‘Hard Times Ahead’ For Subprime Lenders
The LA Times reports on the subprime lending business. “Profit at Ameriquest Mortgage Co. and its affiliates plunged 81% last year, reflecting a brutal price war over loans to higher-risk borrowers, rising interest rates and the company’s agreement to pay $325 million to 49 states to settle allegations of predatory lending.”
“The privately held parent of Ameriquest and its sister lenders, earned $257 million in 2005, down from $1.34 billion in 2004, according to copies of its annual financial statements obtained by The Times.”
“The company says that this year it has scaled back its aggressive price cutting on loans, part of an industry battle for market share at a time of rising interest rates and slowing housing markets.”
“If anything, Ameriquest’s market share is likely to erode even more, said Robert P. Napoli, who analyzes the mortgage business. ‘They’ll be lucky if their volumes don’t fall by 90% on the retail side,’ Napoli said.”
“‘It seems like they were trying to pressure the market in hopes they would force other lenders out of business with this aggressive pricing,’ he said. ‘But we’ve been following the mortgage industry for a long time, and that strategy generally doesn’t work,’ Napoli said. ‘A company like Countrywide can lay back and just wait for [other lenders] to hit the wall, which is what looks like has happened here.’”
“Some observers saw in Ameriquest’s earnings a reflection of hard times ahead for the entire industry. ‘We are expecting some subprime lenders to go out of business this year,’ said (industry analyst) Christine Clifford. ‘The combination of a shrinking market, rising costs and lots of lawsuits is extraordinarily difficult to manage,’ she added.”
And an Idaho television station reports on exotic loans in Treasure Valley. “Homes across the Treasure Valley continue to gain worth, and more and more people are jumping into the market head first. ‘We live in a good market. We live in a market right now where property values are constantly increasing,’ said Brett Anderson, owner of Security First Mortgage.”
“Also increasing, the rise in popularity of the option adjusted-rate mortgage, also called the pay option ARM. ‘I have a couple that just bought a second home, a vacation home they never could have afforded, but on this program,’ said loan officer Ricky Catalano.”
“But this type of mortgage is still fairly new in Boise, and officials say it would only work in about six or seven places in the entire USA, and we’re one of them. ‘In this kind of appreciation world it still continues to be a good loan for a lot of people. It isn’t a loan for the weak or conservative because it is a very aggressive program,’ said Catalano.”
“In other areas of the United States, the loan is just starting to run its course and they’re seeing a sharp increase in foreclosures. ‘If they are presented with the chance to buy a little nicer home people get ahead of themselves as to what they really can afford,’ said Tom Lay, of Neighborhood Housing Services.”
Some related links:
‘The Market Composite Index, an overall measure of mortgage applications, fell from 571.9 to 567.6 on a seasonally adjusted basis during the week ended June 16, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. On an unadjusted basis, applications decreased 1.6% on the week and were down 26.8% from the level recorded a year earlier’
And the subprime ‘Book of the Dead’
“Homes across the Treasure Valley continue to gain worth, and more and more people are jumping into the market head first.”
I wonder what often happens when an amateur jumps head first into a murky body of water?
You can get your answer by going onto the Phoenix Craigslist houses for sale page and searching “Queen Creek”
OK, I bit.
The first one that popped up is on Locust Drive in Chandler.
How telling…
This is interesting. The following Craigslist add has been on for 60 days or so. First one had the property at 308K, second at 249K, third at 224K. The last add said house must sell to the highest bidder on June 11th. I e-mail the guy and asked if the house has sold. Told me the current bid was 308K. I told him he should take it.
QUEEN CREEK, BY OWNER
4 Bed / 3 Bath, 2169 Sq. Ft.
$224,500 or Best Reasonable Offer (Listed on MLS for $349,500)
Inspection Sat. - Sun. 10-5 (June 10 - June 11)
House will be sold Sunday Night to HIGHEST BIDDER
(480)678-8854
Description:
Brand New, Completed March of 2006. Never lived in.
18′ vaulted ceilings
Upgraded tile and carpet throughout
Golf community
Walking distance to new elementary school
Stunning mountain views
Call for more info (480)678-8854
Someone else should call and ask if he has a bid for 308K why is it still for sale?
‘I have a couple that just bought a second home, a vacation home they never could have afforded, but on this program,’ said loan officer Ricky Catalano.
If you’re the couple in question, shouldn’t that be a major hint as to what sort of financial suicide you’re committing?
