The Exception Became The Rule
Some housing bubble news from Wall Street and Washington. Associated Press, “Sovereign Bancorp Inc. said Monday it expects to take about $1.76 billion in charges in the fourth quarter related to a range of issues, from goodwill impairments to rising loan-loss provisions. The Philadelphia-based bank will record a non-cash impairment charge of $180 million on the ownership of Fannie Mae and Freddie Mac preferred stock.”
“The impairment, loss provisions and losses are all tied to the continued deterioration of the housing market and rising defaults among home loans.”
“M&T Bank Corp. said Monday fourth-quarter earnings plummeted…due to collateralized debt obligation losses, Visa litigation and provisions for credit losses.”
“M&T Bank took a $127 million charge in the fourth quarter as it cut the value of its collateralized debt obligation holdings to $4.4 million.”
“M&T Bank also ramped up its loss reserves to cover rising mortgage defaults. M&T Bank set aside $101 million in the fourth quarter for losses. Net charge-offs, loans written off as not being repaid, were $53 million in the quarter.”
“‘While it is likely that weakness in this sector will continue for some time, we believe that our exposure to residential real estate has been appropriately provided for,’ Rene F. Jones, M&T Bank’s chief financial officer, said in a statement.”
“Friedman Billings Ramsey Group Inc.’s mortgage lending arm, First NLC Financial Services LLC, will file for bankruptcy protection and plans to liquidate because demand among investors for home loans has vanished, the investment bank said Monday.”
“First NLC Financial Services LLC, which FBR bought in February 2005 for $100.8 million, plans to file for Chapter 11 bankruptcy protection.”
“FNLC’s business model was to issue ’subprime’ mortgages, or home loans to people with spotty credit histories, and sell the loans to banks and institutional investors.”
From Bloomberg. “UBS AG, Europe’s biggest bank by assets, is offering to sell notes at yield premiums seven times higher than on securities issued in May, at the beginning of the subprime mortgage market collapse.”
“Investors are charging the most in at least nine years to lend to banks and financial companies because of concern that writedowns related to subprime mortgage losses will crimp profits through 2008, Merrill Lynch & Co. indexes show.”
The LA Times. “The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans. Numbers from industry trackers suggest that these borrowers…are starting to create a second tide of defaults for lenders swamped by the meltdown in sub-prime loans made to people with bad credit or overstretched finances.”
“‘This is not a sub-prime crisis. This is a stated income crisis,’ said Robert Simpson, CEO of Investors Mortgage Asset Recovery Co. in Irvine, which works with lenders, insurers and investors to recover losses related to mortgage fraud.”
“The more recent loans appear to be faring the worst, reaffirming the conclusion that lending standards had become overly lax throughout the mortgage industry in the middle of this decade, as competition for fewer good loans intensified amid skyrocketing home prices.”
“‘It is astonishing how fast the credit deterioration has occurred,’ said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. ‘It took me and everybody else by surprise.’”
“In California, the 60-day delinquency figure for securitized 2005 option ARMs was 9.5%, compared with only 2.1% of the option ARMs from 2003.”
“The Mortgage Asset Research Institute, which investigates lending fraud, said one of its customers checked 100 stated-income loans against tax documents and found that nine in 10 of them overstated income by at least 5%.”
“‘More disturbingly, almost 60% of the stated amounts were exaggerated by more than 50%,’ the institute reported, saying the mortgages clearly deserve their ‘liar’s loan’ handle.”
“‘They were extremely popular in 2004, 2005 and 2006, and some people were telling borrowers and investors they were safe,’ said Steven Krystofiak, president of the Mortgage Brokers Assn. for Responsible Lending, who has testified to the Federal Reserve about high-risk loans.”
“Authorities in New York and Connecticut are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities that were sold to investors, Connecticut’s Attorney General said Saturday.”
“The investigations, first reported Saturday by The New York Times, center around ‘no-doc’ or ‘exception’ loans, that did not even meet subprime standards, Attorney General Richard Blumenthal said.”
“‘The loans were made to people who did not have any documents to verify their income or other verification for key requirements normally applied to mortgage borrowers,’ he said. ‘Many of the lenders made large amounts of loans, so that the exception swallowed the rule, or became the rule.’”
“The loans were sold by subprime lenders to Wall Street firms that bundled them with other, less risky, loans into securities.”
“Investigators want to find out whether the banks properly disclosed the high risk of default on those loans when selling those securities to investors in Connecticut and elsewhere, Mr. Blumenthal said.”
“‘The investment banks may have used very broad, boilerplate disclaimer language that effectively failed to disclose fully and fairly all the information,’ he said.”
“Blumenthal declined to say which firms were under investigation, but said his office had issued over 30 subpoenas.”
“‘These practices involving trillions of dollars in securities sold to ordinary investors go to the core of our financial system’s integrity and efficiency,’ Blumenthal said. ‘We regard this investigation as a priority.’”
“As presidential candidates and government policymakers rush to offer prescriptions for the deteriorating U.S. economy, some are beginning to worry about a disturbing possibility: This may not be your traditional downturn.”
“And the tools that helped restore prosperity in the past may prove less effective this time around.”
“In the current downturn, something more unsettling than a traditional swing in the business cycle appears to be at work: The United States has become increasingly prone to financial bubbles — huge, seemingly irreversible rises in the value of one sort of asset or another, followed by sudden and largely unforeseen plunges.”
“After tentatively suggesting in 1996 that stock prices were exhibiting ‘irrational exuberance,’ former Federal Reserve Chairman Alan Greenspan opposed any effort to tamp down the market, saying that productivity was growing so rapidly that many of the old reasons for concern no longer applied.”
“But Greenspan’s theory has become increasingly hard to maintain in the wake of what has happened in housing.”
“‘We are more prone to bubbles than we used to be,’ said John H. Makin, a former senior Treasury official with several Republican administrations.”
“‘If I were the Fed, I’d think twice about continuing to say we can’t identify bubbles,’ said Makin. Given the threat now posed by sagging house prices, the sub-prime mess and a more general financial constriction, ‘we’d better work harder learning how to identify bubbles and preempt them.’”
