The article strongly implies that the second wave of prime foreclosures will be smaller on a percentage basis, but much larger in numbers, b/c there are so many more primes than sub-primes and Alt-As. If you doubt this picture, please say more in another post. The article is awfully grim. Thx.
There will be a second wave of foreclosures. I agree that the mid and upper tiers will be hit more. I have met so many high FICO score employees who bought "investment" homes in popular hot spots from Phoenix, to the CA central valley (Bakersfield, Barstow, Victorville), to Nevada. Once those ARMs start to reset, there won't be money to pay the mortgage. Plus selling or refi'ing are out of the question because the prices have dropped.
On a different note, I have heard about prices in Palos Verdes, CA (a high-end part of the Los Angeles area). There is even a large spike in foreclosures in the million+ home market there. A couple years ago everyone would have said that there is no way foreclosures would rise in PV.
Do prime and alt-a mortgagees have higher equity positions in their homes? Was 'prime' designation based on credit score, income documentation, loan-to-income ratio, and/or down payment % ? If equity positions are somewhat higher, it occurs to me that home price declines would be faster because there wouldn't be the hurdle of getting short sales approved when someone has to sell because of unmanageable mortgage payments.
The only thing holding up this house of cards is low unemployment, and even that is starting to look shaky.
Here's the obvious question: a 300k house is going to cost 3k a month with a 6.7% 30-year fixed. That's a tab only the top 10% of earners can pick up. Will 10% of the people buy 60% of the houses? How stupid could they be?
WSP, Alt-A and Prime defaults being smaller than Subprime in percentage terms is pretty much a given. But I think the total number will be smaller too.
There are more subprime loans than Alt-A loans, although the Alt-A loan balances are higher. You can get the data at the NY Fed.
Yes, there are many more prime loans - and the default rate will rise with these loans too - but I think the overall number will be smaller than subprime.
I was down in Pacific Grove yesterday -- nice little seaside town butt up against Monterey, pretty pricey (not like Carmel Valley, but pricey). From RE stats for the previous week in the local paper, few houses have closed lately -- but 25 percent or more that did happen were REO, mostly with DeutscheBank listed as seller.
There's a one-year supply of housing on the market at current sales rates. This is not subprime territory. If anything, prime with a bullet.
I would judge Downey Financial is toast. At the end of March its non paying loans were 89% of its equity+loss reserves. By now it's probably over 100%. Curtains, I would say.
I'm not so sure that the numbers on the second wave will be less. The view from here in W. LA is umm scary to say the least. For the first time after years of looking, the short sales and foreclosures are starting to show up in Bel Air, and Pac Pali, and S. Monica...
This weekend there were several 500K reductions advertised for homes in the 1.5 to 3.0 range as a result of short sales. This is an entirely new phenomena. The speed at which the conventional wisdom for a 'fair price' is changing is breathtaking, after a few years of slow deflation. Personally I think it will all go back to 2001 prices, which for most listings in high end LA, is upwards of 50% from here.
The vast, vast majority of people who bought post 2004 did so at 7-10x income. We know what that did to Riverside, but they were on 2/28s. Most of the high end folks took out 5 year ARMS, which exploded in the platinum areas in 2004. 300k a year buying a 3M house. Have many friends in investment banking/CRE on the high end. Just a sampler: UBS banker just fired, high end CRE manager for RBS let go 80% of his staff, another CRE buddy borrowing from his partners to help him meet his ARM reset. The carnage on the high end, I believe, will exactly mirror that on the low end. The metrics and the multiples are nearly identical.
What's amazing is the 'smart folks' seem to be the last to get the message--see recent post on Lansner's blog where 85% of high end folks think their RE will appreciate in the next 12 months.
Same % defaults as subprime, 5x the money at stake. Get ready to be shocked
Bob, I grew up in PG, on Crest Ave. lining what is now the 8th fairway of the PG Muni golf course. The folks paid $37,500 in 1970 and sold under duress in 1980 for $100k - worth $120k then. 2k s.f., walk to the beach, on the golf course. In 2005 it sold for about $1.3m, if memory serves.
There is no industry there besides tourism. However, Digital Equipment (DEC) was founded in town, and many many many military retirees as well as dot com boomers snatched up houses during the run up. Still, the service economy (hotels, restaurants) has to house people somewhere, and the kids who stayed either live with folks or live out of town in Marina or Castroville or Salinas.
There are only about 1/4 million total residents on the Monterey peninsula, so total impact won't be enormous, compared to say OC. But mom, who still lives there, has noticed a substantial decline in property prices over the past year. With no end in sight. The old military codgers and Silicon Valley second homers have no access to funny money loans any longer... and despite the beauty of the area, $800 per s.f. prices are just unsustainable.
Sure with the folks had kept that house... Oh, and there is a cemetary across the fairway. Great for dirt clod wars when you're a kid.
And I'm not convinced the alt-a and prime shakeout will be smaller than subprime, either in number or in cost. Countrywide was HUGE in SD, OC, and LA, and with their competitors sold enormous numbers of Option ARM and HELOC product on a NINJA / Stated basis. When those loans and the concurrent MEW payments start re-setting - that is, when the Fed starts raising rates - it seems to follow that the so-called prime loans will default en masse.
If I was a bank I would rather be stuck with 5 200k homes than a million dollar one in this market. Think of it another way would you rather have one cadillac escalade or 3 honda civics that you needed to sell?
On a different note, I have heard about prices in Palos Verdes, CA (a high-end part of the Los Angeles area). There is even a large spike in foreclosures in the million+ home market there.
So true. I've seen a few home bought in 2008 turned over to the banks already!* In PV!
I think the 2nd wave isn't just Prime. Its people who were holding on who won't when they estimate the cost. I've predicted a long time about 'foreclosures begetting foreclosures.' This second wave is going to be huge. But it really won't start until October.
Re: But perhaps the biggest moment for the tubby tabby happened in his litter box before dawn.
He peed.
"We all began clapping," said Deborah Wright, 48, his temporary caretaker. "He didn't pee at all yesterday. I think he was just so nervous."
I'm tired of hearing my relatives who all owe more than their house is worth tell me what a good idea it is to bailout these poor homeowners who are losing their homes. Have some compassion, it's not their fault, the government should help.
Somebody buy this SFH on my street! It is the only home for sale on a short street of 24 homes 12 on each side 8 miles from downtown Dallas with a 10 minute (tops) commute that I drove for 10 years (1995-2005). The homes on this street were part of the 1963 Dallas Parade of Homes showcased by area builders of that era. 1963 is a remarkable year in the history of Dallas and the nation just as 9/11/2001 will always be a remarkable year for NYC and the nation as well. This home is approaching fifty in 2013 and has no tear down restrictions of any type. Be the first to build new on Briarmeadow Drive in Preston Hollow. Really a diamond in the rough for your next generation investment trophy.
