My god, they're starting to talk publicly about profit margins in the mortgage business. Why, the next thing you know, there will be legalized nose-picking.
Let's be clear about what this particular kind of "subprime contagion" is: now we can't make those juicy subprime loans any longer, we are forced to live on prime margins. The "contagion" is not, as far as I can tell, in the prime portfolio; it's in the lender's income statement.
We used to call it "burning off overcapacity" in the old days, but now I guess it's a disease model.
Offtopic but it's Friday night so here goes: overheard this little nugget in the retail sales data breakdown on CNBC this morning: construction related spending down 2.3% in April.
Forgive me, blog overlords ... I figured I throw some bloody chum in the water and see if Sebastian or any other bulls want to take the bait.
I'm wondering, as a novice of course, if the lender closings and the credit tightening is going to seriously affect one's ability to get a (prime) mortgage in the future - whether credit is going to tighten up to the point where it will be much more cost prohibitive to get a mortgage. Because if that's the case, maybe all us renters out here better get a low rate mortgage and buy now before we're in this for the really really long haul...
Since it is spreading beyond sub-prime, am I to understand that people making over $100,000 per year and having over $100,000 in assets are having trouble on their mortgages too?
Wow, is the market sane enough that you have that choice in your neck of the woods Outsider? Here, you can rent a house for 800 a month or buy it for 300,000... Renting leaves a lot of money left over to buy CD's, in case the interest rate is 20% when the sellers put down their crack pipes.
The best time to buy is when interest rates are high. You can always refinance when rates eventually go back down, but you're always stuck with the principle.
OT, but I just noticed on zillow that in some (nice) east bay neighborhoods, (nice) "recently sold" houses are listing as having sold at ~$250K. The "zestimates" are still around $550K-650K. Nearby asking prices are still in the 500K - 700K range. Does anyone know if the zillow "recently sold" data is just dirty, or did the crash just silently happen in April? My guess is just dirty data...
Thought both of you would enjoy this little tour through the wild and wooly world of risk transfer, courtesy of the newest idea to come out of Bear Stearns:
And yet the stock market is up huge today. Every weekend is like this with the news getting worse and worse for the economy yet the stock market goes to new highs.
Had a foreclosure in my neighborhood which sold for about $100K under Zillow's zestimate. Not dirty data, just a bad zestimate due to the lack on recent comp sales (or any sales for that matter).
A little before this time last year I did some semiautomated data mining on the local MLS for single-family homes. Correlating the current listings against that data, I find that of the 100 highest-priced home and building lot listings (lowest price at that time, $690k), 43 are still on the market.
Pablo, One house I'm referring to is 1309 Avon, 94579. It is in good condition. Graffiti and boarded up windows are unknown in the neighborhood. It is perhaps 10 miles south of the one in your link, a very different neighborhood.
May 10 Bloomberg (Seyoon Kim): Former U.S. Treasury Secretary Lawrence H. Summers comments on global imbalances and the U.S. current account deficit. Summers spoke to investors at a conference in Seoul The shortfall in the U.S. current account, the broadest measure of trade because it includes transfer payments and investment income, was $195.8 billion in the first quarter, amounting to about 5.8% of the economy. The U.S. needs to attract about $2.1 billion a day to fund the gap. The current account deficit is not financing investment, it is financing consumption. Its important to understand the current account deficit is not being financed by private long-term investment flows. It is being overwhelmingly financed by short-term debt flows from official sectors of countries in Asia and oil-producing countries.
And yet the stock market is up huge today. Every weekend is like this with the news getting worse and worse for the economy yet the stock market goes to new highs.
Those are interesting comments from Mr (Dr?) Summers. I wonder whether the CAD is at some point going to become the MSM 'headline' number, rather than the trade deficit.
We're repeatedly told there's no worry, because subprime losses will be 'only' a few hundred billion spread over years -- small potatoes vs $13,000 billion GDP. But subprime's not the main problem. What I see in my area is an astonishing number of expensive homes built on speculation, with few selling even last year when so many still thought real estate a sure thing. As I noted above, 43 of the 100 highest-priced homes on the local MLS last May are still there, and in a nearby village $700+k homes numberabove 100 on the MLS, 70% of them vacant, though in 2006 only 51 sold at such prices. And then we have the numerous condos and townhomes in the $500k-$700k range ...
