Logic Wasn’t Fueling This Craziness
Some housing bubble news from Wall Street and Washington. MarketWatch, “The U.S. housing market weakened slightly in March, as resales of U.S. homes fell, inventories climbed, and prices continued to decline, the National Association of Realtors reported Tuesday. Resales have sunk 19.3% in the past year and are down 33% from the peak in 2005. The median sales price fell 7.7% in the past year to $207,000, the second-largest price decline recorded since 1999.”
“Existing home sales are ’stable yet soft,’ said Lawrence Yun, chief economist for the real estate agents’ trade group.”
“Others said they saw no sign of a bottom in housing. ‘Inventories should be going down,’ said Dan Alpert, a managing director of a fund that buys distressed mortgages.”
From Reuters. “The inventory of homes for sale swelled by 40,000 to 4.06 million homes, or a 9.9 months’ supply at the current sales pace from 9.6 months in February.”
“Of the homes for sale, 18 percent have negative equity and so are either in foreclosure proceedings or headed for a ’short sale’ that will see the lender write off some of the original loan amount. ‘This has been a frustration of our members,’ said Yun. ‘Lenders have been dragging their feet (in approving short sales).’”
“Regionally, existing-home sales in the Northeast are 18.8 percent below March 2007. Existing-home sales in the West are 22.3 percent below a year ago. In the South, existing-home sales are 20.0 percent below March 2007. Existing-home sales in the Midwest are 15.9 percent below a year ago.”
“NAR President Richard F. Gaylord, said there are problems with the implementation of mortgage guidelines. ‘It appears there is some over-reaction on the part of some lenders now in requiring higher downpayment percentages than may be necessary,’ he said.”
The BBC News. “Royal Bank of Scotland, the UK’s second-biggest banking group, announced a write-down of £5.9bn before tax, following its exposure to the credit markets.”
“RBS said it expects additional hits to the value of assets, including the ABN AMRO wholesale business it bought last year, due to the impact of the U.S. subprime mortgage crisis and subsequent credit crunch.”
“The bank, which wrote down assets by 2.4 billion pounds last year, said…it valued below-prime Alt-A mortgages at 50 percent, down from 83 percent.”
From Bloomberg. “Two big regional banks in the United States, SunTrust Banks in Atlanta and Fifth Third Bancorp of Cincinnati, said the real estate slump, especially in Florida, had required them to increase reserves for bad debt.”
“SunTrust raised its provisions for loan losses 10-fold to $560 million because of expected defaults on mortgages, home-equity credit lines and residential construction, it said. Fifth Third increased its reserve to $544 million from $84 million.”
The Street.com. “Todd Appleman never envisioned washing his dishes in the bathtub when he opened a $64,000 home-equity line of credit to renovate his kitchen.”
“But just when he was about to advance a first payment to his contractors — who had just ripped out his cabinets and appliances — Appleman says his lender, Bank of America, froze the line without notice to him.”
“‘People don’t take out a line of equity with the intention of not ever using it. And wouldn’t it be courteous to give your customer a call to tell me about this?’ he says.”
“Manda Hunt of Atlanta says an exemplary payment and credit history didn’t influence her lender’s decision. Hunt opened a home-equity line when she purchased a one-bedroom condominium in Atlanta for $173,000 in 2002.”
“A recent letter she received from Countrywide…explained that she could no longer draw from her home-equity line due to declining real estate values, she says. ‘I was freaking out,’ says Hunt. ‘I wasn’t planning on accessing [the line] but I don’t want to hear that I can’t.’”
“Countrywide now values Hunt’s condominium in the mid-$150,000 range — nearly $20,000 under her purchase price, she says.”
The Associated Press. “Yale University economist Robert Shiller, pioneer of the widely watched Standard & Poor’s/Case-Shiller home price index, said there’s a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s. Home prices nationwide already have dropped 15 percent since their peak in 2006, he said.”
“‘I think there is a scenario that they could be down substantially more,’ Shiller said during a speech at the New Haven Lawn Club.”
“Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said. ‘Basically we’re in uncharted territory,’ Shiller said. ‘It seems we have developed a speculative culture about housing that never existed on a national basis before.’”
“Many people became convinced that housing prices would increase 10 percent annually, a notion Shiller called crazy.”
“Shiller, who said it’s difficult to forecast prices, endorsed legislation proposed by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., that would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners.”
From CNN Money. “There are calls for the government to help homeowners at risk of foreclosure. But some experts think a mortgage rescue could cause more problems than it solves.”
“Some think the Dodd-Frank plan will at least slow the decline in home prices. Problem is, that could ultimately be bad news for the economy too. That’s because some think that, as painful as it may be, the best way to fix the housing crisis is for the free market to run its course. After all, lower home prices might actually help stimulate demand again.”
“‘What the market is in the process of doing is bringing home prices back to where they should be by any traditional measure,’ said Barry Ritholtz, CEO of equity research Fusion IQ. ‘If home prices don’t go down, it means newlyweds can’t go out and find a home they can afford.’”
“‘We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction,’ said Treasury Secretary Henry Paulson in a speech last month.”
“William Wheaton, a professor with the Massachusetts Institute of Technology’s Center for Real Estate, argues many of the homeowners now facing foreclosure could be better off renting the same home at current market prices, rather than trying to refinance the mortgage.”
“‘It’s very popular to say you’re in favor of home ownership, even if it doesn’t make any economic sense,’ he said.”
“Robert Shiller, a Yale economist who has long argued there was a bubble in home prices, thinks the plan will do little to stop the slide in housing prices.”
“Shiller adds that when compared to measures such as rents and household income, housing prices are still out of equilibrium. ‘I’m not sure we can achieve continuing high home prices,’ he said.”
“If he’s right, more borrowers may find themselves owing more than their house is worth, which could add to the number of foreclosures and homes on the market.”
The Herald Tribune from Florida. “If no-money-down was the real estate password for the first half of the 2000s, ‘jingle-mail’ might be the word for rest of it.”
“For 2007, 142 properties out of 6,188 sales were officially tagged as being distressed in the Sarasota MLS for a rate of 2.3 percent. But the number of homes swelled to 8.1 percent in January, 8.7 percent in February and 10 percent last month, says Jose Lopez, a distressed-property specialist who is tracking the phenomenon.”
