Well, the upside is that a spigot of financial self-debasement (at least, for some) is finally being turned off. This whole idea of HELOCs has proven to be too irresistible to many less-than-responsible homeowners. Just another way of becoming underwater.
So there sits poor Mrs. Corazzi in her gourmet kitchen, full of richly glowing oak cabinetry, sparkling stainless steel appliances, and undoubtedly top-of-the-line Calphalon hanging from the rack, blubbering over her situation. Am I the only one who balks at the notion of taxpayers bailing her out?
The real test of the banks is if they start capping loans like my "roof and landscaping" HELOC. Currently ~7% LTV and all told < 30% CLTV. If loans like mine get "modified" it isn't because of any material change on my end but theirs. Essentially it would mean they are walking away from their obligation to fund up to the pre-agreed upon limits of our contract. You know, walk away because it looks like they won't make any money on the deal. Hoocoodanode?
What kind of salaries do US bank clerks and salesmen receive? It is very strange that such a couple could ever dream of paying back some 500000 dollars.
What am I missing here? Are these people out of their mind?
So, now that Zillowed Away has gone mainstream- gee, wasn't giving warning here last year?
Laughter.
Next comes the other stalwarts of the American consumer society- I bet that first the Car dealers start cutting waaaaay back on who they finance, followed by credit card companies. I notice BofA has already jumped that shark with their unilateral strikes on their debtors.
What happens to consumption patterns over the next decade as the leveraging machine goes into reverse?
Not quite taking the JJ attitude that our fearless leaders will allow a total collapse, but consider how much MEW money has gone into granite countertops, new cars, etc...
The flip side is these folks are under tremendous pressure in the article due to collapsing income- um, so we end right back up in my thesis of the 70s rerun. Welcome to early 1973- WIN button soon to be made available!!!
"I told them, 'You guys are wrong,' " Nancy Corazzi said. "They said, 'Sorry, this is what we're doing in the entire area.' "
Corazzi said she was blindsided by what's happened. "I didn't know they could do that. I thought I was too smart to have something like this happen to me.
DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, "I would have drained it," she said. "I would have taken every dime and possibly placed it in a money-market vehicle."
OK, I want to know where her MM account is if she can beat HELOC interest.
The thought that we might never recover from this foolishness is beginning to sink in here. While calling people fools like JJ is quite stupid, the end result might still be quite damaging.
What I seem to be struggling to say is what if this is the 70s show, but even worse? Yoringe put's his finger right on it- what if the only solutions chosen by the population are bad ones. Athenian disasters of the Peloponesian War come to mind...
Credit has been the lifeblood of this entire expansionary cycle, and without easy access to credit, the American lifestyles is gone. Imagine having to save and purchase goods for cash.
Yoringe, look up the lifestory of Hjalmar Schacht and the Reichsbank. Fiat means you are never broke;-}
Of course I see a fantastic parallel between Dick Cheney's quote about deficits and Hitler's response to Schacht about inflation. See Mefo bills - Wikipedia, the free encyclopedia
A foole and his money is soone parted.
[1587 J. Bridges Defence of Government in Church of England xv. 1294]
Apocryphally speaking, when I was a kid we used to have a coffee table made from a stain glass window. A part of the picture it formed was the adage, "A fool's bolt is soon shot."
AllenM,
You know I cannot resist a Kunstler taunt. Unfortunately it isn't much fun anymore. Making fun of a broken clock 22 hours out of 24 is not sport.
Oops. Looks like I should have "previewed". Didn't mean to bold everything. Need to modify runtime parameters: first coffee, then FOREX. Add first coffee, then CR.
We will just call them housing bonds- what a shambles!
A comment to the last post discussing BofA's new idea- shouldn't the NYT essentially point out that BofA is holding a gun to the politicians head and saying do this or we let CFC go splat?
I hear that: "gee, I'll take out a loan out on my home equity and put the money in a CD." You'd had to be pretty ignorant to think that made sense -- unless you planned on walking away from the house and keeping the money, because you expected to be underwater soon. Which would be scummy, not ignorant.
2. the "purpose" of the HELOC was to pay for Corazzi's twin's "preschool tuition" (ha!)
Read: day care (2 working parents). For 2 kids in that age group in the Washington area, probably well over $15K/year, more if it is actually a preschool, much much more if it is a nanny.
If you are getting 1 pay check in 2 months and paying a fortune for the kids to be in day care...you're in a very bad position if stopping work is not financially feasible and your industry is tanking which means very few good options. (Not that more debt is the answer, because the thing with more debt is you have to pay it eventually).
The point wasn't to take the money out and run, or take the money out and profit on interest rate spread, the point is these people were paying for their lifestyle and their mortgage by borrowing against their house. Whocoodanode that wouldn't work forever?
For starters Banks know that at least half the population on the DC Metro Area depends on Government Employment or Contracts. It makes sense they will just reduce home values by 20% to reduce their loan exposures on this RE. The is very sad because, they were a big part of the predicament we are all in, if they had moderated fairly and impartially the unsustainable price augmentation then we would not be here going thru a painful contraction.
I think WaPo is preemptively Swiftboating the loyal readership: pay no attention to those ragtag skeletons, they just blew all the cash on fancy preschool for their four kids, and they are ex-brokers anyway; they got us into this mess...I mean, how much more of a lightening rod for contempt could you manufacture?
I must admit, when deciding whether to sell or get a home equity line of credit in 2005 this possibility didn't occur to me... Selling and putting the profit into CD's just seemed a safer hedge against my husband's losing his construction job than taking out an option to borrow against our equity.
However, if we'd had kids or were planning to stay in the area longer I probably would have opted for the HELOC-- so all I can say is, "Whew!" We dodged a bullet there...
Now hold on. Lots of HELOCs are prime currently 6% and tax deductible. If you are in a high tax state like California and considering purchasing a used Civic to replace your gas guzzler it makes sense to use the HELOC. Right now also some 3mo CDs are still 4.5% which is almost break even with 6% HELOC. There's probably a few double tax free munis that pencil out as well. Sure these are exceptions and require discipline but don't throw the baby out with the bath water just because some specu-flopper would use their HELOC money to double down on leveraged real estate.
As for the "fancy preschool" --I easily spent over $30K to put 2 preschool aged kids in a relatively inexpensive home day care in the Washington area for 2 years. I don't know what facility the family profiled were using for preschool, but the nearly-ruinous cost of raising middle class children--think of $7K/year/child day care and college expenses (for the cheap options)-- has been well-documented by Elizabeth Warren and others.
Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations.
This has always really irked me--the fact that most of HELOC spending was NOT for home renovations, yet people still could deduct the interest payments on their taxes. How is it "fair" that people who have debt in the form of credit cards or car loans don't have this tax loophole ever since 1986?
Additionally, people can get the mortgage interest deduction for more than one property. And a few months ago, the California Legislative Analyst Office calculated that the MID was the biggest tax loophole (costing the state almost $5bil per year). With a looming deficit that is already up to $16bil, I hope that there will be some serious discussion about eliminating the MID.
People keep looking for the 'cause' or 'responsible party' in this mess. A hopeless task, as a cock-up this bag comes from the confluence of a vast array of bad policies. While enumerating the causes of the current disaster, let's not forget the tax "reform" (86 was it?) that eliminated the deductibility of interest, unless you were willing to put your house at risk. The obvious result, as every economist/accountant/budget analyst who wasn't in the pockets of the REIC could tell you would happen, was the explosion of the HELOC market as a substitute for credit card debt, auto loans, boat loans, and all the other stuff that was on the wrong side of the newly created uneven playing field. That piece of lousy policy was obviously insufficient to touch off a disaster all by itself, but it's certainly a contributing factor to the current mess.
Excuse me, but this lady isn't making any money, so why doesn't she stay home with her kids? She won't have commute expense, lunch out expense, clothes expense, can cook dinner more cheaply etc, etc. True, I personally think it is boring to stay home with the kids, because there are no adults to talk to, but this lady can't afford to work!!!
What kind of salaries do US bank clerks and salesmen receive? It is very strange that such a couple could ever dream of paying back some 500000 dollars.
What am I missing here? Are these people out of their mind?
Matti Kinnunen | Homepage | 02.23.08 - 10:18 am | #
The real irony is that the employer wanted to pay them 'salary' during the boom and then switch it to 'commission' during the bust...
Typical. I work commission though not in banking or RE but still see it all the time.
I am not in favor of having most sales folks on commission UNLESS they really have responsibility & authority regarding sales proposals & performance... If all they do is take orders then for God's sake put them on salary like every other wage slave you have.
But if they are truly independent & have to do their own prospecting, qualifying & even 'assemble' the final proposal - then put them on commish and expect if not demand they make big money (half mil a year is not unusual at all for hot territories in my biz during booms... fwiw my rural territory is NOT hot, but the fishing is - priorities you know).
My guess is these retail bankers & mortgage folks are completely constrained order takers - so then put them on salary and leave them alone... and 'no' the typical salary for a job like that will not support amortizing payments at regular rates on a $500K mortgage... maybe two salary workers if they eat a lot of peanut butter and forgo the stainless kitchen... but even that would be tough.
lawyerliz, she can't afford not to work either. It sounds like the husband probably isn't making more than median US personal income, which is $32k. Supporting four kids and a mortgage payment on $32k/year? Rough.
Even though they're not good financial planners, I feel bad for both of them. The husband is connected to the building industry as well, so both their jobs are in jeopardy.
And a few months ago, the California Legislative Analyst Office calculated that the MID was the biggest tax loophole (costing the state almost $5bil per year). With a looming deficit that is already up to $16bil, I hope that there will be some serious discussion about eliminating the MID.
That analyst, Elizabeth Hill is insane. She first brought this up Dec 26th. Since then her irresponsible trial balloon has probably cost the State at least that much in lost revenue as investors rejigger their California strategies. This week she also recommended that out-of-state 1031 exchanges be taxed as capital gains.
Liz, you're this thread's winner! (duck drops from ceiling, buzzers, etc.)
You have drawn the conclusion that the WaPo is baking into this year's thematic pie: These idiots brought the housing crisis on themselves and the rest of us. Damn yuppie pigs, it's all their fault.
I suspect that, had the author of the piece possessed a smarter circle of friends and acquaintances on which to call, the story might have taken another tone.
Now you'll have to excuse me while I go rustle up a new plan to pay for my wife's medical treatment, should she require any, over the coming 10 years. We can't buy her insurance that pays for anything, you see, because she's a cancer survivor and individual policies won't pay for any of the aftercare or likely outcomes.
Since we're responsible capitalists, we went to work as soon as we figured that out, paid down the mortgages on our real estate, and expected that we could tap the first $125,000 whatever day we needed an MRI and some of that delicious hospital food.
But now USAA feels that is a risk not worth taking, although we were extremely conservative with our borrowing compared to the rest of the neighborhood. We figured knowing where the chemo is coming from gives us more peace of mind than granite shower inlays could possibly give us enjoyment.
The next former mortgage broker I see gets it with the pitchfork.
AllenM: And when I'm done shorting my regional builder, do I stuff the money in a mattress?
"We know this can cause hardship to our customers," Francisco said. "If they used the credit to make payments that are in the pipeline, we will work with them to make sure the payment goes through."
Well, that last sentence pretty much took care of any desire I had for breakfast."
It took care of breakfast, and made wonder about Terry Francisco sanity. Yes we'll allow them to go deeper into debt with us to allow them to make a payment to us.
Here's my proposal: write a check for $1,000,000 to each family in the United States. Homeowners can use it to pay off their mortgage, and renters can buy a house. Any leftover will become consumer spending which will rocket us out of any recession. The only problem is paying for it, but we can actually give $2,000,000 to each family and then deduct $1,000,000 to cover another family's payment.
All it needs is a name. How about The Super Duper Hyperstimulus Plan?
What's interesting is how the focus has changed from predatory lending to greedy borrower. I still can't understand why so many lenders made so many bad decisions. Borrowers and brokers have always been greedy, but normally you don't lend money to people who can't pay you back.
Zero, right on! Remember "...Deficits don't matter..." and "...We will not change our ways of life..." from our top dogs! Talking about the depth of the problem?
Sharon Haas, managing director of Fitch Ratings, admits investors "started to panic" and randomly slashed values on virtually all mortgage-backed securities, even those that aren't at risk. "The market just doesn't know how to value those securities," she said. It had better learn soon, or the price of that education will become astronomical.
Interest on "only" the first $100,000 of these things is deductible per se, the rest follows normal rules for individuals, which are that interest is or is not deductible depending on what you do with the loan proceeds; credit card interest or personal loan interest is most certainly deductible if, for example, the loan is taken out to pay for business expenses which are themselves deductible.
This is called the "purpose" rule.
As to Ms. Corazzi, if she is an in house sales person, particularly but not necessarily only if she has her hours and other terms and conditions set by her employer, then in many cases she is covered by minimum wage laws. To work for free is to be a slave and there is nothing noble in slavery.
Also it's conceivable that the change in her comp to commission only might have been a constructive discharge entitling her to unemployment depending on local laws that I (thankfully) have no knowledge of or inclination to acquire same.
lawyerliz, she can't afford not to work either. It sounds like the husband probably isn't making more than median US personal income, which is $32k. Supporting four kids and a mortgage payment...
She can't afford to work. She can't afford not to work. She doesn't get paid enough when she does work. She probably can't find another job that pays as well. There are 4 kids to support. Both employed parents are looking for another job in addition to the ones they have now. I feel really sorry for this family. Selling their house might help as it sounds they are not underwater but it will still leave them in a bad position as rent in this area isn't cheap either. This family is at very high risk of falling out of the American middle class--which they are/were a real part of --and they are very far from alone. This era may be the end of the large American middle class.
So there sits poor Mrs. Corazzi in her gourmet kitchen, full of richly glowing oak cabinetry, sparkling stainless steel appliances, and undoubtedly top-of-the-line Calphalon hanging from the rack, blubbering over her situation. Am I the only one who balks at the notion of taxpayers bailing her out?
Good thing Sharper Image delivered the electric dog food can opener just before they went under.
Give the woman the Darwinfodder Cross with cubic zirconium clusters award already.
What's interesting is how the focus has changed from predatory lending to greedy borrower.
I am entirely unconvinced that the WaPo reporter sees these people as "greedy." I am not entirely sure I do myself.
I see these two as exceptionally clueless about how HELOCs work, which is surprising only to the extent that they're both in the industry and ought to know perfectly well that the line runs out when the equity does, and they ought to have a clue about home values.
But I think the reporter sees them as fine upstanding middle class white citizens, which group isn't supposed to get jacked around by the HELOC lender, ya know. So in that sense, it isn't about "predatory" lenders, which we associate with Teh Subprime/"them"/brown people. It's about lenders who are being really really mean and not very nice and stuff because they promised to buy everyone a pony for their birthday and then didn't do it.
As to Ms. Corazzi, if she is an in house sales person
She isn't.
I am guessing that "processing manager" just means processor.
In the industry, that's the person who collects verification documents from borrowers, gets appraisals and credit reports ordered, runs the loans through an AUS and ships a package off for an underwriter sign-off. It is not unskilled labor, by any means (in the normal mortgage business it's not), but it isn't a sales position.
My guess is that by "commission" she means she got put on what is basically a piece-work structure, paid per loan processed.
she can't afford to work, she can't afford not to work
None of my business how people manage their money but before getting all depressed because banks won't let her get even deeper into debt, maybe, just maye she could consider changing her spending habits and spend less.
How about home-schooling her kids instead of paying pre-school tuition or [OMG!!!] sending them to public school?
In some ways it is reassuring that the people quoted by WaPo are mortgage professionals. It's clear that they were not intentionally lying to people about the wisdom of investing in and borrowing against residential real estate. They really believed what they were saying.
What she is saying is that she is upset that she left some money they never intend to pay back on the table.
Lots of white people fit the worst stereotypes also, even some that wear Armani.
How about home-schooling her kids instead of paying pre-school tuition or [OMG!!!] sending them to public school?
You have to be poor and disadvantaged to use public pre-K in Howard County. At this rate, maybe this family would qualify sometime in the next few years. This would not be something to cheer about. And if the kids are just-turned-4, they might have another year of day care yet to go due to the brain trust that makes sure kids turn 5 before kindergarten starts these days.
I believe we are witnessing, front and center, the decay of an empire fast forwarded by this Administration by years.
Resignedly, the chance of an enormous taxpayers' bailout is inevitable. The probability is 100%. The increasingly discussed re-creation of a housing federal agency to buy bad mortgages and forgive bad loans is now on the policy table! The blurry parts of this inevitability are how large will the costs be? how the good and responsible parts of the country respond to more shenanigans and greeds, and how extensive is the damage done to our reputation, internationally?
How will we plan ahead in the face of this colossus failure?
Can we quit trying to run these people's lives for them?
I realize that a lot of people enjoy making up details about lives that are not included in newspaper anecdotes, and then strapping on the old Everybody's Mother In Law suit and explaining how they ought to do things differently.
But I am not personally interested in that, and we've had threads just go to hell in handbasket before on this kind of thing.
By all means let's consider what this choice of anecdote says about how much of a grip the WaPo has on the MEW problem. But let's give the "how these people should educate their children" thing a rest, OK?
I also just installed a plagiarism deleter module this afternoon.
If you paste in copied text you do not indentify as a quote, and provide a link or printed source reference for, the plagiarism deleter will zap your comment.
Whistlejacket appointed Deloitte & Touche as a receiver to oversee the company and protect senior creditors. Deloitte froze Whistlejacket's debt payments on Feb. 15 after Standard Chartered told the receiver the SIV may not be able to repay future debts, according to Deloitte.
the nearly-ruinous cost of raising middle class children--think of... college expenses
The reason kids have to go to college to be middle class in the US is that all middle class parents try to send their kids to college.
Back in the 1950's, you could be middle class with just a high school diploma, because only really smart kids and rich kids went to college.
This is "credential inflation". I won't call it "education inflation", because today's college grad is no better educated than the 50's high school grad. When the average person goes to college, college has to be dumbed down to the average person.
College has become another member of the "keeping young people out of the work force" triad, along with the military and prisons. All economic dead weight.
Now you'll have to excuse me while I go rustle up a new plan to pay for my wife's medical treatment, should she require any, over the coming 10 years. We can't buy her insurance that pays for anything, you see, because she's a cancer survivor and individual policies won't pay for any of the aftercare or likely outcomes.
We grapple with medical expenses in our household too. And we have lots of company. The problem is that you needed to borrow against your home to provide the care your wife may need. That's an issue that goes well beyond home equity lending issues, no?
Maybe the debate/discussion of HELOC should get beyond the issue of whether the borrowers were spending the money on cancer treatment or granite counter tops. I suspect you could find people who took the money to Atlantic City and lost it at the craps table, too. The problem is the same, and it's the pure economics of a bubble bursting. As Tanta put it, the problem is the "E" in HELOC. People thought of the equity as money in the bank, because the value of homes never goes down. They assumed the money would always be there, to satisfy needs and wants. Now they are finding out that if your home is an investment, an investment can go down as well as up.
I, for one, hope that "moral issues" won't drive public policy going forward. We just need to come up with strategies for getting out of this mess (as opposed to strategies for going backwards, back into the mess of too much borrowing, too much spending, too much wealth spent on homes.) We need strategies to make the transition to a more sustainable economic system. And let's not minimize the widespread pain involved in doing that.
Bail out everyone, bail out no one. I don't care. Just fix the system going forward.
1. they've gone through $50k in HELOC in just 5 months.
2. the "purpose" of the HELOC was to pay for Corazzi's twin's "preschool tuition" (ha!)
3. they bought that house for $178k... (hmmm...)
Anyone care to tack on the specs for the house ? Is this a tract house that exploded/imploded in value, or a McMansion before the run-up ?
Yogurt, you're right. We are not only creating credential inflation, but we are creating a class of burger flipping college graduates with nothing to show for their diplomas except student loan payments which they can't afford. Of course, they are now well educated burger flippers, but burger flippers nonetheless.
I did well, Countrywide increased my HELOC limit by 50K in Dec '07. I promptly maxed it out and shorted Countrywide stock with the proceeds. Don't worry Countrywide, you're money is safe as long as you continue to languish!
Another Washington Post article contained some real gems today.
Buried deep into "Starting the Clock Again: Rule Change Reduces Waiting Period Before Relisting"
we have the following:
"Kim Bradley... works as an appraiser and a real estate agent."
(Not in the same transactions, I hope!)
"From an agent's perspective, she said " I prefer to to see what's going on."
"But the way it will change the appraisal side of her business underlines what is potentially the bigger impact--blunting the bad news of declining prices and sales by presenting a lender with a rosier picture of the neighborhood...
'As an appraiser , I like it" Bradley said of the change. ... "so many lenders are requiring {reporting of} days on the market. When they see 233 days they kind of freak out, " she said. If the lenders don't see those long times before a sale they won't call for clarification.... "It's a game we play with the underwriters, too.'' she said.
The article also says she has had ten sales fall through when lenders would not approve loan amounts in neighborhoods with slow sales...
It was interesting to me that in some cases relisting is not just about possibly misleading buyers about how long a property has been on the market, but also about misleading lenders.
Yogurt, Well said. In CA junior college is practically free. Perhaps it is just run by the text book lobby to create customers. I remember taking classes in JC during the summer or at night during high school. They were way less demanding than my high school classes but let me graduate a year early. It seems that there is a lot of 19 year old "students" floating through the system to avoid more strenous work and maintain an excuse to party.
Zero, why bother with checks or money? Just hand over the deeds of all properties to the people who live in them. It will be a utopian paradise.
Calling day car pre-school sure helps alleviate some peoples guilt. Tuition? If your child is 3 you are not paying tuition.
quartz - good catch, but you missed what I think is the money quote "It's a game we play with underwriters, too," she said. "We all have to do our jobs and make things go through."
It's interesting to note that she doesn't think her job is to provide accurate information, but instead it is "to make things go through." The thing that's amazing is that this kind of fraud has become so commonplace that people will be open about it to newspaper reporters, and not once stop to think about the fact that they are admitting to misleading government insured mortgage lenders which, the last time I checked, was a felony.
Colllectively the individual, corporate, and municipal borrowing is what sustained ALL of us for the past seven years. Even if you didn't recklessly borrow money, your customers, your company, or your local government surely did.
We are talking about trillions and trillions of dollars of borrowing compounded by trillions and trillions of more borrowings.
And you benefited from that borrowing one way or the other. Higher stock portfolio value, higher income, better community services.
Now its going away, and fast. Taking credit away is like taking money out of one's savings account if that individual or entity is dependant on credit.
And over the past seven years, many many individuals, corporations, and governments were the direct or indirect beneficiary of all of this credit.
Credit is now evaporating, in the process we did not create much if any additional productive capacity to generate external sales(save maybe agriculture)and now our economy is evaporating.
It will affect us all. The question now is simply how? A giant RTC? Socialism? Communism? Inflation? Deflation? Moral/Counterparty breakdowns?
I agree completely, the reality on the ground is that what would constitute fraud is what is needed to get transactions to go through. This is what you get after years and years of lenders expecting someone else to protect their interests instead of them protecting themselves with proper underwriting.
Fraud is still rampant because it is just the little white lies one tells to make the deal happen. Until deals get squashed unless they are squeaky clean and meticulously underwritten the game will continue.
Hmmm Countrywide Financial freezes 122,000 customers USAA Federal Savings Bank freezes or reduces credit lines for 15,000 customers plus many others and soon you've got some very significant numbers where fundamental changes in American life may turn todays McMansions into tomorrows tenements.
Just because I am tired or reading about underwater housing models with no supporting data or code, I figured I would try my hand at it. For starters I have produced something fairly simple just to get a feel for the related rates nature of the problem. Here is how the model works.
In period 0 the universe is populated with some number of homes. Each home is given the same price based upon the current house price index. Each house gets a mortgage based on the price of the house and a mortgage distribution table which randomly assigns a Loan to Value in accordance with the distribution table.
In period 1 and in every period thereafter:
the price of each existing home is multiplied by the housing price index.
based upon a table of existing home sales, some number of existing homes are 'sold'. when a house is sold the price does not change but a new mortage is assigned based on the current house price and the mortgage distribution table. next a bunch of new homes are added to the mix again with new mortagegs.
At the end of any period you can then examing the house prices and the corresponding mortgages to see the distribution of underwater houses. The next post contains the inputs for the simulations and the final table which is the number of underwater houses as a function of total houses. The general takeaway is that it is extremely unlikely that the numbers people are currently talking about for homeowners upside down below their mortgage are correct. In this model the assumption is that home prices go from 1 back to 1 in six years with a peak of 1.3 in the 4th year. At the end of the sixth year 10% of homeowners are underwater as in potentially ready for jingle mail.
The company I work for provides underwriters with a number of valuation and search tools (Home value explorer, History Pro, Lexis/Nexis, etc) but access to the MLS is not one of them.
"ogurt, Well said. In CA junior college is practically free. Perhaps it is just run by the text book lobby to create customers. "
Tuition is going to run you several hundred bucks a semester for 12-15 units, plus maybe that much again for textbooks. That's not "free." Thirty years ago, it was free. Post Prop-13, it's become much more expensive.
As for how easy the classes are: if you want a harder class, go nights. That's when the serious people go to community college, the people who actually care enough to show up after a full day's work. The teachers know this, and the classes are better.
I actually do feel sorry for people like this; albeit not so sorry I want to pay their bills for them. Most people aren't very good at math, or foreseeing consequences, and they just do what people around them are doing and figure they are being sensible.
The decline in HELOC availability is another example of a trend with legs. It seems almost none of the professional economic forecasts you see, most of which forecast an upturn later in 2008, are looking at legs and how they overlap.
Here's my assessment
Downturn in home construction, home purchases and related spending 1 to 1.5 more years.
Downturn in CRE lending and construction 2-4 more years.
Downturn in HELOC and MEW 2 to 3 more years.
Downturn in business capital spending at least 1 more year.
Downturn in consumer spending at least 1 more year.
Downturn in government hiring and spending 3-4 more years.
Downturn or levelining in corporate earnings 3-4 more years.
I'm starting to think both residential real estate and U.S. stocks were about the same overvalued at the peak -- maybe 30%. Florida and Califorina = small caps and REITs.
Downturn in both will probably last at least 2-3 years, with stocks lagging real estate by about a year.
And this is probably just the first downleg of the K wave winter.
plus you have outted yourself as someone who once sat through OLG macro classes.
Prescott has taken his retirement teaching locally at ASU, and I personally duck meeting him everytime.
Finn Kidland has a much better grasp. One man I am glad I had a chance to meet is Mancur Olson.
Dang near worthless stuff- after all look how far the common man is from that rational REX model- after all they would have pulled out all the money as soon as it started going mainstream.
You would be much better off using a game theoretical approach- after all the political fix will utilize that- after all we are looking to minimize damage, not perform transformative economics, right?
