the U.K. home lender owned by Banco Santander SA, became the third financial company to cancel an offering of covered bonds within a week today as investors demanded banks pay the highest interest premiums to sell bonds in the 12 years since Merrill Lynch & Co. began collecting the data.” (per Bloomberg)
This can’t be good news…they’ve shut down the market.
Holy smokes. Went to Bloomberg to read that one, couldn’t find it, but found this: GM says it has no further obligation to fund ResCap.
“The whole GMAC deal was designed to protect GMAC and ResCap from a GM bankruptcy, and the same firewall should have the same benefit if it’s ResCap that gets in trouble.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ase3Le0.5cQs&refer=home
They are trying to cut off the diseased parts.
http://biz.yahoo.com/rb/071121/rescap_gmac.html?.v=1
WT Economist: Here is the article on Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601010&sid=aS4wGPNgwfHs&refer=news
From the Guardian, on the Covered Bond Market Shutdown…
“”It’s good for the market,” said Christoph Anhamm, head of ABS and covered bond research at ABN AMRO in Frankfurt. “It gives the market time to think.”…
The suspension may run longer than Nov. 26, he said.
“Due to general market conditions and the specific mechanics of the inter-dealer market making it even seems possible that inter-dealer market making will not be resumed this year,” Anhamm said.”
According to CR, this is a multi-trillion dollar market. Closed until further notice.
Damn, I lost another loan to DITECH…or, if that’s not working, how bout’ PEOPLE ARE SMART…still not working, ah, hell with it…
what a bunch of junk…GMAC finance…about as good as the crapboxes they build
crush
Yeah, that’ll work. See? Prices stop falling if we stop trading. And if I shut my eyes, the whole world disappears!
Ha, so they can continue to quote paper at 100 cents on a dollar as technically tehre are no trades?
My question exactly !
No, but they can’t say the market is 10 cents on the dollar either. They will probably try to mark to last price, failing a credit downgrade or above projected defaut rates affecting individual issues.
Forgive my ignorance on this. How does this impact the average person? Does this stop any government from bailing out the banks on the back of the taxpayer?
I would appreciate any help here.
Thank you.
It might allow the banks to continue the charade that their MBS investments are OK, since they don’t have an active market with active pricing demonstrating otherwise staring them in the face.
“If ACA Capital were to founder, more than $69 billion worth of CDOs, including the $25 billion in subprime paper, would come rumbling back to the Wall Street banks, and likely with heavy attendant losses.”
IF - LMAO!! When!
I know. Bagel land? The financial press is getting more and more amusing.
In following this ACA story I have assumed these CDO losses have never been recognized by the IB’s - have you seen anything on this?
Also, the associated derivatives on these CDO is several hundred million - who will take the fall for these…
*billion
Those aren’t bagels.
It looks more like orifices where used bagels emerge.
They appear to be ‘everything’ bagels, from my vantage point.
More writedowns to come very soon.
I remember the days when the writedowns were $50 billion. then $100 billion, then $200 billion and now we’re holding steady at $400 billion.
I recall the time when it would be a big day if I would find a few million of losses in some unheard of mortgage REIT!
Did anyone see this?
They are just going to extend the low teaser rates for FBs who can’t afford the reset payment for a sustainable time?
WTF? So people who took on a loan they couldn’t afford to repay are rewarded for biting off more than they could chew? WTF?!?!?! unbelievable. I really hope this is one of those “help for the stupid” programs that sounds good, but doesn’t actually do diddly squat!!!
whoops… hmmm.. link applied to all my text.
“WTF”
Two words:
Debt Slaves.
I remember the days when Paulson told the world that “subprime is contained, the worst is behind us”.
Those were the days. Only a few weeks ago.
Got Counterparty Risk?
I hope not. But can I be sure?
the banks think they’ve got loses covered because companies like ACA have insured them, correct? the counter party risk is if those companies can pay.
Yeah and when the bond insurance disappears the banks will have to accumulate the asset value decrease into their earnings. That will be a huge eye opener. Right now the privately owned organizations/hedge funds are absorbing the losses. That won’t continue much longer.
Yeah and when the bond insurance disappears the banks will have to accumulate the asset value decrease into their earnings. That will be a huge eye opener. Right now the privately owned organizations/hedge funds are absorbing the losses. That won’t continue much longer.
Right now the losses are theoretical… portfolios that have fallen in value, etc. Soon cash will be required to cover losses, like margin calls, but for these bonds. That is when things are going to get ugly.
I know this is slightly ot, but I was thinking about the discussion about how China and India can’t get the same standards of living as us. I don’t think they can, they can increase their own standards of living. what will happen is when people move to motorbikes from bicycles in Asia and India that will raise the price of gas and it will come out of the rest of the world’s income. when gas is more here that means there is less to spend on other things. increasing demand from Joe Sixpack in Asia and India will cut the excess consumption in the US and excess per capita energy use. it’s a shift of wealth. incomes in China and India are rising.
an example in the US is the housing bubble. home owners are devoting more of their income to housing. we’ve all read about how they can’t go on vacations, go out to the clubs and go out to eat. that money is going to HBBer’s who are renting for less than the cost of owning(and building up savings), those who sold at the top and those that shorted the financial and real estate sector.