A question that's OT, but . . . the bits of news I've seen regarding the residential RE in Spain & the UK suggests that prices are going down (meaning both had residential RE bubbles that have popped) & additional mortgage applications aren't being granted. Spain seems to have some additional issues re:irregularities of building permit grants that are subsequently overturned after the structures are built. But I haven't read of similar bailouts by the respective national gov'ts. Have I not seen anything because: (1) US news coverage of events in other nations is fragmentary & inadequate; (2) the banks or entities that grant mortgages are somehow (explain why?) are not in as deep of s-t as are US IBs, mortgage brokers, community/regional banks, thrifts such as WaMu, etc.? (3) both, & still explain how UK/Spain mortgage entities not as troubled or in need of bail out as those in US or if there is no bailout--why it might be that respective national gov'ts feel bailouts not req'd.
I remember reading about one UK bank being taken over, & I've heard about UBS, (& there was one bank in Germany that may/may not have been taken over) but I haven't seen coverage of the kind of upheaval & potential carnage as in the US. Or is the rate of foreclosure just as high in UK, Spain, & we just don't hear about it?
Corruption and politics in Ukraine threaten to choke off, at least in the near term, the expansion of oil exports from Azerbaijan and eventually Kazakhstan to Europe. This is the significance of Ukrainian Prime Minister Yuliya Tymoshenko's efforts in July to halt what she called the "shadowy privatization" of the Odessa-Brody oil pipeline.
Richard X. Bove, an analyst at Ladenburg Thalmann, said that the quarter was a "mindblower -- that's for sure," but he still believes that Wachovia won't be on the block anytime soon. "It isn't likely that Wachovia will be acquired by anyone," he said. "There's no compelling reason to do it."
While Bove has Wachovia on his ominous "Who's Next" list, which named all the banks that he feels have capital levels in the "danger zone," he still thinks this troubled bank has a fighting chance: "The question is whether it can absorb these losses and future loan losses. I believe Wachovia can."
Bove argued that Wachovia is well-positioned with $440.0 billion in deposits that generate a significant amount of money that can be used to counteract losses. Bove said, "Wachovia has the resources to create a positive and exciting earnings story if it can get its management issues sorted out."
Bove recommended that the entire board be removed and said Steele lacks the experience to handle the troubles the firm faces. But he said he believes regulators are going to be a boon to Wachovia.
"The government will force the bad stuff out of that company. The Federal Deposit Insurance Corp. has a big stake in that company -- let's say they're on the hook for $250.0 million -- and they won't sit back and wait for the bank to fix its problems," Bove said. "The regulators know what they are doing - they've proven that. When they fix things, earnings will soar."
Here in Palo Alto, surely one of the most overpriced places on earth if you do the math of income to housing price, you can see it slowly starting. The march of the foreclosure signs. First in East Palo Alto, the predominantly hispanic and black area on the wrong side of 101, then a few megamansions in Los Altos Hills, fast money comes and goes, but now the foreclosures are popping up in blue chip Palo Alto. Its just that some startups didnt get the IPO, some have been laid off, and some poor sods spent all of dadies money on a house at the top of the market that they couldnt afford when the mortgage went up.
I agree with you on this point. Have you seen the 60 Minutes story about the Stockton Repo Bus? Many/most of those people were "investors" looking to pickup "deals". Others have mentioned coworkers looking to buy in SF since prices are just now starting to decline and there are "deals" which will leave them with $2000 neg cash flow/month (posters own rough numbers)!?
These knife catchers are already being driven out of the market (the mention above about a home repo'd that was sole in 2008, I've seen this myself in Sacramento). These "deals" are going to blow up in many more faces. What's been the percentage of second home/investors in some of the distressed cities? Sacramento has had a high percentage! And I seem to remember the same being said about Stockton. These homes will be coming back on the market, by in large, along with the Prime's second wave.
How much money was at stake in the subprime cohort from, say, 2000-2Q08? How much in the combined non-subprime loans/seconds/helocs for the same period?
I'm assuming all classes of loans - including subprime - were still being underwritten until recently.
Stats we see quote the number of loans underwritten or NOD or in FC, but not
cumulative dollar value. Leaves us with guesswork, I'd say.
Zmonet, Buiter is at #95 on that list. Perhaps the ranking is meaningless?
"A couple years ago everyone would have said that there is no way foreclosures would rise in PV."
Ahhh PV. How soon they forget in CA. PV was ravaged by FCs in the early 90s. At one point the prevailing wisdom was RE goes down. Well, it'll be time to buy a home, if so inclined, when the prevailing wisdom returns to, Prices always go down.
By Monte Mitchell
JOURNAL REPORTER
Published: August 2, 2008
BOONE NC - A deadline has expired that forestalled foreclosure on Laurelmor, a 6,000-acre golf resort in Watauga and Wilkes counties, but developers are continuing to negotiate with lenders.
Lenders led by Credit Suisse had agreed to delay foreclosure for 30 days after development companies affiliated with Bobby Ginn missed principal and interest payments on a $675 million loan for Laurelmor and three other resort communities due June 30.
"Although negotiations with the lending group have been ongoing and are continuing, our agreement did expire" Thursday, Robert Gidel, the president of Ginn Clubs & Resorts, said in a statement released yesterday.
"Negotiations for a resolution are continuing, and at this time, we remain optimistic that this credit facility will be restructured in a manner beneficial to all parties," he said
C.R. you may be right about prime foreclosures being lower in total. But it seems to me that it's likely that they will be MORE geographicly concentrated than the subprime mess, so that in parts of California they'll total more. I mean there were a good number of subprime forelcosures in rust belt areas, or places like Florida which USED to be affordable. And of course many of these borrowers were considered subprime for a good reason. But whatever their FICO, people in much of CA haven't been able to afford their homes for years and years with conventional, conservative underwriting.
Jim A....BINGO. We're talking substantial $$ on each one. Lots of cash out refi's and heloc monkey business.
Certain areas of CA are going to get hammered. Alt-a, pay option, all those vehicles that allowed a normal stiff to buy or finance a million dollar life style are floating to the top of the cesspool.
Dr. Housing Bubble and Irvine housing Blog are just two sites that delve into the mess in CA on a daily basis.
"A nation wins or loses through
the education of its children."
The aim of public education is not to spread enlightenment at all, it is to reduce as many individuals as possible to the same safe level, to breed a standard citizenry, to put down dissent and originality. - H.L. Mencke
I have a friends who retired from their own business and bought a condo in FL before the boom. They had such large paper profits on this investment that they decided to buy two more FL condos. These were larger and more opulent and were purchased closer to the peak. They also still own their home in NJ. They are upside down on the two most recent purchases and only have significant equity in one of the four homes.
They are trying to sell the oldest FL condo (the one with equity) and the NJ house. They want to hang on to the upside down FL condos, which they are able to rent sporadically. I am quite concerned for their financial future.
