In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth,
Jingle mail,
Jingle mail,
Jingle all the way.
Obviously the model of residential home mortgages being asset backed securities is no longer operative. The banks need to get creative and do these refinancings with binding terms that include recourse. That will separate the wheat from the chafe.
From CR's post I gather thinks are getting back to normal - normal meaning banks will only lend to you if you can prove you don't need the money. That excludes about 300 million Americans.
Massive principle writedowns are the only approach that will "work". Moving the interest rates a few points will continue to do little in the major bubble areas.
Anyone who didn't see this coming from a mile away is a born and bred dope. Bunch of family was over yesterday. So many of them over 100k under water on their homes they bought during the boom. All of them getting ready to walk and live rent free for a while.
Anyone refinancing anywhere frees up some disposable income in the system. The Bubble areas should continue to be screwed. They are screwing us over, so why not?
Massive principle writedowns are the only approach that will "work". Moving the interest rates a few points will continue to do little in the major bubble areas.
I'm afraid you're half-right. Massive principal writedowns are not in the cards -- too many parties need to agree and there's too much confusion about who actually owns the loans or whose consent would be needed for a writedown.
What will happen instead, and mark my words, this will happen, is that the dollar will be devalued, ensuring that the real value of the debt is decreased. Yes, we will be devaluing the dollar, this will lower the debt burden on americans, on the american government. All of this at the expense of the savers. They will loot the savers to bail out the debtors. Your money will be taken from you.
Only the connected will be warned in time, as they were warned in the 30's regarding gold confiscation. The connected folks knew it was going to happen -- my grandfather was a physician and his connected clients told him a few days before it happened -- get your money out, put it in gold. He did so, but put it in a safe deposit box, where it was confiscated and exchanged for the new price when banks were reopened.
Mark my words, scream it from the heavens, don't be shocked when it happens, because it will my friends, "the dollar is going to be devalued."
Expect the financial industry to lobby hard to make all mortgages recourse loans, and to make mortgage debt like credit card debt very hard to discharge in a bankruptcy. They haven't got all of the blook out of the turnip, yet. Never mind that these moves would do nothing to improve thier flakey books (both the part on balance sheet, and off-balance sheet). Just kick that can down the alley some more, and who knows, something might improve for the lenders.
dryfly: you seem to imply that "can repay the loan" equals "do not need the momey," Jim A | 12.26.08 - 12:08 pm | #
I think that sounds about right - in fact if you have to even ask for the loan it's a strong indicator you do not 'not need the money'. Financial Catch 22 back in effect.
Expect the financial industry to lobby hard to make all mortgages recourse loans, and to make mortgage debt like credit card debt very hard to discharge in a bankruptcy. They haven't got all of the blook out of the turnip, yet. Never mind that these moves would do nothing to improve thier flakey books (both the part on balance sheet, and off-balance sheet). Just kick that can down the alley some more, and who knows, something might improve for the lenders. JimPortlandOR | 12.26.08 - 12:27 pm | #
They can lobby all they want - they are on the road to becoming 'public utility companies' producing debt instead of electricity or water. Hope they like donuts & Duff.
Massive principle writedowns are the only approach that will "work".
Here are another couple of approaches I haven't seen elsewhere.
1) Change the tax code to favor equity-sharing. Possibly even allowing the non-occupant co-owner to participate in the tax exemption on the first $250,000 in profit ($500,000 for married couples). Even if the residential RE investment doesn't pencil out based on appreciation, allowing the non-occupant co-owner to deduct depreciation and then permanently shelter the deduction with the exemption would make such investment attractive.
2) Take a private gains/socialized losses approach to setting up a market for put options on residential RE. Give investors first crack at collecting the premium paid by home purchasers, with the understanding that after they absorb a certain amount of loss, the gov't steps in and takes the rest. This could take some uncertainty out of the market for both buyers and lenders, since there would be downside protection.
Prior to TARP and the rest of the Fed's alphabet soup I would have been reluctant to volunteer the idea of using taxpayer funds to prop up housing prices, but we are so far into this mess now that the above suggestions don't strike me as particularly outrageous anymore.
Refinancing underwater securitized mortgages to a lower interest rate has been a 30 year conundrum. The new lower rate will result in a lower monthly payment, thus decrease the risk of default and prepayment, and increase the securitzed mortgage value to the holder. Yet, due to government (GSEs and bank regulators) rules for securitizing conforming mortgages, the debt to asset value ratio cannot exceed a predefined limit, usually 80 percent. The economic value of shifting the mortgagor to a lower monthly payment cannot be realized.
While the originating bank might be willing to refinance at the lower rate if it were the holder of the mortgage to decrease the risk of default, the new lending bank is a mere conduit. It views the refinancing from a credit point of view as if in effect it is issuing a new mortgage that is used to pay off the old mortgage held by another party.
The government needs to issue rules to allow banks to refinance underwater mortgages up to some limit, such as 130 percent loan to asset value, if it will result in a lower interest rate and monthly payment for a similar mortgage, such as 15 year or 30 year amortizing. The government should also allow these underwater mortgages to be pooled together for securitization.
The original investor will benefit since he will be paid in full as he expected when he originally invested in the mortgage. The mortgagor will benefit since he will now have a lower monthly payment. The new investors will buy into the pool with full transparency about expected default risk and the securitizers will structure the pool accordingly. The bank will benefit by getting an origination fee.
Dryfly: I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense. As opposed to carrying a credit card ballance which rarely does. Partly because of the relatively low rates, but mostly because the purchase product (RE or education) is likely to last significantly longer than payments. RE can provide one with inflation protection against rising equivalent rents, and student loans can provide one with increased income and ability to repay the loan.
Dollar devaluation is not an option under the terms of the Fed's âunderstanding" with FCBs. Debtors who fail to qualify @ 4.75% will have the opportunity apply again @ 3.75%. The name of the game is ZIRP â and if that doesn't work, ZIRP-on-steroids. The beatings will continue until morale improves. That is all.
I wish I had saved my black friday predictions for the list of excuses they would use. I'm pretty sure gasoline and fewer shopping days would be on the list.
The record differential between the front-month and more liquid second-month contracts at expiry last week once again raised pointed questions about whether the NYMEX light sweet contract is serving as a good benchmark for the global oil market, or sending misleading signals about the state of supply and demand.
The expiring January 2009 contract ended down $2.35 on Friday at $33.87, while the more liquid February contract actually rose 69 cents to settle at $42.36 - an unprecedented contango from one month to the next of $8.49.
eeded $1000 cash from my bank - citigroup nonetheless. I know, i know, shittygroup.
first atm i tried, no cash.
the second, no cash.
the third, no cash.
as i was about to give up getting back, what some optimistic people would still call "my money", from my bank, the fourth ATM miraculously had enough $$$ to dispense.
[4shzl writes:
Dollar devaluation is not an option under the terms of the Fed's âunderstanding" with FCBs]
I'm actually torn and tend to agree up to a point. That breaking point may occur soon, when all deals are off - Unemployment above 8% and increasing. Social unrest trumps FCB deals. My sense is housing goes under the bus at that point and full scale helicopter Ben goes into effect resulting in dollar declines.
are mostly getting a big fat ''No!'' from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth.
So if your $300.000 home has 30% you need to bring $90k cash to the table to re-fi. If your CRE was worth $10m and has lost 10% you need to bring $1m cash to the table.
Japan will also have to accept that a stronger yen is good for the country in order to reduce excessive trade surpluses and deficits, he said. The yen has appreciated 23 percent versus the dollar this year, the most since 1987, as the credit crisis prompted investors to flee riskier assets and repay loans in the Japanese currency.
