Yal, I don't think OFHEO is a fan of increasing the limit - they argue the risk and the capital requirements for Fannie and Freddie would increase significantly.
I was amazed at the percentage of IO / neg-am jumbo loans; almost 2/3 of all jumbos!
MarkS, yeah, I bet many of these loans had a 2nd too. Countrywide had $32 billion in 2nd lien home equity loans in their portfolio - probably mostly sitting behind these IO and neg-Am jumbos!
California accounted for 49 percent of the dollar volume of first lien jumbo mortgages originated in the first half of 2007 and later securitized
First American LoanPerformance data also suggest that interest-only (IO) loans and negatively-amortizing adjustable-rate mortgages (ARMs) comprised nearly two-thirds of the dollar volume of first lien jumbo loans originated in the first half of 2007 and later securitized
Just repeating to myself to let it sink in: CA has half the jumbos, and 2/3's of jumbos are IO or Neg Am.
CR,
When you get some time, could you estimate just how bad it's going to get for CA.
For example, while the 2007 loans may look that bad, how bad does it look if we take the loans from 2003-2007. I'm guessing a lot fewer IO/NegAm, but how much "better" is it?
I've seen figures like this before, and maybe I just didn't take them seriously. But in CA we're already facing a "budget crisis", so a stockpile of IOs and NegAms waiting to explode over the next, what, 24-48 months might cause some -- what's the term? -- pressure? Inconvenience? Wailing and gnashing of teeth?
It's hard to put into words as to what those charts say about the near term prospects of California ... well, words that are generally permissable on blogs, that is.
Wouldn't raising the conforming limit and keeping the same underwriting standards of Freddie and Fannie help close the spread from Jumbo A paper mortgages i.e. 30yr full amort. from 1.50% to the more normal .25%?
I don't understand why taxpayers in 49 states should be put at risk to bailout California. Let Arnold come up with an internal plan while he is "fixing" the deficit.
Wouldn't raising the conforming limit and keeping the same underwriting standards of Freddie and Fannie help close the spread from Jumbo A paper mortgages i.e. 30yr full amort. from 1.50% to the more normal .25%?
Maybe, but who cares, except morons and greed-heads? Every $1MM loan that a GSE displaces 4 $250K loans it could have done. Nobody needs to live in a million dollar house and nobody deserves government help to do it.
OFHEO makes it pretty clear they are against raising - lays it out in this report. But, I agree YAL, lots of pressure to give in to the pols.
Well ain't that the whole problem then?
Isn't all of this really rooted in Greenspan, who showed good sense early on, caving into political pressure and turning the Fed into a financial wrecking ball?
"It's the economy stupid!" may be the death of all of us.
How bad is it in CA? The december numbers will scare everyone. More foreclosures than sales in December in San Diego, and probably many other parts of the state. You'll see medians down 3-4% from the prior MONTH.
People! Now, just soak it up and think about the golden opportunities that await with large cheap loan soon to be available to help bail out the housing market;-}
I can hardly wait for the inflation that will result from all of this foolish bailout mantra to keep hitting the market.
Gold and Platinum are at records! Oil at record! Everything pegging the stops that can be exported.
Best bets over the long run- fixed jumbo loans to buy nice large houses that inflation will eventually destroy the value of the payments.
Watch the bouncing ball!!! Not going to be long term deflation Japanese style- oh no, big time stagflation to catch up those wages to make this all affordable.
I agree with CR roflol;-} Lather, rinse, repeat method of fed monetary injection combined with immense fed deficits.
good point. Way to remember the reason we have Fan & Fred in the first place.
One could argue that CA is 'permanently' higher cost, and therefore deserves a higher limit, tho. (the reason HI and AK have always had higher limits).
MTHood, the situation for the California state budget could get really ugly. We are only just starting to see the impact of the housing bust - and I expect house prices to fall much further - so the budget implicatons will probably be much worse in '08 and '09.
Well, there is an argument--I am not making it, I am describing it--that letting the GSEs take over the jumbo market would, eventually, bring it back down to reasonable.
The argument being that the GSEs would force the same kind of mix--mostly traditional FRMs, a few traditional ARMs--on the jumbo market. Without the IOs and neg ams and piggybacks, there would be fewer qualifying borrowers, and prices would fall back down to reasonable, and we'd all get another glass of BubbleUp.
It might even be logical and theoretically possible, but ain't nobody gonna let the GSEs buy jumbos just to stab it with their steely knives and kill the beast. Not what they had in mind.
The argument being that the GSEs would force the same kind of mix--mostly traditional FRMs, a few traditional ARMs--on the jumbo market. Without the IOs and neg ams and piggybacks, there would be fewer qualifying borrowers, and prices would fall back down to reasonable, and we'd all get another glass of BubbleUp.
Is the glass of BubbleUp here really due to innovations in the mortgage market, or was that mostly a byproduct of a deeper cause -- crazy insane monetary policy the likes of which we've never seen the likes of?
My arguments against excessive regulation are primarily rooted in the idea of not wasting time by solving the wrong problem as well as deluding ourselves into thing we've made things OK by firehosing housing and mortgages with a bunch of new laws.
"I was amazed at the percentage of IO / neg-am jumbo loans; almost 2/3 of all jumbos!"
This only shows that to maintain this insane Ca price level it is no longer enough to have low rates and more credit but also very creative mortgagage products which let you pay even less - classic credit based bubble.
In the Tulip bubble. toward the end they invented the Tulip call option . really they could not afford trading tulips any more so the cash was diverted to buying future contracts...
But "it might even be logical and theoretically possible, but ain't nobody gonna let the GSEs buy jumbos just to stab it with their steely knives and kill the beast. Not what they had in mind."
What do they have in mind?
My point is that there are many qualified homeowners in, let's say the Wash. DC area market that are inhibited from refinancing because a Jumbo 30yr fixed is around 7% today w/ no points (which is unattractive) while the conforming 30yr fixed is 5.625%.
With the average loan amount in this area over today's conforming limits, but the incomes to justify qualifying for a mortgage, wouldn't the greater good be served if Jumbo A rates came back down in this part of the mortgage market?
Yal:
FWIW I've tended to believe that OFHEO is against...
but the political winds are strongly for...
Yearning to learn | 01.14.08 - 2:40 pm | #
In the House of Representatives... very much 'for'... count up the number of districts in Cali, NY, Illinois, Florida - and you almost have a majority there.
But not in the Senate... California has as many Senators as does Kansas. Only way Kansas benefits from a rise in conforming limits is if it include wheat farms...
The battle to raise the conforming limits will be won or lost in the Senate. My guess is it stalls there.
The Founding Fathers had their shit in one bag when they divided the House & Senate... that is if you are like me and have learned to love 'gridlock'.
The SFV here in CA is basically at a standstill. The lowest home sales total in their history for the year. The lowest home sale totals per month for any month in history since September. The only people buying are those with more money than sense.
The sellers are holding hard to the prices except on the low end. That is falling hard. The sellers are just grudgingly following the market down (prices are falling, but much slower than financing is drying up). Only the foreclosures are pricing aggressive. No real big new home development possible so its all about the foreclosures now.
Nancy Pelosi, Speaker of the House of Representatives, has scheduled a meeting with Ben Bernanke this morning regarding stimulus measures to help the sinking economy! Wonder if raising jumbo loan limit will be discussed! I have a feeling the cap will be raised, despite all the ills that come with this action. The political wills are there!
I've heard that California is about to announce a state of fiscal emergency. We were saved last year by, not kidding, Google stock options taxes. The housing bubble is just adding napalm to the fire.
With the average loan amount in this area over today's conforming limits, but the incomes to justify qualifying for a mortgage, wouldn't the greater good be served if Jumbo A rates came back down in this part of the mortgage market?
No, they'd be better served if house prices came down. That extra 100 bps on the rate isn't the biggest problem here.
Look, what the GSEs do is "commodify" a market. They do not do this by writing restrictive legislation. They do this by being the only game in town, and forcing everyone to standardize product (loans) in order to meet their guidelines.
The reason the conforming dollar ARM market is so screwy is, as you can see, most conforming dollar ARMs didn't get sold to the GSEs. They went into bank porfolios or private-issue securities.
Now, the conforming fixed rates? The GSEs have always been the only reasonable execution on that. So conforming fixed rate loans are very uniform in credit quality. They are, basically, "commodities."
So if the GSEs were the only execution in town for jumbos, the argument goes, then jumbo product would become just as commodified as current conforming. Meaning, the rules would get stricter, the preference would be for fixed rate or long initial period amortizing hybrid ARMs, and all the "affordability" crap would go away.
That would be "rationing" of jumbo credit: a whole bunch of folk would no longer qualify for jubmo financing. It's not just a matter of the interest rate. If the GSEs announced that everybody needed a down payment and a realistic DTI and so on, that would weed out the market.
That, in turn, would help force RE prices back down--and hence loan amounts. So the argument here is that if you let the GSEs buy jumbos, there would eventually be fewer jumbos to buy, and the ones left would probably be of acceptable credit quality.
However, this process would of course just be another way of handling "deflation" of the RE market, but with the GSEs taking the risk this time. I am saying that folks in favor of raising the limit are not doing that because they want RE values to fall another 20%. They think that doing it will keep those values up.
And the whole idea that jumbo borrowers should pay the same or nearly the same interest rate as what is by definition an "average" loan amount is nuts, my friend. Bigger loan, more risk, higher rate. That's a no-brainer.
That's already in the works in alot of areas......except NYC and some very nice neighborhoods in Washington, DC.
Raise the limit | 01.14.08 - 3:24 pm | #
Then move to where you can afford a place. Or rent.
or maybe you and your komrads wanna form a kommune.
I would like to know what proportion of the jumbo market "should" be neg am or I/O. What I am thinking is that
- neg am and I/O may be appropriate for a certain segment of the population, e.g. wall-streeter with highly variable but generally huge, bonus.
- the segment in question generally makes lots of money and lives in a place where housing is commensurately expensive. (The fact that people for whom neg am and I/O are appropriate are wealthy seems almost tautological to me, but feel free to disagree if you think it is a good product for poor people)
- Given the above, one would expect that most people for whom neg am or I/O is a reasonable product will have non-conforming mortgages.
- As importantly, the larger the mortgage, the more likely it is that neg am or I/O is appropriate to the sort of borrower who can afford it. In fact, I would go so far as to say that not many people make a fixed salary that would service a really big mortgage (meaning one for more than a few million compared to the number who typically take in that much money in a year but have large variability in monthly income due to bonus etc.
- So overall it seems to me that weighted by dollar amount, a lot of non-conforming mortgages ought to be neg am or I/O. What I dont know is what that proportion should be. Does anyone have historical data from a period considered sane? Is 2/3 of the dollar volume just way out of line?
What I would find more worrisome is if a big proportion of the dollar value of the loans under the conforming limit are neg am or I/O, as this class of borrowers probably doesnt have nearly so many of the people for whom these products could be appropriate.
I know some people will be tempted to jump on this comment, saying how these loan types have been misused yadda yadda. I know, and do not contest this. What I do not know from a figure of 2/3 of the dollar volume is what this says about the extent to which these loans have been given to folks for whom they are totally inappropriate, and historical data would give me more of a sense.
Jan. 10 (Bloomberg) -- Lennar Corp.'s November sale of 11,000 properties in eight states set a price that may mark the bottom for the U.S. housing market: 40 cents on the dollar.
"They sold land at 40 cents on the dollar and they're happy to get it," Bryan said. "The value of land is eroding by the minute."
In Ca. all the homes are built from hawain Lava stone - that is why the homes are so expensive -shiping costs (plus the driveway are made of Gold - state law)
It might even be logical and theoretically possible, but ain't nobody gonna let the GSEs buy jumbos just to stab it with their steely knives and kill the beast. Not what they had in mind. but multiunits ALREADY have higher limits, so your hotel is covered.
Paulson in an interview with the LA Times implicitly argued for measures to artificially keep the housing price from deflating for fear of the onslaught of foreclosures and defaults, and the subsequent solvency crisis in the bad-debt-stricken U.S financial system. The leaders have chosen to stall the housing market, while saving the investment banks choked with their own-greed-concocted securities. Countrywide is the first to fall in this calculation.
I have a gut feeling that the countrywide bailout may go hand in hand with raising the conforming limit. It's obvious that the FED wanted Coutrywide to be bought up and may have tipped off to Bank of America that the conforming loan limit would be raised and they could sell much of Countrywide's bad debt to the GSE's. The GSE's would later need to be bailed out, but it's easier than bailing out Countrywide.
Maybe what's holding this up is allowing the other troubled lenders (I.e. Washington Mutual) to be bought up by other big banks so as to not give Bank of America too much favoritism.
"And the whole idea that jumbo borrowers should pay the same or nearly the same interest rate as what is by definition an "average" loan amount is nuts, my friend. Bigger loan, more risk, higher rate. That's a no-brainer."
I'm no longer in-the-loop, but 'standard' jumbo underwriting guidelines used to be less restrictive than conforming loans. That increases the layering of risk, and the need to price the loan accordingly.
It's just not as simple as a loan, is a loan, is a loan and all should be priced the same or nearly so.
Yes...lower the limit. That will teach all those money grubbing speculators...and teach them good!
Maybe we should go back, yes back in time to 2001 when conforming was $275,000. That'll bring prices down, and that right fast!
Let's punish everyone and get this over with! What were Freddie and Fannie thinking when they kept raising the limit year after year? Shoot, beats me....But hey, since it caused so many problems eff them and all the stupid people that got those darned govy sponsored loans anyway...
