The ABX indexes, which are used to track the subprime-mortgage market, may need to change their criteria because securitizations have fallen so low there may not be enough bonds to fill a new series, according to Bloomberg.
DH, I take this as loan brokers will be employed by lenders (like WaMu and WF) and not by FlyByNight Mortgages for Rock Stars, Inc. (I hope that wasn't are a real name!).
Kieran Quinn, CMB, the Mortgage Bankers Association's new chairman, expects the residential property market to show signs of improvement in about six months' to eight months' time, noting that housing downturns emerge about every seven years and last six months to a year. After 14 years of gains in home sales and mortgage originations, Quinn believes the current slowdown will occur over a year to 18 months--and the market is already about six months into that cycle. Quinn blames home buyers, builders, investors, lenders, mortgage brokers and Wall Street for problems in the residential-finance market, insisting that all of these players had a role; but he believes a rebound will occur when the market begins appropriately pricing for risk. According to Quinn, "We're going back to lending the way it was in the 1950s and 60s. Mortgages will be made mostly by bankers and their employees, and compensation will be based on who's making good loans and who's not."
In other news, the auto industry plans to begin using metal in automobiles once again...
DH, yes! Eventually, but then after the collapse, there won't be many people interested in buying a home as an investment vehicle anyway so it is logical there won't be many loan brokers as today.
crispy, yes, close the doors after the horses have all left to keep them from coming home and eating the scarce hay. All tighter standards would do now is hasten the collapse of real estate values and the economy even faster. Doubt it will happen but rhetoric is a good defense.
Afterwards! Sure, similar thing happened in the 1930.
New standards and re-establishment of the old regulatory rules will be in order to give new order to the system after a major failure.
We are seeing the major failure but so far the consequences are not yet known. Once they are, everyone will be clamoring for reform and regulation.
The circus goes on and on, only the acts and the audiences change. Same ole circus though!
Kieran Quinn, CMB, the Mortgage Bankers Association's new chairman, expects the residential property market to show signs of improvement in about six months' to eight months' time,
...
According to Quinn, "We're going back to lending the way it was in the 1950s and 60s.
these two assertions seem to be at odds: how can the real estate market come back in six months if we've just made the shift from "anyone who can fog a mirror" lending to "better be able to document everything, have a conservative DTI, have 20% down, etc." lending in the space of the last six months?
How odd that even though he thinks mortgage lending is going to again be done the way it was in the '50s and '60s, he thinks the current slowdown will last only 12 to 18 months.
Seems like he hasn't quite thought through the fact that about four million households that currently own homes wouldn't have with that style of mortgage lending and are going to start becoming non-owners, and that that set of households includes a lot in the pulled-forward-demand cohort who would, without the loose lending, have become owners on a sound basis in future years, but now won't be able to, because they'll have been financially wiped out and labeled bad credit risks.
In many cases, those people won't even want to try owning again when they can again afford to, both because they've been burned once and because there will be plenty of media stories out there about how it's cheaper to rent than to own. Moreover, the next crop of young people coming along are going to see what's happened to their older friends, colleagues and siblings, and they too will be in no hurry to own.
With literally millions of homes being thrown onto the market by foreclosure, with most of the population able to afford a home already owning one, and with builders continuing to build (the survivors getting land cheap from the deceased), much of the market for existing homes will be savvy investors buying to rent them out -- they're not going to overpay.
Does this mean that hedge funds, investment bankers, accounting firms, etc will not be pumping money through mgt. brokers any more? Will mgt brokers only work for banks? And what about GMAC and others like them, will the still be around?
I would welcome a return to traditional lending, as it is one prerequiste for me to buy. I don't want to compete with funny money. Now, I have just to wait until the traditional lending has worked itself through the system and made housing more affordable again.
Don't worry about GMAC, it won't exist when this is all over. Neither will a lot of what we now know as the big wheels of American Industry. They may save a few of the names but that will be pretty much the extent of today's legacy.
