Tanta what you need is not to stop writing so much (words are not evil!), but try and find if Blogspot has the equivalent of Wordpress' tag, which will cut off your post at any place you choose and insert a link ("Read more...") to the rest of the post.
That way, those of us who want to read the whole thing will eagerly click on the "Read more" while others who prefer only your initial gloss on the subject can just read the first couple paragraphs.
It isn't good, for readability's sake, to have gouts and gouts of text on a web page. It has nothing to do with how nerdy your analysis is (yay nerds!) and everything to do with simple web readability.
A noble effort but I'm afraid, in vain. If the MSM say's it is so, it will soon be so. Herd mentality and the feeling that it's socially acceptable (via regurgitated repetition in the MSM). Widespread panic and hysteria do not need REAL events to set them off: War of the Worlds (Orson Wells, not Spielberg).
It's not the MSM fault - people will walk away because they never should have 'owned' the home in the first place. Even the most uneducated eventually realize they can't pay a payment that goes from $1,000 a month to $3,000 a month after recast - an example was just on CNN an hour ago.
Don't blame CNN for reporting what is happening - see this is how bloggers get a bad reputation.
There is a point were over analysis hurts you - from an investing point of view. If you just want to have academic debate then go ahead - but in the real world people read this blog to profit from it.
but try and find if Blogspot has the equivalent of Wordpress' tag
It does not have such an option.
We just accept a text-bound page with users forced to use the scroll wheel. We accept that because not every blog has to be like every other blog (and my co-blogger is delightfully tolerant of my habit of writing rambling posts).
Besides that, I've come to enjoy the sport of writing long posts and then making bets with myself about how many "too long!" comments I get.
You may think that anyone who enjoys such things is a little eccentric. I think the appropriate response to that is BINGO!
It's not a question of how many too long posts you it, you are weakening your analysis by not being able to clearly focus. Any editor will tell you that.
Back the the point at hand though - based on your own previous great analysis, as all these alt-a loans begin to reach the 40 month old mark, most are hitting forced recast. If not this month, surely in the next year. I think it is very logical that as owners see all the MSM coverage, they will watch their payments. Even though they may not have known they had an alt-a loan at first now they may have take a closer look.
Once they see the first recast, I bet they will stop paying. They are more educated today because of all the MSM coverage - they know they cannot make the payment so why even try.
I think in some ways its very rational behavior on their part. And I think its best for the country in the long run.
quartz writes:
Some of us, your devoted readers, are just plain nerds and nothing makes us happier than a Tanta post with no apparent end. Especially on the weekend.
quartz | 03.01.08 - 2:04 pm |
You got that right! Got to feed the inner nerdness occasionally.
Tanta, Your definition of 'walking away' is very precise and surely more accurate than the way it is being used generally. However, I think that others are using this term more broadly and would include speculators and distressed borrowers in this group. This broader sense would include people who 'give up' on their mortgage because they no longer see it as a road to riches. People who might be able to afford the mortgage by making huge sacrifices may no longer be willing to make those sacrifices. 'Affordability' became pretty subjective during the run up.
Anyone with an alt-a loan that has recast cannot pay, its simple as that. The great majority at least. That is why they took the nina alt-a loan in the first place.
So I don't understand how you think they can pay. A few maybe but in the big picture they can't.
I think your posts are too long, sorry if you don't agree. You have the same 10 people actually reading what you write. So you are debating with the same few folks - doesn't lead to much of a thoughtful discussion.
at what point does filing bankruptcy alter this process?
Filing BK puts an automatic stay on FC proceedings. The lender has to petition the court to lift the stay.
If the borrower doesn't reaffirm the debt (agree to keep paying the mortgage to keep the house), then the stay is lifted and FC can commence. If the borrower does affirm, then the court can keep the lender from FC'ing until details of a repayment plan are put together and approved.
The BK filing can happen at any point in the process up to the sale of property.
People come to this blog to make an educated decision on the direction of home prices or stock prices - otherwise why read about this stuff. Some may come to learn about different types of mortgages, but frankly MSM has been pretty good at educating people on toxic alt-a loans - and MSM does it in a glossy way under 2k words that people read.
Again you can have this academic debate all you want, I even agree with most of what you write, but the point is the big picture. And the big picture is people with these loans are in trouble and they will walk.
Time would be better spent trying to figure out what the government will do to try and bail them out. At least that would help make more informed investment decisions.
I do recall this happenning in Texas and Lancaster/Palmdale during their busts. The numbers were significant, so I am not sure why you think it wont happen on a much larger scale nationally?
Way to (unintentionally) make Tanta's argument in short form, stock regulator.
Yes, that is the point entirely: that fee-grubbing banks and brokers gave lots of stated income, garbage loans to any and everyone without bothering to check whether they could pay back the loans under the stated terms.
Now they'd have us believe that there is a "trend" of folks who really truly could afford to pay back these loans but are walking away. Trouble is, the industry never bothered to collect any such evidence their buyers could afford the loans when they shoved the money at them in the first place.
And there are reporters who are passing on this argument as credible, without the slightest bit of evidence.
Get it?
Thanks Tanta -- I cherish the ability of bloggers to write long, when the argument merits it.
But Tanta, would this work for those who are attention-challenged?--
The mortgage industry, in a desperate attempt to deflect blame on homebuyers, appears to be using the press to argue that "walk-aways" can really afford their mortages, despite collecting any evidence to support this argument.
If the industry can't convince lawmakers and regulators that it is the victim of these financially able buyers walking away, it could face increasing scrutiny, regulation and possible fines.
In other words, the losses the industry has created with the credit crisis may not be quite as socialized as the industry would like them to be.
What I'm hearing anecdotally, in Florida, is that Lenders are not offering these plans. Maybe because they think Fla is hopeless. Are those plans and forebearances concentrated in certain areas which are less underwater, perhaps?
I note that the figures given are 3rd quarter, 07. I suspect that the failure of the plans to work out will get greater and greater as house values continue to sink.
Some relatively unsophisticated borrowers may do these plans because they actually believe they will be able to refinance. Note that a large number of people who own, can pay, are don't pay much attention to the housing mkt do not realize that their house values have gone down.
Your definition of 'walking away' is very precise and surely more accurate than the way it is being used generally
I'm not trying to use the term "more accurately" than anyone else.
I'm trying to figure out what other people mean by using this term.
And over and over again, I see things like that WSJ piece that talk about borrowers who can afford the payments.
I am rather skeptical of the claim that that's widespread, but I think my criticism of this has been taken by some readers to think I am denying that any kind of "giving up" is going on. I wanted to clarify that I do not deny that people are giving up. I certainly don't deny that speculators give up waaay faster than anyone else (that's why I never made speculator loans!).
So it's not that there is an "accurate" sense of what the term means. It's that some folks are letting some dubious inferences sneak through, or are just conflating affordability issues with speculator issues.
The other part of the claim, as the WSJ summarizes it, is that this behavior is new. Well excuse me, but if we're talking about speculators, this behavior is not "new." It's what speculators do when the market turns around. We have always known that.
One last thing, then I have to go and do some mundane crap that life requires. Before everyone dismisses my views note that I have been short lenders for 2+ years, I shorted NEW from $60 to ZERO. I have emails from the MSM telling me I am a moron and NEW couldn't possibly go to zero because they originate $30+ billion in loans a month. Or they are hedged or blah blah blah.
Point is the posts are too long for the majority of readers. And they are unfocused.
Alo - I fully admitt I didn't read the post. Way too long. My point is you get further being focused versus rambling on and on.
I have been short the alt-a lenders since before you were reading this blog, please don't tell me I made her point unintentionally - her point was buried somewhere.
My point is alt-a loans are going to cause a massive flood of foreclosures. The people that have them cannot afford them, I don't care whose fault it is - I want to profit from it. That is how the country will move forward.
And if you want to draw attention to the scum at CFC and WM and DSL and on and on - its better to do it with shorter posts more people will read. It is common sense.
Sweet. Isn't that the God-short? You get to make the money shorting and never pay taxes on it because you never actually sell your NEW shares. (Profits from shorts are always short-term gains anyway.)
One other thing Tanta, not that I'm trying to put words in your mouth, but I agree that if the perception of walk aways is not challenged, then there will be huge quantities of FBs -- who are not just subprime, not just alt-a, but even real live (kicking and screaming) prime borrowers -- who are going to be victimized by legislation aimed at quashing the "walk away" movement. That may not be your intent at all, but if not, at least I hope it is a by-product of your post.
I do recall this happenning in Texas and Lancaster/Palmdale during their busts. The numbers were significant, so I am not sure why you think it wont happen on a much larger scale nationally?
What happened?
That borrowers who made no downpayments walked off in large numbers because they had intended to "accumulate wealth" via home price appreciation?
I don't remember it happening that way.
Surely many people just gave up and mailed in the keys. They needed to sell and couldn't, or didn't want to live in a ghost town, or lost their jobs because there is a long complex dynamic between RE busts, employment, recessions, etc.
I personally remember farmers in the midwest showing up at the bank with their deeds and their keys in their hands. But that was because they could no longer afford to keep their homes.
My whole problem here is that we made loans to speculators, even after we saw what speculators did in the last bust. How's that for dumb?
[ mal wrote: It isn't good, for readability's sake, to have gouts and gouts of text on a web page. It has nothing to do with how nerdy your analysis is .. and everything to do with simple web readability. ]
I disagree. One of the reasons I keep coming here is because it's one of the few places I know in blogworld where the layout is clean and the posts are long and coherent (and focused).
Stock_regulator ought to stop telling everyone else what they think.
Great post Tanta, defining terms is very important and often has to be repeated or the battle is lost by default. There is a lot of misapprehension and muddy thinking and writing out there on these issues. Thank you.
This has been a great week, lots of Tanta and then bonus Tanta on the weekend.
For those of us that routinely ask, "Why?", reading a Tanta post is never a chore.
Anecdotal but I have more people asking detailed questions about the mortgage business and actually listening to the answers with much less eye glaze than in the past. I often send them links to your posts to further open their eyes.
Weather - Yes if it disappears you never have to cover.
My point was I agree with most everything here I just think she would be better served with shorter posts that more people read.
And I think people read this to profit from it, and not to get caught up in very minor analysis issues. I have an example where I passed on buying BA in 2003/2004 in the $30s because I overanalized its pension liability situation. That was a terrible mistake by me and I have learned from it. Over over over analysis is just as bad as doing no analysis.
Point is the posts are too long for the majority of readers...
I think, stock_regulator, that you mean they are too long for the majority of your readers, you know, the hordes who religiously follow your blog, the one that captivates the audience with your short commentary distillation of the ins and outs of stock_regulation... The one scaled to the sound bite crowd... the one you link to on your posts...what? You don't?
Never mind.
One tip...don't change your channel. They'll be right back after they inform you some more. Just leave Tanta out of it, ok?
How dumb - pretty dumb!I did some mortgage audits in the 90's and the same stupid mistakes that took companies down then were repeated, except on a much larger scale.
I think if this is prolonged, then the arugement will be settled and there will me moving vans with zombies driving around towns looking for a place to park and sqaut. If this bust is short, then...
Tsk, tsk. Let's be precise, now.
"New Universal Church of Jesus On a UFO"? It's New Universal Church of Jesus IN a UFO. I mean, what's he supposed to breathe, for chrissake?
(snort)
I think if I ever had to click a dumb link just to read the rest of a post, I would "walk away" instead. Scrolling is simple and gobs and gobs of clean, well paragraphed text is very readable. Specially those of us brought up on books.
As far as the length, the issue isn't too long or too short, the issue is focus, and there's no shame in admitting some editing could have helped on this one. We all ramble at times.
Is it true that if a home owner does a refi (possibly a cash out refi) that the mortgage becomes recourse meaning the bank can go after other assets if the sale of the home doesn't cover the note?
I believe, as far as Housing Fiance is concerned, that Tanta is the Messiah. Every word is handed down on golden tablets and that is hard to edit down for a post.
I would submit to you that it is you that are unfocused.
By the time you get to the last paragraph, all that precedes it has exposed the meme the industry is trying to sell. Without the Tanta making the case the last bit is still her guess, but a very educated one.
And I am one of those average citizens, and am not getting very good info out of the MSM. On any subject.
Is it true that if a home owner does a refi (possibly a cash out refi) that the mortgage becomes recourse meaning the bank can go after other assets if the sale of the home doesn't cover the note?
That is true in those states (like CA) that exempt purchase mortgages from recourse.
A whole lot of the rest of the states don't distinguish--you can face a deficiency judgment on a purchase money loan in those states.
Too many people on the net write about CA laws as if they were federal laws, or as if all states were CA. It causes a lot of confusion.
Tanta I think it's great that you demand actual evidence even though it's so inconvenient to try and prove assertions.
But
Although Mish has often alluded to "walking away" the way you have defined it as a possibility that will increase and reflect changing moods about debt, he has primarily been focused on debt burden being the driving factor behind his predict of financial Armageddon. In the post you linked, he didn't claim that these people could pay but chose not to, so I think his major sin was not being specific enough when he said people were "walking away" and getting lumped in with the MSM definition.
I love the irony considering how he goes off on people that use the common definition of inflation.
mikkel, I really didn't want to jump on Mish's case. I ignored that post for a whole week.
But I have (at last count) had it e-mailed to me 19 times from people saying some variant of "here is some evidence for walking away that you have demanded."
I am therefore misusing my blog as a substitute for answering a whole lot of emails (with a little blasphemy thrown in, too!). It's a wonder I still have readers left.
Oh, I agree with the too long. One sentence should suffice for enlightening discussion. C'mon, Tanta's gotta know by now that no matter how clearly she states her position, she's going to be following in the comments pointing out what she actually said and then fruitlessly trying to show how the commenter didn't understand the simple English, let alone the mortgage gobbledeegook.
Tanta, if I wanted short, I'd read some MSM thingy like businessweek (really the people of the business world) or forbes (we think we're smart). I'm used to chewy reads because I've read the Economist of many years. Just try to make it through one of their more pithy economic articles without having to pause and think.
And this caused me to pause and think. And I agree with undertone...that people aren't just simply "walking away" and that even if people SAY that's what they are doing they are, in reality, under financial stress.
Just imagine this: you've over-extended and now are losing your house. How do you explain this to friends, family, and co-workers when it's going to end up in the paper? You say, of course that you're walking away..after all...those banks are all theiving bastards and those RE brokers are pigs that just oversold me.
I'd be more inclinded to believe the uptick is due to this sort of bravado than actual planning.
Does the format encourage ADD? [Are you still reading thinking this is the Executive Summary?] Does any public forum (which assumes a non-executive audience, SR...and all the ADD that goes with multitasking minds like that) [scuce me while I email my kid pecking away with my free nose] insist on a delivery that will err on verbose rather than quixotic? [Dang, this is no executive summary, I can tell, you?]
To what extent is "too long" self-congratulatory and to what extent self-delusionary?... for those used to executive summaries and know it all already...lookit my compensation package an see if it ain't so.
Like bacon dream says "too short": if there is anything good to come out of this housing debacle and this stage of it, "walking away", it surely has to do with the moral implications of profiting...from your less successful counterparties.
Those poor devils.
Well, Tanta, I for one read the entire post. But hey, I too admit to being a nerd.
The last paragraph tells the tale, the lenders ruthlessness has settle in on the borrowers side too. Geez, you can't push stuff at people and then turn them over to some of the most ruthless collectors on the planet (Saxon comes to mind- cash out your life insurance to pay our outrageous reinstatement fees, and your IRA too!) and then expect the public not to pick up the lessons and use them too. Wall Street should not be surprise either, with the level of bad behavior tolerated there ( um, hey stock regulator- SEC doesn't seem to do crap) that folks are getting cynical.
The lessons of the last decade have been to panic first, sell fast, and then pick up the pieces if they look like they might be solvent. Enron is the poster child, but so many other bad stocks, bad bonds, and bad investments have trained the public to hit the sell switch as fast as possible.
I think in the case of the ruthless defaulter (which outside of speculators) is most likely currently rare, with any adverse economic event to their budget, they will walk away so fast that CFC's head will spin. Along with the GSE's too.
We wanted rational behavior from the public, now we have it. Rational means cut your losses ruthlessly too.
I don't think Tanta's posts are too long, but then I am not intellectually challenged with attention deficit disorder.
As someone who works primarily with repossessed homes, I can state with absolute certainty that very few of the homes I deal with are walk-aways.
In most of the foreclosed properties which are still occupied, the borrowers vacate as soon as or shortly after notice is given. Some are given "cash for keys"--$500 to $1500, to provide them with relocation funds, but in those cases they have to vacate within two weeks and must leave the house cleaned and in good condition, meaning they can't take anything attached to the house with them.
The foreclosed properties which are vacant have usually been so for several months. In those cases, the borrowers left after they received their first delinquent payment letter from the lender. They often take the appliances, light fixtures and ceiling fans with them, and sometimes the interior doors and carpet. In instances where they completely gut the house, remove the cabinets, tear out the walls and take the plumbing, it's usually because that's what they intended to do when they moved in.
I've also been to more than a few lock-outs, when the sheriff had to forcefully remove the occupants and all their personal property from the house. Those are never fun.
But I have never had to deal with a property in which the borrower just mailed the keys to the lender. I have had some foreclosed properties that were the result of phantom buyers and mortgage fraud though.
What I think this whole debate should be centered around, however, is how the mortgage industry should be more discerning in whom they make loans to. The vast majority of foreclosures are the result of divorce, unemployment or a medical emergency. It's only recently that flippers who couldn't flip and builders who couldn't sell have become a problem.
I have seen it in action in Texas in the 1980's. Neighborhoods went HUD and people who paid 100000 for a 50000 dollar house just quit making payments. 2 of my friends parents did this and they rented the houses around the corner for years. This back in the day when you put 20% down. People will walk in droves once this thing gets really wound up. My parents didn't walk but their home dropped from 100000 to 50000 from 81-84. Got back to 75000 in 1989 then collapsed to 50000 again. I sold it in 2001 for 103000 it peaked at 117000 in 2005. Adjusted for inflation a dead loss of probably 70%.
Don't listen to the sound-bite crowd. They're part of the problem.
(Speaking as one who has experience with the editors and reporters who "shorten" and "focus" so "regular folks" will read it--and thereby invariably garble things to a greater or lesser degree.)
Activists Bare Teeth Over Foreclosures
By Adam Geller, AP National Writer
In Fight Against Foreclosures, Ornery Activists Tackle Countrywide, Nation's Biggest Lender
CLEVELAND (AP) -- Folks on Humphrey Hill Drive were still waking up on the icy Saturday morning the shark hunters came to town. They rounded the suburban traffic circle in a pair of rented school buses after a half-hour ride from far more modest neighborhoods, rumbling to a stop at the Garmone family's driveway. Forty-two caffeinated Clevelanders piled out, their leaders carrying bullhorns.
Their quarry, Mike Garmone -- a regional vice president at Countrywide Financial Corp., the nation's largest mortgage lender -- didn't answer his door. So they deployed, ringing bells at the big homes with three-car garages, handing out accusatory fliers and lambasting Garmone and his company's loans. Before departing, they left their calling card -- thousands of 2 1/2-inch plastic sharks -- flung across Garmone's frozen flower beds, up into the gutters, littering the doorstep.
\tLoved your latest. LOVED IT! I just talked with the publisher. He doesn't really care about the options on the Russian edition, just go ahead full bore, do whatever you like. Had just a few suggestions about the English version he read. He thought it was GREAT!
\tJust one thing, he said. Won't beat around the bush. It seems, well, a little, long. It's not very concise. Asked if you could boil it down a little. More "crisp". You know, "French invade, French repulsed, Prince Andrei and Natasha live happily ever after", that sort of thing. Run with that, maybe 25 pages or so, a good short story; maybe we can get it in the New Yorker for a little touch of class?
\tPublisher thinks if we can get it down to that there's some great material to work with. Movie options, reality show. What the with writer's strike and all it's been hard to put it together, but the reality show could have a real European Prince (I'm told the authentic Russian ones were lost in some historical accident), and twenty-five girls trying to marry him. The twist will be that all of them are really named Natasha! Burnett thinks he's got a great angle on how the Prince keeps them all straight.
\tPublisher loves the title. Thinks it's GENIUS! But wonders if maybe it works better in the original Russian than in English. If you have to keep the "and" thing, then maybe, "Andrei and Natasha"? Of course, he thinks the real option money is in, "Who Wants to Marry Prince Andrei?"
\tLev, just get the page count down to 25, then call me!
The trouble with most media (CNBC especially) is that they never alot enough time to fully discuss any issue. I find myself watching PBS on occassion because they tend to allow people to speak.
I only read this blog because Tanta goes into such detail. If bloggers become worried that they will loose a reader after 3 minutes they might as well write for the news papers. When did knowledge become a bad thing?
I read CR for its nerdness and an occasional mortgage pig sighting.
More and more, I'm convinced "walking away" and "jingle mail" are just new slogans invented by Wall Street to shift the blame on to the borrowers. The borrowers didn't invent this crisis. Borrowers didn't hold guns to the heads of lenders and demand no money down loans with no-doc income.
A whole bunch of folks made money controlling the funding flow upstream of the borrower. Did borrowers take on too much? Absolutely yes. But the spending spree was only possible with the 2ez money.
for the deal in question here (WMALT 07-OC1), in the january remit, it looks like 80 new loans (~$31M) moved into FC status, of which 40 (~$14M) were previously 2m DQ and 38 (~$16M) were previously 3m DQ.
Tanta, if you had been my Finance prof, I would not have switched my major to "Touchy-Feely"...keep teaching me..I won't drop your class....
The newspapers are cutting staff so deeply that they are reporting very little news...Public Radio gives us a bit more, but two weeks late and then a 10 minute segment...
I am convinced the Calculated Risk is important for understanding the current economic climate....Tom Barnett is a great spot to learn about the US military and global interaction and Ken Pomeroy has changed the way people look at college basketball....
thank goodness for blogs....
on the other hand, if I go to a coctail party and talk about what I have learned at CR, my friends' eyes glaze over and the refuse me a third glass of Caymus.... most people prefer to talk in MSM "talk-bites.."
I made a comparison to Tanta and Dickens a while back concerning their daily constitutionals, but you know, Dickens also was paid by the word. I'm sure she worried that SR might not want to read her stuff any more and will take appropriate action. At least she's not A. Trollope.
BTW- the format is the problem, but I just can't bite the bullet and print out a hard copy.
Thanks Tanta,I read every word.The devil is in the details,and if wanting a thorough understanding makes me a Nerd,so be it...A tea swilling, .45 packing,cackling Nerd.
Of course I read the whole thing, and I'm as civilian as one can get. That's why I come here, to get something other than the pre-digested pap the MSM supplies.
Mish:Foreclosures increased a whopping 4.92%, yet in December, 2007 the 90 days delinquent bucket was only 3.79% (If every 90 day delinquent loan went to foreclosure, the jump would only have been 3.79%)
Tanta:MBA data tells us that 29% of all FCs in the third quarter of 2007 happened after a repayment plan failed
Now, 4.92% / 3.79% = 1.298. An almost perfect match for the 29% of failed repayment plans. That looks like the likeliest explanation.
ipodius, the same industry insiders who told you for years that people with a 720+ FICO "just don't walk away from their debts" are now telling you that it's some kind of obvious that people with a 720+ FICO just walk away from their debts.
You are free to conclude that some people deserve to be called on this harping on how "obvious" this all is.
To the gripers, and I'm putting this at the top so you'll be sure to see it: POGYODB (piss-off & git yer own damned blog)
Back to Tanta;
I'm glad you covered this, because for the last week I've been thinking to myself whether one could really make the conclusion Mish did based on that remittance report. I was skeptical, but not being an expert I couldn't say one way or the other.
There is one other thing that I was curious about. Mish mentions the point that the pool was securitized in May and is blowing sky high a mere 8 months later. He doesn't precisely say as much, but to my limited reading comprehension skills, it feels he wants me to infer the loans are only 8 or 9 months old. In actuality, how old should we expect these loans be? Is there any way to know?
Given your explanation for the clock being stopped and then restarted, to get the jump in FC's without a consecutive progression through 90+ bucket it seems to me these loans 1) are realistically either first or second payment defaults or a lot older than 8-9 months and 2) rather horrible no matter how you look at it since it is unlikely they are so old to have experienced any kind of payment shock. Yes?
I think you make an excellent point and no it wasn't too long. I must admit I read it in two sections.
The lenders seem to be trying to get everyone to believe it's the consumers who are ruthless and therefore they, the lenders, should receive help from D.C.
As I see it, everyone has a part in this mess and everyone should take responsibility for their actions. No one sector deserves or needs to be bailed out.
My hope is steps are taken so this kind of crisis doesn't take place again.
the same industry insiders who told you for years that people with a 720+ FICO "just don't walk away from their debts" are now telling you that it's some kind of obvious that people with a 720+ FICO just walk away from their debts.
Of course! Because they can't be wrong. Still, I'm sticking to my thesis that, upon analysis, most of these stories are coming from people that can't admit they were foreclosed ON. You can just hear the cocktail party talk "Well George, I called up the bank and said here's the keys! I ran the numbers and it didn't make sense. Those bastards! Can you imagine upping the percentage that much and not budging!" I mean, who's going to look up the fact that they had a fixed rate loan with a piggy back at 100% that was sucking up 50% of their net?
In actuality, how old should we expect these loans be? Is there any way to know?
As a rule you want to be careful about ever assuming loan age from security issue date.
Some pools only contain brand-new loans; some only contain seasoned loans; some have a mix. You just have to look at the prospectus. I looked at this one last week and if I remember correctly, there were a substantial number of older loans in it.
Even a security limited to "new production" is likely to have loans that are 1-3 months old at the issue date, age here being measured from the closing date of the loan, not its first payment date. Sometimes the prospectus will give loan age in terms of months from first payment date, which is why you can see loans with a "zero" loan age (loan is closed but first payment is not yet due at issue date).
After I'm done spilling sandwich crumbs on my keyboard I'll go look at the prospectus again . . .
Just based on real world experience, and my CR/Tanta academic education, I would say:
--most real homeowners who CAN make payments will continue to do so, regardless of the market value of their home, because it's HOME.
--Speculators who find themselves in an unprofitable investment, with no return within their time horizon, will abandon that investment.
--a high percentage of people who CAN'T afford their house payments will lose their homes because the lenders won't be able to strike new deals with very many of them, for all the reasons Tanta has listed in the past.