"The leaders have chosen to stall the housing market, while saving the investment banks choked with their own-greed-concocted securities. Countrywide is the first to fall in this calculation."
Don't you love all the prior talk from the American financial experts about the how Japan failed to fess up and take it's losses! Their was no political will for Japan in 92 to tell the population that their property would be worth 50 to 80% less in ten years and there is no political will in this country either. At least we know what's coming most American's will be watching Disney RE channel waiting for pixie dust.
Do the GSEs so dominate the conforming market that it is reasonable to conclude that private MBS are almost 100% composed of loans that would not have met the GSE's standards?
I'm no longer in-the-loop, but 'standard' jumbo underwriting guidelines used to be less restrictive than conforming loans.
It depends. We did used to require bigger down payments on jumbo properties.
We also allowed higher DTIs. Part of that was the recognition that very high-income borrowers have a lot more in absolute dollars left at the end of the month at a 45% DTI than the rest of us do.
The biggest problem in traditional jumbo underwriting was dealing with the volatility. Luke's comment here puts a somewhat different spin on it, but it is true that higher incomes tend to be more volatile than median ones. (Now, if these folks also have a lot of wealth already, that's different. It's your newly-minted Wall Street trader with a big salary and no assets to speak of who is risky.)
There was also always the marketing time problem. The more expensive the house, the longer it generally takes to find a buyer. That means that if you have a borrower who might have some trouble immediately replacing a high income in a job loss, you got the double-whammy (takes too long to replace income, too long to market property and get your price).
Now, you did have banks willing to make portfolio loans at 100% for the local dermatologist. But you very often had that bank requiring a $100,000 deposit account first. Other assets talk.
This phenomenon we have today of "mid market jumbos" is pretty unusual.
Do the GSEs so dominate the conforming market that it is reasonable to conclude that private MBS are almost 100% composed of loans that would not have met the GSE's standards?
so it was 2% of the mortgage market. By dollars or by number of loans? What was it as a dollar-weighted percent of the non-conforming market?
the reason I ask is that if the non-conforming market is a small piece of the whole market, then 2% of the whole market doesnt mean much as a number ot compare it with. Moreover, dollar-weighting ought to shift up the value for the percent of neg am and I/O. I can easily think of ways in which 2% of whole market translate into 20% dollar weighted of non-conforming, so I know you can too.
What I am wondering is how does 2/3 dollar weighted proportion of non-conforming now compare to history, or is there just not enough history?
Paulson in an interview with the LA Times implicitly argued for measures to artificially keep the housing price from deflating for fear of the onslaught of foreclosures and defaults, and the subsequent solvency crisis in the bad-debt-stricken U.S financial system.
Whether or not that's the right thing to do it's scary to think we've gotten to the point where we have to consider it.
Ultimately I don't see how it can be done with out wiping away part of people's savings for retirement, their kids education, etc. either through defaults or inflation. And we've already got problems there too.
It looks to me like there's no outcome that isn't completely gruesome.
Do the GSEs so dominate the conforming market that it is reasonable to conclude that private MBS are almost 100% composed of loans that would not have met the GSE's standards?
Wasn't that starting to break down in the 'happy daze' - the middle of the bubble years? I mean a lot of what was under conforming limit in say 2005-2006 wasn't necessarily 'conforming' was it? That was the whole 'Broker Universe Outpost' meme, right?
Or was REAL GSE conforming still the vast majority even way back then?
Gotta also remember that a Jumbo loan used to buy you something truly special.
That's exactly right.
So the problem with the classic "jumbo property" was that you had to make sure you weren't getting an "overimprovement" or the only 12-bedroom home in Podunk or some elephant with an indoor baskeball court or some other weird thing that will limit the number of serious buyers.
Every jumbo loan I ever dealt with until about 2002 or thereabouts automatically required two independent appraisals just for starters. (Actually, there is special certification required of the appraiser if the property value exceeds $1MM.)
Those days were gone. Maybe they're coming back. That'll be one more thing for the jumbo crowd to bitch about--having to pay for two appraisals.
I mean a lot of what was under conforming limit in say 2005-2006 wasn't necessarily 'conforming' was it?
There are two diffent senses of the term "conforming" floating around here.
In the current context we mean "conforming dollar." That is, the question is just whether the loan amount is above or below the GSE limit.
The more "robust" sense of conforming is what MarkS is asking about. And the answer is that yes, in that period more and more "conforming dollar" loans did not "conform" in the robust sense (met the UW guidelines and general eligibility standards of the GSEs, even if they weren't sold to the GSEs).
As many who have been there know, for the most part, the SVF will not, nor should ever be allowed, to have jumbo loans again based on its housing stock.
ac It looks to me like there's no outcome that isn't completely gruesome.
In looking at the comparisons to prior economic contractions, it occurs to me that one difference is that before we were a strong creditor nation, especially in 1929. Now we are a major debtor, and what's more, have major expenditures looming. While the entitlements cannot be inflated away, the rest of the debt can.
If we go into deflation that is not quite short-lived, that debt becomes even harder to pay off. It seems to me that default on the debt is a real possibility.
Inflation threatens dollar status as a reserve currency.
It was only a matter of time before the Calilfornia long knives came out. And when TSHTF blame California won't be far behind. Followed by the ever so predictable punish California reactions.
Keep in mind, California has been a net Federal donor State 20 of the last 21 years sometimes getting back as little as 76-78ยข for every dollar sent off to D.C. All you smug States had best get ready for a flow of funds reversal that will make the Iraq war look like a bakesale and for an especially mobile population descending on your communities. Unlike the great migrations of the 1930s these people are not going to bring hard work ethics and nothing worse than funny accents. They'll be arriving with a sense of entitlement asking for directions to the public assistance office.
If REOs/distressed sales count my house has "lost" about a half million so far from the peak on Oct 6th, 2005 shortly after breakfast. There may be as much as another $300k to go. The idea of making those residents who elect to stay pay for the mistakes of others will not have the results you other 49 imagine.
Ya two dudes the brokers will have to lean on to hit the numbers... life really sucks.
dryfly | 01.14.08 - 4:01 pm
For the appraisers it does. But they ain't budging these days.
Alot of people living in 'hoods where their comps are now what the last 3 foreclosures went for....and you can just imagine the "wealth effect" it is having on these people. From Tiffany's to COSTCO (or should I say KOSTCO) in about 2 minutes.
Surprisingly on topic paper I came across today from Akerlof-
Looting: The Economic Underworld of Bankruptcy for Profit:
We use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust.
AC,
The cascading collapse of financial assets one after another in the highly-leveraged and asset-dependent US economy should be scary! Imagine the vision of every jumbo-sized, ultra-luxurious casino in Las Vegas implodes one after another. That is too spooky.
The mission of the GSEs is to promote credit facilities in order to support homeonwership for the everday John and Jane Does. That we are going to expand their credit scope in order to keep prices high seems to be in direct contradiction to their mission. Before it is all said and done, I think someone will remember this. I just dont think it is going to happen.
Damn right. When Tiffany's has those big buckets of snacky stuff with the wasabi peas in it for $9.99, I'll go shop at Tiffany's. Until then, it's Breakfast at Costco for me.
"Gotta keep in mind that until this housing bubble hit, MOST of the housing in California still fell UNDER the conforming limit."
Around late 2000? Would have been a push to get a 3/2 less than 20 miles from the ocean for $400-$420K -- anything you'd want to live in, anyway. And I suspect the limit was lower then.
Modesto, Stockton, Sacramento, all those areas: you could have bought a palace for $325K back then.
Before it is all said and done, I think someone will remember this. I just dont think it is going to happen.
If anyone remembers it will be in the Senate - without the Senate going alone solidly it's all just political rhetoric. I do not see Kansas, Iowa or Oklahoma senators bleeding for Santa Barbara & Manhattan 'middle class'...
They will need 60 votes to gain cloture - I doubt they get them.
Seriously somebody with a prominent blog (hint CR &/or Tanta) ought to do an email campaign and ask each Senator & HOR rep via email - just like Talking Points did regarding Social security... post the results.
If you don't want conforming loan limits raised, you should write your representatives in Congress. I just posted my opposition to the legislation mentioned here through the email contact systems of both of my senators and my congressman. It makes a difference.
"...
BofA perhaps felt compelled to intervene to protect its earlier investment. And it is better placed to act than others. It has been far less damaged by the mortgage mess than its arch-rival, Citigroup (though it has booked sizeable investment-banking losses). Having trailed for years, BofA is now worth $34 billion more than Citi. If the Countrywide deal pays off, it will be the undisputed leader in mortgages, as well as in credit cards (thanks to its purchase of MBNA three years ago) and overall retail banking (it is the only bank close to the 10% regulatory ceiling on nationwide deposits).
Countrywideยs attractions have been all but forgotten amid the รผber-pessimism over housing. It has 9m mortgage customers, to whom BofA will be itching to sell other financial products (though cross-selling is not easy). Its mortgage platform has unparalleled technology. The key will be to combine its loan-origination clout with BofAยs strength in distribution to investors. In short, Countrywide has plenty of franchise value.
Dick Bove, of Punk Ziegel, believes that mortgage lending remains a good business for banks because of its (generally) steady recurring income streams. Even in the short term, it will be attractive for careful lenders, since profit margins have widened as credit has dried up. BofA is promising caution. It will ringfence Countrywideยs non-performing loans, handing them to a special workout team. And it will stop making subprime loans altogether. Not that Countrywide is doing much of that anyway: it lent a mere $6m to subprime borrowers in December, down from $3.7 billion in the same month of 2006.
The risks of this deal should not be underplayed. But BofA will see advantages beyond a potential lift to its mortgage business. The deal neatly lets it breach the 10% deposit ceiling because, under an arcane law, a bank can do so if it is through a takeover of another bank with a thrift charter (which Countrywide has). And the takeover will let it curry favour with regulators and politicians who want to see the markets stabilise.
This does not necessarily herald a wave of consolidation: Countrywide was in a uniquely awful position. But more deals are likely as weaker banks look for a wing to nestle under. Washington Mutual, a big, struggling mortgage lender, has reportedly held preliminary merger talks with JP Morgan Chase. Citigroup and Merrill Lynch have tapped sovereign-wealth funds for capital and are returning for more. Both banks are expected to announce huge further writedowns when they post fourth-quarter results next week. These losses continue to cast gloom: stockmarkets fell after the Countrywide deal was unveiled."
Trader Joe's is definitely holy ground for the champagne tastes/beer budget crowd. Just don't read the list of ingredients too closely....
Bob Dobbs | Homepage | 01.14.08 - 4:19 pm | #
Thanks, I'll take this into account once I find those last two nickles i have to rub together I just know I lost in my car seat cushions.....
Greenspan in one of his recent interview defended his easy-money policy by scriptically arguing and posing the question that where would the US' economy be after 9/11 and the stock bubble burst were it not for the booming housing market and the derived rising consumption made possible by cheap credit? Then one could argue that the housing bubble was the offshoot of the Administration's policy to prop up the anemic economy. Stock bubble followed by housing bubble followed by another asset bubble, have we become asset-inflation prone? Will this be the trend? Any idea?
Greenspan in one of his recent interview defended his easy-money policy by scriptically arguing and posing the question that where would the US' economy be after 9/11 and the stock bubble burst were it not for the booming housing market and the derived rising consumption made possible by cheap credit?
That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live.
Thanks for that link, Andrew. But, may I suggest crisper snipping next time around?
[snip]
The deal neatly lets it breach the 10% deposit ceiling because, under an arcane law, a bank can do so if it is through a takeover of another bank with a thrift charter (which Countrywide has).
[snip]
Someone here sure knew their arcane law the other day. No antitrust, no foul, I guess.
Personally I think it's better not to promise what you can't deliver, or be honest that you can't deliver it.
They can't know - that's why the 'future liability' issue is so bogus... no one can know what the economics will be like in 30 years... I mean look at all the crap that's happened between 1998 and now... then stretch that out another 20 years?
The only promise that matters is the one 'society' makes to all its citizens... that if we prosper we will share with all, if we don't then all share the hardship. If that isn't in place then all the laws, regulations and fine print is worthless.
Any number of coastal cities were far below your $400-420 guesstimate.
My housemate's place in Santa Cruz was in the middle of zooming from $300K to $500K, 1999-2001.
Early access to dotcom winnings stimulated the bay area region. The rest of the state did get in on the party until the interest rate drops 2001-2003 and abandoment of traditional lending standards 2002-2004.
(Begin Stupid Government Mode) I think they should raise the limit to infinity, pass a law mandating that "housing only goes up!" and only give out money to lousy credit risks. Also, if you can afford a down payment of 1% or larger, you should get NO money from the government AND should be taxed to pay for bums who want to live in McMansions they can't afford.
After 1 week of this, we can use our dollars as kindling as we all go back to the barter system, or, if we're lucky, some sort of gold standard.
Unreal: cheap money created the problem, so how is more cheap money going to fix it? And, as we all know, if the conforming limit goes up, eventually the restrictions on those loans will go away until the government is handing out teaser-rate, sub-slime loans to everyone who walks buy. They can then be rolled into Treasuries or something, making sure there is absolutely no way to protect one's wealth as it is all inflated away. Well, there IS gold, but they'll outlaw it or something.
We'll all be able to live in McMansions, at least for a few years until the loan resets. Too bad we wont' be able to afford the $1,500 a month heating/cooling bills, or the $10 a gallon gas needed to get too and from work on our $9 per hour job!
