It is my opinion that the No Income, No Assets, No Employment mortgage programs are now creating a society of people with No Income, No Assets, and No Jobs.
With the increase in the conforming loan limit, will the OFHEO numbers start to include more expensive properties? Or will that effect be negligible and/or take years to appear?
And the Fed should step in to purchase MBS due to the irrational market. Only if the Fed limits itself to rational prices. But that's NOT what the shills want.
Foreclosure Rate Outpaces Sales by Lenders
March 25, 2008; Page A20
Foreclosures are occurring at the highest rate in decades -- and as a result, lenders are acquiring homes faster than they can sell them off.
Last year, sales of foreclosed homes rose just 4.4%, while the supply more than doubled, according to First American CoreLogic.
As of the end of last year, about 2% of all home loans were in foreclosure, or double the average rate over the past 28 years. It is the highest foreclosure rate since the Mortgage Bankers Association, a trade group, began collecting data in 1979. Lenders describe the current situation as the worst since the Great Depression.
The heaviest concentrations of loans in foreclosure are in Florida, Nevada, Ohio, Michigan and Indiana, according to the Mortgage Bankers Association. Foreclosures also have been rising quickly in California, Arizona and Georgia.
While those areas are being hit the hardest, it's a nationwide problem. The foreclosure rate at the end of 2007 was up from a year earlier in every state except Mississippi, where it was flat.
can someone distinguish btwn Libor dollar rate being up today while the TED spread is way down? aren't they both supposed to be a sentiment indicator of banks willingness to lend to each other?
Look at the price change and rate of change. It is not slowing down but accelerating. Pretty soon, I will be able to buy a place at a decent rate unless the FED starts to buy MBS. What isn't that happening?
Thrift Industry Charge-Off Rates by Asset Types - interesting reading. Note Mort. loans acct. for 61% of Assets and you can see the huge run up from 2006 to 2007.
"Alot of cities are going to have some big unwanted parks with all the future teardowns."
In Northern California, a lot of bubble developments were built on good ag land. Be nice to see that acreage go back into prodution, but the cleanup would be a bitch.
Look at the price change and rate of change. It is not slowing down but accelerating.
This is a good thing. The quicker we get to where we're going the faster the crap can be cleared from the markets.
And while everyone was arguing about the Fed, bailouts, and getting all hot and bothered about everything getting all better...I wish to return to our regularly scheduled programming: the numbers for RE, consumer sentiment, retail, and general consumption ex inflation SUCK and forward earning are really going to SUCK. We return to this episode of "As the recession turns".
"After reading the New York Times this past weekend, it seems we should be organizing bake sales to raise money for those poor bankers now facing tough times. Apparently, the plight of these soon to be unemployed millionaires is everybodys problem, which is the official explanation for the government bailout of Bear Stearns."
In Northern California, a lot of bubble developments were built on good ag land. Be nice to see that acreage go back into prodution, but the cleanup would be a bitch.
I can just see the suburban homeowner standing in the door with a shotgun while the sherrif serves emminent domain.
"YOu can't take my damn land and turn it into a farm. My Daddy mowed this lawn!"
--
In connection with the rise in resales yesterday...
David Rosenberg; 03/25/08:
"Spurt in sales reflects distressed activity -- Something else to consider is the extent to which the spurt in sales reflects distressed activity as foreclosed homes are auctioned off: indeed, the front page of the WSJ suggests as much that the total number of lender-owned homes doubled last year and that specialized firms that sell foreclosed homes for lenders say banks are sending them additional properties much faster than they can be sold. See the front page of the WSJ Wave of Foreclosures drives Prices Lower, Lures Buyers."
Ted spread down 25% yesterday...an additional 13% today.....something 'ain't right with that.
Why? That's reflective of the risk for inter-bank lending. With the latest Fed action, are you more or less worried about getting your money back? It makes perfect sense to me.
CR, I think your reasons for the differences between Case-Shiller and OFHEO are likely most or perhaps all of the factors.
But I'm also wondering if there could be another factor.
While appraisals could be a powerful factor (less than just safer mortgages vs subprime, but still powerful), I wonder about the appraisals the GSEs use.
I don't know anything about whether there is anything in that. But could there be a systematic over-appraisal used in some situations?
OT: I got pegged yesterday by a colleague for being too gloom-and-doomy when I claimed the U.S. economy was experiencing a "downclimb". (Remember, this is the official U.S. Treasury-approved descriptor.)
So, to avoid any future name-calling, I have adopted the term "expansionary downcimb" to describe the U.S. economy.
OFHEO has only the GSEs? Wow talk about missing the action in the market...
Their measurements going up and down will be milder as they were non participants in all the higher end market. In practical terms, they missed the $1,000,000 tract homes here that absent investors mistook for high end custom homes now going for $599K if lucky.
REBear writes:
Apart from many other things, I didn't know home prices were seasonally adjusted.
Are unadjusted prices usually higher in summer than in winter?
I didnt know that either. Is it a result of different parts of the country having different real estate prices and trading differently over the course of the year? Eg No one buys a house in Maine in the winter. Thus a concentration of cheaper houses will trade hands in the summer?
We are aggressively monitoring early delinquencies from month one of loan funding and eliminating products, customers, regions, branches and Indymac personnel that fall outside our now very stringent credit parameters. To reduce our business with Wall Street and increase our thrift earnings relative to mortgage banking, we will work toward limiting our total annual loan production from all sources to a maximum of two times our balance sheet and limit non-FHA/VA/GSE production to 25% of total production (down from approximately three times and 75%, or so, respectively in 2005-2007). In addition, we will attempt to bypass Wall Street and work directly with private MBS investors to originate high credit-quality loans they want in simplified MBS structures they can understand.
ennyMac, also based in Calabasas, would join more than 70 funds, including ones run by Blackstone Group LP, Pacific Investment Management Co. and Goldman Sachs Group Inc., that have been established to snap up mortgage assets at cheap prices amid the largest drop in U.S. home prices on record. Billionaire Wilbur Ross has also been shopping.
