‘Foreclosures Are Becoming The New Thing’
Ms. DiMartino at Dallas News has this on credit standards. “Lo and behold, housing is a concern on Wall Street. Even the stock market’s cheerleaders have had to acquiesce. The fact is, any economist worth his salt has been concerned for 15 months. That’s how long new-home inventories have been hitting record highs.”
“Maybe what we should be asking is how inventories, of both new and existing homes, grew to their current records. The answer gets to the root cause of the housing bubble, the credit binge.”
“Consider that only one of the 53 banks surveyed by the Federal Reserve through the three months ended in April said it had tightened lending standards. About 10 percent had the gumption to loosen standards further. With no lending standards to speak of, it’s been almost impossible to corral the speculation that drove sales and home prices to their bubbly heights.”
“In the meantime, the holes in the bubble continue to grow. A recent report by Moody’s Investors Service said home equity delinquencies had risen for a second straight quarter. And this is just the beginning of the trend, something Fed officials recognize. On Thursday, both Chairman Ben Bernanke and Chicago Fed President Michael Moskow voiced concerns about the potential for lax lending standards to harm the economy.”
“At issue are nontraditional mortgages that carry adjustable rates or allow the balances to grow with time. (Hint to lenders: Loans are actually supposed to be paid down.) The fact that such nontraditional terms now account for one in five mortgages outstanding suggests someone’s let the fox into the chicken house.”
The Record reports on the appraisal business. “Kirk DeJesus, a Stockton real-estate appraiser, echoes the sentiments of others in the local real-estate appraisal scene: his business is a shadow of the frantic work scene since a home-sales slowdown hit in the fall. ‘It’s week-to-week, to be honest with you,’ he said.”
“DeJesus estimates business has dropped 45 percent since the summer. ‘I knew it was coming,’ he said. ‘I kind of got the feel that prices were getting out of control. I knew something had to change.’”
“Real-estate brokers and agents said that high prices and rising interest rates cooled the hot market and also pushed real-estate investors into putting their properties for sale when they concluded that the equity escalation had topped out. Nearly 3,500 resale houses were on the market last month, up from 935 the previous April.”
“Jim Clark, an appraiser in Stockton, said that before last summer, business was so good that ‘it was chaos. It slowed down very fast,’ he added. Though business is still good, he said, it’s down by half.”
“One part of the appraisal business is starting to pick up, though, he said. ‘Foreclosures are becoming the new thing now,’ he said. ‘We hadn’t done any foreclosures for three or four years and, now all of sudden, we’re getting hit with them.’”
“Ron Simon, who said he has done 22,000 single family home appraisals in 20 years in the business, thinks the market is going through a necessary adjustment. ‘We actually needed this to make the real-estate market healthy,’ he said. ‘The way it was going was a formula for disaster down the road.’”
“This spring and summer will be not too bad, he said, while fall and winter will have some ‘falls and trips.’”
Some quotes from my foreclosure blog this morning:
‘In Massachusetts,’ said Alexis McGee, ‘we saw 1551 new foreclosure filings in April 2006. As of May 13, foreclosure filings were up 35% from the same period in 2005. She added that she found it ‘amazing’ that some lenders were still pushing home equity loans and lines of credit up to 125% of the home’s value. ‘With markets cooling down and prices leveling off, that’s another recipe for disaster,’ said Ms. McGee.’
‘The situation is particularly acute in Florida,’ said McGee. She went on to say that, according to her data, foreclosure filings had increased 42.55% in the first quarter of 2006 over the fourth quarter of 2005.’
”foreclosure activity in Atlanta jumped to 6256 filings in the first quarter of 2006 from 3668 in the fourth quarter of 2005.’”
‘In Illinois, we saw a total of 13,273 foreclosure filings in the first quarter of 2006. That’s way up from 1,873 in Q1 of 2005. And we saw 4,012 new filings in April alone. It looks like the default rate in Illinois is growing rapidly.’
Is this evidence that there has been a housing bubble nation wide? The areas that were not visible were in a bubble nonetheless because they were holding value (or only slightly increasing) rather than losing value in the face of jobs being shipped overseas?
Anecdotal story. My brother who is has always been a blue collar worker used to have a union job, but that plant has closed. Now he works for about 70% of what he was earning 10 years ago. In response to the recent increase in gas prices a few of his co-workers have quit because it is more economic to take a lower paying job closer to home then to continue to commute to where my brother works.
This is good to hear. People are changing their behavior because of gas prices.
Agreed
I changed my behavior. Two years ago I sold my house, moved close to work and have more spendable income.
Thinking about changing my name to joetwelvepack
‘In Illinois, we saw a total of 13,273 foreclosure filings in the first quarter of 2006. That’s way up from 1,873 in Q1 of 2005. And we saw 4,012 new filings in April alone. It looks like the default rate in Illinois is growing rapidly.’