I have a vacation home for those whopping two weeks of vacation time I get yearly and rarely get to take, oddly enough it’s the one I live in day to day also.
Vacation home = Empty Money Pit.
A vacation home with a mortgage is just a money pit. A vacation home with an ARM is growing sinkhole. Vacation homes are fine. Just don’t factor in any investment aspect and know your carrying costs. In that scenario there’s no problem. Problem is that values most vacation homes at about 1/3rd their current selling prices.
My idea of a vacation home = Nice Little B&B Where Someone Else Does the Cooking, the Housecleaning and Pays the Mortgage
Vacation homes are almost always a big fat honkin’ waste of money IMO.
“never could have afforded”
Nice alligator…
This downturn is going to hit everywhere due to stupid purchase decisions like the example couple.
I have this picture of a hoard of alligators leaving from the bubble towns (Florida, Vegas, San Deigo, etc.) and that these beasts are going to go out and eat all of their “owners.”
Neil
“But this type of mortgage is still fairly new in Boise, and officials say it would only work in about six or seven places in the entire USA, and we’re one of them.” said loan officer Ricky Catalano
You’ve got to admit, he’s got us beat there since it’s already been confirmed by the “officials”. Boise really IS special!
Hey Huggy,
We all know that “it’s different” out there in Boise.
We, therefore, infer that Boise is pretty OK until the ARM resets occur in two years, some in less time. The number of FBs will rise again.
‘In this kind of appreciation world it still continues to be a good loan for a lot of people. It isn’t a loan for the weak or conservative because it is a very aggressive program,’ said Catalano.”
Good god. Is this the rhetoric used to sell these loans to GF’s now: “Don’t be a pussy”?
Reminds me of Enron’s Jeff Skilling infamously bragging: “We like risk” just before they imploded.
Second home bullshit , they are doing a flip and might become bagholders .
“It isn’t a loan for the weak or conservative”
Nor is it a loan for the smart and fiscally responsible person who sees what is actually driving prices. How many more idiot buyers can these guys flush out of the tall grass for a dose of buckshot in the ass ?
Ricky Catalano - the Dick Cheney of loan officers.
The Treasure Valley RE cheerleaders never quit! According to the local MLS, 1200 homes under construction are available for sale in the valley and over 700 homes that are “new and never occupied” are on the market- this is for a metro area of about half a million people. I don’t see how homes can continue to appreciate with this type of inventory hitting the market. Some of my pictures are posted on this blog in the gallery that show the number of for sale signs planted in new developments.
Is it just me? I click on the photos link and get nothing but a loading icon. Happens both in IE and Firefox. I have an o/w good DSL connection.
Scroll Down
“Also increasing, the rise in popularity of the option adjusted-rate mortgage, also called the pay option ARM. ‘I have a couple that just bought a second home, a vacation home they never could have afforded, but on this program,’ said loan officer Ricky Catalano.”
Time will show how misguided was this notion of the pay-option ARM as an “affordability” loan. The disconnect between the use of these financial time bombs to stretch the purchase budget of low-income buyers versus the official guidance that these loans are most appropriate for high earners whose income streams are subject to fluctuation leaves me flummoxed.
“If they are presented with the chance to buy a little nicer home people get ahead of themselves as to what they really can afford,”
Ah the sense of entitlement we have is astounding these days. Recent grads buying condo’s, couples buying McMansions for their 1 bedrooms worth of Ikea furniture, People signing their lives away without bothering to read the paperwork. But we Deserved it ! they cry as the BMW gets towed away and the foreclosure notice is filed. Are we going to go back to the good old days when Mr. Banker says NO you can’t afford this ? Try saving some money and then come back ?
Savings rate was negative in 2005 for the first time since the great depression. On balance people spend more than they earn. Median incomes have been dropping for years and home ownership is up? Housing became the default savings and ATM instrument.
Things look bleak going forward from here for the overall economy and the FBs…
The remaining minority of savers may ultimately learn why it would have been smart to just spend like there is no tomorrow if inflation returns to 1970’s double-digit levels. At that point, we bubbleheads will finally figure out why we should have bought a home, instead of waiting on the sidelines…
I read somewhere that the equity extraction game has, in a strange way, helped employers keep salaries from climbing. Their employees were in effect getting their $$$ from their homes and content to not job hop or otherwise press their employers for more $$$$$$. That game is over and now people will need to actually earn more $$$ to supplement their finances to make up for the absence of equity cash.