--People forced to move (for any number of reasons) may walk away from a home and mortgage if it just won't sell.
All of the above still adds up to a big problem that has nothing to do with unscrupulous homeowners who don't have the ability to empathize with their mortgage company.
That's my summary of what Tanta is saying--and I do read her posts in entirety because she rewards me with those wonderful little snide remarks that make me laugh.
I'm sticking to my thesis that, upon analysis, most of these stories are coming from people that can't admit they were foreclosed ON
Oh, I think that's very plausible. I don't know how anyone but a serious social scientist could verify that. But certainly in the higher-end group there is the possibility that we are being treated to bluster.
I have often feared that a lot of this whining about how either 1) jumbo loans are just no longer available or 2) these damned lenders won't even offer repayment plans is coming from people who were offered a loan or a plan but just couldn't afford it. Instead of saying "I don't make enough money for that," what we hear is "lenders won't play ball."
You definitely need to consider a way to split the post with 'read more' tag or something. But it depends on your target audience. I suspect the real estate readers will be ok with such a long post; but casual readers (like me) who only read specific topics find the long post to be detrimental. People like me have enough things to read (information overload ) and will simply skip these blogs if we can't find what we need.
Anyway, it's a decision you have to make on whether to split a post or not. Remember, the question is not about cutting the length of the post (I think some posts contain a lot of technical details that it shouldn't be cut) but splitting it on the main page. If you are interested, there is a workaround for the 'read more' link in blogger but I would test it thoroughly before doing anything.
An alternate method that doesn't require 'read more' for every post but this requires JavaScript and I'm not sure if this causes any problems with your advertising system (I wouldn't do anything until you test it thoroughly).
Anyway, some thoughts... maybe there are better solutions...
I think that at least in the short run we may a have a group of people that walk away who could have afforded the mortgage if only the had not bought a new house before they sold the old one.
More anecdotes, but I've seen far more of them than examples of the truly ruthless. These folks were not paying close attention to the market, went out and made an offer on a new house and listed the current one assuming they would immediately be deluged by offers only to see the house sit, a few months and a price cut or two later, the realize they are underwater on the first home and they can't afford two mortgages. Some of these people will feel tempted to walk from one those houses.
I think such cases will fade as this danger becomes clearer and people will not buy a new house until they have unloaded the current one, and further as lenders grow more reluctant to lend to those who have not sold their current house.
In meantime such cases could be used be another part of the "well-off" buyers walk-away meme.
Stock_regulator, don't assume that others come to this site for the same reasons that you do. If you are looking for quickly summarized information concluding with buy and sell recommendations I really think you need to look elsewhere.
I come here precisely for the minutia and detailed, unbiased analysis that is not available anywhere else. Tanta and CR are not trying to sell me anything and they don't seem to be bound by pre-conceived ideas. I like reading this kind of stuff because I want to learn how the financial world really works, not because I'm trying to grub up some more loot for myself.
Excellent essay, Tanta, only took a few minutes to read. Keep them coming!
Tanta, I strongly suspect that we are seeing real jingle mail in places like California and Florida, with drops of 20% or more. But I agree that none of the numbers or stories that I've seen prove it. Months ago, in an era before YOY CS indices were negative, CR ran a post (later corrected) that said that everyone under water would default, and I yelped, saying that people struggle to keep their homes until they are about 20% underwater, and then they get ready to walk. I based that on no hard evidence, but rather on all the war stories I had heard in the early 90's from people in the biz who went through Texas in the late 80's. They all had tales of Houstonians who bought a similar house across the street for 20% less than their mortgage balance, and then walked on the old house. And it's all anecdotal, none of it data driven.
I disagree that you'd need to establish 2 and 3 in order to prove jingle mail. If substantial numbers have the income to pay and decide not to, the presumption of jingle mail has to be awfully strong. While I know of 1 case in my career of someone with enough resources walking away from a property with equity (dementia was, literally, involved in the sorry tale) it is rare enough in normal times that seeing it in the current circumstances would be enough to convince me, without looking deep into the borrowers' souls. If they have the resources and they walk away, they're walkers - whether or not they knew and projected the CS index. But I'll need data to prove that people with resources are walking away before concluding that I know it, instead of concluding that I strongly suspect it.
Thought I knew someone who would fit the bill as a walk away, but turns out that it was a case of financial hardship, albeit five years down the line. After stopping payments he's in negotiations with the mortgage holder and happy to stay in his place at less than his ($8,000/mo) current payment.
I know its sad to say, but there are a group of us here in sunny London town (the UK version!) who view your thoughts on the US mortgage problems as required reading, especially as some of us need to understand a bit more than most to do our jobs.
It is 9.20pm on a Saturday evening,the dog has been walked, the Bacardi is on ice and going down rapidly, which does make understanding some of the twists and turns of Alt-A a little more difficult, but in the Army we called that a self inflicted wound.
Anyway, I know we sound like a sad bunch of gits, but keep up the good work.
mort_fin, I included 2 & 3 because that is the claim the WSJ makes. Indeed, the only "example" we get is that borrower who says he's doing this solely because he's underwater and he doesn't think he'll ever get above water.
My trouble with the correlation of underwater and default is that it does hold, but it isn't claiming that negative equity itself causes the default. It shows that if you have negative equity and for any reason you need out of the loan (financial difficulties, need to relocate, etc.), your only way out will be default.
We suffered from the opposite logical problem during the boom: there just weren't many FCs of these dumb loans in 2005, because people in difficulty could always sell. So some folks concluded that people in 2005 weren't in any financial difficulties, because the FC rate was so low.
I do think it matters whether you see "walking away" as driving the bust or being caused by the bust. I suspect our overlords in the MSM of wanting to believe that people walk because of 2 & 3 because they want to believe that people read the papers religiously and keep up with this stuff. Some do; many don't.
I still believe a lot of folks have no idea whatsoever that they're upside down until they decide for some other reason to list the property, and then they get the bad news. They might walk away after that. But again, that makes me ask what made them decide to list it in the first place.
Investors who spend untold hours digesting obscure financial reports, now complain a blog entry is too long? C'mon.
I read every word in every article, all the comments, and all the links. You never know what tidbit might surface to improve your life.
Make a payment, skip a payment, do that for six months and then wait for the sheriff. The amount you pay is about the same as paying to rent the place. It's as if the lender is paying you to keep the vandals out. Kewl...
--most real homeowners who CAN make payments will continue to do so, regardless of the market value of their home, because it's HOME.
Well, the people who are most likely to have overpaid are more likely to have bought their houses in the past few years and may be less attached to it.
Also, I've talked to one person who is considering "walking away". She was highly reluctant until she got the idea of renting a similar house in the same neighborhood for half her mortgage payment.
Freeing up a quarter of your take home pay can do wonders for homesickness.
the pool factor is just the current dollar amount of the pool dividend by the original dollar amount. CPR is an annualized measure of the prepayment speed of the pool, so in january, approximately (4/12) % of the beginning pool balance for that period prepaid. this is WAAAAY slower than the people who bought the bonds were hoping for, and bad news for the deal from a loss perspective.
In October 2007 I was in Spain walking the Camino Francais to Santiago de Compostela. Just past Leon we were heading for a typical small village which the guide book said had one filling station and a bar.
Just outside the supposedly typical small Spanish village we walked past the brand new golf course, admired the new luxury club house and around the corner walked through the housing estates of very nice flats and houses (including terraces of mock Tudor style houses) together with shops and a primary school.
There were however, no people, apart from five workmen painting some flats.
We managed to find the bar by the main road and enquired where all the people had gone.
The explanation was that there were no people.
A Spanish developer/builder had decided to build a "new" village in the middle of nowhere in the hope that if it was built, someone would buy. When nobody had bought, the banks foreclosed about three months previously leaving just the grass to grow.
Presumably the development now sits in the European Central Banks vaults as part of the 75bn euro in emergency funding drawn down from the ECB by Spanish banks using their property loans as collateral.
I am guiltily going to admit that I read the whole post purely for pleasure, because unfortunately this is one subject I know well. I also love Anthony Trollope; maybe there is a connection. He's all character development, little plot.
To SR, all I can say is that many people go to these things called "libraries" that are filled with big wads of dead trees presented in "books". You will hardly believe this, but many people read purely for pleasure, and many people read nonfiction for pleasure.
What you're really saying by complaining about the length is "hey, shorten it down so I can read it and make sure that I don't miss anything that I could use to make a profit." And that makes you look a bit self-centered, doesn't it? And stupid, too, because right in the beginning, she explains that this post is about how to read remittance reports and that it is in response to the contention that they show something they don't.
Also, I've talked to one person who is considering "walking away". She was highly reluctant until she got the idea of renting a similar house in the same neighborhood for half her mortgage payment.
Freeing up a quarter of your take home pay can do wonders for homesickness.
Good point. People are going to have different perceptions of the intangible value of their home, and different ideas of how much financial sacrifice they are willing to make to stay in that home, if cheaper alternatives present themselves. On further review, I guess I would agree that we may see unprecedented homeowner behavior in places where the housing market has behaved in unprecedented ways, moving up fast and then down even faster.
But I still share tanta's wariness of an anecdotal approach that turns lenders into victims and borrowers into predators.
But you can easily imagine that the industry is sounding the alarm about "walk-aways" because they're rather desperate to show their lawmakers and their regulators and their monetary policymakers that they're the "real" victims here.
In order, says my tin-foil-hat, to rescue their shareholders' capital during their coming bailout, at the expense of taxpayers/savers through taxes/inflation, respectively.
...It's quite likely many of these vacant properties were speculative purchases.
I'm inclined to believe this is what's going on right now. Occupancy fraud is far more prevalent than any of these lenders has let on.
What's really nuts is having this level of DQ prior to the biggest wave of resets and without a big surge in unemployment. I'm leaning towards a scenario where the speculators are jumping ship right now. I can't imagine what it will be like when employment worsens and the resets hit full force
Tanta - I wouldn't rely on the equity-default correlation either. I said that I don't think you need to establish 2 and 3, but I still think you need to establish 4, and that's almost impossible with aggregate statistics. If you haven't established 4, you haven't proven that people are walking.
I do think that people in places like CA and FL now understand that they are underwater. A few months, when my part of the world was 5% down from peak, I knew lots of people in denial. Now that we're down closer to 15% in my ZIP code, and places listed at 2005 prices are sitting for 6 months without selling, most people I've talked to concede that things have moved downhill. Any geography with substantially falling prices is full of media reports and over the fence chatter on the subject.
I read almost all of it. I think that there is plenty of evidence out there and that Tanta just chooses to ignore it or just can't seem to find the time to read it due to the excessively long posts. Anyone who cares to take a few minutes out of their busy bloggin' schedule to read through the posts here http://bubbletracking.blogspot.com/ and at many of the other sites linked to this one, will quickly find that there is ample evidence of people with no other choice but to walk away. Whether you are being forced out because you can't afford it, or lost on speculation (can't sell, can't afford carrying costs) is statistically the same, either way the keys are going back to the bank, this constitutes walking away. Read through these sites and look at the staggering number of people who "bought" 2, 4, or 10 properties and tell me the vast majority may just be in the hospital or working out a deal with their lender. LMAO! BS I say, the evidence is there if you'd stop typing long enough to take a look at it.
I read it all. If Tanta can take the time and effort to do this for us, we can take the time and effort to read it all the way through. I learn something in every post.
stock_regulator may never be sorry he picked on me, but by God he's going to be sorry he pissed off the rest of you guys.
Racer X, that's an important point. Are servicers coming clean with the dirt on how many of these deals were occupancy fraud? For that matter, are they coming clean about how many of these deals were just plain straw borrowers? I mean, there are some people who walked away from the closing table.
mort_fin, I said a while ago and still think that the statement that number 4 is true is coming from servicers just re-running a credit report and seeing that the borrower is current on other obligations.
Which of course may only mean that they're distressed, but they have to keep that Visa open to cover groceries, so they pay it instead of the mortgage.
While I must admit I skimmed, I got the gist of it. I give endless thanks to my sixth-grade teacher for introducing me to speed-reading for comprehension.
That said, to those who complain about long posts explaining fine but important points of mortgage activity I would say one thing: this is source material. There is no place else where this kind of analysis of the mortgage industry is being written down.
If you want the simpler version, go to the MSM; because the best of them have probably been here, read and digested the long posts, and informed their own simplified reportage with this material.
But here is where it all starts, or seems to these days. It's where the details live. They've got to be somewhere.
I'm a bankruptcy lawyer in Northern California. Although I don't specialize in consumer bankruptcy, I'm often asked consumer debt questions at social functions (nothing makes a cocktail party fun like being hustled for free advice about the dischargeability of student loans...).
In the last month, I have been increasingly asked about "just walking away" by folks who say they have the ability to pay, but don't see any point given how underwater they are. Generally these are folks that moved to really crappy places (e.g., Central Valley) from really nice places (e.g. San Francisco) in order to become "homeowners." I know of several folks who stopped paying their mortgage in the last month or two who could pay but simply choose not to. They seem pretty open about what they're doing; in fact, they've factored in several months of "living free" (usually 4 months). I have no idea whether this is a statistically significant phenomenon (which I understand is Tanta's point). And of course I'm sure that they could pay (though in several instances, I'm pretty sure). Ironically, however, I think that the several articles which have been written about this phenomenon might actually cause this behavior to increase: the folks who I know who are doing this point to the articles to explain their own behavior (it's a lot easier to explain to Mom and Dad why you are choosing to default on your mortgage notwithstanding your great job if you can point to articles in the New York Times and the Wall Street Journal).
Ultimately this may turn out to be entirely overblown in terms of the actual number of folks doing this (walking away although they could pay), but it certainly has changed the public's thinking. I guess it's like taking LSD in the sixties: probably not that many people actually did it, but it certainly changed the thinking of even the folks who didn't do it.
Whether you are being forced out because you can't afford it, or lost on speculation (can't sell, can't afford carrying costs) is statistically the same, either way the keys are going back to the bank, this constitutes walking away.
No it isn't the same. We're talking about having the ability to pay, but choosing not to vs. the non-ability to pay. The root causes of those two things are totally different. The meme is "people that are underwater are walking away" makinging it seem like these people have the ABILITY to pay but choose not to. The argument here is that this is, by and large, NOT the case.
So go back and read to understand the difference that we're all discussing here.
Generally these are folks that moved to really crappy places (e.g., Central Valley) from really nice places (e.g. San Francisco) in order to become "homeowners."
Now that's an interesting observation.
It adds another dimension, namely the quality issue: if people bought a badly-located large home, or an attractively-located tiny home, at equally ridiculous prices, just because they drank the "you must own" Kool aid, then possibly what is happening is that they have just learned that a small apartment near the wharf is a whole lot cooler than a sprawling suburban box that gives you a two-hour commute on top of depleting your wallet.
Remember the infamous 60-minutes video? If I recall correctly the home in that case was just some tiny little thing (but incredibly overpriced).
So possibly we have plain old buyer's remorse added to being underwater.
honestly, i prefer the longer posts and i read all of them -- every word. the shorter ones are similar to other blogs and end up being just a news update.
If you bother to go back and read Mish's post, Evidence of "Walking Away" In WaMu Mortgage Pool, you will find that he never makes any mention of "having the ability to pay," I believe this to be fair since this post is in response to his. He does point out credit scores, but makes no mention of anyones ability to pay. Now I think we can all agree that somehow these people obtained mortgages for these properties, right? I'll take it you said, yes. So then we can also agree that these folks "qualified" for the mortgages, in other words had the ability to pay. You can't change the rules and claim "Oh well those don't count because it doesn't fit our purpose of dissecting someone else's, at least partially true, claim." What the fu*k am I even bothering with this ignorant minutia for anyway, I guess it just pisses me off to see the post specifically targeted the way it was, it really was unnecessary. And no I'm not really trying to defend Mish, he is a moron too.
The realty trac data is useful if you know the caveats. The reason those foreclosure rates are so low is that realty trac's coverage in those states is very weak, particularly in South Dakota -- but they don't tell you that. They really should caveat the coverage, the fact that they prefer to show multiple notices on the same property (yes they adjusted for it, but they still prefer the former rather than the latter) and they use households as a denominator, which is horrendous, they should be using mortgages outstanding because a third of all homes are owned outright. How do i know all this? We sell them the data.
all I can say is that many people go to these things called "libraries" that are filled with big wads of dead trees presented in "books".
I heard there was a"100 Classics boiled down to one sentence" book, but i never got around to looking through it.
And like Justin I've read a lot of those others blogs with their anecdotal evidence that are open to re-interpretation vis-a-vis the "option" of walking away. I suspect that many of those who over paid for a house are suffering from the realization how thin their margin of safety is with a high payment and no HELOC to tap.
I think buyer's remorse is exactly what's going on with these folks. After all, even if they were underwater, if they really liked where they were living, and they could afford it, they'd probably just stay put. That's what most renters in great urban neighborhoods have been doing for years, including yours truly. I've been "overpaying" to live in a great rental (and missing the chance to ride the equity rocket!) because I can afford to pay the rent and, well, I really like where I live. If I had traded it for a stucco box in Modesto and then concluded I wouldn't see any appreciation (or even any equity) for years, I'd be looking for any excuse to get back to where I was before.
I guess it's like taking LSD in the sixties: probably not that many people actually did it, but it certainly changed the thinking of even the folks who didn't do it.
Are you kidding? Everybody took LSD in the 60s. What happened to you?
It is amazing the undercurrent of class warfare in this discussion. On the Right accusing workers is the WSJ and on the Left with her back up is Tanta.
Maybe we need Bill O'Reilly and Keith Olbermann as guest bloggers.
I suspect these are early skirmishes in a larger battle to come (soon).
I have read most of the comments on this thread with deep interest.
Regarding the walkaway issue, I will assert that walk aways are generated by bad original underwriting. Yes, people do walk away, but they normally do so when lenders grant loans that are not paying the balance down, and do so in large numbers so that property values soar and then eventually the property values crash. IF they can sell out without walking away, they do. It is the better choice for them.
As for walkaways during severe local economic downturns, in my experience they do not happen unless the individuals have to move, either because of jobs or finances. The exception is investment/speculative.
My belief is that the industry has created the problem they now complain of. Anyone who truly believes that all those people with 2-6 homes can pay the freight, or that people with 50K incomes can really pay for their 500K homes, is delusional. The fact that we have so many bank presidents yammering this way is very frightening IMO. What we really have is proof of delusional bank presidents, not proof that people have suddenly changed their attitudes and are now following the fad of abandoning their homes.
Many of these people were using the equity in their homes to pay the deficit in living costs plus the carrying cost of the home. When they realize they can't any longer, that's when they confront the issue of selling. And if they can't sell, what is left but abandoning it?
Since virtually the entire market in certain areas in recent years became delusional and speculative (i.e. based not on the question of "can I afford to buy this home", but on the question "will I make money off of this"), reality will cause a nasty readjustment.
In my experience, very few people who make a bad investment based on hope correct their behavior until they are forced to do so. It's classic behavior to believe that your lovely stock that went down 50% just can't go any further. People have been doing that with the housing market.
At any time and at any place I could construct lending guidelines that would produce a flood of defaults in two to three years. I'd do it by granting loans with high DTIs and by granting non-amortizing loans. Very, very few people who are granted mortgages on their primary residences with downpayments and amortizing loans at affordable DTIs walk away unless forced to do so.
The second homes? Sure. The "vacation" homes? Sure. The rentals? Sure. But it's not like the industry didn't know that before this ever started. If you grant I-O loans or qualify borrowers based on teaser rates, you have to adjust for the risk that these people will find themselves with no exit but abandonment. If the industry didn't do that, it is the industry that is delusional.
I simply do not believe that there are a large number of people who can truly pay an amortizing mortgage over the long term who are walking away. Those people who can pay will always assume that the house will recover its value in a few years. But only a fool would keep paying eternally on an I-O mortgage when the house is declining significantly in value. And frankly, the banks are best served if those borrowers quit now so that the bank gets to sell out before the bottom. These home values are not going to start going back up for years. That's the ugly reality that horrible lending practices has created.
I no longer have time to read the longer works, now I just read Romance novels; same plots, fewer pages. Uhh, and CR of course. Reading the comments is not unlike reading some of those nineteenth century authors (Hey, that ties in with that Moby Dick comment!)
Read carefully. I said that not many people actually took LSD in the sixties. I neither confirmed nor denied that Uncle Festus did anything. But I'll give you a hint, I'm old enough to remember when Uncle Festus was a character on TV, and we found him, well, just incredibly amazing...
Read it. Will read it again tomorrow to help it sink in. I am a civie at this, and slow. Oh, and I am just here for fun. No house, no investments, dumb factory job, just a really odd sense of fun.
I like your posts just the way they are Tanta. You rock, and probably on a pony too.
I think your point is astute. Yes, people who can afford to live where they like will not walk away due to a temporary loss of equity. But the point you are not addressing is that if these folks want to get out, they cannot sell. That is the difference between a declining market and a normal market. In a normal market, the most you should find yourself under is 5-10%.
Borrowers generally have a lot to lose by going to foreclosure, and most of them will pursue at least a short sale if it is feasible before exiting in silence and taking the foreclosure.
The question is how did we create such a historically unusual declining market? We did it through astonishingly poor underwriting.
We're all debating the question of whether people who really can afford to pay the mortgage are walking away to cut their losses. We ought to be discussing what the poor underwriting has done to all of the people who put money down and bought in good faith. They, not the banks, are the real victims here. You are going to have a lot of new customers in the years to come generated by the lending "standards" we have used.
Another pitfall which certain commentators above seem to have fallen in: the assumption that because buyers were "qualified" for loans at the date of purchase meant the buyers could actually afford the place. Remember that many of the loans the banks were making only looked at whether the individual's income could support the original payback rate, not whether the individual's income could support the final payback rate!
How much of the "jingle mail"/FC is because people are suddenly discovering that no, they really couldn't afford the place after all?
Just because a bank said at date X "you can afford to pay this back" does not provide proof that the individual could actually do so.
I do not find Tanta's posts to be too long. This post in particular was focussed & well-organized. Good points were raised, i.e.., what is "walking away"? Tanta created her own clear definition (which, as she points out, many others have not) and then analyzes the available information based on that definition. In reading the post, I gained information about the foreclosure process that I doubt I'd learn anywhere else as I don't know anyone at those levels of the business that Tanta seems to have worked at.
Quite often, after reading one of Tanta's posts, I am better able to evaluate the quality of WSJ & FT articles I read on the same or related topics. Unlike much of the MSM (including the WSJ)her posts offer background data. Very useful for those of us who may never work in banking or real estate but would like to have an idea of how things are done (or not done that should be) in those industries.
Seems simple to me, if you don't want to read the posts, don't. It's CR's & Tanta's blog, they can run it as they choose.
I do not understand why anyone who can afford the payments would walk away from a home in negative equity.
Here in the UK if you default on just one payment on a mortgage, or any finance agreement, it goes on your credit record with Experion, Equifax et all, and stays visible on the record for 7 years.
Any default on your record and you can kiss good bye to getting any further credit, credit cards or even a bank account.
In the UK, credit is not a right, and a financial institution can refuse credit or facilities without explanation.
Citi has just withdrawn Egg credit cards from some 160,000 UK users on the grounds that Citi no longer like the risk profile. Unfortunatley they appear to have shot themselves in the foot as it appears that the majority of the cards they cancelled were those where the holder paid off the balance in full every month, so Citi were not making the average 28%pa interest rates they charge.
The biggest housing risk we have is Buy-to-Let. As property values turn south, you cannot cover mortgage payments on recently purchased flats with current rental yields other than in parts of London. I know of two friends who have BTL loans on flats where they are having to subsidise the difference between the loan payments and rent received, on property worth less than they paid. They are hurting, but the penalties here for defaulting are even worse to contemplate.
sdtfs - I have the book right here at hand: The Book of Great Books: A Guide to 100 World Classics. And yes, it appears they summarize the plot in 1 sentence. Actually pretty interesting. My teen borrowed it to study for competition. Unfortunately she's too busy in front of Youtube to read the real Crime and Punishment. Sigh. I have failed.
Anyway, MoM you have brought out excellent points and I think your assessments are right on.
I read the post - although not all of the comments. This stuff is tedious. If you're not prepared to read tedious stuff - go play fantasy baseball. FWIW - when I was a practicing lawyer - one of my specialties was insurance coverage disputes - reading 200 page commercial insurance policies. Talk about tedious.
Anyway - I don't know whether any message has mentioned it yet - but I think there may well be a big difference between non-recourse states like California and recourse states like Florida. In Florida - developers aren't allowing doctors and dentists and other well-heeled spec buyers to walk away from their contracts to buy condos that no one wants now. They're suing them.
Does anyone here know whether other bubble areas - like Las Vegas - are recourse or non-recourse? Robyn
P.S. An OT somewhat political comment. I happen to be a Republican who will vote for McCain. But this kind of tedious facts versus non-tedious emoting stuff drives me nuts watching Clinton and Obama. As a woman of a "certain age" - well we women had to know everything about everything just to try to get an even break when competing against guys (a lot of whom were simply empty suits) for lots and lots of years. And that is still the case now to a certain extent. I assume Tanta is a woman - and I applaud her for her analyses of issues - although I don't always agree with her.
Here is a summary for SR A) people who buy shiy they can not afford don't ge to keep it.B)If you loan money to someone who can't afford to pay you back,they won't.MoM's point about underwriting is valid,Greenpoint was making 56% DTI stated income loans to people with 680 fico scores.unless you have one hell of an income (Say $2MM a year) you can not afford a 56% DTI...And uncle festus,I have a friend who is a BK attorney,a lender challenged one of the BK's she was handling because the debtor overstated his income on a stated income loan (fraud).Her argument was that the fraud was not material,since the lender granted the loan based on the collateral,not the borrowers income...which was clearly the case since there was no verification of the claimed income done by the lender.She prevailed.
When Tanta gets going, I run in the other direction. I like to be somewhat well informed re housing and mortgages, but not THAT well informed. Too much info clogs the brain.
For most of my years in this business I'd have called you a liar if you'd said the day would come when huge numbers of civilians would avidly read websites that post long treatises on boring technical mortgage-related crap when they were not forced to. I'd have been wrong.
--Nobody reads the maintenance logs...unless the plane crashes.
I'm a recent lurker, and not only did I read every word of this and other recent Tanta posts, but I went back and read the ubernerd posts. Very entertaining, especially the trolls back then who confidently asserted that CR and Tanta were just bitter losers who couldn't see that housing prices would continue to go up forever, because of their bitter loserdom. Heh.