I posted on this before, Illinois compounded its problems with a well meaning predatory lending law that effectively bars workout specialists and banks from being able to assist these borrowers - the foreclosures in Illinois will be enormous. And frankly IMHO only a fool would buy foreclosed property in this market.
As one knowlegable insider told me, “Don’t worry. Be happy. The coming wave of 50 year mortgages will restructure nearly all the marginal ARMs before they go into foreclosure, and generate lots of fees for originators, conveyors and Wall Street secondary marketers. Borrowers win because they avoid losing their homes. Lenders win because they won’t have non-performing loans in default on their balance sheets that would jeopardize their capital ratios and prevent them from further lending. Every other homeowner wins because absent a glut of auctions, property values will be on a glide path instead of a crash trajectory.”
Please, tell me… what’s wrong with THAT analysis?
This is precisely what I’ve been worrying about. Monkeying around with lending to slow the crash down.
You got to have equity to refinance . It cost money to refinance,
Also, the 50 year loan won’t lower the payment enough to save some of these people .You hardly pay any equity down on a 50 year note . As I understand it the 50 year note is only fixed for a certain amount of time 5,10,15 years ,so its a form of a adjustable note . Maybe in some cases it will save some people who are hoping for a better market down the road , but some of these people could hardly afford the teaser rates on the adjustables . Its seems to me that the mortgage brokers will make out the most on this . Also some people in trouble should sell now while they have a little equity ,rather than put it off for 5 years when property might be a lot lower . Every situation is different I guess ,but factor in the loan costs whenever you get a new loan and ask the lender to wave the pre-payment penalty if you have one .
The fact is, any economist worth his salt has been concerned for 15 months. That’s how long new-home inventories have been hitting record highs.”
Apparently very few of economists who reporters sought for comments having been spending time at the salt licks.
Re: the recipe for disaster…. If all you have are stars in your eyes for the commission you’ll receive making such loans and ZERO professional ethics, then it is no surprise at all
my thoughts on the quote above ” We actually needed this…the way we were going was a formula for disaster”
IT’s turly is amazing how the human phyche works, this man knows the resulitng effects of a MANIC real estate market that has priced everyone except a small % out (ie affordibility). YET in the middle of the “eye of the storm” he believes we have avoided the disaster down the road!
Sign of the times:
Real Estate Agent needs cash flow (http://tinyurl.com/kfxob) and right in Ben’s nabe.
BAHAHAHAHHA!
What a loser. Who would loan her money? She thinks things are going to turn around right away. I wonder what her career was before real estate.
5,000? let me rephrase this. she is living hand-to-mouth.
nobody borrows just $5,000. and at the rates she’s paying why not just get a cc?
read between the lines. my inner cpa detects this woman is a financial mess.
I love the comment about not wanting to tap her equity to mess up her fixed rate loan?!?!?! HUH. Take out a HELOC, this will not change your “fixed” rate first loan. She is a liar. She has probably maxed out her HELOC well above the value of her home and has no room left.
Also I think her former job also involved “hand-to-mouth”!
Whoa! Harsh!….but funny!
Hand to Mouth Hardware
I would think that the “swivel knee pads” that are advertised would be a big hit as they would allow her to multi-task. Just a thought.
Good one…Both of you…
I think you might see a better return on your $5,000 by taking it in an airplane and dropping it on your town. I mean, a couple bucks might land in your back yard.
I love it!
I am a homeowner and could borrow against my equity, but would rather not touch my fixed low interest rate at this time.
Hey, this is a RE agent who must be trolling this blog. She know’s that prices will fall, so she won’t get a HELOC because she doesn’t want to end up with negative equity!
Check the pictures out closely…the face is “pasted” from another photo onto the body. If you click on the link there is another photo where it is even more apparent. Something definately fishy here. You would have to be a COMPLETE moron to lend anyone money on this website. I thought I had seen it all…
You’re totally right.
The second picture is just a cut’n'paste on some crappy business-themed stock photo.
Is that Barbara Streisand?
Take a look at her left hand. She’s wearing an Andrea the Giant glove.
Ron, sorry, but you should have said “the ways thing went was the formula for the disaster that we’re beginning to see right now.”
I can’t believe these people can look at inventory going up 400% in one year and all the flippers and recent buyers leveraged to the hilt on interest only and option arms about to reset and actually continue to think this will end well.
When people were in dire straits in the past and in way over their head at least they could tighten things up and sell the house they couldn’t afford, right? Well, they can’t do that now that inventory has skyrocketed and their are masses of people in the same position.
Foreclosure and bankruptcy will be the end results.
In posted this earlier in a different thread but I think it is relevent here as well so please forgive me for the duplicate post.
This weekend I went looking at condos in my local area and there were more condo’s than buyers (10 open houses). Anyways, I am interested in making an low offer ($240K) on one of them ($269K asking) so I went to one of the websites recommended on this board to check past selling prices/mortage history etc. Well turns out the sellers bought the house for $245K ($244.9K mortage) in 2004 and then took out a second mortgage ($134K) last year.