Japans economic model has been dependent on external demand since the Meiji Period that began in 1868, Mikuni said. The model where the U.S. relies on overseas borrowing to fuel its property market is over. A strong yen will spur Japanese domestic spending and reduce import prices, thereby increasing purchasing power.
"my grandfather was a physician and his connected clients told him a few days before it happened -- get your money out, put it in gold. He did so, but put it in a safe deposit box, where it was confiscated and exchanged for the new price when banks were reopened."
So this corresponds historically to what - when FDR took us off the gold standard, then went back on at 35/oz?
Dryfly: I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense. Jim A | 12.26.08 - 12:36 pm | #
Make sense to whom? Lender or borrower? The lender doesn't care what you use the money for just as long as they get theirs back with a return [first part more important than second]. That was the whole theory behind 'fog a mirror' - they didn't care who was borrowing or for what so long as the loan was backed by a continuously increasing in value collateral [RE]. Now that's gone - what else is there? Only answer I can see is the old bankers' rule: only lend to those who have so much money they don't need the loan. Everyone else can go fish.
The yen was little changed versus the dollar on Friday, inching a bit lower to 90.75. The yen has leveled off since hitting a 13-year high of 87.15 earlier in December.
FCB deals are intended to forestall social unrest. Mercantilist exporters will conspire to keep their host alive at all costs. âStimulating domestic demand" is simply not an alternative to the export model. As for social unrest in the U.S.A., the best strategy is to polish your alibi: âWe did everything humanly possible. HOOCOODANODE?!?" Hence, TNX goes under 1%, aided and abetted by edgy central bankers around the world.
You guys hear about that "Bad Santa" case on Christmas eve? More details:
Court documents show that Bruce and Sylvia Pardo finalized their divorce Dec. 18 after about two years of marriage. She got $10,000, their dog and her wedding ring in the settlement. He kept the house.
Really; she gets money and he gets to keep the house? Also, he was laid off in July. Is this the type of unrest that will become more and more common? Business partners on the losing end going out and murdering the families of those who have done them wrong?
The new investors will buy into the pool with full transparency about expected default risk and the securitizers will structure the pool accordingly. The bank will benefit by getting an origination fee. MRR in Mount Kisco | 12.26.08 - 12:34 pm | #
This is just rearrangement of deck chairs on the Titanic. The faulty assumption is that there would be any new investors willing to buy newly minted tranches of various flavors and consistencies of shit.
NEW YORK (MarketWatch) -- The U.S. dollar traded a little lower Friday, with evidence of poor retail sales serving as the focus for thin post-holiday trading. Dollar down on weak shopping data - MarketWatch
Anoddamoose(Unrated) writes: \tAnyone happen to know why spot gold went vertical? Up 20 to 470 in a matter of minutes. Anoddamoose | 12.26.08 - 1:16 pm | #
Low volume holiday stop-gunning. Wheeeee! Watch for ZB to blow through 142 in the next few days.
Sounds like it needs to be sold to 401k investors, you know they just allocate the investment based on your age. They look transparent enough to like every size and flavor.
Mary Delik, a director in the retail practice at consulting firm Deloitte LLP, was quoted by The Wall Street Journal as saying this year will go down as "one of the worst holiday sales seasons on record. Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"
dryfly They can lobby all they want - they are on the road to becoming 'public utility companies' producing debt instead of electricity or water
This much is in the cards. The next question is how will it happen:
- "Overnight", triggered by the next banking crisis (e.g., the next capital infusion into C will be accompanied by giving the majority of the board seats to Treasury, finally , with JPM and BofA next)
- Or gradually, through changes in regulatory practices and eventualy changes in laws
I suspect it will be "overnight"
I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense.
Yeah, for lenders. For the consumer those are usually wealth-destroying products. Far too much interest is paid.
Self-amortizing home loans only make sense when the term is 20-years or less. Even with 30-year terms, people were making even less sense out of them with cash-out refi's to buy toys.
Student loans only make sense when the student is majoring in a field where the eventual employment in said field pays enough of a wage premium. For people studying English, History, Philosophy, etc., the eventual jobs usually don't pay enough to justify the loan. Those students who can't afford the study without a loan are usually better off taking some kind of menial full-time employment and studying part-time until they can afford to study full-time and work part-time. Employers see no shame in finishing a 4-year degree in 7 years when it is accompanied by employment - the fiscal discipline and hard work are much more of a positive on a resume than the degree on its own. Starting off 3 years early with 75K in debt is no advantage.
Student loans only make sense when the student is majoring in a field where the eventual employment in said field pays enough of a wage premium. Charles Kiting | 12.26.08 - 1:25 pm | #
That wage premium will not be there for most. Students will lead the next revolution. Same as it ever was.
CR:"Also, I think the 45% debt-to-gross income ratio is a little higher than most lenders will allow now."
Standard Fannie/Freddie DTI unless the lender has a specific restrictions that supercedes it.
It SHOULD be that such high DTI's aren't allowed but it isn't common place. Heck, it was 55% for conforming. I'm not 100% sure it still isn't for conforming and 45% for jumbo conforming.
Fed & Treasury focus on housing to cure the economic woes is entirely misplaced. Housing gains in the past decade was a symptom of poor monetary policy and poor management of the economy. Focus on the real economy and housing fixes itself over time. Need to let the dumbass lenders fail.
Trying to fix a broken transmission by adjusting the idle. Destined to fail.
1 pound chestnuts, in shell
2 1/4 cups milk
1 cup water
1/4 cup sugar, optional
Pinch of salt
1 vanilla bean, split
1 teaspoon brandy, cognac, rum, or whiskey
When the median wage has fallen for the last 8-10 years, focusing on housing rather than jobs/wages is folly. But jobs/wages requires a productive economy rather than financial manipulation, so that seems too hard to WS and DC.
Where are they? I am growing old waiting... dryfly | 12.26.08 - 1:32 pm | #
The corrupt and inefficient halls of ivy will get their first big shock when 2009 enrollment drops. I know someone reading apps for UC admissions: she's stunned by how many aspiring freshmen are writing about unemployment in their families. Grim times ahead for the tenured class.
That wage premium will not be there for most. Students will lead the next revolution. Same as it ever was. 4shzl | 12.26.08 - 1:30 pm | #
Where are they? I am growing old waiting... dryfly | 12.26.08 - 1:32 pm | #
Busting their asses at my local Starbucks.
At the Starbucks down the block from my office, they are mostly students living with their parents or four to an apartment and putting themselves through school (community college or technical school).
Higher education loans are often justified as "smart debt," because ultimately you are investing in yourself and your brain. Many see taking on this sort of debt as a reasonable devil's bargain, in that in the end, you receive a job with pay that allows you to pay back the loan and move into the upper middle class (where everybody deserves to be).
When student loan rates are historically cheap as they have been recently, it makes sense in a way assuming you are taking a loan out to be a specialist physician or such. But for an MBA, or J.D.? Maybe not so much. Cosmetology, tv/VCR repair, and criminology associate degrees? YMMV.
I sure wouldn't count on these people leading La Revolution because they too weak from eating ramen, too deconditioned from never exercising, and too tired from studying pointless textbook material.
I think the revolution comes from J6P, fueled by the fact that their teevee shuts down in a few short weeks and they've got nothing but free time and a bathtub full of homemade meth to work with.
I think the revolution comes from J6P, fueled by the fact that their teevee shuts down in a few short weeks and they've got nothing but free time and a bathtub full of homemade meth to work with. Sports Guy Lafleur | 12.26.08 - 1:59 pm | # Peasants are always revolting but seldom dangerous. A revolution requires an intelligensia. It's always a bad idea to educate someone, and then phuck 'em over.
