It May Not Be The Best Time To Buy A House
Some housing bubble news from Wall Street and Washingon. Bloomberg, “H&R Block Inc. shut its subprime home-lending unit and will cut 620 jobs after an agreement to sell Option One Mortgage Corp. to Cerberus Capital Management LP unraveled. H&R Block will try to sell the portion of Option One that does billing and collections, the company said today in a statement. The decision may result in $200 million in pretax charges.”
“Chairman Richard Breeden is trying to salvage part of the sale of Option One begun by his predecessor Mark Ernst, who once predicted the entire company would fetch $1.3 billion.”
“‘The company is determined to complete our exit from subprime mortgage lending without further delay, and today’s action largely completes that objective,’ Breeden said in today’s statement.”
“‘This is not a market where people are willing to step up and assume risks that may be unquantifiable, and that was the albatross around the neck of Option One,’ said David Roberts, who oversees $20 million for Harvest Investment Advisors, including H&R Block shares.”
The New York Times. “On Monday, Treasury Secretary Henry M. Paulson Jr. said he hoped to reach agreement this week with lenders and institutional investors on a plan to temporarily freeze the teaser rates for certain qualified borrowers. But industry analysts and executives were skeptical about the government’s ability to produce a high-speed approach to handling thousands of cases with a few simple principles.”
“‘There is no cookie-cutter approach that can be taken to this,’ said Bert Ely, a longtime banking consultant. ‘This is going to be a mess. I hear the tone of a mandate. It’s government-mandated collusion.’”
“According to the broad outlines of the plan, the Treasury will divide subprime borrowers into four groups. Group 4 includes those who can continue to make their mortgage payments if the teaser rate stays in effect or the maturity of the loan is extended. For this category, and this category alone, help is on the way.”
“How do you spell b-u-r-e-a-u-c-r-a-t-i-c n-i-g-h-t-m-a-r-e? If fraud was widespread during the housing bubble, the current plan has its own set of incentives. ‘People will come up with eight ways of rearranging their finances to stay in Group 4,’ said Ram Bhagavatula, managing director at a New York hedge fund.”
“More to the point, ‘this policy solution smells of the tenets of Marxism: from each according to his ability to each according to his need,’ he said.”
“If you think getting mortgage servicers and investers to agree on an outcome is tough, just wait until the lawyers get involved.”
“‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.”
“While Paulson has been busy devising a plan that limits the damage to the economy without encouraging more risk-taking in the future, ‘Treasury hasn’t thought through’ one aspect of the plan, Rosner said: the implication for Fannie Mae and Freddie Mac, the two government-sponsored mortgage behemoths.”
“‘Guess who’s the largest single holder of AAA notes? Fannie and Freddie,’ he said.”
“The way these CDO structures are set up, defaults in underlying mortgages trip certain triggers that serve to protect senior noteholders. If the plan inhibits defaults, ‘the cash flows that should be reserved for the AAA holders will end up going to the residual owners,’ Rosner said. ‘Treasury is pushing a plan that could cause more losses at already weakened Fannie and Freddie.’”
“Aside from violating the sanctity of a contract and scaring off potential investors, what’s the good news here? ‘It’s a big misconception to think that (mortgage) resets are responsible for the delinquencies,’ said Andy Laperriere, a managing director at the ISI Group in Washington.”
“Of the subprime loans made in 2006 and scheduled to reset in 2008, some 25 percent are already delinquent, he said. ‘What’s driving the delinquencies is that people can’t afford the initial payments,’ Laperriere said.”
“That’s a problem Paulson’s plan won’t fix.”
From Reuters. “Top executives from four of the world’s biggest banks told British lawmakers on Tuesday that errors were made during the recent credit-market crunch but said they had not been reckless or failed to tell clients of risks.”
“‘Mistakes were made, there’s no question about that,’ Gerald Corrigan, managing director and co-chair of risk at Goldman Sachs, told the cross-party parliamentary committee. ‘But it’s also true that conditions that materialised, especially in the subprime mortgage market, are by any standards quite extraordinary.’”
“The four banks acknowledged that the search for higher yields during a period of low interest rates had boosted the demand for more complex and sophisticated investment products. ‘It’s inevitable that when markets are strong and booming there’s a natural aversion to being the first one into a market and the last one out. That’s a fact of life,’ Corrigan said.”
“Thursday’s committee hearing also included the questioning of Northern Rock’s auditors, PricewaterhouseCoopers, who said they had not failed in their statutory duty and brushed off criticism over fees received for ‘comfort letters’ written for Northern Rock ahead of securitisation deals.”
“‘You’ve audited and provided comfort to the biggest banking disaster in nearly 150 years,’ parliamentarian Michael Fallon told the auditors.”
“Florida’s pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and led officials to freeze withdrawals, according to documents obtained by Bloomberg News.”
“‘These were highly inappropriate investments for taxpayers’ money,’ said Joseph Mason, a finance professor at Drexel University. ‘This is the tip of the iceberg for pension funds. We know the paper is sitting there. There are substantial subprime-related losses that haven’t shown up yet.’”
“In freezing the pool…the state stopped the clock. The same clock is ticking for every state in the country where school districts and cities and towns put their faith in someone else, usually at the county or state level, to manage their money.”
“What’s It Worth? Of course, that’s the problem with Muniland in general: Nobody ever really knows precisely what’s going on when a crisis like this hits. There might be as many as 100 pools like this across the nation, with assets of something like $200 billion.”
“For Wall Street, the choices are either…come up with a solution or having one forced on them by regulators, according to former U.S. Securities and Exchange Commission Chairman Arthur Levitt. To regain investor confidence, ‘we cannot ignore the need to be transparent at all levels,’ he said at an industry conference last month.”
“‘The market should demand transparency,’ said Mark Amberson, who runs the $5 billion Russell Money Fund, and buys asset- backed commercial paper. ‘I wouldn’t loan my brother money if he hands me a bag and says ‘Don’t look in there, but trust me, it’s really valuable.’”
“Investors and Wall Street firms rely on their own software, models bought ready-made from vendors such as Moody’s, and quotes from brokers to value their debt.”
“Dan Fuss, vice chairman of Boston-based Loomis Sayles & Co., hasn’t found an adequate system to help value CDOs so he refused to include them among the $22 billion of securities he manages.”
“‘It’s like teenagers: You sort of know what’s going on but not really,’ said Fuss. ‘We spent a fortune on software, $75,000 a month. And what do we end up with? A bunch of zip codes.’”
The Associated Press. “Also needed…to prevent a recurrence of today’s problems are tighter restrictions on mortgage lending, said Robert Toll, CEO of luxury homebuilder Toll Brothers Inc.”
“Toll said home prices ‘may not have stopped falling yet,’ adding that it may not ‘be the best time to buy a home.’”
“Echoing the complaints of consumer advocates who have long pushed for mortgage lending reform, Robert Toll said stronger restraints are needed to prevent a recurrence of today’s problems. ‘We had mortgages available to the alive and standing and that was the only criteria,’ he said. ‘There’s no reason why we can’t set limits.’”
“Toll also said…buyers should take advantage of the opportunity to snap up houses at low prices.”
“Problems are starting to show up in loans made to homebuyers with strong credit records because real estate prices continue to slide, added Kerry Killinger, CEO of major lender Washington Mutual Inc., saying he supports the central bank cutting interest rate cuts again as well as temporary expansions of Fannie Mae and Freddie Mac’s funding capacity.”
“Angelo Mozilo, CEO of Countrywide Financial Corp., said he also backs allowing Fannie and Freddie being allowed to buy bigger home loans and keep more of them on their books as a way to improve liquidity for the battered industry.”
“‘This is the time for (Fannie and Freddie) to step up to the plate and take action and try to bring liquidity back to the market,’ Mozilo said.”
“Countrywide Financial Corp CEO Angelo Mozilo said on Monday he doesn’t expect the largest U.S. mortgage lender to file for bankruptcy protection, saying the ‘elements are certainly not there.’”
“‘Countrywide is a strong, viable financial company,’ Mozilo said. ‘Bankruptcy is an issue that nobody can ever eliminate, although I don’t think it’s possible or probable for Countrywide.’”
“A national labor union launched a campaign Monday against Countrywide Financial Corp., calling on members and other consumers to boycott the mortgage lender’s banking subsidiary until it guarantees it won’t foreclose on borrowers who have fallen behind on adjustable rate loans.”
“By targeting Countrywide Bank, the labor union hopes to hurt the lender’s ability to generate the funds needed to make new home loans. Countrywide began relying on its banking arm to fund loans in the wake of the liquidity crisis that rattled financial markets following the spike in home loan defaults this summer.”
