A Very Slow Moving Commodity
Some housing bubble news from Wall Street and Washington. Reuters, “Home building projects started in November fell by 3.7 percent as the pace of single-family home construction was the slowest in more than 16 years, a government report on Tuesday showed. Housing starts plummeted 24.2 percent from a year ago and permits, which are a key gauge of future building activity, tumbled 24.6 percent.”
“Single-family home starts, which account for the bulk of home building projects, fell for the eighth straight month, tumbling 5.4 percent to an annual pace of 829,000 units, the lowest since April 1991.”
“‘It’s continuing in the same direction that it has been for the last 12 to 18 months,’ said Bob Moulton, president of the Americana Mortgage Group. ‘I think the trend will continue because it’s a very slow moving commodity.’”
From Bloomberg. “Housing starts in November were 48 percent below their Jan. 2006 peak, matching the drop in sales of new homes from the record reached in July 2005.”
“A report yesterday added to evidence that housing is far from recovering as 2007 comes to a close. The National Association of Home Builders/Wells Fargo confidence index held at a record low of 19 for a third month in December.”
“In the third quarter, new foreclosures hit an all-time high, the Mortgage Bankers Association said in a report Dec. 6, meaning more homes will be piling up on the market.”
“Moving to contain the damage, President George W. Bush announced a plan this month to freeze rates for five years on some variable rate mortgages. The proposal wasn’t universally embraced.”
“‘At best, it may stop some of the hemorrhaging of the housing market, but it doesn’t necessarily turn things around,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. ‘The fundamental problem with housing is oversupply.’”
The Associated Press. “If the government really wants to stop home foreclosures from surging, here’s a simple plan: Boost Americans’ income, put more funding toward medical research and insist on marriage counseling for all. And then start buying up land to raise housing prices.”
“As far-fetched as all that may sound, such efforts would do more to curb default rates than the Bush administration’s plan to freeze adjustable mortgage rates in the coming years for a limited number of subprime borrowers.”
“Data from Countrywide Financial Corp., the nation’s largest mortgage lender, backs up this point. The Countrywide data provides stark evidence that this plan will serve at best as a Band-Aid on a gaping wound, as does a new Federal Reserve Bank of San Francisco study that showed changes in home prices are ‘far and away the best single predictor’ of subprime delinquencies.”
“It suggests that once a home’s value falls below the amount owed on a mortgage, borrowers tend to then view the default option as being ‘in the money’ and exercise that option.”
“Current conditions indicate just that. Housing wealth fell in the third quarter for the first time since 1993, by $128 billion, according to Merrill Lynch, as increases in mortgage debt outstripped the value of real estate assets.”
“‘Unless the government is going to establish land banks to prevent continued house price deflation, it really is questionable as to whether this ‘Hope Now’ policy is really going to stop a ‘Foreclosure Later’ environment,’ said David Rosenberg, Merrill Lynch’s chief North American economist.”
“He noted that home prices have dropped 5 percent so far this year and his firm is forecasting another 10 percent decline from current levels in the coming year.”
“Evidence that those who have had their mortgages modified as they moved toward foreclosure still go on to default is adding to such worries.”
“Consider that during a housing boom, re-default rates two years after a loan modification are close to 25 percent in the conventional mortgage market and 40 to 60 percent in the weaker mortgage areas, including subprime and Alt-A, according to Joshua Rosner, managing director at the independent research firm Graham Fisher & Co.”
“If that happens in the best of times, think about what could go on now as prices are tumbling. That means this mess could drag on for years.”
The New York Times. “According to BusinessWeek, the Securities & Exchange Commission and the U.S. Attorney’s office in Brooklyn are looking into an allegation that some Bear Stearns insiders associated with the funds may have been pulling their personal money out of the investment vehicles this spring when the market was in turmoil.”
“The alleged redemptions occurred during a time the funds’ managers were urging other investors to stay put, the report said.”
“It was the first day of November and Coleman Stipanovich’s world was coming undone. Florida school districts and towns had begun pulling their cash out of the $26 billion money market fund he supervised, after they learned it held subprime-tainted debt.”
“Stipanovich, who earned $180,214 in 2006, was in New York in confidential meetings with Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds.”
“What Stipanovich hadn’t told his boss, Florida Chief Financial Officer Alex Sink, was that Lehman Brothers was the same firm that had sold the state fund $842 million of mortgage- backed debt in July and August.”
“Those securities defaulted within four months, and totaled more failing debt than any other bank sold the state, Florida records show.”
“The subprime meltdown made front-page news in June, when Bear Stearns Cos. disclosed that two of its hedge funds were collapsing because they were stuffed with subprime collateral. During the next two months, Wall Street firms were quietly peddling mortgage-backed securities to the states.”
“And the states, eager for higher returns, were buying them.”
“Joseph Mason, a former U.S. Treasury official and now a finance professor at Drexel University, says Wall Street had few takers for its subprime-tainted debt. ‘When they couldn’t sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,’ he says.”
“As home prices rose and hunger for high-yield investments grew, Daniel Sadek (of) subprime mortgage company, Quick Loan Funding Corp., found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortgages last year from $160 billion, or 7 percent, in 2001, according to an industry newsletter.”
“Banks drove that growth because they could bundle subprime loans into securities, parts of which paid interest as much as 3 percentage points higher than 10-year Treasury notes.”
“‘I never made a loan that Wall Street wouldn’t buy,’ Sadek says. He worked hard to build the business, he says, and the company did nothing illegal.”
“Investors from Germany to Japan poured about $1.2 trillion into mortgage-backed securities in those two years, according to Global Insight Inc.”
“Now the U.S. economy is paying the bill for that easy credit. Nearly one in six subprime borrowers has missed a monthly payment, sending home prices to their first annual decline since the Great Depression.”
“‘I was working every day, all day, from dusk to dusk,’ says Sadek, who pumped gas and sold cars before creating Quick Loan Funding. Sadek, now 39, got into the lending business in 2002. Staked by banks including Citigroup Inc., Sadek and others in his industry tripled the subprime market in five years.”
“Loan officers were hired and fired all the time at Quick Loan Funding’s 26,000-square-foot call center in Irvine, says Bryan Buksoontorn, who joined the company in 2004. Sadek and his managers would berate the sales staff, many of whom had no experience or training, Buksoontorn says. ‘They would get in your face,’ he says. ‘Why aren’t you ordering appraisals? Why aren’t you selling?’”
“Sadek brought a car salesman’s mentality to mortgages, Espinoza says. ‘It’s the same type of hard sell,’ says Steven Espinoza, an employee from 2003 to 2005. ‘Close ‘em, close ‘em, close ‘em.’”
“‘If we had a prime borrower on the line, we hung up on them,’ Buksoontorn says. ‘We were geared toward subprime because they were easier to close. We were giving them money no other bank would dare to give them.’”
“Sadek says that with the support of Citigroup, which funded the loans, he pioneered lending to homebuyers with credit scores of less than 450. ‘We made most of our money from selling loans to banks,’ Sadek says.”
“A key selling point was the 50 percent rise in home prices nationally from 2001 to 2006, according to the National Association of Realtors. Mortgage salespeople told homeowners that as long as values continued to increase, they could refinance or sell before their interest rates jumped.”
“It wasn’t a lie. Year over year, prices hadn’t fallen since the 1930s, according to the Realtors group. The belief that values would form a stairway even seduced Quick Loan Funding employees who took out 2/28 loans themselves, says Marcus Bednar, a former sales manager.”
“‘They believed everything the borrowers believed, that the market was going to go up,’ Bednar says. ‘It wasn’t just something we were pushing because we tried to rip people off.’”
“Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.”
“But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.”
“John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.”
“‘He never gave us a good reason, but he didn’t want to do it,’ Mr. Gnaizda said last week. ‘He just wasn’t interested.’”
“‘I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk,’ Mr. Greenspan wrote in his recent memoir. ‘But I believed then, as now, that the benefits of broadened home ownership are worth the risk.’”
“On Tuesday, under a new chairman, the Federal Reserve will try to make up for lost ground by proposing new restrictions on subprime mortgages, invoking its authority under the 13-year-old Home Ownership Equity and Protection Act.”
“Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan.”
From MarketWatch. “The proposed rules wouldn’t help current borrowers holding a loan but aim to head off another lending crisis like the one that has crippled the subprime mortgage industry.”
“The proposals would prohibit lenders from granting mortgages to borrowers whose only means of repayment would be an increase in the value of the property.”
“It also prohibits lenders from paying mortgage brokers fees for higher-rate loans. Additionally, the Fed proposed prohibiting a creditor from making a higher-priced loan without setting up an escrow account for property taxes and homeowners’ insurance.”
“David Wyss, chief economist at Standard & Poor’s, called the limitations ‘almost irrelevant’ since no one is making subprime loans now.”
“‘We always lock the barn door well after the horse has left,’ Wyss said in an interview on Bloomberg TV. ‘I think what they are hoping is to restore confidence in this category by restricting what loans can be made so investors will start making these loans again,’ Wyss said.”
‘If we had a prime borrower on the line, we hung up on them,’ Buksoontorn says. ‘We were geared toward subprime because they were easier to close. We were giving them money no other bank would dare to give them.’
‘Staked by banks including Citigroup Inc., Sadek and others in his industry tripled the subprime market in five years.’
‘when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.’
‘On Tuesday, under a new chairman, the Federal Reserve will try to make up for lost ground by proposing new restrictions on subprime mortgages, invoking its authority under the 13-year-old Home Ownership Equity and Protection Act.’
‘Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan.’
Anybody still want to post here that this was all the flippers doing and that the Fed is innocent?
“When your bank says now, we say yes!”
“You should have seen the hassle I got from my bank. I walked out and called Equity Now.”
You still hear it on the radio, but not as much. You hear more ads for IRS and foreclosure help — “pay pennies on the dollar!”
Argh! I hated that commercial! I don’t hear it anymore now that I don’t listen to WABC in the AM anymore…
you miss kuby too, huh? curtis & kuby was a truly unique morning radio phenomenon. too good to survive the inevitable dumbing down that survives any mass marketing winnowing ….
“that follows any mass marketing winnowing…”
“‘I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk,’ Mr. Greenspan wrote in his recent memoir. ‘But I believed then, as now, that the benefits of broadened home ownership are worth the risk.’”
Did he also believe that the benefits of broadened Ferrari ownership by the investment bankers are worth the risk?
‘But I believed then, as now, that the benefits of broadened home ownership are worth the risk.’
Mr. Market has not yet finished delivering his judgment on that opinion.
I’ve been saying that’s it’s all the government and Fed’s doing all along. The groundwork was laid by legislation long before the Fed started lowering rates - the repeal of the Glass-Stegal act and the elimination of capital gains on realestate sales were obvious attempts to create a housing bubble. The American “consumer” ran out of steam around the turn of the century, but government intervention and the stupidity of the masses to take on massive debt as advocated by Greenspan kept the party going a littl;e longer. And will result in a n exponentially greater crash than would have happened otherwise.
The mortgage interest deduction is the bigger distorter here, imo. The UK phased this out 20 years ago without killing the housing market there. Additionally the rate of home ownership in the UK is the same as in the US. Sadly, no politician in the US has the guts to phase out this distortion:- can’t upset the middle class voters who benefit most from this.
I don’t see how they benefit…the deduction just gets rolled into the monthly payment, and prices are adjusted upward accordingly.
The banks however…
its not the middle class who lobbies for the mortgage interest deduction, its the NAR and the bankers.
The alternative minimum tax is taking out the value of mortgage interest deduction, and all other deductions. Inflation will cause more and more of the middle class to take a hit from AMT. Meanwhile billionair Hedge fund execs and other CEO’s will pay 10% on their income tax. Those with money make the rules in this country.
Technically mortgage interest is deductable under AMT; but not real estate taxes. Mortgage interest is only 80% deductible for many high income people under both tax systems.
Is it possible we were also bankrupted at the end of the Cold War, along with the Russians, and the subsequent asset bubbles were just a big game of keep the ball in the air, leading to this?
I am not well studied on this topic, and would appreciate posters’ comments.
The US has been bankrupt since 1933
The US has been bankrupt since 1803 when we overpaid for Louisiana.
To Fed: Make all home loans ‘recourse’ non-walkway….end of bailout problem forever……put the risk back into ‘prices always go up’ housing market that you created…..this will establish realistic pricing again……go after the crooks and flakes assets for life and encourage saving at the same time.
Making all mortgages no-recourse sounds great on paper, but in reality would tank the economy even faster than the “reverse wealth effect” (poverty effect?), as underwater borrowers would be stuck forever servicing homes they cannot afford –and not spending money on anything else. It would also remove tons of now-marked-to-market inventory for responsible borrowers like you and me, thus helping to keep prices HIGH –not good.
No, I say make ALL mortgages “recourse”, let the speculators mail in the keys, and let the banksters eat the losses they created. This will SPEED UP the correction process, and get us back to true affordability faster. If the banksters want to go after these petty con-men in civil court (Casey Serin, David Crisp, etc.), let ‘em –except they probably won’t in most cases, because the banksters themselves were “in” on the con.
I think you have those backwards. Non-recourse, means the person can walk. Recourse means the person has guaranteed repayment.
Making them recourse would be a bad idea. Then all of a sudden, lenders would feel free to land loosely again-why not? The loans are recourse. With non-recourse loans, people will need down payments, a proven ability to pay the note, and the home will need to appraise correctly.
The lenders need more fear, not less, since the borrowers will never learn…
Agree, HARM.
We need to have 100% non-recourse loans so the lenders will concern themselves with the borrowers’ ability to pay back the loan.
All recoruse? Heck no. The lenders should not lend unless they are likely to get paid back.
This was a lender fueled bubble. Falling standards allowed people to borrow money that they could never repay without prices rising forever.
The lenders baked the cake. Let them eat it.
‘If we had a prime borrower on the line, we hung up on them,’ Buksoontorn says. ‘We were geared toward subprime because they were easier to close. We were giving them money no other bank would dare to give them.’
This was exactly my experience when trying to buy a home in Sacramento (Anatolia) in early 2005. I had well over 50% downpayment and found that I was shunned. It was crystal clear that the salespersons didn’t want to work with me or my downpayment, presumably because it meant a smaller commission and fees along the food chain. I was really perplexed and that was the deciding factor in deciding to leave California. It was clear that they didn’t want my money and would prefer to work with people taking out 100% or more loans.
The FED just axed this policy. It will be a bigger deal than people realize. No extra commission for higher yields. Losers will once again be losers in the eyes of the mortgage industry.
Greenspan Shrugged
LOL. That is awesome.
Buksoontorn says.
I’m sorry Ben, these names are made up. Buck-soon-torn? Please.
Then I googeled it. It seems the Buksoontorn’s are from Thailand.
Lots of the names in these articles read like a Monty Python skit.
“Hi there! I’m Mr. Smokestoomuch!”
“Buksoontorn’s are from Thailand.”
Are you sure you did not confuse them with the Bahtsoontorn’s?
I was thinking along the line of “buttsoontorn” myself.
Exactly Ben. The Wall Street Gangsters and the rat-infested corporations were the ones doing this. They were preying on people for profit. Remember when everyone was blaming the borrowers and I was one of the few voices defending borrowers? Were they stupid? YES! Did they deserve to be screwed over like this? No.
As more details come out it is becoming crystal clear UNREGULATED asswipes screwed their fellow Americans in droves.
Nice patriotism, by the way! With patriots like this who needs terrorists?
So at what point do people take responsibility for their individual financial decision?
There have never been more resources available to people from financial planners, lawyers, libraries and the internet with which anyone could do basic financial research. Perhaps some did so but incompletely. Perhaps some used lawyers and CFPs and recieved poor advice. But the stories I’ve read, mostly, are those of people who couldn’t have been bothered to take even a few steps before they committed to 300, 400 and 500 thousand dollar loans.
Yes, they were “taken”. Yes, the lenders were reckless. Yes, the investors were negligent. But what, as a society, are we willing to accept as punishment for outrageously negligent behavior by individuals?