Meredith Whitney is reading the riot act to the banks and real estate on CNBC this morning. "Home prices are going to fall much more than people expect". "The banks are going to retest their lows."
the Merideth Whitney interview is startling to say the least. she pulls absolutely NO punches.
the other guest host sometimes tries to get her to show the rosy side, and she refuses every time.
the real hosts (Becky Quick and Joe Kernan) are clearly enraptured by her.
CR should post the vid if possible (2 segments).
she anticipates all the banks to retrace back to their year lows. she also talks about many of the dominos that are next to fall including Credit cards, and also lower future earnings given lower capital base and overbloated firms.
LONDON (MarketWatch) -- Family-held department store chain Boscov's has filed for Chapter 11 bankruptcy protection, Reuters reported Monday, citing a Delaware court filing. The Reading, Pa. chain with 49 stores had $538 million of assets and $479 million of liabilities as of May 3, the report said. The company was hurt by a promotion where it gave customers who cashed their IRS rebate check at their stores an additional 10% payout.
"The government will force the bad stuff out of that company. The Federal Deposit Insurance Corp. has a big stake in that company -- let's say they're on the hook for $250.0 million -- and they won't sit back and wait for the bank to fix its problems," Bove said. "The regulators know what they are doing - they've proven that. When they fix things, earnings will soar."
I think it's the first time I've ever heard an analyst forecast that competent regulators would save a company from incompetent top management. Strange. Scraping the bottom of the "happy news" barrel.
Some people are expecting Ms. Whitney to talk herself right out of a job which of course would be unfortunate for those who enjoy a bit of rare American truth telling. Pity.
Regulators including FDIC do not 'fix' open banks in this grave of a condition. They do fix their own promotions and like to transfer to the San Francisco region to bump up their high three pay for pension purposes. They liquidate closed banks and file extensive professional liability litigation that will drag on for years if not decades. It is past time to resign from your bank's board to reduce your personal liability and even if you do FDIC may drag you into litigation based on whatever target timeline it feels the major loan losses were approved reaching back many years of your personal board tenure.
The second wave, of prime and Alt A borrowers, are starting to do a lot more short sales than walking away like those terrible, almost non-human, sub-prime borrowers.
It's the "respectable" thing to do. But the losses to the lenders will be just as bad.
I think helocs in the prime area is big. I saw a study - maybe it was here, showing that in 2007 that in CA 30% of new auto purchases were with heloc $. Here in Fl it was ~25% I think. This is just a huge mess. I work in finance/accounting and I am continually surprised at my peers that are oblivious to the extent of the mess.
I expect what Jim A. says will be likely the truth. I live in a bubble community in CA (Sacramento) and the subprime mess touched nobody I knew, but the coming mortgage blowups will. I know of one imminent walkaway, and a couple of others who are struggling, and I think it'll end up a bloodbath around the valley and the Bay. I just can't believe they're still making sales in my own neighborhood.
The NYT article reported that there is a glut of 3,000 one bedrooms apartments on the market in NYC and that prices have declined some 8%. One bedrooms in newer buildings in the Hell's Kitchen area are going for around 850K. I'd like to hear plausible ideas for what they will be going for two years hence. 700K? 600K? 500K?
I don't think it will be as easy for these people to walk-away. Lots of these people have huge recourse HELOC obligations, which create the threat of a civil suit recovery and/or significant tax implications for debt forgiveness. While they may be underwater on the house, they still have some assets and reasonable salaries to garnish. Are we to accept that banks are simply going to write-off these second-loan losses?
I loved the article by NPR last year- people bought houses at auction, then were ushered in to a side room, where they signed up for no-doc, zero-interest loans for their new houses.
There will be a steady stream of knife-catcher foreclosures for the foreseeable future.
I don't think it will be as easy for these people to walk-away. Lots of these people have huge recourse HELOC obligations (...) Are we to accept that banks are simply going to write-off these second-loan losses?
Does it matter how the banks decide, as long as I don't have to subsidize the bank losses as a taxpayer - wait a moment, we are on the hook for bank losses through the undercapitalized FDIC: The banks better go after the seconds until the bankcruptcy of the debtors.
So far, it seems the lenders have not taken resourse action on HELOC and second loan losses.
Well they have 4 years to file suit. To the extent the majority of trouble to-date has been in subprime with relatively modest HELOC losses to people with few assets to recover anyway, might that situation change when they start seeing $200k+ losses to people with some money in the bank and making $150k+ per year?
At the very least, I would expect to see some a few well-publicized cases to scare people. Not to mention a few IRS cases going after people who got debt foregiveness.
Well hopefully the numbers will be smaller with the next wave of foreclosures... but I'm not sure I see that happening. There were enough subprimes in mid-to-high end areas that anyone who loses a job or has a medical emergency without the appropriate insurances will be hurting.
Boullini's prediction that the US market (now off 20%) will drop another 20% for a total 40% drop from high seems scary. Is there genral consensus form other Economic blogsites?
"A couple years ago everyone would have said that there is no way foreclosures would rise in PV."
Ahhh PV. How soon they forget in CA. PV was ravaged by FCs in the early 90s. At one point the prevailing wisdom was RE goes down. Well, it'll be time to buy a home, if so inclined, when the prevailing wisdom returns to, Prices always go down.
barely | 08.04.08 - 6:54 am | #
Neil, Barely. Good to know a few others know the PV market.
Yes, there was a large price decline in the later 80's, early 90's. Since then the prices rose like you wouldn't imagine. The shacks were selling for $1 million at the 2006 peak. "Normal" homes were in the $2 million plus range. Crazy. Imagine the mortgage and property tax on that.
Although most living there now won't believe it, that market will reset back down close to where it was before.
BTW, you ever visit the new Trump golf course. It's very nice and has a public trail through it.
This housing crisis is like a car with bad spark plugs. Mortgage lending by financial institutions will continue to be a serious problem . The Congress
has refused for decades to fix the regulatory sysytem because the wealthy and powerful banks will not permit any controls over their lending activities. The mortgage borrower when financially damaged by these banks has no redress to answer
any type of lending problem that adversely affects them within the regulatory system.
This is the LYNCH MOB theory.
The banks foreclose and hang the borrower. The Sheriff is the Congress that looks the other way.
Worse yet, is to live in the State of Ohio where my bank Am Trust Bank in Cleveland Ohio performed a flawed appraisal. When I complained to the State, the State agreed and made a deal with the bank. My house was sold at foreclosure March 2008.
I see all these comments and reasons why this housing crisis has come about. When their are no rules of conduct, the answer is crisis.
