Where Home Was Equated To Home Ownership
Some housing bubble news from Wall Street and Washington. Associated Press, “IndyMac Bancorp Inc. reported the first annual loss in company history Tuesday and scrapped its dividend to shore up capital. The holding company for IndyMac swung to a fourth- quarter loss as weakness in the housing market forced the mortgage lender to boost its loan-loss provisions to account for growing defaults and foreclosures.”
“The company’s credit costs soared to $863 million during the quarter, up from $46 million in the prior-year period. At the close of the quarter, credit reserves for future losses totaled $2.4 billion, up 71 percent from $619 million a year earlier.”
“The Pasadena, Calif.-based company took $179 million in write-offs during the quarter and noted it expects its credit reserves to be sufficient to absorb a ’significant’ increase in charge-offs this year.”
The New York Times. “IndyMac, which describes itself as the second largest independent mortgage lender in the nation, finally suspended its common stock dividend today, three months after it was cut in half.”
“Here’s a headline from a slide: ‘$555 Million Or 90% Of 2007 Net Loss Came From Home Equity, Subprime, Conduit And Builder Construction Lending… All Have Been Discontinued.’”
“I am struck by C.E.O. Michael Perry’s letter to shareholders, in which he tries to deflect blame for the mess his industry is in: ‘All home lenders, including Indymac, were a part of the problem, and, as Indymac’s CEO, I take full responsibility for the mistakes that we made. However, objective reviewers of this mortgage crisis understand that home lenders and mortgage brokers were not the only ones responsible.’”
“‘Systemic problems in our secondary mortgage markets and credit markets, and our government’s over-stimulation of the housing market via monetary and tax policies (the capital gains tax break on home sales encouraged speculation), were all major factors that contributed to the problem.’”
“‘Indymac and most home lenders were not ‘greedy and stupid.’ Most of us believed that innovative home lending served a legitimate economic and social purpose, allowing many US consumers to be able to achieve the American dream of homeownership … and we still do.’”
From Bloomberg. “‘2007 was a terrible year for our industry, for IndyMac and for you, our owners,’ Perry said in the letter to shareholders. The housing slowdown may be ‘the longest and deepest since the Great Depression,’ he said.”
From AFP News. “Swiss banking giant Credit Suisse, Switzerland’s second largest, reported net profit of 8.55 billion Swiss francs (5.34 billion euros, 7.8 billion dollars), even after writing off 3.5 billion euros for the second half of the year.”
“The bank said it had written down another 1.3 billion francs in commercial mortgage-backed assets and leveraged finance in the fourth quarter. Such exposure had already forced it to write down 2.2 billion francs in the three months to September.”
The Pioneer Press. “MoneyGram International is getting a big bailout. An investment group led by private equity firm Thomas H. Lee Partners and Goldman Sachs & Co. will invest $710 million in St. Louis Park-based MoneyGram for an equity stake of about 63 percent.”
“The transaction, the timeline for which has not been set, must first be approved by shareholders.”
“The bailout money will go toward covering losses of more than $1 billion in MoneyGram’s investment portfolio. That portfolio invests money deposited by consumers in the company’s check and money-order business and was heavily weighted in bonds backed by risky subprime mortgages and collateralized debt obligations.”
“In mid-January, total losses in the portfolio stood at about $1 billion. That total is growing as the company continues to sell of assets in the portfolio. MoneyGram incurred another $380 million charge in connection with the sale of $1.8 billion in securities in the portfolio as of Feb. 11, the company said in a press release Tuesday.”
“MoneyGram also said it expects total losses in the portfolio to be less than $1.7 billion. A few weeks ago, the company said losses wouldn’t exceed $1.5 billion.”
“‘Things have deteriorated in the past few weeks since the deal was proposed,’ said Mark Henneman of St. Paul-based Mairs and Power, a large investor in MoneyGram.”
From Reuters. “Moody’s Investors Service on Tuesday slashed its ratings on Standard Chartered’s $7 billion Whistlejacket structured investment vehicle (SIV) after a plan to provide liquidity fell through.”
“Deloitte also said on Tuesday it had been appointed as receiver for the SIV, a step Standard Chartered was forced to take after the vehicle breached triggers that meant it had to be wound down.”
“In a sign of how severe the market pressures on these vehicles have become, Moody’s said Whistlejacket’s capital value — a measure of how much the riskiest debt issued by Whistlejacket is worth — had plummeted to 41 percent from 55 percent in just four trading days between Feb. 6 and Feb. 11.”
“The risk of bond insurers MBIA Inc. and Ambac Financial Group Inc. defaulting rose after billionaire Warren Buffett offered to assume responsibility for $800 billion of municipal debt, excluding subprime-linked securities.”
“‘It’s taking away their cash cow and leaving them with the toxic waste,’ said Tim Backshall, chief strategist at Credit Derivatives Research LLC.”
“The cost of protecting corporate bonds from default reached a record for a third day. Traders speculated credit losses will widen after American International Group Inc. said faulty accounting caused a bigger- than-expected drop in its holdings.”
“AIG, the world’s largest insurer by assets, said auditors found ‘material weakness’ in the way it accounted for credit- default swaps and that the value of its investments fell $4.88 billion, four times more than previously disclosed for October and November.”
“‘We’re in kind of uncharted territory for accountants in a lot of these products,’ said Ricardo Kleinbaum, a credit analyst at BNP Paribas SA in New York. ‘Internally, all financials are grappling with this issue of how to value.’”
“The disclosure stunned Wall Street and raised concern that other companies could report similar problems related to instruments known as credit default swaps. The news sent A.I.G. stock tumbling.”
“‘We are going to see more and more problems come to light like this,’ Lynn E. Turner, a former chief accountant at the Securities and Exchange Commission, told The New York Times. ‘This is an indication that these large financial institutions do not have the risk management systems in place to give us accurate data.’”
The Insurance Journal. “In early November, AIG President and CEO Walter Sullivan told Wall Street that the company could handle its mortgage exposure and that it was ‘highly unlikely’ that AIGFP would be required to make payments with respect to these derivatives.”
“‘While U.S. residential mortgage and credit market conditions adversely affected our results, our active and strong risk management processes helped contain the exposure,’ he said at the time.”
“But according to Fitch Ratings, AIG has ‘relatively large exposure to the current U.S. residential mortgage crisis.’”
