Sorry to go off topic on the first comment, but there it is . . . NEW has an interesting release today:
Irvine, Calif., February 7, 2007, New Century Financial Corporation (NYSE: NEW), a real estate investment trust (REIT), today announced that it will restate its consolidated financial results for the quarters ended March 31, June 30 and September 30, 2006 to correct errors the company discovered in its application of generally accepted accounting principles regarding the companys allowance for loan repurchase losses.
The company establishes an allowance for repurchase losses on loans sold, which is a reserve for expenses and losses that may be incurred by the company due to the potential repurchase of loans resulting from early-payment defaults by the underlying borrowers or based on alleged violations of representations and warranties in connection with the sale of these loans. When the company repurchases loans, it adds the repurchased loans to its balance sheet as mortgage loans held for sale at their estimated fair values, and reduces the repurchase reserve by the amount the repurchase prices exceed the fair values. During the second and third quarters of 2006, the companys accounting policies incorrectly applied Statement of Financial Accounting Standards No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. Specifically, the company did not include the expected discount upon disposition of loans when estimating its allowance for loan repurchase losses.
In addition, the companys methodology for estimating the volume of repurchase claims to be included in the repurchase reserve calculation did not properly consider, in each of the first three quarters of 2006, the growing volume of repurchase claims outstanding that resulted from the increasing pace of repurchase requests that occurred in 2006, compounded by the increasing length of time between the whole loan sales and the receipt and processing of the repurchase request.
Importantly, the foregoing adjustments are generally non-cash in nature. Moreover, the company had cash and liquidity in excess of $350 million at December 31, 2006.
Although the companys full review of the legal, accounting and tax impact of the restatements is ongoing, at this time the company expects that, once restated, its net earnings for each of the first three quarters of 2006 will be reduced.
Merrill Lynch has warned of a global credit crunch as central banks in Europe and Asia tighten monetary policy, advising clients to shun risk and switch to safer assets over the forthcoming months.
Upward of 25 percent of the buyers during this run-up were investors or speculators. Add to this mix the commuter buyers who were coming from more expensive areas to the west and south. All of this was fueled by low interest rates and up to 100 percent financing.
Will prices fall? Yes. How much depends upon the local area, and where supportable demand levels exist. It is my estimate that the Inland Empire Region will experience 25 percent to 50 percent price declines during the cycle we are now in.
In Redlands 92373 ZIP code, prices started to decline in March 2006. Calculate the change between March and January 2007 and you get a little more than 10 percent. Where will the trend line go in the future? Downward for a while, maybe two to three years, then it will level off.
How much will prices decline in 92373? If the average price change was 1 percent per month but the most recent months were higher, what would you project? Probably more than 12 percent this year, maybe less than that in 2008, say 8 percent and maybe 5 percent in 2009.
Bear in mind too that all of these sales numbers include any concessions or cash-back that might be in many transactions.
I keep wondering if those making predictions about future house prices are using past housing recessions as a model?
I think there will be areas that have 50 percent or great price declines over 3-4 years especially in real dollar terms if inflation stays at 3 percent plus or minus .5 percent.
Except they aren't they just have to appear to be while ensuring that the easy credit gravy train is still in effect.
They could have reduced their whole press release down to the one point they were trying to make:
""Real estate professionals have a strong stake in preventing predatory
lending," said Combs. "We have to make sure that while addressing predatory lending, the legislative and regulatory responses to lending abuses do not go too far and inadvertently limit the availability of reasonable credit for prime as well as subprime borrowers.""
The increasing industry trend of early-payment defaults and, consequently, loan repurchases intensified in the fourth quarter of 2006. The company continued to observe this increased trend in its early-payment default experience in the fourth quarter, and the volume of repurchased loans and repurchase claims remains high.
In addition, the company currently expects to record a fair value adjustment to its residual interests to reflect revised prepayment, loss and discount rate assumptions with respect to the loans underlying these residual interests, based on indicative market data. While the company is still determining the magnitude of these adjustments to its fourth quarter 2006 results, the company expects the combined impact of the foregoing to result in a net loss for that period.
No questions will be taken, and they're spending the first 15 minutes reading the PR. They better say something important at the end of this; I could be listening to the Beach Boys.