This one has its peak at 1.5 and shows 26% of folks underwater at the end of period 6. Obviously this is a very simplistic approach but at least gives a feel for how the numbers move.
Hi Misean,
Think I'll stick with + - * /.
FWIW I plugged in the case shiller index into my model and ran it back start 51 months ago and now show 2.4% of homeowners upside down on their mortgages....
You know as well as I that anyone, at best could model a zip code. I'm running the complexity of that a model to do that for all zip codes in my pea brain (ie what would have to be done just to set it up) and am getting a blue screen of death after about 15 iterations.
"John Stark writes:
In some ways it is reassuring that the people quoted by WaPo are mortgage professionals. It's clear that they were not intentionally lying to people about the wisdom of investing in and borrowing against residential real estate. They really believed what they were saying."
This is very true. They were drinking their own Kool Aid. I'm in real estate and construction in Norther AZ and I'm seeing a lot of fellow Realtors who suddenly aren't driving the Lexus anymore and are trying to offload the over sized house. I'm also seeing a lot of fancy pickups (complete with tool boxes and headache racks) at the "You Sell Car lot". My subs used to make fun of my 35 year old pickup ($500), even the landscapers were driving $50,000 pickups, I kid you not. I've got a lot of time on my hands these days, and a good few houses sitting empty. What I don't have is much debt at all.
These idiots really believed what they were selling.
I read this article this morning and I'm a bit surprised nobody else has picked up on this:
Nanacy Corazzi's "position as a loan-processing manager at a local mortgage bank"
"Corazzi said she was blindsided by what's happened."
So just how much did she really understand her job as a loan-processing manager??? Or did she just show up 5 days a week and warm a chair pushing paper through the system.
"John Stark writes:
In some ways it is reassuring that the people quoted by WaPo are mortgage professionals. It's clear that they were not intentionally lying to people about the wisdom of investing in and borrowing against residential real estate. They really believed what they were saying."
No, it's not reassuring. People at all levels knew the lies were happening, and committed them as well. They still somehow believed that the system wouldn't lock up once the lies stopped.
These same people are still in place originating, servicing and processing the loans. They want the system to "get back to normal".
Worse yet, the managers and execs appear to be almost exactly the same way.
Hello out there!
Background checks for an IQ above 80 might keep the US boat from totally tilting over.
She'd qualify as a reject on two counts:
-- she and her consort are idiots, well into the 80's.
-- she has criminal intent (attempting to borrow out the last dime from her HELOC without a chance to pay it back, even if she sold her house with her pretend paper profit.
She's the real thing, the archetype of most who are begging to get rescued because it's just not fair what's happening to them; they were supposed to be able to exploit the system and sneak out without obligation due to musical-chair Princeian inflation.
She's not alone. All those FB's are in the same guileless, innocent, guiltless, theeving morass.
For the US Congress to consider "saving" these people is the height of political tomfoolery. The markets don't abide that behavior. Gold and the PM family, the energy family, and the soft commodities family are all expressing their opinion about the way the US Govt is treating the billions who didn't cheat.
Latch your wagon to those families and to hell with those who tried to screw the system and those politicians who will now do it again. They've already lost in the world's eyes; it's just tragic.
The article also says she has had ten sales fall through when lenders would not approve loan amounts in neighborhoods with slow sales...
While its dangerous to put great confidence in the logic behind this statement, to whatever extent that it is true certainly puts a damper on any attempt to create a market that determines the true value. If loans arent being made in a neighborhood because of slow sales, it becomes a self-fulfilling prophecy.
Spitzer told the committee that the economy may face a ``financial tsunami'' as a result of potential downgrades to bond insurers and a tightening of credit markets that resulted from bad loans to homebuyers.
Federal regulators blocked earlier efforts to tighten rules, and the Office of the Comptroller of the Currency allowed ``the problem to grow and the bubble to inflate,'' Spitzer said.
Spitzer and Dinallo both said their focus is on the municipal market rather than banks and financial institutions that sought insurance on structured-finance securities.
We cannot allow the millions of individual Americans who invested in what was a low-risk investment lose money because of subprime excesses,'' Dinallo said.Nor should subprime problems cause taxpayers to unnecessarily pay more to borrow for essential capital projects.''
The problem is the same, and it's the pure economics of a bubble bursting. As Tanta put it, the problem is the "E" in HELOC. People thought of the equity as money in the bank, because the value of homes never goes down. They assumed the money would always be there, to satisfy needs and wants. Now they are finding out that if your home is an investment, an investment can go down as well as up.
John, my point was not that I don't understand the mechanism by which USAA measures the risks associated with letting me use the equity in my house as an emergency fund, nor that there is a moral distinction between using that money to buy granite tile versus chemotherapy.
My point was, the pigs fed until they turned over the damn trough and it's now splashed my boots too. So the WaPo's utterly un-amazing insight about the ignorance of their sample families just irritated me further.
Sharpening the pitchfork. There are enough tushes to go around.
david_in_ct - what did you assume for distributions across MSAs? Do you have homeowners proportional to owner occupied units or something else? And what variance did you put around the index figures?
According to the report, the meltdown in the U.S. subprime real estate market has led to a global loss of $7.7 trillion in stock market value since October.
Quoting Bank of America chief market strategist Joseph Quinlan ,"The crisis, which has spread beyond U.S. shores to banks and other sectors worldwide, is one of the most vicious in financial history".
A report last week by Standard & Poors ratings agency showed global stock markets were devastated with a collective loss of $5.2 trillion in the month of January alone.
There are $1 trillion in outstanding subprime mortgages, with potential losses estimated at about $250 billion
biggest impact of rate resets, from a dollar perspective, will come in the third quarter of 2008. She sees losses from all loan defaults exceeding $500 billion in 2008.
A report last week by Standard & Poors ratings agency showed global stock markets were devastated with a collective loss of $5.2 trillion in the month of January alone.
Quoting Bank of America chief market strategist Joseph Quinlan ,"The crisis, which has spread beyond U.S. shores to banks and other sectors worldwide, is one of the most vicious in financial history".
According to the report, the meltdown in the U.S. subprime real estate market has led to a global loss of $7.7 trillion in stock market value since October.
misean:
"You know as well as I that anyone, at best could model a zip code. I'm running the complexity of that a model to do that for all zip codes in my pea brain (ie what would have to be done just to set it up) and am getting a blue screen of death after about 15 iterations."
I am not trying to make this into rocket science though changing the model to have multiple pricing indexes and multiple ltv's and distributions is no big deal its just getting all the data that is hard.. This is a very crude but still quite useful exercise.
I am not sure that adding variance to the index series will do much. If you are not adding any drift and the variance is symmetric I would think it would take as many houses away from problems as it would add.
The real point of this is that there are people throwing around numbers saying that currently 17% of mortgaged homes are upside down. It ain't so.
d
After reading the LA Times article about the Elizabeth Hill and her independent analyis it is clear that Elizabeth Hill is part of the problem but she sure did not put that in her report. She makes $170,000 a year. That puts her in the top 3-4% of all incomes. If she has a spouse who works then they are probably in the top 1% of household incomes. When she retires (probably before age 65) she will still be earning 6 figures for the rest of her life. She does not seem to see the budget implications of this however. It seems weird for public servants to be in the top 1% of income earners.
david_in_ct - of course the effects of variance are asymmetric. That's the whole point.
Start with 80% LTV loans. If the index goes down 19.99% and there is no variance, 0% of your loans are underwater. As the variance approaches infinity, the fraction of underwater loans goes to 50%. When you start in a position of 0 loans underwater, then the effect of variance has to be completely asymmetric. No loan can be forced from underwater status to above water status, since there is no loan underwater to begin with. but with enough variance, a lot of loans can be forced from above water to underwater.
Our first two children were born when we lived in DC and the cost of the care was one of the driving reasons that I stayed home in the first place. And also the sheer velocity of life in that area.
People on this board feel sorry for them? Why? They have lived beyond their means for years, sucked all the equity out of their homes, and drained more than 50% of their HELOC in a few months. Why feel sorry for them. A strict budget, devised years ago and stuck to carefully, could have avoided this. The school fees issue is irrelevant and intended to elicit pity for a family that lived large and must now pay. Sadly they are collateral damage but only the parents are to blame. She only went "commission" recently but it appears the overspending has gone on much longer. Cutting their HELOC was their right decision. They are a foreclosure waiting to happen - why give them even more rope with which to hang themselves.
w writes:
After reading the LA Times article about the Elizabeth Hill and her independent analyis it is clear that Elizabeth Hill is part of the problem but she sure did not put that in her report. She makes $170,000 a year. That puts her in the top 3-4% of all incomes. If she has a spouse who works then they are probably in the top 1% of household incomes. When she retires (probably before age 65) she will still be earning 6 figures for the rest of her life. She does not seem to see the budget implications of this however. It seems weird for public servants to be in the top 1% of income earners.
In her defense she's the top analyst for the state of California. With CA politics being as divided as they are she provides a neutral service for both parties to work with. She's also worked for the state legislature for twenty years or so. She could have gone into the private sector a decade ago and ten times as much as a lobbyist.
Mort:
Yes, you are correct. I was thinking there were as many houses under as over so it would not matter but of course this is not the case. Give me a minute and I will throw some variance into the price index.
D
We're extremely disappointed in Standard & Poor's action today,'' GMAC spokeswoman Gina Proia said in an interview.We remain committed to taking the steps needed to improve our business.''
Mirt_Fin,
Why can't a loan be underwater from the start? It is a common practice in even normal times. Inflated appraisal, 3% down and 7% fees equals a house worth less than the loan.
We're #$$%^ pissed off, those bastards haven't moved on the bond insurers while they attempt a bailout and they move on us while we are attempting to dump our resort arm to raise additional capital, where is the justice.
Sidebar-
I remember back when Wagoner said that GM would be making $10.00 per share by mid decade-----
we all know how that guidance went. Now we have an expedited transfer of retiree assets to the UAW cause they are scared shitless in regard to leaving the assets with the General.
Bob Dobbs,
Right you are. My late wife taught accounting at Mission College in Santa Clara, Ca. Your comment mirrored the experience she related to me along with a bunch of other interesting bits of information.
One of the best things about Jr College was that someone with a CPA could teach where in High School one would need a credential.
Lots of loans are underwater from the get go. In fact, I would say that at least 90% of the manufactured homes I've set up and sold in the last 2 years started life underwater. The so called buyer brokers are typically little help to their clients, and the seller's agents are no better. Fiduciary responsibility my ass. I call agents all the time looking at raw land and they routinely give away the client's weakness to try and make a sale.
I'm actually looking forward to redoing my unfinished basement with my son. Yeah, it costs money - not from a HELOC - but the time spent with the elbow grease is infinitely satisfying.
OT from the main point of the article, but spot on regarging the "apocryphal".
When I was a teen-age retail rat in Fairfield County CT I wound up explaining over and over to a rich well-to-do DUMB woman why I couldnt accept her credit card. It was expired. I even read it to her while facing the card towards her, running my finger underneath each section and sounding it out sloooowly. "Good from, Good until"
She kept insisting it was still good and to take it. She finally yelled at me that it had to be good still, because she was still getting bills for it. oy.
This was back when we ran cards manually with the little plates for the merchant info. No on-line declined messages.
So yes, I do believe that people are dumb enough to think that.
You make a very good point. I am just saying that there are a lot of very high salaries in all levels of government in CA. Now that they are required to post this information publically I am amazed by how many six figure employees the state has. Sure, the private sector can pay more but it is also prone to cut people as business changes. Furthermore, private sector employees must be saving a lot if they want any kind of retirement. What does the average person near retirement have in savings? Like 50k. However, high paid employees of the state will be looking at continuing to pull six figures. Of course cutting labor or benefits will never be brought up until the state is bankrupt.
I guess my question is, WHY aren't more people in my position? What DID happen to "Grandma's House," why does it get sold outside the family and not passed on? When did it become so comfortable for someone to have a mortgage to pay off all the time?
I'm single, but even if I had a young family, this house would be more than enough. (3 BR, 2 bath, home office)
We simply have to get out of the mindset that a house is a commodity only to be profited from, and not also a "home base" to live in, a source of strength.
Plus, despite needing lots of paint and new carpets and what not, this little house was built like a tank. Suburban tract homes ain't what they used to be. And it's sad, but even if some of these McMansion homeowners AREN'T underwater... they might as well be, considering the questionable construction standards of the last decade.
Since people are already paying their mortgage with HELOC...why not just have Congang order all lenders to provide HELOC forever. You just borrow some caish from the house and make a payment.
It's a perpetual motion machine. Just forget that E = equity and substitute E = entitlement. Problem solved. I'm gonna have a nice tini and watch Dr. Who. Gawd I'm brilliant.
Inheritance tax. You didn't really think our rulers meant it to harm the elite did you. Oh right, the brain washed socialist..dumborat progressives did. There's a term for them...usefull idiots.
I agree completely. The public safety unions(cops, prison guards, firefighters) are making out like bandits. Their 3x30 pension scheme in unreal.
Elizabeth Hill seems like a throwback to when talented, honest people worked for the government even when they could make more in the private sector. When the power outages hit CA she seemed like one of the few voices of reason in the politics of the state.
Her position is also unique. While you can probably plug a firefighter, cop or government bureaucrat from one of department to a new one(same field naturally), she's got the experience of looking over a budget that rivals that of a medium sized country year in and year out. She knows the players and the game.
mortfin:
I split the world into ten different housing zones. Each zone, takes the case schiller index as the base index and then depending on the zone, scales it by some factor each month. If the change in price of the base index is greater than 1.0 then I multiply by 1 + the drift term for your zone. If the change in the base index is below 1 (declining prices) then I divide by 1 + drift term.
I set the drift terms to 0.0 - 0.009. Since I am working in months it means that if you are in the hottest zone and the base index goes up, you get 9 tenths of 1% extra appreciation each month. Same is true on the downside.
This has the effect of doubling the underwater people to about 5.5%.
My paternal grandmother has about 40 grandkids. Who should get the house? My maternal grandmother had a 3 room sharecropper cabin. My mother still owns it (she grew up there) and we can rent it to you if you'd like to spend the nite.
If CA is sinking, why continue to reside more than 49.9% of the time there?
The the sinking ship, California, has a fun party neighbor, NV, where state income tax is non-existent. That's 10% for the residence skipper and -10% for CA.
Watch in CA for the sprouting of NV licence plates and plunging tax revenues as those who think the 10% pinch and the erosion of services is more than necessary to "pay" just to enjoy CA for 49.9% of the year (excluding holidays, business travel days, NV enjoyment days, business meetings days and nights).
While Las Vegas claims itself the foreclosure capital of the world, NV's gifting the CA upper class with a new life.
I don't think I've even been as floored by something as this article. I just can't even understand that quote from Nancy Corazzi...EQUITY. Housing values dropping...no wonder this mess is what it is.
And I'm not blaming her, unfortunately she represents middle America with her grasp of money and credit.
But a few posters have hit on the real story here - for years this has fueled the "prosperity" for the middle class and now it's over. So what do you do when you're credit is cut? You have to spend cash. What? I can't get that 42 inch LCD TV until I can, errr, actually pay for it? I have to save for a few years to buy a house? But wait, with gas over $3, food doubled, college for the kids...everyone's about to find out that, truly, we ARE all subprime.
Ellen--Grandma sold her old house (which she paid cash for) in the 1980s for a profit and moved in with us. While living there, she lost her brother and cousin and sold their properties for a nice profit to developers. She and my parents sold their house last year for over half a million and bought a new one. Grandma is still living with them and still going on cruises. She also has 2 living children, 8 living grandchildren, and 18 great-grandchildren.
Ministry of Truth, I don't find this surprising at all. FICO is a cock...it is a backwards looking index and it's being used to predict future behavior if the circumstances from the past hold true for the present and future. What's that line on all investment prospecti? Oh yes, past performance is no indicator of future returns.
Things are not the same as in the past, and FICO has no stress indicators because you just can't model that. So before this is over, that FICO score is going to get a whole lot higher for some tranches as people who never should have been made the loans default. The lower scores are just the first to see the stress.
She's not alone. All those FB's are in the same guileless, innocent, guiltless, theeving morass.
I disagree. This is fundamentally a savings issue. People have been unable to save in money and were looking for the commodity that they could best save for their future. Housing was appreciating at 10-15 % a year due to policies by our gubmint. Joe sixpack was getting priced out. Real inflation kept people out of CD's and the dot-com bubble kept people out of stocks. Two of my friends who bought in the last two years both felt they were being prudent. The flippers were on the margin. Main street was just taking the cues given them.
Maybe I'm missing something, but your "underwater" calculations appear to be based solely upon fully amortized purchase money mortgages. What about IOs, NegAms, HELOCs & MEW?
This is meant to be helpful. Something I don't understand. I don't know what state you live in, but is it truly the case that there are no affinity groups your wife could join?
In all states with which I'm familiar (obviously not all 50), if you belong to, say, AARP, the ABA, ADA, and so on, and those groups have a health insurance option, then that master group policy is NOT medically underwritten, meaning that ANY group member MUST be accepted and as to pre-existing conditions, they will be covered after 12 months (sometimes 6 months) have passed, at the outside.
I am not implying you're an idiot, I just don't understand that there are none available...
for example, check freelancersunion.org, which has health insurance available to members in 30 states, and in those with which im familiar the master policy ISNT UNDERWRITTEN and DOESNT RIDER OUT PRE-EXISTING.
The American Paradox: Spend and you are a deadbeat unworthy of help from your fellow man. Save and you cause a recession. What's a good American to do?
What the ecologists knew decades ago -- living beyond the local carrying capacity is possible but only so long as trade brings to each area whatever it lacks locally; when trade fails, each area is suddenly living beyond its local means.
"non-renewable resources provide no real carrying capacity; they provide only phantom carrying capacity. If coming to depend on phantom carrying capacity is a Faustian bargain that mortgages the future of Homo colossus as the price of an exuberant present, that mortgage was not yet being foreclosed in the Great Depression... we need to understand what did bring on a carrying capacity deficit in the 1930s."
...
"The astronomical German inflation was thus no mere fluke of history. Rather, it was a preview of the larger preview to come, when other forms of financial disruption would rend the fabric of trade throughout the world. By thus compelling a reduction ... back down to local resource bases, such trade dislocation would convert existing loads of human resource-consumers, previously supportable by composite carrying capacity, into overloads no longer fully supportable by fragmented carrying capacities."
-- by William Catton
(Excerpt from Overshoot: The Ecological Basis of Revolutionary Change)
... As the subprime mortgage paper failed, the other derivative instruments, whose value depended on the subprime mortgage paper holding its value, were then uncovered, and were shown in the final analysis not to have anywhere near the intrinsic worth they were valued at.
From collateralized mortgage obligations through collateralized debt obligations, asset backed commercial paper, structured investment vehicles, all the way to the mortgage and bond insurers, they all depended for their value on another derivative at the next link back on the daisy chain. Like dominoes falling, like a video of a building being built run in reverse, brick by brick, the great wealth creation edifice of this decade is being pulled down.
Last week, it was the turn of what is called auction rate securities....
The finance MBA definition of auction rate securities states that they are something of a strange hybrid of long-term fixed- and short-term floating rate debt, but what you really need to know to understand whats going on is that they are just another derivative product produced by the math PhDs and marketed by the investment houses. The failed offering by the Port Authority was but one of 1,000 auctions of these securities that last week sunk like a stone; the big brokerage houses such as Goldman Sachs and Merrill Lynch, the companies that had created, peddled and promised to stand behind the auctions, were, when they were most needed, nowhere to be found.
Everything is interconnected. What is going on here is that, as the crisis destroys wealth with every sector of the credit markets it ravages, less liquidity is available to fund every succeeding sector in the rest of the credit markets-theyre falling too. ...
In and of itself, the market for auction rate securities is not large, "only" $330 billion out of the estimated total nominal world value of the entire derivatives market of over $500 trillion. (By comparison, only 22 of the 183 countries listed by the World Bank had a gross domestic product greater than $330 billion, and the estimated $500 trillion value of world derivatives is more than seven times that of total world GDP. If the derivatives markets stumbles or falls, it could take a lot of the world economy with it.)
The point here is that an avalanche of credit and wealth destruction has been created and continues to gain ever greater and greater momentum as it rolls down the hill. In another few weeks or so, another victim will be inundated and lost (my moneys on credit default swaps and the bond insurers such as MBIA as the next to go), then more after that.
They say that this year Americans are voting for change. Unless some countervailing force can soon be mobilized and employed to resuscitate and return confidence to the credit markets, by 2009 the country will indeed look very changed, no matter whos in the White House.
hi tj,
actually what i am messing around with is basically 100% io's because i never let the mortgage amount decline. so every house carries the starting mortgage value forever. the only thing which is changing is the price of the house. mortgages get reset to some proportion of the current house price when the house is sold.
i just did another run and set the case shiller index to decline by 5% a year for the next 20 months. At the end of the period you would see 18% of the houses underwater and about 9% more than 10% underwater.
Ellen,
Maybe because it's not worth it to pay property taxes and maintain a home that you are not living in? My grandfather sold his house 2 years ago and moved in with an uncle. I suppose one could make arrangements to rent it out, but isn't that too much of a hassle? (Heard many horror stories about people with "investment properties"). I suppose if you went through the trouble of finding a decent family to rent it to (at a price they appreciated), it would be possible... but how do you go about that? Are there honest people around anymore?
Hank this is a price discovery issue for the credit markets. In other words, if it were know that x percent of mortgages were crap, then everyone could discount appropriately. Same with all the other instruments. If these were, reasonably, worth .83 to the dollar, counterparties could pay, writedowns could occur, and capital could get back to work.
But the ironic thing is this distribution of risk by securitization has produced only "what the hell are IN these things?" and everything is frozen while that question is answered. And everyone hopes that, in time, the results will be better than they are now.
david_in_ct - amortization over 3 or 5 years is next to nothing, so I wouldn't sweat that. but you said everything starts at 100 LTV? I thought you had a distribution of initial LTVs. Anyway, the other big thing that you've left out is the HELOCs (remember those? they're what the post is about). Assume that 10% or 20% of your borrowers increase their LTV with a HELOC or a second when they've acquired some equity, and I expect you can get to 10% underwater pretty fast.
I'm not the guy with the uninsured wife. That was an italics quote from an earlier post from a guy who said he needed his heloc as his backstop.
I suspect that not everyone gets to be in an affinity group, and even so, six months to a year is a long time not to be covered. Lots of expensive problems can occur in that timeframe. Also, I suspect that the cost of the coverage in these groups is hundreds of dollars a month. Not sofa-cushion change for many of us.
My situation is like many lower-middle-class wage-earners: my employer covers most of the cost of my family's coverage, but my portion gets bigger every year and is one of the biggest expenses in my budget. And as my premium goes up, my copays etc. do also.
Minister:
* The total pool size is $513,969,100.
* $476,069,000 was rated AAA.
* 92.6% of this cesspool was rated AAA.
* Yet 15% of the whole pool is in foreclosure or REO after a mere 8 months!
So that would leave about 38 million in cushion for the AAA.
the pool ltv is about 78%. suppose all houses in the pool declined 22% so basically they were now 100% ltv.
suppose that 30% of the houses go reo and it costs 25% for the bank to get rid of it. The total of the losses in the pool will be .30 * .25 * 514,000,00 = 38.5 million which will wipe out all the stuff below but leave the AAA unscathed but frightened.
"I would have drained it. I would have taken every dime and possibly placed it in a money market vehicle."
Okay, so she's either desperate or dumb. She's going to incur the going rate on the HELOC for depositing it in savings at probably 2 - 3 % less.
Unless your mentality is that borrowing as much money as possible at all times is a GOOD thing. If that is your worldview, then maxing your heloc at six or seven percent or whatever, and depositing the money for later spending at 2-3 percent, means you're paying only 3-4 percent net interest on the money you have borrowed. Now do you see the brilliance here?
mortfin:
yes, the early amortization is not much over five years so not a big deal. The LTV distribution is
10% 100
20% 90
30% 80
20% 70
10% 60
10% 10-50
now you want helocs? i forgot what it was like to do contract programming!!
(1) Yearning to Learn writes:
I was wondering if this article would pique tanta's interest. I highly recommend reading the reader comments... it is even better than the article. not much sympathy for the overspending yuppies... I think some CR posters are posting over there
We are. I sliced and diced the numbers and the oh-feel-sorry-for-us couple in the WaPo are serial refinancers.
Those people were funding their lifestyle by borrowing money more and more money all the time. If the USAA HELOC had been the first time they had borrowed after buying it for $179K 10 years ago, USAA wouldnt have shut off the spigot with a $469K evaluation. If they had never borrowed against the house before, it should have been ½ paid off and down to around $90K and another $95K in a HELOC would have been well below the $469K valuation.
These people were living on borrowed money and the stove in the photo was easily $5K 10K as it looks like a Viking or similar model.
(2) Ellen ask why people just dont stay in the family home they inherited.
Misean writes: Ellen, Inheritance tax. You didn't really think our rulers meant it to harm the elite did you.
Sorry but Misean is spouting pure bullhockey. The estate tax applies to less than ½ of 1% of all estates in the US. Typically it is the households in the upper .5 (1/2) percentile.
I KNOW what the Estate law says I wrote large parts of it when the major revisions were done 30 years ago. (And got the family farm/business exemption through Committee for the Congressional office where I was an aide.)
They are not staying in Grandmas house because they want to go off and live somewhere else LA, NYC, DC whatever,
(3) fred writes:
Stark...
This is meant to be helpful. Something I don't understand. I don't know what state you live in, but is it truly the case that there are no affinity groups your wife could join?
In all states with which I'm familiar (obviously not all 50), if you belong to, say, AARP, the ABA, ADA, and so on, and those groups have a health insurance option, then that master group policy is NOT medically underwritten, meaning that ANY group member MUST be accepted and as to pre-existing conditions, they will be covered after 12 months (sometimes 6 months) have passed, at the outside.
I am not implying you're an idiot, I just don't understand that there are none available...
for example, check freelancersunion.org, which has health insurance available to members in 30 states, and in those with which im familiar the master policy ISNT UNDERWRITTEN and DOESNT RIDER OUT PRE-EXISTING.
Fred try again. Unless you are in a few specific geographic area, that free-lancers group is useless. The coverage sucks in terms of medical providers in the system.
AARP does NOT offer coverage to those under 65 except in a few handful of states and then they have to be over 50/55 (and there is the pre-existing stuff.
All the other groups (like the ABA lawyers for those who dont know) require you be a member of their profession which is usually licensed.
I do healthcare policy work. Except in 4 or 5 states which mandate insurers accept all comers (and in my state Blue Cross takes everybody) cancer survivors can NOT get coverage. PERIOD. If for example they were in my state and bought the Blur Cross, the what-is-not-covered exceeds the covered. $2500 deductible, no office visits, prescriptions with a $500 deductible and 50% copay capped at $2500 of drugs, everything else has a 30% copay and all this for $500-600 a month.