Also, talking to other residents in the community, I learned that they had not been paying their condo dues (very odd cause they condo is all blinged out — hardwoods, stainless applicances, fancy lighting, fixtures). Anyways, I really like the ‘crib’ but want to protected myself in case the seller is really f*ed. Can anyone give me some advice here? I am talking to the mortgage folks today to get pre-approved for the purchase.
I’m confused, the guy is asking for 269k yet owes about 378k?
Don’t be like our friend Kristian Cabuago from San Diego who thought that he got some smokin’ deal and “for his age group, he just couldn’t lose” when he bought his 900 sq. ft condo for around 550k for about a “30k discount.” By the way, that had to be the funniest things I’ve ever seen on this blog. Someone needs to link to the Cabuago thread.
Yeah,
I couldn’t help but laugh at that poor sap. What are these guys smoking?!
I could use some. Then I would stop having nightmares about all these scary lowballers rising from the crypts of rental complexes and trailer parks across the land…
Return of the Equity Snatchers!!!
ROTFLMAO. You should do stand up. Seriously.
Yeah…wait it out another year at least unless you absolutely have to buy (moving etc.).
If you are reading this board, then why are you thinking about buying right now? You will probably owe the back condo HOA fees if you purchase the unit. The ONLY reason you should be buying at this time is to buy “a house as a home that I can live in for 10 years or more with a mortgage I can stomach for 10 years or more”. If you can’t say that, you are probably speculating too.
Ok, my main reason for buying is to have a nice/safe place to live and taxes. Right now I rent in a crummy neighbourhood and frankly I tired of dealing with landlord BS and not having a place to call my own. Also, being a single person with no dependents etc, am paying the gov $800+ in taxes every week. Which is not cool. Based on about $50K down and the tax savings, I dont think I will be too far off what I am paying for rent right now.
Also, my job (and a couple 100 others) may be moving to very close to this place. I do plan on living here for 5+ years if I get it.
ps: thanks for the comments.
Wanting a place of your own is not rational it is emotional especially when you take a mortage and the place is not yours untill that is paid off. Because you are being emotional you are not reponding to the rational responses you are getting from the blog. Bying is a big mistake right now and there are no good and bad points-only bad.
Do you even know the tax implications of owning a place? Can you please summarize them for me? If actually know the answer to this question, you would realize that you are gaining little to nothing ESPECIALLY considering the RISK. Remember the RISK. Remember the RISK. Remember the RISK. “There’s no place like home” “There’s no place like home” ” There’s no place like home”. 5 years is not 10 years by the way.
If “you” actually know
Look, I fully understand not wanting to rent because of the unstable feelings: rent can go up, can get thrown out, and the tax benefit.
That draw is much stronger if you have a family. You are in a position to wait this one out. I wish I were in your spot. Now is the absolute worst possible time EVER to buy. Do some simple arithmetic using 5%, 10%, 15% & 20% declines in the next year. Your tax benefit won’t come close to saving you. It’s not like you get all the interest back.
Time to chill, sit back and enjoy the slide.
…enjoy the slide.
Love it!
Find a new rental before buying condo. Why buy a condo when you can buy a house for the same anount of money in a few years? I currently rent a 3 bdrm, 1200 sqft for $1675. Well worth the money and very comfortable. Also saving 2K per month. I’m going to wait until morgage = rent.
You are single with no dependants probably makeing a low six figure salary (based on the $800/wk in taxes comment). Assuming you pay the rent ontime, you are an ideal tennant, why are you renting in the shady part of town? With so many of the upper end of tennants in sub prime loans, most landlords will fight pretty hard for a good one who doesn’t move too much.
As far as tax strategies go, you might look into buying munis, starting a business, and give to charity. Your down payment would produce about $2,000 or so of tax free income.
You can have it both ways. Rent a condo in the building and look for a desperate FB to lowball. If you find that living in the condo is no fun you are not another FB yourself.
Yes, rent there first, check it out for a year or two. Maybe you’ll end up hating it and you can thank us later.
Regarding the “tax incentive” for buying property: Saving $1000 per month in taxes is good. Saving $1000 per month in taxes as a result of paying $3000 per month in interest to a bank, not so good.
What’s more… this tax break isn’t recorded in the constitution. Given the way realtors refer to it you might think so. The Presidents own commission on tax reform proposed jerking out the interest deduction. Don’t be too surprised if it happens, at least before the 30yr loan gets paid off. I remember like yesterday when the interest on credit cards got phased out. They had a pretty damn powerful lobby too. You never know…
i am not sure what tax saving are you referring to. from what i know it only helps to reduce your (out of pocket) monthly mortgage by a certain percentage but to think that buying a house would let you save taxes (to keep in your pocket)? i don’t think so. i’d rather pay the tax than add some more money to pay the bank. and this is not yet counting your impending losses due to declining home value.