In my opinion, the only thing that reduces these types of debacles is by the elevation of a painful, widespread, lesson. The more we mitigate the lesson, the more people who walk away and tell others “it wasn’t so bad” the more we insure the next event and the more numbers of people who will be involved.
It stinks that people have to suffer. But it is a fact of life in an information society that if you can’t be bothered to use the information available to you FOR FREE and virtually without much effort then you can expect to pay the price.
Most of the non-speculators in these stories did less research on their mortgages and housing prices than I’ve done on simple electronic and appliance purchases. In other words, they are often lazy as hell. What do you expect when you don’t do your homework on something important or expensive? Do you expect it to just “work out”?
Maybe it will but what reasonable adult is “surprised” when it doesn’t?
I know what you are saying and I agree with a lot of your arguments, to a point. But as Americans should we allow a cesspool like our mortgage industry has become to exist without regulation? I don’t think so. When an industry becomes so predatory that it becomes a threat to the entire system, regulation is demanded. I think the real difference in this case is that the entire unregulated industry imploded on itself. With some common sense safety measures in place people can go to get a loan WITHOUT needing an attorney. After all, do you really need to hire someone just to make sure your loan officer isn’t screwing you?
I also think it is a mistake a paint every borrower with the same brush. What about the elderly? I know my mom would have a hard time interpreting a lot of the legal jargon that is splattered on these docs. I think a lot of Americans don’t really expect to get screwed trying to get a loan for a home. They expect there to be some basic safeguards in place. Sure some people were “lazy” but maybe “trusting” is a better way to describe it. If these people deserve what they got it says a lot about us as a nation. And it isn’t good!
It is easy to say SCREW THESE PEOPLE but what would you think if it was your family? Or your friends? These people trusted the system to be straight and they found out the hard way how corrupt it has become.
The only thing the people had to gain was from speculating. And sure there were many that did that. But a whole lot more were simply trying to buy a home for their family. I don’t think it is too much to ask.
I also think you need to look at it case by case. Some people were completely reckless. They screwed themselves. I know of one person that fits this description perfectly. Bought 5 homes. Oh well. But I also know people…good people you would like, that trusted the system to be honest and got royally screwed so some asshole could live large. I do not accept that.
I won’t. It’s bullshit and we need to clean it up. I hope we regulate the shit out of this industry. They have nobody to blame but themselves.
Once again, agree 100% with you, joe momma.
Foreclosure & a credit hit is the borrowers’ punishment. Losing money (as much as the free market dictates) is the correct punishment for the lenders for the mess they got us into.
As much as the 100% “free-market” capitalists like to think all regulation is bad, it actually protects the prudent who have no control over other people’s actions.
No regulation will get you into situations seen in South America, Africa, etc. No law, no protection for anyone, every man/woman for him/herself. Not good for the long-term health of any society.
“So at what point do people take responsibility for their individual financial decision?”
a universal requirement of a 20% downpayment. is that part of the new requirements? i don’t think so.
“Did they deserve to be screwed over like this?”
Oh, yes they did and do deserve to get screwed.
I’m enjoying watching the greedy, thieving, conniving, lying, bragging, low-lifes go down in flames.
be very careful what you wish for. this is going to get ugly!!! my family has owned a business for almost 60 years in the same location, our business was broken into last weekend! that has NEVER happend before. it makes one wonder if it is the begining of something more to come?
I’m sorry to hear that takingbets.
Zvi Bodie, professor of finance at Boston Unversity, was online today discussing financial planning wrt inflation so i decided to toss out an anti-FRB remark thinking she’d have plenty to add… (FTR- i think she’s way too positive about the Fed’s ability to fight off a major collapse)
Zvi Bodie,
Why, in today’s technology and free flowing real-time information age, do we rely on an antiquated private institution like the Federal Reserve Bank to artificially manipulate market rates and control liquidity? This is no longer 1913 (when the FRB was created), this isn’t even 1983, we have the internet now. The market potentially could be more efficient than ever if we allowed it to act on its own as opposed to being strong-armed by ordinary men and women acting in who knows who’s best interest.
Your thoughts?
Thanks!
Zvi Bodie: Although the Fed sometimes makes the situation worse rather than better, it also can prevent a major collapse of credit markets. On balance, I am happy that the Fed is around now to inject liquidity into the financial system.
Anybody still want to post here that this was all the flippers doing and that the Fed is innocent?
The race to the subprime market began in 2003 during the state of the union address by President Bush regarding the housing market being affordable to everyone. I believe the current administration pushed Greenspan from a political aspect to keep the rates down.
http://www.myspace.com/RedLine
well here is what Sadek did with the mortgage money he made, he made a movie and also proof that money can be destroyed. Thats his porsche that goes down the cliff, or my tax dollars if this bubble gets monetized.
What an amazing idea - documenting income and proving that they can pay back the loan! Wow - who’d have guessed that doing that would make business sense!
Next up in financial discoveries: making money is good, losing it is bad!
“Single-family home starts, which account for the bulk of home building projects, fell for the eighth straight month, tumbling 5.4 percent to an annual pace of 829,000 units, the lowest since April 1991.”
How fast are new homes selling these days? I imagine they are selling like hot cakes, now that bailout programs are in the work and money is falling out of helicopters right into lenders’ open arms?
Census data shows numbers from Oct indicate on pace to sell 720K with 510K already built. So, dropping to 829K means we’re only adding 100K more houses per year to the backlog.
12% drop needed to bring constrcution down to sales pace. 25% drop would slow construciotn to the point that we could work off the backlog in only 5 years.
The “backlog” is about 4 million homes. Anytime something is built, the time to absorp that backlog increases. 5 years would be great. However, it could much longer.
A lot of these homes might as well not count, the ones that have been abandonded and stripped of copper wiring, plumbing and other features that make a house habitable. These houses will end up being scraped.
Scratch them from the list.
A flood of more illegal immigrants with fists-full of government hand-out money could do it overnight.
You guys keep thinking that the “market” is fixed. There are lots of variables and I don’t exclude this one.
Free loans to “minorities”, regardless of “immigration status”.
NO problem.
“on pace to sell 720K”
Is that before or after subtracting cancelled new home orders?
“It wasn’t a lie. Year over year, prices hadn’t fallen since the 1930s, according to the Realtors group. The belief that values would form a stairway even seduced Quick Loan Funding employees who took out 2/28 loans themselves, says Marcus Bednar, a former sales manager.”
This can’t be true, is it? What about from 1988-1994? I am sure this isn’t the first housing downturn…
Somebody back me up here but I believe that’s nationwide. Obviously areas like So. Cal. faced significant year-over-year declines in the early 90s, but not everywhere else in the U.S.
So the realtors are using “all real estate is local” to support one argument and “nationally real estate has never dropped” to support another?
Just what you would expect from shills.
I believe they are referring to housing being down on a national level. I believe that statement WAS true. However, we don’t buy houses nationally. We buy in locals. So the info is still misleading since many locals have suffered devistating downturns in price over the years.
Exactly my thought. Unless your looking to buy a house in every single market surveyed by the NAR, you indeed DO stand to lose money (which is becoming more and move obvious to the sheeple every day) on the transaction. That’s like saying that over a 100 year period, the stock market has never gone down. True, but nobody buys for 100 year periods, and nobody buys a home in every national market at the same time.
My wife is set to inheirit some GE stock that was purchased in the 1950s by her grandparents, and she hopes it will be in the possession of our grandchildren in the 2050s. You can guess what the current dividend yeild is on the 1950’s cost basis.
Also, I think if you split the different areas up (instead of looking at the aggregate), you’ll see prices dropping in most — if not all — areas at some point in time.
The NAR just looks at numbers **for a particular year**. As we know, bubbles roll in and out. Each part of the country responds to the cycles at different times.
Which emphasizes how bad this downturn is–before there were enough OK markets to make the truly awful markets not look so bad. Now they are all bad.
Look at the Case-Shiller graph. From the late 1890s and into the 1920s, the general house price trend was down.
Just imagine three decades of falling - no just stagnant - housing prices. Wow. While arguably remote, such an outcome really seems worthy of some consideration, as the effects on many would be catastrophic.
getting less remote as fed and gov are going to “save” us like Japan in the 90’s
and they had savings……….