Sacramento now has a two tiered RE market, Land Park/Curtis Park, Midtown and East Sacramento, with square footage over $300 a square foot and everywhere else, with square footage under $200 a squre foot, subprime world, maybe there's a few others outside of downtown out in Roseville, but that's about it
Alt-A, which includes Pay Option ARMs, is about to hit these neighborhoods, these remaining bastions of safety, if it isn't already
I call it, The Masque of the Red Death, for those of you familiar with the plot of this old Poe tale
the East Bay, especially the Oakland hills, Berkeley, Albany, Lafayette, Orinda is about to get hammered, possibly even SF, too, if Fitch is to be believed
anyway, Mr. Mortgage is a pessimistic compared to CR
Nope, you're wrong. The second wave will be far bigger than the first. The peak in the buying frenzy was the end of 2004 through about the middle of 2005. That when the most risky loans were given for the greatest appreciations. I'm talking about hundreds of thousands of interest-only, 5/1 ARMs. When those babies reset in 2009 and 2010, it will be very ugly. The softness that we're seeing right now is just bottom feeders snatching up properties. Don't forget about the hundreds of thousands of refinances for existing properties. 2008 is just the first really bad year. 2009 will be worse and it will start to improve A LITTLE in 2010 once all of the ARMs reset. Interest-only ARMs should be illegal forever, but that would make too much sense for 9% approval rating Congress to approve.
Rich- I'm used to live right next door to Sacramento, and I think that your sub-prime description needs a few more adjectives: sub-prime, illegal-alien, ITIN-carrying, stated-income-giving, non-tax-paying, Cadillac-Escalade-with-custom-wheels-driving, refinancing-to-fund-a-lavish-lifestyle, Thunder-Valley-gambling...borrowers.
One more thing to add...the sudden depreciation caught most people off guard. So they will be upside down when their loans reset. That's why the housing bill will let them re-fi at 90% of the FMV- BECAUSE THEY SEE THE TIDAL WAVE COMING. Notice how fast things happen in Congress when it looks dire? I mean, those rebate checks were passed withing weeks. Pretty much anything that Goldman Sachs and JPM want, they get...the rest of us are screwed.
"I tend to view subprime as chiefly a "lower end" issue with respect to the real economy, and it is my view that the greatest - as well as least appreciated - bubble economy excesses were at The "Upper-middle" to "Upper-end." It is in The Upper-ends where years of credit excess had the most pronounced effects on incomes, household net-worth, spending and government revenues.
It was the at The Uppers where loose finance encouraged many to stretch to buy the expensive home, to lease the luxury vehicle, and to finance the upscale lifestyle - credit creation that then further stoked the overall economy and asset markets. And it was the Uppers that enjoyed spectacular gains in income and financial wealth. It was the momentous changes in Uppers' spending patterns that spurred enormous real economy investments in a multitude of new businesses and services - a great deal of this spending of the discretionary and luxury variety. It was the Uppers' windfalls that encouraged state, local and federal governments to rapidly boost spending. These were the inflationary distortions that had a profound impact on the underlying economic structure - over years spurring the transformation to a "services"-based bubble economy.
It is my view that the Uppers are now in the process of being hit with rapidly tightening financial conditions. This year will see a historic decline in financial sector compensation, led by collapsing Wall Street bonuses and unprecedented layoffs throughout the financial services industry. This week also saw the announcement of major "white collar" job losses at General Motors, an employment trend that I expect to spread throughout the real economy. Many companies and industries must today respond to collapsing profitability (as financial conditions tighten and spending patterns and levels adjust), and there will be no alternative than to shrink "Upper-end" employment and compensation."
We've been discussing this scenario here at CR for some time (with a comments to this effect by yours truly as well) ... what's the story?
Of course there's going to be another (or 3) waves. As I said in an earlier thread, the foreclosures are going to creep up the food chain. I'm seeing it happen at the Trustee's sales more and more everyday.
Remember, the OptionARM blow-out party doesn't really get swingin' until Feb 2009 or so. There is so much toxic AltA out here in CA; we're all subprime indeed.
Also, don't forget about the "sandwich" inventory coming out of all the "phantom" REO stock - i.e. the huge overhang of REO that hasn't even begun to be processed. I'm seeing reverted properties that, several months later, an agent hasn't even been to the property to determine occupancy, yet alone a BPO or lockbox.
On the other hand, the very 1st vintage of the marginal area defaults... well, you have to wonder how low can it go.
I mean when I can pick up properties for less than the land value (pre 2003)alone yet alone replacement cost, you have to wonder if some of these deals will turn out OK after all.
Rental mkt seems hot; my CL ads get huge response. My gross rent yields a 30-60% positive over PITI or I can flip for a nice margin but still be giving a deal to the retail buyer (a mtg payment in the bay area for $1000 or less per month?) Seems to be working...
Hell, I don't know... doesn't the Mayan calendar blow up in 2012? We're probably all dead anyway... onward!
I am going to move to noarea
It's frustrating hearing my wealth relatives talk about how Santa Monica is different. I just keep telling them "Wait and see what happens in '09".
I wonder if the losses from fewer high priced homes/loans will equal the losses from Subprime.
Maybe an updated chart of loan resets with an average loss per loan type would be a good project for someone with the time to spare.
The article strongly implies that the second wave of prime foreclosures will be smaller on a percentage basis, but much larger in numbers, b/c there are so many more primes than sub-primes and Alt-As. If you doubt this picture, please say more in another post. The article is awfully grim. Thx.
Bam. . . Bam. . . the shots keep coming!
Too bad, so sad.....
Tiny URL - create a shorter link
Banksters and fraudsters of New Yawk city.
There will be a second wave of foreclosures. I agree that the mid and upper tiers will be hit more. I have met so many high FICO score employees who bought "investment" homes in popular hot spots from Phoenix, to the CA central valley (Bakersfield, Barstow, Victorville), to Nevada. Once those ARMs start to reset, there won't be money to pay the mortgage. Plus selling or refi'ing are out of the question because the prices have dropped.
On a different note, I have heard about prices in Palos Verdes, CA (a high-end part of the Los Angeles area). There is even a large spike in foreclosures in the million+ home market there. A couple years ago everyone would have said that there is no way foreclosures would rise in PV.
When celebrity real estate blogs stop telling us about how Mr and Ms Hollywood just flipped their house for a couple million profit, I'll believe it.
Do prime and alt-a mortgagees have higher equity positions in their homes? Was 'prime' designation based on credit score, income documentation, loan-to-income ratio, and/or down payment % ? If equity positions are somewhat higher, it occurs to me that home price declines would be faster because there wouldn't be the hurdle of getting short sales approved when someone has to sell because of unmanageable mortgage payments.
The only thing holding up this house of cards is low unemployment, and even that is starting to look shaky.
Here's the obvious question: a 300k house is going to cost 3k a month with a 6.7% 30-year fixed. That's a tab only the top 10% of earners can pick up. Will 10% of the people buy 60% of the houses? How stupid could they be?
