‘Put Away The Noisemakers Because The Party Is Over’
The mortgage industry is fighting reform. “Excess restrictions on such nontraditional home loans as interest-only and payment-option mortgages risk stifling the market, industry groups said. The Mortgage Bankers Association and America’s Community Bankers warned in separate letters that too many rules might restrict innovation.”
“‘The American consumer could suffer greatly from any guidance that imposes unduly restrictive standards on the use of these mortgage products,’ the industry group America’s Community Bankers said. ‘Such restrictions could result in lenders’ being less willing to offer alternative mortgage products and this would severely limit the flexibility in financing options that consumers enjoy today,’ the group added.”
“The Mortgage Bankers Association said lenders who took on too much mortgage risk will face market punishment in the form of price disadvantages. ‘The private market can and does correct for excess risk more quickly than can a regulator who necessarily must move at a more deliberate pace,’ the mortgage lenders’ group said.”
“‘We believe that the types of mortgages that are the subject of the proposed guidance should be referred to as ‘alternative’ mortgages instead of ‘nontraditional’ mortgages,’ the community bank group said. ‘While it is the lender’s responsibility to provide borrowers with sufficient information for them to clearly understand the loan terms and associated risks, we do not believe it is appropriate or possible for the lender to identify or dictate the best mortgage product for individual consumers,’ the group said.”
“The community bank group said it appreciated regulators’ concerns that underwriting standards may have slipped at the same time as real estate markets in some areas are softening.”
“Julie Bush, an attorney with the FTC’s bureau of consumer protection, says these alternative mortgages have been around for a while, perhaps 50 years in the case of payment-option ARMs, but were used only by the wealthy. Nowadays they’re being sold as ‘affordability products’ to typical homeowners.”
The Early Show reported on a typical homeowner this morning. “With interest rates on the rise, and the housing market showing signs of a downturn, homeowners are starting to feel the squeeze. For many, the trouble started when the market was booming, and buyers flocked to interest-only loans in order to find their way into a bigger home.”
“Meghan and Vince Jordan recently moved in to their brand new dream home in Denver, but they have one big problem, they can’t get rid of their old one. ‘A year ago, we don’t think we would have been in this situation. We think our house probably would have sold,’ said Meghan Jordan.”
“Their home has been on the market since August, and so far they have dropped the price by $35,000. Now, the Jordans have taken a bridge loan to cover the costs of owning two homes. Even more nerve racking, they’ve taken out an interest-only loan, so for five years they are only paying interest. With rates on the rise, they are worried they took a bad risk.”
“‘That is the $90,000 question, what if (rates) don’t come down? You are going to see people with properties with rates that can potentially double,’ said Vince Jordan. The Jordans are highly leveraged, and their quandary is not unusual”
“First, a look at the risk that comes with an interest-only loan. If, for example, a borrower took an interest only loan of $200,000 in 2003, their monthly payment would have been around $667. After the first adjustment, those monthly payments could jump to $1,415 in 2006.”
“‘That’s why (interest-only loans) are right for some but wrong for a lot of people. That payment increase is not something the average American household can handle. The increase is a byproduct of two of things,’ Greg McBride said. ‘The initial interest rate of 4 percent when you borrowed the money now jumps to something over 7 percent. You also have to start paying back that principal. You could see another payment increase next year. After all, interest rates are still rising.’”
“McBride stresses the importance of cutting into the loan balance and starting to build up what he calls an equity cushion. ‘They were 100 percent leveraged,’ he said. ‘They need to start chipping away at the loan balance, building up an equity,’ which is so important because ‘if you have to sell suddenly, that’s what’s going to absorb your transaction cost.’”
“‘If you are the type that’s going to go out and run up additional credit card debt it’s best to leave that home equity untouched,’ he said. This means no home equity lines of credit to pay off credit card bills, no cash-out mortgage refinancing to pay for home improvements, and no tapping into home equity to pay for goodies like vacations. To do so would mean eroding your protection for when home prices decline.”
“‘You can’t bank on home appreciation to do your saving for you. It’s time to put the noisemakers and punch bowl away because the party is over on that end,’ said McBride.”