What happens when trillions of dollars of fictitious wealth evaporates? You can only hold it on off balance sheet SIV like Enron did for so long before the ugly consequences rear their heads. It is not going to be pretty, nor will it happen over night but when lending is based on a myth and an unrealistic dream, the consequences of re-balancing will not be business as usual.
All this fictitious capital is based on repayment of the loans. When the poor guys at the bottom has to choose between food, gas and repayment, repayment takes a back seat.
We are on the verge of an epic shift. To much weight has been placed on the worker bees to get up and preform. Finally after years of abuse, they are unable to feed the hungry beast every thing it needs to sustain life and the beast is dying.
We are near the vortex of a huge perfect storm and over head the skies still look clear, even though in every direction you look there are storm clouds. The storm is coming your way and no amount of disbelief or ignorance will insulate anyone from the effects.
"So I presume that prices will fall inline with income to 50's and 60's income/price ratio's as well?"
Adjusted for general inflation since then, maybe. Keep in mind also that those '50s homes were small by today's construction standards; not often more than 1200 square feet, usually only one bath, etc.
Even so, for houses to be affordable to the middle classes under those guidelines, prices in the most bubblicious areas would have to drop by half.
And as I've said before, rental income on homes around the SF Bay Area justifies a home price just about one half of the going valuations.
The deal is this. The powers that be, found it profitable, at least on paper, to outsource the cost of labor for most folks, minimize social safety nets, and allow the cost of labor for select elites to rise without limits. At the same time, to prevent the cost of what they did from being discovered or affecting the elites, they substituted debt for income.
Not enough money for shelter, use more debt.
Not enough money for medical care, pile on more debt.
Not enough money for college, student loans.
Not enough money for food, equity line of credit - credit cards.
Not enough money for transportation, pay day loans.
If society had to adjust to the policy of impoverishing the middle class at the time of the policy decisions, there would have been a revolt from the workers, college professors, doctors, merchants and so on. The ability workers to buy things and services would have been immediately impaired affecting the upper classes immediately. But debt allows the damage to be hidden and the myth that debt backed by assets is as good as income seduced everyone.
to Bob Dobbs...rents on the other side of the country in Hampton Roads area of Virginia are likewise much lagging home prices and either rents rise (not likely as there are 110.6% the number of available rental units today as there were in May of 2005, or prices decline. Which will occur I haven't a clue, but suspect a combination of the two.
Investors who buy rental property here today are idiots or first time investors who can't count. I've been selling mine for the past three years and accumulating cash...and I still am.
Fortunately, I'm an old fart and this is my third bust and despite the new credit facilities and language, the result appears to be the same and in another 3 or 12 years we'll have another boom as this correction works its way out.
"Investors who buy rental property here today are idiots or first time investors who can't count. I've been selling mine for the past three years and accumulating cash...and I still am."
There are quite a few small two- to four-unit incomes properties on sale around here for close to 30 times income -- and they're still moving. I'm sure the sellers are making price concessions, but even so good luck to the buyers.
Kieran Quinn says we have us here a little "slowdown" and all will be better in a year to 18 months---???
Hmmm, is that a little slowdown as in hitting a wall at 250 mph? Cause if it is, I don't think the driver is gonna walk away just knocking the dust off his fire suit.
A house/unit rents for 1000 per month
You pay no more then 100,000 for it
Two other things. In the Inland Empire, Corona, CA (Riverside County) there are multiple billboards for a company called RockStar Loans or something lame like that. Whoever owns that has to be a complete bubble contributing donkey.
Secondly, I'm seeing a fair amount of Fannie/Freddie home possible/home buyer 100 loans getting done around me. They are generaly in the outlying areas where SFR's are trading in the lower to mid 200k mark where a family with a combined monthly gross income of 65k can absolutly qualify full doc for a 220k home. Get a 30 year fixed rate at 7% and have a payment just under 2k per month.
jm: ... who would, without the loose lending, have become owners on a sound basis in future years, but now won't be able to, because they'll have been financially wiped out and labeled bad credit risks.