It’s not a zero sum game, and standard of living as a concept is very fungible. Clean running water would still be a major lifestyle improvement for most of China and India. $10 /gallon gas? One way to solve the obesity problem, imho.
We don’t lose 400 years of hard won scientific knowledge just because a bunch of overpaid ivy league humanities graduates screw the pooch. We’ll adapt, and build a better society as a result. Anyone who has lived and worked in both mainland europe and the USA in the last 20 years knows that the US’s claims for a markedly higher standard of living were always a little hollow in any case.
“It’s not a zero sum game, and standard of living as a concept is very fungible.”
well it is sort of. Michigan has lost out and the whole rust belt has lost out to manufacturing in the south, mexico and china. wealth is often created in one area and destroyed in another.
Warlock, ever heard of “creative destruction” in economic theory
google it
I agree with you on this. There’s only so much income each person has and as expenses go up in one area, spending goes down in another. This in turn will effect how much we import.
Many globalization proponents believe that we will all improve our quality of life by globalization. Maybe that’s possible to a degree but (short of some unforseen technical advances) there just aren’t not enough resources for everyone to achieve the standard of living that the West currently enjoys. If they are to achieve that there will have to be some losers (us).
One thing people forget is that as India and China rise economically they will cease to be the lowest cost provider of food. To truly be a world leader they will have to transition from their current model of doing business. They have a long ways to go in that regard.
Take India for example. While there are some brilliant Indian engineers from IIT, from my experience the average Indian engineer is not as qualified as the average Western engineer. (From my experience, because they’re pushed so hard into engineering/computers there are many who are not naturally inclined towards math and science getting into these field.) Indian is currently the country of choice for tech work simply because labor is so cheap there. If they are truly to become a world leader that will not be the case.
This is just plain wrong. Free trade will benefit everyone over time, although, some more than others. Yes, there are subgroups who have been vastly overpaid that will be injured by a competitive marketplace. I.e., autoworkers, airline workers, etc. But cheaper goods and services help everyone. An increased global capital supply will benefit all people who have labor to mix with that capital.
As to the natural resources argument, that is just a rehash of Mathlus’ argument which has been proven wrong for 200 years.
What is true is that the free ride for certain subparts of the US economy is over. There is no way to protect a GM worker from foreign competition that does not have laws allowing for supra-competitive wages to be paid. Which is good because heavy industry should not be some line of work where we want people to aspire to work — machines will take it over completely someday and we’ll all be better off.
And, John Law, that is why buying RE in America in the past 4 years was ABSOLUTELY the worst time anybody in the US should have taken on massive debt in a wildly inflated market to buy an asset that is always a net obligation. Overlay the timing with accellerated globalization and global competition for resources (read declining real incomes) and there has NEVER been a worse time to have become a homedebtor.
Please, please tell me this is not going to make any difference in the long run:
“Governor, 4 big lenders agree on plan to stall high mortgage rates” posted today on SFGate.com - the SF Chronicle’s site.
I’m furious about this. Talk about rewarding bad behavior!!
I am waiting to see a single critical look at this plan in the press. Just wave a wand and it’s all good, right? Come on, when the rubber hits the road this will fall apart faster than that SIV fund thingy. Remember that?
Ben, I emailed you the link to the SF Chronicle’s article on this.
I took a look at the comments posted on the newspaper’s website in response….and people are LIVID. Not everyone participated in this mess, not everyone got in over their heads, bad financial decisions should not be bailed out, etc.
It’s a sure sign that people understand this will get way, way worse. I heard someone say on CNBC yesterday that 40% of mortgage originations in CA are SUBPRIME for the last 2 years. I just about fell over. Those are all ticking time bombs, and the problem will just be too f******* big for anyone to “fix.”
“Those are all ticking time bombs, and the problem will just be too f******* big for anyone to ‘fix.’”
That doesn’t mean the politicians, et al. won’t try to limit damage to the voting sheeple.
It’s going to take some time to play things out but I have some ideas. First, I think that the money that is due to the banks may not be the banks’ money. Perhaps it is suppose to go to CDOs and the banks are just managing the money. So the banks don’t lose only the CDOs lose. It seems the CDO investors do not have a voice or much control (as seen in the Ohio forclosure cases). It seems possible that these people who made such bad decisions could get rewarded and live for in their new houses at a subsidized rate.
Yeah and no one will EVER lend mortgage money again. Politicos are stupid, but their economic advisors would point that out to them.
Link here… “WTF”
Me thinks the lenders might be very worried about foreclosures. They might feel it’s better to workout these garbage loans and take a 20% writedown on the new below-market rate loan then to foreclose and take a 30% loss on the REO sale. The question is how many borrowers will agree to continue payments on a loan balance greater than the value of the house? The number may be small in California where there is no recourse on purchase-money, home loans.
