burnside, when BofA upped their projections for HELOC losses this week - from numbers they just gave out last month - I started to wonder what was going on. I think this is interesting about FSA blaming it on the servicers being behind!
Yes, the HELOCs are going to inflict massive losses, and a lot of those losses go into directly held portfolios - i.e., this is a hit that will crunch a much wider segment of banks, just as the construction loans do.
Reuters
The Fed is giving more thought to actively heading off financial bubbles in the wake of the housing and credit crises. A group of researchers Bernanke hired when he was at Princeton found that investment mania can persist even though many smart investors see it coming...
Thank you for posting this on the front page of the WSJ whomever.
Money is the illusion of power and control.
The society we have today depends on this illusion for its existence.
It is the common cause that binds us, whatever its merits may be.
Bubbles are the destruction of that illusion for profit.
If we allow these bubbles to continue then that thing which binds our society becomes meaningless.
The question is not whether house prices or employment rises or falls.
The question is whether we trade our current lifestyle for something unknown.
There is no easy solution to the "housing crisis". There are hard solutions, and there are things that are easy that appear to be solutions.
This is why the problem of bubbles never goes away.
Intelligent people ask why we're "here" but reject the notion that life can be built on a fantasy or a misrepresentation.
People say "What's the meaning of life?" because the world they build in their minds has a meaning.
The world you think you live in is not the world you live in.
If it were, you wouldn't be here.
Don't sell yourself to somebody else to try to make it that way.
The big question is when will American consumers measurably slow down their spending -- enough so that companies begin to lower their forecasts and guidance.
Up til now, the stock market clearly believes that the spending can and will continue. Helocs be damned.
As always...Thanks for the posts and the comments.
Watch the delta on the TAFs and other financing schemes. The Fed is dropping over $30B / month. I presume it's a real bad sign if they increase the term.
The Federal Reserve should try to aggressively deflate some types of asset bubbles before they can harm the economy, Fed Gov. Frederic Mishkin said Thursday.
But raising interest rates isn't the way to prick a bubble, he said.
Fascism is the price we pay for bubbles.
By being idiots we give super-idiots the excuse they need to take control of our lives.
As individuals we would not have the wealth and self-determination we have today if we ingnored or rewarded gross failure and neglect.
In human societies power has the tendency to accumulate in the hands of the few -- desire for power begets power and the means to even more power.
Even though it is the primary driver of individuals, in the long term this desire cannot be the primary driver of a civilization because it leads to adverse selection and ultimately self-destruction.
As "Americans" we have the prosperity that we do because our forebears refused to play their part as we approached this equilibrium, intentionally or not.
Our wealth is inherited from an unwillingness to take what we have for granted and a willingness to bear the costs of our mistakes.
Again, the US is in crisis because the people who make up this country are not the people who made this country.
Maybe it is not a coincidence that the Federal Reserve's attempts to ease our collective burdens in 1927 lead to the worst global economic crisis in documented history.
Maybe it is not a coincidence that this economic crisis lead to the rise of petty demagogues that committed the worst crimes in documented history.
If history is any guide, there is a terrible price to pay when individuals neglect their own fate because of the promises of others.
BTW, an irresponsible individual looking to ruffle feathers and stir up controversy might argue that rate cuts by the US Federal Reserve lead to the rise of Hitler and the Nazi party.
This is tedious. When it started, it was called the sub-prime crisis. Now pundits are calling the next stage as if this is a cancer progressing from organ to organ and could be stopped here or there.
The entire system is bubbled. Everything. Everyone went too far into debt and bought too much crap. Now they can't afford it. It's not Alt-A, Sub-prime, HELOC, CDO's or ABS's. It's too much fricking debt.
Once the bubble stops going up, it has to burst. There is no mechanism to deflate it gently without creating new bubbles. The government and Wall Street are colluding to keep the bubble inflated by pumping taxpayer money into it, but it's still deflating and still waiting to burst.
I have accused Americans of being greedy and lazy, but I retract the "lazy" accusation. Wall Street bankers work incredibly hard to steal from us. And average Americans have been putting in longer hours while both parents have been working.
It was just stupidity, criminality and greed. but not laziness...oh,no, we worked very, very hard to create this clusterfuck.
The world you think you live in is not the world you live in.
Dropping acid again, ac?
Brings back some vivid memories.
Nah. Just trying to find some clever way of saying that all the people who come here and claim to know the future are necessarily wrong.
I admit to being one of the worst offenders and spending most of my time trying to figure out what's going to happen tomorrow or at least a way to convince other people that I know.
I figure if anyone could really do that it would "rip the fabric of time" so to speak, even though we all think we can.
That's what you get for keeping up with the Jones. Everyone and their toddlers are working just to keep up with the Jones. Now, everything is adjusted and we no longer can live with one income. We frekn' bubblize the whole process of making a living.
It seems the Fed is willing to throw overboard any rule, regulation, or shred of integrity to keep the ship afloat until November.
November elections will wreak carnage on Republicans, and the bankrupted nation will be dumped into the hands of the Democrats who as yet have no clue what lies ahead in 2009-2012.
Not only is the Treasury vault empty, there's a NOD posted on the vault door, with a lien for fifty trillion attached.
Gee, Nancy, do ya think you shoulda left impeachment on the table in '06?