There is a new posting at the humor bubble blog.
http://thereisnohousingbubble.blogspot.com/
I would agree that we are still in the denial stage of the housing bubble. How quickly we move to bargaining I think that moving quickly through the stages is better than slowly but obviously I am in the minority.
Funny, funny stuff.
Peed maself couple times.
‘Senior Mortgage Engineer’!
Kinda writes like ‘Triumph the Insult Realtor Dog’.
OR- it could be my twin brother.
I KNEW I was adopted.
Over? Did you say “over”? Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no! And it ain’t over now. ‘Cause when the goin’ gets tough…the tough get goin’! Who’s with me? Let’s go!
did you mean the japan?
japanese?
Animal House - FSBO
Senator Blutarsky, your wife Mandy is HOT. I bet she is aging well.
- Pinto
“Excess restrictions on such nontraditional home loans as interest-only and payment-option mortgages risk stifling the market, industry groups said. The Mortgage Bankers Association and America’s Community Bankers warned in separate letters that too many rules might restrict innovation.”
How about some restrictions on no-downpayment, no-closing-cost, and no-doc loans while we are at it. Just take the “no” out of your underwriting standards…
” too many rules might restrict innovation.”
You mean you wont be able to find more ways to loan money to people who have no chance of paying it back ? Say it isn’t so !
Yep, I wanted to comment on that phrase, too. You mean you might have less of these poor souls who don’t take the time to read your loan paperwork and don’t spot the junk fees you stick them with? Wow, too bad for you.
Cheap credit has turned the mortgage industry into the world’s biggest landlord, with no chance for more home”owners” to ever pay the damn thing off.
Ever wonder how the bubble looks from the banker’s vantage point?
This is from today’sThe Daily Reckoning:
” Paul Kasriel, at Northern Trust, tells us the obvious: that U.S.
commercial banks have record exposure to mortgage debt. In 1985, the
mortgage market represented only 30% of their assets. Now, it is 62%. Not
only that, much of their other lending is indirectly linked to mortgages.
They lend to hedge funds, for example, that use the money to buy
mortgages. If push comes to shove, says Kasriel, the banks will lose in
two ways - their mortgages will go bad and the hedge funds will default.”
Gosh….Who knows? Maybe the bankers can really get into this tightening thing. You know…Maybe really give it a push. Saving their own skins might be tough on home buyers but they are going to have to do what they have to do.
>In 1985, the mortgage market represented only 30% of
>their assets. Now, it is 62%
>…their mortgages will go bad…
RTC RTC RTC RTC.
“It’s like deja-vu all over again.”
ain’t gonna happen. Why? With their exposure, they’re sitting on the 90th floor of a house of cards. Tighten & die— the assets devalue, mortgages submarine, and hedgies go TU. The only way out for them is for the music to keep playing for a while so the smart ones(?) can unwind their positions.
innovation
read: the rampant fraud that is being committed by the mortgage industry in many countries like UK, Netherlands etc. (and probably US as well) to keep the bubble growing while prices are already at idiot levels.
Some interesting facts about Freddie Mac:
* In 1984, Freddie Mac issued preferred stock to Savings and Loans members
* In 1988, for the first time, stock holders could own Freddie stock
* Warren Buffet, who invested heavily in Freddie, quipped the following about Freddie and Fannie Mae: ‘A duopoly is the next best thing to a monopoly’.
“‘Such restrictions could result in lenders’ being less willing to offer alternative mortgage products and this would severely limit the flexibility in financing options that consumers enjoy today,’ the group added.”
Bringing back traditional lending requirements would also create an instantaneous drop in market value, which would be initially realized as a spike in inventories, as sellers would not “get” the connection between a smaller, more budget-constrained prospective buyer pool and demand…
We desperately need an instantaneous drop in market value.
GetStucco-
What you have been suggesting in the last 2 posts would result in pure destruction of the market. You’d have people killing themselves in mass, selling Hummers and Flat Screens for pennies on the dollar. And worst of all grown men standing in the street crying. Do you really want that to happen?
