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Much as I try -- and it's not very much -- I can't surpress the urge to blame Phil Gramm for a lot of this.
Tanta, we're not in "cleanup mode." We're in "throw another sandbag into that gaping hole in the levee" mode.
So let me apologize to everyone on the short bus.
Apology accepted.
...those stupid 2/28 ARMs everybody made, counting on the borrowers to refinance or sell the property before the adjustment blew their capacity to repay out of the bong water.
Nobody in the industry has the guts to say the one thing that needs to be said; "We're sorry. We made a mistake. You cannot afford your house and we should never have provided the means and false hopes that you could. Now we need to work together to get you (and us) out of the mess we created together." Third rail reality indeed.
"They were careless people, Tom and Daisy- they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made."
F. Scott kinda said it all 80+ years ago, didn't he?
Great post Tanta. More people should have your sense of justice.
I do have a confusion. What in the world is a patootie?
I thought this a a pg-13 blog!
The best PONZI scheme in recent history. Greenspan invented it. Early ones were the winners everyone else will be the losers. First originators don't care they sold the mortgage long ago. Music stops and now its only a couple of chairs left. Anyone with a brain had to see that lots of these borrowers were toast unless double digit returns continued. Any pull back in jobs now will kill most. LOL.
Well said.
Damn. I mean, just damn.
--
Thanks, Tanta, for proving my conclusions, reached several years ago, about the American econo-political system on a regular basis:
A govt. of the Crooks, by the Crooks, and for the Crooks.
BTW, did anyone catch the panel discussion on BOOK TV, yesterday, on former Fed Gov Gramlich's book on sub-prime? He admitted that "we" didn't foresee what the 1% rate would do. There was a woman from the Fed and a guy from MBA.
Bankrupters and Fraudsters of New York City, with help from the Fed, would go down in history as one of the worst group of evildoers. Please remember this in ten years from now when there will be mayhem around the globe started by these evildoers. Evil occurs in many forms.
Jas
Tanta,
Splendid post.
I now have a vision of Barney Frank riding in a short bus, playing with a wind up toy.
Tanta,
From one that was called "deadbeat" by at least half a dozen law firms when I began this fight and countless other individuals, all I can say is "Thank you".
You just described the last six years of my life fighting to save my home from an illegal foreclosure initiated by Fairbanks Capital/Select Portfolio Servicing - from the Wall St side. Yours is the perspective that I KNEW existed - I just don't have the knowledge to discuss it properly.
Again, Thank you.
Ultimately, it's the MBS buyer that provided the crucial component to this great mess. I presume some original buyers knew they were time bombs and KNEW they could dump them well before the bomb went off. But at the end of the day, we had supposedly intelligent investment professionals buy into yet another money losing product.
I empathize with the ignorant and in many cases greedy, foreclosed homeowner. At a minimum, society should discontinue paying anyone that purchased the failing products. THEY WERE PAID TO KNOW BETTER! NO EXCUSES!
Absolutely awesome post!
Tanta,
Thank god my wife does not read this blog. I have called her "My Sweet Patootie" for years. I thought it was just a nonsense word. Thanks for the tip. This is a word that won't be used with reference to that sweet wonderful woman.
Tanta,
Awesome. Great insight.
Thanks.
Wonderful post Tanta.I find your loving outrage and clarity of expression completely charming.
Blessings upon you Tanta -- Slowly, the shouting is getting louder than the windstorm (swirling with viscous bordello cockroaches), thanks to posts like yours.
Why did the the homeowner mortgage holder borrower risk their futures to get the bigger more expensive house? Why did they believe the salesmen of the homes and mortgages?
Hard to resist doing what your coworkers are doing.
What I had not understood is why the lenders were making these mortgages. Now through this site it is becoming somewhat clearer how the money changers have made millions or billions in commissions trading these mortgage backed securities, and you gotta have mortgages to feed the trading monster.
Increased costs of living in food, fuel and energy will increase pressure on the mortgage holders, the people.
A few months ago Bill Fleckenstein had posted an article on the CDOs and derivatives. He a finance professional and finance writer, did not understand how that system was working. Not understanding the finance system you are participating in, leaves one vulnerable to the tooth and claw of the financiers.
i kind of like off-BS accounting. at least those guys disclose the assumptions they use to value resids (not in enough detail for my taste, but still). plus, if u do off-BS accounting, u can do NIMs. and who doesn't like NIMs?
i wasn't around back then, but hasn't this debate happened before, where there hysterics about banning off-BS accounting?
and on a completely unrelated topic, i don't like this idea that MIs are way better at pricing risk than lenders. if lenders suddenly had to retain every loan they made, they would suddenly be much better at pricing risk. i think that most of the time lenders know when they're pricing risk poorly, but they do it as long as they can sell that bitch into the secondary market for a profit. i think the more appropriate thing to say is MIs are much better at pricing risk than MBS investors, which is definitely true.
PS, Tanta, is that a reference to one of the greatest cartoons of all time, Krazy Kat? maybe you should throw a brick at these reporters who are trying to put a damper on our good times...
bacon dreamz is right. if you have a chance to et burned, your concentration and judgement go way up
Tanta, just to give you a sense of how confusing all this is for me (and probably many others), at first glance I read Weil's article as totally in agreement with your view of the situation. Maybe I was just distracted by the rhetorical flourishes that were akin to your own style (cracks pipes and wind-up toys).
Thank you for a brilliant and enlightening post.
Friday's Action Was A Much-Needed Dose of Reality -- Seeking Alpha
and this from loan broker describe the only solution:
"Unless the fed steps in on Monday or Tuesday, and lowers the prime rate by at least a point, there will be no strictly Alt-A lenders left. The wholesale lenders that had Alt-A sides will be eliminating and drastically tightening guidelines on Monday morning: no reduced documentation, no NOO´s with ltvs greater than 65-80%, second homes only to 80%ltv or less, increased credit score requirements,reducing or eliminating high ltv/cltv´s, and requiring borrowers to have more in reserves. Big wholesale lenders like CW, WF, Indymac will be rocked, and if you haven´t protected your scenario already by locking or having the loan approved, that scenario will probably not fit the guidelines on Monday morning.
It´s not going to go back to 20% downpayment, 720 scores, 6 months in reserves.....it will be MUCH more restricted than that.
It is no longer about how much ysp you can make. It´s if you can get that borrower a loan at ANY WHOLESALE LENDER anymore. "A" paper conforming lenders were surprised at how quickly funding was pulled from the US markets, and they are now reeling as well. Monday will bring BIG guideline changes for "A" and what´s left of Alt-A. Unless the Fed steps in Monday or Tuesday, and lowers the prime rate dramatically, you will see Alt-A go the way of subprime....by the end of the week."
which to me sounds: Go back to doing biz in a way that make sense.
Mortgage Grapevine: What other lenders are teetering on the edge?
Ultimately, it's the MBS buyer that provided the crucial component to this great mess. I presume some original buyers knew they were time bombs and KNEW they could dump them well before the bomb went off. But at the end of the day, we had supposedly intelligent investment professionals buy into yet another money losing product.
This reminds me of banker saying that BSC are some of the most inteleget people he met and I am sure he is right.
I have met some very intelgent people in my life as well. The problem most have is not lack of intelgence but too much hibris (hubris?): They know they are so smart they will able to pass on the hot potato just in time by their intelegence they convince other people that it is not at all hot.
Tanta,
I am having to re-think my attitude on this whole mortgage thing. Living close to 'ground zero' here in FL I have a haughty attitude concerning my 'neighbors'.
I have guilt over my attitude. Thank you for bringing me back to earth.
--
Don't forget, Tanta, that tech bubble was also pumped up by accounting fraud whereby Scam Options were not expensed by the companies. In that fraud pressure was put upon FASB to back off and let the companies do what they want.
Accounting fraud is at the root of turning the whole US financial system into fraud.
I bought and advised others to buy long-term puts on Fraudentials and Hopebuilders precisely for the reasons that you have mentioned.
Jas
I suspect my mother (the special education teacher) would be much more comfortable with someone who is profoundly retarded than someone who runs a hedge fund. I would trust the former and send the latter for a long walk on a short bridge loan to nowhere.
and who doesn't like NIMs?
NIMrods?
Certainly you are right: the MIs are better at pricing risk because they've nearly always understood that as an insurer, they're taking it. That does help.
They have also always been big proponents of modifications. Actually I should take back my sweeping claim that "servicers" have always done this. Prime, agency, and old-fashioned long-haul subprime servicers have always done this. The new kids on the block who sprung up in the last few years and pretended to be subprime experts? Not so much.
Part of me, of course, would just be tickled pink if these deals were forced back onto lender balance sheets. Kiss your "BK remote" status goodbye, investors. I just don't think that redefining "generally accepted mortgage servicing practices" to preclude anything short of foreclosure is the appropriate excuse to use to fix the BS problem.
End of the day, off-balance-sheet accounting is just like mark-to-market treatment of assets. Everybody loves it on the way up.
Remember IKB? IKB is getting bailed out, but note comment on the regulator's call:
"The rescue of IKB, a specialist lender based in Dusseldorf, began on Sunday when Peer Steinbrück, the German finance minister, called leading banking executives to discuss a bailout. According to people who took part in the conference call, Jochen Sanio, head of Germany's financial regulator, is said to have warned of the worst banking crisis since 1931."
Huh? Credit crisis I understand, but this characterization is pretty amazing. And we're not talking Jim Cramer here, I mean, I would expect only the driest and sanest commentary from a German bank regulator. I've a fairly grim view, but this guy reads a higher grade of tea leaves than I do...I hate to see him agreeing with us here.
june 22nd- bsc issues not that big a deal
quasi consensus here at CR
hmmm, aug3rd...now down 40 bucks...
is the kettle releasing pressure or increasing pressure
Tanta, excellent post.
When I think back to Wamu's recent proposal to extend/modify Option ARM minimum payments for additional years as streamline refis (no appraisal required), I wonder if some modifications should not be made. Isn't a refusal to acknowledge and deal with bad loans up front one of the main factors in Japan's financial/economic malaise?
When I look at the systemic risks in the system it seems that at their core they all boil down to allowing people to make promises that they don't have the wherewithal to keep.
Whether it's banks who lend out their depositors money while simultaneously promising to return that money on demand. Or, borrowers who agree to loan terms they can never actually pay back. Or, hedge funds that write credit default swaps that they don't have the assets to back up. In the end there's a promise that can't be kept.
The endgame forces us to choose between various options, all bad. Government can step up to keep those promises by impoverishing all of us through money printing and inflation.
Promisors can be forced into debt servitude, but that tends to collapse the economy (i.e. Great depression). Promisees can be stiffed creating great injustice as the assets of the prudent and hard working are wiped out.
The only good option is eternal vigilance to prevent these situations from happening in the first place. However it's too late for that now. Once the empty promises have been made there is no way to unscramble that egg without great pain. It would be just if we could dump that pain onto the guilty parties but, by definition, they don't have the resources to bear that burden. If they did then they would be able to keep their promises and there would be no problem.
Unfortunately, like it or not, we're all in this together and we'll all pay the price in the end.
Wonderful post!
Just as the well-heeled (sp intended!) tried to stop the drop to sanity in the 29, so too there are those that will try to salvage this mess.
Lets all live with inflation 'cause a few ratty bas****s were driven by greed masked as the Amer. Dream? Huh?
I think rates are going up, not down. Example: P&G's biggest issues right now are commodity prices.(And, oil now running $75/bbl...anyone remember the oil crisis in the early 70s and the resonating inflation?).
I am haunted by an odd question: If a pool of morts. falls to 0 value (no takers) in the open market, does the underlying value also fall to 0?