You have to be kidding me? Why in the world would you buy now? Stay the hell out of condos until this bubble is burst. Don’t even tempt yourself by going out looking. The condo you are looking at will be offered sub 200K real soon, if it is purchased in the meanwhile, there will be dozens offered that are even nicer at lower prices. Think of the money you will be saving by waiting. Just my opinion of course.
Okay, I’m in agreement with this too. Don’t even go looking right now.
Echo these comments. It ain’t gonna kill you to rent for 6 months. When you see the downward trajectory over that 6 month period you’ll probably end up renting for another 6 months on top of that. Then in Q1-Q2 2007 you can pick up a firesale deal that will make your head spin. JMHO.
I’ll personally be renting a house for up to 2 years to let the flaming wreckage of the RE industry hit the ground. Then I’m going house shopping sometime in mid-late 2008.
Anyone familiar with what happens if a bunch of OTHER people in your condo complex foreclose? Maintenance and HOA fees still have to be paid and generally the banks are going to make those a very high priority. The rest of the people in the complex have to compensate with higher HOAs to make up the difference. Not only do your comps on your property suck, because it was foreclosed upon, you have to pay more HOAs! Could it get worse?
are “not” going to make those a very high priority
sorry my friend, but we don’t buy condos here. this blog plays many roles in our lives, one of them being to encourage eachother to be diligent shoppers. we watch eachothers’ backs so to speak.
i suggest you hang out with us for the next 12 - 18 months at least.
I gaurentee you can rent in the same complex or a “90210 equivalent” right down the street if you look. One bad experience with a landlord is not an excuse to give up on renting. It sounds like an excuse to jump off of the cliff with the rest of your friends that own “blinged out” apartments. Peer pressure is not cool. Find the 3 most financially savvy people in your life (not real estate people - all around financially responsible people) and ask their opinion about you buying. There are much better ways to save moeny on taxes, start a small business for less than 500 dollars and bury your rent into that. Heck you can even write off car and computer expenses.
Hey guys. Been reading this blog for quite a while, while posting rarely.
How do I find what the mortgage history is/was on a piece of Real Estate? I know zillow will show previous sale prices. What about HELOCS/2nd mortgages like the owner of the condo took out last year reportedly ($134k). Where can I find that kind of info?
Thanks for your help and keep your comments coming. I appreciate them.
Here in Massachusetts, all mortgages (including HELOCs) are recorded with the county clerk (or register of deeds as we call them). Massachusetts puts these and other land records online for the whole world to see, for free. So do a Google search for your county clerk office — they may do the same thing.
I have to admit, I have a major morbid fascination with looking at the loan records of friends and family. You can find a lot of scary dirt.
Craven - thanks for pointing me in that direction.
um….well….. you took the words right out of my mouth. That’s one the things I plan on doing - loan records of friends, family and neighbors. Scary! shhh, don’t tell anyone.
I used [www.thewarrengroup.com] to look up the prices for the condos I looked at yesterday. I believe it is New England only site but there should be others like it in your area. It was definately an interesting read to say the least. One of the of the condos that were supposidly being sold at a loss (at $250K) was in fact bought at $185K (in 2002) and had very minor upgrades since. Next time I go to any open houses, I plan on printing out the report on each of them so I can get a more truthful response from the realtors (or FSBO’s). Condo shopping is interesting to say the least. A lot of the ‘potential buyers’ were in fact other owners who were trying to gauge the market and also to meet potential buyers and give out their contact info ‘in case’ they decided to sell theirs.
Don’t forget to staple copies of that printout to the home FOR SALE flyer for other potential buyers to see. And give one to the Realtor as you’re headed out the door.
I have to ask. Where are you looking to buy where you can get a condo for that price? How many Sq Feet? This will tell us whether the PITI is comparable to the market rents or not. The price sounded low for anything in Socal unless it’s an absolute shoebox in a crappy area.
This weekend I went looking at condos in my local area and there were more condo’s than buyers (10 open houses).
You said it yourself. What do you think happens to condo prices when there are more condos than buyers?
Also, talking to other residents in the community, I learned that they had not been paying their condo dues
this is very dangerous. If there is one sign of a condo about to fall on it’s butt, this is it.
very odd cause they condo is all blinged out — hardwoods, stainless applicances, fancy lighting, fixtures).
It takes a while for wear and tear to show up. Besides, that’s NOT what the HOA fees are really for… it’s to build up a cushion for when you need a NEW ROOF or NEW WINDOWS or for INSURANCE etc… Don’t be fooled by a newly renovated condo. who knows what’s under the bling?
Again: when you buy a condo you are NOT buying your own little crib. You are buying a crib in commune with a bunch of other people. If they don’t pull their weight, then the whole place goes to hell quickly. Think about this. Already, the commune isn’t doing what they need to. People aren’t paying dues. this guy selling to you is $150k underwater. do you want to take his place???
