March 15, 2007

Hello from Capri Italy... HP back on Sunday

Hello everyone... Silly me, I thought I could keep the blog up and running from Italy this week... not gonna happen. So take a break, go back and read some great stuff in the archives, take a deep breath, and we'll get back to the complete and total meltdown underway in the US housing market on Sunday...

Hope I didn't miss much. But I imagine that's not the case

Ciao

52 comments:

skianddive said...

Keith,
Italy does that to you. In the end, its positive. Your removal from this BS makes you think clearer.

For instance, guess who is coming into the party?

A little late but coming never the less.....

http://www.reuters.com/article/newsOne/idUSL1470530620070314

Enjoy your time in bella Italy. Listen to what it tells you.

Anonymous said...

hey Keith, enjoy it!

Anonymous said...

Dude, I need my HP fix.

Anonymous said...

Good to hear that you're ok... I thought Lereah may have had you whacked!

Enjoy your vacation, and see you next week!

Uncle Al said...

WTF! Here I am on my way to my third job and this irresponsible renter is out frolicking in Capri.

HomeDebtor

Anonymous said...

Enjoy yourself! Wish I was there too. What will I do without my daily HousingPanic?

Small Hat

optional said...

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history,"

Anonymous said...

Have a blast in Italy!!! You have been 'spot on' with this melt down!

Anonymous said...

the subprime tsunami !!!

http://www.inman.com/inmannews.aspx?ID=62511

Anonymous said...

Watching MORNING CALL and they mentioned a class action lawsuit against a sub-prime lender (in their now daily sub prime discussion). Trying to find a detailed link.....

Rental Car Madness said...

What are your thoughts about the FED possibly cutting rates....falling dollar or rising home sales?

Rental Car Madness said...

What are your thoughts about the FED maybe cutting rates?....falling dollar or rising home sales?

Anonymous said...

Stop slacking Keith ;-)

FlyingMonkeyWarrior said...

Hope you did not miss much??? Another crash on the DOW Fri, and your friend the CEO of Countrywide was interviewed on CNBC< which I transcribed for your readers. Kinda stale three days later.
I thought you were dead from Greg Swans hand.lol

Anonymous said...

Oh, you're missing the best stuff so far Keith. Get on back and see what's happening.

Anonymous said...

The Senate is already talking about a Government Bailout for "subprime" lenders & borrowers, just like the S&L bailout of the Eighties.

Even if they have to run the printing presses 24/7/365...

Anonymous said...

Mortgage crisis may cause chain reaction
Los Angeles Times-Washington Post

Will the meltdown in the market for subprime mortgages spread to other forms of housing finance and trigger a housing credit crunch that will further depress sales and prices?

The official line from the industry, and the Federal Reserve, is that while this is a serious problem, it involves a small portion of the housing market, with no signs of spreading.

But others aren't so sure.

These are, after all, the same people who denied there was ever a housing bubble, then denied there was a housing bust and, more recently, declared that the housing downturn had bottomed out.

Nor do the numbers fully support their optimism. While subprime mortgages - mortgages made to people with low credit scores - account for only 13 per cent of outstanding mortgages, they make up 20 per cent of the mortgages issued in the past several years.

Other categories of mortgages that are almost as risky account for at least 20 per cent more, and their default rates have also doubled.

Credit history

Moreover, many of the recent "innovations" in subprime mortgages were also used by borrowers with good credit histories.

These include interest-only mortgages that require no principal payment for 10 years; opt-out mortgages that let borrowers skip monthly payments; and piggyback loans that don't require any money down.

By some estimates, nearly 40 per cent of all recent mortgage loans have involved some form of this "risk-layering."

One survey found that 29 per cent of all new mortgages involved no deposit, while the average down payment by first-time buyers was a mere 2 per cent.

Things probably would have worked out just fine for most of those borrowers if interest rates had remained steady and home prices kept rising. But they didn't, and now the impact is rippling through financial markets.

It is as yet unclear how much big banks and hedge funds have lost in this process, but the sums could be large.

General Motors has warned it may have to take a charge of almost $1 billion to cover bad mortgage loans at its mortgage subsidiary.

It's also not clear what may happen to the housing market as a result of all this financial turmoil.

Goldman Sachs estimated that as a result of new, tighter lending standards in the subprime market alone, demand for new homes will fall by 200,000 units this year, 20 per cent of last year's volume.

And CreditSights, a bond research firm, estimates that as many as 500,000 units could come onto the market as borrowers default and their homes are dumped back on the market.

Anonymous said...

The MSM is finally starting to remember, like a soap opera heroine recovering from amnesia, that there WAS another housing down period in the lifetimes of many people still living. (Early 90's...anyone? anyone?)

This is from CNN and charts some of the early 90's pain which until recently was never brought to mind in any MSM story:

http://money.cnn.com/blogs
/generationrisk/2007/03
/real-estate-can-only-fall-10-to-20.html?cnn=yes

That leads to another story, about how the pain of forced job relocations is drastically amplified by being tethered to sinking houses, in USA Today:

http://www.usatoday.com
/money/economy
/employment/2007-03-14-relocate-usat_N.htm?csp=34

They're starting to get it, but ohhhh sooo slowlyyyy....

AM Fence Sitter said...

Glad you checked in! I really was concerned..

FreakyUFOPilot said...

Well, you i don't know if you listen to the radio - you may have missed Mish on Coast-to-Coast. Great stuff, scary, very doomesque.

Unlike their usual topics of UFO, ghosts, and government conspiracies, this was a topic anyone can verify with a bit of news reading and web surfing - and wonderfully scarier! Oh, the sense of immiment disaster!

Anonymous said...

Housing: Game Over
-- Posted Thursday, 15 March 2007 | Digg This Article

I am going to get right to the point. Housing, especially in California, is dead money for many years to come. Game over. It’s that simple.

