I find Karl's comments rather interesting today. Maybe it's OK to walk away?
There are many who say there is an "ethical obligation" to pay what you agreed to pay. But, in fact, that's simply not true. The contract you signed is within the four corners of the page, and it spells out the precise relief that is available to both sides if the bargain is not upheld, along with the law in your locale...
If you bought a "bubble house", defined as anything bought in the last five or so years, find out where you stand in terms of your mortgage(s) and the home's value, and then go see a good attorney to explore your options. Spend the few hundred dollars.
If it makes sense for you, after consideration of all of the impacts upon your life, positive and negative, to intentionally default on your mortgage, then do so.
By doing so, if it makes sense in your individual circumstance, you will be helping the market to clear.
The happy news just keeps on coming.
It is getting so that there is just too much red ink sloshing around the entire financial sector.
Whomever manages to survive will not propagate another loose credit episode in my lifetime.
Now we just have to get through this without too much damage.
When will I receive my discounted prepay letters for my current mortgages? I will have to start raising capital well before then to take advantage of this insanity!
Forgive me if this is an ignorant question, but is there data on the actual number of loans/dollar amount that these charts are showing a percentage of?
According to Clayton, subprime delinquencies appear to have peaked in December of 2007, and subprime foreclosure starts may have peaked in January of 2008.
Tanta, does Clayton give you the balance of their outstanding portfolio by vintage?
I'm really looking forward to these housing topics and particular any estimates on future developments. I think we can all second that
a) the higher end has not nearly corrected as the lower one
b) transaction volume is only at the lower end and and the catalyst is cheap REOs
c) prices have fallen a lot more in areas with higher recent appreciation than the more flat areas
My feeling is also we're closer to the (nominal) price bottom than the previous peak, but it sure will fall some more.
This all tells me that patience is of the essence now.
As I read the first graph, sub-prime "peaking" means 50% of sub-prime loans have reached their reset date; leaving 50% still to get there. So as of today about 2/3 of sub-prime loans have reached their reset, but still only a half (+/-) have reached a potential FC date.
ISTM that the damage to the market due to sub-prime FCs is cumulative; perhaps even "super-cumulative" as the first portion has been somewhat absorbed by natural demand.
I'd expect the remaining sub-prime/alt-A loans will have an even greater impact on RE prices (holding them down if not dropping them further) than the first group, as the growing supply of homes will be hitting an increasingly saturated market.
Tanta,
Here in the Sacramento area there are many newer subdivisions with high volumes of homes that are obviously abandoned, many of which have been abandoned for quite some time. Many of these neighborhoods are full of homes that sold in the $700K to $1m+ range (like the subdivision I currently live in). While many of them have for sale signs on them, a good 30 to 40% haven't had a for sale sign on them for months, some for up to 1 year. Some of the REOs that are "For Sale" are priced very ridiculously high for the current market. Ex: $645K for a home where a comparable REO in the same neighborhood just sold for $405K.
Is this a way to keep banks from realizing losses if they keep pretending these homes are worth something close to the paper they're holding?
If Alt-A foreclosures are on the increase, won't that lead to another spurt of subprime foreclosures too? I find it hard to imagine how Alt-A forelosures will remain "contained" just within Alt-A universe without impacting other market segments.
If homes with Alt-A loans are going into foreclosure across the street from homes with subprime loans, then it would only be logical that the value of the subprime properties would fall too, which would push even more people into foreclosure (i.e. by driving them even deeper under-water).
We may be close to two-thirds of the way through the subprime resets, but that doesn't indicate how much of the damage has been felt so far from subprime alone.
1.
As time progresses, the resets are more likely to take place on a home that has already declined more in value, is more likely to be upside down, and has a more inflated initial(therefore current) loan balance.
2.
As time progresses, refinancing has become more expensive and limited to fewer and fewer debtors.
3.
There is a lag between the initial reset and the subsequent default. Therefore we are not as far along with defaults as we are with resets.
4.
As home prices continue to fall, an increasing number of debtors who have stayed current after the reset(those with sufficient income and alternative credit to make payments, but insufficient credit quality to refinance) will stop making payments.
I think it is a reasonable guess that we haven't even see half the losses from subprime, even as alt-a and prime defaults are surging higher.
I think it is a reasonable guess that we haven't even see half the losses from subprime, even as alt-a and prime defaults are surging higher.
I agree. If defaults are continuing to increase in Alt-A and Prime segments, then I don't see how subprime can remain immune to even greater damage.
In short: if prices keep falling (i.e. which will happen if foreclosures keep growing in Alt-A and Prime) then subprime borrowers will continue to feel even MORE pain.
2 questions.
1. prime seems to mean credit score, not the actually abillity to pay in the past?
prime doesn't really matter when your home is 20% underwater and you're paying twice what it would cost to rent while holding said 20% underwater home?
Do the Alt-A reset numbers include POA recasts? The peak seems similar to what Business Week showed for recasts. It seems to me, that might be the bigger bomb.
There have been some discussions of shadow inventory and shadow foreclosure on CR's post.
Most likely that banks have been overwhelmed by the volume of foreclosed houses that come into their possessions.
Some argue that banks may be afraid of depressing the area prices further by releasing all their shadow inventories into the market all at the same time.
CR's post last week showed some signs that banks have started aggressively cutting REO prices in San
Diego, far below the loan balance just priced to sell. That may soon happen in Sacramento, too.
i take it those DQ and FC start numbers you referenced are absolute loan counts, not percentages of outstanding?
Percent of active balance of their surveillance universe. I simply can't tell you what that balance is, because the newsletter doesn't include the balance, just the percentages.
Dunno, though the alt energy thesis is being ground down by the decline in oil prices - I am somewhat persuaded by the argument made that there simply is not enough unpledged collateral of high enough quality to really get another bubble going...
No. They show only the first rate reset for a loan. That means most OAs would show up a month or two after origination--which is when most of them start rate-resetting--but the chart does not also include payment recasts. (Not on IO ARMs either.)
It's going to look very different from the famous BOA chart we looked at last year, because it is based on outstandings as of 6/08. I think what you're seeing here may be heavy payoff activity in the last year in loans that were set to first adjust in 2008.
so as one disaster abates, another takes over and picks up. putting the two together are things overall going to get worse for financial institutions from here on out or better?
Is there a decimal point problem or am I missing something.
I'm afraid I don't understand your question.
The alt-A reset chart covers 36 months and indicates (I believe) the percentage of total alt-A loans that reset in a given month. The sum of all these loans should add up to 100%, but eye-balling the chart gives an average of about 0.3% per month. This only adds up to 10%, when I was expecting it to add to 100%. Thus the decimal point question.
Update - 2008-08-12: Tips are coming in today that GMAC has announced their exit from Home Equity lending. "GMAC Mortgage just announced they are closing their Troy MI processing center and cutting the regions down to 3. They also are suspending the entire Home Equity loans," one tipster wrote. "I believe they announced it by a conference call."
Another source confirmed the above information, and indicated there was a memo that had been sent to employees. We are trying to obtain a copy.
The alt-A reset chart covers 36 months and indicates (I believe) the percentage of total alt-A loans that reset in a given month. The sum of all these loans should add up to 100%, but eye-balling the chart gives an average of about 0.3% per month. This only adds up to 10%, when I was expecting it to add to 100%. Thus the decimal point question.
The percentage is of the total universe of outstanding Alt-A ARMs, not just the ones that reset in a 36-month period.
Here in the Sacramento area there are many newer subdivisions with high volumes of homes that are obviously abandoned, many of which have been abandoned for quite some time.
I've felt that there are marginal subdivisions where it doesn't matter a lot about things like subprime and Alt A. It's just going to hell like you say.
Too many neighbors are defaulting and the banks aren't keeping up the REOs or trying to move them. So, you watch your own house value decline and decide to walk, even if you would stay n pay (in a better neighborhood).
These neighborhoods obviously contribute to the foreclosure stats and mortgage losses. But they also leave ghost infrastructure in place that tax-exempt revenue bonds have paid for. Those bonds are gonna start defaulting in 09, I think. A lot of them were MBIA or Ambac insured.
A few of you mentioned lower rates?
with the inflation the fed is feeling I don't see that happening. There's too much pressure on the dollar, etc.. They will have to raise rates.
I personally like that since I'm more of a saver. Secondly, raising rates will put more price pressure on many homes, thus giving me more buying power. Yahoo. Raise them Fed!
Am I correct in thinking that the Alt-A chart fails to capture the fact that some will reset sooner due to recasts? (Recasts due to maximum loan amount reached on POAs, for example).
I propose we compress the term ALT-a to "alta," Spanish for "high." Because the mortgage bankers must been high when they built a business model around loaning to people with no assets or reliable income -- but a great credit rating.
The now famous Credit Suisse chart showed "Option Adjustable" loans just starting their resets late this year. Are they the next shoe or are they included in any of the products that are being discussed here?
BTW in terms of sheer magnitude, they appear to equal or exceed the Alt-A values.
If you are correct, then nearly 90% of alt-A loans reset either before June-07 (not likely very many) or after May-10.
Remember that the Option ARMs are included in this universe.
The vast majority of OAs have their first rate adjustment within three months of origination. That is, the majority of OAs are already past their first reset. And the OAs are a large portion of Alt-A. I cannot tell you what exact percent they are of Clayton's surveillance universe, because I do not know.
Given that, what this chart is really giving you is the relative volume of resets of the hybrid ARMs (most of which were probably IOs, too).
energyecon writes:
Dunno, though the alt energy thesis is being ground down by the decline in oil prices ....
Oil prices won't ground down much further unless we have a global great depression at least if you believe forcasters at Morgan Stanley, Goldman Sachs, and others in Europe and Hong Kong all see over $100 to 2030 and beyond.
