So, ummmmmm, what did Mr Dallas do to ensure that the quality of process at Ownit improved between April 2005 and their sad demise?
He convinced a couple of Wall Street genuises like Marano that Angelo was doing it, too, so it must be OK. Look, concluding that "the industry is hosed" is no reason to refrain from asking Wall Street for another warehouse line.
"If enough independent companies set standards," says Bear Stearns.
"Independent" means, in this context, that they rely on Wall Street to provide the line of credit that makes the loan in the first place. It's "independent" because Mr. Marano did not, personally, write New Century's credit guidelines. What, precisely, "assess risk" means in this context is unclear, but I think it could have something to do with explaining things 47,000 freaking times.
I am pretty sure that when ownit folded he said in defense of his business model something like "if you were being offered more money to make these kinds of loans what would you do?"
Now he is saying it is something to do with the brokers and the borrowers?, where in fact it was his greed that created the problem.
"What, precisely, "assess risk" means in this context is unclear..."
In the case of Marano and other investment bank BSD's I suspect it was the risk getting a slightly smaller multi-million dollar bonus or losing a big client because they sold him/her too much securitized dung; the risk of not getting a chair when the music stopped was already covered (it's a very good business when you not only get to provide credit to those you are selling to but also, in effect, get to make the laws that regulate the process).
Somewhat off topic some what not... I wonder if Brett White will have few gems written about him when the patent pending "CR Residential / Commercial Phase Shift" comes full circle...
From an interview with Brett White at CB Ellis at the NYT
.........
Q. Why is commercial still strong while residential nationally seems to be weakening?
A. In the United States last year, for every dollar that was spent on buying commercial real estate, there were two more dollars that didnt get placed. Two-thirds of the people who wanted in didnt get in, so that dynamic is still in place. The other dynamic is leasing, which remains strong. The other thing is that there is still not a lot of new construction. Weve got declining occupancy rates and increasing price rates. You and I could walk around and count the cranes.
I don't want to sound like a broken record but the reason these guys didn't change course is that they were making money. There was a market in which writing these loans made perfect sense for all involved then there was a transition to a new market where they didn't and some people got trapped on the wrong side of the transition.
People are trying to create some huge morality narrative around what is really just a market adjustment. In 2003 and 2004 risk/reward got detached from traditional underwriting standards and so people engaged in strategies that walked around the standards. And in doing so ended up in investments with substantial equity. In 2005 risk/reward got back in line with underwriting standards and people who walked around those standards ended up stranded and in some cases investments under water. Well that is capitalism in action, not every investment pays out.
But the fact is that timing is everything. Dean Baker sold his townhouse in 2004. From what I can see for his market that was a relatively sound decision though maybe a little premature. If I had sold my condo at that same point I would be $50,000 in the hole compared to my equity position today. Ownit filled a market need at the time, and lots and lots of people made money. Then suddenly people stopped making money and suddenly everyone is a moralist.
Certainly the bankers are not victims, they were willing participants. But likewise most borrowers were not victims. Because if you bought a house in 2003 under whatever rates and terms in most markets you are dollars ahead. If you bought that same house in that same market with those same rates and terms in 2005 you might well be hosed. But let's not engage in "I am shocked! Shocked! to learn there is gambling going on" at Rick's.
Since when is the mortgage business like gambling?
Come on, this aint poker here. This is people's lives. No one buys a house as a gamble. Do you buy cars as a gamble? Do you buy anything else that you use in your daily lives as a gamble?
The very fact that people like Bruce apparently had a paradigm shift in their perception of buying a home is the reason we are in this mess.
Well, I, for one, am shocked at Tanta's self-proclaimed ignorance of Olsen twins.
I do not think that there exists a better icon for the American dream than the Olsen twins.
Yes, they have a kind of modern-day, grotesque doppelgänger in Paris Hilton, but the Olsen's, for all their teenage interest in boys, did not have Hilton's drunken, criminal sexuality.
No, Mitt Romney would be proud to count the Olsen's as constituents. The Olsen's are what made this country great. Let us show respect.
This reminds me of the real estate crash in Florida in 1927. Many trace the beginnings of the great depression back to that event. Are we seeing a repeat of history here?
The problem with people participating in a financial mania (and that is what this is) is that it will affect the broader economy. Lots of people are going to get burned who were not playing this game.
I search patiently, very patiently and very eagerly for the bull case. I sincerely want to believe in Goldilocks, far more than I want to believe in evolution. Fairy tales are far more satisfying than science.
And we have our troll, who is perfectly willing to step in and bullet a long, very long list of reasons why there will be a happy ending.
But then I come across something like this:
Ford family talks to Wall St. dealmakers, report
Long-time unity of Ford family being tested by problems at nation's No. 2 automaker.
May 8 2007: 12:09 PM EDT
NEW YORK (CNNMoney.com) -- There is internal dissent within the Ford family about the future of its stake in Ford Motor, as some members recently pushed to hire top Wall Street dealmakers to advise them on their holdings in the troubled automaker, according to a published report.
The Detroit News reported Tuesday that some family members invited Joseph Perella and Peter Weinberg, two of Wall Street's top dealmakers, to address the group at what the paper said was a tense meeting on April 21.
In the end the paper said the group decided not to hire the dealmakers' firm, Perella Weinberg Partners, to advise them on what to do with its holdings in the troubled automaker. But the paper said the meeting revealed growing divisions within the family that controls 40 percent of the company's voting shares.
I guess that the Ford's just see currency depreciation and the inevitable crash of the stock market differently than our pet troll.