“It has been aggressively courting new deposits and expanding its bank branches.”
The Northwest Herald. “Dee Biedermann is living in a crowded RV parked next to the neat, taupe-colored house she used to call home. Next week, Biedermann will move out of her neighbor’s driveway and into a rented duplex in Lakemoor, an outcome common for millions of Americans expected to lose their homes through foreclosure this year.”
“Biedermann fell behind in mortgage payments as her loan adjusted upward once, twice, a third time – eventually reaching 20 percent higher than her initial rate, she said.”
“‘I’m living here with the dog, two cats,’ Biedermann said. ‘[My neighbor’s] got the parrot.’”
From MarketWatch. “Housing will revive when prices come down to the point where demand rises enough to reduce the huge supply of unsold homes now overhanging the market. That said, this point is a long way off. Right now, there is at least a 10-month supply of unsold homes at current selling rates.”
“To whittle this supply to more normal levels, demand has to rise. That will happen when prices fall, since right now, housing prices are much too high relative to family incomes.”
“Today, median home prices are 3.5 times the size of median annual family incomes. This may be down from the recent peak of 4.2 times incomes reached last year, but it’s way above the 2.8 times that home prices averaged during 1984-2000, when lots of homes were bought, sold and built.”
“And if you think 2.8 is low, check out the early 1970s. That was when home prices were only 2.3 times median family incomes, and housing was selling like gangbusters.” “To equal the affordability of the early 1970s, prices would have to fall a whopping 38%.”
“Sellers could always hold the line and wait for family incomes to rise. But this clearly won’t happen overnight - and, besides, it’s a buyer’s market and no one wants to buy today knowing that prices might well be lower tomorrow.”
“After all, when it comes to housing prices, what matters most is not the cost of construction, nor what surrounding homes might be selling for. Simply put, it’s affordability. And until they are more affordable, houses won’t sell.”
From MSN.com:
http://tinyurl.com/32wuhy
Miller and other Wall Street analysts say that easing resets — as troublesome as they are — will not solve the root of the problem. Too many homeowners, from prime to subprime, were allowed loans for the full price of a home during the housing boom, leaving them vulnerable as the housing bubble deflates.
Half of all modifications end up as redefaults, suggesting that the process only delays the inevitable, Miller said.
“We expect losses will continue to rise until home prices stabilize, which we expect to take another four to six quarters,” Miller said.
Zero LTV leaves them “vulnerable”? Give me a freaking break! They are in the best situation possible. If their gamble does not work they just walk away free. What a great Country. Who it leaves vulnerable are the smart and prudent that will have to help fund this bailout mess. Do these ppl not understand the scam?
Note that by zero LTV I mean at time of closing, and not with respect to the current mark-to-market. IMO such loans should have been illegal as they leave no incentive for ppl to not walk away at hint of a downturn with no skin off their backs (i.e., no loss of cash infusion of equity). Coupled with the fact that the lender at the table didnt really give a damn if it ever got paid back due to immediate transfer to a wall street securitization trust, it was an open invitation to encourage scam artists and crooks to do their thing.
First off, Paulson doesn’t give a sh*t about the sinking overindebted homeowners. This bailout is all about assisting wall street. Its only when those guys start feeling the pain does the Treasury Sec care. As for the Fukkked borrowers, they’re just the unwitting benficiaries of attempting to keep wall street banks afloat. I guarrantee that if the wall street guys were safe in all this, paulson wouldn’t be trying to do a thing about it. He’d just say foreclosures are free market forces at work and that its good to let the market correct itself. Its such a scam watching him fall over himself to help the wall street boys knowing that in reality he cares not a wit about the little people.
I would prefer the FBs walk away, leaving the dreck to the banks. Banks would be burned really bad, and then tighten up on lending standards in the future. It would be a tremendous overshoot of the banks being overly conservative which would make borrowing insane money for insane real estate almost impossible in the future. This would certainly drive down prices. Bring on the phony fix.
Sorry, but is typing out p-e-o-p-l-e instead of p-p-l that difficult?
“……Treasury hasn’t thought through……”
Is it possible that this whole mess has been planned? …..:)
I don’t think anyone could have designed a plan to cause a financial meltdown that could screw the pooch as bad as what is coming down the pike…..and any attempts to “Fix” the problem just cause the “Laws of Unintended Consequences” to kick into high gear.
Which raises the question: What should the “smart and prudent” do now to avoid this rapidly falling hammer?
Take a interest-only and zero-down, and buy a overpriced home out there.
“The plan, dubbed “Teaser Freezer,” is thus more hype than substance.”
“Teaser Freezer” sounds like the name of one of the strippers I saw at the county fair hoochy-goochy show when I was a teenager. They were also more hype than substance!
A letter I sent to the LA Times, both of my Senators and my Congressman:
“Dear [x]:
Proposals to freeze adjustable rates for distressed borrowers will do nothing to solve the problem at the root of the present housing crisis — namely, that the machinations of bonus-hungry Wall Street securities peddlers have priced ordinary houses far beyond the reach of ordinary Americans.
Requiring lenders to freeze rates may help a handful of people remain in their (overpriced) homes, but it will do nothing to make housing more affordable. Instead, it will keep homeowners locked into mortgages worth more than their homes, and continue to keep aspiring buyers frozen out of an unaffordable, seized-up housing market.
If the Government truly wants to help homeowners who were misled into buying more house than they could afford, it should amend the Fair Credit Reporting Act to provide for a special temporary treatment for foreclosures suffered by innocent homeowners as a result of adjustable mortgage rate resets. Instead of the present seven years, such foreclosures would only remain on the homeowners’ credit reports for one year. This would allow distressed borrowers to escape the millstones of their excessive mortgage debt with a minimum of hardship, and will allow prices to return to normal without any artificial delay.
Regards,
[Me]“
I have a few comments. First, how could government determine who is an “innocent homeowner”? Second, by making foreclosures easier, the credit and liquidity crisis, which is already destroying the investment banking firms and banks, would go into hyper drive (you havent seen anything in terms of write-downs yet). While we all are in favor for the those that played part in the scam losing their huge bonuses, the fact of the matter is that they will do fine, and it is stockholders, investors and those that hold money with such institutions that are the most likely ppl to be hurt. Where was all this talk about fixing the problem before it became unmanageable? You are correct, Wall Street was profiting at the time so no one in power gave a sh*t.
Answers:
1. The FCRA amendments would have to include language providing that a foreclosure where the first default occurred within a certain amount of time of a rate reset are presumed to be caused by the reset. The responsibility for reporting the information properly would be on the lenders and the credit reporting agencies, as it already is for other credit information.
In other words, the government wouldn’t have to sort out who was an “innocent homeowner.” That would be done either by the lenders and credit agencies, or by individual debtors (who can challenge incorrectly-reported credit information, by litigation if necessary).
2. True, this would accelerate foreclosures. Wonderful. That’s exactly what we need. The longer it takes to mark all this corpse debt to market value (including to zero, if that’s what it takes), the longer the “credit crisis” will last. Better shock treatment than Japan-style deflation. Liquidate the malinvestments and purge the rottenness from the economy.
I respectfully disagree in that I don’t think that the majority of the problem is due to “innocent homeowners”. As much as I dislike the impact that lax lending standards have had on the market, people WANTED these loans and created the demand for these loans. Buyers, not banks, drove the prices of homes up. People made unbelievable amounts of money, profit or savings, from using ARMs for the last 7 or 8 years by flipping and/or refinancing using low cost capital. There is nothing inherently wrong with ARMs and I look at the availability of differing lending options as a good thing - the more loans available to me the better IMO. Nor is there anything wrong with no-doc loans - the fraud is on the person SIGNING/ATTESTING to the stated income levels/job data etc. Was there blind, willful cooperation from some lenders? Sure, and if they broke the law they have opened themselves up for civil liability. This market was driven by the greed of buyers and enabled by lenders, but I place the vast majority of blame on the buyers. To do otherwise seems to be putting the cart before the horse so to speak.
Don’t get me wrong — I’d love to hang all the stupid/naive/dishonest borrowers out to dry. But that’s apparently not going to happen in our bleeding-heart-infested, Oprahfied country. There is going to be some relief given to homeowners. Since I can’t head that off, I want to at least keep that relief from further distorting the economy.
Freezing teaser rates will simply keep the real estate market locked up for years to come. People will be upside down, so they won’t want to sell, and without the threat of foreclosure, they won’t have to sell. The result: Properties don’t sell at all, because nobody will be willing, able, or forced to mark them to market.