Reset dates are afforded too much weight by most folks with only a glib knowledge of the industry. The mistake was originally made by many regarding the devastation allegedly caused by subprime resets, until it was revealed that a large percentage of subprime loans actually went sour before they reset. Imagine that.
We are now living through a time of substantial so-called alt-a resets, including many from the '05 3/1 IO ARM vintage, that are realizing minimal payment impact due to low loan indices (eg: LIBOR). They are not defaulting now.
Now if a huge loan resets much higher because its a P&I reset as opposed to continuing as IO, maybe there is something there. But I do know that a signficant number of 3/1, 5/1 and 7/1 IO ARMS retain their IO status for 10 yrs, at least in CA.
So where do the problems lay ahead - assuming no term modifications? No doubt POAs look to be the number one problem due to the typical change from IO to P&I. Second would be ARMS with a P&I reset on the first reset date. ARMS with a continuing IO term beyond the first reset do not look problematic yet due to low indices.
But look at what is going to happen down the road without serious modifications being done - POAs are going to default in large numbers, along with IO ARMS going P&I on the first reset. Then, in 2013/14/15 we will see the 10 yr IO ARMS go to P&I - uh oh. Of course, these are likely to become a problem before then as even the IO payment may be too steep due to an increase in the loan indices, which seems very likely to occur before 2013. Then again, look at Japan....
So there is no quick and painful death plunge - unless the loan indices go vertical and blow up every ARM reset - but we are likely to see indices stay low for at least 12-18 more months if not longer, and then a gradual increase as opposed to going vertical.
Marking to market is the inevitable solution and the inevitable result. Whether by principal writedowns, foreclosures or shorts sales, it's going to be all about marking to market. We are talking about historical devaluation of assets. This is going to get much worse before it's over.
You indicated the first reset of OA is often very early; while the Credit Suisse chart shows the vast majority starting to reset in 2010.
As I said, I don't know whether CS is using actual "first change in interest rate" or "first recast of payment at neg am balance limit" in their chart.
I know Clayton is using "first change in interest rate" because they say so explicitly.
Most OAs will have a payment recast anywhere from three to five years after origination (it will depend on how quickly the borrower racks up neg am). I suspect that the CS chart may be using the contractual 60-month required recast date (the date the payment has be amortized if it hasn't happened earlier), but I do not know for a fact. It would make sense if they were using the 60-month date, because that lines up with the peak of OA originations in 2005-2006.
picosec, I think there's some confusion about "reset" for Option ARMS. Tanta is saying the rate resets early. I'm pretty sure the Credit Suisse chart is recording when they go from option to P&I. The second "reset" is far more significant in the current rate environment. ARMs are no big deal with low interest rates (although all the ARM mortgages strengthen the debt trap). Switching to full amortization, OTOH, is a huge deal with these loans. I would expect nearly 100% default in CA/NV/AZ/SoFL for top-of-bubble POAs going to full amortization on a house 50% underwater.
I dont know if its fair to say subprime has bottomed...its not a static system. if the unemployment variable jitters (highly likley as consumer spending winds down), there will be more waves of people who cant make their payments.
The shadow inventory analysis is interesting, but I'm not sure how much it matters. The problem is that at least some of "shadow inventory" is foreclosures being processed. I don't think that's a big deal - those are houses that will be coming into inventory soon but you have those in any market. The big issue is if banks are sitting on substantial inventory that's not going through the process. That would be a big deal if so large.
As to conflicting guidance from history, governmental flirtations with the too big to fail policy are intermittent. Government willingly bought into the bailout business in the 1970s and 1980s; then this habit dissipated in the early 1990s when Congress restricted the policy for banks. Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998. While the government refrained from preserving Arthur Andersen in 2002, many market participants and some policymakers later questioned this reticence. Whether related to that criticism or not, in 2005 the government refrained from prosecuting a criminal indictment against KPMG although there was no question about the firms guilt.
See, e.g., GAO, Study on Auditing Industry Consolidation, supra note 2, at 19R(It is unclear whether and to what extent the Antitrust Division was consulted and to what extent DOJs Antitrust Division had input into the decision to criminally indict [Arthur]Andersen.); The Future of Auditing: Called to Account, supra note 12, at 72 (Almost everyone agrees that [Arthur] Andersens collapse made the financial system more vulnerable.
Guess who runs the FASB now??? Go look>>> go on....
TOO BIG TO FAIL: MORAL HAZARD IN AUDITING ANDTHE NEED TO RESTRUCTURE THE INDUSTRYBEFORE IT UNRAVELS Lawrence A. Cunningham* http://www.columbialawreview.org.../ cunningham.pdf
FRD == first reset default.
FAD == full amortization default.
SIO == shadow inventory overhang.
In fact we need an UberNerd describing all the acronyms tossed around here. Patrick.net has one built for the housing bubble from several years back: patrick.net
e.g. ILLUSION (Irrational Lending Lax Underwriting Speculative Investing Ownership Nonsense)
Max is using a broader definition of inventory, though, including homes on their way to sale but not there yet. You can't compare that number to narrow definitions of inventory at other times. You'd have to compare that to a broad definition at other times that would include people preparing their houses for sale and dealing with assorted life events that pretty much force sale. Hypothetically the broad definition might be twice the narrow at all times and so the situation is no worse by broad measurements than by narrow. I suspect it is worse, but it's not 109% worse. How much? Nobody knows.
I think people are overemphasizing the ARM resets. For subprime it was a big deal because resets came early and the resets were usually to usurious and exploitative rates. For Alt-A, resets are usually to fair and currently fairly low rates. The problem with Alt-A is that they're not waiting for reset to default. Defaults are going sky-high long before reset (notably in the 2007 vintage). For POA, the payment reset is probably going to be a big deal, because the minimum payments are often still lower than P&I at current, lower prices. But, when they reset to 115% of the bubble price when prices are down to 60% of bubble prices, that will be even worse than the toxic subprime resets were and we'll see defaults everywhere.
So we want to look at ARM resets for subprime, payment resets for POA, and we don't yet know what to look at for alt-A but it's something else. Quite a hodgepodge.
Counties are getting ready to send out property tax bills. The cost to the REO holders could be astronomical. Will they have the cash? And aside from bankrupting the counties and the school districts, what happens if the banks default on the taxes?
Vinnie the Nose had an effective method of sorting out those who really couldn't pay and those that just didn't want to pay. Go long orthopedics and cement.
I think people are overemphasizing the ARM resets.
Maybe, maybe not.
Sure the rate changes may be less dramatic, but if you can't afford more it's academic anyway.
Whereas subprimes are blowing because the borrowers shouldn't even have gotten loans, the ALT-As were the haven for those buying way over their heads. Oh, and speculators too, which is why so many are bailing early.
It would be interesting if someone had data on Option ARM and I/O recasts in California, specifically SF, San Mateo, and Santa Clara counties as these areas have not been greatly affected by subprime. I notice lot's of high credit, solid income, low asset home owners who used I/O and Option ARM extensively.
NY-Fed says the number of Alt-A's in this area is low, I think either their data is wrong or these loans have been shoveled into a prime tranche.
Above someone mentioned 10-year recast on 3/1 & 5/1 I/O ARM's. There were a lot of 5-year recast loans as well in CA. I wonder what percentage recast in 10-years vs 5-years?
The way I read that graph, it has higher highs and higher lows. So, the next peak at 25%?
That's my call. An inflationary depression. It's the only way to get rid of the debt burden unless all you want to pay me back (savers) with appreciating purchasing power dollars. Nah!
The way I read that graph, it has higher highs and higher lows. So, the next peak at 25%?
That's my call. An inflationary depression. It's the only way to get rid of the debt burden unless all you want to pay me back (savers) with appreciating purchasing power dollars. Nah!
Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998.
And thus the gates of Hell were flung open and all its spawn let loose upon the land.
I think the important word here is "orchestrated." If I remember correctly, the Fed did some arm twisting on WS but did not risk tax payer money in the LTCM bailout. It's of course very different now where it's almost all public funds.
I think the important word here is "orchestrated." If I remember correctly, the Fed did some arm twisting on WS but did not risk tax payer money in the LTCM bailout. It's of course very different now where it's almost all public funds.
Well I was thinking more in terms of the consequences, not the source of the "funding". Keep in mind that this was accompanied by rate cuts to avert a possible recession.
In retrospect these actions seem to have had similar disastrous consequences as the actions taken by the Federal Reserve in 1927.
Tim writes:
Anything about how much these rates reset to on average? I've hears as low as 7% and as high as 15% (WTF!)
The terms for the 5/1 ARM my sister and I got in 2001 were max 2% every year, no more than 6% deviation from the origination rate. Interest only, Pay-Option and other more exotic loans may have different and significantly less advantageous terms.
Wes hit the nail on the head - as long as interest rates stay low, things aren't a problem. If interest rates start to rise quickly, MANY people will fall behind quickly. The end of the lock period (exposure to immediate fluctuation) is what makes it hurt. You can adjust to gradual changes.
All the Fed contributed was the meeting room and some sandwiches. No taxpayer money was involved. Had they called me, I could have set up a cash bar. Damn you Alan.
"Aug. 13 (Bloomberg) -- Japan's economy contracted last quarter, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less.
Gross domestic product shrank an annualized 2.4 percent"
If it were not for the weak $, i bet we would be there too...
the next step, attempt of everyone to devaluate their currency against $; damn i hope my prognosis is wrong.
I think there is something that everyone might be missing here... Wouldn't the large subset of Alt-A's who didn't lie about income, but who just can't handle the RECAST be perfect candidates for the new housing bill? Think about it. They've got steady incomes and good credit. They didn't lie about their incomes, BUT the market value of a lot of these homes they own has plummeted. If they go to 90% present market value they probably could afford to stay in the houses and they won't default.