I should have been listening to the Beach Boys. After reading the PR, Mr. Brad Morrice said: "I ask for your patience in allowing us to continue our review and file our 10K s soon as possible . . . will be back to you with more information as soon as we can."
Someone at city data today looking to exit Southern California- interesting read.
My husband and I are faced with the Big Decision of relocating to CT or staying in SoCal. We love the weather here and we pay through the nose for our 3100 sq ft home on a 3/4 acre lot. His commission has taken a great hit with the slow down of the housing market. We were offered positions and the first year pay would be the same for me 65K per year, his would be cut in 1/2 - 120K to 60K. He has the potential of second year to go back to his normal wage, it's kind of his first year trial. Can we live comfortably on 125K per year there? I'm from the Midwest originally, he has lived most of his life in SoCal. I've ran a cost analysis but numbers are numbers and I'd rather hear it from someone that has been there. Any help? Oh, the jobs would be N. Branford, but we would rather drive from a small town.
go to zillow.com and type in your address. click on it, and look at the 1 year graph for your price trend. Then select the little box that lets you graph U.S. appreciation. According to zillow, U.S. prices fell 3% IN JANUARY. That's not 3% on an annualized basis, that's 3% in the last month.
While I maintain some healthy skepticism towards zillow, I don't think it's way off. And one important difference to note between zillow and things like the OFHEO index, is zillow calculates a price for every house based on the trends in its locale, while OFHEO, or Case-Shiller, or the other common indices, only report trends for the prices of properties that sell. Zillow uses a similar procedure, but weights it differently, and gets a much starker answer. I'm willing to bet that, as sales eventually happen in areas where sales are now depressed, the more commonly quoted indices will look more like zillow's. In other words, I think in large swathes of the country, price drops have already occurred, but there are so few sales that the major indices haven't captured them yet. Without a major turnaround, I think price drops of maybe 5% are already "in the bag" and will gradually feed through into the indices. With builders slashing prices on new homes, and with land prices, copper prices, lumber prices, all falling (so that builders will continue to build at lower prices) how could it be otherwise?
I'm originally from Conn; Salem to be exact. Its a whole different world; you should be able to get a nice spread for 300k. 400 tops! People complain about traffic on 95, notice there is no "the" in front of highways as they do not take on a persona all their own, but it will be a lovely drive compared to SoCal. Stay away from areas west of Branford, prices rise rapidly as you approach Stanford county. Try Durham or Killingworth, real country living, if you're in to that...
I have a question for you. I am an avid reader and occasionaly source some of your blogs because its good stuff, so first let me say thanks. Secondly seeing the news recently by HSBC and New Century only makes me feel like the tide is slowly changing a bit more to the negative and soon we will see the credit crunch escalating from the sub prime endeavors over the last 2 years. I am selling my home in an area, Oak Park, IL primarily because I want more house for less money, and I want to free up a cash position from my equity. I can sell mine, without a problem but Naperville is having alot and I mean alot of 90 day listing and price changes everywhere. Do you feel that I would be in a better position trying to extend my close into May or June so that a possible slide in prices may be seen in my buying price or do you feel that if I can sell, I will have the upper hand in the offering strategy. I dont want to buy in March and then prices slide in June and I may be out 2% on the price which is not alot. any comment my readers want to know???
The real estate industry has once again plundered and pillaged, leaving destruction in it's path, a destruction which is exponentially larger than the last one (S&L crisis).
The real estate appraisal industry must be completely dismantled, because it was engineered to grease the skids for the mortgage industry.
Only automation will guarantee fair, unbiased property valuation.
Real estate "Professionals" have no economic-consciousness and as the FBI has adequately described the industry, it is organized crime.
Sorry to go off topic on the first comment, but there it is . . . NEW has an interesting release today:
Irvine, Calif., February 7, 2007, New Century Financial Corporation (NYSE: NEW), a real estate investment trust (REIT), today announced that it will restate its consolidated financial results for the quarters ended March 31, June 30 and September 30, 2006 to correct errors the company discovered in its application of generally accepted accounting principles regarding the companys allowance for loan repurchase losses.