Before you buy (if you are crazy enough to buy) you better pull their financials and see how much money the condo assoc. has… do they have enough for insurance? do they have enough for groundskeeping? what about if there is a disaster like a burst pipe or something? do they have enough for a new roof and new windows since they’ll be needed in 10-15 years?
I have a friend who bought into a condo and BAM, got an immediate $50,000 “special assessment” that all owners had to pay. sucked to be him.
By the way: the tax breaks aren’t as much as you think they will be…
clouseau
Wow, thanks for the advice. I hadnt thought of that. Here in New England we’ve been having flooded streets everytime it rains hard and this complex is right on the river. I am not too emotionally tied buying right now and could very well pull my chips off the table if it seems prudent to do so.
btw: someone asked the size etc. It is a 2BR 1600 sq unit on the MA/RI border. Most of the other units in the complex are also 2BR around 1300 sq and priced about $15K lower.
asimoto: What part of the Ma/Ri Border? Take into account that you will have widely varying towns and prices, from Higher priced Wrentham, to lower priced Attleboro. Wrentham is sort of freefalling right now with prices for SFH at 2004 levels, and most of the other border towns are no different. Patience, and if you have a good job, that is stable, and not Mortgage/RE related, save now or never.
The best I can tell, if you borrow $190k at 6.5% fixed, you are saving a grand total of $180 per month (assuming a 40% marginal tax rate–lower tax rate, lower savings). That $180 per month is equal to a return of 4.4% on the $50k that you put down.
And if you include HOA, insurance, and taxes, that $180 per month in savings evaporates, and you end up earning 0% on your down payment AND risking the loss of part of (if not all of) the down payment as the markets continue to slide.
Quality of life is a different story. Based on the numbers you’ve been throwing out, you can probably rent a better place and still be better off than buying today.
You either pay your money to the bank and government or the landlord and government (renting your home, or your money). I am in the highest federal tax bracket and live in a high tax state. Everyone I meet asks me why I don’t buy since I’m getting “creamed” in taxes. The answer is the same every time–it’s cheaper for me to pay the landlord and the government than to buy a home. And I love the home I’m renting.
The only thing missing from your equation is having a place you like to live.
Here’s an idea–instead of writing a purchase offer for the condo, write a 12 month rental offer with an option to purchase at your $240k or $250k price. If the market miraculously corrects itself, you’ll be happy. If not, you’ll get to live in the nice place and be thankful every day that you didn’t buy.
I seriously doubt he’ll bite initially, but as months go by with no sale, he’ll get more desperate for any kind of monthly cash flow to ease the pain of the debt burn.
Asimoto..please REREAD the article in this blog…”foreclosures”
I can’t actually speak for the rest on this blog BUT..I am fairly certain most are waiting to buy a FORECLOSURE/s when there are only a handfull of potetntial buyers at the “tax or bank sale”!
Putting up with B/S do you think its less when you own?
Danielle’s been way ahead of the curve on this stuff for a long time. I am suprised that the Morning Snooze allows her into print. The truth is not an issue for them - only what their advertisers want to hear since they can’t give the POS away anymore. I throw away 5-6 unsolicited copies a month that find their way onto my lawn.
“(Hint to lenders: Loans are actually supposed to be paid down.)”
Doesn’t Danielle realize that there is no need to ever pay a loan off? After five years, buyers can just roll their $500K tax-free home equity gain into a downpayment on a bigger house.
“This spring and summer will be not too bad, he said, while fall and winter will have some ‘falls and trips.’”
That’s it! We’ve been searching for a word phrase to describe the summer 3rd quarter and until now the lame “summer bummer ” was the best I could do but this guy above is the poster child. He’s completely out of touch just like the half million would be sellers and all the real estate cheerleaders. And so with that in mind and my penchant for literary allusion I suggest:
“The Summer of Our Disconnect”
The SOD embodies everything we are seeing; deer in the headlights, detactment, failure to respond to stimuli, house prices versus fundamentals, etc. So with the “Silent Spring” only 40 days remaining and Phoenix rocketing towards 50k right on schedule, I bring you the poor SODs.
followed by
“small fall”
OT, maybe worth its own thread –
—————————————————————————–
THE RATINGS GAME
Banc of America lowers view on homebuilder stocks
http://tinyurl.com/nmwm3
By John Spence, MarketWatch
Last Update: 11:11 AM ET May 22, 2006
BOSTON (MarketWatch) — Slowing home sales and falling home prices led Banc of America Securities analyst Daniel Oppenheim to lower his profit expectations and price targets for home builders.
“Even a ’soft landing’ would lead to significant earnings declines,” the analyst wrote in a note to clients Monday.
Oppenheim cut his 2007 stock-price targets by 17% and his earnings forecasts by 15% on average, saying he now expects earnings for the group to drop 22% from the previous year on lower margins.
He noted that the builder stocks, which are off about 21% year to date, now reflect more of the likely earnings erosion.
“We estimate that companies with a significant inventory of land, high financial leverage, [and] a high proportion of land controlled via options rather than ownership are factors that lead to increased sensitivity to changes in home prices,” Oppenheim wrote.