"If they go to 90% present market value they probably could afford to stay in the houses and they won't default."
Well maybe. But one of dealers in Vegas had a house in subby that was over 70% in default. The screwy prop tax lasw there meant she faced a $45,000 prop tax this year unless the State and City made exemptions. She said she'd default if they don't.
Interesting shite in Vegas. On Sunday I just hung out nursing a nasty hangover, watching movies on TV. At least 2x an hour there was an ad for foreclosure/BK attorneys.
Just to continue... the banks have to agree to a workout before the homeowner can take advantage of the housing bill's provisions. Well, it is obvious as apple-butter to me that they would go for a work out down to 90% market value to escape having to write off the whole thing off their balance sheet...
States will have to get on board with the program! If they bail and leave a vacant property they are going to get fucked. They should have to revalue at the 90% to market value IMO.
What's more expensive, accepting the cost of a good portion of the Alt-A's that default, or accepting a 10% write-down on every Alt-A loan ever originated.
There are presumably alot of Alt-A's (they think over 50%-I seriously question this), that wont default but would certainly make a phone call or two to get a 10% writedown on a loan they now "suddenly can't afford" ever since they heard about the write-down their neighbor got.
Doc Chaos,
You sir are correct. Competitive devaluations all round. Bugger errr begger thy neighbor.
Worked (didn't) in the 70's. Even the holy Swissies perverted their own semi-gold based system.
Devaluation is the only option.
Oh, I know where some of the mortgage originators went. BIG adds for extended warranties for your used car. Just tell us your make, model and milage and we will take your money to give you peace of mind!
"Default-in-Place" could be the new buzz phrase. Alot of people are getting tax reassesments but making a phone call or just by doing nothing.
Why not have every Alt-A automatically become a 10% write down and become a 30 year fixed at the prevailing rate? Then anyone that couldn't afford it would lose their house ASAP, everyone else would make out O.K.
Given the default rates and losses on each default...this may not be a losing proposition.
Bubble Info's Jim the Realtor guesses that they'll just suspend the resets and recasts to some later date to prevent inventory from crashing on the market.
I guess I don't expect the banks to just sit by and take it as is...but you never know.
Well, the feds have got a LOT of leverage nowadays. Think about it. There are a lot of states that have balanced budget ammendments, like mine. They are going to run out of money and where do you think they are going to go hat in hand? TheFEDS! It won't take much convincing to open the funds spigot.
Estimates that less than 50% of POA's will default upon the recast at 110% or 115% depending on the loan, are severely conservative.
I would be shocked if it's less than 70% since this percentage choose to pay the minimum payment each month.
Certainly taking a 50% hit or more on nearly three quaters of the Option Arms out there would be much more expensive that giving 100% an automatic 10% principle reduction and an immediate refi at the prevailing rate (assuming this is even possible).
In addition, the second option protects their other existing inventory from further price drops due to the added inventory that allowing defaults would add.
Bernanke was saying as much to Congress.
Each forclosure not only is a loss in and of itself, but it's existence on the market impairs the rest of the lenders/bank's book of assets.
AJ, They must be ready to take on "case-by-case" then if they are suddenly looking for experienced mortgage originators. I think the banks that will do the best will be the ones that will abandon aggregated models and start looking at facts and individual PEOPLE instead.
This is obvious but it is not so much an event that is quantifiable for the MSM.
How bout this. FIDO is paying me 2.2% on my hard earned retirement savings. Given flation at 6%+ I'd call that a subtle bailout. Screw me gently o great banks. Little by little and puff, Kaiser Soze vanishes.
Ross, I know a couple of people that cashed out their entire 401k and paid the penalties so they could pay off their houses. They thought that retirements were going to crash so bad they didn't want to be stuck with house payments when they retired because they wouldn't have them paid off yet...
Just to continue... the houses I speak of are definitely in non-bubble areas, so they were weighing the cost after penalties of their 401k versus the trend-line value of their homes...
Wu Jianping, the government's chief food quality control supervisor, committed suicide by jumping off a building on Aug 2, Caijing Magazine reported on its website, citing sources.
The report said procuratorial officials in Beijing meet with Wu the day before his death to discuss "financial problems," with Wu admitting to investigators that he had property and deposits out of proportion to his income.
He did not return home the night of Aug 1, the report said.
Aussie Bank to Bring Americas Biggest Bankers to Their Knees?
"But now nab has let the cat out of the bag. nab has revalued its package of U.S. mortgages down to about 10 cents on the dollar. Now U.S. banks will face pressure to similarly down-mark the value of their portfolios of mortgages. The losses could be huge.
The National Australia Banks decision to write off 90 percent of its U.S. conduit loans will have dramatic repercussions around the world, reports the Business Spectator. Wall Street will be deeply shocked when they understand the repercussions of what nab has done. It is clear global banks have nowhere near provided for their exposures to U.S. housing loans which are experiencing a meltdown. Aussie Bank to Bring America’s Biggest Bankers to Their Knees? | theTrumpet.com by the Philadelphia Church of God
Japan's Nikkei stock average slipped 2.2 percent on Wednesday as renewed worries about U.S. financial institutions stoked economic concern, with Canon Inc 7751. and other exporters down on a stronger yen.
I've almost given up. Honest people have integrity. Older generations. One needs only look at the mores of todays society to understand the no fault mind set. Maybe it accellerated with 'No Fault' insurance in the 70's.
We are a society of 'you owe me. It wasn't my fault, it is the common thing to do.
Beaver Cleaver was a myth that many of us aspired to. Now we have Bevis and Butthead. Wow, what a slide in such a short time.
Ross, I hear ya. I think that we've just created a huge environment of moral hazard opportunities! and didn't understand the implication of the possible fallout. Just a lot of easy money... if we would have just bought less stuff and paid more bills for a few more years...
Canadian with popcorn, no guns and bullets. I think you might see a resurgence in left-wing Christianists a la 60's and 70s. Are we SO ruled by oil? I think so, unfortunately.
Large financial firm failure seen likely
"Nearly 60 percent of 146 institutions surveyed in North America and Europe expect another major financial services firm to collapse in the next six months, and another 15 percent think it will happen in six to 12 months, according to the survey, which was released on Tuesday." Large financial firm failure seen likely
| Reuters
Nope. The political scene will try to keep the status quo just as it is (whether it needs to change or not-that's your opinion!). I'm talking about a purely cultural phenomenon that will be a coping mechanism for the HUGE CREDIT CUTOFF. Pols might exploit it or not, that's a different matter.
"Washington can act with breathtaking urgency when the right people want something done. In this case, the people are Wall Street's titans, who are scared witless at the prospect of their historic implosion." Bailing Out the Bad Guys: What Congress and Bush Do Best
'You feel bad. You don't want to take their wedding rings from them - that's their memories and everything," says Michael Bruce from behind a row of thick steel bars. "But they need the money and that's what we are here for....."
Ninety-one percent of the decline in Notices of Default since April can be attributed to Countrywide Financial. Unfortunately, this is more likely due to the challenges of integrating two companies the size of Countrywide Financial and Bank of America, than it is a fundamental shift in foreclosure activity.
the Fed did some arm twisting on WS but did not risk tax payer money in the LTCM bailout.
"In September 1998, when the large Long-Term Capital Management (LTCM) hedge fund faced a severe financial crunch, the government stepped in again. The Fed cut rates three times, and the New York Federal Reserve brokered a controversial de-leveraging of LTCM's derivative trades, which had gone south when the Asian and Russian financial crises unfolded. Large money-center banks were on the other side of many of these trades. "If Long-Term defaulted...the banks...would be left holding one side of a contract for which the other side no longer existed," Roger Lowenstein explained in his book, When Genius Failed: The Rise and Fall of Long-Term Capital Management (2000). "In other words, they would be exposed to tremendous...risks." In Defense of Derivatives - Reason Magazine
If the fed moved the yield curve to cover the banks that bailed LTCM they removed billions from the US taxpayer in the form of inflation.
The yen may rise to 160 per euro in the next few weeks, said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Plc and a former Bank of Japan currency trader.
Stock market declines may spread overseas, prompting risk reduction,'' he said in Tokyo.My colleagues are very bearish on the Australian dollar because of the outlook for commodities.''
Crude oil last traded at $112.98 a barrel after falling yesterday to a 14-week low of $112.31. Gold fell for an eighth straight session and copper dropped to a six-month low in New York trading yesterday. Gold and crude oil are Australia's third and fourth most-valuable commodity exports.
U.S. Economy
The dollar may extend its decline versus the yen before a U.S. government report forecast to show consumers are spending less. Retail sales dropped 0.1 percent last month, the first decrease since February, according to the median forecast of 75 economists surveyed by Bloomberg News. The Commerce Department is scheduled to release the report today.
Federal Reserve Bank of Dallas President Richard Fisher said the economy will ``broach zero growth'' in the second half of the year, the Dallas Morning News reported yesterday. U.S. gross domestic product rose at an annual rate of 1.9 percent in the second quarter, the Commerce Department said July 31. It fell 0.2 percent in the final three months of last year.
A disappointing retail sales number could limit the dollar against the yen,'' said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank.This may also cause declines in stocks, which would encourage yen buying as investors avoid risky trades.''
European Growth
The euro's decline may accelerate on speculation gross domestic product in the 15 countries that share the currency is contracting.
Europe's economy shrank 0.2 percent in the second quarter, following 0.7 percent growth in the previous three months, according to a Bloomberg survey. The European Union's statistics office in Luxembourg will release the data tomorrow.
Throw into this mix July retail-sales data, which the Commerce Department reports Wednesday morning. Economists on average estimate a decline of 0.4% after rising a meager 0.1% in June. Excluding the grim automobile sector brightens the picture considerably. Adjusting for inflation, however, turns it dark again.