WSP, Alt-A and Prime defaults being smaller than Subprime in percentage terms is pretty much a given. But I think the total number will be smaller too.
There are more subprime loans than Alt-A loans, although the Alt-A loan balances are higher. You can get the data
at the NY Fed.
Yes, there are many more prime loans - and the default rate will rise with these loans too - but I think the overall number will be smaller than subprime.
Best Wishes.
I was down in Pacific Grove yesterday -- nice little seaside town butt up against Monterey, pretty pricey (not like Carmel Valley, but pricey). From RE stats for the previous week in the local paper, few houses have closed lately -- but 25 percent or more that did happen were REO, mostly with DeutscheBank listed as seller.
There's a one-year supply of housing on the market at current sales rates. This is not subprime territory. If anything, prime with a bullet.
Watch out below.
I would judge Downey Financial is toast. At the end of March its non paying loans were 89% of its equity+loss reserves. By now it's probably over 100%. Curtains, I would say.
Thanks CR. (I'm a scared Michigander hoping this will bottom out b4 long.) Great blog.
CR,
I'm not so sure that the numbers on the second wave will be less. The view from here in W. LA is umm scary to say the least. For the first time after years of looking, the short sales and foreclosures are starting to show up in Bel Air, and Pac Pali, and S. Monica...
This weekend there were several 500K reductions advertised for homes in the 1.5 to 3.0 range as a result of short sales. This is an entirely new phenomena. The speed at which the conventional wisdom for a 'fair price' is changing is breathtaking, after a few years of slow deflation. Personally I think it will all go back to 2001 prices, which for most listings in high end LA, is upwards of 50% from here.
The vast, vast majority of people who bought post 2004 did so at 7-10x income. We know what that did to Riverside, but they were on 2/28s. Most of the high end folks took out 5 year ARMS, which exploded in the platinum areas in 2004. 300k a year buying a 3M house. Have many friends in investment banking/CRE on the high end. Just a sampler: UBS banker just fired, high end CRE manager for RBS let go 80% of his staff, another CRE buddy borrowing from his partners to help him meet his ARM reset. The carnage on the high end, I believe, will exactly mirror that on the low end. The metrics and the multiples are nearly identical.
What's amazing is the 'smart folks' seem to be the last to get the message--see recent post on Lansner's blog where 85% of high end folks think their RE will appreciate in the next 12 months.
Same % defaults as subprime, 5x the money at stake. Get ready to be shocked
Bob, I grew up in PG, on Crest Ave. lining what is now the 8th fairway of the PG Muni golf course. The folks paid $37,500 in 1970 and sold under duress in 1980 for $100k - worth $120k then. 2k s.f., walk to the beach, on the golf course. In 2005 it sold for about $1.3m, if memory serves.
There is no industry there besides tourism. However, Digital Equipment (DEC) was founded in town, and many many many military retirees as well as dot com boomers snatched up houses during the run up. Still, the service economy (hotels, restaurants) has to house people somewhere, and the kids who stayed either live with folks or live out of town in Marina or Castroville or Salinas.
There are only about 1/4 million total residents on the Monterey peninsula, so total impact won't be enormous, compared to say OC. But mom, who still lives there, has noticed a substantial decline in property prices over the past year. With no end in sight. The old military codgers and Silicon Valley second homers have no access to funny money loans any longer... and despite the beauty of the area, $800 per s.f. prices are just unsustainable.
Sure with the folks had kept that house... Oh, and there is a cemetary across the fairway. Great for dirt clod wars when you're a kid.
And I'm not convinced the alt-a and prime shakeout will be smaller than subprime, either in number or in cost. Countrywide was HUGE in SD, OC, and LA, and with their competitors sold enormous numbers of Option ARM and HELOC product on a NINJA / Stated basis. When those loans and the concurrent MEW payments start re-setting - that is, when the Fed starts raising rates - it seems to follow that the so-called prime loans will default en masse.
A nation wins or loses through
the education of its children.
We have lost.
.
If I was a bank I would rather be stuck with 5 200k homes than a million dollar one in this market. Think of it another way would you rather have one cadillac escalade or 3 honda civics that you needed to sell?
On a different note, I have heard about prices in Palos Verdes, CA (a high-end part of the Los Angeles area). There is even a large spike in foreclosures in the million+ home market there.
So true. I've seen a few home bought in 2008 turned over to the banks already!* In PV!
I think the 2nd wave isn't just Prime. Its people who were holding on who won't when they estimate the cost. I've predicted a long time about 'foreclosures begetting foreclosures.' This second wave is going to be huge. But it really won't start until October.
Got Popcorn?
Neil
Well, using your analogy, for LA, you're holding 3 million dollar Honda civics.
I didn't see the word tsunami used?
here in flyover the kool-aid is still working. prices in my 'hood still goin up.
sure, buyers are idiots now , but we need to temper the meme a bit that everything is tanking.
-bearish in an up trending market
Any updates on Prince Chuck?
Prince Chunk's the (fat) cat's meow
Prince Chunk's the (fat) cat's meow
Re: But perhaps the biggest moment for the tubby tabby happened in his litter box before dawn.
He peed.
"We all began clapping," said Deborah Wright, 48, his temporary caretaker. "He didn't pee at all yesterday. I think he was just so nervous."
Guess who? It's not Meredith Whitney...
An Acid-Tongued Maverick Keeps Bankers on the Edge of Their Seats
An Acid-Tongued Maverick Keeps Bankers on the Edge of Their Seats - NY Times
The title of this article should read:
Taxpayers Fear Second Wave of Defaults.
I'm tired of hearing my relatives who all owe more than their house is worth tell me what a good idea it is to bailout these poor homeowners who are losing their homes. Have some compassion, it's not their fault, the government should help.
Somebody buy this SFH on my street! It is the only home for sale on a short street of 24 homes 12 on each side 8 miles from downtown Dallas with a 10 minute (tops) commute that I drove for 10 years (1995-2005). The homes on this street were part of the 1963 Dallas Parade of Homes showcased by area builders of that era. 1963 is a remarkable year in the history of Dallas and the nation just as 9/11/2001 will always be a remarkable year for NYC and the nation as well. This home is approaching fifty in 2013 and has no tear down restrictions of any type. Be the first to build new on Briarmeadow Drive in Preston Hollow. Really a diamond in the rough for your next generation investment trophy.
Search Results - Dallas Real Estate
A question that's OT, but . . . the bits of news I've seen regarding the residential RE in Spain & the UK suggests that prices are going down (meaning both had residential RE bubbles that have popped) & additional mortgage applications aren't being granted. Spain seems to have some additional issues re:irregularities of building permit grants that are subsequently overturned after the structures are built. But I haven't read of similar bailouts by the respective national gov'ts. Have I not seen anything because: (1) US news coverage of events in other nations is fragmentary & inadequate; (2) the banks or entities that grant mortgages are somehow (explain why?) are not in as deep of s-t as are US IBs, mortgage brokers, community/regional banks, thrifts such as WaMu, etc.? (3) both, & still explain how UK/Spain mortgage entities not as troubled or in need of bail out as those in US or if there is no bailout--why it might be that respective national gov'ts feel bailouts not req'd.
