‘Aggresive Lending’ Leaves Borrowers ‘Struggling’
Thw Wall Street Journal has this report on loan delinquencies. “Soaring housing prices and aggressive mortgage lending have saddled home buyers with ever greater levels of debt, and early signs are now emerging that more people are unable to keep up with their monthly mortgage payments. Analysts say that laxer lending standards on the part of mortgage lenders also resulted in higher debt loads, which some borrowers are now struggling to repay.”
“Twenty-nine percent of borrowers who took out mortgages last year have no equity in their homes or owe more than their house in worth, according to a study. That compares with 10.6% of those who took out loans in 2004.”
“An analysis by Bear Stearns found that delinquencies on loans originated in 2005 were in most cases far higher than on loans issued in previous years at the same point in their life cycle. ‘The numbers are clearly worse,’ says Gyan Sinha at Bear Stearns. The reason: Lenders were ‘able to generate a lot more volume in the face of rising rates’ by loosening lending standards, Mr. Sinha says. ‘More aggressive lending was clearly taking place,’ he says.”
“Credit Suisse found that borrowers who took out adjustable-rate mortgages in 2005 were three times as likely to be delinquent on their payments after the first year as those who took out ARMs in 2003 and 2004. The study didn’t include borrowers with option ARMs.”
“Credit Suisse also found that borrowers who were delinquent were more likely to have lower credit scores and to have taken out piggyback mortgages, which combine a mortgage with a home-equity loan or line of credit. It also found that delinquency rates were shooting up in California.”
“In another sign that some borrowers who stretched are now feeling pinched, a study by Lehman Brothers of subprime borrowers found that the increase in delinquencies is being driven by home buyers, rather than by people who are refinancing, and by those with little equity in their homes.”
“Gail Burks, president of the Nevada Fair Housing Center, says borrowers are coming into her office who are having trouble making their payments as soon as a year or two after taking out a mortgage. ‘It’s more of the newer, exotic [mortgages] where the payment has changed and they are now pretty much priced out of the loan,’ she says.”
A Fed president chimes in. “Products such as adjustable rate and no-money-down mortgages have helped boost U.S. homeownership to record levels but have increased risks by raising some buyers’ leverage, Chicago Federal Reserve President Michael Moskow said on Thursday. ‘With less equity, people have less of a cushion to withstand adverse shocks to home prices or interest rates,’ Moskow said.”
“‘Some people will soon be faced with these (adjustable rate) loans re-pricing under less favorable conditions,’ Moskow said. Many believe that U.S. home prices have little room for additional growth and are more likely to fall than to rise further, especially on the East and West Coasts and in some cities in the South and Southwest, he said.”
A television report from California. “Mechelle Sanders is a foreclosure counselor. Today she’s following up on as many as 14 leads in the Stockton area. In many cases, Sanders says foreclosure victims are former Bay Area residents who underestimated the high cost of commuting. ‘They commute, but with the prices being high in gas, they’re going back because it’s not making the difference,’ said Sanders.”
“The Westin Ranch development was the object of desire for Bay Area bargain hunters three years ago. But real estate agent Cynthia Carter says the number of homes here up for sale has quadrupled since last year. ‘The commute you can do for about a year,’ said Carter, ‘and then it becomes really hard on the body physically for people.’”
“In April of last year there were 935 homes on the market in the bedroom communities of Stockton, Tracy, Lathrop and Manteca. This April the number skyrocketed to almost 3,500, a 270% increase.”
And ABC has this video clip on ARM foreclosures in Texas and elsewhere.
Thanks to the readers who sent in these links.
Hefty “Heidi from Texas” doesn’t look like she’s suffering at the supermarket.
Were guns or hostages involved? If not the title should read:
“Aggressive Borrowing Leaves Debtors Struggling”
100% couldn’t agree more
Lenders need to be held just as accountable as borrowers. No one is forcing lenders into no doc loans anymore than they are forcing the borrowers.
Not entirely disagreeing with you Karen….but I still firmly believe in personal responsibility. In the war against drugs/crack in the 90s, you can blame crack dealers all you want, but if there were no drug dealers, some people would resort to sniffing glue or concocting their own other drugs in a lab somewhere. On the other hand, if no one tried crack in the first place, all the people trying to sell crack would disappear. Rather simplistic, I know, but people should be smart enough to understand the ins and outs of anything they sign, especially when it involves 100s of Ks in a mortgage. I don’t see anyone blaming Vegas casinos when someone bets and loses their next rent payment at the tables - even when the pit boss goads them to try their luck at a hand of Blackjack. Why should idiot mortgage borrowers be any different?
I love it. Comparing mortgages to crack cocaine addiction. More evidence of a housing bubble… don’t you think?
Yep, I call it “financial crack cocaine”
Its just amazing how many people are addicted.
Undo strong. Sorry.
again
(I’m going to digress a bit here so be forewarned.) I don’t think many people will disagree with your quite pertinent comments. The main issue to me is related to the concept of “human nature”. What is it about the human condition that turns people into true believers? Why is the mob mentality so prevalent in initializing and continuing a true believer syndrome that induces manias time after time? Of course this leads into the fact that these issues have been discussed for hundreds of years and still the same mistakes keep getting made.
My take is that humans really only learn by failure, and only through massive failure will greater knowlege be impressed upon all humanity. This hypothesis rests upon the assumption that one actually has to admit failure to learn anything. It seems that the path has already be set for everyone that will be involved in the eventual real estate debacle to claim victim status and no lesson will be learned.
May you all be held accountable for your actions.
Chalk it up to the interaction of middle-age religious zealotry (believe like me or I will kill you after torturing you) with Darwinian selection. Through the winnowing effect of the middle ages (which our ancestors all apparently successfully survived), evolution selected a race of sheeple whose basic instinct is to follow the herd on the assumption that it is safer than thinking for yourself (which almost got Copernicus and Galileo killed!).
“Chalk it up to the interaction of middle-age religious zealotry…”
You had me thinking about 45-55 year olds finding gawd rather than the point you were really making.
The historical era called the Middle Ages is written using capital letters.
I”m sorry but it’s the Lenders duty to protect the deposits/funds of the Nation . People do not really know what they can afford . Given a chance if a Lender says they can afford more they think they can .
Its up to the Lender to determine by logic and good underwriting the ratios that are reasonable for that borrower . A lender looks at a lot of thing ,(or should), like job history ,type of job , credit history and spending patterns . To put a marginal borrower on a adjustable based on the teaser rate is a joke . The Lender should protect the buyer from over paying on a purchase also .
The check and balance system went down the tubes in the last five years . Even 10 years ago Lenders would of never allowed prices to be determined by a highly speculative market . When you have 40% speculation buying you let the speculator take the risk ,(by putting more downpayment ), not the lenders .
Any bank that you rest your money in do you like to think that they are making high risk loans ? No, you want your funds to be protected .