It's really a terrific time to design and build'' a mortgage company, K. Terrence Wakefield, a Milwaukee-based consultant to lenders, said in a telephone interview today. Kurland and his colleagueshave the experience and contacts and relationships to be successful,'' he said.
Chairman and Chief Executive Officer Kurland, 55, confirmed today that the company and Web site exist. He declined to comment until next week. PennyMac's chief investment officer, David Spector, another Countrywide alumnus, was co-head of global residential mortgages for New York-based Morgan Stanley, the second-biggest U.S. securities firm.
Investing and Servicing
The company will focus on investing in and servicing residential mortgage assets on behalf of private investors, PennyMac's Web site says. Earlier, the site said the company was establishing a new investment, lending, and servicing model for the U.S. mortgage market'' with aninitial focus'' on distressed-asset investing.
The market for U.S. home-loan securities without guarantees from government-linked entities such as Washington-based Fannie Mae collapsed last year, roiling the mortgage business and housing market. Issuance of such ``non-agency'' home-loan bonds plunged to $19 billion in the first two months of this year, compared with $1.2 trillion in 2006 and $707 billion in 2007, according to Inside MBS & ABS, an industry newsletter.
More than 225 independent mortgage companies have failed and more 100,000 associated jobs have been lost in the past two years, IndyMac Bancorp Chief Executive Officer Michael Perry said in a letter to shareholders last month. Pasadena, California- based IndyMac, the second-largest independent mortgage company after Countrywide, began as a Countrywide-controlled real estate investment trust in the 1980s.
Ipodius said:
And while everyone was arguing about the Fed, bailouts, and getting all hot and bothered about everything getting all better...I wish to return to our regularly scheduled programming: the numbers for RE, consumer sentiment, retail, and general consumption ex inflation SUCK and forward earning are really going to SUCK. We return to this episode of "As the recession turns".
So it's okay that Mainstreet gets killed so long as Wall Street feels a piece, but not too much, of the pain. Some might prefer the opposite approach.
PennyMac to invest in shaky mortgages
BlackRock, Highfields Capital sponsor new company, run by ex-Countryside exec, that acquires and restructures troubled mortgages.
TED, as a spread, has two sides. There was a bill auction yesterday, and auction rates jumped. That was the result of new supply in an environment of sub-1% rates, with a risk premium coming down all of a sudden. So the lower rate in the spread rose sharply. At the same time, eurodollar rates fell after the Bear deal was rejiggered. The rise in Libor rates is, as I understand it, largely a reflection of reduced anticipation of Fed easing. If we could look at a Libor spread - interbank rates over expected Fed funds rates - we'd probably see that had narrowed, too.
The risks have not been mitigated enough to see an almost 40% DECLINE in the spread. That was an artificial event as none of these banks knew what risk was on the upside...they now know how to price it???? Sure....
All it tells me is that the banks have placed enough of the TAF monies on it's balance sheet for it's Q1 release.
That it fell off a cliff in concert with the BSC bid is totally bullshit and leads me to believe it will be right back above 2 next week.
As another post clearly states: "what has changed systemically that would allow that to occur?"
Ted spread down 25% yesterday...an additional 13% today.....something 'ain't right with that.
The TED spread jumped because the T-bill rate plummeted. That in turn was caused not by underlying fundamentals but by some kind of market problem - likely people trying to put T-bills on their books for end-of-quarter, and the market not being liquid enough to cough up that many T-bills in a few days. It was a glitch from the market leaning so hard on T-bills for ABS. With a few more days, enough T-bills have made it to market so things are returning to fundamentals. The feds are already trying to make sure it doesn't happen again by increasing their short-term T-bill issuance.
I just received this email from a major lender and it seems to me they are trying to teach loan officers how not to get caught for fraud...you be the judge-
Do You Know Your Mortgage Fraud Red Flags?
With a substantial increase in more full documentation loan applications, it is important to closely review the provided income documentation for inconsistencies. The following represent some common mortgage fraud red flags on the IRS Form W-2 or 1099:
* Employer is a large, recognizable company, but forms are not computer-generated
* W-2 appears typed, but paystubs are computer-generated
* Different type or font appears within the income document
* Employer identification number is formatted other than XX-XXXXXXX (two digits, hyphen, seven digits)
* Employer and employee names and addresses are inaccurate and/or do not match the 1003
* Form reflects even dollar amounts for wages and/or taxes
* Income reflected on the W-2 or 1099 is different than the income reported on the loan application, Verification of Employment and/or tax returns
* FICA and Medicare wages/taxes and local taxes, where applicable, exceed ceilings/set percentages
* Tax withholdings are inconsistent with paystubs provided
There are several steps you can take to prevent mortgage fraud. To learn more, review the Mortgage Fraud materials located o
Here's one kind of possible bias in GSE destined appraisals.
If you see the borrower and also the loan itself as safer (guaranteed), then in this situation vs the contrasting non-guaranteed loan, (which I guess is now a past tense thing).
Contrasting the two, if the appraiser is still today trying to satisfy in some way the parties involved, the appraisal could be higher in the safer situation (to meet the seller's reluctance to lower), than for a more risky loan were the appraisal needs to be cautious for the loans safety.
This could cause the appraisals to lag the market.
There is such a huge disconnect in the media in general now it seems. The tiny and normal uptick in feb sales vs Jan is widely suggested to be a sign of the bottom.
It would be good for most all of us if a real bottom came soon. But I don't see how that can happen.
Is the fooling-yourself phenonema this profoundly wide-spread?
You'd think from the media the bottom is close.
But that's clearly impossible so far as I can understand, and obviously so.
Usually mass delusion isn't over such an obvious clear contradiction, right?
Silly me. I saw this headline - "The Housing Headlines Got It Wrong" -
and actually thought Jimbo wrote an article worth reading...an article that would counter all of yesterday and today's fraudulent business headlines based on the NAR report. But the contents and conlusion of this article just blew me away...it's absolutely mind-boggling how far off-base this guy is on the current state of the national RE market.
"Existing-Home Sales Rise as Prices Plummet" -- Washington Post. "Property Sales Pick Up as Prices Plummet" -- Financial Times. "Wave of Foreclosures Drives Prices Lower, Lures Buyers" -- Wall Street Journal.