The New York Times. “What do banks call it when a troubled borrower abandons her home, sending them the keys? ‘Jingle mail.’”
“And what do they call it when an irate borrower abandons his home, yanking electrical outlets from walls, leaving faucets running and otherwise trashing it on the way out? ‘Taking the inside of the house with you.’”
“There’s nothing like black humor to define — however sadly and starkly — the blows that keep on coming in this mortgage debacle. But make no mistake, lenders are only beginning to learn how to manage the onslaught of jingle mail and houses turned inside out.”
“For example, while it is widely known that a wave of subprime adjustable-rate mortgages, or A.R.M.’s, will reset this summer…an even more troublesome mess involving pay-option adjustable-rate loans lies well beyond that.”
“Only when the loan balloons to 15 percent larger than its original size, a nifty development that results from a multisyllabic quagmire known as ‘negative amortization,’ do lenders demand that borrowers pay down principal. In many cases, this will cause borrowers’ monthly payments to double, according to analysts.”
“When do analysts say borrowers will have to start coughing up this extra cash? In 2009, or later.”
“‘As difficult as the rescue prospects are for subprime borrowers, they are even worse for most pay-option A.R.M. borrowers,’ said Michael D. Calhoun, president of a consumer advocacy group. ‘Three-quarters of pay-option borrowers are making the minimum payment based on 2 to 3 percent interest typically. The payment shock is so huge that a refinance is virtually impossible.’”
“It is possible to get a feel for what is happening on the ground from a new survey of 2,400 real estate agentss. The survey taps into the outlook of people who see troubled borrowers firsthand, when they try to sell their homes before foreclosure occurs.”
“Agents participating in the survey confirmed what many borrowers say: that loan servicers are downright unresponsive. Thomas Popick, principal at the designer of the survey, said its findings show that loan servicers are averse to short sales, even though they may be the best solution for many borrowers, lenders and the overall real estate market.”
“‘In many cases, loan modifications — no matter how generous the terms — only delay foreclosures on properties where the mortgage balance far exceeds the current property value,’ he said. Homeowners who try instead to sell ‘know they cannot afford the property and are trying to do the responsible thing — sell the property to someone else who can afford it.’”
“‘The attitude of the folks handling these situations with homeowners creates an adversarial relationship and makes the homeowners less able to understand and work through the situation,’ one survey respondent said. ‘Most foreclosure properties when listed back on the market with the corporate seller look like they have been through a war — and they often have.’”
The Sun Herald. “Beginning today, the National Association of Realtors(R) is reaching out to consumers with the facts about homeownership and the value of real estate as a long-term investment.”
“Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values nearly double every 10 years, according to historical data from NAR’s existing-home sales series.”
“‘Nobody buys a home in the national real estate market,’ said NAR President Dick Gaylord, a broker in Long Beach, Calif. ‘All real estate markets are local, and buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area. It’s also advisable to look beyond the immediate horizon.’”
I read that big write-off are going to pick back up this week after slowing down around the holifdays. Should be interesting.
BTW, I could have sworn that this LA Times bubble article had some quotes by Thornberg that are no longer there. Anyone have those?
Also, what’s up with the R after Realtor(R)?
‘tards
The (R) device is an alternative to the R-in-a-circle “registered trademark” symbol — it gets used by newspapers, especially, as their formatting requirements typically don’t permit use of the superscript R-in-a-circle symbol.
That (R)? It means ‘REtard’. That way you know to speak patiently and slowly to the (R) afflicted person, as if you couldn’t guess from the slobber on their chin and the vacant, yet somehow sly gaze. I think it’s a great idea. In fact, I think it’d be a good thing to tattoo that (R) on their foreheads, for easy identification.
“I read that big write-off(s) are going to pick back up this week”
Makes sense . . . the banks took as much as they could get by with (limit negative shareholder and market sentiment) late last year and now will write down some more in 2008 thinking they can make it up in the current fiscal year.
It’s called cooking the books and all banks get creative when timing the recognition of losses. We may see this for several more quarters/years as losses continue to pile up. The best indicator of additional RE writedowns is the amount of Non-Performing Assets and REO on the balance sheet. It can’t be hidden there forever.
That article was written “by the National Association of Realtors”. IOW, they just ran a PR release.
And supplementing it with radio adverts. I just heard one this morning encouraging people (read: fools) to buy a house because it’s a remarkably good investment, on that historically will “double every 10 years”. Oh yeah, right! Not in the NEXT ten years, you ‘tards.
6% - taxes - maintenance = 4% = annual inflation. So where is the deal ?
tax efficient leverage is the argument for
being able to buy 20%+ cheaper in 2 years is the argument against
Here you go Ben :
http://www.latimes.com/classified/realestate/printedition/
This is the article I spoke of yesterday.
Lions and tigers and bears, all right. To hear Christopher Thornberg of Los Angeles consulting firm Beacon Economics tell it, home sellers can expect the bad times to get worse, and to stick around for a while.
“There will be close to a 30% decline” from the peak, Thornberg said. “Prices will continue to go down in 2008. I think between 2009 and 2011, we will have what you call a ‘bleeding phenomenon’ where prices stay flat, which means they lose value in real terms.” Losing value in real terms occurs when appreciation fails to keep pace with inflation.
Thornberg’s advice for would-be sellers and those struggling to pay readjusted mortgages: Get out now.
http://www.latimes.com/classified/realestate/printedition/la-re-peak13jan13,1,5900892.story?ctrack=5&cset=true
Ben, the LA Times has run so many articles in the past two days I can see how you could mix them up.
“‘Nobody buys a home in the national real estate market,’ said NAR
President Dick Gaylord, a broker in Long Beach, Calif. ‘All real estate markets are local,…”
It is a funny coincidence that so very many decoupled local markets all around the planet are experiencing falling prices at the same time!
“…and buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area.”
Realtors(R) are generally clueless. If they had a clue, they would be hammering fence-sitting sellers into lowering their prices. Instead, they continually try to persuade nonexistent buyers to buy homes before prices go back up.