And furthermore, apparently the post wasn't long enough, since several commenters still managed to miss the central point.
And finally, I wouldn't be surprised if the "walk away" stories do turn into a self fulfilling prophecy. Once it becomes common "knowledge" that normal middle class people are doing this, a certain number of normal middle class people will feel like they have permission.
my friends is behind on her HOA's in a subdivision in VEGAS.. they are forclosing on her end of march any helpful information... would a BK stop the forclosure..any info would be welcome
Despite of having no horse in the race I read the whole thing and pretty much understand the thinking behind it.
While it is just personal opinion, the first thing that comes to mind is the nuclear scientist with a mensa level IQ that has trouble surviving 15 minutes in a dark alley.
IMO the flaw in the thinking is failure to recognize and accept the outright lack of good faith, lies and fraud by borrowers going all the way back to before origination.
It may not be PC, but how can smart people miss the correlation between the degree of trouble in specific places with the demographics?
It isn't just borrowers against lenders, there is a third party, the regulators.
Rather then working things out the regulators should be prosecuting both borrowers and lenders to the full extent of the law.
If you can't stand the heat (reading), stay out of the kitchen (CR's blog). Seems to me, the soundbite/MSM format has expanded exponentially in the past 20 years, and is the reason this country is so far behind in math, science, etc. It's toooo haarrd !!! My community college students don't like to read, can't digest more than tiny bits of data at a time, and don't like having to THINK or analyze. Regurgitating factoids (only a few, please) is the nearest they can come. And to think I walked to school for miles, uphill both ways, to get an education to pass on to them.
cant stand the rupublicans, thats why im voting macain. he will be the nail in the coffin of the party..good riddens..bring on more wars fighting make believe enemys.. go joh
Please don't add a "read more" link. I never follow those even when I find the article interesting. It's much easier to just scroll to the next article if the current one is too long. And yes, I did read your full entry. It was interesting and well argued. I much prefer your ubernerd posts to CR's brief excerpts of MSM articles. Usually I just read his summary and skip to the next entry.
Tanta
Thank you for another truly educational post.
One thing ( i am going to write like archie the roach since my left hand shift key is stuck) i would disagree with you is the rational decision process you imbue the "walker" with.you make him sound rationally cold-blooded
most people including successful ones are kind of hazy about their life-decisions.
now i admit that some of my knowledge of the affluent ca. middle class comes from watching WEED,but
i do think there is a class of live-in speculators. they would LIKE to stay in the up-scale house cause its nice and will appreciate,but the sacrifices and upsets to their life-style when it goes underwater are just too much to ask.fire the housekeeper and have the kids clean up? etc so they make up a story for they kids and leave.
after all how did they talk themselves into these awful mortgages in the first place?
most people who stay with this blog are not these dreamy types. some are older and most wiser. think those who don't like longer posts are children of our times
RANT i think that much of the short attention span we not see around us is directly due to Sesame Street!
way back when,we had a neighbor who helped set it up. they made the choice that subject matter was most important and they fit it within the attention span of the child instead of challenging the child to improve attention span.
a second awful thing that happened to our educational system were lawsuits which demanded objective proof in teachers grading. how can you JUSTIFY your subjective grading of an essay? i heard of a case where a doctoral candidate sued and won a reversal of his failed dissertation defense just on those grounds.
So we went to objective exams short answers etc and lost the integrative abilities gained in essay writing.
Ah social thalidomide
Well written, Tanta. Your thoughtful analyses do a great job of separating the bad news from the bad reporting, and keep the housing bear position honest.
I read most of the comments too, even though I probably should be doing other stuff. I'd just like to add a "me, too" to Uncle Festus's comment [@ 5:17 pm] that media exposure is probably going to make real walk-aways more common. I've been amazed how many MSM stories about walking away I've seen just in the past couple weeks, after only reading about it in bubble/finance blogs for a few years now.
Read the whole piece...THANK YOU...More information requires more space. Maybe Tanta can offer to give you double your money back...
bacon dreamz, FFDIC, MaxedOutMama, others - Thank you for your continued contributions.
I look forward to you guys writing that you have evidence of walkaways.
As I indicated a few times before, as negative equity increases along with a few other variables (income, total assets, substitution, recourse), walking away make increasing economic sense.
If you have someone making approx $100K/year, are upside down over $100K, and own no other significant assets (>$100K), walking away becomes quite appealing. This borrower is rationalizing what $100K really means! That's likely many years of savings!
I am not a Calculated Risk Fanboy.
I am a Lifelong Information Junkie.
Having read the article top to bottom, while often sliding back to a previous point to establish context, I must say that my limited attention span became somewhat taxed at times grin. Now let me congratulate you for providing the sort of detail that is sorely missing in many 'headline' articles. Rather than attempt to list the reasons that this type of analysis adds value I'll append a quote by Barry Ritholtz which was extracted from his Global Warming Denialists: We Suck at Math Also! post to The Big Picture
I am at heart someone who loves math and statistics, and who finds the abuse of the truth to be offensive. Anyone who claims that a high magnitude outlier within a volatile data series conclusively proves this or that -- someone who chooses to ignore the broader data trend -- is simply putting their own mathematical ignorance and innumeracy on display.
We can project all we want to about the homeowners who might walk away because they are cunning, or because the media told them it was now cool.
But then there are those pesky numbers that get in the way: the ones that document Americans who maxed their credit cards, then used the home ATM (sometimes to pay down the cards), then maxed out the home ATM, then maxed out the cards again, and, finally, started to raid their 401ks to their heads above water.
Much as some want to make "walking away" look cynical, the data that relate to it can't stop reeking of desperation.
SR opines: "There is a point were over analysis hurts you - from an investing point of view. If you just want to have academic debate then go ahead - but in the real world people read this blog to profit from it."
They sure do, but if you think the way to getting an edge is to read the 'executive summaries' then I believe you are vastly mistaken. I started reading this blog by accident about 15 months ago. It was just then that some of the early warning shots were going off in that perfectly non-fraud mortgage originating companies were going belly up because early payment defaults were pushing 'sold' loans back onto their crumbling balance sheets. While knowing of the housing craze I never knew what the tipoff was going to be as to the date of its demise (from an investment standpoint) until those particular canaries started croaking.
This particular post by our host/hostess is just another in a long line that get one to thinking. Better yet is they almost all include links to supporting data so the reader is readily able to perform their own calculations to whatever end. Having been a housing bear for a long time (which to me meant that the market was underpricing the decline) I have definitely switched camps in that I believe the loss estimates have not only caught up to the problem but have hurtled right on by.
Gunsmoke was one of the earliest "adult westerns," centering around the exploits of Marshal Matt Dillon (James Arness) in the frontier town of Dodge City, Kansas in 1873. His kindly companion was Doc Adams (Milburn Stone), the town physician who spent many hours chugging beers at the Long Branch Saloon, owned and operated by the shapely Kitty Russell. Over the years there were several changes in the supporting cast, most notably the replacement of Matt's loyal deputy, Chester Goode (Dennis Weaver), with hillbilly deputy Festus Haggen (Ken Curtis).
SR opines: "There is a point were over analysis hurts you - from an investing point of view."
Um, no. There may be various points of diminishing returns, but the market never rewards ignorance over knowledge. I doubt that Warren Buffett has ever complained about the excessive length of an annual report. The talent that all the best investors seem to have in common is the ability to receive, digest, and correlate an amazing volume of information on a daily basis.
I, for one, read the entire post and it is excellent. That, inspite of not being well-versed in RE economics nor investing. But now, I can at least separate the bovine digestive remains from the golden nugget.
"The talent that all the best investors seem to have in common is the ability to receive, digest, and correlate an amazing volume of information on a daily basis."
Hmmm! Some great investors do exactly the opposite, minimizing the volume of information to focus on a few crucial variables.
Names? John Henry, Ed Seykota, Jerry Parker, Salem Abraham, Bill Dunn, Larry Hite...and so on and so forth.
SR takes quite a beating from "too long" --so this is not more of that, but to the many who took the time to address the issue(s) surrounding the economic fallout, (the social fallout not so much as the political)...of taking the view described by a prominent banker (prolly quoted here in another thread by CR) that ~"It is not in the financial interests for some mortgage payers to continue paying."
Not that the banker is an icon of moral standards, but from his profit-oriented world, (not exactly yours right? RIGHT?) [You can't possibly profit from this post, so stopitrightnow!] that is how he expresses his view...not daring to venture that you have misbehaved, that you were so BAD --unlawful, that you have performed immorally, that you are going straight to Hell.
Maybe some bankers express themselves differently, but I thought this was a fair representation. And bothersome.
So SR, like all the rest, does some volunteer work here expressing himself (dis)tracting so much attention about how long it wasn't and how you read the entire thing...(and then started on the NYC phone book)...more difficult phenomena for the profit-motivated and profit understanding bankers, you know?
Tanta Perhaps we have a different idea as to what constitutes walking away or perhaps not. Perhaps we have a different idea as to what constitutes "evidence".
Some people wait for surveys, others wait for godot. Some, like me, are willing to take a reasonable position as to how to interpret the numbers.
On a side note, some people are still waiting for data to prove we are in a recession while I say it is obvious we are in one.
Two years from now they will backdate the recession to December 2007 but until that happens people will be debating the "evidence".
I never said every bit of the difference was walking away, but I am still willing to say a fair % of it was. Enough to matter. No matter what anyone thinks.
Anecdotal evidence (including corporations bitching about it) suggests people are walking away. Those stats will show up somewhere. And I believe they have.
People can wait for polls or whatever they feel constitutes "proof" of walking away, but I am willing to take a reasonable shot at "evidence" right here right now.
By the way...
My definition of "walking away" includes anyone who decides to hand over the keys early rather than wait for foreclosure and eviction.
It includes anyone who the lender tries to work out "affordable" arrangements but they decides not to take it, regardless of reason.
It includes anyone frustrated by lack of lender response and just decides to hell with it all and move out before the lender works out an arrangement with them.
Before we can decide if people are walking away or not, we need to agree as to the definition. I do not accept a strict definition here based solely on ability to pay.
Walking away "early" because someone thinks it is coming just may have advantages in securing the next rental. That may indeed constitute the bulk of it.
Just outside the supposedly typical small Spanish village we walked past the brand new golf course, admired the new luxury club house and around the corner walked through the housing estates of very nice flats and houses (including terraces of mock Tudor style houses) together with shops and a primary school.
There were however, no people, apart from five workmen painting some flats.
We managed to find the bar by the main road and enquired where all the people had gone.
I think the "walking away" that is being discussed here - and which freaks out the lenders - is the borrower who can pay (perhaps with a painful amount of belt-tightening) but makes the affirmative decision to default based on the economics of the property. I don't consider someone to be "walking away" when they have realized that default is inevitable and it's just a matter of time before they lose the property. The latter folks are just walking out before the sherriff puts them out.
I'm torn between the arguments made by Mish and Tanta. On the one hand, she makes a good point that no one has pointed to empirical evidence that the behavior is widespread. On the other hand, I do think that in this credit/housing bubble (disaster?) there have been lots of trends which in hindsight were self-evident but were dismissed one they were first identified because there was "no evidence" that they were happening. My guess is that the "walk-away" hasn't happened as much as is being reported, but it will be happening a whole lot more in the next 24 months. The just-walk-away 'meme' (or, as we used to say, 'idea') is certainly out there and circulating.
Your article was way too wordy. And you define walking away as not including speculators! Walking away is simply the owner deciding to ignore their legal obligations and acting on that decision. Speculators are indeed walking away.
For the record, there actually are good and not entirely mercenery reasons to read these posts and follow the comments. I happen to be one of those rubes that bothers to write my Congresscritters. Well, I'm not that much of a rube, I realize I write my Congresscritters' staffers. So posts and ensuing discussions such as this one are extremely helpful when trying to persuade the Congresscritters' staffers (who, let's hope, persuade the Congresscritter) that the industry lobby's position isn't exactly the whole story.
Is this idealistic? Sure. Is it a waste of time? Not any moreso than arguing with some anonymous clod about what constitutes good blogging.
Lastly, in case Mish is reading this, I wouldn't take Tanta's post as a slight in the least. She was apparently asked by quite a few people (though fwiw not me!) to comment. She said in effect, I define "walking away as X" and his analysis does not allow one to necessarily conclude X. Close readers of you (of which I am proudly one) know that you define walking away as Y. IMO, the distinction is important.
Bringing it full-circle, industry-lobbists are trying to convince Congresscritters they need a taxpayer bail-out because of X (ruthless-puts). In fact the Bankers don't deserve a bail-out because the walk-aways are from Y (plain ol' unaffordability) due to lousy underwriting; something the Bankers are themselves responsible for.
Full-disclosure: I will admit to some mercenery motive for following along. But such is not my sole motive.
IMHO this whole post is, whatever its virtues, missing the point. A little bit like the medieval theologians debating how many angels could dance on the tip of a pin while the pressures which lead to the Reformation were building, and building...
Whether or not Mish is correct today, one thing which cannot be disputed is that the walkaway meme is in circulation (the width of that circulation could be another fruitful source of wasted debate).
Now, just as there was an unholy alliance of interests keeping the bubble inflating a couple of years back, there will now be an equally unholy alliance of interests which will make sure the walkaway meme stays front and centre (regardless of how many "true" walkaways occur).
In fact the points have already been made in the comments.
1. Lender management will want to divert the public focus away from their previous (and now shown to be disastrous) lending practices.
2. As the debacle grinds on into "higher quality" loan classes, lender management will also want an external scapegoat to help them sell the case for ever-wider bailouts.
3. The politicians will push the meme so they can justify acceding to these bailout requests, which are coming from major contributors.
4. Underwater borrowers (especially those who think themselves "smart" rather than "ruthless") will push the meme so their own walkaway can be justified (and self-justified) as normal behaviour.
Even if walkaways in Mish's sense may not exist in numbers now, I predict they will almost certainly do so once the Alt-A loans start re-casting.
I would say that, while it's important to note that it's a "meme," its very meme-ness makes it all the more important to subject it to truth tests. If it's false, then not only does its currency allow for self-serving use, but it also leads us in the dead wrong direction. If it's true, the fact that it's also so very convenient to some might cause important factors to be neglected.
I think we are gonna have to get used to the idea that "walking away" is as subjective a term as can be devised in most cases.
The MSM is gonna come up with a few cases of wealthy borrowers who simply decide that it makes more financial sense to walk than to pay for an underwater home (even if they have to make em up) and imply that every borrower who is unwilling to max out every credit card, empty the 401k and eat a steady diet of beans and rice until forcably evicted is a "ruthless borrower."
My definition of "walking away" includes anyone who decides to hand over the keys early rather than wait for foreclosure and eviction.
It includes anyone who the lender tries to work out "affordable" arrangements but they decides not to take it, regardless of reason.
OK, but for these two situations, you don't need to read tea leaves to get the numbers. Group one are reported by servicers as either "deed-in-lieu" or "cash for keys." Group two is reported in the loss mit reports as workout offered and declined.
So next time you're in a conference call with BoA, ask them about these categories. They should be able to provide these numbers with little effort; every mortgage servicer has them.
You may not worry about ability to pay, but it wasn't your definition of walking away that I was challenging. I was suggesting that your evidence doesn't even prove that FCs are happening early.
I am breaking this post up because one I wrote earlier just vanished - poof!
Okay, what about this guy:
He got a little swept away and bought the whole bit hook, line and sinker. He got an ARM with a 3 year fixed that is about to reset. He bought into the line that home prices always rise and "everybody knew" that it was easy to refi a few years down the road, so he didn't worry about it. After all, his friends were pulling fortunes out of their houses with MEWs and HELOCS.
He wasn't trying to get rich - but he was being priced out of the market and felt like he had to get in before it was too late. Literally EVERYBODY was telling him he was crazy not to - and the Realtors and lenders certainly didn't disabuse him of the notion.
Being a homeowner was a bit more of a struggle than he expected. He hadn't counted on the extras: taxes, maintenance, insurance and utilities costing so much or rising so fast. Still he kept up the payments - somehow.
Problem is, that ARM is about to adjust and his head is barely above water now. He has started carrying a small balance on one credit card and he does have a 401k, but his small nest egg has evaporated. HE is no math wizard, but he can add and subtract and he knows that when that mortgage resets, he is doomed.
He has calculated that he can stay in the house a year or two longer - if he maxes out the credit cards or strips his 401k. He tries to talk to the bank - but they don't even want to talk to him until he has already missed a payment or two (making his CC interest rate skyrocket) and they make no promises that any workout will be done at all, or if done, will be done on terms he can live with. Business is slow and he doesn't feel nearly as secure in his job as he did 3 years ago.
Meanwhile there is a place he can rent for half what he is paying now. If he moves, he can pay off that credit card and actually save a little again.
So he walks. Doesn't want to - but he knows he'll be on the streets and flat broke in a year or two if he doesn't. Sure, the bank MIGHT work out something to let him stay - but they might not. For some reason he isn't particularly trusting of bankers anymore.
And oh yeah, his house is worth a lot less than he paid for it.
I could write that scenario a couple or dozen ways, from anecdotes I have seen on TV or read about. Essentially the question is: must a borrower facing certain ruin a short way down the road play that scenario all the way to the poorhouse or be a "ruthless borrower?"
BTW, I noticed that the guy(?) who complained about the length of the post admitted that he didn't even read it all! How would he know if it was too long to make the point or not?
and imply that every borrower who is unwilling to max out every credit card, empty the 401k and eat a steady diet of beans and rice until forcably evicted is a "ruthless borrower."
Indeed. I think there's always an ideological agenda driving most cases of arguing well ahead of one's facts.
We did just get, after all, a bankruptcy reform bill after having been treated to scare stories about these hordes of BK-abusers (who never seemed to show up in the statistics, but hey!) while being asked to ignore the irresponsible practices of unsecured lenders.
And now we have another reform to BK law on the table, and the industry is trying to beat it back desperately. Funny how the "walk-away" who can afford it meme floats right when cram-downs are on the table in the Senate, no?
I would suggest that it is at least possible that some of those who declined the workouts did so because they ran the numbers themselves and found them akin to slow strangulation. Have read anecdotes - can't prove it - but I wouldn't make the assumption that all - or even most - of these workouts are workable for the borrower.
Understand that I am not contending otherwise, I just haven't seen that evidence.
Have read anecdotes - can't prove it - but I wouldn't make the assumption that all - or even most - of these workouts are workable for the borrower.
Here's some evidence that is certainly consistent with your theory: Fannie Forkin' Mae just put out a program called "HomeSaver Advance" about which I wrote a billion words and bored the hell out of everyone a few days ago.
Some people were fairly aghast at that: give people 15 years at 5% to repay the past-due amount? Jeezus, in or on or under a UFO!
I submit that it has occurred to Fannie Mae, if not to everyone else yet, that it'll take terms like that to repay some of these arrearages unless you want to either starve the borrowers during the repayment plan or see them all just give up.
The example I used for HomeSaver was a $1,500 PITI and a borrower 6 months down ($9,000). You do the math and figure out how that could work even on an 18-month repayment plan (as far as I know, 18 months is the longest any servicer ever gives for a repayment plan; longer than that you have to modify). Who can afford having $500 a month added to their mortgage payment if they're already struggling to meet the mortgage payment?
Most folks aren't 6 months down when they're offered a repayment plan, more like 3. But then they're usually offered repayment plans of 6-9 months at most. You are still talking a very heavy monthly payment to get caught up.
Moral of the story: Fannie is basically admitting that standard repayment plans are just impossible for a lot of borrowers. So they're letting servicers put the top part of the class into this advance plan that would have been unthinkable years ago. It won't do a thing for the bottom part of the borrower class, but it doesn't claim to fix everyone's problem. I'm just pointing out that it is a kind of facing of facts about repayment plans.
UnEasy One:
Yes, that defines the position of a lot of these walkaways.
I'd like to congratulate Tanta and Mish on being clear on their varying definitions of "walkaways". Here's mine: as the industry is now trying to use the term, it matches Mish's definition.
But at the same time these banking yahoos are trying to act astounded and claim that this is a new type of behavior never seen before and which could not be predicted - and that is why I claim they are lying deliberately about walkaways.
There were always and always will be walkaways from speculative and or investor purchases. The industry always knew that. The industry always granted credit on different terms to such borrowers on the basis that they do, indeed, walk away when their investment really makes no sense. That includes terms such as requiring higher downpayments if the loan is non-recourse and higher interest rates. And one verifies very carefully ability to repay and very careful appraisals, because you know that once the home is not paying off, the borrower's likely to kiss it goodbye.
My assertion is that by granting loans which were speculative from the beginning, the industry created a whole bunch of unwitting speculators (and facilitated a lot of knowing ones). The industry stuffed a lot of people who intended to buy a home into the position of being speculators.
Any time you grant a loan on terms which are unlikely to be repaid without a refinance and a withdrawal of equity, that IS A SPECULATIVE LOAN.
And if you don't bother to verify income or other assets, it IS A SPECULATIVE LOAN.
Just about every 2/28 or 3/27 was speculative. A lot of OAs were speculative. A lot of loans were granted with such high DTIs that they were speculative. No one could believe that most of the borrowers could pay those loans for 3-5 years without refinancing and withdrawing equity. OK, well, when you grant spec loans, you do so based on the collateral value if you expect them to perform. You don't - you simply don't - grant spec loans without very solid collateral. The industry didn't follow this well-known rule, so now it is getting hit hard.
The reason I want to keep this distinction so clear is that it is a necessary one within the industry. I have fought a number of battles over this in the last few years, and I don't need the press and the industry deliberately muddying the waters now.
I have very good evidence that in fact borrowers are not en masse changing their behavior and walking away without being financially pressured to do so, and that is the affordability ratios in a lot of these markets. If borrowers were walking away, the foreclosure rate would be way higher than it is now. Something like 3 to 5 times higher.
So now what we've really got is a bunch of borrowers in spec loans in houses, and an industry terrified that they are going to wake up, realize that they aren't home buyers but speculators, and walk away, which is why the industry is pushing this meme, and why it is trying to get Congress to buy the loans, write them down, guarantee them, and then sell them back.
That includes terms such as requiring higher downpayments if the loan is non-recourse and higher interest rates.
And a buck and a half (at minimum) on the table in cash up front in points.
Forever and a day, until this recent boom, you wanted an investment property loan, you paid 1.50% of the loan amount to lender at closing in cash-type money. None of this "premium interest rate" crap. For the love of Peat. It does you no good to charge a premium interest rate to a flipper. If the flip happens as planned, you don't have the loan on the books long enough to earn that premium in the rate! If the flip doesn't happen as planned, they don't pay you anything!
We made bridge loans on permanent loan terms. The rest was not merely predictable, it was predicted.
I have noticed that a lot of media attention lately is being focused on some fairly unsympathetic borrowers - folks who obviously have lived well, better than most, and done it largely on borrowed money. Seems that mentions of walkaways are always nearby - and I see the beginnings of a myth being made.
Makes my hair stand on end when I read comments about how some barely literate first time homebuyer who got hustled by a bunch of fast talking con-artists into buying more house than they could ever afford to pay off should have read all that foot tall stack of papers they signed at closing. Therefore, it's their own fault if 47 kinds of disclosure laws were broken and they didn't fully understand what they were signing.
Every case is different, of course - I don't maintain that as a fair characterization of every delinquent borrower - but it seems as fair as the free-spending clueless yuppie the media are shoving at us.
should have read all that foot tall stack of papers they signed at closing.
I was amused a few weeks ago to read Dick Syron (CEO of Freddie Mac) acknowledge that he didn't read all his closing documents last time he refinanced.
Of course he didn't. He has an intuitive sense of what is a decent mortgage deal and a reasonable home value, because he's exposed all the time to such matters. Furthermore, he assumes that nobody is likely to try pulling a fast one on Dick Syron. And he's right. Were I a lender willing to be slimy, I'd not be slimy with Dick's loan. I know perfectly well he'd sue my ass from here to the middle of the next century if I slipped some nasty into the fine print, and he'd win!
Syron wasn't, in fact, saying that to heap blame on borrowers who don't read documents. I think he was saying that to point out that educated rational middle-class people have always granted the mortgage industry a lot of trust, and that even these well-educated people find reading covenant 27 of the mortgage a bit slow-going. (Many of them have substantially more than 27 separate covenants, too. I doubt many people get that far.)
But for every Dick Syron who admits that none of us reads the stuff carefully, there will be a dozen self-righteous types who pretend that they did, and so therefore anyone who didn't deserves what they got.
What grates on my nerves most of the time is these folks who show up in our comment sections fairly regularly who claim to be industry insiders and who obviously have never read an entire security instrument from start to finish, either.
A long time ago--I wish I could remember when--our MOM found this fabulous broker board thread from some twit (we christened her "Babs") who claimed to be a mortgage account executive and who lectured her fellow brokers on how Option ARMs work, quite remarkably erroneously. (She claimed that interest does not accrue on the capitalized balance, which is just false and which falsity can be established merely by reading the note.)
So I do sometimes wander into the weeds with details about How Shit Actually Works, but then I'm just recognizing reality: I appear to be one of the few who has ever actually read all these docs.
Tanta, MoM,
Since you have both been in the biz, perhaps you can give me some explanation as to how to tie some of model predictions with what appears to be reality.
In the Goldman/JPM/Princeton report one of the methods they used to ballpark subprime losses was to take the total amount of originations during the bubble phase about 1.4trillion dollars then blithely say that about 55-60% will end up as reo with a percentage loss on the loans of about 50%. So something of around 400 billion dollars of loss. In every pool that I a have looked at and also looking at CFC's 10q's, the LTV at origination is somewhere around 80%. The implication is that the net sales price to the REO owner is going to be 40% of the original transaction price to the borrower. When I look at the countrywide reo listings i see one that i could drive to in about 10 minutes. countrywide has the house listed at 439,000. the house last sold in 11/2004 for 432,500. in 11/2003 the house sold for 395,000. In 2000 the house sold for 260,000. at 80%ltv in order to lose 50% the house would have to sell for 170k. Long before that price I would be happy to write them a check purely as an income producing property. Admittedly this is a sample of 1, but at least here in my part of ct, the only way to lose 50% on an 80%LTV loan written in 2004, would be to burn down the house and with it your insurance policy.
LTV = loan to value. It is always in reference to this loan.
CLTV = combined loan to value. It is including all loans on a property, not just the first lien.
