Bits Bucket And Craigslist Finds For March 4, 2008
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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FED Rescue Has Failed…
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/03/ccview103.xml&page=1
‘Section 13 of the Federal Reserve Act allows the bank - in “exigent circumstances” - to lend money to anybody, and take upon itself the credit risk. It has not done so since the 1930s.
Ultimately the big guns have the means to stop descent into an economic Ice Age. But will they act in time?’
Isn’t the TAF a big gun? What kind of collateral backs the credit risk on loans made through the TAF?
As a private bank, doesn’t the Fed then have to eat those losses? Wouldn’t that cut into the vast amounts of money they rake in? I honestly don’t know but one of our Fed experts could probably clear up who eats that bad collateral.
They own the printing press, and with it the power to share losses through printing-based dilution.
Well if we’re being technical here…. In the same technical sense that the FED is a private entity, the Bureau of Engraving and Printing, part of the U.S. Dept of the Treasury is responsible for actually PRINTING Federal Reserve Notes.
I was not being technical in a literal sense. What I meant is the Fed has a monopoly right to expand the U.S. money supply.
Actually “monopoly power;” I realized after posting that “right” sounds a bit too constitutional.
Prof Bear,
The Fed can create liquidity but are they in the same position as other banks with reguard to capital? Do they have to answer to treasury dept and federal examiners?
I’m wondering how much bad debt they can really take on before they are capitally impaired like many of the other banks.
It is supposed out there, that the Treasury will just show up with a new bag of bills. Is it really working that way? Seems like the treasury and many other government agencies are saying “go get deposits”.
I’ve starting to follow the deflation camp. Seems like a widespread repudation of debt and clearing of the books is in order.
I’m wondering if Paulson is driving this or others in the tresury/FDIC exc.
PB was just being nuanced.
I don’t know what happens when the Fed takes a loss, but any net profit at year-end is delivered to the treasury dept.
The Fed isn’t really a private bank in the traditional sense of the word “private”.
Generally speaking, as I understand it, all money they create is supposed to be “collateralized”. If that money is no longer collateralized then they are required to pull it out of the market by selling securities.
That is the law. What happens in practice? I don’t know. Is a debt really bad if it’s not recognized as such? I would imagine there is a fair amount of finagling of the dollars/books.
According to the reset chart which accompanies the article, March 2008 is the very peak of the subprime reset tsunami. A bottom in housing must be close at hand, now that the subprime reset tsunami wave has crested.
Buy the dips.
It takes about 10 month from reset to foreclosure. Most of the Alt-A resets are still ahead. In addition, as home prices fall, more people that could afford the payments decide to walk creating even more defaults. That means more REOs and even lower prices. Meanwhile lending conditions remain tight. I wouldn’t run out to catch any knifes just yet. Once it bottoms out it will stay there for a while, no real sense of urgency.
Yes, Yes, and Yes. Although the argument could be made that for a home-buyer the best combination of selection and price is available shortly BEFORE the market hits bottom.
Don’t forget the recession/depression. Wages are going down and pension plans, SS, Medicare, govt entities will take heavy losses before this is all over, IMHO. Also, as Baby Boomers age, they are more likely to divest themselves of any “investment” properties & when they pass away, their heirs will have new homes to live in, sell, or rent out. More homes on the market & less demand, maybe for a long time to come.
Lots to consider before buying.
“Lots to consider before buying.”
Indeed — one could spend years mulling over all the complications of a home purchase transaction before finally taking the plunge.
We are waiting for Tsunami waters to pull back and see what is left. That will take some time.
There is that second wave too.
Finally there is a time lag before the extent of the damage is realized. It will be a long time before people fail/get in trouble.
There will be so many people in a greatly weakened condition, so that every minor economic event will cause more REO to appear. All those people underwater and in denial; when a real crisis will occur they will lose the house quickly.
Then we have the BB retirements to deal with.
I don’t think that the Baby Boomers will be able to retire en masse like their parents did. We’re already seeing some of them re-entering the workforce because they couldn’t afford retirement.
Its kind of hard to retire when one has no savings and no pension other than Social Security. I know BB’s like this. They project an outward image of prosperity, but the tree trunk is hollow.
Indeed — one could spend years mulling over all the complications of a home purchase transaction before finally taking the plunge. Just don’t let suzanne do your research for you….
Any theoretical “bottom” in the housing market is meaningless unless houses are actually affordable, and we’re still a LONG way from that, so we still have an equally long way to go until the bottom.
AZ Slim,
I am using the term retirements but these will be the manditory kind of retirement.
Yes, but here is the solution proposed by Bernanke:
http://biz.yahoo.com/ap/080304/bernanke_mortgage_crisis.html
Let’s REDUCE the principal amount owed. That’s right. You read that right. IF the “buyer” can’t make the payments, just reduce the amount they owe, rather than foreclose.
What does that mean? Simple. Four Years ago, I was willing to pay $130,000 for a house that was probably worth $120k. But someone with no money or credit bought it for $150,000.
Now they can’t or won’t make the payments, to Bernanke is saying to drop the principal to $120k.
Rather than foreclosing and allowing me to buy it back, by saving my money, the NO Money buyer gets to buy at my price. What a total upside-down rip-off world we live in.
Screw you, you “Intellectual” idiot! NO BAILOUTS for gamblers.
i like this part:
“Bernanke acknowledged this idea might be a tough sell to lenders.
Lenders, he said, are reluctant to write down principal.”
Gee no shit, Sherlock.
But in the alternative scenario… what happens to my life savings?
Being a saver didn’t save thousands of pensioners in the 1930’s. The banks failed and took their savings with them.
Hmmm… these economists don’t have a freakin’ clue about how businesses work, do they?
Each business pays its employees based on the specific amount of profit (or loss) they make for the company.
If I were the officer of a bank, would I:
(a) reduce the principal by a specific amount which would be tracked as a loss and attributed to me?
or
(b) foreclose which would result in an indeterminate loss somewhere down the line and attributed to whoever made the loan?
Which one would give me the larger bonus?
Hmmmm…. this is such a difficult decision! I guess I should take some classes at Princeton to find out.
Well if the lenders can determine that they’ll lose less money by keeping an FB in the house rather than foreclosing, then that is what the lenders SHOULD do. The house is worth what the market will bear. If the FB CAN afford to make payments on a principal amount that is less than they owe, but more than would be yielded by foreclosure…. Of course there are several IFs here, and lenders became SUCH experts at figuring out what payments borrowers could afford….. In theory this isn’t a bad idea, but I just don’t think that the servicers have enough people and expertise to do this in a useful timeframe.
“Bernanke acknowledged this idea might be a tough sell to lenders.
Lenders, he said, are reluctant to write down principal.”
Are they eager to hang on to REO until the swimming pool is green and the walls are crumbling?
I think there’s going to be a lag. The people who I know that can’t afford their new payments or can’t refinance because the values went down, are stalling. They can’t decide what to do or they are in denial. They can still squeeze out the payments. It will take an unexpected large expense to push them into foreclosure if they won’t act now. It will happen, but not right at the reset date for everyone.
The market will only bottom once credit has reached its tightest. It was the loose credit that allowed borrowers to raise so much cash with which to buy real estate.
I know you are just being wry and witty, Mister Stucco, but a further technical point I want to interject is that the reset chart in the present article has a peak three or four months later than the peak in the old Ivy Zelman reset chart; and it seems to me that in recent months I’ve seen yet another reset chart whose peak is somewhere out in fall 2008. My interpretation of these disparities is that ARM loans continue to be made, albeit in smaller numbers, and so the peak of resets continues to move into the future.
Don’t forget that there’s a second wave on the chart that they aren’t talking about.
That second peak is when all the neg-am cash-out HELOC’s reset. And those loans were to Alt-A and PRIME borrowers. That’s when we’ll BMW’s on Ebay and McMansions for sale. 2008 will be like 1930, 2011 will be like 1934.
Personally, I don’t want to wait that long. I’ll need more space for the canned peas and AK-47’s.
Buy a Remmington 700 with a nice scope.
You get better range from that and the looters get frighten off by precise sniper fire.
They scatter before they get within 300yrds.
‘I’ll need more space for the canned peas and AK-47’s.’
AK’s are too heavy for my girly arms, and I don’t like canned peas–they’re icky. Canned peas and pickled jellyfish are just about the only things in the Universe I won’t eat.
Still, your ideas are sound.
“AK’s are too heavy for my girly arms”
But they are so easy to shoot it should at least partially make up for it.
Canned peas and pickled jellyfish are just about the only things in the Universe I won’t eat.
Canned peas are pretty damn depressing, even the fancy French ones. If it gets bad enough that canned peas and pickled jellyfish are the best available options, we’re all in a lot of trouble …
If you can’t shoot ‘em with your AK-47, you can bean ‘em with your canned peas.
FNMA & Fred crashing 30YO fixed rates to 5.5%.
This is nothing more than a financial trap for purchaser’s because as soon as the rates are later increased, valuations will fall in lockstep and poof…there’s goes that hard earned 10/20% downpayment.
Great time to buy my azz.
BB has lost control of everything.
Funny story… German friend of ours told us that house prices (decent houses) won’t fall below $150K in Gainesville. That’s funny, I know a lot of people who bought them for $60-75K only 5-8 years ago (the lowest was a repo auction).
He comes from a country where housing prices are very stable. According to our news sources, Germany “wasn’t in a bubble” (yeah, but they might still have a bust). He hasn’t been here very long, has no ideas that these prices are totally out of whack. I mean, $220-290 for a concrete block 3/1.5 50 blocks from UF? Even professors don’t get paid that much, for one thing! (Unless they are politician friends of Bernie Machen.)
you should have seen him roll his eyes when he said that. he is converting from euro to usd. no wonder.
Does anyone have any info: graph, anecdotal et al regarding the market in Mohave Valley, AZ?
you might try realty.com. if its like kingman the prices are going down. kingman is in mohave county about 35 mi from mohave valley.
Drove from Kingman to Vegas Saturday. Certainly both those areas are FB City, so how can Bullhead (or MV) be any better. MV website says median household income $38.6K (2005), median home price $193K (2005)…well, that ratio (5) isn’t as bad as Calif, at least.
I have been watching this area closely.They have not updated anything lately at this site.Its quite a drop I know that much.
Just like trulia they keep showing figures for October thru about Jan.
Run the cursor over the amount of sale for December.
When it comes to prices they are all over the board due to riverfront homes verses shacks all in the same zip codes.
Most sellers have not budged much in the lowering of prices.We would love to retire there but there is a long way to go.
ALOT of bank owned but most go thru auction with no sale and then back on the market at the higher prices.There are a few short sales.
Its just a matter of time.
http://real-estate.nextag.com/Bullhead-City/Arizona/homes-html
Here is another.Data lags behind about a month or so and shows when sales were still hanging in there in October but its really dropping.This page links to all cities in AZ.Just checkout the area you wish to track.
http://www.trulia.com/city/AZ/
One more before I go.If you want to track prices go here.
3rd 4th and 5th links show lsitings with more details.realtor dotcom is good at showing all listings and inventory but lacks specific info.
Here you will find more details and more pics.I am no way endorsing any realtor.I just use the site as it has more local info.
http://www.westusasellsaz.com/m_homes.asp
Perfect example of a short sale.Went on market for $129K.Nighborhood has $200K homes.It will probably go back to bank and be listed about $200 if not sold at short sale or auction.