“AIG sold credit default swap contracts to holders of collateralized debt obligations, or CDOs. These contracts pay when there are defaults on the underlying debt. Fitch said that AIG had $505 billion in exposure to its credit derivative portfolio in late September, including $62.4 billion of CDOs backed by subprime mortgages.”
“Norway announced new rules on Tuesday restricting retail investor access to complex instruments like structured bonds and immediately drew criticism from across the financial sector. Under the new rules, financial advisers will have to check whether retail clients comprehend the risks of the investments involved.”
“The change comes after four Norwegian municipalities lost millions of dollars on highly-leveraged structured bonds last year due to the U.S. subprime crisis, which stoked a public debate about the ability of non-professional investors to gauge financial risk.”
“‘We presume that it will be very seldom that structured products will fit non-professional investors,’ said Eystein Kleven, a senior official at the financial supervisory authority Kredittilsynet, which published the rules.”
“‘In practice, it will be very difficult for intermediaries to explain how they could sell such products to non-professional investors, especially to households,’ he told Reuters.”
From MarketWatch. “PMI Group Inc. will stop insuring mortgages with high loan-to-value ratios next month as the company adjusts to the U.S. housing crisis, according to a regulatory filing by the company.”
“In its filing on Monday, PMI, one of the largest mortgage insurers, said in the filing that on March 1 it will stop covering home loans with loan-to-value ratios of more than 97%.”
“The nation’s leading mortgage insurer, MGIC Investment Corp., plans to limit its exposure to weaker housing markets by demanding higher credit scores and larger down payments.”
“Starting March 3, the company said it will require at least 5 percent down on homes in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.”
“Homeowners hoping to insure condos will have to put down 10 percent.”
“In January, the company instituted other changes to limit coverage of higher risk loans and borrowers with poor credit. The company had said it was limiting business in Florida and California, but the latest announcement greatly expands that.”
“MGIC stopped insuring loans for borrowers with credit scores below 575 last month. It estimates its average FICO credit score for new loans is about 700, out of a possible 850.”
“More than 30 percent of U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth, a housing market research company said on Tuesday.”
“Of home buyers in 2006, 39 percent of those with a median 10 percent down payment now have negative home equity similar to 30 percent of those who purchased in 2007, said online company Zillow in its quarterly home value report.”
“‘With consecutive declines over the past five quarters, we haven’t seen the housing market bottom yet, and it may very well get worse before things get better,’ said Stan Humphries, Zillow VP of data and analytics.”
“‘Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter,’ he added.”
“A growing share of home sales are from foreclosures, especially in states hardest hit by the housing bust. In some parts of California lately, nearly 50 percent of home sales come from foreclosed houses.”
“The trend, which is putting additional downward pressure on home prices, is most notable there and in Nevada, Colorado, Tennessee and Michigan, but is also evident in Ohio, Georgia, Florida and Arizona, according to an Associated Press comparison of 2007 sales and foreclosure data.”
“‘There is a real complacency, or an under-appreciation of how bad this is,’ said Ramsey Su, an investor and former real estate broker in San Diego who regularly combs through the local sales database to asses the impact of foreclosure sales.”
“Thomas Blanchard, who sells bank-owned properties in Las Vegas, said the trend has accelerated the past two months, and he estimates that 60 percent of properties on the market there are in foreclosure.”
“‘The only people that you have in our market here in Las Vegas are the people that have to sell,’ Blanchard said.”
“Alejandro Diaz-Bazan, who sells foreclosed properties in Miami, said banks seeking to unload foreclosed properties are looking for buyers that can close deals quickly, and therefore need to have a hefty down payment.”
“‘The bank really is out to move them, to liquidate them,’ Diaz-Bazan said. Despite the downward pressure on prices, he said, ‘property prices in Miami have not dropped enough’ for the market to rebound.”
“Growing scrutiny into subprime mortgages has failed to stop unscrupulous lending practices to blacks, Hispanics and other minority groups, U.S. Rep. Barney Frank said on Monday.”
“Innovation in products and practices must be fostered, but regulation is needed to stem potential abuses, he added.”
“Frank also said it was wrong to turn owning a home into one of Americas’ biggest dreams.”
“‘I wish everyone in America earned enough money and had enough sense to own a home,’ Frank said, adding however that many people are pushed into improperly buying one instead of renting.”
“‘Home ownership is a good thing but Americans also made a great mistake where home was equated to home ownership,’ Frank said.”
Bond Insurance bailout - failure
Hope now - failure
Iraq - failure
Fiscal conservativism - failure
Super SIV - failure
Lifeline - NEXT failure
free-er healthcare = your life
failure
try RP or LP
they’re less taxing and offer NO BAIL for fb’s
RP is Ron Paul, but who’s LP? Les Paul? If so, I’m for him.
That reminds me to pull out my Les Paul and plug into my Fender twin tonite. I’m all for the LesPaulParty.
lol. OK, so there is no actual support of LP in this house, but as avid supportors of LF (Leo Fender), I would be happy to lend my support to this party.
Lets do it. A texas swing jam a’la SRV for the CONservatives doing the two step backpedal while posing as libertarians.
When the articles state Sales of homes, and most are foreclosures, who exactly is buying these homes?
I personally have heard no one in my sphere is buying.
No one is even looking.
So who is it?
Um, people you don’t know perhaps?
LP is Britney Spears’ nickname: Less Panties
I think both Ron and Les like LP
Shh, you don’t want to get Big V’s panties all up in a bunch, now do you?
ppl sme of the abvts. r a LT To MuCH. Ca’t y jut spel th dam thng out EH???
They all fail because they all are operating on a incorrect premise. That premise is that people want to keep their homes, even as they drag them to the bottom of the ocean as the deprecation eclipses their yearly income. Once the problem is fully understood, only then can a plan be developed that will “save” these people. Frankly, the only thing that would work is allowing them a “redo” at the closing table, effectively discharging any “bubble debt” that they ran up. As I don’t see any bank, ANYWHERE, doing this anytime soon, all the rest of the crazy plans they dream up are equally as doomed to fail.
*Sorry, Iraq does not fit in that model, that’s a different issue*
The new tax law change to allow FB to walk away on losses without paying taxes basically did it. I would consider holding longer if I have to pay a chunk of taxes for the forgiven losses but not anymore. Just walk away free, and a ding on credit score
The people that can pay, but choose not to are not entirely off the hook. They are still often liable for the deficeincy balance in many states.