“Even the incomplete month of April already is higher than that for all of 2007.”
“‘It keeps growing and growing and growing,’ Lopez said. ‘I wouldn’t be surprised if we end up this year at six to seven times the amount of these type of properties that were sold last year.’”
“Adjustable-rate mortgages now resetting and many times pushing up monthly mortgage costs by 35 percent are ‘the thing that is going to continue to spike it up,’ said Budge Huskey.”
“‘As housing values are going up, people are more apt to do everything they can to hold onto their homes,’ said Huskey, whose company runs what is probably the largest management division in the nation for bank-owned properties. ‘There is a behavioral element, too, that in a declining environment, people are less likely to save their property. A lot of people think, ‘Well, there’s nothing I can do.’”
“Lopez is not courting banks for their listings, preferring instead to work with buyers, finding the best deals among homes owned by banks or requiring bank approval because they are worth less than the loan. He then works at making them even better deals by making low-ball offers.”
“‘There are some agents out there saying the bank will forgive up to 10 percent, that any offer has to be 90 percent of what is owed,’ Lopez said. ‘That is absolutely ridiculous. They will do 20 percent with no problem, and I have seen as high as 50 percent.’”
The Star Tribune from Minnesota. “The reckoning inside the Colvins’ four-year-old home is playing out at kitchen tables and corporate boardrooms across Minnesota — and the world.”
“Jon Colvin informed CitiFinancial that he would be unable to make his March mortgage payment, and would probably miss April’s, too. He hoped the news would finally scare the bank into renegotiating a mortgage he can’t afford for a house he can’t sell — and now wishes he had never bought.”
“‘It’s not something I feel proud doing,’ Colvin said of missing the payments. ‘But how else am I going to get the bank’s attention?’”
“By the late 1990s, with the Twin Cities suburbs filling fast, Wright County was a bargain for developers. In sleepy rural communities like St. Michael, land could be had for less than $10,000 an acre, just a quarter of prices closer to the Twin Cities.”
“In Otsego, almost 2,200 units were built during the same period. The county’s average sale price jumped from $180,102 in 2001 to $234,009 in 2007, an increase of 30 percent. In Albertville, the gains were even sharper: 43 percent.”
“‘In 2005, my dog could have sold real estate in Wright County,’ said Dan Frie, a sales agent in Monticello, who has been in the business nearly 30 years. ‘A lot of people thought this was the next big growth market, and they wanted to be part of it.’”
“While Frie blames fraud for exacerbating the problem, many of the mortgages that are in default are held by people who believed — as many did and as the real estate community told them — that real estate doesn’t lose its value.”
“Newly married in 2005, James and Angela O’Hara, 25, fell in love with a tidy two-story townhouse in St. Michael. A real estate agent urged the couple to buy early, noting that other buyers would bid up prices by 5 to 10 percent once the rest of the project became reality.”
“‘They sold the vision as much as the house,’ James said. ‘They said it would be this bustling neighborhood with all these attractions just a block away. We never imagined it would lose value.’”
“Instead of living in a bustling urban village, the O’Haras look out on a field of weeds and townhouses with ‘Bank Owned’ signs posted on their front doors. Several of the townhouses are clad in Tyvek HomeWrap, their brick facades still unfinished.”
“The O’Haras need to move out of their townhouse by next summer, when James, a staff sergeant in the Marine Corps, reports for officer’s training in Virginia. But the couple fear they won’t be able to sell the unit for enough to repay the $190,000 mortgage. ‘It’s become a huge albatross around our neck,’ James said.”
“‘A lot of the prices that people were paying for property in Wright County had no basis in reality,’ said George Schmidt, a real estate agent in Anoka. ‘They were destined for foreclosure.’”
“Jeffrey Schoenwetter, CEO of JMS Homes in Eden Prairie and one of the investors in Martin Farms, said 400 houses didn’t seem excessive when the project was hatched in 2004.”
“‘When you have 10 builders come to you and say, we want to buy 10 lots a year, and then Mr. Builder says, ‘I have five friends that want to come, too, could we have 100 lots?’ Then I said, ‘OK, I’ll develop 100 lots,’ he said.”
“Laurie Karnes, a real estate broker who specializes in selling undeveloped land in the Twin Cities, blames today’s problems on greed and a failure to acknowledge that the good times wouldn’t last forever. ‘Logic would have told you, why would you build there?’ Karnes said of some of the county’s overdeveloped communities. ‘But logic wasn’t fueling this craziness.’”
The Tennessean. “About 47,000 loans, or 42 percent of all the adjustable- rate mortgages in Tennessee, were subprime at the end of last year, according to the Mortgage Bankers Association. Housing counselors in the Nashville area say they’re seeing ARMs for subprime borrowers resetting at up to 13 percent interest.”
“Emerging from bankruptcy three years ago, Marcus Neal seemed an unlikely candidate for a home loan. But that didn’t stop his lender. With no money down, Neal was able to buy his first home, a cozy two-bedroom townhouse in La Vergne, for $89,000 just six months after walking out of U.S. Bankruptcy Court.”
“Neal said a credit counselor whose advice he sought after his bankruptcy steered him to a local real estate agent and said it made sense to buy a home. Neal said he had been living in an apartment complex with a crime problem, and home ownership seemed like a sensible way out.”
“The builder of his new townhome, Ole South Properties, one of the largest builders in Middle Tennessee, lent him $8,994 so he didn’t have to come up with a down payment.”
“Washington Mutual Inc., which financed 90 percent of the purchase price, gave Neal a 9.5 percent interest rate on an adjustable-rate mortgage that would reset after two years, according to the mortgage documents.”
“Neal said he is now several months behind on his mortgage payment after he lost his job as a boiler room operator. Plus, his mortgage reset last year, adding another $100 to his loan payment every month.”
“‘Most subprime loans were done with the thinking that, within the next two years, it would be refinanced into a prime product,’ said Keith Payne, a loan officer at Freeman Webb Mortgage.”