I remember reading about one UK bank being taken over, & I've heard about UBS, (& there was one bank in Germany that may/may not have been taken over) but I haven't seen coverage of the kind of upheaval & potential carnage as in the US. Or is the rate of foreclosure just as high in UK, Spain, & we just don't hear about it?
Corruption and politics in Ukraine threaten to choke off, at least in the near term, the expansion of oil exports from Azerbaijan and eventually Kazakhstan to Europe. This is the significance of Ukrainian Prime Minister Yuliya Tymoshenko's efforts in July to halt what she called the "shadowy privatization" of the Odessa-Brody oil pipeline.
Hellenic Shipping News Worldwide - Online Daily Newspaper on Hellenic and International Shipping
All I can say to this is DUH! We've been talking about this for TWO FROCKING YEARS here and only now does anyone take notice. Pathetic.
Old news from Bove:
Richard X. Bove, an analyst at Ladenburg Thalmann, said that the quarter was a "mindblower -- that's for sure," but he still believes that Wachovia won't be on the block anytime soon. "It isn't likely that Wachovia will be acquired by anyone," he said. "There's no compelling reason to do it."
While Bove has Wachovia on his ominous "Who's Next" list, which named all the banks that he feels have capital levels in the "danger zone," he still thinks this troubled bank has a fighting chance: "The question is whether it can absorb these losses and future loan losses. I believe Wachovia can."
Bove argued that Wachovia is well-positioned with $440.0 billion in deposits that generate a significant amount of money that can be used to counteract losses. Bove said, "Wachovia has the resources to create a positive and exciting earnings story if it can get its management issues sorted out."
Bove recommended that the entire board be removed and said Steele lacks the experience to handle the troubles the firm faces. But he said he believes regulators are going to be a boon to Wachovia.
"The government will force the bad stuff out of that company. The Federal Deposit Insurance Corp. has a big stake in that company -- let's say they're on the hook for $250.0 million -- and they won't sit back and wait for the bank to fix its problems," Bove said. "The regulators know what they are doing - they've proven that. When they fix things, earnings will soar."
Here in Palo Alto, surely one of the most overpriced places on earth if you do the math of income to housing price, you can see it slowly starting. The march of the foreclosure signs. First in East Palo Alto, the predominantly hispanic and black area on the wrong side of 101, then a few megamansions in Los Altos Hills, fast money comes and goes, but now the foreclosures are popping up in blue chip Palo Alto. Its just that some startups didnt get the IPO, some have been laid off, and some poor sods spent all of dadies money on a house at the top of the market that they couldnt afford when the mortgage went up.
FFDIC, 7108 is for sale, too. . . $675K
I wonder how the heloc abuse among prime borrowers compares to that of subprime borrowers?
It's time some of you stopped assuming that there will be a bottom.
"I think the second wave of foreclosures will be smaller in numbers, as compared to the largely subprime first wave"
This statement needs at least some basis for justification.
For myself, I don't really know.
OT -- CR ranked #6; should have been #1.
Economics Latest News, Politics Breaking Stories, Market Top Headlines
Neil, 'foreclosures begetting foreclosures':
I agree with you on this point. Have you seen the 60 Minutes story about the Stockton Repo Bus? Many/most of those people were "investors" looking to pickup "deals". Others have mentioned coworkers looking to buy in SF since prices are just now starting to decline and there are "deals" which will leave them with $2000 neg cash flow/month (posters own rough numbers)!?
These knife catchers are already being driven out of the market (the mention above about a home repo'd that was sole in 2008, I've seen this myself in Sacramento). These "deals" are going to blow up in many more faces. What's been the percentage of second home/investors in some of the distressed cities? Sacramento has had a high percentage! And I seem to remember the same being said about Stockton. These homes will be coming back on the market, by in large, along with the Prime's second wave.
C
How much money was at stake in the subprime cohort from, say, 2000-2Q08? How much in the combined non-subprime loans/seconds/helocs for the same period?
I'm assuming all classes of loans - including subprime - were still being underwritten until recently.
Stats we see quote the number of loans underwritten or NOD or in FC, but not
cumulative dollar value. Leaves us with guesswork, I'd say.
Zmonet, Buiter is at #95 on that list. Perhaps the ranking is meaningless?
Toby, wondering that too. Is there any way to see how many prime, Alt A loans have helocs attached, and how that affects chances of foreclosure?
Looks like most NYT and affiliate papers are leading with "second, far larger wave of mortgage defaults building" above the fold.
So towns like Bradenton or Ocala have it on their doorsteps this morning.
"A couple years ago everyone would have said that there is no way foreclosures would rise in PV."
Ahhh PV. How soon they forget in CA. PV was ravaged by FCs in the early 90s. At one point the prevailing wisdom was RE goes down. Well, it'll be time to buy a home, if so inclined, when the prevailing wisdom returns to, Prices always go down.
There's nothing low end about $400,000 houses in CA.
Laurelmor deadline missed
Laurelmor deadline is missed
By Monte Mitchell
JOURNAL REPORTER
Published: August 2, 2008
BOONE NC - A deadline has expired that forestalled foreclosure on Laurelmor, a 6,000-acre golf resort in Watauga and Wilkes counties, but developers are continuing to negotiate with lenders.
Lenders led by Credit Suisse had agreed to delay foreclosure for 30 days after development companies affiliated with Bobby Ginn missed principal and interest payments on a $675 million loan for Laurelmor and three other resort communities due June 30.
"Although negotiations with the lending group have been ongoing and are continuing, our agreement did expire" Thursday, Robert Gidel, the president of Ginn Clubs & Resorts, said in a statement released yesterday.
"Negotiations for a resolution are continuing, and at this time, we remain optimistic that this credit facility will be restructured in a manner beneficial to all parties," he said
C.R. you may be right about prime foreclosures being lower in total. But it seems to me that it's likely that they will be MORE geographicly concentrated than the subprime mess, so that in parts of California they'll total more. I mean there were a good number of subprime forelcosures in rust belt areas, or places like Florida which USED to be affordable. And of course many of these borrowers were considered subprime for a good reason. But whatever their FICO, people in much of CA haven't been able to afford their homes for years and years with conventional, conservative underwriting.
Jim A....BINGO. We're talking substantial $$ on each one. Lots of cash out refi's and heloc monkey business.
Certain areas of CA are going to get hammered. Alt-a, pay option, all those vehicles that allowed a normal stiff to buy or finance a million dollar life style are floating to the top of the cesspool.