“Me thinks the lenders might be very worried about foreclosures. They might feel it’s better to workout these garbage loans and take a 20% writedown on the new below-market rate loan then to foreclose and take a 30% loss on the REO sale.”
Yes, but how many of these loans are even still in the lenders’ portfolios? If they’ve been sold off, they need to get the investors’ permission before they modify anything. They can’t do it at will. And I believe that tracing any one individual mortgage to exactly which investor pool it’s in is no easy task.
And I cannot believe that all of these Subprime borrowers will WANT to keep making their payments on a house that will never again be worth what they paid for it, I don’t care how low the rate is. Why bother??
“And I cannot believe that all of these Subprime borrowers will WANT to keep making their payments on a house that will never again be worth what they paid for it, I don’t care how low the rate is. Why bother??”
IMO, this certainty is what really matters. Imagine chained FBs paying forever for a cheapy boom house ten years from now - when the rest of the world has moved on to the next big thing. Won’t happen.
And if there is no default, the insurance won’t kick in…
What is even better is that if the bond holder for the loans are forced to eat the loss in revenue from the interest payments of the FB’s, how many are going to be willing to purchase these bonds in the future?
net result = higher interest rates and fewer home buyers. Either way, I win. FB gets foreclosed and I can go in and purchase.
Carlsbad — I think that will be the end result for us, the fence-sitters. As I think Ben alluded earlier in the week, though, it is likely to be a mixed blessing. We will be able to buy a house for a fair price, when compared to the long-term mean. But the rest of the economy (and our new neighbors) will suffer so much that it will dull a lot of the joy. More or less, we might end up celebrating in an empty bar.
I agree. This has “feel good” written all over it. Regardless, these people vastly overpaid for their houses even with 0% rates. Nothing is going to change that. Nothing is going to stop the falling prices because the free money is gone. We all know that is the real culprit here.
If this actually helps a few people keep their homes, using the criteria cited, it’s not a terrible thing. So someone gets a 5% rate extension for a few years. It’s not going to prevent much from unwinding and very well could make credit even tighter.
I am not worried about this plan - look at two of the bigget players, CFC and GMAC, they are both on the verge of going under. They are more desperate than the home-debtors, this plan will fail. We were sold that things would be ok because risk was spread all over the place, how can they renegotiate a loan held by the Chinese goverment or a Saudi Prince or whoever? They cant!
I’m not worried about the plan if the taxpayers don’t pay for it .
worry
LOL, as he climbs the scaffold.
Possibly the plan will be effective in keeping CFC’s head above water a little longer, if the point is to enslave borrowers in tranches that were already PUT back to CFC. Like, some bank bought a bunch of kR@p from CFC, but too many loans defaulted immediately, so CFC had to buy back the garbage. Now the garbage is on CFC’s books again, and some cash flow is better than NO cash flow, so CFC would rather collect below-market rates from the FB’s than collect a bunch of house keys. Could that be the explanation?
Sounds very plausible to me. Good thinking az_lender.
However, that may require a charge as the paper with a net effective yield so low as teaser rates, despite that they are ‘current on CFC’s books, still devalue the collateral due to the low yield.
How would it even work? Even if the current owner is locked in at an artificially low rate, a buyer would have to borrow at market rates. That means the buyer couldn’t afford the asking price of the homedebtor so we are back to the same problem; you have to cut the price to sell the house.
But they wouldn’t be selling for up to 5 years because that’s how long of a break they are getting. (Assuming they can hang in there for that long financially.)
Exactly –this seems to be a delaying tactic by the lenders and for the lenders. The idea is to bring the loans “current”, and buy lenders enough time to move this crap off their books and into some MBS/CDO pool or Super-SIV/MLEC.
Yes but they are on the hook for the taxes and maint, a lousy deal if you ask me and nobody will.
Not going to happen.
Teaser rates are under the cost of money for lenders.
The plan could be to neg-am the amount based on some agreed-upon current real rate. That would accomplish what HARM describes above, a delay. My sense is that anything at all that delays the pain and accounting recognition for the fish upstream is welcome by them. It’s just triage.
I know a little bit about bankers…. Let me tell you that no one is going to give anyone anything below the cost of money, no matter where negam could lead. It is not going to happen. They might do it at cost. They won’t do it below. I seriously dont think the cost of money is the teaser rate. It is kind of similiar to HSBC’s acquisition of household ( bit mistake ): HSBC was willing to do anything possible to work out the turd they got as long as it did not fall below what it cost them to actually loan the money.
Governator: Please HBBers….. do not take me seriously about this that and the other regarding ‘teaser’ rates’ being put on ice and such (wink wink). My hair stylist gives me good ideas about these things and such. Its all in the ‘appearance’ for actors and politicos. Nothins gona happen. Don’t worry bout it, ok?
Funny — good imitation - I can picture him saying that in exactly those words.