Can anyone contribute more data (or rich anecdotal evidence) on the distribution of Option ARMs in specific locaities? If 2/3s of jumbos are IO or Option ARMs, then these are certain to be more highly concentrated in localities with houses that were selling for above the median price.......
A map showing the distribution of Option ARMs within California would be a little like those earthquake liquefaction maps that show the places that will sink into sloshy sand and mup when the big one hits.
"That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live."
Isn't it true with our "miraculous" economy, which has produced average annual growth of 3%, that we must finance with ever-increasing debts, borrow from future generations, roll-over debts with the printing press to maintain (smoothing) this miraculous growth story? Seems that way until...?
I recently wrote my senators and representative about the housing/mortgage/credit mess. I urged them to not support measures that would keep home prices beyond traditional, reasonable levels. Two form letter responses. Neither on topic. Though they did express much compassion for families...
making sure there is absolutely no way to protect one's wealth as it is all inflated away
I'm not entirely sure inflation is in the cards. Wages are what they are, and I'm a subcriber to the now-common viewpoint that the difference in 2008 to prior decades is the globalized and no-longer collective-bargaining labor market. Credentialled rentiers -- doctors, lawyers, and teachers -- have bargaining power to raise their wages, but J6P -- not so much anymore.
That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live.
Yeah, but it also gives onlookers more time to scream out to the PPT to set up one of those enormous pillows on the sidewalk below.
The problem is, even if the pillow arrives in time and does the trick, I fear the first thing the American consumer will do is dust off, get back on the elevator, and push 30.
Finally, a $500,000 mortgage owned or guaranteed by Fannie Mae or Freddie Mac would require twice as much capital for regulatory purposes as a $250,000 mortgage. Permitting the Enterprises to purchase jumbo mortgages, even if only for securitization, could absorb capital that would otherwise be used to support the purchase of a larger number of smaller loans, especially if Fannie Mae and Freddie Mac faced capital constraints.
" That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live."
Yeah, but it also gives onlookers more time to scream out to the PPT to set up one of those enormous pillows on the sidewalk below.
The problem is, even if the pillow arrives in time and does the trick, I fear the first thing the American consumer will do is dust off, get back on the elevator, and push 30.
The Fed has promised pillows -- they always said they'd be there to "clean up the mess".
But I think people are starting to panic a bit because the Fed hasn't come up with any pillows so far and we're flying past the 4th floor...
If anyone remembers it will be in the Senate - without the Senate going alone solidly it's all just political rhetoric. I do not see Kansas, Iowa or Oklahoma senators bleeding for Santa Barbara & Manhattan 'middle class'...
As one of the Santa Barbara "middle class", I am honored that we would be mentioned in the same sentence as a Manhattan resident. I would be the first to say that the last thing in the world I want is anything to make people believe that our current home prices are "normal". If I lived anywhere else, I would be considered pretty well off (think top 10% across the country). Here, I can barely start looking at entry-level condos. That needs to be "fixed".
/Rant Off
One other question: where can you find out how purchases were financed in a given geographic area?
there's no displacement...
that would indicated a defined "container"
this is a bubble.... with expandable walls....
anybody,ANYBODY, who wanted a loan, got one...
expandabubbble | 01.14.08 - 3:56 pm |
Not a GSE-backed loan. The GSEs do have limits on the amount of stuff they can do. The fog-the-mirror standard was for non-conforming loans of all sizes.
And, as Tanta pointed out, if the Jumbos were required top be truly conforming (LTV, DTI, etc), they will not be affordable by, or available to, the people in the houses that they could only afford because of the non-conforming crud. So it won't much help CA anyhow.
I'm not entirely sure inflation is in the cards...
It would be a lot easier to justify inflation it Americans had ample real savings. Then there's something to redistribute via inflation, but with the negative savings rate we've got, diminishing real savings through inflation might be no better, or even worse, than asset deflation.
Again, we keep getting back to the fact that there's no way to fake real wealth, and (relative) lack of real wealth is the fundamental problem here.
The best shorts in CA are surfin' jams . . oh that's not what you meant . .
You can bet the all Pacific Coast state governments and also the states in intermountain West are paying attention to the CA budget problem.
Much of the neighboring states' price run-up was fueled by CA equity
refugees over the past 20+ years; if they are not going to get "rich" CA refugees, there will be no easy welfare money for the "other kind".
There is much more to this but I must leave now.
Sorry about that Schnaps. You have a point, there's enough reading and info here as it is. I will try to curb my enthusiasm for the blanket cut'n'paste.
ac, the relitter's credo was always fake it till you make it. the best scenes in the movie American Beauty involved Annette Benning pumping herself up for success selling houses.
kevin spacey had the right idea, just light up something good and find yourself...
or lose yourself too.
I have more credit card debt than most of you- but the rates are sooooo cheap. Is it wrong to borrow more to short homebuilders?
For those shorting home builders. Toll Brothers just announced their first development in our area Colonie, NY (upstate). $400,000 homes. median household income around these parts is $60K or so.
And sales prices in the county were down from a median of $210K to $170.
People around here are excited because they think that means we've finally "made it". I try to temper their enthusiasm.
"I'm not entirely sure inflation is in the cards..."
Anti-trade, protectionism, scape-goating foreigners for our problems, keeping jobs at home, all have inflationary effects, and all have been uttered among the current crop of presidential candidates. It's in the foreign CB's interests to see US undergoing deflation, while it's our interest to inflate away our debts.
Just got a neighborhood real estate newsletter. It states " Affordability is still a major issue. Congress and the White House are working on this with FHA loan increases and higher VA guarantees." I was struck that the author thought increasing loan amounts would help with affordability. It seems that most efforts to make houses "more affordable' involves not making the price of houses cheaper or raising incomes, but making debt either "more affordable" or making larger loans possible. From the mortgage interest deduction, to teaser rates, to I/OS to allowing lower down payments, it all seems to enable mainly larger loans. Almost inevitably the cost savings temporarily engendered are lost as prices increase. conversely high down payment requirements, higher interest rates, lowering conforming limits keep a ceiling on house prices, ultimately keeping them more affordable. One has to wonder if the goal is really making housing affordable versus boosting the profits of lenders and builders.
One other question: where can you find out how purchases were financed in a given geographic area?
paul_in_sb | 01.14.08 - 5:11 pm |
As a UCSB Alum, I would love to help. However, the only thing I learned besides my perverse view of economics is how to get wasted.
Isla Vista will do that to you...burp.
"Stock bubble followed by housing bubble followed by another asset bubble, have we become asset-inflation prone? Will this be the trend? Any idea?
Not much longer. The ancient-relic axiom, "Take the cash, let the credit go," will soon be on the lips of everyone. Surplus credit made available by CB's to banks with balance sheet problems will be puny and ineffective as they grow ever more reluctant to lend to borrowers without substantial assets with which to repay, i.e., those who don't need to borrow.
The floor under prices will be found after most of the insolvency explodes like a pus filled pimple and the worthless credit is offset against both fictitious asset prices and prematurely recognized profits.
We have a long way to go, and the direction is down.
We may occasionally have a chuckle here as we congratulate ourselves for having understood and anticipated how we got to THIS moment in time; none will be laughing when the unraveling nears completion.
The economic collapse may be terribly painful, but I suspect the civil catastrophe that followed past crashes will paraphrase themselves and tragically, be unspeakably deadly and horrific.
Again, we keep getting back to the fact that there's no way to fake real wealth, and (relative) lack of real wealth is the fundamental problem here.
I would argue 'wealth' is nothing but a claim against future production either via a claim against the profit (equity) or a piece of somebody else's 'debt service'.
So if you go back one farther not only do we have declining 'wealth' but also a weakening of the productive capacity that produces wealth...
x-man | 01.14.08 - 5:36 pm | # BEL AIR PRESBYTERIAN just laid off 30% of its staff due to offerings falling off a cliff
Huge LA developer KOR GROUP just laid off close to 30% of its staff.
We don't need no stinking jobs. We've got 100 years of built-up capital infrastructure we can borrow against to get all the cash we want. Deficits don't matter.
"That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live."
NEW YORK (CBS) ― A crane at the construction site of the Trump SoHo tower in lower Manhattan collapsed causing one worker to fall to his death from the 46-story building.
The incident occurred around 2 p.m. at the building located on 246 Spring St. when the crane was apparently carrying a load of concrete beams and collapsed.
Officials confirmed the worker was pronounced dead on the scene after falling onto the street. Three others suffered minor injuries.
Tell me where to find Ben's helicopter. Cause from where I'm sitting, I ain't seein' it.
over the legal limit of BAC | 01.14.08 - 5:36 pm |
Ben isn't the only game in town - think fiscal stimulus too.
I see it like crazy near me - farm subsidies cloaked in energy independence... its a huge boom.
I think the next 'show' will be defense spending (ah-gain)... The Saudi deal announced today as a warm up. All that crap wrecked in Iraq will need to be fixed...
Then there will be all those bridges... gadzooks if they don't get fixed now we'll all end up in the Mississippi.
If this 'recession' results in more folks w/out health insurance - look for 'temporary help' here too - subsidies & such (no single payer - don't want no stinkin' socializm).
Lastly tax cuts - watch Dems & GOP fall all over themselves to get in line to offer their friends even more.
I see the fed holding the line with banking (just keep the system from failing) and fiscal stimulus topping off until all our cups over floweth... amen.
Dataquick should report either tmw or next tuesday. I think in January they usually report a bit early and then the next week they report the Q4 foreclosure report.
Should be messy. Though NOD dropped a bit before the Bush plan announcement and then spiked after. So the foreclosure report might be slightly less bloody. Sales will be off a cliff though.
Ben isn't the only game in town - think fiscal stimulus too.
How much do we suppose it'll take (that even the Congress House critters won't be able to siphon up against Senate push-back) to give all the defaulters sufficient $$ to avoid FC, and sustain current values for the rest of us?
One (or two million) rotten apples will spoil the rest...
Isn't this train already a down-hill runaway, with a powerless engineer, sleeping switchmen, and well greased rails?
Ben isn't the only game in town - think fiscal stimulus too.
I see it like crazy near me - farm subsidies cloaked in energy independence... its a huge boom.
dryfly | 01.14.08 - 5:48 pm
Very true, but I wasn't necessarily alluding to that.
But I have to agree with you. Fiscal stimulus will play a huge role in the coming year(s). The ramifications of this are probably more damaging than any of Ben's little black helicopters.
Whether it's a Repub or Dem elected next, it won't matter.
It's already too late for CA, and it is going to get so much worse. The most recent employment numbers basically show an economy dead in the water, and that is BEFORE the shate really hitting the fan the past two months. Expect q108 to be contractionary. On top of this, weve got the upcoming axe swinging in the direction of govt jobs, many many more residential construction job losses when the building boom is finally reined in, and only now just starting the loss of commercial building jobs as vacancies head higher. That's later this year's treat. Then of course, once the global tech boom slows, guess what happens up north? Ya. The only thing keeping the economy propped here will have its head lopped off again soon. The best part is that all this hits even before the ARMS have reset, let alone the beginning of the real pain when the IO Negams kick in.
And the amazing thing is that there are still SO many people who cannot see this train wreck coming.
But I have to agree with you. Fiscal stimulus will play a huge role in the coming year(s). The ramifications of this are probably more damaging than any of Ben's little black helicopters.
Some of it is worse than others - if limited & targeted and temporary - no big deal. But that's never how it is. As for tolerable vs bad vs worse... it depends on how much 'distortion' is created. I personally think ag subsidies are about as bad as they get... but then I live in farm country and see the result up close. If I lived in bubbleville I might think housing industry subsidies are worse.
There is a place for gov't & 'stimulus'... but its always overused eventually. But then markets fail too - so what are ya going to do?
:::
We're turning Japanese,
I think we're turning Japanese,
I really think so!
Before we are done we will wish we handled this as well as the Japanese - I'd bet on that. Almost no Japanese ended up homeless, almost no Japanese starved, they had an increase in unemployment and a decline in GDP - about half of what we usually run. BFD.
Also note the compensation their exec's get vs. ours.
The only thing that really suffered in Japan was their statistics. That's EXACTLY how a society should treat their own citizens through adversity. So what if it takes an extra decade to return to 'growth'... how long has their society been around? They got time - meanwhile make sure no one starves. A lesson there.
Before the epicaricacy party over California gets going I need to take away the punchbowl. Just consider the impact to the EU (and the world economy) if France were to implode.
Now that I have your attention and you understand that California is not a spectator event for anyone anywhere it is time to hold some perspective. Ask yourself; right now will the US be better off with or without California? Tanta loves to beat the drum over workouts versus the alternative on a case by case basis. Multiply by 35 million. You other 49 need a functional California far more than California needs anything from you that may come with too many strings. Force the Golden State in a Treaty of Versailles and you will be eventually repaid the same way that bright idea worked out.
This is total crap pushing for 40 year mortgages with zero down and then the Jumbos of a million; these are crooks!
OFHEO repoprts confirm time after time the corruption linked to Fannie, so the only thing that chganged was putting Paulson in a position to manipulate his position to push an agenda! This is criminal!!
Dopnt let this issue fall off the radar, this is a massive issue that needs to be headline news daily!
If NAR is able to push this emergency agenda forward it will dilute the hell out of Americas future, by allowing less and less equity to go into home investments; fewer people will have pride of ownership and more and more people will allow properties to depreciate.
Talk about the economics of how society may be impacted by allowing anyone that wants a house to get it; did anyonw watch the results of nodoc loans and subprime manipulation, which is resulting in an economic crash, which is just getting rolling? NAR and Congress are pushing this very bad agenda, and then what.......40 year mortgages with zero down...........will help America???