Either way…there goes the prices in the area….
http://www.wardexre.com/cgi-war/SD_disp?funcXX1I=idx&dispXX2I=2&LM_MST_mls_noNNNB=808940&LM_MST_mls_noNNNE=
There are more realistic bank owned prices in the Bullhead area than the Kingman area right now. I’ve seen several that get down close to $100 a square foot, but they sell immediately. The prices are still too high for locals. It appears that most are still selling to speculators, not many owner occupied. I’ve seen several auctions of new homes by the builders. Prices can vary as much as 100,000 between the same model.
Kingman is ridiculous. Sellers and banks are still pricing at very high prices. The only reductions seem to be on very small houses in less desirable neighborhoods. There are houses that have been sitting for over a year and have never lowered the prices. Most houses here also appear to be selling to speculators. Our rental house is surrounded by foreclosures and the two out of three that have sold are still vacant with no sign of anyone moving in.
New houses are being rented rather than have the price reduced. Most of the new homes are being built on 6000′ or less lots because the price of land went up 10-20 times between 2004 and 2005. The subdivision behind us is on 4000′ lots.
One Las Vegas developer has approval for over 300,000 new homes in the Kingman area, another 33,000 in Golden Valley and about 40,000 in White Hills. Plus there are dozens and dozens of other subdivision already approved. Thousands of acres have been graded and staked.
The realtors/developers are still selling the bypass bridge to Las Vegas as making Kingman a bedroom community to Las Vegas. Speculators are still sure they can double their money even though prices doubled and tripled since 2004.
We’re getting pretty discouraged with actually buying a house in Kingman.
shari, you might look in my area of kingman. the builder that built my house has new homes on large lots 9000 sq ft. starting at 165,000 3/2/2 13000 sq ft. i live on prairie view dr between kino and gordon. its on the east end of kino. i love the area here and very nice neighbors.
“One Las Vegas developer has approval for over 300,000 new homes in the Kingman area, another 33,000 in Golden Valley and about 40,000 in White Hills. Plus there are dozens and dozens of other subdivision already approved. Thousands of acres have been graded and staked.”
Approval is the key word there.No active building.I was in Bullhead city in December.Both Laughlin and Bullhead are loaded with tracts,gated communities that are just sitting idle.Building is at a total standstill and I dont see recovery anytime soon.Tons of new condos and houses sitting vacant.That same traffic flows thru the area via a different route for trucks.No bridge,the bypass by Hoover or even the new one over the Colorado river between Bullhead and Laughlin will be enough to slow the decline in a area with no job growth.
Also the economic picture shows tightening in lending so who is going to buy all those new homes at inflated prices?
Some of those developmenst like Golden valley are based on Wal Mart opening a new wharehouse in the desert.WalMart has put that all on hold . There are also water issues in some areas.
If you want to purchase in that area of AZ , just be patient.When the bank owned homes go down so will the entire area.Time is on the buyers side bridges or no bridges.
Sorry, I did not get back sooner. Your input is fabulous. Wow, thanks for all the time and effort I really appreciate it. Get back to you all ASAP. Thanks again.
CiTi Needs Mo Money…
http://www.bloomberg.com/apps/news?pid=20601103&sid=aPXK5PYx8IOc&refer=news
LOL
One would think that having revealed this many losses that Citigroup would have few to hide. Not so, this will drag on for years.
I find it strange. If I’m a new CEO, I want to have a kitchen-sink quarter to ditch all the crap on the books. Get it all out, and promise it’ll never happen again. Current strategy seems to be- drag it out as long as possible.
Guess I don’t have to worry about the search committee for C giving me a call.
In order to have a “kitchen-sink” quarter, you’d need reserves.
Look at some of the smaller banks. They are having their kitchen-sink moments as we speak.
The Bloomberg article is “white noise”
This is the Citigroup article to comprehend.
“…Citigroup Inc. announced a reorganization of its U.S. wealth-management business into units that will be segmented by the affluence of the clients each unit is targeting.
The move is aimed at increasing efficiency and profits at the wealth-management operation, which generated more than half of Citigroup’s net income last year. But the revamping is far less dramatic than the spinoff scenario that many investors have been clamoring for, suggesting that new Citigroup Chief Executive Vikram Pandit is more likely to tinker with the New York financial conglomerate’s structure than pursue radical changes….”
WSJ
http://tinyurl.com/2wj7de
The changes at C are fast and furious. “He who picks bottoms ends up with stinking fingers”
That’s right, otherwise the “big bath” becomes a blood bath.
The reorg is the same thing he did at Morgan incidentally (who “borrowed” the idea from Merrill.)
Just watched some commentary on FT.com website, and the analyst (from Oppenheimer) said that US banks want to do this, culturally, but they are so heavily leveraged that the deleveraging is dragging the process out.
A vocal supporter of ousted Citi CEO (strangely, named “Prince”) was the billionaire Saudi Prince Alwaleed.
Funny, even his people aren’t answering the phone about Citi anymore either.
The “spin” artist-
Formerly known as Prince.
I thought it was a bit strange when I was reading this Bloomberg piece that it was a bit slanted to the happy side: The title was:
“Citigroup May Need Cash as Losses Mount, Dubai Says”
Another report on the same facts by MarketWatch was titled:
“Gulf investors may not save Citigroup, Dubai executive says”
http://tinyurl.com/3xenno
some other choice quotes from this one: (emphasis mine)
Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference that it will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.
“It’s going to take more than that to rescue Citi,” Ansari said.
Al Ansari said “it would take a lot more money to rescue Citigroup.”
A spokesperson for Citi was unable to comment immediately when called Tuesday.
—
The second one was seemingly from an Arab source. Maybe it differed in translation, or in the original Arabic, some colorful euphemisms were used.
…all the King`s horses, and all the King`s men?
Perhaps it is slanted to the happy side.
In any event, I hope posters here remember that commentary here often is heavily slanted toward the doom and gloom. Forevermore.
Yeah, I know. I’m a troll.
I took the liberty of rewriting the first paragraph of this article:
March 4 (Bloomberg) — Citigroup Inc., the biggest U.S. bank, may further dilute current shareholders by selling to outside investors as losses stemming from the collapse of the U.S. subprime mortgage market increase, the head of Dubai International Capital LLC said.
Citigroup sold $7.5 billion fully dilutive stock in November to Dubai’s neighbor, Abu Dhabi, after record mortgage losses wiped out almost half the company’s market value and led to the departure of Chief Executive Officer Charles Prince. The New York-based company said in January it sold another another $14.5 billion in fully dilutive stock to investors, including the governments of Singapore and Kuwait.
Uncle Buck bleeds out:
March 4 (Bloomberg) — The dollar fell for a sixth day against the yen and traded near a record low versus the euro as traders increased bets that the Federal Reserve will lower interest rates by 0.75 percentage point this month.
The dollar index, which compares the currency to those of six trading partners, declined as futures showed a 76 percent likelihood the Fed will reduce rates to 2.25 percent. Last week, traders saw no chance of a cut that steep
http://tinyurl.com/2xw939
They have a six-shooter. Will they waste half their load on the 18th. It could\will be a long battle. Not sure I’d waste half my ammo that quickly. Course they could start paying us to take the stuff.
i’m sure this has been commented on before, but i just sorta “remembered” my feelings the last time the rates dipped WAY down.
at the time i was the CFO of a *barely* breakeven little sofware outfit.
i just remember that the move from 3 to 1% was a complete non-event for me. i mean 3% is already insanely low by historical standards.
now, i’ll grant you that perhaps it helped out some of our customers and by extension helped us rebound faster from the effects of 9/11.
but, for a LARGE percentage of the econ, i’m guessing that the reason they aren’t borrowing doesn’t have much to do with, “rates are too high right now”
fuBarrio
IMHO the problem is that they’re cutting the interbank rate in an attempt to lower rates to customers. (businesses and consumers) But increased risk premiums mean that the margins are going up more than they can cut.
I dont think this is the issue.
In my rather frank conversations with EVPs at a few banks we do business with it is coming up time and time again that they are simply not loaning money to anyother other than Forture 500. I have to periodically threaten that we would move our deposit accounts if we are to receive yet another credit profile review. Banks view low interbank rates as a great way to pay even less for deposit accounts building up the reserves so they can unwind the really bad positions. I dont think they have any idea about how long it will take to make bad positions look like accounting errors. Fed, in la-la land, thinks cutting the rates makes banks loan money.
Lowering the Fed funds rate is designed to help BANKS by increasing the yield curve. Borrow short term at practically zero percent interest, lend it longer term at higher interest.
Assuming any new loans are being made, and the capital is not fleeing the country.
Both iffy assumptions IMHO.
Think of it this way, the fed sets the wholesale price for money. Banks in a mostly competitive market compete with each other to set the retail price for money. The market just got a whole lot less competitive (as many big banks don’t have enough capital to convert wholesale loans to retail loans) so retail prices are rising. This will likely continue until enough banks have made enough on the larger spread to expand at which point the other banks will lose share or begin to compete again.
FP,SS:
I read that a lot of money is being pulled out of emerging market funds by US investors. Do you think that there is net capital outflow in spite of this? Is there anyplace an average investor can see net capital inflow/outflow numbers?
The market just got a whole lot less competitive (as many big banks don’t have enough capital to convert wholesale loans to retail loans) so retail prices are rising.
Retail rates are rising largely because the banks are busy covering losses and repricing the risks higher, since their portfolios are evaporating. Currently, they don’t have the prospensity to lend or expand. Lower wholesale rates are supposedly making it easier for them to writedown losses and stay solvent in the meantime, but there is long way before we see the retail rates go lower.
It’s just a different context, and low Fed rates are not passed on to the consumers.
This all reminds of the cartoon of a nuke waste truck driver. A pedestrian asks him where they dump the waste. The driver tells them they don’t. They just keep driving the truck around on the highways.
trouble in alt-a
NEW YORK (MarketWatch) — The other shoe just dropped in the U.S. mortgage market.
In the last month, pressure has intensified around mortgage securities made up of so-called Alt-A loans, fueling concerns that a fresh round of losses are awaiting Wall Street firms and other lenders at a time when these companies are struggling to get back on their feet amid the ongoing credit crunch.
http://www.marketwatch.com/news/story/troubles-emerge-alt-loans-delinquencies-ratchet/story.aspx?guid=%7B4363524A-D5E8-4119-925C-E850DE6DB551%7D
But but but but, the “glass is 75% full” mouthpieces assured me that 98.9% of all mortgages were being paid!!?!?!??
Well, 96.1% is still good, right? Right? RIGHT?
Is this thing still on?!?
===
Delinquency rates for borrowers behind on their mortgage payments by 30 days has been climbing steadily higher since December. In February, the rate jumped to 3.89%, compared with zero as recently as November, according to remittance reports that track performance of home loans.
“Generally speaking, I do not believe Alt-A credit is any better than subprime,” said Alan Fournier, the managing member of Pennant Capital Management LLC in Chatham, N.J. “The performance of this market doesn’t surprise me, given what’s happening to home prices and credit availability today.”
