Shopping at Amazon?
Wait! If you click on the Amazon banner link at the top of the page first, HCN will get a percentage of anything you purchase for 24 hours!
Open predictions
Our local book authors
User login
Who's online
There are currently 13 members and 169 guests online.
Tanta,
so the probelm is still there ?
my latest count on the grape vine there are over a 1000 requets 50% re-fi 50% purchase....most are 95%, 100 LTV....
Yal, I do want to say, as an industry old fart (take that for what it's worth), that you want to be careful about using broker website "scenarios" as a measure of industry guidelines.
This is because, in my view, those sites represent the laziest, least experienced, and least informed segment of the broker community. I am not basing this judgement on the quality of the posts (although that's not inconsistent with my thesis). It's that more experienced and informed brokers already know the answer to those questions, either because they read the guidelines that their wholesalers send them, or they just pick up the phone and call an AE they already have a relationship with to discuss an odd deal.
What they don't do is go directly to the web to throw out a scenario, anonymously, and hope some wholesaler who trawls the web will see it and respond. Yes, the web has increased certain market-making abilities, but when you get to the point where those potential borrowers could have posted the same request, you begin to challenge the concept of the "broker."
In other words, I take the broker boards about as seriously as I do FSBO sites and other on-line flea markets. It may tell you something about what the most marginal market participants are up to, but that's all it tells you.
I know. It tells me that the most marginal market participants are still there participating.
It stopped for few weeks in March but now resumed (maybe at ahigher rates) but other than the extreme low end of the FICO it seems the sub prime and crazy money is still there.
On the other hand there are many more "hard money" requets there so maybe some requests are not answered any more by the usual suspctes and they have to look for "hard money"
all together the funny money is still there.
John Crudele, NY POST Business
May 15, 2007 -- MY request for information about the actions of the secretive Working Group on Financial Markets at the Treasury Department "seems to have fallen through the cracks," according to the wording of an internal government document I just got my hands on.
That document, dated April 5, 2007, indicates that the Treasury's Disclosure Services division spent quite a lot of time discussing the request I made last summer under the government's Freedom of Information Act.
In fact, "Spotlight on New York Post FOIA Request" is the final issue on a seven-item agenda. And the 13-page PowerPoint presentation titled "Bottom Line" devotes a page and a half to The Post's request.
One of the "lessons learned and the way ahead," according to this presentation, is to "process and respond to Mr. Crudele's requests ASAP."
It's now more than a month since that meeting and I still haven't received documents or even an official letter. I guess ASAP might mean something other than "as soon as possible" in government lingo - perhaps "as soon as pigsfly."
For those of you who haven't been following this saga, let me fill you in.
Back when Goldman Sachs Chairman Henry Paulson took over as Treasury secretary nearly a year ago, I did a multi-column investigation of the Working Group on Financial Markets, which is also endearingly nicknamed the Plunge Protection Team.
As far as I can tell, variations of the group have been in existence since the late 1980s. The PPT operates in that shadowy space between the government's desire to keep the market safe for national security reasons and Wall Street's desire to keep prices up for selfish reasons.
Other newspapers have since reported that - unlike his predecessors - Paulson calls frequent meetings of the Plunge Protection Team, which now seems to include Wall Street big shots as well as top officials such as Federal Reserve Chairman Ben Bernanke and New York Stock Exchange Chairman John Thain.
It's nice that all these folks have time to get together. And it is wonderful that the naive media think these meetings of government and finance brains are innocent. But I'm suspicious.
Of what?
I believe the Plunge Protection Team has emergency powers to protect the stock market if the situation warrants it. (Incidentally, I wholly support such action.)
Personal Finance Columnist | Advice | John Crudele - NYPOST.com
Tanta, thanks so much for this. I noticed this yesterday and just about jumped out of my skin.
The reason for the pullback on on the lines is that the I-banks finally caught on that the loans were/are just downright fraudulent. There is NOTHING behind these loans.
We look at these loans everyday and you can't spit without hitting a loan with blatent misrep. No amount of long-term financing would save these companies; it just would have given us a better chance to put them in jail. It's an absolute crime the amount of wealth destruction that has taken place and will continue to take place in our country. The analysts should be in the cell next to them.
Thanks, JoeMortgage. I find myself wondering when the concept of "overcapacity" is going to catch on with the analysts in some way other than "merger opportunity." I mean, why exactly is it such a problem to think that bankruptcy court isn't such a bad place for overcapacity to end up?
Every time I see somebody talking about these oufits trying to sell their orignation operations, I think, what possible value could those things have? Why would anyone try to pretend they have any? What incredible bong-water.
Thanks rubberband. I was going to compose a post regarding the development of the Alaskan and Canadian tundra and resultant decline of the polar bear habitat. But then I said to myself "This is a real estate blog".