Please stay on top of this stupidity and write about this!!!
Yeah, we're walking Japan's high-wire, but chose to forgo the net.
Nothing -- not ZIRP, subsidies, work programs, etc. -- will work if our foreign financiers choose not to go along. How long will it be before the IMF/WB starts advising us on "austerity" programs?
Is there any way to sort of determine what the US can "afford" in the sense of expenditure on housing as a reasonable percentage of income?
That would need to take into account rental properties as well as owned properties. Both rent paid and some function of "leverage" on owned property. But that may need to try to separate the "investment" in housing from the "rent" .
Put simply, if our national income base support "x" amount of spending, you can identify whether a "bubble" is occuring or whether there is just a legitimate rise in housing expenditures as a function of income. Just comparing income percentage rises with housing seems too simplistic.
Rob Dawg - "You other 49 need a functional California far more than California needs anything from you..."
With one exception .... water.
Not disputing your point, just pointing out that there is a bargaining chip still left on the table.
r0m30 | 01.14.08 - 6:36 pm | #
No offense. I have a strong incentive to remain civil and respectful. I've heard this one before too. Okay, not being a jerk here but California and water is the stuff of legend and movies. "We" have all "we" need to remain wasteful for generations. Half the water in the canal is lost to evaporation/leaks. 112 sq miles of plastic and pool liner is nothing.
Oh, and if "water" is used as a bargining chip. Any guesses as to how Oregon and Washington and Colorado River participants will go if the choice is Nueva Kalifornia or BosWash arrogance?
"Rob Dawg - "You other 49 need a functional California far more than California needs anything from you..."
With one exception .... water.
Not disputing your point, just pointing out that there is a bargaining chip still left on the table."
The vast majority of the water in California goes to ag. Update the 50-80-year-old agreements about who gets what for how much, and change incentives, and agriculture would adapt to using less water. Yes, and get serious about improving the infrastructure.
Also... every time I hear someone from a flyover state go "haw haw" about those jerks in California getting theirs, I think, "You all need us more than we need you..." With some adjustment, California could function as a separate nation. Could Kentucky?
California is in for some hard times. But we'll be back, as long as there are people in Iowa who look around and ask themselves, "Why?" (Got that line from an ex-Iowan HR trainer.)
"Keep in mind, California has been a net Federal donor State 20 of the last 21 years sometimes getting back as little as 76-78ยข for every dollar sent off to D.C. All you smug States had best get ready for a flow of funds reversal that will make the Iraq war look like a bakesale and for an especially mobile population descending on your communities."
We here in MN would love to get 76 cents back, since we normally get less than 70 cents back!
You other 49 need a functional California far more than California needs anything from you that may come with too many strings.
yawn. first of all you couldn't be more wrong.
we all need each other. California without the 49 other states would be NOTHING. (you can try the "California is the Xth biggest economy in the world" line, but that would collapse in a second if you weren't part of the US
The US without California would be way worse off... but still be the US.
get over California...
Ask yourself; right now will the US be better off with or without California?
better of course.
California is a great state. But don't drink too much of your own koolaide. The adage "when california gets a cold, the US gets the flu" is 100% wrong. When the defense industry cratered, California got the flu, and the rest of the US had a mild cold. Some states hardly noticed at all.
It would be a cold day in hell before you could convince Minnesotans that we need to protect million dollar homes in California (and we know cold here).
The massive Colorado River winds its way through the southwestern United States before terminating in the Gulf of California in Mexico . Along the way, the river provides water to seven states including California , with each state's water use determined by the Colorado River Compact of 1922. According to the compact, California is permitted to use 4.4 million acre-feet of the Colorado annually, but for over a decade, California has been using well beyond that.
If California wasn't part of the US, how do you think they'd get water??? hmmm...?
already the wars are beginning, and Cali is PART of the US. The 7 states that share the Colorado river are suing each other up to the Supreme Court.
The Great Lakes fly over useless lands of which you speak have made a compact that we will NO LONGER send more water to the southwest
You think gold and oil are important. They are nothing compared to WATER.
this reminds me of what its like when the family budget got low as a kid, all of a sudden suzy's clarinet lessons where no where near as important as jimmy's drum lessons. but mommy still had to drive the car all around town to bring them to and fro, oh and to pick up 2 gallons of milk three times a week.
let the bickering begin
for me, i say, in the best Clay Davis voice possible - shiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiieeeeeeeeeeet
The adage "when california gets a cold, the US gets the flu" is 100% wrong. When the defense industry cratered, California got the flu, and the rest of the US had a mild cold. Some states hardly noticed at all.
Funny that "Minnesotans" got the capitalization and "california" did not.
You won't be asked to protect my million dollar home in California BUT you will ultimately find it in your best interests to protect 'some' million dollar homes in California.
Totally agree with your sentiments that the vulnerable need protection. Whenever I hear anyone going on about welfare queens etc, I like to point out that my wife was a beneficiary of food stamps when she was a three-year old (her mom was going to law school and was dirt poor at the time). I don't like the idea of anyone, let a three year old going hungry.
That said, Japan has its own problems with how it handles welfare:
"One man has died in each of the last three years in this city in western Japan, apparently of starvation, after his welfare application was refused or his benefits cut off." In Death Diary, Japan Welfare Is Cast as Killer - NY Times
Mortgage originations for loans to buy homes will decline 18 percent to $955 billion in 2008, the MBA forecast said. That's almost half the $1.5 trillion lent in 2005 as the five- year real estate boom peaked. In 2009, purchase originations will rise 5 percent to $1 trillion, MBA said.
In other words, it will take 2 years for mortgage originations to be 2/3 what they were 2 years ago!
TJ said: Gotta keep in mind that until this housing bubble hit, MOST of the housing in California still fell UNDER the conforming limit.
And it will be there soon. Someone just posted on the HBB that a 90274 sales went through for $585. That really isn't too big of a down payment to do with a conforming loan...
The great squish down is here. You can afford $417k (assuming you qualify) plus your down payment. That is too lose of credit... but its what we have. I think it will work for CA.
"One man has died in each of the last three years in this city in western Japan, apparently of starvation, after his welfare application was refused or his benefits cut off." - NY Times oref=slogin
rcyran | 01.14.08 - 8:24 pm | #
Ya everyone has some of that - never good. But when you look at their lost decade it is amazing they didn't have more and I mean a LOT more.
On the other hand I don't think anyone knows how many committed suicide from the loss of face from losing their job, savings or status. I bet there were a lot.
Each culture handles the dark side differently - we all have something to learn.
Funny that "Minnesotans" got the capitalization and "california" did not.
Rob Dawg: read my post again. You'll see that california was a slip of the shift key, because in the same quote I have California written.
The adage "when california gets a cold, the US gets the flu" is 100% wrong. When the defense industry cratered, California got the flu, and the rest of the US had a mild cold. Some states hardly noticed at all
way to argue the substance of my post by the way.
And FWIW: I'm a born and raised Californian. Moved to minnesota (happy?) a few years ago because the opportunity was better here than there for me. I love California and think it's a great state... it's simply not as important as Calfornians evidently seem to think it is. Important? Yes. More important than the rest of the US? Not even close.
Could California do well without the US? Doubtful. Could the US do well without California? Probable.
I'm just saying that it will be VERY difficult to convince the "useless flyover states" that we need to give economic assistance to people living in Multimillion dollar homes. Especially when you do it with such arrogance.
Listen to yourself you whine like a teenager.
"waah... we are so great... you need us more than we need you... we're so awesome... you'd better give us money so we can all have million dollar homes or you'll be sorry! we're not Kentucky you know, we could be a nation without you, and then what would you be??? you'd be California-less!!! Ha! Then you'd see how awesom-o we really are! What do the flyover states have? Nothing. What do we have? Everything! If California has a runny nose, the rest of the world dies of the bubonic plague!!!"
It makes me sick when I think about the percentage chance that this conforming limit is raised.
ESPECIALLY in an election year, with the various candidates vying to win the "big states".
let's see here... the big states to win include:
California
New York
Florida
Do those three states have an interest in raising conforming limits?
so what is the conclusion ?
will they allow to increase the limit ?
Are they pushing for it or resisting it ?
Raising the limits does seem rather perverse to me when excessively big loans were a major cause of all this mayhem.
I wonder how many seconds/HELOCs are mixed into that Jumbo picture. 26% traditional FRM among jumbos - goodness.
Yal, I don't think OFHEO is a fan of increasing the limit - they argue the risk and the capital requirements for Fannie and Freddie would increase significantly.
I was amazed at the percentage of IO / neg-am jumbo loans; almost 2/3 of all jumbos!
Best Wishes.
Yal:
FWIW I've tended to believe that OFHEO is against...
but the political winds are strongly for...
For BB at the FED to have endorsed this idea while lowering rates and saying bubbles are not desired or forseeable is _________?
.
People with the IO jumbos are the "rich" people with platinum credit cards.
OFHEO makes it pretty clear they are against raising - lays it out in this report. But, I agree YAL, lots of pressure to give in to the pols.
MarkS, yeah, I bet many of these loans had a 2nd too. Countrywide had $32 billion in 2nd lien home equity loans in their portfolio - probably mostly sitting behind these IO and neg-Am jumbos!
Speed, exactly! ROFLOL.
Best to all.
You're not rich if you need to borrow $500,000 to buy your home.
Not only is it an ugly scenario, the charts make clear that the Seattles and Restons of the world are going to be IDS rather soon as well.
hey , maybe now i can get that place on whale watch way....
screw waiting around...
it's only paper, nothing to get upset about
Wow.
Just repeating to myself to let it sink in: CA has half the jumbos, and 2/3's of jumbos are IO or Neg Am.
CR,
When you get some time, could you estimate just how bad it's going to get for CA.
For example, while the 2007 loans may look that bad, how bad does it look if we take the loans from 2003-2007. I'm guessing a lot fewer IO/NegAm, but how much "better" is it?
I've seen figures like this before, and maybe I just didn't take them seriously. But in CA we're already facing a "budget crisis", so a stockpile of IOs and NegAms waiting to explode over the next, what, 24-48 months might cause some -- what's the term? -- pressure? Inconvenience? Wailing and gnashing of teeth?
It's hard to put into words as to what those charts say about the near term prospects of California ... well, words that are generally permissable on blogs, that is.
Wouldn't raising the conforming limit and keeping the same underwriting standards of Freddie and Fannie help close the spread from Jumbo A paper mortgages i.e. 30yr full amort. from 1.50% to the more normal .25%?
I don't understand why taxpayers in 49 states should be put at risk to bailout California. Let Arnold come up with an internal plan while he is "fixing" the deficit.
Jim
Wouldn't raising the conforming limit and keeping the same underwriting standards of Freddie and Fannie help close the spread from Jumbo A paper mortgages i.e. 30yr full amort. from 1.50% to the more normal .25%?
Maybe, but who cares, except morons and greed-heads? Every $1MM loan that a GSE displaces 4 $250K loans it could have done. Nobody needs to live in a million dollar house and nobody deserves government help to do it.
OFHEO makes it pretty clear they are against raising - lays it out in this report. But, I agree YAL, lots of pressure to give in to the pols.
Well ain't that the whole problem then?
Isn't all of this really rooted in Greenspan, who showed good sense early on, caving into political pressure and turning the Fed into a financial wrecking ball?
"It's the economy stupid!" may be the death of all of us.
Should have been "Every $1MM loan that a GSE does displaces 4 $250K loans it could have done."
How bad is it in CA? The december numbers will scare everyone. More foreclosures than sales in December in San Diego, and probably many other parts of the state. You'll see medians down 3-4% from the prior MONTH.
Howls of derisive laughter.
People! Now, just soak it up and think about the golden opportunities that await with large cheap loan soon to be available to help bail out the housing market;-}
I can hardly wait for the inflation that will result from all of this foolish bailout mantra to keep hitting the market.
Gold and Platinum are at records! Oil at record! Everything pegging the stops that can be exported.
Best bets over the long run- fixed jumbo loans to buy nice large houses that inflation will eventually destroy the value of the payments.
Watch the bouncing ball!!! Not going to be long term deflation Japanese style- oh no, big time stagflation to catch up those wages to make this all affordable.
I agree with CR roflol;-} Lather, rinse, repeat method of fed monetary injection combined with immense fed deficits.
Someday this war's gonna end...
Nobody needs to live in a million dollar house and nobody deserves government help to do it.
bobn | 01.14.08 - 2:57 pm
I love the nobody "needs" stuff.....you sound like Karl Marx
"from each according to his ability, to each according to their NEEDS."
LOL
bobn -
good point. Way to remember the reason we have Fan & Fred in the first place.
One could argue that CA is 'permanently' higher cost, and therefore deserves a higher limit, tho. (the reason HI and AK have always had higher limits).
MTHood, the situation for the California state budget could get really ugly. We are only just starting to see the impact of the housing bust - and I expect house prices to fall much further - so the budget implicatons will probably be much worse in '08 and '09.
We ain't seen nothin' yet!
Best to all.
Well, there is an argument--I am not making it, I am describing it--that letting the GSEs take over the jumbo market would, eventually, bring it back down to reasonable.
The argument being that the GSEs would force the same kind of mix--mostly traditional FRMs, a few traditional ARMs--on the jumbo market. Without the IOs and neg ams and piggybacks, there would be fewer qualifying borrowers, and prices would fall back down to reasonable, and we'd all get another glass of BubbleUp.