About time! I have been wondering for months when Alt-A was going to show some damage. I suspect many of these loans are just as crappy as sub-prime. However, since these loans were written to people with good credit, the mortgage holders are able to manage a few more months than the typical sub-prime person. This is especially true for Option Arm loans. Over 70% of option ARM holders pay only the minimum every month.
as mentioned lo these many times, Casey Serin had “good credit” when he “bought” the six houses he eventually puked up.
bundled mortgages, dubious fees:
When Ohioans head to the polls Tuesday to vote in one of the nation’s most scrutinized presidential primaries, Mark and Gina Wellman of Circleville, Ohio, will be watching another vote — what buyers are bidding for the house they built themselves when it goes on the sheriff’s auction block.
http://www.nytimes.com/2008/03/04/business/04auction.html?ref=business
about that strong dollar policy:
BRUSSELS: Policymakers on Tuesday voiced concern over the impact a sliding dollar will have on the European economy, and they urged the U.S. authorities to take action to support the currency.
“I don’t think that it would be wise to offer targets to financial markets,” said Jean-Claude Juncker, the Luxembourg finance minister.
http://www.iht.com/articles/2008/03/04/business/4eurofw.php
I guess in summary he is telling borrowers to rob their 401ks to bailout the banks. That’s the last thing they need to be considering.
Sorry to comment about yesterday comments, but I really have to wonder about this statement.
I am very, very far from the brightest reader on this board, but I have to wonder about this. If you believe stocks are going to tank and interest rates will be negative, why not cash out the 401K?
If I were to buy and pay off the property, lose my job, it would hurt, but I would still have a place to live. If stocks go down, or stop paying dividends, there go all my “gains.”
Yes, I know, I’m assuming I’ll keep my great neighbors and not want to relocate for another job.
If you prematurely cash out your 401K aren’t you’re going to pay taxes and penalties? Not to mention you won’t have any savings for retirement.
I remember during the dot com phase my boss borrowed a substantial amount from his 401K for a “can’t miss” investment. Guess what; he lost most of it in a day - ONE day. He’ll probably have to work an extra 10 years to make up for that one day of bad judgement.
I actually have a question along this line too. My parents (age 65 & 63) have about 50K left on their mortgage (fixed 5%). They have about 400K in a 401K. I suggested that it might be time to pay off the mortgage since the market is shaky. They talked to their 401K financial advisor and he said no, the 401K is performing great. Any thoughts?
It’s their money, they can do what they want. The advisor is their employee.
“Any thoughts?”
The value of your parents 401K, if held in stocks, is a matter of opinion, the opinion of Mr. Market. The value of your parents mortgage is not an opinion but is instead a fact.
All else being equal, I’d opt for paying off the mortgage and earn a 5% return.
Assuming they can withdraw it without penalty, if it makes them sleep better at night its not a horrible idea. It locks in rate equal to their interest rate minus their tax deduction. I think in one year the stock market will hit lows that will represent great times to invest again and I expect at that time I can make a higher return then the 4% (e.g. 6% - 30% of 6% which is a guesstimate) or more they will save by paying off their mortgage, but I have at least 10 years before I retire.
The original quoted comment was more addressed at borrowing against a 401k to stay in a house that you cant afford, not addressed at paying off your house if you are older and there is no penalty for pulling money out. I would also question paying off a house if you have no equity, since i think you will have less equity next year and it will limit your options to dump the property, but your parents are not in the situation.
Thanks for the input. I will be visiting them in a few weeks and plan to run some spreadsheets for them. I have a feeling I will be able to show them how paying off the mortgage now while they have a decent amount in the 401K will be safer than gambling on that money still being there in 1.5 years! They are looking so forward to retiring I would hate for them to get to that day and realize they have a portfolio worth significantly less AND a mortgage.
Maybe I’m off base, but I’m thinking that having a paid off home and no debt, with low overhead is a better financial position than having a bunch of retirement savings. This is from the perspective of only enough funds for one or the other. I don’t understand folks that have tons of debt but still contributing huge amounts to retirement savings. I suspect age has something to do with which position is the better place to be.
Normally, I’d agree with you, but with the bursting of the housing you may actually be wrong. If inflation really kicks off and RE marked continues downward, it would be better to have money treading water in TIPs while continuing to make low fixed rate mortgage payments. I’ve got 10 years left of 4.875% mortgage payments and it doesn’t make sense for me to pay that off early.
You need to do the math. The penalty on early withdrawl is steep, so there is a huge chunk that would be gone with this move. Early withdrawl also has serious tax implications. All that money counts as income which means the risk of ending up in a high tax bracket with a not only a high base rate but also the Alternative Minimum Tax raising its ugly head. Get the money from somewhere else or pay a steep price is going to be the reality for most people considering this option.
“I’ve got 10 years left of 4.875% mortgage payments and it doesn’t make sense for me to pay that off early.”
I’m on the same river. I like to think that I really didn’t buy more house than I needed as a “speculator”, I was just purchasing an inflation hedge
Well with the benefit of 20/20 hindsight it would have benefited me to buy more house than I did. Who knew rates would go so low? But currently I pay less in PITI than I would to rent an equivalent house, so selling to “secure” my gains doesn’t make sense either.
Are you thinking about cashing out a 401k, thereby realizing any gains or losses, and then reinvest in real estate (your house)?
Nope….and not planning on taking money out, but was just curious about it, as much better people than me have (given the comments) thought this through.
I guess I was going more towards the peace of mind, but I fully agree, better to remain a renter with a huge bank account than a homeower with no bank account.
Don’t most 401k s have a US treasury option? So the stock market isn’t really an issue. ISTR (vaguely) that they are also shielded during bankrupcy proceedings. Alot of FBs have negative net worth now. It would be foolish IMHO to voluntarily take assets OUT of a protected investment vehicle.
take assets OUT of a protected investment vehicle.
“protected” in what sense?
Legal, bankruptcy sense.
To expand: If some unforeseen financial disaster struck, the 401K money is nearly untouchable by a judge. (Think medical disaster in the family; or family member accidently hits a child with a car and you have your butt sued to pieces. I’ve seen both cases happen.)
Gotcha.
Only argument in favor of a 401(k) or 403(b) IMHO.
Rest is all noise. Who knows how they will change rules in the future, etc.
“Who knows how they will change rules in the future”
They will change the rules to get at the money - no matter where it might reside. What reason is there to believe anything else?
“if some unforeseen financial disaster struck”
JP,
Isn’t that why you buy umbrella coverage? The premiums for coverage up to 2million or so are pretty low. Or am I wrong in my thinking?
“Isn’t that why you buy umbrella coverage?”
Yes, that’s the theory at least. But remember that it’s aimed at liability, not medical. Nevertheless, it’s a good idea.
[ During the tech bubble, one company in Irvine required it's employees to carry an umbrella policy. It seems that their employees were being targeted by scamsters, who would create some sort of accident, blame one of the company's engineers, and then go after the stock options. ]
You can petition the administrator of the plan to include a treasury option if it does not exist. My plan tried to get rid of that option and I wrote a few letters explaining that it was the only insured option available, even the money market option is not insured. They replied that the other bond fund was mostly AAA rated. I pointed to several articles discussing the problems with the rating agencies. I pointed out that the treasury fund had performed much better. They elected to keep it. I’m now trying to get them to include a short term treasury option, for when long term rates start to rise.
Measton, would you do that for my corps 401 programming which is “shepherded” by JP MORgan with payoffs by my corp for ded in “shepherding” costs to them, not us.
You are good. Keep up the good work.
Depends really on what investment options are in your 401(k). My current one is a full Schwab brokerage account with which I can invest in anything I like. This was one of three options offered by my employer - naturally I took it! About half my holdings in that account are in foreign currencies at the moment.
True, and for those that follow the market less and do not know much about investing, there are many, many conservative funds for retired ppl that need to preserve principle.
Does anyone know or have advice on transferring 401ks totally to outside 401k vehicles? Without retiring or quitting, just transferring to another source that would serve me much much better. I know of one coworker who had years ago transferred hers to her husbands but don’t know if that option is available to moi.
You may be able to do a rollover into an IRA plan that gives you more flexibility if you are not happy with your current plan. Talk to your accountant first though as there is IRS paper work that must be filled out properly.
http://tinyurl.com/3djmm8
Mortgage workouts are not helping most homeowners, what a surprise.
“When Mr. Paulson and President Bush announced an agreement with lenders in December on a voluntary framework to help homeowners, one idea was to freeze the interest rates for many of the 1.5 million people whose introductory teaser rates were about to expire.
Since then, the danger from abrupt rate increases has receded because short-term interest rates have declined. But analysts recognize that expiring teaser rates are only part of a much broader problem. Many buyers borrowed more than they could afford to repay, often putting no money down.”
Bundled Mortgages and Dubious Fees Complicate Foreclosure Cases
http://tinyurl.com/29un8f
Katherine M. Porter, an associate professor of law at the University of Iowa, conducted a recent study of 1,733 foreclosures that began in 2006. The study found that 40 percent of creditors foreclosing on borrowers did not show proof of ownership, what is often called “proper assignment” of the note or security interest in the property.
Included in the questionable charges, Mr. Helwagen said, were bank attorney fees, foreclosure fees and those covering hazard insurance. “The bank’s records were horrendous, they just jumped all over the place,” he said. “I’ve never seen anything like it in my life.”
I wonder how many creditors/banks are in a similar position of being clueless of what properties they have on their books and poor accounting practices.
some raised rates:
March 4 (Bloomberg) — Australia’s central bank increased its benchmark interest rate for the second time in four weeks and said there are signs the highest borrowing costs in 12 years are prompting consumers and companies to temper spending.
http://tinyurl.com/yqnxcp
some didn’t:
Rice prices have surged to a 20-year high in the latest sign of global food inflation, creating policy headaches in Asia, where more than 2.5bn people depend on cheap and abundant supplies of the grain.
Thai rice prices, a global benchmark, surged last week above the level of $500 a tonne for the first time since at least 1989, according to the United Nations Food and Agriculture Organisation, prompting importing countries to seek assurances on supplies.
http://tinyurl.com/ywwtts
MARK HULBERT
The odds of a five-peat
Commentary: Four down months in a row tell us little about what comes next
By Mark Hulbert, MarketWatch
Last update: 12:01 a.m. EST March 4, 2008
ANNANDALE, Va. (MarketWatch) — The stock market now has the dubious distinction of doing something it has done only six other times in the past 50 years:
It has declined for four months in a row.
Wise guy…
Comment:
” 24 Comments (view all)
I don’t want to nit pick, but hasn’t it been down 5 months in a row? According to BigCharts 10/01 the Dow closed at 14087, On 10/31 at 13930, 11/30 at 13371, 12/31 at 13264, on 1/30 12650 and on 2/29 at 12266.
- beaker”
He corrects himself in the next comment:
“I’m sorry, on 9/28 the Dow was at 13895. What a difference a day makes.”
Good one!
Oh, yeah, I almost forgot.
The Reserve Bank of Australia considers inflation here is still too high. They just raised official interest rates by 25 basis points again, 7.25% now.
they should hire some Dutch statisticians; I’m sure that will bring the CPI near 1% immediately
If you are waiting to buy until the housing market bottoms out, then plan to wait at the very least until some point following next January 1.
P.S. Is it correct to infer that inflated appraisals are OK until next January 1?
Fannie, Freddie Set Stricter Appraisal Rules
By James R. Hagerty and Amir Efrati
Word Count: 824 | Companies Featured in This Article: Fannie Mae, Freddie Mac
Fannie Mae and Freddie Mac announced an agreement with New York Attorney General Andrew Cuomo to discourage inflated appraisals by enforcing new standards in the home-mortgage market.