You have first mortgages at 80% LTV, and second mortgages for 20% of the sales price. That means CLTV of 100%.
Loss severity in FC takes into account expenses as well as accrued but unpaid interest. It costs a lot of money to foreclose a loan, take title to the RE, and then market it. There is always a loss in FC even when the REO sells for its original price. The main loss might not be to the first lien lender, but so? The report you are referring to is aggregating the losses across all loans, firsts and seconds.
has the house listed at 439,000. the house last sold in 11/2004 for 432,500.
You are ignoring the question of what the indebtness actually was when it was foreclosed.
Say CFC made an 80% loan to that borrower in 2004. Someone else made a 20% loan.
Then, in 2006, the borrower did a cash-out refi with CFC based on a new appraisal that brought the full indebtedness up to $439,000 in a single lien. Perhaps the new appraisal said it was worth $500,000, so that loan was less than 100% LTV at the time.
Let's say $439K is what CFC paid at the FC auction and so that's what they're listing it at. If they get it, they're still going to write off the legal costs of the FC, the carrying costs for time elapsed from FC to sale of REO, the broker commission, the taxes and insurance and maintenance on the property.
If the paid less than $439K at the FC auction, then they're trying to recoup expenses by listing it at more than they paid for it. They may not get that.
"speculative from the beginning, the industry created a whole bunch of unwitting speculators (and facilitated a lot of knowing ones)."
"IS A SPECULATIVE LOAN"
Spot On!
As RE valuations continue to decline, we'll move on the next phase. In this next phase we won't be looking for evidence of walkers, they'll be obviously abundant! I'm fully comfortable with the notion that this is a certainty.
I'd love to read prognostications on how millions of walkaways are going to play out.
Tanta, thank you for all your insightful posts whatever length.
stock_regulator you know what is really annoying, when somebody can't make a point without posting 40 times. Seriously, are you trying to make up for quality with volume? I think that is kind of what got us into the debt mess in the first place.
First...Tanta, keep up the great work...I look forward to weekends with you and CR providing good food for thought...
To David in CT....I also have asked the same question that you asked in the previous note....Some of these large percentage estimates of losses in msm seem very far-fetched...
Another example...Look at TMA's portfolio of owned assets..They have a delinquency rate of less then .5% with LTVs of less then 80%. How do you get these huge losses out of that?
So across cfc's total book of loans which they own and have not sold CLTV is right around 80%. Coming up with a scenario where this particularar loan could have been for a 100% CLTV is a so what. One could with equal force say that on this loan the CLTV was 60%, who knows. The point of the model is to try and get a feel for the whole universe and thus aggregate losses. So far every time I point this out all I get in return is hand waving.
If the average holding period for a reo is a year, and it costs say 2% for the taxes/insurance, 4% for the capital 2% for the broker and 2% for legal, it is still only a 10% hit on the property.
"Another example...Look at TMA's portfolio of owned assets..They have a delinquency rate of less then .5% with LTVs of less then 80%. How do you get these huge losses out of that?"
You don't.
I think what people are vastly missing is that because all these securities landed in basically the same place and everyone tried to exit at the same time the prices have been crushed. The only way to reconcile the prices of the securities with the real world is to assume things in the real world which are not in evidence. The alternative is that the securities are mis-priced. In the turmoil of the last several months this has gone on well outside the housing stuff and the credit instruments based upon it and lead to great volatility but also great opportunity.
Makes my hair stand on end when I read comments about how some barely literate first time homebuyer ... should have read all that foot tall stack of papers they signed at closing. Therefore, it's their own fault if 47 kinds of disclosure laws were broken and they didn't fully understand what they were signing.
Even more stunning to me is the frequently repeated comment that they shoulda had their lawyer look over the documents! Huh? Okay, maybe this is standard practice for purchasers of million dollar homes. But a little reality check for the gabzillionaires among us... Most of us ordinary, middle class homebuyers don't, actually, have lawyers. And no, we don't run out and get one when we buy a house. We sit down at the closing (for which we had to take one of our carefully saved vacation days) and try to ignore the palpable impatience in the room as we attempt to give all the documents at least a cursory read. Maybe we ask a few questions, but yes, we basically take on trust that the answers are truthful.
This makes us dupes who deserve everything we get? Don't go there. If we really get into the question of who deserves what, I can assure you you're not going to like the conclusions that the majority of us come to.
Coming up with a scenario where this particularar loan could have been for a 100% CLTV is a so what. One could with equal force say that on this loan the CLTV was 60%, who knows.
People with a true CLTV of 60% don't get foreclosed very often. They sell or refinance. They can. They have equity to burn.
CLTVs are not randomly distributed in FCs. The ones that go all the way to FC are the ones with no other options. That means the ones with no or only a sliver of equity.
Re: "crispiness": the length is quite luxurious, though Tanta tends to write more as a novelist than as a journalist; she often "buries the lede". Some gutsy person could try to do a "Shorter Tanta" extraction for the ADD crowd... (though her [certain-to-follow] lengthy correction and elaboration of the shorter version would likely be longer than the original posting!)
Re: "walking away": since all we have is anecdote and instinct, let me offer mine. Being underwater is typically not enough (think of the story of the boiling frog). But if you toss in a ARM reset (independent of whether they can afford the reset or not), that's the point where "options" are considered. People avoid change, but when change is forced upon them, they sometimes decide to change a lot of things at once.
Well, I certainly don't suffer from Reading Delinquency. I waited with baited breath all day yesterday for Tanta's latest UberNerder, only to be wrenched back to meatspace for a celebration. Sadly, this celebration involved libations and bordered on inebriation.
I'm Bill, and I'm a CR Tanta Junkie.
Nothing lately compares to the delight of slogging* through one of your posts, Tanta. Your command of English, your personalization of otherwise impenetrable mortgage babble, sprinkling bits of very dry wit, like rare spices, is both highly refreshing and immensely enjoyable.
Thank You. Or as we say in USpesoland, Muchas Gracias.
I have a reading "challenge" which precludes skimming - have to read every word.
Oh, Babs. The famous Babs. The one who didn't understand her own OA mortgage disclosures. The people (brokers!) on the thread try to explain to her, but she never concedes - she just vanishes. She's convinced that when an OA borrower doesn't pay the full interest, they are getting an interest-free loan for five years. And mind you,she's the one responsible for explaining to the brokers how these suckers work. There were tons like her out there.
"the hoocoodanode shuffle".
Yes, Tanta, that's what this debate means to me. It's really all about a responsibility shuffle. I find it amazing that the industry is claiming that it
A) Was forced to make loans to borrowers who couldn't afford them,
B) Is now amazed that those borrowers aren't paying the loans they couldn't afford.
This is BS. Anyone who's been in the industry long enough to remember when we wrote loans that borrowers actually paid knows it's BS. And anyone in the industry that long knows that if you lend $700,000 to borrowers making $70,000, which happened all the time, they can't pay.
You can make it appear that they can pay it back for a while with all the "affordability" type loans, but in the end they can't pay, and they won't. And then they will wind up in foreclosure. It is a red herring as to whether you have to evict them or they get out first.
The reason why workouts aren't happening very much is that when you qualify the borrowers, you can't make it work. Workouts used to reinstate many borrowers, but those were borrowers that hadn't started out with ridiculous DTIs. They would default when something happened to temporarily change their circumstances, like a job loss, car accident or illness, and we and they would do workouts because they expected to regain their normal earning power or something close. So it made sense for them, and if they had to they would temporarily charge on the credit cards to do it. Because it was TEMPORARY. Not even most these borrowers are so dumb as to believe they can charge $700 on their CCs each month permanently because they can't afford their monthly expenses.
If we are going to make charging up your credit cards before default the standard for borrower honesty, we might as well also demand that they rob banks to come up with their monthly payment. It's the same thing without the flashing lights and the potential jail term. I always considered people who refused to borrow money they were pretty sure they couldn't repay HONEST. When they called or showed up you'd sit down with them and see what you could do. And sometimes, you'd have to tell them to sell the house, and sometimes they'd give you back the keys and tell you to do it for them because they had to go somewhere else to get work. They'd sign a DIL, thus cutting your expenses. That's not a ruthless borrower. That's never been a ruthless borrower.
How you structure workouts for somebody bringing home $4,400 a month who is supposed to be paying a PITI mortgage of $3,600 a month is beyond me. They can just about afford mac 'n cheese, gas and utilities. They can't afford medical insurance, minor bills, car repairs, or maintaining the house. Heck, a lot of these people can't really afford their teaser rates, much less the reset rate. They were put under each month when their sales price hit the tax rolls and their property taxes were raised.
Tanta:
In order to get the loss numbers in the 'models' you have to get BOTH the average hit on the reo's AND the total number of reo's to hit the marks. If the people with some kind of equity are not going to default then how are you going to get 50% of the borrowers to give up?
On that account housing affordability is changing very rapidly. Consider the 400k house at the peak with a 100% io arm and assuming 300 basis points over libor for crap credit in the hardest hit of the markets which is now down 20%.
libor 5.5 loan 8.5
400,000 * .085 / 12 = 2833 per month
320,000 * .06 / 12 = 1600 per month
Why does no one believe that this is going to change both the rate of foreclosure and the rate of sales?
What MaxedOutMama said. Heck, a lot of these people can't really afford their teaser rates, much less the reset rate. They were put under each month when their sales price hit the tax rolls and their property taxes were raised.
I don't think the point was to get people into houses to maximize the "Ownership Society", as much as it was to resell the loans before the chips fell where they would.
Claiming ignorance of the historical norms, DTIs and such is beyond unbelievable.
If the people with some kind of equity are not going to default then how are you going to get 50% of the borrowers to give up?,
What? What 50% of what borrowers giving up?
Check page 22: These assumptions imply cumulative excess foreclosures of 13.5% of the currently outstanding stock of mortgages over the next few years.11 On a base of $11 trillion of 1-4 family mortgage debt, this implies cumulative foreclosure starts of $1.5 trillion. Not every mortgage entering the foreclosure process will end up as an outright repossession, as some homeowners will manage to become current on their payment, sell, or refinance before the home is repossessed. However, the percentage of all foreclosure starts that
turn into repossessions measured by the number of Real Estate Owned (REO) notices divided by the lagged number of Notices of Default (NoD) has recently risen to over 50% according to Data Quick, Inc., a real estate information company. Assuming that
repossessions average 55%-60% of all initiated foreclosures and the average loss severity is 50%, as is typical in a depressed housing market, we calculate that $1.5 trillion of foreclosure starts could translate into mortgage credit losses of around $400 billion.
There are $11 trillion in mortgages outstanding. If we see an FC start rate of 13.5%, that'd be around $1.5 trillion in FC starts. Then we assume that only 55-60% of FC starts end up completed. (You would exactly be weeding out the folks who got behind on payments but have enough equity to sell before the bank takes the property.)
If my math works right, that's an FC completion rate of 7.4-8%.
You take 50% losses on that, you get the $400 billion.
It does not matter what the average LTV is on the whole $11 trillion.
It matters what the LTV is on the hightest eighth.
OK, if the borrower really has equity, or is close to break even, the extreme probability is that the borrower will sell before FC or do a short sale.
The 80% LTV loans you are talking about are now frequently 100% LTV loans.
First, there is the interest. When we figure losses, we figure the monthly interest the pool lost on that capital. Maybe you are willing to lend money for 0%, but the investors feel that it is a loss.
Closing costs: Figure 5%. Selling a vacant house: 5% discount. Figure 7% interest per annum. Insurance on a vacant house covers less and costs more, but you have to pay it, because try collecting on that claim otherwise! Figure 3% per annum taxes & insurance. Legal bills. Usually some costs for securing, cleaning and fix up. If you are trying to sell it, you usually need to keep the utilities on, and if you don't, you will generally take a bigger discount on price. If the prospective buyers can't flush the toilets and check the lights, they will be skeptical and will pay less. If it's in a cold area you might turn off the heat, but you are going to have to pay to drain the pipes, etc.
So let's figure 5% equity based on comps at time you tried to sell it. Vacancy discount wipes that out:
-5% agent
-3.5% interest (six months)
-1.5% taxes/insurance (six months)
Total of 5% cost every six months you hold it, so you generally figure that's gone and list it at the -5%, and then after a few months you start going down from there. If you had to sit on it 2 years at best you'd come out -30%, and that's if you never dropped the price and nothing happened to it. It is almost always cheaper to start discounting early. In a declining market you probably start 10% down and you definitely need to keep dropping. It's nothing to sell them at 30% off comps in declining markets. Then add securing costs and closing costs.
You are going to pay a minimum of $15,000 in legal fees and cleaning/prep.
Unfortunately, a lot of these houses are sitting in areas in which they do get vandalized or broken into. If it happens once, it may not be worth paying for repairs. You just discount.
The Case Shiller stats you see don't include forced sales or REOs.
Also you have to understand that on some of these issues the original appraisal is highly questionable. For example, New Century just let its underwriters adjust the appraisal up!!! That did wonders for their LTV averages!
Don't shorten the posts artifically.
SR, I think you don't understand the real purpose for these blogs. Yes, people use them make decisions about investing or validate or invalidate decisions. However, there is another more important reason for these RE and Economy Blogs: Archiving and Chronocling History.
Ask yourself what would happen if these blogs were not here right now? Where would you get this information? You wouldn't. That is the problem. The detail needs to be there because we as a people need a source of information that we can look back at to understand what happened. Without it, lessons cannot be learned going forward and unfortunately, condensed versions won't cut it.
That being said, I do think that Tantas' posts need some significant Editing and Formatting work to ensure that the main points are digested. Some suggestions:
Put the main point at the beginning of the post and use the body to support it. Spell it out clearly. Also, develop a standard format for these lengthy posts have more obvious transitions from sub point to sub point.
Keep the long posts. That's why I come to this blog. I have to say, though, that it was more fun in the old days when there weren't quite so many comments! I wish I could filter in/out certain commenters.
i'm waaay late to this party but count me as one vote for "read the whole thing"! course i scrolled down first, thinking oh god, Tanta! Great stuff, and this from one of those unlikely readers you referenced.
Borrowers who want to "walk away" from an upside-down mortgage that they can still afford will have a huge incentive to portray themselves as suffering from severe financial distress. (to avoid the social stigma associated with foreclosure)
And - I would argue - they will have just as huge of an incentive to persuade even themselves that they are suffering from severe financial distress. (to avoid the shame of admitting that they didn't fulfill their end of the deal)
So it will be very, very difficult to find direct evidence of thousands of people "walking away" from affordable mortgages.
The available evidence will likely all be indirect.
MoM:
OK, if the borrower really has equity, or is close to break even, the extreme probability is that the borrower will sell before FC or do a short sale.
"
Thanks for the reply. On the carrying cost numbers I will nitpick a little in that cost of cfc funding capital is 4.90 as of 12/31/07. Also 3% per annum for taxes and insurance seems pretty high, i don't know too much about the rest of the world but my own personal number is about 1%. As for the brokerage commission its hard for me to believe that countrywide is paying full freight to brokers but again this is all nitpicking.
I can certainly see a bank wanting to blow the property off the books and taking say a 20% hit on the market price and another 10% on all the transaction costs but that would only get you to 30% which is a far cry from 50%. And even as I say that I can see a bank doing it, at least in my neck of the woods there is nothing, nada, zilch even remotely close to this.
As an aside I saw where Beazer did something of a blowout sale recently in Californian and lowered prices 10-20 off already pretty low end homes and they actually sold them even though they took a loss on each and every one.
I do understand your point that there are plenty of homes in marginal areas that may be stripped etc, but the numbers we are talking about here are for fully half the sub-prime originations over that last 3 years to end up reo. So cherry picking some instances of people ripping out the plumbing is not material to the discussion.
Now to your point about if the borrower really has equity. If what you wrote is true then we are going to limit our excess foreclosures mostly to people who are upside down on their mortgages and no matter how badly you torture the numbers there is no way you are going to get 50% of the sub-prime origination to end up in this category unless we enter into a depression for entirely unrelated reasons like someone drops nuke on nyc.
But David, very few of the subprime buyers in the last three years put down much by the way of downpayment. The seconds are floating out there as well, and are a dead loss. When a home goes into foreclosure you have to count the loss on the first and the second.
No way are subprime loans after reset getting less than 7% on average. Even if the first is low the second is not. You have to figure the loss of scheduled interest on the loan, not the institutional cost of funds.
Prop taxes vary a lot, but vacant house insurance is getting quite expensive. Property insurance rates have galloped up in some areas. It varies widely. If it's a condo, then you've got HOA.
I think everyone pretty much went to a 40% severity on subprime FC last year. The declining markets are making that worse.
Tanta:
Check page 22:
These assumptions imply cumulative excess foreclosures of 13.5% of the currently outstanding stock of mortgages over the next few years.
Mea Culpa, this is what I get for carrying on an email debate simultaneously with blog posting.
I still think the estimations by this method are way too high, again the 50% loss numbers seem huge. Unless the accounting is done as MoM has said loss = what i should have earned - what it did, as opposed to straight principal loss which is what i am accustomed to seeing. I need to do some more research on this.
Since the number they give is an excess, it implies total foreclosure even higher than the 13.5% cumulation.
The baseline rate is .4% per year which over 4 years is roughly 1.5%.
That would put actual REO's of 15% or 7.5million units and using their 55 % number of foreclosure to REO means that nearly 30% of the current outstanding mortgage stock is expected to at least get to the initial states of foreclosure.
According to the MBA report that you linked 348k mortgages went into foreclosure in q3. 20% of these were investors, and another 20% were 'no contacts' which probably means at least some percentage of the no contacts were also investors. I don't know how long the 'investors' will hold out, but I would assume they would be the first to bail especially in non recourse states. That should mean that investor defaults are largely front loaded and that as time goes on we get more and more into the core homeowner that just can't pay and has no equity and can't get a refi because the bank thinks that a 50% haircut on the loan is a better option than any kind of workout, even an i/o at bank cost of capital which looks right now about 5%.
I just don't believe that from a political standpoint we could ever get there. Rates might get to be 1% and gold will be $2000 and mortgages might get bought by the fed but there is no way the banks are taking down 7.5 million houses.
Thanks for going back to the original docs and rereading.
For an article that starts with a lofty goal of making everything precise, it introduces unnecessary hurdles and objective criteria to make definitions.
I think your 4th criteria in the definition of the walk-away owner is flawed:
Able to make their mortgage payments under existing mortgage terms.
It is a subjective, unverifiable criteria. You ask 10 people, and they will give you different answers:
owner himself might justify that he is not able to make the mortgage payments any longer,
bank, on the contrary, might claim that the owner is able to make the payments.
To put it differently, there is an element of subjectivity and preferences in that one. Money is fungible. I am able to pay for my car and credit cards, but unable to pay for my mortgage. Who are you or the bank to decide for myself if I am able to pay my mortgage?
Also, you are making it very difficult to scientifically verify the claim by adding criteria.
Here is another modification that you could make that would make it much easier to validate / reject a hypothesis claim.
Simply include 1, 5, and 6. But in 6, specify that they bought a home or rented elsewhere, and find the price they are paying to own and rent. So, look for customers whose home is being foreclosed on, but before the foreclosure goes through, they have purchased a second, cheaper home.
I think this shows intent, and entirely by-passes the subjective matter of "able to pay the mortgage".
Also, where is the claim? Where are the hypotheses? What exactly are we testing?
Are you trying to claim that intentional foreclosures have gone up vs last year? Are you trying to claim that intentional foreclosures are up 10 times vs last year? Are you trying to claim that a 10% decline in home prices results in a 20-fold increase in intentional foreclosures?
I agree w/ many of the commentators above that you are making an overkill here. And then leaving the reader hanging on a cliff, like this is such a tough problem.
Problem is tough, but don't make it harder by introducing unnecessary wrinkles.
Lender part of the lending industry does want to deflect blame AND
keep interest payments coming as long as possible AND play "poor little me" over at the Congress money factory AND
the people who can afford to stay in their Single family home and make all payments, upkeep, etc, will, if forced, walk away from any other real estate investments as speculators rather than admit to friends and relatives thay lack ability to pay for the house they call home.
These folks of means are very far outnumbered by the folks who got in over their head right from day one.
I really believe that Congress needs to hear right now from anyone that does not want to help pay to bailout irresponsible lenders.
I stand by my statement, Tanta's posts are too unfocused, period.
As for the rest of the nonsense that was posted about me here - it is hilarious to see the level of reading comp on this blog. How anyone can say I am a sound bite or MSM supporter, from what I posted is stunning.
Chronicaling history does serve a purpose but if its 100% unfocused it doesn't help much.
Mark my words - now that the loan structures are out of the bag (alt-a) MSM will be writing many many clearly focused pieces on the topic and readership here will fall - happens all the time.
But keep attacking someone with a slightly, and I do mean slightly, different opinion. And godforbid anyone should tell Tanta the truth about her writing.
This may be one great example of overkill. There had to be some other way of making whatever point you made with 10% of the words.
Do you think anyone in the world actually read this entire essay?
I would love to hear from anyone who read all of this.
I can haz nerdiness now?
Underkill,
[sighs]If ya need it in McLite form, try MSM [shakes head]
I just read my post - a little hard - and I think the site is great.
Tanta what you need is not to stop writing so much (words are not evil!), but try and find if Blogspot has the equivalent of Wordpress' tag, which will cut off your post at any place you choose and insert a link ("Read more...") to the rest of the post.
That way, those of us who want to read the whole thing will eagerly click on the "Read more" while others who prefer only your initial gloss on the subject can just read the first couple paragraphs.
It isn't good, for readability's sake, to have gouts and gouts of text on a web page. It has nothing to do with how nerdy your analysis is (yay nerds!) and everything to do with simple web readability.
A noble effort but I'm afraid, in vain. If the MSM say's it is so, it will soon be so. Herd mentality and the feeling that it's socially acceptable (via regurgitated repetition in the MSM). Widespread panic and hysteria do not need REAL events to set them off: War of the Worlds (Orson Wells, not Spielberg).
I enjoy this blog and read it often but I agree that post is way too long. The MSM is good at certain points - and that is not always a bad thing.
And anyway you look at it more 'owners' are going to default and stop paying - period.
SR
It's not the MSM fault - people will walk away because they never should have 'owned' the home in the first place. Even the most uneducated eventually realize they can't pay a payment that goes from $1,000 a month to $3,000 a month after recast - an example was just on CNN an hour ago.
Don't blame CNN for reporting what is happening - see this is how bloggers get a bad reputation.
There is a point were over analysis hurts you - from an investing point of view. If you just want to have academic debate then go ahead - but in the real world people read this blog to profit from it.
SR
but try and find if Blogspot has the equivalent of Wordpress' tag
It does not have such an option.
We just accept a text-bound page with users forced to use the scroll wheel. We accept that because not every blog has to be like every other blog (and my co-blogger is delightfully tolerant of my habit of writing rambling posts).
Besides that, I've come to enjoy the sport of writing long posts and then making bets with myself about how many "too long!" comments I get.
You may think that anyone who enjoys such things is a little eccentric. I think the appropriate response to that is BINGO!
Some of us, your devoted readers, are just plain nerds and nothing makes us happier than a Tanta post with no apparent end. Especially on the weekend.
too short!
Even the most uneducated eventually realize they can't pay a payment that goes from $1,000 a month to $3,000 a month after recast
I understand that you didn't bother to read the post, but really you shouldn't then write a comment like that.
You are talking about borrowers who "can't pay." I just wrote a billion words about the assertion that borrowers can pay.
This is how bloggers get a bad reputation?
It's not a question of how many too long posts you it, you are weakening your analysis by not being able to clearly focus. Any editor will tell you that.
Back the the point at hand though - based on your own previous great analysis, as all these alt-a loans begin to reach the 40 month old mark, most are hitting forced recast. If not this month, surely in the next year. I think it is very logical that as owners see all the MSM coverage, they will watch their payments. Even though they may not have known they had an alt-a loan at first now they may have take a closer look.
Once they see the first recast, I bet they will stop paying. They are more educated today because of all the MSM coverage - they know they cannot make the payment so why even try.
I think in some ways its very rational behavior on their part. And I think its best for the country in the long run.
SR
quartz writes:
Some of us, your devoted readers, are just plain nerds and nothing makes us happier than a Tanta post with no apparent end. Especially on the weekend.
quartz | 03.01.08 - 2:04 pm |
You got that right! Got to feed the inner nerdness occasionally.
Are you kidding? This post was a cliff-hanger! I loved every word!
Now start on the MBSs and BACs and XXYs and forget it. I'm history.
Maybe if we required all FBs to read this post in its entirety at the beginning of the FC process they'd all be scared straight.
One wonder I do have -- at what point does filing bankruptcy alter this process?
Faintly related to this topic (and Tanta's wisdom is just right, and I do have a scroll wheel)
Talk about having skin in the game
Yahoo! 404 - Page Not Found
if I knew how to make it a hyperlink I would.
Tanta, Your definition of 'walking away' is very precise and surely more accurate than the way it is being used generally. However, I think that others are using this term more broadly and would include speculators and distressed borrowers in this group. This broader sense would include people who 'give up' on their mortgage because they no longer see it as a road to riches. People who might be able to afford the mortgage by making huge sacrifices may no longer be willing to make those sacrifices. 'Affordability' became pretty subjective during the run up.
Anyone with an alt-a loan that has recast cannot pay, its simple as that. The great majority at least. That is why they took the nina alt-a loan in the first place.
So I don't understand how you think they can pay. A few maybe but in the big picture they can't.
I think your posts are too long, sorry if you don't agree. You have the same 10 people actually reading what you write. So you are debating with the same few folks - doesn't lead to much of a thoughtful discussion.
SR
at what point does filing bankruptcy alter this process?
Filing BK puts an automatic stay on FC proceedings. The lender has to petition the court to lift the stay.
If the borrower doesn't reaffirm the debt (agree to keep paying the mortgage to keep the house), then the stay is lifted and FC can commence. If the borrower does affirm, then the court can keep the lender from FC'ing until details of a repayment plan are put together and approved.
The BK filing can happen at any point in the process up to the sale of property.
energyecon writes:
I can haz nerdiness now?
Hey, I just figured out there's better way to do this.
Poor Tanta. Can't win. Thank God for coffee and teevee.