“Payne said he didn’t do many of those loans, telling people to wait a few years and improve their credit instead. ‘But a lot of people were not thinking about … two years down the road. It was one of those things people thought would go on forever, and now they’re finding out, nothing goes on forever,’ he said.”
“A recent letter she received from Countrywide…explained that she could no longer draw from her home-equity line due to declining real estate values, she says. ‘I was freaking out,’ says Hunt. ‘I wasn’t planning on accessing [the line] but I don’t want to hear that I can’t.’”
Huh?
The HELOC was her life savings to be used in case of emergency.
I understand. Last year my wife needed 4 surgeries that involved about $30K out of pocket. It was nice having the HELOC as a nice source of cheap debt.
Sounds reasonable. Maybe in the Brave New World HELOCs should only be taken out for emergencies, with substantial payback penalties (just like 401K money is now), or on a limited bases contingent on ‘necessary’ and/or ‘meaningful’ home improvements…with the bank getting all proceeds from equity gains from any sale until the loan is paid in full.
Since 401K money is judgment-proof, including bankruptcy (and it is, with some limitations), then you have to be COMPLETELY STARK-RAVING MAD to dip into your 401K–even to get a loan. You’re better off going through bankruptcy.
In Florida, 401K is not judgment-proof in divorce proceedings; ask me, I was forced to split mine 50-50 in 2001.
Better yet would be had we both not been wiped out in divorces (her’s 4 years ago; mine 6 years ago, but with 5 years of $10K a year alimony + $12K child support that continues, it was the shaft that kept on shafting).
Of course, an economy where wages kept up with inflation, I mean real inflation not the fake version the govt. reports, would be NICE too. Maybe then we wouldn’t need debt so badly.
Oh, ok. I’m one of those old-fashioned people who has life savings to be used in case of emergency as “life savings to be used in case of emergency.” I guess I just didn’t understand panicking because you no longer have access to a loan you claim you never planned to take out . . .
AMEN!!
AMEN squared!!!
AMEN to the third power!
That is old fashioned, to not think credit = wealth.
There was a guy on here a couple days ago “bragging” about how he had $175k of untapped credit cards, as if that made him a big-time operator with lots of resources at his fingertips. Sure, maybe it does for now, but as we currently are seeing, HELOC and CC “money” can be snatched away at a moments notice.
If someone thinks that a big credit line is actually equal to a big pile of cash, then they’ll likely have an unpleasant surprise coming very soon.
I didn’t feel the guy was bragging.
he said he was denied credit because he “had too much”, some one asked him how much credit he had and he listed it
didn’t sound like bragging to me
Does 22″ rims constitute an emergency?
That’s what leasing is for!
(Don’t laugh. I’ve seen it! Lease your 2k rims for 200 a month for 24 months!)
Baltimorgue has such operations going. It wouldn’t surprise me if the rims were stolen, too. But, hey - one needs some way to make a g-ride look more ghetto, right?
I’ve got a cash position- which my “advisor” has tried to get me to deploy into various equity instruments. He has a point, with current interest rates, I’m not coming close to keeping up with inflation. Anyway, one of my arguments is that there is some value in having that cash liquid- to have immediate access to it in case of an emergency. His suggestion was that I should establish an (untapped) HELOC as a contingency; and if I needed to, use the relatively cheap debt to float the balance while I unwind equities as necessary. With the banks shutting down access to those lines of credit, that’s seeming like a less and less viable strategy-
That sounds like a really stupid strategy from your “advisor”. You should always have a portion of your wealth in cash if possible.
“With the banks shutting down access to those lines of credit, that’s seeming like a less and less viable strategy”
Just speculation, but if you have a lot of equity in your HELOC collateral, like 50% or more, I doubt your line would be revoked. From what I read, it’s only the folks who have less than 25% equity who have much to worry about. Of course, that’s fluid in that as prices decline you equity is going to decrease and get closer to the cancellation level.
One of the things that no one is mentioning is that you pay to have these HELOCs to draw on. They aren’t a just gifts from the bank. So, when they revoke them, do the banks give back the fees?
Reality, truth, sets in hard to face. For those who can’t, go back to bed with covers over your head and dream of yesterdays.
(Sales have sunk 19.3% in the past year and are down 33% from the peak in 2005. The median sales price fell 7.7% in the past year to $207,000).
This has to be looked at as a best-case adjustment so far. We could have sales down 75% given how high the price is. The reality is credit is not tight by traditional measures.
The best scenario is for the banks to dump those REOs and builders to dump inventory so that those who need housing can buy at a price they can afford.
The probably fudged, annualized estimate was down 19.3%. The raw monthly estimate was down 22.7% (484k in Mar 2007 to 374k in Mar 2008). I don’t trust the “annualized” numbers from the NAR and the Census Bureau (new home sales and starts).
BTW, 374k was the preliminary estimate for March 08; what will be the final estimate?
“Sales have sunk 19.3% in the past year and are down 33% from the peak in 2005.”
Good, now I know what “stable yet soft” means.
“stable yet soft” describes the pile of poo the NAR has been shoveling at us for all these years. Pretty soon he’s gonna be down the the rock hard nuggets that won’t feel so good when flung at the populace.
Dead people are in stable condition too.
Are they talking about RE or ER ?
Doc says , Good News , it’s Soft yet Stable.
Opps. Meant RE or ED. Blew the Punch Line.
“Of the homes for sale, 18 percent have negative equity….”
“Of the homes for sale, 18 percent have negative equity….”
“Of the homes for sale, 18 percent have negative equity….”
18% of 4 million is 720k homes with negative equity. With an average of 50K loss per home, that translates into at least 36 billion dollars that the banks will lose in the future. This is conservative and assumes that all of the properties get their short sale. A foreclosure can cost the bank twice that.
I have a feeling that 6 months from now we will have 6 million homes on the market and 35% with negative equity.
at least 36 billion dollars that the banks will lose in the future.
You mean the mortgage holders, which certainly includes banks, but I doubt that the banks are holding even 50% of the bag.
Maven,
Do you have a link or two to send me on the Tampa Bay area?
I have an acquaintence that keeps saying that there are few foreclosures and great monthly sales in the area despite showing her some March data (Hillsborough co 761 sales vs 1763 foreclsosures). She says those aren’t ‘real’ numbers because they aren’t her MLS or NAR fed numbers.