My proposal doesn’t reward the lenders for their irrational lending. It doesn’t give the irrational borrowers much, either; they still lose their houses. The biggest impact is on the usefulness of credit scores; future lenders will presumably rely upon them less, because it will be known that the reports don’t contain all the negative information about a borrower that there may be. That’s great. It was lenders’ overreliance on FICO scores — which could be manipulated, and say little about a person’s actual ability to service a loan — that got us a good deal of the way into this mess to begin with.
BTW, I think whatever measures are ultimately adopted should completely exclude flippers and fraudsters. (Actually, I think those guys ought to be publicly hanged, drawn, and quartered on live TV, with their entrails fed to pigs, but that might not fly.)
I think you’re being too kind to the borrowers (and I tend to be a bleeding-heart lib).
The foreclosures should stay on their records for the full 7 years — or would we all not have our credit marred if we decided not to pay our bills?
OTOH, I would make all the loans non-recourse (the lenders can’t go after them for anything other than the home).
Everybody needs to learn a lesson here…borrowers and lenders.
“More to the point, ‘this policy solution smells of the tenets of Marxism: from each according to his ability to each according to his need,’ he said.”
Noooo Kidding! This fellow gets it.
Correction… This Lady gets it!
I think terming it Marxism is putting lipstick on a pig. It’s just outright thievery, with the government attempting to take money out of our wallets to give to their big banker/investment firm buddies to make up for the enormous losses they experienced executing their corrupt scheme.
The tried true boogeyman works every time.
Marx’s greatest failure as an economist:
Never realizing that need is endogenous.
for idiots like myself:
en·dog·e·nous
Pronunciation: \en-ˈdä-jə-nəs\
Function: adjective
Date: 1830
1: growing or produced by growth from deep tissue
2 a: caused by factors inside the organism or system b: produced or synthesized within the organism or system
— en·dog·e·nous·ly adverb
When I read the “Communist Manifesto” in college, I actually laughed out loud at the naivitee of Marx and Engels.
Capitalism works for the simple reason that it assumes everyone acts in their own self-interest.
And laissez faire capitalism’s greatest failure is in the “tragedy of the commons”, and in assuming everyone is well informed and tends to act rationally. Regulated markets where fraud, information hiding, coercion, usury and monopolies/cartels are outlawed tend to work best for consumers and ordinary citizens.
Nicely struck!
P.S. HARM, let me know when you are running for higher office!
“Regulated markets where fraud, information hiding, coercion, usury and monopolies/cartels are outlawed tend to work best for consumers and ordinary citizens.”
Geez…. now why would we want a system that works best for ordinary 40hr/week wage slaves? /sarcasm off
No arguments here, with the proviso that the regulatory state has incentives to expand beyond what is necessary to achieve its legitimate aims.
So what we need is:
(1) An essentially market economy, that is subjected to
(2) Reasonable regulation to account for market failures; which regulation is in turn kept in check by
(3) Constitutional safeguards against government overreaching, and a healthy skepticism towards government by the citizenry and a free and diligent press.
(3) Constitutional safeguards against government overreaching, and a healthy skepticism towards government by the citizenry and a free and diligent press.
All good points, Thomas — though America has had some serious shortcomings regarding each aspect of #3 in the past six or seven years.
I think that since there seems to a constant and continually reoccurring pattern of “corporate fraud” all across the eon of time…maybe just scale the punishment to meet the pain:
no exceptions based on anything except the facts of actual loss:
$ Loss due to fraud:
1 million = 10 years…early no parole
10 million = 20 years…early no parole
100 million = 40 years…early no parole
>100 million = Life… no parole
Start teaching this in High School and make it a signing document for every corporate job… private & public
Jeremy Bentham (26 February [O.S. 15 February 15] 1748) – June 6, 1832) was an English jurist, philosopher, and legal and social reformer.
“ Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. On the one hand the standard of right and wrong, on the other the chain of causes and effects, are fastened to their throne. They govern us in all we do, in all we say, in all we think…”
— Jeremy Bentham , The Principles of Morals and Legislation (1789) Ch I, p 1
I think that what should really be implemented is a sliding scale of punishment based on actual loss:
He attributed his theory to Joseph Priestley: “Priestley was the first (unless it was Beccaria) who taught my lips to pronounce this sacred truth:- That the greatest happiness of the greatest number is the foundation of morals and legislation.”[9]
http://en.wikipedia.org/wiki/Jeremy_Bentham#Economics
I’d make that “the past sixty or seventy years, with occasional bouts of sanity.”
@Thomas,
Agreed.
However, as the cost of transactions declines, the externalities (the root cause of the tragedy) become much easier to surmount.
I’ll take the cynical system that gets better each year, thanks. The biggest causes of market failure are rules imposed by governments. FNM and FRE only own subprime paper so they can meet low income housing goals that they have to under the law. People over invest in housing because the tax system subsidizes them to do so.
@bluto,
You’ll get no arguments from me in favor of more government REIC subsidies, quite the opposite. I’ve just noticed that a lot of people here tend to equate all forms of “regulation” with “subsidies” and other harmful forms of government interference. I just wanted to point out that the right kind of consumer-friendly/common sense regulation can actually improve transparency, encourage level-playing field competition and address market failings.
Problem is, we haven’t had much of that kind of regulation in a long time. Instead we get endless REIC tax breaks, monster-sized GSEs, FF @1%, “don’t 1099 me bro!”, 1031, “any two will do”, “teaser freezers”, etc.
I love that “don’t 1099 me bro”! That made my day.
Excellent post, HARM!!
A free market can only exist when there is 100% transparency. Unfortunately, greed exists & those who benefit from lack of transparency will be the ones who control the economy (and laws).
We need both extremes, IMHO: populist/socialist influences vs. Darwinian capitalism. Checks & balances…
i have voted republican my whole life. if paulson’s plan is implemented i will vote for hillary clinton (damn…i just thew up in my mouth a little).
i’ll take a “might be” marxist (hillary) over an absolute marxist (the bush adminsitration) any day.
Thanks for pointing out that there are (at least) 2 types of socialism:
1) conventional “reward the lazy” socialism
2) corporate socialism (privatize profit, socialize risk)
Some of the regulars here tend to forget about type #2.
3. Don’t forget the kind of socialism (Oh, noes, let’s not admit it!) where the populace is prosperous, well-educated, and has access to free healthcare. See Scandinavia for multiple iterations of the idea.
Some of the regulars would prefer not to admit that #3 can and does exist.
I’d be thrilled to live under the particular variant of Scandinavian “socialism” I experienced in Iceland — which actually subjects business to a far lesser regulatory burden than America does.
Health care is universal, but it’s not free. If I recall right, most European countries — and specifically the ones where the healthcare system isn’t a wreck like Britain’s NHS — have a system something like the one Mitt Romney instituted in Massachusetts, namely, a mandatory insurance scheme where health care is still furnished by private entities, but where costs are pooled, either by direct withholdings from earnings by a government health-insurance entity, or by mandatory insurance coverage with private insurers.
Med vit hagfraedi skal land byggja, I always say. (Please excuse the almost inevitably incorrect conjugation in the above.)
Thomas, you’re right, “free healthcare” is the wrong term to use — citizens end up paying for it in one way or another.
Sorry but Mitt Romney is wacked out mormon posing as a Christian.
Exeter — What that has to do with the merits of his health plan, I can’t see.
What do you care, anyway? Isn’t your kind more into faith healing? Or are you with the snake handling bunch?
You don’t have to vote for HC, you can vote for Obama or better yet, Edwards.
So far, frankly, JE is the only one not dodging issues.
I say, Mandatory Voting Day for the USA just like AUstralia, and get rid of the Electoral college as the majority vote would clean out all the scum or otherwise on a cyclic basis.
SO so so necessary. Right now we get scum like Paulson etc who are PLACED into office. The public doesn’t get a chance to have their opinions ACTED upon.
As much as I write/email call all I get is a polite ‘thankyou’ or an email blah blah blah answer a month later AFTER the issue was voted on. Or slipped in.
If all voters paid 6-10$ per year we would no corporate lobbyist strong arming our runners for office. YOU and I could run for office. easily.
“I say, Mandatory Voting Day for the USA just like AUstralia, and get rid of the Electoral college as the majority vote would clean out all the scum or otherwise on a cyclic basis.”
Gimme a break. I grew up believing that it was a person’s duty to vote. Then I realized that politics is just a dog and pony show meant to distract the public. The people in control trot out tweedledum and tweedledee and make it seem they offer some real alternative, when in reality, the only differences are splitting hairs. How many times do we have to get burned before we realize it’s all a sham?
