This is OT but looks like they didn't cut up the credit cards in May...
The Commerce Department said retail sales jumped 1.4 percent in May, double the increase analysts expected and a sharp recovery from a 0.1 percent decline in April.
The report signaled two possible trends that alleviated some of investors' fears. First, the jump in sales could indicate that consumers plan to keep spending and pushing the economy along even as gas prices increase. It also countered concerns that the economy was about to be stymied by the unnerving combination of slowing growth and rising prices. LINK
I haven't looked at the details yet but I think this is a pretty strong indication that liquidity isn't 100% dead yet.
What I don't get is that the retail data doesn't jive with the lackluster numbers from last thursday. Only a handful said spending was good.....most were fairly dissapointing. We may find that inflation is larger component than previously thought.
The Commerce Department said retail sales jumped 1.4 percent in May, double the increase analysts expected and a sharp recovery from a 0.1 percent decline in April.
What's up with that? The retailers themselves report weakness and then we get a big jump in the official data (even excluding gas). We've seen this before too.
Something doesn't smell right.
Well.. if that holds and continues, there goes the consumer-led recession theory.
Also, FWIW, according to the inventory data autos are still piling up on dealer lots.
Perhaps all those people "giving up" their high priced homes and condos for lower priced rentals is freeing up enough extra spending money to carry this thing through?
While I know the argument of stated income for self employed people... we all should be filing federal taxes. If you are cheating on your taxes and showing less income why should you qualify for a larger loan? Anyway, stated income would certainly suck for some people but it could be overcome by alternate documentation... if you're willing to take the extra effort.
Also, I think there should be some cap to income to debt ratio. Imagine if they made it something ludicrously high like 4.5-5X your income. That would cause most people on the coasts + phoenix/vegas not to be able to take out a loan at today's prices. It would have also have put quite a dent on this bubble.
If you are thinking this is too much and becoming manipulative of the market... I don't think so, I think it would be government prescribed prudency. Why should one be allowed to take a loan that cannot be possibly re-paid? Well, never mind that one, don't see how the goverment would ask of its people what it won't do itself.
There is nothing wrong with stated income loans as long as the banks use them responsibly. However, the banks rely on the lender of last resort to bail them out if any serious problems occur. So the correct solution would be to ban the lender of last resort.
Any regulation cannot be good for the housing market....period.
Also, the housing market proxy for Atlanta has now reached 109,200 (digital billboard for Metro Brokers on houses for sale in the Atlanta MSA). It is up 2-3% since the end of may. Anecdotal, yes, but still a good indicator of regional conditions.
Obiously the 'lack of regulation' has done wonders for it.
Let me see, would you not think it is market distortion when someone with a $30k/yr gets approved for a $600k loan (which the person can't really service) and then bids for the same house against more qualified buyers?
Lax lending standards and/or the non-enforcement of whatever is in place plus the missing prosecution of scammers has lead to a housing boom that priced out even qualified buyers. All the while this was going on, many people made lots of money, now many people will have to loose lots of money. Who did this benefit?
I don't like the goverment meddling with my life. Period. But something is definately wrong when a boom like this happens.
Also, the housing market proxy for Atlanta has now reached 109,200 (digital billboard for Metro Brokers on houses for sale in the Atlanta MSA). It is up 2-3% since the end of may. Anecdotal, yes, but still a good indicator of regional conditions.
Less anecdotal is ZipRealty, which still shows inventory marching upwards. Throw in rapidly rising foreclosures plus a steep rise in interest rates, and I think the "housing slump" starts to look more like a crash later this year.
Napolean: "Retail sales are not adjusted for inflation."
One gallon of milk in the local Longs start of March was 2.89-2.99, where it had hovered for a good while. Now, June, it's 3.49. Just one data point. But nonetheless very "volatile" over three months.
Half-gallons, which I buy rarely, went from 1.89 to 2.39, if memory serves.