I wish I could agree that “humans really only learn by failure, and only through massive failure will greater knowlege be impressed upon all humanity” and that people get smarter but it’s hard to believe sometimes when you read this interesting quote. See any parallels?
“Of course the people don’t want war. But after all, it’s the leaders of the country who determine the policy, and it’s always a simple matter to drag the people along whether it’s a democracy, a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy.
All you have to do is tell them they are being attacked, and denounce the pacifists for lack of patriotism, and exposing the country to greater danger.”
– Herman Goering at the Nuremberg trials
Quit printing that stuff and exposing us to greater danger!
Sigh….I guess I truly am an optomist at heart.
If people learn from failure, we should be smart already. Didn’t we just have a dot com bubble that everyone got hosed in ? Oh, I forgot. This time it was different ! Yeah, it will be different all right. This time we have tons and tons of debt involved. We aren’t just losing the money we have, we are losing the money we don’t have !
Housing Wizard, I don’t usually disagree with you, but I would have to respectfully do so in this case. I don’t know of a -single- lender who’s primary mission statement (or secondary, third…etc) is to protect the deposits/funds of the nation. All lenders have one duty - to do what’s in the best interests of it’s shareholders - that is to make money for them. Given they can fulfill this duty and offload the risk of doing so to other investors via MBSs, why in the great ole’ US of A or in any other free-market economy would they not? Any good business niche (or even not so good business niches in the case of fraud-like tax credits for certain “energy” companies) will ultimately invite enough players to saturate all profit/utility from it (my point here is that the FED enabled this from the top). Again, not saying lenders have no blood on their hands in this….but by far the vast majority of “victims” in this bubble are only victims of their own greed and stupidity, thus should be held personally responsible for their actions.
There are so many other areas we do hold the individuals responsible. You assign primary blame to the bank-robber, not the company that made his gun. You give speeding tickets to the drivers of cars, not the manufacturers. I could go on and on, but I think I’ve made my point: why should greedy/stupid borrowers be treated any differently and not be held accountable for their own financial actions?
sfv-hopeful ….Sure the greedy and stupid should pay for their money mistakes ,and they will if we don’t bail them out . But read down below toward the bottom on some of my responses about how I think lenders should protect the deposits/investor funds from these greedy /stupid borrowers .
I hate to sound like the pessimist here, but last I checked, the lender’s goal was to make money and minimize the potential for losing it. Hardly admirable, but it is what it is.
As adults it’s imperative to always remember the goals of others and to protect yourself and your resources.
I don’t believe society has the resources or the mandate to protect people from themselves. There is no growth in that environment. Just a bunch of spoiled and sheltered children.
We really do not have the luxury as a society to simply let people learn by their mistakes regarding the financial well being of this Nation . Did the mistake of the 1929
stock market crash do anything but set America back for years ? Alot of people that didn’t even invest in the stock market were taken down in the GREAT DEPRESSION .
Sorry , you don’t let your kid run out in front of a speeding car to teach him a lesson about how much pain you get when you get hit . Regulations , if they are not oppressive , seem to be necessary .
NINA loans hardly “minimize the potential for losing it”.
Sorry , you don’t let your kid run out in front of a speeding car to teach him a lesson about how much pain you get when you get hit . Regulations , if they are not oppressive , seem to be necessary .
I am not a child and do not wish to be treated as one. The state knows no better than me and I will not have the hubris to think that I know better than my fellow man.
If you (the general you) are so much smarter than your fellow man, take them to the cleaners in the stock market or wherever and then you can hand it all back to them with a pat on the head and a kind or stern word as your highness sees fit.
When I invest I try to assume I’m an idiot. More often than I’d like I’m proven correct. Now you want me to tell someone else what to do with their money (ie: have me vote for regulations?)
No thanks, I’ll pass.
You might understand what your doing , but how many people do ? I, myself don’t want to pay for the financial mistakes of others .
That’s the point. I DON’T UNDERSTAND WHAT I’M DOING. I’m sure gold is going up. Almost positive. Have I been right? Yes. Will that continue? Who knows! That’s why it’s only 10% of my assets. Have I been absolutely positively 100% convinced about other thing’s that I’ve lost money on? You bet.
And I certainly don’t understand what you’re doing!
If you are rational enough to be a decent investor you realize that attempting to make choices for other people is ridiculous. Assuming you’ll aways beat the market is not rational, either in investing or in regulating the investing of others.
I am sure gold is dropping like a rock.
My point exactly, and you want he wants me to enforce investing rules on other people at the point of a gun.
Nope.
We need include regulators when we think of blame. Lenders want to push their products and will lie about future price forecasts. Borrowers are naive and want a home. The only group that is charged with maintaining sanity is the regulators, and they dropped the ball with income stated loans and other exotic mortgages.
The financial industry is one of the most heavily regulated industry because people lie, and because people have access to different information. Shame on the Fed and other regulators for not monitoring this lending more closely.
Regulation is ultimately a fruitless game. The regulators end up either bought directly, or more likely slave to the public perceptions… the public demands what it wants, regulators be damned.
For more information, read Orwell’s “To Shoot An Elephant”.
So it goes at the Fed.
SDNewbie -
While I largely agree with the idea that people should educate themselves and make informed decisions, the reality is that evaluating financial instruments like mortgages requires years of acquired knowledge. I doubt 1% of college graduates could correctly compare, say, a 30y fixed 2points, 1% prepay penalty before 3y, 6.25% versus a 30y float Libor+2, 6mo reset given a 25% tax bracket, 620 FICO, expected time to own = 6 years, +/- 2years.
We found this out on Wall Street many years ago: unscrupulous salesmen can bankrupt the average investor. The answer was not so much regulation as Series 7: registration for the salesmen, and a test in which you basically make sure a) they understand their own products, and b) they understand their right to work in the business depends on not selling inappropriate products to naive investors (that’s why, today, you are always asked to rate your investing experience when you open an account.)
The mortgage business has rapidly evolved from local markets to a national biz with local hucksters. It’s looking very much like 1929 all over again (rules of the game seriously behind the way it is actually being played.) Expect a disaster and serious certification and regulation to follow.
All right if you’ll just sign here… no, no questions please. NO. I SAID SIGN THIS LOAN DOCUMENT NOW MOTHERF**KER! NOW MOVE MOVE MOVE! OK! WRITE IN YOUR INCOME! THAT’S ALL!??! DOUBLE IT! I SAID DOUBLE IT A$$HOLE! NOW, HERE’S A $75,000 HELOC. BUY YOURSELF A GODAMN H2. I BETTER SEE A F***ING H2 IN THE DRIVEWAY WHEN I COME BACK FOR A REFI OR I’LL KILL THE WHOLE MOTHERF**KING LOT OF YOU!
If you actually removed the profanity, then what you said might sound funny.
Watch out! I hear there’s porn on the internets too.
