When OFHEO Reports, ‘It’s Going To Be A Bad Day’: CEO
Reuters reports on comments by Fannie Maes’ CEO. “In response to a question about whether Fannie Mae had identified the major accounting issues with the most dollar-impact on its restatement, CEO Daniel Mudd said, ‘Yes.’ Mudd would not comment on when Fannie Mae might report 2005 results or return to regular quarterly reporting.”
“Mudd said many external factors will also play into Fannie’s restatement process, including a report expected soon from the company’s regulator, the Office of Federal Housing Enterprise Oversight, on the company’s problems. Fannie’s CEO called the agency’s examination ‘quite comprehensive.’”
“He would not speculate about the report’s contents. ‘It’s going to be very tough. It’s going to be a bad day,’ he said.”
“Daniel Mudd told Reuters that Fannie Mae models suggest a couple of reset ’spike periods’ in the next two years, based on past originations of mortgages with adjustable rates and other features such as low initial ‘teaser rate’ periods.”
“It is still unclear what will happen to the housing market when these mortgages reset at higher rates, especially given some of the weakening in certain housing markets, such as vacation areas with a lot of investment buyers. ‘If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there’s not any incidence of appraisal fraud, it could be just fine,’ Mudd said.”
“‘If in certain geographies, some of those factors are different, there’s some appraisal fraud, or there’s an economic downturn or home prices have declined, it could be a very different scenario.’”
“‘In that case, what you’d worry about, really on a neighborhood-by-neighborhood basis, is you have a foreclosure here and you have a foreclosure there and soon you’ve got four foreclosures on the market and you’ve got plywood on the windows and that could have a very deleterious effect,’ on the market, Mudd said.”
And Fortune touches on the former CEO. “Section 304 of Sarbanes-Oxley states that claw backs would occur in cases of ‘misconduct’ but fails to spell out what constitutes misconduct or specify whose misconduct qualifies. Some CEOs, like Fannie Mae’s Franklin Raines, could still face claw backs, despite 304’s shortcomings. Fannie’s restatement is pending.”
“if there’s not any incidence of appraisal fraud, it could be just fine”
No appraisal fraud??? Fannie Mae is in deep deep doo doo.
Appraisal fraud is just part of the loan package.
The appraiser is pre-determined by the loan originator as a sales agent favored rubber stamping, NUMBER HITTER!!!!
Gotta have those number hitter greasin’ the skids for all those six figure L/O incomes and HELOC loans to keep payin’ off those credit card balances to keep the consumer economy afloat.
BLACKBALLED!!!!!!!!!!!!
FNMA and government regulatory have been informed of this problem by legions of legit-appraisers put out of biz but these hacks, and in turn have turned a blind eye.
And now these POS entities feign ignorance …WHAT???????? Appraisal fraud???
When you think of the financial meltdown coming-think of Dresden.
Which is to say that things WILL NOT be fine.
Man, it keeps getting worse and worse every day.
I think they have to delay this OFHEO report just like the other Fannie statements and the problem is solved
excellent comment.-nhz..
Senators worried about housing system? Mudd’s worried about foreclosures on rate resets?
Oh and when the OFHEO report is released “it’s going to be a very bad day!” he didn’t say its going to be a bad day for Fannie, but rather he is quoted as saying “its going to be a “very bad day”(period as for all of us?)!
Oh let’s see what does the report have in it?
$1.2trillion of debt assets that just lost 400 basis points…could this be more than their equity?
Or the pure disclosure of the unimaginable sized risk of a 25% ARM portfolio purchased near 2% or just the 100% gaurentees on a 5 trillion real estate market?
Could it be that market adjusted assets, unsettled and unconfirmed derivative plays, we’ve heard about from the Fed last September, the loser is finally being acknowledged? Was it Fannie all this time that Goldman, Lehman & Bear made all those trading profits from these last 2quarters, when bonds went down and stocks went nowhere? Why Goldman reported making billions even though they were known to be net short some 34 thousand Gold contracts from near $460/oz.
Oh yes, yes, its Fannie the masters of the mathematical hedging wizardy universe! What was I thinking of?…
Just because they are incapable of filing a proper 10K or 10Qfor 2 and 1/2 years.., I don’t know what could have come over me when I was thinking, “their theoretcial equations could be off a smidge”? Such as when they used oil future contracts to offset interest rate risk and their CPA bought off onthe “pure hedge” accounting treatment!
Maybe the SEC could finally join in and like magic report a profit instead of a loss, like GM this week by deferring further recognition of underfunded pension losses?
Pithy. Incisive. Cynical. Brilliant! I couldn’t have lanced this boil better. Thanks!
‘If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there’s not any incidence of appraisal fraud, it could be just fine,’ Mudd said.”
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Fascinating! Mudd provides a laundry list of what is going to be revealed at some time not too distant. Jobs are NOT stable, home prices will not come up to support mortgages and there will be more appraisal fraud than anyone now dreams possible.
right… this is the set up for what will be blamed for the magnatude of what is found. I think they are waiting for the bubble debacle to hit so they can announce their losses amidst other bellowing of aches and pain and blame the total magnatude on the “Appraisal fraud” and job instability etc…so everyone blames someone ELSE for Fannie’s troubles as opposed to Fannie having to take it in the Fannie.
If jobs are pretty stable, if home prices have come up underneath the mortgages to support them and if there’s not any incidence of appraisal fraud, it could be just fine,’ Mudd said.”
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Uh, yeah…that could happen! ….just not in any of the big bubble zones like CA, AZ, NV or FL.
“Uh, yeah…that could happen!” ….and then again monkeys could come flying out my ass!
I believe that’s called dialereah…
LOL I was thinking the exact same thing.
Illinois, Indiana, Wisconsin, Minnesota, Michigan, Ohio etc. This is a nationwide bubble.
Had he strung a few more “ifs” together he’d have a string of inverse-wisdom pearls fit for feeding swine. A hog farmer once said, “To a hog, corn and pearls crunch the same.” Who do idiots like this think we are? Federal regulators or insured investment pool hustlers?