Plus - keep me off the damn jury rolls. I know it is my “civic duty”, but I have to travel 11 months a year for work. No voting = no jury duty.
A better solution would be, “from each according to how much he *benefited*, to each according to how much he lost”. …but that would require all those Morgan Stanley geniuses to give back their million dollar bonuses (which they received in return for creating a giant cloud illusory wealth that has since evaporated).
That’s where the real scam lies: Personal earnings based on the appearance of corporate profit. The personal earnings are forever, even if the corporate profit turns out to be a mirage.
As much as the banks are hurting, we shouldn’t forget that the bankers themselves have been made fabulously wealthy in this scam.
But making those valiant Captains of Industry give back their justly earned 8 & 9-figure bonuses would be *gasp* COMMUNISM!
Making the rest of us pay for their mess in the form of higher borrowing costs (to subsidize all those “teaser freezers”) and lower return on our savings & bond investments (thanks to the Fed’s artifically low rates) is just good ‘ol patriotic SAVE THE AMERIKAN DREAM(tm).
Thx to the conundrum, only high rollers who can afford to risk massive short-term losses are able to profitably invest…
Mods may or may not be the best solution, but given that banks are already doing this out of their own self interest, calling the very act of modding itself “Marxism” is just hyperventilating hyperbole.
Mods are -fine- as long as they are NOT dictated or strongly suggested by -government-.
Is the overstated and blown out of proportion terrrrrist threat suggested by the government?
Speaking of Marxism…
Democratic senators call for wide subprime aid
Tue Dec 4, 2007 2:35pm EST
Mortgage aid plan sparks hope and resentment
(Market News
Credit woes knock Wall Street
Goldman prices S&P 500 for “ugly scenario”
More Business & Investing News…)
WASHINGTON (Reuters) - Four Democratic senators called Tuesday for the U.S. Treasury Department to open its mortgage aid package to the widest range of troubled homeowners possible.
http://www.reuters.com/article/governmentFilingsNews/idUSN0452593420071204
The sidebar “Goldman prices S&P 500 for “ugly scenario” leaves me with zero doubt that the fix is in. GS proposes that the S&P will rise ‘only’ 14% next year, a massive retreat of - gasp! - 5 points from previous estimates. Run this with Paulson’s crap and recently published oil supply figures and I smell a massive short squeeze coming. One last wringing of the chicken’s neck before Wall Street officially tosses the market in the pot.
“More to the point, ‘this policy solution smells of the tenets of Marxism: from each according to his ability to each according to his need,’ he said.”
______________________________________________________________
“Humor is reason gone mad.”
Groucho Marx
It does seem like Groucho has been in charge lately, doesn’t it?
And it does seem like many folks got stucco…
lol
I wish Groucho were in charge. I tend to think we’re being led by Chico.
“This is going to be a mess.”
No shit, Sherlock!
Just in case there wasn’t enough wrong with the “bail out,” it is supposed to be limited to people who are current with their payments. But people who were having trouble or were about to get in trouble and wanted to do short sales, have been told to stop making payments because the banks don’t have any reason to deal as long as they are current.
So the folks who were trying to get out from under by selling the house as soon as they could are now being told that they maybe could have gotten a freeze if the timing of their loan reset had just been a tiny bit better.
If you thing the complaints about this deal are loud here on the HBB, just wait until the howls from the FB’s who miss the bail out window of opportunity.
I still think there is no way to implement it on a large scale if manage to do it at all.
Isn’t the stated reason for the large-scale freeze is that it’s too slow and cumberson to do it on a case-by-case basis? How is creating a process of dividing mortgage holders into 4 distinct classes based on a ’subjective’ review any different? By the time the mortgage holder gets through the sorting process, they will probably be behind on their payments, so they won’t qualify.
Maybe Paulson is going to borrow Harry Potter’s Sorting Hat? It already sorts into 4 categories!
LMAO! That’s pretty clever. ‘Cept Paulson is no Dumbledore. Well, he’s got the first syllable down.
Wrong Way Corrigan II
“‘Mistakes were made, there’s no question about that,’ Gerald Corrigan, managing director and co-chair of risk at Goldman Sachs, told the cross-party parliamentary committee.”
Nice use of the passive voice there, Gerald. I’m sure he was valiantly trying to prevent the wrongdoing.
Oh, question to throw out to the group.
We know that if the bail out happens, investors in MBS’s are going get very tight with their money - ask for higher returns, ask for assurances that the loans backing their bonds don’t have any adjustible rate mortgages in them, etc.
Will just the idea of the bail out - assuming as I do that it won’t amount to much - do this anyway? Just the idea that Treasury is willing to put pressure on banks to do this could cause almost as much tightening in the credit markets as if it actually happened - quickly and efficiently - for everyone who qualifies.
Just wondering….
Just wondering…. me too.. but at this point, I gotta wonder why lenders would need any added incentive to tighten credit.
The lenders’ problem is unknown amounts of risk.. the unknowable value of the collateral.. and lenders will adjust things according to their evaluation of that extra risk.
imo, any sort of bailout package that lenders actually agree to will not increase their risk, so it’s effects won’t matter as far as rates.
I don’t think credit tightening at the moment at least, has much to do with lender’s feelings per se. The other side of all this mortgage lending has been a huge amount of leverage generated by using the CDO’s as a capital multiplier. That’s where the money that’s been pumped into the system to fuel the private equity boom, and the credit card and mortgage lending has come from.
Just like the mythical money that gets created during stock market bubbles, this is all fine and good up to the point where everybody starts wanting their money back, and then the leverage snaps back faster than a broken spring. That’s what ultimately has people worrying about the safety of the entire system right now, not the mortgages. Right now i would venture lenders aren’t worrying so much about the risk of lending, as whether or not they even have any money to lend.
Although i doubt they would put it in these terms, what the Fed is effectively doing is trying to buy enough time to prevent the spring from actually breaking, and let it snap back under some form of control. Trust me, nobody here wants the spring to break, when even the optimistic projections right now for this thing are just horrible.
Is this naive or…
wouldn’t the banks have done so much better ON THEIR OWN
IF they had
negotiated say last year for example with all their loans to renegotiate a deal withOUT the gov beginning to mandate their business?
Just saying…
“Will just the idea of the bail out - assuming as I do that it won’t amount to much - do this anyway?”
Could very well be.
This is why any sort of bailout won’t do much. Okay, a FB gets to keep their house for another year or 2. Then, job loss, medical emergency, divorce, etc. leads them to put the house up for sale. Hardly anyone will qualify to buy their overpriced POS, and what if prices have continued to slide? They’re still underwater when they sell.
Paulson and The Fed have to be seen as doing something….when it doesn’t work or goes nowhere, at least they can say they tried…but they don’t control the secondary MBS investors….that we’re in a free market….blah, blah.
Good question.
IMO the whole thing is build on confidence. If you lose confidence, you’re going to demand more yield.
1. Ratings agencies are about 2 years behind, and you can’t be sure their models have any validity right now.
2. Funds are saying they are having difficulty getting a “price” for the bonds.
3. The fed is lowering rates, while we (I) feel like it’s inflation.
4. The govt is working on a solution by “freezing” some mtg rates
5. There seems to have been significant fraud at the broker/buyer level.
There are so many issues right now; I don’t know how people are measuring the risk on these bond issues. Without knowing the risk, you’d have to ask for a higher yield.
2. Funds are saying they are having difficulty getting a “price” for the bonds.
Now this is utter rubbish. It is the difference between bid and ask. The only thing they need to do to find the value is to walk the ask down. It -will- hit someone who is bidding say 10c on a dollar quite a bit higher than at 10c
The Paulson plan isn’t a bailout; it’s a PR show (just like the California governor’s “agreement”). A banker at Bank A doesn’t need approval of banker at Bank B to modify Bank A’s troubled debt. Neither does that banker need the government’s approval. Bankers have, and will, modify troubled debt if they believe it’s in the interest of the bank. The problem is that “workouts” have
not been done on a large scale since the S&L-related debaucle. So investors are somewhat spooked by the whole thing. The Paulson “show” is simply to calm investors, both debt and equity. In the end the debt remains bad and a problem for the creditors.
Also, a troubled-debt restructuring to below-market terms requires, under GAAP, a loss allowance to reflect the modified debt’s substandard yield. I wonder if this whole show is somehow designed to get FASB to pronounce that a loss reserve is not necessary for workouts made pursuant to the plan. By-the-way, the term modification reserve is separate and apart from any loss reserve required by collectibility problems.