Seriously that was supposed to be a “Pulp Fiction” imitation… sorry if I offended.
funny
Choirboy.
Bernanke on housing market:
http://bubblemeter.blogspot.com/2006/05/bernanke-on-housing.html
David
Bubble Meter Blog
BB, too, says the housing market is “cooling.” How many times do we have to read that description in print before everyone who reads and posts here spontaneously regurgitates?
Let him keep calling it a cooling and let him continue to raise rates. It’s currently cooling and soon in will be tanking.
I agree with David’s comment that the term “cooling” is inappropriate because it has a pleasant and comforting connotation. It’s particularly troubling that the chairman of the Fed and the “economist” for the NAR are now using the exact same euphemisms. If the point is that the market is not “crashing” in the same way that a stock market like NASDAQ can crash, then I think we should recall that we were repeatedly told that housing prices are “sticky” on the way down, i.e., it literally CAN’T crash in a day, a week or a month. If that’s really the case, then there’s no way to tell whether the “cooling” will stop before a huge number of homeowners are “frozen” to death.
Then again, I guess if the chairman of the Fed said anything other than bland euphemisms the markets would gyrate wildly every time he opened his mouth. Heck, he used the word “pause” once and the financial world went into a frenzy.
“because it has a pleasant and comforting connotation”
Inappropriate but effective for the intended purpose, which is to calm the sheep before they stampede off the edge of that nearby cliff.
the sheep should have been corralled long ago. Don’t let the sheep roam near a cliff.
David
Bubble Meter Blog
The housing market is cooling much like the stock market cooled In 1929.
There were individuals concerned about asset inflation 12 years ago - these actions are not new
The Great Depression and today’s economy: Then and now
from the Daily Reckoning May 15, 2006
http://tinyurl.com/pmq4p
…The important lessons of the Great Depression for today’s economy lie not in the New Deal’s remedies to its fallout, but in tracing its origins back to the seeds that were sown by post-World War I Fed policies…
and from AlwaysOn
At the 1994 FOMC meeting that appears to have started this “Bubble Cycle” economy by loosening credit-
…The only reference to asset bubbles comes from the President of the Federal Reserve Banks of Boston, Cathy E. Minehan, during the previous month’s meeting (emphasis added):
“We recently held a meeting of the Bank’s Academic Advisory Council which, as you all know, includes two or three Nobel Prize winners and people from Harvard, MIT, Yale, and so forth. The discussion focused on issues related to productivity growth, labor market tightness, and asset market bubbles. The group was lively, to say the least. But some consensus was reached on the need for action that might take the wind out of asset markets, even in the absence of tighter monetary policy, perhaps through increased margin requirements or increased supervisory oversight on credit extended, particularly in the day trading operations.”
http://tinyurl.com/pwr4e
“A Fed president chimes in. “Products such as adjustable rate and no-money-down mortgages have helped boost U.S. homeownership to record levels but have ”
Mr. Fed President, pull your head out of your ass ! You didn’t increase home ownership, you increased mortgage debt(i.e. people paying twice or three times as much to live in the same area under the guise of ownership). I love it. What you really managed to do was to get these useful idiots to subsidize low income housing that the government (state and local) couldn’t fund by bond issues. I salute you. Job well done.
NO Mr. Fed. if you took the time to LOOK AT YOUR OWN government’s numbers, you will see that home ownership PEAKED and is declining.
There are two types of economists- liars and damn liars.
This is partly cultural. People say “I bought a car” or “I bought a house” when what really should be said is “I borrowed a crap load of money to buy something.” Very few people go out and buy big ticket items outright with cash anymore. I suggest anybody who does so make a point of stating as such and pointing out the difference. “I bought it… with cash.”
Or you’ll hear the honest people joke: “Well, that’s my car… well, mine and the bank.”
You want to see big spenders ? Go to http://www.thedieselstop.com and read about how these guys buy trucks. Some of them buy a new one every year, “just because”. Can you say “addicted to debt” ?
salinasron,
Spot on as usual! It’s really all they have “accomplished”. Not only is an IO loan not a path to “ownership” but through higher taxes at the local level (all voluntary of course) the FED has effectively shifted dollars to local governments so they don’t try to “hit up” an increasingly stressed federal gov. Isn’t it great how everything just works out in the end?
Are there any markets where the inventory is not up by more than 100%?!?!?!?
The Northern Nevada MLS was running about 6,500 last summer. Today it’s 8,822. Not 100%. However I have noticed it’s going up 100-200 everyday. I would say it’s not 100% YET!
New Mexico circa +25%.
phoenix zip - 45,996
do i hear 45,997?
When were you calling for 50k, Cereal?
Here’s another video, Chris Thornburg of UCLA on the bubble incase anyone missed it.
Definitely worth the watch! About an hour - get POPcorn.
Agreed. Well worth the hour.
HB’s really climbing on good volume today… any theories???
http://finance.yahoo.com/q/bc?s=%5EDJUSHB&t=5d&l=on&z=m&q=l&c=
nothing goes down in a straight line.
Classic Head Fake.
The angel arrived at 12:00, waved her magic wand….And Voila! All the homebuilders rose sharply. What ever would the homebuilders do without that angel?
Coat-tail effect — they all rose like synchronized swimmers in near-perfect correlation with the DJIA’s dead cat bounce.
I think the homebuilder bump is because of 10-yr treasury yields falling sharply today. You don’t see 8 basis point moves eveyday. This is only temporary as a .25 point hike will yank the long end up next month and a rate pause will yank rates up on weak Fed not doing enough to thwart inflation. Either way long rates are headed up globally.
after any good size washout the technical funds will, after having made money shorting on the way down, become buyers until their black boxes say the bleeding is ready to continue anew, then they go short again. All the while they keep in mind the overall trend and underlying fundamentals. And, they don’t get emotional about it whatsoever.
Joe Sixpack in the meantime provides the weak hand from which to buy after a bottom, and sell at a top. Joe is emotional, anxious, and weak, and he doesn’t have the ability to discern the underlying fundamentals.
The stock market is not rigged - it is just well understood by a few, and misunderstood by most.
Translation: The market is a mechanism for the transfer of wealth from outsiders to insiders.
And we’ll soon discover that the housing bubble was the same sort of mechanism.
This sounds right. In particular, volatility-driven strategies (like those employed by hedge funds and big Wall Street players) cannot milk any money out of the sheep who employ buy-and-hold strategies (like all those moms and pops who listened to their 401(K) advisor’s brilliant suggestion that they could retire rich if they bought and held stock) unless the prices bob down-and-up, down-and-up…
I’ve been sellling/covering my puts for 10-15% at a time. Not a huge amount of my portfolio, but it’s made for good gains. I don’t have the cajones to buy at the short-term bottoms but I’ve thought about it.
Just covered today and waiting to get back in again.
“In many cases, Sanders says foreclosure victims are former Bay Area residents who underestimated the high cost of commuting.”