Society allowed morts become commodities.
Ultimately, it's the MBS buyer that provided the crucial component to this great mess. I presume some original buyers knew they were time bombs and KNEW they could dump them well before the bomb went off. But at the end of the day, we had supposedly intelligent investment professionals buy into yet another money losing product.
This reminds me of banker saying that BSC are some of the most inteleget people he met and I am sure he is right.
I have met some very intelgent people in my life as well. The problem most have is not lack of intelgence but too much hibris (hubris?): They know they are so smart they will able to pass on the hot potato just in time by their intelegence they convince other people that it is not at all hot.
The players are one element. My point is that if the real portfolio managers refused to buy this garbage in the first place, we wouldn't be here!
I do find unsettling the German regulator's assessment.
Al I have to say to it Jerome is Oh Shit!
Sure hope he's wrong.
--
"Society allowed morts become commodities"
No. Please don't blame society for the evil deeds of Bankrupters and Fraudsters of New York City with the help of Fraudulent Reserve System.
American political system that has supported these fraudsters is going to go down. And go down BIG! Bad things just don't happen to other countries. It happens to all countries that fall in the hands of evil people. American People were duped into putting their faith in BFNYC and the Fed. Regrettably, they must pay the price.
Jas
RThomas, remember Lew Ranieri's term for this: "combat servicing." That's what it is. What servicers are doing right now is triage. Many, many loans cannot be saved whatever you do; some of these folks couldn't carry the payment if the rate were zero and the term were 50 years. Those just go straight to the FC department, where our MBS investors will find out how cheap that is.
But there are loans that can be saved. They should be. I am hard on my industry because, whatever dumbass fantasies those borrowers were having when they signed, we were supposed to know better when we signed. (Look at your mortgage: that document is signed by your lender, too.) There is something pretty distasteful to me in blaming the least sophisticated party while letting us rocket scientists off the hook.
I should have said, but didn't, that servicers should be eating those freaking modification fees, too. As it is they'll be rolled into the borrower's balance. I don't think that helps with aligning the incentives better in the industry.
off-balance sheet accounting creates mark-to-market of assets (resids). that's true about loving it on the way up, but i wonder if someone like WaMu isn't happy to have written down all their subprime resids to zero in one shot, rather than having to keep increasing the loan loss reserve for quarters on end.
haha i just had an image of a bunch of reporters riding to work on the short bus, wearing helmets and carrying sack lunches. it all comes back to bubba gump...
They finally get it. Its not about subprime, alt a or prime.
From MSN,
Home buyers again need their own money to close a deal.
Lenders faced with growing piles of bad loans, even to borrowers once considered good credit risks, have clamped down on the no-money-down mortgage. The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. But some lenders are now scrapping such loans completely. Others are pickier about who gets them. All figure that the more cash borrowers put down, the less likely they are to default.
Ya think...
Mr. Ball, re the failure of mortgage lender IKB in Dusseldorf. The foreign exchange markets seem to be agreeing with the German regulator who said that this is a very serious problem. After all, the Swiss Franc rose 86 basis points against the dollar on Friday. Why should we care?!
Well, the Swiss have kept interest rates very low, the way the Japanese have. So, lots of people in Euroland, borrow cheaply in Switzerland, and then buy risky, high yielding assets denominated in other currencies (like CDOs denominated in USD) to capture the yield differential. I can't believe that the sharp move in the formally staid Swissie, right on the heels of the IKB failure, was coincidence. I have to assume that we are seeing a signal that trades like these are getting unwound -- which means people are scrambling to dump risky assets and pay back their Swiss Franc loans. Or -- just as likely, bankers are issuing margin calls and FORCING them to dump the assets. When you pay back the loans you are in effect selling your home currency and buying Swiss Francs with which to repay the loan, which sends the Swiss up against your home currency. Lots of people might have been doing that lately. Hence the move on Friday, I would guess.
Btw, even ordinary individuals have piled into this strategy. Not too long ago the WSJ reported on Hungarian homeowners who took out low interest mortgages denominated in Swiss Francs. The story also explained how the family they interviewed, eats rather well in months when the Hungarian Forint moves up against the Swiss -- and scrimps along when the Swiss moves up. You think ordinary Germans aren't doing the same thing? Let alone other German banks? I bet they are. If we get a wave of forced liquidations of bad MBS in Europe, the SF will surge as all the SF loans are repaid and borrowers get squeezed. I assume THAT is what keeps our staid German regulator up at night.
Aslo, great post Tanta, I can't say enough about it. I followed your earlier post about Lew Ranieri and I STILL didn't quite understand the connection between Q election and mods. Now I'd like to think I do. And like other commenters, thank you so much for your understanding of what these technicalities mean to people's lives. You are the best!
Tante,
Some questions.
1) As things now work, at what point does the ultimate mortgage owner have a say in what kinds of modifications, and for whom, they will accept? Can they/do they issue guidelines to their servicers?
2) How can one evaluate MB securities without knowing what guidelines are and again for whom modifications are being done?
3) Do the servicers approach the mortgage owners in situations like this seeking guidance?
Thanks in advance for you answers.
Is this a new Banker?
Americans in general are just traditionally pissy about "deadbeats." We're so puritan--I'm looking at you, Jas--that we can't stop getting all moralistic about it. Until, of course, it "breaks" into the respectable middle class.
My very first few months in the mortgage industry involved sitting for 8 hours a day at the desk of various underwriters, trying to learn what they do so that I could document it properly. I can remember one or two of them who just totally freaked me out. They'd get some poor not-very-literate borrower's "letter of explanation" for a past credit problem and start reading it out loud to each other, yukkin' it up over Bubba's bad spelling. Get past the bad spelling, though, and Bubba's letter frequently made perfect sense. But class-bias and a firm belief that FICOness is next to godliness, meant these underwriters couldn't get past it.
My guess is that your average reporter probably has one or two holes in his or her own credit report, while we're on the subject. But if you work in the financial press, your class-identification is strongly with those poor ripped-off hedge fund investors, not with working people who fell for a teaser-rate ARM spiel.
Called,
No still me, just violating my own rule about not venturing into Tanta's posts because I wanted a couple of questions answered, that's all. I'll be withdrawing and sticking to other threads forthwith
The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
And the only way that is going to change is when home prices return to affordable levels. In many markets -- including my own SF Bay Area -- that process has hardly begun.
1) As things now work, at what point does the ultimate mortgage owner have a say in what kinds of modifications, and for whom, they will accept? Can they/do they issue guidelines to their servicers?
They all write into the contracts what can happen. Some of the contracts refer to "generally accepted servicing practices," and that's what started this running off to FASB to see if they were going to change what "generally accepted" means here.
All servicers have to use a "best execution" model where you plug in the facts of the loan in question, and model the cost to the investor of FC, short sale, forbearance, etc. and then do whatever is least-loss for the deal. The problem is that there is not one deal. There are tranches who have differing interests.
The MIs have always required servicers to follow MI loss-mit policy if they want their claims honored. If the MI tells you to modify and you refuse to do it, you're on your own.
2) How can one evaluate MB securities without knowing what guidelines are and again for whom modifications are being done?
Just like one can evaluate the viscosity of motor oil by pouring cat litter into an EasyBake Oven. But I didn't make anybody invest in an asset class they don't understand.
3) Do the servicers approach the mortgage owners in situations like this seeking guidance?
Now they do. For a while there, they were just goin' along modifyin' loans where appropriate. Then, suddenly, certain market participants started having a cow over it, and so everybody called in a bunch of lawyers, and Paulson hired Harvey Pitt to accuse Bear Stearns of market manipulation, and then it really had to go to the SEC for an opinion.
"Just like one can evaluate the viscosity of motor oil by pouring cat litter into an EasyBake Oven. But I didn't make anybody invest in an asset class they don't understand."
LOL!!
Nice post, brings back the human side to the mortgage mess. HOWEVER, I STRONGLY OPPOSE any sort of scheme that ultimately lead to me subsidizing the irresponsible people that did not know how to say no.
When I moved to Phoenix early 2006 every single person I met hiking, at work, in the supermarket, anywhere urged me to buy. There was a lot of peer presure to buy. At work me and my wife were looked at as not being comminted enough to the job/city if we were not buying a house. Well, we didn't. All it took was a quick back of the envelope calcultation that involved out income, the cost of housing and the cost of rent. As of now, not too many people are so eager to prescribe home buying any more.
Now, back to the subsidy part... the most obvious is government intervention. Then there is the concept of renegotiating terms. Frankly this should be a cold hearted calulation where the servicer figures that they will loose less money with the new terms than by going to foreclosure. HOWEVER, there is a snag once again. Those costs will eventually trickly up to future mortages at higher interest because they need to be making a certain amount of profit. I may be naive but I think that wipping the slate clean is the best way to go. It will be a lesson of tough love for many. The polical consequences will force some serious re-thinkng of what happened here and hopefully put further measures in place to prevent this mess from happening again. Trying to save people who bought houses at 4,5,6,7,8...15 times their income deserve NO pitty. There is NO excuse for that level of irresponsibility.
Tanta, awesome post! I also recommend people read Tanta: Mortgage Servicing for UberNerds for more on how servicing works.
Best Wishes!
Heaven forfend that we shatter the "California Dream," and force people who prevaricated their way into $500,000 homes take up abode in $150,000 ones like mine. Would anyone seriously dispute, at this point, that grossly overstating one's income became an accepted part of the culture in some areas, to the point that no stigma attached to it? And what excuse can they present for not consulting, at some point along the lending process, with their own bank? You can't very well lie to your own bank about your finances. So the originators and their Wall Street enablers knew they were lying, nay, encouraged them to do so. Do you propose, on this basis, to "stiff" the ultimate purchasers of these securities, many of them foreign? And finally, just what has our new class of "victims" of the market economy, on the whole, lost? Not money, it would seem. The right to paint their bedroom walls puce, without consulting with a landlord? Break, heart, break.
--
"HOWEVER, I STRONGLY OPPOSE any sort of scheme that ultimately lead to me subsidizing the irresponsible people that did not know how to say no."
AS if you have any choice in the matter, John. All political crimes in America are committed in the name of helping People. Curse of democracy.
Jas
Hell of a post - Great job - even though I'm against anything ( which includes this ) that leads to people who've patiently waited for prices to be affordable again being short changed by the market being distorted by such rule changes and makes significant price drops less likely.
I want fairness towards not just the existing mortgagors but also to those who resisted the social pressures, the blandishments of the finance industry and patiently waited for housing to become AFFORDABLE again. Besides, it would make me look a fool in the eyes of my nephews and nieces who I've advised that they wait and not get on the housing ladder these last 2 years).
But a HELL of a post - way to go !
-K
Tanta:
I admire your interest in assisting those underwater on their mortgage payments and hopefully the industry can provide refief to our neighbors and friends. What I don't understand is this idea that since owning a home is the"American Dream" therefore it should have some sort of special status beyond a location to live and raise a family. The gov't has provided a long list of special advantages to those willing to take on a mortgage which renters do not enjoy, and the homeless have long forget about while living under freeway overpasses. I see this term used by many in the RE industry " helping people realize the American Dream" but they get commissions, fees and weekly pay checks for their missionary zeal. When we grow up we discover that Santa is a myth and babies are not delivered by storks, maybe it's time for the "American Dream" to be added to children's books.
Jas,
Would you do us a favor and put your name at the top of your posts.
That would help me skip it easier.
Seems to me that the loan modification is a major issue with MB securities. The servicer is likely to act in their own interests and keep the loan generating service income as long as possible even if that cause the security to lose more value in the long run and prompt action would.