I've been cooking for the past two days, so I've not been visiting CR recently.
I just want to wish everyone a Merry Christmas, happy holidays, and a safe New Year!
May God bless each and every one of you, and give you the strength and wisdom to weather what looks to be another economically toughbut quite interestingyear.
In 2009, we'll all need to (at least try to!) work together and think about our neighbors' needs, as well as our own. A big brain is a nice accessory, but the fact is, humans never would have evolved and survived had our ancient ancestors not put the collective good first!
So, even though love thy neighbor is a common precept in most religions, you dont necessary have to be religious to find a valid argument to support its utility.
This is a crisis that is being perpetuated through poor policy decisions.
There was only one decision that the Treasury needed to have made back in September. How far down the the capital structure of a bank was their guarantee going to extend. All depositors or only those that met certain criteria(size,type e.g. interbank or corporate transactional accounts), all bond holders or those below a threshold etc. The should have made those guidelines explicit and any institution that couldn't survive should have been taken into receivership.Sure there would be market chaos for a week as uncovered depositors and bond holders tried to get out- it would be short brutal but at the end of the day over.
Where was the financial panic when WAMU was absorbed by JPM. Would have made any difference to depositors at WAMU whether the absorbing entity had been the "bank of the United States"
I suspect 90 % or more of homeowners have no idea what their home is worth. They think it is worth MUCH more than it is and can't get their brains around a lower number. Where I am there are several houses sitting unsold because the owners simply won't reduce the price to the market. They don't seem to get it at all.
45 debt ratio is the written program maximum for the new "Super Conforming Loans", and allowed for normal conforming, too.
People are missing the point about lower rates. The bottom line is that there is almost nothing you can do to save much of the 2005-2008 class of loans originated with nothing down and no income documentation. You could lower the rate to zero percent and many of these borrowers would still go into default (as has been shown by re-default rates on workout loans).
The real advantage of lower rates is that it incents new entry level buyers to make that first step into home ownership. That will be the first step towards price stabilization, as their entry will free move-up buyers to purchase higher priced properties.
I'm not saying that lower rates are an immediate solution, as price levels are still too high in many areas of the country and employment concerns are keeping many potential first time buyers on the sidelines, but it is a necessary step towards a "bottom up recovery" of the housing market, which is the only way it is going to happen.
The corrupt and inefficient halls of ivy will get their first big shock when 2009 enrollment drops. I know someone reading apps for UC admissions: she's stunned by how many aspiring freshmen are writing about unemployment in their families. Grim times ahead for the tenured class. 4shzl | 12.26.08 - 1:43 pm | #
My older two went to private uni's - one never finished (though pulled out before debt completely consumed him - unfortunately his SO is way overloaded from her studies & w/ few career options worthy of paying it off - life long burden for the two of them).
The other child did finish but with a hefty debt load (~$20K) but at least does have a healthy & 'balanced' earning potential. She is bio-medical engineer going back for a DPT [doctor of physical therapy w/ emphasis on prosthetics & implants]. But instead of going to another private uni - applied and was accepted at the local state uni for a fraction of the cost of the privates - seriously, less than half the tuition of the privates and a better school. She'll increase her debt load a little more but not a lot & increase her job options enormously. Her SO is screwed for a while though - an architect. Thank goodness he's worked plenty of other jobs so knows how to get his hands dirty. There are other jobs out there, right?
The youngest is still in HS - looks at his two older siblings and has decided on state uni all the way unless some private uni wants to step up & pay his way [his older sister did get a sweet heart deal due to Double-X Chromosome bias at an all XY Chromosome engineering uni - made it almost state uni expensive]. He wants to come out as close to debt free as possible so I'm guessing it will be midwest state uni all the way ~$12K/yr combined tuition, R&B. We can swing that w/out loans but might ask him to pony up some himself so as to have skin in the game too. Did that w/ the other two - changes the financial discussion from all 'you' to at least some 'me'. That was what I did in the late 70s stagflation - student slum, state uni while simultaneously working a series of factory & other McJobs. Plus there is always our couch & the basement. The NorkaWest model [above].
Don't you take the chesnuts out of the shell before you make the paste?
Years ago I used to go often to Portugal and one of the winter delights there were roasted chesnuts sold by street vendors with small roasting ovens on wheels. Some people almost lived on them. US Embassy friends told me of one little old American lady who got stuck in Lisbon without much money and no ticket home and she fed herself for about a week on chesnuts until the Embassy came to her rescue.
Hoopajoops, LTD writes:
...is that the dollar will be devalued, ensuring that the real value of the debt is decreased ... this will lower the debt burden on americans, on the american government...
I really wonder whether it is that easy.
What will you do if the Chineese will not like it and reduce/seize to refinance you ?
What will you do if the oil-sheiks will not like it and significantly reduce oil deliveries (against dollars)?
Do you also start to suspect you may actually have to tighten your belts, roll up your sleeves and pay your debts back in the sweat of your brows during the next two decades or so?
dryfly, Jim A: I think the "normal" mode is "ability to repay", COMBINED WITH or including "adequate collateral pledge". The catch 22 has little to do with "needing the money", but is mostly about "no assets to secure the loan", and the assets are not necessarily (and not usually) readily available cash. There is also a circularity here regarding asset valuation -- in such a "normal" lending environment, asset values tend to be more stable.
Back in Germany, one commonly heard gripe was that entrepreneurs (supposedly) often couldn't get loans even with a good business plan, when they couldn't post personal assets as collateral (which is credible, as the real estate "ownership" rate in the cities is not nearly as high as in the US).
And even for those with money, taking out a loan can make sense as a hedge -- taking a loan repaid from cash flow leaves you with your other money, as long as the loan-based venture works.
What will you do if the oil-sheiks will not like it and significantly reduce oil deliveries (against dollars)?
I'm not sure what the Chinese will do, but the oil sheiks will simply receive more dollars for a barrel of oil, all else equal. Gasoline will get expensive here again.
Tom O writes:
...The real advantage of lower rates is that it incents new entry level buyers to make that first step into home ownership...
Ahh, how nice, if only the potential "entry level buyer cohorts" up to 2015 had not already been soaked up in the recent frency and endowed with an 600k mortgage for a 300k house. Will take some time until these "entry level buyers" re-grow. Good economy may help too.
Ahh, investments! I was thinking of just buying their oil. That changes things. Let's see: My thinking is that we are not going to be the only ones to be devaluing currencies. That will give us some cover. It is in the long-term interest of OPEC for us to eventually become financially stable-they would prefer our economy to recover. I think the Chinese want us to recover as well. Even if end up consuming less because of our debt, we will still be a major customer.
If you devalue, the oil-sheik's and the Chineese's dollar denominated investments do loose value. Regardless who else may devalue!
And they may not like it !
And they have real economic/financial weapons against you.
So, what do you do, if they "do" not like you devaluating their investments ?
sdtfs, it looks like nobody answered your question. A homestead exemption means you HAVE filed to exempt the property from bankruptcy. It's probably required by the banks as a proxy for owner occupancy since a property owner normally can only have one homestead exemption at a time.
Ditto what Werner said to Tom O. Reduced downpayment requirements had several insidious effects. But one of the worst is that it allowed 2004-2007 to steal buyers from the future. So the people who we might have expected to be potential RE customers now are instead upside-down and either desprately trying to hand on to their houses, or jinglemailing the keys in and thereby removing themselves from the market for years with a forclosure on their credit reports.
As for "loans that make sense"? The thing that you have to remember about conventional ammortizing mortgages is that the dividend that they return (housing) generally goes up in value even as the principal and interest payment remains steady. So that 10 years after you've purchased, your mortgage payment is the same (except for taxes and insurance) but the rent that you would be paying if you hadn't purchased your housing would be higher.