Retreating energy prices may help. But J.P. Morgan Chase's Charles Grom notes that consumer spending is correlated more with unemployment, which is rising.
Moreover, a new Federal Reserve survey shows about two-thirds of the country's loan officers reported tightening standards for credit-card and other consumer loans in the past three months, the highest in the 12 years the Fed has kept track and far higher than in the 2001 recession. That could mean less spending of cash at the malls.
Retail sales rose a sluggish 0.1 percent in June, largely disappointing the markets. We expect another weak report in July, say the analysts at Lehman Brothers. We expect retail sales to fall 0.2 percent, driven by a 3.5 percent decline in auto sales. Unit domestic auto sales fell to 9.1 million, the lowest since 1991. The sharp decline in auto sales was triggered in part by high gasoline prices, explaining the plunge in truck sales. Stripping out autos, we expect a decent 0.5 percent increase in sales, in part due to an increase in gasoline sales. Gasoline prices did not start to decline until the end of July, suggesting another monthly increase in gasoline sales.
A majority of banks tightened their rules for granting loans to businesses and consumers. The survey shows little appetite at banks to lend for home mortgages, credit cards, home equity loans, commercial real estate loans, or commercial and industrial loans.
No bank in the survey eased credit terms for any type of loan in the past three months, and only one bank said it anticipated easing standards for consumers in the next 12 months.
Tighter credit could slow economic growth, especially consumer spending, economists say. Lack of credit could sink the commercial real estate market, and curb capital investments by businesses. The survey is considered a leading indicator of credit creation in the United States.
"This is consistent with our view that consumer spending will slow markedly over the next several quarters," wrote economists for Lehman Bros.
"The impending tightening may ultimately curb consumer credit noticeably," wrote Harm Bandholz, an economist for UniCredit Markets. "This in turn would be another nail in the coffin of the U.S. consumer, who is already suffering from the weak labor market, high inflation and falling house prices."
A little Anecdote...I had coffee today with a small businessman who used the equity in his residence to expand his construction related business and buy a second home in 2006.the second home was an 80-10-10,the first home was refied to 80% with a generous appraisal,both loans are with countrywide,both POA's.both homes are in Sebastopol ca and are underwater due to making the minimum payment and price declines.He asked me my opinion of the direction the market was moving (when will it recover?) and to run down the alternatives and their consequences,which I did.What did he decide? Ruthless default.He got his loans through a broker at Investor's Trust,according to today's fishwrap IT is down to 4 offices from 27 a year ago,with one more office scheduled to close this month.The businessman has laid off 75% of his workers already...
JPMorgan Chase & Co.'s news that its credit losses of the past month and a half already exceed its second-quarter losses is sobering proof that an end to the credit crisis is still far off in the future.
The market keeps surprising us, said Octavio Marenzi, head of financial consultancy Celent. It is difficult to say where the bottom is.
After a while, you can only write down so far, Marenzi said. The natural bottom is around zero, and we're rapidly approaching that point.
Two separate turnarounds need to occur before mortgage-backed securities hit bottom and begin to recover; the broader economy needs to improve and investors need to start to purchase these investments again.
But Ladenburg Thalmann analyst Richard Bove said declining household wealth, rising unemployment and increasing costs for food, fuel and health care will likely lead to further delinquencies and defaults among mortgages and consumer loans.
If the economy doesn't stabilize soon, it will cause problems, Bove said.
So we are not sub-prime now but we are all Alta A. I like the sound of that.
jo6pac
sorta like Beta B?
I find Karl's
comments rather interesting today. Maybe it's OK to walk away?
There are many who say there is an "ethical obligation" to pay what you agreed to pay. But, in fact, that's simply not true. The contract you signed is within the four corners of the page, and it spells out the precise relief that is available to both sides if the bargain is not upheld, along with the law in your locale...
If you bought a "bubble house", defined as anything bought in the last five or so years, find out where you stand in terms of your mortgage(s) and the home's value, and then go see a good attorney to explore your options. Spend the few hundred dollars.
If it makes sense for you, after consideration of all of the impacts upon your life, positive and negative, to intentionally default on your mortgage, then do so.
By doing so, if it makes sense in your individual circumstance, you will be helping the market to clear.
OT: It looks like we are about 1/4 of the way
Banks' Subprime Losses Top $500 Billion on Writedowns
Banks' Subprime Losses Top $500 Billion on Writedowns (Update1) - Bloomberg.com
The happy news just keeps on coming.
It is getting so that there is just too much red ink sloshing around the entire financial sector.
Whomever manages to survive will not propagate another loose credit episode in my lifetime.
Now we just have to get through this without too much damage.
When will I receive my discounted prepay letters for my current mortgages? I will have to start raising capital well before then to take advantage of this insanity!
Any guesses?
Someday this war's gonna end...
A combination of Alt A and commercial RE on the books of the regionals might be the next capital destroyer.
Even some country banks might need a look see.
Always wanted to own a country bank.
Tanta,
Forgive me if this is an ignorant question, but is there data on the actual number of loans/dollar amount that these charts are showing a percentage of?
AllenM
Don't hold your breath about discounted prepay.
Had an 8% 30yr fixed in 1985 with 20 years left. In 85, rates were 12%+. They offered me a whopping 5% discount to payoff early.
According to Clayton, subprime delinquencies appear to have peaked in December of 2007, and subprime foreclosure starts may have peaked in January of 2008.
Tanta, does Clayton give you the balance of their outstanding portfolio by vintage?
Is there any data that shows how many of these "subprime" loans are surviving their resets? LIBOR is way lower than last year at this time...
...or their original balances by vintage?
Re: "beginning of the end "
Oh shit, I'm trying to go for a walk and do other stuff, do you to keep pumping out this stuff?
This issue of the newsletter--June--is the first one I've seen, and it doesn't report on balances of their surveillance pools.
CR,
I'm really looking forward to these housing topics and particular any estimates on future developments. I think we can all second that
a) the higher end has not nearly corrected as the lower one
b) transaction volume is only at the lower end and and the catalyst is cheap REOs
c) prices have fallen a lot more in areas with higher recent appreciation than the more flat areas
My feeling is also we're closer to the (nominal) price bottom than the previous peak, but it sure will fall some more.
This all tells me that patience is of the essence now.
O-Joe
Do we have any statistical and/or graphical comparisons of subprime vs. ALT-A market share by state? That second wave has California's name on it.
This issue of the newsletter--June--is the first one I've seen, and it doesn't report on balances of their surveillance pools.
i take it those DQ and FC start numbers you referenced are absolute loan counts, not percentages of outstanding?
As I read the first graph, sub-prime "peaking" means 50% of sub-prime loans have reached their reset date; leaving 50% still to get there. So as of today about 2/3 of sub-prime loans have reached their reset, but still only a half (+/-) have reached a potential FC date.
ISTM that the damage to the market due to sub-prime FCs is cumulative; perhaps even "super-cumulative" as the first portion has been somewhat absorbed by natural demand.
I'd expect the remaining sub-prime/alt-A loans will have an even greater impact on RE prices (holding them down if not dropping them further) than the first group, as the growing supply of homes will be hitting an increasingly saturated market.
Tanta,
Here in the Sacramento area there are many newer subdivisions with high volumes of homes that are obviously abandoned, many of which have been abandoned for quite some time. Many of these neighborhoods are full of homes that sold in the $700K to $1m+ range (like the subdivision I currently live in). While many of them have for sale signs on them, a good 30 to 40% haven't had a for sale sign on them for months, some for up to 1 year. Some of the REOs that are "For Sale" are priced very ridiculously high for the current market. Ex: $645K for a home where a comparable REO in the same neighborhood just sold for $405K.
Is this a way to keep banks from realizing losses if they keep pretending these homes are worth something close to the paper they're holding?
I am wondering if folks are using the deed in lieu of foreclosure process. If the requirements are met it can be a little less painful.
Two Alternatives to Foreclosure - WSJ.com
Clayton - as in this "Clayton"?
Reviewer of Subprime Loans Agrees to Aid Inquiry of Banks - NY Times
Clayton Strikes Deal with NY AG, Will Aid Securitization Investigation : HousingWire || financial news for the mortgage market
Do the Alt-A graph take into acount early reset because of negative amortization?
Did anyone else get a kick out of Tanta channeling CR?
-Jaso
Jason
Thought she did that well.
If Alt-A foreclosures are on the increase, won't that lead to another spurt of subprime foreclosures too? I find it hard to imagine how Alt-A forelosures will remain "contained" just within Alt-A universe without impacting other market segments.
If homes with Alt-A loans are going into foreclosure across the street from homes with subprime loans, then it would only be logical that the value of the subprime properties would fall too, which would push even more people into foreclosure (i.e. by driving them even deeper under-water).
We may be close to two-thirds of the way through the subprime resets, but that doesn't indicate how much of the damage has been felt so far from subprime alone.
1.
As time progresses, the resets are more likely to take place on a home that has already declined more in value, is more likely to be upside down, and has a more inflated initial(therefore current) loan balance.
2.
As time progresses, refinancing has become more expensive and limited to fewer and fewer debtors.
3.
There is a lag between the initial reset and the subsequent default. Therefore we are not as far along with defaults as we are with resets.
4.
As home prices continue to fall, an increasing number of debtors who have stayed current after the reset(those with sufficient income and alternative credit to make payments, but insufficient credit quality to refinance) will stop making payments.
I think it is a reasonable guess that we haven't even see half the losses from subprime, even as alt-a and prime defaults are surging higher.