Those that used their homes as ATMs also gave up thier rights to be considered non-recourse in California. Most lenders are far, far too backed up to go after these people at the moment, but I would be shocked if these balances aren’t sold off to junk debt buyers and those that think they are getting off scot free might have a surprise a few years down the road when served with papers to appear in court concerning a potential judgement and lein against their income and property.
Let’s hope so.
*Sorry, Iraq does not fit in that model, that’s a different issue*
Nope it’s the same old issue - borrowing money because you’re spending more than you’re earning.
Never before in its history has the US lowered taxes during the course of a war.
Don’t you get it, according to Bush orthodoxy, the more wars you fight, the higher the GDP!
It’s like the laffer curve part deux or something
That’s because the argument is lower taxes lead to higher taxes taken in. I guess the saying is that if they lower taxes 1%, the boost it gives to the economy causes it to create taxes greater than that 1% cut.
That’s not quite the Laffer Curve argument. The argument is not (as is often misleadingly stated by supply-side opponents) that *all* tax decreases “pay for themselves” entirely, but rather that tax cuts, by stimulating growth, increase the tax base and offset at least *some* of the revenue lost by decreasing the rates.
And yes, sometimes, when tax rates are prohibitively high and are heavily suppressing economic activity, this can sometimes result in a net increase in tax revenue. An extreme example would be cutting a 100% tax rate (where the tax receipts would be zero — who’s going to work if he doesn’t get to keep anything at all?) to 50%.
The only serious question is how close a given tax rate is to the Laffer Curve “sweet spot” — the point where further tax increases would start reducing receipts (because they suppressed economic growth) rather than increasing them.
Nationalize the debt.
Cash hand outs equal to one years’ income for people making less than medain income. People above medain income lose $.05 for each dollar above medain income. I figure $2 trillion for the first shot.
If you have debt, it goes to your lenders. No debt, it goes to you as a check to compensate for the inflation this will trigger. Renters get a downpayment. People underwater get some help. People that weren’t stupid in the bubble get as much as people that were. People that were WAY stupid and took on WAY too much debt will still be crushed under the debt.
At the same time, disassemble the debt engine by breaking up the large banks, bringing back usuary laws, easing bankruptcy laws (for debt taken on after the change), tighter restrictions on mortgages and credit cards, licensing mortgage brokers, end the NAR monopoly on houses for sale data, etc.
Disassemble the debt bomb before it blows up in our faces.
That oughtta do it. Reward stupidity, funnel money through efficient, non-corrupt government channels, and eliminate any personal responsibility. What a perfect, simple solution!
b-b-b-but Warren Buffet is going to bail us all out! the only supporting news on the Nasdaq web site today is that: “billionaire investor Warren Buffett’s proposed buyout of bond insurers’ liabilities and another round of cost-cutting by auto giant General Motors Corp.”
Rather sickening that the DOW these days only gets a boost from promises if bailouts, Rate cuts, and cost-cutting versus actual productivity.
b-b-b-but Warren Buffet is going to bail us all out!
Nope, you need to put this in past tense because it is a dead issue. The stock market needs to correct it’s gains on Wednesday.
Buffet will bail us all out…. HA! The man is not stupid, he GUTTED MBIA and Ambro, he only assumed the municipal bonds and left the residential crap to fester and be dumped by the aforementioned.
“The change comes after four Norwegian municipalities lost millions of dollars on highly-leveraged structured bonds last year due to the U.S. subprime crisis, which stoked a public debate about the ability of non-professional investors to gauge financial risk.”
Just another means we spread freedom and democracy across geographical boundaries. I’m so proud of my country.
“The change comes after four Norwegian municipalities lost millions of dollars on highly-leveraged structured bonds last year due to the U.S. subprime crisis, which stoked a public debate about the ability of non-professional investors to gauge financial risk.”
It doesn’t seem like there were too many professional investors that were able to gauge the financial risk either.
“All home lenders, including Indymac, were a part of the problem, and, as Indymac’s CEO, I take full responsibility for the mistakes that we made.”
Then give back your excessive salary and stock options!
“Most of us believed that innovative home lending served a legitimate economic and social purpose, allowing many US consumers to be able to achieve the American dream of homeownership … and we still do.”
So, see, he’s not really retracting anything. He stands by his actions. No remorse. He’s simply helping poor Americans achieve their dreams, see, Mate. (Practicing up for my trip to Oz, my reward for being a bitter renter.)
Just got back.. make sure to do the http://www.bridgeclimb.com.. the 7 at night one.. best one.. spent a month in sydney, cairns, melbourne.. the great ocean road is nice.. Manly beach is the best in sydney.. great places at the warf to eat.. skip kings cross at all cost!
Thanks, sounds good, but I plan to head straight for the Outback.
“…allowing many US consumers to be able to achieve the American dream of homeownership … and we still do.’”
If they really believe this they should continue to make subprime loans to potential deadbeats with no docs.
They will, after prices have returned to normal levels. Assuming there is an appropriate spread. The problem wasn’t the loans so much as making them after the market had climbed so much from baseline.
If low-end houses were still $100K, then they would be able to take the house and sell it to recoup the money loaned. The problem is, they loaned $250K against the $100K house and now they can’t get the $250K back out.
Realizing the dream of homeownership comes from higher wages and lower prices.
Note tricksy loans.
Is there any rational reason for the stock market to go up in the wake of Buffett’s offer? Or is this yet another sucker rally?
Treasurys Sell Off on Buffett Muni Offer
By LESLIE WINES – 6 minutes ago
NEW YORK (AP) — Treasury prices plunged Tuesday after investor Warren Buffett offered to provide extra guarantees on over $800 billion in municipal bonds backed by troubled insurers MBIA Inc, Ambac Financial Group Inc. and FGIC Corp.
The offer seemed to promise more stability to a municipal debt market badly shaken by bond insurers’ decisions to guarantee low-quality mortgage debt, a move that badly hurt the insurers’ finances. Municipal debt prices have been under severe strain since the insurers’ problems became known, despite the fact that the majority of local governments have solid records of paying back their debts and these assets normally are considered safe and popular.
…
The Buffett plan was well-received in the stock market Tuesday, which was rallying. Those gains also hurt demand for Treasurys.