What could possibly be catastrophic about fixed housing costs?
You are so used to an inflationary mentality that you think prices are supposed to go up continuously and somehow that represents increased “wealth”.
You need to learn to divorce yourself from central banking fraud that is robbing us of our national wealth.
STABLE prices are a sign of increased wealth. You eventually pay off the mortgage and the house is worth what you invested in it.
Today, relative to 1913 when the FED was started (along with the ADL), the dollar is worth less than $.05.
You think this is good???
Ah, perhaps I ought to clarify. The point I was trying to make was that so very many nowadays absolutely count on neverending house price appreciation - therefore the effects of stagnant (your word: stable) house prices will be catastrophic for them - I’m merely concerned over the fallout that I know I’ll be effected by too because debtors outnumber savers in a big way today.
“Look at the Case-Shiller graph. From the late 1890s and into the 1920s, the general house price trend was down. ”
I was talking to my father, who is old enough to remember the Great Depression, about housing recently, and he pointed out that, after a certain point, houses lost value depending on age, and the older, the less it was worth. He thinks it’s insane that 50-60 year old cape cods that cost $4,800 new are now selling for $200,000. He also told me that in the Depression it got to the point where the banks stopped foreclosing and just asked the homeowner to send in whatever they could.
I have a feeling we’re going to return to those times.
“He also told me that in the Depression it got to the point where the banks stopped foreclosing and just asked the homeowner to send in whatever they could.”
So, what you are saying is I should buy an overpriced POS soon and then I’ll get bailed out too. Something tells me that renters in the Great Depression were evicted as soon as they didn’t pay. You are probably right. I do see something like this happening.
Also, I think within a month or two, there will be legislation brought forth that restricts banks from reporting subprime defaults to the credit bureaus, so that they don’t have black marks on their credit and can get into rental housing.
The silver lining should then be that banks will have so many foreclosed properties that someone wishing to buy can send in whatever he can too and get the house.
The reason that RE prices started falling around the turn of the 20th century was that improvements in transportation (subways, railways, streetcars, private autos) greatly expanded the supply of usable land in urban areas. So of course prices fell. But it wasn’t an RE bust due to inflated prices as we are seeing today.
From the mid-1920’s into the 1930’s however, yes it was a bust.
The MSM statements must not be inflation adjusted. Nominal home prices may rarely fall, but real home prices absolutely do…
yes, but it was fractured
1985 oil patch
1987 cape cod -canary
88 bashstin
1990 dc
1991 socal
midwest was never in , nor were outlying rural areas
In the past, houses fell in “inflation adjusted” terms. They got 10-15% overpriced, then went flat for 5 years as inflation caused wages to catch up.
This bubble was SOOOOO much bigger than any previous bubble. Prices would have to go flat for 20 years for 4% annual wage growth to bring houses back in line with normal affordability.
Yeah. I think when things get 15-20% overpriced, a couple years of inflation is just the cure. This happened in the early 1980s. But not when most of the country’s population centers are at least 30% overpriced and some are 199-200% overpriced.
“It suggests that once a home’s value falls below the amount owed on a mortgage, borrowers tend to then view the default option as being ‘in the money’ and exercise that option.”
This is why a primary residence should never be viewed as an investment. If you always have an option to walk with little consequence when things go bad…
I don’t understand why the writer wanted to twist the logic to say that being underwater was “in the money”. What’s wrong with stating the obvious, that the appreciation of the house was the option that is no longer in the money? Or even now must we still pretend that back then nobody was gambling and everyone wanted to live in the house for 30 years?
GOldman (via CNBC) drops a bomb on the market…
Goldman’s ‘horrible’ Nov. points to more credit losses: CNBC
http://www.marketwatch.com/news/story/goldmans-horrible-nov-points-more/story.aspx?guid=%7B9F86EF19%2D2E6F%2D40A9%2D8B1B%2D8DC661F6E6AD%7D
The intial positive spin on GS 4Q ran down awfully fast. The downward spiral seems irresistble at this point, as the door slams shut on any meaningful Santa Claus rally.
Like the children of Lake Wobegon, GS’s results are always above average.
Goldman soars past expectations
By Ben White in New York
Published: December 18 2007 16:27 | Last updated: December 18 2007 17:09
Goldman Sachs on Tuesday closed out a record year by again trouncing analysts’ earnings expectations and avoiding the massive losses that have plagued other banks during the global credit squeeze.
Goldman said it earned $3.22bn, or $7.01 per share, up 2 per cent from $3.15bn, or $6.59 a share, last year. Analysts, who rarely come close to predicting Goldman’s performance, had expected the bank to earn $6.68 a share.
http://www.ft.com/cms/s/8e882404-ad80-11dc-9386-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8e882404-ad80-11dc-9386-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
‘When they couldn’t sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,’ he says.”
Heheh, yes those are the geniuses in our state and local governments.
Once again — profit is privitized, risk/loss is solicialized.
This borders on criminal behavior, in my opinion.
Pflease… you defnitely elect idiots that run local governments. Maybe next time instead of electing whoever is campaigning on building yet another playground for the children US municipalities start electing those who have a clue.
This fellow, Coleman Stapanovich, in Florida was a political appointee, his brother is a well-connected lobbyist, and his educational credentials were in law enforcement. Another one just like Brown, appointed because of his connections to run FEMA, despite having zero experience or background sufficient to tackle the job.
There is some boomerang risk though for the investment banks. Yes, you were able to pawn these off to the doofi in state and local governments. However, these groups already angry about the state of their housing markets and want a scapegoat. Now, you’ve gone and hit these governments where it really hurts which means state and local lawsuits galore.
The day after O’Neal was fired, Stipanovich was in New York, for the confidential meeting with Lehman Brothers. In a presentation at the Nov. 1 meeting, Lehman Brothers included a graphic titled “Potential Opportunities to Explore.”
It suggested that Florida could buy more structured finance commercial paper from Lehman Brothers for the state pension fund. “Florida is very well funded relative to its peer group,” the graphic said.
Back in Florida four days later, the State Board of Administration determined that 7.2 percent or $3.6 billion of its then $50 billion of short-term investments, which includes the investment pool, were on credit watch for possible downgrades.
Kudos to author David Evans. This was a great expose.
Agree.
These IB’s shoved a lot of crap down these governemnt entities, no surprise Jeb Bush is involved in this mess as a “consultant”.
Also, $400 million of CountrySCAM CD’s. LMAO!! Do these guys read the news?
Yeah, and sending a $180k/yr paper shuffler (Stipanovich) to NYC to deal with the boyz only seems to conjure up the image of a stream full of pirannhas and bleeding cow.
How long until we see more muni/state guv pension vehicles implode? Imagine the fallout, especially on property taxes - houses might become affordable again but the taxes will kill ya.
Well - let’s see what kind of employment ol’ Stipey gets sometime in the future. Wouldn’t suprise me to see him under the employ of Lehman or some other company that did banking business with the Florida fund. After all this stuff dies down, of course.
You paint the portrait of the bureaucratic rube. My guess is more along the lines of collaborator.
But see — this is the question I continue to have to ask. Was it simple ignorance — or actual malign intent?
I choose the in-between option — criminal negligence.
Bleeding cow indeed. They sold Florida $3.6B of toxic garbage, when the summer’s fund-implosions and credit-meltdown had already shown the world that it was toxic garbage.
I mean if this purchase happened in early February, I would say “maybe”, but the purchase happened after the summer crisis. Hard to believe!
“The subprime meltdown made front-page news in June, when Bear Stearns Cos. disclosed that two of its hedge funds were collapsing because they were stuffed with subprime collateral. During the next two months, Wall Street firms were quietly peddling mortgage-backed securities to the states.”
“And the states, eager for higher returns, were buying them.”
Unbelievable, disgusting, and shameful on the part of both buyers and sellers. This reminds me of the account in Liar’s Poker when the author, a new and naive salesman at Salomon Brothers, is talked into selling bonds to an unsuspecting customer. When the bonds turn out to be crap, and the author complains to the bond trader, the trader retorts “who do you work for, Salomon Brothers or the customer?”