It might even be logical and theoretically possible, but ain't nobody gonna let the GSEs buy jumbos just to stab it with their steely knives and kill the beast. Not what they had in mind.
MBA: U.S. Home Sales to Reach Bottom in 2008, Bankers Say (Update3) - Bloomberg.com
The argument being that the GSEs would force the same kind of mix--mostly traditional FRMs, a few traditional ARMs--on the jumbo market. Without the IOs and neg ams and piggybacks, there would be fewer qualifying borrowers, and prices would fall back down to reasonable, and we'd all get another glass of BubbleUp.
Is the glass of BubbleUp here really due to innovations in the mortgage market, or was that mostly a byproduct of a deeper cause -- crazy insane monetary policy the likes of which we've never seen the likes of?
My arguments against excessive regulation are primarily rooted in the idea of not wasting time by solving the wrong problem as well as deluding ourselves into thing we've made things OK by firehosing housing and mortgages with a bunch of new laws.
Thanks CR.
"I was amazed at the percentage of IO / neg-am jumbo loans; almost 2/3 of all jumbos!"
This only shows that to maintain this insane Ca price level it is no longer enough to have low rates and more credit but also very creative mortgagage products which let you pay even less - classic credit based bubble.
In the Tulip bubble. toward the end they invented the Tulip call option . really they could not afford trading tulips any more so the cash was diverted to buying future contracts...
Tanta,
Again, another excellent point.
But "it might even be logical and theoretically possible, but ain't nobody gonna let the GSEs buy jumbos just to stab it with their steely knives and kill the beast. Not what they had in mind."
What do they have in mind?
My point is that there are many qualified homeowners in, let's say the Wash. DC area market that are inhibited from refinancing because a Jumbo 30yr fixed is around 7% today w/ no points (which is unattractive) while the conforming 30yr fixed is 5.625%.
With the average loan amount in this area over today's conforming limits, but the incomes to justify qualifying for a mortgage, wouldn't the greater good be served if Jumbo A rates came back down in this part of the mortgage market?
Yal:
FWIW I've tended to believe that OFHEO is against...
but the political winds are strongly for...
Yearning to learn | 01.14.08 - 2:40 pm | #
In the House of Representatives... very much 'for'... count up the number of districts in Cali, NY, Illinois, Florida - and you almost have a majority there.
But not in the Senate... California has as many Senators as does Kansas. Only way Kansas benefits from a rise in conforming limits is if it include wheat farms...
The battle to raise the conforming limits will be won or lost in the Senate. My guess is it stalls there.
The Founding Fathers had their shit in one bag when they divided the House & Senate... that is if you are like me and have learned to love 'gridlock'.
The SFV here in CA is basically at a standstill. The lowest home sales total in their history for the year. The lowest home sale totals per month for any month in history since September. The only people buying are those with more money than sense.
The sellers are holding hard to the prices except on the low end. That is falling hard. The sellers are just grudgingly following the market down (prices are falling, but much slower than financing is drying up). Only the foreclosures are pricing aggressive. No real big new home development possible so its all about the foreclosures now.
love the nobody "needs" stuff.....you sound like Karl Marx
"from each according to his ability, to each according to their NEEDS."
LOL
Raise the limit | 01.14.08 - 3:03 pm | #
RTL - you telling us the market can't provide jumbos? Only if there is a gov't guarantee? Sounds like pinko capitalism to me...
Nancy Pelosi, Speaker of the House of Representatives, has scheduled a meeting with Ben Bernanke this morning regarding stimulus measures to help the sinking economy! Wonder if raising jumbo loan limit will be discussed! I have a feeling the cap will be raised, despite all the ills that come with this action. The political wills are there!
I've heard that California is about to announce a state of fiscal emergency. We were saved last year by, not kidding, Google stock options taxes. The housing bubble is just adding napalm to the fire.
. . . wouldn't the greater good be served if Jumbo A rates came back down in this part of the mortgage market?"
How 'bout home prices come down?
Hawaii has higher cost because commodities have to be shipped there by boat. How does that compare to California?
The political wills are there!
Not in the Senate... House can vote 435-nil and still no bill until 60 say it comes up for a vote in the Senate. God bless'em.
RTL - you telling us the market can't provide jumbos? Only if there is a gov't guarantee? Sounds like pinko capitalism to me...
dryfly | 01.14.08 - 3:19 pm |
LOL....What's new about pinko Kapitalism? Were in the bed sleeping when all the social welfare programs for
corporations began? rotflmao...
I am not for "pinko capitalism," but WTF. It's here and it ain't goin' away.
With the average loan amount in this area over today's conforming limits, but the incomes to justify qualifying for a mortgage, wouldn't the greater good be served if Jumbo A rates came back down in this part of the mortgage market?
No, they'd be better served if house prices came down. That extra 100 bps on the rate isn't the biggest problem here.
Look, what the GSEs do is "commodify" a market. They do not do this by writing restrictive legislation. They do this by being the only game in town, and forcing everyone to standardize product (loans) in order to meet their guidelines.
The reason the conforming dollar ARM market is so screwy is, as you can see, most conforming dollar ARMs didn't get sold to the GSEs. They went into bank porfolios or private-issue securities.
Now, the conforming fixed rates? The GSEs have always been the only reasonable execution on that. So conforming fixed rate loans are very uniform in credit quality. They are, basically, "commodities."
So if the GSEs were the only execution in town for jumbos, the argument goes, then jumbo product would become just as commodified as current conforming. Meaning, the rules would get stricter, the preference would be for fixed rate or long initial period amortizing hybrid ARMs, and all the "affordability" crap would go away.
That would be "rationing" of jumbo credit: a whole bunch of folk would no longer qualify for jubmo financing. It's not just a matter of the interest rate. If the GSEs announced that everybody needed a down payment and a realistic DTI and so on, that would weed out the market.
That, in turn, would help force RE prices back down--and hence loan amounts. So the argument here is that if you let the GSEs buy jumbos, there would eventually be fewer jumbos to buy, and the ones left would probably be of acceptable credit quality.
However, this process would of course just be another way of handling "deflation" of the RE market, but with the GSEs taking the risk this time. I am saying that folks in favor of raising the limit are not doing that because they want RE values to fall another 20%. They think that doing it will keep those values up.
And the whole idea that jumbo borrowers should pay the same or nearly the same interest rate as what is by definition an "average" loan amount is nuts, my friend. Bigger loan, more risk, higher rate. That's a no-brainer.
How 'bout home prices come down?
MTHood | 01.14.08 - 3:21 pm | #
That's already in the works in alot of areas......except NYC and some very nice neighborhoods in Washington, DC.
I think the data pretty much refutes the notion that raising the limits will help. Those 2/3's in IOs/NegAMs simply can't afford those homes, period.
Tanta | Homepage | 01.14.08 - 3:24 pm |
OK...you convinced me.
Thank you.
That's already in the works in alot of areas......except NYC and some very nice neighborhoods in Washington, DC.
Raise the limit | 01.14.08 - 3:24 pm | #
Then move to where you can afford a place. Or rent.
or maybe you and your komrads wanna form a kommune.
I would like to know what proportion of the jumbo market "should" be neg am or I/O. What I am thinking is that
compared to the number who typically take in that much money in a year but have large variability in monthly income due to bonus etc.
- neg am and I/O may be appropriate for a certain segment of the population, e.g. wall-streeter with highly variable but generally huge, bonus.
- the segment in question generally makes lots of money and lives in a place where housing is commensurately expensive. (The fact that people for whom neg am and I/O are appropriate are wealthy seems almost tautological to me, but feel free to disagree if you think it is a good product for poor people)
- Given the above, one would expect that most people for whom neg am or I/O is a reasonable product will have non-conforming mortgages.
- As importantly, the larger the mortgage, the more likely it is that neg am or I/O is appropriate to the sort of borrower who can afford it. In fact, I would go so far as to say that not many people make a fixed salary that would service a really big mortgage (meaning one for more than a few million
- So overall it seems to me that weighted by dollar amount, a lot of non-conforming mortgages ought to be neg am or I/O. What I dont know is what that proportion should be. Does anyone have historical data from a period considered sane? Is 2/3 of the dollar volume just way out of line?
What I would find more worrisome is if a big proportion of the dollar value of the loans under the conforming limit are neg am or I/O, as this class of borrowers probably doesnt have nearly so many of the people for whom these products could be appropriate.
I know some people will be tempted to jump on this comment, saying how these loan types have been misused yadda yadda. I know, and do not contest this. What I do not know from a figure of 2/3 of the dollar volume is what this says about the extent to which these loans have been given to folks for whom they are totally inappropriate, and historical data would give me more of a sense.
This looks like the shape of things to come:
Lennar's New Homes Fetch 60% Less
Jan. 10 (Bloomberg) -- Lennar Corp.'s November sale of 11,000 properties in eight states set a price that may mark the bottom for the U.S. housing market: 40 cents on the dollar.
"They sold land at 40 cents on the dollar and they're happy to get it," Bryan said. "The value of land is eroding by the minute."
Then move to where you can afford a place. Or rent.
or maybe you and your komrads wanna form a kommune.
dryfly | 01.14.08 - 3:27 pm | #
I did not happen to talking about myself and my Kommrades...lol...but you are funny and i can't stop laughing.
In Ca. all the homes are built from hawain Lava stone - that is why the homes are so expensive -shiping costs (plus the driveway are made of Gold - state law)
It might even be logical and theoretically possible, but ain't nobody gonna let the GSEs buy jumbos just to stab it with their steely knives and kill the beast. Not what they had in mind. but multiunits ALREADY have higher limits, so your hotel is covered.
Paulson in an interview with the LA Times implicitly argued for measures to artificially keep the housing price from deflating for fear of the onslaught of foreclosures and defaults, and the subsequent solvency crisis in the bad-debt-stricken U.S financial system. The leaders have chosen to stall the housing market, while saving the investment banks choked with their own-greed-concocted securities. Countrywide is the first to fall in this calculation.
I have a gut feeling that the countrywide bailout may go hand in hand with raising the conforming limit. It's obvious that the FED wanted Coutrywide to be bought up and may have tipped off to Bank of America that the conforming loan limit would be raised and they could sell much of Countrywide's bad debt to the GSE's. The GSE's would later need to be bailed out, but it's easier than bailing out Countrywide.
Maybe what's holding this up is allowing the other troubled lenders (I.e. Washington Mutual) to be bought up by other big banks so as to not give Bank of America too much favoritism.
I hope I'm wrong, but my gut tells me I'm not.
Is 2/3 of the dollar volume just way out of line?
Shoot, now I've got coffee all over my monitor again.
In 2001, IO accounted for TWO PERCENT of the mortgage market.
That sounds about right to me.
"And the whole idea that jumbo borrowers should pay the same or nearly the same interest rate as what is by definition an "average" loan amount is nuts, my friend. Bigger loan, more risk, higher rate. That's a no-brainer."
I'm no longer in-the-loop, but 'standard' jumbo underwriting guidelines used to be less restrictive than conforming loans. That increases the layering of risk, and the need to price the loan accordingly.
It's just not as simple as a loan, is a loan, is a loan and all should be priced the same or nearly so.
Gotta keep in mind that until this housing bubble hit, MOST of the housing in California still fell UNDER the conforming limit.
Less restrictive?
Tanta, perhaps you could address Jumbo pre-90's vs. the bubble.
When I first moved to SoCal in the late 80's, I read that "luxury properties" (i.e., those requiring Jumbo loans) often required 30+% down.
Yes...lower the limit. That will teach all those money grubbing speculators...and teach them good!
Maybe we should go back, yes back in time to 2001 when conforming was $275,000. That'll bring prices down, and that right fast!
Let's punish everyone and get this over with! What were Freddie and Fannie thinking when they kept raising the limit year after year? Shoot, beats me....But hey, since it caused so many problems eff them and all the stupid people that got those darned govy sponsored loans anyway...
"The leaders have chosen to stall the housing market, while saving the investment banks choked with their own-greed-concocted securities. Countrywide is the first to fall in this calculation."
Don't you love all the prior talk from the American financial experts about the how Japan failed to fess up and take it's losses! Their was no political will for Japan in 92 to tell the population that their property would be worth 50 to 80% less in ten years and there is no political will in this country either. At least we know what's coming most American's will be watching Disney RE channel waiting for pixie dust.
Do the GSEs so dominate the conforming market that it is reasonable to conclude that private MBS are almost 100% composed of loans that would not have met the GSE's standards?
Let's punish everyone and get this over with! What were Freddie and Fannie thinking when they kept raising the limit year after year? Shoot, beats me
Send 'em all to kommunes that's what I say... or let'em all live under bridges, like a bunch of trolls.
I'm no longer in-the-loop, but 'standard' jumbo underwriting guidelines used to be less restrictive than conforming loans.
It depends. We did used to require bigger down payments on jumbo properties.
We also allowed higher DTIs. Part of that was the recognition that very high-income borrowers have a lot more in absolute dollars left at the end of the month at a 45% DTI than the rest of us do.
The biggest problem in traditional jumbo underwriting was dealing with the volatility. Luke's comment here puts a somewhat different spin on it, but it is true that higher incomes tend to be more volatile than median ones. (Now, if these folks also have a lot of wealth already, that's different. It's your newly-minted Wall Street trader with a big salary and no assets to speak of who is risky.)
There was also always the marketing time problem. The more expensive the house, the longer it generally takes to find a buyer. That means that if you have a borrower who might have some trouble immediately replacing a high income in a job loss, you got the double-whammy (takes too long to replace income, too long to market property and get your price).