Yes yes yes! I would be able to hire a private police force to protect my cash stack for pennies on the dollar, too!
yes, and I could hire a former real estate agent for pennies to protect my hoard of precious gold and silver doubloons!
(OK, not really, my hoard is well-hidden)
Most of us would much prefer to avoid the pain that is coming but it is baked into the cake. We can’t do anything to stop the obvious crash that is now beginning. And, hard as it is to think about, it will improve our lives in many ways. Gone will be the materialistic glow on so much that goes on. No more excessive CEO pay, no more McMansions, people will start saving money and then buying something rather than charging everything to credit cards. Houses will get smaller, cars more sensible, honesty will once again be a value.
It will hurt most of us…some more than others…but the country will be better after it is over.
“‘If you are the type that’s going to go out and run up additional credit card debt it’s best to leave that home equity untouched,’ he said. This means no home equity lines of credit to pay off credit card bills, no cash-out mortgage refinancing to pay for home improvements, and no tapping into home equity to pay for goodies like vacations. To do so would mean eroding your protection for when home prices decline.”
Thank goodness they’re getting the word out before it’s too late.
Just in time!!!
To his credit, Greg McBride at Bankrate.com has been trying to get this message out for over a year. But you’re right; where was ABC with this story last summer?
CBS
Right, sorry ABC!
I think the fact that major news outlets are carrying these stories shows that the tide in the general publics mind has turned…
media tells stories (although usually incredibly sensationalized) that the general public wants to hear… we are getting to the bust faster than I and most on this board have predicted (IMO)…
But I still second guess myself all the time that all our predictions and reality of markets are truly and finally coming to fruition.
“‘That is the $90,000 question, what if (rates) don’t come down? You are going to see people with properties with rates that can potentially double,’ said Vince Jordan. The Jordans are highly leveraged, and their quandary is not unusual”
Apparently I was under the mistaken impression that rates are at or near all-time lows.
You are correct, but still…if you’re completely tapped out already, just your first half-percent adjustment is gonna be your death knell.
‘The private market can and does correct for excess risk more quickly than can a regulator who necessarily must move at a more deliberate pace,’ the mortgage lenders’ group said’
They are referring to the MBS market. Isn’t the risk distorted by the GSE guarantees? And exactly how will that mitigate the potential individual bankruptcies? If three home loans in my neighborhood fail, and my homes’ value suffers, is the Chinese central bank going to make up for it? Shame on the MBA.
Ben,
The risk distortion actually goes beyond the GSE guarantee effect. The fact that Fannie Mae should have been delisted from the NYSE a long time ago, and that their stock price remains stable despite an ongoing inability to produce financials, suggests the systemic risk Fannie poses to the world (not just US) economy is, in the words of D. H. Rumsfeld, an “unknown unknown” as opposed to a “known known” - or a “known unknown”. In other words, there is no possible way to objectively quantify the level of risk posed by Fannie Mae unless you are a government insider.
Actually, the real culprits are the CDO managers and the way the rating agencies evaluate comparable risk accross ratings. The rating agencies current view on ABS risk is that if one BBB rated ABS defaults, another similar BBB rates ABS has around a 35% probability of default (Correlation = 35%). In the most extreme cases (i.e. a BBB rated Bond backed by only manufactured homes), the probability of default of the second is 55%.
In today’s market, a CDO manager can buy multiple BBB rated ABS bonds that are backed basically by the same type collateral. The only real aspect that can change Correlation is servicer.
He can then bundle these BBB ABS bonds into a CDO that they can structure 50-75% as AAA rated due to this Correlation effect. They’re basically making money out of nothing.
They then turn around and sell their CDO to investors (i.e. China) eager for return and since the CDO Bonds are rated AAA, spreads are extremely tight so the CDO just passed off BBB risk as AAA rated bonds.
Not a bad little racket, eh?
If true, this is probably the most interesting thing I’ve read all year. Diversification over many BBB rated things should never, ever be allowed to make something an AAA, especially if backed only by a single asset class. I’m not sure I got all the subtleties of your post, but I think I get the gist. The rater’s point of view is that risk is mitigated by investing in multiple companies, but when the underlying asset class of each of the companies is the thing that’s fundamentally flawed, as is housing, then the risk wasn’t mitigated. Something like this?