“WCI’s target price was lowered to $26 a share from $32 a share, while the 2006 forecast was cut to $4.60 a share from $4.70. The 2007 estimate was shaved to $3.29 a share from $4.40.”
*************************************************************************
Didn’t I see that orders fell about 70% last quarter? If my memory serves me correctly, It is difficult to understand how the forecast earnings only fall by 10 cents.
WCI continues to be an excellent short sale candidate, IMHO.
asimoto - please save yourself the condo HELL and listen to the earlier posting advice. Move to another rental, and start some part time business to reduce taxes. Then keep saving, and pay cash for one of those condos in a few years (or something else equivalent that you like). Best of luck to you
Asimoto - don’t fall victim to Suzanne’s research. And don’t feed any squirrels (hopefully you understand those jokes). If not, someone will repost the joke situation.
I don’t understand the actions of bank stocks. they seem to be doing very well, although I don’t follow them closely. if the mortgage industry is laying people off and the homebuildesrs are tanking, doesn’t wall street realize that will hurt bank’s earnings?
The banks will be hit hard on the way down, as well as anyone holding mortgage bonds, FNMA, Freddie Mac, etc. When bond holders don’t get paid the interest due, because of bankrupt FB’s, the prices of the bonds will plummet.
Banks hold huge quantities of these, for example Bank of America alone has $197B as per it’s 2005 annual report. Even Vanguard Prime MM has probably at least 50% of it’s assets directly in, or backed by, mortgage securities one way or the other.
i am not sure the percentage of that is in the high risk category (recently issued, within 5 year) and how large are their reserve to cover part of it. does this 197B of BA valued to recent home prices or a big percentage of it is in the 90s or earlier? if all are valued recently, we are in big big trouble because almost all banks will be in a similar position.
I have no idea how FNMA, etc really package mortgages up, to sell bonds like this. Anyone else know?
Using their “implied” guarentee and stamp of approval, much of the risk is theoretically removed. But, when the piper is not paid, the interest defaulted and the principle in doubt, the bond prices will get clobbered. Maybe the Govt will bail the bond holders out, but it can only be on a scale that will severely devalue the dollar.
“Also, talking to other residents in the community, I learned that they had not been paying their condo dues (very odd cause they condo is all blinged out — hardwoods, stainless applicances, fancy lighting, fixtures). Anyways, I really like the ‘crib’ but want to protected myself in case the seller is really f*ed. Can anyone give me some advice here?”
The fact that owners are not paying their condo dues is a huge red flag. Buying ANY condo in today’s market seems like a losing proposition for the next decade. Buying into a building that is already seriously troubled means you are guaranteed to lose big, not to mention the legal hassles. It’s hard to believe you are serious.
Re: Appraisal Biz; My business is waay off last year numbers! I still get lots of orders; for “buyer’s estimates of value” that are totally unatainable in this market. Example: Got and order last week, buyer’s estimate, (or lender’s calculations to make the loan fly), was $410,000. They called me because I appraised the house when the purchased 18 months ago for $275,000. Ran the comps and told him that I could support a value that showed appreciation but nowhere near his estimate. He grudgingly muttered that he would have to “rerun the numbers”. Haven’t heard from him since, lol. Saw this coming, went back to school last fall to get current and I will be starting for an engineering firm next week. Glad2Bout
Thanks for the report. What area are you in?
Sorry to take so long to get back at you. I am in Butte County, North of Sacramento, major metroplitan areas are Chico, Oroville and Paradise. Listing inventory is up between 35 to 50% since 01/01/06. Median sales price is down $20,000 over the 4Q. In the town I live in only 17% of the listing inventory is in escrow. Our small town newspaper had four pages of real estate ads last friday. This is going to be ugly!
OT but….I bet the PPT members are being asked to sit by the phones…The markets around the world are getting hammered!!
I don’t think there’s really a PPT. I hope not. They would have to buy tens of billions of stocks…they would get called on it, if it’s the Fed.
Maybe the Fed calls Goldman and Merrill and a bunch of others, but I doubt it. What happens when all the dip buyers have bought all they can stand? A slow melt-down ensues. Those are usually the worst kind. A la 72-74.
“PPT” is a slang term for the Working Group on Financial Assets, which actually exists. Their modus operandi is a source of mystery and fascination for me. Check out:
—————————————————————————
Fed Urges Banks to Monitor Hedge Funds
By Nell Henderson
Washington Post Staff Writer
Wednesday, May 17, 2006; Page D03
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/16/AR2006051601745.html
“In 1998, for example, Russia’s default on some of its debt triggered the near collapse of Long Term Capital Management, which in turn caused the bond market to temporarily seize up.
After that crisis, the White House created a Working Group on Financial Markets, which includes the Fed, to prevent such a crisis from reoccurring.”