Normally,the high transaction costs mean that mortgages only make sense if you're likely to stay in one place for about a decade. Which is why the "flipping" phenomena was such a strong indicator of a broken market heading into an unsustainable bubble.
And of course whether student loans make economic sense for borrower depends highly on exactly what education you have bought with that loan.
And of course whether student loans make economic sense for borrower depends highly on exactly what education you have bought with that loan.
The value of having any degree, from any school, is that it makes you eligible to apply for jobs where having a degree is one of the minimum qualifications. It's often the first filter applied by H.R. clerks to a pile of job applications.
The FDIC is hiring in droves. I've read the job specs; most of the positions require basic analytical skills. A B.A. or B.S. should do it, but FDIC requires a Ph.D. just to apply. With so many capable people out of work, that seems ridiculous to me.
It's okay though, 2009 is the bottom and prices will be 50% higher in a few years. Right along with incoms, the stock market, unemployment and inflation.
The 'consensus' plan seems to be to save the bank's fraud bubble prices that were unsustainable(by doing bubble price refis and mods) and to just stick the buyers with these deflated assets one way or another to get the banks & central banks off the hook(& accountability) for blowing up this RE/CRE bubble ponzi scheme and thus the fraudsters remain in 'control' of the economy.
Jim A: In case you are referring to my comment, I did not have residential loans in mind, but mostly business ("investment") type loans. The biggest hurdle for most businesses is initial financing of business infrastructure (equipment, staff, offices), for which you need seed money regardless of what fabulous returns the business will bring.
Feckless Ness: You are not baiting me for a diatribe on ridiculous credential and "skill" requirements, are you?
I think over the past decade, it has been repeatedly at least questioned whether Bachelor or Doctoral degrees yield a positive expected lifetime ROI.
But I guess as long a sufficient number of people (including foreigners) get the degree, everybody else will be excluded from the prime job market if they don't follow suit.
I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense.
Those mortgages ALL are subsidized as they do not charge market rates for interest. I fail to see how that qualifies them as "making sense".
Every American with a mortgage is living la vida loca until GSEs and implicit/explicit gov't backing of mortgages goes away. Until then, ALL americans with mortgages are sucking on the teet of Mother TARP, whether they want to admit or not.
The guy quoted in the article was suggesting that this was the max front-end ratio. Which it is only for those who have NO OTHER DEBT.
And you and I know both know damn well that nobody with a back-end of 45 also has a front-end of 45. So the GCEs can have 'only one ratio' (back-end), but everyone else talks about both like they always have.
Except this d00d, who apparently can't tell either of his ends apart.
People are confusing HOMEOWNERS PROPERTY TAX EXEMPTIONS, available only to owner occupants, with HOMESTEAD EXEMPTIONS, which protects some portion of home equity from loss. Lenders require proof of the HOMEOWNERS exemption to establish owner occupancy.
Lenders don't really care much any more about top or front ratios (housing divided by gross income), just bottom or total debt ratios. The specific FNMA/FHLMC guideline for the new super jumbo loans is a total debt ratio not to exceed 45%.
While there has been some "borrowing" of future generations of home buyers, my experience was that most of the new increment of buyers in 2005-2007 were either speculators buying multiple non-owner occupied properties or borrowers who lacked traditional income, credit and down payment qualifications. People still graduate from college, people still get married and want to start a family, and as home prices get lower and especially when ownership costs get to rent levels and prices show some sign of stability the market will find a new equilibrium.
If you devalue, the oil-sheik's and the Chineese's dollar denominated investments do loose value. Regardless who else may devalue!
And they may not like it !
And they have real economic/financial weapons against you.
So, what do you do, if they "do" not like you devaluating their investments ?
Werner
Werner, nearly all trading nations have some form of economic/financial weaponry they could use against others if they really want to use them. It is up to them. Check out jm's comment here: HaloScan.com - Comments
I believe that in order to pull ourselves out of the deep slump we are in, an inflation is going to HAVE to happen at some point. The reflation isn't going to be done primarily to get out from under our debts, it will be done to resuscitate our economy. It will have the side effect of reducing our debt as a result. The worst that can be "done" to us is to eliminate the dollar as the world's reserve currency and we might get our oil imports cut off. Paradoxically, I think those events would do us a HUGE favor!
Then we could:
*Shift from consumption to production.
*Develop the infrastructure and technologies to finally free ourselves from imported oil.
In my neck of the woods, the local fishwrap (big paper) keeps running stories on how Real Estate sales are rebounding. I put these articles facing up in the birdcage.
first?
In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth,
Jingle mail,
Jingle mail,
Jingle all the way.
Obviously the model of residential home mortgages being asset backed securities is no longer operative. The banks need to get creative and do these refinancings with binding terms that include recourse. That will separate the wheat from the chafe.
It's sink or swim time. I believe my life preserver is in order, but who knows.
From CR's post I gather thinks are getting back to normal - normal meaning banks will only lend to you if you can prove you don't need the money. That excludes about 300 million Americans.
OT--Paul Krugman cites CR in his NYT piece, "Hoocoodanode" today, fyi.
Hoocoodanode, part a zillion - Paul Krugman Blog - NYTimes.com
Again...no change of qualification guidelines mean this means what?
Absolutely nothing. But I guess it sounds good that rates are lower. This is setting up for a "rally" when the next mortgage apps. data comes out.
Nevermind that the process stops when the app. is turned in.
Ciao
MS
dryfly: you seem to imply that "can repay the loan" equals "do not need the momey,"
Krugman: The answer, in short, to the question of why key players didnt see the problem coming is that they didnt want to know.
Why mess up a good wet dream with reality?
Massive principle writedowns are the only approach that will "work". Moving the interest rates a few points will continue to do little in the major bubble areas.
Just to be sure- a "homestead exemption" means you can't declare it as a homestead? and thus the lender can foreclose and evict?
Duuurrrr.
Anyone who didn't see this coming from a mile away is a born and bred dope. Bunch of family was over yesterday. So many of them over 100k under water on their homes they bought during the boom. All of them getting ready to walk and live rent free for a while.
Anyone refinancing anywhere frees up some disposable income in the system. The Bubble areas should continue to be screwed. They are screwing us over, so why not?
Massive principle writedowns are the only approach that will "work". Moving the interest rates a few points will continue to do little in the major bubble areas.
I'm afraid you're half-right. Massive principal writedowns are not in the cards -- too many parties need to agree and there's too much confusion about who actually owns the loans or whose consent would be needed for a writedown.
What will happen instead, and mark my words, this will happen, is that the dollar will be devalued, ensuring that the real value of the debt is decreased. Yes, we will be devaluing the dollar, this will lower the debt burden on americans, on the american government. All of this at the expense of the savers. They will loot the savers to bail out the debtors. Your money will be taken from you.
Only the connected will be warned in time, as they were warned in the 30's regarding gold confiscation. The connected folks knew it was going to happen -- my grandfather was a physician and his connected clients told him a few days before it happened -- get your money out, put it in gold. He did so, but put it in a safe deposit box, where it was confiscated and exchanged for the new price when banks were reopened.
Mark my words, scream it from the heavens, don't be shocked when it happens, because it will my friends, "the dollar is going to be devalued."
OT - ummm, Ikea. Great way to get cheap furniture, or fiendish nordic socialist plot to steal leisure time from labor?