Now, you did have banks willing to make portfolio loans at 100% for the local dermatologist. But you very often had that bank requiring a $100,000 deposit account first. Other assets talk.
This phenomenon we have today of "mid market jumbos" is pretty unusual.
"... or let'em all live under bridges, like a bunch of trolls."
With no internet access, thank you!
IO progression for jubmo ARMs/FRMs (% of securitized issuance):
1998: 8/0
1999: 7/0
2000: 17/0
2001: 24/0
2002: 47/0
2003: 50/1
2004: 59/2
2005: 80/21
2006: 88/26
2007: 92/39
Do the GSEs so dominate the conforming market that it is reasonable to conclude that private MBS are almost 100% composed of loans that would not have met the GSE's standards?
Pretty much.
Gotta also remember that a Jumbo loan used to buy you something truly special. OTOH, back in 2005 that'd get you a choice 2+1 in Compton.
Send 'em all to kommunes that's what I say... or let'em all live under bridges, like a bunch of trolls.
dryfly | 01.14.08 - 3:46 pm | #
Yeah Kommunes with their stupid Ko-Ops....Under the bridge is just too nice for those Kommrades.
tanta
so it was 2% of the mortgage market. By dollars or by number of loans? What was it as a dollar-weighted percent of the non-conforming market?
the reason I ask is that if the non-conforming market is a small piece of the whole market, then 2% of the whole market doesnt mean much as a number ot compare it with. Moreover, dollar-weighting ought to shift up the value for the percent of neg am and I/O. I can easily think of ways in which 2% of whole market translate into 20% dollar weighted of non-conforming, so I know you can too.
What I am wondering is how does 2/3 dollar weighted proportion of non-conforming now compare to history, or is there just not enough history?
Luke
Should have been "Every $1MM loan that a GSE does displaces 4 $250K loans it could have done."
there's no displacement...
that would indicated a defined "container"
this is a bubble.... with expandable walls....
anybody,ANYBODY, who wanted a loan, got one...
Paulson in an interview with the LA Times implicitly argued for measures to artificially keep the housing price from deflating for fear of the onslaught of foreclosures and defaults, and the subsequent solvency crisis in the bad-debt-stricken U.S financial system.
Whether or not that's the right thing to do it's scary to think we've gotten to the point where we have to consider it.
Ultimately I don't see how it can be done with out wiping away part of people's savings for retirement, their kids education, etc. either through defaults or inflation. And we've already got problems there too.
It looks to me like there's no outcome that isn't completely gruesome.
Do the GSEs so dominate the conforming market that it is reasonable to conclude that private MBS are almost 100% composed of loans that would not have met the GSE's standards?
Pretty much.
Tanta | Homepage | 01.14.08 - 3:51 pm | #
Wasn't that starting to break down in the 'happy daze' - the middle of the bubble years? I mean a lot of what was under conforming limit in say 2005-2006 wasn't necessarily 'conforming' was it? That was the whole 'Broker Universe Outpost' meme, right?
Or was REAL GSE conforming still the vast majority even way back then?
Gotta also remember that a Jumbo loan used to buy you something truly special.
That's exactly right.
So the problem with the classic "jumbo property" was that you had to make sure you weren't getting an "overimprovement" or the only 12-bedroom home in Podunk or some elephant with an indoor baskeball court or some other weird thing that will limit the number of serious buyers.
Every jumbo loan I ever dealt with until about 2002 or thereabouts automatically required two independent appraisals just for starters. (Actually, there is special certification required of the appraiser if the property value exceeds $1MM.)
Those days were gone. Maybe they're coming back. That'll be one more thing for the jumbo crowd to bitch about--having to pay for two appraisals.
That'll be one more thing for the jumbo crowd to bitch about--having to pay for two appraisals.
Ya two dudes the brokers will have to lean on to hit the numbers... life really sucks.
Gotta also remember that a Jumbo loan used to buy you something truly special.
Like your first investment property?
If you look at the evolution of the conforming limit it is amazing it is as high as it is.
If it was a housing bubble... then one would think that the conforming limit is too high. To raise it would be folly.
I mean a lot of what was under conforming limit in say 2005-2006 wasn't necessarily 'conforming' was it?
There are two diffent senses of the term "conforming" floating around here.
In the current context we mean "conforming dollar." That is, the question is just whether the loan amount is above or below the GSE limit.
The more "robust" sense of conforming is what MarkS is asking about. And the answer is that yes, in that period more and more "conforming dollar" loans did not "conform" in the robust sense (met the UW guidelines and general eligibility standards of the GSEs, even if they weren't sold to the GSEs).
As many who have been there know, for the most part, the SVF will not, nor should ever be allowed, to have jumbo loans again based on its housing stock.
ac It looks to me like there's no outcome that isn't completely gruesome.
In looking at the comparisons to prior economic contractions, it occurs to me that one difference is that before we were a strong creditor nation, especially in 1929. Now we are a major debtor, and what's more, have major expenditures looming. While the entitlements cannot be inflated away, the rest of the debt can.
If we go into deflation that is not quite short-lived, that debt becomes even harder to pay off. It seems to me that default on the debt is a real possibility.
Inflation threatens dollar status as a reserve currency.
Jesus, what a mess.
It was only a matter of time before the Calilfornia long knives came out. And when TSHTF blame California won't be far behind. Followed by the ever so predictable punish California reactions.
Keep in mind, California has been a net Federal donor State 20 of the last 21 years sometimes getting back as little as 76-78ยข for every dollar sent off to D.C. All you smug States had best get ready for a flow of funds reversal that will make the Iraq war look like a bakesale and for an especially mobile population descending on your communities. Unlike the great migrations of the 1930s these people are not going to bring hard work ethics and nothing worse than funny accents. They'll be arriving with a sense of entitlement asking for directions to the public assistance office.
If REOs/distressed sales count my house has "lost" about a half million so far from the peak on Oct 6th, 2005 shortly after breakfast. There may be as much as another $300k to go. The idea of making those residents who elect to stay pay for the mistakes of others will not have the results you other 49 imagine.
Ya two dudes the brokers will have to lean on to hit the numbers... life really sucks.
dryfly | 01.14.08 - 4:01 pm
For the appraisers it does. But they ain't budging these days.
Alot of people living in 'hoods where their comps are now what the last 3 foreclosures went for....and you can just imagine the "wealth effect" it is having on these people. From Tiffany's to COSTCO (or should I say KOSTCO) in about 2 minutes.
At the limit;
Don't you mean from Costco to Tiffany's in two minutes? Costco is doing fine, Tiffany is suffering.
From Tiffany's to COSTCO (or should I say KOSTCO) in about 2 minutes.
I'd rather go to KOSTCO anyway... do they have good prices on Borscht? That, black rye bread and vodka - what more could I want?
Rob Dawg-
no I mean they used to shop at Tiffany's with all the cash out (MEW) they got.
Now, with a paycheck to paycheck existence, KOSTCO is where they go.
Surprisingly on topic paper I came across today from Akerlof-
Looting: The Economic Underworld of Bankruptcy for Profit:
We use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust.
Explorations in pragmatic economics ... - Google Books
Plus ca change...
AC,
The cascading collapse of financial assets one after another in the highly-leveraged and asset-dependent US economy should be scary! Imagine the vision of every jumbo-sized, ultra-luxurious casino in Las Vegas implodes one after another. That is too spooky.
The mission of the GSEs is to promote credit facilities in order to support homeonwership for the everday John and Jane Does. That we are going to expand their credit scope in order to keep prices high seems to be in direct contradiction to their mission. Before it is all said and done, I think someone will remember this. I just dont think it is going to happen.
I'd rather go to KOSTCO anyway... do they have good prices on Borscht? That, black rye bread and vodka - what more could I want?
dryfly | 01.14.08 - 4:09 pm
Me too. You see those Alaskan King Crab legs the other day? Delicious!
I'd rather go to KOSTCO anyway...
Damn right. When Tiffany's has those big buckets of snacky stuff with the wasabi peas in it for $9.99, I'll go shop at Tiffany's. Until then, it's Breakfast at Costco for me.
"Gotta keep in mind that until this housing bubble hit, MOST of the housing in California still fell UNDER the conforming limit."
Around late 2000? Would have been a push to get a 3/2 less than 20 miles from the ocean for $400-$420K -- anything you'd want to live in, anyway. And I suspect the limit was lower then.
Modesto, Stockton, Sacramento, all those areas: you could have bought a palace for $325K back then.
Before it is all said and done, I think someone will remember this. I just dont think it is going to happen.
If anyone remembers it will be in the Senate - without the Senate going alone solidly it's all just political rhetoric. I do not see Kansas, Iowa or Oklahoma senators bleeding for Santa Barbara & Manhattan 'middle class'...
They will need 60 votes to gain cloture - I doubt they get them.
Seriously somebody with a prominent blog (hint CR &/or Tanta) ought to do an email campaign and ask each Senator & HOR rep via email - just like Talking Points did regarding Social security... post the results.
Be quite illuminating.
If you don't want conforming loan limits raised, you should write your representatives in Congress. I just posted my opposition to the legislation mentioned here through the email contact systems of both of my senators and my congressman. It makes a difference.
"Now, with a paycheck to paycheck existence, KOSTCO is where they go."
Uh uh. Trader Joe's for all their budget pre-fab fine dining needs. And plenty of Two Buck Chuck varietal to drown their sorrows cost-effectively.
Trader Joe's is definitely holy ground for the champagne tastes/beer budget crowd. Just don't read the list of ingredients too closely....
I don't know if anyone posted on this yet, but The Economist mag has a write-up on Bank of America's purchase of Countrywide Financial.
Premium content | Economist.com
"...
BofA perhaps felt compelled to intervene to protect its earlier investment. And it is better placed to act than others. It has been far less damaged by the mortgage mess than its arch-rival, Citigroup (though it has booked sizeable investment-banking losses). Having trailed for years, BofA is now worth $34 billion more than Citi. If the Countrywide deal pays off, it will be the undisputed leader in mortgages, as well as in credit cards (thanks to its purchase of MBNA three years ago) and overall retail banking (it is the only bank close to the 10% regulatory ceiling on nationwide deposits).
Countrywideยs attractions have been all but forgotten amid the รผber-pessimism over housing. It has 9m mortgage customers, to whom BofA will be itching to sell other financial products (though cross-selling is not easy). Its mortgage platform has unparalleled technology. The key will be to combine its loan-origination clout with BofAยs strength in distribution to investors. In short, Countrywide has plenty of franchise value.
Dick Bove, of Punk Ziegel, believes that mortgage lending remains a good business for banks because of its (generally) steady recurring income streams. Even in the short term, it will be attractive for careful lenders, since profit margins have widened as credit has dried up. BofA is promising caution. It will ringfence Countrywideยs non-performing loans, handing them to a special workout team. And it will stop making subprime loans altogether. Not that Countrywide is doing much of that anyway: it lent a mere $6m to subprime borrowers in December, down from $3.7 billion in the same month of 2006.
The risks of this deal should not be underplayed. But BofA will see advantages beyond a potential lift to its mortgage business. The deal neatly lets it breach the 10% deposit ceiling because, under an arcane law, a bank can do so if it is through a takeover of another bank with a thrift charter (which Countrywide has). And the takeover will let it curry favour with regulators and politicians who want to see the markets stabilise.
This does not necessarily herald a wave of consolidation: Countrywide was in a uniquely awful position. But more deals are likely as weaker banks look for a wing to nestle under. Washington Mutual, a big, struggling mortgage lender, has reportedly held preliminary merger talks with JP Morgan Chase. Citigroup and Merrill Lynch have tapped sovereign-wealth funds for capital and are returning for more. Both banks are expected to announce huge further writedowns when they post fourth-quarter results next week. These losses continue to cast gloom: stockmarkets fell after the Countrywide deal was unveiled."
Trader Joe's is definitely holy ground for the champagne tastes/beer budget crowd. Just don't read the list of ingredients too closely....
Bob Dobbs | Homepage | 01.14.08 - 4:19 pm | #
Thanks, I'll take this into account once I find those last two nickles i have to rub together I just know I lost in my car seat cushions.....
While the entitlements cannot be inflated away, the rest of the debt can.
I wonder if the entitlements can at least be mitigated somewhat by underreporting inflation for cost of living adjustments etc.
I always thought that we might underesitmate inflation by a percentage or so as kind of a "necessary evil" to reign in entitlements.
Personally I think it's better not to promise what you can't deliver, or be honest that you can't deliver it.
OT,
Greenspan in one of his recent interview defended his easy-money policy by scriptically arguing and posing the question that where would the US' economy be after 9/11 and the stock bubble burst were it not for the booming housing market and the derived rising consumption made possible by cheap credit? Then one could argue that the housing bubble was the offshoot of the Administration's policy to prop up the anemic economy. Stock bubble followed by housing bubble followed by another asset bubble, have we become asset-inflation prone? Will this be the trend? Any idea?
gee, ac
the Boskin commission did that already, and it is alreay starting to become an obvious point.
Is there an EFT that shorts California? I want a piece of that action.
I wonder if the entitlements can at least be mitigated somewhat by underreporting inflation for cost of living adjustments etc.
Massively. Count on it.
Greenspan in one of his recent interview defended his easy-money policy by scriptically arguing and posing the question that where would the US' economy be after 9/11 and the stock bubble burst were it not for the booming housing market and the derived rising consumption made possible by cheap credit?
That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live.
Also, is it safe to say I probably don't live in a bubble area if we don't have a CostCo or Trader Joes?