Still the credit markets have a long way to go before they can reclaim stability. The Federal Reserve auctioned another $30 billion in funds to commercial banks in an effort to combat a severe credit squeeze. There are concerns that banks stung by the subprime crisis are hoarding funds in case they have to write down more debt.
The Fed is attempted (SIC) to increase the amount of money in the financial system to keep the banks lending and prevent a severe credit squeeze from making the current economic slowdown worse.
http://ap.google.com/article/ALeqM5huW7XBNlC1-mFEhKe47gbQJYfdPAD8UOUUJ80
Municipal debt repayment largely relies on the municipalities ability to collect property taxes.
“…municipalities ability to collect property taxes…”
I guess municipalities must be hoping and praying that real estate always goes up…
… which is also Buffett’s bet.
… and is also most likely the Fed’s bet (and abetment project).
One of the insurers was noted by Buffet to have rejected the offer. So its obviously not a free ride. Its funny how good he is at making money… So don’t be surprise if there is some small type we’ll never know about.
But I do agree that municipalities are in for a tough time raising revenue. You cannot garner boom time taxes during a bad recession; if you try jobs slip through your fingers like 5 gallons of water would.
I’ve posted here before how my employer would move people out of bubble areas if things kept on their previous course. Now I’m being surprised at the speed employees are transferring to our new campuses in Colorado and Texas. Sorry to be vague, I’d get in trouble at work posting who I work for.
Got popcorn?
Neil
Granted.
So… is Buffett out to lunch? Or is it similiar type to his old buy Level3 debt, short the underlying, collect the interest payments, sell the debt, cover the underlying?
Anyone have a link to muni default data? I would guess that has a large bearing on Buffet’s decision process.
You can rest assured Buffett’s offers come with a steep price.
I think Buffet is making a smart move. Note that he is raising the price of insurance by 50% as part of this deal. This also had the effect of applying a large Joshua Tree to the posteriors of the existing players in the business, so he may be able to raise prices further once the competition is BK.
We’ll see how this works out, but I don’t think Buffet is engaging in charity work here.
“‘It’s taking away their cash cow and leaving them with the toxic waste,’ said Tim Backshall, chief strategist at Credit Derivatives Research LLC.”
Buffet cracks me up. If and I say IF they fall for this, the charge will be over the top and he will be the only one left standing to insure muni’s at whatever price he wants.
Sucker rally fosure. Buffet will save us and give us all money for free…..PLeeeesssee. Buffet didn’t get to were he is by being kind at the table.
“Potter is offering 50 cents on the dollar, cash money.”
No, Buffett is playing the same game he always has.
Use the ‘float’ to wield serious money power on your terms and at a time that a market is mispriced, in disarray or at pricing extremes. Having access to up to 100 Billion instantly and being able to call your own shots without a committee gives you these opportunities.
He simply wants to cherry pick and restrict the the re-insurance sectors that at the core are collateralized by cash flowing productive and NECESARRY real assets. He is not interested in ‘notional value’. He’s interested in collecting premiums on about an 800 Billion dollar market and willing to ‘use’ 5 Billion to essentially eat the insurers margin.
Pure Buffett.
Ps I am not his greatest fan by a long shot, just respectful of his acumen and track record.
I don’t think they are worried about collecting. They are worried that the rate will fall.
I live in Glendale AZ. We built a new stadium for the Coyotes, and the Cardinals. Maybe you heard of it. Hosted the Superbowl last week.
Anyway, a lot of the money is planned to be paid back out of property tax revenue… My $130K house went up to $270K, and my property tax went from $800 to $1300 (with more increases to come as they average in old rate and new rate to make them change more slowly).
What is my house goes back down to $130K? Property tax revenue, even if I keep paying, is NOT going to be what was projected.
AND, the rest of the project was to be paid for with sales tax increases. OOOPS… Sales tax collections are down, not up.
Now how are they going to pay?
Guys, I’m a bear out there too, but do you honestly believe that muni bonds are a bad credit risk?
Generally, they are in second place behind property taxes, and even if things got really, really bad, 99%+ of homes out there would sell if the only requirement of the homeowner would be to pay current on taxes and assessments. Even if homes lose 90% of value, these bonds will be made whole.
Buffett is very smart, there is a massive mispricing of risk on the muni bond front (people think they are much riskier than they are), and he’s going to take advantage by charging a lot (relatively) to insure them.
exactly my take
MBI and ABK are not pure plays in muni. They both have CDO exposure. Buffett is offering to reinsure the credits that don’t need reinsurance. And at a high price.
There are monolines that are pure plays, and they haven’t sold off the way MBI has. So Mr Market agrees with you — muni credit risk isn’t the issue, CDO exposure is.
The market going up today was Brownian motion. It had nothing to do with Buffett.
Yep. Now that the competition have shot themselves in their collective feet, Buffet will turn this into a cash cow.
IMO… sucker rally.
Are fickle market bulls changing their minds so soon?
Terrifying late day plunge…
http://www.marketwatch.com/tools/marketsummary/
The PPT did a nice job reversing the selloff in the DJIA at day’s end.
RE: Terrifying late day plunge…
GM is a very sick puppy.
But that should increase the chances of phantom rallies on the headline stock market indexes, no?
The Buffett plan was well-received in the stock market Tuesday, which was rallying. Those gains also hurt demand for Treasurys.
Looks like the 30 yr mortgage will be going up on this news.
“many people are pushed into improperly buying a house instead of renting” — That would of course include just about ALL of those who are buying now! — considering the still-elevated price/rent ratios.
“many people are pushed into improperly buying a house instead of renting”
That’s right Barney. They line ‘em up against the wall, put a gun to their heads and tell them to buy or else.
Barney had better be careful (from a political point of view), my impression is that Hispanics were preying on Hispanics as far as pushing these garbage loans…….
Quit pushing me man!
Nobody pushes me and gets away with it.
Project Lifeline, as the bank plan is called, and Buffet’s offer are “initially acting as a band aid today and helping the market out,” said Ryan Detrick of Schaeffer’s Investment Research. But, the big problems are still out there, Detrick noted, and given how oversold the market is, “It really does appear to us that it is more of a relief rally,” he said. “The market is looking for any news to bounce.”