Sacramento here. I'm running into the bottom is in and the recovery has begun meme quite a bit. Just like during the run-up when people derided me for giving voice to the concept that real estate doesn't always go up, now they dislike that I'm not on board with the recovery meme. There's an air of it has to be a recovery feel. Few seem to have learned any lessons. Real estate cycles go way back and are functions of time not price. We haven't done our time yet. We are having a seasonal stabilization here. It's a head-fake. Pent up buyers are jumping in. Inventory will swallow their advance by end of summer/fall. Then the final leg down begins. I'm holdin'. I figure to be firin' in about 1 1/2 to 2 years. Scouting locations now.
"Washington Mutual Inc. has slashed or suspended $6 billion in available home equity credit to its customers in an effort to reduce its risk in a flailing housing market.
If they haven't already been notified, WaMu's customers across the country will learn of the change to their credit availability in a letter mailed to them in the next several days. The bank declined to disclose how many customers will be affected. "
You are correct we haven't seen the peak in forclosures. In Colorado Springs we already have almost 1700 through the end of April. Last years record was 3558.
Back in the 80's, Eugene McCarthy (one of our last true statesmen) ran a quixotic campaign for President. More quixotic even than his '68 bid.
He spoke out about the crippling federal deficits, the federal debt (then only a few measly trillion).
To balance our the country's books, he said, we need to put a tax on wealth. Not income, but wealth.
It's too late for that now. Even the four hundred-odd billionaires in the US, taxed into poverty, don't have sufficient wealth to put a dent in the numbers in red.
They will be lucky if they don't get 50% default rates on HELOCs in Cali.
If that happens, will the other 50% continue paying on them? I should think 50% would be past the tipping point, where the meme becomes "hell, nobody pays on them anymore, and nothing happens to them."
We are in the fourth or fifth inning. When we do hit bottom, it will stay there for awhile. My personal opinion is that we are currently in the time and space phase as the small blip up (blue line) on this chart for the previous empirical cycle.
Don't know the meaning of that one, Sacramento, much as I love it, didn't even make it to the playoffs. Were they even .500? So much for recovering nicely.
Backlog? What the heck is that about? This doesn't smell right.
Countrywide is aware that payments aren't coming in, right? How in the world does a subservicer have a backlog that prevents it from reporting that payments aren't coming in?
It sounds like Dexia is saying that Countrywide had a backlog that prevented it from telling Dexia, "Suzy Creamcheese, account number 12345, is 30 days past due." I don't believe it. Someone is lying and covering up.
I can see where Countrywide has a backlog in collections and loss mitigation. But reporting delinquencies? No way. When fewer checks are coming in, shouldn't that actually reduce that department's workload? They have fewer envelopes to open. An envelope doesn't come in, and a computer report goes out automatically, listing that customer as delinquent.
My gut feeling is HELOCs are in much worse shape than is being reported.
Wells Fargo is allowing home owners to fall behind 120 days instead of 90 days before they start foreclosing. They say it's to help homeowners stay in their home. How many homeowners that are 90 days past due will become current given an extra 30 days? Probably not many. My guess is they're doing this to delay the invetable bad news.
The primary reason, IMO, that HELOC problems aren't being reported is banks will rarely foreclose on someone because they're delinquent on their HELOC if the house is underwater or even if the house is above water by 10% or less of the home value. They know they'll net 0 or less money by foreclosing, so they don't.
I'm not sure how the banks account for the non-payments (Tanta?). I suspect they treat it like a neg-am loan. They treat the non-paid interest plus fees as profit and add the interest and fees to the principal due. I'm just guessing.
The banks have every incentive to ignore the problem and like everything else in the mortgage crisis, will only disclose what they think is required by law.
LOL, maybe Dick Armey and Steve Forbes will set up a fake websbite AngryMortgageInvestor.com to get pensioners and households to demand less disclosure costs and more freedom from regulators for CDO's and HELOC-backed securitizations to secure their "retirement future."
Mr. Beach writes:
The big question is when will American consumers measurably slow down their spending -- enough so that companies begin to lower their forecasts and guidance.
When they are forced to. Absolutely forced to. When they have no credit left, no money in the bank or in their wallet.
should be good news for MBIA and their "minor" exposure....
"MBIA had insured bonds backed by home equity lines of credit and closed-end second loans totaling $21 billion at the end of 2007, according to the company. "
Charlie...That is one scary comment of yours.
It sounds like the normal checks and balences don't apply in the HELOC market. There is no incentive for the bank to foreclose, so stuff the garbage under the rug and try to forget about it....
OT, but did you see the article on AngryRenter.com in today's WSJ? It is a lobbying effort, so called "AstroTurf". I wonder how many of these there are out there?
Correct me please if I'm wrong, but if you have a HELOC and you keep paying the first mortgage but stop the second, the bank doesn't foreclose, but slaps a lien on the proprety that prevents clear title unless it is satisfied. Right? So the exposure (up front) to HELOCs is only for those that exist with a first mortgage that goes FC?
So then, while these loans are bad, the ultimate result may be that banks have to wait a while for the ultimate resolution of the HELOC when the property is sold. This is more uncertainty, because, how can you report on what the ultimate loss numbers are if you have no idea which falls into the first category and which into the second? And of the second, what will the ultimate loss be?
Sometime during the night I received this fascinating (to me) email from Vikram Pandit at Citi. Sort of a "we're glad your one of our valued customers" message. Not selling anything or asking for any contact. Nice picture of Mr Pandit at the top. Just struck me as an odd message.