Why not? Would you agree that Nasdaq equity in 2000 would be terrible credit risk far worse than BBB? Using the same risk layering about 40% of the value was retained (essentially AAA credit). The same principles are involved in structured finance. It’s just concentrating the risk to others (who get paid higher rates to accept it). Most of the risk layering that is concentrated in MBS/ABS is prepayment rather than credit risk.
Oh and to the grand parent defaults of 35% would never be seen in BBB credit (investment grade is usually assumed to be >8% at worst).
Not only MBS market is going to be affected. These loan sharks put a lot of people into homes they can’t afford, 2 years worth of buyers might lose their homes. In short, they don’t give a rats ass about anything but being able to make as many loans as possible.
Read about Real Estate Bubble Reaches $1m Crackhouse Phase.
“A couple of years from now, after the American real estate market has utterly collapsed, we may well look back at this day as a kind of high-water mark, the spot where the insanity peaked and then rolled back. Curbed broke the story yesterday– a crackhouse in South Williamsburg that has been flipped twice in the last six months, and is now being sold for about a million dollars. First, read the description from the broker’s site:
This Williamsburg fixer-upper, built in 1910, is the perfect opportunity to tailor-design your own home; it’s also ideal for an investor (can covert into condominiums or rentals). It’s located on a great tree-lined street, one-block to the East River Waterfront in the fashionable Southside. Great shopping, bars, dining, and nightlife are within steps.”
At least crack dealers have good cash flow…
Not for the vast majority, who live with their moms and barely scrape by, at least according to “Freakanomics”…
a picture is worth a thousand words
That has to be one of those frauds where the buyer, agent, appraiser, and mortgage broker are all in cahoots.
Money laundering, perhaps?
yes, probably.
In my country (Netherlands) we get more warning lately that a lot of real estate in the cities is being purchased by guys from the drugs scene, who make obscene amounts of money selling legal soft drugs in their ‘coffeshops’ (a monopoly protected by the local governments).
They sure have the cashflow to influence the market, and their customer have an infinite amount of cash as well (coming from theft and fraud, there are always new opportunities).
“The Mortgage Bankers Association said lenders who took on too much mortgage risk will face market punishment in the form of price disadvantages. ‘The private market can and does correct for excess risk more quickly than can a regulator who necessarily must move at a more deliberate pace,’ the mortgage lenders’ group said.”
This is BS. The financial industry is one of the most heavily regulated ones, simply because people lie and are greedy. That’s why we have insider trading laws, in order to make sure that the rules are the same for everyone. Before financial regulation (starting with creating the Fed) bank closures were far more frequent, and booms and bust in credit were much greater.
I think looking back, we will believe that all these “alternative” loans came on too strong. They will not go away, and there will be a lot more people using them today and in the future. But they will be scrutinized more, at least in the short run.
I/O loans were popular in the 1920s, but “went away” in the 1930s for inexplicable reasons, I am sure…
And further, the margin loans which fueled the stock market to unsustainable heights before the 1929 crash are little different from the zero-down I/0 loans with closing costs included which are letting buyers stretch their financing to a high multiple of their long-term ability to repay a loan. Maybe BB will have to use inflation to make sure there is not an outright collapse of the housing market. Too bad doing so would require picking the pockets of wealthy fixed-income investors through a sneak-attack of stealth inflation.
“‘We believe that the types of mortgages that are the subject of the proposed guidance should be referred to as ‘alternative’ mortgages instead of ‘nontraditional’ mortgages,’
“Alternative” in place of “non-traditional”
…….I swear this sounds like the same argument Marshall Applewhite was making when pitching his Heaven’s Gate religion (NOT cult) to those clones who offed themselves in Rancho Santa Fe, CA……hey, isn’t RSF now a prime bubble area? Hmmm…..coincidence? I think not!
hey, buy now…Gateway to the Stars!! Just remember your sneakers & quarters. Woulda thought the aliens had gotten around to using calling cards at least.
‘We believe that the types of mortgages that are the subject of the proposed guidance should be referred to as ‘alternative’ mortgages instead of ‘nontraditional’ mortgages,’ the community bank group said.