How much longer can the owners of these homes (many small speculative builders) can hold out?
What will happen when they no longer can?
Homes in the under-$500k range where sales are still being made have about doubled in price since 2000. How many in that range have refi'd out the increase? The very stats of the Chris Cagan paper that argued subprime will be just a little speed bump imply they are many.
I think these high-end properties will ultimately liquidate at 30+% below current asking and will crush everything below, and that the real damage will come from valuation loss across the broader market beneath them.
One can argue that with 20,000 homes in Arlington Heights, even 50% losses on the hundred-odd McMansions -- $50 million total -- will be only $2,500 per household, and that even if that is the nationwide average, it's only $250 billion -- just a flesh wound on a $13,000 billion economy. But the psychological effects of such a price collapse could easily result in $50k loss in market value per household -- $5,000 billion, a flesh wound of a rather different sort.
My gal in AZ thought she just closed on a REO property for 50 cents on the $, but now her broker quit inside of (what she thought was) closing and now it's me making sure this transaction goes thru.
Someone on this blog had pointed out that mortgage companies might try to race each other out of bad credit.
Is Everquest Financial, Bear Stern's attempt to walk out of the door first? I have a felling others might follow this route if this pets.com adventure succeeds.
The only thing missing for the economy to completely implode, is for the stock market to fall. Then the wealthier people will also gear down their consumption and the hard times will begin.
What you will likely see is a difficult period, a needed period to correct the imbalances.
The current domestic economy is on a short-term path which is clearly unsustainable, the longer this persists, the greater the magnitude of the adjustment.
One month does not make a trend, but, if the consumer continues on what seems to be a completely reckless path, the adjustment period will be prolonged, but, more disruptive once it comes.
The IPO's coming to market are a good gauge of the appetite at the retial and institutional level, current pricing has been crap.
My opinion is this latest announcement from BS should collapse or not even make it to market.
If that happens, the period of adjustment and tolerance for crap may have topped out.
I am expecting a chain reaction caused by debt. A good percentage of everyone I know here (in Europe) - and the same is true for the USA - are 2-3 paychecks away from poverty, and leveraged to the hilt.
Starting April something has really changed. Sales contracts are down in many areas, I say, by 30%. North Shore is little better at this point, but also lagging a bit. From what I see some guys are giving up on their condo conversions and looking to rent it out instead. Amazing, but North Shore is actually holding, except for the pockets with large inventory - I am talking single family homes $1.1 Mil+. The major problem we have here is that the calls have disappeared almost completely. Realtors aren't calling much either. I think, this is some rare MENTAL CASE. Noone wants to buy anything. I am wondering how this summer will develop with such mood. I don't hear of anyone being out of work, IMHO, this is some kind of real estate poisoning. Way too much too fast. Also, many of you know, it turned out to be a snowball. Many sellers have buyers who are unable to close their own sales. Contingencies are killer and that is why things take longer. On the other side there are stills many who put their homes for sale with extremely unrealistic expectations. So, I am being very cynical here, but, IMHO, everyone will have to get on their knees and whole thing has to die on both supply and demand sides, kind of like in early 90's. Then we will do fine
As far as CFC foreclosures, we don't have many here and it is mostly fraud deals. I have an access to mortgage records and speaking of CFC loans/combos... they are mostly 100% LTV here. Kind of a phenomen for our area. Everything was OK until CFC got here and people started borrowing above their necks. I am not saying it is CFC only, but these guys are way too agressive "
From OC Register May 10, Impac lays off 120, (quote)The company's announcement did not bode well for the mortgage industry, which had hoped to confine the downturn to the subprime sector, where thousands of borrowers in recent months have defaulted on their loans and now face foreclosure. But many experts thought the move into the Alt-A tier was inevitable as fewer borrowers could qualify for loans.....But none of that was supposed to happen to Impac, the nation's 10th largest Alt-A lender. Impac officials argued that after 12 years of business through good and bad markets they were prepared for whatever the markets held....At that time (March 21), Tomkinson said his company had the funds to cover any loan losses, even though Impac's percentage of late payers doubled last year from 3.1 percent of the company's holdings to 6.2 percent.(end quote)
(quote)Scott Anderson, a senior economist at Wells Fargo (and no relation to the LendingTree spokeswoman), said the fallout from the once-hot mortgage industry is just starting as fewer borrowers can qualify for loans.