By the corporations, for the corporations. By the banks, for the banks. Corporate bankruptcy? No problem. Try it again. Forget baby bonds! Every baby should automatically have a corporation formed to act on their behalf. Everybody should do everything through at least an LLC for better treatment from the government.
Why is securitization here to stay? When you think of it, securitization is actually the original sin. People who make loans arbitrate the criteria used by the buyers of these securities, by doing the minimum due diligence requirement. This creates an asymmetry and naturally leads to the securities being filled, on average, with losing loans. The only way I can see out of this mess is, indeed, going back to the old standard of putting the loan on the book of the person making the loan.
"The rush to securitize put major investment banks like Goldman Sachs, Merrill Lynch and Deutsche Bank in the driver's seat for the past decade. The losers in this process were 'balance-sheet' lenders - the banks that loan their own money, keep the loan on their books, and watch over the borrower's financial health. With interest rates headed higher, this more traditional, and more stable form of lending is growing in appeal, many people in the industry said.
"'Balance-sheet lenders like us have an opportunity here,' said Jürgen Fenk, chief executive of Hypo Real Estate International, a property finance company in Munich. 'We will become more competitive.'"
All we have to do is return to pre-subprime/pre-FICO score reality and that I believe is 70s or early 80s style. There may even be some oldsters in the mortgage biz who remember how to assess risk with a human brain fully engaged.
I don't see third party originations going away. Traditional mortgage brokers fulfill a role that the internet alone can't compensate for. They reach into markets too thin for retail originators to cover. So, expect a huge reduction of mortgage brokerage but the ones who remain will be vetted for licensure and monitored pretty closely - got to restore respect for reps and warranties.
Kieran P. Quinn, CMB, is Chairman and Chief Executive Officer of Column Financial, Credit Suisses mortgage lending subsidiary for multifamily, hotel, retail and commercial properties, and is based in Atlanta. He is also a Managing Director of Credit Suisse. Mr. Quinn is Chairman-Elect of the Mortgage Bankers Association (MBA).
He joined Credit Suisse in November 2000 when the firm merged with Donaldson, Lufkin & Jenrette, where he was President and Chief Executive Officer of DLJs Column Financial subsidiary.
jm: exactly right. THAT'S why builders are SO wrong with the idea that construction starts have diminished to a sustainable level. Demand for homes will be low for YEARS. Now I don't think that these FBs will leave the market forever, but I'd bet we're talking about 10 years or more before these people think about buying again.
Can anyone point me to a housing cycle bust that was over in only 12-18 months? Because all the ones I've seen went on for year, after year, after year.
There are a bunch of different players in the mortgage broker game (as you noted in your ubernerd post on the subject). My mortgage was through my local bank who has acting as a broker for a mortgage originator in Florida. Are you saying you think these kind of relationships are going to go away as well? I'd have a hard time seeing that happening.
here's another one. From Minyanville.
The ABX indexes, which are used to track the subprime-mortgage market, may need to change their criteria because securitizations have fallen so low there may not be enough bonds to fill a new series, according to Bloomberg.
Dumb question,
Does that mean, no more loan brokers?
In other words, a return to sensible lending standards? I don't believe it...
I want it the way it was back in the 20s, 30s, and 40s when George Bailey was around.
Great read:
Are we headed for an epic bear market? - MSN Money
CR,
I guess he just means underwriting and structures. FWIW I think it's still debatable how much non-GSE MBS will be manufactured.
3 Years too late.
Horses leave, then ... barn door closes...
DH, I take this as loan brokers will be employed by lenders (like WaMu and WF) and not by FlyByNight Mortgages for Rock Stars, Inc. (I hope that wasn't are a real name!).
Best Wishes.
Actually, that was the name used by Northern Rocks Brokerage team
Not a chance....