One thing is certain: if there are a group of people on earth who have farted through more silk than the Ford's, they are long euros. Believe me.
"residential nationally seems to be weakening?"
I am yet to be convinced that that is a meaningful statement. Residential housing in Seattle is up 13% year over year, housing in Detroit is down 6.5%. That averaged out you get a 1% national drop may be important to an investor buying a bundled security, but offers little to zero guidance to someone who entered the market in 2003 as to whether they made a mistake or to someone considering buying now.
On balance would it have made sense to buy a condo on a 100% LTV ARM loan in March 2006? Well not in Riverside, CA, not with a FICO of 620. Here in Everett WA with a midscore FICO of 792 that same condo unit would have scored a 20% gain and me out some brokerage fees. In my case listening to some really, really smart professional well informed experts on the national residential real estate market would have cost me some serious change.
Lets not throw out the baby with the bathwater. Much of the reporting on this is still being driven from the investor level and yet trying to tie it down to the homeowner level when it is far from clear that is where the impact is going to hit. Too much reporting is still in terms of foreclosures being up or down by some percentage compared to last year rather than as an actual share of loans outstanding, too much coverage is still anecdotal.
After all from a strict numeric standpoint if 3 out of 1 million apples went bad in 2006 and 8 out of a million apples went bad in 2007 you have a spoilage rate that went up by 266%. And if I were the quality control manager of an apple processor that was handling 100 million apples a month I might be concerned enough to look into it, because you don't want to have a problem spread. On the other hand you wouldn't be publishing an op-ed in the WSJ about massive risk to the national apple supply.
Foreclosures are no different than apples. News that they are up 75% or whatever are meaningless unless you understand the baseline. And for the most part the reporting is shortchanging us on that one.
I suppose theft is only different from heist/score from the point of view of this transfer of wealth. Consider Mr Top HF manager's posted earnings of $1.7B and marvel at this wealth creation. Those boys in the basement turning out fresh $20s would be needing to put out 27 of them every second for every second of the year to catch up to him.
There just isn't equipment that good --which is why forgery is on the decline (even in NK) and hedge funding is on the way up.
Also on the decline with this "wealth creation", this shift from working and earning --to working others, investing and profiting from well-positioned sources who would never let you in late on a heisting...not yet.
You don't know much about real estate. Lots and lots of people buy houses as gambles, just as lots and lots of people will buy raw land unseen at auction from out of state and even out of country.
I knew that Seattle was at risk of the bubble (though we dodged it so far) when in an ad for a new luxury condominium going up the seller put in the condition "only two per customer" in the sales ad. Because there is only one reason to limit sales in this situation, it is to avoid the possibility of your buyer becoming a competing seller and depressing the market in a downturn.
People can and did buy blocks of condo units and kept them vacant in hopes of a quick resale and did use all kinds of exotic financing to make that happen. It is difficult to say how much of the current sub-prime meltdown is due to speculative hot money flowing to Phoenix, Las Vegas and the Inland Empire and using fraudulent financing to secure the units, but we know that it is a factor. We also know that just like the S&L 'crisis' a lot of that money would love a big fat taxpayer financed bailout.
Only an idiot would deny that housing taken nationally hit a soft spot starting in late 2005 and anyone who can read the business pages understands that a lot of lenders specializing in sub-prime products have closed their doors or delivered some really crappy results to their parent organization. Because 2006 was not 2003 and everyone who was partying like it was took a serious bruising. Just keep your eyes open and don't let them spin "rich people losing money" into "national crisis". Because that is exactly what is going on here.
Countrywide losing money, the Toll Brothers taking it in the shorts on cancellations doesn't make this your or my problem. Though they certainly hope you do. Look the sky may be falling, we may be on the edge of financial apocalypse. On the other hand there are always shorts and goldbugs out there predicting disaster. Just keep your eye on the ball and ask yourself what each reported number really means in context.
Look the sky may be falling, we may be on the edge of financial apocalypse. On the other hand there are always shorts and goldbugs out there predicting disaster. Just keep your eye on the ball and ask yourself what each reported number really means in context. ~Bruce Webb
Bruce Webb said: "...On the other hand there are always shorts and goldbugs out there predicting disaster. Just keep your eye on the ball and ask yourself what each reported number really means in context..."
Foreclosure levels in California are the highest they have been in 10 years and are growing parabolically (148% YOY, 21% MOM). Here in Sacramento, along with Riverside and Contra Costa, they are the HIGHEST THEY HAVE EVER BEEN. How's that for a baseline? It's now time to take your head out of the sand on this one - I hearby give you permission. Also, keep in mind WA is a good 1 to 2 years behind CA so your D-Day bloodbath is coming, it just hasn't quite hit the shore yet.
An interesting article in the Times on what is propping up New York real estate:
They live an ocean away, but that has not stopped the Irish from lining up to buy condominiums in Midtown Manhattan, often years before they are built.
In some cases, entire buildings or large blocks of apartments in unfinished high-rises are being sold to Irish investors hungry to own a piece of New York City.
I'd also like to know about rumors concerning CFC. When I last looked it was up $2.00. The option open interest is the big thing though. I counted 66,000 new, mostly out of the money puts and 23,000 new calls. The largest number of new options are for May, but the October 35 strike is also huge. So there seems to be some big rumors with big money on both sides.
Other lenders and builders also turned up today at about the same time. I guess that it's a take over rumor. The only other thing that I can think of is inside information on a surprise from the Fed.
OK I am ready to suffer at the slings and arrows...