Outlook for U.S. banks just got gloomier
The banks face massive loan losses -- "far more dramatic" than most bank executives and ratings agencies have forecast -- as the next chapter in financial sector turmoil unfolds, said Meredith Whitney, an analyst with Oppenheimer & Co. Inc.
http://www.financialpost.com/trading_desk/financials/story.html?id=333860&ref=patrick.net
Atlanta Business Chronicle
FDIC now investigating Zohouri
FDIC now investigating Zohouri - Atlanta Business Chronicle:
Albany Times Union NY
Economic turmoil batters banks
Economic turmoil batters banks -- Page 1 -- Times Union - Albany NY
People come to this blog to make an educated decision on the direction of home prices or stock prices - otherwise why read about this stuff. Some may come to learn about different types of mortgages, but frankly MSM has been pretty good at educating people on toxic alt-a loans - and MSM does it in a glossy way under 2k words that people read.
Again you can have this academic debate all you want, I even agree with most of what you write, but the point is the big picture. And the big picture is people with these loans are in trouble and they will walk.
Time would be better spent trying to figure out what the government will do to try and bail them out. At least that would help make more informed investment decisions.
SR
I do recall this happenning in Texas and Lancaster/Palmdale during their busts. The numbers were significant, so I am not sure why you think it wont happen on a much larger scale nationally?
Way to (unintentionally) make Tanta's argument in short form, stock regulator.
Yes, that is the point entirely: that fee-grubbing banks and brokers gave lots of stated income, garbage loans to any and everyone without bothering to check whether they could pay back the loans under the stated terms.
Now they'd have us believe that there is a "trend" of folks who really truly could afford to pay back these loans but are walking away. Trouble is, the industry never bothered to collect any such evidence their buyers could afford the loans when they shoved the money at them in the first place.
And there are reporters who are passing on this argument as credible, without the slightest bit of evidence.
Get it?
Thanks Tanta -- I cherish the ability of bloggers to write long, when the argument merits it.
But Tanta, would this work for those who are attention-challenged?--
The mortgage industry, in a desperate attempt to deflect blame on homebuyers, appears to be using the press to argue that "walk-aways" can really afford their mortages, despite collecting any evidence to support this argument.
If the industry can't convince lawmakers and regulators that it is the victim of these financially able buyers walking away, it could face increasing scrutiny, regulation and possible fines.
In other words, the losses the industry has created with the credit crisis may not be quite as socialized as the industry would like them to be.
If 30% have no incentive to stay now, what happens when that becomes 50%?
I like your long posts. Keep 'em coming.
What I'm hearing anecdotally, in Florida, is that Lenders are not offering these plans. Maybe because they think Fla is hopeless. Are those plans and forebearances concentrated in certain areas which are less underwater, perhaps?
I note that the figures given are 3rd quarter, 07. I suspect that the failure of the plans to work out will get greater and greater as house values continue to sink.
Some relatively unsophisticated borrowers may do these plans because they actually believe they will be able to refinance. Note that a large number of people who own, can pay, are don't pay much attention to the housing mkt do not realize that their house values have gone down.
Your definition of 'walking away' is very precise and surely more accurate than the way it is being used generally
I'm not trying to use the term "more accurately" than anyone else.
I'm trying to figure out what other people mean by using this term.
And over and over again, I see things like that WSJ piece that talk about borrowers who can afford the payments.
I am rather skeptical of the claim that that's widespread, but I think my criticism of this has been taken by some readers to think I am denying that any kind of "giving up" is going on. I wanted to clarify that I do not deny that people are giving up. I certainly don't deny that speculators give up waaay faster than anyone else (that's why I never made speculator loans!).
So it's not that there is an "accurate" sense of what the term means. It's that some folks are letting some dubious inferences sneak through, or are just conflating affordability issues with speculator issues.
The other part of the claim, as the WSJ summarizes it, is that this behavior is new. Well excuse me, but if we're talking about speculators, this behavior is not "new." It's what speculators do when the market turns around. We have always known that.
One last thing, then I have to go and do some mundane crap that life requires. Before everyone dismisses my views note that I have been short lenders for 2+ years, I shorted NEW from $60 to ZERO. I have emails from the MSM telling me I am a moron and NEW couldn't possibly go to zero because they originate $30+ billion in loans a month. Or they are hedged or blah blah blah.
Point is the posts are too long for the majority of readers. And they are unfocused.
SR
Alo - I fully admitt I didn't read the post. Way too long. My point is you get further being focused versus rambling on and on.
I have been short the alt-a lenders since before you were reading this blog, please don't tell me I made her point unintentionally - her point was buried somewhere.
My point is alt-a loans are going to cause a massive flood of foreclosures. The people that have them cannot afford them, I don't care whose fault it is - I want to profit from it. That is how the country will move forward.
And if you want to draw attention to the scum at CFC and WM and DSL and on and on - its better to do it with shorter posts more people will read. It is common sense.
SR
SR: "I shorted NEW from $60 to ZERO."
Sweet. Isn't that the God-short? You get to make the money shorting and never pay taxes on it because you never actually sell your NEW shares. (Profits from shorts are always short-term gains anyway.)
Am I right?
One other thing Tanta, not that I'm trying to put words in your mouth, but I agree that if the perception of walk aways is not challenged, then there will be huge quantities of FBs -- who are not just subprime, not just alt-a, but even real live (kicking and screaming) prime borrowers -- who are going to be victimized by legislation aimed at quashing the "walk away" movement. That may not be your intent at all, but if not, at least I hope it is a by-product of your post.
I do recall this happenning in Texas and Lancaster/Palmdale during their busts. The numbers were significant, so I am not sure why you think it wont happen on a much larger scale nationally?
What happened?
That borrowers who made no downpayments walked off in large numbers because they had intended to "accumulate wealth" via home price appreciation?
I don't remember it happening that way.
Surely many people just gave up and mailed in the keys. They needed to sell and couldn't, or didn't want to live in a ghost town, or lost their jobs because there is a long complex dynamic between RE busts, employment, recessions, etc.
I personally remember farmers in the midwest showing up at the bank with their deeds and their keys in their hands. But that was because they could no longer afford to keep their homes.
My whole problem here is that we made loans to speculators, even after we saw what speculators did in the last bust. How's that for dumb?
RE: the post to SR: Err, sorry I meant "buy back" the NEW shares, not "sell". I meant just closing out the position.
[ mal wrote: It isn't good, for readability's sake, to have gouts and gouts of text on a web page. It has nothing to do with how nerdy your analysis is .. and everything to do with simple web readability. ]
I disagree. One of the reasons I keep coming here is because it's one of the few places I know in blogworld where the layout is clean and the posts are long and coherent (and focused).
Stock_regulator ought to stop telling everyone else what they think.
Great post Tanta, defining terms is very important and often has to be repeated or the battle is lost by default. There is a lot of misapprehension and muddy thinking and writing out there on these issues. Thank you.
There are five of you, right?
Stock reg, and thanks for agreeing with me, unintentially. Except the part about the short posts.
You might have been wise to Alt-A years ago, but if it was before this blog began, pardon me for doubting you got that wisdom from the msm.
This has been a great week, lots of Tanta and then bonus Tanta on the weekend.
For those of us that routinely ask, "Why?", reading a Tanta post is never a chore.
Anecdotal but I have more people asking detailed questions about the mortgage business and actually listening to the answers with much less eye glaze than in the past. I often send them links to your posts to further open their eyes.
Rock on!!
NY Times - In Parts of U.S., Foreclosures top Sales
OFF THE CHARTS; In Parts of U.S., Foreclosures Top Sales - NY Times
NY Times - Tapping Into Homes Can Be Pitfall for the Elderly
GOLDEN OPPORTUNITIES; Tapping Into Homes Can Be Pitfall for the Elderly - NY Times
Weather - Yes if it disappears you never have to cover.
My point was I agree with most everything here I just think she would be better served with shorter posts that more people read.
And I think people read this to profit from it, and not to get caught up in very minor analysis issues. I have an example where I passed on buying BA in 2003/2004 in the $30s because I overanalized its pension liability situation. That was a terrible mistake by me and I have learned from it. Over over over analysis is just as bad as doing no analysis.
That is my main point - I have to hope.
SR
Point is the posts are too long for the majority of readers...
I think, stock_regulator, that you mean they are too long for the majority of your readers, you know, the hordes who religiously follow your blog, the one that captivates the audience with your short commentary distillation of the ins and outs of stock_regulation... The one scaled to the sound bite crowd... the one you link to on your posts...what? You don't?
Never mind.
One tip...don't change your channel. They'll be right back after they inform you some more. Just leave Tanta out of it, ok?
How dumb - pretty dumb!I did some mortgage audits in the 90's and the same stupid mistakes that took companies down then were repeated, except on a much larger scale.
I think if this is prolonged, then the arugement will be settled and there will me moving vans with zombies driving around towns looking for a place to park and sqaut. If this bust is short, then...
Tsk, tsk. Let's be precise, now.
"New Universal Church of Jesus On a UFO"? It's New Universal Church of Jesus IN a UFO. I mean, what's he supposed to breathe, for chrissake?
(snort)
I think if I ever had to click a dumb link just to read the rest of a post, I would "walk away" instead. Scrolling is simple and gobs and gobs of clean, well paragraphed text is very readable. Specially those of us brought up on books.
As far as the length, the issue isn't too long or too short, the issue is focus, and there's no shame in admitting some editing could have helped on this one. We all ramble at times.
And I think people read this to profit from it, and not to get caught up in very minor analysis issues.
I highly doubt that.
Is it true that if a home owner does a refi (possibly a cash out refi) that the mortgage becomes recourse meaning the bank can go after other assets if the sale of the home doesn't cover the note?
Ed, have some faith, buddy. Our Savior respirates in mysterious ways.
Ratefink, LOL!
Outsider,
Amen. SR's deep logical fallacy is that everyone reads this blog for the reason she/he/it does...
I mean, what's he supposed to breathe, for chrissake?
He's JESUS! He can breathe anything he wants to breathe, heretic.
I believe, as far as Housing Fiance is concerned, that Tanta is the Messiah. Every word is handed down on golden tablets and that is hard to edit down for a post.
stock_regulator | 03.01.08 - 2:14 pm | #
I would submit to you that it is you that are unfocused.
By the time you get to the last paragraph, all that precedes it has exposed the meme the industry is trying to sell. Without the Tanta making the case the last bit is still her guess, but a very educated one.
And I am one of those average citizens, and am not getting very good info out of the MSM. On any subject.
Is it true that if a home owner does a refi (possibly a cash out refi) that the mortgage becomes recourse meaning the bank can go after other assets if the sale of the home doesn't cover the note?
That is true in those states (like CA) that exempt purchase mortgages from recourse.
A whole lot of the rest of the states don't distinguish--you can face a deficiency judgment on a purchase money loan in those states.
Too many people on the net write about CA laws as if they were federal laws, or as if all states were CA. It causes a lot of confusion.
Tanta I think it's great that you demand actual evidence even though it's so inconvenient to try and prove assertions.
But
Although Mish has often alluded to "walking away" the way you have defined it as a possibility that will increase and reflect changing moods about debt, he has primarily been focused on debt burden being the driving factor behind his predict of financial Armageddon. In the post you linked, he didn't claim that these people could pay but chose not to, so I think his major sin was not being specific enough when he said people were "walking away" and getting lumped in with the MSM definition.
I love the irony considering how he goes off on people that use the common definition of inflation.
I first heard this said about mathematics but it applies to Tanta"s posts (and their length): education can be enjoyable, but it is not entertainment.
mikkel, I really didn't want to jump on Mish's case. I ignored that post for a whole week.
But I have (at last count) had it e-mailed to me 19 times from people saying some variant of "here is some evidence for walking away that you have demanded."
I am therefore misusing my blog as a substitute for answering a whole lot of emails (with a little blasphemy thrown in, too!). It's a wonder I still have readers left.
Tanta, I wish your posts were longer and more blasphemous
Tanta
Oh, you'll have readers left.
Oh, I agree with the too long. One sentence should suffice for enlightening discussion. C'mon, Tanta's gotta know by now that no matter how clearly she states her position, she's going to be following in the comments pointing out what she actually said and then fruitlessly trying to show how the commenter didn't understand the simple English, let alone the mortgage gobbledeegook.
BTW-ac, is that your neighbor's new cat?
Tanta, if I wanted short, I'd read some MSM thingy like businessweek (really the people of the business world) or forbes (we think we're smart). I'm used to chewy reads because I've read the Economist of many years. Just try to make it through one of their more pithy economic articles without having to pause and think.
And this caused me to pause and think. And I agree with undertone...that people aren't just simply "walking away" and that even if people SAY that's what they are doing they are, in reality, under financial stress.
Just imagine this: you've over-extended and now are losing your house. How do you explain this to friends, family, and co-workers when it's going to end up in the paper? You say, of course that you're walking away..after all...those banks are all theiving bastards and those RE brokers are pigs that just oversold me.
I'd be more inclinded to believe the uptick is due to this sort of bravado than actual planning.
Does the format encourage ADD? [Are you still reading thinking this is the Executive Summary?] Does any public forum (which assumes a non-executive audience, SR...and all the ADD that goes with multitasking minds like that) [scuce me while I email my kid pecking away with my free nose] insist on a delivery that will err on verbose rather than quixotic? [Dang, this is no executive summary, I can tell, you?]
To what extent is "too long" self-congratulatory and to what extent self-delusionary?... for those used to executive summaries and know it all already...lookit my compensation package an see if it ain't so.
Like bacon dream says "too short": if there is anything good to come out of this housing debacle and this stage of it, "walking away", it surely has to do with the moral implications of profiting...from your less successful counterparties.
Those poor devils.
Good point, ipodius
Well, Tanta, I for one read the entire post. But hey, I too admit to being a nerd.
The last paragraph tells the tale, the lenders ruthlessness has settle in on the borrowers side too. Geez, you can't push stuff at people and then turn them over to some of the most ruthless collectors on the planet (Saxon comes to mind- cash out your life insurance to pay our outrageous reinstatement fees, and your IRA too!) and then expect the public not to pick up the lessons and use them too. Wall Street should not be surprise either, with the level of bad behavior tolerated there ( um, hey stock regulator- SEC doesn't seem to do crap) that folks are getting cynical.
The lessons of the last decade have been to panic first, sell fast, and then pick up the pieces if they look like they might be solvent. Enron is the poster child, but so many other bad stocks, bad bonds, and bad investments have trained the public to hit the sell switch as fast as possible.
I think in the case of the ruthless defaulter (which outside of speculators) is most likely currently rare, with any adverse economic event to their budget, they will walk away so fast that CFC's head will spin. Along with the GSE's too.
We wanted rational behavior from the public, now we have it. Rational means cut your losses ruthlessly too.
Someday this war's gonna end...
Thank you, Tanta.
I read it. All of it. In one sitting.
The length was perfect, as was the presentation and format.
I don't think Tanta's posts are too long, but then I am not intellectually challenged with attention deficit disorder.
As someone who works primarily with repossessed homes, I can state with absolute certainty that very few of the homes I deal with are walk-aways.
In most of the foreclosed properties which are still occupied, the borrowers vacate as soon as or shortly after notice is given. Some are given "cash for keys"--$500 to $1500, to provide them with relocation funds, but in those cases they have to vacate within two weeks and must leave the house cleaned and in good condition, meaning they can't take anything attached to the house with them.
The foreclosed properties which are vacant have usually been so for several months. In those cases, the borrowers left after they received their first delinquent payment letter from the lender. They often take the appliances, light fixtures and ceiling fans with them, and sometimes the interior doors and carpet. In instances where they completely gut the house, remove the cabinets, tear out the walls and take the plumbing, it's usually because that's what they intended to do when they moved in.
I've also been to more than a few lock-outs, when the sheriff had to forcefully remove the occupants and all their personal property from the house. Those are never fun.
But I have never had to deal with a property in which the borrower just mailed the keys to the lender. I have had some foreclosed properties that were the result of phantom buyers and mortgage fraud though.
What I think this whole debate should be centered around, however, is how the mortgage industry should be more discerning in whom they make loans to. The vast majority of foreclosures are the result of divorce, unemployment or a medical emergency. It's only recently that flippers who couldn't flip and builders who couldn't sell have become a problem.
Slate.com
The Unspeakable R Word
Why nobody in DC wants to say recession.
Why nobody in Washington wants to say recession. - By Daniel Gross - Slate Magazine
Tanta,
I have seen it in action in Texas in the 1980's. Neighborhoods went HUD and people who paid 100000 for a 50000 dollar house just quit making payments. 2 of my friends parents did this and they rented the houses around the corner for years. This back in the day when you put 20% down. People will walk in droves once this thing gets really wound up. My parents didn't walk but their home dropped from 100000 to 50000 from 81-84. Got back to 75000 in 1989 then collapsed to 50000 again. I sold it in 2001 for 103000 it peaked at 117000 in 2005. Adjusted for inflation a dead loss of probably 70%.
Tanta--
Don't listen to the sound-bite crowd. They're part of the problem.
(Speaking as one who has experience with the editors and reporters who "shorten" and "focus" so "regular folks" will read it--and thereby invariably garble things to a greater or lesser degree.)
Start of a trend?
Activists Bare Teeth Over Foreclosures
By Adam Geller, AP National Writer
In Fight Against Foreclosures, Ornery Activists Tackle Countrywide, Nation's Biggest Lender
CLEVELAND (AP) -- Folks on Humphrey Hill Drive were still waking up on the icy Saturday morning the shark hunters came to town. They rounded the suburban traffic circle in a pair of rented school buses after a half-hour ride from far more modest neighborhoods, rumbling to a stop at the Garmone family's driveway. Forty-two caffeinated Clevelanders piled out, their leaders carrying bullhorns.
Their quarry, Mike Garmone -- a regional vice president at Countrywide Financial Corp., the nation's largest mortgage lender -- didn't answer his door. So they deployed, ringing bells at the big homes with three-car garages, handing out accusatory fliers and lambasting Garmone and his company's loans. Before departing, they left their calling card -- thousands of 2 1/2-inch plastic sharks -- flung across Garmone's frozen flower beds, up into the gutters, littering the doorstep.
[snip]
To: Lev Nikolayevich
From: Your most humble agent
\tLev, Baby!
\tLoved your latest. LOVED IT! I just talked with the publisher. He doesn't really care about the options on the Russian edition, just go ahead full bore, do whatever you like. Had just a few suggestions about the English version he read. He thought it was GREAT!
\tJust one thing, he said. Won't beat around the bush. It seems, well, a little, long. It's not very concise. Asked if you could boil it down a little. More "crisp". You know, "French invade, French repulsed, Prince Andrei and Natasha live happily ever after", that sort of thing. Run with that, maybe 25 pages or so, a good short story; maybe we can get it in the New Yorker for a little touch of class?
\tPublisher thinks if we can get it down to that there's some great material to work with. Movie options, reality show. What the with writer's strike and all it's been hard to put it together, but the reality show could have a real European Prince (I'm told the authentic Russian ones were lost in some historical accident), and twenty-five girls trying to marry him. The twist will be that all of them are really named Natasha! Burnett thinks he's got a great angle on how the Prince keeps them all straight.
\tPublisher loves the title. Thinks it's GENIUS! But wonders if maybe it works better in the original Russian than in English. If you have to keep the "and" thing, then maybe, "Andrei and Natasha"? Of course, he thinks the real option money is in, "Who Wants to Marry Prince Andrei?"
\tLev, just get the page count down to 25, then call me!
if I knew how to make it a hyperlink I would.
Type this:
Linktext
url is the copied URL and Linktext is whatever you want to display as the hyperlink.
I read it all. And loved it.
Tanta, in case there's any possible doubt, I read every word and think you should keep them all. Complicated subjects sometimes require some length.
The trouble with most media (CNBC especially) is that they never alot enough time to fully discuss any issue. I find myself watching PBS on occassion because they tend to allow people to speak.
I only read this blog because Tanta goes into such detail. If bloggers become worried that they will loose a reader after 3 minutes they might as well write for the news papers. When did knowledge become a bad thing?
Hats off to Tanta and Mish.
I read CR for its nerdness and an occasional mortgage pig sighting.
More and more, I'm convinced "walking away" and "jingle mail" are just new slogans invented by Wall Street to shift the blame on to the borrowers. The borrowers didn't invent this crisis. Borrowers didn't hold guns to the heads of lenders and demand no money down loans with no-doc income.
A whole bunch of folks made money controlling the funding flow upstream of the borrower. Did borrowers take on too much? Absolutely yes. But the spending spree was only possible with the 2ez money.
PS I also enjoy reading all of the comments and their diverse view points.
Dammit, why does Halo preview ampersand lt semicolon as if I were doing it right and then publish it as if I were doing it wrong?
< a href="url">Linktext< / a >
Without using any spaces in there except the one between the first a and href.
for the deal in question here (WMALT 07-OC1), in the january remit, it looks like 80 new loans (~$31M) moved into FC status, of which 40 (~$14M) were previously 2m DQ and 38 (~$16M) were previously 3m DQ.
I side with Mike Shedlock on this issue. Why some people try to debate otherwise is somewhat comical> And yes, I do work in the industry.
Tanta, if you had been my Finance prof, I would not have switched my major to "Touchy-Feely"...keep teaching me..I won't drop your class....
The newspapers are cutting staff so deeply that they are reporting very little news...Public Radio gives us a bit more, but two weeks late and then a 10 minute segment...
I am convinced the Calculated Risk is important for understanding the current economic climate....Tom Barnett is a great spot to learn about the US military and global interaction and Ken Pomeroy has changed the way people look at college basketball....
thank goodness for blogs....
on the other hand, if I go to a coctail party and talk about what I have learned at CR, my friends' eyes glaze over and the refuse me a third glass of Caymus.... most people prefer to talk in MSM "talk-bites.."
I made a comparison to Tanta and Dickens a while back concerning their daily constitutionals, but you know, Dickens also was paid by the word. I'm sure she worried that SR might not want to read her stuff any more and will take appropriate action. At least she's not A. Trollope.
BTW- the format is the problem, but I just can't bite the bullet and print out a hard copy.
bacon dreamz, does that particular remit show a decrease in 60 or 90?
Thanks Tanta,I read every word.The devil is in the details,and if wanting a thorough understanding makes me a Nerd,so be it...A tea swilling, .45 packing,cackling Nerd.
Of course I read the whole thing, and I'm as civilian as one can get. That's why I come here, to get something other than the pre-digested pap the MSM supplies.
Mish:Foreclosures increased a whopping 4.92%, yet in December, 2007 the 90 days delinquent bucket was only 3.79% (If every 90 day delinquent loan went to foreclosure, the jump would only have been 3.79%)
Tanta:MBA data tells us that 29% of all FCs in the third quarter of 2007 happened after a repayment plan failed
Now, 4.92% / 3.79% = 1.298. An almost perfect match for the 29% of failed repayment plans. That looks like the likeliest explanation.
OT -- Q4 07 earnings are ~75% in, and they are stunning: down 52-54% (continuing/as reported) compared to Q4 06.
The Wall Street Journal Online - WSJ.com Log In
I look forward to seeing the revised P/E calculation from S&P.
I side with Mike Shedlock on this issue. Why some people try to debate otherwise is somewhat comical> And yes, I do work in the industry.
Data or experience that makes you say this? On what is this based? What is comical?
in the jan remit:
60 DQ: 50 loans (~$16M)
90 DQ: 11 loans (~$3.4M)
in dec remit:
60 DQ: 52 loans (~$21M)
90 DQ: 41 loans (~$17M)
ipodius, the same industry insiders who told you for years that people with a 720+ FICO "just don't walk away from their debts" are now telling you that it's some kind of obvious that people with a 720+ FICO just walk away from their debts.
You are free to conclude that some people deserve to be called on this harping on how "obvious" this all is.
Well that's a nice tree view look at the forest.
Tell me, what is the trend going forward. I've got $2M homes with in walking distance that are stripped. Prey tell what's the issue going forward.
Tree analysis is only good in a static world. The environment is changing.
Cheers,
Kudos Tanta!
To the gripers, and I'm putting this at the top so you'll be sure to see it: POGYODB (piss-off & git yer own damned blog)
Back to Tanta;
I'm glad you covered this, because for the last week I've been thinking to myself whether one could really make the conclusion Mish did based on that remittance report. I was skeptical, but not being an expert I couldn't say one way or the other.
There is one other thing that I was curious about. Mish mentions the point that the pool was securitized in May and is blowing sky high a mere 8 months later. He doesn't precisely say as much, but to my limited reading comprehension skills, it feels he wants me to infer the loans are only 8 or 9 months old. In actuality, how old should we expect these loans be? Is there any way to know?
Given your explanation for the clock being stopped and then restarted, to get the jump in FC's without a consecutive progression through 90+ bucket it seems to me these loans 1) are realistically either first or second payment defaults or a lot older than 8-9 months and 2) rather horrible no matter how you look at it since it is unlikely they are so old to have experienced any kind of payment shock. Yes?
I thought the post was just fine.
Then again, I enjoyed reading Moby Dick. Twice.
Tanta,
I think you make an excellent point and no it wasn't too long. I must admit I read it in two sections.
The lenders seem to be trying to get everyone to believe it's the consumers who are ruthless and therefore they, the lenders, should receive help from D.C.
As I see it, everyone has a part in this mess and everyone should take responsibility for their actions. No one sector deserves or needs to be bailed out.
My hope is steps are taken so this kind of crisis doesn't take place again.
the same industry insiders who told you for years that people with a 720+ FICO "just don't walk away from their debts" are now telling you that it's some kind of obvious that people with a 720+ FICO just walk away from their debts.
Of course! Because they can't be wrong. Still, I'm sticking to my thesis that, upon analysis, most of these stories are coming from people that can't admit they were foreclosed ON. You can just hear the cocktail party talk "Well George, I called up the bank and said here's the keys! I ran the numbers and it didn't make sense. Those bastards! Can you imagine upping the percentage that much and not budging!" I mean, who's going to look up the fact that they had a fixed rate loan with a piggy back at 100% that was sucking up 50% of their net?
In actuality, how old should we expect these loans be? Is there any way to know?
As a rule you want to be careful about ever assuming loan age from security issue date.
Some pools only contain brand-new loans; some only contain seasoned loans; some have a mix. You just have to look at the prospectus. I looked at this one last week and if I remember correctly, there were a substantial number of older loans in it.
Even a security limited to "new production" is likely to have loans that are 1-3 months old at the issue date, age here being measured from the closing date of the loan, not its first payment date. Sometimes the prospectus will give loan age in terms of months from first payment date, which is why you can see loans with a "zero" loan age (loan is closed but first payment is not yet due at issue date).
