The Boston Globe today says foreclosure filings in MA are up 30%in 3 months ... ouch. The main cause seems to be sub-prime mortgages. The Globe made roughly the same comment as Daniel Mudd about certain neighborhoods being heavily affected. It's worrisome.
Home prices were rising at least at a multiple which was tens of that of rises in income for quite a few years now. And this guy could think of fraud and speculation and overborrowing why only now?
Billy-So right. I personally feel there had to have been tremendous amounts of appraisal fraud involved here. How else could prices have appreciated 10-15% in 4-6 months in some areas? There is no way a cookie-cutter house could be worth 20K more than another one 5 doors down in a cookie-cutter neighborhood in 4 months. There are just no fundamentals to support those kinds of price jumps. I hope at least somebody is made an example of when the sh*t hits the fan.
Appraisal Fraud? So we are going to blame the appraisers? Appraisals can be done on cost-to-replace or on comparable sales. In an active, booming market "comparables" are easy to find.
Certainly appraisers have been under pressure the past 12 months to write docs that help folks refi their house because they were falling behind in payments. It will be easy to find cases of appraisals-done-wrong.
BUT
The Mortgage Bankers are quite culpable in these deals and behind them the Fannie Mae fanny is "hanging out" big time.
The crap is deep.
We have heard of the huge percentage of mortgages made the past 3 years that are Interest-Only ARMs and even Negative Amortization. In San Diego those 2 types made up 70% of the mortgages in 2005.
But go deeper into the muck.
Many houses are being financed with a small down-payment or a borrowed small down-payment. Last time I applied for a mortgage it was 20% down and Full Documentation of income history and assets. This is known as a Full Doc loan. In SoCal we are seeing Stated Income loans. Meaning: the borrower just writes down a number for income and no checking is done to confirm it.
The wink-wink plan for survival between the lender and borrower depends upon refinancing the house at a mugh higher value and using the cash gained to make mortgage payments.
but wait - there's more - If the borrower puts all the cash gained right away into the mortgage to prevent spending too much at WalMart the borrower is "ahead" of the payment schedule and the lender gets to count the loan as a prepaid mortgage.
Then they pack these SOLID mortgages up and sell 65-80% of each. Those later are bundled with many mortgages to become that wonderful new asset-like instrument the MBS - Mortgage Backed Security. Then the MBS bundle is sliced into tranches sold bearing high risk and high return; moderate risk and return; low risk and low return etc.
How many million foreclosures do we need before the nation really feels the pain? With little or no downpayment in the house how many folks will just walk away?
Who is holding those derived Mortgage Backed Securities?
Good to hear that the problem is adjustable rate mortgages and not the subprime market. Fannie is still lobbying congress to let expand the portfolio and get into the subprime business.
it all starts with the sub-prime market, however if you're in a 'well off' community while home prices might stagnate or drift down a bit overall you should maintain most of the value of your property. it's the fringe/investor-driven/subprime areas that have the most to contend with in a down market.
The creation of the I/O ARM would constitute a change in fundamentals, one indicating worse for the future. Difficult to circumvent the negatives from them.
I just read on Yahoo this morning that some banks are starting to offer 50-year mortgages. Any chance these strapped folks can refinance for this longer period to get an affordable monthly payment?
And is it just me, or does a 50-year-loan sound insane? However, since I read somewhere that banks consider mortgages to really be 5-year loans because people move so much, I guess the 50-year term is pretty meaningless.
And is it just me, or does a 50-year-loan sound insane? However, since I read somewhere that banks consider mortgages to really be 5-year loans because people move so much, I guess the 50-year term is pretty meaningless.
Well they have a long way to go... In the late 80s & early 90s the Japanese offered 100 year mortgages. Here's an abstract of TV coverage on the subject circa 1990:
That story about Japan is funny in a sick way, dryfly. We always like to joke about putting up our first-born children as collateral, and with a 100-year mortgage you really are doing that!
Even 50 or 100 year mortgages can't match interest only mortgages which are effectively perpetual although there is little real difference between them.
Even 50 or 100 year mortgages can't match interest only mortgages which are effectively perpetual although there is little real difference between them.
The folks who dreamed these 'products' up must have failed calculus... or at least bombed the part where they covered 'limits' & 'infinite series'.
Notice how few items can be financed with an I/O loan? [Not that I want to bring out liberal and his Ricardo trumpet --anything but that note please.] The bet seems to be that in the long haul, your real estate will still be a collectible.
There may be some exceptions: the low lying waterfront should the polar ice caps melt; the long awaited avian flu that brings the population down to more manageable (in the Greenspan sense) levels; some dufus pre-empts the chickens and finds the button that lets a nuclear bomb loose; there is life on Mars, but only suitable for Republicans whose mass exodus only they can afford leaving behind a countryside of empty mansions.
The Boston Globe today says foreclosure filings in MA are up 30%in 3 months ... ouch. The main cause seems to be sub-prime mortgages. The Globe made roughly the same comment as Daniel Mudd about certain neighborhoods being heavily affected. It's worrisome.
Man, he's soooo insightful, no wonder he gets paid the big bucks.
Home prices were rising at least at a multiple which was tens of that of rises in income for quite a few years now. And this guy could think of fraud and speculation and overborrowing why only now?