In every one of these pieces the emphasis is on the price drop, as if somehow that is a continuation of the problem in the housing market. None of them states the real obvious: Just like any other good, when you cut the price, people find a way to buy.
This price-cut attraction is at odds with what the homebuilders have been saying forever. They have said over and over again that the issue isn't price at all.
We now know that it was always about price. If the homebuilders were willing to lose some money on houses and move their inventory, they could have. They simply don't want to, or their covenants don't allow them to.
But the existing homes, owned by people, will move, either in foreclosure or in the inevitable need to move, by prices going down. We now have "price discovery," which emboldens you and makes you -- at last -- feel you are not overpaying. First time in three years anyone has felt that way.
All of this is great news if you are trying to figure out when we get to the bottom of the issue that has brought this nation to its knees: house price depreciation. You can't get a bottom in homes until homes trade and they weren't trading when the sellers were holding out.
Also, this number shows there is mortgage money -- another canard -- if you want a home.
Further, I don't expect any house price appreciation. We don't need any. We just need inventory to trade, WHEREVER IT TRADES, to stop the process of whole neighborhoods being pulled down by the marginal, and margined, sellers.
There is a sense right now that this spiral can never end. There is a sense that these stories are going to provoke fear. They should conclude the exact opposite: Plentiful mortgage money plus realistic prices means a cleanup of the inventory and an end to the spiral.
Can you go buy the housing companies off this? Can you buy Lennar (LEN) , Toll (TOL) ?
I don't know. I think what you are seeing in these numbers is PRECISELY why you got the big January bottom in the group and the remarkable run since.
No run like this can't have a pullback. Just as we see a host of downgrades today in the likes of Merrill (MER) and Bank of America (BAC) , you will see another group of downgrades in the homebuilders as they are beginning, at these prices, to predict a boomlet, if not a boom, in the market.
Strangely, this group may be more dangerous than almost any other given the fact that they are going to have horrendous quarters. The only thing that gets taken off the table by the existing-home sales is the VIABILITY of a Lennar or a Horton (DHI) or Pulte (PHM) , not an earnings boom.
All that said, the right headlines would have been, "Buyers at Last Come Out of the Woodwork to Buy Existing Homes." I know as an old headline writer that that's too long. But it happens to be right.
We'll be better off after houses hit bottom, not if they hit a too-soon bottom at a unaffordable price, and drag out the price drops longer in consequence.
halbhh said: "...But I don't see how that can happen..."
then: "...Is the fooling-yourself phenonema this profoundly wide-spread?"
Not being able to even imagine that a situation can occur is the main symptom. Not a put-down, just an example of how we can unconsciously fool ourselves.
JMO, but this board has its own weakness: How many here can even imagine that there won't be another major downleg in housing prices this year? Or that there won't be a recession, or a major bear market in stocks?
Not that I'm invulnerable to the same weakness, but that's why I trust my indicators in preference to my (or anyone else's) opinion.
John McCain hasn't offered any ideas to seriously address these issues. This isn't surprising. McCain is a free market fundamentalist. And his major economic adviser is former Senator Phil Gramm of Texas, who, while in the Senate, was the key architect of the deregulation of the financial services industry and a fervent opponent of the Community Reinvestment Act. Gramm is now the vice chairman of UBS, the Swiss investment banking giant, and would be a leading candidate to be Treasury Secretary in a McCain administration.
In contrast, both Hillary Clinton and Barack Obama are cosponsors of Senator Dodd's bill and have offered proposals to protect homeowners facing foreclosure and add sensible regulation to the financial services industry. On Monday, in a speech in Philadelphia, Clinton added more details; she called for a $30 billion housing stimulus package to allow cities and states to purchase foreclosed properties and improve neighborhoods blighted by foreclosure. But she also proposed a new nonpartisan housing panel led by the likes of Robert Rubin (a close advisor who runs Citigroup, which is knee-deep in the subprime mess, and was her husand's Treasury Secretary) and Greenspan -- both of whom were part of the problem. So far, neither Democrat has proposed the kind of sweeping reforms needed to restore stability and accountability to the financial services industry and challenge their basic business practices.
Consumer confidence today, particularly the expectations component, was one of the lowest readings in the history of the survey. I guess 70% of the economy is having a tough time imagining there won't be a recession.
it's the new paradigm......secondary offerings that don't dilute current shareholders......
Goldman's IPO means they are not as good as it's balance sheet suggests. Or may be inflating the value of your bonds while writing down mortgage values has a downside???
As you say: "JMO, but this board has its own weakness"
As things stand, this board, this blog, and this housing bubble community deserves the benefit of the doubt.
Absolutely none of what is causing the current angst in the housing and stock market is any surprise to us...other than what took so long.
If someone would have approached you in the summer and said:
--The presidential candidates will be forced to come up with plans to save housing.
--The housing crisis would gain prominent attention in the Pres's State of the Union Address
--The stock markets of Europe and Asia would be slaves to domestic housing data
--That we would shrug our shoulders at a 10% drop in nationwide housing prices, when this is the biggest drop EVER
--That price drops of 40-50% on new homes in bubble markets are commonplace
--That everyone would be looking to Fannie and Freddie to take on even more mortgages and include Jumbo's
--That a recession is universally accepted when six months ago DOW at 14,000 and giggles and rolling eyes met any recession talk
--That local governments throughout the nation are facing serious revenue cutbacks and huge social issues due to crime and deteriorating communities
Absolutely none of this was discussed by anyone who had your mindset. Now the bulls arrive to tell us where we are at and where we are headed.
Frankly the bulls never understood what was coming and deserve absolutely no credibility as to where we are going.
I do like to hear your thoughts. But I don't understand your confidence in demanding we keep our minds open to your reality when, back when it was your (the bull's) turn to listen, bubbleheads were marginalized as chicken littles.
A little expression of how bad you missed where we are now may add to your credibility.
How can anybody feel confident about investing in the U.S. financial system if it repeatedly needs to be bailed out by the government (MLEC, panic rate cuts, TAF, LTCM, BSC, Stimulus Plans, Mortgage Nationalization)?