Seeking to head off the threat of lawsuits from Mr. Cuomo, the two government-sponsored providers of funding for mortgage loans agreed to a code of conduct due to take effect next Jan. 1. Because Fannie and Freddie are the dominant sources of funds for home loans, the code will become an effective standard for the industry.
Two questions:
1) Is this the last (major) nail in the bubble’s coffin, or should we expect more similar bombshells down the road?
2) How long after Jan 1, 2009 will the lagged effect of “the code” be fully priced in to the housing market? I am guessing this will take a while, due to the glacial pace of comp-related price adjustment, coupled with a reluctance to sell into a falling-price market. But perhaps foreclosure auctions will speed up the price adjustment process.
government-sponsored providers of funding for mortgage loans agreed to a code of conduct
OMG, not a CODE OF CONDUCT! now THAT will put the fear of god into them.
But seriously, can some of the appraiser-types on the blog comment? Does this thing have any teeth, or is it political maneuvering?
From the field- We appraisers have been watching this code closely as one can imagine. The jury is still out on details as is always the case when something new comes along. The number hitters are looking at a year of work we think. Then nothing.
The system they are talking about would basically remove the appraiser from the lender in a very good way. Appraisers have long hated the lender input if you will. There is an obvious conflict in the work effort of an appraiser and the lender being production based.
I can add this and that is 35 years ago when I began appraising it was rare that we got pressure on a job. Typically we worked with S and L’s and they were loathe to “overloan”. The banks were the same.
It all changed when these alternative lending practices came about. WALL STREET!!! These asshats knew they could simply palm the loan off and collect a big fee. One cannot understate the impact that the internet had on the lending process as well. For the first time in history I did not actually meet a single client. Hell, they were all in Irvine, Ca and I am in Florida.
Back in the day it took 30-60 days to get approved by the Board of Directors of the lender. IN the past few years it took 48 hours till a closer showed up on their doorstep. No kidding.
The new paradigm purportedly will not allow a broker to order and appraisal, a lender cannot use a list, a title company cannot own an appraisal arm, a company offering any real estate closing services cannot have contact with an appraiser. This is a good start.
Here is the rub. There are things called AMC’s which are appraisal management companies who typically charge the lender $350-$450 for an appraisal. They then assign it to one of their panel of appraisers. The appraiser usually gets about $195 for the work and the rest is pocketed by the AMC. Yep, these asses take the bulk of the fee.
As a result the appraiser is having to hustle like hell to make ends meet. It affects the quality of the work I can assure you.
If the AMC continually blows deals the lender threatens to pull their account so the AMC in a subtle way, thru a selection process, can eliminate the guy who does a good job and calls it as he sees it. This resulted in the preferred appraiser status. God help you if you were not a preferred appraiser.
Here is what I see coming. The AMC’s will try to worm their way in as an alternative to direct contact. They will try to get the same fee split as in the past. The appraisers will raise holy hell through the new conduit about fees and the guvmint will step in and try to dictate this relationship wherein the appraiser will come out with a bigger split. The AMC’s will fight tooth and nail but inevitably will drop out due to profitability issues. They are top heavy with staff and they are also mostly owned by lenders and title groups who will no longer be able to associate. Overhead will kill them.
The next question becomes who will do the ordering and the assignments to keep all the parties clear of each other? The guvmint!
Ultimately there will be a panel of every swingin appraiser out there and the appraisal will be assigend by area to the next guy or gal on the list. Computer driven assignments and the values be damned.
For the foreseeable future less than 25% of any assignment will work for obvious reasons. No equity. Then a gradual climb out over many years.
In the end the industry will change dramatically. Is it a good thing? I think it will be once it has been in place for a time. There is no reason for an appraiser to market, get on a list, wine and dine a client, nothing. Just sit by the fax and await the order. You don’t make one more penny regardless of who you know or who you bl*w.
Now that is true independence.
The clearinghouse that they are setting up will be funded by FNMA and Freddie with 24 million and all appraisals are to flow through their system. The key is tracking and evaluating assignments before closing. Appraisers that exhibit poor judgement for whatever reason should be dropped from the program. Good luck in your next career.
Thanks for the amazing post! Good to understand the buisness aspect.
Perhaps banks would start to keep score on how the resale values do and have a different take on performance soon.
I can add this and that is 35 years ago when I began appraising it was rare that we got pressure on a job. Typically we worked with S and L’s and they were loathe to “overloan”. The banks were the same.
Well when the appraiser is hired by the actual lender instead of an @sshat Broker or securitizer, there is a vested interest in getting the best appraial possible. Too low and they risk loosing business, too high, and they risk loss of principal. But instead we entered a realm where the appraisal was just another in a long sequence of lies about the mortgage. Income, value, assets.. all lies.
Jim-one more thing. Values! Our personal values were at work. Honesty and forthrightness were paramount to us.
An old appraiser told me that the only thing we have of value is our signature and our reputation.
Excellent enlightening post. Thanks.
“agreed to a code of conduct”
Ha! There’s that damn ethics thing again.
RE: Inflated appraisals
A total load of BS.
Number hitters are number hitters.
They will merely mutate by changing names and the physical locations of their operations.
They are grease which makes the system run.
So, tomorrow you’re gonna have some split fee hack for the princely sum of $150.00 report that the foreclosed subdivison purchased by some bankruptcy vultures which sits in the shadow of a trash incinerator facility and is a fooked up mess which shouldn’t have ever seen the light of day in the first place.
I don’t think so…
If this reform had any teeth, legions of previous fraudsters would be rounded up by the FBI, charged with racketeering, and sentenced to 5 to 10 years in a Fed pen.
Then, Congress should enact legislation that make it a felony to coerce or influence the rendition of an appraisal valuation pertaining to a federally insured or related mortgage transactions.
Personally, I think the system has been so queered by bogus reporting for bad ideas and projects over the last 5 years that there’s no way out save for the lying and deception to continue.
alt-A pain:
Forget sub-prime mortgages: the fear has now moved the next step up, to those financial stocks such as HBOS exposed to “near-prime” mortgages.
HBOS led the FTSE 100 down, losing 45½p to 558p, taking its total loss to 147p since revealing last week that it had £7 billion exposure to such mortgages, also known as “Alt A”.
These home loans are taken out by people with no credit history or who certify their own income. Bear Stearns pointed out that the bank has said that it has total exposure to £42 billion of asset-backed securities, largely emanating from the American market.
http://business.timesonline.co.uk/tol/business/markets/article3479539.ece
the rain in Spain:
Last spring, the Spanish property developer Astroc started the ball rolling. Its debt servicing problems triggered the first serious plunge in the shares of Spain’s financially over-stretched property and construction companies. Before crashing, Astroc shares had risen tenfold since they were listed in 2006.
Its chairman, Enrique Bañuelos, who had earlier been catapulted into the Fortune 100 list of the world’s richest tycoons, was forced to step down
http://www.ft.com/cms/s/0/22a441dc-ba69-11dc-abcb-0000779fd2ac.html
“the rain in Spain:”
…falls main–ly in
the plai-ains.
Newfangled banking risk management strategy:
Heads and we pay out record bonuses, tails and we clamor for govt-sponsored bailouts to save the economy from our too-big-to-fail demise.
The premise that banks are in the best position to decide how much risk to assume only holds up if the govt is willing and able to stand back and let them fail if their judgment proves wrong. Otherwise, the taxpayer in the bank’s home country (and possibly other countries) risks unwittingly becoming the insurer of last resort.
Mortgage Fallout Exposes Holes in New Bank-Risk Rules
By Damian Paletta and Alistair MacDonald
Word Count: 1,985 | Companies Featured in This Article: Northern Rock, UBS, Citigroup, J.P. Morgan Chase, Wachovia, Washington Mutual
Some of the world’s top banking brains spent nearly a decade designing new rules to help global financial institutions stay out of trouble.
What if much of their thinking was wrong?
A version of their new guidelines — known as “Basel II” for the Swiss city where they were crafted — was about to be phased in next month in the U.S. Their primary tenet: Banks should be given more freedom to decide for themselves how much financial risk they should take on, since they are in a better position than regulators to make that call.
The coin toss may not be the best analogy, since the investment banks use both strategies at once. (Unless you count “spinning on edge in the wind” as a valid result taken as equal to both heads and tails.)
Building Slowdown Goes Commercial
By Scott Patterson and Kris Hudson
Word Count: 960 | Companies Featured in This Article: General Motors, Ford Motor, Wal-Mart Stores, J.C. Penney, Best Buy, Talbots, Movie Gallery
Cracks are starting to show in commercial construction.
For the second month in a row, the Commerce Department reported a decline in spending on nonresidential construction — which includes everything from hospitals to office parks to shopping malls. The report yesterday showed construction spending fell 1.7% in January from December, the steepest drop in 14 years. While residential construction accounted for a big part of the decline, spending on nonresidential construction slid 0.8%.
Meanwhile, there may be an oversupply of shopping malls and office buildings after a period of intensive construction.
Was there anyone on this board who didn’t see this coming? Raise your hand. Bueller. Bueller. Didn’t think so. Geez, do we really need another strip mall in this country?
You have to get those deadbeat (in the credit card servicing sense) renters money somehow…
Clinton’s “Moral Claim”
This means the race is tighter than many people believe. While Clinton has to win something like 75% of the remaining pledged delegates to overtake him in that count - she only has to win about 53% of the vote to overtake him in the count that includes Florida. That’s not so much a royal flush as a three-of-a-kind.
http://www.realclearpolitics.com/horseraceblog/2008/03/clintons_moral_claim.html
For the Clinton team, this is war, and they don’t/won’t give up without a fight. Does anyone think Hillary has a chance of winning Ohio (+7), Texas (+1.5), and Pennsylvania (+9) all in one day?
No.
and here’s some RE comedy for you
http://flipthiswholesaler.blogspot.com/
And this here sums it up:
On January 1st 2007, I quit my job as a bartender to jump into real estate investing full time. I didn’t really know what I was doing, but I jumped in anyway.
BWAH-HAHHAHAH-HAAHAHHAHAHHHHHH!!!
hmm.. i feel a little bit more stupider.
Equally humorous is the flipitbig website, as it’s the only RE site I’ve ever seen, unless I missed something, where you can’t figure out who the site owners are, where they’re at, etc.
When I clicked the “View my complete profile” I thought it was going to be a bunch of photos, but crap, all I saw were words.
I don’t understand how people can expect to make a living flipping something that’s loosing 3% or more a month. Maybe she should go back to bar tending.
“I don’t understand how people can expect to make a living flipping something that’s loosing 3% or more a month. Maybe she should go back to bar tending. ”
It’s not rocket science, Lip. You buy VERY LOW (50% of market value or less), and then sell to an investor LOW (55-60% of market value).
The wholesale market where I’m at (Tampa) is going crazy right now. The investors who have been in the game for a long time are snapping up properties (good deals, mind you) left and right, renting them out, and cashflowing. I’ve closed 2 deals already this year, got another one closing next week, and am about to put another under contract. All of them are bank REOs that I sold to cash investors.
While you and the rest of the sheeple are sitting around crying about how bad the market sucks, and debating over when the bottom will arrive, the smart investors are going to town. Opportunity abounds in this market.
Ever hear the saying, “Buy when there’s blood in the streets?” Well, guess what? There’s blood in the streets. And by the time you and the masses realize what’s going on, and start buying on speculation again, the smart ones who bought great deals NOW will be sitting back and laughing. Again.