I know this older than the hills, but this is worth looking at in terms of bank failures:
Material Loss Review of the Failure of
Southern Pacific Bank, Torrance, California
FDIC: OIG Audit Report No. 03-036 - Material Loss Review of the Failure of Southern Pacific Bank, Torrance, California, August 14, 2003
FDIC: OIG Audit Report No. 03-036 - Material Loss Review of the Failure of Southern Pacific Bank, Torrance, California, August 14, 2003
FDIC: OIG Audit Report No. 03-017 - Material Loss Review of the Failure of the Connecticut Bank of Commerce, Stamford, Connecticut, March 10, 2003
I think it is a reasonable guess that we haven't even see half the losses from subprime, even as alt-a and prime defaults are surging higher.
I agree. If defaults are continuing to increase in Alt-A and Prime segments, then I don't see how subprime can remain immune to even greater damage.
In short: if prices keep falling (i.e. which will happen if foreclosures keep growing in Alt-A and Prime) then subprime borrowers will continue to feel even MORE pain.
On the bright side, we might have lower interest rates when those loan resets that happen in 2009 and 2010.
Of course, lower rates would imply a severe recession, with lots of job losses.
Checkmate.
Prime is the new Alt-A
"Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery."
A dead end on the road to housing recovery - Aug. 12, 2008
2 questions.
1. prime seems to mean credit score, not the actually abillity to pay in the past?
ShortCourage,
Yes, I keep wondering if the dollar rally is channeling Irving Fisher, I've been trying to remeber this link for a couple of days...
The Debt Deflation Theory of Great Depressions
energyecon,
Yeah, we'll just have to see how Fisher's reflation approach works. They are certainly attempting it at the moment.
I wonder if they'll succeed and blow another bubble. And if so, in what?
Lona check back a thread for your answers to your questions.
Do the Alt-A reset numbers include POA recasts? The peak seems similar to what Business Week showed for recasts. It seems to me, that might be the bigger bomb.
Andy,
There have been some discussions of shadow inventory and shadow foreclosure on CR's post.
Most likely that banks have been overwhelmed by the volume of foreclosed houses that come into their possessions.
Some argue that banks may be afraid of depressing the area prices further by releasing all their shadow inventories into the market all at the same time.
CR's post last week showed some signs that banks have started aggressively cutting REO prices in San
Diego, far below the loan balance just priced to sell. That may soon happen in Sacramento, too.
i take it those DQ and FC start numbers you referenced are absolute loan counts, not percentages of outstanding?
Percent of active balance of their surveillance universe. I simply can't tell you what that balance is, because the newsletter doesn't include the balance, just the percentages.
Dunno, though the alt energy thesis is being ground down by the decline in oil prices - I am somewhat persuaded by the argument made that there simply is not enough unpledged collateral of high enough quality to really get another bubble going...
Clayton - as in this "Clayton"?
Yes. Same Clayton.
Won't lower rates reduce the impact of these changes?
If the Fed can loosen up the spigot and the banks go for it, won't this change default behavior?
ShortCourage,
"On the bright side, we might have lower interest rates when those loan resets that happen in 2009 and 2010."
Of course they reset to the full am rate. 80% aree Int only or neg am.
Cheers,
Do the Alt-A reset numbers include POA recasts?
No. They show only the first rate reset for a loan. That means most OAs would show up a month or two after origination--which is when most of them start rate-resetting--but the chart does not also include payment recasts. (Not on IO ARMs either.)
It's going to look very different from the famous BOA chart we looked at last year, because it is based on outstandings as of 6/08. I think what you're seeing here may be heavy payoff activity in the last year in loans that were set to first adjust in 2008.
so as one disaster abates, another takes over and picks up. putting the two together are things overall going to get worse for financial institutions from here on out or better?
Is there a decimal point problem or am I missing something.
I'm afraid I don't understand your question.
Well, it looks like "InFront" is about 10 times better than their old newsletter - "The Bottom Line".
at least the old one was free.
Misean,
Yeah, there is that small gotcha too.
But (potentially) lower rates will help those other folks...the ones with fully amororitizing loans who don't lose their jobs...
See, I'm trying to see the bright side!
Is there a decimal point problem or am I missing something.
I'm afraid I don't understand your question.
The alt-A reset chart covers 36 months and indicates (I believe) the percentage of total alt-A loans that reset in a given month. The sum of all these loans should add up to 100%, but eye-balling the chart gives an average of about 0.3% per month. This only adds up to 10%, when I was expecting it to add to 100%. Thus the decimal point question.
Per ML IMODE: GMAC out of HELOCs
Update - 2008-08-12: Tips are coming in today that GMAC has announced their exit from Home Equity lending. "GMAC Mortgage just announced they are closing their Troy MI processing center and cutting the regions down to 3. They also are suspending the entire Home Equity loans," one tipster wrote. "I believe they announced it by a conference call."
Another source confirmed the above information, and indicated there was a memo that had been sent to employees. We are trying to obtain a copy.
The alt-A reset chart covers 36 months and indicates (I believe) the percentage of total alt-A loans that reset in a given month. The sum of all these loans should add up to 100%, but eye-balling the chart gives an average of about 0.3% per month. This only adds up to 10%, when I was expecting it to add to 100%. Thus the decimal point question.
The percentage is of the total universe of outstanding Alt-A ARMs, not just the ones that reset in a 36-month period.
pico - they don't need to sum to 100%. Some reset prior to the chart beginning, some will reset after the chart's end.
home equity
that's funny.
Andy,
I've felt that there are marginal subdivisions where it doesn't matter a lot about things like subprime and Alt A. It's just going to hell like you say.
Too many neighbors are defaulting and the banks aren't keeping up the REOs or trying to move them. So, you watch your own house value decline and decide to walk, even if you would stay n pay (in a better neighborhood).
These neighborhoods obviously contribute to the foreclosure stats and mortgage losses. But they also leave ghost infrastructure in place that tax-exempt revenue bonds have paid for. Those bonds are gonna start defaulting in 09, I think. A lot of them were MBIA or Ambac insured.
Tanta/Anon
If you are correct, then nearly 90% of alt-A loans reset either before June-07 (not likely very many) or after May-10.
Shouldn't those 90% be considered when analyzing alt-A impact?
A few of you mentioned lower rates?
with the inflation the fed is feeling I don't see that happening. There's too much pressure on the dollar, etc.. They will have to raise rates.
I personally like that since I'm more of a saver. Secondly, raising rates will put more price pressure on many homes, thus giving me more buying power. Yahoo. Raise them Fed!
Tanta,
Am I correct in thinking that the Alt-A chart fails to capture the fact that some will reset sooner due to recasts? (Recasts due to maximum loan amount reached on POAs, for example).
HB,
The Fed doesn't typically raise rates when the country is entering a severe recession, especially when the banking system is at risk of failure.
Of course, these are unique times...so who knows?
I propose we compress the term ALT-a to "alta," Spanish for "high." Because the mortgage bankers must been high when they built a business model around loaning to people with no assets or reliable income -- but a great credit rating.
Credit Suisse published the same thing a year ago. I keep telling people that the worst hasn't happened yet.
What does 'A' stand for in Alt-A? Shouldn't it be Alt-D (Alternative Documentation)?
I wouldn't worry about this news too much. With today's "big" drop in the markets it is surely priced in.
Tanta,
Nevermind. Sorry about that -- I see you answered my question in a comment up above.
The now famous Credit Suisse chart
showed "Option Adjustable" loans just starting their resets late this year. Are they the next shoe or are they included in any of the products that are being discussed here?
BTW in terms of sheer magnitude, they appear to equal or exceed the Alt-A values.
If you are correct, then nearly 90% of alt-A loans reset either before June-07 (not likely very many) or after May-10.
Remember that the Option ARMs are included in this universe.
The vast majority of OAs have their first rate adjustment within three months of origination. That is, the majority of OAs are already past their first reset. And the OAs are a large portion of Alt-A. I cannot tell you what exact percent they are of Clayton's surveillance universe, because I do not know.
Given that, what this chart is really giving you is the relative volume of resets of the hybrid ARMs (most of which were probably IOs, too).
"What does 'A' stand for in Alt-A? Shouldn't it be Alt-D (Alternative Documentation)?"
A-paper was the industry lingo for a mortgage meeting the common standard including income and asset documentation.
energyecon writes:
Dunno, though the alt energy thesis is being ground down by the decline in oil prices ....
Oil prices won't ground down much further unless we have a global great depression at least if you believe forcasters at Morgan Stanley, Goldman Sachs, and others in Europe and Hong Kong all see over $100 to 2030 and beyond.
You have to be very careful with charts that include OAs. Do they really mean rate reset, or do they mean payment recast?
The Clayton chart uses only rate changes. Not payment recasts.
I cannot vouch for that CS chart. I don't have access to the footnotes in whatever report it was printed in.
HB,
Once the 'all clear' is signaled on oil prices, the Fed is going to let the bottom drop out on rates.
My guess is that we'll see 1% (again) before it's all over.
I don't know if it will matter since the problem isn't so much about rates as much as it is about bad loans.
Alta,
I like that...
.....
Reset dates are afforded too much weight by most folks with only a glib knowledge of the industry. The mistake was originally made by many regarding the devastation allegedly caused by subprime resets, until it was revealed that a large percentage of subprime loans actually went sour before they reset. Imagine that.
We are now living through a time of substantial so-called alt-a resets, including many from the '05 3/1 IO ARM vintage, that are realizing minimal payment impact due to low loan indices (eg: LIBOR). They are not defaulting now.
Now if a huge loan resets much higher because its a P&I reset as opposed to continuing as IO, maybe there is something there. But I do know that a signficant number of 3/1, 5/1 and 7/1 IO ARMS retain their IO status for 10 yrs, at least in CA.
So where do the problems lay ahead - assuming no term modifications? No doubt POAs look to be the number one problem due to the typical change from IO to P&I. Second would be ARMS with a P&I reset on the first reset date. ARMS with a continuing IO term beyond the first reset do not look problematic yet due to low indices.