I believe ‘nontraditional’ does a better job of reminding that no lender would have stooped to peddle such high risk products a short ten years ago.
Ben cut the quote off prematurely. Interest-only loans have indeed been around for some time, but were useful and marketed only to big-shots who knew what they were doing.
The magic in this bubble of course is peddling not just as an “alternative” but as the mortgage of choice for guaranteeing that you are fully overleveraged at all times.
WHO | Today | Next Year
——————————————————————–
Community Bank Group | nontraditional | alternative
Bearnanke Sez | nontraditional | verrry rare
“Their home has been on the market since August, and so far they have dropped the price by $35,000.”
Doesn’t that just about tell the whole story?
NEWSFLASH: MENTALLY RETARDED SELLERS MAY BE MOVING TOWARD FORECLOSURE & BANKRUPTCY
Wow…they dropped the price a WHOLE $35,000! AND NO TAKERS!
HOW SHOCKED ARE WE!?
Morons.
I offer to buy there house for $1…
…as long as they get rid of the equally mentally retarded realtor who didn’t hit them in the skulls with a large garden tool when he/she should have.
If they do that…
…I’ll give them $2.
REDUCE YOUR PRICE YOU MORONS!!!!
ARGGGGGGGGHHHHHH!!!!
No way… It’s mine! I bid $3.
$3?!!!
Screw it, it’s yours.
I could buy two large Slurpees with that…interest free.
I give.
‘A year ago, we don’t think we would have been in this situation. We think our house probably would have sold,’ said Meghan Jordan.”
“Their home has been on the market since August, and so far they have dropped the price by $35,000. Now, the Jordans have taken a bridge loan to cover the costs of owning two homes. Even more nerve racking, they’ve taken out an interest-only loan, so for five years they are only paying interest. With rates on the rise, they are worried they took a bad risk.”
There must be a pretty high burn rate with a bridge loan. And by the way, wasn’t August almost a year ago?
Like the current inventory pile-up, the ’stressed-IO’ crowd is forming at the rear. Soon the doors swing open and they hear the old Joplin refrain…’freedom’s just another word for nothing left to lose.’
Wasn’t it Kristofferson’s song?
No more calls, we have a winner. Henceforth “The Biggest Fool” may not be used in a general, hypothetical or apocryphal sense — it shall refer to this couple, in the same way that “Kleenex” and “Xerox” refer to specific products rather than to a class.
I don’t know how you could have fouled yourself up worse in this bubble — they bought at the top, they postpone selling until they get that dead-cat bounce in a falling market, they’re getting HELOC’s (adjustable no doubt) in a rising interest-rate environment, and they’re probably putting everything on credit cards and paying the minimum. Did I leave anything out? Maybe they’ve quit their jobs too?
Bought SUVs?
2 sets of property taxes?
“willing to offer alternative mortgage products and this would severely limit the flexibility in financing options that consumers enjoy today,”
NOTICE: options that consumers enjoy……says nothing about the fruits of luxury enjoyed by the vultures doing the financing.
“McBride stresses the importance of cutting into the loan balance and starting to build up what he calls an equity cushion. ‘They were 100 percent leveraged,’ he said. ‘They need to start chipping away at the loan balance, building up an equity,’ which is so important because ‘if you have to sell suddenly, that’s what’s going to absorb your transaction cost.’”
Chipping away at the loan balance? He’s kidding, right?
TRANSLATION: “THIS IS NOT MY PROBLEM AND THESE PEOPLE ARE RETARDED. I HAVE TO SAY SOMETHING THAT SOUNDS KINDA NICE AND SMART BECAUSE THIS GUY SHOWED UP FROM CBS NEWS AND STUCK A MICROPHONE IN MY BLOWHOLE. EVEN IF IT MAKES NO SENSE WHATSOEVER, IT STILL GETS ME OFF THE HOOK. PEOPLE LIKE THESE SHOULD HAVE TO APPLY FOR A LICENSE TO REPRODUCE, THAT IS, IF THEY CAN ACTUALLY READ. I’VE HAD A LONG DAY, AND I HOPE MY WIFE TELLS ME I LOOK GOOD IN MY SUIT ON TV. MAN, DO I NEED A DRINK.”