“‘I wouldn’t loan my brother money if he hands me a bag and says ‘Don’t look in there, but trust me, it’s really valuable.’”
Well put, Mr. Amberson. However, it appears that many of your colleagues may have purchased some of these mystical bags.
Best if they just calmly place the bag back on the FED’s doorstep, light it on fire, ring the bell and RUN!
“‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.”
No big deal, I guess…
Since when has the government ever let the law get in the way of them doing whatever they want?
Them that makes the laws, also gets to break the laws.
Exactly. Which is why every time Congress writes a new law, they always exempt themselves.
This is the huge part of the statement. Suddenly… Contracts giving the buyer certain rights… Suddenly mean nothing.
Gee… you don’t think this will make it tougher to borrow money… naaa.
And let’s forget about all the government funds, 401k’s, banks, and other institutions that are getting screwed. If they go under it won’t really effect us, now would it?
Got popcorn?
Neil
Talking about institutions getting screwed, let’s assume we are all hedge fund managers who have borrowed low yielding japanese yen to invest in high yielding subprime bonds and CDOs. We all look forward to a positive and profitable carry trade for years to come and everything is going swimmingly well, until kaboom: Paulson & co step in and freeze the rates for years to come. The positive carry suddenly gets negative, the yen moves against us and the margin calls pile up. What would you do? That, my friends is the trillion dollar question.
If I were a hedge fund manager making 20% of profit plus fees, what do I care if it folds? Its other peoples moneys! Wheeee.
The investors in the hedge funds are the pension plans, 401Ks, municipalities and others least able to afford the loss.
Which raises the question, why would a pension fund manager risk losing all to chase the prospect of slightly-higher investment yield?
And the answer is that a higher investment yield gives the actuary grounds to assume a higher assumed rate of return on investments, which implies the need for less moneys spent on current contributions to keep the pension fund solvent.
Money is not money until it is borrowed. When money is hard to borrow, it tanks. When money tanks, the FED will bring out the Amero and we will THANK them.
We don’t “law” - we just need “faith”.
This big freeze joke is stranger than any fiction - by far.
“risks significant erosion of 200 years of contract law”
Can you imagine the changes to mortgage agreements if something like this actually goes through ? There will be all sorts of clauses about “if government intervention occurs”, etc. People will start buying homes expecting to get supported if things go wrong, etc.
There is NO WAY that Paulson can pull this off. There is no way that the business community is going to let this fly. The phone lines from Asia, Japan, Europe, Dubia and New York to Washington must be burning up right now.
I have never seen anything so stupid as Paulson floating these trial balloons. And he is rumored to be a candidate for Citigroup CEO ? What the hell is the world coming to ?
Paulson doesn’t need to “pull this off” in any large-scale or permanent-fix way. He just needs to delay the Day of Reckoning until after the November 2008 elections.
I would argue you overstate the significance of those elections. Plus, this is too big to “time” to a specific event. Thinking longer term - neither party should even want to have a majority 2009-2013 - it would be much smarter to play the role of the minority (read: blameless) opposition party.
oh good idea. which republican slimeball should get elected? Maybe poor Huckabee?
(note: most politicians are scum- the ones holding office and the ones who turned lobbyists)
While politics are defininately part of all of this, I am starting to come to the conclusion that this is a full blown emergency and the financial system is in a desperate stituation. Which is VERY CONCERNING!!!!
I’m opposed to a “freeze”. However, I hope that “group 4″ would exclude anyone who lied about anything on their application.
That assumes they plan on finding and looking at the application.
Happy holiday (in a few hours).
“How do you spell b-u-r-e-a-u-c-r-a-t-i-c n-i-g-h-t-m-a-r-e? If fraud was widespread during the housing bubble, the current plan has its own set of incentives. ‘People will come up with eight ways of rearranging their finances to stay in Group 4,’ said Ram Bhagavatula, managing director at a New York hedge fund.”
This isn’t the first time I’ve seen reference made to FBs pulling an Ace out of their sleeves…that’s why I’m skeptical of the sob stories being presented by the media. If fukked buyers are smart and conniving enough to figure out how to get in on the bailout, then why weren’t they savvy enough to stay out of a toxic loan in the first place?
Selective naievete, or maybe brilliance, I can’t figure which it is.
Selective naievete, or maybe brilliance, I can’t figure which it is.
It’s a legalistic approach to life where one bypasses the spirit of a law and seeks the technical loophole(s) in the law that inures to one’s personal benefit. Thus, e.g., we have Welfare laws designed to help people in the short term becoming long-term entitlements, criminals set free on technicalities, big corporations paying virtually no income taxes, etc…. If you call gaming the system “brilliance,” then so be it. I find it to be akin to a criminal mentality. And the little guy who tows the line always gets squashed.
Yeah, watch any good b/w mobster movie..the guy crossing the street always gets squashed/killed. Oops. Mobster gets away. Again.
If fukked buyers are smart and conniving enough to figure out how to get in on the bailout, then why weren’t they savvy enough to stay out of a toxic loan in the first place?
There’s a huge amount of people in the US who maintain decent standards of living by knowing how to game the system. Everything from collecting SSDI for “depression”, single moms who live with the father of the children but hide the fact to collect AFDC, etc.
Only those with nothing to lose would have taken out mortgages they couldn’t afford, knowing full well they can walk away when the party ends. They might be more savvy than you think, able to take advantage of every fix the government offers them.
“Everything from collecting SSDI for “depression”, single moms who live with the father of the children but hide the fact to collect AFDC, etc.”
You left out ” and work as a barmaid off the books”
“Of the subprime loans made in 2006 and scheduled to reset in 2008, some 25 percent are already delinquent, he said. ‘What’s driving the delinquencies is that people can’t afford the initial payments,’ Laperriere said.”
Vindicates exactly what Ben and I were saying in a previous thread.
Re-sets aren’t the problem.
Re-sets aren’t the only problem. The debacle can be multi-causal
Xactly. Problems on the radar:
–Single-digit true “affordability” in many markets (CA, FL, AZ, MA, HI, etc.)
–Tighter credit, begetting falling sales, begetting tighter credit
–Alt-A/NINJA-ARM resets on tap ’til 2012
–FBs hitting their neg-am maximum debt ceilings even before the scheduled resets.
–Underwater floppers mailing in the keys even before the debt ceiling and/or rate reset, because they don’t want to pay for rapidly depreciating assets they can’t sell.
–Buyer psychology rapidly turning negative.
–Buyer psychology rapidly turning negative.
It’s low will be the indication, that it is the right time to buy. But we still have to get there, which will take several years.
“‘There is no cookie-cutter approach that can be taken to this,’ said Bert Ely, a longtime banking consultant. ‘This is going to be a mess. I hear the tone of a mandate. It’s government-mandated collusion.’”
Wow, this volcano is about to explode. Statements like this in print are going to have a more unstabilizing than calming effect, especially those with money on the sidelines. The second shoe to this was alluded to this am on the money channel where government wants to look into why some people are paying higher CC rates for a lower FICO score.
Another red letter day to log in on the financial liquidity unwinding.
“Wow, this volcano is about to explode” and yet aside from Detroit, reported price decline have been very limtied thus far.
The price of homes on my block fell by nearly 1/3 during the early 1990s. What kind of financial effect would that cause?
“The price of homes on my block fell by nearly 1/3 during the early 1990s.”
There are foreclosures popping up in my hood with asking prices at 1/3 haircut. There’s one around the corner from me that last sold in spring ‘06 for 699k. The bank now wants 399K. This is still very nearly 10 times median local household income, for a 3 bedroom house on a sketchy block in a “transitional” neighborhood. Needs work, too.
Mortgage fraud? Probably, but that house will still be overpriced relative to rents and incomes when (not if, when) the bank shaves another hundred grand off the asking price.
Home in the valley in 1980s went from 125k to 370k back down in 96-97 to 210k.
About those congressional hearings… I heard that the mere act of applying for another credit card, even if you have good credit, can lower your score.
Disclaimer: Pardon me if I was too immersed in the washing of the dishes while that NPR story (about the hearings) was on, but that’s what I recall.
Yep, and a falling credit rating triggers an increase in the interest rate on your current cards. Yikes!
I recommend at least taking one breathe before contradicting yourself.
“‘Countrywide is a strong, viable financial company,’ Mozilo said. ‘Bankruptcy is an issue that nobody can ever eliminate, although I don’t think it’s possible or probable for Countrywide.’”
Am I the only one who thinks about Ken Lay every time Mozillo opens his mouth?