Buffet may have boosted the market, but shares of bond insurers declined amid concerns that, under Buffet’s plan, they would be left with a portfolio of riskier debt including CDOs.
Buffet made it clear that his offer was aimed at making a profit, not “pro bono” work. Still, he came under fire.
“If he wants to be such a great guy, take over the best portion of the business and the worst portion of the business,” Robert Pavlik, of Oaktree Asset Management, told CNBC. “Don’t try to just rescue the luggage.”
“Mr. Buffet has, very wisely, both a PR victory and an economic victory if it comes off,” Art Cashin, director of floor operations for UBS, told CNBC, “because he’s only gonna insure the municipal side — that’s not the threatened side of those portfolios.”
http://www.cnbc.com/id/23129535
I wonder about this. If the municipalities have significant property tax reductions due to falling property values, they may have problems paying the interest on their bonds. But what do I know, Warren Buffett is probably smarter than I am…..
My take on it is that the other obligations these insurers carry are essentially worthless. Buffet is offering to cover the assets of value at the companies, similar to what will happen if they have to liquidate in a bankruptcy. Since the threat of bankruptcy hangs over all these insurers, the insurance they are selling to municipals is basically also worthless. So buffet is probably offering to buy the obligations at a steep discount to what is assumed they will be able to deliver. Even if the default rate on these muni bonds is 50%, if Buffet buys them for 49 cents on the dollar, he wins. Unfortunately for the CDO market, there is no discount to 0, so he has no interest in the CDOs.
I believe the theory is “Buy low, sell high”, as he puts it. It will be interesting to watch the insurers squirm.
Often times, these bonds are separate assessments on the houses. As a homeowner, you pay x% of your home value every year, plus $y fixed per year for z years until the bond issue is repaid (for road improvements, etc.).
There are probably muni bonds that are less well defined, but in any event, government agencies have the power to tax, so ultimately, the bonds will be repaid… Maybe with new bonds, but repaid, none-the-less.
A rolling bond gathers no default?
Side note:
If you look at the ol’ Reset chart we see that reset’s peaked in November with it being more than the first 3 months of last year combined. Now it appears by the actions of the Banks that droves are at 90 days late. Still it’s a fire drill to do something about it. Wow, the Banks and Guberment are not only corrupt they are incredibly incompetent.
I just like stating the obvious.
It takes time after the resets occur for people to get foreclosed. Prime pain will be summer…
This Pavlik is such a moron. Buffett is only going to be a great guy for his shareholders. As it should be. It’s not Buffett’s responsibility to bail out someone else’s BS.
“If he wants to be such a great guy, take over the best portion of the business and the worst portion of the business”
Mr Pavlik, don’t be such a schmuck. Mr Buffett is not that type of “great guy”. I think you are looking for a bailout guy who puts up money and asks no questions. No problemo, I have some candidates for you: Ben Bernanke or Henry Paulson. Take your pick.
You know what? I really miss the trolls. All those realt-whores and pushers blargling and bleating about how their new home investments will make them millions, and housing only goes up, and HBBers are just bitter. The trolls…where are they? Well, of course, I know where many are—asking customers if they want fries with that, or submitting an application for night cashier with a desperate grin plastered to their face, or getting down on their knees in an alley somewhere. But there have to be a FEW that still have computers, right? And tons of free time since they got laid off from Option One or WaMu. And don’t tell me that gratuitous stupidity has gone away, either.
Why, I recall the good old days and we’d get some RETard on here and say something flawlessly idiotic and Boom! The Bonfire of the Tardlings, with cruel marshmellows.
Those were the days, man. Will they ever return? I feel plain old wistful.
Blargling and Tardlings. Now, there are two words with a future!
competition for aladinsane
I still enjoy debating with delusional RE cheerleaders. Believe it or not, they’re still out there. For instance, I found this particularly fun discussion on a site otherwise dedicated to college sports:
http://www.gatorcountry.com/swampgas/showthread.php?t=45606
The thread is loaded with Pollyannas telling the hapless original poster that “Now is a great time to buy.”
Of course, I provided the obligatory link to this blog towards the end of the thread.
Ben, Olympiagal’s comments would make an nice prelude to your book. Olympiagal, I’m enjoying much vindication too.
hey wasn’t it not too long helicopter ben said it was all contained? sounds like from all the news in this post that it is not
Right on! I was just having flashbacks yesterday to that guy last year who used to follow up every discussion of renting with a diatribe on the “jungle music” which supposedly eminates from apt. complexes. (Only music here was the Asian kid next door playing Guitar Hero, but he was embarrassed into turning the volume down with a smile and some cookies.)
Where is he now? Did they foreclose on his McSh!tbox? Are his four walls now the county jail?
We still have a few around on the local Portland blog but even there they are toning down, back-peddling and just plain becoming “long term investors” one misguided post at a time.
Once in awhile they’ll lash out w/ the old fall-back positions like “Having someone else pay your mortgage” but even there we no longer see one of my personal favorites “It’s IMPOSSIBLE to “over pay” for Real Estate!” Locally our awareness that it IS in fact possible for RE to lose value is a recent revelation. We’re still somewhere between denial and anger.
You can always visit here where all but 2 are still delusional:
http://www.syracuse.com/forums/realestate/
Today’s laughable moment: Every woman wants to be in her own house.
Last week’s laughable moment: Bobthebanker asking Kolchack where he got the idea banks would soon be requiring 20% down.
Go ahead, have some fun!
I showed up too late to catch most of that, but I’ve been thinking of going waaaay back thru the archives to see what y’all are talking about.
try Lasners blog from the register in Orange County, CA. They still have bulls here and there and they are very amusing to taunt.
“The trolls…where are they?”
They’re on AcidRain, err… ActiveRain, telling each other to stay positive because the market will turn around any day now. A few are on HGTV and Zillow telling everyone “Now is a good time to buy!”
Hummmm, let’s throw ‘em a bone. Have Ben post an Onion-esqe thread on how we’ve hit the bottom and it’s time to buy. Let’s troll for trolls!!! We can nab a bunch on the LA Times RE blog, there’s a bunch of hilarious delusional characters that hunch over there, though I’ve noticed not so many lately.
Some posters here are so desperate to pillory a troll that they will twist any comment out of context, or magnify an ambiguous statement in order to label someone a troll.