And I’ll be retired in Costa Rica, sipping a pina colada that some other bartender made for me, and thanking God that I didn’t listen to people like you.
Steph
(The stupid bartender from FlipThisWholesaler)
I won’t be going back to bartending anytime soon, because I’m out there making things happen, doing deals, and
I think she will pull it off.
Based on the media coverage of the last couple days, I think the media doesn’t want the race to be over just yet. It really seems like the media used to adore Obama, but is now portraying Clinton in the best light possible.
I am guessing that they know what their ratings will look like if Obama were to effectively end the democratic race today.
good call
Brian, you may be right about the media coverage, but mathematically speaking, it’s difficult to see how Clinton could pull this off without a complete Obama implosion.
For those who like to play with numbers, Slate created a handy Delegate Calculator. Monkeying around with that showed me what a reach she’d have to make.
There are superdelegates to account for as well on the Democratic side, but they’re all political insiders — if nothing else, they know which way the wind blows. I expect to see the uncommitted superdelegates peel off pretty quickly in the spring to Obama’s advantage.
“Does anyone think Hillary has a chance of winning Ohio (+7), Texas (+1.5), and Pennsylvania (+9) all in one day? ”
No greater than grandpa munsters failed tactic of wheeling out the terrrrrrrist boogeyman.
What is a “terrrrrrrist boogeyman”? It’s not imaginary that the Twin Towers no longer exist.
“terrrrrrrist boogeyman” is the disparity between actual risk (low) and perceived risk (high). If you are kept in fear, you are more easily led.
Ya, and please, let us not forget that it was carried out basically by some goat herders with box cutters who(by their own admission) got very lucky.
Of course now that the government has scared almost everyone into thinking that it’s ok for the government to claim more power and be more intrusive in the name of safety, we ourselves have enabled the “evildoers” to accomplish their greatest victory.
Wake up people. Freedom itself, and FROM government is far more valuable than safety, or in this case the mere perception of increased security.
Sorry for the threadjack. Needed to be said.
She has no chance whatsoever. Mainly because the Pennsylvania vote isn’t until next month.
The worst potential rental yield I’ve seen in a while: R2 395 000 sales price with a net rental of R4 800 a month. This in a country with 14.5% interest rate and a property market that hasn’t moved since the start of the year.
Was thinking Real, Rupie, no wait: Rand. You know I was in Cape Town in January and found this a scaaaary place. You should hear how they praise RE investments there in Germany. Saw a ‘documentary’ which was nothing but a sales pitch. Showing the happy German ‘accountant turned Realtor’ couple buying diamonds, driving their Benz through private gates…
Does that include the obligatory free bullet in the head or not?
On NPR today there is a radio show on the Flordia Real Estate Bust:
http://www.onpointradio.org/shows/2008/03/20080304_b_main.asp
I notice Sean Snaith is not on the panel. I’m shocked, I tell you, SHOCKED!
Anyone watching Bernanke on CNBC right now? He’s talking about reducing foreclosures.
I wish someone would shut him up! He’s a socialist!
That is a really silly thing to say. You really should spend some time with actual socialism before you make remarks like that. Since the value of the assets is less than the funny money amounts paid it may make sense to just reduce the funny money numbers instead of dealing with foreclosures and short sales and bank sales and all the rest. Haggling like this is fundamentally capitalist in nature. What you are implying is that you are jealous of the great deals that sporked borrowers might get through that and you really need to check your math there.
he has no power to. The party is over even though hope still lingers on.
Another great idea, tell lenders to reduce principle.
For those of you of that age, it reminds me of the Mr. President Ford’s Whip Inflation Now (WIN) campaign.
So I called my banker and I said I wanted the principle of my loan reduced, he said “no problem, do you want us to take it out of your checking or savings account.”
Audio of Ford’s Whip Inflation Now speech can be heard here (mp3) courtesy of my alma mater.
(Ain’t the interwebs great?)
Now I want to find a “WIN” button.
Here ya go…..
http://cgi.ebay.com/GERALD-FORD-WHIP-INFLATION-NOW-WIN-pin_W0QQitemZ180221039384QQihZ008QQcategoryZ367QQrdZ1QQssPageNameZWD1VQQ_trksidZp1638.m118.l1247QQcmdZViewItem
Beauty!
Anyone remember people wearing them upisde down as a protest? NIM.
Fed Chief: Mortgage Crisis to Continue
http://tinyurl.com/32phqe
“Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole,” Bernanke said. “Although lenders and servicers have scaled up their efforts and adopted a wider variety of loss-mitigation techniques, more can, and should be, done,” the Fed chief said.
I haven’t seen this put quite this way yet:
For the banks, this hurts their balance sheet now (representing lost long term interest income later), but maintains some immediate cash flow that might otherwise disappear as well.
A pyhrric victory. (I checked the spelling and include this just for fun since it was found in the “Financial Dictionary”
)
http://financial-dictionary.thefreedictionary.com/Pyhrric+victory
Hmmm. We need a new word similar to “decimation”. that is, a new word for the concept of “to lose 90% of” (which seems to be how the media tends to improperly use decimation.)
err, long term interest income and principal payments.
Mr. Bernanke, can you ask my landlord to reduce my lease? Seems only fair if he gets his principle reduced, a**hole.
I only have about 5 car payments left.The car is decreasing in value.Under that logic can they forgive the balance of my car loan while they are lowering loan balances?
Come on….its only fair……
I’m with you. My car is a depreciating asset - It would be a bad business decision to continue to make the payments. I’ve paid more than it’s worth now so I shouldn’t have to pay anymore.
You all seem to be ignoring the basics of the deal. If you stop making payments then the asset will probably be reposessed. If you negotiate with the lender then maybe they will take some off of the priniciple. If you payed tens of thousands extra for a Tahoe that was marketed as a combat ready vehicle then that might even work. Outside of heavily chromed SUVs there really isn’t much comparison to the housing market. You act like people are ripping you off, but all that is happening is argument over the funny money lending that is at this point between lenders and previous buyers.
The property values in my neighborhood have gone down 50K and are still falling . Does BB’s idea mean that I get a reduction in my loan amount also in spite of the fact that I can afford my payment and I put a huge down payment . The fraud of the industry affected my equity also .
As I see it ,how can you give one set of people a break ,without giving everyone a break . What about homeowners that put a lot of money down or saved money for a down payment ?
Now I know why BB is talking loan reduction instead of interest rate deduction now . The powers have finally figured out that people are walking because they have no equity and they can’t refinance or sell .
Do the Powers really think that all these speculators won’t walk if they can’t make money in the short term . These speculators had no intentions of being long term owners of the property ,(unless real estate kept going up )Also this plan of equity reduction would not solve the problem of excess inventory because right after loan reduction the FB would sell and its no better than a “short Sale “.
Is there a question about discrimination about giving breaks to FB’s while law abiding borrowers who really qualified take it in the shorts by not getting a loan amount reduction ?
I suppose lenders can modify the loan contract the way they want ,but the issue is going to come up about rewarding unqualified liar loan low down borrower verses regular buyers who are up-side- down on equity ,but can afford their payments .
Really ,the more the powers talk about these bail out schemes ,the more I think they are trying to aid those they now know were the bulk of the buyers during the boom …..liar loan speculators with no money down who were betting on appreciation ,but had no intent of being long term homeowners or even living in the property . Wouldn’t it just frost you if you found out a investor who got a cash back and committed fraud ,also gets his loan amount reduced by 100k so he could maintain his “Foul Play ” investment and get out of the game without penalty ,or worst ,get rewarded by actually being able to sell the POS at a profit ?
BB is getting more insulting every day . Bring back law and order !
“You all seem to be ignoring the basics of the deal.”
No I have 5 payments left on a small car.It has lost its value.
A contract is a contract.A loan is a loan. A deal is a deal.
Where do they lower it too? And who decides? What happens when the reos sell? Do they lower principles more?
Its just the logic behind this idea.
Its insane to lower a principle!!!
Bottom line is the powers that let this mess happen have no answers.
I agree SD guy . I don’t really want the government to come up with a bunch of schemes to mess with a contract . Pursuant to a contract a borrower and a lender can modify a contract if both parties agree (apparently according to contract law ). If the government is trying to get lenders to modify contracts by lowering the loan balance ,my point is that pursuant to discrimination and fair lending laws ,wouldn’t they have to do it for all borrowers that have loss equity ?
The point is that all the crazy schemes the government keeps coming up with is a attempt to make a bad loan good and change the original contract based on the victim homeowner spin . These were investors that gambled and loss ,and in many cases the contract was conceived in fraud ,therefore any attempt to reward these people is absurd IMHO.
The Lenders should get new homeowners in these properties who can really afford the payments and want to be long term homeowners rather than short term speculators .
“I suppose lenders can modify the loan contract the way they want ,but the issue is going to come up about rewarding unqualified liar loan low down borrower verses regular buyers who are up-side- down on equity ,but can afford their payments .”
Not just liar loans, but HELOCed to “100%” and cash back fraud mortgages too. Is it still fraud if you can negotiate with the banks to forgive the principal before the FBI gets to your door?
Bernanke suggests mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling homeowner.
http://biz.yahoo.com/ap/080304/bernanke_mortgage_crisis.html
One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,” Bernanke said.
Bernanke acknowledged this idea might be a tough sell to lenders. Lenders, he said, are reluctant to write down principal. “They said that if they were to write down the principal and house prices were to fall further, they could feel pressured to write down principal again,” Bernanke said.
Bernanke is right. The mother of all cram downs is the only way out, and there is no way taxpayers should be on the hook for this.
Are people to blame for overpaying? They were unsophisticated and herded into it like sheep. This is a way out for them.
How about those who HELOCed? They deserve to lose their homes, but a written-down loan would probably limit losses for the investors, so that is the best course.
If lenders write down loans, it may be that in the future they are reluctant to lend more than 90 percent of the value of a property, when that value is temporarily inflated due to a housing bubble, without income verification. Is that a problem?
I hope you are being sarcastic. The way out of this is for the FBs to be foreclosed. And yes, people are to blame for overpaying; I didn’t do it. If people are so ‘unsophisticated’ that they are not responsible for their actions they should get a legal guardian, and stop driving cars. They obviously can’t be trusted to care for themselves. There are no do-overs in the real world.
I will be fine if the financiers take it on the chin for any bailout.
However, by fostering the perception of “heads I win, tails, the banks lose”, it will increase the chances of reckless behavior by the American consumer in the future.
However, if it’s truly “heads I win, tails you lose”, then I guess it isn’t really reckless behavior for them.
Just make sure this is a behavior you want to incentivize, even if the incentive is only an unintended consequence.
The road to hell is paved with…well, you know the rest.
However, by fostering the perception of “heads I win, tails, the banks lose”, it will increase the chances of reckless behavior by the American consumer in the future.
No chance that reckless behavior by American consumers will be increased because their enablers (the banks and other lenders) absolutely will not engage in reckless lending a second time around if they don’t get bailed out this time around.
I agree w/ SeattleGuy — the upside of BB’s proposal is that the banks bear the cost of cram downs. This seems better than deferring cleanup to a future GSE blowup that forces the U.S. taxpayer (or future generations of U.S. citizens) to assume the cleanup tab for the mother of all asset bubble collapses.