C
Expect the financial industry to lobby hard to make all mortgages recourse loans, and to make mortgage debt like credit card debt very hard to discharge in a bankruptcy. They haven't got all of the blook out of the turnip, yet. Never mind that these moves would do nothing to improve thier flakey books (both the part on balance sheet, and off-balance sheet). Just kick that can down the alley some more, and who knows, something might improve for the lenders.
dryfly: you seem to imply that "can repay the loan" equals "do not need the momey,"
Jim A | 12.26.08 - 12:08 pm | #
I think that sounds about right - in fact if you have to even ask for the loan it's a strong indicator you do not 'not need the money'. Financial Catch 22 back in effect.
When you don't have a job, low interest rates are meaningless:
YouTube -
Expect the financial industry to lobby hard to make all mortgages recourse loans, and to make mortgage debt like credit card debt very hard to discharge in a bankruptcy. They haven't got all of the blook out of the turnip, yet. Never mind that these moves would do nothing to improve thier flakey books (both the part on balance sheet, and off-balance sheet). Just kick that can down the alley some more, and who knows, something might improve for the lenders.
JimPortlandOR | 12.26.08 - 12:27 pm | #
They can lobby all they want - they are on the road to becoming 'public utility companies' producing debt instead of electricity or water. Hope they like donuts & Duff.
Does Krugman go by Jas or maybe, Republicans are Traitors?
Massive principle writedowns are the only approach that will "work".
Here are another couple of approaches I haven't seen elsewhere.
1) Change the tax code to favor equity-sharing. Possibly even allowing the non-occupant co-owner to participate in the tax exemption on the first $250,000 in profit ($500,000 for married couples). Even if the residential RE investment doesn't pencil out based on appreciation, allowing the non-occupant co-owner to deduct depreciation and then permanently shelter the deduction with the exemption would make such investment attractive.
2) Take a private gains/socialized losses approach to setting up a market for put options on residential RE. Give investors first crack at collecting the premium paid by home purchasers, with the understanding that after they absorb a certain amount of loss, the gov't steps in and takes the rest. This could take some uncertainty out of the market for both buyers and lenders, since there would be downside protection.
Prior to TARP and the rest of the Fed's alphabet soup I would have been reluctant to volunteer the idea of using taxpayer funds to prop up housing prices, but we are so far into this mess now that the above suggestions don't strike me as particularly outrageous anymore.
Refinancing underwater securitized mortgages to a lower interest rate has been a 30 year conundrum. The new lower rate will result in a lower monthly payment, thus decrease the risk of default and prepayment, and increase the securitzed mortgage value to the holder. Yet, due to government (GSEs and bank regulators) rules for securitizing conforming mortgages, the debt to asset value ratio cannot exceed a predefined limit, usually 80 percent. The economic value of shifting the mortgagor to a lower monthly payment cannot be realized.
While the originating bank might be willing to refinance at the lower rate if it were the holder of the mortgage to decrease the risk of default, the new lending bank is a mere conduit. It views the refinancing from a credit point of view as if in effect it is issuing a new mortgage that is used to pay off the old mortgage held by another party.
The government needs to issue rules to allow banks to refinance underwater mortgages up to some limit, such as 130 percent loan to asset value, if it will result in a lower interest rate and monthly payment for a similar mortgage, such as 15 year or 30 year amortizing. The government should also allow these underwater mortgages to be pooled together for securitization.
The original investor will benefit since he will be paid in full as he expected when he originally invested in the mortgage. The mortgagor will benefit since he will now have a lower monthly payment. The new investors will buy into the pool with full transparency about expected default risk and the securitizers will structure the pool accordingly. The bank will benefit by getting an origination fee.
Calvin saw it before all of us: Calvin Explains American Business
Dryfly: I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense. As opposed to carrying a credit card ballance which rarely does. Partly because of the relatively low rates, but mostly because the purchase product (RE or education) is likely to last significantly longer than payments. RE can provide one with inflation protection against rising equivalent rents, and student loans can provide one with increased income and ability to repay the loan.
Prechter's been seeing it for 30 years
Dollar devaluation is not an option under the terms of the Fed's âunderstanding" with FCBs. Debtors who fail to qualify @ 4.75% will have the opportunity apply again @ 3.75%. The name of the game is ZIRP â and if that doesn't work, ZIRP-on-steroids. The beatings will continue until morale improves. That is all.
Full-court spin on retail on bubblevision today.
Full-court spin on retail on bubblevision today.
Dennis Knealy == twit of the year.
I wish I had saved my black friday predictions for the list of excuses they would use. I'm pretty sure gasoline and fewer shopping days would be on the list.
it doesn't matter what rate is being offerred if people don't have jobs to pay back the loans. 10% plus unemployment coming to a town near you.....
The record differential between the front-month and more liquid second-month contracts at expiry last week once again raised pointed questions about whether the NYMEX light sweet contract is serving as a good benchmark for the global oil market, or sending misleading signals about the state of supply and demand.
The expiring January 2009 contract ended down $2.35 on Friday at $33.87, while the more liquid February contract actually rose 69 cents to settle at $42.36 - an unprecedented contango from one month to the next of $8.49.
eeded $1000 cash from my bank - citigroup nonetheless. I know, i know, shittygroup.
first atm i tried, no cash.
the second, no cash.
the third, no cash.
as i was about to give up getting back, what some optimistic people would still call "my money", from my bank, the fourth ATM miraculously had enough $$$ to dispense.
party on and merry holidays!
I put up a new LTV chart for Ventura County, on it you can see how FHA is gaining and where exactly the loans are that are going away.
Effective Demand: FHA gaining in latest September 2008 Ventura County LTV chart
I have October almost finished as well. I'll put it up in the next week.
....it seems there are a WHOLE BUNCH of people who have elaborate plans to change rules/terms regarding OTHER PEOPLES' money and equity.
That's kinda like: "He who can, does, and he who can't, teaches"
[4shzl writes:
Dollar devaluation is not an option under the terms of the Fed's âunderstanding" with FCBs]
I'm actually torn and tend to agree up to a point. That breaking point may occur soon, when all deals are off - Unemployment above 8% and increasing. Social unrest trumps FCB deals. My sense is housing goes under the bus at that point and full scale helicopter Ben goes into effect resulting in dollar declines.
NYMEX light sweet contract is serving as a good benchmark for the global oil market,
where is it written that this was the objective?
That's kinda like: "He who can, does, and he who can't, teaches"
Black Star Ranch | 12.26.08 - 12:59 pm | #
The strong do what they will; the weak suffer what they must.
I was in the airport and saw the yen was at something like 80, is that for real?
look at Brent vs cushing.
are mostly getting a big fat ''No!'' from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth.
So if your $300.000 home has 30% you need to bring $90k cash to the table to re-fi. If your CRE was worth $10m and has lost 10% you need to bring $1m cash to the table.
Japan will also have to accept that a stronger yen is good for the country in order to reduce excessive trade surpluses and deficits, he said. The yen has appreciated 23 percent versus the dollar this year, the most since 1987, as the credit crisis prompted investors to flee riskier assets and repay loans in the Japanese currency.
Japans economic model has been dependent on external demand since the Meiji Period that began in 1868, Mikuni said. The model where the U.S. relies on overseas borrowing to fuel its property market is over. A strong yen will spur Japanese domestic spending and reduce import prices, thereby increasing purchasing power.
"my grandfather was a physician and his connected clients told him a few days before it happened -- get your money out, put it in gold. He did so, but put it in a safe deposit box, where it was confiscated and exchanged for the new price when banks were reopened."
So this corresponds historically to what - when FDR took us off the gold standard, then went back on at 35/oz?
Dryfly: I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense.