This guy is so much gloomier than the rest of Reuters it's disturbing - they twist news to make cheery headlines while Saft sounds like a poster here at CR.
Maybe this is the way they are dragging it out on purpose. To avoid a systemic blow up of the whole enchilada. Thought process could be that the market/economy can not take all the bad medicine at once or it will collapse, so we have to let them eat it one bite at a time...sorta like the old saying....how do you eat an elephant??? one bite at a time.....
Construction starts on new U.S. homes rose by a surprisingly strong 8.2 percent in April and applications for new building permits turned up for the first time in five months, the Commerce Department said on Friday in a report showing that the hard-hit housing sector still had some spring vigor.
CarMax April CAF securitization data reveals that delinquencies have risen above
the seasonal trend for the second consecutive month, and continue to stand well
above historical peaks for every pool from 2006-2 forward. All but one pool (2005-3)
posted above-average-seasonal increases, suggesting more broad-based pressure than
in March. For a long time, we had watched delinquencies rising without much in the
way of follow-through in charge-offs. Note, however, that over the past three months
(February-April), charge-offs in the 2007-1, -2, and -3 pools have consistently risen
in excess of the typical seasonal pace, suggesting this disconnect may finally be
closing. CarMaxs reduced gain-on-sale assumptions are likely due at least in part to
recognition of this trend.
The majority of HELOCs are 2nd liens, meaning they aren't in a position to foreclose. The default on many of these are probably "Ruthless Modifications".
"To balance our the country's books, he said, we need to put a tax on wealth. Not income, but wealth."
Well, a higher capital gains tax would somewhat do that, wouldn't it?
Just why are capital gains taxed at a lower rate than income from working anyway? Someone please remind me because I don't get it. Because the time someone has to spend working is so much more constrained (by physical nature) than the ceiling on wealth it should not be taxed at a higher rate.
Anecdotally, a friend in Cali who was in the mortgage biz knows of at least two ex-coworkers who have been out of work for six or more months. She herself has a job in IT, though she hates it. But she is hopeful for the future, as she is moving to OKC. (She does not own, BTW. She is well aware of the situation in the real estate and mortgage business, and wouldn't have a hope of qualifying for a mortgage at present anyway.)
And why is interest income treated as income instead of capital gains? Aren't savers right now helping keep banks afloat? Why should this be taxed higher than if I own some bank stock?
"Underneath Tanta's cup of coffee, you will find another cup of coffee."
Underneath Tanta's brain, you will also find a filter: triple reverse osmosis, 0.01 nanometer in diameter, HEVAC level IV, military-grade stuff, the best neurons can buy.
The filter is optimized to trap and eliminate all models, shapes and forms of...bullshit.
Queequeg - I'm having a tough time understanding what they mean by 'backlog' in this context. Monthly delinquency reports are as common as dirt, and I suspect most would continue to generate for at least a few months even if all the humans were vaporized and the power grid shut down.
ipodius writes: "Correct me please if I'm wrong,"
My pleasure. You are wrong on two important points. First the 2nd lienholder doesn't "slap a lien on" in the event of default - they already have a steenking lien, that's what a mortgage loan is, d00d.
Secondly, the loss reserve must be taken at 120 days (for HEL) or 180 days (for HELOCs). If the bank is not going to foreclose at that time, you must reserve for La whole Enchilada.
If the bank "recovers" money three years on (or whenever) when the borrower strikes a deal to sell the home, those funds are profit.
"The European Central Bank on Thursday voiced its high concern at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged.
Yves Mersch, a governing council member, said the ECB was now looking very hard at whether there is not a specific deterioration of collateral which the central bank is accepting in return for funds.
He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank.
Central banks have become important in providing funding for difficult to sell mortgages on what is intended to be a short-term basis while securitisation markets remain frozen."
Capital gains rates are lower on the premise that the lower rates somehow incentivizes an entrepreneur to create growth. This might have worked about 100 years ago, when economic growth meant kicking the Indians off their land and monetizing it. But really how much of capital gains now is "organic" as opposed to "cannibalizing"?
Sometime during the night I received this fascinating (to me) email from Vikram Pandit at Citi. Sort of a "we're glad your one of our valued customers" message. Not selling anything or asking for any contact. Nice picture of Mr Pandit at the top. Just struck me as an odd message.
I got one of those first part of the week. It included the following null statement: I want you to be among the first to know about the bold steps we are taking at Citi to be the premier, global, fully integrated financial services firm.
Great commentary on the HELOC's but I have no take on how big of an impact they could end up having vs. the debacle with first liens via sub-prime and Alt-A.
You probably already know this, but Chase closed their entire HEL and Subprime broker program Wednesday.
Chase Wholesale No Longer Offering Subprime and Home Equity Products
As we continue to analyze and manage our product set, Chase has made the
decision to discontinue offering our Subprime and Home Equity products
through our Wholesale channel.
New Wholesale Subprime and Home Equity registrations will not be accepted
after Friday, May 16, 2008.
The Northridge earthquake was Calculated Risk reconsidering an opinion.
The periodic fires in Southern California are caused by pure beams of energy emitting from Calculated Risk's ears.
Once Tanta read an article by Gretchen Morgenson that made her coffee boil so badly that she spit out her blood.
Calculated Risk once calculated the risk of a calculated risk. There were no survivors.