"It's not just subprime, it's across the mortgage spectrum," he said. "It's going to get a lot worse before it gets better."
He predicted the fallout would continue well into 2008.(end quote)
(quote)NovaStar Financial Inc. has formally dropped its real estate investment trust status, allowing the struggling subprime lender to book a one-time tax gain and post a first-quarter profit....As a result of the one-time taxable gain, NovaStars first-quarter profit was nearly double its profit of $24 million, or 69 cents a share, a year earlier. But without the tax gain, the company would have posted a quarterly loss of $39.8 million, or $1.06 a share.....The Kansas City-based mortgage lender said it was abandoning that status, effective next January, because it expects little or no taxable income through 2011.(end quote)
Dang.
Clipped by HaloScumbagDoItAgainAnd I'llHaveYourAss.
The sellers need that price and, after all, are only following NAR's price guidelines that show minimal price declines. You don't think they might be listening to their neighorhood guru's when they have (ok I heard the bum on NPR defend his past performance...not a decent man, people: a shuckster.) Lereah?
They listened to others bragging up their real estate heists and with their nose to the grindstone (wages) were insulted that these dummies could be 'doing better' than themselves.
The resets are weighing in...and that is another key reason why the Fed (no house buyer would ever pay attention to these folks) [Nor non-house buyers] will not respond to this "ongoing correction in housing". The patch of resets will not be allowed to extend back to earlier purchases making the smallish patch a growing field of trouble.
Thankyou P. Jackson, (let's have that story!) ReBear (such a cutanpaste by Business on HW, no?)and risk capital for the Bear Sterns IPO heist.
My guess is the BS-Everquest 'IPO' flies just fine... there will be plenty of 'bullish investors' willing to bet on the American homeowner & consumer...
And even if BS doesn't get their exact price - they get the junk off their books. How is that not a win for BS?
You might not buy it but my guess is it gets bought & at better pricing than we here could ever imagine.
Quote from CEO Ian Smith:
"Market weakness persists in California and particularly Florida and conditions have worsened in certain submarkets within those states."
The firm still has 5 other condos in production, though.
greetings from the UK...some thoughts from an outsider...
I have read that if you take out a mortgage to buy a property in the US, that debt is non-recourse. (ie. if you don't pay your mortgage payments, the house is re-possessed, but then your obligation is settled, so the bank doesn't chase you any further for any losses made between what they lent and what they got back on selling the house.). This applies to 100% LTV 80/20 loans also. And because it is non-recourse, you don't owe tax on the debt forgivement "gain" you made on the price you paid and the price the bank sold the place at.
So...why WOULDN'T someone buy a house in a rising market with no money down, ideally to flip it a later date to make way more than they could doing a normal job, yet taking NO RISK since if the market went down and/or the repayments went up they can just walk away with no consequences (other than a ruined credit score)? Sounds like a free option to me.
No wonder defaults have rocketed as the market has fallen. I never could understand why people weren't even making their first payments in some cases, having found out it's all non-recourse, it's starting to make sense.
When I look at the UK housing market, which is EVEN MORE over-priced than US, I think that WHEN the market falls here, it will be very different from the US, since my understanding is that the banks can chase you all the way into bankruptcy, repossesing anything of yours on the way. So people will be way more reluctant to default on their mortgage payments. Maybe that's one reason we've not even seen a crack in the market here in the UK yet.
If I am wrong on any points feel free to correct me.
Will there be a divide on all these unsold houses. I'm thinking Labor Day is the make-break time. Thru the summer most would be sellers will hang on to the NAR spin.
But then by September I'm thinking most folks will recognize that no the house won't sell. And then what? Panic? Massive foreclosures? Bankrupties?
alec, i read the other day (can't remember where so unfort can't link to it) that if the loan was non-recourse, then you have satisfied the condition of that loan by giving the property back. whereas if it was recourse they are indeed ging you a "gift" for which you get taxed on. which kinda makes sense to me.
also yes, it did say if you'd refinanced, the loan becomes recourse in some states, but i guess the early payment defaults must come from people who haven't refinanced.
loan originators and servicers will be laying off people all other things equal just due to down sales numbers. layoffs do not equal contagion of subprime issues. not saying it isnt there, but layoffs themselves are not he end all be all indicator.
so who is going to load on long on vol heading into october??