Yet more evidence to support the postulate, friends.
ALL HELL BREAKS LOOSE IN SEPTEMBER.
“The Mortgage Bankers Association said lenders who took on too much mortgage risk will face market punishment in the form of price disadvantages. ‘The private market can and does correct for excess risk more quickly than can a regulator who necessarily must move at a more deliberate pace,’ the mortgage lenders’ group said.”
The cesspool of moral hazard, special privilege, and fraud that fostered this global kleptocracy bears no relation whatsoever to a true market, which they are quite right to fear.
They may be able to delay a bit with their protests right now but once the tidal wave of foreclosures hit they will be regulated. No way out of it.
So regulations make me wear my seatbelt and not jay-walk, but none are needed to keep millions from massively leveraging themselves into being a FB and hosing Bearnanke’s economy for 5+ years?
““‘You can’t bank on home appreciation to do your saving for you. It’s time to put the noisemakers and punch bowl away because the party is over on that end,’ said McBride.”
Mr. McBride, IMNSHO, castration or tar and feathering would be the mildest punishment you and your ilk deserve. Now that the party’s over you want to sound like some benevolent caring person that has the interests of your local townspeople at heart.What do you live in; what’s your mortgage; any HELOC; how about your CC balances? Care to share.
$35k is over 10% for the average Denver house.
Another gem these IO/ option ARM whatever folks miss out on is that their rates are going to end up around 3%-6% over whatever benchmark they are tied to. They keep watching the current rates, but forget that due to the nature of the loan even if the benchmark rates do go down from here and they would still be getting increases for the next few years.
Also, I don’t buy the “nontraditional loans are good for some people” line. Even if you’re filthy rich you don’t get that way with IO or option ARM loans. Those loans are wealth sinks.
Those loans are wealth generators for those who understand their risks, understand they are investing, have a exit strategy (or know when to cut their losses), and have sufficient reserves to take a loss. Did I just describe the “I can only buy with an I/O” homeowner? (rhetorical)
Those loans are good for flippers ,investors, gamblers, thiefs,and mortgage brokers I would like to see that people are qualified on the adjusted up rate , but that would disqualify about 50% of the loans . I would like to see any commissions disclosed and a law that borrowers are offered all loan packages they qualify for . Heck ,we would have to have a cop at every loan meeting .
Yea, I have often wondered why a 9 to 5 guy would take an option arm loan.
too many rules restrict innovation.
sounds like the airlines years ago. give us the freedome to innovate. anybody want their banker to act like the stewardess on your last flight. I sure dont.
as if the mortgage bankers are not sleazy enough. give them more freedom?
http://www.dcbubble.blogspot.com
In fairness the airlines were asking for permission to compete on price. Airlines were regulated on the basis of a minimum price which resulted in unbelievable service for those who could afford to fly. While services have declined substantially consumers have dramatically shown that they care a lot more about getting to their destination than how comfortably they arrive there. If there was demand for high touch services where are the luxury airlines with no wait guarantees, gourmet cuisine, palatial seats, etc? The last one that was even close was the Concorde and they stopped flying due to lack of demand a few years ago.
If someone is too dumb to manage their capital they should and will be separated from their capital. No amount of rule making will prevent this, but more rules will adjust just who gets to do the fleecing.
Correct me if I am wrong. The GSEs are not federally guarantteed. Fannie Mae states that in their FAQs.
US lenders do not care much about the cost of funds because they make profits originating the loans and selling the loans to the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. The GSEs make profits sell the loans in pools of mortgage backed bonds (MBSs) which can become collateralized debt obligations (CDOs) and derivatives. Who buys the MBSs, CDOs and derivatives? Most are bought by high yield seek overseas buyers!!! They take the risk that the mortgages will be paid and suffer when the mortgages do not pay or are paid off early. Some buyers are here in the US.
The biggest losses will not be in the US, it will be overseas holders of the highly leveraged MBSs, CDOs and derivatives.