(Errata: The PPT was actually created in the wake of the 1987 Black Monday crash, not after the 1998 LTCM meltdown…)
Hey guys. Been reading this blog for quite a while, while posting rarely.
How do I find what the mortgage history is/was on a piece of Real Estate? I know zillow will show previous sale prices. What about HELOCS/2nd mortgages like the owner of that condo took out last year reportedly ($134k). Where can I find that kind of info?
Thanks for your help and keep your comments coming. I appreciate them.
You can go to County Recorder’s Office and do a search there. OR
Pay a title company, and they will give you the history of the owner.
These are the only two ways that I know.
Ron Simon, who said he has done 22,000 single family home appraisals in 20 years in the business, thinks the market is going through a necessary adjustment. ‘We actually needed this to make the real-estate market healthy,’ he said. ‘The way it was going was a formula for disaster down the road.’”
Now there’s a quote from a number hitting hack…I’d never confess to the fact I was doin’ 3+ appraisals a day for $400 each x 20 years.
Then the idiot has the audacity to acknowledge this bubble meltdown will merely make the “market” healthy again.
Sorry Ron, the barn’s burned down, the horses have run away, and I sure hope to hell you got a good E&O policy.
I guarantee that out of of those thousands of appraisals you did in the last 4 years, there’s gonna be a few that’ll really gonna bite your financial azz, once the plaintiff bar gets wind of what constitued the little racketeering game between L/O’s and their rubber stamp appraisal cronies.
preach it brother!
and, even at $200 each, our appraiser friend has averaged $220K per year? At $400 each, $440K per year?!?
can anyone verify whether appraisers make this kind of money? Or can generate that kind of work volume?
All the appraisers I know in SLO county are of average means; I don’t see them living like Pediatricians or Airline Pilots.
SHBL-OK let’s split the dif-$300 per appraisal…It’s what I was makin’ 15 years ago-but due to the massive influx of people into the field, incomes have been FLAT!!!!!!!!!! So we’ll go with this…
So…
He’s doin’ $900. per day/$4500 per week x 50 = $225,000.
Now this is for a profession in which you only have to have a high school diploma to qualify for a state license.
What allows these people to earn this kinda money, is they ingratiate themselves with the real estate sales people; by developing a rep as somebody who’s “liberal” in their report values and soon become the “golden boy or girl” number hitter recommended to all the L/O’s…Don’t use my “guy/gal”-I’m not bringin’ you the biz.
Become this “go to” rubber stamper and you clean up big time.
Hell, I’ve seen reports done by these people-Most can’t even write a grammatically correct paragraph, never mind the application of regression analysis for the abstraction of market data.
But as I noted before…there’s your “auditors” for 7 trillion of FNMA MBS’…Illiterate HS educated hacks and trainees in the hip pockets of crooked L/O’s.
Kinda makes you feel all fuzzy and warm inside when you think about it.
he’s probably got a appraisal company with several appraisers. otherwise we may conclude that he has been appraising 5 houses, more or less, every weekday for the last 20 years boom or bust.
Asimoto…you say that you want the loan interest as a tax write off (Based on about $50K down and the tax savings, I dont think I will be too far off what I am paying for rent right now.)….I hope that you aren’t under the opinion that your HOA dues are a tax deduction. Plus, as more units in the developement go into foreclosure you may find that not only will the HOA fees go up but that fire insurance will too as full occupancy rates drop.
I understand that HOA fees are not tax deductable but it does bring up an interesting question, “how are the HOA fees calculated?”. I did notice that they were related to the sq/ft but not all the time.
Thanks again, everyone for your responses.
Asimoto -
FYI. I read on this blog a few weeks ago, about downtown San Diego condo towers getting finished right at the bottom of the last cycle in the early 90’s. The tower was basically all dark at night with the exception of a few lights. I guess the poor saps that were still there were stuck with the HOA bill split evenly between all the condo owners. If I remember correctly, it got pretty dang expensive and several of them had to foreclose/BK because of the HOA dues.
Hope that helps.
First, I enjoy this blog tremendously. I’ve been reading for a bit, so Its time I post my questions. Please do not think I’m insane, my plan is to buy a home in two to three years, but by the time I do, there is so much more I need to know.
1. How does one determine the total back due items on a home so that there are no suprises?
2. Does anyone recommend a site for hiring an internet “rebate” buyer’s realtor? There is no way I’m paying a realtor 3% to drive me in their lexus when I can find any home I want on the net.
One comment: Don’t bag too hard on those that believe in a flat summer. The number of people house shopping this weekend was at a normal level. (Hey, I’m betting the homes that sell now will be the cheapie forclosures in two years so we went looking.) So it could be an ok summer despite the inventory overhang… And sellers are doing “need based” pricing… So we’re in a classic end of the bubble stalled market.
That trip and stumble in the fall will be amazing. The roller coaster is at the top. We’re no longer hearing that clacky noise… those at the front of the coaster car see the impending drop. But there are those at the back still rising and will at the cocktail parties brag about it.