Anyone have anything? I’d really like wipe that “Tampa Bay is different” smirk of her face >; )
http://www.tampabayreo.com./
http://www.pasreo.com/pasreo/public/propertySearch.do
I’m currently looking in/near Tampa and using these two. I am also updating Zillow sometimes with what I find. There was a house on zillow at 460k and the foreclosure was 260k. The more good info we have, the more realistic the prices will be overall.
Rusty - that’s a great idea - doing the merit-badge thing by telling Zillow when low sales have happened. Think I’ll do the same.
My eyes glaze over every time I see a quote near the letters “NAR”. I don’t think there’s a bigger collection of boobs outside of my old stack of Playboys.
Yup, and here’s old Dick Gaylord: “It appears there is some over-reaction on the part of some lenders now in requiring higher downpayment percentages than may be necessary.”
Necessary for whom, Dick?
Maybe LENDERS WHO PLAN ON GETTING PAID BACK SOMEDAY?
I’m sure that downpayments don’t seem like a good idea to the six-percenters that Dick represents, but it’s not their money at stake when a loan is made. Maybe these house salesmen should get their commissions paid like an annuity as the lender collects their payments.
Just a little skin in the deal…
More skin! We need more skin!
Don’t skin me bro?
” …some lenders now in requiring higher downpayment percentages than may be necessary.”
Translation: the people with money won’t lend it to penniless fools — where else we are supposed to find buyers?
Better yet, if the realtors think that housing is such a good investment right now, I propose that they help all of their buyers by putting their own money (as if they had any) into the down payments, and they can get that back (along with their commission) over 30 years.
““Shiller, who said it’s difficult to forecast prices, endorsed legislation proposed by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., that would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners.”
vs.
““Robert Shiller, a Yale economist who has long argued there was a bubble in home prices, thinks the plan will do little to stop the slide in housing prices.”
Is he trying to play both sides of the fence, or did I miss something?
I’ve been puzzled by some of Shiller’s recent statements as well. He has said that prices rose higher than the ability of incomes to support them, but he supports government efforts to prop up the housing market at prices which he has said are unsustainable. Maybe he is angling for a job with the next administration, other than that I can’t make any sense of out of his statements.
I think the idea is for lenders to write off the lost equity and the borrowers to pay off the remaining amount. The loss would be recovered if there was a later sale for more than the new value loan. He probably sees this as helping FBs while dealing with falling prices.
I’m not saying I agree, I just understand his take on the situation.
For those of us who are not complete libertarians, there is a place for Government action when shit happens to people.
For those of us who are not complete libertarians, there is a place for Government action when shit happens to people.
—————————
We’re talking about money here - not cancer, not tornadoes, not earthquakes, not acts of war.
So if the government has a “place” when it comes to preventing people from losing money, then I want money for the losses I took in the stock market 8 or 9 years ago. I’m serious - where’s my money edhopper?
“For those of us who are not complete libertarians, there is a place for Government action when shit happens to people”
When shit happens to people: Earthquakes, Hurricanes, Volcanoes, Wars.
When people shit on themselves: Buying a house that’s worth 300K for 600K on a 40K income.
I think if the government really want to helped people they would be assisting borrowers in getting through the foreclosure process and obtaining affordable rentals. Asking those who should never have bought in the first place to shovel more money into a depreciating asset seems like the kind of help these FBs could do without. The proposals I have seen have nothing to do with helping individuals, just propping this ponzi scheme for a little while longer.
That sound more of my line of thinking. I was attempting to explain what I thought Shiller’s line of thinking. Not endorsing it. I do see a lot of the “No help for any FB” on this board. I think there are areas to help. such as your suggestion.
I don’t think he in any way agrees with the plan - he just states it won’t support the prices.
If that’s the case, why is he endorsing it?
Oops, I missed that one. Nevermind
♫ ♪ No more heroes anymore . . . ♪♫
oooohhhh….how’d you do the notes….?
Yes, do tell. I just looked at the source code and was expecting to see ASCII characters. Instead, I saw…
…notes.
You guys crack me up. Smiley faces, notes…..what’s next? I’m still looking for someone to come up with my monkey humping a football. And if you got the skills to pull that off, you might as well do me a wedged between two cheeks JT. Now that would be sweet - and useful.
I’ve had a sinus infection the last 2 weeks that worked its way into my lungs, so I have to thank you for posting something that made me laugh so hard, it worked like an expectorant!
‘It’s become a huge albatross around our neck,’ James said’
Remove from neck, plop in pot, add some patatoes, carrots and an onion with a dash of salt and pepper, stir the DebtPot and simmer.
Gonna be more than more than a few Fb’s showing up for albatross soup ine before this is over Jim old boy
Hmm, albatross soup. Sounds interesting, esp. the part where you plop in some pot. A little herbal flavor.
Do you get wafers with it?
“Washington Mutual Inc., which financed 90 percent of the purchase price, gave Neal a 9.5 percent interest rate on an adjustable-rate mortgage that would reset after two years, according to the mortgage documents.
Geez, loanshark much WAMU ?
What kind of a deal would you give to a boiler-room operator, who was six months out of bankruptcy, asking for a 90% LTV loan?
I wouldn’t give him the time of day, let alone a low interest rate.
It’s a deal set up to fail wouldn’t you agree ? the loan simply should not have been made with rates that even a person with good credit would have been forced to default on eventually
I wouldn’t have made the loan, if I were the bank. But remember, the banks were acting like the party would go on forever, and if it had, this guy might have re-fied into a better loan after a couple of years. It’s more a case of unjustified optimism and carelessness on the bank’s part, rather than loan-sharking. A real loan shark would have charged 20% or better.
A few weeks ago, someone was speculating on this blog about the advantages of detachable sex organs. Imagine what that sort of collateral would mean to loan sharks.
Mortgage finance scheme:
My friend is a mortgate broker in Huntington Beach, Ca. Here is his scheme: buy a $600,000 townhome/condo with a conforming(80%LTV) interest-only loan. Using another friend as his Broker, he says he can get 4 points back (~$20,000 on a $500,000 loan). He can then refinance the $500k loan every six months to obtain another 4 points ($20,000). He believes this will work indefinately and basically pay for the monthly cost of the mortgage.