R U ready for the liquidious excreitious sludge to come into contact with the metal osicllating device? ($HIT to hit the FAN).
House Blasted by 3,000 Gallons of Sewage
Friday, April 21, 2006
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Bondage File
Read more weird news in the Bondage File.
(04-21) 13:05 PDT Charlotte, N.C. (AP) –
Utility workers trying to blast out a grease clog from a sewer line forced 3,000 gallons of raw sewage into a couple’s home, forcing them to abandon their house while hoping that the city makes good on a promise to clean up and repair the damage.
Mac and Meg McCormick say city leaders have also promised to pay for their stay in a hotel until the repairs are complete. The couple doesn’t have any of the agreement in writing, and city officials have declined to discuss the case because it’s ongoing.
“We feel we have no choice but to put our trust and faith in the hands of the city,” Meg McCormick said this week as movers hauled damaged furniture from her house. “And I’ll be honest, that’s a little scary.”
Scott Denham, the risk manager for Charlotte and Mecklenburg County, declined to discuss the details of the sewage backup, but did say, “There’s no question of the severity of this event.”
City officials don’t even know how much the repairs and cleanup will cost, Denham said. Meg McCormick said she has received estimates of $75,000 to $150,000. The house has a tax value of $101,300.
(also posted on the last thread. Too funny. LOL!!!)
Dow rampage…Is this the signal the good folks were waiting for? Time will tell.
I still believe blood will flow in commodity rampage including Au.
“…commodity rampage including Au.”
And the hedgedudes who pumped its price up.
Sorry Miamirenter - IMHO I agree with this article from Canada
What has happened historically is that assets in a country with a high current account deficit lose value relative to the assets in countries that don’t have such problems. As investors look for ways to preserve their wealth, the value of precious metals also goes up relative to the assets of the country with a high current account deficit.
Recent developments are indicating that history is repeating itself. U.S. assets, particularly financial assets, are losing ground against all others.
The process is likely to continue for many years to come, and precious metals will be among the beneficiaries.
http://tinyurl.com/fd7f8
Hoz, that’s absolutely correct. It only becomes a “mania” when prices rise and fundamentals don’t support it…i.e. Faling rents and rising home prices yielding less than Treasuries!!!
Right now the rise in all the metals has a fundamental justification and that supports bull markets in the LONG RUN. In the short run markets will overshoot and undershoot and clearly the metals market is overbought, but a long-term investor would be foolish to sell…even here…
Don’t kid yourselves. Gold has a history of appreciation against a weak dollar. Street money isn’t really in gold to any appreciable level yet. Adjusted for inflation, the $850 gold of 1980 would be around $2100 today.
just another test…
OT, but Toll Bros is dangerously close to its 52 week low:
http://tinyurl.com/kz5fw
Share bybacks, anyone?
Here are some recent analyst recommendations for Toll Stock (from marketwatch.com). Only Wachovia Securities is bullish out of this group; is this part of the same company that just blundered by purchasing GDW just before ARM resets start to sink its value? Don’t think I would trust their suggestion…
————————————————————————
Most Recent Analyst Recommendations
Date Broker New Old Comments
4/28/2006 A.G. Edwards Sell Hold Cites belief that industry inventory correction is larger than originally perceived
4/10/2006 JMP Securities Market Underperform Market Perform Cites expectations that order declines will be greater than currently anticipated
3/27/2006 Wachovia Securities Outperform Market Perform Cites valuation, strong competitive position and easing comparisons
2/7/2006 Merrill Lynch Neutral Buy Cites co.’s poor operating performance
1/24/2006 J.P. Morgan Underweight Overweight Believes order growth will be negative
WB, the same assclowns that bought GW and had to have a 2hour long CC today to RE explain to the street why they did the deal. Still no beleivers. 7 BILLION in market cap gone.
yeah, I’d follow their advice. NOT.
WB, the same assclowns that bought GW and had to have a 2hour long CC today to RE explain to the street why they did the deal. Still no believers. 7 BILLION in market cap gone.
yeah, I’d follow their advice. NOT.
lunch break fin. news:
Phil. Housing Sector Index (HGX) broke below 250 support today. Homebuilders should be going lower from here. There’s no reason why they should not(?) Gold looks good, at any rate, out of the Dow and S&P looks good from here.
Jesus.
Is it just me, or has this week been nothing but bad news all around?
Good news if you are long gold and short US long bonds.
Second Great Depression (Paperback)
by Warren Brussee
It’s not just you. And it’s not just housing. And it’s not just the financial markets, either.
On the good side, the NSA has gone through all your phone records and determined (provisionally) that you are not a terrorist.
I’m not so sure about that; apparently they also look at plane ticket purchases and I do a lot of flying for fun.
This is getting personal, but today kinda blows.
Not bad news at all, if yo planned ahead and acted upon those plans. I see it more as events “on schedule.”
Not bad news at all, if yo planned ahead and acted upon those plans. Like Getstucco, I’m sure, I see it more as events “on schedule.” Follow this blog like it’s the only candle in the cave and you, too, will relax in the face of so much apparent “fire.”
“Mudd said many external factors will also play into Fannie’s restatement process, including a report expected soon from the company’s regulator, the Office of Federal Housing Enterprise Oversight, on the company’s problems. Fannie’s CEO called the agency’s examination ‘quite comprehensive.’”
Hah! By the time they get done dragging their feet, and produce their financials, the underlying situation will be far uglier, and I am guessing, their financial position far more precarious, than it is currently.
Can anyone explain why Fannie Mae is not delisted, given that the NYSE rules require this of companies which cannot produce financials? Why is Fannie so “special?”
Cannot resist — there must be a Kennedy in there somewhere.
Seriously, though, and as someone who knows very little about the stock exchange, I am baffled that Fannie Mae gets a pass on virtually every regulatory requirement that applies to others of the species.