NBC recently signed a deal with Calculated Risk to produce a new show on real estate. They backed out when he insisted that the name of the show be "No Deal." They later all died.
Does anyone know the size of the HELOC universe. In other words how much is actually outstanding. Percentage loss numbers aren't of much use in judging the impact without relating them to the total dollar exposure.
Calculated Risk has been posting to this blog since Oct. 19th, 1974. It took scientists over two decades to understand what he was doing and build the infrastructure necessary to support the rest of us seeing it.
Chuck Norris once disagreed with Calculated Risk. Scientists calculate that if the energy released by this event could have been harnessed, we would not need the Sun.
just as housing fed upon itself on the way up, so shall it feed upon the nation on the way down. Like any good Ponzi scheme when it blows, many get hurt.
For a better take, read this column by a guy who REALLY knows the whole derivatives business as he literally wrote the books on it:
For those who think that the Sac market is recovering, can I have what you are taking?
Any uptick in the market right now is an anomly. The truth is that there are more foreclosures coming to market daily throughout Sac, the East Bay, Stockton, etc.
Banks are not putting all their REO's on the market right now. They are keeping at least 50% held back, trying to keep the prices propped up. And also hoping that the Fed will bail them out.
The Option ARM's begin to reset at the end of this year. It will continue for three years. There were twice as many of these loans done as compared to subprime. When these hit, the foreclosures will go way up.
I have been in the business for over 12 years. Also went through the debacle of 78-81. We have not seen anything yet.
FWIW, I'm starting to see a backlog of cases at some of the major servicers where the file gets bounced from person to person to person, and not ONE of the negotiators does a damned thing with it.
Some of these packages were submitted SEPTEMBER of last year.
Geez, outright losses?
Nah, I'm sure the Fed will start taking HELOCS without questions asked.
So. We might say this affects the 'Real Banking Economy'.
As to wrong data, should there have been some indication the data set was backlogged? I mean internally?
CR,
Can you update your HELOC charts again for us?
Thanks to you and the Fleckmeister for this wholly wretched but account-saving info.
burnside, when BofA upped their projections for HELOC losses this week - from numbers they just gave out last month - I started to wonder what was going on. I think this is interesting about FSA blaming it on the servicers being behind!
Best to all.
Not complaining, cuz I love your articles, but do you folks ever sleep?
This makes me wonder about the BOA purchase of Countrywide. I wonder why there was such a backlog of CW Helocs? Hmmm.
Yes, the HELOCs are going to inflict massive losses, and a lot of those losses go into directly held portfolios - i.e., this is a hit that will crunch a much wider segment of banks, just as the construction loans do.
Bernanke's Bubble Laboratory
Reuters
The Fed is giving more thought to actively heading off financial bubbles in the wake of the housing and credit crises. A group of researchers Bernanke hired when he was at Princeton found that investment mania can persist even though many smart investors see it coming...
Thank you for posting this on the front page of the WSJ whomever.
Money is the illusion of power and control.
The society we have today depends on this illusion for its existence.
It is the common cause that binds us, whatever its merits may be.
Bubbles are the destruction of that illusion for profit.
If we allow these bubbles to continue then that thing which binds our society becomes meaningless.
The question is not whether house prices or employment rises or falls.
The question is whether we trade our current lifestyle for something unknown.
There is no easy solution to the "housing crisis". There are hard solutions, and there are things that are easy that appear to be solutions.
This is why the problem of bubbles never goes away.
Intelligent people ask why we're "here" but reject the notion that life can be built on a fantasy or a misrepresentation.
People say "What's the meaning of life?" because the world they build in their minds has a meaning.
The world you think you live in is not the world you live in.
If it were, you wouldn't be here.
Don't sell yourself to somebody else to try to make it that way.
Nah, I'm sure the Fed will start taking HELOCS without questions asked.
4th from the bottom.
Fed is back stopping everything, the word failure has been removed from the dictionary.
I think this is interesting about FSA blaming it on the servicers being behind!
It's not like Tanta didn't call this one eons ago.
o need to sleep, we go coast to coast baby!
Not complaining, cuz I love your articles, but do you folks ever sleep?
Calculated Risk and Tanta do not sleep. They wait.
Tanta has been known to sleep thru a foul troll or two.
The big question is when will American consumers measurably slow down their spending -- enough so that companies begin to lower their forecasts and guidance.
Up til now, the stock market clearly believes that the spending can and will continue. Helocs be damned.
JoeMortgage writes:
no need to sleep, we go coast to coast baby!
And continent to continent. Those of us in Europe thank you for the later posts that give us reading material in the morning!
As for sleeping through the foul trolls-- I'm still trying to learn the trick of that. It's the smart thing to do.
We are in a recovery, deal with it dolt. Sacramento is recovering nicely.
As always...Thanks for the posts and the comments.
Watch the delta on the TAFs and other financing schemes. The Fed is dropping over $30B / month. I presume it's a real bad sign if they increase the term.
The nightmare continues...
Deal with it tools! It's over! We are in a rebound.
D & G, why so harsh? What are you seeing in Sacramento?
"Sacramento is recovering nicely."
Recovery is in the eye of the beholder.
Blogger: Page not found
Old data. You guys are such sheeps. Bahhh BAHHHHH!! Those homes are all sold or most of it. Get the buying now before it's all gone!
The world you think you live in is not the world you live in.
Dropping acid again, ac?
Brings back some vivid memories.