My personal history as of today. Son of a Bank President(ret), 40, married, 2 kids under 10, public school. My wife and I both work public sector she a teacher I for DoD.
I did my time in Private sector and after grad. Took a 29K Managemnt job in Chemical industry. Wife taught. Had kid, had epiphany and decided stay at home. Already owned home through VA zero down.
We chose to live on mildly on credit knowing we could always catch up but could never get back time with raising kids. 2 houses later and having rewlocated to DC in 2004 we have been waiting for rediculaous market to settle.
Problem is all housing is over priced and over 417K. Still nothing down, a need a 100% jumbo through CU. MI is 11K Mdebt is 700. Can qualify for anything dont want much.
Last 24 maybe 5 X30, Last 12 only 1x30, NEVER EVER NOTpaid off a loan, car, home or anything, but also paid off a CLOSED all those stupid credit cards we got in college.
And yet our three reports each are range from 595 to 695 for both of us.
And they call us a risk. I was raised to pay everything, never file BK, never get credit assistance, blah... yet as of March 9th this year, I am a risk.
Why because we prefer now to pay cash? we dont do vacations except with cash, we dont use credit cards anymore because the bastards will up your rate on a whim....that has nothing to do with them.
I get good rates on autos, etc. PAy cash for all our furniture....but I have some risk more than the family that is SISA? Come on....one or two store credit cards and a 750 FICO that ends up in FC....
All is well and good, thank god I have VA....but in DC no houses under 417 so we wait...what ever happened to a lender interviewing you????
Jeesz, not looking at pity but what once was a great industry turned to smut.. I mean there is playboy and then there is the donkey act south of the border....
Bruce Webb - "'No one buys a house as a gamble.' You don't know much about real estate. Lots and lots of people buy houses as gambles, just as lots and lots of people will buy raw land unseen at auction from out of state and even out of country."
I agree Bruce. In fact one of our illustrious hosts, CR, had something to say on that in a guest blog spot on Angry Bear in 2005.
The Impact of Interest Rates on House Prices
...
Historically there are periods of concurrently rising interest rates and home prices and periods of falling interest rates and falling home prices. Does this mean that buyers were making irrational decisions during those prior periods? Or are the interest rate based models flawed. The answer may shock some people: Historically interest rates have been largely irrelevant to the price of a house.
An Automobile Example
Suppose you are going to purchase a new car that typically sells for $30 thousand. Maybe you are going to finance the car; maybe you are going to pay cash. Now suppose the dealer offers you a lower financing package. Would you be willing to pay more for the car? If you still decide to pay cash, you wouldn't pay more. And if you decide to take the financing you will pocket the savings, buy a nicer car, or add more features.
The interest rate is irrelevant to what you are willing to pay for a particular car. The same is true for housing.
But the lower interest rate does indirectly have a small impact on pricing, not because it lowers the monthly payment, but because it increases demand. The lower financing package will attract some potential buyers of less expensive cars to move up. It will also make new cars more attractive to some used car buyers. So the more attractive financing will probably increase the demand for the $30K car and that might increase the price slightly.
...
Future question: Who are the Bagholders?
Professor Hamilton asks this question, If there is a housing bubble, "[W]hy are banks making loans to people who aren't going to be able to pay them back?" This is a very interesting question about market failure and moral hazard. Will it be the American taxpayers again left holding the empty bag like in the S&L crisis? I will speculate on the answer in the near future ..."
CR then follows up that last question with the Keynes quote Tanta posted.
"Along these lines, from John Maynard Keynes:
'A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.'
John Maynard Keynes, "Consequences to the Banks of a Collapse in Money Values", 1931"
Why because we prefer now to pay cash? we dont do vacations except with cash, we dont use credit cards anymore because the bastards will up your rate on a whim....that has nothing to do with them.
Some people disagree with the practice, but I specifically buy things I have cash for using credit (usually at 0%) and then pay them off. It keeps your credit rating high and lets inflation pay off some of your debt if you do it right.
Bruce Webb,
I have enjoyed your commentary today too.
I understand where you are coming from and yours is a very level-headed market-theory oriented assesment of the business environment surrounding this housing issue (I would call it a mess).
Let me state another perspective, mine actually. I am not a business type. Both my wife and I are science/medicine types. Our training was and our current professions are time-consuming and force us to take responsibility for the decisions we make. We barely have enough time to keep abreast of advancements in our fields. We did not have much knowledge or experience outside our area of expertise(it's a time thing really).
The past few years we started making more money, significantly paying down student loans (let me tell you, that whole sallie mae thing just warmed my heart), and saving. Last year we started looking for a house to buy (still haven't). Things were much more expensive than I had thought, loan types were much more complicated than I thought (I now understand these things much better, thanks CR and Tanta), and I discovered the rapid rise in prices that occured the last few years (yes, I really was not paying attention to the market as I was renting and had better things to do). I am curious and have always had a dim view of group behavior so I researched the situation. I eventually learned about all the things regularly discussed here.
I am quite irritated that as a result of all these shenanigans (read corruption and greed) it is now just expected that the middle class should just pay a higher percentage of their income to housing, take on more debt, etc. And all this on top of a growing health care crisis.
I no longer respect a number of business and finance related professions including all professions along the diseased digestive tract that makes up the mortgage to MBS market (Tanta, you are a wonderful exception and I am sure there are more but I won't know who they are). I will never make another significant financial decision in my life that I do not completely understand myself. Unfortunately, this costs some time but I have discovered those you pay for help are often either untrustworthy or incompetent.