Please, please tell me this is not going to make any difference in the long run:
“Governor, 4 big lenders agree on plan to stall high mortgage rates” posted today on SFGate.com - the SF Chronicle’s site.
I’m furious about this. Talk about rewarding bad behavior!!
I doubt this is going to effect anything much. This goes to show how stupid government is. If most of these people couldn’t afford the payments in the first place because of fraudulent incomes, docs, etc., how are they going to be able to afford the payments now, even if the rates are frozen and do not change.
Nothing is working.
All a mighty scam to make it look like the public employee parasites at the state housing authorities are actually doing something to address the problem.
LMAO…How many bureaucrats do ya think it takes to send a solo rejection letter.
It becomes more and more dysfunctional every day.
http://www.boston.com/business/personalfinance/articles/2007/11/21/refinancing_programs_omit_many_borrowers
A govmint program that doesn’t help one single soul……wouldn’t that be a first????
Location, Location, Location…these reported figures from any source are worthless in putting a true value of a single family house.
In my mind, employment figures should be reported along with the price declines. If total employment is steady or increasing, the largest price declines are happening in undesirable locations in that city. Gas at $4.00 a gallon would certainly factor in someone looking at a house 40 miles from an emplyment center vs. 10 miles.
Many builders built crap homes during the buble anywhere they could find cheap land, and created bogus finance departments to move their product. We certainly have a housing downturn, but I would certainly be more concerned if total employment starts to decrease substatially.
You’ve described the outer fringes of the Phoenix metro to a “T”. Many of the ads in glossy RE magazines now include the words “close in” - not something that was advertised a few years ago.
With the cost of transport and travel times increasing markedly, nearby location to required amenities will trump all other considerations imho.
‘Home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.’”
This clown Yun, keeps saying some areas are “undervalued” but he never says compared to what! Yea compared to NYC our Condo here in S.C. is undervalued, what a waste of time and newsprint!
Ben’s lunchtime (fun)Yuns served fresh….. eat up.
You know he’s scraping the bottom of the barrel when he mentions Appalacians. I don’t know local demographics of the area, but I can guess. Here are a few Appalacian town names:
Hanging Dog, Booger Hollow, Cripple Creek, Turnip Town…
‘Home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.’”
This clown Yun, keeps saying some areas are “undervalued” but he never says compared to what! Yea compared to NYC our Condo here in S.C. is undervalued, what a waste of time and newsprint!
Our area appreciated normally. (Southern-most edge of NE Ohio). Our incomes are still in line with house prices, but prices are slowly creeping up. However I had a friend of mine send me houses in our school district today by email. I was a little shocked. My house would sell today here for about $225k, but all but 2 of the houses she emailed me, were not even close in sq ft, quality or amt of land and priced close to mine. The two that were comparable were priced at $275 and $299. That’s 50k to 75k higher than they should be. So maybe here in Appalachia housing is slowly becoming unaffordable too.
Actually, the county I live in is designated Appalachia for programs etc. The north part of the county where I live is middle to upper middle class. The southern part is a few middle class with a lot of poor, so that’s how the county got it’s designation. They probably should have drawn the Appalachia line across the center of the county.
Its totally FUBAR’d. The whole situation. Again. When will people learn ?
We on this board saw this coming. The signs were all there. Blatantly obvious, right in front of our noses, for anyone who could think for themselves.
And once again Wall Street, with its supposedly superior financial engineering told us again and again there was nothing to worry about. And once again things come crashing down. Essentially Wall Street was gambling with other people’s money. Again. When will people learn ?
This situation is a long, long way from bottoming. We still have big inventory numbers, foreclosures, problems in the debt market, etc.
People still can’t comprehend how bad its going to get. Somehow people don’t have the ability to forecast trouble, even though they can readily buy into the myth that house prices only go up. Its sad.
When are people going to figure out that Wall Street is a scam:
First you take some paper (be it junk bonds, dot-com stocks, mortgage debt, etc.) Then you sell it for 10x it’s value. Now trade it higher and higher — but remember this whole scheme will fall apart someday so make sure to bonus yourself an absurd amount of money along the way. In the end lots of people will lose their shirts, but by then you’ll have tucked so much away, what do you care? Wait a couple years. Repeat. Welcome to Wall Street.
Someone posted here that the big playas on the Street consider any money we invest “their” money. I agree with that comment. So from the POV of a Master of the Universe, we all need to STFU about what happens to our assets, which in fact are really theirs.
According to them.
OPM baby!
People probably thought Wall Street was smart but all they were doing was copying each other and rushing headlong into whatever can make them money now and tomorrow be damned.
They aren’t dancing now.
This country is overrun by these ‘Dr Phil’ types whose ‘feelings’ are what matters most. Whatever measures they take to effectively bury their heads in the sand, remember it still leaves the necessary educational path exposed…
High Desert Tree Rides may be their best therapy.
Dr Phil gives normally good, conventional advice. He didn’t say: get greedy, and buy as much house as the lender allows.
Due diligence doesn’t just apply to mortgages. What does Joe Six-pack know about his retirement accounts?