I do agree mortgage financing has significant public policy implications. But one wonder how far this should go. Government prohibitions of no doc loans? Minimum down payment requirements? 5%, 10% or 20% Adjustable rate mortgages have risks to the borrower. Maybe they should be banned.
Perhaps the whole idea of MBS is bad idea. It's full of moral hazard all around. The originators underwrote junk loans that were all but guaranteed to be non-performing and then hold sold them off to be securitized while pocketing fat commissions.
My response to all this has been to avoid any investment that holds anything but a token amount MBS which is harder than one might think as many bond mutual fund own significant percentages of MBS.
I do have low empathy for those defaulting as their recklessness has driven home prices in my area well past the point its prudent to buy. I'd prefer own but I don't buy wildly overpriced assets.
--
"I see this term used by many in the RE industry " helping people realize the American Dream" but they get commissions, fees and weekly pay checks for their missionary zeal."
They are simply applying the new American Values -- deception, fraud, and manipulation -- to get ahead. They learned from their leaders -- politicians as well as bankers and financiers. Road to ruin is paved with...
What we are witnessing is the REAL America (and Americans) in action not the FAIRY TALE version of honesty and hard work to get ahead.
Jas
Tanta, thanks for responding to my post. I agree that any loan that can reasonably be expected to pay should be modified. I do not have a mortgage on my home, having paid it off with profits due to expert timing (some would say lucky) of re sales during the boom. Thank you Allan Greenspan!
Tanta,
I like everyone else on this blog greatly admire both your heart and eloquence.
But I disagree in part with the thrust of your post--that at the end of the day it was just regular folks buying houses who innocently got screwed...
Here in California, buying and selling houses was seen as a means to get rich. Many people now screwed in California were motivated by greed every bit as palpable that from the Wall Street MBS enablers.
Very few innocents in West L.A. Gamblers who lose should pay the piper.
"I have met some very intelgent people in my life as well. The problem most have is not lack of intelgence but too much hibris (hubris?): They know they are so smart they will able to pass on the hot potato just in time by their intelegence they convince other people that it is not at all hot."
I have known a great many of very intelligent people working in very stupid organizations towards goals that are not in the best interest of the company, society, or anything else.
But they do it, even though they know better, because that's the game they're in and they're rewarded for doing what they were told and achieving success: even if it's a "success" that a blind man could see would collapse into a torrent of sh*t within a fairly short time.
Very few of us are heroes. Most of us just take the money and see to our personal well-being.
"But I didn't make anybody invest in an asset class they don't understand."
Very true, but it is widespread. Pension funds across the country hold this shit, had absolutely no business purchasing the garbage, had no understanding of the risk, had no knowledge of the underlying holdings whatsoever, yet piled OPM into what will likely be losses that will be spoken about for generations.
A complete fiduciary, systemic failure.
This is the damn, sad underlying truth to the matter.
Piling OPM into unregulated pools of @#$%%$ garbage. They have no idea what these assholes own nor what they have been sold, but, the soon to be booked losses are real.
Pension officials in state defend hedge funds - The Boston Globe
U.S. folks not the only bagholders:
China faces backlash at home over Blackstone investment
...
Blackstone shares have fallen steeply since the company went public June 22, pushing down the value of the government's investment by more than $500 million in just six weeks. Bloggers and even some Chinese financial media have frequently mentioned the dwindling value of the government's stake, and some have been highly critical.
"O senior officials of the Chinese government, please do not be fooled by sweet-talking wolves dressed in human skin," said one of several Internet postings compiled by an anonymous blogger on Sina.com, a Chinese Web site. "The foreign reserves are the product of the sweat and blood of the people of China, please invest them with more care!"
In a sign that the Chinese government may be censoring criticism on the sensitive issue of government investment losses, the blogger's entry was visible on the Web site on Thursday afternoon but had disappeared by Thursday night. Other entries by the same blogger were blocked, but milder criticisms of the Blackstone investment could still be found.
...
I can agree with your sentiments about servicers having options for dealing with troubled loans.
However, I don't agree with allowing such loans to stay, for accounting purposes, classified as performing loans. At minimum, the original entity should need to establish a loss reserve "back on the books".
Unfortunately, far too much of the whole accounting for hire industry, serves to create hideously complex financial reporting that allows the usual suspects to extract more and more money out of public companies.
Tanta,
I'm sorry, but I respectfully disagree. In fact, I think that more lender workouts will work to maintain the disconnect between housing prices and the economic value of housing. As a result, increasing numbers of "ordinary folks" will be hurt.
The housing bubble represented a classic misallocation of resources-- an overinvestment in housing. My personal situation is a perfect example. I am currently renting a house in California that is "worth" 1.5M$ or so for 2500k$ a month. Yes-- apparently renting a house to me is significantly more desirable than lending a comparable amount of money to the Feds. It is quite flattering.
This misallocation of resources is repeated-- on a grand scale-- throughout the entire state of California. The ordinary folks with whom you are concerned are spending real money-- the type earned with a paycheck-- on similarly overpriced assets. They are doing it for a variety of reasons-- many of them, like you point out, are just trying to live the American dream. It is truly difficult to begrudge them this aspiration. At the same time, one would hope that more would realize that buying a house in California is the economic equivalent of buying a Porsche, namely, a purely emotional decision with little or no economic justification.
This profligacy stands in stark contrast with the traditional frugality associated with the concept of "buying a home." Indeed, since many Americans steadfastly refuse to save in any other way than the allocation of some portion of their mortgage payment to principal, this profligacy has the potential to leave large numbers of homeowners with very little at the end of their mortgages.
The sooner that investment in housing--as an asset-- returns to its traditional role as a safe, long term investment, the sooner that ordinary folks will benefit. The longer that housing extravagance continue, the more ordinary folks who are trying to buy a home will be hurt.
Let it burn.
Just over 150 years ago, a man could walk into the forest, bring twenty of his friends, clear an acre of land , use the timber from it, and build himself a home in under 30 days...
All he owed would be the return of his labor in helping his neighbor do the same...
--
"A complete fiduciary, systemic failure. This is the damn, sad underlying truth to the matter."
Yes, a systemic fraud -- the fiduciaries turned into frauduciarees. The regulators turned into enablers.
The Great American Fraud will take the world economies down with it.
Jas
tanta, "Certainly you are right: the MIs are better at pricing risk because they've nearly always understood that as an insurer, they're taking it. "
That brings up my question: When MIs priced risk for 2004-2006, what assumptions do you think they made? Were they pricing in 10% of all homes going into foreclosure? Do you know what their models look like and where the point is for... "Captain, I am giving all I've got but she's breaking up".
OT:
FSO Storm Watch Update "Forecast 2007: Disinflation then
Reinflation, Part 2" by James J. Puplava 02/01/2007
This guy forcast the whole thing very accuratly. this link was written in Feb 2007
Tanta,
I have read this post and sorry to say fail to understand it. Way above my level in english - not individual words but the whole meaning is lost on me with this sophisticated use of analogies. If someone can explain the bottom line to me in simple english I'll be greatfull. Thanks.
4runner & Screenwriter-
Haven't you heard? It's not their fault! They have no personal responsibility in the matter! They were "tricked" into buying homes with nothing down and a teaser rate and the belief that real estate only goes up. It's not their fault they've got more insight into Brittney Spears than how to balance their checkbook. Not their fault! Not their fault!
No worries - you can visit them in debtor prison where they'll be serving a life sentence.
But I disagree in part with the thrust of your post--that at the end of the day it was just regular folks buying houses who innocently got screwed...
I have never argued that it is "just regular folks." I have argued for years now that 1) it is possible with a high degree of if not perfect accuracy to tell the good risks from the bad risks up front and that 2) lenders stopped doing that and so 3) now there's a big problem. It will not be solved by refusing to work with anyone, because we might accidentally reward a speculator while we are helping out the people who are attempting to survive this economy we have, that throws a lot of people out of work, beggars them with health care costs, and drives up their tax and insurance costs until they can no longer maintain their homes. We used to consider that those things can happen to anyone, and therefore even if you had a super FICO and were a great person, we still made you put down some cash and qualify at a payment within your means.
But the fact of the matter is that modifications can be truly in the best interests of the bondholders. Perhaps not as much as some people like to think, but more than many do. It is cracking me up to no end that a practice developed over decades by heartless bankers is now considered bleeding heart pity for the poor. I can't help it; I've been in banking for a long time, and that is funnier than anything I have ever said in all my days.
It's good business to do good business. Our problem is we forgot that. We ripped off the whole community when we made the no-doc no-down loans to the terminally deluded. That made us a lot of money, but it wasn't good business, it's not sustainable, and here we are. Are we really so afraid of a few folks getting a modification of loan terms that were unconscionable to start with that we are willing to go this far?
However, I don't agree with allowing such loans to stay, for accounting purposes, classified as performing loans. At minimum, the original entity should need to establish a loss reserve "back on the books".
I have no problems with that.
4runner,
You have hit the nail right on the head.
The problem was that the rate of appriciation in Ca. made it "economic" to buy. ("buy now or be priced forever")
so far Prices are far from falling enough and thus what you wrote here:
"buying a house in California is the economic equivalent of buying a Porsche, namely, a purely emotional decision with little or no economic justification. " - is unfortunatly not true (yet)
All, I'm very surprised at some of the comments on the thread. The referenced articles tried to claim the servicers were doing something different than what they've always done - Tanta points out that is not true.
There is plenty of blame to go around for the housing / credit mess. But solely blaming the borrowers - and calling them "deadbeats" - is clearly wrong. I could make a long list of people to blame. I'm sure others could too.
BTW, Tanta predicted this conflict between servicers and investors long ago.
Best to all.
--
Some of us doomsayers have known it for few years. Fed funds rate of 5.25% were bound to create the current conditions.
Below are my two posts made on 06/21/05:
"America Is Leading the World... to Financial Ruin!"
The quote is from Kurt Richebacher, a former Central Banker.
I have reached the same conclusion independently. Any economist worth his
salt knows about Consumption Debt and its consequences. And crooks
masquerading as economists hide this fact from the public.
The Fed is giving us the "mushroom treatment"
I love it. What better way to prepare the populace for the financial
slaughterhouse? Keep it in dark and feed lots of economic cow manure.
Jas
-x-x-x-x-x-x-
Is The Fed Going to, Or Has Been Forced to, Put the US E-Con On a Suicidal Path?
Bill Gross said something revealing on Bloomberg, "it [raising the Fed Funds rate above 3.25%] may not be suicidal, but it would be a mistake." If I read in-between the lines, I think that Gross believes that the hyper-leveraged US economy cannot handle a Fed Funds rate above 3.25%. He also said that the Fed would start cutting the rate in 2006. I think that by that time we would have arrived at the proverbial pushing on the string.
Soon after, a clip from Stephen Roach, " the 3% rate is still candy for carry-traders and peculators...," was played. Amazing as it may seem, they both are right! Roach is right in that the rate would have to go quite a bit higher than 3.25% to put any dent in speculative plays and the Housing Bubble. And Gross is right in that that would be a suicide for the US economy.
The time not to be in a situation where the US economy is forced to commit suicide has been long past. Now, the US economy has been put on an
auto-pilot, of measured pace, until it commits suicide by plunging into a
depression without any more medicine left as a cure (being able to push more debt on public via low rates).
Greenspan has never demonstrated an ability to foresee a recession before
the economy was already in a recession. Why would it be otherwise this time?
Start warming up to the Deflationary Depression. The single best market
signal of this is that the long-term US Treasury bonds continue to
out-perform stocks. From the current level of household debt, no mortal can
save the US economy from depression. And deflation is an overwhelming
favorite, 20:1, in the race between deflation and inflation because the
demand will plunge.