From the article brief:
Kieran Quinn, CMB, the Mortgage Bankers Association's new chairman, expects the residential property market to show signs of improvement in about six months' to eight months' time, noting that housing downturns emerge about every seven years and last six months to a year. After 14 years of gains in home sales and mortgage originations, Quinn believes the current slowdown will occur over a year to 18 months--and the market is already about six months into that cycle. Quinn blames home buyers, builders, investors, lenders, mortgage brokers and Wall Street for problems in the residential-finance market, insisting that all of these players had a role; but he believes a rebound will occur when the market begins appropriately pricing for risk. According to Quinn, "We're going back to lending the way it was in the 1950s and 60s. Mortgages will be made mostly by bankers and their employees, and compensation will be based on who's making good loans and who's not."
In other news, the auto industry plans to begin using metal in automobiles once again...
I like George Baily route:
"I don't have your money! It's in your CDO, and your CDO, and your CDO..."
DH, yes! Eventually, but then after the collapse, there won't be many people interested in buying a home as an investment vehicle anyway so it is logical there won't be many loan brokers as today.
crispy, yes, close the doors after the horses have all left to keep them from coming home and eating the scarce hay. All tighter standards would do now is hasten the collapse of real estate values and the economy even faster. Doubt it will happen but rhetoric is a good defense.
Afterwards! Sure, similar thing happened in the 1930.
New standards and re-establishment of the old regulatory rules will be in order to give new order to the system after a major failure.
We are seeing the major failure but so far the consequences are not yet known. Once they are, everyone will be clamoring for reform and regulation.
The circus goes on and on, only the acts and the audiences change. Same ole circus though!
radical dude!!
The 50s style food prices:
Again there is no inflation so long as you dont drive or eat. Wages have to bump up!
meet the new boss,
same as the old boss
thanks Brian23, great read indeed! i didn't know that guy
Dreadful news! Yahoo, Intel and IBM have "exceeded expectations"!
Julia - I didnt know him either. His arguments are compelling and its a sobering reality.
Kieran Quinn, CMB, the Mortgage Bankers Association's new chairman, expects the residential property market to show signs of improvement in about six months' to eight months' time,
...
According to Quinn, "We're going back to lending the way it was in the 1950s and 60s.
these two assertions seem to be at odds: how can the real estate market come back in six months if we've just made the shift from "anyone who can fog a mirror" lending to "better be able to document everything, have a conservative DTI, have 20% down, etc." lending in the space of the last six months?
Dreadful news! Yahoo, Intel and IBM have "exceeded expectations"!
When did those firms become homebuilders?
And they'll be showing reruns of Adventures of Ozzie & Harriet, Leave It to Beaver", and My Three Sons while they're making loans.
Although it's very necessary and desirable for all parties, I'll believe it when I see it.
How odd that even though he thinks mortgage lending is going to again be done the way it was in the '50s and '60s, he thinks the current slowdown will last only 12 to 18 months.
Seems like he hasn't quite thought through the fact that about four million households that currently own homes wouldn't have with that style of mortgage lending and are going to start becoming non-owners, and that that set of households includes a lot in the pulled-forward-demand cohort who would, without the loose lending, have become owners on a sound basis in future years, but now won't be able to, because they'll have been financially wiped out and labeled bad credit risks.
In many cases, those people won't even want to try owning again when they can again afford to, both because they've been burned once and because there will be plenty of media stories out there about how it's cheaper to rent than to own. Moreover, the next crop of young people coming along are going to see what's happened to their older friends, colleagues and siblings, and they too will be in no hurry to own.
With literally millions of homes being thrown onto the market by foreclosure, with most of the population able to afford a home already owning one, and with builders continuing to build (the survivors getting land cheap from the deceased), much of the market for existing homes will be savvy investors buying to rent them out -- they're not going to overpay.
amend above to "with builders continuing to build new homes at much more affordable prices ..."
So I presume that prices will fall inline with income to 50's and 60's income/price ratio's as well?
Here's hoping for us in SoCal!
Loan officers are required to watch "It's a wonderful life" ten times before they resume their duties.
Does this mean that hedge funds, investment bankers, accounting firms, etc will not be pumping money through mgt. brokers any more? Will mgt brokers only work for banks? And what about GMAC and others like them, will the still be around?