Plenty of Walmart action, though.
Thanks for that link, Andrew. But, may I suggest crisper snipping next time around?
[snip]
The deal neatly lets it breach the 10% deposit ceiling because, under an arcane law, a bank can do so if it is through a takeover of another bank with a thrift charter (which Countrywide has).
[snip]
Someone here sure knew their arcane law the other day. No antitrust, no foul, I guess.
When you get some time, could you estimate just how bad it's going to get for CA.
2002-era interest rates, loan products, demographics, wages ==> 2002 prices.
Bob Dobbs says: "Would have been a push to get a 3/2 less than 20 miles from the ocean for $400-$420K -- anything you'd want to live in, anyway."
You might want to check the 2000 Census. Oxnard's median was $189,400 in 2000. Any number of coastal cities were far below your $400-420 guesstimate.
Personally I think it's better not to promise what you can't deliver, or be honest that you can't deliver it.
They can't know - that's why the 'future liability' issue is so bogus... no one can know what the economics will be like in 30 years... I mean look at all the crap that's happened between 1998 and now... then stretch that out another 20 years?
The only promise that matters is the one 'society' makes to all its citizens... that if we prosper we will share with all, if we don't then all share the hardship. If that isn't in place then all the laws, regulations and fine print is worthless.
Any number of coastal cities were far below your $400-420 guesstimate.
My housemate's place in Santa Cruz was in the middle of zooming from $300K to $500K, 1999-2001.
Early access to dotcom winnings stimulated the bay area region. The rest of the state did get in on the party until the interest rate drops 2001-2003 and abandoment of traditional lending standards 2002-2004.
(Begin Stupid Government Mode) I think they should raise the limit to infinity, pass a law mandating that "housing only goes up!" and only give out money to lousy credit risks. Also, if you can afford a down payment of 1% or larger, you should get NO money from the government AND should be taxed to pay for bums who want to live in McMansions they can't afford.
After 1 week of this, we can use our dollars as kindling as we all go back to the barter system, or, if we're lucky, some sort of gold standard.
Unreal: cheap money created the problem, so how is more cheap money going to fix it? And, as we all know, if the conforming limit goes up, eventually the restrictions on those loans will go away until the government is handing out teaser-rate, sub-slime loans to everyone who walks buy. They can then be rolled into Treasuries or something, making sure there is absolutely no way to protect one's wealth as it is all inflated away. Well, there IS gold, but they'll outlaw it or something.
We'll all be able to live in McMansions, at least for a few years until the loan resets. Too bad we wont' be able to afford the $1,500 a month heating/cooling bills, or the $10 a gallon gas needed to get too and from work on our $9 per hour job!
Ah, Amerika! Isn't it grand!
following up from the other Option ARM thread:
Can anyone contribute more data (or rich anecdotal evidence) on the distribution of Option ARMs in specific locaities? If 2/3s of jumbos are IO or Option ARMs, then these are certain to be more highly concentrated in localities with houses that were selling for above the median price.......
A map showing the distribution of Option ARMs within California would be a little like those earthquake liquefaction maps that show the places that will sink into sloshy sand and mup when the big one hits.
Anyone got data????
Esp for the LA region????
Joe
"That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live."
Isn't it true with our "miraculous" economy, which has produced average annual growth of 3%, that we must finance with ever-increasing debts, borrow from future generations, roll-over debts with the printing press to maintain (smoothing) this miraculous growth story? Seems that way until...?
I recently wrote my senators and representative about the housing/mortgage/credit mess. I urged them to not support measures that would keep home prices beyond traditional, reasonable levels. Two form letter responses. Neither on topic. Though they did express much compassion for families...
making sure there is absolutely no way to protect one's wealth as it is all inflated away
I'm not entirely sure inflation is in the cards. Wages are what they are, and I'm a subcriber to the now-common viewpoint that the difference in 2008 to prior decades is the globalized and no-longer collective-bargaining labor market. Credentialled rentiers -- doctors, lawyers, and teachers -- have bargaining power to raise their wages, but J6P -- not so much anymore.
12th,
I think the double inverse ETF is CAFU...
or maybe it was FUCA...
Tanta,
I feared that would be your response.
That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live.
Yeah, but it also gives onlookers more time to scream out to the PPT to set up one of those enormous pillows on the sidewalk below.
The problem is, even if the pillow arrives in time and does the trick, I fear the first thing the American consumer will do is dust off, get back on the elevator, and push 30.
Finally, a $500,000 mortgage owned or guaranteed by Fannie Mae or Freddie Mac would require twice as much capital for regulatory purposes as a $250,000 mortgage. Permitting the Enterprises to purchase jumbo mortgages, even if only for securitization, could absorb capital that would otherwise be used to support the purchase of a larger number of smaller loans, especially if Fannie Mae and Freddie Mac faced capital constraints.
What was their mission statement again?
Sounds good. FUCA!
I'll have to look into their earthquake provision in case the state goes truly underwater.
" That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live."
Yeah, but it also gives onlookers more time to scream out to the PPT to set up one of those enormous pillows on the sidewalk below.
The problem is, even if the pillow arrives in time and does the trick, I fear the first thing the American consumer will do is dust off, get back on the elevator, and push 30.
The Fed has promised pillows -- they always said they'd be there to "clean up the mess".
But I think people are starting to panic a bit because the Fed hasn't come up with any pillows so far and we're flying past the 4th floor...
If anyone remembers it will be in the Senate - without the Senate going alone solidly it's all just political rhetoric. I do not see Kansas, Iowa or Oklahoma senators bleeding for Santa Barbara & Manhattan 'middle class'...
As one of the Santa Barbara "middle class", I am honored that we would be mentioned in the same sentence as a Manhattan resident. I would be the first to say that the last thing in the world I want is anything to make people believe that our current home prices are "normal". If I lived anywhere else, I would be considered pretty well off (think top 10% across the country). Here, I can barely start looking at entry-level condos. That needs to be "fixed".
/Rant Off
One other question: where can you find out how purchases were financed in a given geographic area?
The Fed has promised pillows
I thought it was ponies! Now I'm all confused...
there's no displacement...
that would indicated a defined "container"
this is a bubble.... with expandable walls....
anybody,ANYBODY, who wanted a loan, got one...
expandabubbble | 01.14.08 - 3:56 pm |
Not a GSE-backed loan. The GSEs do have limits on the amount of stuff they can do. The fog-the-mirror standard was for non-conforming loans of all sizes.
And, as Tanta pointed out, if the Jumbos were required top be truly conforming (LTV, DTI, etc), they will not be affordable by, or available to, the people in the houses that they could only afford because of the non-conforming crud. So it won't much help CA anyhow.
I'm not entirely sure inflation is in the cards...
It would be a lot easier to justify inflation it Americans had ample real savings. Then there's something to redistribute via inflation, but with the negative savings rate we've got, diminishing real savings through inflation might be no better, or even worse, than asset deflation.
Again, we keep getting back to the fact that there's no way to fake real wealth, and (relative) lack of real wealth is the fundamental problem here.
There is no quick fix.
12th,
The best shorts in CA are surfin' jams . . oh that's not what you meant . .
You can bet the all Pacific Coast state governments and also the states in intermountain West are paying attention to the CA budget problem.
Much of the neighboring states' price run-up was fueled by CA equity
refugees over the past 20+ years; if they are not going to get "rich" CA refugees, there will be no easy welfare money for the "other kind".
There is much more to this but I must leave now.
Sorry about that Schnaps. You have a point, there's enough reading and info here as it is. I will try to curb my enthusiasm for the blanket cut'n'paste.
ac, the relitter's credo was always fake it till you make it. the best scenes in the movie American Beauty involved Annette Benning pumping herself up for success selling houses.
kevin spacey had the right idea, just light up something good and find yourself...
or lose yourself too.
I have more credit card debt than most of you- but the rates are sooooo cheap. Is it wrong to borrow more to short homebuilders?
Someday this war's gonna end...
For those shorting home builders. Toll Brothers just announced their first development in our area Colonie, NY (upstate). $400,000 homes. median household income around these parts is $60K or so.
And sales prices in the county were down from a median of $210K to $170.
People around here are excited because they think that means we've finally "made it". I try to temper their enthusiasm.
"I'm not entirely sure inflation is in the cards..."
Anti-trade, protectionism, scape-goating foreigners for our problems, keeping jobs at home, all have inflationary effects, and all have been uttered among the current crop of presidential candidates. It's in the foreign CB's interests to see US undergoing deflation, while it's our interest to inflate away our debts.
Just got a neighborhood real estate newsletter. It states " Affordability is still a major issue. Congress and the White House are working on this with FHA loan increases and higher VA guarantees." I was struck that the author thought increasing loan amounts would help with affordability. It seems that most efforts to make houses "more affordable' involves not making the price of houses cheaper or raising incomes, but making debt either "more affordable" or making larger loans possible. From the mortgage interest deduction, to teaser rates, to I/OS to allowing lower down payments, it all seems to enable mainly larger loans. Almost inevitably the cost savings temporarily engendered are lost as prices increase. conversely high down payment requirements, higher interest rates, lowering conforming limits keep a ceiling on house prices, ultimately keeping them more affordable. One has to wonder if the goal is really making housing affordable versus boosting the profits of lenders and builders.
/Rant Off
One other question: where can you find out how purchases were financed in a given geographic area?
paul_in_sb | 01.14.08 - 5:11 pm |
As a UCSB Alum, I would love to help. However, the only thing I learned besides my perverse view of economics is how to get wasted.
Isla Vista will do that to you...burp.
anon | 01.14.08 - 4:26 pm |
"Stock bubble followed by housing bubble followed by another asset bubble, have we become asset-inflation prone? Will this be the trend? Any idea?
Not much longer. The ancient-relic axiom, "Take the cash, let the credit go," will soon be on the lips of everyone. Surplus credit made available by CB's to banks with balance sheet problems will be puny and ineffective as they grow ever more reluctant to lend to borrowers without substantial assets with which to repay, i.e., those who don't need to borrow.
The floor under prices will be found after most of the insolvency explodes like a pus filled pimple and the worthless credit is offset against both fictitious asset prices and prematurely recognized profits.
We have a long way to go, and the direction is down.
We may occasionally have a chuckle here as we congratulate ourselves for having understood and anticipated how we got to THIS moment in time; none will be laughing when the unraveling nears completion.
The economic collapse may be terribly painful, but I suspect the civil catastrophe that followed past crashes will paraphrase themselves and tragically, be unspeakably deadly and horrific.
Now, have a great day!
Again, we keep getting back to the fact that there's no way to fake real wealth, and (relative) lack of real wealth is the fundamental problem here.
I would argue 'wealth' is nothing but a claim against future production either via a claim against the profit (equity) or a piece of somebody else's 'debt service'.
So if you go back one farther not only do we have declining 'wealth' but also a weakening of the productive capacity that produces wealth...
But we got no shortage of money production.
ac | 01.14.08 - 5:08 pm | #
"...the Fed hasn't come up with any pillows so far and we're flying past the 4th floor..."
Pardon putting words in the mouths of the O-Joes, but, "So far, so good!"
But we got no shortage of money production.
dryfly | 01.14.08 - 5:33 pm
Tell me where to find Ben's helicopter. Cause from where I'm sitting, I ain't seein' it.
FUCA NOTES:
BEL AIR PRESBYTERIAN just laid off 30% of its staff due to offerings falling off a cliff
Huge LA developer KOR GROUP just laid off close to 30% of its staff
Hitch your wagon to a Saudi Arabian star, young man, and head east.
x-man | 01.14.08 - 5:36 pm | #
BEL AIR PRESBYTERIAN just laid off 30% of its staff due to offerings falling off a cliff
Huge LA developer KOR GROUP just laid off close to 30% of its staff.
We don't need no stinking jobs. We've got 100 years of built-up capital infrastructure we can borrow against to get all the cash we want. Deficits don't matter.
Yippeee!
"That's like saying it's better to jump off a 20 story building than a 10 story building because it gives you more time to live."
NEW YORK (CBS) ― A crane at the construction site of the Trump SoHo tower in lower Manhattan collapsed causing one worker to fall to his death from the 46-story building.
The incident occurred around 2 p.m. at the building located on 246 Spring St. when the crane was apparently carrying a load of concrete beams and collapsed.
Officials confirmed the worker was pronounced dead on the scene after falling onto the street. Three others suffered minor injuries.
Tell me where to find Ben's helicopter. Cause from where I'm sitting, I ain't seein' it.
over the legal limit of BAC | 01.14.08 - 5:36 pm |
Ben isn't the only game in town - think fiscal stimulus too.
I see it like crazy near me - farm subsidies cloaked in energy independence... its a huge boom.
I think the next 'show' will be defense spending (ah-gain)... The Saudi deal announced today as a warm up. All that crap wrecked in Iraq will need to be fixed...
Then there will be all those bridges... gadzooks if they don't get fixed now we'll all end up in the Mississippi.
If this 'recession' results in more folks w/out health insurance - look for 'temporary help' here too - subsidies & such (no single payer - don't want no stinkin' socializm).
Lastly tax cuts - watch Dems & GOP fall all over themselves to get in line to offer their friends even more.
I see the fed holding the line with banking (just keep the system from failing) and fiscal stimulus topping off until all our cups over floweth... amen.
Dataquick should report either tmw or next tuesday. I think in January they usually report a bit early and then the next week they report the Q4 foreclosure report.