I have very high medical bills (around $30 -40K a year). If I had that Blue Cross policy I would be spending $26,000 a year. Some coverage.
(4) BTW, Tanta, your crack about birthday parties and ponies made me laugh so hard I wasted a perfectly good cup of coffee spilled in all over my lap.
I have a question related to another blog I frequent.
The bloggers took out a construction loan about a year ago. No stated amount (at least in the public records). Interest fixed at 7.x% for 5 years. HELOC withdrawals allowed (presumably for construction and other things) up to about $1.3 million (more than the construction cost/value of the house and land - at least today). What happens when the house is finished at the closing? How is the final amount of the mortgage determined? I think the house will be worth less than it cost to build when it's finished.
FWIW - we built our current house about a decade ago with the cash proceeds from the sale of the place we owned before we built. So I don't have the slightest idea how these mortgage things work. Roby
Right now in SW Florida the only properties getting nibbled on are at approx 50% haircuts. This is for a move-in perfect house. If the home needs any work,most likely it doesn't even get looked at. I have 5 empties on my street. One foreclosed 3 Years ago. Never marketed...Oh the joy.
How bad is it gettin...we had 1100 FC's in January. All of last year the paper said the total was 2700-2800. The lady at the county whom I deal with for eviction paperwork mentioned that the number look like FC's will increase monthly thru December...I asked how much? "You don't want to know" was the response...Tin foil hat time cause me head is hurting.
Chris
P.S.- I was in Socal during the last runup and crash. Where I am at in Florida makes that look like a walk in the park.
omg - I had to laugh when I read your comments about sense of self-worth and FICO scores. The only time we use credit is when someone pays us to do so (like buy this TV - 2 years without interest if you pay the balance in 2 years). Anyway - one day I looked up our FICO score on one of those FICO websites. We didn't have a really high credit rating. The comment was that we were spending too much money. At least half was my father-in-law's nursing home bills - which we were putting on credit cards (and paying off monthly) to get FF miles (we put my FIL on our accounts like you'd put a child on your accounts - he could pay the bills - but didn't need the FF miles). At which point I got the general impression that FICO scores were kind of dumb. Roby
tg, if your friends would have read curevents newsgroup, thehousingbubbleblog.com
globaleconomics.com
sinclair
and plenty of others...
"there's that big word, "if".
Heck, if my aunt had nuts, she'd 'a been my uncle."
If they didn't do their homework, they were stupid...and yes millions were greedy, blind, rooked by the NAR and the realtors, and stupid.
Life's a bitch. The reason few inherit is because their parents or ancestors didn't read the tea leaves.
Bernard Baruch said, in the twenties, "2 + 2 = 4".
Your friends didn't get the message; too busy salivating and pining over their realities.
There's not a soul here who doesn't recognize that nearly everyone who bought thought prices would not go down, as they're not making new land.
Is this idiocy or what?!!
They were too ignorant/frightened/selfishly refusing to do their own economic historical research...they thought it would be different this time...this time it would be free money. Malarky. They lose. They will lose everything. It's the way reality works.
Those who didn't act the same way didn't get magic passes out of this morass. There are still serious and economically life threatening decisions that must be made now. If they don't chose well, they too will see their stores of value decimated by the financial storms welling up over the next 5 to 30 years.
Too long for them or you? Well, spend it now because that's the length of this economic cycle.
For your friends' reference, gold was at $885 spot 28 years ago. It dropped to $265 spot over 22 years, and it has now recovered to $945 spot, not yet adjusted for the inflation loss. And guess what, they're not making more gold either.
The store of value shifts, always. Either you see it or your get screwed, and this goes for everyone in the future, too. Unlike these piggy FB's and your friends, I believe one must "look" at reality and its evolutionary path and take responsible proactive measures. They decided to pop out the kids and then demand a fantasy right to get them supported in the lifestyle they seized upon. When they're in their low rent apartment, they can reflect on this, unempowered, and lives wasted. For your reference, check out the reality for people like them during the early 30's. Not a pretty picture, but reality just the same.
PhoenixRising - Not knowing anything about you except what you wrote - and assuming you have some flexibility in terms of where you live - look at states with guaranteed issue high risk health plans here:
Not necessarily cheap. But better than nothing. FWIW - we got involved with the Florida high risk health plan over 15 years ago when my husband was diagnosed with MS. It has been closed to new enrollment for over a decade. So Florida is not an option. Roby
"And guess what, they're not making more gold either. "
Making, no. Ripping more out of the ground -- yes. While I am a temporary gold bug -- for a period that has lasted several years, but could end in an instant -- this "store of value" thing is a little hard to keep up with in this day and age. Gold this year; oil next year? And something else five years down the line? It's going to be hard to be smart enough every time.
And frankly, people shouldn't have to be. The people we're talking about in this thread made some very bad choices. But in the society we had 30 or 40 years ago, those choices weren't even possible. The rules wouldn't let them be made. But we abolished the rules in the name of innovation (aka greed), and society was told that it was counterproductive to try to keep people from following their worst instincts. And here we now are.
I have in past analysis suggested that the perceived soundness of U.S. corporate balance sheets was extending a "hook" for those of the bullish persuasion. It was, after all, egregious Mortgage Finance Bubble excesses - and resulting Household and Financial Sector balance sheets loaded with debt - that were responsible for booming corporate cash-flows and relatively stable balance sheets.
How delightful that you do health care policy work.
Now do better. Anyone can bitch. Use the knowledge you should have.
Virtually EVERY major university offers health care to their students. This often includes non degree programs, but that varies.
In any event, and I know whereof I speak, these policies are available per semester or per academic year with summer (that is, 12 month) coverage extensions included or available.
THEY ARE NOT UNDERWRITTEN AND MANY OF THEM DO NOT EXCLUDE PRE EXISTING CONDITIONS WHATSOEVER.
This is not a "NY" thing.
Although such is available at SUNY as well as NYU and Columbia, just for the hell of it I checked and, yep, you get it as a University of California student.
And the coverage is one hell of a lot better than nothing.
I dam well guarantee you that similar is available not only in NY and California but Texas, Illinois, Ohio, on and on and on.
Yeah, so you have to enroll and stay matriculated. Big deal.
If I had huge ongoing medical bills and were not seriously disabled you better believe if I had no other option I'd enroll in some college or university, preferably public with low tuition, at the minimum credit load (which is OFTEN just 6 credits per semester), and buy the insurance.
But then, you know all this, because you do "health care policy work."
I'll take any reasonable odds that a cancer survivor can get this kind of insurance by enrolling in a university in at least 90% of that part of the country within 50 miles of a metropolitan center or campus.
And yes, as I'm an actuary too, it is possible to anti-select this exactly and precisely.
I'll tell y'a a story that's real. I know a guy who manages and is about to inherit a billion bucks. He has flashed his brilliance by showing off his quick knowledge of amortization tables. Much of his billion is in muni bonds. I told our mutual friend he was an idiot. That was 2 years ago. This muni bond holder can see a haircut of 50%, for him not really meaningful, but for society as a whole, it's just more destruction of the store of value.
Long ago, when I was in B School, I was stunned by the fact that Wells Fargo's Trust Dept was earning less for its clients than the rate of inflation, and then they took a mgt fee on top. It was an epiphany. The store of value must be managed into the future or it won't retain its value. The price of financial freedom is eternal attention to the store of value.
BD, I just disagree completely with your conclusion, "It's going to be hard to be smart enough every time.
And frankly, people shouldn't have to be.
The creation and conservation of the store of value is a significant challenge that demands competence and superior thinking, forever. If not, adios to what was so attentively gathered.
Also, Stovall says stocks aren't expensive. He notes that the S&P is trading at 16.5 times trailing annual operating results -- a 15% discount to the average valuation since 1988 and a little more than half the index's valuation at the height of the dot-com bubble in 2000.
16.5 times trailing??? I got news for that guy -- he's looking in the rear view mirror, and the bridge is out ahead.
hi cobra,
i don't at all doubt the numbers the you quote your neck of the woods. you are clearly, like some places in california and michigan at a local ground zero.
around where i am in southwestern ct the foreclosure sign is not yet the poster of choice. if you go north on 95 up to bridgeport the scene is much much different at least according to foreclosure.com.
i think the reo's will be concentrated in those places where the prices went nuts and the supply responded (california,florida.nevada) and the other end of the price spectrum where the finances were not good but the easy credit allowed people to get in over their heads.
Ellen - I guess your grandparents are/were as old as my parents (my last grandparent died at age 104 over a decade ago). My inlaws owned a retirement house in NC worth about $125k - in a place where few jobs are available. We sold it when we moved my FIL into a nursing home near us. My father (90) sold his waterfront house in south Florida for $1.5 million in 2005 after my mom died (they bought in 1968 for $60k). He moved into a rental retirement facility near us. If any of us kids had wanted the house - taxes alone would have run us over $50k a year due to the termination of Florida save our homes tax benefits upon transfer of the house (and none of us wanted to live where my parents lived). Anyway - my father is a happy camper. We kids are too. We'll never have to support him .
I am not much of an expert on credit - but I am pretty much of an expert on health insurance due to my husband's MS. Bottom line is if you are too young for medicare - and don't work for a large employer - you are pretty much screwed if you have a serious disease unless you have access to an affordable state high risk health plan. Most affinity group plans aren't guaranteed issue - have lousy coverage - or both. E.g., the Florida Bar has health insurance plans. They are not guaranteed issue. At one point - it offered a catastrophic excess health insurance plan - again - not guaranteed issue. Except for about a 2 week open enrollment period about 8 years ago. I grabbed it in about 2 minutes. However it did require an underlying policy. One reason we will stay in Florida at least until we're on Medicare (not too far away) is because of the unavailability of health care insurance. Anyway - for people like cancer survivors who are ok to work - at least for now - and who don't have access to an affordable state high risk pool - I recommend a job with a large employer with decent health care benefits. Even if you're earning $8/hour - the health insurance may well be worth it (although there are certainly better jobs that might be available to some people - my SIL is a breast cancer survivor who works at the University of Michigan and her pay and health care benefits are really good). Roby
Let's keep loaning public homebuilders billions of dollars so they can pay their executives millions in bonuses to overbuild and drive down the values of houses accross America while we pull the plug on poor Mrs. Corazzi so she can't send her twins to preschool?
Has anyone seen how many spec homes public builders are STILL building in oversupplied areas? Why would banks want to fund overbuilding unless they wanted to drive down the value of homes?
Fred - I looked into the university angle for my husband too (since he takes unversity courses for fun). Won't work here in Florida because the policies pay peanuts (usually enough for a student who gets a cold - but not enough for people who are really sick). For example - we have a friend with a daughter who has MS in the Florida university system - her student benefits don't cover doodle in terms of what she needs. OTOH - maybe school systems in other states offer benefits better than those in Florida. Roby
tj:
i especially like this line in the report:
"You can see from the chart going back to 1950 that every instance where actual earnings rose above trendline earnings was followed by a period where actual earnings went well below trendline earnings."
which is i guess what happen when you fit s line to a series of points.
i don't wish to disparage anyone's abilities but the guy who nows runs Comstock used to be in institutional sales at merrill. the two partners that were responsible for the comstock investment decisions early on, have not been with the firm for many many years.
For kicks I looked up the U of Florida. Like many universities, their optional student health plan:
(a) requires 6 credits or 1 credit per semester, depending on status
(b) costs minimal (in this case, $1600 or so)
(c) has open enrollment (guaranteed issue)
(d) DOES NOT EXCLUDE PREEXISTING CONDITIONS
(e) is outsourced
look at uhscr.com
put in univ of florida
look at plan b with the additional coverage
i grant you its maxed at $250K lifetime but its far far better than nothing.
one of us is wrong.
i never referred to student benefits I REFERRED TO THE PRIVATE INSURANCE THAT IS MADE OPTIONALLY AVAILABLE (AT NYU AND OTHERS AROUND HERE ITS MANDATORY UNLESS YOU OPT OUT) TO STUDENTS.
Let me know what you think (in the context of better than nothing).
I cannot reconcile your comment with what I'm reading, and remember again this is for those with no other alternative, the issue is if you're seriously ill are you way better off with this than nothing.
OT but I remember back when I was a college freshman and dinosaurs roamed the earth, my economics professor told the story of some state affair that Lenin was hosting in the 20's, with foreign dignitaries, and he asked a retired star of the Moscow Opera to perform in an opera to be held as part of it, and the singer cabled back that his fee would be $10,000 for the night, and Lenin wrote back, "Comrade, this is a new order, everyone makes the same, from the singer to the janitor," to which the singer replied, "Very well then, in that case, I shall sweep the floors instead of singing."
Hi Fred - Since you took the time - I took the time too. Here's the student plan at the University of North Florida up here in Jacksonville (where we live):
Big problem is annual limit of $100k a year. Probably ok for the average healthy 19 year old. Not so great if you're 62 - or really sick. I had a friend die of breast cancer a few years ago. Her 10% copay was over $100k in a single year (after radiation - chemo and the like).
Still - you're right - it might be better than nothing for people with no other options. OTOH - I think that working for some large corporations would probably be a better bet.
Matti - Your health care in Finland (and in similar countries) isn't "free". You - and everyone else - pays for it. Note that I am in favor of a mandatory single-payer health insurance plan in the US - but I don't fool myself into thinking that it would be "free".
There are a lot of very silly poorly researched articles being written in the US these days about health care. Even from "responsible" media. Like the NYT wrote a scare story this week about how the UK denies cancer drugs to breast cancer patients which are used "routinely" in the US. The article mentioned Avastin - which was only approved for use in breast cancer patients in the US yesterday!
I don't delude myself into thinking there are any easy answers to health care issues in the first - second - or third worlds. I just suspect there's a more rational way to do things in the US than our current approach. Roby
we came so close yesterday didn't we? so, so close. caught a bit of Fast Money yesterday and they were talking about the wedge also and how we almost broke it.
my own feeling is that if there hadn't been coordinated intervention we could have waterfalled from there. everyone in the world was watching that. everyone.
I currently live in Port Charlotte. I looked a little into buying in this area but the building codes and the impact fees are insane. I will most likely end up in Desoto County. I have my eye on a handful of 1ac,rural zoned lots right now. You also end up inland enough that hurricanes are not such a huge threat.
The rural zoning will allow me build a large building with a small apartment in it. I am a car guy at heart and have a few plus 20 years worth of collected parts.
You might want to also look at Airparks. Most here have decent sized lots but the killer for me is the Mcmansions they want ya to build.
The whole thing is if you stay on the inland side of I75 by just a few miles properties are affordable. Well,they were before the runup. Prices are falling,it's just a slow grind down...
im not trying to be cute. im just being curious. there is a U of Florida campus in Jacksonville and for $1600/yr plus some extra I can't find but it's not much if you take courses there you can buy insurance with $250,000.
for my two cents, for some people it would be worth enrolling at both and stacking coverage.
perfectly legal, let them worry about coordination of benefits.
my point in all this is that there is ALMOST always SOME solution thats better than absolutely nothing, and also that people should fight back.
I promise you im a true conservative and libertarian but i have no hesitation in suing insurance companies for failure to pay and have done so for big amounts.
I am merely trying to help here but again something is better than nothing and even if someone has to take a stupid course to get a real estate sales license and join the local real estate board or nar and get some kind of policy...you get the point.
Obviously there are serious hard luck cases. Not talking about those.
FWIW I lost my mother to breast cancer when I was 15. She was sick for 5 years before she died. At the time my dad was a senior officer at Metropolitan Life, so you can imagine we were well insured. This was 42 years ago...
The out of pocket medical expenses (not covered) were $1200/week...that was my father's entire salary (equivalent to about $350,000 today)...(in those days benefits weren't as comprehensive).
I have been there and been well insured and not insured and flush and not and am always sympathetic, but that doesnt excuse not being resourceful.
A plagarism checker/deleter? For heaven's sake! Do you honestly think people are stealing content for some kind of personal gain? It's a comment forum for educational purposes. People aren't even claiming it's original thought. Ridiculous.
fred writes: [...] Lenin was hosting in the 20's [...] and he asked a retired star of the Moscow Opera to perform in an opera to be held as part of it, and the singer cabled back that his fee would be $10,000 for the night, and Lenin wrote back, "Comrade, this is a new order, everyone makes the same, from the singer to the janitor," to which the singer replied, "Very well then, in that case, I shall sweep the floors instead of singing."
Stalin saved the true punchline for later, when he shipped such artists to the gulags for many years of unpaid sweeping.
Ann and Fred
It is interesting that your posts on heath care appear in this thread.
Ann
If there were a Universal Health Care System ala that of Sen. Clinton then perhaps you would be taken care of.
. I certainly am sorry that you have had a cancer. You are certainly lucky that treatment albeit costly is available to you.But what you want is a free ride
A private health insurance plan is just that. And those who buy it assume costs that are actuarially arrived at.
Before you were diagnosed you were of a pool where the possibility is actuarially computed.
But now you are in a different population an assigned risk pool. And the costs seem pretty much on target. What you are now insuring against is a that your costs will not rise substantially.
Now we have never met. But were we in the same coverage pool, you want me to subsidize you. Could you explain your reasoning?
And BTW the government will pay for your treatment. Its called Medicaid. Now I can imagine you do not want to have to reduce your assets to meet their requirements. So you want to stay alive, but don't want to have to pay for your extended life with a cut in your life style.
So you are in effect a sister to those women in the WaPo article
Fred:
You are very clever. You found a loophole for Ann to use. And while it may not be legally fraud, I find it morally so. Again why should parents of college students help Ann keep her standard of living?
So how are you different then all those SoCal mortgage brokers
I live very close to this lady's house in Ellicott City, and even the second appraisal is too high. If her house were listed at 450K, she might get some bites. There are too many nice houses in better neighborhoods at the appraised price.
I know a very great deal about insurance law. There is no fraud here. As for morality, that's for the afterlife.
No one held a gun to the head of that insurance company to offer that product.
Anyone who is one foot in the grave and legitimately enrolls in a school and buys that policy gets covered, period.
The premium is low because it's based on the assumption of a low, healthy age group of students.
The problem with your thinking is that all insurance is a variance reduction mechanism and if it's not age or health underwritten the healthy people pay for the sick ones.
You do know that, right?
And you do know that any system of universal health care must mathematically work the same way, so your position would be inconsistent unless you are against universal health care.
Because the cost of providing it must equal the cost of the benefits plus the cost of administration plus profit.
The cost of the benefits must equal the aggregate cost of the benefits to all policyholders.
Then you divide by the number of policyholders.
That means people who never make claims are subsidizing people who do?
You either have risk-based premiums or you don't.
If you do, anyone on this board with a 5-handle on their age is gonna pay an incredible amount.
If you don't like it move to Canada.
Otherwise, your ad hominem comment is beneath dignity. If you want to discuss it call me at my office. I doubt you can afford the billing rate.
Yeah, damn close. Peered over the edge into the abyss, but then pulled back at the last moment. I know what the technicals show, but do you have any short term gut feelings given that you really live this stuff?
social capital, look it up. Here's the definition I like:
"The degree to which a community or society collaborates and cooperates (through such mechanisms as networks, shared trust, norms and values) to achieve mutual benefits."
The bloggers took out a construction loan about a year ago. No stated amount (at least in the public records). Interest fixed at 7.x% for 5 years.
I've had a cousin the built a couple spec homes and the construction loans typically worked like this.
The bank provides a line of credit to the builder secured by equity in the raw land. In the "good old days" that would require the builder to either put a substantial amount of cash down on the lot (or own it out-right).
In the last couple of years, most of the equity came from the appraisers pen instead of cold cash. The builder would buy the lot and the then banks appraiser would find that the builder had negotiated such a "great deal" that the builder instantly had the equity needed to secure the loan.
The bank typically distributes cash at a set schedule based on construction milestones. The bank will usually pay funds directly to the subs with in return for a lien release.
In my cousin's case, interest accrued on the loan and the total amount + interest was due on completion. The bank usually provides a window for the builder a complete the home. He would usually extend the construction as far as possible ("pick your paint and carpet!") to avoid having to make payments.
If my cousin couldn't find a buyer before it hits the end of the construction window the bank would usually extend it with a cash payment. At that point, it was a race between the carrying cost of the construction loan and his profit on the property.
My cousin was able to clear his homes before the market slowed but if a builder ends up upside-down, the bank will end up foreclosing on the property. At that point, the bank either gave itself enough equity cushion or it takes a loss.
Hey Fred, are your comments on this blog "pro-bono"?
Maybe you can talk CR into giving you your own tip jar. I mean, you are the $hit, and all, aren't you???
joker.
i have to live this stuff; i have too much riding on it. that said, with the frequency of your posts, you live it too.
IMO, eventually we go lower. i'm looking to go long after about a 30% pullback in the Dow/S&p. or at least go flat for a while. McHugh thinks we need to fill a gap up around 12600 before we head down hard on a wave 3 in a primary bear mkt. it'll be tough trading short term cuz we'll probably start to see more interventions like yesterday. damn, the last time i remember that happening was last summer when we hit a technical level in the s&p and shot up even higher in the last 30 min. i remember the MSM blaming an inadvertent trade entry order from some fund. BS!
all in all it was a weak spurt yesterday i thought after analyzing it. there was about a 5 min pause halfway up as if the squeeze wasn't working. i actually shorted BSC at 84 as i thought it was going to fail but then it shot up some more to 85 and i closed it out. probably should have held it.
overall i think the economy is getting progressively worse and i need to remind myself to keep my eye on the ball of housing whenever i see these vicious rallies. i'm much more confident that we won't be seeing new highs for a long time b/c capital is being drained out of the system unlike back in 2002 when it just shifted from tech to housing. the credit mkts are frozen, hedge funds are failing, IB's can't support key mkts, short squeezes are more muted, and our ever faithful housing mkts are crumbling. its all about credit bubbles and i just don't see excess liquidity flowing into stocks.
i made a pt yesterday that i don't think the avg public will ever enter the stock mkt in a significant way since they're tapped out and more importantly b/c they don't trust it. hell, we don't trust it. there's no way the stock mkt will be seen as a safe inflation hedge b/c wall st and our Fed has lost all credibility and who wants to play a stock mkt thats rigged? other than us?
btw, these triangles can be seen on FOMC mtg days. Intraday chart patterns will get very muted and volatility very low waiting for the rate announcement.
right now, the mkt triangle (wedge) is waiting for something. that something is the monoline solution (nonsolution).
Actually, I'm a computer geek that's fascinated (and a little frustrated) with the markets. Don't have that much money at risk, and I'm mainly aiming for the big kill -- based upon fundamentals, of course. Love to play more, but too busy making good money elsewhere. Unfortunately, my short term plays haven't been all that hot, hence the frustration.
You & I are of like minds on the long-term direction. Very short term, it does sound like we may have another little (irrational) rally. Of course, last time I heard that a lot was right around New Years. Unfortunately for the bulls, the bad news just doesn't stop coming.
You're absolutely right about the public, too. All the volatility will only hasten their exit.
BTW, thanks for the detailed response. There's nothing like the instincts of someone with experience in the trenches, something I'm sorely lacking. I'm learning (the hard way)!
Thanks for the link! Anyone know the makeup of the Dow Jones Real Estate Index? Supposed to be predominantly REITs. I'm wondering how much is RE vs. CRE, because SRS is based on the DJREI. Probably bound to spike again when it's obvious CRE is crashing.
"Except in 4 or 5 states which mandate insurers accept all comers (and in my state Blue Cross takes everybody) cancer survivors can NOT get coverage"
Ann, which 4 or 5 state that mandate insurer accept all comers? We may be retiring soon (before we are eligible for medicare) and my wife have some preexisting condition. It would be helpful to know the information..
the mkts are meant to frustrate and confuse you. gotta be patient. its paid off for me. i really think SRS is poised for a breakout as we are now starting to see alot more articles like FFDIC's above.
i too am a professional with my own business during which i can watch the stock mkt closely. swimming with the sharks has more than supplemented my business income so i'm hooked.
Yeah, I took McHugh's one-month free trial, and he's been sending me free teasers ever since. I read all the other guys that post occasionally on SafeHaven & FSO -- Barbera, Wood, Burk, etc. -- and they're pretty much saying the same thing.
The b!tch is that so much these days happens intraday, and I just don't have the opportunity to monitor things that closely. For example, I stepped out Friday and missed the reversal entirely. ARRRGGGGHHHHHHH!!!!!
idoc - they are too busy working to talk much and I ain't joking... expecting 50 2008 failures or more than 4 monthly. NorthPark Mall in N. Dallas packed this wkend. I was in Kohl's today - bought $36 denim long sleeve XXL shirt marked down to $7.20. Going back tomorrow for another one. FDIC hiring. See its new budget at fdic.gov
I'm sorry to hear about others' misfortunes, but that's the way life is, and we must accept that resources in this world are limited. Universal health care does not mean that cost/benefit decisions can be avoided. Is spending $2,000,000 on cancer treatment for an elderly person moral when that money could be put towards programs such as prenatal care? Even if that person was my grandparent, I think I would feel guilty about having society pay for treatment when the money could be used to help many more people.
Is spending $2,000,000 on cancer treatment for an elderly person
ask yourself what is being consumed to justify that $2,000,000 expense, why the system is structured to extract that economic rent, and whether this is the optimal economic system available to us.
Yes, that link was also mentioned further up the comments.
@david_in_ct
wipe out all the stuff below but leave the AAA unscathed but frightened
Given that close to 80% of "all the stuff below" was/is rated A or better by S&P, isn't it saying something when you're postulating it could be wiped out completely?
Plus I wonder how many of those tranches themselves got aggregated? Presumably any CDO^2 made up of that sort of tranche would itself be largely AAA, since all its components would be A or better.
fred writes: "If you want to discuss it, call me at my office. I doubt you can afford the billing rate."
and: "As for morality, that's for the afterlife."
It sounds like Fred is an arrogant lawyer whose posts go on forever to show us how smart he is...blah,blah, blah...boring. What a waste of your overpriced time and money Fred. Are we all going to get a bill ?
Hey Fred, you may not be able to pay the morality bill you are going to get in the afterlife.
Also, the data we have on negative equities (and whether 17% is a reasonable number) was discussed by CR in this post.
If the data in that plot are correct, then 17% is not at all an absurd number.
(Question to David_in_ct: an interesting question is what would it take to get your model to look like the plot shown in that post? Then one can ask the question whether the parameters it took to get there have sensible values.)
My plan for today is to install a humor detector, since at least one of you doesn't seem to have one.
Now, you might possibly think that a humor detector on Haloscan is not technologically feasible. Therefore you might conclude that I am joking.