I kind of agree with you but Are tighter lending standards having an effect? Is it refinancing for equity withdrawal? The applications do seem like a data point to address these effects.
think that anyone who is self-employed and had a couple of bad years (negative taxable income) understands the value of stated loans.
I would hope that any regulation simply returns them to their appropriate role in hte finance system.
Which is: to prove that they'd got boatloads of verified assets from which mortgage payments can be made, because while I for one feel sorry for anyone with a couple years' worth of negative cash flow, that wouldn't be a great time to make a new home loan to anyone who doesn't have other resources. Home mortgage loans are not small-business bailout loans.
Everybody keeps forgetting that there are and have always been ways to qualify people for loans, when it seems reasonable, besides waiving income documentation. But if you do that, you have to stand up on your hind legs and make the truthful representation to an investor or a bank regulator or any other interested party that you went ahead and approved the loan, even though the debt ratios look awful, because in your sound underwriting judgment it made sense.
The only thing that is stopping people from doing that these days is that they can go "stated income" and get off the hook, by putting the borrower on the hook for fraud charges if the loan goes bad.
You want some accountability? Then outlaw stated income. And let those lenders make the "exception" loans when and if they make sense, right out there where we can all see them. So I might have to report that I made a loan at a 150% DTI. If I've got docs in the file showing that there are enough verified assets to make that payment and the borrower's income shows every sign of getting back to positive and the credit history is great, I don't give a shit what the DTI is, and nobody else should, either.
Stated income lending just perpetuates everything that is wrong with "I just want to make the numbers look good" lending.
Doing away with escrow accounts is swinging the pendulum back way too far. Revamp them; adjust more often so that borrowers aren't hit with negative balances they didn't prepare for, hold the funds in interest-bearing accounts, etc., but don't do away with them.
Stated income is the only way most self-employed people can get loans. There are hundreds of perfectly legitimate loans done with stated income applications.
I have no problem doing away with prepayment penalties, but I suspect many lenders who are in the whole for 3 years after paying off someone's debts for them might.
Let's not go crazy with the mortgage 'fixing.' If you want to really fix things, teach people how to manage their finances properly so unscrupulous brokers and realtors can't take advantage of them so easily. Don't make it so honest lenders can't do anything for the people that are already facing payment shock.
I think that anyone who is self-employed and had a couple of bad years (negative taxable income) understands the value of stated loans.
I would hope that any regulation simply returns them to their appropriate role in hte finance system.
Ya me too. Especially since self-employed like me know gazillions of folks who have been employed FOREVER, have the pay stubs & tax forms to prove it and think they are immune from problems... then when the economy hiccups they get handed a pink slip on Friday afternoon.
Folks like me who have had income roller coaster rides most of our lives know the drill when income dries up... you better have other income opportunities to fall back on and/or savings right NOW... PLUS know how to REALLY cut back (versus pretend to cut back). Those who haven't done this before are like caged pheasants released to the wild on opening day.
In short, bankers need to be bankers and ask some nosy questions - get verification. If borrowers (whether employed or pseudo-employed) don't like that then they should be prepared to pay cash.
Not to quibble with Tanta, but "stated income" is also used for a lot of refis where the LTV is still in the sub-50% range and the exposure of the mortgage, not to put too fine a point on it, isn't going to get appreciably worse.
As Bruce Webb noted a few weeks ago, when the option of renegotiation isn't available (e.g., shifting from a 15-year to a 30-year mortgage to reduce overall c( through a transition), the primary alternative available to borrowers of the Alt-A variety.
"Half-gallons, which I buy rarely, went from 1.89 to 2.39, if memory serves."
Corn's being bid up because of the whole biofuels thing. And a whole lot of our food is either made of corn or was fed corn- or corn-derived food while it still walked around on two or four legs.
Which is: to prove that they'd got boatloads of verified assets from which mortgage payments can be made, because while I for one feel sorry for anyone with a couple years' worth of negative cash flow, that wouldn't be a great time to make a new home loan to anyone who doesn't have other resources. Home mortgage loans are not small-business bailout loans.