I questioned him on 2 issues: first, what if the market value drops and you cannot refinance due to the high LTV…his answer was that prices cannot go down much more in coastal Huntington Beach. And second, what if the banks stop giving 4 points back on thier loans…answer was that there is always other options to creative kickback financing like taking on a higher interest rate.
I understand only the basics of the mortgage biz, but do banks really kickback 4 points on loans and can that really last? Can one play this continual “kick the can further down the road” game and live in homes on the cheap? There has to be some consequence here I’m missing!
yeah, he’s insane. Never going to work.Hope he does it. We need the Morons to keep buying to set up the next round of foreclosures.
first, what if the market value drops and you cannot refinance due to the high LTV…his answer was that prices cannot go down much more in coastal Huntington Beach.
Classic.
Which part is not going to work? I think his plan fails when the gravy train of broker kickbacks dries up. Banks will not be able to securitize all their loans and will actually have to do real underwritting when they keep them on their own books.
it’s a scam SoCal, the kickbacks are taxable income for one thing. All the creative financing he is talking about depending on is drying up and as pointed out the LTV will drop leaving him with no options. I pray he goes through with this scheme.
I’m in Huntington Beach. There are condos under 300k right now on the MLS and houses at 500k. The guy is a moron like 80% of the people that live here. They all just make me look even smarter.
Get a hundred credit cards with no fee for cash advances - put the money in the bank, but then pay off the balances on time every month, and make money off the interest in money market account.
Sounds possible in theory, but impossible in the real world. I believe that Vermont, or some other small state used to prohibit credit card companies from charging an advance fee on ATM withdrawls paid back within billing period - but I’m guessing that door has finally closed. No way he can keep getting high-fee refis every six months, and he’ll eventually get stuck with a high-rate loan he can’t get out of quickly.
Sounds a lot like the roulette scam–bet black, if you lose, double the bet on black, if you lose again, double again…
Nope, doesn’t work.
Ha ha. I’ve always wanted to try that - even though I know it’s a sucker bet in the long run.
My own Vegas “system” was to play blackjack until I got up $50 to $75 or so, and then quit when it went below $50. It worked the one weekend I employed it over a handful of sessions on cheap-ass ($5) tables. Sort of the same theory - just make sure you quit when you’re ahead. (Of course, you have to have the naive belief that you can always grind out a small lead on small-stakes tables if you’re patient - which is surely not true).
But yes, I realize it was nothing more than a combo of luck and non-drunken play. I’m lucky I don’t live in Vegas, Atlantic City or near an Indian casino - I’m sure I would patronize it just for the low-grade entertainment value of gambling.
That works great until you get to the 6th or 7th loss and you need to put down $1200. At then the ephinany (sp?) arises and you realize that the wheel doesn’t care and the next spin is still a 50/50.
Slightly less than 50/50, actually - thanks to the green 0 and 00 numbers.
True: In the real eCONomy, the House always wins!
I would think there will be a prepayment penalty that wipes out the entire idea.
Been a while since I posted- new baby takes a lot of time.
I have been keeping up with the news and watching an incredible amount of HGTV and have a few observations:
It seems common since to draw the connection between increasing supply and tighter credit. Everytime negative numbers come out, the RE shills are anxious to paint a silver lining in the numbers or try to call a bottom.
HGTV: even with all of the bad markets, they continue to perpetuate the myth that painting an accent wall and changing your pillows on the couch will add $10,000 to your asking price. I admire that they are showing people how to fix up their homes and make them presentable for sale, but whole invest $20,000 in remodel = $50,000 equity seems to be an old model. Who knows- may it still works!
Anyway’s between MSM and HGTV, I anticipate more resistance on the way down as sellers grasp onto their wishing prices and the “my house is special” mentality.
Certainly wasn’t logic. It was ILLOGIC that fueled this messed. And GREED. A lot had to know there were problems and turned their heads (not to mention names, Greenspan, Liraeh, Tan Man Mozillo, and a whole host of clowns)
wow, a house is for sale at 40% off in my hood from peak
22151
where no one has been laid off- all fed workers
Taxme, Is that the $400k REO 3 br post-war ranch dump with the back yard right up against Rte 66 and traffic noise that sounds like continuous rolling thunder, and that has about 14 cars in the cul-de-sac because at least that many people live in the 3 br crap-ranch next door?
We have so much further to go.
MLS#?
“The O’Haras need to move out of their townhouse by next summer, when James, a staff sergeant in the Marine Corps, reports for officer’s training in Virginia. But the couple fear they won’t be able to sell the unit for enough to repay the $190,000 mortgage. ‘It’s become a huge albatross around our neck,’ James said.”
Marines shouldn’t be speculating in Real Estate, they move too often.
….he wasn’t speculating.
It was a “Sure thing”. That’s what the broker told them.
Yeah really. An E-6, buying a house? He’s not gonna be stationed in the same place for more than 2 years on average. Live on base for free, Sergeant.
Add up those 3 years of house payments you just made, and be shocked at how much money you could have in the bank right now.
*shakes head*
“Existing home sales are ’stable yet soft,’ said Lawrence Yun, chief economist for the real estate agents’ trade group.”
or
“…No one – including the Fed – has a good sense of how far house prices will fall or when they will stabilise….”
Krishna Guha
in: Road to ruin? America ponders the depth of its downturn
http://www.ft.com/cms/s/0/2ef9698e-0fbf-11dd-8871-0000779fd2ac.html
I love how they treated consumer spending almost as a footnote; although acknowledging that it’s 70% of the US economy, they didn’t even touch on the fact that it was this whole bubble in the first place that drove consumer spending.
“Shiller … said there’s a good chance housing prices will fall further than the 30 percent drop in the historic depression of the 1930s.”
Add to the equation, higher food and fuel prices. How long before Mr. 6Pack walks away?
“Home prices rose about 85 percent from 1997 to 2006 adjusted for inflation, the biggest national housing boom in U.S. history, Shiller said. ‘Basically we’re in uncharted territory,’ Shiller said. ‘It seems we have developed a speculative culture about housing that never existed on a national basis before.’”