The Federal Reserve should try to aggressively deflate some types of asset bubbles before they can harm the economy, Fed Gov. Frederic Mishkin said Thursday.
But raising interest rates isn't the way to prick a bubble, he said.
Fascism is the price we pay for bubbles.
By being idiots we give super-idiots the excuse they need to take control of our lives.
As individuals we would not have the wealth and self-determination we have today if we ingnored or rewarded gross failure and neglect.
In human societies power has the tendency to accumulate in the hands of the few -- desire for power begets power and the means to even more power.
Even though it is the primary driver of individuals, in the long term this desire cannot be the primary driver of a civilization because it leads to adverse selection and ultimately self-destruction.
As "Americans" we have the prosperity that we do because our forebears refused to play their part as we approached this equilibrium, intentionally or not.
Our wealth is inherited from an unwillingness to take what we have for granted and a willingness to bear the costs of our mistakes.
Again, the US is in crisis because the people who make up this country are not the people who made this country.
Maybe it is not a coincidence that the Federal Reserve's attempts to ease our collective burdens in 1927 lead to the worst global economic crisis in documented history.
Maybe it is not a coincidence that this economic crisis lead to the rise of petty demagogues that committed the worst crimes in documented history.
If history is any guide, there is a terrible price to pay when individuals neglect their own fate because of the promises of others.
BTW, an irresponsible individual looking to ruffle feathers and stir up controversy might argue that rate cuts by the US Federal Reserve lead to the rise of Hitler and the Nazi party.
I hope nobody thinks I'm suggesting that.
Really I'm not.
AC what are you smoking? Get back to reality and go fish.
This is tedious. When it started, it was called the sub-prime crisis. Now pundits are calling the next stage as if this is a cancer progressing from organ to organ and could be stopped here or there.
The entire system is bubbled. Everything. Everyone went too far into debt and bought too much crap. Now they can't afford it. It's not Alt-A, Sub-prime, HELOC, CDO's or ABS's. It's too much fricking debt.
Once the bubble stops going up, it has to burst. There is no mechanism to deflate it gently without creating new bubbles. The government and Wall Street are colluding to keep the bubble inflated by pumping taxpayer money into it, but it's still deflating and still waiting to burst.
I have accused Americans of being greedy and lazy, but I retract the "lazy" accusation. Wall Street bankers work incredibly hard to steal from us. And average Americans have been putting in longer hours while both parents have been working.
It was just stupidity, criminality and greed. but not laziness...oh,no, we worked very, very hard to create this clusterfuck.
The world you think you live in is not the world you live in.
Dropping acid again, ac?
Brings back some vivid memories.
Nah. Just trying to find some clever way of saying that all the people who come here and claim to know the future are necessarily wrong.
I admit to being one of the worst offenders and spending most of my time trying to figure out what's going to happen tomorrow or at least a way to convince other people that I know.
I figure if anyone could really do that it would "rip the fabric of time" so to speak, even though we all think we can.
Isn't that what we argue about all day?
That's what you get for keeping up with the Jones. Everyone and their toddlers are working just to keep up with the Jones. Now, everything is adjusted and we no longer can live with one income. We frekn' bubblize the whole process of making a living.
Most HELOCs are 2nd and 3rd trust deeds, it means that the losses on HELOCs are 100%, Right?
It seems the Fed is willing to throw overboard any rule, regulation, or shred of integrity to keep the ship afloat until November.
November elections will wreak carnage on Republicans, and the bankrupted nation will be dumped into the hands of the Democrats who as yet have no clue what lies ahead in 2009-2012.
Not only is the Treasury vault empty, there's a NOD posted on the vault door, with a lien for fifty trillion attached.
Gee, Nancy, do ya think you shoulda left impeachment on the table in '06?
HELOC is the new subprime.
Sacramento here. I'm running into the bottom is in and the recovery has begun meme quite a bit. Just like during the run-up when people derided me for giving voice to the concept that real estate doesn't always go up, now they dislike that I'm not on board with the recovery meme. There's an air of it has to be a recovery feel. Few seem to have learned any lessons. Real estate cycles go way back and are functions of time not price. We haven't done our time yet. We are having a seasonal stabilization here. It's a head-fake. Pent up buyers are jumping in. Inventory will swallow their advance by end of summer/fall. Then the final leg down begins. I'm holdin'. I figure to be firin' in about 1 1/2 to 2 years. Scouting locations now.
They will be lucky if they don't get 50% default rates on HELOCs in Cali.
Dems should try to get money back from bushco. Tax them to death.
damondidit,
explain why you think there is another leg down? I think it's heading back up.
sequoia512 writes:
They will be lucky if they don't get 50% default rates on HELOCs in Cali.
So true. The second helping of the foreclosures hasn't even made it through the snake yet.
Typically, the price bottom is 30 months after the foreclosure peak. We haven't seen the foreclosure peak yet...
Got Popcorn?
Neil
WaMu reduces home equity credit to homeowners
"Washington Mutual Inc. has slashed or suspended $6 billion in available home equity credit to its customers in an effort to reduce its risk in a flailing housing market.
If they haven't already been notified, WaMu's customers across the country will learn of the change to their credit availability in a letter mailed to them in the next several days. The bank declined to disclose how many customers will be affected. "
Neil,
You are correct we haven't seen the peak in forclosures. In Colorado Springs we already have almost 1700 through the end of April. Last years record was 3558.