We need neutral money. Contrary to the fed's beliefs, the profit motive would be stronger and more sustainable absent inflation. Rent seeking, rather than true investment, has become our most lucrative enterprise. If something can't last forever, it won't.
I don't have trouble imagining that the sun won't rise in the East tomorrow. Ask me to imagine something, I can imagine it.
I am having trouble coming up with a theory to explain a proximate bottom in housing. Housing is different from other stuff in that everyone needs a place to live and few people can afford more than one (i.e. not rental, but 2nd home). If we've just come off the all-time high in homeownership levels and average LTV coupled with widespread HELOC, declining prices means most recent buyers are underwater. In that group, even the ones who think this is an ideal time to buy don't have the wherewithal to do so. Given low birth rates 20 years ago and low immigration rates today, there isn't a large group who couldn't fog a mirror last year stepping up to the plate today. Foreign investors aren't, I suspect, seeing this as a great buying opportunity. Maybe residential REITs will suddenly become popular? Washington will wave its wand and underwater people will feel the sand under their feet again? Older, very conservative people whose homes are long paid off will decide it's time to trade up or become landlords? A boom in high paying jobs for Generation Y in biotech or nanotech? Where oh where is this flood of buyers going to materialize from? Wait, I can imagine something more likely than all of the above: Widespread arson.
Sebastian, over to you... Where do you imagine the buyers will come from?
Therefore, sellers get out of the market until it becomes a sellers' market. Now, you might get bankrupt paying the mortgage, but until then get out of the market. Sellers, do you here me (Yun): Get out of the market.
I thought there was some merit to Barney Frank's plan, if i remember correctly, where the homeowner got 0/20/40/60/80/100% of appreciation from new baseline depending on how long he stayed. Unless the tenant is given an upside, he'll treat it like a rental. Now it could be argued that shackling him to his home (if indeed it even starts appreciating again) reduces labor mobility, a bad thing for the economy. Maybe tenants could start a website with a market for Occupancy Certificate Swaps(tm) whereby I could trade temporary occupancy of my soggy house in Podunk for a cert to occupy your soggy homestead in Peoria, where I got a job offer. It'd be a house clearinghouse.
Not to avoid the issue of paying off the various other bad actors, buy aside from Frank's proposal, most of the ideas didn't incentivize the tenants not to wreck the place, walk away, whatever.
My new neighbor bought a property that has been REO inventory for 3 years. Appraised originally at $1.1m, the ask has been lowered over 3 years to $650k including two auctions that failed to get the minimum bid.
Buyer paid $460k for it. Appraisal for this sale: $950k!! My neighbor tells me he is already $490k "up" on the deal.
Question: "If it was on the market for 3 years $650k with no takers, and you were the only buyer the bank could find at $460k, how could you sell it for $950k? And if you can't sell it for $950k how can you be up $490k on the deal?"
Apart from many other things, I didn't know home prices were seasonally adjusted.
Are unadjusted prices usually higher in summer than in winter?
Dow Down nearly 100 points. Time for a new auction facility.
Since home prices underpin the mortgage-backed securities held by everyone on the street, I guess the street's "assets" just took a 1.1% hit.
How's that 32:1 gearing looking now, LEH? How about you, Fannie? You like your 200:1 ratio?
Should get real interesting, real fast, should these declines continue for another 6-9 months.
It is my opinion that the No Income, No Assets, No Employment mortgage programs are now creating a society of people with No Income, No Assets, and No Jobs.
Or what came first, the chicken or the egg?
With the increase in the conforming loan limit, will the OFHEO numbers start to include more expensive properties? Or will that effect be negligible and/or take years to appear?
And the Fed should step in to purchase MBS due to the irrational market.
I suppose folks can't rationalize what is happening in the context of historic RE valuation metrics. That would require recognition of the folly.
It seemed only after the .com meltdown folks began realizing that stock valuations of 10X+ revenue were silly.
OT,
And I still can't help myself - her goes - Commercial paper 30 day spreads ticked back up to 85 bps FRB Commercial Paper...
Look at the plot over time, the CP spread is almost at the level of the August wave...how is TED today?
And the Fed should step in to purchase MBS due to the irrational market. Only if the Fed limits itself to rational prices. But that's NOT what the shills want.
And the Fed should step in to purchase MBS due to the irrational market.
Only if the Fed limits itself to rational prices. But that's NOT what the shills want.
But if there were rational price, there would be no irrational market.
CONUNDRUM!
--
Foreclosure Rate Outpaces Sales by Lenders - WSJ.com
Foreclosure Rate Outpaces Sales by Lenders
March 25, 2008; Page A20
Foreclosures are occurring at the highest rate in decades -- and as a result, lenders are acquiring homes faster than they can sell them off.
Last year, sales of foreclosed homes rose just 4.4%, while the supply more than doubled, according to First American CoreLogic.
As of the end of last year, about 2% of all home loans were in foreclosure, or double the average rate over the past 28 years. It is the highest foreclosure rate since the Mortgage Bankers Association, a trade group, began collecting data in 1979. Lenders describe the current situation as the worst since the Great Depression.
The heaviest concentrations of loans in foreclosure are in Florida, Nevada, Ohio, Michigan and Indiana, according to the Mortgage Bankers Association. Foreclosures also have been rising quickly in California, Arizona and Georgia.
While those areas are being hit the hardest, it's a nationwide problem. The foreclosure rate at the end of 2007 was up from a year earlier in every state except Mississippi, where it was flat.
...
can someone distinguish btwn Libor dollar rate being up today while the TED spread is way down? aren't they both supposed to be a sentiment indicator of banks willingness to lend to each other?
Look at the price change and rate of change. It is not slowing down but accelerating. Pretty soon, I will be able to buy a place at a decent rate unless the FED starts to buy MBS. What isn't that happening?
Thrift Industry Charge-Off Rates by Asset Types - interesting reading. Note Mort. loans acct. for 61% of Assets and you can see the huge run up from 2006 to 2007.
http://www.ots.treas.gov/docs/4/480229.pdf
released 3/21/08
Alot of cities are going to have some big unwanted parks with all the future teardowns.
franz,
..or Chuck/Hillary decide to use tax payer money to avoid foreclosures.