It’s strange how this bubble can have profound effects on one’s fortunes. I’m at the stage in life where I’m finally “settled” in a job/location that I will be at for a long time. I’m at the point where buying would traditionally make sense. But since I’m in a bubble market, I cannot rationally consider buying for a few years. And I’m bitter at the prospect of a slow, protracted bubble deflating which means I won’t buy until we’ve bottomed out. What if that is ten years from now? I suppose that I’m fortunate that I recognize this. I’m certainly better off than if I would have bought at bubble prices 1 or 2 years ago. But if I would have bought 4 or 5 years ago, I’d be sitting pretty. Think about that. a matter of two or three years makes all the difference.
Isn’t it bizarre what a difference a few years makes? This bubble will certainl redistribute a lot of wealth between buyers and sellers. But the most important determinent of who is a “winner” and who is a “loser” is the random factor of when they bought their houses, not anyone’s financial saavy.
There are a lot of people in the same boat as you. I bought in 1997 and had the poor fortune of losing the house because of an erratic choice in “careers”. If I had managed to hang onto it the thing would have come close to quintupling in value, at least on paper. Now all I can do is wait for the flaming wreckage to hit the ground but - when? A couple of years? 5 or 10? I feel like a hobo, never having settled because of condo and apartment renting and now I’m going to be renting someone else’s house. Buying at these prices is a complete and total non-starter for a single income guy in central CA.
Peterbob - I know it seems sad, and I’m in a similar position. Actually, not really, I’ve just sold my property and am renting, but you’re right, it would have been nice to buy a place and not have to worry about moving, which is really the biggest annoyance I have, and it’s not really that big of an annoyance.
Look on the bright side - you are free to try any neighborhood you want! This is your time to choose what you want, enjoy not having to deal with house repairs (believe me, those are a drag no matter what your house is supposedly worth), and live a decent life without any fear that if you *must* move, you can. You may be at your current job a long time, or maybe not. Maybe you’ll find some really neat second career that you’d curse yourself for not being able to move if you owned a house. Now, you can only blame yourself if you decide to say no to it.
Seriously though, it’s a great feeling to know the reason you are staying put, and are settled, is because you *choose* to be settled. Not because some external force like not being able to sell your house is keeping you there.
Don’t look back the housing market. As we speak, some other investment opportunity is just getting its legs. You’re perfect positioned for that one.
Very wonderfully put.
BayQT~
I’m in the same boat. Was waiting to buy for 2 years now and boy am I glad I didn’t. I don’t think it is going to take long for this situation to clean itself up. Bonds yields are rising, there is a big recession coming. Those of us sitting on cash/gold with no debt are going to come out really well. As far as I can tell a lot of people are going to go through very hard times in the next few years.
Yep, I’d like to own my house rather than rent it. But… I made enough money in gold in the last few months to nearly pay for a whole years rent.
Pasadena — Having cashed out a year ago, I am now renting. I am working on my wife to consider renting in the out-of-state area in which we want to buy and settle, so as to be sure we like it there. It is not easy to overcome the “What, one more move?” stuff, but when I put the numbers on paper and invite here to mess with them anyway she likes, I finally make my point.
Must admit that I liked it a lot more when I was working: “This is the plan. I know y’all will do a great job. Get on it.”
In a few months, at least less than a year, the cost of building materials, land and labor will be such that you can hire a contractor and build yourself a house and save a lot of money. Another advantage is, you get exactly what you want. If you’re handy you can even do part of it, such as painting and finnishing.
Just a thought, good luck to you.
I think you are right about the cost of everything falling. This bubble is really beginning to unwind. Its like the perfect bubble storm. I know we’ve talked about it for the last year, but it is coming true right before our eyes.
If you think this week had a lot of bad news, just wait. Just wait until foreclosures or a failed dollar rule the headlines. We’ve been living in a dream world for the last 5 years. Reality is going to be very painful.
“I think you are right about the cost of everything falling. …Just wait until foreclosures or a failed dollar rule the headlines”
If the cost of everything falls, then it will be a deflation, most likely with a contracting money supply and perhaps lower velocity, too. If we are experiencing deflation then why would the dollar fail, unless other currencies are deflating even faster?
Don’t worry about deflation. Commodity and energy inflation are the real issues ahead of us.
Only the US consumer keeps those high. When the US consumer crashes we are in for inflation. Price is set by supply and demand. Supply will stay the same. Demand will drop by 50%. Do the math.
“If we are experiencing deflation then why would the dollar fail, unless other currencies are deflating even faster?”
Because of that trillion-dollars plus of dollar-denominated debt overseas. You pay it by turning on the printing press. (M3, we hardly knew ye…)
Also why gold isn’t going to crash, btw. I’ve thought for some months now that its rise has been fueled by Asians and Arabs quietly dumping dollars. (Quick, before they turn into wallpaper.)
tweedle-dee,
Jim Rogers (”Hot Commodities”) has done the math. Check out this exchange from an interview on iTulip.com:
I believe many readers would be better off if they did not try to interpret the media news as “good” or “bad,” but rather as “expected” or “unexpected.” If you follow Ben’s blog every day without fail, you’ll ditch the good-vs-bad idea and will focus instead on what the news means to you today, relative to actions you have taken to deal with the situation to date. Life’s a roundabout, or some pap like that — you never know if there is a car coming at you from the side. But read here and believe, and you will have the guidance most likely to keep you free of financial disaster. If the bloggers here cannot do that, I believe no one can.
I saved many of Ben’s blog threads since I first started following it in March ‘05. Re-reading them convinces me even more that this (the blog) is the only way to go. During the dot-com boom, when relatives lorded over me their daily gains, I said nothing, because I did not know enough to judge. Now, courtesy of Ben and the marvelous contributors he’s drawn, I know enough to judge and, more importantly, to act.
Well put, Chip. Couldn’t agree with you more. Ben’s blog (and other sites often recommended here) is my main source of news and information. We get past the “fluff” that passes for news and get on to the issues that matter (economics and politics).