It is clear that many of the losers in this mess will be those who do not have a business education and trusted others for their supposed disinterested expertise and this includes not just those who are purchasing houses, but pensions, 401ks etc.
I hope the housing market crashes and I hope the enablers of this fiasco go down in flames. Yes, I know, not very nice of me, but that is how I viscerally feel.
I am sure that as the magnitude of this situation starts to become apparent to more people, many will feel as I do. It will take a long time and a lot of work to build general trust in these prefessions again.
Oh, and people who were fans of the whole privatized social security thing. Good luck with that arguement after this.
Some people disagree with the practice, but I specifically buy things I have cash for using credit (usually at 0%) and then pay them off.
There's also the cash-back and mileage incentives. If you have the discipline to not ever carry a balance, who cares what the interest rate is? Go for the points!
Perhaps I should have said no one SHOULD by a home as a gamble. It's a product. A place to live. I obviously know people DO buy it as a gamble, as I pointed out it was the reason we are in this mess.
The dummies here are the institutional investors who bought these MBS's without taking a second look at what Wall Street was pushing. What the Bear Stearns guy meant when he said "we assess risk" is that they assessed whether investors would buy these securities. For the MBS's that contained "no-doc" loans, I'm sure the fact that the MBS's contained "no-doc" loans was mentioned somewhere in the prospectus. Investors bought these things because they wanted the higher yield.
I suppose that if Bear Stearns had a mortage companies that was/is a captive entity, then it might be likely that they participated in committing occupancy or income fraud.
A minute taken to think about the skyrocketing number of "no-doc" loans that were being issued should have given a potential MBS buyer pause. It would have been obvious that suddenly hundreds of thousands of Americans weren't switching to self-employment.
Just as an aside, how does Google's AdSense produce a link for Loctite thread sealants on a blog about financial markets? Seems strange to me...
There are many cards that give rewards and also do not charge any interest if balance is paid. As I'm spending about $2-4k monthly on the card the reward is usually meaningful and interest is $0.
Yes, you're right, housing should not be gambling. Unfortunately, that's exactly what it turned into. Several aspects stand out -- pre-construction condo sales & flipping, the explosion in non-owner occupied properties, and the purchase of homes wherein the borrower could knowingly never afford a fully amortized payment. In all circumstances, the parties involved were banking on rapid appreciation.
Same thing's happened to the stock market ever since AG took the helm way back when. Used to be smart people bought stocks for dividends; now the focus is totally on gains in equity.
"Foreclosure levels in California are the highest they have been in 10 years and are growing parabolically (148% YOY, 21% MOM). Here in Sacramento, along with Riverside and Contra Costa, they are the HIGHEST THEY HAVE EVER BEEN. How's that for a baseline? It's now time to take your head out of the sand on this one - I hearby give you permission."
The baseline must be adjusted to reflect the 300% increase in values over the last 3 to 5 years in the Inland Empire and the huge increase in home ownership. Your foreclosure data does not seem to be as onerous when you factor that in.
'A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.'
I thought we weren't allowed to use Keynes quotes since you can find one for any agenda?
Nobody ever got fired for buying IBM. Besides, what choice did any of them have? The central bank walked them out on to the plank with free money. What did everybody think was going to happen? Keynes also commented that Marx was right when saying that the best way to destroy a nation was to destroy its money. And wasn't leopard print big in the 80s around the time of last housing bubble? Let's see some charts looking for correlation in more amusing variables like residential investment versus square yards of leopard print sold.
I have a feeling that once the banks start looking shaky, a lot of leopards will start showing their spots.
We've secretly replaced money with flimsy claims against credit. Let's see if anybody notices.
The best part of waking up
Is the Folgers in your cup!
I'm just glad that it is nobody's fault and nobody is really accountable for manipulating the price of risk (interest rates). For a second, I was getting a bit worried that our central planning-esque approach to the price of risk was leading to a systemic flaw. Keynes really put me at ease!
For those seeking a baseline on foreclosures, here's a good one:
In 2005, house sales in Rhode Island outnumbered foreclosure auctions advertised in The Providence Journal by 14 to 1. Now, that ratio has narrowed to less than 3 to 1.
America is buying so much merchandise from other countries, primarily China and selling so little back to them that shipping containers are actually becoming an environmental hazard. Apparently it is cheaper to manufacture new ones on the opposite side of the ocean than transport them empty back to where they originated.
In port cities and areas around inland freight transit terminals hundreds of thousands of empty containers are piling up. The stacks, dozens of containers high, loom over the landscape and there are residential neighborhoods in their shadow where the sun sets an hour earlier than in the surrounding areas.
On FICO
Mortgage Insider : The Orange County Register
So, ummmmmm, what did Mr Dallas do to ensure that the quality of process at Ownit improved between April 2005 and their sad demise?
So, ummmmmm, what did Mr Dallas do to ensure that the quality of process at Ownit improved between April 2005 and their sad demise?
He convinced a couple of Wall Street genuises like Marano that Angelo was doing it, too, so it must be OK. Look, concluding that "the industry is hosed" is no reason to refrain from asking Wall Street for another warehouse line.
"If enough independent companies set standards," says Bear Stearns.
"Independent" means, in this context, that they rely on Wall Street to provide the line of credit that makes the loan in the first place. It's "independent" because Mr. Marano did not, personally, write New Century's credit guidelines. What, precisely, "assess risk" means in this context is unclear, but I think it could have something to do with explaining things 47,000 freaking times.