After I'm done spilling sandwich crumbs on my keyboard I'll go look at the prospectus again . . .
Just based on real world experience, and my CR/Tanta academic education, I would say:
--most real homeowners who CAN make payments will continue to do so, regardless of the market value of their home, because it's HOME.
--Speculators who find themselves in an unprofitable investment, with no return within their time horizon, will abandon that investment.
--a high percentage of people who CAN'T afford their house payments will lose their homes because the lenders won't be able to strike new deals with very many of them, for all the reasons Tanta has listed in the past.
--People forced to move (for any number of reasons) may walk away from a home and mortgage if it just won't sell.
All of the above still adds up to a big problem that has nothing to do with unscrupulous homeowners who don't have the ability to empathize with their mortgage company.
That's my summary of what Tanta is saying--and I do read her posts in entirety because she rewards me with those wonderful little snide remarks that make me laugh.
the weighted average loan age was 12m in the january remit.
I'm sticking to my thesis that, upon analysis, most of these stories are coming from people that can't admit they were foreclosed ON
Oh, I think that's very plausible. I don't know how anyone but a serious social scientist could verify that. But certainly in the higher-end group there is the possibility that we are being treated to bluster.
I have often feared that a lot of this whining about how either 1) jumbo loans are just no longer available or 2) these damned lenders won't even offer repayment plans is coming from people who were offered a loan or a plan but just couldn't afford it. Instead of saying "I don't make enough money for that," what we hear is "lenders won't play ball."
Tanta, you are the Willy Wonka of housing bloggers.
And every so often you produce an everlasting gobstopper.
Stay nerdy.
Andrew Foland--
Loved your Tolstoi bit. Top-notch.
Here's the prospectus for the little booger:
3B2 EDGAR HTML from 48239 1..109 ++
Cutoff date of May 7, 2007 for the pool (it was issued later that month).
2 loans had a year of initial payment of 2005, and 196 loans had initial payment in 2006.
2.98% of the loans in the pool had a delinquency prior to the cutoff date (although they were current at the cutoff date, meaning they "reperformed.")
Looks like there was a fair amount of real junk in there.
Calculated Risk,
You definitely need to consider a way to split the post with 'read more' tag or something. But it depends on your target audience. I suspect the real estate readers will be ok with such a long post; but casual readers (like me) who only read specific topics find the long post to be detrimental. People like me have enough things to read (information overload
) and will simply skip these blogs if we can't find what we need.
Anyway, it's a decision you have to make on whether to split a post or not. Remember, the question is not about cutting the length of the post (I think some posts contain a lot of technical details that it shouldn't be cut) but splitting it on the main page. If you are interested, there is a workaround for the 'read more' link in blogger but I would test it thoroughly before doing anything.
Blogger's way of splitting a post (but it requires a 'read more' link on ALL pages)
An alternate method that doesn't require 'read more' for every post but this requires JavaScript and I'm not sure if this causes any problems with your advertising system (I wouldn't do anything until you test it thoroughly).
Anyway, some thoughts... maybe there are better solutions...
I think that at least in the short run we may a have a group of people that walk away who could have afforded the mortgage if only the had not bought a new house before they sold the old one.
More anecdotes, but I've seen far more of them than examples of the truly ruthless. These folks were not paying close attention to the market, went out and made an offer on a new house and listed the current one assuming they would immediately be deluged by offers only to see the house sit, a few months and a price cut or two later, the realize they are underwater on the first home and they can't afford two mortgages. Some of these people will feel tempted to walk from one those houses.
I think such cases will fade as this danger becomes clearer and people will not buy a new house until they have unloaded the current one, and further as lenders grow more reluctant to lend to those who have not sold their current house.
In meantime such cases could be used be another part of the "well-off" buyers walk-away meme.
Stock_regulator, don't assume that others come to this site for the same reasons that you do. If you are looking for quickly summarized information concluding with buy and sell recommendations I really think you need to look elsewhere.
I come here precisely for the minutia and detailed, unbiased analysis that is not available anywhere else. Tanta and CR are not trying to sell me anything and they don't seem to be bound by pre-conceived ideas. I like reading this kind of stuff because I want to learn how the financial world really works, not because I'm trying to grub up some more loot for myself.
Excellent essay, Tanta, only took a few minutes to read. Keep them coming!
"I have come to accept that Calculated Risk junkies have a tolerance for outright nerdiness that never fails me."
raises hand
Here's the prospectus for the little booger:
good point. it's only a $500M deal. WaMu has much bigger boogers out there than this one...
More from the WaMu pool:
DTI 40.01-45%: 29% of pool
45.01-50%: 12.36% of pool
50.01-55%: 1.17% of pool
55.01-60%: 0.34% of pool
CLTV over 90%: 65.79% of pool
But I'm sure these borrowers have plenty of money . . .
WaMu has much bigger boogers out there than this one...
Let's not go there.
As long as you have the Jan remits in front of you, what's the current pool factor?
Yeah, it's the internet, but the cheekiness of some folks telling other folks how to run their web site never ceases to astound me.
So let me say I like the site exactly as it is. Further, I tire and actually hate all the look-a-like web blogs that out there.
Tanta, I strongly suspect that we are seeing real jingle mail in places like California and Florida, with drops of 20% or more. But I agree that none of the numbers or stories that I've seen prove it. Months ago, in an era before YOY CS indices were negative, CR ran a post (later corrected) that said that everyone under water would default, and I yelped, saying that people struggle to keep their homes until they are about 20% underwater, and then they get ready to walk. I based that on no hard evidence, but rather on all the war stories I had heard in the early 90's from people in the biz who went through Texas in the late 80's. They all had tales of Houstonians who bought a similar house across the street for 20% less than their mortgage balance, and then walked on the old house. And it's all anecdotal, none of it data driven.
I disagree that you'd need to establish 2 and 3 in order to prove jingle mail. If substantial numbers have the income to pay and decide not to, the presumption of jingle mail has to be awfully strong. While I know of 1 case in my career of someone with enough resources walking away from a property with equity (dementia was, literally, involved in the sorry tale) it is rare enough in normal times that seeing it in the current circumstances would be enough to convince me, without looking deep into the borrowers' souls. If they have the resources and they walk away, they're walkers - whether or not they knew and projected the CS index. But I'll need data to prove that people with resources are walking away before concluding that I know it, instead of concluding that I strongly suspect it.
Thought I knew someone who would fit the bill as a walk away, but turns out that it was a case of financial hardship, albeit five years down the line. After stopping payments he's in negotiations with the mortgage holder and happy to stay in his place at less than his ($8,000/mo) current payment.
As long as you have the Jan remits in front of you, what's the current pool factor?
0.95! it's prepaying at 4 CPR!
Bacon d--what does that mean?
I know its sad to say, but there are a group of us here in sunny London town (the UK version!) who view your thoughts on the US mortgage problems as required reading, especially as some of us need to understand a bit more than most to do our jobs.
It is 9.20pm on a Saturday evening,the dog has been walked, the Bacardi is on ice and going down rapidly, which does make understanding some of the twists and turns of Alt-A a little more difficult, but in the Army we called that a self inflicted wound.
Anyway, I know we sound like a sad bunch of gits, but keep up the good work.
mort_fin, I included 2 & 3 because that is the claim the WSJ makes. Indeed, the only "example" we get is that borrower who says he's doing this solely because he's underwater and he doesn't think he'll ever get above water.
My trouble with the correlation of underwater and default is that it does hold, but it isn't claiming that negative equity itself causes the default. It shows that if you have negative equity and for any reason you need out of the loan (financial difficulties, need to relocate, etc.), your only way out will be default.
We suffered from the opposite logical problem during the boom: there just weren't many FCs of these dumb loans in 2005, because people in difficulty could always sell. So some folks concluded that people in 2005 weren't in any financial difficulties, because the FC rate was so low.
I do think it matters whether you see "walking away" as driving the bust or being caused by the bust. I suspect our overlords in the MSM of wanting to believe that people walk because of 2 & 3 because they want to believe that people read the papers religiously and keep up with this stuff. Some do; many don't.
I still believe a lot of folks have no idea whatsoever that they're upside down until they decide for some other reason to list the property, and then they get the bad news. They might walk away after that. But again, that makes me ask what made them decide to list it in the first place.
Investors who spend untold hours digesting obscure financial reports, now complain a blog entry is too long? C'mon.
I read every word in every article, all the comments, and all the links. You never know what tidbit might surface to improve your life.
Make a payment, skip a payment, do that for six months and then wait for the sheriff. The amount you pay is about the same as paying to rent the place. It's as if the lender is paying you to keep the vandals out. Kewl...
--most real homeowners who CAN make payments will continue to do so, regardless of the market value of their home, because it's HOME.
Well, the people who are most likely to have overpaid are more likely to have bought their houses in the past few years and may be less attached to it.
Also, I've talked to one person who is considering "walking away". She was highly reluctant until she got the idea of renting a similar house in the same neighborhood for half her mortgage payment.
Freeing up a quarter of your take home pay can do wonders for homesickness.
Bacon d--what does that mean?
the pool factor is just the current dollar amount of the pool dividend by the original dollar amount. CPR is an annualized measure of the prepayment speed of the pool, so in january, approximately (4/12) % of the beginning pool balance for that period prepaid. this is WAAAAY slower than the people who bought the bonds were hoping for, and bad news for the deal from a loss perspective.
In October 2007 I was in Spain walking the Camino Francais to Santiago de Compostela. Just past Leon we were heading for a typical small village which the guide book said had one filling station and a bar.
Just outside the supposedly typical small Spanish village we walked past the brand new golf course, admired the new luxury club house and around the corner walked through the housing estates of very nice flats and houses (including terraces of mock Tudor style houses) together with shops and a primary school.
There were however, no people, apart from five workmen painting some flats.
We managed to find the bar by the main road and enquired where all the people had gone.
The explanation was that there were no people.
A Spanish developer/builder had decided to build a "new" village in the middle of nowhere in the hope that if it was built, someone would buy. When nobody had bought, the banks foreclosed about three months previously leaving just the grass to grow.
Presumably the development now sits in the European Central Banks vaults as part of the 75bn euro in emergency funding drawn down from the ECB by Spanish banks using their property loans as collateral.
I am guiltily going to admit that I read the whole post purely for pleasure, because unfortunately this is one subject I know well. I also love Anthony Trollope; maybe there is a connection. He's all character development, little plot.
To SR, all I can say is that many people go to these things called "libraries" that are filled with big wads of dead trees presented in "books". You will hardly believe this, but many people read purely for pleasure, and many people read nonfiction for pleasure.
What you're really saying by complaining about the length is "hey, shorten it down so I can read it and make sure that I don't miss anything that I could use to make a profit." And that makes you look a bit self-centered, doesn't it? And stupid, too, because right in the beginning, she explains that this post is about how to read remittance reports and that it is in response to the contention that they show something they don't.
Also, I've talked to one person who is considering "walking away". She was highly reluctant until she got the idea of renting a similar house in the same neighborhood for half her mortgage payment.
Freeing up a quarter of your take home pay can do wonders for homesickness.
Good point. People are going to have different perceptions of the intangible value of their home, and different ideas of how much financial sacrifice they are willing to make to stay in that home, if cheaper alternatives present themselves. On further review, I guess I would agree that we may see unprecedented homeowner behavior in places where the housing market has behaved in unprecedented ways, moving up fast and then down even faster.
But I still share tanta's wariness of an anecdotal approach that turns lenders into victims and borrowers into predators.
The 0.95% pool factor means, basically, that these people are refinancing or selling (which would be a prepayment) at an extremly slow rate.
And exactly TWO loans have hit their first rate adjustment already.
Tanta and MaxedOutMama posting in one evening.
Our cup runneth over!!
In order, says my tin-foil-hat, to rescue their shareholders' capital during their coming bailout, at the expense of taxpayers/savers through taxes/inflation, respectively.
stock_regulator:
War and Peace? Too long!
The Power Broker? Too long!
The LOTR trilogy? Too long!
The Iliad and the Oddysey? Too long!
Stick to Highlights magazine and CNBC, chief. There's no need to dumb down a perfectly excellent blog for your benefit (or with your comments!).
...It's quite likely many of these vacant properties were speculative purchases.
I'm inclined to believe this is what's going on right now. Occupancy fraud is far more prevalent than any of these lenders has let on.
What's really nuts is having this level of DQ prior to the biggest wave of resets and without a big surge in unemployment. I'm leaning towards a scenario where the speculators are jumping ship right now. I can't imagine what it will be like when employment worsens and the resets hit full force
Tanta - I wouldn't rely on the equity-default correlation either. I said that I don't think you need to establish 2 and 3, but I still think you need to establish 4, and that's almost impossible with aggregate statistics. If you haven't established 4, you haven't proven that people are walking.
I do think that people in places like CA and FL now understand that they are underwater. A few months, when my part of the world was 5% down from peak, I knew lots of people in denial. Now that we're down closer to 15% in my ZIP code, and places listed at 2005 prices are sitting for 6 months without selling, most people I've talked to concede that things have moved downhill. Any geography with substantially falling prices is full of media reports and over the fence chatter on the subject.
I read almost all of it. I think that there is plenty of evidence out there and that Tanta just chooses to ignore it or just can't seem to find the time to read it due to the excessively long posts. Anyone who cares to take a few minutes out of their busy bloggin' schedule to read through the posts here http://bubbletracking.blogspot.com/ and at many of the other sites linked to this one, will quickly find that there is ample evidence of people with no other choice but to walk away. Whether you are being forced out because you can't afford it, or lost on speculation (can't sell, can't afford carrying costs) is statistically the same, either way the keys are going back to the bank, this constitutes walking away. Read through these sites and look at the staggering number of people who "bought" 2, 4, or 10 properties and tell me the vast majority may just be in the hospital or working out a deal with their lender. LMAO! BS I say, the evidence is there if you'd stop typing long enough to take a look at it.
I read it all. If Tanta can take the time and effort to do this for us, we can take the time and effort to read it all the way through. I learn something in every post.
Many, many, many thanks.
stock_regulator may never be sorry he picked on me, but by God he's going to be sorry he pissed off the rest of you guys.
Racer X, that's an important point. Are servicers coming clean with the dirt on how many of these deals were occupancy fraud? For that matter, are they coming clean about how many of these deals were just plain straw borrowers? I mean, there are some people who walked away from the closing table.
mort_fin, I said a while ago and still think that the statement that number 4 is true is coming from servicers just re-running a credit report and seeing that the borrower is current on other obligations.
Which of course may only mean that they're distressed, but they have to keep that Visa open to cover groceries, so they pay it instead of the mortgage.
While I must admit I skimmed, I got the gist of it. I give endless thanks to my sixth-grade teacher for introducing me to speed-reading for comprehension.
That said, to those who complain about long posts explaining fine but important points of mortgage activity I would say one thing: this is source material. There is no place else where this kind of analysis of the mortgage industry is being written down.
If you want the simpler version, go to the MSM; because the best of them have probably been here, read and digested the long posts, and informed their own simplified reportage with this material.
But here is where it all starts, or seems to these days. It's where the details live. They've got to be somewhere.
My neighborhood still has some real denial listings in it. But it's suburban DC. We're in denial about all kinds of shit.
I'm a bankruptcy lawyer in Northern California. Although I don't specialize in consumer bankruptcy, I'm often asked consumer debt questions at social functions (nothing makes a cocktail party fun like being hustled for free advice about the dischargeability of student loans...).
In the last month, I have been increasingly asked about "just walking away" by folks who say they have the ability to pay, but don't see any point given how underwater they are. Generally these are folks that moved to really crappy places (e.g., Central Valley) from really nice places (e.g. San Francisco) in order to become "homeowners." I know of several folks who stopped paying their mortgage in the last month or two who could pay but simply choose not to. They seem pretty open about what they're doing; in fact, they've factored in several months of "living free" (usually 4 months). I have no idea whether this is a statistically significant phenomenon (which I understand is Tanta's point). And of course I'm sure that they could pay (though in several instances, I'm pretty sure). Ironically, however, I think that the several articles which have been written about this phenomenon might actually cause this behavior to increase: the folks who I know who are doing this point to the articles to explain their own behavior (it's a lot easier to explain to Mom and Dad why you are choosing to default on your mortgage notwithstanding your great job if you can point to articles in the New York Times and the Wall Street Journal).
Ultimately this may turn out to be entirely overblown in terms of the actual number of folks doing this (walking away although they could pay), but it certainly has changed the public's thinking. I guess it's like taking LSD in the sixties: probably not that many people actually did it, but it certainly changed the thinking of even the folks who didn't do it.
Whether you are being forced out because you can't afford it, or lost on speculation (can't sell, can't afford carrying costs) is statistically the same, either way the keys are going back to the bank, this constitutes walking away.
No it isn't the same. We're talking about having the ability to pay, but choosing not to vs. the non-ability to pay. The root causes of those two things are totally different. The meme is "people that are underwater are walking away" makinging it seem like these people have the ABILITY to pay but choose not to. The argument here is that this is, by and large, NOT the case.
So go back and read to understand the difference that we're all discussing here.
But it's suburban DC. We're in denial about all kinds of shit.
yep, you east coast elites are always slow to catch on...
Generally these are folks that moved to really crappy places (e.g., Central Valley) from really nice places (e.g. San Francisco) in order to become "homeowners."
Now that's an interesting observation.
It adds another dimension, namely the quality issue: if people bought a badly-located large home, or an attractively-located tiny home, at equally ridiculous prices, just because they drank the "you must own" Kool aid, then possibly what is happening is that they have just learned that a small apartment near the wharf is a whole lot cooler than a sprawling suburban box that gives you a two-hour commute on top of depleting your wallet.
Remember the infamous 60-minutes video? If I recall correctly the home in that case was just some tiny little thing (but incredibly overpriced).
So possibly we have plain old buyer's remorse added to being underwater.
honestly, i prefer the longer posts and i read all of them -- every word. the shorter ones are similar to other blogs and end up being just a news update.
If you bother to go back and read Mish's post, Evidence of "Walking Away" In WaMu Mortgage Pool, you will find that he never makes any mention of "having the ability to pay," I believe this to be fair since this post is in response to his. He does point out credit scores, but makes no mention of anyones ability to pay. Now I think we can all agree that somehow these people obtained mortgages for these properties, right? I'll take it you said, yes. So then we can also agree that these folks "qualified" for the mortgages, in other words had the ability to pay. You can't change the rules and claim "Oh well those don't count because it doesn't fit our purpose of dissecting someone else's, at least partially true, claim." What the fu*k am I even bothering with this ignorant minutia for anyway, I guess it just pisses me off to see the post specifically targeted the way it was, it really was unnecessary. And no I'm not really trying to defend Mish, he is a moron too.
Fairfax County (DC burb) in 2005 of all house sales, 30% were 2nd homes.
It was the way to riches.
I am happy. In my little niche world my book is/was No. 2!
The realty trac data is useful if you know the caveats. The reason those foreclosure rates are so low is that realty trac's coverage in those states is very weak, particularly in South Dakota -- but they don't tell you that. They really should caveat the coverage, the fact that they prefer to show multiple notices on the same property (yes they adjusted for it, but they still prefer the former rather than the latter) and they use households as a denominator, which is horrendous, they should be using mortgages outstanding because a third of all homes are owned outright. How do i know all this? We sell them the data.
all I can say is that many people go to these things called "libraries" that are filled with big wads of dead trees presented in "books".
I heard there was a"100 Classics boiled down to one sentence" book, but i never got around to looking through it.
And like Justin I've read a lot of those others blogs with their anecdotal evidence that are open to re-interpretation vis-a-vis the "option" of walking away. I suspect that many of those who over paid for a house are suffering from the realization how thin their margin of safety is with a high payment and no HELOC to tap.
Tanta:
I think buyer's remorse is exactly what's going on with these folks. After all, even if they were underwater, if they really liked where they were living, and they could afford it, they'd probably just stay put. That's what most renters in great urban neighborhoods have been doing for years, including yours truly. I've been "overpaying" to live in a great rental (and missing the chance to ride the equity rocket!) because I can afford to pay the rent and, well, I really like where I live. If I had traded it for a stucco box in Modesto and then concluded I wouldn't see any appreciation (or even any equity) for years, I'd be looking for any excuse to get back to where I was before.
Are you kidding? Everybody took LSD in the 60s. What happened to you?
It is amazing the undercurrent of class warfare in this discussion. On the Right accusing workers is the WSJ and on the Left with her back up is Tanta.
Maybe we need Bill O'Reilly and Keith Olbermann as guest bloggers.
I suspect these are early skirmishes in a larger battle to come (soon).
Have a nice weekend!
Jim
I have read most of the comments on this thread with deep interest.
Regarding the walkaway issue, I will assert that walk aways are generated by bad original underwriting. Yes, people do walk away, but they normally do so when lenders grant loans that are not paying the balance down, and do so in large numbers so that property values soar and then eventually the property values crash. IF they can sell out without walking away, they do. It is the better choice for them.
As for walkaways during severe local economic downturns, in my experience they do not happen unless the individuals have to move, either because of jobs or finances. The exception is investment/speculative.
My belief is that the industry has created the problem they now complain of. Anyone who truly believes that all those people with 2-6 homes can pay the freight, or that people with 50K incomes can really pay for their 500K homes, is delusional. The fact that we have so many bank presidents yammering this way is very frightening IMO. What we really have is proof of delusional bank presidents, not proof that people have suddenly changed their attitudes and are now following the fad of abandoning their homes.
Many of these people were using the equity in their homes to pay the deficit in living costs plus the carrying cost of the home. When they realize they can't any longer, that's when they confront the issue of selling. And if they can't sell, what is left but abandoning it?
Since virtually the entire market in certain areas in recent years became delusional and speculative (i.e. based not on the question of "can I afford to buy this home", but on the question "will I make money off of this"), reality will cause a nasty readjustment.
In my experience, very few people who make a bad investment based on hope correct their behavior until they are forced to do so. It's classic behavior to believe that your lovely stock that went down 50% just can't go any further. People have been doing that with the housing market.
At any time and at any place I could construct lending guidelines that would produce a flood of defaults in two to three years. I'd do it by granting loans with high DTIs and by granting non-amortizing loans. Very, very few people who are granted mortgages on their primary residences with downpayments and amortizing loans at affordable DTIs walk away unless forced to do so.
The second homes? Sure. The "vacation" homes? Sure. The rentals? Sure. But it's not like the industry didn't know that before this ever started. If you grant I-O loans or qualify borrowers based on teaser rates, you have to adjust for the risk that these people will find themselves with no exit but abandonment. If the industry didn't do that, it is the industry that is delusional.
I simply do not believe that there are a large number of people who can truly pay an amortizing mortgage over the long term who are walking away. Those people who can pay will always assume that the house will recover its value in a few years. But only a fool would keep paying eternally on an I-O mortgage when the house is declining significantly in value. And frankly, the banks are best served if those borrowers quit now so that the bank gets to sell out before the bottom. These home values are not going to start going back up for years. That's the ugly reality that horrible lending practices has created.
I also love Anthony Trollope
I no longer have time to read the longer works, now I just read Romance novels; same plots, fewer pages. Uhh, and CR of course. Reading the comments is not unlike reading some of those nineteenth century authors (Hey, that ties in with that Moby Dick comment!)
Rich:
Read carefully. I said that not many people actually took LSD in the sixties. I neither confirmed nor denied that Uncle Festus did anything. But I'll give you a hint, I'm old enough to remember when Uncle Festus was a character on TV, and we found him, well, just incredibly amazing...
Read it. Will read it again tomorrow to help it sink in. I am a civie at this, and slow. Oh, and I am just here for fun. No house, no investments, dumb factory job, just a really odd sense of fun.
I like your posts just the way they are Tanta. You rock, and probably on a pony too.
Cool. Thank you for useful information.
I am so honored, Tanta read and replied to one of my comments
Uncle Festus:
I think your point is astute. Yes, people who can afford to live where they like will not walk away due to a temporary loss of equity. But the point you are not addressing is that if these folks want to get out, they cannot sell. That is the difference between a declining market and a normal market. In a normal market, the most you should find yourself under is 5-10%.
Borrowers generally have a lot to lose by going to foreclosure, and most of them will pursue at least a short sale if it is feasible before exiting in silence and taking the foreclosure.
The question is how did we create such a historically unusual declining market? We did it through astonishingly poor underwriting.
We're all debating the question of whether people who really can afford to pay the mortgage are walking away to cut their losses. We ought to be discussing what the poor underwriting has done to all of the people who put money down and bought in good faith. They, not the banks, are the real victims here. You are going to have a lot of new customers in the years to come generated by the lending "standards" we have used.
Another pitfall which certain commentators above seem to have fallen in: the assumption that because buyers were "qualified" for loans at the date of purchase meant the buyers could actually afford the place. Remember that many of the loans the banks were making only looked at whether the individual's income could support the original payback rate, not whether the individual's income could support the final payback rate!
How much of the "jingle mail"/FC is because people are suddenly discovering that no, they really couldn't afford the place after all?
Just because a bank said at date X "you can afford to pay this back" does not provide proof that the individual could actually do so.
I do not find Tanta's posts to be too long. This post in particular was focussed & well-organized. Good points were raised, i.e.., what is "walking away"? Tanta created her own clear definition (which, as she points out, many others have not) and then analyzes the available information based on that definition. In reading the post, I gained information about the foreclosure process that I doubt I'd learn anywhere else as I don't know anyone at those levels of the business that Tanta seems to have worked at.
Quite often, after reading one of Tanta's posts, I am better able to evaluate the quality of WSJ & FT articles I read on the same or related topics. Unlike much of the MSM (including the WSJ)her posts offer background data. Very useful for those of us who may never work in banking or real estate but would like to have an idea of how things are done (or not done that should be) in those industries.
Seems simple to me, if you don't want to read the posts, don't. It's CR's & Tanta's blog, they can run it as they choose.
thanks for the HUGE effort I will read and read again as I am a follower and fan of both you and mish
If you find this post too long it means you brain has been fried by television or stunted by public schooling
I do not understand why anyone who can afford the payments would walk away from a home in negative equity.
Here in the UK if you default on just one payment on a mortgage, or any finance agreement, it goes on your credit record with Experion, Equifax et all, and stays visible on the record for 7 years.
Any default on your record and you can kiss good bye to getting any further credit, credit cards or even a bank account.
In the UK, credit is not a right, and a financial institution can refuse credit or facilities without explanation.