Thank you to Ben and all the awesome posters here. I think it just might be time to think about our “housing bear” party. Thought we should put it off until it was **really** happening. Looks like that time is truly coming.
Best of luck to all!
There are segments of this I can get on board with and yet I struggle with others. Whatever else has happened in our lives I don’t believe it’s safe to say “had only I bought 4 or 5 years ago”. We have no assurance that just positioning ourselves at some idyllic and hypothetical entry point guarantees success. True in general they are better off than somebody that bought in 04/05 but many folks that bought 4 or 5 years ago are sucking too! They’ve typically tapped out their equity and are now in an awful financing package w/ pre-pay penalties and escalating payments. The money they took out from their cash out re-fi is gone and they have no idea how they are going to make the next months mortgage payments. For many it will soon come down to some pretty hard decisions as to what they can jettison quickly like health club memeberships and cable TV. After that it’s jacking up insurance deductibles and dropping coverage. Many are simply not current on their taxes. We’ve all been through hard times, college, the service etc. but nothing like we are about to see! Besides, many of the guys that wisely took their money of the table in the stock market in 1999 are now dead. They’re called the WWII generation. Great for their heirs, lotta good it did them.
Sad, but I think true. Timing is everything.
Many here will pooh-pooh this, but I think the past 6 years have really served to differentiate the haves from the have nots here in Cali. A great wealth-building era for the common man has passed, and they don’t happen along very often.
Values have gone up 150% or more over the last 6 years, and frankly, I don’t think you’re going to see any quick, nominal declines (maybe 10-15% over the next couple of years), with this probably followed by a protracted decline in the real value of housing. And the protracted decline isn’t going to help anybody very much.
Skipintro — with respect to your forecast, which at 9:58 EST is as valuable as mine, I think that there will be a very rapid decline in California, cause by two of the major issues hammered daily in this blog: (1) Interest rate increases will cream ARM-holders, many of whom then must sell, and fast; (2) now that contemporary “investors” have discovered that RE prices can fold, the speculators are long gone and with them the props to prices. It only takes those two to pull the sticks out from under prices. Wait, watch, profit.
I’ve posted this else where in HBB, but it germaine to your concern DinOR… and it’s not pretty.
It’s the debt bubble that is threatening. The unprecedented expansion of the world-wide money supply is the source of the nominal price increases in real estate in the US, UK, the EU and Asia (as well as the run-up of commodity and share prices). I anticipate the prospect of the coming correction to be global due to the ubiquitous presence of the dollar worldwide.
As central bankers are forced to continue to raise fiat currency benchmark rates (to cool overheated growth, forestall resource and commodity inflation, or to attract investors for refunding the expiring debt of currencies that are losing their purchasing power) marginal debtors with floating rate loans will be forced to sell shares to service debt.
Later in the cycle, some of these debtors will default. Keep in mind the quadrupling of adjustable loans as a percentage of total loan volume over the past few years, and that most foreclosures occur in years three through five of loan servicing. There will follow a cascading reduction of housing prices as REO assets are auctioned to restore capital reserve ratios of banks with troubled loan portfolios (not all loans reside in the secondary market). This possibility has been foreshadowed by the Japanese experience of the past 16 years.
This is a very simplified explanation. It does not include the concomitant effects of a FED (and other central bankers’) policy that will add liquidity to avoid deflation, protectionism to support domestic markets, and the further reduction in consumers’ confidence that may precede additional declines in spending that will further reduce production and incomes. The prospect of a decade or two of “wringing out” the excess liquidity is probably in order. I think the gold market is reflecting this more than the explanations of uncertainty over Iran or uninformed speculation.
Any thoughts on flaws in this scenario?
Does “total loan volume” mean total loans issued, or total loans extant? It has been my understanding that it is still true that a minority of all mortgage debt is adjustable, despite the fact that a large portion of mortgages issued in 05 and 06 are adjustable.
Pretty late to be joining this thread, I know, but in case you are listening I have one idea that would, if it manifests, soak up some of the liquidity - Resource expansion! For example, its a longshot, but what if some major technological innovation that allowed humans to recapture the waste heat from all of our heat driven energy generation and convert it to usable energy (electricity). The ’savings’ in energy, synchonized with the onset of Peak-oil impacts, could “justify” some portion of the bulge in money or credit supply. ??
”
Sad, but I think true. Timing is everything.
Many here will pooh-pooh this, but I think the past 6 years have really served to differentiate the haves from the have nots here in Cali. A great wealth-building era for the common man has passed, and they don’t happen along very often.
Values have gone up 150% or more over the last 6 years, and frankly, I don’t think you’re going to see any quick, nominal declines (maybe 10-15% over the next couple of years), with this probably followed by a protracted decline in the real value of housing. And the protracted decline isn’t going to help anybody very much.
“
”
Sad, but I think true. Timing is everything.
Many here will pooh-pooh this, but I think the past 6 years have really served to differentiate the haves from the have nots here in Cali. A great wealth-building era for the common man has passed, and they don’t happen along very often.
Values have gone up 150% or more over the last 6 years, and frankly, I don’t think you’re going to see any quick, nominal declines (maybe 10-15% over the next couple of years), with this probably followed by a protracted decline in the real value of housing. And the protracted decline isn’t going to help anybody very much.
“
We are going to return to the days when a college degree will mean something again. The flakes are going to have a tough row to hoe during the next few years of inflation. Then…the bulk of the babyboomers will be headed for retirement, and consumer spending will drop, no fall, so much that it will cause deep after-shocks around the world in places where goods are produced. The party is damned near over, IMHO.
A college degree? More like a solid craft.
FNM is being audited for misreporting “hedge” accounting, in which it uses derivatives to manage interest rate risk. It’s very complicated accounting, so I don’t blame them for taking so long. They were arrogant in thinking they could just blow it off and defer losses though.