“It’s also advisable to look beyond the immediate horizon.’”
That’s what vultures are doing. Sad to say, this is not very good for real estate sales.
And if all real estate is local, why do these clowns say that real estate in Podunk, Nowhere is “undervaluled” compared to say, San Francisco, and that investors should grab it up as fast as possible?
“Beginning today, the National Association of Realtors(R) is reaching out to consumers with the facts about homeownership and the value of real estate as a long-term investment.”
Is this newspaper in the back pockets of the NAR? These aren’t facts, they’re propaganda. The NAR’s own statistics don’t go back very far, and virtually everything it’s said for the past three years has turned out to be absolutely wrong. Yet, the Press, relying heavily on real estate advertising, continues to portray the NAR as a voice of authority, instead of the Sylvia Browne equivalent that it is.
Is she channeling dead housing markets now?
“…the value of real estate as a long-term investment.”
I have a fact to share about the value of real estate as a long-term investment: It is more valuable if you buy low and sell high. That would mean don’t buy now, as prices are still dangerously close to their all-time trend-adjusted high.
NAR as a voice of authority, instead of the Sylvia Browne equivalent that it is.
Don’t insult Sylvia Browne by comparing her with the NAR!
I would LOVE to hear the response to this:
“…and buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area.”
from an honest Realtor in my area (Palm Beach county):
Well, the market is crashing hard and fast; if you think you can identify the bottom before the pro’s go ahead and buy, but I think you’ve got at least another 20% downside, and then probably half a decade of flat prices before we get back to a normal market. The only way I would buy today is if I was beaten senseless by a mob, and made to sign under the threat of death. Even then, death might be preferable.
We might not see a “normal market” in our lifetimes, if that means doubling every 10 years.
$corched Earth Policy
“And what do they call it when an irate borrower abandons his home, yanking electrical outlets from walls, leaving faucets running and otherwise trashing it on the way out? ‘Taking the inside of the house with you.’”
http://en.wikipedia.org/wiki/Scorched_earth
Lenders should be allowed to maintain a national database of borrowers who have trashed their houses pre-departure, to ensure they are permanently barred from getting new loans. There is no excuse for that kind of mindless vandalism.
Yup. I don’t undertand why Banks don’t press charges against these people. A few high profile go-to-jail cases, and the practice would be sharply diminished.
ooops, just saw the below discussion on this after I posted…
Realtor(R) is the trademark of the National Association of Realtors.
If you’re a Realtor(R) that means you aren’t just a realtor, you pay a fee and get a realtor magazine too
Whoa…
Make that a ®!!!
I work in publishing. Standard practice is not using the (R) if the trademarked name is part of editorial content. It looks like that newspaper just printed the NAR release word for word because NAR releases ALWAYS use the (R).
How do you do that in html anyway? I’ve been doing TM instead.
“‘Nobody buys a home in the national real estate market,’ said NAR President Dick Gaylord, a broker in Long Beach, Calif. ‘All real estate markets are local…’”
I know that is extremely cliche and makes everyone here want to puke - but I just wanted to say that this is analogous to dentist saying “Sure my anesthesia killed him - but just look at those teeth!”.
Ask not what you can do for the national market, ask what you can do for the local market…
“And what do they call it when an irate borrower abandons his home, yanking electrical outlets from walls, leaving faucets running and otherwise trashing it on the way out?”
I’m sorry, but anyone that does this should do jail time. Why take it out on the bank that gave you the noose? You hung yourself.
It is prosecutable, but unfortunately very hard to prove.
I’d've expected burning them down to be pretty common, but I haven’t heard a lot about that since the fires around Disneyland.
Very hard to prove? WTF!? Who the hell else could have done it? I thought the real problem was the indigent borrowers don’t have any money to be sued for.
Once a house is abandoned, anyone could do it. Keep in mind that LA has a problem with thieves stealing the wire from streetlights. Some neighborhoods have been without streetlights for an extended period because the repair crews cannot keep up with the thieves.
So when an abandoned house is stripped, a prosecutor would have to prove that the foreclosing bank took possession of the house in good shape and protected it from thieves, and that the FB actually was the thief. How many banks will be able to make this claim - heck, then cannot even prove they own the property in some recent cases, because they can’t produce the loan documents.
Just break a window or two - and then it could be anyone. Foreclosed homes are looted all the time. You can’t prove it was the previous tenant from fingerprints, since they lived there and are likely to have their fingerprints all over everything anyhow. Probably the only way you could prove it would be to search the tenant’s new residence, but you need to get a warrant for that.
etc. etc.
Personally I wouldn’t do it. But it would be very easy.
You can’t prove it was the previous tenant from fingerprints, since they lived there and are likely to have their fingerprints all over everything anyhow.
In some jurisdictions in the US, laboratory positives for traces of illicit drugs on your paper money can get you convicted of a drug offense.
Another good reason why I try to be cash free and charge everything.
If you follow Dave Ramsey’s advice of “cash only”, this could get you convicted of a drug offense. This is especially true of minorities. If you are a minority DO NOT LISTEN TO DAVE RAMSEY!
Bullshit.
“In some jurisdictions in the US, laboratory positives for traces of illicit drugs on your paper money can get you convicted of a drug offense.”
Only if you have an astoundingly incompetent lawyer. A simple search can dig up references showing that a huge proportion of bills in circulation are contaminated with drugs:
http://query.nytimes.com/gst/fullpage.html?res=9A01E0DE153BF930A1575AC0A961958260
“ROUGHLY three-quarters of the $1 bills circulating in the Chicago suburbs, Miami and Houston are tainted with cocaine, the Argonne National Laboratory in Illinois has determined.”
I first learned about this fact when a defense lawyer quizzed me on what proportion of bills were contaminated with cocaine (I was a potential juror; it was during jury selection).
“Authorities in New York and Connecticut are investigating whether Wall Street banks hid crucial information about high-risk loans bundled into securities that were sold to investors, Connecticut’s Attorney General said Saturday.”
versus
“As presidential candidates and government policymakers rush to offer prescriptions for the deteriorating U.S. economy, some are beginning to worry about a disturbing possibility: This may not be your traditional downturn.”
