March 22, 2007

CNN on Alt-A "Liar Loans" - "All that nutty stuff is going to disappear"


I took out an October put on IndyMac (NDE) today. I think we all know Alt-A will unravel next in The Great Unwinding. "Liars Loans" to Casey Serins are even more dangerous than lending to poor people with a real jobs. And the pain will be SOOOO much worse with Alt-A than it was with subprime.


Subprime mortgages have been generating a lot of attention, and worry, among investors, economists and regulators, but those loans may be only part of the threat posed to the housing market by risky lending.

Some experts in the field are now concerned about the so-called Alt. A mortgage loan market, which has grown even faster than the market for subprime mortgage loans to borrowers with less than top credit.

Standard & Poor's estimates that the Alt. A market has gone from less than $20 billion in loans in the fourth quarter of 2003 to more than $100 billion in each of the last three quarters.


But just as the Alt. A market has grown even faster than subprime, some believe it could shrink even faster amid growing concerns in the marketplace. That means another pool of money that has supported home sales and housing prices being yanked just as home sales and prices are already in decline.

The loans were very popular with buyers seeking investment property rather than a home to live in.

"There's a reason they ask on the application do you intend to live in the property," said David Berson, chief economist for mortgage financing firm Fannie Mae. "People who live in a property are less likely to default than investors."


"All that nutty stuff is going to disappear," said Ohlbaum. "Everyone today is shying away from the 100 percent of value loan. But anytime there's a big change in the market like there is now, everyone will overcompensate for a while. I think this will last for 12 to 14 months before things are back to normal, and I think you'll see more foreclosures, more people in trouble in the meantime."

The biggest Alt. A lender is Pasadena, Calif-based IndyMac Bancorp. Trade publication Inside Mortgage Finance estimates it did $70.2 billion of the loans in 2006, up 48 percent from a year earlier. As the sector grew, its shares shot up nearly 50 percent in a year and hit a record high in April 2006. But with rising concern about the mortgage sector, its shares have plunged 36 percent since the start of 2007.

But it's not just the smaller lenders like IndyMac in the sector. Like subprime, some of the nation's largest finance firms are major players. Countrywide Financial, one of the nation's largest mortgage lenders, is the No. 2 Alt. A lender with $68 billion in loans, according Inside Mortgage Finance.

"If they get spooked, you'll see the same things that are happening in subprime-repurchase requests, funding sources drying up," said Cecala.

34 comments:

Anonymous said...

.
.
.
No subprime or liars loan investors? Who's going to buy all those KB Homes? How will greg swann eat?

I Love Broadband over PowerLine said...

re: http://www.paperdinero.com/BNN.aspx?id=107

New Today! An Hour with Professor Roubini!

What can you say? An excellent discussion with one of the best. Run time is actually roughly 18 minutes as the original broadcast has had the breaks removed.

Originally aired on: 3/21/2007 on Bloomberg

Running Time: 17 minutes 25 seconds


New Today! Tale of Three Cities (Part 2)

The Nightly Business Report takes a look at a series of nutty Florida markets where things are truly miserable. Buyers and Sellers sewing each other for specific performance, huge glut of inventory, continued building, sharply declining prices… next up “mass foreclosure”.

Originally aired on: 3/21/2007 on Nightly Business Reports

Anonymous said...

The solution to "liar loans" is to set up debtor's prisons, like in the old days.

I don't understand why they can't be forced to pay off every cent? The constitution allows for indentured servitude or a state of slavery as resitution for illegal acts.

Anonymous said...

Dont you guys ever read the history books? Here comes Uncle Sam to the rescue....


Government Is `Here to Help' Subprime Borrowers: Caroline Baum

By Caroline Baum

March 21 (Bloomberg) -- Congress is making noises about doing something to help homeowners who can't meet their mortgage payments hold on to their slice of the American Dream.

Democratic presidential frontrunner Hillary Clinton, senator from New York, wants even lower mortgage rates for homeowners facing foreclosure. Senate Banking Committee Chairman Chris Dodd, Democrat of Connecticut, and House Financial Services Chairman Barney Frank, Democrat of Massachusetts, are holding hearings to determine Congress's legislative options.

As a sideshow, our elected representatives will probably spank regulators for not doing more to curb deceptive lending practices and hang executives of subprime lenders out to dry for presiding over the boom-bust cycle.

While lawmakers' intentions may be noble, it's a pretty safe bet that, left to their own devices, they will muck things up even more.

Just to summarize the storyline to date: During the housing boom of the last five years, people with bad credit histories, many of whom lied about their income and nature of employment, got mortgage loans they weren't qualified for to buy homes they couldn't afford. Now that home prices have stopped rising, and the house can't be refinanced or sold at a profit, Congress wants the taxpayer to subsidize the mortgages so these folks can remain in their unaffordable homes.

What's wrong with this picture? Surely there were plenty of cases of fraud, as there always are during extended periods of rising asset prices. (The bodies of both victims and perpetrators generally float to the surface when the bubble bursts.) The legal system is capable of prosecuting loan fraud, a federal crime, be it on the part of the borrower (lying about his income) or the lender (misrepresenting the terms of the loan).