Well, lama, you know we do try not to be just a "real estate blog." At least, CR tries. I do nothing but fail most of the time, although I did get a car post in a couple of days ago. "One trick pony" my ass.
I do however like to think we're a "real economy" blog. I suspect this requires the occasional participation in the comments of the "shadow economy" enthusiasts. Yeah, we could get humorless and say that's "off topic," but if you are of a certain class of conpiracist, there is no other topic. There are simply subjects needing to be changed. If all you have is a hammer, there goes the drywall.
Morningstar, Value Line: the idea that sales/earnings aren't linear wrecks their DCF analysis.
Besides, putting a sell on NEW would require a backbone.
Good Lord!!!! I can't believe that they would write such a thing. Paraphrased it amounts to "We're total amateurs, we didn't bother to ask any questions, and we didn't bother to read the debt covenants. Golly Gee, who'd a thunk?"
"But this active market of risk-assuming investors most likely loosened underwriting standards, compounding the problem when the real estate market slowed, and early payment defaults--individuals missing one of their first mortgage payments--soared.
Virtually no one sells a house the month after they bought it; early payment defaults can only come from no verification - such a ridiculous concept that no one else has ever tried to lend a billion or so on those terms. It's got nothing to do with slowing appreciation. This is the worst load of mortgage-related garbage I've ever seen - and believe me, I've seen some real doozies. I've got the due diligence letters to prove it.
I'm agreeing with JoeMortgage. There are a lot of people who contributed to this, and some of the main players are those who rated bonds and companies without regard to risk.
It's not as if the mortgage industry had no history. It's not as if they didn't or couldn't have known that people were getting loans without verification of income or assets, or ability to repay. What did they think was going to happen?
I still think there are going to be a lot of eventual lawsuits against ratings firms. To put this in non-industry speak, the article cited is equivalent to a mechanic explaining to you that he didn't bother to check if there was water in your radiator after he changed your radiator hoses because your car had never overheated before.
Then, after writing that awesome farago of nonsense, they go on to recommend a few more companies? Man, I would not be very happy if I were a CEO of one of those firms.
I see this as part of the emerging story line that, see, we're just a bunch of innocent American Dreamers® who got screwed without a kiss by those evil money boyz on Wall Street who took away the punch bowl just when the party really needed to be hopping.
Nobody has more contempt for the IBs than I do, but to think that their pet subrpime REITs were worth anything in the absence of IB warehouse funding is a major hoot.
Plus, it's just too funny in the context of mortgage lending, specifically, to trot out the old "how could they have been overdrawn when they had checks left?" argument.
ok, ok, I'll stop being the topic Nazi....but I reserve the right to include tax implications in future posts, even though I've noticed that my tax posts are always ignored.
Bernanke Promises Fed Crackdown on Abusive Mortgage Lending Practices
Expired
What I'm hearing is "well, of course it was a ponzi scheme... aren't they all?"
I have been amazed by the incompetence,and the reckless regard of lenders and rating agencies since i first got involved in Real Estate as a loan Broker in early '05.In the first week i had the AE for a major portfolio lender tell me in so many words that he would help me falsify the income of borrowers to "make it work".at the same time the median home price was 12x the median income for my county,and GRM's were running close to 600 for 15 year old tract homes in ok neighborhoods.If an "analyst" with a fancy degree cannot do simple math,or apply the kind of logic my 6 year old uses daily they deserve to have their ass sued,and a good long time having bubba teach them the arts of love.pissonem.on second thought don't,even if they are afire.
Does anyone know why Ditech still (this morning) has commercials on TV offering loans of "up to 125% of your home's value." ??
Is that a bait and switch, or are they still making such loans to high FICO borrowers?
The analysts aren't the only ones confused. According to CNNMoney's headlines, "No spillover from mortgage woes - Bernanke" followed in the article by: "A rash of mortgage delinquencies is not expected to derail the broader economy ... Bernanke said Thursday" and "Bernanke said the cooling of the housing market has been 'an important source' of the slowdown in the economy." Huh? I guess a lot can change in 4 paragraphs...
lama, I read your tax posts. Who cares what these other people want to read?
About our Ditech friends . . .
Ditech.com was founded in 1995 to capitalize on the unmet need in the mortgage industry for faster, easier access to mortgage loans. Recognizing that the traditional mortgage brokerage model was not meeting consumers' needs, ditech.com's business model allowed consumers to get mortgages directly through a lender rather than relying on an intermediary like a mortgage broker. Simultaneously, the Internet was gaining popularity and consumers were finally accepting it as both a research and purchasing tool. Through this "Di"rect model, which utilized "Tech"nology, "DiTech" was born.
