March 12, 2007

Fleckenstein: The subprime mortgage industry is gone. Alt A lenders will be next. And the real estate market will basically just freeze up.

Ignore this advice from Fleck at your own peril. You think the housing crash is ugly today? Just wait six months. This sucker is going into deep freeze, a result of reckless lending drying up overnight.


Meanwhile, my research right now is focused on what companies are going to get crushed during the downfall. All ideas and stats welcome.

As a result of the collapse of the subprime mortgage market, lenders will -- gasp! -- once again require down payments, filling the market with unsold homes and driving down prices.

Dropping like subprime flies Essentially, the subprime mortgage industry -- which lends to consumers with credit issues -- is gone. Alt A lenders, those one rung up the ladder creditwise, will be next. Together, they comprise approximately 40% of the market.

We also don't yet know the ramifications for the dark-matter universe in collateralized debt obligations (CDOs), credit default swaps (CDSs) and other derivatives-related exotica. But I think it's safe to say that the surprises will be negative -- and large.

This credit collapse is an unequivocally important event. Because, as I've been writing, the ability of anybody with a pulse to get a loan for any amount is what drove the real estate market, and the real estate market is what drove the economy.

Sometime in the next three to six months, the real-estate market will basically just freeze up. Of course, inventories are going to explode and prices will eventually drop rather dramatically as a vicious cycle feeds on itself.
One who does is Lou Ranieri, sort of the father of the mortgage bond market. In a recent interview, he warned: "This is the leading edge of the storm. . . . If you think this is bad, imagine what it's going to be like in the middle of the crisis." In his opinion, more than $100 billion of home loans are likely to default.

22 comments:

Anonymous said...

I've heard mixed reviews about Fleckenstein. 100 billion is a big #, but in the greater scheme of things in terms of the trillions of mortgage debt (I've heard either is about 4.7 or 9 trillion can't recall precisely) wouldn't that just be 1-2%? Admittedly, for individuals its a tragedy. Regardless of this, I guess we'll know by summer of 07 what direction all of this is taking?

Anonymous said...

No oil, engine locks up

Pretty easy to understand I'd say

David said...

If Alt A really collapses housing is going to fall like a rock! It would also make a recession almost inevitable. yikes!

Anonymous said...

100B here another 100B there pretty soon we're talking real money.

Anonymous said...

Now how likely would it be for Bush Co. to just let this miserable scenario continue to unfold in broad daylight? Rather, some major geopolitical event/war is in the offing which will give cover to the sub-prime/lending disaster. Will the dollar survive?

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

Oh please, houses are still be bought and sold, people still want to live in a house and the population of the USA is expanding. The real estate market will continue, although at a more normal and historical pace.


Marky Mark

Lisa said...
This comment has been removed by a blog administrator.
Anonymous said...

Are 80/20 loans considered alt-A?

Is the 20% piggyback considered alt-A?

The 20% piggyback...if that goes, then look out. Requiring 10% down will kill the market.

Anonymous said...

Yep here comes the hurricane, first touch of landfall has begun, full blunt of storm to be felt by September. WHEHEHEHHEHEHEHEHEHEHEHEEH

Anonymous said...

If 20 subprime lenders going bankrupt in two months is normal, then I'd hate to see what it looks like when it gets bad

Anonymous said...

Marky Mark,

Are you psychotic? What has been normal about this monstrous and historic housing bubble? Nothing. And what will be normal about the (ongoing) bust. Nothing.

You may wish to believe that the housing market will simply return to normal, and it may someday. But first there will be a whole lot of pain and suffering equivalent to the euphoria the last several years. Also, it's kind of hard to buy a house at these prices when you don't have nearly enough for a down payment and nobody want to do a %100 LTV anymore.

Anonymous said...

Next stop recession,then depression

Unknown said...

NDE is a great short. Definitely. I have Oct put.

"...More than three quarters of the loans IndyMac originated last year
were Alt-A mortgages. Over 90% of Impac's loans were Alt-A in 2006,
Inside Mortgage Finance reported recently...."

http://www.marketwatch.com/news/story/subprime-mortgage-problems-may-spread/story.aspx?guid=%7B664D15E5%2D33EA%2D41AB%2DBAF7%2D116BBF929245%7D&siteid=yhoo&dist=yhoo

Anonymous said...
This comment has been removed by a blog administrator.
Bill said...
This comment has been removed by a blog administrator.
Chris said...

I think most of the people who are sanguine about the coming wave of mortgage defaults hasn't seen downward prices in their area yet, or simply doesn't need to sell (if they own a house) anytime soon.

Or maybe they're just delusional.

Miss Goldbug said...

If banks like WaMu and Wells Fargo need cash, does anyone know if they can legally call their loans, (even the prime ones) to cover their sub-prime loans?