How could that be. First you check your hourly wage for an eight hour a day job. Then, since you are on the road (round trip) for 3 hrs, a $20/hr job is now paying less then $15/hr. If you are driving 200 miles/day then you are adding in excess of 40000 miles per year (holidays/vacation excepted). That means that you will probably have over 200K on you car in 4 years and you probably took out a 5 year loan. You’ll probably need a new $20K car after those 4 years so add $5000 to your yearly costs. Gee, and you forgot that wear and tear on the cars maintenance…..but it’s that extra gas cost that made the difference? How about forgetting the Starbucks and video rental and you’ll probably break even on the higher gas costs. No it’s the HELOC and I/O loan that is killing you not the cost of fuel.
Also intangibles like sitting in a car for x hours per day accomplishing nothing. Not only is it stressful and probably unhealthy, but you could be doing a million other things than staring at your neighbor’s back bumper on your way home.
Opportunity cost?
What about the cell phone cost ? Everyone these days seems to be driving and talking on their cell phones, so I would assume that as one drives more, one talks more on the cellphone.
yeah, but the plan is to recoup all those expenses through house price appreciation!
If these commuters had just rented near their jobs instead of signing suicide loans and wearing out the SUV, they would be hundreds of thousands of $s ahead.
Gas increasing another 15-20% or so to $4+ will also fuel foreclosures/inventory growth in these commute towns.
I wouldn’t rule out $5 per gallon in a few years…
it may even take years. its probably before the election, after the iran strike.
oops, i mean, it may NOT even take years
Try a few months.
Yip, the cost of FUEL is miniscule compared to the rest of the schbang. I’ll bet a lot of these fools have campers or boats and use them in the weekend, probably spending more $$ in pleasure than a weekly commute. Besides the stupidity of driving 3 hours a day, I wonder how many of them drive SUVs and trucks……if you are doing a basic commute you should buy either a nice, cheap used car or the cheapest new car. No point in wasting 5 years paying for something that an asshole will surely destroy within a couple years of hardcore commuting.
FUEL costs have again been made the scapegoat for a string of stupid decisions.
If you have a long commute and spend hours a day there you should probably get a very nice comfortable car because it will have a significant effect on your quality of life. You should also get a newer and larger car that has the latest safety features to protect you in the event of a crash. If you buy a Honda or Toyota you don’t need to worry about destroying it in 5 years.
Concern over loans to hedge funds
http://news.yahoo.com/s/ft/20060516/bs_ft/fto051620061645178375;_ylt=AkXJZMoF7TsGt_Kg6UpHTQn2ULEF;_ylu=X3oDMTA5aHJvMDdwBHNlYwN5bmNhdA–
Tracy is a prime example of the Bay Area RE bubble.
Prices there became unreasonable for what you are getting as early as 2001 in my opinion.
Why anyone would pay over $1/2 million for a McMansion in Central Valley, and still grind to work in 1.5+ hours of traffic each way to San Jose, Oakland, or SF is beyond me…
Actually, I see alot of similarity between Tracy and the San Bernardino/High Desert of Southern California. Lots of space to build. Hot. Priced less than metro proper, but still way too much to be attractive. And barely commutable to where the jobs are…
What goes around comes around… I had friends who bought in the Westin Ranch area in the early ’90’s because they weren’t willing to compromise on a house and buy nearer to their employment. After house prices plumetted around there in the following years, they simply mailed their mortgage company the keys and left the state.
Tracy had the bad luck of being at the conjunction of two major freeways, relatively close to the bay area and previously populated with mainly poor dirt farmers that couldn’t believe their great luck in being able to sell their properties to developers.
Same thing happened in Lancaster, PA with the Amish selling out to developers througout the nineties. At least the Lancaster area keeps the temps under a 100 most of the time! There are a lot more Amish in Ohio now than there were 20 years ago.
Traffic congestion from Tracy all the way through the East Bay is just hilarious. I once drove around 3 pm on I-580, no thanks. And it’s not like I’m not used to traffic, thanks to years of metropolitan living, but that is too much to handle.
I second that emotion. Boy the traffic there just got to be completely insane. It wasn’t that bad 20 years ago. And the Bay Bridge — endless gridlock. And 101– It takes forever to go from San Jose to Santa Rosa.
San Jose to Santa Rosa? Forget about it. Anything beyond the 50 mile radius here is like an event horizon - you gotta spend an eternity to get out.
http://bigpicture.typepad.com/comments/2006/05/media_appearanc_3.html#comment-17428848
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The real danger in housing is if the MBS market decides the risks are too high. The natural price of a home is what it will sell for with no mortgages available to anyone (which will be somewhat higher than what people pay for downpayments). Any premium over that is entirely created by the mortgage industry.
For the past few years, the mortgage industry has given a mortgage to anyone that asks for it. There was a news story about some guy in Florida that hadn’t had a job since the early 90’s that bought 6 houses. This was only discovered when he was found dead (from natural causes) in one of them after he was many months behind in payments for all the mortgages. The number of no-doc loans out there is very disturbing.
It’s not low interest rates that drove house prices up. It was easy credit available to ANYONE. I’ve read reports that banks were encouraging people to lie on their application forms so that they would get approved. When the subprime lenders start to go under, nobody is going to take over their business. It won’t matter how low interest rates go, credit will still be tighter than it has been. When house prices are falling, banks are going to stop giving out 100% LTV mortgages because they don’t want to lose money instantly if the person doesn’t make payments. If people can only get 80% financing, prices would drop even if interest rates dropped to 0%.
Real house prices are going to drop back to their mid-90s level throughout the country. They might overshoot and drop further than that. The options for the economy as a whole are high inflation (allowing nominal house prices to only drop slightly) or deflation (if nominal house prices fall, nobody will have money to spend). The choice will be made by next summer. Past that, it will be too late to switch easily.
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Good thing that lots of institutional money managers buy MBS, because they are less risk averse — they get to play around with other people’s money, afterall, and they run a bigger risk by exercising individual precaution than by following the herd, even if it runs over the edge of a cliff.
The real danger in housing is if the MBS market decides the risks are too high. The natural price of a home is what it will sell for with no mortgages available to anyone (which will be somewhat higher than what people pay for downpayments). Any premium over that is entirely created by the mortgage industry.
Exactly my line of thinking. I am convinced that the key to the asset bubble is in the financial sector, all other discussions don’t cut to the essense. Banks set the price of RE, because it is so leveraged.
I came across a report “drowning in debt” published
by the AmericanProgress group. ( I believe its a non-profit).
Link to Full Report
It contains many graphs and tables and appears to be very
well researched. It is a very good read.
One of the major reasons households are drowning in debt
is, of course, because of excessive borrowing for real estate.
In particular, check out Figure C, (page iii), which indicates that of
total household debt accured , real estate far exceeds by dollar value all other debt classes such as Education, Cars, Goods and Services.