The company establishes an allowance for repurchase losses on loans sold, which is a reserve for expenses and losses that may be incurred by the company due to the potential repurchase of loans resulting from early-payment defaults by the underlying borrowers or based on alleged violations of representations and warranties in connection with the sale of these loans. When the company repurchases loans, it adds the repurchased loans to its balance sheet as mortgage loans held for sale at their estimated fair values, and reduces the repurchase reserve by the amount the repurchase prices exceed the fair values. During the second and third quarters of 2006, the companys accounting policies incorrectly applied Statement of Financial Accounting Standards No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities. Specifically, the company did not include the expected discount upon disposition of loans when estimating its allowance for loan repurchase losses.
In addition, the companys methodology for estimating the volume of repurchase claims to be included in the repurchase reserve calculation did not properly consider, in each of the first three quarters of 2006, the growing volume of repurchase claims outstanding that resulted from the increasing pace of repurchase requests that occurred in 2006, compounded by the increasing length of time between the whole loan sales and the receipt and processing of the repurchase request.
Importantly, the foregoing adjustments are generally non-cash in nature. Moreover, the company had cash and liquidity in excess of $350 million at December 31, 2006.
Although the companys full review of the legal, accounting and tax impact of the restatements is ongoing, at this time the company expects that, once restated, its net earnings for each of the first three quarters of 2006 will be reduced.
Symbol Lookup - MarketWatch
I expect house prices to fall until the cap rate is normalized compared to other investments and their risks.
Merrill Lynch has warned of a global credit crunch as central banks in Europe and Asia tighten monetary policy, advising clients to shun risk and switch to safer assets over the forthcoming months.
Daily Telegraph
Upward of 25 percent of the buyers during this run-up were investors or speculators. Add to this mix the commuter buyers who were coming from more expensive areas to the west and south. All of this was fueled by low interest rates and up to 100 percent financing.
Will prices fall? Yes. How much depends upon the local area, and where supportable demand levels exist. It is my estimate that the Inland Empire Region will experience 25 percent to 50 percent price declines during the cycle we are now in.
In Redlands 92373 ZIP code, prices started to decline in March 2006. Calculate the change between March and January 2007 and you get a little more than 10 percent. Where will the trend line go in the future? Downward for a while, maybe two to three years, then it will level off.
How much will prices decline in 92373? If the average price change was 1 percent per month but the most recent months were higher, what would you project? Probably more than 12 percent this year, maybe less than that in 2008, say 8 percent and maybe 5 percent in 2009.
Bear in mind too that all of these sales numbers include any concessions or cash-back that might be in many transactions.
From The Housing Bubble Blog
today under redlands.
I keep wondering if those making predictions about future house prices are using past housing recessions as a model?
I think there will be areas that have 50 percent or great price declines over 3-4 years especially in real dollar terms if inflation stays at 3 percent plus or minus .5 percent.
What say ye?
Realtors(r) Seek to Protect Home Buyers From Predatory Lending and Educate
Realtors are against predatory lending!*
They could have reduced their whole press release down to the one point they were trying to make:
""Real estate professionals have a strong stake in preventing predatory
lending," said Combs. "We have to make sure that while addressing predatory lending, the legislative and regulatory responses to lending abuses do not go too far and inadvertently limit the availability of reasonable credit for prime as well as subprime borrowers.""
I have a question relating to Mr. Watts' remarks - is this just an ordinary prediction, or is 7% "in the bag?"
Tanta, re:NEW. Wow! Here are the Q4 comments:
Fourth Quarter 2006 Developments
The increasing industry trend of early-payment defaults and, consequently, loan repurchases intensified in the fourth quarter of 2006. The company continued to observe this increased trend in its early-payment default experience in the fourth quarter, and the volume of repurchased loans and repurchase claims remains high.
In addition, the company currently expects to record a fair value adjustment to its residual interests to reflect revised prepayment, loss and discount rate assumptions with respect to the loans underlying these residual interests, based on indicative market data. While the company is still determining the magnitude of these adjustments to its fourth quarter 2006 results, the company expects the combined impact of the foregoing to result in a net loss for that period.
Best Wishes.
Breaking news on New Century (NEW). Restating past 3 quarters of earnings and reporting an unexpected loss in Q4. Full report is tomorrow.
Expired
CR, NEW's webcast starts in five minutes. I think I'll have to listen to this one . . .