Exactly.
In fact the few times our family had issues like that (when I was a teen)... we moved down scale big time (sold very nice homes and bought cheap fixers to mine equity) to keep the biz going. Next step was to sell again & rent - almost ended up there but not quite.
The LAST thing self-employed want to do is add an additional cash flow drain. If they do that then they don't get the 'self-employed thing' at all.
Stated income is the only way most self-employed people can get loans.
Nonsense. Poppycock. Bullshit.
Self-employed people who have income can verify it. I can make any decision I want to, as a lender, regarding how much income I have to see before I write a loan, and what else I can count (like assets). But if you're telling me that most self-employed people have unverifiable income, then you're telling me most self-employed people are tax cheats. If that's true, then I don't have to give them mortgage loans until they come clean.
Not to quibble with Tanta, but "stated income" is also used for a lot of refis where the LTV is still in the sub-50% range and the exposure of the mortgage, not to put too fine a point on it, isn't going to get appreciably worse.
That's a "strealined refi," we've done those since dirt, and it's not the same thing as "stated income" lending.
I am just getting really tired of this confusion of the issue: The lender can decide to ignore the fact that your income is insufficient to carry the loan, as long as you have some other way to carry the loan. The lender can decide not to re-verify your income on a rate/term refi because you've been making the payment on time for years and all you're doing is lowering your payment, anyway.
None of that means we need to make new loans to people who refuse to cough up income docs. Please, let's all get this. I can make a loan to you if you have verified income and it is still not enough for "standard" qualification.
True enough on the stated, Tanta....and DU is taking pretty high D/R's now - saw one the other day with a back ratio at 69%.
And while we are all chatting about the abuses of mortgage lending, take a look at the last sentence in the article.....Feds are/will be looking at Credit Card Practices too. In all honesty, if we ever tried to make a mtg loan with the terms the typical credit card has, we would all be in jail. And sued. And on 60 Minutes......
The most effective way to encourage sound underwriting is to let the mortgage lender eat the loss and not bail them out [like Chuck Schumer and his banking committe buddies have proposed].
To me the big picture, regardless of how it is accomplished, is to ensure that people can only borrow as much as the can really re-pay. Part of the qualifier being that they shold be able to live out the terms of whatever loan they take out. You want an interest only loan with a ballon payment somewhere down the line? Well, then somehow you should demonstrate that you'd be able to make that payment based on your savings rate, etc. Otherwise that loan should NEVER ber written in the first place because it distorts prices. IF the real intent of taking out a loan is home ownership not house flipping then there should be no issues with this. What's the point of buying something you can't afford in the long term? (in other words, you can't really afford it period)
Anyway, banning no doc loans, stopping this, requiring that... I don't really care. Just make sure that the people in the housing game can really afford it... in that way the best bidder wins, not the one with the most creative financing.
Ban on stated income loans? I don't know for certain but I have the belief that stated income was largely in the AltA space.
If this happens it might destroy the Alt-A lenders. It will strangle the housing market at a time it's already struggling to breath...
This is OT but looks like they didn't cut up the credit cards in May...
The Commerce Department said retail sales jumped 1.4 percent in May, double the increase analysts expected and a sharp recovery from a 0.1 percent decline in April.
The report signaled two possible trends that alleviated some of investors' fears. First, the jump in sales could indicate that consumers plan to keep spending and pushing the economy along even as gas prices increase. It also countered concerns that the economy was about to be stymied by the unnerving combination of slowing growth and rising prices. LINK
I haven't looked at the details yet but I think this is a pretty strong indication that liquidity isn't 100% dead yet.
Dryfly,
What I don't get is that the retail data doesn't jive with the lackluster numbers from last thursday. Only a handful said spending was good.....most were fairly dissapointing. We may find that inflation is larger component than previously thought.
The Commerce Department said retail sales jumped 1.4 percent in May, double the increase analysts expected and a sharp recovery from a 0.1 percent decline in April.