Jim A | 12.26.08 - 12:36 pm | #
Make sense to whom? Lender or borrower? The lender doesn't care what you use the money for just as long as they get theirs back with a return [first part more important than second]. That was the whole theory behind 'fog a mirror' - they didn't care who was borrowing or for what so long as the loan was backed by a continuously increasing in value collateral [RE]. Now that's gone - what else is there? Only answer I can see is the old bankers' rule: only lend to those who have so much money they don't need the loan. Everyone else can go fish.
The yen was little changed versus the dollar on Friday, inching a bit lower to 90.75. The yen has leveled off since hitting a 13-year high of 87.15 earlier in December.
FCB deals are intended to forestall social unrest. Mercantilist exporters will conspire to keep their host alive at all costs. âStimulating domestic demand" is simply not an alternative to the export model. As for social unrest in the U.S.A., the best strategy is to polish your alibi: âWe did everything humanly possible. HOOCOODANODE?!?" Hence, TNX goes under 1%, aided and abetted by edgy central bankers around the world.
You guys hear about that "Bad Santa" case on Christmas eve? More details:
Court documents show that Bruce and Sylvia Pardo finalized their divorce Dec. 18 after about two years of marriage. She got $10,000, their dog and her wedding ring in the settlement. He kept the house.
Really; she gets money and he gets to keep the house? Also, he was laid off in July. Is this the type of unrest that will become more and more common? Business partners on the losing end going out and murdering the families of those who have done them wrong?
The U.S. dollar is up 0.29 to 90.64 against the yen and the U.S. Dollar Index is down 0.237 points to 80.977.
The new investors will buy into the pool with full transparency about expected default risk and the securitizers will structure the pool accordingly. The bank will benefit by getting an origination fee.
MRR in Mount Kisco | 12.26.08 - 12:34 pm | #
This is just rearrangement of deck chairs on the Titanic. The faulty assumption is that there would be any new investors willing to buy newly minted tranches of various flavors and consistencies of shit.
cd
Anyone happen to know why spot gold went vertical? Up 20 to 470 in a matter of minutes.
US Dollar Index Future - Spot Price
NEW YORK (MarketWatch) -- The U.S. dollar traded a little lower Friday, with evidence of poor retail sales serving as the focus for thin post-holiday trading.
Dollar down on weak shopping data - MarketWatch
Anoddamoose(Unrated) writes:
\tAnyone happen to know why spot gold went vertical? Up 20 to 470 in a matter of minutes.
Anoddamoose | 12.26.08 - 1:16 pm | #
Low volume holiday stop-gunning. Wheeeee! Watch for ZB to blow through 142 in the next few days.
GLD went vert as well on big vol. Somebody wanted a lot.
For all of 2008, the euro has declined 4% versus the dollar, while the dollar index has gained almost 6%
She got $10,000, their dog and her wedding ring in the settlement. He kept the house.
Wonder how far underwater they were on the house.
YLSP writes:
Business partners on the losing end going out and murdering the families of those who have done them wrong?
Certainly might have the beneficial effect of reducing the number of swindlers out there.
Certainly might have the beneficial effect of reducing the number of swindlers out there.
Along with innocent children.
Fucking asshole dressed up like Santa and shot an 8-year-old girl in the face. Hope he's burning in hell right now.
murder by mortgage lol
Circling,
Sounds like it needs to be sold to 401k investors, you know they just allocate the investment based on your age. They look transparent enough to like every size and flavor.
Gold is correlated to BK's?
Mary Delik, a director in the retail practice at consulting firm Deloitte LLP, was quoted by The Wall Street Journal as saying this year will go down as "one of the worst holiday sales seasons on record. Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"
dryfly They can lobby all they want - they are on the road to becoming 'public utility companies' producing debt instead of electricity or water
This much is in the cards. The next question is how will it happen:
- "Overnight", triggered by the next banking crisis (e.g., the next capital infusion into C will be accompanied by giving the majority of the board seats to Treasury, finally , with JPM and BofA next)
- Or gradually, through changes in regulatory practices and eventualy changes in laws
I suspect it will be "overnight"
mal:"Wonder how far underwater they were on the house."
Pretty far, he bought it in 2005.
JimPortlandOR(Unrated) writes:
\tGLD went vert as well on big vol. Somebody wanted a lot.
JimPortlandOR | 12.26.08 - 1:19 pm | #
Look at hourly volume over the course of the last thirty days -- today is nothing.
I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense.
Yeah, for lenders. For the consumer those are usually wealth-destroying products. Far too much interest is paid.
Self-amortizing home loans only make sense when the term is 20-years or less. Even with 30-year terms, people were making even less sense out of them with cash-out refi's to buy toys.
Student loans only make sense when the student is majoring in a field where the eventual employment in said field pays enough of a wage premium. For people studying English, History, Philosophy, etc., the eventual jobs usually don't pay enough to justify the loan. Those students who can't afford the study without a loan are usually better off taking some kind of menial full-time employment and studying part-time until they can afford to study full-time and work part-time. Employers see no shame in finishing a 4-year degree in 7 years when it is accompanied by employment - the fiscal discipline and hard work are much more of a positive on a resume than the degree on its own. Starting off 3 years early with 75K in debt is no advantage.
Just waive Debt to income levels for anyone who purchases a powerball ticket at the time of application!
I suspect it will be "overnight"
MrM | 12.26.08 - 1:22 pm | #
I agree. And all we'll hear is more hoocoodanode.
Student loans only make sense when the student is majoring in a field where the eventual employment in said field pays enough of a wage premium.
Charles Kiting | 12.26.08 - 1:25 pm | #
That wage premium will not be there for most. Students will lead the next revolution. Same as it ever was.
That wage premium will not be there for most. Students will lead the next revolution. Same as it ever was.
4shzl | 12.26.08 - 1:30 pm | #
Where are they? I am growing old waiting...
CR:"Also, I think the 45% debt-to-gross income ratio is a little higher than most lenders will allow now."
Standard Fannie/Freddie DTI unless the lender has a specific restrictions that supercedes it.
It SHOULD be that such high DTI's aren't allowed but it isn't common place. Heck, it was 55% for conforming. I'm not 100% sure it still isn't for conforming and 45% for jumbo conforming.
Fed & Treasury focus on housing to cure the economic woes is entirely misplaced. Housing gains in the past decade was a symptom of poor monetary policy and poor management of the economy. Focus on the real economy and housing fixes itself over time. Need to let the dumbass lenders fail.
Trying to fix a broken transmission by adjusting the idle. Destined to fail.
Anyone happen to know why spot gold went vertical? Up 20 to 470 in a matter of minutes.
Anoddamoose | 12.26.08 - 1:16 pm | #
When did gold drop below $800?
It has been said that in 1900 a squirrel could have traveled from Maine to Georgia on nothing but chestnut branches. By some estimates, one in every four trees in the Appalachian Mountains was a chestnut tree.
Long forgotten, chestnuts are coming back with a vengeance, and make a delicious holiday pudding | Grist
Homemade Chestnut Paste
1 pound chestnuts, in shell
2 1/4 cups milk
1 cup water
1/4 cup sugar, optional
Pinch of salt
1 vanilla bean, split
1 teaspoon brandy, cognac, rum, or whiskey
When the median wage has fallen for the last 8-10 years, focusing on housing rather than jobs/wages is folly. But jobs/wages requires a productive economy rather than financial manipulation, so that seems too hard to WS and DC.
Where are they? I am growing old waiting...
dryfly | 12.26.08 - 1:32 pm | #
The corrupt and inefficient halls of ivy will get their first big shock when 2009 enrollment drops. I know someone reading apps for UC admissions: she's stunned by how many aspiring freshmen are writing about unemployment in their families. Grim times ahead for the tenured class.
Ok, one Ikea chest of drawers built. At usual charge-out the $80 drawers are probably worth $350 with labor.