But look at what is going to happen down the road without serious modifications being done - POAs are going to default in large numbers, along with IO ARMS going P&I on the first reset. Then, in 2013/14/15 we will see the 10 yr IO ARMS go to P&I - uh oh. Of course, these are likely to become a problem before then as even the IO payment may be too steep due to an increase in the loan indices, which seems very likely to occur before 2013. Then again, look at Japan....
So there is no quick and painful death plunge - unless the loan indices go vertical and blow up every ARM reset - but we are likely to see indices stay low for at least 12-18 more months if not longer, and then a gradual increase as opposed to going vertical.
Marking to market is the inevitable solution and the inevitable result. Whether by principal writedowns, foreclosures or shorts sales, it's going to be all about marking to market. We are talking about historical devaluation of assets. This is going to get much worse before it's over.
Tanta
Thanks...
If Option-ARMS are included, then I can see how many might not be included in the time span of the chart.
You indicated the first reset of OA is often very early; while the Credit Suisse chart shows the vast majority starting to reset in 2010.
Is there an explanation for these apparently contradictory views?
You indicated the first reset of OA is often very early; while the Credit Suisse chart shows the vast majority starting to reset in 2010.
As I said, I don't know whether CS is using actual "first change in interest rate" or "first recast of payment at neg am balance limit" in their chart.
I know Clayton is using "first change in interest rate" because they say so explicitly.
Most OAs will have a payment recast anywhere from three to five years after origination (it will depend on how quickly the borrower racks up neg am). I suspect that the CS chart may be using the contractual 60-month required recast date (the date the payment has be amortized if it hasn't happened earlier), but I do not know for a fact. It would make sense if they were using the 60-month date, because that lines up with the peak of OA originations in 2005-2006.
They are not defaulting now.
Tell Fannie Mae that.
picosec, I think there's some confusion about "reset" for Option ARMS. Tanta is saying the rate resets early. I'm pretty sure the Credit Suisse chart is recording when they go from option to P&I. The second "reset" is far more significant in the current rate environment. ARMs are no big deal with low interest rates (although all the ARM mortgages strengthen the debt trap). Switching to full amortization, OTOH, is a huge deal with these loans. I would expect nearly 100% default in CA/NV/AZ/SoFL for top-of-bubble POAs going to full amortization on a house 50% underwater.
I dont know if its fair to say subprime has bottomed...its not a static system. if the unemployment variable jitters (highly likley as consumer spending winds down), there will be more waves of people who cant make their payments.
SHADOW INVENTORY EXPOSED:
Sacramento Real Estate Statistics: Insight into Shadow Inventory
Max did some great research!
Thank you crispy&cole. Ouch!
The shadow inventory analysis is interesting, but I'm not sure how much it matters. The problem is that at least some of "shadow inventory" is foreclosures being processed. I don't think that's a big deal - those are houses that will be coming into inventory soon but you have those in any market. The big issue is if banks are sitting on substantial inventory that's not going through the process. That would be a big deal if so large.
What it says is inventory - for example - in Sacramento is understated by 109%. That is significant.
All the bottom callers will have to revisit their numbers as the supply demand curve is in very bad shape.
Can I toss this nugget in here, please?
As to conflicting guidance from history, governmental flirtations with the too big to fail policy are intermittent. Government willingly bought into the bailout business in the 1970s and 1980s; then this habit dissipated in the early 1990s when Congress restricted the policy for banks. Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998. While the government refrained from preserving Arthur Andersen in 2002, many market participants and some policymakers later questioned this reticence. Whether related to that criticism or not, in 2005 the government refrained from prosecuting a criminal indictment against KPMG although there was no question about the firms guilt.
See, e.g., GAO, Study on Auditing Industry Consolidation, supra note 2, at 19R(It is unclear whether and to what extent the Antitrust Division was consulted and to what extent DOJs Antitrust Division had input into the decision to criminally indict [Arthur]Andersen.); The Future of Auditing: Called to Account, supra note 12, at 72 (Almost everyone agrees that [Arthur] Andersens collapse made the financial system more vulnerable.
Guess who runs the FASB now??? Go look>>> go on....
TOO BIG TO FAIL: MORAL HAZARD IN AUDITING ANDTHE NEED TO RESTRUCTURE THE INDUSTRYBEFORE IT UNRAVELS Lawrence A. Cunningham*
http://www.columbialawreview.org.../ cunningham.pdf
Thanks!
We need new acronyms.
FRD == first reset default.
FAD == full amortization default.
SIO == shadow inventory overhang.
In fact we need an UberNerd describing all the acronyms tossed around here. Patrick.net has one built for the housing bubble from several years back: patrick.net
e.g. ILLUSION (Irrational Lending Lax Underwriting Speculative Investing Ownership Nonsense)
Max is using a broader definition of inventory, though, including homes on their way to sale but not there yet. You can't compare that number to narrow definitions of inventory at other times. You'd have to compare that to a broad definition at other times that would include people preparing their houses for sale and dealing with assorted life events that pretty much force sale. Hypothetically the broad definition might be twice the narrow at all times and so the situation is no worse by broad measurements than by narrow. I suspect it is worse, but it's not 109% worse. How much? Nobody knows.
bacon dreamz,
Excellent link -- thanks!!! As I suspected, California IS ALT-A. The fun is obviously just beginning here on the left coast...
I seem to be Mr Contrary today but...
I think people are overemphasizing the ARM resets. For subprime it was a big deal because resets came early and the resets were usually to usurious and exploitative rates. For Alt-A, resets are usually to fair and currently fairly low rates. The problem with Alt-A is that they're not waiting for reset to default. Defaults are going sky-high long before reset (notably in the 2007 vintage). For POA, the payment reset is probably going to be a big deal, because the minimum payments are often still lower than P&I at current, lower prices. But, when they reset to 115% of the bubble price when prices are down to 60% of bubble prices, that will be even worse than the toxic subprime resets were and we'll see defaults everywhere.
So we want to look at ARM resets for subprime, payment resets for POA, and we don't yet know what to look at for alt-A but it's something else. Quite a hodgepodge.
Thanks to all for engaging. I've learned a lot.
Now, to quote Snoopy, "It's sup-sup-suppertime!"
Counties are getting ready to send out property tax bills. The cost to the REO holders could be astronomical. Will they have the cash? And aside from bankrupting the counties and the school districts, what happens if the banks default on the taxes?
Vinnie the Nose had an effective method of sorting out those who really couldn't pay and those that just didn't want to pay. Go long orthopedics and cement.
No way do interest rates go down during our now underway Greater Depression.
Look at what happened to interest rates during the Lesser Depression:
St. Louis Fed: Series: BAA, Moody's Seasoned Baa Corporate Bond Yield
They doubled, due to a multifold jump in the risk premium.
I think people are overemphasizing the ARM resets.
Maybe, maybe not.
Sure the rate changes may be less dramatic, but if you can't afford more it's academic anyway.
Whereas subprimes are blowing because the borrowers shouldn't even have gotten loans, the ALT-As were the haven for those buying way over their heads. Oh, and speculators too, which is why so many are bailing early.
This takes care of reSETS, but what about reCASTS?
It would be interesting if someone had data on Option ARM and I/O recasts in California, specifically SF, San Mateo, and Santa Clara counties as these areas have not been greatly affected by subprime. I notice lot's of high credit, solid income, low asset home owners who used I/O and Option ARM extensively.
NY-Fed says the number of Alt-A's in this area is low, I think either their data is wrong or these loans have been shoveled into a prime tranche.
Above someone mentioned 10-year recast on 3/1 & 5/1 I/O ARM's. There were a lot of 5-year recast loans as well in CA. I wonder what percentage recast in 10-years vs 5-years?
Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998.
And thus the gates of Hell were flung open and all its spawn let loose upon the land.
Tanta is calling it "fun"!
Fun sure it won't be.
@ jg
Loved the link. Thanks.
The way I read that graph, it has higher highs and higher lows. So, the next peak at 25%?
That's my call. An inflationary depression. It's the only way to get rid of the debt burden unless all you want to pay me back (savers) with appreciating purchasing power dollars. Nah!
@ jg
Loved the link. Thanks.
The way I read that graph, it has higher highs and higher lows. So, the next peak at 25%?
That's my call. An inflationary depression. It's the only way to get rid of the debt burden unless all you want to pay me back (savers) with appreciating purchasing power dollars. Nah!
ac,
"And thus the gates of Hell were flung open and all its spawn let loose upon the land."
Naw that happened on December 23, 1913. The human carnage since then has been unprecedented.
What we have now is simply the parasite killing the host after a long and disturbing infection.
Cheers,
Sorry for the double. Someone forgot to burp the haloScan.
Anything about how much these rates reset to on average? I've hears as low as 7% and as high as 15% (WTF!)
Then again, the government orchestrated a bailout of Long Term Capital Management (LTCM) in 1998.
And thus the gates of Hell were flung open and all its spawn let loose upon the land.
I think the important word here is "orchestrated." If I remember correctly, the Fed did some arm twisting on WS but did not risk tax payer money in the LTCM bailout. It's of course very different now where it's almost all public funds.
Star date 6:20
57 Visitors Online
WTF?
I think the important word here is "orchestrated." If I remember correctly, the Fed did some arm twisting on WS but did not risk tax payer money in the LTCM bailout. It's of course very different now where it's almost all public funds.
Well I was thinking more in terms of the consequences, not the source of the "funding". Keep in mind that this was accompanied by rate cuts to avert a possible recession.
In retrospect these actions seem to have had similar disastrous consequences as the actions taken by the Federal Reserve in 1927.
Similar actions. Similar results.
Hoocoodanode?