You are not. Ken Lay’s spirit possessed Mozilo’s soul.
Is this the same guy who was throwing a tantrum because Fannie/Freddie refused to buy all of his toxic piggyback liars loans and HELOCs that have no collateral?
Don’t CFC + the GSEs have a cloud of legal issues hanging over them? I would think one would want to resolve these before enacting bailout measures involving these institutions.
Countrywide is running ads this evening to the effect of:
“Homeowners, remember why you wanted to refi into an ARM? To save money, of course. Well now you can refi into a low fixed rate mortgage…”
“‘Bankruptcy is an issue that nobody can ever eliminate, although I don’t think it’s possible or probable for Countrywide.’”
This means that CFC is about two weeks away from a BK filing.
This is from Hedgemoney Capital Management
Over the past 5 1/2 years, $1.1 trillion of equity has been extracted from American homes. This represents almost half (46 percent) of the increase in total consumer spending over the same period. In the first nine months of 2007, $219 billion was cashed out of U.S. homes according to Freddie Mac estimates, equivalent to 53 percent of the increase in personal consumption during that period. Household mortgage debt stood at $10.143 trillion at the end of the second quarter of 2007 compared with $4.295 trillion in 1999, an increase of 136 percent over six years. Mortgage debt relative to disposable personal income (the money used to service that debt) increased from 64.7 percent to 100.2 percent during this period, a 35.5 percent rise that was greater than the total increase that occurred over the 43 years leading up to 1999. The value of residential real estate also jumped during this period, but the disposable income number is the one that pays the mortgage. The presumption is that without the housing equity extraction, consumer spending growth would have been much more muted. Furthermore, consumers added to their variable cost debt burdens to finance their spending, placing themselves in a vulnerable position when rates on teaser loans increase.
lets haver those numbers with 10 and 20% clipped off the “equity” value
= 07 then 2008
Yes, but there were some numbers posted earlier that of the $12 trillion dollars in mortgages taken out in the last year, 25% were subprime. That may mean $9 trillion of those mortgages could have actually be affordable, even though home values are inflated. Now, if next year’s sales drop one third, for example, due to “fence sitting” as prices drop further, then there would be $3 trillion less spent on mortgages buy those who could afford them. Subtracting rent or current mortgage payment, the remaining money/credit would become consumer spending. My theory is that even though the object of the consumer’s desire (a new home) may changes, his/her spending/saving habit will not. Instead of a house, there will be spending to make their current lifestyle more enjoyable - more eating out, vacations, plasma TV’s, etc. When it becomes clear to the majority of would-be buyers that prices will take years to stablize, and they have no interest in losing their down payment by buying now, most will give up “the dream” for now and purchase some other lifestyle.
“The way these CDO structures are set up, defaults in underlying mortgages trip certain triggers that serve to protect senior noteholders. If the plan inhibits defaults, ‘the cash flows that should be reserved for the AAA holders will end up going to the residual owners,’ Rosner said. ‘Treasury is pushing a plan that could cause more losses at already weakened Fannie and Freddie.’”
Yeah, and who do you think owns the crappy tranches that should be getting nothing? Mostly banks and finance houses. A friggin nightmare in the making.
Of course the government will have to hire another 100,000 mopes to do the work. Probably employ the same ones the banks et al are in the process of laying off.
You would have to create job descriptions, assess the job descriptions to see what pay grade rating they would receive, get authorizations for the new head count, either authorize new money to pay for it or figure out what to cut to pay for it, advertise the jobs, run the resumes through the HR screening process, etc, etc, etc. to get this implemented by the government. 18 months minimum to get a functioning group of a few score bodies and 5-10 managers. The only way to do it faster would be to allocate a huge chunk of next year’s presidential management fellows to do it (that is how they got extra bodies to clean out the passport application backlog).
They have to be assuming this is imoplemented by private parties, not the government.
Polly, I know you are correct. And there are no buts..
Private enterprise can only do a little. Maybe the government can give the moneys to Countrywide to bail out the FBs. Thus saving Countrywide as well as borrowers.
There has to be some workable plan in place in three months. I am in the Mr. Bill Gross camp, the disaster of a 15% drop in GDP would be damage.
How do you think they staffed up the TSA after 9/11? I knew many a counterpart who were let go from corporate or independent staffing jobs that ended up on Gov’t contracts filling TSA jobs nationally. And boy did they do a great job!
Hah hah - and who do you think will end up getting these jobs?
Laid-off mortgage brokers, orginators and underwriters, of course. You could have the same person investigating and rating the same crappy loans they wrote a few years ago. Perfect circle.
“Toll also said…buyers should take advantage of the opportunity to snap up houses at low prices.”
Oh I plan to, when they actually are low that is. And when they aren’t being “snapped up” either.
I’m there with you (and the rest of the chorus).
Wait… when J6P is too scared to buy, then I will.
My wife has developed a habit of searching online listings and finding the one or two really worth laughing at. Her current favorite is a ‘home’ in North Redondo beach (CA) going for $1.2M. The furniture is lower end than what I scrounged in college. As she points out, since they bought for $1.15M in late 2005, they should just walk. Imagine living like that for two years… Where if they had rented they could have lived nicely and saved. Cest la vie.
Got popcorn?
Neil
A house was just sold across the street from me, and the “for sale” sign was up for less than a month. I don’t know if the buyers (a couple) used funny financing (such as I/O or an ARM), but they’re delightful people, and I’m glad to have them as new neighbors.
There also was a sale of another property nearby, and if memory serves correctly, that place was only on the market for two months. Again, another nice couple as the buyers.
So, if the house is well priced and in good shape, it will indeed sell.
“It May Not Be The Best Time To Buy A House” unless you live in exurban kane county (near chicagoland) hampshire IL aka podunk farm town.
guess why? Because It’s Different Here:
http://searchchicago.suntimes.com/homes/hayes/657567,hayes19.article
and yes when I moved in three years ago I was told that the market here would never go south because “everyone wants to live here”. I had to put both of my hands over my mouth to prevent the loud guffaw from roaring out.
I didn’t have the nerve to tell this sweet farmer that I had never heard of hampshire before purchasing the 7acre horse farm there; minus the horses I would have never, ever in my wildest imaginings considered moving to a town in the middle of nowhere … esp with $5/gallon gas coming soon enough.
mina
“It May Not Be The Best Time To Buy A House”
It may be the best time for understatement, though.
Most sub prime loans of the last couple of years contain some element of fraud in them. Is the fed govt now going to become a witting party/accomplice to it as part of this gigantic loan mod?
SOunds like the runaway train on fire arrived just in time. Next stop: the Grand Canyon.
RE: Option #1 Mortgage
$1.3billion? (snicker)
This is the outfit where Fleet Bank sent all their garbage which they refused to underwrite.
I was always under pressue to change the wording and analysis for Option 1 appraisals.
Can’t sell that mortgage with any negative commentary you know.
There were some real doozy properties in those bundles.
Oh, yes. The Bloomberg article said all there is to be said.
UP FIRST: Bureaucratic nightmare created by meddlers like the Godfather as he attempts to help his “family” on Wall Street any way he can. Including schemes which will basically be fraud on the tax payers.
UP SECOND: Lawyers. An army of lawyer are now reading up on on laws which will reap them very big bucks. Paulson has given them a gift which will keep on giving for at least 5 years.
However, Godfather Paulson of The Wall Street Financial Gangsters aside (one of the Godfathers anyway) we always come to the origins and originator of this debacle.
UP FIRST: Mr. Magoo who, of course, now denies ANY of this mess is his fault. Gee! Why am I surprised?! Really, Maestro? Who was it who dropped interest rates to almost zero and gave no advice to financial institutions as to how they should manage the tsunami of borrowers which was sure to follow? Funny, I never heard you say much about being concerned as to where the flood of dollars (now a peso currency) were going that you printed for 5 years 24/7. So much that my grandchildren will be paying for your incompetence (to say nothing of Bush’s incompetence) for the rest of their lives.
UP SECOND: Affordability.
UP THIRD: Affordability.
UP FOURTH: Affordability.
Hey Ben, you can’t say they are no helicopters.
But thus far, instead of dropping money, they are circling overhead telling people on the ground to redistribute the money among themselves.
“Of the subprime loans made in 2006 and scheduled to reset in 2008, some 25 percent are already delinquent, he said. ‘What’s driving the delinquencies is that people can’t afford the initial payments,’ Laperriere said.”