The prediction was wage pressures will drive inflation going forward…
What wage pressures? Outsourcing and insourcing (illegal immigration) have destroyed the bargaining position of the US worker.
Inflation going forward will be driven by growth in the money supply (as usual). And it won’t save nominal house prices, because wages won’t keep up.
GS,
I think that’s the “collective worry” around here. It’s also what drives many of us to hover around Ben’s Blog like a bunch of starving vultures. We want to know if the FBs will get bailed out at the expense of those (us) who aren’t kamikaze borrowers.
Interesting times…
Exactly. Nearly all my savings is in CDs right now. I hope and believe we will be entering a deflationary recession, but am ready to jump to gold bullion with significant evidence to the contrary.
That is one possible outcome.
I doubt that it is your conviction but nonetheless…
Please name one government that successfully hyperinflated and survived.
The US Government during the Civil War.
Ever heard the term “not worth a Continental.”?
Maybe that was the beginning, but it was pushing 150 years ago so these things can apparently last a great while.
Whoops, I realize what I said didn’t make any sense.
Fiat currency started in the Revolutionary War (”Continental Dollar”), was reinstated during the Civil War and continues today.
http://www.vectorsite.net/twmoney.html
“‘In this kind of appreciation world it still continues to be a good loan for a lot of people.”
Is that anything like Disney World?
If it were like Disney World, I’d skip Orlando and just go to my mortgage broker’s office! Yippee! But I think this fantasy would be more like Hallowe’en. A really bad, real-life Hallowe’en! Those aren’t masks, my unlucky and foolish friend!
“In this kind of appreciation world…” said loan officer Ricky Catalano
I always suspected that those who got hypnotized by the riches of RE lived in an alternate world. Hey Ricky, what color is the sky in your world?
Or better yet…Ricky, you got some ’splainin to do!
OT, I am finding listing in the LA are that are now selling for LESS (considering closing costs, etc) than what was paid. An example would be MLS #: P494348, bought in 2005 for 250K and is listed for 270K. This listing has been on the market for 132 days with TWO price reductions so far. Closing costs, a year of taxes, a year of HOA dues, and there is no way this person will make a profit.
This tells me that those who bought even a year ago could come out loosing money. So, the saying “well I bought a year or 2 ago, and will be okay” has just been tossed out the window.
50% off last years purchase price will be a place to start the negotiations, not even close yet.
Waitin’ for the REO inventory to get up to 400X where it is now before I get any interest level…
Good example of how the speculative motive for buying is history. Homes only make sense to buy now as a place to live in, and given a huge question mark over future price appreciation, plus relatively affordable rent, it is hard to fathom why it makes sense to buy at this point…
Don’t forget sliding wages & globalization, lack of SS/DB pension plans, screaming inflation in healthcare costs, etc. The argument can be made that there are a LOT of downward pressures on housing prices, irrespective of the credit bubble, IMHO.
I posted this one for weekend topics but it’s pretty germane for this one. Will leave others to comment.
http://biz.yahoo.com/ft/060623/fto062320060821484061.html?.v=1
Lenders set to launch the ‘five-minute mortgage’
Friday June 23, 8:05 am ET
A number of specialist mortgage lenders are drawing up plans for instant mortgage approvals that would give house hunters access to immediate mortgage offers without even requiring them to obtain a formal property valuation.
The move comes as strong growth in the availability of electronic information accelerates the process of securing finance on property purchases. Fierce competition among lenders is also driving greater product innovation as they seek new ways to attract business.
Lenders can now obtain comprehensive land registry information online that can help them estimate the value of certain properties without completing a professional valuation.
It is understood that at least two lenders could launch instant binding mortgage offers by the end of this year. They are expected to be open to borrowers going through a mortgage broker.
The new service could mean that home buyers are able to secure an unconditional loan in a matter of minutes rather than the typical one or two-week time frame they currently face.
…some property experts have voiced concerns over these unconditional offers. Melanie Bien at Savills Private Finance, says: ‘They do look extremely risky. Lenders want evidence that the property is worth what is borrowed and without this they could end up with their fingers being burnt.’
But for many house buyers the instant offers could give protection against being gazumped or held up by inefficient property chains.
ENDQUOTE
More and more talk of a (possible) .50 pt increase next week … To many, this was unthinkable two months ago ………….
The market has priced in a 10% chance for a 50 basis point increase.
100% chance for a 25 point increase…
http://money.cnn.com/2006/06/23/news/economy/fed_walkup/index.htm
Its the top money.cnn article if the long url doesn’t work.