"Alot of cities are going to have some big unwanted parks with all the future teardowns."
In Northern California, a lot of bubble developments were built on good ag land. Be nice to see that acreage go back into prodution, but the cleanup would be a bitch.
Look at the price change and rate of change. It is not slowing down but accelerating.
This is a good thing. The quicker we get to where we're going the faster the crap can be cleared from the markets.
And while everyone was arguing about the Fed, bailouts, and getting all hot and bothered about everything getting all better...I wish to return to our regularly scheduled programming: the numbers for RE, consumer sentiment, retail, and general consumption ex inflation SUCK and forward earning are really going to SUCK. We return to this episode of "As the recession turns".
O/T I thought this was funny:
"After reading the New York Times this past weekend, it seems we should be organizing bake sales to raise money for those poor bankers now facing tough times. Apparently, the plight of these soon to be unemployed millionaires is everybodys problem, which is the official explanation for the government bailout of Bear Stearns."
How's that 32:1 gearing looking now, LEH? How about you, Fannie? You like your 200:1 ratio?
Should get real interesting, real fast, should these declines continue for another 6-9 months.
gn | 03.25.08 - 10:49 am | #
Who knew fractional reserve lending had a REVERSE gear ?
I can just see the suburban homeowner standing in the door with a shotgun while the sherrif serves emminent domain.
"YOu can't take my damn land and turn it into a farm. My Daddy mowed this lawn!"
Ted spread down 25% yesterday...an additional 13% today.....something 'ain't right with that.
Almost as if it was artificially pinned down on the BSC bid increase.
If it were a stock it would have been halted......I expect it to go right back up after the end of q1.....
Ciao
MS
--
In connection with the rise in resales yesterday...
David Rosenberg; 03/25/08:
"Spurt in sales reflects distressed activity -- Something else to consider is the extent to which the spurt in sales reflects distressed activity as foreclosed homes are auctioned off: indeed, the front page of the WSJ suggests as much that the total number of lender-owned homes doubled last year and that specialized firms that sell foreclosed homes for lenders say banks are sending them additional properties much faster than they can be sold. See the front page of the WSJ Wave of Foreclosures drives Prices Lower, Lures Buyers."
Ted spread down 25% yesterday...an additional 13% today.....something 'ain't right with that.
Why? That's reflective of the risk for inter-bank lending. With the latest Fed action, are you more or less worried about getting your money back? It makes perfect sense to me.
CR, I think your reasons for the differences between Case-Shiller and OFHEO are likely most or perhaps all of the factors.
But I'm also wondering if there could be another factor.
While appraisals could be a powerful factor (less than just safer mortgages vs subprime, but still powerful), I wonder about the appraisals the GSEs use.
I don't know anything about whether there is anything in that. But could there be a systematic over-appraisal used in some situations?
Just curiosity.
OT: I got pegged yesterday by a colleague for being too gloom-and-doomy when I claimed the U.S. economy was experiencing a "downclimb". (Remember, this is the official U.S. Treasury-approved descriptor.)
So, to avoid any future name-calling, I have adopted the term "expansionary downcimb" to describe the U.S. economy.
"expansionary downclimb", that is. I hope this placates the permabulls.
ipodius where are you watching the TED spread?
OFHEO has only the GSEs? Wow talk about missing the action in the market...
Their measurements going up and down will be milder as they were non participants in all the higher end market. In practical terms, they missed the $1,000,000 tract homes here that absent investors mistook for high end custom homes now going for $599K if lucky.
"lending standards have now been tightened significantly for other non-GSE loans"
.. How do you figure that comment????
TED Spread:
http://www.bloomberg.com/apps/quote?ticker=.TEDSP%3AIND
Enjoy.
REBear writes:
Apart from many other things, I didn't know home prices were seasonally adjusted.
Are unadjusted prices usually higher in summer than in winter?
I didnt know that either. Is it a result of different parts of the country having different real estate prices and trading differently over the course of the year? Eg No one buys a house in Maine in the winter. Thus a concentration of cheaper houses will trade hands in the summer?
Odd....
We are aggressively monitoring early delinquencies from month one of loan funding and eliminating products, customers, regions, branches and Indymac personnel that fall outside our now very stringent credit parameters. To reduce our business with Wall Street and increase our thrift earnings relative to mortgage banking, we will work toward limiting our total annual loan production from all sources to a maximum of two times our balance sheet and limit non-FHA/VA/GSE production to 25% of total production (down from approximately three times and 75%, or so, respectively in 2005-2007). In addition, we will attempt to bypass Wall Street and work directly with private MBS investors to originate high credit-quality loans they want in simplified MBS structures they can understand.
Indymac Issues 2007 Annual Shareholder Letter
News Releases
ennyMac, also based in Calabasas, would join more than 70 funds, including ones run by Blackstone Group LP, Pacific Investment Management Co. and Goldman Sachs Group Inc., that have been established to snap up mortgage assets at cheap prices amid the largest drop in U.S. home prices on record. Billionaire Wilbur Ross has also been shopping.
It's really a terrific time to design and build'' a mortgage company, K. Terrence Wakefield, a Milwaukee-based consultant to lenders, said in a telephone interview today. Kurland and his colleagueshave the experience and contacts and relationships to be successful,'' he said.
Chairman and Chief Executive Officer Kurland, 55, confirmed today that the company and Web site exist. He declined to comment until next week. PennyMac's chief investment officer, David Spector, another Countrywide alumnus, was co-head of global residential mortgages for New York-based Morgan Stanley, the second-biggest U.S. securities firm.
Investing and Servicing
The company will focus on investing in and servicing residential mortgage assets on behalf of private investors, PennyMac's Web site says. Earlier, the site said the company was establishing a new investment, lending, and servicing model for the U.S. mortgage market'' with aninitial focus'' on distressed-asset investing.
The market for U.S. home-loan securities without guarantees from government-linked entities such as Washington-based Fannie Mae collapsed last year, roiling the mortgage business and housing market. Issuance of such ``non-agency'' home-loan bonds plunged to $19 billion in the first two months of this year, compared with $1.2 trillion in 2006 and $707 billion in 2007, according to Inside MBS & ABS, an industry newsletter.