I wasn’t singling out your favorite TV personality. However most media outlets are propaganda machines, some helpful, but always with an agenda. What will wake up the sedated masses?
RE: Dr Phil gives normally good, conventional advice.
Dr. Phil a masquerading male basher.
He’s an embarrasment to his own gender.
The guy makes me want to vomit.
I disagree, tweedle-dee, it is not sad. It was the inevitable outcome, just like the long term odds in any casino. Like speeding on an unfamiliar mountain road in the rain at night - only works for so long and then its off the cliff!
We are at a tipping point; the problems have spread into so many areas that the Fed, Treasury, etc. can’t deal with them. There aren’t enough fingers to plug all the leaks in the dike. They are still trying to stop ARM adjustments from causing foreclosures, a year too late. Now the underpinnings of the credit market (ACA capital, etc.) are being kicked away.
Wall Street and the government want to get through the end of the year so they can lock in tax revenues and bonuses, but they may not make it. We are beginning the next leg down so pick your indicator; bond yields, the dollar, commodity prices, corporate writedowns. It’s the great unwinding Part Deux.
Hasn’t spread to the stock market though. Money taken out of the directly affected sectors has just gone elsewhere. Wake me up at Dow 10,000.
My alarm clock is set for the S&P at 750.
The LA Times. “Freddie Mac would play a key role in plans to provide more funding for home loans. One proposal would lift the current $417,000 ceiling on mortgages that Freddie Mac and its sister company Fannie Mae can buy, a move long sought by lenders in states such as California with high home prices.”
Newbie question: I’ve seen this mentioned a number of times but I don’t know what kind of a difference this would make and why. That is, why is this supposed to help maintain RE and perhaps more importantly, does anyone think it would achieve what the RE and govt want it to achieve? Thanks.
I thinks this will be virtually impossible given the implosion of Freddie and Fannie the last few days. Even if it were, it wouldn’t help much given the tightening credit standards.
Freddie Mac will be bankrupt next year.
laonlooker deserves an answer as to why anyone might THINK it could make a difference. The point is, the $417K loan limit is too small to cover most CA houses. Someone is thinking that a way to prop up the “middle” of the CA market is to have FNMA and Freddie be able to buy loans larger than $417K. As others have observed, I think it would not help much because (a) Fannie & Freddie are themselves on very shaky ground, (b) buyers — I should say, non-buyers — have more control of the situation than they did before, (c) not very many people have an income that will actually service a $500K loan effectively, and those who do have that income probably already have a house, or else they probably already have the $500K sitting in some other kind of securities and their decision to move it to housing, or not, will have nothing to do with Fannie and Freddie.
Nice post — good answer for looker.
Freddie and Fannie buy up mortgage loans, in other words, they provide a market for them. As such, lenders can originate a loan, take a cut, and sell it. Doing so means that they have liquid capital rather than having that same money tied up a house.
Thanks AZ and Mike. Make sense now.
Two times now this past week NAR statements have pimped middle America. Why? Do they see middle America as the most likely place to reignite their mania? Or is this just baldfaced damage control because they know once declining prices can’t be written off on just the usual suspects (the coasts) - it really will be game over?
Because RE in middle america has the illusion of reasonable pricing to clueless euro-trash driving fools on the coasts. What those same fools just can’t wrap their empty skulls around is the fact that pricing in rural areas has doubled/tripled in the last 5 years but they think they’re getting a bargain.
A friend of mine tells the story of his (wealthy) friends from England who were in California one day and called him one morning in Florida to tell him that they were hoping to drive over and meet him for lunch. Seems the EU folk don’t realize how big the country is and how house values can vary from the coast to the sticks.
I had the same thing happen…though not as extreme. Euros thought San Diego was like a half-hour’s drive from Vegas.
Mikey — that also is why they are so critical of our cars and their MPG, and the lack of higher taxes on fuel. They drive so many fewer miles than we do, on average, they cannot relate to the cost. Tangent to that, mass transportation is much more feasible in compact population centers such as theirs.
GSE bailout = CFC bailout. End of story.
Ok, it’s 2pm EST and I’m going out for a 6 mile run. Before I go, should I buy the DOW since the PPT will undoubtedly jump in and get us back over 13k by the close?
What if it doesn’t close above 13k, what conclusion should we draw?
“What if it doesn’t close above 13k, what conclusion should we draw?”
How about that today was a low-volume day that won’t reliably indicate a trend one way or the other, and/or obsessing over hour-to-hour and day-to-day moves in a certain limited index is a total waste of time.
Oh, I thought we could conclude that the PPT was off for the Thanksgiving holiday or that the PPT believers would have some other perfectly logical explanation for the DOW ending at 12,799.
Has the PPT foresaken me?
Or maybe it’s that 12,798 is a psychologically important level! Yeah, that’s the ticket.
By the way, I’m a also a member of the Rally Mitigation Team, but I keep it a secret.