Wall Street Gangsters strike again.
They leave all the decisions to this schmuck who does not have any skin to the game? He lost billions for Florida and he just resigns. It’s a shame. I wonder if they even consulted with CalPers, California’s state local agency fund about investments. They have over $250 Billion of asset and is probably one of the most influencial groups that can “rock the boat” so to speak.
It gets even better:
“Most importantly, I want to emphasize that no client has ever lost money in the SBA’s short-term fixed-income investment program, and we remain confident that our portfolios in this program will meet their objectives,” Stipanovich said. “I feel very good about our situation.”
Governor Crist offered reassuring words for Stipanovich. “It’s always easier to be a Monday morning quarterback,” he said. “We all know that. But I just want to thank you for your diligence and for your staff’s work. We have confidence in you. Sometimes these things do get blown out and sensationalized.”
In the next two weeks, the credit downgrades and defaults of pool debt holdings overtook the positive spin Stepanovich had given the governor and the pool’s trustees. Local agencies withdrew $10 billion more from the pool, until the state froze the fund on Nov. 29.
Crist almighty told him to shrug it off, and go get em’ next game, Tiger.
Heckuva job, Stipanovich
What Stipanovich, 58, hadn’t told his boss, Florida Chief Financial Officer Alex Sink, was that Lehman Brothers was the same firm that had sold the state fund $842 million of mortgage- backed debt in July and August. Those securities defaulted within four months, and totaled more failing debt than any other bank sold the state, Florida records show. “At the time, I never knew it was Lehman Brothers that actually sold us these investments,” Sink says.
Sink also was unaware that former Florida Governor Jeb Bush, who incorporated Jeb Bush & Associates in February 2007, a month after completing his second term, had been hired as a consultant to Lehman Brothers in June. The familiy is amazing. I wonder if Neil got a cut too.
Remember the basketball player Steve Stipanovich? While in college at Missouri, he accidently shot himself - - me thinks the two might be related.
–
“‘We always lock the barn door well after the horse has left,’ Wyss said in an interview on Bloomberg TV.”
That is what makes life so easy for crooks, or financial manipulators, in our economy. My estimate for the fleecing from the tech bubble and the housing bubble, when all is said and done, is $5-10Tr. And where all those trillions come from? Increase in the household DEBT!
The game would be over once the household debt starts to decline.
Jas
The blame game is working to perfection…
Single out those most likely to be un-liked, and pin the tale on the donkey.
Sadek Sack looks like the perfect candidate.
There’s much to dislike…
I say Indio for Fed Chairman!!
http://www.youtube.com/watch?v=5BkIngb0dwM&feature=related
CFC below $9 - How is that investment working out BofA?
Now you’ve gone and hurt Washington Mutual Inc (WM) feelings.
If the company is so great, seems like this would be a great buying opportunity for Mozillo.
When it gets to $6~7ish BoA will swallow them whole.
You watch.
And then B of A will have the banking equivalent of indigestion.
I have anectodal evidence that a lot of clients whose IRA/financial portfolios were managed by BOA got lots of CFC shares in them because it was a good investment about a month after BOA bought a chuck of CFC.
‘At best, it may stop some of the hemorrhaging of the housing market, but it doesn’t necessarily turn things around,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. ‘The fundamental problem with housing is oversupply.’
Ew, no sorry, not even close. The fundamental problem is AFFORDABILITY, you chucklehead. Yeah, I’ve got lots of houses to choose from in Los Angeles, big deal. I can’t AFFORD any of them on my 80K annual salary!
“Ew, no sorry, not even close. The fundamental problem is AFFORDABILITY, you chucklehead. Yeah, I’ve got lots of houses to choose from in Los Angeles, big deal. I can’t AFFORD any of them on my 80K annual salary!”
Exactly. I wonder how many people on this board make good incomes but are honest enough about their finances to know they cannot afford these insane prices. And given the tsunami of foreclosures, apparently very few homeowners can either.
It’s a candy mint! No, it’s a breath mint!
Unaffordability and oversupply are really the same thing. If people can afford to buy at current prices, there will be no oversupply. Oversupply happens when the price is above the long-run clearing level and more housing is built than people can afford to buy.
I agree of course, it’s just that he should have mentioned they go hand-in-hand. One gets the impression instead from the article that all of these perfectly affordable homes are just wistfully waiting for a good ol’ lower-middle-class buyer.
Raising my hand here. I’ve had people tell me what I can afford and I just laugh. They must not do math the same way that I do it.
In the meantime, I rent, and my down payment goes up substantially every month.
In my mind appreciation rates in excess of 5% was the “Housing crisis” and the feds should have addressed such crisis years ago. Prices returning to normal is a much needed correction.
Greenspan writes “‘I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk,’ Mr. Greenspan wrote in his recent memoir. ‘But I believed then, as now, that the benefits of broadened home ownership are worth the risk.’”
I still see no benefit of having someone that can’t pay their bills buy a home they can’t afford. No one can be this dense. With such ignorance or compulsion to lie (you decide for yourself), he shouldnt have even been allowed to mop the floors in his prior office. Why would anyone buy his book? It’s as tainted as OJ’s.
Amen, Tim!!!
“The subprime meltdown made front-page news in June, when Bear Stearns Cos. disclosed that two of its hedge funds were collapsing because they were stuffed with subprime collateral. During the next two months, Wall Street firms were quietly peddling mortgage-backed securities to the states.”
“And the states, eager for higher returns, were buying them.”
“Joseph Mason, a former U.S. Treasury official and now a finance professor at Drexel University, says Wall Street had few takers for its subprime-tainted debt. ‘When they couldn’t sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,’ he says.”
The more I read and learn the more I am convinced that there were/are top players on Wall Street that orchestrated this in a very calculated way. Many played along, willingly and/or unknowingly, but there really was a few that moved the main pieces on the chess board in one of the greatest financial con games of all times.
‘When they couldn’t sell it to more-sophisticated investors, they found less-sophisticated investors like local government investment pools,’
This downward Darwinian spiral resonates with what happened on the retail lending side. When lenders could no longer make loans to credit-worthy borrowers, they found less-credit-worthy borrowers like those with no verifiable income and/or a bad credit history, and who either had no clue or did not care that they were using loans they could never hope to repay to buy homes they could not afford.
And that’s why those companies should be killed off. They’ve gotten away with it for too long.
When Alan Greenspan dies and is buried, a proper headstone would be a urinal, for all the people who will be coming by to pi$$ on his grave.
Bill:
You made my holiday season! Nothing would be more fitting for that wrinkled sack of $hit!
HA!
My hubby couldn’t understand for years why I would screech loudly and incoherently when his (Greenpuke) name would reach my ears. Uh, he gets it now.
Leigh
…………in the meantime, he is living quite fat off the backs of hard-working Americans whose lives he robbed. Him and all his buddies are jet-setting around the world while we pay for the party.
I suggest we also put a Menorah on the tombstone and will the candlesticks with bottle-rockets. Every time you flush, a rocket will launch to announce to the world a celebration of his passing.
calm down, diogenes — your SWASTIKA is pulsating.
“Today, relative to 1913 when the FED was started (along with the ADL[the anti-defamation league])…”
“I suggest we also put a Menorah on the tombstone …”
Dang, that’s funnier than my thought, re Greenspan:
“Can a talking head be declared mentally incompetent?”
He also needs to have a vacuum cleaner named after him ( like Hoover).
“Fed officials are expected to demand that lenders document a person’s income and ability to repay the loan.”
The guys at New Century are shaking in their sand-filled crocs….
It is such a farce. We got to get tough with these (bankrupt) subprime lenders (pounds table). We got to get credibility back into the system.
These guys were not asleep at the switch. They couldn’t even find the switch.
They broke the switch.
Broke is such a strong word. They just disconnected a wire because otherwise the idiot light kept coming on. They were going to hook it back up as soon as they figured out where the false alarm was coming from. In the meantime, who wants to drive around with a red light flashing in their face all the time?
“What Stipanovich hadn’t told his boss, Florida Chief Financial Officer Alex Sink, was that Lehman Brothers was the same firm that had sold the state fund $842 million of mortgage- backed debt in July and August.”