Are any of the main presidential candidates campaigning on a pledge to clean up the mess in the mortgage lending industry which is the root cause of all these households facing foreclosure, or is everyone merely banking on winning voters’ hearts and minds by promises of unlimited helicopter drops of free moneys?
One thing for sure - they sure as hell don’t care about future buyers, they are all busy keeping prices (artificially) inflated………..
…they are all busy keeping prices (artificially) inflated…
Heaven knows they’re trying….
“‘This is not a sub-prime crisis. This is a stated income crisis,’ said Robert Simpson, CEO of Investors Mortgage Asset Recovery Co. in Irvine.’
Don’t be such a party-pooper, Bob-guy. I say, let’s have BOTH kinds of crisis! At once! With ice-cream!
Part of what I’m working on right now is to point out that viewing these so-called ‘crises’ as such is a mistake, and why the responses are misguided. The real crisis was the explosion of house prices betyond what was affordable. These credit meltdowns are the inevitable, and even neccesary fall-out from that.
Wait. You mean, no ice-cream?
I am suggesting these are tough, but welcome developments, so cake and ice cream!
Asong as the ice cream is Blue Bell, you can count me in…
http://www.bluebell.com/home.aspx
And make sure it is real Ice Cream. None of this synthetic, card board, sugar free garbage. I want the 27% butter fat. Regular size please. (Basic sizes in Wisconsin are small, medium, large, extra large, jumbo and then regular.)
It’s been 22 years since I was able to get Blue Bell ice cream.
“It’s been 22 years since I was able to get Blue Bell ice cream.”
I feel your pain. I too once went without Blue Bell, but only for a year. When we moved back to Houston the first thing I saw was a Blue Bell truck and it definitely played a part in our decision to move back. Never again will we live in a Blue Bell free area. (If you want your Blue Bell fix, go to any Outback in the country - their vanilla is Blue Bell).
The people get what they want;
Bread and Circuses
The Russell Stovers choclate factory in Montrose Colorado has ashop where one can buy chocolates at hughe discounts and also get Blue Bell ice cream. Nope, not me, never set foot in the place…
Maybe. But I’m beginning to think that the solution to unaffordability crisis, necessary and inevitable though it is, will create a financial crisis on a historic scale.
“The loans were sold by subprime lenders to Wall Street firms that bundled them with other, less risky, loans into securities.”
So if the pool is heterogenous, with a lot of bad stuff mixed in with the good stuff, that increases the odds that the lower tranches will get wiped out. And the re-securitization of those lower tranches will take a 100% loss — including the (I still can’t believe this) AAA portions.
One of the big benefits of manufactured crises is the opening it gives pols to cook up campaign promises for quick-and-easy solutions.
“The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.”
- H. L. Mencken -
1984
And Ben, housing prices went up because money was cheap and available to anyone with a pulse. Bad underwriting, liar loans etc… Shoddy construction.. you name it.
Chicken or the egg? Personally, I don’t agree that the root cause was housing prices getting too high. I think the housing prices got so high because of a loss of prudence in the lending industry. That in turn was caused by a loss of prudence in the regulators. Regulators didn’t regulate, they deregulated with a vangance.
What “caused” them to do that?
“The real crisis was the explosion of house prices betyond what was affordable. These credit meltdowns are the inevitable, and even neccesary fall-out from that.”
Egg, meet Chicken. Chicken, meet Egg. IMHO the RE prices would not have exploded if the free money had not been available. By free money, I mean loans available at rates below the real rate of inflation. If the free money had been made available to stock investors, the bubble would have been in stocks. And the flip side of free money is miserable returns on savings, which partly explains why gold has gone nuts - when the time value of money is negative, you get paid to hold investments that do not return dividends, so speculation is encouraged.
sm,
Very concise and insightful.
The reason gold went “nuts” is now clear: http://dvice.com/archives/2007/12/gold_pill_makes.php
I think another factor is the flow of money from stocks into realty after the tech bust. It seemed like *everyone* had the same thought, that this was a safe and tangible investment that can’t go poof. I could sense that going on in 2002.
The real crisis was the explosion of house prices betyond what was affordable.
Ben:
The real crisis was the lax underwriting and verification which lead to the rapid rise in home prices. Irresponsible information to fool the consumer by the NAR and other special interest groups played a significant role in building the momentum.
The real crisis was the explosion of house prices betyond what was affordable. These credit meltdowns are the inevitable, and even neccesary fall-out from that.
———————–
100% in agreement!!!!!
I want a cherry on top with some sprinkles.
And I want chocolate sauce!
No Caramel?
A pony. Don’t forget the pony.
Very well. Just for you.
Thanks
and answer your emaily sometimes….
“‘It is astonishing how fast the credit deterioration has occurred,’ said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. ‘It took me and everybody else by surprise.’”
It didn’t take any of us by surprise. (not including va_investor or that Las Vegas investor guy).
Las Vegas Landlord was female
we’ve been given special powers to know the housing future. a cat delivers tomorrow’s paper to our doorsteps each morning
‘Three-quarters of pay-option borrowers are making the minimum payment based on 2 to 3 percent interest typically. The payment shock is so huge that a refinance is virtually impossible.’” WOW, at least 75% then are F’d. How many of these were written?
Correct me if I’m wrong, but pay option loans typically required a 75 to 80% LTV . . . or could they do 80/20’s? What amazes me is how so many sheeple were fooled into these products . . . we are so toast!
The trusty ‘ol CS chart has about 250 billion worth (give or take) starting to mature about 1/1/09 and running til 2011. So say 150-200 billion in Option ARM defaults.
Oh, it’ll start before that. Many folks who are making the minimum will hit their max neg amortization limit within 2 years.
In other words, lots of those people set to adjust in 2009, 2010, 2011, will find a bigger monthly bill starting in 2008 sometime (much to their surprise…).
RE: What amazes me is how so many sheeple were fooled into these products . . . we are so toast!
WTF? They were encouraged to do so by Fearless Leader Greenspam!
The NYTimes refers to a “multisyllabic quagmire”.