Since wages have been roughly flat during this period, you’d need about a 45 percent decline from peak to get back to 1996 values, greater if you account for the typical overshooting. How many that bought in the few years around the peak or HELOC’d to peak values would walk away at that point? Once people realize their house is worth half or less what they paid and they’re struggling to make payments, how many will do anything other than walk away?
That previous title heading “floating on the bottom”, considering the bottom keeps dropping and it (the bottom) keeps being called , I would love to see a photoshop with a waterfall and that TIME magazine house picture about 1/4 way down the waterfall, bumping its way along the clif edge (false bottom) as it not only plummets, but breaks apart (think shotty work during the boom). That would sum it up. Pictures worth a 1000 words as they say.
“There are calls for the government to help homeowners at risk of foreclosure.”
———————————————————————-
I’m fed up with this propaganda being spewed everyday. I know there are reporters who read this blog, so this message is for them.
HomeOWNERS don’t have any risk at all of foreclosure. HomeOWNERS don’t need any assistance from government bailout scams. Everyone who is a homeowner has already paid cash for their property, or they have finished paying off the mortgage so there is no risk of being foreclosed on. The people you (MSM) always refer to as homeowners are not homeowners at all. The bank is still the owner of these properties until the borrower pays off the entire amount of the mortgage, plus interest. You can call these people Loan-owners, or Homedebtors, or Borrowers (FBs these days), or Speculators, or Specuvestors, but HomeOWNERS they are not.
“…After all, lower home prices might actually help stimulate demand again.”
I know many physicians who prescribe antibiotics to children with viral ear infections. The parents will often gossip that their doctor is incompetent if they can’t walk out of the office with something to give their child. People are not content to let nature take its course, and don’t realize that freely prescribing antibiotics will actually create more drug resistant bacteria.
Seems like a good analogy with the housing bubble. People aren’t content to let the free market correct. The government has “to do something”, otherwise they figure they aren’t getting their money’s worth. It’s too bad that the cure will possibly cause more harm than the disease.
FYI, for the non-medical people: antibiotics don’t work in treating viral ear infections.
Yep, that’s the problem, be it doctors or legislators. Someone screams “They have to do SOMETHING, anything!” And so they do, and it gets worse! Arrghhhhhh!
This housing bailout is a poorly-conceived plan that will inevitably just open the door for more and larger bailouts after this.
Not too many politicians, though, seem to willing to come right out and say that a LOT of these people really shouldn’t be in their houses because they just flat out cannot afford them and shouldn’t be encouraged to try.
Tincture of Time is a medical term for letting nature take it’s course.
How ’bout an Economic Enema?
Brandon - I can relate with the new baby taking a lot of time issue.
California’s Home-Mortgage Defaults More Than Double
April 22 (Bloomberg) — California mortgage defaults more than doubled in the first quarter to the highest in 15 years as a drop in sales and prices prevented some homeowners from selling their properties to pay debt, DataQuick Information Systems said.
Homeowners received 113,676 default notices, up 143 percent from a year ago, La Jolla, California-based DataQuick said today in a statement. The number was the highest since at least 1992, when DataQuick’s statistics begin.
Home sales in both the San Francisco Bay Area and Southern California plunged 41 percent last month, and prices dropped 24 percent in Southern California, the biggest year-over-year drop for a single month since at least 1988, DataQuick said last week. The first quarter’s default numbers were a record in almost all of California’s 58 counties, DataQuick said today.”
Next week I’m going to Fresno to see family- I can’t wait to see the housing situation. While SoCal and the Bay Area get most of the news, the Central Valley has got to be bad.
It’s pretty awful.
Can’t wait to see the new Case-Shiller numbers for LA.
“Emerging from bankruptcy three years ago, Marcus Neal seemed an unlikely candidate for a home loan. But that didn’t stop his lender. With no money down, Neal was able to buy his first home, a cozy two-bedroom townhouse in La Vergne, for $89,000 just six months after walking out of U.S. Bankruptcy Court.”
FICO scores were meaningless during the boom, and everyone is predicting they will become even more meaningless after the economy tanks.
Why is our government bailing out these banks again?
‘If home prices don’t go down, it means newlyweds can’t go out and find a home they can afford.’”
Did I miss the memo? I wasn’t aware marriage constituted the right to own/buy a home.
get with the program, household formation = house sales. Can’t have one without the other, or so the NAR hopes.
If home prices don’t go down, it means newlyweds can’t go out and find a home they can afford.
This particular statement jumped out at me, too.
It also means that someone without a spouse (who earns an average income) cannot find a home he/she can afford. But, hey, let’s focus on the poor, young newlyweds.
Enough, already, with the “only-married-people-should-be-able-to-buy-houses”. Sheesh.
With the number of houses we have built, SOMEBODY better be able to buy them!
I am sure that NAR’s best propagandists could put Goebbels to shame..
Silly me, I recall newlyweds living in an apartment while they saved and scraped for a DOWN PAYMENT for a little starter home, and the mortgage payment cost only a little more than rent. Sometimes the first baby was a toddler when they proudly moved into their new home.
Doncha love it when you read about a young couple having their first baby and they complain about how cramped they’ll be in their 3-bedroom abode. They simply must buy a 5-bedroom house, cuz that baby’s gonna be HUGE.
Sounds like you’ve met my wife.
Go ahead… laugh at me…. at least I got her to put it off for awhile.
I just married when this whole debacle was getting underway in 2001. I had though to buy in 2003, 2004, but hell if I could afford anything on just under six figures a year in LA. Funny, when I was single in LA I could afford quite a few properties.
So now I have an even bigger down payment after saving for so long!
I’m lucky my wife doesn’t want to buy something we can’t afford with a 15 year mortgage and a healthy down payment. She wants a house, but not at today’s prices in LA.
Forget Tokyo, 100k-300k/100 square feet is average here for anything half way decent. People here are constantly getting things at 10-12 times income!
A co-worker has a friend who purchased a 900 square foot new house in central Tokyo on a 500 square foot lot, and it was well over 1.2 Million for the place! He is a manager of Windows Server Administrators, and I guess he’s making about 120k/year. Knowing what the Windows server manager at my place makes.