The REAL problem will come when the homes FNM has “guaranteed” are forclosed upon. If they are foreclosed upon. FNM has something like 20-30 billion in capital backing 1.5 trillion in mortgages. They are 80% LTV and max. size of 350K or something….they need PMI if more than 80%. But what if the PMI issuers go bankrupt? FNM could be on the hook. If they go the whole thing is down the drain!
I thought they had a Sr. V.P. of Risk Mgmt. getting paid to prevent this type of thing.
That’s the tragi-comic thing.
There is no way for them to hedge “default” risk. Most of the capital they are holding is for “interest rate” risk, which can be hedged (according to models and such…there is always some risk). Default risk can’t though.
If..If FNM starts realizing alot of defaults and goes under, they can’t pay their MBS holders who hold their bonds. That means the great real estate securitization movement becomes unwound and there will be a huge capital crunch.
Assuming the credit risk is what they were CREATED to do. The criticism they get is for assuming interest rate risk by buying their own MBS. That risk is not as great as the credit risk though, IMO.
Read a fascinating article last year describing how FNM uses “dynamic hedging” to offset interest-rate risks. Apparently dynamic hedging can only mitigate short-term moves of less than 200 basis points. One fat tail and the whole house of cards comes down.
At some level, securitization by the GSEs serves to create a NATIONAL market for mortgages. It smoothed out variations in local real estate markets for investors at a time when banking was a predominantly INTRAstate affair. This tends to eliminate the risk that local effects, say a plant closure, would cause investors to lose money purchasing mortgages. That’s IMHO one of the reasons that “there have been no national real estate declines” mantra gets repeated. Of course now we have a situation where most mortgage debt is secured by property in decidedly bubbly RE markets.
Our little GSE seawall has done a fine job of keeping individual waves out of our living room. However I don’t think that it is up to handling the stormsurge of a national RE decline.
They did, but in a chance encounter he met a woman named Suzanne - he chose to follow her advice and told the board it’s ok, she researched this.
Fannie’s max loan is 417K since before its official change date of 1/06 and I don’t think they will increase this again next year…
PMI premiums arent cheap especially on the higher risk products (No Doc MTA,LIBOR or COFI option ARM anyone?) I don’t think we have a too much of a chance of the MI co.’s dropping like flies as they are Private MI (haven’t seen a post on them in awhile) and are usually owned by larger corps. Scary Thought: What if the bulk of the option ARMs had LPMI (LenderPaidMI) blended into the rate and the lender was on the hook for those premiums to keep it salable…
OT
Or even scarier what if even though Fannie had 1st position on title there was still a 15-20% second behind them….
You’re right, Brian. Continuing to connect the dots: the default will be socialized as it was with the RTC and the S&L bailout in the 80s (how soon we forget). However, this time the taxpayers won’t be able to afford the cost as the FED will have to supply liquidity in the face of the rising long bond rates needed to attract refunding of treasury debt.
Here’s your real paradox: zero percent funds rate and skyrocketing long yields. What will it produce? I suspect initial hyperinflation followed by economic collapse and deflation. I anticipate the last decades of my life (now 55 yrs old) will be lived in an economic depression greater than that of 1930 to 1942.
Pardon the expression, but… “on the bright side” knowledge is power. Prepare for trouble and you’ll rise above it.
I said it a year ago, but it bears repeating. “Some people around here are predicting a decade of economic malaise and stagflation like the late 70s and early 80s. The rest of us call that a ’soft landing.’”
peter: there will be many opportunities to make amends… you can still come out winnner at the end..
If you are not upside-down, HELOC’d or in credit card hell…and you have money in your pocket and/or bank, you are a winner now.
Nothing like being able to breathe easily, sleep at night and perhaps choose to even hop a plane to visit a friend…nothing like it.
BayQT~
Great observation — as simple as a Jimmy Buffet philosophy.
Pity those who more likely will relate to Dante’s Inferno.
The timing of your house purchase is not random, Mr. Peterbob. In the late 1980s I received tremendous pressure to purchase a house during the last RE run-up. I bought after the peak, but if I had had the knowledge of this blog I would have waited another year and saved another 10% at least.
I agree. That is exactly what I am advising my friends and family. It is way too early to buy. It’s only the begining of the downturn.
WAIT! WAIT at LEAST 2 years. Many people are not close to bottom. You are just seeing the start
A paper I read shows that many people buy their first home for “life style” reasons, meaning that they buy once they are married and begin to have a family. I think this describes a whole lot of people when buying their first primary residence. So, to the degree that you don’t make your marriage/offspring decisions based on housing prices, I would say that people’s fortunes during this bubble are largely random.
So, my friends who started having kids five years ago are not sweating, because they bought pre-bubble. But those who started having kids in the last two years are screwed. And, those who are about to have kids now should really just wait for a number of years to buy.
My husband and I find that renting is somewhat easier with kids - there’s no time or inclination for repairs or painting. We moved to our first rental when they were 6, 4, and 1. It’s also kind of nice because now we can move again as the littlest needs a fenced yard and I’ve decided I could really use more closet space and an extra bath for visits from family. New and newer rental homes are readily available here in Northern VA.
i’m just curious. what part of the country do you live in?
sorry, the question posed was to peterbob
Northern California
Beauty. Here’s a bonus: Freddie and fourteen other lenders just instituted a major foreclosure avoidance program.
“Freddie Mac has joined with 14 other major financial organizations including some of the nation’s largest mortgage originating and servicing companies to create a multi-faceted foreclosure avoidance program.
The program, which will be largely administered by the NeighborWorks® Center for Foreclosure Solutions, will be aimed at increasing the industry’s ability to provide effective counseling to borrowers, undertaking new research, and assisting public and private organizations to educate the public about resources and options available when a mortgage becomes delinquent.