Do we have any statistical and/or graphical comparisons of subprime vs. ALT-A market share by state? That second wave has California's name on it.
see this:
http://www.newyorkfed.org/regional/subprime.html
Tim writes:
Anything about how much these rates reset to on average? I've hears as low as 7% and as high as 15% (WTF!)
The terms for the 5/1 ARM my sister and I got in 2001 were max 2% every year, no more than 6% deviation from the origination rate. Interest only, Pay-Option and other more exotic loans may have different and significantly less advantageous terms.
Wes hit the nail on the head - as long as interest rates stay low, things aren't a problem. If interest rates start to rise quickly, MANY people will fall behind quickly. The end of the lock period (exposure to immediate fluctuation) is what makes it hurt. You can adjust to gradual changes.
All the Fed contributed was the meeting room and some sandwiches. No taxpayer money was involved. Had they called me, I could have set up a cash bar. Damn you Alan.
"Aug. 13 (Bloomberg) -- Japan's economy contracted last quarter, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less.
Gross domestic product shrank an annualized 2.4 percent"
If it were not for the weak $, i bet we would be there too...
the next step, attempt of everyone to devaluate their currency against $; damn i hope my prognosis is wrong.
I think there is something that everyone might be missing here... Wouldn't the large subset of Alt-A's who didn't lie about income, but who just can't handle the RECAST be perfect candidates for the new housing bill? Think about it. They've got steady incomes and good credit. They didn't lie about their incomes, BUT the market value of a lot of these homes they own has plummeted. If they go to 90% present market value they probably could afford to stay in the houses and they won't default.
p.s. I think next destination for economic blues is ....our mighty (not so mighty) tiger - China.
the next step, attempt of everyone to devaluate their currency against $; damn i hope my prognosis is wrong.
Let the global race to the bottom begin.
I predict records will be broken.
The end of subprime?
Saw this sign today on the side of the road: "550 Credit score? 100% financing available."
Still does not compute.
Doc at the Radar Station,
"If they go to 90% present market value they probably could afford to stay in the houses and they won't default."
Well maybe. But one of dealers in Vegas had a house in subby that was over 70% in default. The screwy prop tax lasw there meant she faced a $45,000 prop tax this year unless the State and City made exemptions. She said she'd default if they don't.
Interesting shite in Vegas. On Sunday I just hung out nursing a nasty hangover, watching movies on TV. At least 2x an hour there was an ad for foreclosure/BK attorneys.
Cheers,
"we don't yet know what to look at for alt-A"
Employment (workhours/income) declines can break both Alt-A AND PRIME (predicted April 2007: Not One Cent: Jobs Sustain Bubble: Await Recession for Final Reckoning.
Just to continue... the banks have to agree to a workout before the homeowner can take advantage of the housing bill's provisions. Well, it is obvious as apple-butter to me that they would go for a work out down to 90% market value to escape having to write off the whole thing off their balance sheet...
Sorry. Page not found.
Can't wait to see what planet is the planet is the destination.
However, I'm old enough to have read THE MARCHING MORONS, by C. M. Kornbluth.
NOC,
That is the stealth unemployment number, IIRC one article threw out each 0.1% decrease in hours worked hit like ~300K increase in unemployment rate...
Misean,
States will have to get on board with the program! If they bail and leave a vacant property they are going to get fucked. They should have to revalue at the 90% to market value IMO.
Doc,
What's more expensive, accepting the cost of a good portion of the Alt-A's that default, or accepting a 10% write-down on every Alt-A loan ever originated.
There are presumably alot of Alt-A's (they think over 50%-I seriously question this), that wont default but would certainly make a phone call or two to get a 10% writedown on a loan they now "suddenly can't afford" ever since they heard about the write-down their neighbor got.
Doc Chaos,
You sir are correct. Competitive devaluations all round. Bugger errr begger thy neighbor.
Worked (didn't) in the 70's. Even the holy Swissies perverted their own semi-gold based system.
Devaluation is the only option.
Oh, I know where some of the mortgage originators went. BIG adds for extended warranties for your used car. Just tell us your make, model and milage and we will take your money to give you peace of mind!
Average Joe, I think that it is going to be FAR more expensive to let them walk away then do the workout. Just my 2 cents.
Doc
"States will have to get on board with the program!"
But will they. I'm not confident of that.
Cheers,
"Default-in-Place" could be the new buzz phrase. Alot of people are getting tax reassesments but making a phone call or just by doing nothing.
Why not have every Alt-A automatically become a 10% write down and become a 30 year fixed at the prevailing rate? Then anyone that couldn't afford it would lose their house ASAP, everyone else would make out O.K.
Given the default rates and losses on each default...this may not be a losing proposition.
Bubble Info's Jim the Realtor guesses that they'll just suspend the resets and recasts to some later date to prevent inventory from crashing on the market.
I guess I don't expect the banks to just sit by and take it as is...but you never know.
Misean,
Well, the feds have got a LOT of leverage nowadays. Think about it. There are a lot of states that have balanced budget ammendments, like mine. They are going to run out of money and where do you think they are going to go hat in hand? TheFEDS! It won't take much convincing to open the funds spigot.
"Average Joe, I think that it is going to be FAR more expensive to let them walk away then do the workout. Just my 2 cents."
Of course for each individual case that's the case.
My question is, once you do that kind of workout for one person you may have to do it for many more.
So, for example is it cheaper to have 30,000 defaults or to do a 10% workout/refi on 200,000 loans?
I don't know the answer.
Average Joe,
"Default-in-Place"
Default-in-Place-Permanently-YO! Would be DIPPY. I like it better than DIP. You know cuz a DIP can be a pinch of tobacco between the cheek and gum.
Cheers,
Average Joe, Not sure about that but I've seen a big up-tick in want ads for "mortgage originators" lately...
Estimates that less than 50% of POA's will default upon the recast at 110% or 115% depending on the loan, are severely conservative.
I would be shocked if it's less than 70% since this percentage choose to pay the minimum payment each month.
Certainly taking a 50% hit or more on nearly three quaters of the Option Arms out there would be much more expensive that giving 100% an automatic 10% principle reduction and an immediate refi at the prevailing rate (assuming this is even possible).
In addition, the second option protects their other existing inventory from further price drops due to the added inventory that allowing defaults would add.
Bernanke was saying as much to Congress.
Each forclosure not only is a loss in and of itself, but it's existence on the market impairs the rest of the lenders/bank's book of assets.
Something creative this way comes.
AJ, They must be ready to take on "case-by-case" then if they are suddenly looking for experienced mortgage originators. I think the banks that will do the best will be the ones that will abandon aggregated models and start looking at facts and individual PEOPLE instead.
Taxpayer bailout.
This is obvious but it is not so much an event that is quantifiable for the MSM.
How bout this. FIDO is paying me 2.2% on my hard earned retirement savings. Given flation at 6%+ I'd call that a subtle bailout. Screw me gently o great banks. Little by little and puff, Kaiser Soze vanishes.
Anyone? anyone?
None of these ARM resets would have occurred had we simply followed the advice of one brilliant Adam Smith.
Ross, I know a couple of people that cashed out their entire 401k and paid the penalties so they could pay off their houses. They thought that retirements were going to crash so bad they didn't want to be stuck with house payments when they retired because they wouldn't have them paid off yet...
Just to continue... the houses I speak of are definitely in non-bubble areas, so they were weighing the cost after penalties of their 401k versus the trend-line value of their homes...
Hey Adam Smith. We got the most wealth of all the other countries in the world!
All they have are paper/digital chits of ours. Screw em. Don't pay.
We got 'stuff' from slave labour. The smart guys HELOCed refied got credit cards AND our very own savers (taxpayers) are going to discount their debt!
Who sez the peasants are clueless.
Since it take 5 bucks in debt to create a buck of GDP, the 'machine' will be re-oiled and roll on.
I think I need an Afro, clunky gold and a screw the MAN sign here. Sooo 70's.
We got Nukes. Banana republic wit Nukes. Soul bro. Peace!
Wu Jianping, the government's chief food quality control supervisor, committed suicide by jumping off a building on Aug 2, Caijing Magazine reported on its website, citing sources.
The report said procuratorial officials in Beijing meet with Wu the day before his death to discuss "financial problems," with Wu admitting to investigators that he had property and deposits out of proportion to his income.
He did not return home the night of Aug 1, the report said.
Business finance news - currency market news - online UK currency markets - financial news - Interactive Investor
I'll bet he committed suicide. One thing about the Chinese government they know how to put a stop to this kind of crap.
Aussie Bank to Bring Americas Biggest Bankers to Their Knees?
"But now nab has let the cat out of the bag. nab has revalued its package of U.S. mortgages down to about 10 cents on the dollar. Now U.S. banks will face pressure to similarly down-mark the value of their portfolios of mortgages. The losses could be huge.
The National Australia Banks decision to write off 90 percent of its U.S. conduit loans will have dramatic repercussions around the world, reports the Business Spectator. Wall Street will be deeply shocked when they understand the repercussions of what nab has done. It is clear global banks have nowhere near provided for their exposures to U.S. housing loans which are experiencing a meltdown.
Aussie Bank to Bring America’s Biggest Bankers to Their Knees? | theTrumpet.com by the Philadelphia Church of God
Japan's Nikkei stock average slipped 2.2 percent on Wednesday as renewed worries about U.S. financial institutions stoked economic concern, with Canon Inc 7751. and other exporters down on a stronger yen.
Dallas Fed chief: U.S. economy faces 'sustained period of anemia'
"This is bigger than the S&L [crisis]. Its broader. Its deeper, Mr. Fisher said. We go through these periods of correction. Its not unhealthy. Its the way capitalism works. (Let the pizza party begin!)