More than 225 independent mortgage companies have failed and more 100,000 associated jobs have been lost in the past two years, IndyMac Bancorp Chief Executive Officer Michael Perry said in a letter to shareholders last month. Pasadena, California- based IndyMac, the second-largest independent mortgage company after Countrywide, began as a Countrywide-controlled real estate investment trust in the 1980s.
Looks like the beneficial effect of the Fed's last display of "restraint" has run out.
Where's all that hot money going now?
Ipodius said:
And while everyone was arguing about the Fed, bailouts, and getting all hot and bothered about everything getting all better...I wish to return to our regularly scheduled programming: the numbers for RE, consumer sentiment, retail, and general consumption ex inflation SUCK and forward earning are really going to SUCK. We return to this episode of "As the recession turns".
So it's okay that Mainstreet gets killed so long as Wall Street feels a piece, but not too much, of the pain. Some might prefer the opposite approach.
Business, financial, personal finance news - CNNMoney.com
PennyMac to invest in shaky mortgages
BlackRock, Highfields Capital sponsor new company, run by ex-Countryside exec, that acquires and restructures troubled mortgages.
Page expired - MSN Money
TED, as a spread, has two sides. There was a bill auction yesterday, and auction rates jumped. That was the result of new supply in an environment of sub-1% rates, with a risk premium coming down all of a sudden. So the lower rate in the spread rose sharply. At the same time, eurodollar rates fell after the Bear deal was rejiggered. The rise in Libor rates is, as I understand it, largely a reflection of reduced anticipation of Fed easing. If we could look at a Libor spread - interbank rates over expected Fed funds rates - we'd probably see that had narrowed, too.
Small correction: The OFHEO monthly index uses only purchase data, not refinancings.
OT but Steve Cuozzo had a good article in today's NY Post about the crash in NYC CRE.
It's not here yet, it's not here soon, but it's coming...
A DISCOURAGING WORD - NYPOST.com
Numerous condo projects are underway, including architect Jean Nouvel's spectacular 100 11th Ave.
They might be too many, and too late, in a neighborhood still devoid of stores and services.
Developers are counting on foreign buyers. However, the dollar won't be so cheap forever - currencies fluctuate just like real estate.
And Miller Samuel analysis guru Jonathan Miller says that in any event, the weak dollar "is not the sort of thing to hang your economy on."
He also noted, "If there's a hiccup in demand, you're going to see inventory pile up very quickly."
The risks have not been mitigated enough to see an almost 40% DECLINE in the spread. That was an artificial event as none of these banks knew what risk was on the upside...they now know how to price it???? Sure....
All it tells me is that the banks have placed enough of the TAF monies on it's balance sheet for it's Q1 release.
That it fell off a cliff in concert with the BSC bid is totally bullshit and leads me to believe it will be right back above 2 next week.
As another post clearly states: "what has changed systemically that would allow that to occur?"
I see things getting worse not better....
Ciao
MS
Ted spread down 25% yesterday...an additional 13% today.....something 'ain't right with that.
The TED spread jumped because the T-bill rate plummeted. That in turn was caused not by underlying fundamentals but by some kind of market problem - likely people trying to put T-bills on their books for end-of-quarter, and the market not being liquid enough to cough up that many T-bills in a few days. It was a glitch from the market leaning so hard on T-bills for ABS. With a few more days, enough T-bills have made it to market so things are returning to fundamentals. The feds are already trying to make sure it doesn't happen again by increasing their short-term T-bill issuance.
Interesting Times thanks!
I just received this email from a major lender and it seems to me they are trying to teach loan officers how not to get caught for fraud...you be the judge-
Do You Know Your Mortgage Fraud Red Flags?
With a substantial increase in more full documentation loan applications, it is important to closely review the provided income documentation for inconsistencies. The following represent some common mortgage fraud red flags on the IRS Form W-2 or 1099:
* Employer is a large, recognizable company, but forms are not computer-generated
* W-2 appears typed, but paystubs are computer-generated
* Different type or font appears within the income document
* Employer identification number is formatted other than XX-XXXXXXX (two digits, hyphen, seven digits)
* Employer and employee names and addresses are inaccurate and/or do not match the 1003
* Form reflects even dollar amounts for wages and/or taxes
* Income reflected on the W-2 or 1099 is different than the income reported on the loan application, Verification of Employment and/or tax returns
* FICA and Medicare wages/taxes and local taxes, where applicable, exceed ceilings/set percentages
* Tax withholdings are inconsistent with paystubs provided
There are several steps you can take to prevent mortgage fraud. To learn more, review the Mortgage Fraud materials located o
hmmmmm....
Here's one kind of possible bias in GSE destined appraisals.
If you see the borrower and also the loan itself as safer (guaranteed), then in this situation vs the contrasting non-guaranteed loan, (which I guess is now a past tense thing).
Contrasting the two, if the appraiser is still today trying to satisfy in some way the parties involved, the appraisal could be higher in the safer situation (to meet the seller's reluctance to lower), than for a more risky loan were the appraisal needs to be cautious for the loans safety.
This could cause the appraisals to lag the market.
..
FFDIC, Have you gotten the call to ARMs from Ms Bair?
"FDIC officials said last month they planned to bring back about 25 retirees to the agency and noted those workers will train new hires"
Expired
ac writes:
"Looks like the beneficial effect of the Fed's last display of "restraint" has run out.
Where's all that hot money going now?"
No way of knowing exactly, but gold's up $20 on the day.
Maybe the big boys are going to run up the price again so they can take another profit and shore up other positions.
There is such a huge disconnect in the media in general now it seems. The tiny and normal uptick in feb sales vs Jan is widely suggested to be a sign of the bottom.
It would be good for most all of us if a real bottom came soon. But I don't see how that can happen.
Is the fooling-yourself phenonema this profoundly wide-spread?
You'd think from the media the bottom is close.
But that's clearly impossible so far as I can understand, and obviously so.
Usually mass delusion isn't over such an obvious clear contradiction, right?