Fraud Is a Crime

Any false statement made to a lender, even if the lender encourages it, constitutes fraud. Why do we need new laws?

``There are adequate laws in place to address false statements on loan applications,'' says Jacob Frenkel, a former federal prosecutor and Securities and Exchange Commission enforcement attorney now in private practice. Similarly, existing ``mail and wire fraud statutes are sufficiently broad to cover predatory conduct by unscrupulous lenders.''

That won't stop Congress, which is forever passing laws to ensure the last problem doesn't recur. The Sarbanes-Oxley Act of 2002, for example, enacted in the wake of corporate accounting scandals, is getting a second hearing. With increased distance from the accounting chicanery following the bursting of the technology and Internet stock bubble in 2000, it seems that in its haste, Congress may have imposed too heavy a regulatory burden on small businesses, thereby reducing the competitiveness of the U.S.

Anonymous said...

Keith, remember that post of mine that you took down about the well hung gorilla and the porno queen who kept baiting him to do her in an "alternative fashion" shall we say? Then, the gorilla gets up to speed and she starts to recognize that this might be a little more than she initially bargained for and wants to back out of the deal but the gorilla's got other thoughts and nobody is going anywhere until he finishes? Using that ANALogy, Where do you suppose we are on that scale?

Anonymous said...

"Congress is making noises about doing something to help homeowners"

That's all they'll do, make noises.

FlyingMonkeyWarrior said...

Keith, remember that post of mine that you took down about the well hung gorilla and the porno queen who kept baiting him to do her in an "alternative fashion" shall we say? Then, the gorilla gets up to speed and she starts to recognize that this might be a little more than she initially bargained for and wants to back out of the deal but the gorilla's got other thoughts and nobody is going anywhere until he finishes? Using that ANALogy, Where do you suppose we are on that scale?
+++++++++++++

Now I know why you are posting as an anon.

Anonymous said...

14% of Subprime loans are in default.

Countrywide is expecting the worse year in history.

Why is this unsold inventory not disappearing?

With global warming expect more coastal flooding, rising seas. Shame on the city of New Orleans for accusing the US government of not spending enough to rebuild the city that is already several feet below sea level. They should get their mayor to park the school buses on higher ground and draw up evacuation plans. Local levy assessments.

mcarleton said...

With Alt-A loans, the FB has a prime
FICO score to protect unlike the
subprime crowd. Having a prime
FICO might also mean that an Alt-A
FB might have a better idea what
he/she can handle. While Alt-A
defaults will not be zero, I don't
expect they will be anywhere near
as bad as what we will see in
subprime. The loss models wallstreet
were using to judge defaults in
subprime were wildly wrong but
they will be a better fit for
the Alt-A loans.

Paul E. Math said...

That issue of bailing out subprime borrowers needs to stay on the front-burner. We need to fight that tooth and nail.

I pay taxes. This is my money they are talking about giving to subprime borrowers. Instead of spending my money on care for kids with leukemia or MS research, they are giving it to lazy, greedy, stupid people who overborrowed and overpaid for homes. These people are the reason (among others) why prices increased and why I can't afford to own a decent home. And now you want me to bail them out??

We can't let them do this to us.

Anonymous said...

"Now I know why you are posting as an anon."

I'm not an anon.

Angelo

Anonymous said...

"The solution to "liar loans" is to set up debtor's prisons, like in the old days."

Well, we don't put people in jail for being insolvent but we do jail people for fraud.

See the bottom part of the mortgage application form 1003 with the heading "Certification".

The IRS just made it a lot more easy (and profitable) to blow the whistle on tax cheats. I wonder if there is any connection to their contracting in 2006 with three private collection agencies for the collection of delinquent taxes less than $25,000? ....Nnaaah! just pure coincidence.

Anonymous said...

anon said: The solution to "liar loans" is to set up debtor's prisons, like in the old days.


Guess what? Haliburton subsidiary KBR was contracted to build huge detention camps...

http://tinyurl.com/292upw

Metroplexual said...

http://www.economist.com/finance/displaystory.cfm?story_id=8885853

Kieth,

Casey made the economist!

C'mon Keith said...

If you took it down before (which was the respectful decision), why are you allowing it now???

Would you let this jerk tell this story in front of your wife, your daughter?? You'd know what was driving the choice of analogy, and no doubt you'd stop it. That's what grown men still do.

Anonymous said...

It's not just a problem in sub-prime. If people can't afford homes at the bottom then homes at the top are going to lose value and potentially be up-side-down.

The values at the top are only at the top because of people driving the price up at the bottom.

The debt on foreclosures in the early 1990s were no where near the debt being foreclosed on now. Check out foreclosure.com and type in a zip code.

Anonymous said...

so should we be looking into indymac as a good put or short?

Anonymous said...

FlyingMonkeyWarrior said...