I have worked for Lending Tree for the past 18 months. At 22, I was their #8 producer, closing 18,000 loans in the past 6 months. My specialty was applying the approval stamp. They call me "The Matrix". I'm like the guy in the Comcast commercial who downloads "high speed" and does dishes.
dc1000, what contagion? I mean, what brought down subprime got written into every other mortgage level at the SAME time, what brought down subprime was loose lending.
Subprime was the first to go because of the origination mechanism, Alt-A will take longer because the recasts take longer and the monthly minimums are VERY low, and Prime will take longer still because all the other levels propped up the economy.
But there's no such thing as "contagion" at work. The problem got created SIMULTANEOUSLY.
The only thing missing for the economy to completely implode, is for the stock market to fall. Then the wealthier people will also gear down their consumption and the hard times will begin.
The wealthy (I mean the truly wealthy, not the pretenders) base their consumption on income, not asset values. Which is why they are wealthy.
I've posted an article "Toxic Waste? Just Everquest It!" that gathers links relating to Bear Stearns' effort to dump their subprime troubles onto what looks like a shell company (as alluded to above a few times). Maybe this will help P. Jackson write his "small book" (see above). He certainly broke the story on the blog side.
Subprime did not fall first because it had the worst underwriting. It fell first because subprime lacked a low-payment loan product, so there was no way to rescue negative cashflow borrowers.
Alt-a does have a low payment "rescue" product: the option arm. In 2006 OA's were plentiful and that bailed out negative cashflow alt-a ARM resets. In 2007 OA's are less available, and the lack of a rescue, plus the speculator defaults, are what is pushing up alt-a delinquencies.
Bottom line: stated loans were made to negative cashflow borrowers, and the FICO score doesn't predict delinquencies in that group, the availability of low-payment re-fi's does.
I didn't mean to say it fell first because of the worst underwriting, I meant to say it fell first because of the origination mechanism (mostly made by originators without much capital, companies that don't take deposits from the public).
LendingTree to Lay Off 440 Employees
LendingTree to Lay Off 440 Employees - WSJ.com
My god, they're starting to talk publicly about profit margins in the mortgage business. Why, the next thing you know, there will be legalized nose-picking.
Let's be clear about what this particular kind of "subprime contagion" is: now we can't make those juicy subprime loans any longer, we are forced to live on prime margins. The "contagion" is not, as far as I can tell, in the prime portfolio; it's in the lender's income statement.
We used to call it "burning off overcapacity" in the old days, but now I guess it's a disease model.
Makes about as much sense as nose-picking.
"disease model"
Let's not just call segments of the mortgage industry suffering from the "disease model".
For an number of reasons, the banking system suffers from is own disease.
God forbid, the regulators ever venture into the complete disregard for the customer....
and, don't even get me started on the insurance industry.
Offtopic but it's Friday night so here goes: overheard this little nugget in the retail sales data breakdown on CNBC this morning: construction related spending down 2.3% in April.
Forgive me, blog overlords ... I figured I throw some bloody chum in the water and see if Sebastian or any other bulls want to take the bait.
I'm wondering, as a novice of course, if the lender closings and the credit tightening is going to seriously affect one's ability to get a (prime) mortgage in the future - whether credit is going to tighten up to the point where it will be much more cost prohibitive to get a mortgage. Because if that's the case, maybe all us renters out here better get a low rate mortgage and buy now before we're in this for the really really long haul...
And also, how is Countrywide faring these days?
I am preparing for my rectal exam.
"My god, they're starting to talk publicly about profit margins in the mortgage business."
Hey, Tanta, you don't get it. It's time to sell yachts now.
Since it is spreading beyond sub-prime, am I to understand that people making over $100,000 per year and having over $100,000 in assets are having trouble on their mortgages too?
M.Z. Forrest, the short answer is: yes.
Wow, is the market sane enough that you have that choice in your neck of the woods Outsider? Here, you can rent a house for 800 a month or buy it for 300,000... Renting leaves a lot of money left over to buy CD's, in case the interest rate is 20% when the sellers put down their crack pipes.