Ditech.com's strategy focused on providing a select group of products that appeal to a wide range of borrowers. By offering fewer products and avoiding niche offerings, ditech.com was able to streamline its operations to keep costs and application delays to a minimum. Ditech.com also worked to elevate the brand via an aggressive advertising strategy, which initially began in California with billboard and television advertisements.
GMAC acquired ditech.com in 1999.This marked the beginning of significant growth for ditech.com's business. GMAC infused ditech.com with capital, introduced new products, improved the service and technology infrastructures and increased advertising expenditures ten-fold by launching a noteworthy national advertising campaign and NASCAR sponsorship. All of this contributed to making ditech.com one of the most recognized names in the mortgage industry.
The success of GMAC's efforts is best evidenced by the rapid growth in ditech.com's business. Since 1999, ditech.com's funding volume has grown 290% and funding dollar volume has grown 283%. Capitalizing on GMAC's reputation and mortgage experience, ditech.com continues to successfully identify consumer needs and create products to address them.
Ditech.com was among the first to introduce flat-fee lender programs. These products have enjoyed tremendous success because they alleviate anxiety that consumers have about hidden lending fees at the closing table. In a mere eighteen months, more than 30,000 customers signed up for the $395 flat-fee program. As ditech.com continues to grow, it remains committed to broadening its customer base and appealing to the different needs of this increasingly diverse group.
One thing I love about my business is the increasingly diverse group of customers who all want the same flat-fee program. In any case, do you expect a lender owned--at least in part, these days--to blanch at a 125% home loan? Seen the car loans lately?
I find the NEW story highly analogous of the current stock market as a whole... despite ridiculous valuations, everybody will rank it as 5-star even as it eventually collapses from a sudden disappearance of financing. Given that Sebastian touted NEW before and the stock market now, it certainly fits.
At least Morningstar tries - they're not all out shills, even if they lack talent (if they had talent they'd be running a mult-billion dollar hedge fund).
They have low ratings on a lot of the emerging market stocks which they suggest are risky and overvalued. So they have some sense.
Then again emerging markets have been going up lately. A lot.
Speaking of taxes, CAN you deduct interest on 125% loans on your taxes? Sounds fishy and unlikely to me. I'm betting that somewhere in the tax code there's a prohibition in the tax code about deducting interest due on loan amounts greater than your basis. It's not like nobody though of pulling poo like that before, it's that only obvious crooks tried.
If the loan is secured by the home, the interest is deductible.
I think it's unfair to accountants that the IRS makes this law so simple. We need to eat too!
Capn', the sarcasmatron can't take any more, she's gonna blow!
Regards Bernanke. It isn't the rocks you can see that a good captain worries about. Bernanke's error is in assuming that those "still performing well" mortgages will behave as they had in the past. That behavior was predicated on borrowers having skin in the game." This time IS different. These people with 0% down are not going to tough it out for a few years to get back to zero unlike people in 1990 who toughed it out to get back their 20%. It gonna get fugly. The real wake up call is going to be when the lending community sees all the keys in their mailbox and complains 'We had a deal." Maybe in the past, you know when employers hired people for decades not quarters and the like that sense of obligation held some meaning. This time the borrowers are going to finally do the math and mail in the keys.
The Morningstar analyst committed two errors that are pervasive and lead to "black swans":
-he based his estimate of future losses on his available data set (i.e. the past ten years). Absence of evidence of large losses was, for him, evidence of absence.
-he declined to look for vulnerability not only on the asset side but also on the liability side. It is the structure of financing (short and levered) that produces black swans in securities markets as much as anything else.
The third error committed by the rest of credit-land is to gaurd against the last surprise: tighten subprime guidelines, but otherwise carry on financing short and levered, and carry on using the past ten years as the defined set from which to pick worst-case losses.
Which virtually guarantees they will be surprised again.
I saw Bill Longbrake, former CFO and current Vice Chair of Washington Mutual Bank, on CSPAN the other night. He was speaking at a conference on Loss Mitigation for Home Lenders. He annouced WM's solution to the subprime problem was to streamline refinance 2/28 subprime loans resetting in '07 and '08 into 4/26s putting off the problems for another two years. There are many ways to skin a cat.
...because we were not, actually, lending long, we were pretending to lend long.
The shortest, sweetest, clearest explanation of what has gone on in the last three years ever put to pixels.
You'll never make it in the world of windbags if you voice your thoughts so succinctly.
Where's the ambiguity? The overzealous attempt at cleverness? The excess verbiage to drive out those who don't have the perseverence to sift through mounds of rhetorical gobbledygook?
There are three thinktanks in which 40-80 page white papers on the lending debacle are being prepared right now that will not provide nearly as coherent an asessment of the situation as those 13 words.
Thank you.