I would welcome a return to traditional lending, as it is one prerequiste for me to buy. I don't want to compete with funny money. Now, I have just to wait until the traditional lending has worked itself through the system and made housing more affordable again.
Don't worry about GMAC, it won't exist when this is all over. Neither will a lot of what we now know as the big wheels of American Industry. They may save a few of the names but that will be pretty much the extent of today's legacy.
What happens when trillions of dollars of fictitious wealth evaporates? You can only hold it on off balance sheet SIV like Enron did for so long before the ugly consequences rear their heads. It is not going to be pretty, nor will it happen over night but when lending is based on a myth and an unrealistic dream, the consequences of re-balancing will not be business as usual.
All this fictitious capital is based on repayment of the loans. When the poor guys at the bottom has to choose between food, gas and repayment, repayment takes a back seat.
We are on the verge of an epic shift. To much weight has been placed on the worker bees to get up and preform. Finally after years of abuse, they are unable to feed the hungry beast every thing it needs to sustain life and the beast is dying.
We are near the vortex of a huge perfect storm and over head the skies still look clear, even though in every direction you look there are storm clouds. The storm is coming your way and no amount of disbelief or ignorance will insulate anyone from the effects.
"So I presume that prices will fall inline with income to 50's and 60's income/price ratio's as well?"
Adjusted for general inflation since then, maybe. Keep in mind also that those '50s homes were small by today's construction standards; not often more than 1200 square feet, usually only one bath, etc.
Even so, for houses to be affordable to the middle classes under those guidelines, prices in the most bubblicious areas would have to drop by half.
And as I've said before, rental income on homes around the SF Bay Area justifies a home price just about one half of the going valuations.
Kokopelli
The deal is this. The powers that be, found it profitable, at least on paper, to outsource the cost of labor for most folks, minimize social safety nets, and allow the cost of labor for select elites to rise without limits. At the same time, to prevent the cost of what they did from being discovered or affecting the elites, they substituted debt for income.
Not enough money for shelter, use more debt.
Not enough money for medical care, pile on more debt.
Not enough money for college, student loans.
Not enough money for food, equity line of credit - credit cards.
Not enough money for transportation, pay day loans.
If society had to adjust to the policy of impoverishing the middle class at the time of the policy decisions, there would have been a revolt from the workers, college professors, doctors, merchants and so on. The ability workers to buy things and services would have been immediately impaired affecting the upper classes immediately. But debt allows the damage to be hidden and the myth that debt backed by assets is as good as income seduced everyone.
Now the music has stopped.
to Bob Dobbs...rents on the other side of the country in Hampton Roads area of Virginia are likewise much lagging home prices and either rents rise (not likely as there are 110.6% the number of available rental units today as there were in May of 2005, or prices decline. Which will occur I haven't a clue, but suspect a combination of the two.
Investors who buy rental property here today are idiots or first time investors who can't count. I've been selling mine for the past three years and accumulating cash...and I still am.
Fortunately, I'm an old fart and this is my third bust and despite the new credit facilities and language, the result appears to be the same and in another 3 or 12 years we'll have another boom as this correction works its way out.
"Investors who buy rental property here today are idiots or first time investors who can't count. I've been selling mine for the past three years and accumulating cash...and I still am."
There are quite a few small two- to four-unit incomes properties on sale around here for close to 30 times income -- and they're still moving. I'm sure the sellers are making price concessions, but even so good luck to the buyers.
Kokopelli and vader Thanks
jo6pac
When does stop there won't be any chairs.
Kieran Quinn says we have us here a little "slowdown" and all will be better in a year to 18 months---???
Hmmm, is that a little slowdown as in hitting a wall at 250 mph? Cause if it is, I don't think the driver is gonna walk away just knocking the dust off his fire suit.
Swampfella or Bob Dobbs, What is a good multiple of income for an investment rental?