CFC broke $1.5 billion today....
Count: 7,990 Homes in Inventory
Total Asking Price: $1,515,967,369
(As of 5/11/2007)
Ya know, if everyone has to put down 5% or more these days, it is going to be hard to buy flat screens for every room. Unless we charge it....
Outsider-
Here's a good discussion of the credit cycle from the FDIC:
FDIC: Outlook Summer 2006
The best time to buy is when interest rates are high. You can always refinance when rates eventually go back down, but you're always stuck with the principle.
And CFC's stock price keeps going up. It's up over 25% from it's lowest point a few weeks ago.
OT, but I just noticed on zillow that in some (nice) east bay neighborhoods, (nice) "recently sold" houses are listing as having sold at ~$250K. The "zestimates" are still around $550K-650K. Nearby asking prices are still in the 500K - 700K range. Does anyone know if the zillow "recently sold" data is just dirty, or did the crash just silently happen in April? My guess is just dirty data...
Tanta, CR -
Thought both of you would enjoy this little tour through the wild and wooly world of risk transfer, courtesy of the newest idea to come out of Bear Stearns:
On Musical Chairs and Subprime Lending : HousingWire || financial news for the mortgage market
I could probably write a small book on this one.
Hope all is well.
And yet the stock market is up huge today. Every weekend is like this with the news getting worse and worse for the economy yet the stock market goes to new highs.
jus me-
Had a foreclosure in my neighborhood which sold for about $100K under Zillow's zestimate. Not dirty data, just a bad zestimate due to the lack on recent comp sales (or any sales for that matter).
Zillow is approximate at best. I've doubled-checked its estimates in my town; they're often high, sometimes low, compared to current market reality.
Samuel
The capital markets were not up huge today. There was some backtest of yesterday's drop, but basically it was an inside day on very weak volume.
jus me,
This is what $350k buys you in the East Bay.
A little before this time last year I did some semiautomated data mining on the local MLS for single-family homes. Correlating the current listings against that data, I find that of the 100 highest-priced home and building lot listings (lowest price at that time, $690k), 43 are still on the market.
Pablo, One house I'm referring to is 1309 Avon, 94579. It is in good condition. Graffiti and boarded up windows are unknown in the neighborhood. It is perhaps 10 miles south of the one in your link, a very different neighborhood.
Lost another loan to Ditech.
May 10 Bloomberg (Seyoon Kim): Former U.S. Treasury Secretary Lawrence H. Summers comments on global imbalances and the U.S. current account deficit. Summers spoke to investors at a conference in Seoul The shortfall in the U.S. current account, the broadest measure of trade because it includes transfer payments and investment income, was $195.8 billion in the first quarter, amounting to about 5.8% of the economy. The U.S. needs to attract about $2.1 billion a day to fund the gap. The current account deficit is not financing investment, it is financing consumption. Its important to understand the current account deficit is not being financed by private long-term investment flows. It is being overwhelmingly financed by short-term debt flows from official sectors of countries in Asia and oil-producing countries.
And yet the stock market is up huge today. Every weekend is like this with the news getting worse and worse for the economy yet the stock market goes to new highs.
Summer of 1929.
Yal,
Those are interesting comments from Mr (Dr?) Summers. I wonder whether the CAD is at some point going to become the MSM 'headline' number, rather than the trade deficit.
We're repeatedly told there's no worry, because subprime losses will be 'only' a few hundred billion spread over years -- small potatoes vs $13,000 billion GDP. But subprime's not the main problem. What I see in my area is an astonishing number of expensive homes built on speculation, with few selling even last year when so many still thought real estate a sure thing. As I noted above, 43 of the 100 highest-priced homes on the local MLS last May are still there, and in a nearby village $700+k homes numberabove 100 on the MLS, 70% of them vacant, though in 2006 only 51 sold at such prices. And then we have the numerous condos and townhomes in the $500k-$700k range ...
How much longer can the owners of these homes (many small speculative builders) can hold out?
What will happen when they no longer can?
Homes in the under-$500k range where sales are still being made have about doubled in price since 2000. How many in that range have refi'd out the increase? The very stats of the Chris Cagan paper that argued subprime will be just a little speed bump imply they are many.