Therefore you might conclude that I just zapped a couple of nuisance paste-jobs by clicking on the little garbage can icon that I can see and you can't, but I insinuated that it was some automated thing just to be "humorous." Playful. Ironic. Whimsical. Any of these terms register?
Does the typical Option-ARM allow the lender to conduct a similar exercise to the one described for HELOC's?
I.e. Assuming the loan has not reached either the reset or the recast point, can the lender nonetheless use declining valuations to insist on a move to a minimum payment of the full I/O amount?
If you look at the Proshares site and look at the idex of all securities in each etf, you can download every one of the holdings and the number of shares held in each. I have set up watch lists that correspond to these for SRS and DIG which are better for leading indicators as to when to buy or sell. SRS is certainly tracking the REITs very closely, unfortunately, they tend to spring whenever the XLF gets a jolt which can cause $7-$10 intraday swings. I think that SRS is bound for $160, however, I hope to have hair left by the time it gets there!
Does the typical Option-ARM allow the lender to conduct a similar exercise to the one described for HELOC's?
I.e. Assuming the loan has not reached either the reset or the recast point, can the lender nonetheless use declining valuations to insist on a move to a minimum payment of the full I/O amount?
No.
The whole reason that your Option ARM/neg am note goes into all that painful folderol about balance caps and per-increase caps and reset schedules and so on is that those are the terms of the loan. You wouldn't need all that stuff if you were allowed to just recast the loan any time you didn't care for the current LTV. But if that were the case, the note would have to say that the terms of the loan can change when LTV gets to a certain point, based on some specified way of knowing that.
A HELOC, on the other hand, is a line of credit. These lenders in the news story are not changing the terms under which any money already borrowed under that line has to be repaid; they are just not lending any new money at this point.
The equivalent scenario in the first mortgage world would be a borrower who originally borrowed $100,000, pays it down to $90,000, applies for a cash-out refi of $100,000 and is denied, because the home is now worth less than $100,000. That doesn't change the terms of the existing $90,000 loan; it just means that the lender will not lend "new money" on this property.
Jefferson County's revenue bond problems are MUCH bigger than a failed auction rate market. They show a perfect storm of: 1) vast municipal revenue bond debt: 2) leveraged on monoline guarantees; and 3) further leveraged by Wall Street derivatives sold to corrupt politicians to benefit pigmen (and probably, via kickbacks, local politicians).
Let's go back. Jeff County (Birmingham) was required to rebuild its sewer system under EPA consent decree at vast cost. Most of the county's $4.6 billion debt ($7,000 per capita) is for sewer bonds, for which the only collateral is sewer use fees (not general taxes).
Most of the sewer debt is auction rate. To offset the impact of fluctuating rates, Bof A, Bear Sterns, Lehman, and JP Morgan sold the county Libor swaps worth $5.7 billion. It isn't clear why the swaps are worth more than the debt. It also isn't clear why the county only gets 2/3 of LIBOR, which currently is just 2%. The swaps have got murdered and are now underwater by $71 million.
But there's more. Jeff County is required by indenture to maintain a reserve fund equal to 125% of annual bond interest payments. But by buying surety bonds guaranteed by monolines, XL Capital and FGIC, they could free up the reserve fund, most of which they have already spent on ordinary debt service. With the recent downgrades in these two monolines, the surety bonds are worthless, and unless the county can make up the reserve fund (they can't) the bonds are in covenant default.
Jeff County politicians leveraged every derivative/monoline trick in the book on top of each other. The only thing they can do now is declare default, kick out the politicians and start investigating and suing on behalf of their poor duped taxpayers.
The people of Jeff County owe Wall Street and bondholders nothing...except sewage. And what good, really, is a county sewerage system as bond collateral?
(Over the past decade, Jeff County sewerage rates have more than doubled to cover these bonds.)
There's many more revenue bond stories like this to come. It's just the tip of the iceberg. Auction rates are the tipping point that will cause a massive speculative revenue bond tower to come crumbling down. And when it does, it will show widespread corruption between Wall Street and local politicians.
Just remember -- it's not the failed auctions that created this mess, but everything that came before.
Quote from the Notrilly in the WP comments:Corazzi is a loan-processing manager. DelGallo is a real estate broker. This is astounding. Their ignorance is stunning. At some level, THESE are the morons GIVING advice to FBs.
Well, I guess i can wait.
But I think that this SS deferral program can have some legs if we hash it out here.
Just think, no more money going into a lock box. Has to be easier to implement than OTS nec's, jumbo fannies, or rate freezes.
Wow!! I can imagine some mighty p1ssed note-holders in the real bubble areas, then. Lessee now;
High starting LTV - check
Teaser rate still in operation - check
Principal increasing every month - check
Property value decreasing - check
Ability to change situation - nil until reset/recast
From W, above I remember taking classes in JC during the summer or at night during high school. They were way less demanding than my high school classes but let me graduate a year early. A high school friend of mine was more intereste in being on the Soccer team, and didn't take any classes harder than he needed to graduate. Now, he's an aerospace engineer. But to get there, he had to go through community college, "Paying cash money for classes I could taken for FREE in High School." Boy was HE pissed with himself.
And that's a fundamental difference here: alot of people think that the "EVIL Banks," are doing them wrong. They STILL have no conception that they were living beyond their means.
rich, thanks much for a detailed example of how these muni situations are going (although keeping in mind Jefferson county is an extreme example of municipal indebtedness). Obviously if Jeff county is getting LIBORx67% and paying failed auction rates they'll be throttled into insolvency quickly. Will they be OK if the ARS market recovers?
Anyone who is a professional and is in a fiduciary capacity in particular is obligated to use utmost care to put the client's interest foremost, ahead of his own.
You hire a professional to advise you on LEGAL ways to get health insurance or a mortgage and he/she does NOT recommend EVERYTHING they lose their license.
Think really hard how you'd feel if you had a kid in legal trouble and the lawyer said, "I could get him off because of the exclusionary rule, but it's not moral so I won't."
If you don't like the system, change it.
To conflate legal (and thorough and intelligent) planning with mortgage loan fraud is bizarre and beneath the level of this board or any other board or anyone who should be allowed out in public.
Knowledge is inventory. Inventory is not free.
Anti-selection refers to the situation where only sick people buy insurance. That's what we have now in many states, because young people don't think it's worth the money.
I am aware it's OT but consider this
I live in NY. NY in many (but not all) cases requires insurers to take all comers (if you've gone less than 60 days without coverage) and immediately pick up all preexisting conditions.
So you people think it's immoral for someone sick to switch carriers knowing that the new carrier will have to pick up the cost?
Then take it up with Albany.
But before you do, there are two things you should know...
(a) Like most do-gooder states, NY mandates benefits. It mandates really bizarre benefits to placate interest groups. YOU CANNOT BUY SHORT TERM CARE COVERAGE IN NY. YOU CANNOT BUY LARGE GROUP COVERAGE THAT DOESNT INCLUDE MENTAL HEALTH PARITY COVERAGE. YOU CANNOT BUY COVERAGE THAT DOESNT INCLUDE IVF.
As a result the cost of an average policy in NY is $600/month compared with $250 in Connecticut or NJ.
Therefore, many young people who feel healthy don't spend $600/month for coverage. They might spend $250 but it's not available.
Therefore only sicker people tend to buy coverage.
This is a predictable result of mandating benefits.
And therefore the predictable consequences of NY policy is that of anti-selection.
By your standards the entire state of NY is immoral (not just Wall Street)???
The only thing guaranteed immoral is to represent yourself as an expert in something, know a LEGAL solution, but not offer it to your client because YOU don't like it.
THAT'S IMMORAL.
To suggest that one shouldn't be paid commensurate with the ability to do that is even worse.
This situation shows why the ARS market won't recover. Wall Street had to hold this system together as long as possible. But when could no longer afford to do so, they let it go.
The real problem is TOO MUCH DEBT, and a lot of tricks and masks have been used to cover up the problem. But ultimately, as Jeff County shows, the tricks just add to costs.
Keep in mind that these are not debt burdens on taxpayers but rather on home owners and businesses that use sewerage. They meter water that goes in and water that goes out, and you pay fees on both. Part of the fees goes to bonds.
But what happens when water users say: "We don't want to pay anymore?" Just walk away. What then?
I think Jeff County will be bigger than Orange County, because it won't be as easily fixable. And it's more heartland and more repeatable in other places.
imo, i don't think the local gov't realizes they have most of the power.
i'd encourage the youwalkaway.com plan for jeff cnty.
And see if the confederate flag wavers will actually rise up again against the northern bankers.
From Bloomberg Article: "Bank Lose to Deadbeat Homeowners as Loans Sold in Bonds vanish."
"The mortgage industry has been painted as the enemy when all they did was make loans to enable people to buy homes."
Yes, that's all they did, altruism at its finest....
I realize Tanta has written at length about the truth of the matter as it pertains to the note issue, but I do take a kind of perverse pleasure in watching the banks realize that two can play fine print poker.
hi andrew,
to get big 'underwaterness' you need a lot more price decline. it does not matter that a condo in florida which is down 10 goes to down 20, that does not change the number of homes underwater it just makes that one worse. so to get the big numbers you have to do a lot of damage to areas not already crushed and you have to do it quick. this is because every time an existing home gets sold the loss if there is one gets recognized and the underwaterness disappears. since it is likely that a large majority of reo's came from this category and reo's are an increasingly large part of the existing home transactions this will accelerate the process.
By my posts I am not trying to minimize the debacle which has occurred but to instead get my arms around it mathematically so i can make decisions not based on other peoples prognostications. there are and have been enormous pricing dislocations in lots of markets. If you can be clever enough to figure out which ones aren't 'justified' there are big piles of return out there waiting to be picked up. for ex. on the day the stock market hit its intraday low, you could have bought freeport copper at about 6.5 times 2008 earnings or $69 per share with copper expected to be about 3$, though at the time copper was higher. two days ago it traded over $100. That's better than 40% in a couple of weeks on a multibillion dollar major global mining company whose operations and balance sheet haven't even blinked over the same time period. This is a great time to be investing because opportunities abound.
"Lawmakers are on the verge of approving refinancing options for Michigan homeowners facing risk of foreclosure, Gov. Jennifer Granholm told the Kalamazoo Gazette on Wednesday.
One program through the Michigan State Housing Development Authority would allow homeowners to refinance with a 30-year, fixed-rate loan at below market rates. It would be aimed at homeowners with adjustable-rate mortgages whose payments are increasing to an unaffordable level.
The other program, called the Rescue Refinance Program, would provide refinancing for homeowners who are delinquent on their mortgages and face possible foreclosures.
The programs, part of a Save the Dream initiative, are aimed at families with an income under $72,250 who have homes with a purchase price less than $216,750."
Wind has invigorated our business like you wouldnt believe, said Marty Foust, Dandys owner, who recently put in new carpeting and air-conditioning. When you watch the news you can get depressed about the economy, but we dont get depressed. Were now in our own bubble
anyone have a clue how much just one of these towers cost?
How much it costs to deliver?
To operate?
Maintain?
They are expensive - in the millions for the big ones. I've heard they take about 10-15 years to pay off at current electrical rates... but that's down from 25 years just a couple years ago... the bet is that rates continue to climb and the cap rate drops even more. To give you an idea - the cap rates are already about the same for new capital as it is for new coal fired and way cheaper than new nuclear.
Adding wind turbines new is more expensive that running either old nuclear or coal which is why power companies resist adding them except when they are sure they need the additional capacity.
Maintenance costs for older wind turbineS built 20+ years ago were very high - damn things broke down all the time and were not easy to fix. New versions have MUCH higher reliability with MTBF of many years - even decades in some cases and are much easier to access & repair - lower operating cast.
How much energy is consumed producing the paint that has to be put on these' current works of art' .
No more than any other piece of capital equipment - ever been in a power plant?
I seriously doubt these are going to rust away or be net losers over the life of the project. The question is how fast do they pay off? However they are NOT going to be the silver bullet that powers major metropolitan areas... the only thing that is going to save major metro areas from the energy crunch is going to be severe price rationing based conservation. Get used to it - its coming.
On the plains of Texas and Minnesota local energy will be still be relatively cheap... cheaper to use it there then transmit with huge loses a half continent away to NYC or Cali.
I have no doubt you and Conjure noted the fourth consecutive week of decline in the balance of outstanding ABCP (the third consecutive decline of total CP outstanding as well)...
Rich, Conjure Bag and I appreciate excellent analysis when we see it.
Thank you,
The Alabama state DA should come in now and investigate Jeff County. The investigation should focus primarily on the LIBOR swaps. It also should investigate whether there were links between the sales of these swaps by four large IBs and the monoline surety bonds that released millions of dollars Jeff County held in reserve fund.
It's hard to believe local politicians in Alabama would buy every gimmicky, risky derivative Wall Street offered unless they had incentives.
You could say, well, $7,000 in sewer debt for every man, woman and child is an incentive. But nothing about the swaps or surety bonds was designed to reduce the principal debt. It was all designed to juggle debt service payments.
Strangely, the IBs must have known that when they let the auction rate market fail, they would be exposing themselves to cascading revenue bond defaults. But they did it anyway.
Joy: This family is at very high risk of falling out of the American middle class--which they are/were a real part of --and they are very far from alone. This era may be the end of the large American middle class.
I beg to differ, very slightly: this will be the end of Reagan-omics, aka Trickle-Down or Voodo-Economics (GHWB will, unlike his son, fare somewhat better in the long cast of history).
You will see income "re-distribution" (to trot out that old Roosevelt-ian slander) make it's return. Deservedly so. You cannot continually rape the people and expect them not to turn on you eventually.
AllenM- "So, mp, is conjure predicting when the credit card companies start shutting off the US consumer?"
Conjure and I are up to our eyeballs in other problems right now. However, Conjure says, "If the monoline problem doesn't get fixed, it will be sooner than any of us dare to imagine."
As I said to energyecon last week, I've grown philosophical about all of it. The problem is now so large it's almost too big to fix. Competence is something our financial and political leadership lacks.
As Krugman pointed out on February 15, the Fed is lowering rates, but the cost of borrowing is rising. To me, that spells 'liquidity trap.
Energyecon, yes, we've been watching commercial paper, and its performance seems to confirm the broader problem. The Fed will just have to keep pumping.
To Conjure and I, recent Fed talk about their willingness to raise rates is so much bullshit.
rich, given that Jefferson County is one of, if not the, most indebted metropolitan counties in the country, this is hardly TEOTWAWKI. $7,000/person is a payment of 17.50/person per month or about 10 cents a flush. That's really steep for sewage fees but having been on some packaged tours to third world countries recently, I can testify how amazingly eager Americans are to pay for sewage services once their availability comes into question. The good people of Jefferson county would come crawling on their hands and knees to pay 10 cents a flush once they confronted - or possibly even considered - the alternatives. So the bonds can get paid.
mp, I'm all for investigations and certainly some things look odd here but hedging the ARS seems a really obvious thing to do. The county can't have fees going up and down by a factor of two depending on which side of the bed Bernanke gets up on. What else are they supposed to do? Why they picked a hedged variable bond over a simple fixed bond should be looked at but I don't see why to presume corruption.
Jeff county analysis is spot on. And it will be repeated. Too many on this board think muni's are safe...good as gold. They are not. Think splitting muni's out of the monolines solves? Think again. This kind of muni hanky panky exist all throughout the market.
David in ct is correct. There are diamonds burried in the stinking shit piles. But that doesn't justify the cost of the shit piles as they stand.
Go and lookup muni bond issues for Sacto, Bakersfield, Fresno. Think about the fact that a lot of these are for subdivisions that are empty, or at best inhabited by bandos.
Eight months ago I thought this thing should crater, but probably won't. Now I think this thing IS going to crater, and I'd better be ready for it. More so than I already am.
"Despite the attraction of wind as a nearly pollution-free power source"
Because the the aluminum, steel, carbon fiber or whatever is just laying around ready to build these wind machines without any fossil fuels being used in their production, not. There is no magic bullet. Green technologies still use fossil fuels. Each wind machine represents a lot of fossil fuel used in its production. Put the wind machine out in a field and suddenly the energy it kicks out is "clean". I would love to see an analysis of how much more energy a wind machine actually kicks out over a lifetime compared to inputs.
Rich, count me as another that really enjoys your comments. You too David_in_CT, idoc, tj. Please keep it coming.
Wheeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
(Sound of Mortgage Pig!)
So this would seem to be the tipping point with MEW supported consumption spending...
my self worth is not determined by what some agency gives to me that they call FICO.
I was wondering if this article would pique tanta's interest.
I highly recommend reading the reader comments... it is even better than the article.
not much sympathy for the overspending yuppies...
I think some CR posters are posting over there
Several have gone through Corazzi's records and pulled out her facts:
Well, the upside is that a spigot of financial self-debasement (at least, for some) is finally being turned off. This whole idea of HELOCs has proven to be too irresistible to many less-than-responsible homeowners. Just another way of becoming underwater.
So there sits poor Mrs. Corazzi in her gourmet kitchen, full of richly glowing oak cabinetry, sparkling stainless steel appliances, and undoubtedly top-of-the-line Calphalon hanging from the rack, blubbering over her situation. Am I the only one who balks at the notion of taxpayers bailing her out?
Now how are people going to make those mortgage payment? Sell their stocks?
That's okay, I can't spell apocryphal either.
The real test of the banks is if they start capping loans like my "roof and landscaping" HELOC. Currently ~7% LTV and all told < 30% CLTV. If loans like mine get "modified" it isn't because of any material change on my end but theirs. Essentially it would mean they are walking away from their obligation to fund up to the pre-agreed upon limits of our contract. You know, walk away because it looks like they won't make any money on the deal. Hoocoodanode?
All right, fine, I'm sorry I started using Blogger's spellchecker.
Next time I'll just write it in Greek.
But, without my HELOC, I actually have to earn money...
What kind of salaries do US bank clerks and salesmen receive? It is very strange that such a couple could ever dream of paying back some 500000 dollars.
What am I missing here? Are these people out of their mind?
Perhaps Starbucks could rent out floor space on a monthly basis for HELOC-deprived individuals.
sPel checkur? kEwl!
Greek? What "ARS pier negative eqvity xertificate" talk isn't Greek already?
please cant you turn out the bad news a bit slower pls...its hard to catch up...
btw, Greenback Toilet paper will be the rage 2009...
Rob, you're being απόκρυφος.
So, now that Zillowed Away has gone mainstream- gee, wasn't giving warning here last year?
Laughter.
Next comes the other stalwarts of the American consumer society- I bet that first the Car dealers start cutting waaaaay back on who they finance, followed by credit card companies. I notice BofA has already jumped that shark with their unilateral strikes on their debtors.
What happens to consumption patterns over the next decade as the leveraging machine goes into reverse?
Not quite taking the JJ attitude that our fearless leaders will allow a total collapse, but consider how much MEW money has gone into granite countertops, new cars, etc...
The flip side is these folks are under tremendous pressure in the article due to collapsing income- um, so we end right back up in my thesis of the 70s rerun. Welcome to early 1973- WIN button soon to be made available!!!
Someday this war's gonna end....
"I told them, 'You guys are wrong,' " Nancy Corazzi said. "They said, 'Sorry, this is what we're doing in the entire area.' "
Corazzi said she was blindsided by what's happened. "I didn't know they could do that. I thought I was too smart to have something like this happen to me.
well Einstein was for sure right....
I can see FED helicopter soon...
to the Wagner Tune from "Apocalypse Now"...
btw, any helicopter left or are all in Afghanistan and Irak??
What about Transport Aircraft???
All this Corrazzi talk, what about DelGallo?
What an ignorant scumbag!
No bailout for these people. None. Or BofA and their ilk.
but but but if you dont bail out you will suffer all more......
where indeed will it end...
DelGallo, a real estate broker, has used some of her credit line over the years. Had she known the freeze was coming, "I would have drained it," she said. "I would have taken every dime and possibly placed it in a money-market vehicle."
OK, I want to know where her MM account is if she can beat HELOC interest.
I read stories like this and struggle to believe CR when he says this will be a shallow recession.
Translation Greek - English : απόκρυφος
\t
1\tapocryphal\t
2\tarcane\t
3\tcryptic\t
4\tesoteric\t
5\toccult\t
6\trecondite
"I'll take recondite for one hundred Alex."
[Must remember; coffee first, calculated risk second.]
the way out is clear for me...
Bush says the economy is bad because they built too many houses | Crooks and Liars
exerp:
Curry: You dont agree with that? It has nothing do with the economy, the war, the spending on the war?
Bush: I dont think so. I think actually the spending in the war might help with jobs.
how long is he still in Power???
how big is your Military???
sorry to say this, but at my Homecountry the Theory goes we started WW 2 because the Economy was bankrupt....
Rob Dawg, don't you like the end of an era?
YouTube - Waiting In Saigon (Apocalypse Now)
Kunstler is right, but for the wrong reasons;-}
The thought that we might never recover from this foolishness is beginning to sink in here. While calling people fools like JJ is quite stupid, the end result might still be quite damaging.
What I seem to be struggling to say is what if this is the 70s show, but even worse? Yoringe put's his finger right on it- what if the only solutions chosen by the population are bad ones. Athenian disasters of the Peloponesian War come to mind...
Credit has been the lifeblood of this entire expansionary cycle, and without easy access to credit, the American lifestyles is gone. Imagine having to save and purchase goods for cash.
Yoringe, look up the lifestory of Hjalmar Schacht and the Reichsbank. Fiat means you are never broke;-}
Of course I see a fantastic parallel between Dick Cheney's quote about deficits and Hitler's response to Schacht about inflation. See Mefo bills - Wikipedia, the free encyclopedia
Someday this war's gonna end...
AllenM thnaks for the link will check it after work...
on a side note: still 140 years to go till the Age of Aquarius
((
A foole and his money is soone parted.
[1587 J. Bridges Defence of Government in Church of England xv. 1294]
Apocryphally speaking, when I was a kid we used to have a coffee table made from a stain glass window. A part of the picture it formed was the adage, "A fool's bolt is soon shot."
So true, ... and so sad.
PseudoNoise writes:
OK, I want to know where her MM account is if she can beat HELOC interest.
PseudoNoise | Homepage | 02.23.08 - 10:48 am | #
My thoughts exactly. Let's see....HELOC rates range from 7% to 9% and MM rates are around 3%. Hmmmm.
AllenM,
You know I cannot resist a Kunstler taunt. Unfortunately it isn't much fun anymore. Making fun of a broken clock 22 hours out of 24 is not sport.
Re: Reichsbank. I refer you to my post of nearly two years ago: Exurban Nation: That's Per Second Louie, Per Second...
Oops. Looks like I should have "previewed". Didn't mean to bold everything. Need to modify runtime parameters: first coffee, then FOREX. Add first coffee, then CR.
Sorry all.
Just borrow and short the homebuilders.
The rate of return will eventually beat MM funds handsomely.
Ahhhh, soon we get MEFOs- Mefo bills - Wikipedia, the free encyclopedia
We will just call them housing bonds- what a shambles!
A comment to the last post discussing BofA's new idea- shouldn't the NYT essentially point out that BofA is holding a gun to the politicians head and saying do this or we let CFC go splat?
Friggin' Mafia style negotiating.
Someday this war's gonna end...
"All this Corrazzi talk, what about DelGallo?
What an ignorant scumbag!"
I hear that: "gee, I'll take out a loan out on my home equity and put the money in a CD." You'd had to be pretty ignorant to think that made sense -- unless you planned on walking away from the house and keeping the money, because you expected to be underwater soon. Which would be scummy, not ignorant.
2. the "purpose" of the HELOC was to pay for Corazzi's twin's "preschool tuition" (ha!)
Read: day care (2 working parents). For 2 kids in that age group in the Washington area, probably well over $15K/year, more if it is actually a preschool, much much more if it is a nanny.
If you are getting 1 pay check in 2 months and paying a fortune for the kids to be in day care...you're in a very bad position if stopping work is not financially feasible and your industry is tanking which means very few good options. (Not that more debt is the answer, because the thing with more debt is you have to pay it eventually).
The point wasn't to take the money out and run, or take the money out and profit on interest rate spread, the point is these people were paying for their lifestyle and their mortgage by borrowing against their house. Whocoodanode that wouldn't work forever?
For starters Banks know that at least half the population on the DC Metro Area depends on Government Employment or Contracts. It makes sense they will just reduce home values by 20% to reduce their loan exposures on this RE. The is very sad because, they were a big part of the predicament we are all in, if they had moderated fairly and impartially the unsustainable price augmentation then we would not be here going thru a painful contraction.
I think WaPo is preemptively Swiftboating the loyal readership: pay no attention to those ragtag skeletons, they just blew all the cash on fancy preschool for their four kids, and they are ex-brokers anyway; they got us into this mess...I mean, how much more of a lightening rod for contempt could you manufacture?
I must admit, when deciding whether to sell or get a home equity line of credit in 2005 this possibility didn't occur to me... Selling and putting the profit into CD's just seemed a safer hedge against my husband's losing his construction job than taking out an option to borrow against our equity.
However, if we'd had kids or were planning to stay in the area longer I probably would have opted for the HELOC-- so all I can say is, "Whew!" We dodged a bullet there...
Now hold on. Lots of HELOCs are prime currently 6% and tax deductible. If you are in a high tax state like California and considering purchasing a used Civic to replace your gas guzzler it makes sense to use the HELOC. Right now also some 3mo CDs are still 4.5% which is almost break even with 6% HELOC. There's probably a few double tax free munis that pencil out as well. Sure these are exceptions and require discipline but don't throw the baby out with the bath water just because some specu-flopper would use their HELOC money to double down on leveraged real estate.
As for the "fancy preschool" --I easily spent over $30K to put 2 preschool aged kids in a relatively inexpensive home day care in the Washington area for 2 years. I don't know what facility the family profiled were using for preschool, but the nearly-ruinous cost of raising middle class children--think of $7K/year/child day care and college expenses (for the cheap options)-- has been well-documented by Elizabeth Warren and others.
Again, we have guys on this site who chatter needlessly about CD rates...
IS your Comment Scanner blocking out everything FFDIC has talked about, or are you guys seriously dense?
Last year, 34 percent of borrowers said they used their home equity lines to pay off other debt and 29 percent used them for home renovation, according to a survey of lenders by BenchMark Consulting International. Another 31 percent used them to pay for other things, such as medical bills, weddings or vacations.
This has always really irked me--the fact that most of HELOC spending was NOT for home renovations, yet people still could deduct the interest payments on their taxes. How is it "fair" that people who have debt in the form of credit cards or car loans don't have this tax loophole ever since 1986?
Additionally, people can get the mortgage interest deduction for more than one property. And a few months ago, the California Legislative Analyst Office calculated that the MID was the biggest tax loophole (costing the state almost $5bil per year). With a looming deficit that is already up to $16bil, I hope that there will be some serious discussion about eliminating the MID.