I just read an interesting definition of how to start a fraud the other day.
Find an investment whose name armchair investors are familiar with, figure out how to make it complicated, then become an expert on that and sell the investment with your complications to those “investors”. I imagine that salting your pitch with “multisyllabic quagmires” would be advantageous in creating the necessary confusion.
Of course, with the general level of financial education in this country being what it is, you wouldn’t have to reach very far into the specialist terminology to make this work.
From a favorite parody video from mid-October:
http://tinyurl.com/28ofbl
“High-Grade Structured Credit Enhanced Leverage Fund”
–
‘Many of the lenders made large amounts of loans, so that the exception swallowed the rule, or became the rule.’
The true-and-tried rules became the exception! Crooks always look to break the rules that they think they can get away with.
Jas
S.I.C.
(stated income crisis)
And its allegory: S.I.C.K …Stated Income Crisis Kontainment
How many more XYZ crisis until we get to BFC?
“Fortune’s” Fools Trip on BOA/Countrywide
http://www.thestreet.com/s/fortunes-fools-trip-on-bofa-countrywide/newsanalysis/media/10398497.html?puc=_tsccom
I think the potential reward is WAY smaller then the risks that BofA has taken.
A year from now, everyone will be asking, “What were they thinking?”
Yes, but BoA is too big to fail. The Fed has now effectively laundered the CFC mess. If BoA starts to go under my bet is that there will be a tax payer funded bailout.
I am very hopeful that instead of a TPFB that maybe there will be a AFB (arabic funded bailout) of BoA. Those guys are sitting on 100’s of billions of US oil dough. They gotta do something with it.
Maybe BofA bigwigs are buying time to cash themselves out.
(greeting from az_lender in Brandon, Mississippi, soon to reach Calif)
Or maybe they are buying time ’till after the election and a more friendly administration?
It was the “private” federal reserve that put, loaned the money to BA’s account. They are not worried and Country Wide did not go bankrupt! Years from now federal reserve will ease or write it off and Christmas bonus will continue too be paid to all for “a good job done well”.
The first 2B seemed it might be a gift from the Fed through the bank. Maybe there is more to this than what we are told.
Wasn’t it BOA that got bombed by radicals back in the 60s? Now they’re bombing themselves.
You know, if the NAR keeps saying it’s a great time to buy a house, in 2010 when it’s a great time to buy a house, no one will believe them.
Don’t buy until nobody believes or even puts into print the NAR’s predictions.
“It is a great time to buy a house”
What the NAR really mean is:
“It is a great time for the greatest fools to buy a house.”
“‘Nobody buys a home in the national real estate market,’ said NAR President Dick Gaylord, a broker in Long Beach, Calif. ‘All real estate markets are local”
Hey, uh, Dick, do you realize that when you shifted financing to national lenders who issue loans sight unseen based on what a local hired gun told them, you pretty much drilled a hole in the bottom of the “all real estate is local” boat?
Sure, everyone who owns a MIA condo (or anywhere for that matter) lives there, I’m sure. Stop retreating into the past, Dickey - charge headlong into the great abyss like a real man!
I can’t believe that Dick was ignorant of the fact that every RE Scaminar was instructing its’ students to branch out of their local area and purchase properties in other cities, sight unseen.
No, Dickey, Carlton Sheets et al made sure that FB flippers ventured far and wide to go into hock.
“buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area. It’s also advisable to look beyond the immediate horizon.’”
Because if you are only looking at the here and now, you would conclude that now is NOT a good time to buy. And we realtors know that the best time to buy is NOW. So check with us before doing anything rash, like sitting on the sidelines. You can trust us, after all WE’RE THE EXPERTS!”
There’s nothing an agent can you about a neighborhood that a trip to a local grocery store can’t. And even if its a hole you can still pick up some beer.
Beer? Depends. Most of my unlucky friends in Maryland can’t pick up beer at their local grocery stores.
That’s worse than Utah! I’m not even going to think about how horrible it must be there!!
Back in my younger days, I stumbled in to such a grocery store looking for groceries, including beer, when I’d just rented a flat nearby. After loading up on food, I wandered the aisles back and forth, up and down. “Is there a part of the store I missed?”, I thought to myself.
I finally asked a clerk where the beer was.
“We don’t sell beer, hon.”
WTF? I just thanked her and thought what a stupid store manager, and left it at that. I’d worked in groceries before, and beer was a big draw item. Fools.
It wasn’t until I got to the next store 5 minutes down the road and encountered the same problem that I realised it was against the law for them to sell beer, and I’d have to go to… the… gas station! Well… uh… of course… it all makes sense now. Right.
You can buy alcohol in the local truck stop in the tiny Utah town where I live (for now). It’s in a locked glass case in the tiny gift shop. It’s the town’s State Liquor Store, and each town has one, some are more like real liquor stores than others. This one has about 10 bottles, nothing I’d ever drink. Only place to get it legally, unless you’re near a winery, which are few and far between.
Back in Ohio, we had a liquor DRIVE-THRU! Still there when I saw it again on my holiday trip to visit family. Ah….good times.
By the way, it’s not like a McDonald’s drive-thru. It’s like a car wash. You drive through what amounts to a trough, with the floor on which the beer sits at car window level. Beer is stacked on either side. Kinda like a beer-safari!
I’m doing a collage of all the dumbass realtors photos I come across…you know, the ones with their dogs, Hummers, planes, boats, red hats, parrots, etc.
I’ll let you guys know when I’m done and I’ll post a pic.
It’s hilarious.
A few years ago, a big box truck appeared in a local strip mall parking lot. It was painted with Century 21 colors and logos, and featured three portraits that used all the space on the side of the truck. Three six foot high images of realtorettes in all their bad haircut and color glory.
When I first saw it, I thought some 1970’s revival revue was in town. You’ve motivated me to go see if that hideous truck is still there and to capture it for posterity!
OT but sorry.
Does anyone remember kendra Todd from the Apprentice? She claimed that “bubbles were for bathtubs.”