Jas
Haven't you heard? It's not their fault! They have no personal responsibility in the matter!
Gamma, can't you see that to some of us, that's exactly what the investor community sounds like? Nobody told them that there is risk with mortgage-backed bonds, especially with underwriting standards thrown out the window! They wuz robbed!
It is the Great American Pastime to blame a bad investment strategy on someone else. It is also the height of chic to want to "bring it on" when we're talking about "market corrections" for someone else. Human nature is what it is.
I notice no one is volunteering to disgorge the proceeds they got from selling these homes to these suckers I'm supposed to be foreclosing on without exception.
one thing i will note is that a lot of agency loans that were originated by some lenders of questionable repute (and now questionable solvency) are not serviced by the originator; the loans are sold through someone like wells or countrywide who then sell the loans to the GSEs and do the servicing. The GSEs win again! Damn them and their "standards"!
This is the place to watch the real action:
INO Foreign Exchange - US Dollar/Japanese Yen (FOREX:USDJPY) Price Chart and Quote
I was jumping up and down about this issue a year ago. Thank goodness there are now knowledgeable people looking at the issue.
Tanta,
I notice no one is volunteering to disgorge the proceeds they got from selling these homes to these suckers I'm supposed to be foreclosing on without exception.
I'm reminded of a joke (embelished somewhat to fit the times).
An investment banker walks into the store and buys an expensive item. He's undercharged. He doesn't say a word.
The next week that same guy walks into the same store and buys the same item. He's overcharged. He complains. He screams. He makes a scene.
The cashier says, "You didn't complain last week when I accidentally undercharged you."
The investment banker replies, "I had no problem forgiving the first mistake. I assumed it was just an accident. There's NO way I can forgive the second mistake though! Your mistakes are starting to hurt people!"
Reuters at: ACA Capital shares could fall on subprime: Barron's
| Reuters reports:
NEW YORK (Reuters) - ACA Capital Holdings (ACA.N: Quote, Profile, Research) shares, already down 50 percent in the last two months, could fall further if the subprime mortgage crisis continues, Barron's said on Sunday.
ACA, with a market value of about $260 million, has guaranteed $61 billion of collateralized debt obligations, including subprime and other instruments backed by various corporate and commercial mortgage debt, Barron's said in its August 6 edition.
--
Ghost of the Greenspan Past:
Posted 2/23/2004 11:39 AM Updated 2/24/2004 2:13 AM
Greenspan says ARMs might be better deal
By Sue Kirchhoff and Barbara Hagenbaugh, USA TODAY
WASHINGTON - Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.
In a standing-room-only speech to the Credit Union National Association meeting here, Greenspan also said U.S. household finances appeared generally sound, despite rising debt levels and bankruptcy filings. Low interest rates and surging home prices have given consumers flexibility to manage debt, he said.
"Overall, the household sector seems to be in good shape," Greenspan said.
Americans have been buying homes and refinancing mortgages at a record pace in the past several years, lured by low interest rates. Most mortgages are fixed rate, so consumers can prepay when rates go down but do not face higher costs if rates rise. Under adjustable-rate mortgages (ARMs), which made up about 28% of mortgages in January, borrowers usually have lower initial rates but face the risk of higher payments if rates in the broader economy rise.
While borrowers can refinance fixed-rate mortgages, Greenspan said homeowners were paying as much as 0.5 to 1.2 percentage points for that right and the protection against a potential rate rise, which could increase annual after-tax payments by several thousand dollars.
He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.
"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said.
...
Long time reader of this most excellent blog. Fantastic post.
Watching the horror unfold from Canada, I feel like a vulture: our loonie has rocketed, your property and shares will plummet - one of the greatest reversals of fortune in history is coming, and you better hope its us polite types who will come to your rescue.
p.s. did half of you really vote for Bush a SECOND TIME? Can the other half who didn't get along with the first group?
I can see from the responses above that the blame game has started but, really, get past it, because you're all gonna need to work together to get through this.
Tanta-
I agree with you that there are many portfolio managers that are completely inept and that are going to lose (or have already lost) too much of their investors money. They should be hung too, but, and this is VERY important... it is up to the shareholders in any given venture to hold the "manager" responsible.
In the case of mortgage debt holders (shareholders), they are going to hold the manager (aka home buyer) responbile by foreclosing. I strongly urge hedge fund shareholders to do the same with thier managers and strongly suggest stock shareholders do it with their overpaid managers. But if they choose not to - it's MORE their problem than mine.
Just because it's chic to whine, certainly doesn't mean we should encourage it.
Finally, I don't think you'd see people saying "bring it on" if the stupidity and laziness wasn't so damned rampant. As I've said here before... when people know more about the dating scene in Hollywood than they do about THEIR OWN MONEY, it's a bit hard to feel sorry for them when they're seperated from it. It takes hard work to create your own path in life and to walk your own walk. Sometimes that may take you with the crowd and sometimes it may call you to stand alone. You will only have the conviction to stand alone if you've done your homework. It's called work hard, play hard. Too many people only want to play hard. They'll be doing it in debtor prison.
Over the last few weeks I have experienced some difficulty choosing between SPY puts, QQQQ puts, and XHB puts. I have also faced some difficult decisions about strike and duration. But I must say, I am reasonably happy with the available choices.
By the way, Barry Ritholtz has taken rock blogging to a new level with a link to a Cramer dance mash up.
Hey smug Captain Canuck
I am a Canadian living in NY for ten years. Be careful what you wish for my friend. The world is about to experience a paradigm shift. Are you prepared?
Much of your(our) prosperity is a direct result of 300 million friendly prosperous neighbours to the south.
As Russia plants flags claiming the north I wonder who will be rescuing who. Much of your new found fortune may have to be spent on matters of self defense. Canada's days of living like a spoiled rich suburb of the U.S. are coming to an end.
Tanta, Please tell me none of the flippers chronicled on the web site below will receive bailout modifications.
http://bubbletracking.blogspot.com/
It will be discovered in 2-3 years that very few of the mods will work out, for either party. The lenders will face taking possession of properties and disposing of them at discounts of 30%+ compared with what they could recover today.
So, if your wish is for the lenders to take a bath, let them do a lot of work-outs. Poorly capitalized upside down borrowers will find themselves further under water making the choice of walking away that much less troublesome...
SAN FRANCISCO (MarketWatch) -- Bear Stearns Cos. co-president and co-chief operating officer Warren Spector resigned Sunday at a meeting of the firm's board of directors, according to a published report.
A story in the online edition of the Wall Street Journal Sunday, citing an unnamed person familiar with the matter, reported that directors agreed that Alan D. Schwartz, Spector's partner for more than five years, will for now be the sole president of Bear.
The lenders are making a huge mistake in human psychology. Two FBs: 1st FB underwater, irresponsible gets loan modifications that by definition must be less onerous. 2bd FB sucks it up, works hard and keeps current and thus stuck with the worse original terms. The first whiff that Countrywide is modifying terms for distressed borrowers and EVERY one of their loans will go 30 late in 30 days. These people are not going to "seek representation" or contact their congresscritter. They'll have a blog site inside a week and a petition to CFC with 10,000 signers and a groundswell of "don't pay your mortgage" witihin a month.
Watts,
Things aren't always what they seem. A lot of us still remember the Avro Arrow.
Once you get past a few noisy voices like Barbara Amiel, Ignatieff, David Frum, and the Prime Minister there are a lot of independent-minded Canadians (not to speak of Quebeckers) who are ready to go East-West.
Cote, excellent point. Past workouts were probably very localized and small in scale when compared with overall number of loans outstanding. Now 10s of millions of loans will reset in the next year giving lenders that choice. Lenders will soon be forced to foreclose.
Bear Sterns has a board of directors meeting in August on a Sunday. Yep there's nothing to see here folks, just move along...
"I notice no one is volunteering to disgorge the proceeds they got from selling these homes to these suckers I'm supposed to be foreclosing on without exception."
No chance. My suckers had a Bush/Cheney bumper sticker.
Warm up the RTC- this is going to get ugly fast without a lot of work to mitigate the damage.
Wall Street seems to be incapable of dealing with the real estate business cycle.
Now, am I the only one who sees that this lockup in prime mortgage credit is going to cause massive price dislocation as 20% is abruptly reinstituted at a national level?
This is ridiculous- how many investors are going to want to put 20% into a market suffering massive dislocation?
AzRepublic today:http://www.azcentral.com/news/articles/0805fringe05.html
Massive foreclosures starting on fringes of the valley.
So now the sickening drop and empty houses are already starting- how far can we let the damage go before a crisis is apparent to the political leadership?
As Tanta says, many of the people who were sheared were not told about cheaper or more stable financing options- now you want to blame them- they will be rightly pissed at the system that allowed them to be ripped off from the get go. Jas, your advice would put us straight into depression- a fate that Bernanke will not allow- hence liquidity must be restored to markets to allow speculators/investors to purchase properties to make a profit. Without liquidity, our modern financial system is toast. Now, while I don't happen to think what we have right now is optimal, you can not shock the system without huge collateral damage that is unacceptable to the long term stability dynamic. In other words, the stock market can crash and mainstreet will essentially yawn. But crash the property markets for houses and commercial property nationwide and you will be a villian in the history books long after the crowd has torn you asunder.
Next to that a little bailout/credit easing looks like a safe bet.
The Fed doesn't wait for the data when a crisis presents- if it did there would not be enough solvent folks left to pick up the pieces.
After all- what are you going to do?
Have some inflation or stuff all of the property owners making payments by allowing their neighbors to get away with sweetheart terms on their loans?
This deal just keeps getting worse and worse, and comments sounding like Andrew Mellon are just encouraging more folks to mail the keys in and forget about it.
The Fed knows the financial system rests entirely on confidence, confidence which is being shaken to the core behind the scenes of Wall Street's stock market face.
I don't care if the market gets clocked for four thousand points- killing the housing market for a decade is an outcome that can't be allowed to happen.
Someday this war's gonna end....
Yup, cheap labor and materials. But the Indians (Kiowas,Sioux,Cheyenne) as neigbours would make people a little nervous, wouldn't you think so. Makes me remember the movie "The Unforgiven" which i saw as a teenager. But it sure was a nice ranch type home. Sturdy too, if it could take so much weight of cattle above the roof. Good movie. lol.
With the threat of a large number of foreclosures looming, it makes sense for the bond holders to renegotiate instead of foreclose for at least some cases. Some irresponsible owners and speculators should not be helped, but why take a huge loss in foreclosure if some families are willing to keep paying their mortgages after some change in terms to accomodate an unusual or unforseen circunstance?
I have trouble seeing the other side in this debate... is it possible that some bond holders want their properties foreclosed on immediately so that they can beat other bond holders in selling their REOs before a total housing collapse? If so, selfish and shortsighted.
In any case, some change in terms is even more warranted when you consider that many people who may be in trouble should have probably been put in lower interest loans--> This sentence: "that half these loans, the homeowner could have been put into a coupon at 6.5 versus 9.5 and that led to the question, the 800-pound gorilla in the room we dealt with, is the system broke?" from the 4/28 CR article -->
this older post
Tanta, it's a great post and accurate in every point it addresses.
But there is an issue you are not addressing, which is that what portfolio loan holders are doing is to totally rework many loans to prevent them from defaulting. This is not traditional, but it is necessary, and as this situation wears on, many of the borrowers are increasingly unlikely to be able to refi elsewhere.
One ends up with a massive change in terms to keep them paying, or taking REO and the attendant losses. This is the MBS disadvantage, because this requires far more than a couple of month's forbearance, and in essence the servicer needs to reunderwrite the loan.