404 Not Found
Tanta, let us know what they say. Ouch, I wouldn't want to be answering the questions today.
Best Wishes.
CR, if I were answering I would follow every answer with tap, shuffle, ball, change.
No questions will be taken, and they're spending the first 15 minutes reading the PR. They better say something important at the end of this; I could be listening to the Beach Boys.
I should have been listening to the Beach Boys. After reading the PR, Mr. Brad Morrice said: "I ask for your patience in allowing us to continue our review and file our 10K s soon as possible . . . will be back to you with more information as soon as we can."
That's all, folks. I get more help from Rhonda.
The stock is going to get crushed tomorrow.
Someone at city data today looking to exit Southern California- interesting read.
My husband and I are faced with the Big Decision of relocating to CT or staying in SoCal. We love the weather here and we pay through the nose for our 3100 sq ft home on a 3/4 acre lot. His commission has taken a great hit with the slow down of the housing market. We were offered positions and the first year pay would be the same for me 65K per year, his would be cut in 1/2 - 120K to 60K. He has the potential of second year to go back to his normal wage, it's kind of his first year trial. Can we live comfortably on 125K per year there? I'm from the Midwest originally, he has lived most of his life in SoCal. I've ran a cost analysis but numbers are numbers and I'd rather hear it from someone that has been there. Any help? Oh, the jobs would be N. Branford, but we would rather drive from a small town.
go to zillow.com and type in your address. click on it, and look at the 1 year graph for your price trend. Then select the little box that lets you graph U.S. appreciation. According to zillow, U.S. prices fell 3% IN JANUARY. That's not 3% on an annualized basis, that's 3% in the last month.
While I maintain some healthy skepticism towards zillow, I don't think it's way off. And one important difference to note between zillow and things like the OFHEO index, is zillow calculates a price for every house based on the trends in its locale, while OFHEO, or Case-Shiller, or the other common indices, only report trends for the prices of properties that sell. Zillow uses a similar procedure, but weights it differently, and gets a much starker answer. I'm willing to bet that, as sales eventually happen in areas where sales are now depressed, the more commonly quoted indices will look more like zillow's. In other words, I think in large swathes of the country, price drops have already occurred, but there are so few sales that the major indices haven't captured them yet. Without a major turnaround, I think price drops of maybe 5% are already "in the bag" and will gradually feed through into the indices. With builders slashing prices on new homes, and with land prices, copper prices, lumber prices, all falling (so that builders will continue to build at lower prices) how could it be otherwise?
Skytrekker,
I'm originally from Conn; Salem to be exact. Its a whole different world; you should be able to get a nice spread for 300k. 400 tops! People complain about traffic on 95, notice there is no "the" in front of highways as they do not take on a persona all their own, but it will be a lovely drive compared to SoCal. Stay away from areas west of Branford, prices rise rapidly as you approach Stanford county. Try Durham or Killingworth, real country living, if you're in to that...
Good luck!
David Berson, chief economist for Fannie Mae. "We're going to see a much bigger drop in investor demand this year"
Just visionary if he said this in February 2006.
I have a question for you. I am an avid reader and occasionaly source some of your blogs because its good stuff, so first let me say thanks. Secondly seeing the news recently by HSBC and New Century only makes me feel like the tide is slowly changing a bit more to the negative and soon we will see the credit crunch escalating from the sub prime endeavors over the last 2 years. I am selling my home in an area, Oak Park, IL primarily because I want more house for less money, and I want to free up a cash position from my equity. I can sell mine, without a problem but Naperville is having alot and I mean alot of 90 day listing and price changes everywhere. Do you feel that I would be in a better position trying to extend my close into May or June so that a possible slide in prices may be seen in my buying price or do you feel that if I can sell, I will have the upper hand in the offering strategy. I dont want to buy in March and then prices slide in June and I may be out 2% on the price which is not alot. any comment my readers want to know???
The real estate industry has once again plundered and pillaged, leaving destruction in it's path, a destruction which is exponentially larger than the last one (S&L crisis).
The real estate appraisal industry must be completely dismantled, because it was engineered to grease the skids for the mortgage industry.
Only automation will guarantee fair, unbiased property valuation.
Real estate "Professionals" have no economic-consciousness and as the FBI has adequately described the industry, it is organized crime.