"Biggest Foreclosure Bloodbath Ever"
Submitted by
CalculatedRisk on Thu, 03/15/2007 - 10:56pm (50 comments)
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"We are seeing every age group, every single income level now, people with similar problems, and I haven't seen that in my career," she added.
IMO there's going to be a lot of "firsts" experienced in the next few years, none of them pleasant. I believe this is why most people -- including a few here -- cannot truly grasp the magnitude of what's coming, simply because it falls so far out of their frame(s) of reference.
Mortgage Grapevine: I Have Buyers,W/No Down Payments Help!
"to afford a down payment" - what a nobel concept
A flashback to April 28, 2000...
Fire in the Valley
Let's see. What would be a good analogy to describe the March/April tech wreck? Did the bubble burst? That's too mild a comparison -- a mere pop!. Might as well describe the Hindenburg disaster as an unscheduled loss of altitude. Newpapers were prone to refer to Nasdaq's record plunge as a "bloodbath," but that's because the term is graphic and fits in a headline.
In an April 3 report, Merrill Lynch Internet analyst Henry Blodget wrote that the business is consolidating. "The Internet tide is not rising fast enough to lift all boats anymore," Blodget wrote. "As ballistic returns become a thing of the past, we expect investors to be far less generous in funding companies with dubious business propositions."
For what it is worth, the "bloodbath" was just getting started.
100% LTV: Anyone can buy any house at any price - thecalifornian.com | Salinas | The Salinas Californian
Salinas with 70% sub-prime will be a place to watch.
I guess a doctorate isn't what it used to be...
On a more serious note it seems that subject of many of these articles is painted as an innocent victim. I see it more as the willfully ignorant victim. There seems to be an epidemic of that going around.
The marginal sale has a funny effect on folks....I suspect the very best locations are selling to the credit worthy who intend to stay a long time in the prime choice locations, and as a result, median prices appear to be better here in CA because the average home quality of those that are actually selling is better than normal. I also expect that these folks want these prime properties
enough to make it work independant
of contigencies.
Here in the SF Bay Area, I've seen a huge surge of open homes the last few weeks in our locale. My neighbor is now 7 months into the open house saga...a few homes went "sale pending" back in December, but then stayed that way...one which I pass by everyday is clearly empty. I suspect my neighbor is
clinging to a listing price that sustains the feeling of still being right side up.
I'm going to guess the Fed will end up providing whatever interest rates are needed to loosen up the entry end of the market (interest rates will drop and prices will drop until entry buyers are enticed...no idea when that will be).
"I'm going to guess the Fed will end up providing whatever interest rates are needed to loosen up the entry end of the market (interest rates will drop and prices will drop until entry buyers are enticed...no idea when that will be)."
RP, you say that, but will the fed really decide that to go down the inflationary path? I guess we will have to wait and see which way Big Ben turns. But which ever way it is, it is not going to be pretty.
This is waht a friend in real estate in Sacramento had to say top me yesterday when I was discussing these things via email....
"I was talking to a Commercial Broker yesterday - the president of their
division said that they may be seeing the first commercial foreclosures
soon, due to developers pulling every last penny out of deals."
Sounds pretty bad there!
PS I'm in London, so a world away from what is happening there. But I expect it all to come over here sooner of later. (probably sooner than everyone here thinks)
Accredited buys time;
Expired
CR,
About the 1% decline
The reality is that prices could drop substaintially more and here's why:
A) When you apply the upcoming qualifying guidelines for exotic mortgages being "fully amortized" and "fully indexed", a borrower making $60,000 a year will qualify for a loan that is 28% less than qualifying at the start rate. This means that the sales price of homes that look at is 28% less than before.
b) the above scenario does not factor in the amount of people who use "state income / liar loans" to qualify. When you apply standard debt to income qualifications of 30/40% many people will qualify for even less. I.e. a borrower earning 5K a month qualifies for a $1,500 a month pITI payment assuming his / her monthly bills are less than $500 total.
People will buy what they can afford to finance... can't finance it within their budget, they don't buy. If leasing a Ferrari was only $475 a month, everyone would have one.
c) downward price pressures will only increase from the addition of "must sell" real estate inventory like foreclosures and builder excess.