Dear Sink,
I took on more debt and were sunk.
Sincerely,
Stip’
Sink sent this message back to his HQ after he let loose his torpedos at the SS Florida:
“Sink sighted Stip, Sink sank same.”
http://www.lonesentry.com/gi_stories_booklets/66thinfantry/index.html
Flying over Lorient in mid-March, Lt. Kenneth W. Sink, Berrien Springs, Mich., an artillery observer, spotted an enemy coastal freighter pulling into port. He waited in his Piper Cub until the 5000-ton ship came within range, then called for fire. Five minutes later he radioed: “The ship is no longer visible.” Paraphrasing a famous report, Lt. Sink’s battalion commander reported to higher headquarters: “Sink sighted ship; Sink sank same.” Within a short time, 13 German freighters that had been bringing supplies to the besieged garrison were sunk in the harbor.
cool story…
This Stipi’ is more like Ren.
“‘Unless the government is going to establish land banks to prevent continued house price deflation, it really is questionable as to whether this ‘Hope Now’ policy is really going to stop a ‘Foreclosure Later’ environment,’ said David Rosenberg, Merrill Lynch’s chief North American economist.”
Pardon me for asking, but how would propping up housing prices on a permanently and unaffordably high plateau fix anything?
Stopping defaults and foreclosures would on a temporary basis (i) relieve some of the credit and liquidity crisis wall street is currently experiencing, and (ii) push more of the problem on the next administration. The problem is, however, that even if ppl could afford today’s inflated prices. Too many ppl realize not that prices don’t only go up. Thus, you might be able to keep ppl in, but who is gonna buy at these levels to let them out. Also, if they can prices steady for 15 years, inflation “might” catch up.
That said, I personally believe in letting the market correct itself. Surgery is needed to allow it to be healthy again.
The correction is accelerating in SD. By my own estimate, the SFR median list price (on ziprealty.com) stood at $541,826 on 10/22/07; as of today (12/18/07) it stands at $509,121. That’s a $32,705 haircut in less than two month’s time. The drop in median SFR list price occurred at a 32 percent annualized rate.
Luckily the SD U-T writers have quoted experts who believe the median SFR sale price will only decline a further 5 percent from its recent level of $500,000 before bottoming out next year.
From what I can tell, pretty much all areas, even those “immune” areas in the Midwest, finally went negative YOY. Good news for the prudent. NAR is currently checking weather statistics, etc., to blame. Interesting side note, last year NAR said numbers shot up in December so they could report a positive year didn’t they? Soundn’t great at the time, but more likely to make the 2007 YOY numbers worse. Oh what tangled webs . . .
In your opinion, what is the most accurate index? I believe NAR uses averages for all homes sold which allows them to claim that shifts are due to high or low end homes not moving, as opposed to actual declines. Is there an index that really tries to compare apples to apples, as opposed to lumping all housing together? Also with all the remodeling, and the proliferation of the McMansion, how much of the increase was due to improvements and construction of more expensive housing in a particular area as opposed to just overall increases? Maybe you can never know. Just wondering if anyone has any ideas regarding the most reliable sources.
“In your opinion, what is the most accurate index?”
Personal calculations based on local market information and first principles. I generally distrust calculations produced by REIC players with vested interests.
I like to look at the Case-Schiller index. They actually track paired sales (home to home), and use the collection of data to come up with a number. Much more accurate than most other measures I’ve seen.
I assume this is an attempt to fix the extent of their losses.
Govt. buys the REOs and sits on them. All the extra cash going into the system triggers inflation. Inflation brings up wages. Eventually, the govt. sells the houses for the same price it bought them for.
There is a better solution! $2 trilion in hand-outs to U.S. citizens. Paid as % of IRS reported income. People that already cashed in on the bubble are excluded. People making more than median income lose $.25 for every dollar over median income. If you have more than 1 year’s income in debt, the money goes to pay down your debt. If you have less than 1 year’s income, the money goes directly to you.
At the same time, we alter the bankruptcy and lending laws to bring debt back under control. I’m thinking a return to usuary laws making max interest rate be no more than 3x core inflation.
People underwater will more likely be able to refi. People with high debt/income will be better able to refi. People that are renting will have cash for down payment. People with cash in the bank are slightly compensated for the inflation we will trigger. All the extra cash will trigger inflation and wage growth, further helping those in debt to their eyeballs.
The key to getting ANY bailout passed is that it helps the “little guy” not just the big bankers on Wall Street! It has to help the idiots that overbought AND the smart people that didn’t. The rich are also helped, since all the cash put in the hands of the little guys, ends up right back in the hands of the rich.
“Inflation brings up wages.”
No it won’t. Wages go up - those jobs are off-shored to China and/or filled with imported slave wage labor.
You can’t have your cake and eat it too - time to pay the piper.
Bingo.
Wages will not now, nor ever, rise substantionally in the future until the rest of the world lives like we do (unlikely) or until we’re reduced to a 3rd world nation with sweatshop (more likely). Hence, efforts to inflate away the problem will fail. Oh, they’ll try to do it, and may end up destroying everything in the process, but they won’t achieve their goal.
Wow. They were giving loans to people with 450 FICO scores. How much of a loser do you have to be to get it down that low?
450. Indeed. I wasn’t even aware you could have a score that low. This is going to be the worst financial disaster since 1929. So much excess inventory and marginal buyers remain to be wrung out of the system
Probably “no-doc” neg-am mortgages on top of it!
more GOV LOV help
the 13-year-old Home Ownership Equity and Protection Act.’
time for more
“If the government really wants to stop home foreclosures from surging, here’s a simple plan: Boost Americans’ income…
I guess the “consumer” has lost his resiliency. Funny how they turn back into “Americans” when that happens!
Boost incomes? Hah!
Throughout this past year “productivity” gains have been touted as a primary reason all is right in the world by the PTB. No way real wages are going up in this cycle.
Increased productivity & lower wages WRT that increase means more money for the corporations! Yay!!1
You guys are missing the big picture here. The news that the fed is going to make lenders document peoples income is the nail in the coffin for prices.
It is the last missing piece of the puzzle to the bottom. Seems the fed doesnt realize that this isnt just about sub prime its about affordability. By allowing these subprime mortgages and easy credit it has skewed the true worth of homes all across america. Now we will see places that are extremely overvalued fall considerably.
Agreed. That’s what I posted in the previous thread. Wonder if the FED even realizes the possible unintended consequences protecting new borrowers will have on current borrowers and their home values.
More regulation isn’t the answer anyway, you just can’t outlaw stupidity.
No, but you can take reasonable precautions to protect people from crooks.
Or do you prefer to let your children play with lead painted toys? What, you didn’t perform a mass spectograph on the paint before you gave it to them? What sort of a responsible parent are you? Don’t you remember your basic chemistry lessons from high school? Sheesh, it’s people like you that let these Chinese toy manufacturers stay in business by not taking appropriate precautions!
Now Warlock, let’s not jump to obnoxious conclusions.
Please notice the word “more” in the sentence, “More regulation isn’t the answer…”.
Lead paint, which you as you pointed out can’t see with the naked eye, poisoning a child is one thing… and a contractual agreement between two consenting adults of sound mind is quite another. Don’t need a mass spectograph to know the terms of a loan… it’s right there in the Truth in Lending statement (the result of existing Fed regulation).
I’ve done lending on, of all things, very old mobile homes. There’s just no mortgage market for anything built before 1978 when the HUD codes came into effect. Something like what the FED is now proposing could make it a crime for me to loan money to folks that otherwise can’t find financing. That’s where I’m coming from…
Too bad they don’t require proof of cash-money down payment; no 80-20 nonsense. That would kill housing for everybody, except for a few hundred fence-sitter, like us.
Demand? WTF is that?
Note: “demand” economically doesnt equal desire, it means ability to qualify.
It only means something if the only acceptable documentation is previous years tax return as received from IRS.
Don’t forget the DTI ratios. Documenting income is a good start, but if they’re willing to go 40% DTI, it’s still not enough.