I am pretty sure that when ownit folded he said in defense of his business model something like "if you were being offered more money to make these kinds of loans what would you do?"
Now he is saying it is something to do with the brokers and the borrowers?, where in fact it was his greed that created the problem.
"What, precisely, "assess risk" means in this context is unclear..."
In the case of Marano and other investment bank BSD's I suspect it was the risk getting a slightly smaller multi-million dollar bonus or losing a big client because they sold him/her too much securitized dung; the risk of not getting a chair when the music stopped was already covered (it's a very good business when you not only get to provide credit to those you are selling to but also, in effect, get to make the laws that regulate the process).
Somewhat off topic some what not... I wonder if Brett White will have few gems written about him when the patent pending "CR Residential / Commercial Phase Shift" comes full circle...
From an interview with Brett White at CB Ellis at the NYT
.........
Q. Why is commercial still strong while residential nationally seems to be weakening?
A. In the United States last year, for every dollar that was spent on buying commercial real estate, there were two more dollars that didnt get placed. Two-thirds of the people who wanted in didnt get in, so that dynamic is still in place. The other dynamic is leasing, which remains strong. The other thing is that there is still not a lot of new construction. Weve got declining occupancy rates and increasing price rates. You and I could walk around and count the cranes.
Q. So thats a good position to be in?
A. Thats a very good position to be in.
..........
- NY Times
..............
"at the NYT" was suspose to read "and the NYT"
I don't want to sound like a broken record but the reason these guys didn't change course is that they were making money. There was a market in which writing these loans made perfect sense for all involved then there was a transition to a new market where they didn't and some people got trapped on the wrong side of the transition.
People are trying to create some huge morality narrative around what is really just a market adjustment. In 2003 and 2004 risk/reward got detached from traditional underwriting standards and so people engaged in strategies that walked around the standards. And in doing so ended up in investments with substantial equity. In 2005 risk/reward got back in line with underwriting standards and people who walked around those standards ended up stranded and in some cases investments under water. Well that is capitalism in action, not every investment pays out.
But the fact is that timing is everything. Dean Baker sold his townhouse in 2004. From what I can see for his market that was a relatively sound decision though maybe a little premature. If I had sold my condo at that same point I would be $50,000 in the hole compared to my equity position today. Ownit filled a market need at the time, and lots and lots of people made money. Then suddenly people stopped making money and suddenly everyone is a moralist.
Certainly the bankers are not victims, they were willing participants. But likewise most borrowers were not victims. Because if you bought a house in 2003 under whatever rates and terms in most markets you are dollars ahead. If you bought that same house in that same market with those same rates and terms in 2005 you might well be hosed. But let's not engage in "I am shocked! Shocked! to learn there is gambling going on" at Rick's.
Since when is the mortgage business like gambling?
Come on, this aint poker here. This is people's lives. No one buys a house as a gamble. Do you buy cars as a gamble? Do you buy anything else that you use in your daily lives as a gamble?
The very fact that people like Bruce apparently had a paradigm shift in their perception of buying a home is the reason we are in this mess.
When the entire financial world right now is a grand Ponzi scheme, who can blame them?
Well, I, for one, am shocked at Tanta's self-proclaimed ignorance of Olsen twins.
I do not think that there exists a better icon for the American dream than the Olsen twins.
Yes, they have a kind of modern-day, grotesque doppelgänger in Paris Hilton, but the Olsen's, for all their teenage interest in boys, did not have Hilton's drunken, criminal sexuality.
No, Mitt Romney would be proud to count the Olsen's as constituents. The Olsen's are what made this country great. Let us show respect.
This reminds me of the real estate crash in Florida in 1927. Many trace the beginnings of the great depression back to that event. Are we seeing a repeat of history here?
The problem with people participating in a financial mania (and that is what this is) is that it will affect the broader economy. Lots of people are going to get burned who were not playing this game.
I search patiently, very patiently and very eagerly for the bull case. I sincerely want to believe in Goldilocks, far more than I want to believe in evolution. Fairy tales are far more satisfying than science.
And we have our troll, who is perfectly willing to step in and bullet a long, very long list of reasons why there will be a happy ending.
But then I come across something like this:
Ford family talks to Wall St. dealmakers, report
Long-time unity of Ford family being tested by problems at nation's No. 2 automaker.
May 8 2007: 12:09 PM EDT
NEW YORK (CNNMoney.com) -- There is internal dissent within the Ford family about the future of its stake in Ford Motor, as some members recently pushed to hire top Wall Street dealmakers to advise them on their holdings in the troubled automaker, according to a published report.
The Detroit News reported Tuesday that some family members invited Joseph Perella and Peter Weinberg, two of Wall Street's top dealmakers, to address the group at what the paper said was a tense meeting on April 21.
In the end the paper said the group decided not to hire the dealmakers' firm, Perella Weinberg Partners, to advise them on what to do with its holdings in the troubled automaker. But the paper said the meeting revealed growing divisions within the family that controls 40 percent of the company's voting shares.
I guess that the Ford's just see currency depreciation and the inevitable crash of the stock market differently than our pet troll.
One thing is certain: if there are a group of people on earth who have farted through more silk than the Ford's, they are long euros. Believe me.
"residential nationally seems to be weakening?"
I am yet to be convinced that that is a meaningful statement. Residential housing in Seattle is up 13% year over year, housing in Detroit is down 6.5%. That averaged out you get a 1% national drop may be important to an investor buying a bundled security, but offers little to zero guidance to someone who entered the market in 2003 as to whether they made a mistake or to someone considering buying now.