Should be messy. Though NOD dropped a bit before the Bush plan announcement and then spiked after. So the foreclosure report might be slightly less bloody. Sales will be off a cliff though.
dryfly | 01.14.08 - 5:48 pm
Ben isn't the only game in town - think fiscal stimulus too.
How much do we suppose it'll take (that even the Congress House critters won't be able to siphon up against Senate push-back) to give all the defaulters sufficient $$ to avoid FC, and sustain current values for the rest of us?
One (or two million) rotten apples will spoil the rest...
Isn't this train already a down-hill runaway, with a powerless engineer, sleeping switchmen, and well greased rails?
Ben isn't the only game in town - think fiscal stimulus too.
I see it like crazy near me - farm subsidies cloaked in energy independence... its a huge boom.
dryfly | 01.14.08 - 5:48 pm
Very true, but I wasn't necessarily alluding to that.
But I have to agree with you. Fiscal stimulus will play a huge role in the coming year(s). The ramifications of this are probably more damaging than any of Ben's little black helicopters.
Whether it's a Repub or Dem elected next, it won't matter.
The OMNIBUS spending package is on the way.
ZIRP, massive subsidies and public works bonanza...
We're turning Japanese,
I think we're turning Japanese,
I really think so!
It's already too late for CA, and it is going to get so much worse. The most recent employment numbers basically show an economy dead in the water, and that is BEFORE the shate really hitting the fan the past two months. Expect q108 to be contractionary. On top of this, weve got the upcoming axe swinging in the direction of govt jobs, many many more residential construction job losses when the building boom is finally reined in, and only now just starting the loss of commercial building jobs as vacancies head higher. That's later this year's treat. Then of course, once the global tech boom slows, guess what happens up north? Ya. The only thing keeping the economy propped here will have its head lopped off again soon. The best part is that all this hits even before the ARMS have reset, let alone the beginning of the real pain when the IO Negams kick in.
And the amazing thing is that there are still SO many people who cannot see this train wreck coming.
But I have to agree with you. Fiscal stimulus will play a huge role in the coming year(s). The ramifications of this are probably more damaging than any of Ben's little black helicopters.
Some of it is worse than others - if limited & targeted and temporary - no big deal. But that's never how it is. As for tolerable vs bad vs worse... it depends on how much 'distortion' is created. I personally think ag subsidies are about as bad as they get... but then I live in farm country and see the result up close. If I lived in bubbleville I might think housing industry subsidies are worse.
There is a place for gov't & 'stimulus'... but its always overused eventually. But then markets fail too - so what are ya going to do?
:::
We're turning Japanese,
I think we're turning Japanese,
I really think so!
Before we are done we will wish we handled this as well as the Japanese - I'd bet on that. Almost no Japanese ended up homeless, almost no Japanese starved, they had an increase in unemployment and a decline in GDP - about half of what we usually run. BFD.
Also note the compensation their exec's get vs. ours.
The only thing that really suffered in Japan was their statistics. That's EXACTLY how a society should treat their own citizens through adversity. So what if it takes an extra decade to return to 'growth'... how long has their society been around? They got time - meanwhile make sure no one starves. A lesson there.
they had an increase in unemployment and a decline in GDP - about half of what we usually run. BFD.
Should read...
they had an increase in unemployment - about half of what we usually run - and a decline in GDP. BFD.
Before the epicaricacy party over California gets going I need to take away the punchbowl. Just consider the impact to the EU (and the world economy) if France were to implode.
Now that I have your attention and you understand that California is not a spectator event for anyone anywhere it is time to hold some perspective. Ask yourself; right now will the US be better off with or without California? Tanta loves to beat the drum over workouts versus the alternative on a case by case basis. Multiply by 35 million. You other 49 need a functional California far more than California needs anything from you that may come with too many strings. Force the Golden State in a Treaty of Versailles and you will be eventually repaid the same way that bright idea worked out.
Hawaii has higher cost because commodities have to be shipped there by boat. How does that compare to California?
You know how hard it is crossing that salt desert to get to the Sierras.
This is total crap pushing for 40 year mortgages with zero down and then the Jumbos of a million; these are crooks!
OFHEO repoprts confirm time after time the corruption linked to Fannie, so the only thing that chganged was putting Paulson in a position to manipulate his position to push an agenda! This is criminal!!
Friends of DH
Rob Dawg - "You other 49 need a functional California far more than California needs anything from you..."
With one exception .... water.
Not disputing your point, just pointing out that there is a bargaining chip still left on the table.
And the amazing thing is that there are still SO many people who cannot see this train wreck coming.
Wall Street seems to think the train wreck has already happened.
Damn it Tanta & CR,
Dopnt let this issue fall off the radar, this is a massive issue that needs to be headline news daily!
If NAR is able to push this emergency agenda forward it will dilute the hell out of Americas future, by allowing less and less equity to go into home investments; fewer people will have pride of ownership and more and more people will allow properties to depreciate.
Talk about the economics of how society may be impacted by allowing anyone that wants a house to get it; did anyonw watch the results of nodoc loans and subprime manipulation, which is resulting in an economic crash, which is just getting rolling? NAR and Congress are pushing this very bad agenda, and then what.......40 year mortgages with zero down...........will help America???
Please stay on top of this stupidity and write about this!!!
dryfly,
Yeah, we're walking Japan's high-wire, but chose to forgo the net.
Nothing -- not ZIRP, subsidies, work programs, etc. -- will work if our foreign financiers choose not to go along. How long will it be before the IMF/WB starts advising us on "austerity" programs?
Yeah, we're walking Japan's high-wire, but chose to forgo the net.
Best
Line
Ever
Kudos.
Is there any way to sort of determine what the US can "afford" in the sense of expenditure on housing as a reasonable percentage of income?
That would need to take into account rental properties as well as owned properties. Both rent paid and some function of "leverage" on owned property. But that may need to try to separate the "investment" in housing from the "rent" .
Put simply, if our national income base support "x" amount of spending, you can identify whether a "bubble" is occuring or whether there is just a legitimate rise in housing expenditures as a function of income. Just comparing income percentage rises with housing seems too simplistic.
Rob Dawg - "You other 49 need a functional California far more than California needs anything from you..."
With one exception .... water.
Not disputing your point, just pointing out that there is a bargaining chip still left on the table.
r0m30 | 01.14.08 - 6:36 pm | #
No offense. I have a strong incentive to remain civil and respectful. I've heard this one before too. Okay, not being a jerk here but California and water is the stuff of legend and movies. "We" have all "we" need to remain wasteful for generations. Half the water in the canal is lost to evaporation/leaks. 112 sq miles of plastic and pool liner is nothing.
Oh, and if "water" is used as a bargining chip. Any guesses as to how Oregon and Washington and Colorado River participants will go if the choice is Nueva Kalifornia or BosWash arrogance?
Surprisingly on topic paper I came across today from Akerlof [Fed governor Yellen's husband]
Excellent paper, and where I came in last year. The cited-bys on Google Scholar have a lot of good ones too.
"Rob Dawg - "You other 49 need a functional California far more than California needs anything from you..."
With one exception .... water.
Not disputing your point, just pointing out that there is a bargaining chip still left on the table."
The vast majority of the water in California goes to ag. Update the 50-80-year-old agreements about who gets what for how much, and change incentives, and agriculture would adapt to using less water. Yes, and get serious about improving the infrastructure.
Also... every time I hear someone from a flyover state go "haw haw" about those jerks in California getting theirs, I think, "You all need us more than we need you..." With some adjustment, California could function as a separate nation. Could Kentucky?
California is in for some hard times. But we'll be back, as long as there are people in Iowa who look around and ask themselves, "Why?" (Got that line from an ex-Iowan HR trainer.)
"Keep in mind, California has been a net Federal donor State 20 of the last 21 years sometimes getting back as little as 76-78ยข for every dollar sent off to D.C. All you smug States had best get ready for a flow of funds reversal that will make the Iraq war look like a bakesale and for an especially mobile population descending on your communities."
We here in MN would love to get 76 cents back, since we normally get less than 70 cents back!
You other 49 need a functional California far more than California needs anything from you that may come with too many strings.
yawn. first of all you couldn't be more wrong.
we all need each other. California without the 49 other states would be NOTHING. (you can try the "California is the Xth biggest economy in the world" line, but that would collapse in a second if you weren't part of the US
The US without California would be way worse off... but still be the US.
get over California...
Ask yourself; right now will the US be better off with or without California?
better of course.
California is a great state. But don't drink too much of your own koolaide. The adage "when california gets a cold, the US gets the flu" is 100% wrong. When the defense industry cratered, California got the flu, and the rest of the US had a mild cold. Some states hardly noticed at all.
It would be a cold day in hell before you could convince Minnesotans that we need to protect million dollar homes in California (and we know cold here).
"With some adjustment, California could function as a separate nation"
California would be a 3rd world country within a few decades of leaving the US.
you have major cities IN DESERTS. you have irrigation projects where there should not be any (Levee system in the Sacramento valley area).
without the rest of the US, you would have major water problems.
Water Education Foundation
The massive Colorado River winds its way through the southwestern United States before terminating in the Gulf of California in Mexico . Along the way, the river provides water to seven states including California , with each state's water use determined by the Colorado River Compact of 1922. According to the compact, California is permitted to use 4.4 million acre-feet of the Colorado annually, but for over a decade, California has been using well beyond that.
If California wasn't part of the US, how do you think they'd get water??? hmmm...?
already the wars are beginning, and Cali is PART of the US. The 7 states that share the Colorado river are suing each other up to the Supreme Court.
The Great Lakes fly over useless lands of which you speak have made a compact that we will NO LONGER send more water to the southwest
You think gold and oil are important. They are nothing compared to WATER.
California needs to feel the same deflationary drain as Ohio and Michigan - and for the same reasons.
fun!
this reminds me of what its like when the family budget got low as a kid, all of a sudden suzy's clarinet lessons where no where near as important as jimmy's drum lessons. but mommy still had to drive the car all around town to bring them to and fro, oh and to pick up 2 gallons of milk three times a week.
let the bickering begin
for me, i say, in the best Clay Davis voice possible - shiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiieeeeeeeeeeet
The adage "when california gets a cold, the US gets the flu" is 100% wrong. When the defense industry cratered, California got the flu, and the rest of the US had a mild cold. Some states hardly noticed at all.
Funny that "Minnesotans" got the capitalization and "california" did not.
You won't be asked to protect my million dollar home in California BUT you will ultimately find it in your best interests to protect 'some' million dollar homes in California.
Dryfly-
Totally agree with your sentiments that the vulnerable need protection. Whenever I hear anyone going on about welfare queens etc, I like to point out that my wife was a beneficiary of food stamps when she was a three-year old (her mom was going to law school and was dirt poor at the time). I don't like the idea of anyone, let a three year old going hungry.
That said, Japan has its own problems with how it handles welfare:
"One man has died in each of the last three years in this city in western Japan, apparently of starvation, after his welfare application was refused or his benefits cut off."
In Death Diary, Japan Welfare Is Cast as Killer - NY Times
Mortgage originations for loans to buy homes will decline 18 percent to $955 billion in 2008, the MBA forecast said. That's almost half the $1.5 trillion lent in 2005 as the five- year real estate boom peaked. In 2009, purchase originations will rise 5 percent to $1 trillion, MBA said.
In other words, it will take 2 years for mortgage originations to be 2/3 what they were 2 years ago!
TJ said:
Gotta keep in mind that until this housing bubble hit, MOST of the housing in California still fell UNDER the conforming limit.
And it will be there soon. Someone just posted on the HBB that a 90274 sales went through for $585. That really isn't too big of a down payment to do with a conforming loan...
The great squish down is here. You can afford $417k (assuming you qualify) plus your down payment. That is too lose of credit... but its what we have. I think it will work for CA.
Got popcorn?
Neil
"One man has died in each of the last three years in this city in western Japan, apparently of starvation, after his welfare application was refused or his benefits cut off."
- NY Times oref=slogin
rcyran | 01.14.08 - 8:24 pm | #
Ya everyone has some of that - never good. But when you look at their lost decade it is amazing they didn't have more and I mean a LOT more.
On the other hand I don't think anyone knows how many committed suicide from the loss of face from losing their job, savings or status. I bet there were a lot.
Each culture handles the dark side differently - we all have something to learn.
Funny that "Minnesotans" got the capitalization and "california" did not.
Rob Dawg: read my post again. You'll see that california was a slip of the shift key, because in the same quote I have California written.
The adage "when california gets a cold, the US gets the flu" is 100% wrong. When the defense industry cratered, California got the flu, and the rest of the US had a mild cold. Some states hardly noticed at all
way to argue the substance of my post by the way.
And FWIW: I'm a born and raised Californian. Moved to minnesota (happy?) a few years ago because the opportunity was better here than there for me. I love California and think it's a great state... it's simply not as important as Calfornians evidently seem to think it is. Important? Yes. More important than the rest of the US? Not even close.
Could California do well without the US? Doubtful. Could the US do well without California? Probable.
I'm just saying that it will be VERY difficult to convince the "useless flyover states" that we need to give economic assistance to people living in Multimillion dollar homes. Especially when you do it with such arrogance.
Listen to yourself you whine like a teenager.
"waah... we are so great... you need us more than we need you... we're so awesome... you'd better give us money so we can all have million dollar homes or you'll be sorry! we're not Kentucky you know, we could be a nation without you, and then what would you be??? you'd be California-less!!! Ha! Then you'd see how awesom-o we really are! What do the flyover states have? Nothing. What do we have? Everything! If California has a runny nose, the rest of the world dies of the bubonic plague!!!"