Silly me. I saw this headline - "The Housing Headlines Got It Wrong" -
and actually thought Jimbo wrote an article worth reading...an article that would counter all of yesterday and today's fraudulent business headlines based on the NAR report. But the contents and conlusion of this article just blew me away...it's absolutely mind-boggling how far off-base this guy is on the current state of the national RE market.
Jim Cramer Blog
The Housing Headlines Got It Wrong
By Jim Cramer
RealMoney.com Columnist
3/25/2008 10:32 AM EDT
URL: Financial Investments and Stock Market Tips for Real Money - TheStreet.com
"Existing-Home Sales Rise as Prices Plummet" -- Washington Post. "Property Sales Pick Up as Prices Plummet" -- Financial Times. "Wave of Foreclosures Drives Prices Lower, Lures Buyers" -- Wall Street Journal.
In every one of these pieces the emphasis is on the price drop, as if somehow that is a continuation of the problem in the housing market. None of them states the real obvious: Just like any other good, when you cut the price, people find a way to buy.
This price-cut attraction is at odds with what the homebuilders have been saying forever. They have said over and over again that the issue isn't price at all.
We now know that it was always about price. If the homebuilders were willing to lose some money on houses and move their inventory, they could have. They simply don't want to, or their covenants don't allow them to.
But the existing homes, owned by people, will move, either in foreclosure or in the inevitable need to move, by prices going down. We now have "price discovery," which emboldens you and makes you -- at last -- feel you are not overpaying. First time in three years anyone has felt that way.
All of this is great news if you are trying to figure out when we get to the bottom of the issue that has brought this nation to its knees: house price depreciation. You can't get a bottom in homes until homes trade and they weren't trading when the sellers were holding out.
Also, this number shows there is mortgage money -- another canard -- if you want a home.
Further, I don't expect any house price appreciation. We don't need any. We just need inventory to trade, WHEREVER IT TRADES, to stop the process of whole neighborhoods being pulled down by the marginal, and margined, sellers.
There is a sense right now that this spiral can never end. There is a sense that these stories are going to provoke fear. They should conclude the exact opposite: Plentiful mortgage money plus realistic prices means a cleanup of the inventory and an end to the spiral.
Can you go buy the housing companies off this? Can you buy Lennar (LEN) , Toll (TOL) ?
I don't know. I think what you are seeing in these numbers is PRECISELY why you got the big January bottom in the group and the remarkable run since.
No run like this can't have a pullback. Just as we see a host of downgrades today in the likes of Merrill (MER) and Bank of America (BAC) , you will see another group of downgrades in the homebuilders as they are beginning, at these prices, to predict a boomlet, if not a boom, in the market.
Strangely, this group may be more dangerous than almost any other given the fact that they are going to have horrendous quarters. The only thing that gets taken off the table by the existing-home sales is the VIABILITY of a Lennar or a Horton (DHI) or Pulte (PHM) , not an earnings boom.
All that said, the right headlines would have been, "Buyers at Last Come Out of the Woodwork to Buy Existing Homes." I know as an old headline writer that that's too long. But it happens to be right.
To be more clear in my above statement.
We'll be better off after houses hit bottom, not if they hit a too-soon bottom at a unaffordable price, and drag out the price drops longer in consequence.
Goldman Sachs files for $350 mln blank-check IPO: report
Goldman Sachs files for $350 mln blank-check IPO: report - MarketWatch
halbhh said: "...But I don't see how that can happen..."
then: "...Is the fooling-yourself phenonema this profoundly wide-spread?"
Not being able to even imagine that a situation can occur is the main symptom. Not a put-down, just an example of how we can unconsciously fool ourselves.
JMO, but this board has its own weakness: How many here can even imagine that there won't be another major downleg in housing prices this year? Or that there won't be a recession, or a major bear market in stocks?
Not that I'm invulnerable to the same weakness, but that's why I trust my indicators in preference to my (or anyone else's) opinion.
FWIW.
S.
IPOs are trading places with CMOs
I'm calling a new bottom.
There's never been a better time to buy!
John McCain hasn't offered any ideas to seriously address these issues. This isn't surprising. McCain is a free market fundamentalist. And his major economic adviser is former Senator Phil Gramm of Texas, who, while in the Senate, was the key architect of the deregulation of the financial services industry and a fervent opponent of the Community Reinvestment Act. Gramm is now the vice chairman of UBS, the Swiss investment banking giant, and would be a leading candidate to be Treasury Secretary in a McCain administration.
In contrast, both Hillary Clinton and Barack Obama are cosponsors of Senator Dodd's bill and have offered proposals to protect homeowners facing foreclosure and add sensible regulation to the financial services industry. On Monday, in a speech in Philadelphia, Clinton added more details; she called for a $30 billion housing stimulus package to allow cities and states to purchase foreclosed properties and improve neighborhoods blighted by foreclosure. But she also proposed a new nonpartisan housing panel led by the likes of Robert Rubin (a close advisor who runs Citigroup, which is knee-deep in the subprime mess, and was her husand's Treasury Secretary) and Greenspan -- both of whom were part of the problem. So far, neither Democrat has proposed the kind of sweeping reforms needed to restore stability and accountability to the financial services industry and challenge their basic business practices.
Consumer confidence today, particularly the expectations component, was one of the lowest readings in the history of the survey. I guess 70% of the economy is having a tough time imagining there won't be a recession.
it's the new paradigm......secondary offerings that don't dilute current shareholders......
Goldman's IPO means they are not as good as it's balance sheet suggests. Or may be inflating the value of your bonds while writing down mortgage values has a downside???
So when does any of this really matter???
Cioa
MS
It's 460 now...
Wall Street May Face $460 Billion Credit Losses, Goldman Says
"almost four times the amount already disclosed"
There is light at the end of the tunnel, but it is still rather dim
Wall Street May Face $460 Bln in Losses, Goldman Says (Update1) - Bloomberg.com
Several financial blogs have picked up this Conde Nast piece on Lehman's debt shuffle & questions about its balance sheet. Looks thread worthy...