On balance would it have made sense to buy a condo on a 100% LTV ARM loan in March 2006? Well not in Riverside, CA, not with a FICO of 620. Here in Everett WA with a midscore FICO of 792 that same condo unit would have scored a 20% gain and me out some brokerage fees. In my case listening to some really, really smart professional well informed experts on the national residential real estate market would have cost me some serious change.
Lets not throw out the baby with the bathwater. Much of the reporting on this is still being driven from the investor level and yet trying to tie it down to the homeowner level when it is far from clear that is where the impact is going to hit. Too much reporting is still in terms of foreclosures being up or down by some percentage compared to last year rather than as an actual share of loans outstanding, too much coverage is still anecdotal.
After all from a strict numeric standpoint if 3 out of 1 million apples went bad in 2006 and 8 out of a million apples went bad in 2007 you have a spoilage rate that went up by 266%. And if I were the quality control manager of an apple processor that was handling 100 million apples a month I might be concerned enough to look into it, because you don't want to have a problem spread. On the other hand you wouldn't be publishing an op-ed in the WSJ about massive risk to the national apple supply.
Foreclosures are no different than apples. News that they are up 75% or whatever are meaningless unless you understand the baseline. And for the most part the reporting is shortchanging us on that one.
If it's gambling it's an amazing one - the total of subprime and Alt-A is around 2 trillion $. If 30% defaults it's 600 billion $ of bad money.
I suppose theft is only different from heist/score from the point of view of this transfer of wealth. Consider Mr Top HF manager's posted earnings of $1.7B and marvel at this wealth creation. Those boys in the basement turning out fresh $20s would be needing to put out 27 of them every second for every second of the year to catch up to him.
There just isn't equipment that good --which is why forgery is on the decline (even in NK) and hedge funding is on the way up.
Also on the decline with this "wealth creation", this shift from working and earning --to working others, investing and profiting from well-positioned sources who would never let you in late on a heisting...not yet.
"No one buys a house as a gamble."
You don't know much about real estate. Lots and lots of people buy houses as gambles, just as lots and lots of people will buy raw land unseen at auction from out of state and even out of country.
I knew that Seattle was at risk of the bubble (though we dodged it so far) when in an ad for a new luxury condominium going up the seller put in the condition "only two per customer" in the sales ad. Because there is only one reason to limit sales in this situation, it is to avoid the possibility of your buyer becoming a competing seller and depressing the market in a downturn.
People can and did buy blocks of condo units and kept them vacant in hopes of a quick resale and did use all kinds of exotic financing to make that happen. It is difficult to say how much of the current sub-prime meltdown is due to speculative hot money flowing to Phoenix, Las Vegas and the Inland Empire and using fraudulent financing to secure the units, but we know that it is a factor. We also know that just like the S&L 'crisis' a lot of that money would love a big fat taxpayer financed bailout.
Only an idiot would deny that housing taken nationally hit a soft spot starting in late 2005 and anyone who can read the business pages understands that a lot of lenders specializing in sub-prime products have closed their doors or delivered some really crappy results to their parent organization. Because 2006 was not 2003 and everyone who was partying like it was took a serious bruising. Just keep your eyes open and don't let them spin "rich people losing money" into "national crisis". Because that is exactly what is going on here.
Countrywide losing money, the Toll Brothers taking it in the shorts on cancellations doesn't make this your or my problem. Though they certainly hope you do. Look the sky may be falling, we may be on the edge of financial apocalypse. On the other hand there are always shorts and goldbugs out there predicting disaster. Just keep your eye on the ball and ask yourself what each reported number really means in context.
Mr. Tan sells 46,000 shares at 38.03.
Now, CFC up over 2 points on what news?
Look the sky may be falling, we may be on the edge of financial apocalypse. On the other hand there are always shorts and goldbugs out there predicting disaster. Just keep your eye on the ball and ask yourself what each reported number really means in context. ~Bruce Webb
Good point. I've enjoyed your commentary today...
special section for subprime lending news from OC Register
The Orange County Register : The Orange County Register
Bruce Webb said: "...On the other hand there are always shorts and goldbugs out there predicting disaster. Just keep your eye on the ball and ask yourself what each reported number really means in context..."
That's all I've ever asked for.
Sebastia
Bruce,
Foreclosure levels in California are the highest they have been in 10 years and are growing parabolically (148% YOY, 21% MOM). Here in Sacramento, along with Riverside and Contra Costa, they are the HIGHEST THEY HAVE EVER BEEN. How's that for a baseline? It's now time to take your head out of the sand on this one - I hearby give you permission. Also, keep in mind WA is a good 1 to 2 years behind CA so your D-Day bloodbath is coming, it just hasn't quite hit the shore yet.
DQNews - DataQuick Real Estate Headlines and Statistics
An interesting article in the Times on what is propping up New York real estate:
They live an ocean away, but that has not stopped the Irish from lining up to buy condominiums in Midtown Manhattan, often years before they are built.
In some cases, entire buildings or large blocks of apartments in unfinished high-rises are being sold to Irish investors hungry to own a piece of New York City.
An Irish Taste For Real Estate In Manhattan - NY Times
Mr. Tan sells 46,000 shares at 38.03.
Now, CFC up over 2 points on what news?
Maybe there's a $60/share LBO offer coming down the pipe.
I'd also like to know about rumors concerning CFC. When I last looked it was up $2.00. The option open interest is the big thing though. I counted 66,000 new, mostly out of the money puts and 23,000 new calls. The largest number of new options are for May, but the October 35 strike is also huge. So there seems to be some big rumors with big money on both sides.