What's up with that? The retailers themselves report weakness and then we get a big jump in the official data (even excluding gas). We've seen this before too.
Something doesn't smell right.
Well.. if that holds and continues, there goes the consumer-led recession theory.
Also, FWIW, according to the inventory data autos are still piling up on dealer lots.
Perhaps all those people "giving up" their high priced homes and condos for lower priced rentals is freeing up enough extra spending money to carry this thing through?
The qualifier in the very last sentence of the AP report: "Retail sales are not adjusted for inflation."
Is that just in reference to gas prices or all retail sales?
All retail sales.....
Why would retail companies try to warn us of lackluster sales for June if everything is so strong?
The euro is still in the doldrums...relatively speaking.
And the stock market is not exactly shooting up like a roman candle.
The more I think about it, the more I believe that the "financial sector" is really 90% debt and 10% value.
If that's the case, phew.
Note that it mirrors the consumer sector, which is 103% debt.
Maybe things can stay like this forever. I don't think debt levels can get much higher though...I think.
The qualifier in the very last sentence of the AP report: "Retail sales are not adjusted for inflation."
Is that just in reference to gas prices or all retail sales?
Well, if the CPI is up 1.5% in May, we'll have a very interesting situation on our hands.
I guess that's key.
Dear CR,
Any chance you will post on rise in mortgage applications?
Best regards,
Dear CR,
Any chance you will post on rise in mortgage applications?
I don't know about CR, but I stopped looking at mortgage applications once lenders stopped approving every loan application they got.
In other words, I don't think that a rise in mortgage applications corresponds to a rise in approved loans or home sales like it did last year.
While I know the argument of stated income for self employed people... we all should be filing federal taxes. If you are cheating on your taxes and showing less income why should you qualify for a larger loan? Anyway, stated income would certainly suck for some people but it could be overcome by alternate documentation... if you're willing to take the extra effort.
Also, I think there should be some cap to income to debt ratio. Imagine if they made it something ludicrously high like 4.5-5X your income. That would cause most people on the coasts + phoenix/vegas not to be able to take out a loan at today's prices. It would have also have put quite a dent on this bubble.
If you are thinking this is too much and becoming manipulative of the market... I don't think so, I think it would be government prescribed prudency. Why should one be allowed to take a loan that cannot be possibly re-paid? Well, never mind that one, don't see how the goverment would ask of its people what it won't do itself.
There is nothing wrong with stated income loans as long as the banks use them responsibly. However, the banks rely on the lender of last resort to bail them out if any serious problems occur. So the correct solution would be to ban the lender of last resort.
Good point.
Any regulation cannot be good for the housing market....period.
Also, the housing market proxy for Atlanta has now reached 109,200 (digital billboard for Metro Brokers on houses for sale in the Atlanta MSA). It is up 2-3% since the end of may. Anecdotal, yes, but still a good indicator of regional conditions.
Obiously the 'lack of regulation' has done wonders for it.
Let me see, would you not think it is market distortion when someone with a $30k/yr gets approved for a $600k loan (which the person can't really service) and then bids for the same house against more qualified buyers?
Lax lending standards and/or the non-enforcement of whatever is in place plus the missing prosecution of scammers has lead to a housing boom that priced out even qualified buyers. All the while this was going on, many people made lots of money, now many people will have to loose lots of money. Who did this benefit?
I don't like the goverment meddling with my life. Period. But something is definately wrong when a boom like this happens.
Also, the housing market proxy for Atlanta has now reached 109,200 (digital billboard for Metro Brokers on houses for sale in the Atlanta MSA). It is up 2-3% since the end of may. Anecdotal, yes, but still a good indicator of regional conditions.
Less anecdotal is ZipRealty, which still shows inventory marching upwards. Throw in rapidly rising foreclosures plus a steep rise in interest rates, and I think the "housing slump" starts to look more like a crash later this year.
I meant to say... how does this benefit society as a whole?