Don’t worry, just find the noobs and wait for them to say something innocent or dumb, and then you can rip them a new one…
From MarketWatch. “PMI Group Inc. will stop insuring mortgages with high loan-to-value ratios next month as the company adjusts to the U.S. housing crisis, according to a regulatory filing by the company.”
“In its filing on Monday, PMI, one of the largest mortgage insurers, said in the filing that on March 1 it will stop covering home loans with loan-to-value ratios of more than 97%.”
“The nation’s leading mortgage insurer, MGIC Investment Corp., plans to limit its exposure to weaker housing markets by demanding higher credit scores and larger down payments.”
if this is not retroactive , what’s the point
“what’s the point”
barn door left open
horses have all run away
hurry, shut the door
what’s the point”
They are afraid the next thing to happen is the barn will burn down.
They are convinced we have further to go down which is a plus. Anything that limits demand is good with me. I liked the part about 10% down on condos. How many ppl are going to put 10% down on a condo in cities in which there is a glut of condos, and HOA fees keep rising to cover the fees of those that are in default and just waiting to get thrown out by the Sheriff. Its going to get ugly. Especially since many are investor owned with negative cash flow. They will just give up and let the banks have them in droves.
Another reason banks won’t lend 100% any more.
The spiral downward is wicked. This will push that many more people out of the market, which will drive more prices down, which will make PMI think that they need a minimum down of 5%, and 15% for condos, etc., etc., etc.
MGIC will soon require 5% down in, of all places, Chicago. Hmmm, why does such a “hot” market get the label of “restricted”? What gives? Oh, and 10% on condos, ho ho he he, that speaks for itself. Those with that kind of money aren’t buying anytime soon.
And these downpayments are only for the opportunity to pay mortgage insurance. This is all playing out EXACTLY as folks on this blog have predicted.
Yes, I read that too and smiled.
“Those with that kind of money aren’t buying anytime soon.”
Neither are those without, which knocks out about 95% of the people I knew who wanted to buy.
Keep in mind that insured depository institutions can only hold a greater than 80% LTV home loan on their books if there is PMI. If a high cost area like Chicago requires a 5-10% downpayment for PMI coverage there won’t be too many bank-held loans made. (How many of today’s buyers can put down 25k to 50K plus?) I guess the only home loans in the Chicago area will be VA and FHA (0% down and 3% down), unless FNMA and FHLMC are willing to go without PMI on low, downpayment loans.
tuxedo,
Absolutely GD right. Does anyone here remember when only honorably discharged veterans were allowed to buy homes with Zero down!? Oh and at THAT it was SOLELY for your personal residence, not 6 homes in PHX you can’t find on a map?
Turns out there was a reason those programs were limited. Who’d have thought that?
Me.
“Fitch said that AIG had $505 billion in exposure to its credit derivative portfolio in late September, including $62.4 billion of CDOs backed by subprime mortgages.”
Lucy, you’ve got some splaining to do.
Barney’s singing a new tune.
Wow.
“More than 30 percent of U.S. homeowners who bought in the last two years owe more on their mortgage than their house is currently worth, a housing market research company said on Tuesday.”
“Of home buyers in 2006, 39 percent of those with a median 10 percent down payment now have negative home equity similar to 30 percent of those who purchased in 2007, said online company Zillow in its quarterly home value report.”
Good Lord . . .
Oh my — Zillow has discovered that real estate some time goes down?
I am shocked!
If they had to sell in the next six months, I’d say the figure for 2007, 2006 and 2005 is probably closer to 100 percent. I would say 100 percent except it is likely that some with paid off homes sold to knife catchers and re-bought with cash.
Yeah, my parents sold their home, and bought a new home for cash.
Many other people moved up with lots of money down, but still a large mortgage.
However, NOT being upside down doesn’t mean that you can afford the mortgage you have… I think the Bay Area is going to be strewn with people who bought with windfall cash as the down, and stretched on the mortgage with an Option ARM. They’re not underwater, but they’ll need to sell their home at a significant loss to get out from under the debt.
Oh, that’s not good at all.
How about in the bubble areas, what are the percentages there? I would imagine in S. FL, it’s 100% (of those with 10% or less down) have negative equity, and probably close to 60-70% of all homes purchased in the past few years are negative equity.
That means that all these people would be best served to walk away. Not a good thing at all.
My thought exactly. Great depression II coming up.
Thank God for cash.
And, Zillow inflates the house prices in our region (Massachusetts). So if the mortgage is more than the Zestimate which itself is inflated, only the Almighty God can help the FBs. I am guessing that He only wants to help the prudent savers from now onwards.
The line should read “More than 30 percent of U.S. homeowners who bought OR REFINANCED in the last two years owe more on their mortgage than their house is currently worth” We’ve all heard the stories of people becoming FBs after years of building equity.
Depending on how much cash they put up front, they may not OWE more. But within the next couple of years, I would say for 100 percent of the people who bought homes in the last three years, their homes will be WORTH less than what they paid.
“IndyMac, which describes itself as the second largest independent mortgage lender in the nation,”
IndyMac, We try harder . . . to stay solvent.
MBIA is down 12%. They are done.
Who is reinsuring Warren? And by the way, weren’t the GM results horrible? I guess they can only go up from here…hence the encouragement for Wall Street bulls.
Countdown to the close:48min47sec
February 12, 2008 3:10 P.M.EST
BULLETIN
Bond plan ‘reinsures’ bulls
Markets back in rally mode as investors get a boost from Warren Buffett’s proposed municipal bond buyout and GM results.
http://www.marketwatch.com/
BTW — that 74,000 number rings a bell. Wasn’t that the size of the GM job cutback announcement back in the early 1990s?
“Driven
GM said that it’s offering buyouts to 74,000 United Auto Workers members in the United States to cut costs, and also reported losses of $38.7 billion last year — its biggest annual decline.”
Lifeline yadda yadda ying yang;
Hey U.S. Government, you want to do something really noble and constructive? Here it is -
From across the aegis of time and space, gather the preternatural forces of mythology, flex muscle and sinew gigantic in the very atmos above, grab the handle of the mighty Hammer of Thor, and swing it from sea to sea, mountain to valley, smashing high real estate prices into fragments and pieces thereof, and be relentless and thorough in this mighty deed; let no unreasonable valuation still stand, for thou are the Great Leveler, the one who shall bring sweet virtuous Affordability back into the land from which she was so mercilessly cast out. And the People will rejoice, they wilt forget not thy deed nor name, and ye shall have dominion over them once again.