I don't know if this is illegal or not, but when instutions are desperate, who knows what they will do?

Anonymous said...

In my case I am not looking to sell anytime soon fortuneately also we didn't buy more than we can afford. Still this credit crash will be bad for all. We are already seeing the beginning with mortgage companies dying and the end of ez AL credit. Homebuilders, furniture makers, appliance makers, flooring companies, auto makers, freight companies are just starting to get pinched as the consumer curbs spending. There will be a recession since all the growth we've had in the last 5 years was a credit balloon.

Anonymous said...

My money staying on the sidelines, till the rental ROI is both stable and positive again.

Time to hibernate now... setting the alarm clock for the year 2015

Anonymous said...

Even though I knew it was coming, it is strange to see the results in your own neighborhood. A family just a block away emptied and moved in the dead of night this month. No good-byes, nothing but the notice on the door TOO SAD.

fakepaycheckstubs.com said...

WELCOME TO PAYCHECKSTUBSONLINE.COM




NEED A LOAN, BUT CANT VERIFY A JOB OR INCOME???

Or if you work on commissions and you need to insure the loan CLOSES !!!

IF YOU CANT MAKE IT, NOW YOU CAN FAKE IT!!


FINALLY, A COMPUTER PROGRAM THAT WILL CREATE PERSONALIZED PAYCHECK STUBS INSTANTLY!
What happens when you MAKE actual income, but you have no way to PROVE it? How do you justify the money in the bank without a legitimate means of "BUSINESS"? Dont let that happen to you! Instantly qualify to get the home or car you always wanted and deserve! GO AHEAD:

FAKE HOW MUCH YOU MAKE

This computer program does it all! Input the company name (with company logo if desired), name of employee, hourly salary and press the print button and PRESTO.......INSTANT CUSTOMIZED PAYCHECK STUBS!!!

Buy this computer program and print out personalized instant paycheck stubs for your new or existing business! Verify income for any one.... anytime! Authentic looking stubs will FOOL EVERYONE or 100% Money Back Guarenteed!

INSTANTLY print out AUTHENTIC paycheckstubs in MINUTES!

IT IS THIS EASY!!!

Use this program to verify income or to show proof of income!!!!
Once payment is made, an email will be sent to you with the EASY TO USE computer program attatched! Remember....use this computer program not just once, but TIME AND TIME AGAIN!
Go ahead and GET what you deserve!!!

FAKEPAYCHECKSTUBS.COM IS NOT RESPONSIBLE FOR ANY MISUSE ASSOCIATED WITH THIS PROGRAM ONCE BUYER HAS FILLED IT OUT WITH THE INFORMATION THEY CHOOSE TO USE - THIS COMPUTER PROGRAM IS INTENDED TO CREATE NOVELTY PAYCHECK STUBS FOR ENTERTAINMENT, AND AMUSEMENT PURPOSES ONLY!!



CLICK HERE TO PURCHASE



ONLY $69.95

Upon completion of this transaction, you will be emailed your computer program! Please allow one to eight hours to process your order!

All SALES ARE FINAL!


fake pay stubs - fake payroll stubs - fake check stubs - make fake pay stub - bad credit - loan - instant - proof of income - letter - fake check - car loan - real estate - refinance - consolidate - now - no credit - need - pay stub - make pay stub - create pay stub - fake check - buy online buy online fake make pay stubs - fake payroll stubs - fake check stubs - fake id ids - home loan - car loan - cash advance - cash loan - auto loan - proof of income - novelty - easy - bad credit - bad credit loan - sample paycheck stub - make - sample paycheck stubs - fake - id - ids - car refinance - home refinance - state id - identity - create - same - day - payday - slip - buy - house - home - auto - vehicle - state - create - template - sample - child support solution - prove income - proof of income letter - child support - sample - fake pay stubs - fake payroll stubs - fake check stubs - make fake pay stub - bad credit - loan - instant - proof of income - letter - fake check - car loan - real estate - refinance - consolidate - now - mortgage fraud - check scam no credit - need - pay stub - make pay stub - create pay stub - fake check - fake make pay stubs - fake payroll stubs - fake check stubs - fake id ids - home loan - car loan - cash advance - cash loan - auto loan - proof of income - novelty - easy - bad credit - bad credit loan - sample paycheck stub - make - sample paycheck stubs - fake - id - ids - car refinance - home refinance - state id - identity - create - same - day - payday - slip - buy - house - home - auto - vehicle - state - create - template - sample - scam scam child support solution - prove income - proof of income letter - child support - sample - fake pay stubs - fake payroll stubs - fake check stubs - make fake pay stub - bad credit - loan - instant - proof of income - letter - fake check - car loan - real estate - refinance - consolidate - now - no