What my mentor goes by is this:
A house/unit rents for 1000 per month
You pay no more then 100,000 for it
Two other things. In the Inland Empire, Corona, CA (Riverside County) there are multiple billboards for a company called RockStar Loans or something lame like that. Whoever owns that has to be a complete bubble contributing donkey.
Secondly, I'm seeing a fair amount of Fannie/Freddie home possible/home buyer 100 loans getting done around me. They are generaly in the outlying areas where SFR's are trading in the lower to mid 200k mark where a family with a combined monthly gross income of 65k can absolutly qualify full doc for a 220k home. Get a 30 year fixed rate at 7% and have a payment just under 2k per month.
jm: ... who would, without the loose lending, have become owners on a sound basis in future years, but now won't be able to, because they'll have been financially wiped out and labeled bad credit risks.
By the corporations, for the corporations. By the banks, for the banks. Corporate bankruptcy? No problem. Try it again. Forget baby bonds! Every baby should automatically have a corporation formed to act on their behalf. Everybody should do everything through at least an LLC for better treatment from the government.
Why is securitization here to stay? When you think of it, securitization is actually the original sin. People who make loans arbitrate the criteria used by the buyers of these securities, by doing the minimum due diligence requirement. This creates an asymmetry and naturally leads to the securities being filled, on average, with losing loans. The only way I can see out of this mess is, indeed, going back to the old standard of putting the loan on the book of the person making the loan.
"The rush to securitize put major investment banks like Goldman Sachs, Merrill Lynch and Deutsche Bank in the driver's seat for the past decade. The losers in this process were 'balance-sheet' lenders - the banks that loan their own money, keep the loan on their books, and watch over the borrower's financial health. With interest rates headed higher, this more traditional, and more stable form of lending is growing in appeal, many people in the industry said.
"'Balance-sheet lenders like us have an opportunity here,' said Jürgen Fenk, chief executive of Hypo Real Estate International, a property finance company in Munich. 'We will become more competitive.'"
Credit squeeze hits European real estate market - The New York Times
All we have to do is return to pre-subprime/pre-FICO score reality and that I believe is 70s or early 80s style. There may even be some oldsters in the mortgage biz who remember how to assess risk with a human brain fully engaged.
I don't see third party originations going away. Traditional mortgage brokers fulfill a role that the internet alone can't compensate for. They reach into markets too thin for retail originators to cover. So, expect a huge reduction of mortgage brokerage but the ones who remain will be vetted for licensure and monitored pretty closely - got to restore respect for reps and warranties.
That comment is especially interesting because I think he is or ws president of a third-party originator, if I remember right.
Yes, this is the case:
Kieran P. Quinn, CMB, is Chairman and Chief Executive Officer of Column Financial, Credit Suisses mortgage lending subsidiary for multifamily, hotel, retail and commercial properties, and is based in Atlanta. He is also a Managing Director of Credit Suisse. Mr. Quinn is Chairman-Elect of the Mortgage Bankers Association (MBA).
He joined Credit Suisse in November 2000 when the firm merged with Donaldson, Lufkin & Jenrette, where he was President and Chief Executive Officer of DLJs Column Financial subsidiary.
jm: exactly right. THAT'S why builders are SO wrong with the idea that construction starts have diminished to a sustainable level. Demand for homes will be low for YEARS. Now I don't think that these FBs will leave the market forever, but I'd bet we're talking about 10 years or more before these people think about buying again.
On a tangent, if Credit score blocking goes in style. We will have old fashioned loans.
Can anyone point me to a housing cycle bust that was over in only 12-18 months? Because all the ones I've seen went on for year, after year, after year.
Please include any necessary Stargate addresses.
CR,
There are a bunch of different players in the mortgage broker game (as you noted in your ubernerd post on the subject). My mortgage was through my local bank who has acting as a broker for a mortgage originator in Florida. Are you saying you think these kind of relationships are going to go away as well? I'd have a hard time seeing that happening.
When builders start building for the market (200,000), instead of trying to create the market, homes will be selling and builders will be building.