Joe Lents has not made a payment on his $1.5 million home since 2002.
link
Candidate for 2008 quote of the Year"
"Had she known the freeze was coming, 'I would have drained it,' she said. 'I would have taken every dime...'"
People keep looking for the 'cause' or 'responsible party' in this mess. A hopeless task, as a cock-up this bag comes from the confluence of a vast array of bad policies. While enumerating the causes of the current disaster, let's not forget the tax "reform" (86 was it?) that eliminated the deductibility of interest, unless you were willing to put your house at risk. The obvious result, as every economist/accountant/budget analyst who wasn't in the pockets of the REIC could tell you would happen, was the explosion of the HELOC market as a substitute for credit card debt, auto loans, boat loans, and all the other stuff that was on the wrong side of the newly created uneven playing field. That piece of lousy policy was obviously insufficient to touch off a disaster all by itself, but it's certainly a contributing factor to the current mess.
Excuse me, but this lady isn't making any money, so why doesn't she stay home with her kids? She won't have commute expense, lunch out expense, clothes expense, can cook dinner more cheaply etc, etc. True, I personally think it is boring to stay home with the kids, because there are no adults to talk to, but this lady can't afford to work!!!
Ms DelGallo I think thee reason they took it away without telling you was because they were afraid you would drain it.
God please don't let me know if they bail ignorant swine like this out.
OT but does anyone know of a publically traded daycare I smell a short oppurtunity.
What kind of salaries do US bank clerks and salesmen receive? It is very strange that such a couple could ever dream of paying back some 500000 dollars.
What am I missing here? Are these people out of their mind?
Matti Kinnunen | Homepage | 02.23.08 - 10:18 am | #
The real irony is that the employer wanted to pay them 'salary' during the boom and then switch it to 'commission' during the bust...
Typical. I work commission though not in banking or RE but still see it all the time.
I am not in favor of having most sales folks on commission UNLESS they really have responsibility & authority regarding sales proposals & performance... If all they do is take orders then for God's sake put them on salary like every other wage slave you have.
But if they are truly independent & have to do their own prospecting, qualifying & even 'assemble' the final proposal - then put them on commish and expect if not demand they make big money (half mil a year is not unusual at all for hot territories in my biz during booms... fwiw my rural territory is NOT hot, but the fishing is - priorities you know).
My guess is these retail bankers & mortgage folks are completely constrained order takers - so then put them on salary and leave them alone... and 'no' the typical salary for a job like that will not support amortizing payments at regular rates on a $500K mortgage... maybe two salary workers if they eat a lot of peanut butter and forgo the stainless kitchen... but even that would be tough.
lawyerliz, she can't afford not to work either. It sounds like the husband probably isn't making more than median US personal income, which is $32k. Supporting four kids and a mortgage payment on $32k/year? Rough.
Even though they're not good financial planners, I feel bad for both of them. The husband is connected to the building industry as well, so both their jobs are in jeopardy.
Alan,
I don't feel sorry for people that I have to bail out.
As Lord Tennyson would put it:
"I hold it true, whate'er befall;
I feel it, when I sorrow most;
'Tis better to have HELOCed and lost
Than never to have HELOCed at all."
And a few months ago, the California Legislative Analyst Office calculated that the MID was the biggest tax loophole (costing the state almost $5bil per year). With a looming deficit that is already up to $16bil, I hope that there will be some serious discussion about eliminating the MID.
That analyst, Elizabeth Hill is insane. She first brought this up Dec 26th. Since then her irresponsible trial balloon has probably cost the State at least that much in lost revenue as investors rejigger their California strategies. This week she also recommended that out-of-state 1031 exchanges be taxed as capital gains.
Liz, you're this thread's winner! (duck drops from ceiling, buzzers, etc.)
You have drawn the conclusion that the WaPo is baking into this year's thematic pie: These idiots brought the housing crisis on themselves and the rest of us. Damn yuppie pigs, it's all their fault.
I suspect that, had the author of the piece possessed a smarter circle of friends and acquaintances on which to call, the story might have taken another tone.
Now you'll have to excuse me while I go rustle up a new plan to pay for my wife's medical treatment, should she require any, over the coming 10 years. We can't buy her insurance that pays for anything, you see, because she's a cancer survivor and individual policies won't pay for any of the aftercare or likely outcomes.
Since we're responsible capitalists, we went to work as soon as we figured that out, paid down the mortgages on our real estate, and expected that we could tap the first $125,000 whatever day we needed an MRI and some of that delicious hospital food.
But now USAA feels that is a risk not worth taking, although we were extremely conservative with our borrowing compared to the rest of the neighborhood. We figured knowing where the chemo is coming from gives us more peace of mind than granite shower inlays could possibly give us enjoyment.
The next former mortgage broker I see gets it with the pitchfork.
AllenM: And when I'm done shorting my regional builder, do I stuff the money in a mattress?
Tanta,
"We know this can cause hardship to our customers," Francisco said. "If they used the credit to make payments that are in the pipeline, we will work with them to make sure the payment goes through."
Well, that last sentence pretty much took care of any desire I had for breakfast."
It took care of breakfast, and made wonder about Terry Francisco sanity. Yes we'll allow them to go deeper into debt with us to allow them to make a payment to us.
The mind boggles.
Cheers,
OK, I want to know where her MM account is if she can beat HELOC interest.
PseudoNoise | Homepage | 02.23.08 - 10:48 am | #
Aution rate preferreds of the Port Authority perhaps, of course ya can't get the money back any time soon, but 20% aint to shabby.
Well I guess we get to find out how many people were HELOCing their mortgage payment. Increased forclosures coming?
Here's my proposal: write a check for $1,000,000 to each family in the United States. Homeowners can use it to pay off their mortgage, and renters can buy a house. Any leftover will become consumer spending which will rocket us out of any recession. The only problem is paying for it, but we can actually give $2,000,000 to each family and then deduct $1,000,000 to cover another family's payment.
All it needs is a name. How about The Super Duper Hyperstimulus Plan?
NY Times - A 'Moral Hazard' for a Housing Bailout: Sorting the Victims From Those Who Volunteered
NEWS ANALYSIS; Washington Lends a Hand - NY Times
What's interesting is how the focus has changed from predatory lending to greedy borrower. I still can't understand why so many lenders made so many bad decisions. Borrowers and brokers have always been greedy, but normally you don't lend money to people who can't pay you back.
Victimizing the Borrowers: Predatory Lending's Role in the Subprime Mortgage Crisis - Knowledge@Wharton
Zero, right on! Remember "...Deficits don't matter..." and "...We will not change our ways of life..." from our top dogs! Talking about the depth of the problem?
Sharon Haas, managing director of Fitch Ratings, admits investors "started to panic" and randomly slashed values on virtually all mortgage-backed securities, even those that aren't at risk. "The market just doesn't know how to value those securities," she said. It had better learn soon, or the price of that education will become astronomical.
Interest on "only" the first $100,000 of these things is deductible per se, the rest follows normal rules for individuals, which are that interest is or is not deductible depending on what you do with the loan proceeds; credit card interest or personal loan interest is most certainly deductible if, for example, the loan is taken out to pay for business expenses which are themselves deductible.
This is called the "purpose" rule.
As to Ms. Corazzi, if she is an in house sales person, particularly but not necessarily only if she has her hours and other terms and conditions set by her employer, then in many cases she is covered by minimum wage laws. To work for free is to be a slave and there is nothing noble in slavery.
Also it's conceivable that the change in her comp to commission only might have been a constructive discharge entitling her to unemployment depending on local laws that I (thankfully) have no knowledge of or inclination to acquire same.
I'm just saying.
lawyerliz, she can't afford not to work either. It sounds like the husband probably isn't making more than median US personal income, which is $32k. Supporting four kids and a mortgage payment...
She can't afford to work. She can't afford not to work. She doesn't get paid enough when she does work. She probably can't find another job that pays as well. There are 4 kids to support. Both employed parents are looking for another job in addition to the ones they have now. I feel really sorry for this family. Selling their house might help as it sounds they are not underwater but it will still leave them in a bad position as rent in this area isn't cheap either. This family is at very high risk of falling out of the American middle class--which they are/were a real part of --and they are very far from alone. This era may be the end of the large American middle class.
So there sits poor Mrs. Corazzi in her gourmet kitchen, full of richly glowing oak cabinetry, sparkling stainless steel appliances, and undoubtedly top-of-the-line Calphalon hanging from the rack, blubbering over her situation. Am I the only one who balks at the notion of taxpayers bailing her out?
Good thing Sharper Image delivered the electric dog food can opener just before they went under.
Give the woman the Darwinfodder Cross with cubic zirconium clusters award already.
What's interesting is how the focus has changed from predatory lending to greedy borrower.
I am entirely unconvinced that the WaPo reporter sees these people as "greedy." I am not entirely sure I do myself.
I see these two as exceptionally clueless about how HELOCs work, which is surprising only to the extent that they're both in the industry and ought to know perfectly well that the line runs out when the equity does, and they ought to have a clue about home values.
But I think the reporter sees them as fine upstanding middle class white citizens, which group isn't supposed to get jacked around by the HELOC lender, ya know. So in that sense, it isn't about "predatory" lenders, which we associate with Teh Subprime/"them"/brown people. It's about lenders who are being really really mean and not very nice and stuff because they promised to buy everyone a pony for their birthday and then didn't do it.
Hopefully with their HELOCs some of these people were buying SKF...Probably too much too hope for.
Racer X writes:... but normally you don't lend money to people who can't pay you back.
But X, whocoulddanod?
As to Ms. Corazzi, if she is an in house sales person
She isn't.
I am guessing that "processing manager" just means processor.
In the industry, that's the person who collects verification documents from borrowers, gets appraisals and credit reports ordered, runs the loans through an AUS and ships a package off for an underwriter sign-off. It is not unskilled labor, by any means (in the normal mortgage business it's not), but it isn't a sales position.
My guess is that by "commission" she means she got put on what is basically a piece-work structure, paid per loan processed.
In December, her salaried position as a loan-processing manager at a local mortgage bank changed to a commission-only job.
Since when are management positions commission only?
she can't afford to work, she can't afford not to work
None of my business how people manage their money but before getting all depressed because banks won't let her get even deeper into debt, maybe, just maye she could consider changing her spending habits and spend less.
How about home-schooling her kids instead of paying pre-school tuition or [OMG!!!] sending them to public school?
In some ways it is reassuring that the people quoted by WaPo are mortgage professionals. It's clear that they were not intentionally lying to people about the wisdom of investing in and borrowing against residential real estate. They really believed what they were saying.
Tanta, you are smarter then that.
What she is saying is that she is upset that she left some money they never intend to pay back on the table.
Lots of white people fit the worst stereotypes also, even some that wear Armani.
Why else would they be "upset".
How about home-schooling her kids instead of paying pre-school tuition or [OMG!!!] sending them to public school?
You have to be poor and disadvantaged to use public pre-K in Howard County. At this rate, maybe this family would qualify sometime in the next few years. This would not be something to cheer about. And if the kids are just-turned-4, they might have another year of day care yet to go due to the brain trust that makes sure kids turn 5 before kindergarten starts these days.
I believe we are witnessing, front and center, the decay of an empire fast forwarded by this Administration by years.
Resignedly, the chance of an enormous taxpayers' bailout is inevitable. The probability is 100%. The increasingly discussed re-creation of a housing federal agency to buy bad mortgages and forgive bad loans is now on the policy table! The blurry parts of this inevitability are how large will the costs be? how the good and responsible parts of the country respond to more shenanigans and greeds, and how extensive is the damage done to our reputation, internationally?
How will we plan ahead in the face of this colossus failure?
Can we quit trying to run these people's lives for them?
I realize that a lot of people enjoy making up details about lives that are not included in newspaper anecdotes, and then strapping on the old Everybody's Mother In Law suit and explaining how they ought to do things differently.
But I am not personally interested in that, and we've had threads just go to hell in handbasket before on this kind of thing.
By all means let's consider what this choice of anecdote says about how much of a grip the WaPo has on the MEW problem. But let's give the "how these people should educate their children" thing a rest, OK?
I also just installed a plagiarism deleter module this afternoon.
If you paste in copied text you do not indentify as a quote, and provide a link or printed source reference for, the plagiarism deleter will zap your comment.
Triple OT:
Whistlejacket appointed Deloitte & Touche as a receiver to oversee the company and protect senior creditors. Deloitte froze Whistlejacket's debt payments on Feb. 15 after Standard Chartered told the receiver the SIV may not be able to repay future debts, according to Deloitte.
Northern Trust to Back Funds With SIV Debt Losses (Update3) - Bloomberg.com
OT: Can anyone get to Roubini's blog without registering? Looks like they're requiring registration now, which is too bad.
the nearly-ruinous cost of raising middle class children--think of... college expenses
The reason kids have to go to college to be middle class in the US is that all middle class parents try to send their kids to college.
Back in the 1950's, you could be middle class with just a high school diploma, because only really smart kids and rich kids went to college.
This is "credential inflation". I won't call it "education inflation", because today's college grad is no better educated than the 50's high school grad. When the average person goes to college, college has to be dumbed down to the average person.
College has become another member of the "keeping young people out of the work force" triad, along with the military and prisons. All economic dead weight.
Now you'll have to excuse me while I go rustle up a new plan to pay for my wife's medical treatment, should she require any, over the coming 10 years. We can't buy her insurance that pays for anything, you see, because she's a cancer survivor and individual policies won't pay for any of the aftercare or likely outcomes.
We grapple with medical expenses in our household too. And we have lots of company. The problem is that you needed to borrow against your home to provide the care your wife may need. That's an issue that goes well beyond home equity lending issues, no?
Maybe the debate/discussion of HELOC should get beyond the issue of whether the borrowers were spending the money on cancer treatment or granite counter tops. I suspect you could find people who took the money to Atlantic City and lost it at the craps table, too. The problem is the same, and it's the pure economics of a bubble bursting. As Tanta put it, the problem is the "E" in HELOC. People thought of the equity as money in the bank, because the value of homes never goes down. They assumed the money would always be there, to satisfy needs and wants. Now they are finding out that if your home is an investment, an investment can go down as well as up.
I, for one, hope that "moral issues" won't drive public policy going forward. We just need to come up with strategies for getting out of this mess (as opposed to strategies for going backwards, back into the mess of too much borrowing, too much spending, too much wealth spent on homes.) We need strategies to make the transition to a more sustainable economic system. And let's not minimize the widespread pain involved in doing that.
Bail out everyone, bail out no one. I don't care. Just fix the system going forward.
"I thought I was too smart to have something like this happen to me.""
"Why do things that only happen to stupid people keep happening to me?" -- H. Simpso
1. they've gone through $50k in HELOC in just 5 months.
2. the "purpose" of the HELOC was to pay for Corazzi's twin's "preschool tuition" (ha!)
3. they bought that house for $178k... (hmmm...)
Anyone care to tack on the specs for the house ? Is this a tract house that exploded/imploded in value, or a McMansion before the run-up ?
Yogurt, you're right. We are not only creating credential inflation, but we are creating a class of burger flipping college graduates with nothing to show for their diplomas except student loan payments which they can't afford. Of course, they are now well educated burger flippers, but burger flippers nonetheless.
I did well, Countrywide increased my HELOC limit by 50K in Dec '07. I promptly maxed it out and shorted Countrywide stock with the proceeds. Don't worry Countrywide, you're money is safe as long as you continue to languish!
5 months ago the house was appraised at $560K. Its has since declined $91K to $469K or -16.25%.
What was their LTV when they took out their 95K HELOC? What is it now?
Was the decision to shut off the HELOC made simply because the underlying asset fell by a certain amount? Or was some LTV threshold violated?
Another Washington Post article contained some real gems today.
Buried deep into "Starting the Clock Again: Rule Change Reduces Waiting Period Before Relisting"
we have the following:
"Kim Bradley... works as an appraiser and a real estate agent."
(Not in the same transactions, I hope!)
"From an agent's perspective, she said " I prefer to to see what's going on."
"But the way it will change the appraisal side of her business underlines what is potentially the bigger impact--blunting the bad news of declining prices and sales by presenting a lender with a rosier picture of the neighborhood...
'As an appraiser , I like it" Bradley said of the change. ... "so many lenders are requiring {reporting of} days on the market. When they see 233 days they kind of freak out, " she said. If the lenders don't see those long times before a sale they won't call for clarification.... "It's a game we play with the underwriters, too.'' she said.
The article also says she has had ten sales fall through when lenders would not approve loan amounts in neighborhoods with slow sales...
It was interesting to me that in some cases relisting is not just about possibly misleading buyers about how long a property has been on the market, but also about misleading lenders.
Yogurt, Well said. In CA junior college is practically free. Perhaps it is just run by the text book lobby to create customers. I remember taking classes in JC during the summer or at night during high school. They were way less demanding than my high school classes but let me graduate a year early. It seems that there is a lot of 19 year old "students" floating through the system to avoid more strenous work and maintain an excuse to party.
Zero, why bother with checks or money? Just hand over the deeds of all properties to the people who live in them. It will be a utopian paradise.
Calling day car pre-school sure helps alleviate some peoples guilt. Tuition? If your child is 3 you are not paying tuition.
A fish rots from the head.
I am so looking forward to a change at the top.
Does a fish really rot from the head or is it the intestines?
quartz - good catch, but you missed what I think is the money quote "It's a game we play with underwriters, too," she said. "We all have to do our jobs and make things go through."
It's interesting to note that she doesn't think her job is to provide accurate information, but instead it is "to make things go through." The thing that's amazing is that this kind of fraud has become so commonplace that people will be open about it to newspaper reporters, and not once stop to think about the fact that they are admitting to misleading government insured mortgage lenders which, the last time I checked, was a felony.
Starting the Clock Again - washingtonpost.com
Negative Loop Dynamics
We are ALL part of this mess.
Colllectively the individual, corporate, and municipal borrowing is what sustained ALL of us for the past seven years. Even if you didn't recklessly borrow money, your customers, your company, or your local government surely did.
We are talking about trillions and trillions of dollars of borrowing compounded by trillions and trillions of more borrowings.
And you benefited from that borrowing one way or the other. Higher stock portfolio value, higher income, better community services.
Now its going away, and fast. Taking credit away is like taking money out of one's savings account if that individual or entity is dependant on credit.
And over the past seven years, many many individuals, corporations, and governments were the direct or indirect beneficiary of all of this credit.
Credit is now evaporating, in the process we did not create much if any additional productive capacity to generate external sales(save maybe agriculture)and now our economy is evaporating.
It will affect us all. The question now is simply how? A giant RTC? Socialism? Communism? Inflation? Deflation? Moral/Counterparty breakdowns?
Indeed, these are interesting times.
Tanta,
"the plagiarism deleter will zap your comment."
Bwahahahaha. So you have a bot do a google search on each post and if the bot finds a fit it deletes the text? Dat's funny.
Cheers,
mort_fin,
I agree completely, the reality on the ground is that what would constitute fraud is what is needed to get transactions to go through. This is what you get after years and years of lenders expecting someone else to protect their interests instead of them protecting themselves with proper underwriting.
Fraud is still rampant because it is just the little white lies one tells to make the deal happen. Until deals get squashed unless they are squeaky clean and meticulously underwritten the game will continue.
Hmmm Countrywide Financial freezes 122,000 customers USAA Federal Savings Bank freezes or reduces credit lines for 15,000 customers plus many others and soon you've got some very significant numbers where fundamental changes in American life may turn todays McMansions into tomorrows tenements.
The Next Slum? - The Atlantic
(March 2008)
bZb writes:
OT: Can anyone get to Roubini's blog without registering? Looks like they're requiring registration now, which is too bad.
You must register firts to get in. Its free.
Give me more HELOC or I'll send you the keys. That's what delgallo should say.
Hmmm...
MADLOC--Mutually Assured Destruction Line of Credit.
You could say it like Homer's father says Matlock.
Cheers,
Just because I am tired or reading about underwater housing models with no supporting data or code, I figured I would try my hand at it. For starters I have produced something fairly simple just to get a feel for the related rates nature of the problem. Here is how the model works.
In period 0 the universe is populated with some number of homes. Each home is given the same price based upon the current house price index. Each house gets a mortgage based on the price of the house and a mortgage distribution table which randomly assigns a Loan to Value in accordance with the distribution table.
In period 1 and in every period thereafter:
the price of each existing home is multiplied by the housing price index.
based upon a table of existing home sales, some number of existing homes are 'sold'. when a house is sold the price does not change but a new mortage is assigned based on the current house price and the mortgage distribution table. next a bunch of new homes are added to the mix again with new mortagegs.
At the end of any period you can then examing the house prices and the corresponding mortgages to see the distribution of underwater houses. The next post contains the inputs for the simulations and the final table which is the number of underwater houses as a function of total houses. The general takeaway is that it is extremely unlikely that the numbers people are currently talking about for homeowners upside down below their mortgage are correct. In this model the assumption is that home prices go from 1 back to 1 in six years with a peak of 1.3 in the 4th year. At the end of the sixth year 10% of homeowners are underwater as in potentially ready for jingle mail.
The company I work for provides underwriters with a number of valuation and search tools (Home value explorer, History Pro, Lexis/Nexis, etc) but access to the MLS is not one of them.
Inputs:
ltv[0,0] = 1.0;;
ltv[0,1] = .9;
ltv[0,2] = .8;
ltv[0,3] = .7;
ltv[0,4] = .6;
ltv[0,5] = .5;
ltv[0,6] = .4;
ltv[0,7] = .3;
ltv[0,8] = .2;
ltv[0,9] = .1;
ltvdist[0,0] = .1;
ltvdist[0,1] = .2;
ltvdist[0,2] = .3;
ltvdist[0,3] = .2;
ltvdist[0,4] = .1;
ltvdist[0,5] = .05;
ltvdist[0,6] = .03;
ltvdist[0,7] = .01;
ltvdist[0,8] = .007;
ltvdist[0,9] = .003;
existinghomesales[0,0] = 0;
existinghomesales[1,0] = 500;
existinghomesales[2,0] = 500;
existinghomesales[3,0] = 500;
existinghomesales[4,0] = 500;
existinghomesales[5,0] = 400;
newhomesales[0,0] = 5000;
newhomesales[1,0] = 150;
newhomesales[2,0] = 200;
newhomesales[3,0] = 200;
newhomesales[4,0] = 150;
newhomesales[5,0] = 100;
housepriceindex[0,0] = 1;
housepriceindex[1,0] = 1.1;
housepriceindex[2,0] = 1.2;
housepriceindex[3,0] = 1.3;
housepriceindex[4,0] = 1.1;
housepriceindex[5,0] = 1;
Results:
period underwater
000 0.000
001 0.000
002 0.000
003 0.000
004 0.045
005 0.105
fwiw, Elizabeth Hill has been a Legislative Analyst in California since 1986. Her bio is available here:
http://www.lao.ca.gov/staff/elizabeth_hill_bio.pdf
Tanta: Re: I also just installed a plagiarism deleter module this afternoon.
Tonight you should install the phlegm filter, for people that put things in like ahhhh, or uhhh, or cough-cough, etc?
Just a suggestion
"ogurt, Well said. In CA junior college is practically free. Perhaps it is just run by the text book lobby to create customers. "
Tuition is going to run you several hundred bucks a semester for 12-15 units, plus maybe that much again for textbooks. That's not "free." Thirty years ago, it was free. Post Prop-13, it's become much more expensive.
As for how easy the classes are: if you want a harder class, go nights. That's when the serious people go to community college, the people who actually care enough to show up after a full day's work. The teachers know this, and the classes are better.
I actually do feel sorry for people like this; albeit not so sorry I want to pay their bills for them. Most people aren't very good at math, or foreseeing consequences, and they just do what people around them are doing and figure they are being sensible.
david_in_ct - congratulations, you've just written Chet Foster and Bob Van Order's paper from the mid 1980's.
Try increasing the standard deviation of the house price index and tell us what results you get then.
The decline in HELOC availability is another example of a trend with legs. It seems almost none of the professional economic forecasts you see, most of which forecast an upturn later in 2008, are looking at legs and how they overlap.
Here's my assessment
Downturn in home construction, home purchases and related spending 1 to 1.5 more years.
Downturn in CRE lending and construction 2-4 more years.
Downturn in HELOC and MEW 2 to 3 more years.
Downturn in business capital spending at least 1 more year.
Downturn in consumer spending at least 1 more year.
Downturn in government hiring and spending 3-4 more years.
Downturn or levelining in corporate earnings 3-4 more years.
I'm starting to think both residential real estate and U.S. stocks were about the same overvalued at the peak -- maybe 30%. Florida and Califorina = small caps and REITs.
Downturn in both will probably last at least 2-3 years, with stocks lagging real estate by about a year.
And this is probably just the first downleg of the K wave winter.
plus you have outted yourself as someone who once sat through OLG macro classes.
Prescott has taken his retirement teaching locally at ASU, and I personally duck meeting him everytime.
Finn Kidland has a much better grasp. One man I am glad I had a chance to meet is Mancur Olson.
Dang near worthless stuff- after all look how far the common man is from that rational REX model- after all they would have pulled out all the money as soon as it started going mainstream.
You would be much better off using a game theoretical approach- after all the political fix will utilize that- after all we are looking to minimize damage, not perform transformative economics, right?
Someday this war's gonna end...
How many people here think mortgage brokers should receive the death penalty (I know, OT)
mort_fin:
housepriceindex[0,0] = 1;
housepriceindex[1,0] = 1.1;
housepriceindex[2,0] = 1.3;
housepriceindex[3,0] = 1.5;
housepriceindex[4,0] = 1.3;
housepriceindex[5,0] = 1;
000 0.000
001 0.000
002 0.000
003 0.000
004 0.041
005 0.262
This one has its peak at 1.5 and shows 26% of folks underwater at the end of period 6. Obviously this is a very simplistic approach but at least gives a feel for how the numbers move.
Fannie Mae spreads blowing out:
(Courtesy of prudent bear)
<a href="http://prudentbear.com/index.php/CreditBubbleBulletinHome>Uh oh
Money quote: "year-to-date CDO issuance of $1.8bn compares to the year ago $40bn"
also "Year-to-date total US ABS issuance of $31bn (tallied by JPMorgan) is running only 30% of the level from comparable 2007"
This data support the common sense theory that CDO and MBS markets are drying up. Got 20% down?
Jeez can't we just say things may or may not be approximately exponential, on average???
david_in_ct,
We should just use bistromathics. It would make things much simpler.
Technology in The Hitchhiker's Guide to the Galaxy - Wikipedia, the free encyclopedia
Cheers,
When will banks freeze credit cards?
That would be fun.
soon....then the war will be over.
AllenM,
Dammit! You know you have to get committee approval to change your signature line.
Sheesh!
Good day,
Hi Misean,
Think I'll stick with + - * /.