Dallas Fed chief: U.S. economy faces 'sustained period of anemia' |
News for Dallas, Texas | Dallas Morning News
| Dallas Business News
Hi Doc at Radar.
I've almost given up. Honest people have integrity. Older generations. One needs only look at the mores of todays society to understand the no fault mind set. Maybe it accellerated with 'No Fault' insurance in the 70's.
We are a society of 'you owe me. It wasn't my fault, it is the common thing to do.
Beaver Cleaver was a myth that many of us aspired to. Now we have Bevis and Butthead. Wow, what a slide in such a short time.
Ross, I hear ya. I think that we've just created a huge environment of moral hazard opportunities! and didn't understand the implication of the possible fallout. Just a lot of easy money... if we would have just bought less stuff and paid more bills for a few more years...
those are ... Options ARM ... Alt-a has no meaning ... CA is full of it ... thx to mister Mozilo ...
Once they can't get the fix of buying more stuff what happens? Out come the guns and bullets.....Hold onto your asshats....
Canadian with popcorn, no guns and bullets. I think you might see a resurgence in left-wing Christianists a la 60's and 70s. Are we SO ruled by oil? I think so, unfortunately.
Large financial firm failure seen likely
"Nearly 60 percent of 146 institutions surveyed in North America and Europe expect another major financial services firm to collapse in the next six months, and another 15 percent think it will happen in six to 12 months, according to the survey, which was released on Tuesday."
Large financial firm failure seen likely
| Reuters
Christianists? Had to Google that one.....Oh, you mean Obama.....
Nope. The political scene will try to keep the status quo just as it is (whether it needs to change or not-that's your opinion!). I'm talking about a purely cultural phenomenon that will be a coping mechanism for the HUGE CREDIT CUTOFF. Pols might exploit it or not, that's a different matter.
The Nation
Economic Free Fall
"Washington can act with breathtaking urgency when the right people want something done. In this case, the people are Wall Street's titans, who are scared witless at the prospect of their historic implosion."
Bailing Out the Bad Guys: What Congress and Bush Do Best
Hope your right....up here it starts with ten year old's sniffing gas...then it gets really screwed up after that.....
FF,
Re: ""Nearly 60 percent of 146 institutions surveyed in North America and Europe expect another major financial services firm to collapse"
SIFMA aint gonna like that kinda PR, keep it on the lowdow
Things are really bad:
Jonathan Franklin on the former Florida boomtown where repossessions are at an all-time high |
Business |
The Guardian
'You feel bad. You don't want to take their wedding rings from them - that's their memories and everything," says Michael Bruce from behind a row of thick steel bars. "But they need the money and that's what we are here for....."
From Housing Wire:
Ninety-one percent of the decline in Notices of Default since April can be attributed to Countrywide Financial. Unfortunately, this is more likely due to the challenges of integrating two companies the size of Countrywide Financial and Bank of America, than it is a fundamental shift in foreclosure activity.
the Fed did some arm twisting on WS but did not risk tax payer money in the LTCM bailout.
"In September 1998, when the large Long-Term Capital Management (LTCM) hedge fund faced a severe financial crunch, the government stepped in again. The Fed cut rates three times, and the New York Federal Reserve brokered a controversial de-leveraging of LTCM's derivative trades, which had gone south when the Asian and Russian financial crises unfolded. Large money-center banks were on the other side of many of these trades. "If Long-Term defaulted...the banks...would be left holding one side of a contract for which the other side no longer existed," Roger Lowenstein explained in his book, When Genius Failed: The Rise and Fall of Long-Term Capital Management (2000). "In other words, they would be exposed to tremendous...risks."
In Defense of Derivatives - Reason Magazine
If the fed moved the yield curve to cover the banks that bailed LTCM they removed billions from the US taxpayer in the form of inflation.
Risk Reduction
The yen may rise to 160 per euro in the next few weeks, said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland Plc and a former Bank of Japan currency trader.
Stock market declines may spread overseas, prompting risk reduction,'' he said in Tokyo.My colleagues are very bearish on the Australian dollar because of the outlook for commodities.''
Crude oil last traded at $112.98 a barrel after falling yesterday to a 14-week low of $112.31. Gold fell for an eighth straight session and copper dropped to a six-month low in New York trading yesterday. Gold and crude oil are Australia's third and fourth most-valuable commodity exports.
U.S. Economy
The dollar may extend its decline versus the yen before a U.S. government report forecast to show consumers are spending less. Retail sales dropped 0.1 percent last month, the first decrease since February, according to the median forecast of 75 economists surveyed by Bloomberg News. The Commerce Department is scheduled to release the report today.
Federal Reserve Bank of Dallas President Richard Fisher said the economy will ``broach zero growth'' in the second half of the year, the Dallas Morning News reported yesterday. U.S. gross domestic product rose at an annual rate of 1.9 percent in the second quarter, the Commerce Department said July 31. It fell 0.2 percent in the final three months of last year.
A disappointing retail sales number could limit the dollar against the yen,'' said Hiroshi Yoshida, foreign-exchange trader in Tokyo at Shinkin Central Bank.This may also cause declines in stocks, which would encourage yen buying as investors avoid risky trades.''
European Growth
The euro's decline may accelerate on speculation gross domestic product in the 15 countries that share the currency is contracting.
Europe's economy shrank 0.2 percent in the second quarter, following 0.7 percent growth in the previous three months, according to a Bloomberg survey. The European Union's statistics office in Luxembourg will release the data tomorrow.
Throw into this mix July retail-sales data, which the Commerce Department reports Wednesday morning. Economists on average estimate a decline of 0.4% after rising a meager 0.1% in June. Excluding the grim automobile sector brightens the picture considerably. Adjusting for inflation, however, turns it dark again.
Retreating energy prices may help. But J.P. Morgan Chase's Charles Grom notes that consumer spending is correlated more with unemployment, which is rising.
Moreover, a new Federal Reserve survey shows about two-thirds of the country's loan officers reported tightening standards for credit-card and other consumer loans in the past three months, the highest in the 12 years the Fed has kept track and far higher than in the 2001 recession. That could mean less spending of cash at the malls.
Retail Numbers Likely Weak, Lehman Brothers Says
http://www.tradingmarkets.com/.site/news/Market%20Analysis/1822495/
Retail sales rose a sluggish 0.1 percent in June, largely disappointing the markets. We expect another weak report in July, say the analysts at Lehman Brothers. We expect retail sales to fall 0.2 percent, driven by a 3.5 percent decline in auto sales. Unit domestic auto sales fell to 9.1 million, the lowest since 1991. The sharp decline in auto sales was triggered in part by high gasoline prices, explaining the plunge in truck sales. Stripping out autos, we expect a decent 0.5 percent increase in sales, in part due to an increase in gasoline sales. Gasoline prices did not start to decline until the end of July, suggesting another monthly increase in gasoline sales.
My balls itch.
A majority of banks tightened their rules for granting loans to businesses and consumers. The survey shows little appetite at banks to lend for home mortgages, credit cards, home equity loans, commercial real estate loans, or commercial and industrial loans.
No bank in the survey eased credit terms for any type of loan in the past three months, and only one bank said it anticipated easing standards for consumers in the next 12 months.
Tighter credit could slow economic growth, especially consumer spending, economists say. Lack of credit could sink the commercial real estate market, and curb capital investments by businesses. The survey is considered a leading indicator of credit creation in the United States.
"This is consistent with our view that consumer spending will slow markedly over the next several quarters," wrote economists for Lehman Bros.
"The impending tightening may ultimately curb consumer credit noticeably," wrote Harm Bandholz, an economist for UniCredit Markets. "This in turn would be another nail in the coffin of the U.S. consumer, who is already suffering from the weak labor market, high inflation and falling house prices."
A little Anecdote...I had coffee today with a small businessman who used the equity in his residence to expand his construction related business and buy a second home in 2006.the second home was an 80-10-10,the first home was refied to 80% with a generous appraisal,both loans are with countrywide,both POA's.both homes are in Sebastopol ca and are underwater due to making the minimum payment and price declines.He asked me my opinion of the direction the market was moving (when will it recover?) and to run down the alternatives and their consequences,which I did.What did he decide? Ruthless default.He got his loans through a broker at Investor's Trust,according to today's fishwrap IT is down to 4 offices from 27 a year ago,with one more office scheduled to close this month.The businessman has laid off 75% of his workers already...
JPMorgan Chase & Co.'s news that its credit losses of the past month and a half already exceed its second-quarter losses is sobering proof that an end to the credit crisis is still far off in the future.
The market keeps surprising us, said Octavio Marenzi, head of financial consultancy Celent. It is difficult to say where the bottom is.
After a while, you can only write down so far, Marenzi said. The natural bottom is around zero, and we're rapidly approaching that point.
Two separate turnarounds need to occur before mortgage-backed securities hit bottom and begin to recover; the broader economy needs to improve and investors need to start to purchase these investments again.
But Ladenburg Thalmann analyst Richard Bove said declining household wealth, rising unemployment and increasing costs for food, fuel and health care will likely lead to further delinquencies and defaults among mortgages and consumer loans.
If the economy doesn't stabilize soon, it will cause problems, Bove said.
Page not found
'...a small businessman who used the equity in his residence to expand his construction related business and buy a second home in 2006."
Holy Jesus. He drank a lot of Kool-Aid.
Meanwhile, Conjure and I are still waiting for the "wage/price spiral."
BWAHAHA!
I just can't charge enough for Kool Aide to make any profit. Its been THE drink for a few years though.
Andy @ 5:33, re: SacTown Shadow inventory.... check this out:
Sacramento Real Estate Statistics: Insight into Shadow Inventory
According to this, there is a 209% supply of REOs to MLS listings (yes, two-hundred and nine PERCENT)!
C
Sorry, dupe of c&c's post, good read though