Soon… very soon…
Neil
Segways are the new cars. Nasdaq is the new economy. Forclosures are the new black.
LMAO
the truth is the new rude…
The RE agents/speculators will soon learn from the school of hard knocks that the market gives and the market takes with great fury. The more distorted the leveraged, the deeper the wound. The carnage in RE will be a lot worse than that suffered in the internet bubble due to the kind of people involved, the massive leverage, and the lack of regulation on the way up. The stagnant liquidity and the non-existent cash reserves will force prices to break down in violent gaps. RE agents/speculators are still focusing on the potential profit they believe they are entitled to rather than focusing on cutting losses. Their delusional arrogance has secured a complete wipe-out waiting for them down the road. Unlike stocks, there are no short sellers buying/covering their shorts at the bottom to soften the landing and reverse the momentum. All mania in history left a crater when they collapsed, and this one is no different. And to think that this is a softly deflating balloon as claimed by their leader David Lareah is buffoonery. He is truly making a farce of himself by making recent comments in the media.
“And to think that this is a softly deflating balloon as claimed by their leader David Lareah is buffoonery. He is truly making a farce of himself by making recent comments in the media.”
David gets paid well to play the baffoon.
“David gets paid well to play the baffoon.”
But where is the integrity!!. The rarest commodity in the world is not gold/diamond/etc, It is integrity, very few people seem to have it.
Q by Neil:
1. How does one determine the total back due items on a home so that there are no suprises?
On the West Coast (and hopefully everywhere) the seller buys you policy of Titile Insurance. They check for all liens, both private and government, and insure you for clear title. So, you do not need to worry. The seller will need to clear everything, or you do not need to complete the transaction.
Regarding the second question, the agent representing you, a buyer’s agent, also gets paid from the commission paid by the seller. Typical is a 5% commision, 2.5% paid to the listing agent and 2.5% paid to the selling/buyer’s agent.
Thanks!
Now to just wait… I’m so chaffing at the bit (huge down payment ready)… but man are prices so out of wack. But I shall wait at least 18 months, probably longer.
As to question 2: I am thinking of an internet “agent” as they help site up the title insurance, etc. but refund 75% of the buyers commision.
Thanks again
Neil
ps I’m “lightsaber” on aviation forums.
The agent representing you, a buyer’s agent, also gets paid from the commission paid by the seller
Talk about an oxymoron. Since he is being paid a %age of the selling price, the “buyer’s agent” is representing the seller’s interests, not yours. A true buyer’s agent would get compensation inversely proportional to the selling price.
Spelling: Title Insurance
Ben - great work. From reading this thread, it looks another soul was saved from condo owning hell. Asimoto, good luck, and we are glad you found this blog before actually putting money into a black hole. This blog is awesome, and really great comments on the threads from many talented folks.
“Consider that only one of the 53 banks surveyed by the Federal Reserve …said it had tightened lending standards. About 10 percent had the gumption to loosen standards further. With no lending standards to speak of, it’s been almost impossible to corral the speculation that drove sales and home prices to their bubbly heights.”
“…home equity delinquencies had risen for a second straight quarter. And this is just the beginning of the trend, something Fed officials recognize. On Thursday, both Chairman Ben Bernanke and Chicago Fed President Michael Moskow voiced concerns about the potential for lax lending standards to harm the economy.”
“… nontraditional terms now account for one in five mortgages outstanding suggests someone’s let the fox into the chicken house.”
******************************************************************************
Fascinating.
The top regulator of our banking system is “expressing concern” about “the potential for lax lending standards to harm the economy.”
I was unaware that “expressing concern” was a key tool in the Fed armory to prevent harm to the economy. Now that Bernanke is “expressing concern” can we all relax knowing that the Fed has the situation well in hand?
What are we seeing here? Is is simple incompetence? Or is it the classic “pump and dump?” By flooding the housing industry with “free money” and looking the other way as it was fed out in the form of toxic loans, have we been set up for the fall? Now that so many are so vulnerable, will the Fed pull the rug out from under us? Will we see a repeat of the S & L phenomonen when the rug was pulled, foreclosures swelled massively and insiders bought real estate for pennies on the dollar? Just like they did in the Great Depression of the 30’s.
Thanks for the news on tightening (or not) lending standards Ben.
I know it’s not GOOD news, but I just want to keep track on where they’re going with this.
So, in answer to my question, looks like we’re still at ground zero. Hope to see some real efforts at tightening soon ( ie. more than one bank out of 53).
Is 5 banks out of 53 too much to hope for by the end of June?! We shall see.
Express concern by our FED chairman actually is a good thing. Remember that we FED/FDIC etc has already proposed a set of new mortgage guideline back in Dec 05. The comment period closed at end of Mar. And you guess it , mortgage association and bank opposed while consumer related groups praised the new regulation. And right now they are working behind closed door to hash out the final regulation. So an comment from our official in favor of the regulation is good for now.