A spokesman for Freddie Mac stated that the corporation’s decision to contribute to the $1 million necessary to fund the program was based in part on a company sponsored survey conducted by Roper Public Affairs and Media/GFK NOP which found that 61 percent of borrowers who were behind on their mortgage payments were unaware that there were options available to help them keep their homes and 64 percent were unaware that companies servicing Freddie Mac mortgages provided counselors to help them understand those options.
Ingrid Beckles, vice president of default asset management at Freddie Mac said “We are delighted to be joining NeighborWorks and the other co-sponsors to launch this promising new effort to show borrowers how to avoid unnecessary foreclosures.” Among those joining in sponsoring the program are Countrywide Home Loans, Option One Mortgage, Wells Fargo, and HSBC.”
http://www.mortgagenewsdaily.com/5112006_Forclosure_Avoidance.asp
More than 60% of people being foreclosed have no idea that they can work things out or exercise other options. Is that enough writing on the wall for everyone?
Laughable. Next up: “Banks propose repealing 13th Amendment to allow homeowners to buy their houses through slave labor.”
And their idea of counseling would entail what options? Staying in your house while the original loan accrues additional interest with smaller payments? Oh, that’ll help. There isn’t any “help” these guys are offering unless they will reduce the principal owed to them and I just don’t see that happening.
Just get it over with for pete’s sake! No need for a long drawn out torture, just a quick shot to the back of the head and be done with it!
Ah, but therein lies the rub (or are they rubbing lies?) Anyway, deferring foreclosures minimizes the bad numbers up front and defers them down the line so there isn’t a stampede for the exits. This allows lenders to claim that there is no major problem a little while longer. Besides, they have less problem explaining why they deferred interest or amortized missed payments to the back of the loan to the MBS investors than they do a 30% or higher default rate on two-year old loans. That might get them sued… and not just a little Judge Judy lawsuit either. We’re talking about a big, mondo, 120-lawyer lawsuit for peeved investors who have (or had) plentiful cash and want explanations.
Too late. The Government and Fed have already lauched a foreclosure avoidance program. It’s called “Plumetting Dollar”.
Suuure… what is next? 1970s-style wage inflation to help recent buyers keep up with their skyrocketing ARMs? I have a hard time following the logic of your posts, yensoy…
Ditto, as posted yesterday.
That will only work if the plummeting dollar is accompanied with wage inflation.
Beware, we may have hyperstagflation (if that concept even exists). Severe increase in money supply with subsequent loss of dolar value, concurrent with higher unemployment and wage losses.
It can happen given our propensity to create money supply, and the nasty problem of global wage arbitrage.
A worse version of the late 70’s, or Argentina…
If it happened, we would be in dire straits. The money supply inflation would make all products that we need more expensive in dollar terms, increasing our needed outlay for non-housing concerns (gas, food, etc) while at the same time leaving people with LESS in the way of paychecks/benefits.
clouseau
Thank you. You got it right. Except my idea of “worse version…Argentina…” is a worse version of the 1930s.
Gosh will this be like the “Credit Counseling Services” offered by the credit card companies to allow people, who are so far in debt they should declare bankruptcy, to continue making payments long after they should?
How nice.
Countrywide Home Loans, Option One Mortgage, Wells Fargo, and HSBC.”
Dirtbags all….Lots of credibility here…….LMFAO!!!!!!!!!
With comments like that there’s a good reason his name is Mudd!
All of this nonsense with FNM is enough to pucker my Anus.
LOL
Holy crap!!!!! I almost split my pants when I saw this ad… I found it on the overvalued real estate blog — but had to republish it locally on CL. Check it out and by all means, copy it and list it locally on CL for your area!!!
http://washingtondc.craigslist.org/rfs/159823628.html
Oh my gawd. Where are the granite counter tops?
There’s granite somewhere under the floor… I’m just surprised he didn’t mention the shady patio on the side and the tasteful landscaping.
Gotta love it!
low payments with a 120 year arm !
I’ve been waiting for news out of Fannie Mae about their financial statement filings. I’ve got a really bad feeling about what’s in store.
Don’t hold your breath. It looks like their game plan is one of indefinite delay.
Fannie is another Enron waiting to happen. I always thought it was much worse than they portrayed. There were warnings years ago but if an executive talked about it, they got fired.
You just gotta love America.
FYI on the increased consumer spending (0.5% in April):
http://biz.yahoo.com/ap/060511/economy.html?.v=17
The government report, which is seasonally adjusted to take account of such things as the changing date for Easter, showed that virtually all of the strength last month came from a big 4.6 percent jump in sales at gasoline stations. That reflected a sharp rise in prices with gasoline selling near $3 per gallon in many parts of the country, up about 50 cents since early March.
Excluding gasoline sales, retail sales rose a minuscule 0.1 percent in April, raising concerns among economists about how much strength the consumer sector will provide in coming months if gasoline prices stay elevated.
Phew - for a second I thought gas prices were actually impacting consumer spending. Thank goodness we include gas in retail sales. Let’s not forget to back it out of CPI, though.
I ask, who are the *real* terrorists? Who is responsible for the financial mess we are in? The Arabs? Bin Laden? Puh-lease.
If you ride alone in an SUV, you ride with bin laden.
Phew - for a second I thought gas prices were actually impacting consumer spending. Thank goodness we include gas in retail sales. Let’s not forget to back it out of CPI, though.
Wow. Just. Wow.
…and if my dog did not eat my report last night, I would have my homework in today. What BS! I have never seen so many conditional statements in one sentence. God help us all if Fannie goes belly up. Debt markets across the globe will spiral out of control.
OT: PHX resale numbers out-
Following a very typical pattern, the greater Phoenix resale market slowed in April 2006 with 5,980 sales. This is a decrease from the 7,264 sales for March 2006 and well below last year’s 8,735 sales. So far in 2006, there have been 23,960 recorded sales, while it stood at 36,060 sales in 2005 year-to-date.
http://www.poly.asu.edu/news/2006/05/11/
Note that the article omits listing any of the YOY/MOM changes in percentages.