They'll be doing it in debtor prison.
Gamma | 08.05.07 - 4:40 pm | #
wrong
barely and Robert,
Excellent points. There is no stopping this thing now. Delaying tactics will only make the end result worse for everyone.
Once again, you are not doing borrowers any favors by letting them "hang on" to overpriced assets.
You are just sucking them dry at a slower rate.
Tanta:
I'm confused. Does an inability to spell "judgment" correctly indicate mild or profound retardation?
Hmmm... that's interesting. I did NOT make that last post. Yes, I made that comment earlier, but I did not repeat it as a single entry.
That sure will screw up the blog if people just start posting as people they are not.
Gamma, that's a copy and paste of your comment
So if I know of a dilapidated property that just got it's 2nd NOD n 3 months ad I offer 60 cents to the lender for the note(on say, Sept. 10) and IF he accepts, the following happens:
Bank eats 40 cents for Q3
Bank records a 60 cent profit for Q3
Bank no longer has to reserve for loss provision, freeing up 100 cents of captial?
Follow the hash marks.... otherwise known as reading between the lines
no offense
If you want to see a replay of Japan's slow devastatingly depressing housing bust and economic downturn, workouts are the correct recipe. The only thing we have going for us is our willingness to take a loss and move on. The faster prices are permitted to clear the better and the faster we can return to a functioning market.
A question:
how would reworking all these loans help the current situation in which we find ourselves? would it not just prolong and possibly worsen the situation?
Reworking the loans necessarily means that someone is taking a loss. That someone is surely an investor in some tranch of an MBS/CDO/CDS/Synthetic CDS, right?
So now, you rework all these loans for all these overextended borrowers, buying them some time. Great.
However, I still would think that the market remains broken
-because now investors in the mortgage/secondary mortgage market see the risk that the terms of their loans (and thus their return) can change at any time, right? This makes any mortgage-related security essentially worthless, as its underlying value is even more unsteady than it is today.
-if the servicer is also the originator and if there are buyback provisions, could the originator then not screw the investor by reworking the loan and buying just enough time to season the loan out of the buyback period?
-and current homeowners will see other homeowners get a "better deal" thus they will perversely get an incentive to default themselves
-and those prudent enough to wait it out in places like CA will see that they truly are "priced out forever" since those with homes never have to give them up... even if they can't afford them. They just have to keep getting their loan terms reworked... like some freakish eternal IO loan or something.
-but then I come back to affordability again. In the end, these people are often defaulting EARLY in the loan terms, often BEFORE it even resets... this would indicate that many of these people can't even afford the teaser rates on their loans!
In the end, reworking loans seems like it benefits certain overextended homeowners and also certain investors OVER other homeowners, future homeowners, and certain investors...
is my logic off?
JBA is right. Board meeting on a Sunday.
Bear Sterns is probaly in deep, deep shit.
This is not good at all.
Anyone has some gossip or rumors? Banker you had made a promise if I remember correctly. We're eager to hear the dirt
I agree w/ barely and 4runner's most recent posts.
"failure at a slower rate" = "Japan's depression".
Well put!
Watts,
We picked up our kid from preschool on 9-11. Guess who was patrolling our skies? Uncle Sam. Same with the North Pole - Uncle Sam was there militarily way before Ivan, way before armed Inuit Rangers.
The USN surfaced a boomer there not too long ago. Alaska's not far away, so I assume they'll keep coming.
What I'm saying is, I'm not smug, I'm a realist, and thank you I am prepared for what's coming - I've been on the sidelines and in cash - although admittedly by necessity (RE market too high and down payment is stashed safely). Maybe this will be my one big break...although I missed the tech bust, too, another stroke of luck...
Feel free to come back when your health care runs out, by the way -
I'm definitely smug about that.
Yearning to Learn:
They are not supposed to rework the loan unless it meaningfully raises the chance of getting paid back.
Rod:
"The spelling judgment is found in the Authorized Version of the Bible. However, the spelling judgement (with e added) largely replaced judgment in the United Kingdom in a non-legal context, possibly because writing dg without a following e for the /dg/ was seen as an incorrect spelling. In the context of the law, however, judgment is preferred. In the U.S. judgment strongly prevails. As with many such spelling differences, both forms are equally acceptable in Canada and Australia, although judgment is more common in Canada and judgement in Australia. In New Zealand the form judgment is the preferred spelling in dictionaries, newspapers and legislation, although the variant judgement can also be found in all three categories. In South Africa, judgement is the more common form." - Wikipedia
Now I suggest you go look up the terms pedant, pettifogger and pecksniff. Apply liberally.
Canuck, don't worry about my health care LOL! It's about 10X as good as you could hope to get in canada. I know. I lived there. My father had to come to the USA to get surgery that his canadian health care givers decided wasn't useful, probably because of his age, and rationing. Saving resources for those a little younger than him Rationing works a liitle less favorably when the government is making decisions. Not interested.
Michael Moore is a total joke. The trouble is there are a lot of dopes that take him seriously. Docu-dramas using cherrypicked footage real life.
Tanta
Thank you for an insightful look at a tragic situation. Here in Phoenix, Arizona the Sunday edition of the Arizona Republic had a front page story on the wave of foreclosures that are hitting the fringe of the valley of the sun. Having lived through the last real estate downturn in the early 1990s I can tell you that having foreclosures surrounding your home can destroy one's sense of safety, equity, and harmony. You hit the situation dead on when you described it as the third rail. I have been dreading this point in time for the past 34 months, since I realized the enormity of the wave of foreclosures that was headed our way.
barely -
Mr. Moore may be a joke, but these guys aren't, and they're planning to wind down Medicare, Medicaid, and Social Security to pay for the GWOT. Have a nice day.
The "primary" blame here is clear, the IB's and regulators that allowed the leverage in the system to reach the current extremes.
It did not have to get to this point, greed got us here, now, we are faced with the aftermath.
Tough period ahead.
Cap'n Canuk,
Here's the deal. Boomers and interceptors in exchange for tar sands. Deal? You really need to read Watts more carefully. Canada enjoys many of the benefits of close association with the US. It will undoubtably suffer from those same associations in bad times. Canada carries less international importance than California, just harsh reality. Vancouver is starting to feel a little housing slowdown along with its closest neighbors to the south.
Robert, Interceptors. Right. (see previous post)
A better military analogy might be the fates of the F-111 Ardvark and A-12 Flying Dorito. Both at their times were designed by comittie to fill what at the time was a vital need. Both thankfully cancelled when it was learned that the laws of physics could not be spent and legislated away like all other political obstacles.
Everyone needs to understand there just is not enough money to engineer a graceful landing where everyone can walk away. That time was 2+ years ago when we should have been ramping with 50bp increases instead of 25bp.
NZ50 down 1.6% 1 hour after opening.
Ruh Oh.
Albrt:
I see. How very clever of you to cut and paste that for us all.
I pointed out Tanta's spelling mistake only because it came on the heels of a cheap laugh at the expense of the retarded.
But cheer up, Albrt! Maybe we can take the extra 'E' and give it to you! Then you can be Albert. Would you like to take part in a big vowel movement?
"That time was 2+ years ago when we should have been ramping with 50bp increases instead of 25bp."
Robert, I disagree, the leverage could have easily been controlled without choking off the consumer.
The current push-back is causing the "creators" to wallow in their own shit for awhile, unable to book the end-ticket. There ain't no easy fix for this one.
Wow, AllenM, that story you linked to from the Arizona Republic (I'll repeat the link here, - AzRepublic today: site map - azcentral.com - arizona web site and I'll add that you need to look for the article "Foreclosures soar on outskirts" by Catherine Reagor - definitely gives a vivid picture of what is happening on the front lines.
And the comments, at least 11 pages worth of emotional, angry, and hurting people, on all sides.
Well worth reading and pondering how this will affect the "discourse."
Be careful Captain Canuck the rapid rise of asset prices could be more of a monetary signal than you appreciate. Your big break could turn into a big dud if your timing isn't just right. The seeds of accelerating inflation are being sowed and this fact will favor those who own assets.
All civilized countries should strive to offer universal health care so I agree with you there.
Robert: ... there just is not enough money to engineer a graceful landing ...
Just to harp on this once more ... there's not enough money to continue the war (hat tip to AllenM)
A couple of other issues surrounding this spring to mind:
Whatever possessed them to get here from THERE - there were so many danger flags and prudent behaviors that they missed along the way.. I don't see them as the deserving delinquent - sorry, I just don't - so go BK, get foreclosed on both houses, treat it a as a lesson learnt, rent and move on IMO..
-K
Don't overread the BSC board meeting.
Here is what likely happened
1) Schwartz sticks knife in Spector middle of last week, Cayne concurrs;
2) Word leaks to WSJ on Friday (gee, I wonder how that happened?);
3) Board meets over weekend to get done what is already widely known to be happening. It is the prudent thing to do.
I suspect this meeting had only one real purpose. I have no other info at the moment.
Well, I can Imagine brokers and american dreamers=speculators doing it all over again given the opportunity.
Most people never learn, that's why we will always have booms and busts. It really is awful that it has to be this way. Seems like our knowledge of economics and human behavior is still insufficient in order to dampen these effects.
Rod:
I appreciate your interest in people's vowels, but I simply can't justify taking any more of your valuable time - your extraordinary spelling talents are desperately needed in so many OTHER places on the internet.
Banker,
You may well be right that there was only one item on the BSC Sunday Night Board Meeting agenda.
However, might it also be possible that item #2 could be their stock price falling from 170 to 108 over the last five months, over 25 million shares traded on Friday and no end in sight to the decline?
And (per speculation here) could item #3 be other time bombs ready to go off, and, you know, what they might be able to do about them?
Banker,
I served on the board of a number of small public tech companies back in the 90's. In 1997 I had just got back to Atlanta after watching the first round of Tiger's first Masters win. Sitting back with a martini, completely relaxed and the phone rings. The audit committee needs to meet with the Price Waterhouse auditors on Sunday in Boston. Management cooked the books. CH 11 in December that year. Weekend meetings have a big influence on me...
"Yearning to Learn:
They are not supposed to rework the loan unless it meaningfully raises the chance of getting paid back."
As my grandma said "sounds like somebody's got a case of the supposed-to's!" (joking tone)
If this is how it works out, then I have little issue with loan-reworking.
I just have this feeling that this isn't what's going to happen.
Instead, I see zombie securities that are barely held together... and investors (like grandma's pension) really being the final bagholder as they can't get out of their investments...
And then I see all future investors steering clear of mortgage securities due to the "new" risk...
but moreso, I feel that this really will be a small percentage of folks out there. because how many people are going to want to rework their loan to stay in their DEPRECIATING house? People are willing to spend 10x salary when RE only goes up... but will they try to get a loan "rework" when their home is falling in value?
I guess we'll see!
is this the end of an era? how long again until confidence in secondary mortgage market returns?????
YTL
Rod, I have been spelling judgement that way for a long, long time. When I draft in Word, I let Word change it to judgment. When I compose with Blogger, I do my own spelling.
I also double final consonants in words like focussed and labelled. Mr. Dictionary will also tell you that that's old-fashioned. My dear co-blogger still writes "an historian," which is also dated but perfectly acceptable.
I do, though, occasionally misspell things, especially when I am typing quickly. I therefore appreciate the fact that there is always some self-righteous member of the Orthography Police to set me straight in the most pompous manner possible. That's the beauty of the internet.
If you wish to make an argument that my use of the term "profoundly retarded" was inappropriate, just make it. I might even have agreed with you. But the bad faith of your response suggests to me that I'd be better off looking for sensitivity training elsewhere.
Tanta,
Please let me add my kudos for a superb post.