One misgiving I have about the proposal is that it appears to continue a pattern of deferred price discovery. I am not sure if this is for better or for worse. The “for better” argument is that letting nature run its course at the moment could result in a complete collapse of U.S. housing prices and severe asset market disruption accompanied by plenty of macroeconomic collateral damage. The “for worse” arguments are (1) convincing banks to cram down the principle balance of mortgage loans gives buyers a free pass on financial irresponsibility (maybe no big deal if banks now realize they shoulder the risk of sloppy underwriting); (2) deferred price discovery creates the risk that the crisis will play out for a much longer time than if the market were left to its own devices. At the end of the day, prices will adjust regardless if lending standards are reinstated, but it will most likely be many more years before prices bottom out.
“Principal reductions that restore some equity”……..
So he’s saying not only write down the loans to “current” values, but even farther to “give” some equity back to homeowners?? So that they’re ahead of the game again even after their stupid mistakes?? That’s totally outrageous.
Yes, he alludes to the need for FBs to again have the option of making more MEWs. So indirectly he admits that the jig is up for the hyper-consumers - since they won’t be getting raises something’s gotta give or its goodnight retail, services, employment, and CRE.
It is also funny that now he calls for “long-term” solutions when just a month ago he said any stimulus attempts should be short term and targeted.
If you give homeowners equity, they can HELOC again.
Hahahahahaha
Side stepping whether this is “right or wrong” this makes financial sense. If an underwater FB is foreclosed on, the bank will have to go through the trouble and expense of reselling at market value. IF the can sell the home at all. The will lose the negative equity difference anyway. If they lower the principle they keep the cash flow and probably end up ahead vis a vi foreclosure.
Could we get those updated home values resulting from these cram downs presented as comps?
When you owe the bank $100K, and you’re broke, you have a problem. When everyone owes a collective $1 Trillion, but they are broke, the banks have a problem.
I doubt this happens, but if it does it will leave a “Black Hole” where the Confidence in the American Banking System is/was. Worst of all the Las Vegas style economy it supports, the next round of Bubble Fraud would be amazing. I’m literally picturing something along the lines of “Commodity Drive Thru’s” McDonalds style. “Would you like to Supersize your Raw Diamond?”
I suppose that Heli-Ben realizes that J6P’s wages won’t be going up anytime in the next 30 years, and he figures that a partially performing loan is better than a non performing loan that’s worth only pennies on the dollar.
(I doubt this happens, but if it does it will leave a “Black Hole” where the Confidence in the American Banking System is/was.)
If you ain’t got nothing, you’ve got nothing to lose.
If this happens, I will just give up on being a productive member of scociety, why produce anything when the gov is just gonna take more and more and give it to the top and bottom…The top needs to start paying there fair shar, ie a flat tax , and the bottom need to get a job and stop buying junk they can’t afford…
Who is John Galt?
IMHO, fair share would be fair tax, IE a VAT, not flat tax… remember, the biggest proponent of flat tax was none other than Michael Forbes… he got a lot of what he wanted, too (damn, it feels good to be a gangster, and all that rot)
Thanks for the lovely “Office Space” flashback ;). Love that movie.
A VAT is a regressive tax. How about a tax on financial speculation and/or usury?
BAILOUT!!!
LMFAO! These clowns try a new plan everyday.
Where is my lotion.
He started with:
Supply-demand imbalance = falling prices = negative equity = skyrocketing foreclosures and very low recovery rate.
He then talks about the disincentives for the servicers to do workouts of packaged up and sold off loans… no solution offered.
He mentions modernization of FHA but asserts the lending standards won’t be loosened.
He then ends by saying any help is dependant on stabalizing and getting recovery in the housing market.
Hey Mr. Ben. Econ 101… Supply-demand imbalance, remember???? How do you fix that????? LOWER PRICES!!!!!!
He NEVER addressed how to fix the oversupply or the fact that not enough can or will buy at crazy high prices.
Medain income for SoCal = $55K. Medain house price = $500K+. Mr. Ben, HOW are you going to fix that without prices falling A LOT more?????
“The trajectory to hell is paved with locally-good intentions.”
Matt Gingell
I almost threw up my Poptarts when I read this. This just craps on everyone who rents, owns their home outright, or bought a house within their means (at least 20% down & can comfortably afford the payments). It rewards the idiots who didn’t live within their means, along with flippers & specuvestors if the reduction is given across the board.
“…In separate lawsuits filed in a New York federal court, a $58-million-asset hedge fund alleges that Citigroup Inc. and Wachovia Corp., respectively, improperly required the fund to pay out more money from insurance derivatives contracts known as “credit default swaps” amid a steep decline in the value of mortgage-backed bonds….”
WSJ
This is to my limited knowledge the first of the lawsuits aginst the banks. I expect more to come.
Bad news for the peak oilists:
http://online.wsj.com/article/SB120459389654809159.html?mod=opinion_main-commentaries
Umm..the issue with peak oil is not that there’s oil in the world. Heck, there’s still oil in the US even though we are way past “peak”.
What is gone, however, is the era of cheap, easily extracted oil. Most of the world reserves as mentioned in the article are in a form that is expensive to extract/process with current techonology. (Some of the forms are also close to environomental disaster to extract - I can’t imagine what the “no oil rigs in Alaska” folks, when it finally dawns what shale/tar sand extraction means will say about it.)
Most of the modern world is built on cheap oil. Think about how much that mircle substance plastic you *throw away* everyday, let using heating oil and gasoline, etc. Most modern chemistry is built on oil/coal extractions (including fertilizers). The absense of cheap petroluem sources will be a profound impact on the world and it’s economy going forward.
Think about how much that mircle substance plastic you *throw away* everyday
Makes one wonder if someday landfills will be “mined” to recover recyclable materials.
Certainly, if it becomes profitable to do so.
At the very least, in the next two decades I think recycling will go from a feel-good, spottily efficient strategy to one that becomes increasingly efficient, competitive and demand-driven. We can be an ingenious species when we need to be.
That is something I would invest in.
Simply put…
Energy Return on Energy Invested. When the return is less than the investment, bye bye.
It’s the size of the tap that counts, not the size of the tank. People always think oil works like a gas tank, where you can keep going at 60 mph until the moment you hit empty. Wrong. The key is flows. We are using 1,000 barrels per second now. There are hundreds of thousands of new cars being sold each month in China and India. For economic growth, we MUST get more oil flowing out of the tap. The oil in the ground is fine for future generations, but our entire civilization and way of life in 2007 is built on the assumption of constant, uninterrupted growth into infinity. A stupid system? Most definitely. One doomed to crash? Absolutely.
As the government’s own Hirsch report states, unless a crash program is begun 20 years before peak oil, there will be severe economic consequences.
There are approximately 4000 significant oil fields in the world. We get 50% of our oil from 3960 of these fields. The other 40 fields give us the other 50%. These 40 super giants are almost all in decline: Ghawar, Burgan, Cantarell, etc.
I love the bit about technology doubling oil production. The oil production curve in the US did not reverse it’s trend with technology. Why should the rest of the world.
http://en.wikipedia.org/wiki/Image:US_Oil_Production_and_Imports_1920_to_2005.png
“For economic growth, “… This is the mantra of all business.
What if the population is declining? Are we still supposed to spit into the wind trying to get a “growing” economy? When can we learn to manage declining activity?
I gave up talking to people about peak oil. If you don’t believe in geology, suffer the consequences.
those who do not believe in thermodynamics are doomed to repeat it
wait, how did that go again? *g*
The key to his entire argument is this one sentence,
“Modern science and unfolding technologies will, in all likelihood, double recovery efficiencies.”
with “in all likelihood” being the key weasel word. There is no guarantee, its speculation.
Some magical technology is going to suddenly appear and allow us to double the recovery rate.
The writer lost me in the 2nd sentence at “neo-peak-oil,” tipping me off to the ax he was grinding. Then there was the howler about 16 trillion barrels of “inclusive of future discoveries.” At least he didn’t mention the reserves on the moons of Saturn.
whenever somebody posts something from the WSJ OpEd page I know I’m in for a few minutes of hilarity.
“1. subprime
The term originated in the financial services industry to refer to lower-credit-score borrowers. However, thanks to continuous media use, a much broader audience was exposed to it in 2007 during the credit meltdown. Now, it is used to describe anything that is below standard or less than ideal.
This restaurant is subprime, let’s get out of here! ”
Urban Dictionary
http://tinyurl.com/2q2rge
This restaurant is subprime, let’s get out of here!
LOL! It reminds me of some sirloins I bought at the store a couple of weeks ago. The were supposed to be USDA “choice”, but 2of the 3 were tough. I guess that’s what I get for buying “sub-prime” steaks!
The last steakhouse i went to the steak i had must have been dumpster aged.
These bailout proposals are subprime.
“We have nothing that we love, we’re frightened of everything. . . and we respect the market’s ability to take all of our money if given the chance.” –Dennis Gartman, Barron’s online interview.
http://online.barrons.com/article/SB120414876014197627.html?mod=9_0002_b_online_exclusives_top
Gartman is a fool; he completely missed the move in gold for the past two years.
Whitehorse, Yukon: Look what you get for this price. I really think humanity has gone mad now.
http://www.remax-actionyukon.com/listingview.php?listingID=656
Yukon, $415,000 bathroom photo
Whoooo…$180K double wide, i thought i was priced out of the market!
http://www.remax-actionyukon.com/listingview.php?listingID=664
Housing Bubble Metaphors illustrated.
I notice they didn’t illustrate FB/F’d B.
I notice they didn’t illustrate FB/F’d B.
I couldn’t figure out how to do that last night - but I think I have a solution now. I’ll try to get it updated today.
That’s cool!
Can you put that on a T-shirt? (Image on the front, definitions on the back…)
I promise to buy one!
Sellers get creative: Desperate to unload their homes, sellers are trying everything from auctions to essay contests.
http://realestate.aol.com/article/selling/_a/sellers-get-creative-desperate-to-unload/20080227175509990001?ncid=AOLCOMMre00DYNLprim0001
I could go wild with this one. Ok FB/sellers, if you want me to buy your house, all of you men show up to the bar wearing fishnets and heels a’la Rudy Guiliani. Then we’re gonna have a dancing on the bar contest. Get going…..
What does it say when only 360 people are willing to risk 200 freakin’ bucks on winning a house???
Feldstein: Dollar Decline Not a Worry
The decline in the U.S. dollar isn’t worrisome, and reflects a normal adjustment in global imbalances, Martin Feldstein, professor at Harvard University and head of the National Bureau of Economic Research, said.
“The decline in the dollar is part of a normal market process, it really should not worry us,” the influential economist said.
The dollar’s decline, which Feldstein estimated at 20% on a trade-weighted basis since 2003, “is key to shrinking the global imbalances” which include a massive U.S. merchandise trade deficit.
Even if the dollar were to drop another 20% — a scenario that Feldstein stressed he isn’t forecasting — it would only offset about one-tenth of the growth in real gross domestic product over the next decade.
“We shouldn’t really exaggerate the magnitude” of the effect of the weaker dollar on imports and the overall economy, he said.
WSJ
Sorry Mr. Feldstein, the dollar decline is very worrisome. Some of us realize that every percent the dollar declines is a lowering of the standard of living in the US. That some multinationals will make a lot of declining dollar profits, does not improve the economic situation. It is not possible to deflate the dollar to achieve prosperity.
Which global imbalances have shrunk since 2003? Certainly our trade deficit is still there, and a weaker dollar will increase it because the single biggest import to USA is oil.