Back in the 80's, Eugene McCarthy (one of our last true statesmen) ran a quixotic campaign for President. More quixotic even than his '68 bid.
He spoke out about the crippling federal deficits, the federal debt (then only a few measly trillion).
To balance our the country's books, he said, we need to put a tax on wealth. Not income, but wealth.
It's too late for that now. Even the four hundred-odd billionaires in the US, taxed into poverty, don't have sufficient wealth to put a dent in the numbers in red.
Still, I think it's a grand idea.
You will miss the boat if you don't buy now! If you don't I will sick the NAR on you. They will twist and spin the data all up in ya face.
They will be lucky if they don't get 50% default rates on HELOCs in Cali.
If that happens, will the other 50% continue paying on them? I should think 50% would be past the tipping point, where the meme becomes "hell, nobody pays on them anymore, and nothing happens to them."
D & G:
RE cycles are functions of time not price.
http://bp0.blogger.com/_pMscxxELHEg/R_ZQ4tDCIrI/AAAAAAAABzU/XDE54j1xkOs/s1600-h/HousingBustDuration.jpg
We are in the fourth or fifth inning. When we do hit bottom, it will stay there for awhile. My personal opinion is that we are currently in the time and space phase as the small blip up (blue line) on this chart for the previous empirical cycle.
Are there any figs for the size of the "HELOC universe"?
stomping feet on bleachers
TAF! ... TAF! ... TAF! ... TAF!
BRING OUT THE TAF!
the crowd cheers!
We are Americans. We do not sleep and only do sexy time all night.
High five !!
S.
Don't know the meaning of that one, Sacramento, much as I love it, didn't even make it to the playoffs. Were they even .500? So much for recovering nicely.
Backlog? What the heck is that about? This doesn't smell right.
Countrywide is aware that payments aren't coming in, right? How in the world does a subservicer have a backlog that prevents it from reporting that payments aren't coming in?
It sounds like Dexia is saying that Countrywide had a backlog that prevented it from telling Dexia, "Suzy Creamcheese, account number 12345, is 30 days past due." I don't believe it. Someone is lying and covering up.
I can see where Countrywide has a backlog in collections and loss mitigation. But reporting delinquencies? No way. When fewer checks are coming in, shouldn't that actually reduce that department's workload? They have fewer envelopes to open. An envelope doesn't come in, and a computer report goes out automatically, listing that customer as delinquent.
What am I missing?
My gut feeling is HELOCs are in much worse shape than is being reported.
Wells Fargo is allowing home owners to fall behind 120 days instead of 90 days before they start foreclosing. They say it's to help homeowners stay in their home. How many homeowners that are 90 days past due will become current given an extra 30 days? Probably not many. My guess is they're doing this to delay the invetable bad news.
The primary reason, IMO, that HELOC problems aren't being reported is banks will rarely foreclose on someone because they're delinquent on their HELOC if the house is underwater or even if the house is above water by 10% or less of the home value. They know they'll net 0 or less money by foreclosing, so they don't.
I'm not sure how the banks account for the non-payments (Tanta?). I suspect they treat it like a neg-am loan. They treat the non-paid interest plus fees as profit and add the interest and fees to the principal due. I'm just guessing.
The banks have every incentive to ignore the problem and like everything else in the mortgage crisis, will only disclose what they think is required by law.
LOL, maybe Dick Armey and Steve Forbes will set up a fake websbite AngryMortgageInvestor.com to get pensioners and households to demand less disclosure costs and more freedom from regulators for CDO's and HELOC-backed securitizations to secure their "retirement future."
Mr. Beach writes:
The big question is when will American consumers measurably slow down their spending -- enough so that companies begin to lower their forecasts and guidance.
When they are forced to. Absolutely forced to. When they have no credit left, no money in the bank or in their wallet.
Moin,
should be good news for MBIA and their "minor" exposure....
"MBIA had insured bonds backed by home equity lines of credit and closed-end second loans totaling $21 billion at the end of 2007, according to the company. "
50 percent of this is from Countrywide
Charlie...That is one scary comment of yours.
It sounds like the normal checks and balences don't apply in the HELOC market. There is no incentive for the bank to foreclose, so stuff the garbage under the rug and try to forget about it....
"It seems the Fed is willing to throw overboard any rule, regulation, or shred of integrity to keep the ship afloat until November."
Rules and Laws made by man can and will be broken by man. Tell me a law that has never been broken?
OT, but did you see the article on AngryRenter.com in today's WSJ? It is a lobbying effort, so called "AstroTurf". I wonder how many of these there are out there?
AngryRenter link: It is the product of Dick Armey and Steve Forbes.
Mortgage Bailout Infuriates Tenants (And Steve Forbes) - WSJ.com
Correct me please if I'm wrong, but if you have a HELOC and you keep paying the first mortgage but stop the second, the bank doesn't foreclose, but slaps a lien on the proprety that prevents clear title unless it is satisfied. Right? So the exposure (up front) to HELOCs is only for those that exist with a first mortgage that goes FC?
So then, while these loans are bad, the ultimate result may be that banks have to wait a while for the ultimate resolution of the HELOC when the property is sold. This is more uncertainty, because, how can you report on what the ultimate loss numbers are if you have no idea which falls into the first category and which into the second? And of the second, what will the ultimate loss be?
Funds provided through the so-called discount window for banks rose by $2.8 billion to a daily average of $14.4 billion in the week to May 14,
14 yards a day!
is it clear now!