Well no one calls her out on her Wikipedia page because of it.
http://en.wikipedia.org/wiki/Kendra_Todd
And flippers are for pinball machines
Oh dear Lord–is that the chick from “My House is Worth What”? This is probably the vilest, most dangerous program on television today.
Yes, but it DOES say that she’s a real estate entrepreneur. So…there.
she also said “bubbles are for bathtubs, and for the champagne that will be drunk by those who invest in real estate.”
of course, she could have been right about the bathtub part. images from The Godfather come to mind, with Clemenza lying in his tub with his wrists slashed…
“‘Nobody buys a home in the national real estate market,’ said NAR President Dick Gaylord, a broker in Long Beach, Calif. ‘All real estate markets are local, and buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area. It’s also advisable to look beyond the immediate horizon.’”
Chance the Gardener: Yes. In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again
Gaylord?
Wasn’t the guy in Flash Gordon names Gaylord? The one leading ont he monkeys?
I refuse to believe this guy’s name is actually “Dick Gaylord.” “Dirk Diggler” I can buy, but Dick Gaylord really does sound like the creation of a ’70’s porn actor . . .
It is my understanding that a proper porn name is derived by 1.) using your actual middle name as your porn first name and 2.) using the name of the street that you grew up on as a kid as your porn last name.
Cheers,
Peter Biltmore
Actually, it’s first pet’s name plus street you grew up on.
Damn, and Peter Biltmore was so much better than Napoleon Biltmore!
Unfortunately, my Germanic-sounding middle name doesn’t go well with “Costamesa.” Which would otherwise be kind of a cool porn name, if I had the Latin-lover looks to go with it, which I don’t.
His name was Prince Vultan.
you’re thinking of Prince Precious.
All real estate markets are local, and buyers and sellers who are thinking about making a move should consult with a Realtor(R) in their local market to learn about conditions specific to the area.
Yeah like you can believe anything they say
Not to worry, weez. The public opinion of Realtor (R) types is rapidly shifting in our direction.
I have a question regarding SFW investment in domestic banks. If the Arabs and Chinese etc end up owning significant portions of our biggest banks, say 10-20%, what happens if they all decide to sell on the same day? Are we putting our country into a position where our enemies, present or future, could inflict significant damage upon us with a click of a mouse-keyboard and never the use of a gun?
And who else will buy into the US banking garbage? This is just the beginning of the bank writedowns, there are 6 quarters left.
China wants to buy assets not liabilities. The arabs are defending their positions just like Bank of America’s Lewis defended his previous investment in Countrywide. Ego gets in the way of sound investment strategies.
These countries that are investing are buying at close to the highest valuation of banks in 80 years. Another reason for investing is to get rid of some of the $8T that is sitting (some in US Treasuries) that are at risk from a significant dollar decline.
In 2 or 3 years, the BRICs will be looking to buy real companies.
It’s another way for them to lend our own dollars back to us so that we can use it to buy more oil and Chinese goods. They will then take those dollars and plow that back into more banks till pretty soon they own everything.
Not to mention, not being bound by US laws
Good point. But they got our dollars when we allowed american companies to move offshore without consequences and walmart et. al. to bring cheap goods here without tariff or paying good wages and benefits.
We’re already in that position. All the chinese would have to do is stop buying treasuries with their excess dollars and start buying oil.
Oil skyrockets, interest rates skyrocket, US economy crushed.
See James Fallows in this month’s Atlantic Monthly on this issue. It’s extremely well done.
Liquidity always overrules value when it comes to prices. So if the decided to all sell at one day, the price would drop, and would pick up a bargain.
The economic damage being done here is that ownership of the domestic debt is being moved abroad, and if you turn to that chapter of your macroeconomic text book, you’ll find that foreign debt ownership is regarded as far more economically damaging than domestic debt ownership. (Principally for monetary flow reasons.)
On the other hand, with so much foreign investment in the USA, there should be far less motivation for them to attempt imminent invasion, leading to a sudden outbreak of world peace.
& speaking as a darned furregner, i would observe that it would be difficult for any foreign power to inflict more damage on the american economy, than the americans have inflicted on themselves over the last 7 years. Ah yes, the war of the granite kitchen counter tops. Has a nice ring to it don’t you think?!
And we can’t forget the battle of the stainless steel appliances, the skirmish of the closet organizers, and the invasion of flat screen tv’s. Oh, yeah…also, the fake rock fireplace conflict.
And, yes, I agree with you.
I think it now a SIVil war.
Oh, you’re clever today, arentcha. Good one.
I get creative when hungover.
While you have a point, I would say we’ve already the point where the big wigs are concerned about future Chi Com schemes. We’re already in serious trouble, and if the Chi Coms really wanted to screw us they would completely refrain from buying our junk financial institutions right now. They don’t need a convoluted scheme to screw us in the future, they can deep 6 us right now by doing nothing.
That’s not the end goal.
The goal is to be the arbiters of the collateral.
When it all goes to pot. They get to decide what to dump and what to keep.
When giant firms go into recievership. They get to pick the best fruits of our labor.
They are getting to the front of the line for the commercial paper implosion.
Housing Bottom: We’re There Right? Not So Fast
Posted By:Diana Olick
http://www.cnbc.com/id/22650497
As the Fed continues to lower rates, home equity lines become cheaper, so using your home as an ATM becomes, once again, a bit more attractive. At least something in housing is improving.
Except that now you have to qualify to hit the “withdrawal” button… gee, you may even have to provide some sort of proof that you make that huge sum you claimed last year,
“using your home as an ATM” only works if the ATM has been stocked with fresh $ and your HELOC line hasn’t been frozen due to falling home values. Sure its more attractive, but the folks who need to tap into it to pay off their newly maxed out credit cards, can’t.
But isn’t the Equity Bunny scheduled to arrive right after the Superbowl?
Witness the rise of the dollar carry trade. Borrow against your house, make more outside the country, plus earn some icing from the differential of the falling dollar.
We are the new Japanese house wives.
I’m reminded of a question on this blog from 6 months ago…. “How long will this be called the Subprime Meltdown?” The most popular answer was “Until it is renamed the Alt-A implosion, the negative amortization disaster, the prime crash.”