I can't tell you what a relief it is, after all the shrieking and pot-banging of the 'No bailout!' crowd on the bubble blogs, to hear a strong and intelligent representation of the other side.
Please, people! If you won't listen to compassion, how about self-interest? Nearly all of our mortgages are currently in the MBS pot. We owned our house for 5 years and in the course of that time the mortgage was sold three times. Each time we got a new mortgage servicer and each time there was a hassle and some back and forth before the new servicer acknowledged and registered the payments that had been sent to the old servicer. And don't even get me started on the mess with our tax payments out of the escrow account! Now do you really want to encourage them to go straight to foreclosure proceedings whenever their records show a missing payment?
And for those of you screaming about the people with $500,000 homes and $30,000 incomes-- read Tanta again:
Nobody I know of is just blindly offering modifications to these folks; quite honestly, a huge percentage of them can't get anywhere with a mod.
and again here:
Many, many loans cannot be saved whatever you do; some of these folks couldn't carry the payment if the rate were zero and the term were 50 years. Those just go straight to the FC department, where our MBS investors will find out how cheap that is.
We are not talking about people who never had any hope of being able to afford their payments. We are talking about taking people out of exploding ARMs and putting them back into the fixed rates that we have traditionally had-- and that many of them thought they were getting in the first place. (And yes, that DID happen often. I know I'm not the only one who asked for a fixed rate and was sent an ARM 'by mistake'. It happened to my brother-in-law, too. We are both experienced and knowledgeable enough to catch it -- and to insist that no, we DIDN'T really think an ARM would be better.)
Please keep it up, Tanta-- there are many, many of us who read and appreciate, but don't often speak.
Tanta
Great post, I think that the lenders and borrowers are to blame, I agree the servicer has an professional obligation to make a serviceable loan. Making a whole slew of loans that are not going to be paid off is going to cost everyone, even those of us who are not leveraged at all living in a small home. I never trusted the mortgage lender not to make me a slave or worse.
What is the business ethic of running a company that implodes into bankruptcy harming their clients, stockholders and their employees? Must be that Enron business model.
I just read Sarah's post and now remember we had some trouble when our mortgage company or mortgage was sold around 14 years ago. I cannot remember the specifics of the difficulty.
I am glad not to be leveraged at this time.
Those big homes I see in this area that is not so bubbly, still seem more than the average person or family can afford.
Watts,
I take your first point completely. I am worried there..
Peace!
CC
Nikkei down about 300 just after open.
But if you work in the financial press, your class-identification is strongly with those poor ripped-off hedge fund investors, not with working people who fell for a teaser-rate ARM spiel.
I think a bunch of those working people were watching infomercials, ie Carlton Sheets.
i don't have any direct experience hedging MSRs, maybe somebody will help me. how do MSR valuations account for the potential for loan mods?
Rod, put on your helmet and get back on the short bus...
As for me, the ones I don't want bailed out are those that filed "no-doc" loans.
The only reason someone would willing pay 100 basis points more for a
loan with no-doc than with doc is if they are lying. They are either
lying to the lender about their income or they are lying to Uncle Sam
about their income. Those guys were dishonest from the get-go and
should go down in flames.
As for the rest, I figure a lot of them weren't that financially sophisticated and got bamboozeled by Mortgage Brokers just looking for closing a deal that produced large fees.
Tanta is right in giving some sympathy for them. Good to keep it in perspective....
All these great comment's on the reworking of loans makes me believe that the BHPH crew of junk yard car lots found there way into the Mindustry....
just get them into a payment, get'em to pay as long and as much as possble, then , take the car(asset) back and find a new sucker...
Over, and over, and over
Caxton/ARt advisor's big japan player's ....
Did they reposition?
I therefore appreciate the fact that there is always some self-righteous member of the Orthography Police to set me straight in the most pompous manner possible
I think I'm about to have a vowel movement...
Asia doesn't like what happened in New York on Friday.
Ugh. Every time I see one of these self-righteous posts about how all homebuyers who took out risky loans were 'greedy' I wish I could implant one of those little greeting-card-style audio chips in said posters' eardrums which blared "buy now or be priced out forever" every time they even thought of blaming those who got suckered.
A reminder to all of you torch-bearing villagers: It isn't going help the economy or stop any more bubbles from happening if you direct your anger at the wrong targets. In fact, in this case, it makes matters worse. What do you think will happen when a bunch of homebuyers become disinfrancised and hopeless? Think socialized losses, and think a bigger tax burden for yourselves, my friends. You'll do a lot more good if you let your anger flow in the direction of the moneybag holders, not the bagholders.
I want all of these buyers, whether fearful, greedy or both, to be the lender's problem, not mine. Make the lender eat its lousy loan terms, and the lender will learn not to make such a bitter meal for itself and the rest of us ever again.
I would rather prefer that my fellow Bay Area penninsular dwellers feel a bit of pain to convince them that, in the long run, reasonable debt-to-income levels are probably the better part of valor. After all, most of them are reasonably intelligent and, in the last five years, have nuked my chance at raising my soon to be born son in a house without taking on crushing amounts of debt, despite my somewhat reasonable means and my wife's considerable means.
I will admit that no small part of my preference comes from an ugly sense of schadenfreude and, perhaps, an unjustified sense of privilege. After all, plenty of people have raised wonderful families in apartments. For that I am willing to temper my opinions somewhat. Still, I can't help but think that there is a reasonable component of justice in it.
Very well written post.
Cheers,
prat
I was looking thru the june posts, thinking back at the brookstreet, bear , atricles...
I came across your Bear Anagram...
Went to the Anagram site
Typed in Mortgage Fraud...
And the first response was freakish and bizarre....I'm sure it has deeper meaning, but that I may bneed help with...
Internet Anagram Server : Anagrams for
mortgage fraud
try it, seeing as this is a PG site
Sarah,
As long as its the note holder (or the servicer for the note holder) making the modification to fixed rate and not the US Government issuing a new loan to bail out the homeowner and note holder then I fully agree with any modifications they deem necessary.
In about a month it's ideal stock buying time. We're nearing the peak of bearishness. Some dip-buyers still need to be scared away.
O-Joe
Praetorian, rejoice. You'll do fine.
I envy you, and wish I could do it all over again.
"Housing Market to Weaken Even Further As Mortgage Industry Takes Cure"
Housing Market to Weaken Even Further As Mortgage Industry Takes Cure - WSJ.com
"One reason is that it takes time to absorb all the houses and condos waiting for buyers. The National Association of Realtors counts about 4.2 million resale homes for sale, along with more than 500,000 new homes on the market. That is enough to last about 8½ months at the recent sales rate; a supply of five to six months generally is considered balanced.
Foreclosures will add to the supply. Moody's Economy.com has estimated that 2.5 million homeowners will default on their mortgage loans this year and next. Some will be able to keep their homes, through "loan modification" agreements that reduce payments or through various refinance packages offered by lenders and state rescue programs. But about 1.7 million of them will lose their homes to foreclosure, the research firm projects."
Special Purpose Entities were created to help people understand the core business. So, if I'm in the business of making paper bags, I might also be trading futures on timber. The timber trading business is not core to my business and I don't want quarterly windfalls and losses mucking up the presentation of my core business. I don't want to confuse the reader of my financials, so I create another entity that basically has an umbilical cord to the parent company, but is not consolidated other than as "Investment in XXX" on the Balance Sheet and some cash transfers.
Unfortunately, it took until coffee break on the first day for someone to start cooking up abuses.
For those with some time, check out FASB Interpretation 46R and Google "Variable Interest Entities" (the new name for SPE's).
Sorry, I don't have time for a more cohesive post.
Absolutely nobody, as far as I know, is happy with any of the bad choices we now have since we've gone into cleanup mode. But this desperate attempt to keep the moral hazard in place, whether it's Cramer begging for a rate cut or bond investors demanding that FASB shoot the wounded, sink the lifeboats, and close the gates of mercy to protect the interests of the AAA crowd, is a little hard to take.
I started coming here last summer when timber prices hit the skids. I've learned alot, but it's comments like these that keep me coming back. I'm pleased and, I admit, a bit surprised, that someone with your expertise has managed to wade through so much opaque verbiage and stultifying decimal places with their sense of proportion intact.
It appears that in spite of your expertise the literature major in you still remembers the meaning of the word equity:
1 a : justice according to fairness esp. as distinguished from mechanical application of rules
Thank you for this post.
JBA and MTHood,
It is possible other things are going on at BSC. Times are a bit scary. But remember this meeting was only pushed forward a day. Other than what was disclosed on Friday in the conference call, I don't know what the board would be discussing or advising except GET MORE LIQUID!
Banker- "GET MORE LIQUID!"
Yeah. Good idea.
A month to till it's time to start buying again? I think it may be a bit longer than that, this time...
Liquidity begs the next question- how much money has been lent to the black box operations that were living on what are now nonexistent spreads.
Three funds backed by one company are just a bit of bad luck= but how many are still marking to model when they should be technically bk?
The prime brokers provided that magic liquidity, and depending on the losses might not have a prayer of getting it back if this continues.
Deleveraging works if you are first, in that BSC might get the first mover advantage and get clear before the fallout starts. But there are others....
I suspect the GSE's will be used to backstop the entire industry and Wall Street is going to learn why S&Ls used to provide mortgages.
Deregulation is beautiful in the sunshine, but when you get a big blow it wilts.
Someday this war's gonna end...
Actually I do think that for this July-August correction we are pretty much done. The market may drift a little bit higher and it will takes several weeks before the next leg down will start.
MP,
I am the master of the obvious!
Banker, like dotcommunist, you may be my kind of guy.
162 comments in this comments section. Looks like 100+ comments per post is becoming routing.
CR you really might want to consider adding a message board
Banker,
Here are my predictions regarding the BSC Board Meeting:
I'm probably wrong. And when I am, I'll admit to that on this blog.
However, something smells a tad ripe at BSC.
MtHood, BSC is in trouble, but Banker doesn't want to admit it because he is in love with BSC, but doesn't know it.
(Posted in another thread as well) For the cnbc.com challenged, here is the cramer meltdown youtubed:
YouTube - Cramer: Bernanke, Wake Up
You have to have a heart of stone not to laugh.
Banker: we bears are gloomy eeyores, but it looks like broken clock syndrome may have struck, eh?
Cheers,
prat
Regarding no-doc / low doc loans.
CSFB pointed out that 50% of subprime and 81% of Alt-A mortgages written in 2006 were either no-doc or low-doc.
An indication of how much fraud was taking place in the last year of the boom? I can't think of a single reason why this sub-group should be bailed out, except for the public good. And how on earth can you do that?
Sarah,
Thanks. Your post helped me understand Tanta's point better. Good quotes.
I agree with 4runner that slower means slower death to many who paid over priced assets. The real issue is to adjust prices - not just in MBS world but in Real(estate) world.
Banker,
By saying : "open the discount window" Cramer has told us more about BSC liquidity than BSC did. Can't be that the board does not discuss this on Sunday. I wonder which other compnies had their boards exchange phone calls on Sunday ? CFC ?
How much of their wherehouse lines are intact ? How much were from BSC ?
It makes no sense to continue a wherehouse line if you can not sell it further.
Reading into WFC action (rates on Jumbo up 1% over night) - they are now funding their own mortgages since they know they can not sell them further and that is way more expensive for them.
Rate-cut or no rate cut: Interst rates on mortgages is going up by 1% in no time.
Bear president resigns; casualty of credit crisis
Business & Financial News, Breaking US & International News | Reuters.com
NEW YORK, Aug 5 (Reuters) - Bear Stearns Cos (BSC.N: Quote, Profile , Research) co-President and co-Chief Operating Officer Warren Spector resigned on Sunday, a casualty of the credit risk crisis at the investment bank.