My own general conclusion is that the U.S. Middle class is self-financing itself out of existence.
CNBC just did a piece on mortgage delinquencies and defaults. It must be getting common. They gave a stat like 30% of 2005 buyers had no equity in their homes. Hmmm…. that must be comforting to the housing bulls. Can you imagine the carnage when those things go under water and the owner needs to get out like NOW. 30% of the nations’ houses on the market… I think the inventory increases we are seeing are just the tip of the iceberg. Wait until prices fall more and people see that RE is depreciating, not appreciating like they’ve hoped. Then we will see inventory.
Error here. Total 2005 sales, what?… 7mil? 0.3X7 = 2mil. That’s still a huge number, but more like 2% of total.
Just finished watching the ABC video clip. Yes reporting is starting to inch into bubblecrash territory. I still wanted to pound my head into my computer monitor though. yes, they touch barely on why a 50 year mortgage MAY be a bad idea but then never mention most people in the hole do not have the equity to qualify. And what is up with sell sell sell. No mention at all about being upside down on the loan and bringing cash to the settlement. Grrrrrr. They are just barely dipping the big toe into the reporting pool. I want to scream “Get on with it already. pop the bad news on the people, ok”
Thank you for the opportunity to rant and let off steam. Move along now.
Borrowers not being able to keep up on mortgage payments is one thing, but there’s a bigger problem looming: The “housing ATM” will shut down as people stop extracting equity from their homes. This will have a much bigger impact. Hasn’t this been driving the economy for the past several years?
housing ATM played important role in growth in economy during last few years. But the party is over now, and many people are stuck with hefty monthly payments.
Reality is a Bitch.
Realty is a Bitch.
well it’s certainly been driving the sales of “toys” and luxury goods. The last time I went through this you started seeing guys putting their barely used full dress harleys out on the street for sale. Just this past weekend I saw a Harley V-Rod parked on the street for sale in new condition. I’m interested in what women blow their money on that they would have to sell, I think they go more for luxury cars and gucci handbags etc. Anyone else have an idea on what toys are going up for liquidation ? I’m hoping to pick up some things cheap.
I think it’s been driving sales of:
- Home improvement/remodeling.
- New cars - all types…many luxury.
- Trucks/SUVs - gas guzzlers w/22″ rims, many parked in bad areas of LA where homes have appreciated to $400K or more.
- Vacations
- Dining out
- Expensive clothes, handbags
- Jewelery
- Electronics - Home entertainment, PCs, Notebooks, iPods, digital cameras, etc
The list goes on…covers pretty much the entire economy and many jobs relying on the purchase of these things.
Honestly this is why I see the dollar holding value. Not relative to other currencies maybe, but people selling THINGS to get DOLLARS to pay off their debt is deflationary and I think quite likely.
Women can/will sell high end furniture and antiques, also jewelry. Wonder what this will do for e-bay.
Victim? Foreclosure “Victim”? Lol. Is this what we’re in for?
For every 1000 foreclosures there will be a TV-News-worthy story where some poor dolt gets sick and can’t keep current… getting thrown into the street. People will see this story and leap to the conclusion that it’s the norm in foreclosure cases and politicians, seeing an opening, will propose some legislation. The Govt will step in with some fancy grants and loans to bail a lot of the FBs out. Just wait….
This would be exactly the kind of thing that really chaps my hide.
ha ha ha. as long as republican and gwbush are in power, dream on. only once the rich starts getting clobbered will you see them do something about it.
Elections approaching — ‘07 is going to be hell leading into ‘08. Both parties & helicopter Ben will be ready to jump into action to save the “victims of the lenders”. Just watch.
I’m sooooo hoping you’re wrong (though I’m also scared you’re right)
Live in the United States?
You ARE rich.
Just say “no” to a bailout.
he “housing ATM” will shut down as people stop extracting equity from their homes. This will have a much bigger impact. Hasn’t this been driving the economy for the past several years?
Correction; equity is not extracted, it is liberated!
Stupid house holding my money HOSTAGE!
I look at this whole farce as akin to the doomed walking up to their executioner and asking how much rope will be needed to hang themselves.
Go to the light! There is peace, in the light! All welcome, all are welcome!
‘It’s more of the newer, exotic [mortgages] where the payment has changed and they are now pretty much priced out of the loan,’
first time i’ve seen “priced out of the loan”, i’ve been priced out of my regional market… call me old fashion but i still believe in due diligence.
Mortgage rates return to 4 year highs. http://money.cnn.com/2006/05/18/real_estate/mortgage_rates/index.htm
Jeez, I bought my 1st house at 7.5% interest during a reccession and my 1st rental unit at 9.5% and people are complaining about high rates now ? Just wait…..
Yeah, it was NOT that long ago that rates were 7%-ish. I had good credit and my first purchase in 1999 was 7.375 on a 30 year. And rates rose from there a bit, into 2000. I felt relieved to have “beaten the rate increases” for a while.
Bought mine in 1987 on an adjustable that got very close to 10% Was very happy to lock in 6.625% on the 4th refinance. Can’t beleive I was that stupid and lucky at the same time.
I love how BB said home ownership has risen. What a joke….All that has risen is the number of people in debt way beyond their means or anything that is historically comparable. As my wife, an accountant, always reminds me, “You don’t own until the last payment on the principle is made.” Until that time, you are a renter. On top of that, I always remind her, “you still don’t own outright. Miss a property tax payment and see what happens to your “home ownership.”
‘“You don’t own until the last payment on the principle is made.” Until that time, you are a renter.’
Your wife, as well as some very renowned economists, miss the fundamental difference between renting and owning, which is that in owning, you own the risk of long-term-asset-price fluctuation. In renting, you run the risk of rent increases or of having to move when your lease expires, but you also own the option to buy a home if prices drop by 30% or so.
Keep in mind, you never really own. Even if you pay the mortgage off, see what happens if you miss a property tax payment.
How true. So many pay HOA or condo fees. They are not really homeowners. Even if you have an older house and none of this, there’s property tax. Plus you only get live there until some hotel chain or Walmart decides they can put the property to better use.
The actual homeownership rate in America is 0%.
As one learns in the first week of law school, ownership of land has been, since 1066, a legal fiction.
It belongs to the King in the end. We all just lease it.
I don’t hold the lenders responsible at all. This is America. We believe in free enterprise and personal responsibility. Are the lenders to determine how much risk an individual can take? Any attempt to do is arbitrary.
I say if you can lend $$$, make $$$ doing it and shift the risk to others, more power to you.
It’s a perfect embodiment of the zero-sum game that has become the house of cards that is the USA where we make very little of value, buy everything from the rest of the world, and borrow to consume.
A lender that is not responsible in their financing deserves to be burned as well as the borrower. Hey norjacwy, can I borrow $50? I swear I’m good for it!