Last week dip buyers got burned when the PPT didn’t show up for the 3:30 stick save. The PPT doesn’t buy every day; they are on their own schedule. OTOH, 13k is a big round number. Why not wait til 3:30 and see if the invisible hand shows up? You can jump in with Ben & the boys if the indexes start going vertical.
Here come the dip buyers at 2:45, placing their bets on the PPT. If the Dow doesn’t go to 13k these guys will be selling at 3:45.
GSE bailout = CFC bailout.
prof. bear, how do you think the government will try to achieve this?
I believe the plan is a (taxpayer-funded) guarantee of GSE-securitized debt in amounts up to $1m.
“Shares of Freddie Mac plunged almost 30 percent after it said it must set aside $1.2 billion to account for bad loans. The mortgage market shuddered at Freddie’s loss, coming just days after a $1.4 billion quarterly deficit was revealed by Fannie Mae, its bigger government-sponsored rival.”
Birds of a feather, lose money together…
G-E-R-O-N-I-M-O!
“‘Some metro areas are hot while others are experiencing localized problems,’ Lawrence Yun, the group’s chief economist, said in a statement. ‘Home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.’”
Flyover Larry and cronies, know that houses in this geographical stretch of the country aren’t worth much, thus can’t go down much.
Really, what is the downside risk of a $4,000 Detroit duplex, vs a $400,000 duplex, in Downey, Ca.?
‘Home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.’”
You know what? STFU!!! No- many of these areas ARE NOT UNDEARVALUED. IN fact, I can say with all honesty that my parents in TN are mentioning some of the exact same stories as we hear out in CA, which is that there are mountinf foreclosures and stalling homes sales.
I really, really, really hate the whole notion that just because SF, NYC, Boston, Miami are all super overpriced that suddenly regions within a driving distance and 1/3rd the cost are suddenly “undervalued”. What kind of retarded, twisted economics is that kind of thinking? Does Yun actually believe that there are people in places like TX, NC, and KS who feel that they bought homes for a steal? The ONLY people who do are people from other states and not those who are actually from there.
It would seem all too convenient to make attempts to shuffle the bubble to some of the last somewhat affordable regions left in the country, but then again, the very word ‘affordable’ has been butchered to the point where all it means now is that you won’t go bankrupt or be forced to eat Ramon due to your housing payments.
Prices in the Southeast and Midwest are lower than California for a reason. It isn’t because they are bad places to live. It is their economic structure and the payscale. By saying how ‘undervalued’ it is only means that you have no business being head of the housing industry.
I see right through the crap: Get people to invest in other areas just like they did in TX when the whole undervalues mantra was being spread. We all see how that turned out. At some point, the real estate industry needs to get out of the investment business and back into the business of selling homes for people to live in.
There… I’ve ranted enough.
“At some point, the real estate industry needs to get out of the investment business and back into the business of selling homes for people to live in.”
i think this should be their next campaign slogan!
Jetson,
I posted about this Yun lie but it hasn’t appeared yet. NO WAY are rural areas affordable. They have an appearance of affordability only to idiots who overpay for everything. Secondly, prices are lower in rural areas because THERE ARE NO JOBS. Get it folks? NO JOBS.
On rural phonomenon here in IL during the boom went a little like this:
Farmers with land close to the expanding exurbs cashed out and took adavantage of a tax loophole - they had to plow their gains back into ag land within a set time (six months I think). So, what did they do? They bought up land in previously cheap remote corners of the state - running up the price of ag land in places one could hardly imagine existed.
So, no middle America is not affordable to the people who it means the most to - middle Americans! Not unless some coastal high rollers want to take up residence in the sticks. Oh, and forget about the Europeans - they’ll be lucky to make it out of FLA.
“So, no middle America is not affordable to the people who it means the most to - middle Americans! Not unless some coastal high rollers want to take up residence in the sticks. Oh, and forget about the Europeans - they’ll be lucky to make it out of FLA. ”
LMAO!!!
RE: THERE ARE NO JOBS. Get it folks? NO JOBS.
E-Man: The regional hospitals & welfare health clinics in ME are a jobs jauggernaut.
My best friend is a medical director at one of the aforementioned clinics in Kezar Falls. He’s always gettin’ half million grants from the Feds to fund expansion of services.
He fancies himself a big “free trader”.
I laugh at him and say…you health care chucks kill me.
Nice to be able to market and provide a service which none of your clients pay for.
That shuts him up.
I just took a 4 hour road trip to the family farm in west Michigan. Here the locals say the same thing you did….what jobs???
Once off the freeway and in the sticks I see foreclosures and vacant homes in places I’ve never seen them before. The problem is spreading out here in the sticks where people have been nickel and dimed to death re: jobs for years now. A house worth 50K, no matter how “affordable” that might be, is no good to you if you’re not working.
Collateral Damage.
the real estate industry needs to get out of the investment business and back into the business of selling homes for people to live in.