That’s the statistic I’ve been looking for. But note that he said “subprime” and “2006″ and “can’t afford”. If you extrapolate from LaPerriere’s statement to something more like “of all the mortgages written since 2005 and scheduled to reset soon some X% will probably default before they reset. What’s driving the delinquencies is fraud, flippers, falling home prices, and FB’ers who never intended to keep the mortgage when the reset hit.”
In that context I bet X% is a lot higher than 25%, and that reset chart everyone has been focused on is not an accurate predictor for timing the foreclosure wave.
It doesn’t matter what they do; the end is the same.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. -Ludwig von Mises
Our government has chosen catastrophe.
I think the Fed referred to it as a calamity, last September.
“Our government has chosen catastrophe”.
Absolutely no doubt about it, and who gets to pay the tab?
Some people will do anything to stay (or get) in category 4, so that they can keep the lower interest rate. Does this also mean that those in the “no hope category” might as well get out as soon as possible. IMO, those who are foreclosed earlier should be better off than those who struggle to hang on, but are foreclosed later. This foreclosed later scenario is very likely if and where home prices keep falling for two or more years.
You guys seen this?
Foreclosures not primarily due to high loan payments.
http://www.boston.com/business/globe/articles/2007/12/04/falling_prices_driving_crisis/
Ben put this article in the previous article. there’s some good discussion there.
“‘This is the time for (Fannie and Freddie) to step up to the plate and take action and try to bring liquidity back to the market,’ Mozilo said.”
Mozilo dishes out the bullshit better than anyone else.
No kidding, sheeshe, invoking a baseball adage will work. If not, maybe he should call on FRE and FNM to “put the ball in the endzone”, or better yet, “throw a hail Mary”.
i can’t wait to see all these fancy tax packages construed by municipalities to make up for their “lost” stashes..I feel a bit of a revolt coming..bigger than that party they had in Boston quite some time ago…i think the powers to be are afraid too.
we’ll have our muskets ready
http://www.fcta.org
join your local anti tax group today
“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.”
Frederic Bastiat
Frederic didn’t count on a political system helping it either.
“‘This is the time for (Fannie and Freddie) to step up to the plate and take action and try to bring liquidity back to the market,’ Mozilo said.”
Auferre trucidare rapere falsis nominis imperium, atque ubi solitudinem faciunt pacem appellant.
Tacitus
“In many respects, we now live in a society that is only formally democratic, as the great mass of citizens have minimal say on the major public issues of the day, and such issues are scarcely debated at all in any meaningful sense in the electoral arena. In our society, corporations and the wealthy enjoy a power every bit as immense as that assumed to have been enjoyed by the lords and royalty of feudal times.”
Robert W. McChesney
I wish people would stop talking about “lost” money, and using innocuous terms like “write downs”. Money didn’t get “lost”. It all wound up somewhere. Where did it wind up? It wound up in the pockets of those who sold and re-sold this toxic paper. The “mortgage crisis” as it’s benignly dubbed (as if this is some event without a cause) is due wholly to a class of bankers who filled their pockets at the expense of America.
The money ended up personally enriching an entire population of bankers and derivatives geniuses who wisely took money off the table at every interval they could — until in the endgame there wasn’t enough left on the table to correct the situation. Then they threw up their hands, feigned surprise and brought in the government to legislate away the mess they had created. When people talk about “crises” they’re usually referring to events which have no winners.
This isn’t one of those events. This was fraud. And I have yet to hear of the individuals who benefited (and perpetrated it) being asked to make good.
Until then, all these solutions just amount to the next chapter in the scam.
/ end rant…
Actually, fiat money can be “lost” very easily. Pretty much the entire point of a fiat currency is that it can be created and lost.
While the largess of the scamsters was vast, it was a very small piece of the total sum of this mess.
Agreed. I didn’t mean to suggest a 1:1 ratio with money “lost” and executive compensation.
My point is that those who have benefited are at no point asked to make good. There is no suggestion that those who profited from (and perpetrated) this mess return what they were ‘compensated’.
Krugman had a great editorial on this a couple weeks back.
http://www.nytimes.com/2007/11/23/opinion/23krugman.html
Although… some do pay a price…
http://www.nytimes.com/2007/12/04/business/04tobias.html
lolz…
Florida adopts BlackRock plan to split fund. Stipanovich resigns.
Bloomberg
Where were all these ’solutions’ when mortgages were being written for anyone and everyone? Too little too late.
i can give you a bunch of answers:
A. It takes to long to do it the right way
B. It takes to long for me to get paid
C. But his credit score is 720. so what he is only 24 fresh out of college. Think of the future earnings potential
D. I have to make my numbers this month
I think alot of us who are a little old fashioned/seasoned just got totally stepped on over the past few years. We just kind of got drowned out by all these people on a mission to fulfill the investor coffers. There was very little underwriting going on and more of fitting the guidelines. We had the same scenario but it passed much quicker years ago. One of the big problems underwriters had (especially those outside of NE) was how in the world does someone commute 1-2 hours to work every day here in NE. I can’t tell you how many underwriters would ding a loan for that. The point i am making is that it got back to common sense although in their case they took it way too personal when underwriting. I am afraid that battle is coming next. I also suspect that this will expose FICO scoring (assigning a number to someone) on its own as a determing point - invalid. I have been in this awhile and i still don’t understand how you can sum up a persons life on a score. Maybe a factor but a primary reason to approve a loan..comon..it always goes back to the three C’s…Credit, Collateral and Charisma.
Builders: New Silicon Valley homes selling with help from discounts
http://www.mercurynews.com/ci_7630285
Predictions of rising prices make Mo Money laugh……..
The 15 year mortgage loan rate seems to be going down rather quickly. Any feelings about whether it will drop below 5%?
and you keep hearing that interest rates went up ?
bs
just priced a 10 year for a customer at 5.750% zero points.
“Toll also said…buyers should take advantage of the opportunity to snap up houses at low prices.”
WTF is he talking about?
To add to my own statement, I’ve always hated the term ” snap up” when it comes to consumer goods. It makes homes sound more like potato chips, and even more retarded when a CEO applies the term to overpriced homes to start with. I can’t think of a better oxymoron.
…and one more thing I might add: WHY are the comments from homebuilder CEO’s counted as “economic news”. They’re SALESMEN. Would you trust a used car salesman to give you facts about the cars he sells, or would you rather trust an independent watchdog/journal?
Of course- they WANT you to buy homes, hence their endless off the collar remarks such as: ” yes- the housing market is doing badly… but since homes are now 0..00010% off from their previous highs, NOW is the best time to buy a home.”
Indeed. To me “snap up” implies an impulse purchase, like a 12 pack of pepsi for $1. Maybe some people do arrive home at the end of the day and announce that on the way home he saw a blow out on houses, so he “snapped up” a dozen of them.
Yes, like you snapped up a pack of gum as you were paying for gas ..or that ugly red plastic rose at the counter along with breath mints..lol
Snapped up…
it was SOoo easy.
The first word that comes to my mind when I read or hear the phrase “snapped up” is “douchebag.”
Regarding the median income vs. price ratios discussed above — my folks bought a newly-built home in 1972 for about 75,000. He made about $35,000 as a U.S. Navy Captain. Lots of other military in our neighborhood back then. Thirty five years later, houses in that hood go for 850k to over a cool million. (My folks place would go near the bottom of that scale). However, a US Navy Captain makes nothing like $350k now — nor does any other formerly middle-class types who happened to buy back in the 70’s.
I bought at about 4x income myself - with 20% down - 5 years ago. But, I had absolutely no other debt and no kids - and I think I was stretching it pretty far. I can’t imagine how many folks making $200k a year (with no other debt, and a 150k downpayment available) are going to be there to keep values afloat in my parents neighborhood. maybe it’s not a problem, though — there is almost never anything for sale there, it seems.
I live in what was at one time a heavily Navy populated area in the East Bay, SF Bay Area. Many of the families are like your parents: middle class, retired, or still puttering along at their jobs, paying their bills, living just fine.
The boom made most of the smallish victorian homes rise to around 650-850k on average. Classic Bay Area class replacement scenario where none of the long-time residents could actually afford the homes they live in if they were to but, and of the people who do buy, tend to be of the new yuppie/born-again retired wealthy hippie type with BMW’s, Mercedes, Volvos, etc. Of the last three homes that have sold on my block, two went to lawyer/business type yuppie couples, and one to what appears to be a older middle class family who now rents the bottom out to an unknown number of transients who seem to filter in and out of the house.
I kind of wonder if the original citizens would be happy knowing that their hometown got turned into yuppyville. All I know is that most of the old farts still around are completely against anyone building anything in order to protect their precious home values.