The whole damn US financial system is the new sub-prime, HELOCs are going to have to get in line.
ipod, just think of the heloc as gangrene
OT,
Sometime during the night I received this fascinating (to me) email from Vikram Pandit at Citi. Sort of a "we're glad your one of our valued customers" message. Not selling anything or asking for any contact. Nice picture of Mr Pandit at the top. Just struck me as an odd message.
James Saft, an editorial writer at Reuters, is not very sanguine about California's prospects - says you Californians are becoming very thrifty:
After the gold rush, California finds thrift: James Saft
| Reuters
This guy is so much gloomier than the rest of Reuters it's disturbing - they twist news to make cheery headlines while Saft sounds like a poster here at CR.
Calculated Risk and Tanta do not sleep. They wait.
Calculated Risk once wrote an article that became true simply by his writing it. There were no survivors.
Tanta once wrote an article so long that it wrapped around reality and reconnected to itself. If you start reading it, you are never heard from again.
Tanta does not sleep. She drinks coffee.
Underneath Calculated Risks brain, you will find another brain.
Underneath Tanta's cup of coffee, you will find another cup of coffee.
Calculated Risk did not invent the internet. Calculated Risk is the internet.
Calculated Risk doesn't use the NPV function in Excel. He uses the one in his head.
Cheers,
prat
@ Queequeg
Maybe this is the way they are dragging it out on purpose. To avoid a systemic blow up of the whole enchilada. Thought process could be that the market/economy can not take all the bad medicine at once or it will collapse, so we have to let them eat it one bite at a time...sorta like the old saying....how do you eat an elephant??? one bite at a time.....
Construction starts on new U.S. homes rose by a surprisingly strong 8.2 percent in April and applications for new building permits turned up for the first time in five months, the Commerce Department said on Friday in a report showing that the hard-hit housing sector still had some spring vigor.
Consumers' mood as grim as early-80s
| Reuters
Build them and they will come.
It's Friday.... which bank fails today?
GS on KMX
CarMax April CAF securitization data reveals that delinquencies have risen above
the seasonal trend for the second consecutive month, and continue to stand well
above historical peaks for every pool from 2006-2 forward. All but one pool (2005-3)
posted above-average-seasonal increases, suggesting more broad-based pressure than
in March. For a long time, we had watched delinquencies rising without much in the
way of follow-through in charge-offs. Note, however, that over the past three months
(February-April), charge-offs in the 2007-1, -2, and -3 pools have consistently risen
in excess of the typical seasonal pace, suggesting this disconnect may finally be
closing. CarMaxs reduced gain-on-sale assumptions are likely due at least in part to
recognition of this trend.
"James Saft, an editorial writer at Reuters, is not very sanguine about California's prospects - says you Californians are becoming very thrifty:"
Suecris, thanks for the article. And I have seen it myself.
The majority of HELOCs are 2nd liens, meaning they aren't in a position to foreclose. The default on many of these are probably "Ruthless Modifications".
Isn't there any good news? Just want a little crumb.
"To balance our the country's books, he said, we need to put a tax on wealth. Not income, but wealth."
Well, a higher capital gains tax would somewhat do that, wouldn't it?
Just why are capital gains taxed at a lower rate than income from working anyway? Someone please remind me because I don't get it. Because the time someone has to spend working is so much more constrained (by physical nature) than the ceiling on wealth it should not be taxed at a higher rate.
Ruthless modifications is a wonderful neologism. Thanks, Racer X.
prat --
Great morning reading, thanks for the laugh.
Anecdotally, a friend in Cali who was in the mortgage biz knows of at least two ex-coworkers who have been out of work for six or more months. She herself has a job in IT, though she hates it. But she is hopeful for the future, as she is moving to OKC. (She does not own, BTW. She is well aware of the situation in the real estate and mortgage business, and wouldn't have a hope of qualifying for a mortgage at present anyway.)
Thomas
And why is interest income treated as income instead of capital gains? Aren't savers right now helping keep banks afloat? Why should this be taxed higher than if I own some bank stock?
"Underneath Tanta's cup of coffee, you will find another cup of coffee."
Underneath Tanta's brain, you will also find a filter: triple reverse osmosis, 0.01 nanometer in diameter, HEVAC level IV, military-grade stuff, the best neurons can buy.
The filter is optimized to trap and eliminate all models, shapes and forms of...bullshit.
Bair is on the wire, warning of a second wave of credit stress. Fits right in with your current theme.
Queequeg - I'm having a tough time understanding what they mean by 'backlog' in this context. Monthly delinquency reports are as common as dirt, and I suspect most would continue to generate for at least a few months even if all the humans were vaporized and the power grid shut down.
ipodius writes: "Correct me please if I'm wrong,"
My pleasure. You are wrong on two important points. First the 2nd lienholder doesn't "slap a lien on" in the event of default - they already have a steenking lien, that's what a mortgage loan is, d00d.
Secondly, the loss reserve must be taken at 120 days (for HEL) or 180 days (for HELOCs). If the bank is not going to foreclose at that time, you must reserve for La whole Enchilada.
If the bank "recovers" money three years on (or whenever) when the borrower strikes a deal to sell the home, those funds are profit.
Headline story on today's Financial Times:
FT.com / Europe - ECB concern over liquidity scheme
ECB concern over liquidity scheme
"The European Central Bank on Thursday voiced its high concern at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged.