But that’s not easy money.
jetson boy,
my fiance has a severely mentally retarded brother (mental capacity of a 2 yr old). please don’t insult him by comparing him to Yun. He is MUCH, MUCH smarter than almost everyone in the financial MSM…
Oh, man — Badger Boy — that’s just too tacky even for the most cynical on this board, IMO. Did your fiance see your post?
Just how did all these Wall Street bankers in their $5,000 John Lobb shoes manage to step in you-know-what?”
Perhaps and out of work Realtwhore can get a job removing turds from the bottoms of these fancy shoes.
Or walking the dogs and bagging the poop.
Being curious, I looked up the shoemaker’s Web site. Here is their page on the advantages of such shoes:
http://www.johnlobbltd.co.uk/main/benefits.htm
No doubt they are as comfy as any shoes we might ever wear. And they are of high quality and durable. Nevertheless, I think I’d shell out for a Bentley before I’d pay 5K for a pair of shoes. No hope for me in the upper classes.
“Just how did all these Wall Street bankers in their $5,000 John Lobb shoes manage to step in you-know-what?”
Their SigmaSix classes didn’t teach them how not to step in it.
“”It’s been a long time since we’ve seen that kind of drop — almost 15 or 16 years ago.’”
I keep seeing comparisons to 16 years ago (biggest decline in 16 years, worse sentiment in 16 years, etc, etc). When will we surpass that low of 16 years ago, and what will be the new mantra? Worse since 1939?
Wells Fargo has already said “worst housng market since Great Depression”.
That will be the new mantra…at least until the press stops talking recession and starts labeling the The Greater Depression.
Wells Fargo has already said “worst housng market since Great Depression”.
It’ll probably be worse than that. The sheer number of houses now compared to the Great Depression is staggering. Plus how much larger is the population. This gigantic tidal wave is going to make the great depression look like water coming from an eye dropper.
Here comes the mass failure of the system.
ACA Capital May Get `Thrown to Wolves,’ JPMorgan Says (Update3)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYh0yFDT_hAc&refer=home
I remember back in the day (2 years ago) we used to argue about when the housing market would stop booming and what would cause it. My argument was that manias/bubbles continue forever - until the liquidity dries up. It looks like that was the case !
From Forbes: “Mr. Roseman also sits on the board of directors of Caribbean Financial Group, a privately held financial services company.”
Couple of years ago, the Caribbean was a hot topic here, relative to all the mysterious very-high-$ buying that emanated from there.
PPT at work again ! 2:30 ET and the Dow went from -120 to -87. I bet we break even for the day.
What happens when the PPT owns all the stock and the bids are way lower than what it bought it for ? Sooner or later it has to sell its holdings, right ?
Due for a short covering bounce, I’d expect a rally back to 13,500. I’m playing autos, airlines, retail (downside) on a bounce going out to may or better (options). I think the 1st half of ‘08 is going to be ugly.
A Must Read…
http://market-ticker.denninger.net/2007/11/idiocy-on-display-ppt.html
Here’s the flip side of that. The blogger says there is no evidence of any PPT “buys.” But since it is stated in official docs that the PPT (by its official name) was created to intervene in the market, where, then, are the transactions that it concluded in carrying out that mandate? Seems to me the blogger is claiming they never did what they were chartered to do.
DOW shall not be below 13,000 at the start of Black Friday!!!
Do I hear -60?
We are in a flight to safety, treasury market talk, I don’t know about any significant bounce in the equity markets as fear begins to build I can only imagine the run to the exits. We are experiencing a liquidity contraction not felt since the great depression and its impact is global. Trade safe
I totally agree.
I’m 100% in treasuries with no intention of moving anytime soon.
Ditto… Been there since I made an absolute killing off the “surprise” 50-bp FFR cut.
I moved the first week of July.
Don’t underestimate the wall street criminals.
Oh well, guess we can dispense of the PPT nonsense now that it closed at 12,799. Please? Pretty Please????
The sellers overwhelmed the PPT’s ability to buy. The DOW closed down 211 points !
Wait… stocks came back because GMAC said they may sell ResCap… Or they may buy a non-U.S. lender and dump ResCap’s losses into it????
Looks like that story didn’t have much in the way of legs. About 20 minutes….
That hit the wires 2 hours ago. I don’t know what gm is thinking, trade one set of problems for another?
I read it as finding a decent company to dump the crappy one in to…another way to mask losses.
ummm… maybe just maybe people are putting too much faith in too small of an indicator ! *shakeshead. GMAC and GM itself is a long way from getting clear of this situation.
Northern Rock! What the hell are they thinking?
http://biz.yahoo.com/rb/071121/northernrock_gmac.html?.v=1
Freddie Mac declined 46 cents to $26.28. Goldman cut its price estimate on shares of the second-largest U.S. mortgage- finance company to $24 from $73 and lowered its 2008 earnings estimate by 82 percent.
If they’re this late to the party here it makes me wonder when they might discover that they have massive amounts of writedowns etc. I guess a week ago they thought they were ready for a runup.
“I guess a week ago they thought they were ready for a runup.”