I think we need MAX 28%/33% DTI ratios. Those ratios were used when people actually had more job stability, wage increses, health benefits and DB pension plans, BTW. Truth is, the DTI should be no more than 25%/30%, at most, IMO.
Wow! The Financial Gangsters Of Wall Street are REALLY busy today. Skimming like there’s no tomorrow. At this rate they are going to cover their losses, from the mortgage casinos they were running, really quickly. I suppose if you have lost the kind of money they have, robbing a liquor store isn’t enough - you have to concentrate on the armored vehicles where the big bucks are stashed.
So why should the FBs worry about anything if they can’t afford it, HELOC to the hilt and then send in the keys, one crook to another. I would if I could, why people should act responsible and honorable when they are being preyed upon is pretty sorry logic. How about do unto others before they do it to you. If these underwater folks just went for the illusion that was sold to them by these fraudsters and bankers, then why should they care about housing and financial house of cards that was built by the upper echelon of crooks, it isn’t like they are going to get their legs broken. The more this happens the quicker it will be over with, and the harder it will hit these crooks. Just my thoughts anyway. I rent.
it isn’t like they are going to get their legs broken.
Yes, in fact us honest taxpayers with no debt and a savings account are getting our legs broken by Congress.
Even though I personally obey the law and pay my taxes, I have sympathy for productive businessmen who have opted to move to the underground/offshore economy.
Atrociti went with a pump pimp?
“‘I was working every day, all day, from dusk to dusk,’ says Sadek, who pumped gas and sold cars before creating Quick Loan Funding. Sadek, now 39, got into the lending business in 2002. Staked by banks including Citigroup Inc., Sadek and others in his industry tripled the subprime market in five years.”
BTW, if anyone is thinking Gramlich was some great guy, think again. He never mentioned to the public what he knew. I had some posts on him in early 2005 where he denounced the idea of a housing bubble in a very public way and said it wasn’t the Feds ‘business’ to pop asset bubbles.
Ben, you really need a wall of shame to post all these quotes. People need to know.
Can brokers out there that have analyized the the FHA mods yet? I’ve seen a few people mention raising the fico cap to 680 but haven’t seen it confirmed in langauge.
not a solution. downpayments, qualify ratios, sound appraisals are the right criteria. if someone plunks down 30-40% of their own money then less stringent requirements but credit score alone does not solve the solution. I remember one time a rep from an insurance company told me they were going to credit score pricing. She told me that they were basing premiums on it. Being in the banking industry i told her that was the most preposterous thing they could do. She told me that low scoring people dont pay the premium. so cancel them i told her…what a crock.
The fundamental problem with housing is oversupply.
This guy’s talkin’ out of his you-know-what.
“‘At best, it may stop some of the hemorrhaging of the housing market, but it doesn’t necessarily turn things around,’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. ‘The fundamental problem with housing is oversupply.’”
Well, welcome to the party, professor. Retsinas has been one of the worst REIC skunks for the last several years, cashing donations checks from various REIC entities to fund his “Joint Center.” He’s been one of the worst bubble deniers out there. Now he seems to have gotten religion.
What happened Nick — did your checks from the REIC start bouncing?
– Judge Smales
“You’ll get nothing and like it”
OMFG:
One in Five Expect to Borrow to Heat Homes This Winter
One should not burn the legs of the chair on which he sits to heat the room.
- L. von Mises (paraphrased) -
Not me! I have an excess of solar energy from my rooftop PV.
We lower the themostat for the gas forced-air heater at night to 59, and heat the bedroom with a small electric basebaord heater.
I am wearing a sweat shirt over my turtleneck as I type these words. Local heat sources are the most efficient.
I turn the heat off at night and snuggle into my heated waterbed, that and the electric blanket are as LOCAL as you can get.
I should also add that living in a huge McMansion with high ceilings, etc, really adds to your heating and cooling bill!
Maybe the government will shower them with MORE money so they can pay the mortgage on their ridiculous house AND their heating bill.
Wait! They’re already doing this!
http://www.acf.hhs.gov/programs/liheap/brochure.html
Yeah what’s with the “cathedral ceilings” thing? I always thought that was impractical. And my home is NOT a church!
Yes, it is in a sick sort of way. It a church to self, a temple to greed and overconsumption. A false idol of sorts, so it makes perfect sense that the American Consumer would want to make his or her McMansion a temple to greed.
I guess its not too big of a surprise. How many borrow for other short-term needs, i.e. to gas up the car, eat out or buy groceries?
Now granite, stainless and boob jobs . . . that’s a different story!
not to change the subject..but i think every banker/broker/real estate saleperson should get a copy of “It’s a Wonderfull Life” ….that darn joujou and her petals…brings a tear to my eye every time.
http://tinyurl.com/2dnj53
“It suggests that once a home’s value falls below the amount owed on a mortgage, borrowers tend to then view the default option as being ‘in the money’ and exercise that option.”
I don’t think so. I think if people have a fixed rate that they can afford, and no HELOC, and put 20% down, that they’d stay in the house regardless of what some appraiser or web site claims their house is worth.
The real problem here is people buying homes that they simply couldn’t afford who were waiting for something *magic* to happen!
(Of course, if you follow the logic through it still doesn’t make sense. Your typical story:
1. Buy a house for 417K that you can’t afford, except as a teaser rate. House “goes up” (i.e., some wacky appraiser reports and a bank agrees) to 550K.
2. A sensible person at this point would try to get a conventional fixed mortgage now that he has “20% equity”. Of course this rarely happened
3. Most people, with $$$ in their eyes, take out a HELOC and get MORE in debt! Or they refinance and take cash out (same thing, really)
4. No matter what happens to house prices–this person is EVENTUALLY screwed. Of course, if prices keep going up then they can keep refinancing and pulling out cash, but EVENTUALLY even with rising prices the debt load will get too high!
People aren’t foreclosing because the prices have fallen. People are foreclosing BECAUSE THEY CAN’T AFFORD TO PAY THEIR MONTHLY DEBT LOAD and, in fact, never could.
(So what does the Government do? It showers them with tax breaks at MY expense.)
I think if people have a fixed rate that they can afford, and no HELOC, and put 20% down, that they’d stay in the house regardless of what some appraiser or web site claims their house is worth.
What should be done, is to conduct an interview and ask questions in a low-key manner to determine what the prospective buyer is looking to do in the near future. If the buyer’s answers leave the distinct impression that they’re looking to ride out the current downturn (they probably hope it’ll be a short one) and then attempt to sell the home when prices start rising again, well then,…
Before you guys blame the buyers consider how the conversation probably went with the loan officer…
“Hi John and Sue. I’m Ben. Ben Dover. Have a seat and let’s see about getting you that dream home. Alright, I looked at your numbers and I have some good news and some bad news. The bad news first. I’m not going to be able to get you into a 30 year fixed, based on the data you’ve provided. But don’t worry. I know you want this house and I am going to do everything I can to make sure you get it.”
John and Sue breath a sigh of relief. They really have their hearts set on this home. Besides, everything they have read the last 5 years is about how hot real estate is.
“The good news is we have a lot of really good loan programs, and I am sure we can find one that will work for you. For example, we have a very popular program called an Option ARM. This program works as follows. You have a minimum payment, much like you do on your 5 credit cards. You choose the payment you want to make. Hey, had a big car repair this month? No problem! Make the minimum payment and then catch up next month. The great news is they have a real lower start interest rate, so you will qualify for this loan. And before the full rate kicks in you’ll just refinance. Everyone does that. And this market is smoking hot! In fact, the experts all expect the next year to be even better! Great story. I got a friend that bought last year. He bought the house in May. He put literally $5 grand into it, and sold it for $200k profit. The market is unbelievable. And all the experts say it will continue. Real estate only goes up, and they aren’t making anymore land you know.”
Then John asks…”I’m a little concerned about an adjustable though. How high can the payments go? My parents always used fixed rate mortgages.”
“I’m glad you asked John. I can see why you married him Sue! He doesn’t miss a thing! Okay how high can they go? Don’t worry, the rate can only rise by 2% a year, and it will adjust every 6 months. And it doesn’t even start to adjust for 2 years. And again, by then you will have built some equity and refinanced it anyway. Or flipped it for a bundle like my friend did! Even Alan Greenspan, the Fed chairman recommends you use adjustable rate loans. Fixed rate loans only make sense if you are going to stay in a home a long time, and most people sell long before it makes sense. Actually, almost nobody uses them anymore. Okay, let me get the paperwork ready and we will get you that dream house. I told you not to worry! I’ll be right back.”