Other lenders and builders also turned up today at about the same time. I guess that it's a take over rumor. The only other thing that I can think of is inside information on a surprise from the Fed.
Re FICO and the #:
OK I am ready to suffer at the slings and arrows...
My personal history as of today. Son of a Bank President(ret), 40, married, 2 kids under 10, public school. My wife and I both work public sector she a teacher I for DoD.
I did my time in Private sector and after grad. Took a 29K Managemnt job in Chemical industry. Wife taught. Had kid, had epiphany and decided stay at home. Already owned home through VA zero down.
We chose to live on mildly on credit knowing we could always catch up but could never get back time with raising kids. 2 houses later and having rewlocated to DC in 2004 we have been waiting for rediculaous market to settle.
Problem is all housing is over priced and over 417K. Still nothing down, a need a 100% jumbo through CU. MI is 11K Mdebt is 700. Can qualify for anything dont want much.
Last 24 maybe 5 X30, Last 12 only 1x30, NEVER EVER NOTpaid off a loan, car, home or anything, but also paid off a CLOSED all those stupid credit cards we got in college.
And yet our three reports each are range from 595 to 695 for both of us.
And they call us a risk. I was raised to pay everything, never file BK, never get credit assistance, blah... yet as of March 9th this year, I am a risk.
Why because we prefer now to pay cash? we dont do vacations except with cash, we dont use credit cards anymore because the bastards will up your rate on a whim....that has nothing to do with them.
I get good rates on autos, etc. PAy cash for all our furniture....but I have some risk more than the family that is SISA? Come on....one or two store credit cards and a 750 FICO that ends up in FC....
All is well and good, thank god I have VA....but in DC no houses under 417 so we wait...what ever happened to a lender interviewing you????
Jeesz, not looking at pity but what once was a great industry turned to smut.. I mean there is playboy and then there is the donkey act south of the border....
I the miss the articles...
S
Bruce Webb - "'No one buys a house as a gamble.' You don't know much about real estate. Lots and lots of people buy houses as gambles, just as lots and lots of people will buy raw land unseen at auction from out of state and even out of country."
I agree Bruce. In fact one of our illustrious hosts, CR, had something to say on that in a guest blog spot on Angry Bear in 2005.
here
Monday, June 27, 2005
The Impact of Interest Rates on House Prices
...
Historically there are periods of concurrently rising interest rates and home prices and periods of falling interest rates and falling home prices. Does this mean that buyers were making irrational decisions during those prior periods? Or are the interest rate based models flawed. The answer may shock some people: Historically interest rates have been largely irrelevant to the price of a house.
An Automobile Example
Suppose you are going to purchase a new car that typically sells for $30 thousand. Maybe you are going to finance the car; maybe you are going to pay cash. Now suppose the dealer offers you a lower financing package. Would you be willing to pay more for the car? If you still decide to pay cash, you wouldn't pay more. And if you decide to take the financing you will pocket the savings, buy a nicer car, or add more features.
The interest rate is irrelevant to what you are willing to pay for a particular car. The same is true for housing.
But the lower interest rate does indirectly have a small impact on pricing, not because it lowers the monthly payment, but because it increases demand. The lower financing package will attract some potential buyers of less expensive cars to move up. It will also make new cars more attractive to some used car buyers. So the more attractive financing will probably increase the demand for the $30K car and that might increase the price slightly.
...
Future question: Who are the Bagholders?
Professor Hamilton asks this question, If there is a housing bubble, "[W]hy are banks making loans to people who aren't going to be able to pay them back?" This is a very interesting question about market failure and moral hazard. Will it be the American taxpayers again left holding the empty bag like in the S&L crisis? I will speculate on the answer in the near future ..."
CR then follows up that last question with the Keynes quote Tanta posted.
"Along these lines, from John Maynard Keynes:
'A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.'
John Maynard Keynes, "Consequences to the Banks of a Collapse in Money Values", 1931"
Why because we prefer now to pay cash? we dont do vacations except with cash, we dont use credit cards anymore because the bastards will up your rate on a whim....that has nothing to do with them.
Some people disagree with the practice, but I specifically buy things I have cash for using credit (usually at 0%) and then pay them off. It keeps your credit rating high and lets inflation pay off some of your debt if you do it right.
Bruce Webb,
I have enjoyed your commentary today too.
I understand where you are coming from and yours is a very level-headed market-theory oriented assesment of the business environment surrounding this housing issue (I would call it a mess).
Let me state another perspective, mine actually. I am not a business type. Both my wife and I are science/medicine types. Our training was and our current professions are time-consuming and force us to take responsibility for the decisions we make. We barely have enough time to keep abreast of advancements in our fields. We did not have much knowledge or experience outside our area of expertise(it's a time thing really).
The past few years we started making more money, significantly paying down student loans (let me tell you, that whole sallie mae thing just warmed my heart), and saving. Last year we started looking for a house to buy (still haven't). Things were much more expensive than I had thought, loan types were much more complicated than I thought (I now understand these things much better, thanks CR and Tanta), and I discovered the rapid rise in prices that occured the last few years (yes, I really was not paying attention to the market as I was renting and had better things to do). I am curious and have always had a dim view of group behavior so I researched the situation. I eventually learned about all the things regularly discussed here.
I am quite irritated that as a result of all these shenanigans (read corruption and greed) it is now just expected that the middle class should just pay a higher percentage of their income to housing, take on more debt, etc. And all this on top of a growing health care crisis.