MOM wrote:
"early payment defaults can only come from no verification - such a ridiculous concept that no one else has ever tried to lend a billion or so on those terms. It's got nothing to do with slowing appreciation."
I believe that it is related to appreciation, at least in part. I've got minimal anecdotal evidence, in particular one friend who bought a house in Vegas at 100% LTV right near the peak. Her search took several months though, during which time prices were going up, up, up. She lives on cash and as soon as she realized she was underwater her instincts were "cash in hand is worth something, money going into this house is throwing it in a pit". Time to first missed payment was about 9 months (she's currently looking into a short sale, but even foreclosure seems preferrable to losing all her cash assets). My theory for at least a portion of the even earlier defaults is they were speculators who were hoping for a fast flip or start-home-owners looking to make a big move up, and thus were leveraged to the hilt on more than one property, planning to service later loans with the proceeds from sales on earlier loans--and that profitable sales market suddenly dried up. As long as homes were appreciating at 1% or 2% a month these scenarios didn't happen, but as soon as home prices flattened they became commonplace.
Pretty please can you post a picture of yourself with a porkchop tied around your neck...
Beyond the babble
I guess it has to be said one more time:
The reason for the sub prime MBing failures is not EPDs, or some wacky "lending short instead of long" delirium; it's the shrunken margins that made it impossible to manage through a downturn.
Plain and simple.
it's the shrunken margins that made it impossible to manage through a downturn
So what, in your view, shrunk the margins? Impersonal forces of nature? The wrong setting on the dryer?
I was, you notice, making a certain claim about what can cause "negative carry." You're free, of course, to suggest a different one. But what do you hope to gain by retorting that what caused negative carry was negative carry?
Ken, you wrote: "My theory for at least a portion of the even earlier defaults is they were speculators who were hoping for a fast flip or start-home-owners looking to make a big move up, and thus were leveraged to the hilt on more than one property, planning to service later loans with the proceeds from sales on earlier loans--and that profitable sales market suddenly dried up. As long as homes were appreciating at 1% or 2% a month these scenarios didn't happen, but as soon as home prices flattened they became commonplace."
I don't disagree with you at all, but the negligible underwriting standards we have been writing about are necessary to produce the type of climate that fosters the speculative purchases such as you describe.
Without the utterly bizarre lending standards (really based, as Tanta comments, on short-term low-cost balloon lending disguised as amortizing mortgages), we'd never have had the type of housing appreciation that would cause cash-strapped borrowers to believe that they could buy a home one year and get it to pay them the next.
It's not that this has never happened before; but it is usually restricted to small areas. The national nature of this trend is what is causing most of the pain now.
"So what, in your view, shrunk the margins? Impersonal forces of nature? The wrong setting on the dryer?"
Competition and ultimately the comoditization of the industry. There was a time in 2001 to 2004 or so that the yield curve/rate swaps made it possible for sub prime lenders to offer rates BELOW Alt A and very near prime on short term hybrid ARMs. Gross executions were around 350 to 450 bps. By the end of 2005, executions were barely 200 bps(the FED ahd be striking hard on the short side). The most effeient lenders were barely able to run at 50 to 75 bps margins...and all this happened before any NOD crisis...lenders refused raise rates because of fear that they would lose production volume.
Credit spreads didn't start widining until mid to late last year.
Loan Hell:
Here is an example of one of my loans during my brief "investor" phase. Greenpoint loan that was a neg am loan with a teaser rate of 2%, that I was led to believe was for 2 years......pretty normal for today right? But it gets good, it turns out it adjusted MONTHLY, the next month it went to 6.5%, when I sold that house less than a year later it had risen to 11.25%, my payment had doubled and that was just the 1st mortgage, I also had a second mortgage on that property 80/10 loan. I was able to sell it later at a profit, but it was eating me alive.
Even better I had bought 10 other homes that same year at around $200k each......all of this on a $65k annual military salary. That's right over $2 million in homes on neg am loans where I was loosing money each and every month and payments that were resetting monthly on some and annually on others.
I know several other "investors" realtors and brokers that have similar loans and properties that are still drinking the kool aid.
I was stupid and blame myself, but it didn't help that the broker ass raped me, especially with almost every loan having a prepay penalty of 1 to 3 years.
I bought in 2005 (top of the market) and sold all in 2006 and 2007. I made approx $350,000, not too bad, but I was wayyyyyy stupid though. I'm all out of real estate and into cash now......
But the moral of the story, I sold all of my properties to the renters or to other "investors" Everyone is drinking the Kool aid here in Seattle......because it's different here
Man there are tons of people that are not going to like it soon here, especially my realtor and broker who own more houses than I did, but I'm sure that they don't have the same crappy loan terms that I allowed myself to be talk/tricked into.
Tony