Sure, @ just 1%/day, compounded daily, secured by a 1st Trust Deed on your house, with a notarized Deed In Lieu of Foreclosure signed by you.
Jeezz! Couldn’t you just break my arms in advance instead?
What if “the house” becomes worth only $30 in a matter of a year? Eh? That’s the doo-doo the lenders might become in pretty soon.
But you see, now you are determining the risk, that invalidates your whole argument.
You don’t make any sense. You cannot blame one side of the transaction, because in an economy everyone has do its part. If lenders cannot properly assess the risk, then the bad risks drive out the good, and we have a market failure known as adverse selection. Please educate yourself on this topic.
All insurance companies evaluate the risks, and so do lenders. The fact the lenders haven’t been doing their part is the problem of the lenders. Nobody forced them to lend to homeless people.
Thanks Max, but I can blame one side of transaction and laud the other - in fact I have.
I agree, nobody forced the lenders to loan money to homeless people AND no one forced the homeless to borrow the money either.
So, both sides (lenders and borrowers) are at fault, and both share a portion of the blame (there are others to blame as well, including the FED). I can’t see how you can laud in the lenders in this. What exactly have they done that is laudable?
I’m not a gold-bug Fed-hater, but I am convinced that this bubble is the result of the Alan’s shock. There was a combination of factors, including the 911, that made everyone in the government piss their pants, and AG opened the floodgates. But this won’t last forever, at least not in the current form.
Farther than that. AG opened the flood gates in ‘87 and was a hero. After LTCM and became eligible for Mt. Rushmore, BEFORE Y2K and became a God! After 9/11 it was just force of habit. The infamous ATM comment that gave lenders the green light for the ‘fog a mirror’ loan was just more of the same. AG knew how to be popular and never wavered.
As recently as the early 1990s lenders actually used to bother to guage risk and perform due diligence in verifying the borrower’s credit, assets & income. But of course that was before the explosion in MBS/CDOs and Fannie & Freddie growing to gargantuan proportions, which shifted most of the default risk to private investors and FCBs.
No lending risk = no lending standards. Today’s mortgage market is an entirely predictable consequence of the Fed/GSEs unspoken policy of “Privatize profit, socialize risk”. Force banks & lenders to hold these loans on their books instead of selling them off, and such “quaint” traditions as down-payments and verifying incomes will come back with a vengeance.
Fannie & Freddy should have been driving standards by not buying loans without adequate assessments. The MBS markets resell to funds that also should have driven higher standards and they spread the risk around by selling to pension funds and through 401k plans where holders don’t have a clue. The whole thing stinks… and Raines and all the MBS execs got filthy rich by putting otherwise conservative investors at unacceptable levels of financial risk.
The government really should have prevented this.
Yes , its the Lender that evaluate the risk and that’s their duty and they failed as far as I’m concerned .I’m sure there was alot of fraud with the loan packages , but there are ways of checking on that by the lenders if they are doing their job .
I blame math teachers.
People, it really is as simple as doing the math to figure out if you can or cannot afford something. Yes, the lenders can be corrupt. But unless they are forcing borrowers at gunpoint to take the mortgage, they cannot be blamed for bad decisions.
BTW, I speak from experience. I’ve had more than one lender try to convince me I can afford something I was not comfortable with. I’m still renting because I had GOOD math teachers (both in school and at home as it was my father’s career).
(And before anyone jumps all over me - I don’t really blame teachers - but I think you’re all intelligent enough to get my point.)
That does nothing to protect the exposure of the USG to Fannie&Freddy. ANd then there are all those people with pension funds and 401ks that have exposure and don’t even know it. I don’t care about the FB. I care about the stability of the financial markets and the real victims - the blind MBS holders…
Right, AZ BUBBLE BELIEVER , I feel the same way .
I don’t think that most seniors even get to exponentials in high school. Most struggle with algebra and trigonometry. I remember feeling like a freaking Einstein when I took Calc 1 in US high school. In Russia, where I’m from, in high school they forced us doing Calc 1 and 2, plus a bunch of hard-core algebra with Cauchy series and all that abyss.
Did they still teach kids to use the abacus in Russian schools when you were there? The abacus is an absolutely amazing tool for training the brain IMHO.
I think had a small abacus, and we probably (but not sure) used it in elementary. Probably when they introduced Arabic numerals.
The funny part is, I don’t think American schools are that bad, in terms of teachers and equipment and all - my school in Russia was quite messed up. But something prevents kids here from paying attention.
thimerosal
Mass Affluent Face Great Risks in Real Estate Market
“If the real estate market begins to crack, it is the mass affluent who will likely feel the effects both faster and with greater force. The fact that these assets often carry outstanding mortgages increases the risk further still.”
http://www.allheadlinenews.com/articles/7003622716
This is really interesting and dovetails with what I have been observing. I live in a town that has exploded with $800K plus McMansions in the last 5 years. Six years ago there were about 5 houses in my town that sold for over a million dollars. Now there are over 60 on the market. A lot of people say that it will be the people on the margins that are hurt by the bubble. I think it will be the upper-middle class. These people are living like they are rich, but they are not. They are affluent, but not $1 million house affluent. They are often getting by on 2 salaries, and I believe are only a couple of paychecks away from disaster.
Just what I needed another buzz word to interpret…”Mass Affluent” Who thinks up this s***?
“Mass Affluent Face Great Risks in Real Estate Market”
That was a really interesting link, Tweedle Dee. Sounds like the nouveau riche are in for a little humble pie.
http://money.cnn.com/2006/05/18/news/economy/bernanke.reut/index.htm?cnn=yes
Bernanke says housing is cooling.
“We’re seeing slowing in sales, slowing in starts. There also seem to be signs that prices are not rising as quickly as they have been for the past few years,” he said.
“It looks to be a very orderly and moderate kind of cooling at this point,” Bernanke said, adding that the U.S. labor market is strong and incomes are rising.
He sure has a much better outlook on it than some of us do. Is he bluffing or are we wrong ?
Will the housing market eventually end up looking like the RV site on ebay:
http://motors.listings.ebay.com/Other-Vehicles_RVs-and-Campers_W0QQfclZ3QQfcoZ1QQsacatZ50054QQsocmdZListingItemList
Over 1800 RVs & campers listed today and very few even getting a bid, and those that do get bids are for fraction of what they once sold for.
I have a CPA friend who does work for some RV dealers. Sales are down 30-40% YOY.
I have freind that is stuck with an RV she can’t sell for enough to pay off the loan. The RV market reminds me of the timeshare market, buy new and you’re screwed.
I love the toy hauler RVs. Not only do they have a big truck to pull an expensive trailer, but it is full of gas guzzling play things. Probably all bought on HELs.
There are over 2600 boats for sale.
http://motors.listings.ebay.com/Other-Vehicles_Boats_W0QQfclZ3QQfromZR12QQfsooZ2QQfsopZ2QQlopgZ2QQsacatZ26429QQsocmdZListingItemList
Nothing burns gas like a powerful boat. 1MPG is not unusual. Just what middle class America needs.