Yves Mersch, a governing council member, said the ECB was now looking very hard at whether there is not a specific deterioration of collateral which the central bank is accepting in return for funds.
He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank.
Central banks have become important in providing funding for difficult to sell mortgages on what is intended to be a short-term basis while securitisation markets remain frozen."
"Best Wishes" is "I allow you to live" in Calculatese.
Calculated Risk is the only person capable of graphing Calculated Risk.
Tanta doesn't use coffee filters. She eats whole coffee trees.
Once Calculated Risk ignored Sebastian so pointedly that it stabbed himself. On purpose.
The GDP measure of Brazil is divided into "Tanta" and "other"
Calculated Risk doesn't coodaknowed. He knowed.
Cheers,
prat
Capital gains rates are lower on the premise that the lower rates somehow incentivizes an entrepreneur to create growth. This might have worked about 100 years ago, when economic growth meant kicking the Indians off their land and monetizing it. But really how much of capital gains now is "organic" as opposed to "cannibalizing"?
RayOnTheFarm writes:
Sometime during the night I received this fascinating (to me) email from Vikram Pandit at Citi. Sort of a "we're glad your one of our valued customers" message. Not selling anything or asking for any contact. Nice picture of Mr Pandit at the top. Just struck me as an odd message.
I got one of those first part of the week. It included the following null statement:
I want you to be among the first to know about the bold steps we are taking at Citi to be the premier, global, fully integrated financial services firm.
Methinks he doth protest too much...
Great commentary on the HELOC's but I have no take on how big of an impact they could end up having vs. the debacle with first liens via sub-prime and Alt-A.
You probably already know this, but Chase closed their entire HEL and Subprime broker program Wednesday.
Chase Wholesale No Longer Offering Subprime and Home Equity Products
As we continue to analyze and manage our product set, Chase has made the
decision to discontinue offering our Subprime and Home Equity products
through our Wholesale channel.
New Wholesale Subprime and Home Equity registrations will not be accepted
after Friday, May 16, 2008.
The Northridge earthquake was Calculated Risk reconsidering an opinion.
The periodic fires in Southern California are caused by pure beams of energy emitting from Calculated Risk's ears.
Once Tanta read an article by Gretchen Morgenson that made her coffee boil so badly that she spit out her blood.
Calculated Risk once calculated the risk of a calculated risk. There were no survivors.
NBC recently signed a deal with Calculated Risk to produce a new show on real estate. They backed out when he insisted that the name of the show be "No Deal." They later all died.
Cheers,
prat
Does anyone know the size of the HELOC universe. In other words how much is actually outstanding. Percentage loss numbers aren't of much use in judging the impact without relating them to the total dollar exposure.
Tell me a law that has never been broken?
Anon123
The Law of Gravity?
Foolish mortal! You seek to describe the totality of Calculated Risk with your puny words? Words cannot describe his power!
Economies quail at his withering glance!
Central bankers avert their gaze as he passes by!
There is no accounting trick that is hidden from him. They open like flowers to his sight!
The high and mighty all must pass through his confessional; yea, to be contrite and humbled!
When he unleashes Tanta, even the wise appear foolish!
Enough! Let us meditate on the ineffable. Ommmmmmmmmmm.
Calculated Risk has been posting to this blog since Oct. 19th, 1974. It took scientists over two decades to understand what he was doing and build the infrastructure necessary to support the rest of us seeing it.
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Cheers,
prat
some of you need to take a look at this post by Mish:
Mish's Global Economic Trend Analysis: Dynamic Maps of Nonprime Mortgage Conditions
Those numbers are downright scary.
just as housing fed upon itself on the way up, so shall it feed upon the nation on the way down. Like any good Ponzi scheme when it blows, many get hurt.
For a better take, read this column by a guy who REALLY knows the whole derivatives business as he literally wrote the books on it:
article
and also this one:
Satyajit Das's Blog - Fear & Loathing in Financial Products
Satyajit Das is no dummy. Kool-Aid drinkers like Doomer'sNightmare would be well advised to read his stuff.
For those who think that the Sac market is recovering, can I have what you are taking?
Any uptick in the market right now is an anomly. The truth is that there are more foreclosures coming to market daily throughout Sac, the East Bay, Stockton, etc.
Banks are not putting all their REO's on the market right now. They are keeping at least 50% held back, trying to keep the prices propped up. And also hoping that the Fed will bail them out.
The Option ARM's begin to reset at the end of this year. It will continue for three years. There were twice as many of these loans done as compared to subprime. When these hit, the foreclosures will go way up.
I have been in the business for over 12 years. Also went through the debacle of 78-81. We have not seen anything yet.
OT question:
When the Alt-A resets/recasts/whatevers hit, won't the banks simply adjust the terms / delay the reset date?
I can't imagine the banks wanting to deal with a "tsunami" of foreclosures in a declining market.
Seems like they would simply modify in earnest.
Any comments?
praetorian, thanks for the "Calculated Risk Facts". That was hilarious. Perfect for a Friday afternoon.
FWIW, I'm starting to see a backlog of cases at some of the major servicers where the file gets bounced from person to person to person, and not ONE of the negotiators does a damned thing with it.
Some of these packages were submitted SEPTEMBER of last year.
That Fleck dude has some great hair.
Robert Abooey - That is a sweet mane. I just realized Bill Fleckstein is my true biological father
.