I think that anyone who is self-employed and had a couple of bad years (negative taxable income) understands the value of stated loans.
I would hope that any regulation simply returns them to their appropriate role in hte finance system.
Napolean: "Retail sales are not adjusted for inflation."
One gallon of milk in the local Longs start of March was 2.89-2.99, where it had hovered for a good while. Now, June, it's 3.49. Just one data point. But nonetheless very "volatile" over three months.
Half-gallons, which I buy rarely, went from 1.89 to 2.39, if memory serves.
Always a good read
Five Things You Need to Know: Retail Sales; Import Prices; Jump in Rates Somehow Boosts Mortgage Applications; Tighter Lending Standards Hurting First-Time Mortgage Defaulters; "The Man" Ext-Minyanville
Dear ac,
I kind of agree with you but Are tighter lending standards having an effect? Is it refinancing for equity withdrawal? The applications do seem like a data point to address these effects.
Regards,
think that anyone who is self-employed and had a couple of bad years (negative taxable income) understands the value of stated loans.
I would hope that any regulation simply returns them to their appropriate role in hte finance system.
Which is: to prove that they'd got boatloads of verified assets from which mortgage payments can be made, because while I for one feel sorry for anyone with a couple years' worth of negative cash flow, that wouldn't be a great time to make a new home loan to anyone who doesn't have other resources. Home mortgage loans are not small-business bailout loans.
Everybody keeps forgetting that there are and have always been ways to qualify people for loans, when it seems reasonable, besides waiving income documentation. But if you do that, you have to stand up on your hind legs and make the truthful representation to an investor or a bank regulator or any other interested party that you went ahead and approved the loan, even though the debt ratios look awful, because in your sound underwriting judgment it made sense.
The only thing that is stopping people from doing that these days is that they can go "stated income" and get off the hook, by putting the borrower on the hook for fraud charges if the loan goes bad.
You want some accountability? Then outlaw stated income. And let those lenders make the "exception" loans when and if they make sense, right out there where we can all see them. So I might have to report that I made a loan at a 150% DTI. If I've got docs in the file showing that there are enough verified assets to make that payment and the borrower's income shows every sign of getting back to positive and the credit history is great, I don't give a shit what the DTI is, and nobody else should, either.
Stated income lending just perpetuates everything that is wrong with "I just want to make the numbers look good" lending.
Doing away with escrow accounts is swinging the pendulum back way too far. Revamp them; adjust more often so that borrowers aren't hit with negative balances they didn't prepare for, hold the funds in interest-bearing accounts, etc., but don't do away with them.
Stated income is the only way most self-employed people can get loans. There are hundreds of perfectly legitimate loans done with stated income applications.
I have no problem doing away with prepayment penalties, but I suspect many lenders who are in the whole for 3 years after paying off someone's debts for them might.
Let's not go crazy with the mortgage 'fixing.' If you want to really fix things, teach people how to manage their finances properly so unscrupulous brokers and realtors can't take advantage of them so easily. Don't make it so honest lenders can't do anything for the people that are already facing payment shock.
That's right; everyone ignore the other part of the piece, where mortgage lenders get to keep your money, interest-free, so that taxes get covered.
Great plan, that. Especially for people whose income is not steady (including people for whom year-end bonus is a significant part of compensation).
I think that anyone who is self-employed and had a couple of bad years (negative taxable income) understands the value of stated loans.
I would hope that any regulation simply returns them to their appropriate role in hte finance system.
Ya me too. Especially since self-employed like me know gazillions of folks who have been employed FOREVER, have the pay stubs & tax forms to prove it and think they are immune from problems... then when the economy hiccups they get handed a pink slip on Friday afternoon.
Folks like me who have had income roller coaster rides most of our lives know the drill when income dries up... you better have other income opportunities to fall back on and/or savings right NOW... PLUS know how to REALLY cut back (versus pretend to cut back). Those who haven't done this before are like caged pheasants released to the wild on opening day.