3-5 times income would never work here in Japan, unless you are very very wealthy. Japan loves to keep it’s people in debt slavery as well!
I think the point to be made here isn’t who “deserves” a house or whatever, but 3 cheers that the MSM is finally waking up to the fact that “keeping housing prices up” isn’t a good thing for any buyers.
“The bank [holding company, Royal Bank of Scotland], which wrote down assets by 2.4 billion pounds last year, said…it valued below-prime Alt-A mortgages at 50 percent, down from 83 percent.”
So RBS management thought a 17% loss allowance for Alt-A loans was inadequate and increased the reserve to 50%! Now let’s look at what one US institution is doing. IndyMac, arguably the premier Alt-A lender, had as of 12/31/2007, a 2% loss allowance for its entire permanent, mortgage loan portfolio (which includes land loans and income property loans). For IndyMac, a mortgage portfolio loss reserve of only 13% would produce a balance-sheet insolvency. How many others are similarly situated?
Dude, that is
frighteningsobering.Glad to see RBS waking up to the fact that Alt-A losses are going to be severe. It was refreshing to see them take the lead in assuming more realistic valuations of Alt-A. Can’t wait to see the others follow suit.
Anyone taking bets on who the first will be to value prime mortgages at 80%?
The Street.com. “Todd Appleman never envisioned washing his dishes in the bathtub when he opened a $64,000 home-equity line of credit to renovate his kitchen.”
“But just when he was about to advance a first payment to his contractors — who had just ripped out his cabinets and appliances — Appleman says his lender, Bank of America, froze the line without notice to him.”
“‘People don’t take out a line of equity with the intention of not ever using it. And wouldn’t it be courteous to give your customer a call to tell me about this?’ he says
“Now is this funny, or what”.
Buddy the Villian in ‘The Incredibles’
It’s become a huge albatross around our neck,’ James said.”
No need to be an albatross. Get rid of it for $.41 and a photocopy of your backend with “Kiss My %%%%”. Jingle Mail, Jingle Mail, Jingle all the way.
Wasn’t there a Monty Python sketch about a food vendor selling albatross in a movie theater aisle? There must be demand somewhere for an albatross.
A lot of the prices that people were paying for property in Wright County had no basis in reality,’ said George Schmidt, a real estate agent in Anoka. ‘They were destined for foreclosure.’”
George, bad choice of words. The word destined implies that one did not have a choice. These people made a choice to purchase a home that would head for foreclosure. You should say they chose to purchase homes that would ultimately be foreclosed on due to a poor choice, probably guided by your used house creep associates (you are also probably one of the guilty).
“…Appleman says his lender, Bank of America, froze the line without notice to him.”
Here in Calif…B of A runs tv commercials claiming they are: “A bank of opportunity!” so does this actually mean… that if you give them the opportunity they will… %*#& @#!
Of the homes for sale, 18 percent have negative equity and so are either in foreclosure proceedings or headed for a ’short sale’ that will see the lender write off some of the original loan amount.
It’s interesting that no one even mentions the third possibility, i.e., the FB brings a check to the closing. Is this practice now extinct?
As if….. You think anyone actually has money?
FB bring a check to closing? Friends of mine did exactly that a few months ago. They bought a place to flip. They put down a 10% down payment, refurbed the house and basement as well, but got job-transferred and put the house on the market.
Months and months and months later, they finally managed to get out from under that house. They had to bring a cashier’s check for $48,000 to the closing table. Ouch! Add in the work they had done and their down payment, and their loss was $130k in about 18 months. Not good, but at least they had good enough jobs and savings to afford to get out cleanly, albeit expensively.
So no, the practice is not extinct, just “endangered species list”.
In 1995 We brought $35,000 to excrow to get out from under a home in long Beach CA. With the passage of the mortage relief act sellers receiving a short pay do not receive a 1099 and are exempt from the tax. No skin in and no skin out
The FB can bring a check to the closing. They can write the check for the full amount. There just won’t be any funds in the account to cover the check.
Like the banker to the old lady, “Ma’am you have to have money in the account to cover all of these checks you are writing. Sonny, you don’t understand. You said “Free Checking” “
Ever been to a closing? They won’t take a personal check.
What do you mean I am out of money? I still have checks.
Are you related to my ex??????
‘Lenders have been dragging their feet (in approving short sales).’
————————-
Yun oughta be happy about that; think where prices would be if they weren’t dragging their feet…
Let me guess: A lot lower than they are now:
The Realtors want their comissions! They no longer care about property values. They want transactions!
And every soul who bought during the boom should be aware of that fact. Double in value every ten years my sweet patootie!
Now the only question is how many neighborhoods will they help ruin in their quest for churn?
I’d be an awesome addition to any neighborhood. When the banks finally start dumping, I’m gonna be like a kid in a candy store…
True, I hadn’t really thought of that… But the whole “real estate only goes up” is an even harder sell when the prices plummet! (As if they haven’t already)
Reminds me of the saying: “You can wish in one hand and sh*t in the other and see which one fills up first”….
Is it just me, or do these numbers seem even more astounding than most of us thought they’d be a couple of years ago? And we’ve still got a long ways to go…
The California default numbers are stunning…doubling in the first quarter. And the article goes on to note that 2/3 of defaults went into foreclosure…also a record. Just in Cali, the implosion is stunning.
Any guesses on what the second quarter numbers will look like?
State’s budget deficit was 14.5 billion as of December…I wonder what it looks like now? New York is no prize, but Cali is being hollowed out…
I heard on the radio this afternoon that the citizen commission that oversees pay for California statewide elected officials has sought a legal opinion on whether they can recommend a pay cut for those elected officials. The reasoning is that if across-the-board budget cuts are being proposed, why should elected officials not have a pay cut instead of a pay freeze? This is getting interesting.
If this is seriously being considered, I want to make sure that this makes it out to the rest of the country.
This is just amazing…
Here’s a link to the story on sfgate.com
http://tinyurl.com/4ks3xp
“NAR President Richard F. Gaylord, said there are problems with the implementation of mortgage guidelines. ‘It appears there is some over-reaction on the part of some lenders now in requiring higher downpayment percentages than may be necessary,’ he said.”