Beat me to this one!! Can you believe it?? They are really getting despirate! I am scared to death about the impending blow up and am paying off bills as fast as I can! No DEBT! And save as much $$ as possible. There will come a day when cash is again king!
Wow, that is sweet. Soon, you should be able to just use a website to add properties to your checkout cart a la Amazon, and with one click the seller gets a credit to his account and you can print the title deed as a PDF, with auto deductions from your account.
As stupid as this instant mortgage idea sounds, it just shows one more set of pressures on employees of the mortgage industry-it is so ripe for automation and outsourcing. It is not only a shrinking pie in terms of total value, but fewer people are needed to eat it..ok I guess the metaphor is a little shaky
On a positive note it gives great support to the idea that RE agents are anything but value added to the transaction which is often posted here.
If a mortgage can be put in place with a five minute due dilgence review - what is the point of paying a commission to a RE agent for a property that a person can post up/pull down himself from the MLS?
“The five-minute mortgage”
If you can literally get a mortgage for a McMansion in the same amount of time as an actual Big Mac, then the end times must surely be near.
Kinda gives new meaning to the name “Grimace”
Yes, this point has been made before, mortgage lenders and realtors will go the way of the travel agent within a decade. Back when the SABRE (sp?) system was accessible only to agents, they made money coming and going-from the airlines on each ticket, and often from the buyers who would pay them a fee to put a trip together. Once airlines got their own websites going and things like travelocity got running, it became not only possible but actually easier to book your own travel because you could see all flights, shop and compare, etc. There still are some travel agents, but most of these are at the high end specialty trips (arranging exotic trips) or some corporate accounts. Think how many travel agencies used to be around your town 10+ years ago-probably as many mortgage lenders and re offices as now. This number has been drastically slashed, and those that still exist have gotten rid of most of their staff. Why is it taking so long for RE and lending? Probably fear factor-people believe that a realtor can keep them from making a big financial mistake, and a good, ethical one probably could, but at least half of these people are flunkies whose own self interest (getting the client into or out of a house, any house, to get their commission) is their main motivator. Same with most of the lenders. Once the software tools get out there and accepted (zillow.com is awesome and has potential to do so much more) the same thing should happen. Already anyone can meet or beat the average mortgage lender by going to lending tree or direct to bank websites-if these banks shave just a bit more off to go direct, then that is a big factor. You can do an appraisal online with zillow-if they can somehow get this to be a certified appraisal by partnering with some appraisal company that does a quick look inside, they could potentially allow this to become more automated. We see the rise of the discount brokers, and more and more people doing FSBO through things like craigslist. Hopefully, we are in the early-adopter phase of this, and soon RE and MBs will go the way of the travel agent-a few good specialists still earning a living on unusual or high end properties, but most people doing the work themselves.
I think it would be perfectly reasonble to pay a real estate agent $500 or so as a sort of consultant for a transaction, in effect collecting and reviewing disclosures and that sort of thing.
I like my real estate agent and all, but there was no need for her to pick me up and bring me to the showings every few Sundays, during the height of the bubble. But she did do a great job of reviewing disclosures for me– which at least one time stopped me from buying a place that was once a perfectly nice condo but converted into an unlivable showpiece–she showed me how they had removed all closet and storage space to add an extra bedroom and bathroom– and some other sucker ended up paying more than a million for it.
So RE agents (neither I, no she, uses the term “realtor”) do have their place, and they are more necessary than travel agents, but not 3% of a million bucks.
Works for me!
The ‘old’ process is too slow. It should take 1-2 business days, not weeks.
1-2 days is fine, if the buyer pays 20% down and brings to the table good documentation of steady employment sufficient to cover the mortgage payment and then some.
1-2 business days is fine, IF the borrower puts 20% of the loan on the table, and provides bank statements and pay stubs showing reliable income well in excess of the monthly cost of the mortgage.
SF…If they are a flipper they have to put 30% down .When people go under they always give up the investment house first .
How can any of us get quoted for one of these subprime I/O or flex ARM articles? __________ from TheHousingBubbleBlog.com stated “This type of financing is not something anyone with a brain would procure”
Yeah… LOL.
No doubt it will be known as Sunken Treasure Valley in a year or two.
Nothing says GTFON like a Reamtor™ telling you that “they couldn’t afford these homes without aggressive toxic lending programs.”
Buyer beware.
Txchick,
I think there are more listings in Scottsdale.
So how have you liked the Tucson spring?