In short, bankers need to be bankers and ask some nosy questions - get verification. If borrowers (whether employed or pseudo-employed) don't like that then they should be prepared to pay cash.
Not to quibble with Tanta, but "stated income" is also used for a lot of refis where the LTV is still in the sub-50% range and the exposure of the mortgage, not to put too fine a point on it, isn't going to get appreciably worse.
As Bruce Webb noted a few weeks ago, when the option of renegotiation isn't available (e.g., shifting from a 15-year to a 30-year mortgage to reduce overall c(
through a transition), the primary alternative available to borrowers of the Alt-A variety.
"Half-gallons, which I buy rarely, went from 1.89 to 2.39, if memory serves."
Corn's being bid up because of the whole biofuels thing. And a whole lot of our food is either made of corn or was fed corn- or corn-derived food while it still walked around on two or four legs.
Which is: to prove that they'd got boatloads of verified assets from which mortgage payments can be made, because while I for one feel sorry for anyone with a couple years' worth of negative cash flow, that wouldn't be a great time to make a new home loan to anyone who doesn't have other resources. Home mortgage loans are not small-business bailout loans.
Exactly.
In fact the few times our family had issues like that (when I was a teen)... we moved down scale big time (sold very nice homes and bought cheap fixers to mine equity) to keep the biz going. Next step was to sell again & rent - almost ended up there but not quite.
The LAST thing self-employed want to do is add an additional cash flow drain. If they do that then they don't get the 'self-employed thing' at all.
Stated income is the only way most self-employed people can get loans.
Nonsense. Poppycock. Bullshit.
Self-employed people who have income can verify it. I can make any decision I want to, as a lender, regarding how much income I have to see before I write a loan, and what else I can count (like assets). But if you're telling me that most self-employed people have unverifiable income, then you're telling me most self-employed people are tax cheats. If that's true, then I don't have to give them mortgage loans until they come clean.
Not to quibble with Tanta, but "stated income" is also used for a lot of refis where the LTV is still in the sub-50% range and the exposure of the mortgage, not to put too fine a point on it, isn't going to get appreciably worse.
That's a "strealined refi," we've done those since dirt, and it's not the same thing as "stated income" lending.
I am just getting really tired of this confusion of the issue: The lender can decide to ignore the fact that your income is insufficient to carry the loan, as long as you have some other way to carry the loan. The lender can decide not to re-verify your income on a rate/term refi because you've been making the payment on time for years and all you're doing is lowering your payment, anyway.
None of that means we need to make new loans to people who refuse to cough up income docs. Please, let's all get this. I can make a loan to you if you have verified income and it is still not enough for "standard" qualification.
True enough on the stated, Tanta....and DU is taking pretty high D/R's now - saw one the other day with a back ratio at 69%.
And while we are all chatting about the abuses of mortgage lending, take a look at the last sentence in the article.....Feds are/will be looking at Credit Card Practices too. In all honesty, if we ever tried to make a mtg loan with the terms the typical credit card has, we would all be in jail. And sued. And on 60 Minutes......
The most effective way to encourage sound underwriting is to let the mortgage lender eat the loss and not bail them out [like Chuck Schumer and his banking committe buddies have proposed].
To me the big picture, regardless of how it is accomplished, is to ensure that people can only borrow as much as the can really re-pay. Part of the qualifier being that they shold be able to live out the terms of whatever loan they take out. You want an interest only loan with a ballon payment somewhere down the line? Well, then somehow you should demonstrate that you'd be able to make that payment based on your savings rate, etc. Otherwise that loan should NEVER ber written in the first place because it distorts prices. IF the real intent of taking out a loan is home ownership not house flipping then there should be no issues with this. What's the point of buying something you can't afford in the long term? (in other words, you can't really afford it period)
Anyway, banning no doc loans, stopping this, requiring that... I don't really care. Just make sure that the people in the housing game can really afford it... in that way the best bidder wins, not the one with the most creative financing.