Ben leaves the room to get the printouts and make that giant CHA CHING gesture he loves to make right about this time!
Meanwhile in the other room…
Sue says “Honey, I am so excited. I love the new house. And it was a lot easier than I thought it would be.” They both smile, and then hug each other. Then they call their family and friends and let them all know the good news.
And this is how the story played out for thousands of families across this country. Were there warning signs? Sure. But a good salesman can sell ice cubes to an Eskimo and the entire rat-infested mortgage complex was ganging up on these people. So was the MSM, Greenspan, the NAR, etc. etc.
They never had a chance.
“Okay how high can they go? Don’t worry, the rate can only rise by 2% a year”
it’s been pointed out here before, but how many of these folks thought that meant their monthly payment would adjust by 2%, not the whole loan? Tens of thousands were probably snared on just that bit of info.
Yep. That little piece of deception, presented this way, suckered a lot of people. Some caught it, but not many.
It all sounds so legit, doesn’t it?
Joe ,you hit it on the nail….The transaction went a little different for the non-owner speculator or the flipper transactions because they could of cared less about the loan and it was more of a selling of the leverage aspect of the 100% loan . But, on regular transactions when the borrower saw the income hyped up ,they had the option of saying no ,but they didn’t ,and I don’t call that being a victim (unless the agent changed the income after the fact ).
The strawberry pickers and the cab drivers buying 600k to 800K homes is a act of fraud on all parties involved in the transactions .Some of these people were paid money to buy these properties ,and they were drummed up by the realtors and investment swindlers ,and sellers in a bind ,and builders ,when the down-turn hit . The double-escrowing game was widespread and the idea was to up the price and change a new borrower before the escrow closed .
The transaction you described Joe was your more normal owner occupied buyer that got talked in a toxic mortgage and assured that they could refinance out of the loan . Many of the transactions were just out-right fraud and more like”‘Hey ,want to earn 10k to 100k up front , and get in on real estate ?” Or ,” Hey ,I have a deal where we will pay you 10K to go on this loan ,but don’t worry the real owner will be renting it until they can free up funds to buy the house from you “,and set ups like that .
But ,in general your right that these toxic loans were sold as great investment loans that could be refinanced after real estate went up of course ,and I agree that the mortgage agents confused the borrowers about the payment increases . The realtors and lenders agents were scum and they were all selling the make money by leverage on toxic loans . But ,the borrowers were seeing dollar signs also or they wanted what they wanted and had to much trust in the sales pitches from commissioned sales people, that could of cared less about their welfare .
Also, some of these loans were faulty in that the borrowers were qualified on low teaser rates in which unless real estate went up or a new teaser refinance was available ,the borrower would not be able to afford the loan when it adjusted . Now ,a loan like that is a flawed loan in that it is also dependent on the borrower getting pay raises . The industry should not of made loans like that because there should of been a disclaimer that the loan was no better that a loan due and payable in 2 years, because the borrower would no longer qualify for the loan ,and it should of been part of the disclosure . As I see it ,this is the weak link bad faith loan making aspect of a lot of these loans made during the boom . At the very least ,these loan should of been rated the highest risk paper under the sun . There should of also been a disclosure that stated that refinancing might not be available when the borrowers payments are adjusted ,(rather than the realtors and loan agents assuring these people that they could refinance into a new teaser rate .
That being said ,apparently during the mania ,a lot of people didn’t care what loan they went on , they just wanted to get in on a low down loan and get in on the appreciation game ,which was the way real estate was sold by the industry during that time . Borrowers went nuts and so did the industry .
You people here don’t really believe that those people who bought those 800k houses making 40k a year didn’t get some major cash back do you ? A lot of these people that you think are greater fools are really cash back fraud transactions that became widespread in early 2006.
Joe,
That was VERY well done & exactly what I was hearing (used to call lenders from time to time, to see what kind of pitch they were using — tried to gauge the credit market that way).
Wiz,
No doubt there was a TON of fraud & we can’t forget the flippers who didn’t commit fraud. However, I think Joe’s story is very on-target in a majority of cases.
Lenders benefitted from the “you can always refi later” game because they made money each and every time these FB schmucks came back to get a new loan (every two years or less, guaranted income!).
The lenders were lining their own pockets by convincing morons that it was “normal” to refinance a mortgage over and over again. These loans were specifically designed to FORCE borrowers into refinancing repeatedly. THAT’S why they didn’t like us 30-year FRM types. They made no money on us compared to the FB jerks.
“I think if people have a fixed rate that they can afford, and no HELOC, and put 20% down, that they’d stay in the house regardless of what some appraiser or web site claims their house is worth.”
Getting back to HARM & BottomFisher’s comments earlier on in this thread: no-recourse is the *only* way to go. “People” will be stupid again and again, but you can believe that the banks won’t make a loan if no one will touch it on the secondary market.
I don’t “get” the wishes for a return to debtors prison, etc. The corporate socialists have manipulated us into this sorry state, and now they are looking to more consumer “friendly” legislation to create a soft prison for a huge crop of hopeless homedebtors. That’s the thin edge of the wedge that will keep us good and mired in what is politely called “stagflation”, with artificial price props standing in ridiculous and increasingly out-of-balance proportion to falling (in real terms) wages. In the end, pretty much everybody gets to owe their soul to the company store - and why not? The US is hugely underwater on its debt, so let’s make sure individual citizenry is, as well.
A “special hell” to contemplate for xmas, courtesy of your friendly housing industry lobbyists: Home prices back in “sync” with rents, only both are completely unaffordable and artificially propped up. Wouldn’t that be a kicker, and - the best part - it would be sold to the American public as both “help to” and “accountability from” FBers.
I certainly don’t want debtor’s prisons. And I think “no recourse” loans are fair enough–if banks return to traditional lending standards AND the government stops propping up house prices (which includes Mortgage Interest deduction.)
But let’s be clear here:
It’s NOT “Evil Banks vs Poor, Stupid Borrowers”
It’s
[ Evil banks *AND* Poor, Stupid Borrowers] vs [ The 5% of the US population that pays most of the taxes and actually saves money]
“I should also add that living in a huge McMansion with high ceilings, etc, really adds to your heating and cooling bill!”
Yeah, but that’s the American way, big homes, big vehicles, big appetites, big stomachs, big egos, and big debt. There is something small though - savings.
http://www.dqnews.com/RRSCA1207.shtm
“”Southland prices fall again; sales perk up”
La Jolla,CA—-Southern California home sales bucked the seasonal norm in November and rose slightly over October, thanks to bargain shopping and an uptick in new-home sales. But it remained a chilly market by historical standards: Sales were the slowest for a November in at least 20 years and the median sale price posted a record 10.3 percent year-over-year decline, a real estate information service reported. ”
sales fell 47% from last year, annd the headline reports sales increasing. gotta love real estate headlines.
It’s not just real estate headlines. Just about everything you read or watch on TV is BS one way or another.
It’s called Yellow Journalism for a reason.
I read this and thought, “Thank God, they finally get it!”
“Data from Countrywide Financial Corp., the nation’s largest mortgage lender, backs up this point. The Countrywide data provides stark evidence that this plan will serve at best as a Band-Aid on a gaping wound, as does a new Federal Reserve Bank of San Francisco study that showed changes in home prices are ‘far and away the best single predictor’ of subprime delinquencies.”
Then, the next paragraph:
“It suggests that once a home’s value falls below the amount owed on a mortgage, borrowers tend to then view the default option as being ‘in the money’ and exercise that option.”
IMHO, home prices changes are indeed an warning of impending foreclosures, but not just downward changes.
It would seem even more logical to conclude that home price changes that move far higher and faster than wage increases are the #1 indication that something is wrong.
PRICE is the problem, not inventory, not lack of funding (qualified buyers will have no problem borrowing money, even in this market), not psychology, not the media, etc.