***d) public perception of stagnent home prices will cause people to be "sticky" - this will only change when property values get low enough were a mortgage payment would be equal to renting.
e) The majority of homeowners are baby boomers rapidly approaching retirement. They have been told that their home is the retirement "nest egg". When they watch property values drop 5-10-15-20% and see their equity evaporate, they will panic and sell to salvage the equity that is left.
f) we are a nation built on consumer spending which is subsidized by credit card companies and recently the home ATM machine. When credit goes away so does consumer spending and in turn our economy suffers dramatically.
So yes, 20% over the next 5 years is very much a possibly... maybe even a guarantee at this point.
Getting a bit frothy with the mortgage articles. 2 stories in the L.A. Times today. AND on top of that a searchable database of loan defaults in Calif. by zip codes.
Stories:
A town right on the default line -- latimes.com
Outside the sub-prime loan box - Los Angeles Times
Search CA Loan Defaults:
LOAN DEFAULTS: Is your ZIP Code on the list? -- latimes.com
will the fed really decide that to go down the inflationary path.
What is the difference we are already @ Stagflation...see the price of gas?, see the price of food?...Oh the sport of it all.
The euro is still screaming. Looks like they expect the Fed to lower...big time.
Of course, the yen has strengthened a tiny bit against the dollar, but that will change as the day goes on.
In terms of war with China and Japan, my position is that the war has been being fought for quite some time and they have won. I don't regard it as a military war, rather as an economic war.
China is rearming at a rapid pace, and with its world manufacturing monopoly as well is its technological prowess (you know, they did shoot down a satellite just recently...as well as boosting their defense budget) I would say that they are a formidable military adversary.
But the economic war is going so very well and finding economic quislings in the US is so trivially simple, that I would doubt that a shot will ever be fired.
Of course, I could be wrong. Maybe our manufacturing base would not have been gutted without grotesque currency manipulations on the part of the Japanese and the Chinese.
After the tech bust interviewing candidates for an assistant job. One from Silicone Valley, about 20, was used to making "about $75k" for basically clerical work fresh out of high school at a dot com.
Neighbor's boys have been "vacationing" from college working in the mortgage business (a suit and a 325 )... may be time for class now, but what an education!
I'm sure my phone will ring more from cold calls from newly minted penny stock brokers or the next "big thing", a few months earlier than the usual post semester push... oh well, send it to voice mail.
tj & the bear
I've been watching for this for years, and each time something unanticipated stopped the process. For the most part it was the steady erosion of lending practices.
I cannot help to believed that some god from the machine will not jump out and stop it.
CAN U BELIEVE THIS GUY? THIS GUY IS A POS!
The story regarding this Andy Sobel is inaccurate insofar that this individual got himself in trouble by adding a large equity line, then he refinanced the equity line into a 1st TD and added another equity line.
No pity for idiots or "educated derelicts" either.
EEngineer
Lets say that you are an average joe, skilled in something other than money.
The government says candy is good for you. Your dentist says candy is good for you. All the media talking heads say candy is good for you. You friends start buying candy for investments and you wife starts bitching about better candy.
A few of your odd friends caution against it, but they are somewhat social outcasts.
What would you do?
Our betters told us to do it and now are telling we were stupid to do it.
"I'm going to guess the Fed will end up providing whatever interest rates are needed to loosen up the entry end of the market (interest rates will drop and prices will drop until entry buyers are enticed...no idea when that will be)."
I don't think they can do that. This mess has to be seen as 2 problems, and the lax standards are a greater problem than rates - which are not high now at all. If the Fed lowers the rate but standards are tightened (which has already happened and cannot be unwound easily) it will have only a tiny effect, if any. The Fed has no power to bail out people who cannot afford the house they are in even at a 3 or 4 percent mortgage.
Many on the blogs saw this disaster over 2-3 years ago.
Greed kept the ponzi going longer than it ever should have. Now the lying politicians are talking about it.
Freemont announces additional credit from Credit Suisse - up 20% premarket.
Business & Financial News, Breaking US & International News | Reuters.com
Just want to let everyone know that the so called "experts" (mainly reic related and ws bank types) are saying sub-prime is small % of loans and it should not be a problem.
Righto!
Yea Wally, but people will either pay higher mortgage payments (at all levels) or buy stuff.