Lehmans Debt Shuffle - News Markets - Portfolio.com
Sebastian,
As you say: "JMO, but this board has its own weakness"
As things stand, this board, this blog, and this housing bubble community deserves the benefit of the doubt.
Absolutely none of what is causing the current angst in the housing and stock market is any surprise to us...other than what took so long.
If someone would have approached you in the summer and said:
--The presidential candidates will be forced to come up with plans to save housing.
--The housing crisis would gain prominent attention in the Pres's State of the Union Address
--The stock markets of Europe and Asia would be slaves to domestic housing data
--That we would shrug our shoulders at a 10% drop in nationwide housing prices, when this is the biggest drop EVER
--That price drops of 40-50% on new homes in bubble markets are commonplace
--That everyone would be looking to Fannie and Freddie to take on even more mortgages and include Jumbo's
--That a recession is universally accepted when six months ago DOW at 14,000 and giggles and rolling eyes met any recession talk
--That local governments throughout the nation are facing serious revenue cutbacks and huge social issues due to crime and deteriorating communities
Absolutely none of this was discussed by anyone who had your mindset. Now the bulls arrive to tell us where we are at and where we are headed.
Frankly the bulls never understood what was coming and deserve absolutely no credibility as to where we are going.
I do like to hear your thoughts. But I don't understand your confidence in demanding we keep our minds open to your reality when, back when it was your (the bull's) turn to listen, bubbleheads were marginalized as chicken littles.
A little expression of how bad you missed where we are now may add to your credibility.
All,
How can anybody feel confident about investing in the U.S. financial system if it repeatedly needs to be bailed out by the government (MLEC, panic rate cuts, TAF, LTCM, BSC, Stimulus Plans, Mortgage Nationalization)?
We need neutral money. Contrary to the fed's beliefs, the profit motive would be stronger and more sustainable absent inflation. Rent seeking, rather than true investment, has become our most lucrative enterprise. If something can't last forever, it won't.
No way of knowing exactly, but gold's up $20 on the day.
Gold and oil have become more disconnected the past few days.
I wonder if somebody told the bigger commodity traders to quit gearing up the price of oil, or the government was going to get involved.
I figured something like that was likely to happen at some point.
John McCain hasn't offered any ideas to seriously address these issues.
The real issues are hard to address. The voters don't want to hear that, so nobody brings them up until they become a crisis.
off course the stock market is completely controlled.
The notion that the president runs the economy is strange to me.
Smaller government, not bigger, seems the best long term solution.
McCain talks tough on bailouts--
I'm thinking this may play well.
- NY Times
I don't have trouble imagining that the sun won't rise in the East tomorrow. Ask me to imagine something, I can imagine it.
I am having trouble coming up with a theory to explain a proximate bottom in housing. Housing is different from other stuff in that everyone needs a place to live and few people can afford more than one (i.e. not rental, but 2nd home). If we've just come off the all-time high in homeownership levels and average LTV coupled with widespread HELOC, declining prices means most recent buyers are underwater. In that group, even the ones who think this is an ideal time to buy don't have the wherewithal to do so. Given low birth rates 20 years ago and low immigration rates today, there isn't a large group who couldn't fog a mirror last year stepping up to the plate today. Foreign investors aren't, I suspect, seeing this as a great buying opportunity. Maybe residential REITs will suddenly become popular? Washington will wave its wand and underwater people will feel the sand under their feet again? Older, very conservative people whose homes are long paid off will decide it's time to trade up or become landlords? A boom in high paying jobs for Generation Y in biotech or nanotech? Where oh where is this flood of buyers going to materialize from? Wait, I can imagine something more likely than all of the above: Widespread arson.
Sebastian, over to you... Where do you imagine the buyers will come from?
Smaller government, not bigger, seems the best long term solution.
Angry Saver | 03.25.08 - 1:57 pm
Appropriately-sized, fiscally conservative government would be best.
The Republicans are anything but conservative. Nothing is more liberal than the deregulation of banking.
Ralph Cramdown - The eventual answer will be even worse than arson:
Negative Equity Certificates
--
"Not that I'm invulnerable to the same weakness, but that's why I trust my indicators..."
Yes, you are only as good as your indicators!
And no one on this blog needs his, or her, indicators more than you do!!
Jas
Jas Jain - My indicators are history books. Japan, Rome, Argentina, and US histories....
looks like the afternoon buy monkeys have arrived on schedule...
--
"There's never been a better time to buy!"
And there has never been a worse time to sell!
Therefore, sellers get out of the market until it becomes a sellers' market. Now, you might get bankrupt paying the mortgage, but until then get out of the market. Sellers, do you here me (Yun): Get out of the market.
Jas
Re: Negative Equity Certificates
I thought there was some merit to Barney Frank's plan, if i remember correctly, where the homeowner got 0/20/40/60/80/100% of appreciation from new baseline depending on how long he stayed. Unless the tenant is given an upside, he'll treat it like a rental. Now it could be argued that shackling him to his home (if indeed it even starts appreciating again) reduces labor mobility, a bad thing for the economy. Maybe tenants could start a website with a market for Occupancy Certificate Swaps(tm) whereby I could trade temporary occupancy of my soggy house in Podunk for a cert to occupy your soggy homestead in Peoria, where I got a job offer. It'd be a house clearinghouse.
Not to avoid the issue of paying off the various other bad actors, buy aside from Frank's proposal, most of the ideas didn't incentivize the tenants not to wreck the place, walk away, whatever.
--
Interesting Times,
We have the same indicators.
Cheers,
Jas
Ralph Cramdown - Quick. Take that domain name !
OFHEO uses both appraisals and sales
My new neighbor bought a property that has been REO inventory for 3 years. Appraised originally at $1.1m, the ask has been lowered over 3 years to $650k including two auctions that failed to get the minimum bid.
Buyer paid $460k for it. Appraisal for this sale: $950k!! My neighbor tells me he is already $490k "up" on the deal.
Question: "If it was on the market for 3 years $650k with no takers, and you were the only buyer the bank could find at $460k, how could you sell it for $950k? And if you can't sell it for $950k how can you be up $490k on the deal?"
Answer: Thousand mile stare.