I no longer respect a number of business and finance related professions including all professions along the diseased digestive tract that makes up the mortgage to MBS market (Tanta, you are a wonderful exception and I am sure there are more but I won't know who they are). I will never make another significant financial decision in my life that I do not completely understand myself. Unfortunately, this costs some time but I have discovered those you pay for help are often either untrustworthy or incompetent.
It is clear that many of the losers in this mess will be those who do not have a business education and trusted others for their supposed disinterested expertise and this includes not just those who are purchasing houses, but pensions, 401ks etc.
I hope the housing market crashes and I hope the enablers of this fiasco go down in flames. Yes, I know, not very nice of me, but that is how I viscerally feel.
I am sure that as the magnitude of this situation starts to become apparent to more people, many will feel as I do. It will take a long time and a lot of work to build general trust in these prefessions again.
Oh, and people who were fans of the whole privatized social security thing. Good luck with that arguement after this.
Some people disagree with the practice, but I specifically buy things I have cash for using credit (usually at 0%) and then pay them off.
There's also the cash-back and mileage incentives. If you have the discipline to not ever carry a balance, who cares what the interest rate is? Go for the points!
Perhaps I should have said no one SHOULD by a home as a gamble. It's a product. A place to live. I obviously know people DO buy it as a gamble, as I pointed out it was the reason we are in this mess.
The dummies here are the institutional investors who bought these MBS's without taking a second look at what Wall Street was pushing. What the Bear Stearns guy meant when he said "we assess risk" is that they assessed whether investors would buy these securities. For the MBS's that contained "no-doc" loans, I'm sure the fact that the MBS's contained "no-doc" loans was mentioned somewhere in the prospectus. Investors bought these things because they wanted the higher yield.
I suppose that if Bear Stearns had a mortage companies that was/is a captive entity, then it might be likely that they participated in committing occupancy or income fraud.
A minute taken to think about the skyrocketing number of "no-doc" loans that were being issued should have given a potential MBS buyer pause. It would have been obvious that suddenly hundreds of thousands of Americans weren't switching to self-employment.
Just as an aside, how does Google's AdSense produce a link for Loctite thread sealants on a blog about financial markets? Seems strange to me...
There are some credit cards that charge fees for not carrying a balance
Crazy action in CFC today but the real news:
S&P to Require More Protection on Second-Lien Debt (Update4) - Bloomberg.com
There are many cards that give rewards and also do not charge any interest if balance is paid. As I'm spending about $2-4k monthly on the card the reward is usually meaningful and interest is $0.
I have a Citi card that pays about 1% of purchases back in retail gift cards. I just get $100 gas cards...just like getting cash.
Average Joe,
Yes, you're right, housing should not be gambling. Unfortunately, that's exactly what it turned into. Several aspects stand out -- pre-construction condo sales & flipping, the explosion in non-owner occupied properties, and the purchase of homes wherein the borrower could knowingly never afford a fully amortized payment. In all circumstances, the parties involved were banking on rapid appreciation.
Same thing's happened to the stock market ever since AG took the helm way back when. Used to be smart people bought stocks for dividends; now the focus is totally on gains in equity.
It's all a casino, and the house always wins.
"Foreclosure levels in California are the highest they have been in 10 years and are growing parabolically (148% YOY, 21% MOM). Here in Sacramento, along with Riverside and Contra Costa, they are the HIGHEST THEY HAVE EVER BEEN. How's that for a baseline? It's now time to take your head out of the sand on this one - I hearby give you permission."
The baseline must be adjusted to reflect the 300% increase in values over the last 3 to 5 years in the Inland Empire and the huge increase in home ownership. Your foreclosure data does not seem to be as onerous when you factor that in.
'A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.'
I thought we weren't allowed to use Keynes quotes since you can find one for any agenda?
Nobody ever got fired for buying IBM. Besides, what choice did any of them have? The central bank walked them out on to the plank with free money. What did everybody think was going to happen? Keynes also commented that Marx was right when saying that the best way to destroy a nation was to destroy its money. And wasn't leopard print big in the 80s around the time of last housing bubble? Let's see some charts looking for correlation in more amusing variables like residential investment versus square yards of leopard print sold.
I have a feeling that once the banks start looking shaky, a lot of leopards will start showing their spots.
We've secretly replaced money with flimsy claims against credit. Let's see if anybody notices.
The best part of waking up
Is the Folgers in your cup!
I'm just glad that it is nobody's fault and nobody is really accountable for manipulating the price of risk (interest rates). For a second, I was getting a bit worried that our central planning-esque approach to the price of risk was leading to a systemic flaw. Keynes really put me at ease!
For those seeking a baseline on foreclosures, here's a good one:
In 2005, house sales in Rhode Island outnumbered foreclosure auctions advertised in The Providence Journal by 14 to 1. Now, that ratio has narrowed to less than 3 to 1.
3 to 1 is a pretty scary ratio...
I would try 1 of these if I was younger and was saving up for a down payment:
http://www.mortgagenewsdaily.com/10102006_Shipping_Container_Housing.asp
America is buying so much merchandise from other countries, primarily China and selling so little back to them that shipping containers are actually becoming an environmental hazard. Apparently it is cheaper to manufacture new ones on the opposite side of the ocean than transport them empty back to where they originated.
In port cities and areas around inland freight transit terminals hundreds of thousands of empty containers are piling up. The stacks, dozens of containers high, loom over the landscape and there are residential neighborhoods in their shadow where the sun sets an hour earlier than in the surrounding areas.