Affordability is the main problem. House prices are just way out of whack with incomes and need to drop substantially to correct this. Even with lower rates the derelicts had to take out no payback loans to get in.
why does everyone think that a lot of very new policies are needed for the govt. to 'bail out' subprime borrowers. From yesterday's nationalmortagenews.com
"The Federal Housing Administration could have hundreds of thousands of subprime borrowers if Congress passes an FHA reform bill, but if not, the agency will raise its mortgage insurance premiums, Housing Commissioner Brian Montgomery has told Senate appropriators."
FHA already has the power to 'bail out' suprime borrowers at 87% or less of the conforming loan limit. The only two things that the reform legislation would do are 1) raise the loan limit for FHA, so California subprime borrowers would qualify too, and 2) drop the 3% 'down payment' so that no equity borrowers could come into the program through the front door instead of the back door (via hinky appraisals).
FMT got a cease and desist on sub-prime loans so this ponzi credit dried up here.
taxes owed on a $60000 short sale loss?? that is crazy. how many ways can a borrower get f__Ked?
cut in in rates is a pipe dream..
dollar is getting whacked again and Benny is afraid that multi yr low against Euro could be in sight..
Benny has no choice but stand pat and yet inflation seems to be on the upswing!
I don't think the FHA can do it, either. As Renterfornow points out, the problem is a mis-match of prices and incomes. A 'bailout' just encourages sellers to lock onto the current price structure - or ask for even higher prices.
Inflation would solve the problem - but it would take many years of wage inflation and house price stagnation. The government has never been able to 'selectively' apply inflation. Either the spigot is on or it is off. That's EXACTLY why we have the bubble problems we now have.
taxes owed on a $60000 short sale loss?? that is crazy. how many ways can a borrower get f__Ked
only fair as no cap gains tax on real estate..(up to 500k)
you only owe taxes on a short sale to the extent you are solvent at the time
Greenspan: My opinion of this man is going down fast. Will Volcker please give him a call and say, Alan, as a recently retired government official, please skip the speaking fees for now and keep your mouth shut. What is he thinking?
"Fed Bailout can't save housing"
If Fed Funds were taken to 1%, couple this with a 6% subprime margin, & payments will still go up at reset.
The Fed is now Squarely in a corner and MUST defend our currency. An aggressive Funds Rate Reduction could drive our Dollar Index to 60 or a 40% devaluation. If the Fed cuts rates, foreigners will embark upon a shopping spree for the remaining US treasured assets(tech, financial, interstate hwys, to name a few)
The problem with any quick fix monetary startegy is it will not fix the declining loan to value.
Look for the following to occur:
-FHA: new programs such as 50 yr loans, 125% LTV cash outs and expanded Debt to income to increase to 60%. This will create a new class of Ginnies and allow upside down primary residents to find a way to continue being home enslaved. This does not solve the continued implosion of 2nd homes and non owner occupied properties.
-Tax Credit bailouts. This will be a HUGE Voter Incentive.
Please Ben, do not follow in your predecessor's footsteps. Do the RIGHT thing! Raise Fed funds, unannouced next week(or at least do not change the bias to neutral). If you're a one term Fed chrman, it's ok but don't succumb to the belief that acommodative credit will solve our current problem.
Rates need to be Raised!Spend some time with former chrmn Volker!
If rates need to be raised then why is the yield curve inverted? The market clearly says that rates should be lower than the Fed presently has the short rate at.
The fed does not have to defend the currency. It can just be trashed along with all the debt.
Total world domination will be delayed a few years and you can restructure and have another go
Come on guys where is that old colonial spirit you were famous for?
Instead of driving around in SUV's and consuming the worlds products you could live simpler and maybe even enjoy yourself alot more.
Anybody remember free community dances with homemade booze? Was it really any different back then?
Life will go on - it will just be different.
Question for tax mavens --
My immediate reaction was that Sobel, the human face of the NYT article, would owe taxes on the sale because "[b]oth lenders have agreed to allow Sobel to sell the condo at a loss of $60,000."
In other words, the lenders have forgiven a portion of the debt, and it is the amount of that forgiveness that constitutes taxable income to the seller.
Am I wrong?
Ellen, I believe you are correct.
Ellen, that is the idea. If we didn't tax that forgiveness, I suspect a lot of people would get paid in "loans" that would be forgiven down the line, and thus avoid income tax.