Confiscate all his past pay and bonus.
I'm reading this FannieMae guy and thinking...
"if jobs are pretty stable"
STRIKE ONE
"if home prices have come up underneath the mortgages"
STRIKE TWO
"if there's not any incidence of appraisal fraud"
STRIKE THREE
"it could be just fine"
THIS GUY IS OUT OF HIS MIND!
Is this guy an indication of the best and brightest America has to offer?
Billy-So right. I personally feel there had to have been tremendous amounts of appraisal fraud involved here. How else could prices have appreciated 10-15% in 4-6 months in some areas? There is no way a cookie-cutter house could be worth 20K more than another one 5 doors down in a cookie-cutter neighborhood in 4 months. There are just no fundamentals to support those kinds of price jumps. I hope at least somebody is made an example of when the sh*t hits the fan.
Appraisal Fraud? So we are going to blame the appraisers? Appraisals can be done on cost-to-replace or on comparable sales. In an active, booming market "comparables" are easy to find.
Certainly appraisers have been under pressure the past 12 months to write docs that help folks refi their house because they were falling behind in payments. It will be easy to find cases of appraisals-done-wrong.
BUT
The Mortgage Bankers are quite culpable in these deals and behind them the Fannie Mae fanny is "hanging out" big time.
The crap is deep.
We have heard of the huge percentage of mortgages made the past 3 years that are Interest-Only ARMs and even Negative Amortization. In San Diego those 2 types made up 70% of the mortgages in 2005.
But go deeper into the muck.
Many houses are being financed with a small down-payment or a borrowed small down-payment. Last time I applied for a mortgage it was 20% down and Full Documentation of income history and assets. This is known as a Full Doc loan. In SoCal we are seeing Stated Income loans. Meaning: the borrower just writes down a number for income and no checking is done to confirm it.
The wink-wink plan for survival between the lender and borrower depends upon refinancing the house at a mugh higher value and using the cash gained to make mortgage payments.
but wait - there's more - If the borrower puts all the cash gained right away into the mortgage to prevent spending too much at WalMart the borrower is "ahead" of the payment schedule and the lender gets to count the loan as a prepaid mortgage.
Then they pack these SOLID mortgages up and sell 65-80% of each. Those later are bundled with many mortgages to become that wonderful new asset-like instrument the MBS - Mortgage Backed Security. Then the MBS bundle is sliced into tranches sold bearing high risk and high return; moderate risk and return; low risk and low return etc.
How many million foreclosures do we need before the nation really feels the pain? With little or no downpayment in the house how many folks will just walk away?
Who is holding those derived Mortgage Backed Securities?
if, if, and if.
That makes lot's of if.
Grump - "Who is holding those derived Mortgage Backed Securities?"
Your pension plan (if you're lucky enough to even have one).
Good to hear that the problem is adjustable rate mortgages and not the subprime market. Fannie is still lobbying congress to let expand the portfolio and get into the subprime business.
it all starts with the sub-prime market, however if you're in a 'well off' community while home prices might stagnate or drift down a bit overall you should maintain most of the value of your property. it's the fringe/investor-driven/subprime areas that have the most to contend with in a down market.
The creation of the I/O ARM would constitute a change in fundamentals, one indicating worse for the future. Difficult to circumvent the negatives from them.
I just read on Yahoo this morning that some banks are starting to offer 50-year mortgages. Any chance these strapped folks can refinance for this longer period to get an affordable monthly payment?
And is it just me, or does a 50-year-loan sound insane? However, since I read somewhere that banks consider mortgages to really be 5-year loans because people move so much, I guess the 50-year term is pretty meaningless.
And is it just me, or does a 50-year-loan sound insane? However, since I read somewhere that banks consider mortgages to really be 5-year loans because people move so much, I guess the 50-year term is pretty meaningless.
Well they have a long way to go... In the late 80s & early 90s the Japanese offered 100 year mortgages. Here's an abstract of TV coverage on the subject circa 1990:
Headline: Japan / Housing / 100-Year Mortgage
Lot of good 100 year mortgages did the Japanese- the housing market still tanked big time.
That should really be a lesson to us in the US.
Stop the madness now. It just gets worse with each new funky loan product.
That story about Japan is funny in a sick way, dryfly. We always like to joke about putting up our first-born children as collateral, and with a 100-year mortgage you really are doing that!
Even 50 or 100 year mortgages can't match interest only mortgages which are effectively perpetual although there is little real difference between them.
Even 50 or 100 year mortgages can't match interest only mortgages which are effectively perpetual although there is little real difference between them.
The folks who dreamed these 'products' up must have failed calculus... or at least bombed the part where they covered 'limits' & 'infinite series'.
Notice how few items can be financed with an I/O loan? [Not that I want to bring out liberal and his Ricardo trumpet --anything but that note please.] The bet seems to be that in the long haul, your real estate will still be a collectible.
There may be some exceptions: the low lying waterfront should the polar ice caps melt; the long awaited avian flu that brings the population down to more manageable (in the Greenspan sense) levels; some dufus pre-empts the chickens and finds the button that lets a nuclear bomb loose; there is life on Mars, but only suitable for Republicans whose mass exodus only they can afford leaving behind a countryside of empty mansions.
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