FWIW I plugged in the case shiller index into my model and ran it back start 51 months ago and now show 2.4% of homeowners upside down on their mortgages....
david,
Never much a fan of models.
Only 2.4%...
You know as well as I that anyone, at best could model a zip code. I'm running the complexity of that a model to do that for all zip codes in my pea brain (ie what would have to be done just to set it up) and am getting a blue screen of death after about 15 iterations.
I'll leave that to a Cray.
Cheers,
I refuse to serve on committees as a matter of principle. If i wanted to serve on a soviet, I would have joined a political party.
Committees exist 'cause management either has no balls or no clue.
Someday this war's gonna end...
"John Stark writes:
In some ways it is reassuring that the people quoted by WaPo are mortgage professionals. It's clear that they were not intentionally lying to people about the wisdom of investing in and borrowing against residential real estate. They really believed what they were saying."
This is very true. They were drinking their own Kool Aid. I'm in real estate and construction in Norther AZ and I'm seeing a lot of fellow Realtors who suddenly aren't driving the Lexus anymore and are trying to offload the over sized house. I'm also seeing a lot of fancy pickups (complete with tool boxes and headache racks) at the "You Sell Car lot". My subs used to make fun of my 35 year old pickup ($500), even the landscapers were driving $50,000 pickups, I kid you not. I've got a lot of time on my hands these days, and a good few houses sitting empty. What I don't have is much debt at all.
These idiots really believed what they were selling.
AllenM,
I think you missed my punch line.
CHEERS,
I read this article this morning and I'm a bit surprised nobody else has picked up on this:
Nanacy Corazzi's "position as a loan-processing manager at a local mortgage bank"
"Corazzi said she was blindsided by what's happened."
So just how much did she really understand her job as a loan-processing manager??? Or did she just show up 5 days a week and warm a chair pushing paper through the system.
"Or did she just show up 5 days a week and warm a chair pushing paper through the system."
Yes.
Cheers,
"John Stark writes:
In some ways it is reassuring that the people quoted by WaPo are mortgage professionals. It's clear that they were not intentionally lying to people about the wisdom of investing in and borrowing against residential real estate. They really believed what they were saying."
No, it's not reassuring. People at all levels knew the lies were happening, and committed them as well. They still somehow believed that the system wouldn't lock up once the lies stopped.
These same people are still in place originating, servicing and processing the loans. They want the system to "get back to normal".
Worse yet, the managers and execs appear to be almost exactly the same way.
This woman wants to be a teacher!
Hello out there!
Background checks for an IQ above 80 might keep the US boat from totally tilting over.
She'd qualify as a reject on two counts:
-- she and her consort are idiots, well into the 80's.
-- she has criminal intent (attempting to borrow out the last dime from her HELOC without a chance to pay it back, even if she sold her house with her pretend paper profit.
She's the real thing, the archetype of most who are begging to get rescued because it's just not fair what's happening to them; they were supposed to be able to exploit the system and sneak out without obligation due to musical-chair Princeian inflation.
She's not alone. All those FB's are in the same guileless, innocent, guiltless, theeving morass.
For the US Congress to consider "saving" these people is the height of political tomfoolery. The markets don't abide that behavior. Gold and the PM family, the energy family, and the soft commodities family are all expressing their opinion about the way the US Govt is treating the billions who didn't cheat.
Latch your wagon to those families and to hell with those who tried to screw the system and those politicians who will now do it again. They've already lost in the world's eyes; it's just tragic.
quartz | 02.23.08 - 2:09 pm
The article also says she has had ten sales fall through when lenders would not approve loan amounts in neighborhoods with slow sales...
While its dangerous to put great confidence in the logic behind this statement, to whatever extent that it is true certainly puts a damper on any attempt to create a market that determines the true value. If loans arent being made in a neighborhood because of slow sales, it becomes a self-fulfilling prophecy.
On the backburner:
Spitzer told the committee that the economy may face a ``financial tsunami'' as a result of potential downgrades to bond insurers and a tightening of credit markets that resulted from bad loans to homebuyers.
Federal regulators blocked earlier efforts to tighten rules, and the Office of the Comptroller of the Currency allowed ``the problem to grow and the bubble to inflate,'' Spitzer said.
Spitzer and Dinallo both said their focus is on the municipal market rather than banks and financial institutions that sought insurance on structured-finance securities.
We cannot allow the millions of individual Americans who invested in what was a low-risk investment lose money because of subprime excesses,'' Dinallo said.Nor should subprime problems cause taxpayers to unnecessarily pay more to borrow for essential capital projects.''
The problem is the same, and it's the pure economics of a bubble bursting. As Tanta put it, the problem is the "E" in HELOC. People thought of the equity as money in the bank, because the value of homes never goes down. They assumed the money would always be there, to satisfy needs and wants. Now they are finding out that if your home is an investment, an investment can go down as well as up.
John, my point was not that I don't understand the mechanism by which USAA measures the risks associated with letting me use the equity in my house as an emergency fund, nor that there is a moral distinction between using that money to buy granite tile versus chemotherapy.
My point was, the pigs fed until they turned over the damn trough and it's now splashed my boots too. So the WaPo's utterly un-amazing insight about the ignorance of their sample families just irritated me further.
Sharpening the pitchfork. There are enough tushes to go around.
david_in_ct - what did you assume for distributions across MSAs? Do you have homeowners proportional to owner occupied units or something else? And what variance did you put around the index figures?
According to the report, the meltdown in the U.S. subprime real estate market has led to a global loss of $7.7 trillion in stock market value since October.
Quoting Bank of America chief market strategist Joseph Quinlan ,"The crisis, which has spread beyond U.S. shores to banks and other sectors worldwide, is one of the most vicious in financial history".
Credit Crisis Losses Will Put Black Monday in the Shade -- Seeking Alpha
A report last week by Standard & Poors ratings agency showed global stock markets were devastated with a collective loss of $5.2 trillion in the month of January alone.
misean:
"You know as well as I that anyone, at best could model a zip code. I'm running the complexity of that a model to do that for all zip codes in my pea brain (ie what would have to be done just to set it up) and am getting a blue screen of death after about 15 iterations."
I am not trying to make this into rocket science though changing the model to have multiple pricing indexes and multiple ltv's and distributions is no big deal its just getting all the data that is hard.. This is a very crude but still quite useful exercise.
I am not sure that adding variance to the index series will do much. If you are not adding any drift and the variance is symmetric I would think it would take as many houses away from problems as it would add.
The real point of this is that there are people throwing around numbers saying that currently 17% of mortgaged homes are upside down. It ain't so.
d
And a comment from the realtor who didn't realize that she could have her line frozen says it all.
"I would have drained it. I would have taken every dime and possibly placed it in a money market vehicle."
Okay, so she's either desperate or dumb. She's going to incur the going rate on the HELOC for depositing it in savings at probably 2 - 3 % less.
Oy.
othing like trying to tell the young 'uns how it used to be
YouTube -
I can't wait to read this in the history books- when genius failed BIG TIME!!!
Someday this war's gonna end...
After reading the LA Times article about the Elizabeth Hill and her independent analyis it is clear that Elizabeth Hill is part of the problem but she sure did not put that in her report. She makes $170,000 a year. That puts her in the top 3-4% of all incomes. If she has a spouse who works then they are probably in the top 1% of household incomes. When she retires (probably before age 65) she will still be earning 6 figures for the rest of her life. She does not seem to see the budget implications of this however. It seems weird for public servants to be in the top 1% of income earners.
All you deflation fans:
what do you make out of this?
http://www.bcaresearch.com/public/story.asp?pre=PRE-20080218.GIF
Record U.S. Cash Reserves: Waiting To Be Deployed, But When?
david_in_ct - of course the effects of variance are asymmetric. That's the whole point.
Start with 80% LTV loans. If the index goes down 19.99% and there is no variance, 0% of your loans are underwater. As the variance approaches infinity, the fraction of underwater loans goes to 50%. When you start in a position of 0 loans underwater, then the effect of variance has to be completely asymmetric. No loan can be forced from underwater status to above water status, since there is no loan underwater to begin with. but with enough variance, a lot of loans can be forced from above water to underwater.
Our first two children were born when we lived in DC and the cost of the care was one of the driving reasons that I stayed home in the first place. And also the sheer velocity of life in that area.
Insane.
People on this board feel sorry for them? Why? They have lived beyond their means for years, sucked all the equity out of their homes, and drained more than 50% of their HELOC in a few months. Why feel sorry for them. A strict budget, devised years ago and stuck to carefully, could have avoided this. The school fees issue is irrelevant and intended to elicit pity for a family that lived large and must now pay. Sadly they are collateral damage but only the parents are to blame. She only went "commission" recently but it appears the overspending has gone on much longer. Cutting their HELOC was their right decision. They are a foreclosure waiting to happen - why give them even more rope with which to hang themselves.
w writes:
After reading the LA Times article about the Elizabeth Hill and her independent analyis it is clear that Elizabeth Hill is part of the problem but she sure did not put that in her report. She makes $170,000 a year. That puts her in the top 3-4% of all incomes. If she has a spouse who works then they are probably in the top 1% of household incomes. When she retires (probably before age 65) she will still be earning 6 figures for the rest of her life. She does not seem to see the budget implications of this however. It seems weird for public servants to be in the top 1% of income earners.
In her defense she's the top analyst for the state of California. With CA politics being as divided as they are she provides a neutral service for both parties to work with. She's also worked for the state legislature for twenty years or so. She could have gone into the private sector a decade ago and ten times as much as a lobbyist.
david,
"The real point of this is that there are people throwing around numbers saying that currently 17% of mortgaged homes are upside down. It ain't so."
I'll give you that. And I was being a bit tongue in cheek on the other bit. Should have thrown one of these in
Cheers,
Mort:
Yes, you are correct. I was thinking there were as many houses under as over so it would not matter but of course this is not the case. Give me a minute and I will throw some variance into the price index.
D
covenants becoming an issue-
"`Extremely Disappointed'
We're extremely disappointed in Standard & Poor's action today,'' GMAC spokeswoman Gina Proia said in an interview.We remain committed to taking the steps needed to improve our business.''
GMAC's ResCap Gets Credit Line, May Sell Resort Unit (Update4) - Bloomberg.com
dh,
I dunno, what do think about this:
2007-04-01 1378.1
2007-05-01 1375.3
2007-06-01 1366.3
2007-07-01 1368.7
2007-08-01 1367.9
2007-09-01 1365.8
2007-10-01 1368.8
2007-11-01 1364.5
2007-12-01 1364.2
2008-01-01 1364.7
http://research.stlouisfed.org/fred2/data/M1SL.txt
BTW, that shite gets levered like...
from this link:
How Much Is the Per Capita Money Supply in the U.S.?
7x.
That's $238B broad money supply DECLINE.
Cheers,
Mirt_Fin,
Why can't a loan be underwater from the start? It is a common practice in even normal times. Inflated appraisal, 3% down and 7% fees equals a house worth less than the loan.
When will banks freeze credit cards?
That would be fun.
They would be well advised to trim credit lines to the current balance on FICO's under 800
Allow me to translate for Gina-
We're #$$%^ pissed off, those bastards haven't moved on the bond insurers while they attempt a bailout and they move on us while we are attempting to dump our resort arm to raise additional capital, where is the justice.
Sidebar-
I remember back when Wagoner said that GM would be making $10.00 per share by mid decade-----
we all know how that guidance went. Now we have an expedited transfer of retiree assets to the UAW cause they are scared shitless in regard to leaving the assets with the General.
What a damn mess this has turned out to be.
AllenM,
Pulling a "At Last the 1948 show" ...
Brilliant.
Cheers,
I just spent a pleasant afternoon painting a bathroom closet door and window trim which hadn't been painted for about 30 years.
They are in a 1950s-era suburban Cape Cod I inherited from my grandmother. The house's mortgage was paid off in 1975.
I intend to live in the house, quite possibly for the rest of my days.
Apparently I'm living in the midst of a Kunstlerian apocalypse and just don't know it yet.
Rob Dawg - when did I say a house couldn't start underwater?
Bob Dobbs,
Right you are. My late wife taught accounting at Mission College in Santa Clara, Ca. Your comment mirrored the experience she related to me along with a bunch of other interesting bits of information.
One of the best things about Jr College was that someone with a CPA could teach where in High School one would need a credential.
Lots of loans are underwater from the get go. In fact, I would say that at least 90% of the manufactured homes I've set up and sold in the last 2 years started life underwater. The so called buyer brokers are typically little help to their clients, and the seller's agents are no better. Fiduciary responsibility my ass. I call agents all the time looking at raw land and they routinely give away the client's weakness to try and make a sale.
Ellen:
Good for you.
I'd love to be in that position. But not to be.
I'm actually looking forward to redoing my unfinished basement with my son. Yeah, it costs money - not from a HELOC - but the time spent with the elbow grease is infinitely satisfying.
PS - So do you wanna trade homes?
OT from the main point of the article, but spot on regarging the "apocryphal".
When I was a teen-age retail rat in Fairfield County CT I wound up explaining over and over to a rich well-to-do DUMB woman why I couldnt accept her credit card. It was expired. I even read it to her while facing the card towards her, running my finger underneath each section and sounding it out sloooowly. "Good from, Good until"
She kept insisting it was still good and to take it. She finally yelled at me that it had to be good still, because she was still getting bills for it. oy.
This was back when we ran cards manually with the little plates for the merchant info. No on-line declined messages.
So yes, I do believe that people are dumb enough to think that.
Dilbert and Bob Dobbs:
Spent some time in community college in suburban DC years ago and there was light years difference between the day students and the night students.
After one day class, I swore that we'd make it work for the night classes. Way better group who had a clue...
Disempowered Paper Pusher,
You make a very good point. I am just saying that there are a lot of very high salaries in all levels of government in CA. Now that they are required to post this information publically I am amazed by how many six figure employees the state has. Sure, the private sector can pay more but it is also prone to cut people as business changes. Furthermore, private sector employees must be saving a lot if they want any kind of retirement. What does the average person near retirement have in savings? Like 50k. However, high paid employees of the state will be looking at continuing to pull six figures. Of course cutting labor or benefits will never be brought up until the state is bankrupt.
I guess my question is, WHY aren't more people in my position? What DID happen to "Grandma's House," why does it get sold outside the family and not passed on? When did it become so comfortable for someone to have a mortgage to pay off all the time?
I'm single, but even if I had a young family, this house would be more than enough. (3 BR, 2 bath, home office)
We simply have to get out of the mindset that a house is a commodity only to be profited from, and not also a "home base" to live in, a source of strength.
Plus, despite needing lots of paint and new carpets and what not, this little house was built like a tank. Suburban tract homes ain't what they used to be. And it's sad, but even if some of these McMansion homeowners AREN'T underwater... they might as well be, considering the questionable construction standards of the last decade.
OMG,
Since people are already paying their mortgage with HELOC...why not just have Congang order all lenders to provide HELOC forever. You just borrow some caish from the house and make a payment.
It's a perpetual motion machine. Just forget that E = equity and substitute E = entitlement. Problem solved. I'm gonna have a nice tini and watch Dr. Who. Gawd I'm brilliant.
Cheers,
Ellen,
Inheritance tax. You didn't really think our rulers meant it to harm the elite did you. Oh right, the brain washed socialist..dumborat progressives did. There's a term for them...usefull idiots.
Cheers,
W,
I agree completely. The public safety unions(cops, prison guards, firefighters) are making out like bandits. Their 3x30 pension scheme in unreal.
Elizabeth Hill seems like a throwback to when talented, honest people worked for the government even when they could make more in the private sector. When the power outages hit CA she seemed like one of the few voices of reason in the politics of the state.
Her position is also unique. While you can probably plug a firefighter, cop or government bureaucrat from one of department to a new one(same field naturally), she's got the experience of looking over a budget that rivals that of a medium sized country year in and year out. She knows the players and the game.
mortfin:
I split the world into ten different housing zones. Each zone, takes the case schiller index as the base index and then depending on the zone, scales it by some factor each month. If the change in price of the base index is greater than 1.0 then I multiply by 1 + the drift term for your zone. If the change in the base index is below 1 (declining prices) then I divide by 1 + drift term.
I set the drift terms to 0.0 - 0.009. Since I am working in months it means that if you are in the hottest zone and the base index goes up, you get 9 tenths of 1% extra appreciation each month. Same is true on the downside.
This has the effect of doubling the underwater people to about 5.5%.
If Tanta twists off and gets a bongwater filter I'm outta here.
ellen,
My paternal grandmother has about 40 grandkids. Who should get the house? My maternal grandmother had a 3 room sharecropper cabin. My mother still owns it (she grew up there) and we can rent it to you if you'd like to spend the nite.
If CA is sinking, why continue to reside more than 49.9% of the time there?
The the sinking ship, California, has a fun party neighbor, NV, where state income tax is non-existent. That's 10% for the residence skipper and -10% for CA.
Watch in CA for the sprouting of NV licence plates and plunging tax revenues as those who think the 10% pinch and the erosion of services is more than necessary to "pay" just to enjoy CA for 49.9% of the year (excluding holidays, business travel days, NV enjoyment days, business meetings days and nights).
While Las Vegas claims itself the foreclosure capital of the world, NV's gifting the CA upper class with a new life.
Maybe one can say they're from "Cocoon", NV?
Mish has revealed the truth behind the mortgage pools with a screenshot from WaMu.
Mish's Global Economic Trend Analysis: Evidence of "Walking Away" In WaMu Mortgage Pool
Note: FICO score for this mortgage pool is 705
I don't think I've even been as floored by something as this article. I just can't even understand that quote from Nancy Corazzi...EQUITY. Housing values dropping...no wonder this mess is what it is.
And I'm not blaming her, unfortunately she represents middle America with her grasp of money and credit.
But a few posters have hit on the real story here - for years this has fueled the "prosperity" for the middle class and now it's over. So what do you do when you're credit is cut? You have to spend cash. What? I can't get that 42 inch LCD TV until I can, errr, actually pay for it? I have to save for a few years to buy a house? But wait, with gas over $3, food doubled, college for the kids...everyone's about to find out that, truly, we ARE all subprime.
Ellen--Grandma sold her old house (which she paid cash for) in the 1980s for a profit and moved in with us. While living there, she lost her brother and cousin and sold their properties for a nice profit to developers. She and my parents sold their house last year for over half a million and bought a new one. Grandma is still living with them and still going on cruises. She also has 2 living children, 8 living grandchildren, and 18 great-grandchildren.
If you are to become Miss America 2008, who is your favorite bank CEO and who is your favorite porn star, and why?
Note: FICO score for this mortgage pool is 705
Ministry of Truth, I don't find this surprising at all. FICO is a cock...it is a backwards looking index and it's being used to predict future behavior if the circumstances from the past hold true for the present and future. What's that line on all investment prospecti? Oh yes, past performance is no indicator of future returns.
Things are not the same as in the past, and FICO has no stress indicators because you just can't model that. So before this is over, that FICO score is going to get a whole lot higher for some tranches as people who never should have been made the loans default. The lower scores are just the first to see the stress.
ooops FICO is a crock
fast typing on a laptop 
GaudiaRay writes:
She's not alone. All those FB's are in the same guileless, innocent, guiltless, theeving morass.
I disagree. This is fundamentally a savings issue. People have been unable to save in money and were looking for the commodity that they could best save for their future. Housing was appreciating at 10-15 % a year due to policies by our gubmint. Joe sixpack was getting priced out. Real inflation kept people out of CD's and the dot-com bubble kept people out of stocks. Two of my friends who bought in the last two years both felt they were being prudent. The flippers were on the margin. Main street was just taking the cues given them.
David,
Maybe I'm missing something, but your "underwater" calculations appear to be based solely upon fully amortized purchase money mortgages. What about IOs, NegAms, HELOCs & MEW?
Where am I going and why am I in this handbasket?
Stark...
This is meant to be helpful. Something I don't understand. I don't know what state you live in, but is it truly the case that there are no affinity groups your wife could join?
In all states with which I'm familiar (obviously not all 50), if you belong to, say, AARP, the ABA, ADA, and so on, and those groups have a health insurance option, then that master group policy is NOT medically underwritten, meaning that ANY group member MUST be accepted and as to pre-existing conditions, they will be covered after 12 months (sometimes 6 months) have passed, at the outside.
I am not implying you're an idiot, I just don't understand that there are none available...
for example, check freelancersunion.org, which has health insurance available to members in 30 states, and in those with which im familiar the master policy ISNT UNDERWRITTEN and DOESNT RIDER OUT PRE-EXISTING.
The American Paradox: Spend and you are a deadbeat unworthy of help from your fellow man. Save and you cause a recession. What's a good American to do?
What the ecologists knew decades ago -- living beyond the local carrying capacity is possible but only so long as trade brings to each area whatever it lacks locally; when trade fails, each area is suddenly living beyond its local means.
-------brief excerpt found here:
OVERSHOOT
"non-renewable resources provide no real carrying capacity; they provide only phantom carrying capacity. If coming to depend on phantom carrying capacity is a Faustian bargain that mortgages the future of Homo colossus as the price of an exuberant present, that mortgage was not yet being foreclosed in the Great Depression... we need to understand what did bring on a carrying capacity deficit in the 1930s."
...
"The astronomical German inflation was thus no mere fluke of history. Rather, it was a preview of the larger preview to come, when other forms of financial disruption would rend the fabric of trade throughout the world. By thus compelling a reduction ... back down to local resource bases, such trade dislocation would convert existing loads of human resource-consumers, previously supportable by composite carrying capacity, into overloads no longer fully supportable by fragmented carrying capacities."
-- by William Catton
(Excerpt from Overshoot: The Ecological Basis of Revolutionary Change)
What they're reading in Asia.
Asia Times Online :: Asian news and current affairs
---excerpt follows-----
... As the subprime mortgage paper failed, the other derivative instruments, whose value depended on the subprime mortgage paper holding its value, were then uncovered, and were shown in the final analysis not to have anywhere near the intrinsic worth they were valued at.
From collateralized mortgage obligations through collateralized debt obligations, asset backed commercial paper, structured investment vehicles, all the way to the mortgage and bond insurers, they all depended for their value on another derivative at the next link back on the daisy chain. Like dominoes falling, like a video of a building being built run in reverse, brick by brick, the great wealth creation edifice of this decade is being pulled down.
Last week, it was the turn of what is called auction rate securities....
The finance MBA definition of auction rate securities states that they are something of a strange hybrid of long-term fixed- and short-term floating rate debt, but what you really need to know to understand whats going on is that they are just another derivative product produced by the math PhDs and marketed by the investment houses. The failed offering by the Port Authority was but one of 1,000 auctions of these securities that last week sunk like a stone; the big brokerage houses such as Goldman Sachs and Merrill Lynch, the companies that had created, peddled and promised to stand behind the auctions, were, when they were most needed, nowhere to be found.
Everything is interconnected. What is going on here is that, as the crisis destroys wealth with every sector of the credit markets it ravages, less liquidity is available to fund every succeeding sector in the rest of the credit markets-theyre falling too. ...
In and of itself, the market for auction rate securities is not large, "only" $330 billion out of the estimated total nominal world value of the entire derivatives market of over $500 trillion. (By comparison, only 22 of the 183 countries listed by the World Bank had a gross domestic product greater than $330 billion, and the estimated $500 trillion value of world derivatives is more than seven times that of total world GDP. If the derivatives markets stumbles or falls, it could take a lot of the world economy with it.)
The point here is that an avalanche of credit and wealth destruction has been created and continues to gain ever greater and greater momentum as it rolls down the hill. In another few weeks or so, another victim will be inundated and lost (my moneys on credit default swaps and the bond insurers such as MBIA as the next to go), then more after that.
They say that this year Americans are voting for change. Unless some countervailing force can soon be mobilized and employed to resuscitate and return confidence to the credit markets, by 2009 the country will indeed look very changed, no matter whos in the White House.
Julian Delasantellis ...
Original is
Copyright 2008 Asia Times Online Ltd.
hi tj,
actually what i am messing around with is basically 100% io's because i never let the mortgage amount decline. so every house carries the starting mortgage value forever. the only thing which is changing is the price of the house. mortgages get reset to some proportion of the current house price when the house is sold.
i just did another run and set the case shiller index to decline by 5% a year for the next 20 months. At the end of the period you would see 18% of the houses underwater and about 9% more than 10% underwater.
Ellen,
Maybe because it's not worth it to pay property taxes and maintain a home that you are not living in? My grandfather sold his house 2 years ago and moved in with an uncle. I suppose one could make arrangements to rent it out, but isn't that too much of a hassle? (Heard many horror stories about people with "investment properties"). I suppose if you went through the trouble of finding a decent family to rent it to (at a price they appreciated), it would be possible... but how do you go about that? Are there honest people around anymore?
Hank this is a price discovery issue for the credit markets. In other words, if it were know that x percent of mortgages were crap, then everyone could discount appropriately. Same with all the other instruments. If these were, reasonably, worth .83 to the dollar, counterparties could pay, writedowns could occur, and capital could get back to work.
But the ironic thing is this distribution of risk by securitization has produced only "what the hell are IN these things?" and everything is frozen while that question is answered. And everyone hopes that, in time, the results will be better than they are now.
The hope may bein vain.
OT.
oops.
i apologize i checked again and only in ny, nj, and ct are the freelancers plans group, the other 30 states are individual.
but the point stands; if i can help you find some groups let me know, this would be pro bono.
regards.
david_in_ct - amortization over 3 or 5 years is next to nothing, so I wouldn't sweat that. but you said everything starts at 100 LTV? I thought you had a distribution of initial LTVs. Anyway, the other big thing that you've left out is the HELOCs (remember those? they're what the post is about). Assume that 10% or 20% of your borrowers increase their LTV with a HELOC or a second when they've acquired some equity, and I expect you can get to 10% underwater pretty fast.
Hi Fred--
I'm not the guy with the uninsured wife. That was an italics quote from an earlier post from a guy who said he needed his heloc as his backstop.
I suspect that not everyone gets to be in an affinity group, and even so, six months to a year is a long time not to be covered. Lots of expensive problems can occur in that timeframe. Also, I suspect that the cost of the coverage in these groups is hundreds of dollars a month. Not sofa-cushion change for many of us.
My situation is like many lower-middle-class wage-earners: my employer covers most of the cost of my family's coverage, but my portion gets bigger every year and is one of the biggest expenses in my budget. And as my premium goes up, my copays etc. do also.
Minister:
* The total pool size is $513,969,100.
* $476,069,000 was rated AAA.
* 92.6% of this cesspool was rated AAA.
* Yet 15% of the whole pool is in foreclosure or REO after a mere 8 months!
So that would leave about 38 million in cushion for the AAA.
the pool ltv is about 78%. suppose all houses in the pool declined 22% so basically they were now 100% ltv.
suppose that 30% of the houses go reo and it costs 25% for the bank to get rid of it. The total of the losses in the pool will be .30 * .25 * 514,000,00 = 38.5 million which will wipe out all the stuff below but leave the AAA unscathed but frightened.