It's possible Congress could define a particular class of debt forgiveness to be non-taxable and not destroy the revenue stream from the income tax, but it would be hard to do. This is so much more exciting to watch than basketball.
Thanks Tanta.
There is some justification for the law -- double entry bookkeeping(?) The lenders are taking a write-down and paying less taxes, the homeowner making up the government's loss. But --
It does seem rather unfair.
I remember this tax law being an issue in the early-'80s Houston market after the oil patch crashed.
Did the IRS come after these folks?
One way lenders can deal with this--I seem to remember someone posting a link about CFC doing it a while ago--is to write a note at zero interest and deferred payments to the borrower for the amount of the shortfall. It's just a note, no longer a mortgage note (that is, it's no longer a secured loan, because the property which secured the old loan is being sold). It's about as collectable as any other unsecured personal loan, so the lender doesn't avoid a write-down this way, although it may avoid a complete write-off. In any case, it keeps the shortage from officially becoming debt forgiveness at the time of the short sale.
I honestly don't know what a lender might be required to report to the IRS in the case of debt forgiveness; I assume there is some form such as a 1099? winjr? dryfly's wife?
"I'm going to guess the Fed will end up providing whatever interest rates are needed to loosen up the entry end of the market (interest rates will drop and prices will drop until entry buyers are enticed...no idea when that will be)."
Bernanke is a co-author in two books that make quite clear that he believes in targeting overall price inflation so as to keep it slightly positive. He and others at the Fed have commented that they don't believe there is any way for them to judge what asset prices should be, and that even if they could, monetary policy is too blunt a tool to be used to influence asset prices in isolated bubble markets.
So it's very clear that the Fed will loosen monetary policy only to the extent that they perceive the collapse of the housing bubble to be affecting the overall economy.
Agreed, the Fed does not care about the dollar. If a credit crunch does the work of subduing inflation, the Fed will cheerfully throw the dollar off the highest bridge. All you long-suffering rational expectorators will now have to dodge the next debacle and dump USD assets. Once again the monetary authorities will screw savers to bail out debtors, until you crabby misers learn your lesson.
Those Calis were so smug on the way up, so sure of themselves, and so insufferably stupid, let them go BK. I have no sympathy for them and I knew we would all pay for their greedfest. NO BAILOUT, let 'em eat cake.
The fed does not have to defend the currency. It can just be trashed along with all the debt.
IMHO, the Fed does have to defend the currency. We will likely have one shot at inflating our troubles away in the 21st century. IMHO, this situation is not severe enough to need that.
I'm going to guess the Fed will end up providing whatever interest rates are needed to loosen up the entry end of the market (interest rates will drop and prices will drop until entry buyers are enticed...no idea when that will be).
Interest rates are not the problem: unsustainable asset prices driven by speculation are. The 15-30 year rate is very low. Regardless of what happens to rates, the days of easy money are over for a while.
I've been watching for this for years, and each time something unanticipated stopped the process. For the most part it was the steady erosion of lending practices.
Vader, I too believed the bubble would end in 2003, only to see OA/IO insanity take it to new heights. Of course, the tech bubble ran much longer than I expected, too.
Nonetheless, history and experience tell us that once the bubble is popped there's no saving it.
tj & the bear
I agree. I also bet on 2003 then 2004/5/6. I gave up on 2007. I'd been on Prubear bear chat since '99 or so.
I think this may be IT.
There are too many failures to be ignored and some of them are unanticipated. Like the loss of rental space by dead subprime companies or folks finding subprime in their CDO or finding out the local school board bought derivatives without a clue.
Such a breath of fresh air to see your tag again Ellen1910. Hope you can stay with us.
Agree vader, (tj, and more) there are many long time bears, and many who abandoned that position from sheer exhaustion.
Lack of patience --in the face of a well-oiled financial industry that could always manufacture a new instrument to "disintermediate the risks" (to baffle with bullshit, those who could be intimidated --those who would be intimidated and are intimidated).
The critical notice, attention and action applied to the self-regulating and self-serving Financial Industry may be a little late (esp with that action) in blowing the whistle here.
Could be it is not enough to have bear attitudes and doubts, but like the bulls, important to move and act on those attitudes.
calmo
Yep folks are noticing and I get a more responsive hearing.