Bear Stearns said effective immediately, Alan Schwartz was the company's sole president.
Tanta,
You said:
"There has always been an "information asymmetry" issue with mortgage-backeds. The originator has always known more than you know. The servicer has always known more than you know. The auditors have always known more about the balance sheet ingredients than you have. This problem did not arise a couple of months ago when the ABX tanked."
Did anyone you know in the mortgage industry speak out or resign as a matter of conscience during the last few years?
leftcoast- "Did anyone you know in the mortgage industry speak out or resign as a matter of conscience during the last few years?"
Huh?
Leftcoast, did YOU ever resign from any position as a matter of conscience?
Or a daily "open thread" (Kos) aka "bits bucket" (housing bubble blog).
Here is the link for the Cramer dance remix I mentioned earlier:
http://bigpicture.typepad.com/comments/files/crystal_method_right_here_right_now_bill_poole_no_idea_mix.mp3
mp,
Yes.
My question is a request for information, not a value judgment.
Time to cover HB shorts!!!
It's no the Business Week cover: Bonfire of the builders.
Bonfire Of The Builders
As Business Week is one of the best contra-indicators available, it's now time to cover the HB shorts. I remember in 2005 they titled once: "Why we're going gaga over real estate" - with money flowing out of a house. That was the sin the real estate boom was over. Now the HB bust is over.
O-Joe
Leftcoast, if you did, then yours must be made of steel and throw sparks when you walk down the street.
Oh come on, MP. I've quit a bunch of jobs on principle. Of course, most of them were $5.00 an hour jobs. Context makes a big difference.
mp,
There will be plenty of scapegoats and lots of finger pointing in the coming lawsuits , surely someone spoke up and was ignored. Perhaps Tanta can identitfy him or her before Gretchen Morgenson does.
Banker: "I am the master of the "obvious!
Good. I hate it when all of you talk in subtleties. My eyes glaze over.
MTHood,
I like watching a train wreck as much as the next guy, but I hope you're wrong about Bear Stearns going under (I think they'll survive mostly in tact). Such a thing would send a chill up and down Wall Street real bad. Okay, now THAT was mastery of the obvious.
Awright. No more words from me. I'm going back to lurking.
Youtube is unavailable.
Is that a signal of the housing bottom?
Cheers,
prat
Leftcoast, Albrt was absolutely correct. Even I could show some principle if I was only paid $5/hour.
Meanwhile, Guys and Gals, check out Asia. It is selling off while our Japanese friends are literally out to lunch. Poetic justice.
Chrysler's new private owners have picked former Home Depot boss Bob Nardelli to head the No. 3 U.S. automaker in its effort to return to financial health, a person close to the process said Sunday.
OMFG
I suspect the GSE's will be used to backstop the entire industry
This is my guess of why they're trying to pass off specifically GNMA bonds to Chinato create a deeper market there. Of course, if China relent on the wholly-owned enterprise, that won't be the last they see of that crowd
Tanta, thanks for the UberMensch post.
OK who's the joker that voted 167 times for "Yes" in the "Should the Fed cut rates" poll? C'mon, fess up!
Bob Nardelli?! Do you mean the marketing genius Bob Nardelli, the closet automotive miracle worker, who has been hiding out at Home Depot all these years?
That Bob Nardelli?
Answers.com: Wiki Q&A combined with free online dictionary, thesaurus, and encyclopedias says:
patootie-U.S. slang a sweetheart, girl-friend; a pretty girl
Well he did do a great job with Home Depot. I guess Chrysler wanted to get someone who is well respected to lead the new improved Chrysler.
we are all screwed, your handle says it all.
This move confirms the prediction my Toad Bones and Ground-Up Dog Balls made here when the Cerberus deal was announced.
The little conjure bag said, "mp, the 'new' Chrysler is going sell a little Chinese economy car called 'Happy Cat on Wet Linoleum.' After they've failed in that, Cerberus will rape them and sell the company to the Chinese."
The clock is now ticking. Tick, tock.
I'm torn on this one. The problem I have is understanding the specific assumptions the buyer went into the transaction with, and the expectations, and the amount of information they received. Now you can't take away from people a certain amount of greed, and there isn't anything wrong with wanting a home necessarily when most folks in the US are brainwashed into believing that is what you live for, just like the white wedding etc etc. So, you have to first try to unravel what people were thinking when they borrowed, and why....
We here forget that we have an info asymmetry of ginormous proportions. To the vast majority of us here at CR, the idea that house prices can rise 10% year after year is ludicrous, therefore, if we did any kind of analysis of the potential for loan problems in the last few years, each year we would be saying to our potential borrowers (assuming we were lenders or brokers) that the chances that this American Dream is actually a Nightmare are rising exponentially with each year that this madness goes on.
But how many people who were being told by friends that they should buy or be priced out forever, or by industry shills that prices are always going up, were ever told by anyone along the way that they might be being fed a load of BS. Probably few, because that BS enabled plenty of greedy folks in the industry to take a slice of the pie over and over. Their greed was enabled by the greed of many want to be RE investors though, so it's a vicious cycle.
The problem is, you have the industry cheerleaders, specifically the NAR, but worse in a way, the vast sea of economists who couldn't put one and one together to say that this party is eventually going to end. I'd say these propagandists deserve a large share of the blame. They were enablers of the worst sort.
Slightly behind are the people who should have seen what was happening and found a way to put an end to the madness, but they were completely asleep at the wheel. Now, it didnt take rocket science to figure out that a ton of these loans would crash if house prices stopped rising, and it clearly didnt take rocket science to figure out that one day house prices would stop rising. So, what exactly were these people doing? Hmmm? Only two answers. One, they are incompetent and didnt see it, or two, they saw it, but they knew who was benefitting in the end, and liked to see those people work another massive income redistribution method. Same players who thought the tax cuts of GWB were a good and fair idea. It's really hard to make the argument that Greenspan et al didnt see the mess they would inevitably create. They just liked wathcing the rich get richer while the middle class got to pretend.
But caught in this mess were plenty of people who were duped, preyed upon, and otherwise taken advantage to grease the system.
In the end, how do we decide who deserves any kind of modification? If you stated income that you didnt have, forgetta bout it.
pt. 2
You should be toast. If you were buying multiple homes, again, toast. I think the problem here is that many many people should be toast, and since there are so many, and it is so much work to figure out who shoudl be toast and who should be helped, we'll just go ahead and milk everyone to try and fix things.
Of course this infuriates anyone who sat on the sidelines, not investing because of the massive attendant risks, even if it was potentialy their first home. So you sit around and wait for prices to come back in line with rents and incomes, because you think you know that's the way it's supposed to be. Frankly, I dont see how they can save this mess, no matter how many mods they try. And if house prices have to plummet, well, so be it. It's a shame that it will hurt many people who were just trying to find a place to live, but ya know, they had every chance to do their homework. I could have bought, and for years didnt, and was razzed by everyone in their mother for it, since they were all getting rich. Yeh, that's real genius. Well, it's incredibly hard to feel sorry for most of these folks. I'm going to keep looking for some who really deserve sympathy. When I find them, I'll let you know.
HK, I dont trust CSFB any further than I can spit for no other reason than CSFB now owns Fairbanks/SPS. Of course I'm biased but not only did they purchase Fairbanks/SPS little more than a year after it had settled USA/Curry v. Fairbanks but they also infused the company with $3B worth of loans to service. When the sale finally closed with PMI, Fairbanks/SPS got another $3B in loans. The bottom line is that CSFB knew exactly what it was purchasing and why. PMI had a fire sale in order to mitigate it's own losses generated by Fairbanks/SPS and CSFB scooped up a servicer with a scratch and dent legal history for a mere $140M if I remember correctly. And if youll notice, everyone has been running around trying to buy their own servicing to bring it in-house enough to be profitable but far enough away that should one of them get out of control again, like Fairbanks/SPS did and STILL is, they arent so hobbled that they cant fling it on the chopping block and sell it off before it drags them totally under.
Now, everyone can jump up and down and point fingers that this mess is the sole responsibility of a.) the borrowers b.) the investors c.) the brokers d.) the underwriters e.) all of the above. Personally, I choose e. because much like Jonathan Weil's analogy somebody's got to make it, someone distributes, somebody's got to sell it, and someone has to buy it.
HOWEVER, what no one is paying any attention to is f.) the actual servicing of these loans - which is still where at least a portion of the problem exists. Someone with the numbers correct me but I believe approximately 80% of the loans originated are diced into some form of RMBS. From there the servicer controls everything. And, as Sarah pointed out, at the VERY least servicers are negligent in their duties at times when information transference is absolutely crucial. At other times they are outright fraudulent and, IMO blatantly criminal, in their actions. And, like it or not, even though RESPA mandates that no late fees, etc. can be charged to a borrower within a 60 day period of servicing right transference it still happens with alarming regularity. And once that snowball starts rolling there simply is no stopping it with many of the servicers out there conducting business these days. After all, its only illegal if you get caught.
Servicers MAKE MORE MONEY by KEEPING BORROWERS IN DEFAULT as opposed to the standard servicing fees. Unfortunately, as far as I know, there is no good way to compare the number of loans that are legitimately in default with the number of loans that a servicer CLAIMS are in default. This is because the servicers are solely in charge of their books with zero transparency anywhere. Fairbanks/SPS, Litton (of BSC/C-Bass fame), Ocwen (recently "de-banked") and EMC all have a long line of complaints against them. One common thread between them all is that payments that are made on time are being held until they are past the borrower's grace period thus fraudulently creating a default scenario and generating late fees. In the majority of cases those late fees go directly into the servicer's pocket as "additional servicing compensation". This point is not debatable because I have proof of this in my own case against Fairbanks/SPS as do a myriad of other homeowners/ mortgage servicing fraud victims. It is a FACT that this happens with servicers. And as long as servicers compensations/bottom lines are tied directly to the rate of default/foreclosure and the servicer is allowed to control that rate of default/foreclosure this problem is not going to go away.
As Business Week is one of the best contra-indicators available, it's now time to cover the HB shorts. I remember in 2005 they titled once: "Why we're going gaga over real estate" - with money flowing out of a house. That was the sin the real estate boom was over. Now the HB bust is over.
O-Joe
Joe
Except the housing market by most metrics didn't start seriously trending down until June 2006. Now if BW was at a minimum of 6 months behind on that side of the fence, a bottom in housing couldn't possibly begin until Q2 2008 at the earliest. When you add in they haven't even been sniffing around CRE at all yet, Q3 2008 may start getting you in the ballpark.
After we_are_all_screwed made a thoughtful comment about Chrysler, I despatched Conjure Bag to channel with the dead Billy Durant and his dead friends about Chrysler's problems.
Conjure Bag reported that Billy Durant was unimpressed with the current crop of Detroit asskissers. He said it time for a "new idea." Lithium ion technology could be used for the batteries, but available motors wouldn't absorb the thermal energy. Durant checked with his friends Louis Chevrolet and Charlie Kettering. Chevrolet said, "Well, you could put a water jacket around it." Charlie Kettering said, "Bullshit, that sounds like an old Chevy. Make a brushless motor with a HOLLOW coil. Circulate liquid nitrogen in the coil to absorb the heat." Kettering then added, "Billy, you need to keep these marketing assholes out of the shop."
When reminded that it was 2007, not 1907, Kettering said, "Cut the engineering staff to 100, the design staff to 10, kick ass, take names, and in 18 months, using lithium ion battery technology, you could build a car with carbon composite coachwork and a liquid nitrogen cooled DC motor that would torque the rubber right off the wheels."