I 100% agree with Ben that the underlying problem is the rapid rise in property values, and the fact that people actually took SOOOO much of that false value out of the market in the form of HELOC and cash-out refi.
This bubble has a fundamental difference from the tech bubble. People made a lot of money on tech investments, but for most people it remained unrealized gains. Myself for example, put $20K into a 401(k) that had a peak value of $100K and after all was said and done was down to $10K. The $60K wasn’t real. I couldn’t get to it to actually spend it.. Well, I suppose I could have done a 401(k) loan. BUT, had I done the 401(k) loan the manager would have liquidated the positions and that would have driven prices down.
Others doing the investment outside of a 401(k) could also have sold to lock in their gains, but that too would have dumped stocks to the market and driven down prices.
With housing it was different. You could borrow the money wihtout the property actually going to the market. The money could be made real and spendable, without a sale resulting that would drive down prices.
In fact, with housing the opposit was true. Your first investment property isn’t making any money? What to do? Do a cash-back-at-closing deal on another property. Use the cash-back to make payments on the two houses. Get in trouble again? Do cash-out refis on both. Get in trouble again? Buy a 3rd property with cash-back-at-closing.
In the housing bubble, the false value gains were turned into real spendable cash, without driving supply back to the market.
The scale is huge. $5T in mortgages against $12T in real estate became $10T in mortgages against $21T in real estate. That is $5T injected into the economy over 7 years.
Government is talking stimulus…. $600B+ a year to make up for the lost equity extraction??????
Banks are talking $200B-400B in losses by the time all is said and done? On $5T is excess loans??????
Think about that…. $5T injected into the economy through mortgages in 7 years…. Compare to the $4T in total federal government budget deficits since Regan took office 27 years ago.
To return to normal debt level, we need 100% wage increases (and associated inflation of all non-house prices) or we need $3-4T in mortgage debt to “just go away”. (oh, and $500B in other other consumer debt)
According to Pimco/Bill Gross, the next item to collapse will be the credit default swaps … maybe at a rate of $250B annually.
Very good post, Darrell!
>> “‘As difficult as the rescue prospects are for subprime borrowers, they are even worse for most pay-option A.R.M. borrowers,’ said Michael D. Calhoun, president of a consumer advocacy group. ‘Three-quarters of pay-option borrowers are making the minimum payment based on 2 to 3 percent interest typically. The payment shock is so huge that a refinance is virtually impossible.’”
They can talk all they want about temporarily freezing mortgage payments to certain levels, and temporary moratoriums on foreclosure. But these were, after all, teaser rates. At the other end someone–pension fund, whatever–doesn’t get paid what they had anticipated (and who also, in that anticipation, probably has more going out than coming in). They can’t otherwise magically pull it out of a hat.
FNLC’s business model was to issue ’subprime’ mortgages, or home loans to people with spotty credit histories, and sell the loans to banks and institutional investors.”
AND THE PROBLEM IS? I DON’T SEE ANYTHING WRONG WITH THIS MODEL? Oh, wait. Maybe - people can’t pay back the loans? No problem. We sold the loans down the river to little old ladies in their pension funds. It’s all good.
“‘It is astonishing how fast the credit deterioration has occurred,’ said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. ‘It took me and everybody else by surprise.’”
Hey, Paul. It took me by surprise too. I was surprised that it lasted as long as it did and so many idiots like you that should have known better fell for it, hook - line - and sinker. I am not surprised it finally fell. That was as predictable as broken glass after the bull went through the china shop.
In California, the 60-day delinquency figure for securitized 2005 option ARMs was 9.5%, compared with only 2.1% of the option ARMs from 2003
I think you misplaced a decimal. It should read “open ARMS were 95%, …”
not open arms (that would be a Journey song), I meant to type Option Arms
If I were the Fed, I’d think twice about continuing to say we can’t identify bubbles,
The current Fed had no spine. He bends to the will of the Wall St. Bandits. Greenspan should go down as the biggest criminal in history and should be sitting in a prison for the rest of his miserable life being forced to hear the sob stories of the people he helped destroy.
“‘In many cases, loan modifications — no matter how generous the terms — only delay foreclosures on properties where the mortgage balance far exceeds the current property value,’ he said. Homeowners who try instead to sell ‘know they cannot afford the property and are trying to do the responsible thing — sell the property to someone else who can afford it.’”
I loved this stupid remark………..trying to do the responsible thing because they know they can’t afford the property??? Really???
You mean trying to get out from under a debt they never should have occurred??
The responsible thing was not to sign for a loan they knew they really could not afford.
So…..They got to live in an a new house, for 2-3 years, paying less than someone would pay for a small apartment, then they want to pack up and move, so SOMEONE ELSE can pay the bill.
Responsible?? Don’t make me puke!!
-D. (find me an honest man).
OT, but here goes.
Was our duaghter’s b’day yesterday so instead of a big schbang, we took her to the mall (dread) and out for lunch. We ended up at the Laguna HIlls mall on a Sunday. Although it was beautiful and there was football, the mall was eerily quiet. In fact, the Disney store was deserted and had a 40% off sale. Wife said it was the after-Christmas sale, but I don’t remember Disney ever giving anything away like that. Victoria’s Secret did them one better by having a 75% off sale. Heck, why not just give the stuff away? Anyway, the kicker was that 2 or 3 other stores were going out of business, inc. KayBee toys, which was selling everything except the carpet. Seriously, you could buy the shelves, if you wanted.
I guess you could say that the weather was too nice, but even in Ruby’s where we ate, it was only running at about 60% capacity the whole 1.5 hours we were there.
As an aside, I noticed that the spring bounce was in effect, at least for sellers. Lots and lots of open house signs on every corner of Rancho Santa Margarita and Foothill Ranch. This will be the summer of our discontent. Neighbor still trying to unloand upside condo for 499K on the RSM lake. Good luck w/that. The owner is stuck. I just wish I had enough guts to call him/her on it and tell them to call me when it gets to 200-250K.
Oh well, nothing to see here. All is well, at least that is what everyone says and believes.