Dr. Housing Bubble and Irvine housing Blog are just two sites that delve into the mess in CA on a daily basis.
"A nation wins or loses through
the education of its children."
The aim of public education is not to spread enlightenment at all, it is to reduce as many individuals as possible to the same safe level, to breed a standard citizenry, to put down dissent and originality. - H.L. Mencke
I have a friends who retired from their own business and bought a condo in FL before the boom. They had such large paper profits on this investment that they decided to buy two more FL condos. These were larger and more opulent and were purchased closer to the peak. They also still own their home in NJ. They are upside down on the two most recent purchases and only have significant equity in one of the four homes.
They are trying to sell the oldest FL condo (the one with equity) and the NJ house. They want to hang on to the upside down FL condos, which they are able to rent sporadically. I am quite concerned for their financial future.
Effe
CR,
Any insight on the "second wave" of knife catchers, after the first wave sees their investments fall 10-20%.
Meredith W is now on squaulk box. Still on. No happy news while I was listening.
HSBC profit drops 29% as bad debt charges soar
Write-downs total $3.9 billion; bank remains cautious on outlook
HSBC profit slides 29% as bad-debt charges top $10 billion - MarketWatch
Meredith Whitney is reading the riot act to the banks and real estate on CNBC this morning. "Home prices are going to fall much more than people expect". "The banks are going to retest their lows."
unit472 beat me to it.
the Merideth Whitney interview is startling to say the least. she pulls absolutely NO punches.
the other guest host sometimes tries to get her to show the rosy side, and she refuses every time.
the real hosts (Becky Quick and Joe Kernan) are clearly enraptured by her.
CR should post the vid if possible (2 segments).
she anticipates all the banks to retrace back to their year lows. she also talks about many of the dominos that are next to fall including Credit cards, and also lower future earnings given lower capital base and overbloated firms.
U.S. Democratic presidential candidate Barack Obama attacked Republican rival John McCain as a tool
Obama assails McCain as tool of Big Oil in ad
| Reuters
Headline should have stopped right there. They are both tools, the only question is which one is going to be in charge of the implosion of the empire.
Boscov's said to file for bankruptcy protection
LONDON (MarketWatch) -- Family-held department store chain Boscov's has filed for Chapter 11 bankruptcy protection, Reuters reported Monday, citing a Delaware court filing. The Reading, Pa. chain with 49 stores had $538 million of assets and $479 million of liabilities as of May 3, the report said. The company was hurt by a promotion where it gave customers who cashed their IRS rebate check at their stores an additional 10% payout.
Boscov's said to file for bankruptcy protection - MarketWatch
"The government will force the bad stuff out of that company. The Federal Deposit Insurance Corp. has a big stake in that company -- let's say they're on the hook for $250.0 million -- and they won't sit back and wait for the bank to fix its problems," Bove said. "The regulators know what they are doing - they've proven that. When they fix things, earnings will soar."
I think it's the first time I've ever heard an analyst forecast that competent regulators would save a company from incompetent top management. Strange. Scraping the bottom of the "happy news" barrel.
Some people are expecting Ms. Whitney to talk herself right out of a job which of course would be unfortunate for those who enjoy a bit of rare American truth telling. Pity.
Regulators including FDIC do not 'fix' open banks in this grave of a condition. They do fix their own promotions and like to transfer to the San Francisco region to bump up their high three pay for pension purposes. They liquidate closed banks and file extensive professional liability litigation that will drag on for years if not decades. It is past time to resign from your bank's board to reduce your personal liability and even if you do FDIC may drag you into litigation based on whatever target timeline it feels the major loan losses were approved reaching back many years of your personal board tenure.
The second wave, of prime and Alt A borrowers, are starting to do a lot more short sales than walking away like those terrible, almost non-human, sub-prime borrowers.
It's the "respectable" thing to do. But the losses to the lenders will be just as bad.
o matter how many times you say "no area is immune" or "we are all subprime", it doesn't make it so.
I think helocs in the prime area is big. I saw a study - maybe it was here, showing that in 2007 that in CA 30% of new auto purchases were with heloc $. Here in Fl it was ~25% I think. This is just a huge mess. I work in finance/accounting and I am continually surprised at my peers that are oblivious to the extent of the mess.
I expect what Jim A. says will be likely the truth. I live in a bubble community in CA (Sacramento) and the subprime mess touched nobody I knew, but the coming mortgage blowups will. I know of one imminent walkaway, and a couple of others who are struggling, and I think it'll end up a bloodbath around the valley and the Bay. I just can't believe they're still making sales in my own neighborhood.
The NYT article reported that there is a glut of 3,000 one bedrooms apartments on the market in NYC and that prices have declined some 8%. One bedrooms in newer buildings in the Hell's Kitchen area are going for around 850K. I'd like to hear plausible ideas for what they will be going for two years hence. 700K? 600K? 500K?
I'm still not sure that Alt-A doesn't have more walkaways than straight foreclosures, which would make the two closer to even.
In case you haven't seen the reset graph in a while:
Socialized Losses: It's a long hard slog.
Sixteen police killed in China border attack
AFP: Clampdown in China Muslim region after bloody attack on police
Tarpley and Margolis precient?
I don't think it will be as easy for these people to walk-away. Lots of these people have huge recourse HELOC obligations, which create the threat of a civil suit recovery and/or significant tax implications for debt forgiveness. While they may be underwater on the house, they still have some assets and reasonable salaries to garnish. Are we to accept that banks are simply going to write-off these second-loan losses?
kis - So far, it seems the lenders have not taken resourse action on HELOC and second loan losses. I don't know why, but they haven't.
I loved the article by NPR last year- people bought houses at auction, then were ushered in to a side room, where they signed up for no-doc, zero-interest loans for their new houses.
There will be a steady stream of knife-catcher foreclosures for the foreseeable future.
Does it matter how the banks decide, as long as I don't have to subsidize the bank losses as a taxpayer - wait a moment, we are on the hook for bank losses through the undercapitalized FDIC: The banks better go after the seconds until the bankcruptcy of the debtors.
So far, it seems the lenders have not taken resourse action on HELOC and second loan losses.
Well they have 4 years to file suit. To the extent the majority of trouble to-date has been in subprime with relatively modest HELOC losses to people with few assets to recover anyway, might that situation change when they start seeing $200k+ losses to people with some money in the bank and making $150k+ per year?
At the very least, I would expect to see some a few well-publicized cases to scare people. Not to mention a few IRS cases going after people who got debt foregiveness.
Well hopefully the numbers will be smaller with the next wave of foreclosures... but I'm not sure I see that happening. There were enough subprimes in mid-to-high end areas that anyone who loses a job or has a medical emergency without the appropriate insurances will be hurting.
Boullini's prediction that the US market (now off 20%) will drop another 20% for a total 40% drop from high seems scary. Is there genral consensus form other Economic blogsites?