Citi has just withdrawn Egg credit cards from some 160,000 UK users on the grounds that Citi no longer like the risk profile. Unfortunatley they appear to have shot themselves in the foot as it appears that the majority of the cards they cancelled were those where the holder paid off the balance in full every month, so Citi were not making the average 28%pa interest rates they charge.
The biggest housing risk we have is Buy-to-Let. As property values turn south, you cannot cover mortgage payments on recently purchased flats with current rental yields other than in parts of London. I know of two friends who have BTL loans on flats where they are having to subsidise the difference between the loan payments and rent received, on property worth less than they paid. They are hurting, but the penalties here for defaulting are even worse to contemplate.
sdtfs - I have the book right here at hand: The Book of Great Books: A Guide to 100 World Classics. And yes, it appears they summarize the plot in 1 sentence. Actually pretty interesting. My teen borrowed it to study for competition. Unfortunately she's too busy in front of Youtube to read the real Crime and Punishment. Sigh. I have failed.
Anyway, MoM you have brought out excellent points and I think your assessments are right on.
Enjoyable reading everyone - thank you!
I read the post - although not all of the comments. This stuff is tedious. If you're not prepared to read tedious stuff - go play fantasy baseball. FWIW - when I was a practicing lawyer - one of my specialties was insurance coverage disputes - reading 200 page commercial insurance policies. Talk about tedious.
Anyway - I don't know whether any message has mentioned it yet - but I think there may well be a big difference between non-recourse states like California and recourse states like Florida. In Florida - developers aren't allowing doctors and dentists and other well-heeled spec buyers to walk away from their contracts to buy condos that no one wants now. They're suing them.
Does anyone here know whether other bubble areas - like Las Vegas - are recourse or non-recourse? Robyn
P.S. An OT somewhat political comment. I happen to be a Republican who will vote for McCain. But this kind of tedious facts versus non-tedious emoting stuff drives me nuts watching Clinton and Obama. As a woman of a "certain age" - well we women had to know everything about everything just to try to get an even break when competing against guys (a lot of whom were simply empty suits) for lots and lots of years. And that is still the case now to a certain extent. I assume Tanta is a woman - and I applaud her for her analyses of issues - although I don't always agree with her.
Isn't Festus a city in Missouri. The Addams family had an Uncle Fester, though ...
I, too, enjoyed the long post all at once without even noticing its length and I, too, have no business interest in mortgages.
Here is a summary for SR A) people who buy shiy they can not afford don't ge to keep it.B)If you loan money to someone who can't afford to pay you back,they won't.MoM's point about underwriting is valid,Greenpoint was making 56% DTI stated income loans to people with 680 fico scores.unless you have one hell of an income (Say $2MM a year) you can not afford a 56% DTI...And uncle festus,I have a friend who is a BK attorney,a lender challenged one of the BK's she was handling because the debtor overstated his income on a stated income loan (fraud).Her argument was that the fraud was not material,since the lender granted the loan based on the collateral,not the borrowers income...which was clearly the case since there was no verification of the claimed income done by the lender.She prevailed.
When Tanta gets going, I run in the other direction. I like to be somewhat well informed re housing and mortgages, but not THAT well informed. Too much info clogs the brain.
For most of my years in this business I'd have called you a liar if you'd said the day would come when huge numbers of civilians would avidly read websites that post long treatises on boring technical mortgage-related crap when they were not forced to. I'd have been wrong.
--Nobody reads the maintenance logs...unless the plane crashes.
Taking CRISP to another level.
I'm a recent lurker, and not only did I read every word of this and other recent Tanta posts, but I went back and read the ubernerd posts.
Very entertaining, especially the trolls back then who confidently asserted that CR and Tanta were just bitter losers who couldn't see that housing prices would continue to go up forever, because of their bitter loserdom. Heh.
And furthermore, apparently the post wasn't long enough, since several commenters still managed to miss the central point.
And finally, I wouldn't be surprised if the "walk away" stories do turn into a self fulfilling prophecy. Once it becomes common "knowledge" that normal middle class people are doing this, a certain number of normal middle class people will feel like they have permission.
my friends is behind on her HOA's in a subdivision in VEGAS.. they are forclosing on her end of march any helpful information... would a BK stop the forclosure..any info would be welcome
Despite of having no horse in the race I read the whole thing and pretty much understand the thinking behind it.
While it is just personal opinion, the first thing that comes to mind is the nuclear scientist with a mensa level IQ that has trouble surviving 15 minutes in a dark alley.
IMO the flaw in the thinking is failure to recognize and accept the outright lack of good faith, lies and fraud by borrowers going all the way back to before origination.
It may not be PC, but how can smart people miss the correlation between the degree of trouble in specific places with the demographics?
It isn't just borrowers against lenders, there is a third party, the regulators.
Rather then working things out the regulators should be prosecuting both borrowers and lenders to the full extent of the law.
If you can't stand the heat (reading), stay out of the kitchen (CR's blog). Seems to me, the soundbite/MSM format has expanded exponentially in the past 20 years, and is the reason this country is so far behind in math, science, etc. It's toooo haarrd !!! My community college students don't like to read, can't digest more than tiny bits of data at a time, and don't like having to THINK or analyze. Regurgitating factoids (only a few, please) is the nearest they can come. And to think I walked to school for miles, uphill both ways, to get an education to pass on to them.
cant stand the rupublicans, thats why im voting macain. he will be the nail in the coffin of the party..good riddens..bring on more wars fighting make believe enemys.. go joh
shortkudlow:
Yes, BK can temporarily halt a FCL.
your friend needs a lawyer: go to http://www.naca.net/
for a list of consumer oriented lawyers; it can make a big difference.
Joe
Uncle Festus:
Credit cards will get you through times of no MEW, better than MEW will get you through times of no credit cards.
Trader Walt
Please don't add a "read more" link. I never follow those even when I find the article interesting. It's much easier to just scroll to the next article if the current one is too long. And yes, I did read your full entry. It was interesting and well argued. I much prefer your ubernerd posts to CR's brief excerpts of MSM articles. Usually I just read his summary and skip to the next entry.
Tanta
Thank you for another truly educational post.
One thing ( i am going to write like archie the roach since my left hand shift key is stuck) i would disagree with you is the rational decision process you imbue the "walker" with.you make him sound rationally cold-blooded
most people including successful ones are kind of hazy about their life-decisions.
now i admit that some of my knowledge of the affluent ca. middle class comes from watching WEED,but
i do think there is a class of live-in speculators. they would LIKE to stay in the up-scale house cause its nice and will appreciate,but the sacrifices and upsets to their life-style when it goes underwater are just too much to ask.fire the housekeeper and have the kids clean up? etc so they make up a story for they kids and leave.
after all how did they talk themselves into these awful mortgages in the first place?
most people who stay with this blog are not these dreamy types. some are older and most wiser. think those who don't like longer posts are children of our times
RANT i think that much of the short attention span we not see around us is directly due to Sesame Street!
way back when,we had a neighbor who helped set it up. they made the choice that subject matter was most important and they fit it within the attention span of the child instead of challenging the child to improve attention span.
a second awful thing that happened to our educational system were lawsuits which demanded objective proof in teachers grading. how can you JUSTIFY your subjective grading of an essay? i heard of a case where a doctoral candidate sued and won a reversal of his failed dissertation defense just on those grounds.
So we went to objective exams short answers etc and lost the integrative abilities gained in essay writing.
Ah social thalidomide
so education shunning lawsuits
sorry for the space in the post and extra line. this keyboard is driving me nuts
Well written, Tanta. Your thoughtful analyses do a great job of separating the bad news from the bad reporting, and keep the housing bear position honest.
I read most of the comments too, even though I probably should be doing other stuff. I'd just like to add a "me, too" to Uncle Festus's comment [@ 5:17 pm] that media exposure is probably going to make real walk-aways more common. I've been amazed how many MSM stories about walking away I've seen just in the past couple weeks, after only reading about it in bubble/finance blogs for a few years now.
Read the whole piece...THANK YOU...More information requires more space. Maybe Tanta can offer to give you double your money back...
bacon dreamz, FFDIC, MaxedOutMama, others - Thank you for your continued contributions.
I look forward to you guys writing that you have evidence of walkaways.
As I indicated a few times before, as negative equity increases along with a few other variables (income, total assets, substitution, recourse), walking away make increasing economic sense.
If you have someone making approx $100K/year, are upside down over $100K, and own no other significant assets (>$100K), walking away becomes quite appealing. This borrower is rationalizing what $100K really means! That's likely many years of savings!
suecris,
Actually in TV land I believe Festus was Marshall Dillon's gimpy sidekick on 'Gunsmoke'...
Disclaimer:
I am not a Calculated Risk Fanboy.
I am a Lifelong Information Junkie.
Having read the article top to bottom, while often sliding back to a previous point to establish context, I must say that my limited attention span became somewhat taxed at times grin. Now let me congratulate you for providing the sort of detail that is sorely missing in many 'headline' articles. Rather than attempt to list the reasons that this type of analysis adds value I'll append a quote by Barry Ritholtz which was extracted from his Global Warming Denialists: We Suck at Math Also! post to The Big Picture
I am at heart someone who loves math and statistics, and who finds the abuse of the truth to be offensive. Anyone who claims that a high magnitude outlier within a volatile data series conclusively proves this or that -- someone who chooses to ignore the broader data trend -- is simply putting their own mathematical ignorance and innumeracy on display.
We can project all we want to about the homeowners who might walk away because they are cunning, or because the media told them it was now cool.
But then there are those pesky numbers that get in the way: the ones that document Americans who maxed their credit cards, then used the home ATM (sometimes to pay down the cards), then maxed out the home ATM, then maxed out the cards again, and, finally, started to raid their 401ks to their heads above water.
Much as some want to make "walking away" look cynical, the data that relate to it can't stop reeking of desperation.
sorry, that's "keep their heads above water"
SR opines: "There is a point were over analysis hurts you - from an investing point of view. If you just want to have academic debate then go ahead - but in the real world people read this blog to profit from it."
They sure do, but if you think the way to getting an edge is to read the 'executive summaries' then I believe you are vastly mistaken. I started reading this blog by accident about 15 months ago. It was just then that some of the early warning shots were going off in that perfectly non-fraud mortgage originating companies were going belly up because early payment defaults were pushing 'sold' loans back onto their crumbling balance sheets. While knowing of the housing craze I never knew what the tipoff was going to be as to the date of its demise (from an investment standpoint) until those particular canaries started croaking.
This particular post by our host/hostess is just another in a long line that get one to thinking. Better yet is they almost all include links to supporting data so the reader is readily able to perform their own calculations to whatever end. Having been a housing bear for a long time (which to me meant that the market was underpricing the decline) I have definitely switched camps in that I believe the loss estimates have not only caught up to the problem but have hurtled right on by.
energyecon
nah that was Chester
ahem...
Gunsmoke
[snip]
Gunsmoke was one of the earliest "adult westerns," centering around the exploits of Marshal Matt Dillon (James Arness) in the frontier town of Dodge City, Kansas in 1873. His kindly companion was Doc Adams (Milburn Stone), the town physician who spent many hours chugging beers at the Long Branch Saloon, owned and operated by the shapely Kitty Russell. Over the years there were several changes in the supporting cast, most notably the replacement of Matt's loyal deputy, Chester Goode (Dennis Weaver), with hillbilly deputy Festus Haggen (Ken Curtis).
[snip]
which means we are both right!
SR opines: "There is a point were over analysis hurts you - from an investing point of view."
Um, no. There may be various points of diminishing returns, but the market never rewards ignorance over knowledge. I doubt that Warren Buffett has ever complained about the excessive length of an annual report. The talent that all the best investors seem to have in common is the ability to receive, digest, and correlate an amazing volume of information on a daily basis.
I, for one, read the entire post and it is excellent. That, inspite of not being well-versed in RE economics nor investing. But now, I can at least separate the bovine digestive remains from the golden nugget.
Great job Tanta!
"The talent that all the best investors seem to have in common is the ability to receive, digest, and correlate an amazing volume of information on a daily basis."
Hmmm! Some great investors do exactly the opposite, minimizing the volume of information to focus on a few crucial variables.
Names? John Henry, Ed Seykota, Jerry Parker, Salem Abraham, Bill Dunn, Larry Hite...and so on and so forth.
SR takes quite a beating from "too long" --so this is not more of that, but to the many who took the time to address the issue(s) surrounding the economic fallout, (the social fallout not so much as the political)...of taking the view described by a prominent banker (prolly quoted here in another thread by CR) that ~"It is not in the financial interests for some mortgage payers to continue paying."
Not that the banker is an icon of moral standards, but from his profit-oriented world, (not exactly yours right? RIGHT?) [You can't possibly profit from this post, so stopitrightnow!] that is how he expresses his view...not daring to venture that you have misbehaved, that you were so BAD --unlawful, that you have performed immorally, that you are going straight to Hell.
Maybe some bankers express themselves differently, but I thought this was a fair representation. And bothersome.
So SR, like all the rest, does some volunteer work here expressing himself (dis)tracting so much attention about how long it wasn't and how you read the entire thing...(and then started on the NYC phone book)...more difficult phenomena for the profit-motivated and profit understanding bankers, you know?
plschwartz writes: i am going to write like archie the roach since my left hand shift key is stuck)
Toujours gai, archy, toujours gai!
-mehitabel
Tanta Perhaps we have a different idea as to what constitutes walking away or perhaps not. Perhaps we have a different idea as to what constitutes "evidence".
Some people wait for surveys, others wait for godot. Some, like me, are willing to take a reasonable position as to how to interpret the numbers.
On a side note, some people are still waiting for data to prove we are in a recession while I say it is obvious we are in one.
Two years from now they will backdate the recession to December 2007 but until that happens people will be debating the "evidence".
I never said every bit of the difference was walking away, but I am still willing to say a fair % of it was. Enough to matter. No matter what anyone thinks.
Anecdotal evidence (including corporations bitching about it) suggests people are walking away. Those stats will show up somewhere. And I believe they have.
People can wait for polls or whatever they feel constitutes "proof" of walking away, but I am willing to take a reasonable shot at "evidence" right here right now.
Mish
By the way...
My definition of "walking away" includes anyone who decides to hand over the keys early rather than wait for foreclosure and eviction.
It includes anyone who the lender tries to work out "affordable" arrangements but they decides not to take it, regardless of reason.
It includes anyone frustrated by lack of lender response and just decides to hell with it all and move out before the lender works out an arrangement with them.
Before we can decide if people are walking away or not, we need to agree as to the definition. I do not accept a strict definition here based solely on ability to pay.
Walking away "early" because someone thinks it is coming just may have advantages in securing the next rental. That may indeed constitute the bulk of it.
Mish
whenever one talkes too many words to 'prove' or 'disprove' a point, I doubt the veracity as well as the judgement
We miss you, Antonioni [choke]!
I think the "walking away" that is being discussed here - and which freaks out the lenders - is the borrower who can pay (perhaps with a painful amount of belt-tightening) but makes the affirmative decision to default based on the economics of the property. I don't consider someone to be "walking away" when they have realized that default is inevitable and it's just a matter of time before they lose the property. The latter folks are just walking out before the sherriff puts them out.
I'm torn between the arguments made by Mish and Tanta. On the one hand, she makes a good point that no one has pointed to empirical evidence that the behavior is widespread. On the other hand, I do think that in this credit/housing bubble (disaster?) there have been lots of trends which in hindsight were self-evident but were dismissed one they were first identified because there was "no evidence" that they were happening. My guess is that the "walk-away" hasn't happened as much as is being reported, but it will be happening a whole lot more in the next 24 months. The just-walk-away 'meme' (or, as we used to say, 'idea') is certainly out there and circulating.
Your article was way too wordy. And you define walking away as not including speculators! Walking away is simply the owner deciding to ignore their legal obligations and acting on that decision. Speculators are indeed walking away.
bobby writes:
I know what you mean. I feel much the same way about wouldbe strong statements expressed entirely in undefined terms.
For the record, there actually are good and not entirely mercenery reasons to read these posts and follow the comments. I happen to be one of those rubes that bothers to write my Congresscritters. Well, I'm not that much of a rube, I realize I write my Congresscritters' staffers. So posts and ensuing discussions such as this one are extremely helpful when trying to persuade the Congresscritters' staffers (who, let's hope, persuade the Congresscritter) that the industry lobby's position isn't exactly the whole story.
Is this idealistic? Sure. Is it a waste of time? Not any moreso than arguing with some anonymous clod about what constitutes good blogging.
Lastly, in case Mish is reading this, I wouldn't take Tanta's post as a slight in the least. She was apparently asked by quite a few people (though fwiw not me!) to comment. She said in effect, I define "walking away as X" and his analysis does not allow one to necessarily conclude X. Close readers of you (of which I am proudly one) know that you define walking away as Y. IMO, the distinction is important.
Bringing it full-circle, industry-lobbists are trying to convince Congresscritters they need a taxpayer bail-out because of X (ruthless-puts). In fact the Bankers don't deserve a bail-out because the walk-aways are from Y (plain ol' unaffordability) due to lousy underwriting; something the Bankers are themselves responsible for.
Full-disclosure: I will admit to some mercenery motive for following along. But such is not my sole motive.
Our Robyn--staking out again the quintessentially American ground at the intersection of privilege, self-righteousness and inconsequentiality.
IMHO this whole post is, whatever its virtues, missing the point. A little bit like the medieval theologians debating how many angels could dance on the tip of a pin while the pressures which lead to the Reformation were building, and building...
Whether or not Mish is correct today, one thing which cannot be disputed is that the walkaway meme is in circulation (the width of that circulation could be another fruitful source of wasted debate).
Now, just as there was an unholy alliance of interests keeping the bubble inflating a couple of years back, there will now be an equally unholy alliance of interests which will make sure the walkaway meme stays front and centre (regardless of how many "true" walkaways occur).
In fact the points have already been made in the comments.
1. Lender management will want to divert the public focus away from their previous (and now shown to be disastrous) lending practices.
2. As the debacle grinds on into "higher quality" loan classes, lender management will also want an external scapegoat to help them sell the case for ever-wider bailouts.
3. The politicians will push the meme so they can justify acceding to these bailout requests, which are coming from major contributors.
4. Underwater borrowers (especially those who think themselves "smart" rather than "ruthless") will push the meme so their own walkaway can be justified (and self-justified) as normal behaviour.
Even if walkaways in Mish's sense may not exist in numbers now, I predict they will almost certainly do so once the Alt-A loans start re-casting.
I would say that, while it's important to note that it's a "meme," its very meme-ness makes it all the more important to subject it to truth tests. If it's false, then not only does its currency allow for self-serving use, but it also leads us in the dead wrong direction. If it's true, the fact that it's also so very convenient to some might cause important factors to be neglected.
I think we are gonna have to get used to the idea that "walking away" is as subjective a term as can be devised in most cases.
The MSM is gonna come up with a few cases of wealthy borrowers who simply decide that it makes more financial sense to walk than to pay for an underwater home (even if they have to make em up) and imply that every borrower who is unwilling to max out every credit card, empty the 401k and eat a steady diet of beans and rice until forcably evicted is a "ruthless borrower."
My definition of "walking away" includes anyone who decides to hand over the keys early rather than wait for foreclosure and eviction.
It includes anyone who the lender tries to work out "affordable" arrangements but they decides not to take it, regardless of reason.
OK, but for these two situations, you don't need to read tea leaves to get the numbers. Group one are reported by servicers as either "deed-in-lieu" or "cash for keys." Group two is reported in the loss mit reports as workout offered and declined.
So next time you're in a conference call with BoA, ask them about these categories. They should be able to provide these numbers with little effort; every mortgage servicer has them.
You may not worry about ability to pay, but it wasn't your definition of walking away that I was challenging. I was suggesting that your evidence doesn't even prove that FCs are happening early.
I am breaking this post up because one I wrote earlier just vanished - poof!
Okay, what about this guy:
He got a little swept away and bought the whole bit hook, line and sinker. He got an ARM with a 3 year fixed that is about to reset. He bought into the line that home prices always rise and "everybody knew" that it was easy to refi a few years down the road, so he didn't worry about it. After all, his friends were pulling fortunes out of their houses with MEWs and HELOCS.
He wasn't trying to get rich - but he was being priced out of the market and felt like he had to get in before it was too late. Literally EVERYBODY was telling him he was crazy not to - and the Realtors and lenders certainly didn't disabuse him of the notion.
Being a homeowner was a bit more of a struggle than he expected. He hadn't counted on the extras: taxes, maintenance, insurance and utilities costing so much or rising so fast. Still he kept up the payments - somehow.
Problem is, that ARM is about to adjust and his head is barely above water now. He has started carrying a small balance on one credit card and he does have a 401k, but his small nest egg has evaporated. HE is no math wizard, but he can add and subtract and he knows that when that mortgage resets, he is doomed.
He has calculated that he can stay in the house a year or two longer - if he maxes out the credit cards or strips his 401k. He tries to talk to the bank - but they don't even want to talk to him until he has already missed a payment or two (making his CC interest rate skyrocket) and they make no promises that any workout will be done at all, or if done, will be done on terms he can live with. Business is slow and he doesn't feel nearly as secure in his job as he did 3 years ago.
Meanwhile there is a place he can rent for half what he is paying now. If he moves, he can pay off that credit card and actually save a little again.
So he walks. Doesn't want to - but he knows he'll be on the streets and flat broke in a year or two if he doesn't. Sure, the bank MIGHT work out something to let him stay - but they might not. For some reason he isn't particularly trusting of bankers anymore.
And oh yeah, his house is worth a lot less than he paid for it.
I could write that scenario a couple or dozen ways, from anecdotes I have seen on TV or read about. Essentially the question is: must a borrower facing certain ruin a short way down the road play that scenario all the way to the poorhouse or be a "ruthless borrower?"
BTW, I noticed that the guy(?) who complained about the length of the post admitted that he didn't even read it all! How would he know if it was too long to make the point or not?
and imply that every borrower who is unwilling to max out every credit card, empty the 401k and eat a steady diet of beans and rice until forcably evicted is a "ruthless borrower."
Indeed. I think there's always an ideological agenda driving most cases of arguing well ahead of one's facts.
We did just get, after all, a bankruptcy reform bill after having been treated to scare stories about these hordes of BK-abusers (who never seemed to show up in the statistics, but hey!) while being asked to ignore the irresponsible practices of unsecured lenders.
And now we have another reform to BK law on the table, and the industry is trying to beat it back desperately. Funny how the "walk-away" who can afford it meme floats right when cram-downs are on the table in the Senate, no?
I ain't laughin.
I would suggest that it is at least possible that some of those who declined the workouts did so because they ran the numbers themselves and found them akin to slow strangulation. Have read anecdotes - can't prove it - but I wouldn't make the assumption that all - or even most - of these workouts are workable for the borrower.
Understand that I am not contending otherwise, I just haven't seen that evidence.
Have read anecdotes - can't prove it - but I wouldn't make the assumption that all - or even most - of these workouts are workable for the borrower.
Here's some evidence that is certainly consistent with your theory: Fannie Forkin' Mae just put out a program called "HomeSaver Advance" about which I wrote a billion words and bored the hell out of everyone a few days ago.
Some people were fairly aghast at that: give people 15 years at 5% to repay the past-due amount? Jeezus, in or on or under a UFO!
I submit that it has occurred to Fannie Mae, if not to everyone else yet, that it'll take terms like that to repay some of these arrearages unless you want to either starve the borrowers during the repayment plan or see them all just give up.
The example I used for HomeSaver was a $1,500 PITI and a borrower 6 months down ($9,000). You do the math and figure out how that could work even on an 18-month repayment plan (as far as I know, 18 months is the longest any servicer ever gives for a repayment plan; longer than that you have to modify). Who can afford having $500 a month added to their mortgage payment if they're already struggling to meet the mortgage payment?
Most folks aren't 6 months down when they're offered a repayment plan, more like 3. But then they're usually offered repayment plans of 6-9 months at most. You are still talking a very heavy monthly payment to get caught up.
Moral of the story: Fannie is basically admitting that standard repayment plans are just impossible for a lot of borrowers. So they're letting servicers put the top part of the class into this advance plan that would have been unthinkable years ago. It won't do a thing for the bottom part of the borrower class, but it doesn't claim to fix everyone's problem. I'm just pointing out that it is a kind of facing of facts about repayment plans.
UnEasy One:
Yes, that defines the position of a lot of these walkaways.
I'd like to congratulate Tanta and Mish on being clear on their varying definitions of "walkaways". Here's mine: as the industry is now trying to use the term, it matches Mish's definition.
But at the same time these banking yahoos are trying to act astounded and claim that this is a new type of behavior never seen before and which could not be predicted - and that is why I claim they are lying deliberately about walkaways.
There were always and always will be walkaways from speculative and or investor purchases. The industry always knew that. The industry always granted credit on different terms to such borrowers on the basis that they do, indeed, walk away when their investment really makes no sense. That includes terms such as requiring higher downpayments if the loan is non-recourse and higher interest rates. And one verifies very carefully ability to repay and very careful appraisals, because you know that once the home is not paying off, the borrower's likely to kiss it goodbye.
My assertion is that by granting loans which were speculative from the beginning, the industry created a whole bunch of unwitting speculators (and facilitated a lot of knowing ones). The industry stuffed a lot of people who intended to buy a home into the position of being speculators.
Any time you grant a loan on terms which are unlikely to be repaid without a refinance and a withdrawal of equity, that IS A SPECULATIVE LOAN.
And if you don't bother to verify income or other assets, it IS A SPECULATIVE LOAN.
Just about every 2/28 or 3/27 was speculative. A lot of OAs were speculative. A lot of loans were granted with such high DTIs that they were speculative. No one could believe that most of the borrowers could pay those loans for 3-5 years without refinancing and withdrawing equity. OK, well, when you grant spec loans, you do so based on the collateral value if you expect them to perform. You don't - you simply don't - grant spec loans without very solid collateral. The industry didn't follow this well-known rule, so now it is getting hit hard.
The reason I want to keep this distinction so clear is that it is a necessary one within the industry. I have fought a number of battles over this in the last few years, and I don't need the press and the industry deliberately muddying the waters now.
I have very good evidence that in fact borrowers are not en masse changing their behavior and walking away without being financially pressured to do so, and that is the affordability ratios in a lot of these markets. If borrowers were walking away, the foreclosure rate would be way higher than it is now. Something like 3 to 5 times higher.
So now what we've really got is a bunch of borrowers in spec loans in houses, and an industry terrified that they are going to wake up, realize that they aren't home buyers but speculators, and walk away, which is why the industry is pushing this meme, and why it is trying to get Congress to buy the loans, write them down, guarantee them, and then sell them back.