“Victoria’s Secret did them one better by having a 75% off sale”
Dresses slashed. Evening gowns cut rediculously low…
Victoria’s Secret - half off is a nice start.
75% off can be a little uncomfortable.
100% off - Now we’re talkin’!
Dan,
PBS aired a Pioneers of Television episode that featured Johnny Carson,the Late Night segment. Of course, a Carnac bit was included.
I went to the mall on the east side of Albuquerque. I saw the Disney store signs of 40% off. Some stores were ‘closed’. I stopped in the Del Taco. It was dead. An employee said that the Gap had closed early for the day. The mall seemed pretty dead. This was 6 pm on a Friday night. That it when I expected it to be pretty busy. But the Gap, WTF, closing before 6 pm on Fri just when all the teens are out of school and going for hangout.
Try the ice cream type called kulfi. It is Indian (India) type ice cream. It is very good. We had some last night (my wife is from India).
all this is BS. just look at IBM!!!!
guess that means no rate cut needed then.
“Over the past 30 years, the median price of existing homes has increased an average of more than 6 percent every year, and home values nearly double every 10 years, according to historical data from NAR’s existing-home sales series.”
The spinmasters are at it again as they try and fool the consumer. I have seen several studies, one in particular by Shiller that have clearly demonstrated that home prices since 1950 have remained flat when all costs such as interest, maintenance, taxes, insurance, etc. are deducted over the course of ownership.
House prices do not double as stated in 10 years and that is just a plain false information being put out by the NAR!
How do you deduct the cost of maintenance from the price of a house?
Do you really mean that there is zero profit in a house even though the price goes up 6%? BTW, it really costs more than 6% to carry PITI & maintenance.
How do you deduct the cost of maintenance from the price of a house?
Look at it from rent vs ownership costs. You must incur a cost to maintain the home. That cost adds up over time. the cost of maintaining your lawn, sprinklers or whatever maint. you must do to maintain the home and yard is subtracted off of what you received from selling the home. Therefore if it costs me $100 a month for yard service and $30 a month to pay TruGreen, that is $1,560 a year in costs of ownership. Home prices appreciate at inflation plus 1 or 2 points. At 6%, you would be looking at 4% in inflation in that year plus 1 or 2 points. Add in interest, insurance, etc. and that 6% would be wiped out.
Simple math by adding up all of the costs of ownership and it is the one thing people forget to do when they look at the costs. That is why you do not want to pay off your house unless you retire because you can earn more money investing your money than you can owning a single family home.
How much of the increases in home prices over the past 30 years have to do with high availability of credit? Did home prices increase as rapidly when credit was tightened? Just a thought…
I own my home. And there are only two reasons I do so:
1) It is an enforced saving plan, albeit one that yields less over the long term than other asset classes;
2) I want to potter about and fix things, chop wood, walk my dogs in the huge woods behind me. I could not do this in a rental.
There is no rational “investment” reason to ever own a home. After accounting for maintenance, etc, it is a mediocre investment at best (unless you luck out and sell into a bubble). The only concievable way to look at it as an investment is for those individuals who do not have the discipline to save on their own.
It’s also advisable to look beyond the immediate horizon, said NAR President Dick Gaylord, a broker in Long Beach, Calif.
For once I agree with the NAR, NOW IS NOT A GOOD TIME TO BUY when you look beyond the immediate horizon.
I am a bit curious -
Can someone be charged with vandalism if they trash a house they own but is in foreclosure? Can they be sued?
I don’t know about now, since mortgage lending seems to be a whole new game, but in the past, to protect the lender of his investment, it was a requirement that the property be kept in good repair, taxes paid, and no impairments be made to the property, so …………
YES. They can. But the courts will be tied up forever.
It isn’t worth it to them to pursue it.
I remember my father in law telling me how when he foreclosed on his vacation property in Northern Michigan back in summer ‘06 that the person from the bank or realtor who came over to accept the property was surprised that everything was intact. He said he had never seen a foreclosure with all the light fixtures, sinks, copper pipes, etc not ripped out of the walls.
So, this seems like a standard expectation from the banks and even the buyers of foreclosed properties. And I doubt many pursue recourse to collect from the prior owner of the home who destroyed it. The main reason probably has something to do with the prior owner usually being broke. What will be interesting with this new wave of foreclosures are the non-subprime borrowers who probably still do have assets and if the banks will pursue the assets of the FB.
What if I buy a new fridge, a new stove, all new drywall, new counter tops, new laminate floor, new carpets, new light fixtures, paint, recepticle plates, grass seed, trim, a new heater and leave the old broken one, new A/C and leave the old broken one, etc… while living in the house? If I take all that before I leave and leave them with what was there before plus I ‘undo’ an positive effects while living there, like what would have happened if I didn’t replace the roof shingles (note to self, take them too), then we should be pretty much fair and square, right? LOL
Just hire a house-mover and take the whole darn house. Don’t forget to disconnect the utilities first.
From the LA Times article:The United States has become increasingly prone to financial bubbles — huge, seemingly irreversible rises in the value of one sort of asset or another, followed by sudden and largely unforeseen plunges.
What makes bubbles so dangerous is that their consequences, when they burst, are wider, often more damaging, and certainly more unpredictable than those of ordinary downturns.
Unforseen? Unpredictable? Really? This is one major fallacy of the current reporting that keeps getting reported over and over again.
It’s only unforseen or unpredictable in the eyes of the greedy bastards who were reaping huge profits from such lax lending standards and corrupt appraisals. Seems to me, the LA Times could cover this a better way by bring up common signals that were obvious to more practical economists, investors who were seeing signs of this coming because they were not benefiting directly by the bubble and could see the bubble for what it is without self interest always getting in the way.
Exactly!
Two things I get tired of reading from the MSM:
1. How [insert expert's name here] knew this was coming all along, and prices were not sustainable (but a Google search shows them saying there couldn’t be a bubble back in 2005).
2. How “surprised” these financial “experts” are when finding that loaning huge sums of money to people who couldn’t possibly pay it off might not be a good idea. Ya think???
Roy Dusty here.