7.5 months now. 45K inventory (possibly excluding many new homes) and sales at 6K. I think sales slow further going into summer.
zip is about 100 houses away from 45k - phoenix
zip is about 100 houses away from 2ok - sandy eggo
OT:
Northern NJ sales are following the same pattern. For the first time in many years, April sales were lower than March.
http://nnjbubble.blogspot.com
grim
Grim,
That looks like the pattern in a lot of areas. But…it’s not a national bubble!
Yup, exactly 19 more homes sold in April than in March in the Balto metro area, and Zip’s Batimore inventory is at 49,455–oh so close to 50K.
” if there’s not any incidence of appraisal fraud, it could be just fine”
AND if my grandmother had wheels, she’d be a shopping cart.
Bring on the indictments already………..
” if there’s not any incidence of appraisal fraud, it could be just fine”
AND if my grandmother had wheels, she’d be a shopping cart.
Bring on the indictments already………..
Look at the craigslist.org for the above. It is one of our types trying to show the ridiculous overpriced RE. It is not serious. Great listing though.
http://washingtondc.craigslist.org/rfs/159823628.html
Hmmm, maybe all of us should be putting in these ads?
Probably appraises OK! (or at least it will after the comps are found). LOL
It’s not serious? How could you tell? I mean it seems priced right and everything. I think it’ll hold its value. Help me out here, I’m still in training to be a RE(tarded) investor.
Would someone please enlighten me. What is a claw back?
plastic backscratchers that are produced in China and sold at Walmart.
Very good.
My recollection is civil forfeiture of ill-gotten gains by executives.
So Franklin Raines may be losing some/all of his golden parachute.
Thank you.
I just got a call from a friend about being a loan officer for refi’s… I told them that the market is dead, but they are claiming 30,000 a month in profit. They live in Portland Oregon… which the bubble has not yet hit , so they are still seeing record profits. The idea is to get rich quick and get out while you can. I’m still confused why Portland is not seeing a housing bubble yet, they have no infrastructure to support the housing market or prices..
I just moved to portland and ran the numbers - I figure it’s 30% ish over valued.
So I’m renting for a year or two to see how it shakes out once california heads hard south.
They are in a bubble, a bubble is still a bubble when it is in the inflating stage, not just when the deflate or burst.
As to why they are not deflating yet, the Seattle area isn’t yet either; each area of the country has its own timing. But it is clear that Seattle and Portland are both in a bubble and in time the bubble will meet its end.
not just when it deflates or bursts…, boy, I wish I could edit my posts sometimes….
the amazing thing about Fannie Mae (and social security, medicare, etc.) is that it is a problem we created ourselves. Our government creates massive, wasteful bureacracies to prop up systems that are based on promises that the government can’t keep. We’re our own worst enemy.
I agree. Plato, or Aristoteles said that Democracy was the ideal way of goverment, until people figured out a way to vote themselves money. All this sounds like it.
The saddest part of the FNM story is that those responsible will walk with all of their bogus bonuses and salaries. We The People will be stuck holding the shit bag!
well then march that shat bag over to their doorstep and light the sombihosnitch on fire!
The very sad part of all this nonsense with FNM is that We The People will end up as the bag holders while all the executives walk away with large bonuses and great pensions. This behavior frosts my you know whats.
yes but we the people let it happen. We elected the government that created the monster.
err garcap,bush stole both elections….they call it a coup south of the border…and if you hadn’t noticed the constitution is now in and undisclosed location,with the wmds.
So, Bush created Fannie Mae, Social Security and Medicare? Last time I checked, these programs were put in place by past presidents and congressmen. Here’s what I’m saying: the idea of something as stupid as Fanni Mae sounds great to your average American voter, who doesn’t think through the consequences of creating such a beast. Then when problems occur, the voter is all pissed off. It’s the same as people who complain about Detroit building/marketing giant SUVs; they build ‘em because that’s what most people want. Most people also want dumb government programs, so our government gives ‘em to us…supersized.
Run the numbers. Nobody is buying Sloburbans . . . GM keeping out of bankruptcy by a hair’s breadth and Toyota raking record profits on Prius . . . try again.
Not my point.
And people are SO politically sophisticated “south of the border” that they’ve created a political tradition that is the envy of the world.
“‘In that case, what you’d worry about, really on a neighborhood-by-neighborhood basis, is you have a foreclosure here and you have a foreclosure there and soon you’ve got four foreclosures on the market and you’ve got plywood on the windows and that could have a very deleterious effect,’ on the market, Mudd said.”
And that statement is just why you shouldn’t go running into the market until the dust settles especially newly constructed neighborhoods further from the urban areas.
If the real estate bubble is bursting, and a recession or depression is on the horizon, how come Corporate America says the economy has never been better, and that there are more good jobs available than qualified college graduates to fill them? Are those who make these claims lying?
Housing starts fall, but housing stocks soar; bankruptcies increase, but not nearly as fast as new real millionaires (not “equity millionaires”); gas prices hit new all-times highs, but nobody cuts back, and SUVS are still a fad.
Sometimes I wonder if I’m dreaming or having an hallucination. Could we bubble believers be kidding ourselves? Maybe what we perceive a huge Ponzi nightmare, in the greater scheme of things, an insignificant anomaly.
homebuilding stocks have not exactly soared the last few months.
In a nutshell, yes. Bubble believers are and have been wrong. There will be no big real estate crash. It goes up 150% then down 10-15%. I can live with that.
skipinto….lets see did the bulls just bring in their
“closer skipintro?”
Might let your skipper (manager) in on something this is ONLY the bottom of the first and Real estate bears have NO outs yet (i.e. a Fed pause) let alone a recession, or construction industry layoffs?
Yep just about everyone acknowledges r.e. prices are flat to down while mortgage rates are still” historically LOW” , the economy is booooooming..4+% and employment at “Taco Bell levels” -Full ./
Hey, keep drinking your kool-aid and have a oblivious day…
Skipintro — “It goes up 150% then down 10-15%. I can live with that.”