I think these high-end properties will ultimately liquidate at 30+% below current asking and will crush everything below, and that the real damage will come from valuation loss across the broader market beneath them.
One can argue that with 20,000 homes in Arlington Heights, even 50% losses on the hundred-odd McMansions -- $50 million total -- will be only $2,500 per household, and that even if that is the nationwide average, it's only $250 billion -- just a flesh wound on a $13,000 billion economy. But the psychological effects of such a price collapse could easily result in $50k loss in market value per household -- $5,000 billion, a flesh wound of a rather different sort.
My gal in AZ thought she just closed on a REO property for 50 cents on the $, but now her broker quit inside of (what she thought was) closing and now it's me making sure this transaction goes thru.
Next Google?
Bear Stearns' Subprime IPO
Everquest Financial is going public with risky mortgage bets purchased from its underwriters hedge funds
Bear Stearns' Subprime IPO
There will only be a few subprime lenders standing at the end...
Refinancing Mortgages
http://www.acnnewswire.net/press/en/36424/Australasian-Investment-Review.html
Someone on this blog had pointed out that mortgage companies might try to race each other out of bad credit.
Is Everquest Financial, Bear Stern's attempt to walk out of the door first? I have a felling others might follow this route if this pets.com adventure succeeds.
Intersting. I always knew that professionals never panic but when they do they want to be the first at the exit door.
http://www.acnnewswire.net/press/en/36424/Australasian-Investment-Review.html
The BS deal is an important attempt at the soon-to-be, "Great retail dump", let's hope this thing craters.
If there is no demand, this should further tighten the fund flows to pe and lbo deals.
The only thing missing for the economy to completely implode, is for the stock market to fall. Then the wealthier people will also gear down their consumption and the hard times will begin.
Incognitus,
the economy is not going to completely implode.
What you will likely see is a difficult period, a needed period to correct the imbalances.
The current domestic economy is on a short-term path which is clearly unsustainable, the longer this persists, the greater the magnitude of the adjustment.
One month does not make a trend, but, if the consumer continues on what seems to be a completely reckless path, the adjustment period will be prolonged, but, more disruptive once it comes.
The IPO's coming to market are a good gauge of the appetite at the retial and institutional level, current pricing has been crap.
My opinion is this latest announcement from BS should collapse or not even make it to market.
If that happens, the period of adjustment and tolerance for crap may have topped out.
BS is not alone in their quest-
Carlyle plans to sell shares in one of its funds to the public - MarketWatch
I am expecting a chain reaction caused by debt. A good percentage of everyone I know here (in Europe) - and the same is true for the USA - are 2-3 paychecks away from poverty, and leveraged to the hilt.
report fm Chicago
"I am speaking only of Chicago area
Starting April something has really changed. Sales contracts are down in many areas, I say, by 30%. North Shore is little better at this point, but also lagging a bit. From what I see some guys are giving up on their condo conversions and looking to rent it out instead. Amazing, but North Shore is actually holding, except for the pockets with large inventory - I am talking single family homes $1.1 Mil+. The major problem we have here is that the calls have disappeared almost completely. Realtors aren't calling much either. I think, this is some rare MENTAL CASE. Noone wants to buy anything. I am wondering how this summer will develop with such mood. I don't hear of anyone being out of work, IMHO, this is some kind of real estate poisoning. Way too much too fast. Also, many of you know, it turned out to be a snowball. Many sellers have buyers who are unable to close their own sales. Contingencies are killer and that is why things take longer. On the other side there are stills many who put their homes for sale with extremely unrealistic expectations. So, I am being very cynical here, but, IMHO, everyone will have to get on their knees and whole thing has to die on both supply and demand sides, kind of like in early 90's. Then we will do fine
As far as CFC foreclosures, we don't have many here and it is mostly fraud deals. I have an access to mortgage records and speaking of CFC loans/combos... they are mostly 100% LTV here. Kind of a phenomen for our area. Everything was OK until CFC got here and people started borrowing above their necks. I am not saying it is CFC only, but these guys are way too agressive "
The consumer-
Topic Galleries -- chicagotribune.com
From OC Register May 10, Impac lays off 120, (quote)The company's announcement did not bode well for the mortgage industry, which had hoped to confine the downturn to the subprime sector, where thousands of borrowers in recent months have defaulted on their loans and now face foreclosure. But many experts thought the move into the Alt-A tier was inevitable as fewer borrowers could qualify for loans.....But none of that was supposed to happen to Impac, the nation's 10th largest Alt-A lender. Impac officials argued that after 12 years of business through good and bad markets they were prepared for whatever the markets held....At that time (March 21), Tomkinson said his company had the funds to cover any loan losses, even though Impac's percentage of late payers doubled last year from 3.1 percent of the company's holdings to 6.2 percent.(end quote)
Not spreading, eh?