You live in Davis? **j/k**
> All I know is that most of the old farts still around are completely against anyone building anything in order to protect their precious home values.
That’s why much of the Bay Area looks like a dump.
“Today, median home prices are 3.5 times the size of median annual family incomes. This may be down from the recent peak of 4.2 times incomes reached last year, but it’s way above the 2.8 times that home prices averaged during 1984-2000, when lots of homes were bought, sold and built.”
“And if you think 2.8 is low, check out the early 1970s. That was when home prices were only 2.3 times median family incomes, and housing was selling like gangbusters.” “To equal the affordability of the early 1970s, prices would have to fall a whopping 38%.”
Here in Queens, NY the median price is 8x to 10x median income. And yet people still look at me mystified when I tell them that prices will fall 50% for homes to be affordable. Starter homes at 500k are just unsellable. And it will be a looonnngg time before wages catch up.
Damn, now where did I put that polyester suit and platform shoes.
http://www.bloomberg.com/apps/news?pid=20601087&sid=ameYYjeqjIDA&refer=home
CDO issuance to fall 65% next year. Only CLOs will be issued.
“Bond buyers will avoid CLOs even with the highest yields over benchmark rates since 1999 partly because ‘the recent ratings experience has left many investors so scarred that it will take them time to get comfortable with the technology as a whole and the ratings in particular.’”
Wait a minute, who paid for those ratings, the seller of those securities or the buyer? Looks like the buyer got what he paid for. And so did the seller.
The reason is the S&P500 debt is rated ‘junk’ for ~75% of the companies. But in repackaging as a CLO the junk became ‘AAA’. This time bomb is exploding and will make the CDO problem look like a cake walk. Companies cannot get refinancing or new financing and will be forced to retrench. Corporate debt refinances every 2-3 years. Some current corporate debt is trading at 50% discount due in 4 months. The companies will not have the moneys to pay off the debt and no reasonable investor should be willing to take the risk.
“.As much as $2 billion a year could be made by someone with a model that accurately valued asset-backed securities, according to Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “The Analysis of Structured Securities.”
“Subprime Seizure Solution May Be in Hospital Bills”
Bloomberg
4 December 2007
http://tinyurl.com/2teyqd
Dec. 4 (Bloomberg) — Jim Rogers has three pearls of investment wisdom to pitch: “Get out of the dollar, teach your children Chinese, and buy commodities.”….
“For every 1,000 people, the U.S. has 700 cars,” Rogers writes. “At last count, and despite the increased congestion, China had only 24 cars per 1,000 people. So long, trusty bicycle. Hello, sexy sedans and Chinese convertibles. There are big gains to be had from China climbing into the driver’s seat of the world auto industry.”
The best way to play that evolution, however, might be by investing in toll-road companies, such as Jiangsu Expressway Co., rather than carmakers or auto-parts manufacturers, Rogers says.
He’s not concerned that slumping U.S. growth will derail China. “While China’s growth is dependent on the U.S. to some extent, the tie may not be as strong as you may think,” he writes. “It’s still mainly a psychological effect on confidence and growth. In real economic terms, the impact isn’t as great. It’s even lessening on a regional level, where China’s Asian neighbors are busy developing on their own.”
Rogers is a lot less evangelical in print than in person. Surprisingly, that makes his arguments for why everyone should hitch at least some of their savings to China’s star all the more compelling. …”
http://tinyurl.com/2c4vy3
“In German and Russian I’ve learned to count down, and I’m learning Chinese said Werner Von Braun.” Tom Lehrer
I remember the tune, Hoz, my parents had the Tom Lehrer album.
Mr. Rogers Neighborhood. Agenda. ‘Nuff said.
CEO Angelo Mozilo said he doesn’t expect the largest U.S. mortgage lender to file for bankruptcy protection, saying the ‘elements are certainly not there.’”“‘Countrywide is a strong, viable financial company,’ Mozilo said. ‘Bankruptcy is an issue that nobody can ever eliminate, although I don’t think it’s possible or probable for Countrywide.’”
Permit me to translate, if you will, because I translate wicked and/or stupidese all the time and have experience.
Okay. I gather my faculties…
‘I may have a good-sized axe sticking out of the top of my head, and a couple dozen arrows projecting from my back, which is also on fire, and maybe a few big pointy sharp knife thingies embedded in my evil orange bottom, but I FEEL FINE. Do you hear me?! Just FINE!’
No, no, don’t thank me—I exist only to serve.
It’s only a flesh wound
You’ve got no arms!
Senor Toll tells us that it “may not be the time to buy a home”, but counsels that “buyers should take advantage of the opportunities to snap up houses at low prices”.
WTF?
What all of these articles regarding the new so-called mortgage workout process fail to recognize is that there is already an overall federal program in place to address mortgage cures - it has a large infrastructure, staffed clerks with offices in every major city - a supervisory group of trustees nationwide - and professional educated decisionsmakers who have experience addressing mortgage issues on a case by case basis - it is called voluntary Chapter 13 bankruptcy - everything I have read about Paulson’s “solution” looks and smells just like a different version of individual reorganization -
House prices fall in Alberta too.
November prices in Edmonton, Alberta are down 5.3%
http://www.cbc.ca/canada/edmonton/story/2007/12/04/buyers-market.html
A story by real estate pimps:
http://www.canada.com/calgaryherald/news/story.html?id=43d6f9bf-bf99-4dd8-94c5-662529a0594b&k=74819
What does 1Million buy you in Calgary ?
http://www.mls.ca/PropertyResults.aspx?Page=5&Mode=0&vs=Residential&ret=300&sts=0-0&beds=0-0&baths=0-0&aid=6266%2c4755%2c4561%2c4562%2c4806&mp=950000-1000000-0&mrt=0-0-4&trt=2&of=1&ps=10&o=A
Housing prices slowing:
http://www.canada.com/calgaryherald/news/story.html?id=%20%09b9ce30f3-8711-4e53-a74b-fd0af3dcc083&k=74819
The median family income for Calgary is $74,500. The median house value is about $425K right now.
This is for Calgary. See the sales and inventory graph at the bottom of page 1 for the classic huge inventory overhang that catches the speculators off guard.
It ain’t different in Calgary !
http://www.creb.com/media/stats_pdfs-graphs/res-stats-pdfs/2007/CREB Stats 2007 November PB.pdf
1B$ health club for Calgary !
http://www.canada.com/calgaryherald/news/story.html?id=a88cee88-97ae-4397-966a-7d84c3e1d7aa&k=98689
Lets say the owners need 10% of their investment back as revenue each year… $1B x 10% = $100M per year. That seems to be a lot of money for a city of 1M people to spend on health clubs ! $100 per capita ! Sheesh !
Just another example of developer stupidity !
Fall in Canadian dollar in last month has been remarkable - almost 10% vs. average of major currencies, in a straight line. Once that currency gets going in one direction you can’t stop it - it’s almost looney.
This says a lot, fnm has to tap the equity market for funding.
http://biz.yahoo.com/ap/071204/fannie_mae_capital.html?.v=6
Yeah and these guys want Fannie to step up to the plate?
As I said earlier, a sinking ship cannot come to the rescue of other sinking ships.
““Florida’s pension fund owns more than $1 billion of the same downgraded and defaulted debt…”
Very late to be posting this, but was away from my computer all day. Anyone with any sense, meaning 99% of the readers and posters here, knows that the difference between “more than” (as quoted) and “up to” (not said) can easily be the difference between “chance of rain” and “cut the ropes for Noah’s Ark!”
This is a disaster. Governments and school boards put their money in this fund. Tax payer money! Now they can’t get it back. They were all sold the idea that these were “safe” investments. I see a lot of lawsuits on the horizon. This will not end pretty. I see a lawyer bubble.
Any kind of bail out before it can be determined what parties are liable in this housing bubble is trying to put the chart before the horse .Of course that’s what the bail out artist want to do ,avoid disclosure of a crime wave .
These Karl Marx Republicans are doing everything they can to destroy this country. These Commie Gangsters are so willing to bail out speculators, but where is the willingness to pass health care? What can you say about a group of people that won’t even bother to make sure their own citizens are taken care of medically? What good are they? Please tell me what good our government is.
I’d say they are here to defend us, but 9/11 proved they can’t do that either. Again, what good are these assholes? I know. If you lose money gambling on real estate they will get right on it.
Getting sick to my stomach just thinking about this rat-infested country.
Joe,
As you well know, they don’t give a rat’s a$$ about the speculators/homeowners. They care about their profits — and ability to profit in the future.
If the bankers’ money wasn’t at risk, they would NOT be talking about a bailout.