This one is the best. “Live your life like it matters !” Its a cigarette boat. $160K It includes a truck though, so maybe its a bargain. Big supercharged engines. Claims todays replacement price would be $500K. $500K-$160K = $340K of depreciation ! For 140 hours of use = $2428 per hour of use for depreciation alone. Doesn’t include fuel or interest. A very expensive ride.
And the seller is from… Phoenix ! Guess what he did with his HEL ?
can you even begin to imagine being on so tight a budget that the cost of gasoline puts you into foreclosure? With no disrespect meant to the people in that position, mygoodness. I grew up in the bronx in the 70s, tight budgets aren’t puzzling to me, nor is paying little attention to controlling spending despite being on a tight budget, but its much easier to cut back on your clothes or food buying when some aspect of your expenses gets high than it is to sell the house you never shoulda bought. Americans were made to believe that they were second-class citizens or worse if they didn’t buy something somewhere, and admittedly there are some urban centers where rents are so high that maybe it seemed even more like the right thing to do to buy in an outlying area. lenders told them they could get them into a house for X dollars a month, and that figure was always at the top of someone’s ability to pay if the 50% of their income represented 50% of 4500 bucks and not 10000 bucks. Then gas doubling in price means you gotta cut out the ham for the kid’s sandwiches, but they still need new clothes everyonce in a while. you’re living on credit cards, and as they start to max out…god it’s sad. if that housing payment were rent, you could always downsize somehow without incurring bankruptcy along the way. But lately the ‘wisdom’ has been to buy as soon as possible and as much as possible for best leverage on the upside, and not “don’t buy unless you have a goodsized downpayment, 3-6 months of salary reserves on top of that to stash in cash, and if you think you might need to move in less than 5 years, be veryi careful in your buy/rent analyses.”
Mass brainwashing that worked especially well in conjunction with unethical real estate related professional practices and the greed that’s the hot idea in our society…
Problem is that MANY people can not deprive themselves of anything.
We have become an over indulge society.
Agreed. The average American doesn’t believe in postponed gratification. The average American will borrow as much as they can and eat just about anything they can. Does anyone have a graph that shows the correlation between average consumer debt and weight? The growing debt problem of America has a strong correlation with the growing obesity epidemic.
I remember when I was 15 years old and saved my allowance for two year in order to buy a bicycle.
May be if today’s parnts do the same, our kid would develop better attitudes, and not demand brand new car for their 16th birthday.
Very few people live according the old value system.
Completely off-topic, but goes along with this rant. I can’t find teenage babysitters. When I was a teen 20 years ago, everybody babysat. It was a good way to make money. No one wants to babysit anymore. I think the kids just get what they want from their parents.
Taking this rant even further - if you can find a teen who will babysit, they want $10 or so an hour. I used to babysit for $1 an hour when minimum wage was about $3. It all comes down to the whole entitlement thing going around these days.
Eastcoaster, sounds like that teenager who wants $10/hour to babysit is a rear sharpie, with a keen eye for a tight, seller’s market! Twenty years from now they’ll be repossessing your kid’s personal jetcycle and posting on the Spaceship Bubble blog about personal responsibility!
Or how about this. Maybe the baby’s parent’s can’t afford to go out to eat because whatever extra money they had for entertainment is now going into the ARM mortgage payment that just reset yesterday.
Spaceship Bubble Blog!!
That is F’ing funny!!! LMAO
i remember being in junior high school. wanted levi jeans. parents got me penny’s jeans.
bummer.
One year in high school, I got a real Pendelton. All other years just JCP or equivalent.
Judicious–LMAO!So true…
But let me also say that there’s a troll on another blog who insists that the need for instant gratification is the reason that would-be buyers are priced out of the market, because they didn’t save enough to keep up with 5 year doublings in home prices and instead purchased unnecessary items . (This is actually,inaccurate) He actually claimed that because I’m a woman and may live into my 80’s , I’m a miserable person if I can’t see that having to save an extra 5 years until I’m 37 to buy my first home isn’t a bad deal.
you’ve just landed on my 2 other pet-peeves:
people who have no self-control with eating and/or delayed gratification.
i pulled into a crowded parking lot recently. there was a pair of rhinoserous thigh ladies waiting for a parking space to vacate. i went around them, parked in the back and walked 200 yards to the store. i came out 20 minutes later and guess what?
(*step AWAY from the harpoon gun*)
I agree completely. Most people have no self-discipline. They want something, and they want it now. So, they get it and figure that they’ll find a way to pay for it later. Maybe we do need another depression in this country - those who lived through the Great Depression certainly seemed to learn, and retain, the lesson for the rest of their lives. It’s sad that for some people, only a financial catastrophe will teach them the financial lessons that they should have learned in childhood - if you can’t afford something, then you have to save up for it until you can afford it, and some things you will never be able to afford.
You are abosolutly right. May be we need another depession in this country to fix people’s stuipid financial behaviors.
EXAMPLE: one guy in my office (he & his wife have combined income of $140K) always complains that they are short of money…. one days he was proudly saying that he spent $90 for shoes for his 3 years old daughter form Nortdstrom. 3 Years old should shop from Wal-Mart not Nortdstom. No fu@#ing brain.
i can agree heartily with all the claims about over-indulgence, but indulgence in food has gotta be a poor example of it…the skinny shoppers in LA are indulging mightily, and the thunderthighed and potbellied are, more often than not I’d imagine, having problems with fat cravings a la Supersize me meals and stressed out bingefests with ben&jerry. Okay, maybe they can save a buck or two by only getting breyer’s, and only when it’s on sale.
I have fine bmi numbers by the way, but lately I’ve been trying to be at least a litle kinder about people who don’t. It can’t be comfortable, after all!
Free will I don’t deny, but our little system as it stands works on creating and satisfying desires, and credit for everyone who breathes takes away the need to save for anything. I’m not *that* old, but I can still remember those days when the banks would have big banners advertising christmas and vacation clubs, lol? So you could put away money for stocking those stockings come december, or traveling to feel the sand under your toes come june? now, the x-mas spending is measured by how much debt consumers had put on their cards per head this year…how much extra are you planning on charging to your cards this christmas? when will the average consumer work off the debt they incur in december–february?
Now you buy immediately and pay off later, ’stead of paying in now and paying later.