From the rticle CR referenced:
(quote)Scott Anderson, a senior economist at Wells Fargo (and no relation to the LendingTree spokeswoman), said the fallout from the once-hot mortgage industry is just starting as fewer borrowers can qualify for loans.
"It's not just subprime, it's across the mortgage spectrum," he said. "It's going to get a lot worse before it gets better."
He predicted the fallout would continue well into 2008.(end quote)
Not spreading, eh?
Bloomberg News
Hatzius of Goldman Sees
1] `Recession' in Florida Due to Housing
2] Due to globalization, S&P 500 is not an indicator of US economic health.
I am struck by those sellers who have "unrealistic" expectations. Prolly following the NAR's price tracking which shows a paltry (
From Kansas City Star, May 11:
(quote)NovaStar Financial Inc. has formally dropped its real estate investment trust status, allowing the struggling subprime lender to book a one-time tax gain and post a first-quarter profit....As a result of the one-time taxable gain, NovaStars first-quarter profit was nearly double its profit of $24 million, or 69 cents a share, a year earlier. But without the tax gain, the company would have posted a quarterly loss of $39.8 million, or $1.06 a share.....The Kansas City-based mortgage lender said it was abandoning that status, effective next January, because it expects little or no taxable income through 2011.(end quote)
Small dip in the road of prosperity, eh?
Dang.
Clipped by HaloScumbagDoItAgainAnd I'llHaveYourAss.
The sellers need that price and, after all, are only following NAR's price guidelines that show minimal price declines. You don't think they might be listening to their neighorhood guru's when they have (ok I heard the bum on NPR defend his past performance...not a decent man, people: a shuckster.) Lereah?
They listened to others bragging up their real estate heists and with their nose to the grindstone (wages) were insulted that these dummies could be 'doing better' than themselves.
The resets are weighing in...and that is another key reason why the Fed (no house buyer would ever pay attention to these folks) [Nor non-house buyers] will not respond to this "ongoing correction in housing". The patch of resets will not be allowed to extend back to earlier purchases making the smallish patch a growing field of trouble.
Thankyou P. Jackson, (let's have that story!) ReBear (such a cutanpaste by Business on HW, no?)and risk capital for the Bear Sterns IPO heist.
My guess is the BS-Everquest 'IPO' flies just fine... there will be plenty of 'bullish investors' willing to bet on the American homeowner & consumer...
And even if BS doesn't get their exact price - they get the junk off their books. How is that not a win for BS?
You might not buy it but my guess is it gets bought & at better pricing than we here could ever imagine.
This should be this weekends Video
YouTube - Real financial heros part 3 of 3
Not a music video but damn funny
I can see Cramer and his cronies pushing the new IPO.
Well, Stock prices have not yet hit year lows, housing has not yet hit 2 year lows and there is no rampant UE.
So take a chill pill bears, and let the bulls play on.
I've been a lurker here and really appreciate the work and effort from CR, Tanta and most of the comments posters.
I found this pretty interesting:
Prosper
Prosper
Sorry for double post of link.
Well said.
The Chicago Tribune link far above in risk capital's earlier comment is a must-read.
UBS closes hedge fund due to subprime implosion
Taylor Woodrow bails on condo development
Quote from CEO Ian Smith:
"Market weakness persists in California and particularly Florida and conditions have worsened in certain submarkets within those states."
The firm still has 5 other condos in production, though.
greetings from the UK...some thoughts from an outsider...
I have read that if you take out a mortgage to buy a property in the US, that debt is non-recourse. (ie. if you don't pay your mortgage payments, the house is re-possessed, but then your obligation is settled, so the bank doesn't chase you any further for any losses made between what they lent and what they got back on selling the house.). This applies to 100% LTV 80/20 loans also. And because it is non-recourse, you don't owe tax on the debt forgivement "gain" you made on the price you paid and the price the bank sold the place at.