But no, you just trot out another asinine PR puff piece, yet another stone cast in the direction of the shipwreck, with a whistle and shout, AS IF.
Methinks we are truly doomed.
“……and the Lord did grin, and the people did feast upon the lambs, and the sloths, and the carp, and the anchovies, and the orang-otans, and the breakfast cereals, and the fruit bats……”
You know.. This unstoppable train is picking up speed. Slowing it down is near impossible.
GM losing 38 Billion in 2007! That’s almost three times it’s current Market Cap.
Even many of the strong holdouts went red this year. I think there is now a probability that we will see double digit declines this year nationwide (not that I didnt think it was due, but even I am surprised by the recent accelerated weakness). I know thats not surprising to ppl in CA, Fl, NV or AZ, but its a very rude awaking for many in other states.
I think it is a snowball rolling down hill. It gathers snow as it rolls down. Larger AND Faster. Faster and Larger.
For housing it stared just with the negative Am, fraud and cash-back houses under-water. Then prices started to slip and the most recent 100% LTVs were under water. Then prices slid more, soon recent 95% LTV and older 100%s were under water…. The prices slid more and the 90% LTV and two year old 100% LTVs were under water.. Now 85% LTVs are going under in some locations.
For the economy, construction slows and credit tightens. Then mortgage brokers are shutting down and Realtors are not collecting coissions. Then all these people stop spending and the econmy slows. Then people that have tapped their HELOC and credit cards slow spending. Then retailers don’t staff up for the holidays as spending slows. Fewer auto sales. People spend their holiday gift cards on groceries instead of big screen tvs. Commercial construction is now shutting down (at least in AZ).
Each issue gathers up the next, and then combined they pick up speed as the roll toward the next issue that they will pick up and add to the rolling snowball.
my katamari
RE: …GM losing 38 Billion in 2007!
Management is goin’ the F route. Buyouts and early retirement for older employees.
New hires to be paid half of existing wage scales.
So step right up to purchase your $60k Caddie built by a newbie with an 8th grade reading capacity or needs an English intrepreter to comprehend the machine tool directions.
You mean Caddies haven’t always been built by someone with an 8th grade reading capacity?
RUMOR on the street - $9 billion dollar bank is in TROUBLE and might go down ASAP!!!!
Well don’t leave us hanging!!
Sorry - details are $9billion in assets and the FDIC is looking at the details now… could be total BS, but who knows…
Crispy,
what is the latest news on your namesakes? Haven’t heard much about dave, tu and the family?
Nothing new except, one of their guys filed BK the other day…
The rumor was started by a misquote of Richard Yamarone, it is probably not true at this time.
“…Quite possibly, a big bank or financial institution may be in dire straits or on the verge of failure. Somebody may have gone to the Fed and said, “We’ve got a critical disease and we’ve slept with the world, you guys better deal with it.” That’s a pretty reasonable explanation for the ensuing change in policy….”
Valid editorial gets emailed around the world and garbled each time.
But frankly, at this point in time nothing surprises me. Banks are clearly in trouble, Citi threw in another $3B. There are an awful lot of small banks under severe stress. etc.
names?
It is absolutely unbelievable how Schilling, Mark Zandi and many experts have destroyed this great country with this constant “irrational exhuberance” talk. And all that talk is just because real estate in just 10% of this country has doubled in price in the last 5-7 years or so. The biggest real estate bubble in the history of mankind is in India, where land prices in most cities have gone up 10 times to even a bizarre 100+ times just in the past few years. Even condos that are not tied to land have gone up 5 times in the past few years. The prices there are more expensive than in most places in the USA, and yet the salaries there are far less. There is only hype with little substance in India’s economy, which is completely dependent on the USA for survival. Yet none of our stupid “experts” comment on anything happening in such places and worry about a 10% increase somewhere within the USA. Now that is what is irrational.
Land does have wild swings, 10x to 100x is not surprising to me, and is expected.
I’ve seen some investment opportunities in places in Eastern Europe where land prices are something like $0.10 to $0.20 per square foot for dirt. For perspective, junky industrial land in the inland empire for $8 psf would be considered a pretty good price.
If you go from having no economy before globalization, to having some jobs, and a need for new buildings, etc., land can go from being worth almost $0 to modest amounts, and seem like way too much.
The biggest question you have to ask yourself in India, is whether at today’s prices, you can buy the land, build a building, and rent it out for an unleveraged yield of greater than the cost of your debt. If the answer is yes, then the land is likely fairly valued, regardless of what it was worth last year.
And I’d like you to show us locales that have gone up only 10% over the past few years. From where I sit, MOST places have gone up far, far more than that.
It’s not complicated math, take the fixed-rate mortgage payment and triple it. If the occupants do not make that much money per year, then they are living in a house they cannot afford.
If you are lucky to have bought a long time ago, do the same math in reverse on what you think your home is worth. Could you buy that same house today? Would you buy the same house today at that price?
Schilling and Zandi did not issue $0 down, no doc loans for elevated values. Schilling and Zandi did not cause prices to detach from fundamentals, allowing sales prices to rise to the point that payments to buy were much higher than rents. They did not allow prices to get out of line with normal affordable levels.
The run up, not bad news, is causing prices to fall here.
AND, I have heard stories about how this is global. The cheap money was global. The loose lending standards were global. The bubble mania was global.
Is the U.S. the worst? Nope. We’re just the largest. Others will tumble harder and further.
And, how does that help us?
“Just 10% of this country”
Yeah, you mean the 10% that has something like 50% of the real estate wealth?
“It is absolutely unbelievable how Schilling, Mark Zandi and many experts have destroyed this great country with this constant “irrational exhuberance” talk.”
What is absolutely unbelievable is how this great country was destroyed by “A ponzi scheme” based on ever appreciating real estate and the irrational expectations foisted on unsuspecting Americans.
Do you mean Shiller? As Prof. Robert Shiller of Yale, founder of the Case/Shiller housing index? Author of “Irrational Exuberance”? One of the only economist to call the Dot.com bubble? The Man who has done more reseach on long term housing trends than anyone alive?
Is that the “Schilling” you speak of?
And Olympiagal says she misses the Trolls.
Quick question for all the financial experts out there……..