"A couple years ago everyone would have said that there is no way foreclosures would rise in PV."
Ahhh PV. How soon they forget in CA. PV was ravaged by FCs in the early 90s. At one point the prevailing wisdom was RE goes down. Well, it'll be time to buy a home, if so inclined, when the prevailing wisdom returns to, Prices always go down.
barely | 08.04.08 - 6:54 am | #
Neil, Barely. Good to know a few others know the PV market.
Yes, there was a large price decline in the later 80's, early 90's. Since then the prices rose like you wouldn't imagine. The shacks were selling for $1 million at the 2006 peak. "Normal" homes were in the $2 million plus range. Crazy. Imagine the mortgage and property tax on that.
Although most living there now won't believe it, that market will reset back down close to where it was before.
BTW, you ever visit the new Trump golf course. It's very nice and has a public trail through it.
This housing crisis is like a car with bad spark plugs. Mortgage lending by financial institutions will continue to be a serious problem . The Congress
has refused for decades to fix the regulatory sysytem because the wealthy and powerful banks will not permit any controls over their lending activities. The mortgage borrower when financially damaged by these banks has no redress to answer
any type of lending problem that adversely affects them within the regulatory system.
This is the LYNCH MOB theory.
The banks foreclose and hang the borrower. The Sheriff is the Congress that looks the other way.
Worse yet, is to live in the State of Ohio where my bank Am Trust Bank in Cleveland Ohio performed a flawed appraisal. When I complained to the State, the State agreed and made a deal with the bank. My house was sold at foreclosure March 2008.
I see all these comments and reasons why this housing crisis has come about. When their are no rules of conduct, the answer is crisis.
Michael LittleBig
mndean, good to see you here
and, yes, I think you are right
Sacramento now has a two tiered RE market, Land Park/Curtis Park, Midtown and East Sacramento, with square footage over $300 a square foot and everywhere else, with square footage under $200 a squre foot, subprime world, maybe there's a few others outside of downtown out in Roseville, but that's about it
Alt-A, which includes Pay Option ARMs, is about to hit these neighborhoods, these remaining bastions of safety, if it isn't already
I call it, The Masque of the Red Death, for those of you familiar with the plot of this old Poe tale
the East Bay, especially the Oakland hills, Berkeley, Albany, Lafayette, Orinda is about to get hammered, possibly even SF, too, if Fitch is to be believed
anyway, Mr. Mortgage is a pessimistic compared to CR
Nope, you're wrong. The second wave will be far bigger than the first. The peak in the buying frenzy was the end of 2004 through about the middle of 2005. That when the most risky loans were given for the greatest appreciations. I'm talking about hundreds of thousands of interest-only, 5/1 ARMs. When those babies reset in 2009 and 2010, it will be very ugly. The softness that we're seeing right now is just bottom feeders snatching up properties. Don't forget about the hundreds of thousands of refinances for existing properties. 2008 is just the first really bad year. 2009 will be worse and it will start to improve A LITTLE in 2010 once all of the ARMs reset. Interest-only ARMs should be illegal forever, but that would make too much sense for 9% approval rating Congress to approve.
Rich- I'm used to live right next door to Sacramento, and I think that your sub-prime description needs a few more adjectives: sub-prime, illegal-alien, ITIN-carrying, stated-income-giving, non-tax-paying, Cadillac-Escalade-with-custom-wheels-driving, refinancing-to-fund-a-lavish-lifestyle, Thunder-Valley-gambling...borrowers.
One more thing to add...the sudden depreciation caught most people off guard. So they will be upside down when their loans reset. That's why the housing bill will let them re-fi at 90% of the FMV- BECAUSE THEY SEE THE TIDAL WAVE COMING. Notice how fast things happen in Congress when it looks dire? I mean, those rebate checks were passed withing weeks. Pretty much anything that Goldman Sachs and JPM want, they get...the rest of us are screwed.
but, as you said, the second wave will be larger than the first, and here's an interesting perspective on who are the participants
hint: it's not "illegal aliens", they just built some of the homes for them
Asia Times Online :: Asian news and current affairs
"The Uppers"
"I tend to view subprime as chiefly a "lower end" issue with respect to the real economy, and it is my view that the greatest - as well as least appreciated - bubble economy excesses were at The "Upper-middle" to "Upper-end." It is in The Upper-ends where years of credit excess had the most pronounced effects on incomes, household net-worth, spending and government revenues.
It was the at The Uppers where loose finance encouraged many to stretch to buy the expensive home, to lease the luxury vehicle, and to finance the upscale lifestyle - credit creation that then further stoked the overall economy and asset markets. And it was the Uppers that enjoyed spectacular gains in income and financial wealth. It was the momentous changes in Uppers' spending patterns that spurred enormous real economy investments in a multitude of new businesses and services - a great deal of this spending of the discretionary and luxury variety. It was the Uppers' windfalls that encouraged state, local and federal governments to rapidly boost spending. These were the inflationary distortions that had a profound impact on the underlying economic structure - over years spurring the transformation to a "services"-based bubble economy.
It is my view that the Uppers are now in the process of being hit with rapidly tightening financial conditions. This year will see a historic decline in financial sector compensation, led by collapsing Wall Street bonuses and unprecedented layoffs throughout the financial services industry. This week also saw the announcement of major "white collar" job losses at General Motors, an employment trend that I expect to spread throughout the real economy. Many companies and industries must today respond to collapsing profitability (as financial conditions tighten and spending patterns and levels adjust), and there will be no alternative than to shrink "Upper-end" employment and compensation."
We've been discussing this scenario here at CR for some time (with a comments to this effect by yours truly as well) ... what's the story?
Of course there's going to be another (or 3) waves. As I said in an earlier thread, the foreclosures are going to creep up the food chain. I'm seeing it happen at the Trustee's sales more and more everyday.
Remember, the OptionARM blow-out party doesn't really get swingin' until Feb 2009 or so. There is so much toxic AltA out here in CA; we're all subprime indeed.
Also, don't forget about the "sandwich" inventory coming out of all the "phantom" REO stock - i.e. the huge overhang of REO that hasn't even begun to be processed. I'm seeing reverted properties that, several months later, an agent hasn't even been to the property to determine occupancy, yet alone a BPO or lockbox.
On the other hand, the very 1st vintage of the marginal area defaults... well, you have to wonder how low can it go.
I mean when I can pick up properties for less than the land value (pre 2003)alone yet alone replacement cost, you have to wonder if some of these deals will turn out OK after all.
Rental mkt seems hot; my CL ads get huge response. My gross rent yields a 30-60% positive over PITI or I can flip for a nice margin but still be giving a deal to the retail buyer (a mtg payment in the bay area for $1000 or less per month?) Seems to be working...
Hell, I don't know... doesn't the Mayan calendar blow up in 2012? We're probably all dead anyway... onward!