Those who can not pay their mortgages will not pay and the highly leveraged MBSs, CDOs and derivatives will be foreclosing.
But, and a big but, how does a debt-ridden US economy in need of massive foreign cash infusions maintain that flow when burnt MBS holders say no mas? Should these securities start to suffer, it is only with far higher treasury yields (in the 6-7% range) that the risk would be compensated. And yes, that leads to further MBS deterioration. A fine mess. no?
I can’t quite parse this sequence of events. To the extent that non-guaranteed private label MBS are sold to foreign investors, foreign investors will take the hit from credit risk. To the extent that foreign investors are buying GSE MBS, the GSE shareholders will take the hit from the credit risk (acutally, first the PMIs take the hit on most stuff, then the GSEs), then the subordinated GSE debt holders, and then either the MBS holders or the taxpayer, depending on whether or not there is a bail out. Unless it reaches the point that GSEs are defaulting on their guarantees, MBS holders BENEFIT from defaults, because interest rates have been rising - below market coupons are getting paid off at book value, which now exceeds market value.
Can anyone find another example of a Ponzi scheme spead so world wide as the run up in housing prices? Would make one hell of a Hollywood conspiracy movie? I must say, the thought is intriguing and if true I’d have to take my hat off to ‘em…..the perfect heist.
“‘The American consumer could suffer greatly from any guidance that imposes unduly restrictive standards on the use of these mortgage products,’ the industry group America’s Community Bankers said. ‘Such restrictions could result in lenders’ being less willing to offer alternative mortgage products and this would severely limit the flexibility in financing options that consumers enjoy today,’ the group added.”
Captain, Road Prison 36: You gonna get used to wearin’ them chains afer a while, Luke. Don’t you never stop listenin’ to them clinking. ‘Cause they gonna remind you of what I been saying. For your own good.
Cool Hand Luke: Wish you’d stop bein’ so good to me, cap’n.
My favorite: “What we have here is failure to communicate. Some men you just can’t reach, so you get what we had here last week, which is the way he wants it, well, he gets it. And I don’t like it any more than you men.”
Mort: I have heard that somewhere. Where did you get that? a movie?
Cool Hand Luke, but it’s even better is GnR Civil War
also to add more pain to thease homebuyers the property taxes and insurance are going thru to roof. 10years ago the re ads used to include the figure for piti. principle,interest,taxes insurance. now the only number you are exposed in the re ads is interest only.
“‘If you are the type that’s going to go out and run up additional credit card debt it’s best to leave that home equity untouched,’
——————————————————————————–
Typical CYA…….why didn’t these guys put the word out on this a few years ago? I seem to recall many advertisements that suggested HELOC’s were the new way to manage those credit cards.
Just got this in my email from ZipRealty which I found so laughable and desperate I had to share:
Hi Monica,
1) Rents are increasing! ( more money for the land lord)
2) Interest rates are increasing! ( reducing your buying power..)
3) The market will heat up again in the Spring and Summer, creating competition and pushing prices higher.
That is why I encourage all of my clients to get a head start and make the move now. With interest rates still at an all time low and lower competition among buyers you will get much more for your dollar now than you will if you wait.
Call me to help you find your new home and get a great deal!
Warms regards,
Tyrone
Tyrone Fance
REALTOR (R)
ZipRealty, Inc.
Tyrone can go back to flipping burgers in a few more months. Unless some suckers actually fall for his emails. LOL
Lake Tahoe highest snow fall 35yrs. ”
An unending series of March snowstorms pasted the Sierra in white, with one Lake Tahoe ski resort reporting more snowfall than during any other month over the last 35 years”
That means housing sales should increase this summer.They’ll be plenty of those retiree’s heading down the mountain fast. Last year my son had a wrestling match in Reno and an older couple was talking about selling then because of snow.
Only them what ain’t skiers
Just a thought . . .
Sample scenario:
Genius buys home in May 2004 with 0% down 2YR Arm or I/O garbage loan for $500K. House “appreciates” 25% 1st year to $625K, which this genius promptly spends $50K of using a HELOC. (Basis of property now $550K). Through May 2006, house “appreciates” 10% to $667,500.