"I would have drained it. I would have taken every dime and possibly placed it in a money market vehicle."
Okay, so she's either desperate or dumb. She's going to incur the going rate on the HELOC for depositing it in savings at probably 2 - 3 % less.
Unless your mentality is that borrowing as much money as possible at all times is a GOOD thing. If that is your worldview, then maxing your heloc at six or seven percent or whatever, and depositing the money for later spending at 2-3 percent, means you're paying only 3-4 percent net interest on the money you have borrowed. Now do you see the brilliance here?
mortfin:
yes, the early amortization is not much over five years so not a big deal. The LTV distribution is
10% 100
20% 90
30% 80
20% 70
10% 60
10% 10-50
now you want helocs? i forgot what it was like to do contract programming!!
(1) Yearning to Learn writes:
I was wondering if this article would pique tanta's interest. I highly recommend reading the reader comments... it is even better than the article. not much sympathy for the overspending yuppies... I think some CR posters are posting over there
We are. I sliced and diced the numbers and the oh-feel-sorry-for-us couple in the WaPo are serial refinancers.
Those people were funding their lifestyle by borrowing money more and more money all the time. If the USAA HELOC had been the first time they had borrowed after buying it for $179K 10 years ago, USAA wouldnt have shut off the spigot with a $469K evaluation. If they had never borrowed against the house before, it should have been ½ paid off and down to around $90K and another $95K in a HELOC would have been well below the $469K valuation.
These people were living on borrowed money and the stove in the photo was easily $5K 10K as it looks like a Viking or similar model.
(2) Ellen ask why people just dont stay in the family home they inherited.
Misean writes: Ellen, Inheritance tax. You didn't really think our rulers meant it to harm the elite did you.
Sorry but Misean is spouting pure bullhockey. The estate tax applies to less than ½ of 1% of all estates in the US. Typically it is the households in the upper .5 (1/2) percentile.
I KNOW what the Estate law says I wrote large parts of it when the major revisions were done 30 years ago. (And got the family farm/business exemption through Committee for the Congressional office where I was an aide.)
They are not staying in Grandmas house because they want to go off and live somewhere else LA, NYC, DC whatever,
(3) fred writes:
Stark...
This is meant to be helpful. Something I don't understand. I don't know what state you live in, but is it truly the case that there are no affinity groups your wife could join?
In all states with which I'm familiar (obviously not all 50), if you belong to, say, AARP, the ABA, ADA, and so on, and those groups have a health insurance option, then that master group policy is NOT medically underwritten, meaning that ANY group member MUST be accepted and as to pre-existing conditions, they will be covered after 12 months (sometimes 6 months) have passed, at the outside.
I am not implying you're an idiot, I just don't understand that there are none available...
for example, check freelancersunion.org, which has health insurance available to members in 30 states, and in those with which im familiar the master policy ISNT UNDERWRITTEN and DOESNT RIDER OUT PRE-EXISTING.
Fred try again. Unless you are in a few specific geographic area, that free-lancers group is useless. The coverage sucks in terms of medical providers in the system.
AARP does NOT offer coverage to those under 65 except in a few handful of states and then they have to be over 50/55 (and there is the pre-existing stuff.
All the other groups (like the ABA lawyers for those who dont know) require you be a member of their profession which is usually licensed.
I do healthcare policy work. Except in 4 or 5 states which mandate insurers accept all comers (and in my state Blue Cross takes everybody) cancer survivors can NOT get coverage. PERIOD. If for example they were in my state and bought the Blur Cross, the what-is-not-covered exceeds the covered. $2500 deductible, no office visits, prescriptions with a $500 deductible and 50% copay capped at $2500 of drugs, everything else has a 30% copay and all this for $500-600 a month.
I have very high medical bills (around $30 -40K a year). If I had that Blue Cross policy I would be spending $26,000 a year. Some coverage.
(4) BTW, Tanta, your crack about birthday parties and ponies made me laugh so hard I wasted a perfectly good cup of coffee spilled in all over my lap.
Okay, so she's either desperate or dumb. She's going to incur the going rate on the HELOC for depositing it in savings at probably 2 - 3 % less.
It's a better investment than a kitchen renovation, apparently!
I have a question related to another blog I frequent.
The bloggers took out a construction loan about a year ago. No stated amount (at least in the public records). Interest fixed at 7.x% for 5 years. HELOC withdrawals allowed (presumably for construction and other things) up to about $1.3 million (more than the construction cost/value of the house and land - at least today). What happens when the house is finished at the closing? How is the final amount of the mortgage determined? I think the house will be worth less than it cost to build when it's finished.
FWIW - we built our current house about a decade ago with the cash proceeds from the sale of the place we owned before we built. So I don't have the slightest idea how these mortgage things work. Roby
david_in_ct | 02.23.08 - 7:30 pm |
Right now in SW Florida the only properties getting nibbled on are at approx 50% haircuts. This is for a move-in perfect house. If the home needs any work,most likely it doesn't even get looked at. I have 5 empties on my street. One foreclosed 3 Years ago. Never marketed...Oh the joy.
How bad is it gettin...we had 1100 FC's in January. All of last year the paper said the total was 2700-2800. The lady at the county whom I deal with for eviction paperwork mentioned that the number look like FC's will increase monthly thru December...I asked how much? "You don't want to know" was the response...Tin foil hat time cause me head is hurting.
Chris
P.S.- I was in Socal during the last runup and crash. Where I am at in Florida makes that look like a walk in the park.
omg - I had to laugh when I read your comments about sense of self-worth and FICO scores. The only time we use credit is when someone pays us to do so (like buy this TV - 2 years without interest if you pay the balance in 2 years). Anyway - one day I looked up our FICO score on one of those FICO websites. We didn't have a really high credit rating. The comment was that we were spending too much money. At least half was my father-in-law's nursing home bills - which we were putting on credit cards (and paying off monthly) to get FF miles (we put my FIL on our accounts like you'd put a child on your accounts - he could pay the bills - but didn't need the FF miles). At which point I got the general impression that FICO scores were kind of dumb. Roby
tg, if your friends would have read curevents newsgroup, thehousingbubbleblog.com
globaleconomics.com
sinclair
and plenty of others...
"there's that big word, "if".
Heck, if my aunt had nuts, she'd 'a been my uncle."
If they didn't do their homework, they were stupid...and yes millions were greedy, blind, rooked by the NAR and the realtors, and stupid.
Life's a bitch. The reason few inherit is because their parents or ancestors didn't read the tea leaves.
Bernard Baruch said, in the twenties, "2 + 2 = 4".
Your friends didn't get the message; too busy salivating and pining over their realities.
There's not a soul here who doesn't recognize that nearly everyone who bought thought prices would not go down, as they're not making new land.
Is this idiocy or what?!!
They were too ignorant/frightened/selfishly refusing to do their own economic historical research...they thought it would be different this time...this time it would be free money. Malarky. They lose. They will lose everything. It's the way reality works.
Those who didn't act the same way didn't get magic passes out of this morass. There are still serious and economically life threatening decisions that must be made now. If they don't chose well, they too will see their stores of value decimated by the financial storms welling up over the next 5 to 30 years.
Too long for them or you? Well, spend it now because that's the length of this economic cycle.
For your friends' reference, gold was at $885 spot 28 years ago. It dropped to $265 spot over 22 years, and it has now recovered to $945 spot, not yet adjusted for the inflation loss. And guess what, they're not making more gold either.
The store of value shifts, always. Either you see it or your get screwed, and this goes for everyone in the future, too. Unlike these piggy FB's and your friends, I believe one must "look" at reality and its evolutionary path and take responsible proactive measures. They decided to pop out the kids and then demand a fantasy right to get them supported in the lifestyle they seized upon. When they're in their low rent apartment, they can reflect on this, unempowered, and lives wasted. For your reference, check out the reality for people like them during the early 30's. Not a pretty picture, but reality just the same.
PhoenixRising - Not knowing anything about you except what you wrote - and assuming you have some flexibility in terms of where you live - look at states with guaranteed issue high risk health plans here:
National Association of State Comprehensive Health Insurance Plans
Not necessarily cheap. But better than nothing. FWIW - we got involved with the Florida high risk health plan over 15 years ago when my husband was diagnosed with MS. It has been closed to new enrollment for over a decade. So Florida is not an option. Roby
"And guess what, they're not making more gold either. "
Making, no. Ripping more out of the ground -- yes. While I am a temporary gold bug -- for a period that has lasted several years, but could end in an instant -- this "store of value" thing is a little hard to keep up with in this day and age. Gold this year; oil next year? And something else five years down the line? It's going to be hard to be smart enough every time.
And frankly, people shouldn't have to be. The people we're talking about in this thread made some very bad choices. But in the society we had 30 or 40 years ago, those choices weren't even possible. The rules wouldn't let them be made. But we abolished the rules in the name of innovation (aka greed), and society was told that it was counterproductive to try to keep people from following their worst instincts. And here we now are.
Ann, I sure wish you and those who did that sort of work would write memoirs. With extensive footnotes.
"Sausage, the law, and securitized loans." -- updated Bismarck
Doug Noland (PrudentBear):
I have in past analysis suggested that the perceived soundness of U.S. corporate balance sheets was extending a "hook" for those of the bullish persuasion. It was, after all, egregious Mortgage Finance Bubble excesses - and resulting Household and Financial Sector balance sheets loaded with debt - that were responsible for booming corporate cash-flows and relatively stable balance sheets.
Confirmations
Ann
How delightful that you do health care policy work.
Now do better. Anyone can bitch. Use the knowledge you should have.
Virtually EVERY major university offers health care to their students. This often includes non degree programs, but that varies.
In any event, and I know whereof I speak, these policies are available per semester or per academic year with summer (that is, 12 month) coverage extensions included or available.
THEY ARE NOT UNDERWRITTEN AND MANY OF THEM DO NOT EXCLUDE PRE EXISTING CONDITIONS WHATSOEVER.
This is not a "NY" thing.
Although such is available at SUNY as well as NYU and Columbia, just for the hell of it I checked and, yep, you get it as a University of California student.
Here, go look at
studenthealth.ucla.edu/insurancenew/2007-2008_Medical_Plan_Booklet.pdf
And it's all of $1200 PER YEAR.
And the coverage is one hell of a lot better than nothing.
I dam well guarantee you that similar is available not only in NY and California but Texas, Illinois, Ohio, on and on and on.
Yeah, so you have to enroll and stay matriculated. Big deal.
If I had huge ongoing medical bills and were not seriously disabled you better believe if I had no other option I'd enroll in some college or university, preferably public with low tuition, at the minimum credit load (which is OFTEN just 6 credits per semester), and buy the insurance.
But then, you know all this, because you do "health care policy work."
I'll take any reasonable odds that a cancer survivor can get this kind of insurance by enrolling in a university in at least 90% of that part of the country within 50 miles of a metropolitan center or campus.
And yes, as I'm an actuary too, it is possible to anti-select this exactly and precisely.
Or, you can just bitch.
TheStreet.com:
The large batch of economic data due out next week reads like a lineup for the soundtrack of a horror show for financial markets.
Coming Week: Horror Show
Very well said Bob Dobbs.
CobraDriver, What county are you looking at? Is there a nice area with good schools, vegetable farming or berries, and lots of horse properties?
tj & the bear, how many balance sheets are counting future profits in the present?
BobDobbs, there ain't no "free pass".
I'll tell y'a a story that's real. I know a guy who manages and is about to inherit a billion bucks. He has flashed his brilliance by showing off his quick knowledge of amortization tables. Much of his billion is in muni bonds. I told our mutual friend he was an idiot. That was 2 years ago. This muni bond holder can see a haircut of 50%, for him not really meaningful, but for society as a whole, it's just more destruction of the store of value.
Long ago, when I was in B School, I was stunned by the fact that Wells Fargo's Trust Dept was earning less for its clients than the rate of inflation, and then they took a mgt fee on top. It was an epiphany. The store of value must be managed into the future or it won't retain its value. The price of financial freedom is eternal attention to the store of value.
BD, I just disagree completely with your conclusion, "It's going to be hard to be smart enough every time.
And frankly, people shouldn't have to be.
The creation and conservation of the store of value is a significant challenge that demands competence and superior thinking, forever. If not, adios to what was so attentively gathered.
We see it all the time.
w,
Heck, everyone projects current circumstances into the foreseeable future, and it never works out that way.
In Black Swan, Taleb makes a particularly poignant analogy with the life of a Thanksgiving turkey... every day is great, right up until the last one.
w,
Prime example from that article I linked above:
Also, Stovall says stocks aren't expensive. He notes that the S&P is trading at 16.5 times trailing annual operating results -- a 15% discount to the average valuation since 1988 and a little more than half the index's valuation at the height of the dot-com bubble in 2000.
16.5 times trailing??? I got news for that guy -- he's looking in the rear view mirror, and the bridge is out ahead.
tj & the bear, have you ever read Marc Faber? Especially his newsletter. He is so good at breaking this down for novices like me.
This month Marc broke it down and could not find any scenario where equities are a good store of value in real terms.
hi cobra,
i don't at all doubt the numbers the you quote your neck of the woods. you are clearly, like some places in california and michigan at a local ground zero.
around where i am in southwestern ct the foreclosure sign is not yet the poster of choice. if you go north on 95 up to bridgeport the scene is much much different at least according to foreclosure.com.
i think the reo's will be concentrated in those places where the prices went nuts and the supply responded (california,florida.nevada) and the other end of the price spectrum where the finances were not good but the easy credit allowed people to get in over their heads.
Ellen - I guess your grandparents are/were as old as my parents (my last grandparent died at age 104 over a decade ago). My inlaws owned a retirement house in NC worth about $125k - in a place where few jobs are available. We sold it when we moved my FIL into a nursing home near us. My father (90) sold his waterfront house in south Florida for $1.5 million in 2005 after my mom died (they bought in 1968 for $60k). He moved into a rental retirement facility near us. If any of us kids had wanted the house - taxes alone would have run us over $50k a year due to the termination of Florida save our homes tax benefits upon transfer of the house (and none of us wanted to live where my parents lived). Anyway - my father is a happy camper. We kids are too. We'll never have to support him
.
I am not much of an expert on credit - but I am pretty much of an expert on health insurance due to my husband's MS. Bottom line is if you are too young for medicare - and don't work for a large employer - you are pretty much screwed if you have a serious disease unless you have access to an affordable state high risk health plan. Most affinity group plans aren't guaranteed issue - have lousy coverage - or both. E.g., the Florida Bar has health insurance plans. They are not guaranteed issue. At one point - it offered a catastrophic excess health insurance plan - again - not guaranteed issue. Except for about a 2 week open enrollment period about 8 years ago. I grabbed it in about 2 minutes. However it did require an underlying policy. One reason we will stay in Florida at least until we're on Medicare (not too far away) is because of the unavailability of health care insurance. Anyway - for people like cancer survivors who are ok to work - at least for now - and who don't have access to an affordable state high risk pool - I recommend a job with a large employer with decent health care benefits. Even if you're earning $8/hour - the health insurance may well be worth it (although there are certainly better jobs that might be available to some people - my SIL is a breast cancer survivor who works at the University of Michigan and her pay and health care benefits are really good). Roby
w,
Yes, Faber's great. More on P/E's:
...we believe that the stock market is extremely overvalued and will continue to decline to much lower levels on the major indices.
What is the Real P/E Ratio
AOTC, are you paying attention???
Let's keep loaning public homebuilders billions of dollars so they can pay their executives millions in bonuses to overbuild and drive down the values of houses accross America while we pull the plug on poor Mrs. Corazzi so she can't send her twins to preschool?
Has anyone seen how many spec homes public builders are STILL building in oversupplied areas? Why would banks want to fund overbuilding unless they wanted to drive down the value of homes?
Seems a bit bassbackwards, doesn't it?
Fred - I looked into the university angle for my husband too (since he takes unversity courses for fun). Won't work here in Florida because the policies pay peanuts (usually enough for a student who gets a cold - but not enough for people who are really sick). For example - we have a friend with a daughter who has MS in the Florida university system - her student benefits don't cover doodle in terms of what she needs. OTOH - maybe school systems in other states offer benefits better than those in Florida. Roby
"The creation and conservation of the store of value is a significant challenge that demands competence and superior thinking, forever"
That leaves me out in the cold" I can't even blame it on the 60's. Thanks for the lecture on Au.
tj:
i especially like this line in the report:
"You can see from the chart going back to 1950 that every instance where actual earnings rose above trendline earnings was followed by a period where actual earnings went well below trendline earnings."
which is i guess what happen when you fit s line to a series of points.
i don't wish to disparage anyone's abilities but the guy who nows runs Comstock used to be in institutional sales at merrill. the two partners that were responsible for the comstock investment decisions early on, have not been with the firm for many many years.
OT: Naked Capitalism and Alea have a discussion of a Barclays analysis of CDS counterparty risk.
Barclays Capital estimates maximum of $36 to $47 billion in losses..
Barclays: Counterparty Risk in Credit Default Swaps Only $36 to $47 Billion « naked capitalism
Alea | Page not found
I think that Barclays may be much too optimistic.
Robyn
For kicks I looked up the U of Florida. Like many universities, their optional student health plan:
(a) requires 6 credits or 1 credit per semester, depending on status
(b) costs minimal (in this case, $1600 or so)
(c) has open enrollment (guaranteed issue)
(d) DOES NOT EXCLUDE PREEXISTING CONDITIONS
(e) is outsourced
look at uhscr.com
put in univ of florida
look at plan b with the additional coverage
i grant you its maxed at $250K lifetime but its far far better than nothing.
one of us is wrong.
i never referred to student benefits I REFERRED TO THE PRIVATE INSURANCE THAT IS MADE OPTIONALLY AVAILABLE (AT NYU AND OTHERS AROUND HERE ITS MANDATORY UNLESS YOU OPT OUT) TO STUDENTS.
Let me know what you think (in the context of better than nothing).
I cannot reconcile your comment with what I'm reading, and remember again this is for those with no other alternative, the issue is if you're seriously ill are you way better off with this than nothing.
I bet universal health care will become much more popular an idea very soon in the USA.
Here in Finland, we everyone is entitled to almost free health care. So, we do not have to worry about it.
I bet universal health care will become much more popular an idea very soon in the USA.
Just like soccer.
OT but I remember back when I was a college freshman and dinosaurs roamed the earth, my economics professor told the story of some state affair that Lenin was hosting in the 20's, with foreign dignitaries, and he asked a retired star of the Moscow Opera to perform in an opera to be held as part of it, and the singer cabled back that his fee would be $10,000 for the night, and Lenin wrote back, "Comrade, this is a new order, everyone makes the same, from the singer to the janitor," to which the singer replied, "Very well then, in that case, I shall sweep the floors instead of singing."
Hi Fred - Since you took the time - I took the time too. Here's the student plan at the University of North Florida up here in Jacksonville (where we live):
http://www.unf.edu/dept/medcom/UNF%20Brochure%20Final%20Proof%207-12-07.pdf
Big problem is annual limit of $100k a year. Probably ok for the average healthy 19 year old. Not so great if you're 62 - or really sick. I had a friend die of breast cancer a few years ago. Her 10% copay was over $100k in a single year (after radiation - chemo and the like).
Still - you're right - it might be better than nothing for people with no other options. OTOH - I think that working for some large corporations would probably be a better bet.
Matti - Your health care in Finland (and in similar countries) isn't "free". You - and everyone else - pays for it. Note that I am in favor of a mandatory single-payer health insurance plan in the US - but I don't fool myself into thinking that it would be "free".
There are a lot of very silly poorly researched articles being written in the US these days about health care. Even from "responsible" media. Like the NYT wrote a scare story this week about how the UK denies cancer drugs to breast cancer patients which are used "routinely" in the US. The article mentioned Avastin - which was only approved for use in breast cancer patients in the US yesterday!
I don't delude myself into thinking there are any easy answers to health care issues in the first - second - or third worlds. I just suspect there's a more rational way to do things in the US than our current approach. Roby
tj
we came so close yesterday didn't we? so, so close. caught a bit of Fast Money yesterday and they were talking about the wedge also and how we almost broke it.
my own feeling is that if there hadn't been coordinated intervention we could have waterfalled from there. everyone in the world was watching that. everyone.
w | 02.23.08 - 9:17 pm |
I currently live in Port Charlotte. I looked a little into buying in this area but the building codes and the impact fees are insane. I will most likely end up in Desoto County. I have my eye on a handful of 1ac,rural zoned lots right now. You also end up inland enough that hurricanes are not such a huge threat.
The rural zoning will allow me build a large building with a small apartment in it. I am a car guy at heart and have a few plus 20 years worth of collected parts.
You might want to also look at Airparks. Most here have decent sized lots but the killer for me is the Mcmansions they want ya to build.
The whole thing is if you stay on the inland side of I75 by just a few miles properties are affordable. Well,they were before the runup. Prices are falling,it's just a slow grind down...
Chris
robyn
im not trying to be cute. im just being curious. there is a U of Florida campus in Jacksonville and for $1600/yr plus some extra I can't find but it's not much if you take courses there you can buy insurance with $250,000.
for my two cents, for some people it would be worth enrolling at both and stacking coverage.
perfectly legal, let them worry about coordination of benefits.
my point in all this is that there is ALMOST always SOME solution thats better than absolutely nothing, and also that people should fight back.
I promise you im a true conservative and libertarian but i have no hesitation in suing insurance companies for failure to pay and have done so for big amounts.
I am merely trying to help here but again something is better than nothing and even if someone has to take a stupid course to get a real estate sales license and join the local real estate board or nar and get some kind of policy...you get the point.
Obviously there are serious hard luck cases. Not talking about those.
FWIW I lost my mother to breast cancer when I was 15. She was sick for 5 years before she died. At the time my dad was a senior officer at Metropolitan Life, so you can imagine we were well insured. This was 42 years ago...
The out of pocket medical expenses (not covered) were $1200/week...that was my father's entire salary (equivalent to about $350,000 today)...(in those days benefits weren't as comprehensive).
I have been there and been well insured and not insured and flush and not and am always sympathetic, but that doesnt excuse not being resourceful.
A plagarism checker/deleter? For heaven's sake! Do you honestly think people are stealing content for some kind of personal gain? It's a comment forum for educational purposes. People aren't even claiming it's original thought. Ridiculous.
fred writes: [...] Lenin was hosting in the 20's [...] and he asked a retired star of the Moscow Opera to perform in an opera to be held as part of it, and the singer cabled back that his fee would be $10,000 for the night, and Lenin wrote back, "Comrade, this is a new order, everyone makes the same, from the singer to the janitor," to which the singer replied, "Very well then, in that case, I shall sweep the floors instead of singing."
Stalin saved the true punchline for later, when he shipped such artists to the gulags for many years of unpaid sweeping.
Ann and Fred
It is interesting that your posts on heath care appear in this thread.
Ann
If there were a Universal Health Care System ala that of Sen. Clinton then perhaps you would be taken care of.
. I certainly am sorry that you have had a cancer. You are certainly lucky that treatment albeit costly is available to you.But what you want is a free ride
A private health insurance plan is just that. And those who buy it assume costs that are actuarially arrived at.
Before you were diagnosed you were of a pool where the possibility is actuarially computed.
But now you are in a different population an assigned risk pool. And the costs seem pretty much on target. What you are now insuring against is a that your costs will not rise substantially.
Now we have never met. But were we in the same coverage pool, you want me to subsidize you. Could you explain your reasoning?
And BTW the government will pay for your treatment. Its called Medicaid. Now I can imagine you do not want to have to reduce your assets to meet their requirements. So you want to stay alive, but don't want to have to pay for your extended life with a cut in your life style.
So you are in effect a sister to those women in the WaPo article
Fred:
You are very clever. You found a loophole for Ann to use. And while it may not be legally fraud, I find it morally so. Again why should parents of college students help Ann keep her standard of living?
So how are you different then all those SoCal mortgage brokers
I live very close to this lady's house in Ellicott City, and even the second appraisal is too high. If her house were listed at 450K, she might get some bites. There are too many nice houses in better neighborhoods at the appraised price.
I know a very great deal about insurance law. There is no fraud here. As for morality, that's for the afterlife.
No one held a gun to the head of that insurance company to offer that product.
Anyone who is one foot in the grave and legitimately enrolls in a school and buys that policy gets covered, period.
The premium is low because it's based on the assumption of a low, healthy age group of students.
The problem with your thinking is that all insurance is a variance reduction mechanism and if it's not age or health underwritten the healthy people pay for the sick ones.
You do know that, right?
And you do know that any system of universal health care must mathematically work the same way, so your position would be inconsistent unless you are against universal health care.
Because the cost of providing it must equal the cost of the benefits plus the cost of administration plus profit.
The cost of the benefits must equal the aggregate cost of the benefits to all policyholders.
Then you divide by the number of policyholders.
That means people who never make claims are subsidizing people who do?
You either have risk-based premiums or you don't.
If you do, anyone on this board with a 5-handle on their age is gonna pay an incredible amount.
If you don't like it move to Canada.
Otherwise, your ad hominem comment is beneath dignity. If you want to discuss it call me at my office. I doubt you can afford the billing rate.
idoc,
Yeah, damn close. Peered over the edge into the abyss, but then pulled back at the last moment. I know what the technicals show, but do you have any short term gut feelings given that you really live this stuff?
As for morality, that's for the afterlife
social capital, look it up. Here's the definition I like:
"The degree to which a community or society collaborates and cooperates (through such mechanisms as networks, shared trust, norms and values) to achieve mutual benefits."
The bloggers took out a construction loan about a year ago. No stated amount (at least in the public records). Interest fixed at 7.x% for 5 years.
I've had a cousin the built a couple spec homes and the construction loans typically worked like this.
The bank provides a line of credit to the builder secured by equity in the raw land. In the "good old days" that would require the builder to either put a substantial amount of cash down on the lot (or own it out-right).
In the last couple of years, most of the equity came from the appraisers pen instead of cold cash. The builder would buy the lot and the then banks appraiser would find that the builder had negotiated such a "great deal" that the builder instantly had the equity needed to secure the loan.
The bank typically distributes cash at a set schedule based on construction milestones. The bank will usually pay funds directly to the subs with in return for a lien release.
In my cousin's case, interest accrued on the loan and the total amount + interest was due on completion. The bank usually provides a window for the builder a complete the home. He would usually extend the construction as far as possible ("pick your paint and carpet!") to avoid having to make payments.
If my cousin couldn't find a buyer before it hits the end of the construction window the bank would usually extend it with a cash payment. At that point, it was a race between the carrying cost of the construction loan and his profit on the property.
My cousin was able to clear his homes before the market slowed but if a builder ends up upside-down, the bank will end up foreclosing on the property. At that point, the bank either gave itself enough equity cushion or it takes a loss.