Hoz, The devaluating dollar will make imports more expensive and exports less expensive thus reduce the global trade imbalance which in my mind is good. It will also lessen our desire and ability to afford imports due to inflation- not so bad. On a global scale we get paid too much and this devaluing force will lower our standard of living due to we are now in a global market- not good but necessary. Eventually this imbalance will rebalance and we can move on. I believe it is a market force we cannot prevent unless protectionism takes a hold which is a much worse evil. Prosperity can happen for America once we can compete in a global world. Currently we (US labor) get paid too much to compete.
It’s Texas primary day! Let’s see… hmnnnn, who’s gonna’ be able to fix this mess? Jellybeans, anyone?
i am truly stunned with bernacke…forgive part of the mortgage debt..unreal…just absolutely unreal..they just cannot or will not let it correct itself.
How can anyone in a high profile political position (like the 21st century Fed bank chairmanship, for instance) hope to claim credit by standing back and letting markets work their magic?
I see it in a similar, but different vane. (or is it vain?) He must “do something” because if he doesn’t, everyone will say “SOMEBODY DO SOMETHING!!” The entitlement society mustn’t lose.
i just dont know how you “forgive” real dollars against paper value. 20 years from now those same homes may quadruple in value. Its rewarding stupidity plain and simple.
How ’bout “vein”?
On Bernanke, he truly is starting to scare me now. He appears to be exemplifying one who is trying to save American banks w/o much regard for anyone else involved–investors, depositors, financially responsible mortgage holders…..as in, this is a last ditch effort of desperation before the whole thing starts falling apart.
I find these comments unreal. People paid bogus prices for bogus loans. Salvaging these loans could be good for both the lender and the borrower. Limiting the options of lenders and debt holders is aggressively anticapitalist.
Saying “they just cannot or will not let it correct itself” is way out of line. The correction is well under way. The question is exactly how much damage will be done and how disruptive these changes will be. It makes perfect sense to engineer ways to limit the chaos that emerges from this. The Center for Economic and Policy Research has some well back research on this. Deep disruptions have profound and long lasting impacts on labor markets.
Damage? what like home prices fall so some people who actually want to buy a home to live in can afford it? your way off base. Nothing like this happened in 89-91 and here we are. People had to suck it up for 10 years before their values increased above what they owed. The guvernment never stepped in then, and it worked its way thru the economy. It only makes sense from an investment vehicle point of view and not from a prospective homebuyers view.
Does Paul Volcker have a son? We need a Volcker 2. Strong medecine, 20% rates, recession.
Just a thought, I think that Ben Bernanke has it wrong (about asking lenders to write off principal so that homeowners are no longer “underwater”).
If he wants them to be able to refinance and keep people from “walking away”, don’t the lenders need to reduce principal so that the owners have ‘instant’ 5% to 25% equity in their house? After all, that’s the equity cushion that most loan products in “severly distressed” areas require for a refinance.
I’m going to call Ben B. up right now, and let him know that he should be pressuring lenders to forgive enough debt to give current homeowners 5%-25% equity in their houses.
I love making good economic policy, it’s so *easy* when you come down to it.
I wonder if there are any unintended consequences…
He specifically said they should cram down the amount owed so that people can refi.
So let me get this straight from what I’m guessing the homeowners perspective will ACTUALLY be… All I have to do is miss a few payments, call up my bank and whine, and they will write-off a portion of my debt? Do you think for one second EVERYONE with a mortgage will not default on PURPOSE to get a new principle balance? HAHAHAHAHA! They will shoot their entire foot off if they think this crap will work. (I rent and I’m pissed enough to stop paying and tell my landlord to ask the bank for a principle reduction!)
This just shows how desperate this situation is NOW. Not a few months (or years down the road). They are grasping at straws NOW.
Txchick - are you thinking the S&P will hold here? I’m buying long postitions with tight stops.
Yeah, I’m also buying.
Newbie here - looking at S&P charts over the weekend I thought maybe the newest support level to be tested would be about 1320, and it’s blown through that today, so far anyways. What do you think??
I think it was somewhere between 1310 and 1320.
yeh, 1310 was the jan low on a closing basis
they’re pushing it now. I always like it when I see this in the 11-1 CST time frame. Lots of times you get reversals in the afternoon.
I think it’s clff diving time. Lightened up on some puts, holding the rest.
bounced off 1310 twice now
“bounced off 1310 twice now”
Bounced off twice, then broke through the trampoline…like playing a game of “Mappy”.
oh, they have to break it before they bounce it. get maximum panic. I’m long and bored.
Would you buy this stock?
This test is it a buy, sell or hold
http://tinyurl.com/asdcr
Txchick, you better not fail!
why is it upside down? Yeah, I’d buy the dow here and see if it can hold the Jan lows
Tell you what though. I see Intel confirmed the bearish outlook for technology. Duh, those are better shorts than housing stuff imo. They were great buys in 1994/1995 when we started coming out of that recession and should be at the end of this one, but now?
Surprised homebuilders and retail holding up, i don’t expect it to last. Reality has to sink in at some point. The ones i would buy in a shakeout are high cash/low debt companies.
We’re good I think so long as Bernanke doesn’t open his mouth.
I’ve found that when they do the big push down midday you almost always get an afternoon rebound.
Every major market decline has been led by financials.
A lot of excellent bull market traders do not know when to sell. One method that these traders use is inverting stock charts to see if it is a buy. If it is a buy on the inverted charts, then they sell. Simple and safe.
“(CBS) In a presidential debate nearly four years ago, George W. Bush accused Al Gore of employing “fuzzy math.” But increasingly, it’s the White House that’s being accused of numerical fuzziness on Medicare, the deficit and jobs.”
This was actually eight years ago, funny how our whole financial system has adapted to “fuzzy math”!
Fuzzy math is a way of rigorously taking uncertainty into account when doing calculations in order to get more accurate numbers. Having exceptionally accurate calculations obviously isn’t the problem with markets or any politician. The way people dumb this down because they think of math as being hard numbers is a damn shame.
An excerpt from today’s American Banker (you need to sign up to have acess to article)
Frank Bill Would Shield Servicers from Investor Lawsuits
American Banker | Tuesday, March 4, 2008
By Stacy Kaper
“WASHINGTON — House Financial Services Committee Chairman Barney Frank is expected to move legislation designed to encourage servicers to renegotiate more mortgages by shielding them from investor lawsuits.
A draft bill by the Massachusetts Democrat, which surfaced late Monday and was obtained by American Banker, aims to protect servicers that provide modifications or workout plans to borrowers who are delinquent or on the verge of it, when doing so would be more profitable to the collective group of investors than foreclosure.
The approach generally clarifies that servicers of pooled mortgages are responsible to the interest of the collective group of investors as a whole, and it would credit servicers as respecting that obligation — thus protecting them from liability — under certain conditions.
Specifically, the draft bill would protect a servicer that “accepts a short payment for the property, agrees to a short sale of the property, or agrees to or implements a modification or workout plan for residential mortgage loans, if the servicer reasonably believes it will realize a net present value greater than it would realize through foreclosure.”
Though other permissible loan solutions would also be protected, the draft bill gives deference to workouts with particular features by establishing a safe harbor.
The clear liability protection would apply to loan modifications or workout plans that remain in place for at least five years, or until the borrower sells or refinances the property; avoid negative amortization; and do not require the borrower to pay additional points and fees.
The concept of providing liability protection for loan restructurings to spur industry-driven foreclosure prevention efforts was first raised last fall by Rep. Mike Castle during a committee vote on mortgage reform legislation.
The Delaware Republican later offered a separate bill, which was considered at a committee hearing in December. Federal regulators said then that such protection was unnecessary and could even set a dangerous precedent by breaking contracts, though Federal Deposit Insurance Corp. Chairman Sheila Bair said Congress could codify pooling and servicing agreements to provide peace of mind to investors.
Industry representatives also gave the original bill mixed reviews, acknowledging servicers are wary of investor suits but cautioning that providing the safe harbor also could destabilize an already shaky securitization market”
Between NYs proposal of staving off foreclosures for a 1 year term and servicers rewriting contracts w/o investor approval, I’m thinking risk premiums are going to be moving toward the stratosphere.
DISTRIBUTION: Business Editors
HEADLINE: Zealous ATS or ZATS Responds To Auction Rate
Market Collapse
DATELINE: NEW YORK
BODY:
Zealous Trading Group, Inc. (OTCBB:ZLST,
ZATS;http://www.ZealousATS.com; see
merger information in About Zealous Trading Group
below), provides commentary to
the announcement that its ZATS electronic marketplace
will facilitate secondary
trading for the $330 billion market of Auction Rate
Securities (”ARS”).
Since the company announced the news the morning of
March 3that it will
facilitate secondary trading of Auction Rate
Securities on its electronic
platform, it has been inundated with inquiries from
severely distressed
investors searching for an alternative to trade their
securities.
“We believe the magnitude of this crisis dwarfs the
market and investor
disaffection that resulted from the Long Term Capital
crisis,” said Milton
“Todd” Ault III, Chief Executive Officer of Zealous
Trading Group. “Unlike with
other market disruptions, there are no winners in this
situation and all capital
markets participants have a responsibility to
collaborate in attempting to
minimize the damage. It took 7 banks and the New York
Federal Reserve to bail
out Long Term Capital, in our opinion, it will take
much more than that to solve
this monumental crisis. Our team is working with
holders of ARS securities and
will help facilitate trades through our ZATS
electronic marketplace.”
For more information regarding liquidity for
Auction Rate Securities
investors or their representatives may contact Zealous
at 212-551-3655, or
mvanpatten@zealousats.com
Is this the “get me out at all costs” stage?
1-800-GETMEOUT
My plan for this thing is to wait 3-5 years until the neighborhood I really want to live in bottoms out. At that point I purchase a home in said neighborhood (with a 20% cash downpayment) and rent out my current home at a small monthly profit.
Methinks that financial institutions are going to get more aggressive
about charging nuisance fees to make up for losses elsewhere. Here’s a
case in point:
Last week, I needed to pull a twenty out of the ATM so I could pick up
something at the dry cleaner. Well, dang if my klutzy fingers didn’t put
in a request for $200.00. I hit what I thought was the “cancel
transaction” key, but wouldn’t ya know it, $200 came out.
Uh-oh. Account overdrawn.
So, I marched right inside the credit union to put $180 cash back into
my account. And they had the audacity to hit me with a $5.00 overdraft
charge, which I fought.
I told them that the problem was with the interface on the ATM — the
choices on screen don’t quite line up with the keys, and that I’m
probably not the first person who was unable to cancel a transaction.
They waived the $5.00 overdraft charge and put the $180 back into my
account.
Good thing that was a CU and not a bank. The bank would have charged you $25 and would have told you to go pound sand regarding a fee waiver.
The choices never line up when you’re standing, you’re supposed to kneel down to the almighty ATM god, then the choices will magically line up.
Funny, I did the same thing once and the bank charged me $30 instead of $5.
You only keep 200 bucks in your checking account? And here I thought I was the broke-est person who read this blog.
Is capital flight creating capital flight? Holding paper is getting scarier and scarier everyday; the dollar is plunging and triple A isn’t what it used to be. As a result, investors are fleeing to commodites. In turn, inflation expectations keep rising. As a result, more capital gets directed to commodities as a hedge. It’s a perfect mixture of fear and greed.
Add to the emotional concoction, a FRB threatening to take us all deeper into the abyss. Add to the concoction, falling home prices Add to the concoction, withering credit lines. Add to the concoction, negative savings rate. Add to the concoction, rapidly decelerating earnings and demand. Unless it’s different this time, something has to give somewhere.