This loan resets, he can’t make the taxes, or the payments. This genius has been watching the market . . . he’s seen the writing on the wall. He just wants to get out with his HELOC goodies and his a$$. He drops the price to $600 . . .just so he can cover broker fees . . . then drops to his tipping point of $564K. (break even at $550K + ~16K Realtor fees). The property value has dropped $103K or 16%.
NOW my question: This is step 1. Now the new and improved comps are set by this genius. What happens next. Gradual steps from further geniuses? A rush to the door? Even more than the current rush?
That’s an interesting scenario. Not knowing the time frame but assuming 6-9 months. A: His is only recent sale and is at 16% discount, new ceiling is set, Total panic with rush to sell, further big drops in prices. B: His is latest in string of price reductions, apathy, market slowly moves lower.
I think it takes a long time for some geniuses to accept what is going on. This is going to be I be a long slow grind with those in denial probably selling at the very bottom when everyone gets really scared its going to get worse…the bottoom.
Simmssays…
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
i am now experiencing a CYA by mortgage company the other way. We are supposing to be closing in ABQ tomorrow, and the lender wants a 2nd look at the appraisal. Now it delaying us. I am not happy with this.
need 2 leave ca…
I have a very good friend who works at DiTech.
They don’t play the false appraisal game, and they don’t inflate values.
It’s very possible that you have an honest lender- and the value of the property has fallen during the short time you’ve been working on the loan.
My friend tells me that in some markets, values have slid as much as $30,000 DOWN in one month.
There ain’t no ‘lag time’.
On the other hand- this could be good for YOU.
If the appraisal comes in lower, you go back to the homeowner with the bad news, and you say…
“Okay, let’s rework this. Instead of giving you ____, I’ll give you _____.”
You save money in the long run. It’s the seller that gets bent over- not you. Be patient.
Why would you be upset at paying LESS for the property you’re buying?
Ditech doesn’t have to play the “appraisal” game.
They lend 125% of appraised value, which means they lend an addition 25% on top of the usual 18%/20% over-appraisal number provided by the $35.00 fee trainee appraiser secured by an appraisal management company.
So, combining the above for a $400k property, your’re already lookin’ at $100k in fictional equity…
Oh, no Ditech doesnt’ inflate values-LMFAO…
The market in ABQ is still going up, not down.
““Excess restrictions on such nontraditional home loans as interest-only and payment-option mortgages risk stifling the market, industry groups said.”"
Sensible lending standards that had been developed over the last 30 years were thrown out in the last 3 to 4 years. And the industry groups do not want to go back to these standards. Of course it is ultimately up to the investors of mortgage loans, not the industry groups (originators.) When investors of mortgages and mortgage securities require sensible lending standards again, that is when we will have them. They will require them when the losses and risk is excessive. This will be after major damage to housing markets.
I agree with you . What were the investors thinking .It will go back to the old time tested standards.
It will go back. In fact, I expect it to overshoot as well. Once the defaults mount, the GSE’s and a whole lot of banks will fail. Then everyone holding MBS will try to get out at once, and find nobody’s buying. I expect it will be extremely difficult to get mortgage money in 2008.
Words of warning… anyone wanting to buy a house at the bottom will need lots of cash, flawless credit, low or no debt, and verifiable income from a stable, long-term source!!!
heh heh heh…
This will happen ….bet on it.
OT: Looking at the free real estate mag here (Pittsburgh), since last issue (2 weeks ago), some homes in nice areas have been reduced 415K/417K (just built 2006, in best ‘hood), 79.9K/84K (nice blue collar hood, safe, near new hosp), 124.9k/127.5k (blue collar hood, next to best white collar hood). This is a city which is near bankrupt (state has oversight board), 2nd oldest pop county in US, and no bubble area-wide. Pockets of them, IMO. Mega homes in burbs next to 60s split levels going for $400-$800. Pop in city is 1/2 of 1950, with more deaths than births. Foreclosures double that of 2000 in the MSA.
Read an article on GM today in Fortune Mag.
Just wait’ll these guys file bankruptcy with Ford right behind them.
The bond markets will go beserk.
What’s the cap on my adjustable, ya say???????????????