“`It’s a very panicky market,” said John Kattar, who oversees $2 billion as chief investment officer at Eastern Investment Advisors in Boston. “There’s a growing feeling that the problems are unknowable and unquantifiable, and that there’s no way of dealing with it except through the passage of time.””
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaej41lo8vXE&refer=home
“‘Some metro areas are hot while others are experiencing localized problems,’ Lawrence Yun, the group’s chief economist, said in a statement. ‘Home prices in the vast midsection of America, from the Appalachians to the Rockies, are affordable and, perhaps, even undervalued.’”
Why is Lawrence Yun STILL allowed to roam free across the land, like a rabid coyote with the power of speech?
“BofA made a $2-billion investment in Countrywide to gain access to its efficient loan-generation and customer-service operations. The decline in Countrywide’s shares has now left BofA down $858 million at Tuesday’s closing price. BofA declined to comment.”
BofA Bumblers:
I’d have told you what a piece of work CFC’s loan generation and customer-service operations were, for a lot less than close to a Billion Dollars…
No GSE then we have a cash only RE market, cures quickly this business of sticky down. Freddie and Fannie another gov’t bail out and give away to special interest, the stakeholders will get killed but the bondholders will be something on the dollar, lots of FCB and oil money behind those purchases. The market going forward looks to get lots tighter which the Gov of Calif announcing price freeze on FC I can only imagine the lack of interest the money investors will have in continuing to support the US RE market.
“In hindsight, the risks from an overheated housing market seem obvious. But in a now-famous July interview with London’s Financial Times, then-Citigroup CEO Charles Prince appeared to confirm the sheep metaphor when he shrugged off the imminent danger.”
Sheep thrills, Chuck?
dude, what metros went up ? = 0
Prices dropped in 54 of 150 metropolitan areas in the third quarter and the median sales price tumbled 2 percent nationwide, the National Association of Realtors said today.”
credit heart attack in Asia:
The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets.
Yields on three-month deposits in China and Korea have plummeted to near 1pc in a spectacular fall over recent days, caused by panic withdrawls from money market funds and credit derivatives.
This is a severe warning sign,” said Hans Redeker, currency chief at BNP Paribas. “Asia ignored the credit crunch in August but now we’re seeing the poison beginning to paralyse the whole global economy,” he said.
http://tinyurl.com/2qfz53
So, the good news is we find out if the Asia “de-coupling” theory has any validity. The bad news is we may face Roubini’s predicted systemic global financial meltdown.
its 3 pm, or PPT time again.
3:36 EDT
I see a P - but no PT.
It’s 2:17 pm PST and I see an even bigger “P” -211
“‘They are basically a herd of sheep.
Sheepcorps with sheeple.
its 3:30 now PPT over and out…. We can almost set our clocks by looking at the spike.
Next bubble should be in teleportation, that makes all the land in flyover country accessible and you could just “pop in” to work, no commute and that way it all works, the only problem I see is that it doesn’t exist but that shouldn’t stop anyone in the media from hyping it as the next growth industry. Ya Think?
“‘The loss severity they talked about was 26% to 30%’ on all loans says Joshua Rosner, managing director of Graham Fisher & Co. ‘While it sounds like a very high number, relative to history, that’s not the peak,’ he adds.”
OK, I give up, when was the peak ??? Surely not as many loans defaulted in the Great D….Rosner must be referencing back to the days of the Black Plague.
LOL .
If people had any idea how high the “loss” numbers are they would be crying .Actually ,during the Great Depression ,lenders would let borrower-owners rent and freeze the loan because nobody was buying .
Niceville…where all the nice people live!
Is Chuck Schumer still hoping to pass a measure asking the U.S. taxpayer to guarantee GSE-securitized loans up to $1m? Because with subpoenas already filed by Andrew Cuomo regarding possible purchases of loans with inflated appraisals, and now a class action suit against Freddie, it seems like it might be a good idea to wait until all these pending legal issues are cleared up before further bloating GSE portfolios.
Freddie Mac sued over mortgage problems
Reuters
Wednesday, November 21, 2007; 9:27 PM
NEW YORK (Reuters) - A shareholder sued Freddie Mac , its chief executive and others on Wednesday, alleging the No. 2 U.S. home funding company did not take adequate steps to protect itself from problems in the mortgage industry.
Scott Reimer, a shareholder, said in the complaint filed in U.S. District Court in Manhattan that Freddie Mac, Chief Executive Richard Syron and some other executives did not adequately implement risk control measures to protect the company from acquiring billions of dollars worth of mortgages with poor underwriting standards.
“Moreover, the company’s procedures for appraisals led to many inflated appraisals, increasing the risk of defaults,” it said. “Ultimately, the company has reported billions of dollars in losses, has been mentioned in investigations by the New York attorney general and announced it must raise new capital to meet regulatory requirements.”
http://www.washingtonpost.com/wp-dyn/content/article/2007/11/21/AR2007112102492.html
could all this cause a run on the banks? where is all this “post pop” cash coming from that is mentioned over and over?