Really tempted to short Sweden right about now...
C
That wage premium will not be there for most. Students will lead the next revolution. Same as it ever was.
4shzl | 12.26.08 - 1:30 pm | #
Where are they? I am growing old waiting...
dryfly | 12.26.08 - 1:32 pm | #
Busting their asses at my local Starbucks.
At the Starbucks down the block from my office, they are mostly students living with their parents or four to an apartment and putting themselves through school (community college or technical school).
They are a cheerful hard working lot.
Higher education loans are often justified as "smart debt," because ultimately you are investing in yourself and your brain. Many see taking on this sort of debt as a reasonable devil's bargain, in that in the end, you receive a job with pay that allows you to pay back the loan and move into the upper middle class (where everybody deserves to be).
When student loan rates are historically cheap as they have been recently, it makes sense in a way assuming you are taking a loan out to be a specialist physician or such. But for an MBA, or J.D.? Maybe not so much. Cosmetology, tv/VCR repair, and criminology associate degrees? YMMV.
I sure wouldn't count on these people leading La Revolution because they too weak from eating ramen, too deconditioned from never exercising, and too tired from studying pointless textbook material.
I think the revolution comes from J6P, fueled by the fact that their teevee shuts down in a few short weeks and they've got nothing but free time and a bathtub full of homemade meth to work with.
[Students will lead the next revolution. Same as it ever was.
4shzl]
The same slack-jawed mall-rat and videogame-addicted students I see loafing around.
Sorry. Wrong generation.
I think the revolution comes from J6P, fueled by the fact that their teevee shuts down in a few short weeks and they've got nothing but free time and a bathtub full of homemade meth to work with.
Sports Guy Lafleur | 12.26.08 - 1:59 pm | #
Peasants are always revolting but seldom dangerous. A revolution requires an intelligensia. It's always a bad idea to educate someone, and then phuck 'em over.
Hi everyone:
I've been cooking for the past two days, so I've not been visiting CR recently.
I just want to wish everyone a Merry Christmas, happy holidays, and a safe New Year!
May God bless each and every one of you, and give you the strength and wisdom to weather what looks to be another economically toughbut quite interestingyear.
In 2009, we'll all need to (at least try to!) work together and think about our neighbors' needs, as well as our own. A big brain is a nice accessory, but the fact is, humans never would have evolved and survived had our ancient ancestors not put the collective good first!
So, even though love thy neighbor is a common precept in most religions, you dont necessary have to be religious to find a valid argument to support its utility.
Peace and love in 09,
Michael (aka Samdog, after my black lab Sam.)
This is a crisis that is being perpetuated through poor policy decisions.
There was only one decision that the Treasury needed to have made back in September. How far down the the capital structure of a bank was their guarantee going to extend. All depositors or only those that met certain criteria(size,type e.g. interbank or corporate transactional accounts), all bond holders or those below a threshold etc. The should have made those guidelines explicit and any institution that couldn't survive should have been taken into receivership.Sure there would be market chaos for a week as uncovered depositors and bond holders tried to get out- it would be short brutal but at the end of the day over.
Where was the financial panic when WAMU was absorbed by JPM. Would have made any difference to depositors at WAMU whether the absorbing entity had been the "bank of the United States"
I suspect 90 % or more of homeowners have no idea what their home is worth. They think it is worth MUCH more than it is and can't get their brains around a lower number. Where I am there are several houses sitting unsold because the owners simply won't reduce the price to the market. They don't seem to get it at all.
Mortgage guy since the 70's...
The real advantage of lower rates is that it incents new entry level buyers to make that first step into home ownership. That will be the first step towards price stabilization, as their entry will free move-up buyers to purchase higher priced properties.
I'm not saying that lower rates are an immediate solution, as price levels are still too high in many areas of the country and employment concerns are keeping many potential first time buyers on the sidelines, but it is a necessary step towards a "bottom up recovery" of the housing market, which is the only way it is going to happen.
The corrupt and inefficient halls of ivy will get their first big shock when 2009 enrollment drops. I know someone reading apps for UC admissions: she's stunned by how many aspiring freshmen are writing about unemployment in their families. Grim times ahead for the tenured class.
4shzl | 12.26.08 - 1:43 pm | #
My older two went to private uni's - one never finished (though pulled out before debt completely consumed him - unfortunately his SO is way overloaded from her studies & w/ few career options worthy of paying it off - life long burden for the two of them).
The other child did finish but with a hefty debt load (~$20K) but at least does have a healthy & 'balanced' earning potential. She is bio-medical engineer going back for a DPT [doctor of physical therapy w/ emphasis on prosthetics & implants]. But instead of going to another private uni - applied and was accepted at the local state uni for a fraction of the cost of the privates - seriously, less than half the tuition of the privates and a better school. She'll increase her debt load a little more but not a lot & increase her job options enormously. Her SO is screwed for a while though - an architect. Thank goodness he's worked plenty of other jobs so knows how to get his hands dirty. There are other jobs out there, right?
The youngest is still in HS - looks at his two older siblings and has decided on state uni all the way unless some private uni wants to step up & pay his way [his older sister did get a sweet heart deal due to Double-X Chromosome bias at an all XY Chromosome engineering uni - made it almost state uni expensive]. He wants to come out as close to debt free as possible so I'm guessing it will be midwest state uni all the way ~$12K/yr combined tuition, R&B. We can swing that w/out loans but might ask him to pony up some himself so as to have skin in the game too. Did that w/ the other two - changes the financial discussion from all 'you' to at least some 'me'. That was what I did in the late 70s stagflation - student slum, state uni while simultaneously working a series of factory & other McJobs. Plus there is always our couch & the basement. The NorkaWest model [above].
Anonymous | 12.26.08 - 1:40 pm | #
Don't you take the chesnuts out of the shell before you make the paste?
Years ago I used to go often to Portugal and one of the winter delights there were roasted chesnuts sold by street vendors with small roasting ovens on wheels. Some people almost lived on them. US Embassy friends told me of one little old American lady who got stuck in Lisbon without much money and no ticket home and she fed herself for about a week on chesnuts until the Embassy came to her rescue.
Um... wouldn't this be a net-worse thing? "Oh, honey! Rates are down! Let's re-fi! Wait, we're how far underwater?!"
How could this be a good revelation? Can't Re-fi and now you know how far you are from the surface!?!
Seems a little more then net-negetive to me.
C
"The same slack-jawed mall-rat and videogame-addicted students I see loafing around",
Yeah, I was trying to rationalize this....
YouTube - Motorhead-Eat the Rich
with that...
Revolution - Wikipedia, the free encyclopedia
yeah...got a ways to go.
Hoopajoops, LTD writes:
...is that the dollar will be devalued, ensuring that the real value of the debt is decreased ... this will lower the debt burden on americans, on the american government...
I really wonder whether it is that easy.
What will you do if the Chineese will not like it and reduce/seize to refinance you ?
What will you do if the oil-sheiks will not like it and significantly reduce oil deliveries (against dollars)?
Do you also start to suspect you may actually have to tighten your belts, roll up your sleeves and pay your debts back in the sweat of your brows during the next two decades or so?
dryfly, Jim A: I think the "normal" mode is "ability to repay", COMBINED WITH or including "adequate collateral pledge". The catch 22 has little to do with "needing the money", but is mostly about "no assets to secure the loan", and the assets are not necessarily (and not usually) readily available cash. There is also a circularity here regarding asset valuation -- in such a "normal" lending environment, asset values tend to be more stable.
Back in Germany, one commonly heard gripe was that entrepreneurs (supposedly) often couldn't get loans even with a good business plan, when they couldn't post personal assets as collateral (which is credible, as the real estate "ownership" rate in the cities is not nearly as high as in the US).