I live in Scottsdale and I can tell you it seems like every block has 3-5 for sale signs on it. Properties here are sitting for months and months.
There may be “hard time” ahead for this particular bunch of operators in the sub-sub-prime market:
St. Louis housing scam
If this kind of thing is going on in St. Louis, which has relatively small Hispanic and immigrant populations, one can only imagine the scale of similar operations in the border states.
This could explain how the price of scrapers in South-Central Los Angeles went over $400,000.
I have a feeling that we’re going to hear of a lot more stories like this one.
‘I have a couple that just bought a second home, a vacation home they never could have afforded, but on this (Option ARM) program’
This sounds like a classic f%*ked borrower. Probably so bent on being able to brag to friends about their ‘vacation’ home.
ANd what’s with these realtors and brokers who think their area is so special. Places like Boise, Bend, Medford, and any other small-town bubble zone will become ghost towns in a couple years.
Morons who bought a vacation house on a screwed loan like that will spend all their waking hours working in order to pay it off. Or at least pay the interest, because I am sure their friendly neighorhood lender is a lender for life. New spin on indntured servitude.
The prices for houses in those areas might go down, but they’re a long time away from being ghost towns; Bend in particular.
I meant ghost towns for real estate investors/flippers. People will go back to buying houses to ‘live’ in them again.
Can i make a suggestion? Some of the acronyms on here are a little tough to follow so can we put a legend somewhere-
I get BH=Bagholder
FB=F***ed buyer
but what is GTFON?
Get the heck out now.
GTFON is what you hear when you are playing a weak hand.
East-West Mortgage is now peddlin’ fixed rates to the ARM holders.
What, you signed on to an ARM? (which they probably originated in the first place)…Tsk…tsk…well dig deep again for some more closing costs $$$$ and we’ll set you right up…
With the declines in value taking place all over the country, somebody’s gonna have to step up to the plate and cover the number short-fall’s with bogus appraisal reports.
The lynch-pins for these mortgage conversion deals will be the legions of inept, crooked appraisers out there who are currently starving to death because of the collapse of the re-fi business.
Again, the corrupt to the rescue for the mortgage O vultures.
HD,
Yes. There are lots of commercials now (in SD) where they try to strike fear into the hearts of ARM holders. “Is your ARM a ticking time bomb waiting to explode? We can help get you into a FRM fast…” No doubt, these are the same lenders who were touting ARMs and neg-ams as “advanced loan products for savvy buyers.”
When you think that we might end up in a very bad recession/depression largely because of these guys (I blame the lenders more than the FBs), it would be too kind send them to jail for the rest of their lives.
the subprime lenders are still selling every kind of high risk paer you can imagine,sisa,nina,50%plus dti,and i think the majority of them will be out of busines within a couple of years…rates are already in the double digits for some products…which is nice until you look at the risk.they actually sell this crap to investors…..it’s like saying “ooooh,i’ll rent to that nice gypsy family,they are offering 3 times the normal rent!” this paper is as risky as riding a harley with bald tires in a snowstorm,while drunk.
Subprime seems to have accelerated in SoCal. More and more “Cash Call” type ads offering loans for a signature, or payday loans at outrageous rates.
Is it my imagination? Didn’t we used to have usury laws? Or do we just no longer care if the poor and uninformed, or those “down on their luck” (try medical bills and being a citizen) have their financial lives taken away?
This may be of interest to readers.
Anderson, the same Anderson, as in UCLA’s Anderson School of Business, made his fortune in “sub prime” lending auto buyers, and through buying investment real estate, from reports I received.
Anyone have any confirmation of this info?
robin worte:
Didn’t we used to have usury laws?
I think we do have usury laws of some type. I am not clear what they are. They highest interest rates I have heard of, recently, is in the 30% range, for credit cards. That does not include the additional fees that the credit card companies can tack on for late payments, and administration, or whatever else they can come up with. And if the loan is backed by collateral, they can repossess the item. Then they double win, High interest reterns, plus they get the item back.
Those check cashing places are do a dis-service to communities. Those communities would be served better, IMHO, if they had a proper bank or credit union that provided a place for people in the local community to cash a check, get a money order, wire money, etc. People that are using those “check cashing” places are further draining thier limited resources, by paying the high fees that those companies charge. And sometimes, those places are the only option for local residents to cashe a check or to get a money order, unfortunately.
North Carolina has spent several years trying to shut down “payday lending”. They appeared to have succeeded early this year, but now the PayDayers just direct their clients to internet portals using out-of-state licensed banks.