So...why WOULDN'T someone buy a house in a rising market with no money down, ideally to flip it a later date to make way more than they could doing a normal job, yet taking NO RISK since if the market went down and/or the repayments went up they can just walk away with no consequences (other than a ruined credit score)? Sounds like a free option to me.
No wonder defaults have rocketed as the market has fallen. I never could understand why people weren't even making their first payments in some cases, having found out it's all non-recourse, it's starting to make sense.
When I look at the UK housing market, which is EVEN MORE over-priced than US, I think that WHEN the market falls here, it will be very different from the US, since my understanding is that the banks can chase you all the way into bankruptcy, repossesing anything of yours on the way. So people will be way more reluctant to default on their mortgage payments. Maybe that's one reason we've not even seen a crack in the market here in the UK yet.
If I am wrong on any points feel free to correct me.
You do have to pay taxes on the "gift" if the bank forgives the difference between what it sold for and what you owe.
Also, if you refinanced the loan can become full recourse in certain states(California among them)
Will there be a divide on all these unsold houses. I'm thinking Labor Day is the make-break time. Thru the summer most would be sellers will hang on to the NAR spin.
But then by September I'm thinking most folks will recognize that no the house won't sell. And then what? Panic? Massive foreclosures? Bankrupties?
alec, i read the other day (can't remember where so unfort can't link to it) that if the loan was non-recourse, then you have satisfied the condition of that loan by giving the property back. whereas if it was recourse they are indeed ging you a "gift" for which you get taxed on. which kinda makes sense to me.
also yes, it did say if you'd refinanced, the loan becomes recourse in some states, but i guess the early payment defaults must come from people who haven't refinanced.
loan originators and servicers will be laying off people all other things equal just due to down sales numbers. layoffs do not equal contagion of subprime issues. not saying it isnt there, but layoffs themselves are not he end all be all indicator.
so who is going to load on long on vol heading into october??
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I have worked for Lending Tree for the past 18 months. At 22, I was their #8 producer, closing 18,000 loans in the past 6 months. My specialty was applying the approval stamp. They call me "The Matrix". I'm like the guy in the Comcast commercial who downloads "high speed" and does dishes.
Thank you for your consideration.
dc1000, what contagion? I mean, what brought down subprime got written into every other mortgage level at the SAME time, what brought down subprime was loose lending.
Subprime was the first to go because of the origination mechanism, Alt-A will take longer because the recasts take longer and the monthly minimums are VERY low, and Prime will take longer still because all the other levels propped up the economy.
But there's no such thing as "contagion" at work. The problem got created SIMULTANEOUSLY.
I doubt it Incognitus wealthy people got that way cause they greedy!
The only thing missing for the economy to completely implode, is for the stock market to fall. Then the wealthier people will also gear down their consumption and the hard times will begin.
The wealthy (I mean the truly wealthy, not the pretenders) base their consumption on income, not asset values. Which is why they are wealthy.
yogurt, we're talking about 10-20% of the population, not just the super-rich.
I've posted an article "Toxic Waste? Just Everquest It!" that gathers links relating to Bear Stearns' effort to dump their subprime troubles onto what looks like a shell company (as alluded to above a few times). Maybe this will help P. Jackson write his "small book" (see above). He certainly broke the story on the blog side.
Incognitus,
Subprime did not fall first because it had the worst underwriting. It fell first because subprime lacked a low-payment loan product, so there was no way to rescue negative cashflow borrowers.
Alt-a does have a low payment "rescue" product: the option arm. In 2006 OA's were plentiful and that bailed out negative cashflow alt-a ARM resets. In 2007 OA's are less available, and the lack of a rescue, plus the speculator defaults, are what is pushing up alt-a delinquencies.
Bottom line: stated loans were made to negative cashflow borrowers, and the FICO score doesn't predict delinquencies in that group, the availability of low-payment re-fi's does.
I didn't mean to say it fell first because of the worst underwriting, I meant to say it fell first because of the origination mechanism (mostly made by originators without much capital, companies that don't take deposits from the public).