And even for those with money, taking out a loan can make sense as a hedge -- taking a loan repaid from cash flow leaves you with your other money, as long as the loan-based venture works.
I mean, a hedge against opportunity cost and emergencies requiring liquid funds.
What will you do if the oil-sheiks will not like it and significantly reduce oil deliveries (against dollars)?
I'm not sure what the Chinese will do, but the oil sheiks will simply receive more dollars for a barrel of oil, all else equal. Gasoline will get expensive here again.
...important will be direct central-bank finance of borrowers
FT.com / Columnists / Martin Wolf - Keynes offers us the best way to think about the financial crisis
Tom O writes:
...The real advantage of lower rates is that it incents new entry level buyers to make that first step into home ownership...
Ahh, how nice, if only the potential "entry level buyer cohorts" up to 2015 had not already been soaked up in the recent frency and endowed with an 600k mortgage for a 300k house. Will take some time until these "entry level buyers" re-grow. Good economy may help too.
Doc at the Radar Station writes:
...but the oil sheiks will simply receive more dollars for a barrel of oil, all else equal...
And simply suck up the reduced value of their dollar-denominated investments ?
Hmm ?
I guess you are simply out of room to maneuver.
Ikea chest of drawers built
Counterpointer | 12.26.08 - 1:43 pm | #
It's Legos for adults. I was disappointed not a single neice or nephew got legos this year. I have to get my fix somehow.
Ahh, investments! I was thinking of just buying their oil. That changes things. Let's see: My thinking is that we are not going to be the only ones to be devaluing currencies. That will give us some cover. It is in the long-term interest of OPEC for us to eventually become financially stable-they would prefer our economy to recover. I think the Chinese want us to recover as well. Even if end up consuming less because of our debt, we will still be a major customer.
re : Doc at the Radar Station writes:
If you devalue, the oil-sheik's and the Chineese's dollar denominated investments do loose value. Regardless who else may devalue!
And they may not like it !
And they have real economic/financial weapons against you.
So, what do you do, if they "do" not like you devaluating their investments ?
sdtfs, it looks like nobody answered your question. A homestead exemption means you HAVE filed to exempt the property from bankruptcy. It's probably required by the banks as a proxy for owner occupancy since a property owner normally can only have one homestead exemption at a time.
Ditto what Werner said to Tom O. Reduced downpayment requirements had several insidious effects. But one of the worst is that it allowed 2004-2007 to steal buyers from the future. So the people who we might have expected to be potential RE customers now are instead upside-down and either desprately trying to hand on to their houses, or jinglemailing the keys in and thereby removing themselves from the market for years with a forclosure on their credit reports.
As for "loans that make sense"? The thing that you have to remember about conventional ammortizing mortgages is that the dividend that they return (housing) generally goes up in value even as the principal and interest payment remains steady. So that 10 years after you've purchased, your mortgage payment is the same (except for taxes and insurance) but the rent that you would be paying if you hadn't purchased your housing would be higher.
Normally,the high transaction costs mean that mortgages only make sense if you're likely to stay in one place for about a decade. Which is why the "flipping" phenomena was such a strong indicator of a broken market heading into an unsustainable bubble.
And of course whether student loans make economic sense for borrower depends highly on exactly what education you have bought with that loan.
And of course whether student loans make economic sense for borrower depends highly on exactly what education you have bought with that loan.
The value of having any degree, from any school, is that it makes you eligible to apply for jobs where having a degree is one of the minimum qualifications. It's often the first filter applied by H.R. clerks to a pile of job applications.
The FDIC is hiring in droves. I've read the job specs; most of the positions require basic analytical skills. A B.A. or B.S. should do it, but FDIC requires a Ph.D. just to apply. With so many capable people out of work, that seems ridiculous to me.
maximum 45% FRONT-end ratio?
that can't be right.
sure enough, the 45% max is referring to the BACK-end ratio (that's TOTAL debt-to-income, kids), not the FRONT-end (MORTGAGE debt-to-income).
Leave it to a mortgage broker to F that up.
Just one thing I do not ueenderstand - who are those people willing to lend money to the federal government at 0% rateof return?
It's horrifying to think of people paying 45% of income to debt service.
It's okay though, 2009 is the bottom and prices will be 50% higher in a few years. Right along with incoms, the stock market, unemployment and inflation.
The 'consensus' plan seems to be to save the bank's fraud bubble prices that were unsustainable(by doing bubble price refis and mods) and to just stick the buyers with these deflated assets one way or another to get the banks & central banks off the hook(& accountability) for blowing up this RE/CRE bubble ponzi scheme and thus the fraudsters remain in 'control' of the economy.
Jim A: In case you are referring to my comment, I did not have residential loans in mind, but mostly business ("investment") type loans. The biggest hurdle for most businesses is initial financing of business infrastructure (equipment, staff, offices), for which you need seed money regardless of what fabulous returns the business will bring.
Feckless Ness: You are not baiting me for a diatribe on ridiculous credential and "skill" requirements, are you?
I think over the past decade, it has been repeatedly at least questioned whether Bachelor or Doctoral degrees yield a positive expected lifetime ROI.
But I guess as long a sufficient number of people (including foreigners) get the degree, everybody else will be excluded from the prime job market if they don't follow suit.
I would argue that the conventional, ammortizing, mortgage and student loans are the kind os loans that DO make sense.
Those mortgages ALL are subsidized as they do not charge market rates for interest. I fail to see how that qualifies them as "making sense".
Every American with a mortgage is living la vida loca until GSEs and implicit/explicit gov't backing of mortgages goes away. Until then, ALL americans with mortgages are sucking on the teet of Mother TARP, whether they want to admit or not.
Fannie/Freddie just have one ratio, they don't differentiate a back end and front end. FHA has a back and front, 31 front / 43 back end.
Effective D,
The guy quoted in the article was suggesting that this was the max front-end ratio. Which it is only for those who have NO OTHER DEBT.
And you and I know both know damn well that nobody with a back-end of 45 also has a front-end of 45. So the GCEs can have 'only one ratio' (back-end), but everyone else talks about both like they always have.
Except this d00d, who apparently can't tell either of his ends apart.
That wage premium will not be there for most. Students will lead the next revolution. Same as it ever was.
4shzl | 12.26.08 - 1:30 pm | #
Where are they? I am growing old waiting...
dryfly | 12.26.08 - 1:32 pm | #
facebook. ipod touch. tv.
Yawn. We'll revolt tomorrow...
Oh, and Wii. I forgot Wii.
Just know this stuff from surveying my own kingdom here.
If you devalue, the oil-sheik's and the Chineese's dollar denominated investments do loose value. Regardless who else may devalue!
And they may not like it !
And they have real economic/financial weapons against you.
So, what do you do, if they "do" not like you devaluating their investments ?
Werner
Werner, nearly all trading nations have some form of economic/financial weaponry they could use against others if they really want to use them. It is up to them. Check out jm's comment here:
HaloScan.com - Comments
I believe that in order to pull ourselves out of the deep slump we are in, an inflation is going to HAVE to happen at some point. The reflation isn't going to be done primarily to get out from under our debts, it will be done to resuscitate our economy. It will have the side effect of reducing our debt as a result. The worst that can be "done" to us is to eliminate the dollar as the world's reserve currency and we might get our oil imports cut off. Paradoxically, I think those events would do us a HUGE favor!
Then we could:
*Shift from consumption to production.
*Develop the infrastructure and technologies to finally free ourselves from imported oil.
In my neck of the woods, the local fishwrap (big paper) keeps running stories on how Real Estate sales are rebounding. I put these articles facing up in the birdcage.