We can all try to teach our kids to save for things, and I think that’s a great idea. But for better or worse our society works on credit now, and credit for everyone. It makes everything seem like funny money pricewise, and there is not only the sexy suggestion from every mediaoutlet that your life will change for the better once you own that hot or cool new thingie, but there is not even a counterveiling popular philosophy lately…no punky, grungy kinda aesthetic. Kids are even mooching off their parents to get high now lol (huge increase in the abuse of scrips the ‘rents have hanging around, which themselves have come to crowd the medicine cabinets because mygoodness there are drugs to prevent unhappiness now you know…not to deny the reality of depression and chronic pain, but you can get these goods for the sort of malaise people used to go swimming or join a club to beat) the fashion reflects it, the entertainment reflects it, it’s all bling all the time. We’ve grown tired as a society of caring about much beyond our selves and our offspring, we just wanna make sure we feel good about ourselves when we look at the folks next door. We don’t spend time with our kids so we throw them some bucks instead, we move to where the countertops come cheaper, etc.
I guess I’m just not that upset by people who were told over and over that they *need* to buy a house or they’d be priced out forever and believed it. I guess I’m speaking as someone who while trying to save the money for a real downpayment was told by relatives that we’re making too big a deal about that, it’s a poor excuse not to buy.
Of course, there are doubtless many many people who bought boats with HELOCs and RVs and all manner of unnecessary toys. Maybe the anti-depressants took away any worry and stress about what might happen if everything went to hell. Everybody got too optimistic
I don’t have much sympathy for the people trying to sell RVs the loans for which had the power to sink them into foreclosure or bankruptcy. But given that demand had been rising and rising for so long, who’d have thought that it would suddenly be hard to sell your ‘problem’?
All kindsa manias ending at once; a true huge credit bubble…
“Kids are even mooching off their parents to get high now”
I know in one case (my own family) where kids can not wait for their parents to die so they get their F&@*ing inheritances.
How about that!!!!
Hey remember 9/11 changed everything.
And what did our fearless leader ask us to do to help “beat the evildooors”
Go shopping.
“Are the lenders to determine how much risk an individual can take?”
Yes. They need to be reasonable. Sort of like a doctor determining how much a patient can take.
Completely agree. The lenders must determine how much risk an individual can take, not because the lender cares about or owes a responsibility to the borrower, but because it is in the lender’s financial interest to do so. Lending to someone who cannot pay you back does not help the lender. At least some of the lenders are going to go bankrupt (or at least get out of some of their lending business) as a result of all of the upcoming foreclosures. I have no pity for them. They weren’t forced to lend, but they should have followed prudent lending practices. Most didn’t. Even those that did will be effected by the careless lenders, as many borrowers go underwater on their loans, but then all of the lenders should have realized that real estate was a bubble and should have taken steps to protect themselves such as loaning at lower LTV ratios.
Why would they be prudent when they don’t hold their own loans ? Indeed if they had any confindence in the loans they were making why would they sell them off ? End the MBS pyramid of fraud and make these bastards hold their own loans and then we’d see some reform !
Some are holding at least a portion of their own loans, and some are buying MBS to hold. I’m not sure that ending the MBS pyramid would end the fraud and bad lending practices (although I think it would help some) - plenty of S&Ls got burned in the 80s by loans that they held. (I know, MBS was around then, too, but back then banks typically held much more of their loans than they do today). I’m not sure what the answer is (and, for me, it is never gov’t intervention or regulation. Executives have incentives to see the bank’s share price increase, and they usually try to accomplish this by gaining market share, and none of the stockholders care about the long-term future of the share price because they will simply sell later (after the run up in stock prices - just look at the HBs as another example) when they see the writing on the wall.
Four refinancings over 15 years - never had a lender ask if I could afford it. Rates were going down, but we were never, ever asked if it was comfortable. Never thought about it until now.
I agree.
I agree with WaitinginOC. Alot of banks will sell their loans but they agree that they will take back notes that go into forclosures .THe PMI companies are the insurance on some of them . I just talked to a Washington Mutual bank employee today and she said they sold their fixed rate notes ,but kept their Adjustables . The clerk said they won’t lend over 80% on the adjustables but she did not know how long that policy had been in effect . Many banks agree to service the note ,but its sold to a different investor/fund .
Borrowers will take anything they can get in the way of loans/money . So its the property that is the security for the note .
Not only does a borrower need to be protected from taking on to much debt , the property value needs to be solid as the security for the debt . There is nobody else but the Lenders/appraisers /underwriters that can determine this risk. We use to have hard money lenders that would give anybody a loan , but they would only go about 70% or under on loan to value ratio to allow for forclosure . You didn’t see those lenders screw up on the appraisals . I can’t relate to the new age underwriting at all ,its just a bad joke to me . It’s based on real estate always goes up .
“We’re seeing slowing in sales, slowing in starts. There also seem to be signs that prices are not rising as quickly as they have been for the past few years,” he said.
“It looks to be a very orderly and moderate kind of cooling at this point,” Bernanke said, adding that the U.S. labor market is strong and incomes are rising.
He sure has a much better outlook on it than some of us do. Is he bluffing or are we wrong ?
—————————————————————————–
What’s Bernanke going to say? “Grab a parachute, every man for himself” or “Everything’s fine, no bubble here - move along”
He’s not going to want to be the cause of a major market meltdown although I don’t think he’s that concerned with the FB’s out there.
Hey, I want to buy the SanFrancisco-Oakland Bay Bridge. Will all of the kind folks on this blog pony up about 3B so I can go check with Arnold. THNKS LOL
Sold. Just send me the 50 million.
You got Paypal?
OT
I have been reading and hearing a few comments in the business news about how commercial real estate investment is booming; is this the next bubble?
I know in my town in OR there are brand new professional office space being built with fancy cut stone facades and lighting but “see-through” (you can still see the studs inside, not even drywalled!).
Those empty offices are the CONDO-CUBICLES of the future.
In the last few years the lending industry has thrown out underwriting and LTV standards that had been developed in the previous 30 years (I have been in the business for 29 years.)
We know how loans performed in the past through various economic cycles, but we do not know how these new loans will perform. Loans to people with no equity, and with short term artificially low payments will not perform as well. How poorly and with what effect is the question….
Only thing that borrowers have been looking were low monthly payments and nothing else. Instead of looking at the price of property they were just looking at mon. payments.
Drastic change of mind set from 14 years ago when I got my loan.
Absolutely. They’re making (poor) buying decisions on house just like the average sheeple make poor buying decisions on cars. Too many people who only ask one question: “What’s my monthly payment?” What about price, interest rates, pre-payment penalties, adjustments, etc.? People just don’t even seem to give them a thought, let alone a second thought. It just baffles me.
“What’s my monthly payment?” You hit the nail right in the head.
First time I wanted to buy a car the sales person asked me that question. I appalled. What kind of line-of-reasoning is that?
I don’t want to insult anyone, but most people are financially illitrate.
Agreed. But does that mean that those of us who are financially literate should subsidize the stupidity of those of us who aren’t through some sort of bailout?
wawawa: I had the exact same experience and reaction. The scariest thing, no matter how much I told the sales-droid that I was interested in total price, not payment, he just kept trying to sell me on the numbers.
I should have told him that I’d've been willing to pay cash if he’d've given me price on my way out.