How dare they ask for any downpayment! Why the nerve….! How are we supposed to keep home prices sky high with these ridiculous 5 and 10% downpayment requirements?
You want a stable home, banking and mortgage system?….mandatory 20% downpayments for anyone buying a primary residence. Over…done…..problem solved…..
Also, no Fannie/Freddia/FHA purchasing of mortgages backed by second homes - primary residences only!
Geez, it’s not that hard…..
I just got back from Raleigh Durahm NC and the outer banks NC. Flying in, it seemed like the only new houses being built were massive cookie-cutter Mcmansions. We’re talking gigantic monstrosities. 4,500 and 5,000 Square foot houses with pools. You could see these from the plane windows. Amazing. The airport was crammed full of people. I overheard more than one conversation about people who were trying to sell some house elsewhere. Usually 30-40something couples with kids from the Northeast and Florida. The whole city had this kind of “Equity Locust Orgy” feel to it. I secretly hope that none of those folks can sell their crappy houses and move down. Building nothing but Mcmansions seemed stupid and entirely geared towards creating an artificial economy.
Onward to the Outer Banks. On the way down through the sticks, just about every single billboard was for some retarded sounding retirement community. Names like “Country Walk”, or “Canyon Bay”, or some other breathy names were given to these places. Most were golfing or boating communities. Some of the signs mentioned condos on the coat “From $300,000″, which given the fact that many we passed by were in some muddy field 20 minutes from the ocean was asinine.
Arriving at the Outer Banks, we arrived at my Wife’s Mother’s beach house. She and her husband built it over 30 years ago back when there was no bridge and the land was cheap. They built it out of inexpensive materials, rent it cheaper than anyone else, and have no allusions that indeed- someday it WILL get blown away by a hurricane. So they don’t even bother insuring it.It it blows away, oh well. They’ve made decent income off of it form years now.
On the other hand, all the new houses around them are massive. These places rent for $1,400 a week. Yet they now cost easily over a million dollars, thus there’s no way they could possibly monetize. ALL of them except for a few were for sale. I forgot my camera. It was insane. None were even pending. They just sat there, all with at least a million dollar asking price. For a little piece of a sandbar. Complete and utter stupidity.
My brother lives near Fuquay-Varina. Much smaller houses being built there. I think you can get a 3000 sq ft for about 200K.
They were marketing that coastal Carolina stuff like crazy up here in the Washington DC area a few years ago. Really frenzied ads making it sound like you were going to Miss Out Big Time if you didn’t get in Right Now!!!! I think we can see how that worked out.
About two or three years ago, at the height of the insanity, I met a couple in Maryland who were “investing” in a brand new house there, Outer Banks NC.
Ignoring the potential pitfalls of a long-distance rental investment, they said it would cash flow (their term) if they could rent it out most of the year. Whether the term “most” meant 60% or 90% I could not ascertain; they seemed to be a bit loose on the math and couldn’t and wouldn’t give a lot of detail.
Anyway, I told them that if it didn’t get them solid returns from only renting it out during the warmer months (and it probably would not rent much outside of that) then it’s just not a good investment. “But we’ll make a lot off of the appreciation, and that counts, too.” There might be no appreciation at all, perhaps even loss of value given it’s a brand new house when you get it and a used rental when you need the cash from selling it, I told them. And the bubble in that coastal market can make that even worse. Oops.
Oh boy did I get the evil eye. Seriously. They looked at me not as if I were stupid but as if I really had it in for them and other innocent investors like themselves. I didn’t and don’t, but I also didn’t know what else I could say, and I did say it as tactfully as possible. Oh well.
I haven’t seen them since, but I am insanely curious about how their big mortgaged-to-the-hilt investment is turning out. From jetson_boy’s report, not so good, I imagine.
“Shiller, who said it’s difficult to forecast prices, endorsed legislation proposed by Sen. Chris Dodd, D-Conn., and Rep. Barney Frank, D-Mass., that would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners.”
“Robert…take that knife out of my back please….I thought you were a smart guy….or are you going to pay my additional income taxes to pay for Barney and Chris’ Great Adventure?”
Barney and Chris. 2 cartoon clowns? Would have better sense than those clowns in Congress.
I’m not real happy about what they are proposing either, but next time I think we could use a little adult supervision BEFORE the shit hits the fan.
“We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction,’ said Treasury Secretary Henry Paulson in a speech last month.”
Ahhh, the REAL economy. I see, housing was like a board-game, but with really big pieces.
“Existing home sales are ’stable yet soft,’”
Is that a “permanently low plateau”?
“Stable yet soft” sounds more like something proctological-related, to me. Which I guess could be a permanently low plateau…
And to think that we’ve already had one procto reference on this thread. Something about JTs in a certain place…
Cry me a river
http://money.cnn.com/2008/04/22/real_estate/no_help_for_most_borrowers/index.htm
Read about what San Jose thinks is “Affordable” Housing and why it had failed miserably.
http://www.mercurynews.com/business/ci_9011213
Note: According to their income guidelines I’m Poor. Where are my food stamps ?
Now I remember why I ran away from California as fast as I could.
Complete insanity. The sole sucker who purchased one of the “low-income” condos paid $590,000 for her unit. If this is an “affordable housing development”, I’m the freaking Easter Bunny. And the housing agency is blaming the problem on “credit conditions”. I would question their mental conditions. Must be some good drugs for the weenies that run these Neighborhood Housing Services organizations. And now the city is going to try to bail them out with $10 million worth of “down payment assistance”.
Utter and Complete Lunacy. Somebody must have upped the dosage of the vitamin L they take each morning.
Caught this amusing tidbit among the comments on a Marketwatch story:
___________________
A friend of mine bought a house a month ago at $217,000 down from $240,000 when first listed. His insurance company sent an adjuster to value his property for the homowners insurance. The Insurance company sent him a letter stating that they would gladly insure his house for $189,000.
I would say that’s generous on the part of the insurance company if the land underneath the house is worth anything, since it’s usually not affected by calamity.
I think we are entering a new stage folks. Things has ratcheted up a bit with oil at $120 and prices plunging. I see what looks like fear or panic.
Which stage is this and what is the next stage after this one?