Does anyone know why gold dropped $20 today?
I don’t know. Could have been a large fund manager spooked by the oil price drop who closed out the fund’s position. These spikes down are common.
I would love to buy more at about 850 but I don’t think we will get there.
last chance to buy gold under $1000
typical selloff and taking of some profits before the next leg up. $1000 is a psychological resistance level. As long as the Fed keeps cutting there will be a flight to quality.
I’m convinced Silver will rise more quickly, especially if (when) “the commoners” start speculating in PMs. Most people can afford the $20 required to buy 1 oz of Ag but who wants to buy 1 oz of Au at $900+? Probably more buyers at 1/10 oz, though. Speculation and psychology, pure and simple. Who cares about value?
People are already speculating heavily in gold. My wife is getting daily inquiries about converting all their holdings to gold; the investment advisor at the bank is getting about “a dozen” phone calls a day from customers wanting to convert to gold. There were only a few inquiries per month up til about a month or two ago.
And I agree, Cramer pumping gold–saying it will be at $1600–won’t help the PM complex.
because cramer recommended it on the show yesterday…
Finally, the bottom is found! (sarcasm off)
NEW YORK (CNNMoney.com) — It may be the best time to buy a house in more than four years.
Home prices have dropped so quickly and so far that valuations - the difference between what a home should cost and its actual price - are the lowest they’ve been since 2004, according to a report.
http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm
Not if they keep building.
http://www.suburbanchicagonews.com/heraldnews/news/824304,jo04_centex_web.article
LOL. Did you know that now is a great time to buy? Oh, the savings!!
http://money.cnn.com/2008/03/04/real_estate/markets_less_overvalued/index.htm?postversion=2008030412
Bulletin to all you Californicans: “The biggest gains in affordability occurred in California….” So, there.
“Home values have declined across the country, giving homebuyers the best buys they’ve had since 2004.”
Ummm, yeah, with what, 15%-25% down payment? Whose got any actual cash money that they can use to buy a house (besides bubble sitters)?
And never mind that houses were already overpriced in 2004.
Asian markets have been selling off for a few days. US and China markets seem to be feeding off each other as they slide. If this continues we will probably get a surprise rate cut this week. The pull back in PMs and oil today could be normal profit taking, or the usual pre-rate cut smackdown. Time will tell, but I am nibbling on this dip, just silver today.
Treasury analyst on CNBC just said to expect a .5% cut pre Mar 18 and another .5% cut on the 18th….
They won’t go below 2% becuase there are a FEW inflation concerns.
I think they will go lower once the economy dies on the vine in order to rescue the banking system. I read on Mike Shedlock’s blog they were willing go as low as 0.5% by the end of the summer in order to help clean up bank balance sheets. Essentially the treasury will be printing money soon in order to keep the system going.
So their done then. Just can’t see it.
Nah, The Federal Reserve likes ’shock and awe’ a 1 point rate cut and then on the 18th a 3/4 pt rate cut. lol -I am just kidding about the cuts, but not about this Federal Reserve Boards penchant for ’shock and awe’.
For all you Peak Oil folks: There’s an opinion in today’s WSJ (page A17), written by Nansen G. Saleri, who says peak oil will occur between the years 2045 and 2067.
He says there are 12 to 16 trillion barrels of oil underground and that only one trillion barreles has been extracted so far.
FWIW.
FWIW - less than the paper it is printed on IMO.
More oil will be found, more alternatives to oil will be developed. The Bronze Age didn’t end because we ran out of bronze, and when the Oil Age ends it won’t be because of running out of oil. Talking about peak oil seems so technologically constrained, kind of like the Basques talking about peak cod in the 12th century.
This is really sloppy work. These estimates are based on 0-2% yearly demand growth and ignore the oil industry’s own reports such as those at globaloilwatch.com which is an industry outlet.
Even then, this does not necessarily have all that great an impact on housing since we already have alternatives for energy and propulsion needs.
Even if there was an infinite supply, the issue is cost of drilling deeper into the earth to drill it. And guess what this requires ? More energy !
look at http://www.Potterdrilling.com. It is disruptive Technology I am an Angel investor in. It has the potential to dramatically change the game.
Hey Stucco, see what you missed?
http://www.236.com/news/2008/03/04/gloria_steinem_doing_some_repa_4870.php
“Is the media biased against Hillary, or is she just too fat?”
LOL
‘Hillary Clinton supporter Gloria Steinem made headlines at a rally in Austin on Sunday when she mocked John McCain’s POW experience, “This is supposed to be a qualification to be president? I don’t think so.”‘
Mocking McCain’s military service is sure to score points for HC with male voters.
things don’t look good:
http://www.guardian.co.uk/theguardian/2008/mar/01/scienceofclimatechange.climatechange
“…Currently, white people on the cutting edge are really into metal bottles of water with a twist cap. It is recommended that you buy one of these as soon as possible.
Having one will give you precious leverage over any white person who is drinking from a plastic bottle. “Oh bottled water? really? I mean it’s cool, but I kind of thought you cared about the earth.” If you see someone drinking a Fiji water, you do have the opportunity to go in for the kill. “Do you know that your bottle of water has a bigger carbon footprint than me? I think they were originally going to call it ‘aboriginal blood’ but that bottle was as close as they could get. You know, legally.”
Again, this should only be used in extreme situations.
Following your confrontation, the white person is likely to have a metal bottle just like yours. If this happens, there will be an implicit pact whereby they will do favors for you provided you do not tell everyone they got their bottle after you…”
Stuff white people Like #76
Evidence of a disorderly used home market: Check out the list price per square foot variation for closely-priced SFRs in SD 92127…
Prices per square foot data and statistics for below listings:
$215, $238, $245, $248, $280, $280, $287, $290
Mean $260
SD $27.50
Min $215
Max $290
Range $75
18138 CHIEFTAIN CT SD - Rancho Bernardo, 92127 $648,000 - $700,000
Beds: 3 | Baths: 3 | Sq. Ft.: 2,317 | Lot Size: 5,227 Sq. Ft.
Year Built: 1991 | Listing Date: 01/24/08
Description: Seller will entertain offers between $649k and $700k * views. Warm family home on cul-de-sac…. more
List price per square foot: $648,000/2,317 = $280
18205 MOON SONG CT SD - Rancho Bernardo, 92127 $649,000 - $649,000
Beds: 4 | Baths: 3 | Sq. Ft.: 2,620 | Lot Size: 6,272 Sq. Ft.
Year Built: 1990 | Listing Date: 01/08/08
Description: Bank owned foreclosure. Gorgeous 2 story home in westwood! Plantation shutters, neutral decor,… more
List price per square foot: $649,000/2,620 = $248
11579 ALBORADA DR SD - Rancho Bernardo, 92127 $649,900 - $679,876
Beds: 4 | Baths: 3 | Sq. Ft.: 2,243 | Lot Size: 7,971 Sq. Ft.
Year Built: 1993 | Listing Date: 01/08/08
Description: Desirable westwood valley ’stonewater’ home.Perfect location w/private yard. 1year old upgraded… more
List price per square foot: $649,900/2,243 = $290
10122 PRAIRIE SPRINGS RD SD - Rancho Bernardo, 92127 $658,000 - $717,000
Beds: 3 | Baths: 3 | Sq. Ft.: 2,690 | Lot Size: N/A
Year Built: 2002 | Listing Date: 01/02/08
Description: Big 2690 sq ft with low mello roos! 2 car gar.In back-neat appearance.3 bed up. Bonus rm down…. more
List price per square foot: $658,000/2,690 = $245
15904 BIG SPRINGS WAY SD - Rancho Bernardo, 92127 $675,000 - $725,000
Beds: 4 | Baths: 3 | Sq. Ft.: 2,410 | Lot Size: 6,500 Sq. Ft.
Year Built: 1985 | Listing Date: 01/23/08
Description: Sweob 675k-725k. Lovely baccarat floor plan available in high country west with quiet sunset… more
List price per square foot: $675,000/2,410 = $280
17136 CARRANZA SD - Rancho Bernardo, 92127 $679,000 - $759,000
Beds: 4 | Baths: 3 | Sq. Ft.: 2,848 | Lot Size: 8,145 Sq. Ft.
Year Built: 1993 | Listing Date: 02/25/08
Description: Seller will entertain offers between $679k & $759k. Not a short sale or foreclosure. Best value… more
List price per square foot: $679,000/2,848 = $238
17004 RALPHS RANCH RD. SD - Rancho Bernardo, 92127 $680,000 - $700,000
Beds: 4 | Baths: 3 | Sq. Ft.: 3,166 | Lot Size: 8,276 Sq. Ft.
Year Built: 2005 | Listing Date: 12/26/07
Description: Seller will entertain offers betweeen $680,000 to $700,000. Short sale! Lots of upgrades make… more
List price per square foot: $680,000/3,166 = $215
16097 LOFTY TRAIL DR SD - Rancho Bernardo, 92127 $685,000 - $725,000
Beds: 4 | Baths: 3 | Sq. Ft.: 2,390 | Lot Size: 6,882 Sq. Ft.
Year Built: 1985 | Listing Date: 02/22/08
Description: Seller will entertain offers between $685,000 - $725,000. Corner lot location next to a… more
List price per square foot: $685,000/2,390 = $287
I wonder how long homes listed for $290/sq ft will stay on the market when comparable homes in the same zip code are available at $215/sq ft?
HOW I ALMOST RENTED A HOUSE FROM A FB
Ok, here goes. News from Thousand Oaks, CA zip 91360. One would think that with Amgen and Countrywide (two biggest local employers) both on their deathbeds the housing market would soften a bit. Not quite, and rents are sky high. A two-bedroom apartment goes for $1500 and houses are over $2000. Wife wants more space and so we go see a townhouse priced at $1800/mo. We get in on the lunch break, and what do we see? Exactly, all features of a flip gone bad! Mandatory granite counters, stainless steel in the kitchen, and an amateurish paint job in hideous colors. Of course, refrigerator, washer, drier and even closet doors were missing (perhaps the owners think that tenants would run to buy a stainless steel fridge to match the stove?), but it is the pain that got me. The pictures do not really do justice to this color. It was sort of brownish-red, I guess to match the granite. A good name for it would be “poo”, and a proper place of application - an outhouse in the boons. Plus the painter missed a few corners, and there is an off-white older paint visible underneath. Add to the package small rooms, extremely narrow entry hallway and old single-pane windows, and you would be right if you say that we walked out rather quickly. Students from nearby Cal Lutheran were walking the place almost at the same time with us. I guess there it goes. But, with paint like that, what could go wrong?
Now a bit about finance. While the rent seems high, comparable properties are on the market for over $400K. That translates into monthly payments of $2000 and over, in particular if the owner does not have 20% down and has to pay HOA. So there is no way to make these properties to cash flow. If one is to rent a house like that, a credit check and a title search on the owner would be a necessity. So here is a question to the resident gurus: how can one look up this information in Ventura County, CA? Sooner or later my wife will get her wish of a bigger place, and then this reverse credit check would have to be done.
Here is a link to pictures for your visual enjoyment. Note that the outside is decent, it is what’s inside that gets you
http://homerentals.net/HomeSearch/displaydetail.mvc?prid=CA061408L&cmid=&headcolor=000080&fontcolor1=000000&fontcolor2=FFFFFF