Hey Fred, are your comments on this blog "pro-bono"?
Maybe you can talk CR into giving you your own tip jar. I mean, you are the $hit, and all, aren't you???
joker.
tj
i have to live this stuff; i have too much riding on it. that said, with the frequency of your posts, you live it too.
IMO, eventually we go lower. i'm looking to go long after about a 30% pullback in the Dow/S&p. or at least go flat for a while. McHugh thinks we need to fill a gap up around 12600 before we head down hard on a wave 3 in a primary bear mkt. it'll be tough trading short term cuz we'll probably start to see more interventions like yesterday. damn, the last time i remember that happening was last summer when we hit a technical level in the s&p and shot up even higher in the last 30 min. i remember the MSM blaming an inadvertent trade entry order from some fund. BS!
all in all it was a weak spurt yesterday i thought after analyzing it. there was about a 5 min pause halfway up as if the squeeze wasn't working. i actually shorted BSC at 84 as i thought it was going to fail but then it shot up some more to 85 and i closed it out. probably should have held it.
overall i think the economy is getting progressively worse and i need to remind myself to keep my eye on the ball of housing whenever i see these vicious rallies. i'm much more confident that we won't be seeing new highs for a long time b/c capital is being drained out of the system unlike back in 2002 when it just shifted from tech to housing. the credit mkts are frozen, hedge funds are failing, IB's can't support key mkts, short squeezes are more muted, and our ever faithful housing mkts are crumbling. its all about credit bubbles and i just don't see excess liquidity flowing into stocks.
i made a pt yesterday that i don't think the avg public will ever enter the stock mkt in a significant way since they're tapped out and more importantly b/c they don't trust it. hell, we don't trust it. there's no way the stock mkt will be seen as a safe inflation hedge b/c wall st and our Fed has lost all credibility and who wants to play a stock mkt thats rigged? other than us?
we're all sharks now.
tj
btw, enjoyed that Comstock article. very helpful.
tj
btw, these triangles can be seen on FOMC mtg days. Intraday chart patterns will get very muted and volatility very low waiting for the rate announcement.
right now, the mkt triangle (wedge) is waiting for something. that something is the monoline solution (nonsolution).
Commercial property values in for steep drop, says loan liquidator (also linked at Financial Armageddon)
Commercial property values in for steep drop, says loan liquidator - Financial Week
FFDIC
good article.
what are your friends saying about the banking system?
Thanks for the comments y'all,some people watch slasher movies,I read CR.
idoc,
Actually, I'm a computer geek that's fascinated (and a little frustrated) with the markets. Don't have that much money at risk, and I'm mainly aiming for the big kill -- based upon fundamentals, of course. Love to play more, but too busy making good money elsewhere. Unfortunately, my short term plays haven't been all that hot, hence the frustration.
You & I are of like minds on the long-term direction. Very short term, it does sound like we may have another little (irrational) rally. Of course, last time I heard that a lot was right around New Years.
Unfortunately for the bulls, the bad news just doesn't stop coming.
You're absolutely right about the public, too. All the volatility will only hasten their exit.
BTW, thanks for the detailed response. There's nothing like the instincts of someone with experience in the trenches, something I'm sorely lacking. I'm learning (the hard way)!
FFDIC,
Thanks for the link! Anyone know the makeup of the Dow Jones Real Estate Index? Supposed to be predominantly REITs. I'm wondering how much is RE vs. CRE, because SRS is based on the DJREI. Probably bound to spike again when it's obvious CRE is crashing.
"Except in 4 or 5 states which mandate insurers accept all comers (and in my state Blue Cross takes everybody) cancer survivors can NOT get coverage"
Ann, which 4 or 5 state that mandate insurer accept all comers? We may be retiring soon (before we are eligible for medicare) and my wife have some preexisting condition. It would be helpful to know the information..
tj
the mkts are meant to frustrate and confuse you. gotta be patient. its paid off for me. i really think SRS is poised for a breakout as we are now starting to see alot more articles like FFDIC's above.
i too am a professional with my own business during which i can watch the stock mkt closely. swimming with the sharks has more than supplemented my business income so i'm hooked.
It is worth noting that the mortgage pool from Mish's blog referred to in these comment is Alt-A.
So that's 15% of a (technically) non-subprime pool in FC or REO after 8 months? Strewth!
tj
btw, altho McHugh thinks we should fill that gap he thinks its 50-50 which direction we break.
Mish has this: Mish's Global Economic Trend Analysis: Evidence of "Walking Away" In WaMu Mortgage Pool
testing
idoc,
Yeah, I took McHugh's one-month free trial, and he's been sending me free teasers ever since. I read all the other guys that post occasionally on SafeHaven & FSO -- Barbera, Wood, Burk, etc. -- and they're pretty much saying the same thing.
The b!tch is that so much these days happens intraday, and I just don't have the opportunity to monitor things that closely. For example, I stepped out Friday and missed the reversal entirely. ARRRGGGGHHHHHHH!!!!!
p.s.: My serious money's all in PMs.
Fred writes:
If you want to discuss it call me at my office. I doubt you can afford the billing rate.
fred | 02.24.08 - 12:08 am | #
Fred, this is just another example of a huge problem in American society today!
Panzner: In my view, we are nearing another one of those "closing of the gap" moments.
Financial Armageddon
idoc - they are too busy working to talk much and I ain't joking... expecting 50 2008 failures or more than 4 monthly. NorthPark Mall in N. Dallas packed this wkend. I was in Kohl's today - bought $36 denim long sleeve XXL shirt marked down to $7.20. Going back tomorrow for another one. FDIC hiring. See its new budget at fdic.gov
thanks everyone. good nite.
Thread music after midnight: Big Mama Thornton / Ball & Chain...
YouTube
- Broadcast Yourself.
I'm sorry to hear about others' misfortunes, but that's the way life is, and we must accept that resources in this world are limited. Universal health care does not mean that cost/benefit decisions can be avoided. Is spending $2,000,000 on cancer treatment for an elderly person moral when that money could be put towards programs such as prenatal care? Even if that person was my grandparent, I think I would feel guilty about having society pay for treatment when the money could be used to help many more people.
Good info there Fred. You being an actuary and all.
Hmmmmmmmm.
Is spending $2,000,000 on cancer treatment for an elderly person
ask yourself what is being consumed to justify that $2,000,000 expense, why the system is structured to extract that economic rent, and whether this is the optimal economic system available to us.
@wawawa,
Yes, that link was also mentioned further up the comments.
@david_in_ct
wipe out all the stuff below but leave the AAA unscathed but frightened
Given that close to 80% of "all the stuff below" was/is rated A or better by S&P, isn't it saying something when you're postulating it could be wiped out completely?
Plus I wonder how many of those tranches themselves got aggregated? Presumably any CDO^2 made up of that sort of tranche would itself be largely AAA, since all its components would be A or better.
fred writes: "If you want to discuss it, call me at my office. I doubt you can afford the billing rate."
and: "As for morality, that's for the afterlife."
It sounds like Fred is an arrogant lawyer whose posts go on forever to show us how smart he is...blah,blah, blah...boring. What a waste of your overpriced time and money Fred. Are we all going to get a bill ?
Hey Fred, you may not be able to pay the morality bill you are going to get in the afterlife.
Here are the top 10 holdings that compose a little under 40% of total.
ProShares ETFs - UltraShort Real Estate - SRS - Index
The Foster and Van Order paper mentioned earlier:
Foster, C. and R. Van Order, An Option-Based Model of Mortgage Default, Housing Finance Review, 3(4):351-77, October 1984.
"Are you asking whether you can manipulate the market price of your own securities?"-
NABL Talks Auction Rate Deals - Bond Buyer Article
material adverse change, yeah, I'd say this qualifies-
Alabama County Issues New Disclosure Notice - Bond Buyer Article
Also, the data we have on negative equities (and whether 17% is a reasonable number) was discussed by CR in this post
.
If the data in that plot are correct, then 17% is not at all an absurd number.
(Question to David_in_ct: an interesting question is what would it take to get your model to look like the plot shown in that post? Then one can ask the question whether the parameters it took to get there have sensible values.)
A plagarism checker/deleter? For heaven's sake!
My plan for today is to install a humor detector, since at least one of you doesn't seem to have one.
Now, you might possibly think that a humor detector on Haloscan is not technologically feasible. Therefore you might conclude that I am joking.
Therefore you might conclude that I just zapped a couple of nuisance paste-jobs by clicking on the little garbage can icon that I can see and you can't, but I insinuated that it was some automated thing just to be "humorous." Playful. Ironic. Whimsical. Any of these terms register?
Question for the blog:
Does the typical Option-ARM allow the lender to conduct a similar exercise to the one described for HELOC's?
I.e. Assuming the loan has not reached either the reset or the recast point, can the lender nonetheless use declining valuations to insist on a move to a minimum payment of the full I/O amount?
Tj and Risk:
If you look at the Proshares site and look at the idex of all securities in each etf, you can download every one of the holdings and the number of shares held in each. I have set up watch lists that correspond to these for SRS and DIG which are better for leading indicators as to when to buy or sell. SRS is certainly tracking the REITs very closely, unfortunately, they tend to spring whenever the XLF gets a jolt which can cause $7-$10 intraday swings. I think that SRS is bound for $160, however, I hope to have hair left by the time it gets there!
Does the typical Option-ARM allow the lender to conduct a similar exercise to the one described for HELOC's?
I.e. Assuming the loan has not reached either the reset or the recast point, can the lender nonetheless use declining valuations to insist on a move to a minimum payment of the full I/O amount?
No.
The whole reason that your Option ARM/neg am note goes into all that painful folderol about balance caps and per-increase caps and reset schedules and so on is that those are the terms of the loan. You wouldn't need all that stuff if you were allowed to just recast the loan any time you didn't care for the current LTV. But if that were the case, the note would have to say that the terms of the loan can change when LTV gets to a certain point, based on some specified way of knowing that.
A HELOC, on the other hand, is a line of credit. These lenders in the news story are not changing the terms under which any money already borrowed under that line has to be repaid; they are just not lending any new money at this point.
The equivalent scenario in the first mortgage world would be a borrower who originally borrowed $100,000, pays it down to $90,000, applies for a cash-out refi of $100,000 and is denied, because the home is now worth less than $100,000. That doesn't change the terms of the existing $90,000 loan; it just means that the lender will not lend "new money" on this property.
mornin', T. mighty fine day for some bloggin', i reckon.
A least one of the dynamic duo is awake.... that means it's almost time for a new post!!
new post! new post!
let's talk entitlement progrma payment deferral, so we can pay the mortgage banker's
SS deferral til note is current
Jefferson County's revenue bond problems are MUCH bigger than a failed auction rate market. They show a perfect storm of: 1) vast municipal revenue bond debt: 2) leveraged on monoline guarantees; and 3) further leveraged by Wall Street derivatives sold to corrupt politicians to benefit pigmen (and probably, via kickbacks, local politicians).
Let's go back. Jeff County (Birmingham) was required to rebuild its sewer system under EPA consent decree at vast cost. Most of the county's $4.6 billion debt ($7,000 per capita) is for sewer bonds, for which the only collateral is sewer use fees (not general taxes).
Most of the sewer debt is auction rate. To offset the impact of fluctuating rates, Bof A, Bear Sterns, Lehman, and JP Morgan sold the county Libor swaps worth $5.7 billion. It isn't clear why the swaps are worth more than the debt. It also isn't clear why the county only gets 2/3 of LIBOR, which currently is just 2%. The swaps have got murdered and are now underwater by $71 million.
But there's more. Jeff County is required by indenture to maintain a reserve fund equal to 125% of annual bond interest payments. But by buying surety bonds guaranteed by monolines, XL Capital and FGIC, they could free up the reserve fund, most of which they have already spent on ordinary debt service. With the recent downgrades in these two monolines, the surety bonds are worthless, and unless the county can make up the reserve fund (they can't) the bonds are in covenant default.
Jeff County politicians leveraged every derivative/monoline trick in the book on top of each other. The only thing they can do now is declare default, kick out the politicians and start investigating and suing on behalf of their poor duped taxpayers.
The people of Jeff County owe Wall Street and bondholders nothing...except sewage. And what good, really, is a county sewerage system as bond collateral?
(Over the past decade, Jeff County sewerage rates have more than doubled to cover these bonds.)
There's many more revenue bond stories like this to come. It's just the tip of the iceberg. Auction rates are the tipping point that will cause a massive speculative revenue bond tower to come crumbling down. And when it does, it will show widespread corruption between Wall Street and local politicians.
Just remember -- it's not the failed auctions that created this mess, but everything that came before.
Interesting links for follow-up:
Alabama County Issues New Disclosure Notice - Bond Buyer Article
Bond Buyer Online - Page Not Found
Single Sign-On
http://som.gmu.edu/sba/IntRisk/Swaps_Alabama_County_Uses.pdf
"A least one of the dynamic duo is awake...."
and probably working on coffee #3
Quote from the Notrilly in the WP comments:Corazzi is a loan-processing manager. DelGallo is a real estate broker. This is astounding. Their ignorance is stunning. At some level, THESE are the morons GIVING advice to FBs.
lama, as usual, is correct.
Good things come to those who wait until the coffee is brewed.
but rich..
"corruption is how we win"
proper credit to "syriana" the movie.
ps your url 2ngb6d may be bad.
Well, I guess i can wait.
But I think that this SS deferral program can have some legs if we hash it out here.
Just think, no more money going into a lock box. Has to be easier to implement than OTS nec's, jumbo fannies, or rate freezes.
@Tanta,
Thank you for the explanation.
Wow!! I can imagine some mighty p1ssed note-holders in the real bubble areas, then. Lessee now;
High starting LTV - check
Teaser rate still in operation - check
Principal increasing every month - check
Property value decreasing - check
Ability to change situation - nil until reset/recast
Blood Pressure - rising.
I must be naive. When I read the headline for thie post, I though for a second the banks were proposing to freeze the interest rates.
From W, above I remember taking classes in JC during the summer or at night during high school. They were way less demanding than my high school classes but let me graduate a year early. A high school friend of mine was more intereste in being on the Soccer team, and didn't take any classes harder than he needed to graduate. Now, he's an aerospace engineer. But to get there, he had to go through community college, "Paying cash money for classes I could taken for FREE in High School." Boy was HE pissed with himself.
And that's a fundamental difference here: alot of people think that the "EVIL Banks," are doing them wrong. They STILL have no conception that they were living beyond their means.
rich, thanks much for a detailed example of how these muni situations are going (although keeping in mind Jefferson county is an extreme example of municipal indebtedness). Obviously if Jeff county is getting LIBORx67% and paying failed auction rates they'll be throttled into insolvency quickly. Will they be OK if the ARS market recovers?
Anyone who is a professional and is in a fiduciary capacity in particular is obligated to use utmost care to put the client's interest foremost, ahead of his own.
You hire a professional to advise you on LEGAL ways to get health insurance or a mortgage and he/she does NOT recommend EVERYTHING they lose their license.
Think really hard how you'd feel if you had a kid in legal trouble and the lawyer said, "I could get him off because of the exclusionary rule, but it's not moral so I won't."
If you don't like the system, change it.
To conflate legal (and thorough and intelligent) planning with mortgage loan fraud is bizarre and beneath the level of this board or any other board or anyone who should be allowed out in public.
Knowledge is inventory. Inventory is not free.
Anti-selection refers to the situation where only sick people buy insurance. That's what we have now in many states, because young people don't think it's worth the money.
I am aware it's OT but consider this
I live in NY. NY in many (but not all) cases requires insurers to take all comers (if you've gone less than 60 days without coverage) and immediately pick up all preexisting conditions.
So you people think it's immoral for someone sick to switch carriers knowing that the new carrier will have to pick up the cost?
Then take it up with Albany.
But before you do, there are two things you should know...
(a) Like most do-gooder states, NY mandates benefits. It mandates really bizarre benefits to placate interest groups. YOU CANNOT BUY SHORT TERM CARE COVERAGE IN NY. YOU CANNOT BUY LARGE GROUP COVERAGE THAT DOESNT INCLUDE MENTAL HEALTH PARITY COVERAGE. YOU CANNOT BUY COVERAGE THAT DOESNT INCLUDE IVF.
As a result the cost of an average policy in NY is $600/month compared with $250 in Connecticut or NJ.
Therefore, many young people who feel healthy don't spend $600/month for coverage. They might spend $250 but it's not available.
Therefore only sicker people tend to buy coverage.
This is a predictable result of mandating benefits.
And therefore the predictable consequences of NY policy is that of anti-selection.
By your standards the entire state of NY is immoral (not just Wall Street)???
The only thing guaranteed immoral is to represent yourself as an expert in something, know a LEGAL solution, but not offer it to your client because YOU don't like it.
THAT'S IMMORAL.
To suggest that one shouldn't be paid commensurate with the ability to do that is even worse.
This situation shows why the ARS market won't recover. Wall Street had to hold this system together as long as possible. But when could no longer afford to do so, they let it go.
The real problem is TOO MUCH DEBT, and a lot of tricks and masks have been used to cover up the problem. But ultimately, as Jeff County shows, the tricks just add to costs.
Keep in mind that these are not debt burdens on taxpayers but rather on home owners and businesses that use sewerage. They meter water that goes in and water that goes out, and you pay fees on both. Part of the fees goes to bonds.
But what happens when water users say: "We don't want to pay anymore?" Just walk away. What then?
I think Jeff County will be bigger than Orange County, because it won't be as easily fixable. And it's more heartland and more repeatable in other places.
Just walking away from revenue bonds.
imo, i don't think the local gov't realizes they have most of the power.
i'd encourage the youwalkaway.com plan for jeff cnty.
And see if the confederate flag wavers will actually rise up again against the northern bankers.
From Bloomberg Article: "Bank Lose to Deadbeat Homeowners as Loans Sold in Bonds vanish."
"The mortgage industry has been painted as the enemy when all they did was make loans to enable people to buy homes."
Yes, that's all they did, altruism at its finest....
I realize Tanta has written at length about the truth of the matter as it pertains to the note issue, but I do take a kind of perverse pleasure in watching the banks realize that two can play fine print poker.
hi andrew,
to get big 'underwaterness' you need a lot more price decline. it does not matter that a condo in florida which is down 10 goes to down 20, that does not change the number of homes underwater it just makes that one worse. so to get the big numbers you have to do a lot of damage to areas not already crushed and you have to do it quick. this is because every time an existing home gets sold the loss if there is one gets recognized and the underwaterness disappears. since it is likely that a large majority of reo's came from this category and reo's are an increasingly large part of the existing home transactions this will accelerate the process.
By my posts I am not trying to minimize the debacle which has occurred but to instead get my arms around it mathematically so i can make decisions not based on other peoples prognostications. there are and have been enormous pricing dislocations in lots of markets. If you can be clever enough to figure out which ones aren't 'justified' there are big piles of return out there waiting to be picked up. for ex. on the day the stock market hit its intraday low, you could have bought freeport copper at about 6.5 times 2008 earnings or $69 per share with copper expected to be about 3$, though at the time copper was higher. two days ago it traded over $100. That's better than 40% in a couple of weeks on a multibillion dollar major global mining company whose operations and balance sheet haven't even blinked over the same time period. This is a great time to be investing because opportunities abound.
THE ENERGY CHALLENGE; Move Over, Oil, There's Money In Texas Wind - NY Times
windpower
anyone have a clue how much just one of these towers cost?
How much it costs to deliver?
To operate?
Maintain?
How much energy is consumed producing the paint that has to be put on these' current works of art' .
My bet is there all rusted in 5 years.
Know how much effort it takes to paint just the Golden Gate?
boon
i think that blade are carbon fiber and probably dont get painted, but thats just a wild guess.
d
OT (sorry)
"Lawmakers are on the verge of approving refinancing options for Michigan homeowners facing risk of foreclosure, Gov. Jennifer Granholm told the Kalamazoo Gazette on Wednesday.
One program through the Michigan State Housing Development Authority would allow homeowners to refinance with a 30-year, fixed-rate loan at below market rates. It would be aimed at homeowners with adjustable-rate mortgages whose payments are increasing to an unaffordable level.
The other program, called the Rescue Refinance Program, would provide refinancing for homeowners who are delinquent on their mortgages and face possible foreclosures.
The programs, part of a Save the Dream initiative, are aimed at families with an income under $72,250 who have homes with a purchase price less than $216,750."
link
If you can be clever enough to figure out which ones aren't 'justified' there are big piles of return out there waiting to be picked up.
I agree 100%.
says it all ..
Wind has invigorated our business like you wouldnt believe, said Marty Foust, Dandys owner, who recently put in new carpeting and air-conditioning. When you watch the news you can get depressed about the economy, but we dont get depressed. Were now in our own bubble
we'll never ever learn, will we.
anyone have a clue how much just one of these towers cost?
How much it costs to deliver?
To operate?
Maintain?
They are expensive - in the millions for the big ones. I've heard they take about 10-15 years to pay off at current electrical rates... but that's down from 25 years just a couple years ago... the bet is that rates continue to climb and the cap rate drops even more. To give you an idea - the cap rates are already about the same for new capital as it is for new coal fired and way cheaper than new nuclear.
Adding wind turbines new is more expensive that running either old nuclear or coal which is why power companies resist adding them except when they are sure they need the additional capacity.
Maintenance costs for older wind turbineS built 20+ years ago were very high - damn things broke down all the time and were not easy to fix. New versions have MUCH higher reliability with MTBF of many years - even decades in some cases and are much easier to access & repair - lower operating cast.
How much energy is consumed producing the paint that has to be put on these' current works of art' .
No more than any other piece of capital equipment - ever been in a power plant?
I seriously doubt these are going to rust away or be net losers over the life of the project. The question is how fast do they pay off? However they are NOT going to be the silver bullet that powers major metropolitan areas... the only thing that is going to save major metro areas from the energy crunch is going to be severe price rationing based conservation. Get used to it - its coming.
On the plains of Texas and Minnesota local energy will be still be relatively cheap... cheaper to use it there then transmit with huge loses a half continent away to NYC or Cali.
Was there a Home Equity Line of Credit Pig? Dibs on the ribs.
rich | 02.24.08 - 9:26 am |
Rich, Conjure Bag and I appreciate excellent analysis when we see it.
Thank you.
All we need is a workable high temp superconductor grid- nothing a trillion bucks couldn't solve.
Wind will provide some nice returns to rural land that was dang near worthless a few years ago.
So, mp, is conjure predicting when the credit card companies start shutting off the US consumer?
That is our day of reckoning- cash baby!
Someday this war's gonna end...
mp,
I have no doubt you and Conjure noted the fourth consecutive week of decline in the balance of outstanding ABCP (the third consecutive decline of total CP outstanding as well)...
Rich, Conjure Bag and I appreciate excellent analysis when we see it.
Thank you,
The Alabama state DA should come in now and investigate Jeff County. The investigation should focus primarily on the LIBOR swaps. It also should investigate whether there were links between the sales of these swaps by four large IBs and the monoline surety bonds that released millions of dollars Jeff County held in reserve fund.
It's hard to believe local politicians in Alabama would buy every gimmicky, risky derivative Wall Street offered unless they had incentives.
You could say, well, $7,000 in sewer debt for every man, woman and child is an incentive. But nothing about the swaps or surety bonds was designed to reduce the principal debt. It was all designed to juggle debt service payments.
Strangely, the IBs must have known that when they let the auction rate market fail, they would be exposing themselves to cascading revenue bond defaults. But they did it anyway.
david_in_ct,
Have you tried the HELOC add to your modeling efforts discussed upthread?
Joy: This family is at very high risk of falling out of the American middle class--which they are/were a real part of --and they are very far from alone. This era may be the end of the large American middle class.
I beg to differ, very slightly: this will be the end of Reagan-omics, aka Trickle-Down or Voodo-Economics (GHWB will, unlike his son, fare somewhat better in the long cast of history).
You will see income "re-distribution" (to trot out that old Roosevelt-ian slander) make it's return. Deservedly so. You cannot continually rape the people and expect them not to turn on you eventually.
AllenM- "So, mp, is conjure predicting when the credit card companies start shutting off the US consumer?"
Conjure and I are up to our eyeballs in other problems right now. However, Conjure says, "If the monoline problem doesn't get fixed, it will be sooner than any of us dare to imagine."
As I said to energyecon last week, I've grown philosophical about all of it. The problem is now so large it's almost too big to fix. Competence is something our financial and political leadership lacks.
As Krugman pointed out on February 15, the Fed is lowering rates, but the cost of borrowing is rising. To me, that spells 'liquidity trap.
Energyecon, yes, we've been watching commercial paper, and its performance seems to confirm the broader problem. The Fed will just have to keep pumping.
To Conjure and I, recent Fed talk about their willingness to raise rates is so much bullshit.
rich, given that Jefferson County is one of, if not the, most indebted metropolitan counties in the country, this is hardly TEOTWAWKI. $7,000/person is a payment of 17.50/person per month or about 10 cents a flush. That's really steep for sewage fees but having been on some packaged tours to third world countries recently, I can testify how amazingly eager Americans are to pay for sewage services once their availability comes into question. The good people of Jefferson county would come crawling on their hands and knees to pay 10 cents a flush once they confronted - or possibly even considered - the alternatives. So the bonds can get paid.
mp, I'm all for investigations and certainly some things look odd here but hedging the ARS seems a really obvious thing to do. The county can't have fees going up and down by a factor of two depending on which side of the bed Bernanke gets up on. What else are they supposed to do? Why they picked a hedged variable bond over a simple fixed bond should be looked at but I don't see why to presume corruption.
oops, sorry, that should all have been addressed to rich
rich,
Jeff county analysis is spot on. And it will be repeated. Too many on this board think muni's are safe...good as gold. They are not. Think splitting muni's out of the monolines solves? Think again. This kind of muni hanky panky exist all throughout the market.
David in ct is correct. There are diamonds burried in the stinking shit piles. But that doesn't justify the cost of the shit piles as they stand.
Go and lookup muni bond issues for Sacto, Bakersfield, Fresno. Think about the fact that a lot of these are for subdivisions that are empty, or at best inhabited by bandos.
Eight months ago I thought this thing should crater, but probably won't. Now I think this thing IS going to crater, and I'd better be ready for it. More so than I already am.
Cheers,
"Despite the attraction of wind as a nearly pollution-free power source"
Because the the aluminum, steel, carbon fiber or whatever is just laying around ready to build these wind machines without any fossil fuels being used in their production, not. There is no magic bullet. Green technologies still use fossil fuels. Each wind machine represents a lot of fossil fuel used in its production. Put the wind machine out in a field and suddenly the energy it kicks out is "clean". I would love to see an analysis of how much more energy a wind machine actually kicks out over a lifetime compared to inputs.
Rich, count me as another that really enjoys your comments. You too David_in_CT, idoc, tj. Please keep it coming.