At this point, I do not think that it is an inappropriate question to evaluate the solvency of the place you do your banking at. Mine is a local bank, one of the biggest ones in the state, with little APPARANT exposure to toxic mortgages (in fact, they don’t seem to be a major player in mortgages of any kind).
Is there any way to evaluate a particular bank’s exposure to subprime/real estate/construction lending, without being a forensic accountant?
I suspect that an implosion of a major bank or two will show the FDIC is about as prepared/responsive as FEMA after Hurricane Katrina.
I suspect that there are other financial-unsophisticates like myself on this blog that would like to know.
If you’re under $100k don’t worry, the FDIC has an open credit line to the Treasury. When the FSLIC ran out of money to liquidate all of the dead S&Ls Congress simply handed over $100-$150 billion to do the job. FDIC insurance is effectively a full faith and credit US obligation.
“‘There is a real complacency, or an under-appreciation of how bad this is,’ said Ramsey Su, an investor and former real estate broker in San Diego who regularly combs through the local sales database to asses the impact of foreclosure sales.”
“Thomas Blanchard, who sells bank-owned properties in Las Vegas, said the trend has accelerated the past two months, and he estimates that 60 percent of properties on the market there are in foreclosure.”
“‘The only people that you have in our market here in Las Vegas are the people that have to sell,’ Blanchard said.”
Whoooweee-the worm is turning.
With some self-restraint, buyer’s can drive values right into the toilet.
All people have to do is sit on their hands and continue to funnel savings into the downpayment kitty.
All it will take is for some lender involved in a log-jammed market to panic and start liquidating via absolute auctions.
And voila- it’s a new set of comp’s. A little blurb about the complete lack of arms-length tranasctions and that liquidation sales are NOW the measure of the market-and it’s look out below!
Kinda like a game of pick up sticks. On missed pick-up and the whole pile just crashes.
Hang tough all you buyers!
Being greedy and stupid doesn’t mean you don’t believe stuff.
Good God ,how can home lenders say that putting a borrower in a house they can’t afford isn’t sitting them up for a big fall . Those lenders thought new age risk models were correct and that the rising prices would cover all risk and they would make money on that unqualified buyer . Also according to the rating agencies ,they didn’t consider fraud or owners walking as a risk factor during this easy money ,teaser rates , low down lending . Didn’t one person in that industry ask ,”What are we going to do if real estate doesn’t go up and the borrower really is stuck with the adjusted up high interest rate (they can’t afford )and they can’t sell or refinance ?”
Sometimes I wonder if borrowers even asked the above question to the RE sales people and loan arrangers that were so positive about real estate as a no risk investment (as if they would of got a truthful answer ). I’m not even sure that the sun will come up everyday ,so how could the cheer-leading housing cult make such absurd assertions about real estate going up ?
http://blog.syracuse.com/news/2008/02/feds_say_upstate_ny_woman_sold.html
Can’t say I’ve heard this one before. It’s a sick world out there.
Fed says Upstate NY woman sold girl for sex…..to pay for back rent. Twelve year old girl complied because she faced homelessness and threats of death.
Meant for bits bucket—–my apologies.
Excellent thread though!
Zillow rewrites history. I’ve had ongoing discussion with a close friend, advised him to sell 2 years ago when comps where $750K. Things fell apart and the same model, better shape sold ACROSS the street for $590K. Zillow actually reflected reality and showed his house peaking at $730 and dropping to $580K.
I just checked, after Zillow revised their criteria, not only did they raise the current value almost 100K, they lowered the peak 30K! Now the Zillow “historical” graph show the house went up and is holding steady at the new “peak”. What a freakin’ joke. Any J6P idiot doing their complete research on Zillow will think prices are holding steady when in reality their in freefall. Is this another one of Bush’s strategies to fix the mortgage crisis by rewriting history?
Yeah, it’s that evil Bush. He’s behind everything. Beware of the subliminal messages he’s put into Zillow and even the HBB.
grapevine note boys and girls. the wheels have begun to fall off the credit scoring guidelines. i remember just not too long ago underwriters would ask why people were late. if it didnt make sense they knew it was risk, and knew what to do. FHA still relys on the human eyeball to determine credit worthiness and i say thats still not too bad.
what if I’m a private lender like slim ?
freeze mah azzz
The Bush administration, trying to deal with a worsening housing slump, announced a new initiative Tuesday aimed at helping homeowners about to lose their homes. For those qualified, it will put the foreclosure process on hold for 30 days.
Like the last one, it is purely voluntary…. It is lenders not able to keep up with the tidal wave of foreclosures, pretending this is some government helping hand, when it is really just them hoping people will stay in the houses and pay SOMETHING.
“‘We’re in kind of uncharted territory for accountants in a lot of these products,’ said Ricardo Kleinbaum, a credit analyst at BNP Paribas SA in New York. ‘Internally, all financials are grappling with this issue of how to value.’”
Uncharted territory?? Heck, they’ve been following Enron’s ‘new world’ accounting roadmap for many years now. They’ve just reached the limits of legalized creative accounting and are hesitant to venture further into the equivalent of a financial twighlight zone.
Financial fiction is obviously the final frontier…
“Frank also said it was wrong to turn owning a home into one of Americas’ biggest dreams.”
No, it is not wrong to dream of owning the roof over your head… at least to the extent that perpetual property taxes, HOA’s and maintenance costs challenge that concept. The alternative is renting, which is fine as a personal decision, especially when the price of a decent home is out of reach financially.
But “he who owns” will always be made richer by his tenant, encouraging the widening of the gap betwen the “haves” and the “have-nots” and perpetuating the class jealousies and tensions already emerging from the jingle-mail debacle. For a few years we were happy to pretend that people who made less than 50K a year could afford 400K houses and drive new cars. Now these folks are understandably enraged with a system that promised them the moon, but exploited them with the knowledge that they would probably lose their “home” in a few years while they, the orchestrators of the Ponzi scheme, walked away with pockets full of commission cash. The PO’ed masses have not yet begun to express their anger.
After the awful truth starts to sink in, and if you’ve done the right things financially and stayed out of debt, you may have to hide the fact that you have money or end up like the family in Austin that recently had their child kidnapped. As the early part of this decade was dedicated to flaunting wealth, I believe the latter part of this decade and the years leading to 2012 will see people hiding their resources and learning how to use firearms.