Keith, remember that post of mine that you took down about the well hung gorilla and the porno queen who kept baiting him to do her in an "alternative fashion" shall we say? Then, the gorilla gets up to speed and she starts to recognize that this might be a little more than she initially bargained for and wants to back out of the deal but the gorilla's got other thoughts and nobody is going anywhere until he finishes? Using that ANALogy, Where do you suppose we are on that scale?
+++++++++++++

Now I know why you are posting as an anon.
----------------------
I lol'd

Anonymous said...

http://www.nationalcity.com/corporate/EconomicInsight/HousingValuation/default.asp?WT.mc_id=100206


Map with housing data and historical pricing.

Anonymous said...

Casey Serin goes global.

http://www.economist.com/finance/displayStory.cfm?story_id=8885853

Anonymous said...

"Congress is making noises about doing something to help homeowners"

"That's all they'll do, make noises."

Motorcycle, as we used to say.

Remember when Shrub got on TV to say that the government would be paying for the Hurricane Katrina cleanup?

Find Sep '05 on this chart and notice what happened afterward.
http://kitco.com/scripts/hist_charts/yearly_graphs.plx

Why? Because everyone knows they don't have the money to cover these grandiose promises, and their only recourse is to fire up the printing presses.

az_mtb said...

Fed Says It Could Have Acted Sooner on Subprime Rout

http://tinyurl.com/35r2zd

-----------------------------------

Really?!? Ya think, guys?!?

Anonymous said...

Uh oh, looks like we have a new magazine cover....

http://www.economist.com/images/20070324/20070324issuecovUS160.jpg

Anonymous said...

look Mt Fuji!

http://www.idorfman.com/Charts/Japan_Land.jpg

Anonymous said...

Anonymous said...
"Congress is making noises about doing something to help homeowners"

"That's all they'll do, make noises."

Motorcycle, as we used to say.

............

HA!

An old FC tard!

Mook says hi!

Seriously though these guys are hosed wheter uncle $cam tries to 'help' or not.

I hear land in Japan finally stop falling in value and rose a whopping .1% last year.

http://www.ft.com/cms/s/1e2d1226-d862-11db-a759-000b5df10621.html

That's after 15 years of close to 0% intrest rates.

It looks something like this:

http://www.idorfman.com/Charts/Japan_Land.jpg

Anonymous said...

I got about 20 April puts on the lenders.

I hope I'm right.

bozonian said...

Yeah.

Give the bubble buyers lower interest rates. Keep them holding an asset that will have lost half its value before this is over. For most California homes that's 250,000.

The more you try to help people, the worse you screw them up.

No, really. What these people need a short, sharp shock to wake them up. What's wrong with foreclosure and moving back to the apartment they came from. What? They now DESERVE a house?

This isn't Scooby Doo. It's real life.

Anonymous said...

Fed Says It Could Have Acted Sooner on Subprime Rout

http://tinyurl.com/35r2zd

I can't focking believe this. I'm not seeing that idiot Alan Greenspan's name anywhere. He's like some sacred cow that no one will touch.

Time to make hamburger I say. Uncle Ben ain't the one to blame here. He got left holding Alan's bag.

Anonymous said...

They should get their mayor to park the school buses on higher ground and draw up evacuation plans.

Argh, more Fox Newz memes infecting rational thought.

1) Thanks to Republican ideology, those N.O. school buses were PRIVATELY OWNED thanks to the outsourcing ideology of Republican Taliban. The city didn't have the buses or the keys and the drivers had all left the city. Why didn't the invisible hand of the glorious free market step up and do the right thing?

2) The city did have evacuation plans. The plans said for people who had no other choice to go to the Superdome because that was the highest ground. D'oh! And from there FEMA would take people out, because that was their job and agreed in the plan.

bozonian said...

The solution to frivolous bankruptcy is to implement mandatory organ donation.

You default, you owe 2 organs. Whatever is low this month. Kidneys and testicles (or ovaries but not old shriveled ones) are popular because you have two of them.

Anonymous said...

"If you took it down before (which was the respectful decision), why are you allowing it now???

Would you let this jerk tell this story in front of your wife, your daughter?? You'd know what was driving the choice of analogy, and no doubt you'd stop it. That's what grown men still do."

I am not a Jerk. I am a very wealthy and tan individual.

Angelo

Anonymous said...

"Uncle Ben ain't the one to blame here. He got left holding Alan's bag."

It's a mystery to me why he took that job. Don't imagine that he's dumb enough to believe the crap he spews for public consumption. He knows how this Ponzi system works and that the baton Greenspan handed him was actually a sizzling stick of dynamite.

Anonymous said...

7 Fed Guv positions.

Two are currently vacant (well, will be 2 since Bies resigned effective end of March - did not attend this FOMC)

All presently on Board including Bernanke are Bush nominees. Would appear that remaining two vacancies will be filled with Bush nominees as well.

Anonymous said...

Republicans control New Orleans ideology? LMAO

The city is 90% Democrat Talibans, you filthy ignorant leftard