That includes terms such as requiring higher downpayments if the loan is non-recourse and higher interest rates.
And a buck and a half (at minimum) on the table in cash up front in points.
Forever and a day, until this recent boom, you wanted an investment property loan, you paid 1.50% of the loan amount to lender at closing in cash-type money. None of this "premium interest rate" crap. For the love of Peat. It does you no good to charge a premium interest rate to a flipper. If the flip happens as planned, you don't have the loan on the books long enough to earn that premium in the rate! If the flip doesn't happen as planned, they don't pay you anything!
We made bridge loans on permanent loan terms. The rest was not merely predictable, it was predicted.
And now they're doing the hoocoodanode shuffle.
Only 4,000 words, length of a journal article.
Is there an M. NERD for dedicated readers?
Thanks for both of your responses.
I have noticed that a lot of media attention lately is being focused on some fairly unsympathetic borrowers - folks who obviously have lived well, better than most, and done it largely on borrowed money. Seems that mentions of walkaways are always nearby - and I see the beginnings of a myth being made.
Makes my hair stand on end when I read comments about how some barely literate first time homebuyer who got hustled by a bunch of fast talking con-artists into buying more house than they could ever afford to pay off should have read all that foot tall stack of papers they signed at closing. Therefore, it's their own fault if 47 kinds of disclosure laws were broken and they didn't fully understand what they were signing.
Every case is different, of course - I don't maintain that as a fair characterization of every delinquent borrower - but it seems as fair as the free-spending clueless yuppie the media are shoving at us.
Is there an M. NERD for dedicated readers?
You get an MMA (Master of Mortgage Arcana) with a summa cum spanus attentionitis.
my great goal in life is to receive my MPA (Master of Porcine Arts).
should have read all that foot tall stack of papers they signed at closing.
I was amused a few weeks ago to read Dick Syron (CEO of Freddie Mac) acknowledge that he didn't read all his closing documents last time he refinanced.
Of course he didn't. He has an intuitive sense of what is a decent mortgage deal and a reasonable home value, because he's exposed all the time to such matters. Furthermore, he assumes that nobody is likely to try pulling a fast one on Dick Syron. And he's right. Were I a lender willing to be slimy, I'd not be slimy with Dick's loan. I know perfectly well he'd sue my ass from here to the middle of the next century if I slipped some nasty into the fine print, and he'd win!
Syron wasn't, in fact, saying that to heap blame on borrowers who don't read documents. I think he was saying that to point out that educated rational middle-class people have always granted the mortgage industry a lot of trust, and that even these well-educated people find reading covenant 27 of the mortgage a bit slow-going. (Many of them have substantially more than 27 separate covenants, too. I doubt many people get that far.)
But for every Dick Syron who admits that none of us reads the stuff carefully, there will be a dozen self-righteous types who pretend that they did, and so therefore anyone who didn't deserves what they got.
What grates on my nerves most of the time is these folks who show up in our comment sections fairly regularly who claim to be industry insiders and who obviously have never read an entire security instrument from start to finish, either.
A long time ago--I wish I could remember when--our MOM found this fabulous broker board thread from some twit (we christened her "Babs") who claimed to be a mortgage account executive and who lectured her fellow brokers on how Option ARMs work, quite remarkably erroneously. (She claimed that interest does not accrue on the capitalized balance, which is just false and which falsity can be established merely by reading the note.)
So I do sometimes wander into the weeds with details about How Shit Actually Works, but then I'm just recognizing reality: I appear to be one of the few who has ever actually read all these docs.
Tanta, MoM,
Since you have both been in the biz, perhaps you can give me some explanation as to how to tie some of model predictions with what appears to be reality.
In the Goldman/JPM/Princeton report one of the methods they used to ballpark subprime losses was to take the total amount of originations during the bubble phase about 1.4trillion dollars then blithely say that about 55-60% will end up as reo with a percentage loss on the loans of about 50%. So something of around 400 billion dollars of loss. In every pool that I a have looked at and also looking at CFC's 10q's, the LTV at origination is somewhere around 80%. The implication is that the net sales price to the REO owner is going to be 40% of the original transaction price to the borrower. When I look at the countrywide reo listings i see one that i could drive to in about 10 minutes. countrywide has the house listed at 439,000. the house last sold in 11/2004 for 432,500. in 11/2003 the house sold for 395,000. In 2000 the house sold for 260,000. at 80%ltv in order to lose 50% the house would have to sell for 170k. Long before that price I would be happy to write them a check purely as an income producing property. Admittedly this is a sample of 1, but at least here in my part of ct, the only way to lose 50% on an 80%LTV loan written in 2004, would be to burn down the house and with it your insurance policy.
David.
LTV = loan to value. It is always in reference to this loan.
CLTV = combined loan to value. It is including all loans on a property, not just the first lien.
You have first mortgages at 80% LTV, and second mortgages for 20% of the sales price. That means CLTV of 100%.
Loss severity in FC takes into account expenses as well as accrued but unpaid interest. It costs a lot of money to foreclose a loan, take title to the RE, and then market it. There is always a loss in FC even when the REO sells for its original price. The main loss might not be to the first lien lender, but so? The report you are referring to is aggregating the losses across all loans, firsts and seconds.
M. PM (pigneratorum minutiis) (Master in mortgagees' minutiae)
summa cum mente advertenda
Since we're being nerdy.
has the house listed at 439,000. the house last sold in 11/2004 for 432,500.
You are ignoring the question of what the indebtness actually was when it was foreclosed.
Say CFC made an 80% loan to that borrower in 2004. Someone else made a 20% loan.
Then, in 2006, the borrower did a cash-out refi with CFC based on a new appraisal that brought the full indebtedness up to $439,000 in a single lien. Perhaps the new appraisal said it was worth $500,000, so that loan was less than 100% LTV at the time.
Let's say $439K is what CFC paid at the FC auction and so that's what they're listing it at. If they get it, they're still going to write off the legal costs of the FC, the carrying costs for time elapsed from FC to sale of REO, the broker commission, the taxes and insurance and maintenance on the property.
If the paid less than $439K at the FC auction, then they're trying to recoup expenses by listing it at more than they paid for it. They may not get that.
summa cum mente advertenda
Oh sure, if you don't like my Pig Latin.
"speculative from the beginning, the industry created a whole bunch of unwitting speculators (and facilitated a lot of knowing ones)."
"IS A SPECULATIVE LOAN"
Spot On!
As RE valuations continue to decline, we'll move on the next phase. In this next phase we won't be looking for evidence of walkers, they'll be obviously abundant! I'm fully comfortable with the notion that this is a certainty.
I'd love to read prognostications on how millions of walkaways are going to play out.
Tanta, thank you for all your insightful posts whatever length.
stock_regulator you know what is really annoying, when somebody can't make a point without posting 40 times. Seriously, are you trying to make up for quality with volume? I think that is kind of what got us into the debt mess in the first place.
First...Tanta, keep up the great work...I look forward to weekends with you and CR providing good food for thought...
To David in CT....I also have asked the same question that you asked in the previous note....Some of these large percentage estimates of losses in msm seem very far-fetched...
Another example...Look at TMA's portfolio of owned assets..They have a delinquency rate of less then .5% with LTVs of less then 80%. How do you get these huge losses out of that?
Tanta:
here is a cut and paste from countrywide 12/31/07 10q
Loan Quality (1)
December 31, 2007 September 30, 2007
LTV CLTV FICO LTV CLTV FICO
Pay-option ARMs 76% 79% 716 76% 79% 716
Hybrid & other 1st
liens 74% 78% 728 74% 79% 732
Home equity loans 20% 83% 729 20% 83% 728
It does not cut and past well but the original is at:
Countrywide Financial
So across cfc's total book of loans which they own and have not sold CLTV is right around 80%. Coming up with a scenario where this particularar loan could have been for a 100% CLTV is a so what. One could with equal force say that on this loan the CLTV was 60%, who knows. The point of the model is to try and get a feel for the whole universe and thus aggregate losses. So far every time I point this out all I get in return is hand waving.
If the average holding period for a reo is a year, and it costs say 2% for the taxes/insurance, 4% for the capital 2% for the broker and 2% for legal, it is still only a 10% hit on the property.
"Another example...Look at TMA's portfolio of owned assets..They have a delinquency rate of less then .5% with LTVs of less then 80%. How do you get these huge losses out of that?"
You don't.
I think what people are vastly missing is that because all these securities landed in basically the same place and everyone tried to exit at the same time the prices have been crushed. The only way to reconcile the prices of the securities with the real world is to assume things in the real world which are not in evidence. The alternative is that the securities are mis-priced. In the turmoil of the last several months this has gone on well outside the housing stuff and the credit instruments based upon it and lead to great volatility but also great opportunity.
Makes my hair stand on end when I read comments about how some barely literate first time homebuyer ... should have read all that foot tall stack of papers they signed at closing. Therefore, it's their own fault if 47 kinds of disclosure laws were broken and they didn't fully understand what they were signing.
Even more stunning to me is the frequently repeated comment that they shoulda had their lawyer look over the documents! Huh? Okay, maybe this is standard practice for purchasers of million dollar homes. But a little reality check for the gabzillionaires among us... Most of us ordinary, middle class homebuyers don't, actually, have lawyers. And no, we don't run out and get one when we buy a house. We sit down at the closing (for which we had to take one of our carefully saved vacation days) and try to ignore the palpable impatience in the room as we attempt to give all the documents at least a cursory read. Maybe we ask a few questions, but yes, we basically take on trust that the answers are truthful.
This makes us dupes who deserve everything we get? Don't go there. If we really get into the question of who deserves what, I can assure you you're not going to like the conclusions that the majority of us come to.
Coming up with a scenario where this particularar loan could have been for a 100% CLTV is a so what. One could with equal force say that on this loan the CLTV was 60%, who knows.
People with a true CLTV of 60% don't get foreclosed very often. They sell or refinance. They can. They have equity to burn.
CLTVs are not randomly distributed in FCs. The ones that go all the way to FC are the ones with no other options. That means the ones with no or only a sliver of equity.
Two percent for the broker??? Try 6-7%.
Re: "crispiness": the length is quite luxurious, though Tanta tends to write more as a novelist than as a journalist; she often "buries the lede". Some gutsy person could try to do a "Shorter Tanta" extraction for the ADD crowd... (though her [certain-to-follow] lengthy correction and elaboration of the shorter version would likely be longer than the original posting!)
Re: "walking away": since all we have is anecdote and instinct, let me offer mine. Being underwater is typically not enough (think of the story of the boiling frog). But if you toss in a ARM reset (independent of whether they can afford the reset or not), that's the point where "options" are considered. People avoid change, but when change is forced upon them, they sometimes decide to change a lot of things at once.
Well, I certainly don't suffer from Reading Delinquency. I waited with baited breath all day yesterday for Tanta's latest UberNerder, only to be wrenched back to meatspace for a celebration. Sadly, this celebration involved libations and bordered on inebriation.
I'm Bill, and I'm a CR Tanta Junkie.
Nothing lately compares to the delight of slogging* through one of your posts, Tanta. Your command of English, your personalization of otherwise impenetrable mortgage babble, sprinkling bits of very dry wit, like rare spices, is both highly refreshing and immensely enjoyable.
Thank You. Or as we say in USpesoland, Muchas Gracias.
Oh, Babs. The famous Babs. The one who didn't understand her own OA mortgage disclosures. The people (brokers!) on the thread try to explain to her, but she never concedes - she just vanishes. She's convinced that when an OA borrower doesn't pay the full interest, they are getting an interest-free loan for five years. And mind you,she's the one responsible for explaining to the brokers how these suckers work. There were tons like her out there.
"the hoocoodanode shuffle".
Yes, Tanta, that's what this debate means to me. It's really all about a responsibility shuffle. I find it amazing that the industry is claiming that it
A) Was forced to make loans to borrowers who couldn't afford them,
B) Is now amazed that those borrowers aren't paying the loans they couldn't afford.
This is BS. Anyone who's been in the industry long enough to remember when we wrote loans that borrowers actually paid knows it's BS. And anyone in the industry that long knows that if you lend $700,000 to borrowers making $70,000, which happened all the time, they can't pay.
You can make it appear that they can pay it back for a while with all the "affordability" type loans, but in the end they can't pay, and they won't. And then they will wind up in foreclosure. It is a red herring as to whether you have to evict them or they get out first.
The reason why workouts aren't happening very much is that when you qualify the borrowers, you can't make it work. Workouts used to reinstate many borrowers, but those were borrowers that hadn't started out with ridiculous DTIs. They would default when something happened to temporarily change their circumstances, like a job loss, car accident or illness, and we and they would do workouts because they expected to regain their normal earning power or something close. So it made sense for them, and if they had to they would temporarily charge on the credit cards to do it. Because it was TEMPORARY. Not even most these borrowers are so dumb as to believe they can charge $700 on their CCs each month permanently because they can't afford their monthly expenses.
If we are going to make charging up your credit cards before default the standard for borrower honesty, we might as well also demand that they rob banks to come up with their monthly payment. It's the same thing without the flashing lights and the potential jail term. I always considered people who refused to borrow money they were pretty sure they couldn't repay HONEST. When they called or showed up you'd sit down with them and see what you could do. And sometimes, you'd have to tell them to sell the house, and sometimes they'd give you back the keys and tell you to do it for them because they had to go somewhere else to get work. They'd sign a DIL, thus cutting your expenses. That's not a ruthless borrower. That's never been a ruthless borrower.
How you structure workouts for somebody bringing home $4,400 a month who is supposed to be paying a PITI mortgage of $3,600 a month is beyond me. They can just about afford mac 'n cheese, gas and utilities. They can't afford medical insurance, minor bills, car repairs, or maintaining the house. Heck, a lot of these people can't really afford their teaser rates, much less the reset rate. They were put under each month when their sales price hit the tax rolls and their property taxes were raised.
Tanta:
In order to get the loss numbers in the 'models' you have to get BOTH the average hit on the reo's AND the total number of reo's to hit the marks. If the people with some kind of equity are not going to default then how are you going to get 50% of the borrowers to give up?
On that account housing affordability is changing very rapidly. Consider the 400k house at the peak with a 100% io arm and assuming 300 basis points over libor for crap credit in the hardest hit of the markets which is now down 20%.
libor 5.5 loan 8.5
400,000 * .085 / 12 = 2833 per month
320,000 * .06 / 12 = 1600 per month
Why does no one believe that this is going to change both the rate of foreclosure and the rate of sales?
What MaxedOutMama said. Heck, a lot of these people can't really afford their teaser rates, much less the reset rate. They were put under each month when their sales price hit the tax rolls and their property taxes were raised.
I don't think the point was to get people into houses to maximize the "Ownership Society", as much as it was to resell the loans before the chips fell where they would.
Claiming ignorance of the historical norms, DTIs and such is beyond unbelievable.
If the people with some kind of equity are not going to default then how are you going to get 50% of the borrowers to give up?,
What? What 50% of what borrowers giving up?
Check page 22:
These assumptions imply cumulative excess foreclosures of 13.5% of the currently outstanding stock of mortgages over the next few years.11 On a base of $11 trillion of 1-4 family mortgage debt, this implies cumulative foreclosure starts of $1.5 trillion. Not every mortgage entering the foreclosure process will end up as an outright repossession, as some homeowners will manage to become current on their payment, sell, or refinance before the home is repossessed. However, the percentage of all foreclosure starts that
turn into repossessions measured by the number of Real Estate Owned (REO) notices divided by the lagged number of Notices of Default (NoD) has recently risen to over 50% according to Data Quick, Inc., a real estate information company. Assuming that
repossessions average 55%-60% of all initiated foreclosures and the average loss severity is 50%, as is typical in a depressed housing market, we calculate that $1.5 trillion of foreclosure starts could translate into mortgage credit losses of around $400 billion.
There are $11 trillion in mortgages outstanding. If we see an FC start rate of 13.5%, that'd be around $1.5 trillion in FC starts. Then we assume that only 55-60% of FC starts end up completed. (You would exactly be weeding out the folks who got behind on payments but have enough equity to sell before the bank takes the property.)
If my math works right, that's an FC completion rate of 7.4-8%.
You take 50% losses on that, you get the $400 billion.
It does not matter what the average LTV is on the whole $11 trillion.
It matters what the LTV is on the hightest eighth.
David_in_CT:
OK, if the borrower really has equity, or is close to break even, the extreme probability is that the borrower will sell before FC or do a short sale.
The 80% LTV loans you are talking about are now frequently 100% LTV loans.
First, there is the interest. When we figure losses, we figure the monthly interest the pool lost on that capital. Maybe you are willing to lend money for 0%, but the investors feel that it is a loss.
Closing costs: Figure 5%. Selling a vacant house: 5% discount. Figure 7% interest per annum. Insurance on a vacant house covers less and costs more, but you have to pay it, because try collecting on that claim otherwise! Figure 3% per annum taxes & insurance. Legal bills. Usually some costs for securing, cleaning and fix up. If you are trying to sell it, you usually need to keep the utilities on, and if you don't, you will generally take a bigger discount on price. If the prospective buyers can't flush the toilets and check the lights, they will be skeptical and will pay less. If it's in a cold area you might turn off the heat, but you are going to have to pay to drain the pipes, etc.
So let's figure 5% equity based on comps at time you tried to sell it. Vacancy discount wipes that out:
-5% agent
-3.5% interest (six months)
-1.5% taxes/insurance (six months)
Total of 5% cost every six months you hold it, so you generally figure that's gone and list it at the -5%, and then after a few months you start going down from there. If you had to sit on it 2 years at best you'd come out -30%, and that's if you never dropped the price and nothing happened to it. It is almost always cheaper to start discounting early. In a declining market you probably start 10% down and you definitely need to keep dropping. It's nothing to sell them at 30% off comps in declining markets. Then add securing costs and closing costs.
You are going to pay a minimum of $15,000 in legal fees and cleaning/prep.
Unfortunately, a lot of these houses are sitting in areas in which they do get vandalized or broken into. If it happens once, it may not be worth paying for repairs. You just discount.
The Case Shiller stats you see don't include forced sales or REOs.
Also you have to understand that on some of these issues the original appraisal is highly questionable. For example, New Century just let its underwriters adjust the appraisal up!!! That did wonders for their LTV averages!
Don't shorten the posts artifically.
SR, I think you don't understand the real purpose for these blogs. Yes, people use them make decisions about investing or validate or invalidate decisions. However, there is another more important reason for these RE and Economy Blogs: Archiving and Chronocling History.
Ask yourself what would happen if these blogs were not here right now? Where would you get this information? You wouldn't. That is the problem. The detail needs to be there because we as a people need a source of information that we can look back at to understand what happened. Without it, lessons cannot be learned going forward and unfortunately, condensed versions won't cut it.
That being said, I do think that Tantas' posts need some significant Editing and Formatting work to ensure that the main points are digested. Some suggestions:
Put the main point at the beginning of the post and use the body to support it. Spell it out clearly. Also, develop a standard format for these lengthy posts have more obvious transitions from sub point to sub point.
Keep the long posts. That's why I come to this blog. I have to say, though, that it was more fun in the old days when there weren't quite so many comments! I wish I could filter in/out certain commenters.
i'm waaay late to this party but count me as one vote for "read the whole thing"! course i scrolled down first, thinking oh god, Tanta! Great stuff, and this from one of those unlikely readers you referenced.
and as the jesuit fathers told me: first you gotta tell them what your gonna tell them , then you tell them, then tell them what you told them.
Borrowers who want to "walk away" from an upside-down mortgage that they can still afford will have a huge incentive to portray themselves as suffering from severe financial distress. (to avoid the social stigma associated with foreclosure)
And - I would argue - they will have just as huge of an incentive to persuade even themselves that they are suffering from severe financial distress. (to avoid the shame of admitting that they didn't fulfill their end of the deal)
So it will be very, very difficult to find direct evidence of thousands of people "walking away" from affordable mortgages.
The available evidence will likely all be indirect.
i did smoke a bowl about halfway through, though.
MoM:
OK, if the borrower really has equity, or is close to break even, the extreme probability is that the borrower will sell before FC or do a short sale.
"
Thanks for the reply. On the carrying cost numbers I will nitpick a little in that cost of cfc funding capital is 4.90 as of 12/31/07. Also 3% per annum for taxes and insurance seems pretty high, i don't know too much about the rest of the world but my own personal number is about 1%. As for the brokerage commission its hard for me to believe that countrywide is paying full freight to brokers but again this is all nitpicking.
I can certainly see a bank wanting to blow the property off the books and taking say a 20% hit on the market price and another 10% on all the transaction costs but that would only get you to 30% which is a far cry from 50%. And even as I say that I can see a bank doing it, at least in my neck of the woods there is nothing, nada, zilch even remotely close to this.
As an aside I saw where Beazer did something of a blowout sale recently in Californian and lowered prices 10-20 off already pretty low end homes and they actually sold them even though they took a loss on each and every one.
I do understand your point that there are plenty of homes in marginal areas that may be stripped etc, but the numbers we are talking about here are for fully half the sub-prime originations over that last 3 years to end up reo. So cherry picking some instances of people ripping out the plumbing is not material to the discussion.
Now to your point about if the borrower really has equity. If what you wrote is true then we are going to limit our excess foreclosures mostly to people who are upside down on their mortgages and no matter how badly you torture the numbers there is no way you are going to get 50% of the sub-prime origination to end up in this category unless we enter into a depression for entirely unrelated reasons like someone drops nuke on nyc.
But David, very few of the subprime buyers in the last three years put down much by the way of downpayment. The seconds are floating out there as well, and are a dead loss. When a home goes into foreclosure you have to count the loss on the first and the second.
No way are subprime loans after reset getting less than 7% on average. Even if the first is low the second is not. You have to figure the loss of scheduled interest on the loan, not the institutional cost of funds.
Prop taxes vary a lot, but vacant house insurance is getting quite expensive. Property insurance rates have galloped up in some areas. It varies widely. If it's a condo, then you've got HOA.
I think everyone pretty much went to a 40% severity on subprime FC last year. The declining markets are making that worse.
Tanta:
Check page 22:
These assumptions imply cumulative excess foreclosures of 13.5% of the currently outstanding stock of mortgages over the next few years.
Mea Culpa, this is what I get for carrying on an email debate simultaneously with blog posting.
I still think the estimations by this method are way too high, again the 50% loss numbers seem huge. Unless the accounting is done as MoM has said loss = what i should have earned - what it did, as opposed to straight principal loss which is what i am accustomed to seeing. I need to do some more research on this.
Since the number they give is an excess, it implies total foreclosure even higher than the 13.5% cumulation.
The baseline rate is .4% per year which over 4 years is roughly 1.5%.
That would put actual REO's of 15% or 7.5million units and using their 55 % number of foreclosure to REO means that nearly 30% of the current outstanding mortgage stock is expected to at least get to the initial states of foreclosure.
According to the MBA report that you linked 348k mortgages went into foreclosure in q3. 20% of these were investors, and another 20% were 'no contacts' which probably means at least some percentage of the no contacts were also investors. I don't know how long the 'investors' will hold out, but I would assume they would be the first to bail especially in non recourse states. That should mean that investor defaults are largely front loaded and that as time goes on we get more and more into the core homeowner that just can't pay and has no equity and can't get a refi because the bank thinks that a 50% haircut on the loan is a better option than any kind of workout, even an i/o at bank cost of capital which looks right now about 5%.
I just don't believe that from a political standpoint we could ever get there. Rates might get to be 1% and gold will be $2000 and mortgages might get bought by the fed but there is no way the banks are taking down 7.5 million houses.
Thanks for going back to the original docs and rereading.
No.
This may be one great example of overkill. There had to be some other way of making whatever point you made with 10% of the words.
Do you think anyone in the world actually read this entire comments section?
I would love to hear from anyone who read all of this.
We'll let ya know when the Cliff Notes come out.
For an article that starts with a lofty goal of making everything precise, it introduces unnecessary hurdles and objective criteria to make definitions.
I think your 4th criteria in the definition of the walk-away owner is flawed:
It is a subjective, unverifiable criteria. You ask 10 people, and they will give you different answers:
To put it differently, there is an element of subjectivity and preferences in that one. Money is fungible. I am able to pay for my car and credit cards, but unable to pay for my mortgage. Who are you or the bank to decide for myself if I am able to pay my mortgage?
Also, you are making it very difficult to scientifically verify the claim by adding criteria.
Here is another modification that you could make that would make it much easier to validate / reject a hypothesis claim.
Simply include 1, 5, and 6. But in 6, specify that they bought a home or rented elsewhere, and find the price they are paying to own and rent. So, look for customers whose home is being foreclosed on, but before the foreclosure goes through, they have purchased a second, cheaper home.
I think this shows intent, and entirely by-passes the subjective matter of "able to pay the mortgage".
Also, where is the claim? Where are the hypotheses? What exactly are we testing?
Are you trying to claim that intentional foreclosures have gone up vs last year? Are you trying to claim that intentional foreclosures are up 10 times vs last year? Are you trying to claim that a 10% decline in home prices results in a 20-fold increase in intentional foreclosures?
I agree w/ many of the commentators above that you are making an overkill here. And then leaving the reader hanging on a cliff, like this is such a tough problem.
Problem is tough, but don't make it harder by introducing unnecessary wrinkles.
Lender part of the lending industry does want to deflect blame AND
keep interest payments coming as long as possible AND play "poor little me" over at the Congress money factory AND
the people who can afford to stay in their Single family home and make all payments, upkeep, etc, will, if forced, walk away from any other real estate investments as speculators rather than admit to friends and relatives thay lack ability to pay for the house they call home.
These folks of means are very far outnumbered by the folks who got in over their head right from day one.
I really believe that Congress needs to hear right now from anyone that does not want to help pay to bailout irresponsible lenders.
I stand by my statement, Tanta's posts are too unfocused, period.
As for the rest of the nonsense that was posted about me here - it is hilarious to see the level of reading comp on this blog. How anyone can say I am a sound bite or MSM supporter, from what I posted is stunning.
Chronicaling history does serve a purpose but if its 100% unfocused it doesn't help much.
Mark my words - now that the loan structures are out of the bag (alt-a) MSM will be writing many many clearly focused pieces on the topic and readership here will fall - happens all the time.
But keep attacking someone with a slightly, and I do mean slightly, different opinion. And godforbid anyone should tell Tanta the truth about her writing.
SR