If you believe that, then you are a troll on this blog. There are blogs that welcome dissenting views as the fodder for daily debate — good for them; this is not one, unless Ben decrees so. Rather, we are here to analyze and discuss within far more narrow margins than yours the bear side of the housing bubble, how bears may profit from that and how those who don’t get the message may suffer. Are there other real estate blogs in which you participate? If yes, which ones? I post occasionally to David’s and Cole’s Housing Bubble blogs, but never to a “bubble-isn’t” blog. And your true colors are…..?
There are blogs that welcome dissenting views as the fodder for daily debate — good for them; this is not one, unless Ben decrees so.
I’ve never heard anything so ridiculous. I didn’t realize Ben’s Blog was a ‘no-free-speech’ zone.
You’re either with us or against us!
I will fight and die for the right of a complete moron to say completely moronic things so I can absolutely and completely mentally disembowel that particular moron.
God Bless America
What the He&!! I think it is great to have a few naysayers…Much better than listening to Lingo and OC mad max gargling on political bile…
Which brings up a question that I admit to being clueless about. If a bubble exists, and it almost certainly does in California, Florida, AZ, NV,etc., where will all that equity go next as folks leave those places to hose innocent folks elsewhere? Places that are unfortunate enough to appeal to those bandits will probably simmer along a bit longer, I bet, becoming gentrified refugee camps for people to pine over Peets coffee and pilates instructors. I know southern Oregon has been firehosed, so has Bend, so has Jackson Hole, WY, certain parts of Montana, etc.
So, will all that wealth evaporate for those that parachute out of the bubbles? Or will it continue to bubble up other places? Or will the bubble deflate into the cesspool of greed it created in all the bubble zones, sparing the rest of us from a deluge of officious exurban latte sippers?
I think we’ve already seen the results of the rolling boom. That’s why places like OR and WA state are still strong. Lots of Californians with cash moving there. Also Texas, No Carolina and Georgia, from what I understand. Believe they are just beginning to slow down a bit.
Yes, as long as people move their money into new real estate, the $$$ can “evaporate.” The only money which will still be around in a few years belongs to those who sat out the bubble and saved as well as those who sold and rented (of course, the “professional” RE investors will be there with fat wallets as well). Trillions of dollars will be lost by the time this shakes out many years from now, IMHO.
Hmmm…. this rolling boom is a pain in the rear around here (Southern Oregon). Retiring baby boomers from SF Bay are really hosing us. Any chance this will lighten up?
“how come Corporate America says the economy has never been better, and that there are more good jobs available than qualified college graduates to fill them?”
For example Bill Gates wants to import engineers from other countries to work for 60K a year at Microsoft and he is telling the government that he needs these foreign workers because he can’t get enough home grown ones. Well, 60k may not sound super, but it doesn’t sound too bad either. The fact is that unless Microsoft has changed a great deal, your average engineer does not have a 40 hour work week. My brother worked there and had to quit so that he would have some time to spend with his kids before they grew up. In reality at 60k they will make less per hour than my husband who is an electrician.
I believe that there are qualified graduates but the companies can outsource or pay imported workers less than the home grown ones.
Go back and read about the 1920’s. Everything was go-go-go… right up until it stopped.
Here’s the reason the economy is doing so well. This is a true recovery; we have pickup in all sectors of the economy. Housing, manufacturing, services, software. Consumer spending is very high. This economy is much more sound than the one from 96-00 where IT powered the whole shabang.
It could be argued that this recovery has been fueled by housing inflation but I don’t think that’s the entire story. Housing prices certainly helped but didn’t drive a majority of the gains. A contributing factor has been the backlash against outsourcing.
The housing bubble deflation will suck some life out of the economy but I truly hope (and pray) that it’s not the nightmare scenario that is spoken of here. I certainly believe housing will cease to be a good investment again during the remainder of my life but dont’ expect the floor to cave in.
BTW, around here SUV’s aren’t a fad. The new fad is small sporty cars/wagons.
Amen AH07!
Oops meant for a post above.
Moman-This is the scenario that I too pray for.
Yes, all over SUV’s are dying. The sooner the better. Every day here in SoCal I see less and less Hummers and more Prisus than ever. Personally, I feel we are entering the death throes of the SUV age. Hybrid SUV’s will only briefly delay the decline.
Our love afair with cheap gas and obscene vehicles is over.
I anticipate - and fear - a 50% marginal Federal tax rate on ordinary middle class folks once there is general recognition of the mess we’re in. As usual, significantly higher taxation will be sold to us in the name of “shared” sacrifice. The bailouts will be truly breathtaking to behold - private citizen FB’s, GSE’s like FNM, possibly bankrupt state and local governments. Most of the bankruptcies will be precipitated by old-fashioned drying up of credit, as in “We’ve seen your finances, and we ain’t lending you money”.
A prudent move in preparation for the above: a second job where one gets paid in cold, hard cash (no stinking W-2’s). I’m on the lookout for one.
Better yet, a small, private, all-cash business.
Prostitution??? (just kidding, TJ!)
you fear 50%? lets see, self-employed 15% tax, add 28% fed income tax rate, add 9% california income tax rate…
chilidoggg, I’m predicting 50% marginal for just the Federal income tax. State income tax, FICA, Medicare are all on top of that. Oh and don’t forget property tax, automobile excise, state sales taxes, and even new “local” income taxes (like the NY city tax) in the most unlikely places. Our tax burden will climb to levels worse than Europe, without the benefits.
This is one of the serious attractions of purchasing gold and silver - it’s a chance to convert one’s savings to a non-income producing, wealth-preserving, virtually untraceable (therefore hard to tax) asset.
Actually, just to add clarity, both employed and self employed pay the 15%, just in the employed case 7.5% is paid by the employer rather than yourself. If they didn’t pay that 7.5%, you would presumably deliver it to yourself as its part of the cost of employment (from an economic standpoint).
WOW!