Oh, wow! Here's an important AP dispatch. Huh?
Bin Laden Search Stalled
President Bush, Afghanistans President Hamid Karzai and first lady Laura Bush in a golf cart at Camp David, Md., on Sunday.
Good Night and Good Luck.
mp,
Martin Eberhard is already building your friends' posthumously suggested car. Perhaps he's been channeling Will Durant on the sly.
I am with Tanta (I think). If Casey Serin still has a house in his name and he can afford to pay what he owes on a fully amortising loan at market rates, then Casey Serin "deserves" a modification.
By the way, note the variant spelling of "amortising." I think that may have been the word that got me eliminated from the county spelling bee in 8th grade.
Hey Albrt - Casey Serin deserves one thing. Starts with J, four letters. Even a speller of your prowess can figure this one out.
Thanks for the tip, burnside.
When the damned conjure bag told me that crazy story I thought it was bullshitting me.
I'm not familiar enough with mortgage mods to fully understand the mechanics of mods. I'm a speculator and I use common sense, it's served me very well. But if a mod is any sort of bailout, then no mods.
Moral Hazard.
The Greenspan Put of 1% rates got you into this mess, just like the conversion to fiat from gold standard put you on the wrong track in '71 under Nixon. But the greenspan put was just a temporary bandaid, and human nature exacerbated the problem via fraud.
Even you really smart people don't get it. Face it, the music can't go on forever, at some point, we all have to sit down, and some people will be knocked out of the game because there are not enough seats. We live i reality, that's why we have a LIFESPAN, and BLEED. TV has truly brainwashed a large majority of your population.
If you bail out the mortgage mistakes of the past 3 years, you are basically guaranteeing a severe depression somewhere down the line. At this point, you might be able to get away with a severe recession. But keep playing games with mother nature and the US is done. Completely over.
You Americans surprise me. Use common sense every once in a while. Can't you see that your leaders are driving you straight towards chaos? I'm getting out of this place before the government defaults, declares a draft, anarchy ensues, etc.
If you were smart you'd elect Ron Paul and hang the rest of the charlatans. Good luck surviving the fall of the empire.
get your heads out of your behinds and try to exercise some foresight. If you want to contribute, try to push things in the right direction. Otherwise, keep your mouth shut and stock up. You're all in for a hell of a nightmare.
a student of history
Tanta -
I'd love to hear your response to Geoff's post up above... the man did his homework, lived within his means, exercised common sense and remained patient. Even for the "innocent" people in this mess, they clearly did not do any of the things Geoff did. They deserve to go down with the ship.
If you still don't think so, then can I assume that you think investors should be reimbursed from the dot.com crash? And I'm not talking about fraud, I'm talking about the people who bot real companies, with zero earnings and did no homeowrk, and exercised no common sense. But their broker told them to do it? Sounds like more "not their fault, not their fault".
If you stated income that you didnt have, forgetta bout it. You should be toast. If you were buying multiple homes, again, toast. I think the problem here is that many many people should be toast, and since there are so many, and it is so much work to figure out who shoudl be toast and who should be helped, we'll just go ahead and milk everyone to try and fix things. Geoff
Again (holding on to the ragged edges of patience here) these are people that Tanta has specifically said are NOT candidates for modifications. As far as I'm concerned, if someone is honest or stupid enough to want to struggle for decades to pay the 40-60% of his income it will take to keep his mortgage current at a fixed rate rather than take the immediate hit to his credit and lose the house, more power to him! Why anyone thinks this is a pain-free solution that is not going to teach the proper lesson is beyond me.
As for figuring out who is 'toast' and who can be helped-- easy, peasy. Let them stick to the rules they've always used. It was changing the rules on who was given a mortgage that got us into this mess in the first place.
Sounds to me like some people are not only insisting on closing the barn door after the horse is out, now they want to track down the damned animal and shoot it for having the audacity to escape in the first place.
Fortunately it looks like at least some mortgage lenders are beginning to run the numbers:
Kinder, gentler lenders - Aug. 6, 2007
I wasn't disagreeing with Tanta so much as saying that it appnars darn near impossible to find an innocent victim here, since so many of the criminal or semi criminal will claim innocence and try to get their share of any modification or bailout. It's far too big a job to figure out who needs mods and who doesn't. I agree that if anyone wants to be modded to pay 90% of their income for an overpriced asset, well, so be it. But they shouldn't be given any leniency because we feel sorry for them, unless it can be proven that someone really took advantage of them AND (and the AND is really important) that THEY were not taking advantage of a broken system. I just dont think you can resolve this. Im ok with some modding, but any political solution to this is ludicrous. Anything that involves taxpayer money, is CRIMINAL.
And yes Sarah, we DO want to track the animal down and shoot it. But not the animal you think. It's the animal who let the horse out in the first place, the regulators and then everyone who watched it run by their home without even attempting to stop it or call for help. So many accomplices here...so little time.
Anybody who wants to vest the moral authority to decide who "deserves" punishment in the hands of mortgage servicers is, I guess, free to do so.
Count me out.
We do okay when we make business decisions that have an ethical component, at least enough to force us to reflect on the repercussions of what we do.
Allow us--nay, beg us--to become the arbiter of everyone else's morals? Us? US???
If there's anything more distasteful than relying on some CNN poll to decide whose aspirations were stupid and whose were criminal and who ought to be made example of just so that people who didn't buy a house can feel vindicated in their holier-than-thou righteous rage at people who drank the Kool Aid, it would be asking fucking WaMu to play St. Peter at the gates of Eviction. Are you guys nuts?
Im not nuts. This is my point. Cant be done. Shouldnt be done. I cant figure out how you can possibly play this game other than to just concede that the people who can make money off of it will try to do it. I suspect the only way mortgage servicers are going to look at it is to try to save their ass, not some poor borrowers. If it accidently is in the borrowers interest too, well, yay! But it doesn't strike me that the last few years anyone in the business has been too concerned with who would be left holding the bag as long as they got their cut.
We still have a legal system that is trying with its limited resources to crack down on mortgage fraud. That's a paltry start. But no one will ever come after the regulators who fell asleep at the switch. And too many cases aren't clear cut.
I couldnt care less about mortgage servicers, and frankly, can't imagine unless someone holds a gun to their head that they will decide to do anything which isnt strictly in their best business interests.
Partly, you have to think about what people's expectations were taking out a loan that would reset and send their finances into oblivion. Were they counting on crazy home price rises to go on forever, and if they somehow disobeyed, then to be bailed out by a reset. Gee, that sure sounds like a no lose investment, ay? Keep home prices propped up so the worst that happens is they have no downside, even if the upside is limited. No moral hazard there.
It's not so much a holier than thou, it's a "we've got a clusterF*&K" and what are we going to do about it, shoot the people who played it straight? Screw that. If anyone who spent their time saving for the day when they would again need a 20% down, gets hosed because of the profligacy of those who played a part in the bubble, well, that just aint right.
The time has passed for being nice.
government intervention in free markets creates moral hazard and leads to excessive leverage and irrational risk-taking.
if there are going to be rivers of blood in the streets, so be it. if we all need to then bathe in each others blood, so be it. This is no fairytale. People need to feel the pain. Life is about balance, risk vs reward, and consequences.
The masses need to finally feel the pain from the irresponsible policies set forth by the people they have elected.
someone please let me know if i am completely missing the point here. it sounds like the call for mods is based on some kind of ethical and moral stance, that there are innocents who will be hurt. There are no innocents here. If you cannot afford to continue to live above your means, you should get no bailout. If the falling price of your home means that you can no longer meet payments, oh well. So long. Property values fluctuate. If people didn't factor that in they made a grave mistake. plain and simple.
Any mass bailouts due to collateral damage to "seemingly innocent" people in this debacle will shake confidence in the financial system. If I were a prudent long-term foreign investor I would begin to scale back and eventually flee these markets. But as a speculator I would rush in once I realize that the entire US financial system is really just a stupid game and not really subject to market dynamics anymore. You're playing with fire here.
Let the blood flow. What the heck are you guys talking about here with this bailout crap? So if a market crashes, people who have their 401k's cut down should be fully recompensated because it wasn't their fault????
Someone shed some light on this please for someone me who knows nothing about mortgage servicing, Q's, etc. Why is there really a case for mods? In non mortgage secret-speak please.
You want to feed the obese child because it's hungry and crying. Too bad. Keep feeding the child and it will die. Give in to its heart-wrenching screams for more food and you are just as guilty as the child itself.
Ignorance is not bliss, and we should NEVER allow people to begin to think that that is not so. In acting out compassion or sympathy, you will be sealing doom for those around when the dam finally breaks and every single one of us is caught in the torrent.
acrabbe, your sentiment is a bit harsher than mine. There probably are some innocent folks, although they are probably also incredibly naive. I just dont personally know any of them. People do get duped by signing up for a fixed rate loan and ending up in an exploding ARM. They also get duped by the NAR telling them absolute crap about the expecations for home prices. Yes it is their responsibility to do the research, but there were enough forces lined up against people's understanding of what was going on to make it near impossible for a mere mortal to figure it out. We here are a different breed, with many of us having direct (now or at one time) involvement in the RE industry, or investment industries, or both. We know better, but our voices were drowned out and/or taunted for being out of it back in the bubble days. I for one would really like to see those who deserve some restitution get it, but I just dont see how you untangle the mess and figure out who deserves forgiveness, restitution, punishment, or what.
someone please let me know if i am completely missing the point here
You are completely missing the point here.
Furthermore, you could use a good therapist. Your metaphors and analogies tell me things about your psyche I do not want to know. Your inability to read a post that concedes that modfications are not a good idea for people who cannot afford the debt in any scenario suggests to me that you are incapable of nuance; if it doesn't fit into your free-market fantasy you can't deal with it.
Interesting thread...
I don't see what the hubbub is all about. Very few of the really toxic mortgages will mod - they are too flawed and everyone knows it.
Yet most of the 'complaints' I read here cite fears that million dollar houses being supported by less than $100K income, no down, etc. will be 'modified' so people can 'keep' their homes... homes I presume the critic would like to buy on the cheap... not that there is anything wrong with that... we all like cheap, when we are buying.
But the work outs are going to make a big difference. While some of these mortgage people are pretty smart - like Tanta & mort fin - they aren't that smart to figure out how to mod many if not most of the toxics & return anything to the bond holders... and as a result they won't try.
I mean look up 'triage'... a whole lotta folks gonna die in the waiting room for the few that get to leave as 'walking wounded'. So you want to shoot them all as they come in? Nice but not necessary, not prudent.
It really is a non-issue. Modifying 'workable' loans isn't going to come close to saving California and it won't be a factor... so would be buyers living out there worried that prices won't fall fast enough for them to buy at basement NOW - LIGHTEN UP - prices will be coming down as fast as they would without mods.
On the other hand - if once and future buyers think California will ever be 'cheap again'... wake up, it was never cheap... it isn't Omaha... and elimination of mods or work outs won't change that either way... there just plain is more demand there and people have (for 100 years now) been willing to pay for it... often times more than they can afford.
Typo:
But the work outs are going to make a big difference.
Should read...
But work outs are NOT going to make a big difference.
Walking away from a debt on an overvalued home seems smart if yiu can buy it back later within your income and /or rent.
I don't know 'bout others but if someone can take something away from you if you miss a few payments then you do not "own" it. I do not see much suffering for 2002- on buyers because they have no equity in the game anyway, unless they flipped there way into it. Easy come easy go.
The only owners who can suffer are those who have either spent or borrowed equity which wasn't there because 2002-onners were allowed to make up income etc. For all the rest their income now becomes that much more valuable.