In March 2005, I stated that anyone buying a house in Orange County should have a 10-year horizon and be comfortable with having lost paper wealth during that period of time. Virtually every investment boom/bubble has the same characteristics: The perception that easy money can be made with little risk is reinforced by the media and “cocktail chatter” which serves to suck in the public (the “dumb money”). Those that believe they are very smart want to display their intelligence by sharing with others how well their investments are doing. Those not in the game feel like they are stupid and not keeping up with their neighbors who are on the path to the American Dream. Other characteristics of an investment mania are a lot of borrowing, fraud at the tail end of the boom, questionable quality supply of whatever is in high demand, and then a crash.

Prior to the housing boom, the most recent financial bubble was the dot com/telecom craze of 1995-2000. Let’s compare the two:

DOT COM & TELECOM

Public Participation: Enormous numbers of day traders.
Borrowing: Huge margin debt and massive corporate spending on technology.
Fraud: Illegal IPO allocation, fraudulent accounting, and now back dating of stock options. Just think of Enron and Worldcom.
Questionable Supply: Junk companies going public in which most of them failed.
Crash: NASDAQ dropped 80%

HOUSING

Public Participation: Large numbers of condo flippers and investor/speculators.
Borrowing: Extraordinary amount of mortgage lending much of which is highly risky given the repayment terms and interest rate risk.
Fraud: Widespread appraisal fraud and false information provided on loan applications encouraged by shady mortgage brokers. Massive accounting irregularities by Fannie Mae and Freddie Mac.
Questionable Supply: Massive numbers of condo conversions of basic apartments and a large amount of new condo construction.
Crash: Housing prices are falling rapidly in areas that have experienced great appreciation, inventory is exploding, and new home sales have dropped 25% from its peak.

Supply and demand are out of balance. Second home buyers and speculators are no longer buying. In many cases they are selling. Inventory of new and existing homes for sale is at a record level and it is taking longer and longer to sell homes.

According to basic economic laws, the only way to clear the market is by lowering prices. Major builders have been very aggressive and have taken a two-prong approach:

Offer incentives like upgrades or subsidized interest rates
Slash prices (particularly in high cost areas like California)

LESSONS FROM MARKETS PAST

My firm had an extensive history in the manufactured housing industry and we have learned valuable lessons during past markets that can be applied to the current market.

Like today’s home builders, we were faced with the formidable challenge of selling new homes in a soft market that were competing with lower priced resales. We reduced our prices and individual home sellers were often forced to follow. As their equity and financial security began to dissipate, many sought litigation to recoup their losses and assuage their fears. With similar circumstances prevailing in this market, I predict a rash of lawsuits against builders, particularly condo developers and apartment converters in communities that only sold a portion of the units and rented the remaining units.

Another important lesson relates to lending. In 1999, with the lending spigot turned on full blast, lending peaked at $13.5 billion. Shortly thereafter, the insidiousness of poor lending practices and outright fraud materialized. Wall Street investors recoiled. Lending dried up. Home prices fell.

EXOTIC LENDING

According to the Federal Reserve, total outstanding home loans increased from $5.1 trillion in 2000 to $9.8 trillion in 2006. This explosive growth has been fueled over the last six years by an exotic array of repayment and interest rate options that have been created to assure every living and breathing individual could buy a home, whether or not they were financially and emotionally prepared.

You don’t have a down payment? No problem. We’ll either arrange for 100% financing or get a foundation to gift you a down payment. Don’t worry about the fees they are making on the transaction or that their foundation is endowed with money gifted to it by homebuilders.

You have credit card debt you need to pay off? No problem, we’ll lend you 125% of the value of your home and consolidate all your debt.

You’re worried that you may not have enough income to qualify for the loan? No sweat, we’ll fill out a “stated income” loan where the lender doesn’t verify your income and instead just takes your word for it. You do make $95,000 per year, right?

From 1970 – 1981, the U.S. homeownership rate was between 64.3% and 66.0%.

From 1982 – 1994, it ranged from 63.5% to 64.4%. Since 1995, however it has gone from 64.2% to 69.2%, an enormous increase in market share for owner-occupied housing.

My assertion is that all investment manias have the common characteristics of the perception of easy profits with little or no risk, loose lending standards, and outright fraud and deceit. This housing boom has been fueled by a mortgage finance bubble on an unprecedented scale that will have enormous economic implications as it unwinds. With Federal Reserve Chairman Ben Bernanke acknowledging the risk of an economic slowdown due to a deflating housing market, long-term interest rates have very little risk of moving much higher.

When you read my article in 2015 don’t be surprised if the value of Southern California homes has not changed from where they were at the peak in 2005. Meanwhile, enjoy your home; remember that its primary purpose is for shelter and satisfaction and not necessarily a source of wealth creation. On the other hand, it may be hard to find an apartment over the next decade as the allure of home ownership begins to fade and financing tightens up.

Gary Carmell

President, CWS Capital LLC

Article courtesy of Red County Magazine (www.redcounty.com)

Direct article link: (http://www.redcounty.com/tabid/146/articleType/ArticleView/articleId/50/Game-Over.aspx)

tomcarbon said...

Funny, you weren't there the day that it really started to melt down... it's really starting to hit the fan here in the MSM...

Anonymous said...

The mortgage loan late payment rate rose to the highest level of the past 3.5 years.

http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-03-13T163116Z_01_N13436180_RTRIDST_0_USA-MORTGAGES-DELINQUENCIES-UPDATE-1.XML

The PPI data was released today 3-15-07 and showed a whopping 1.3% rise, that was an almost 15% annual inflation rate if such inflation were to continue for 12 months.

Gasoline seemed to be one of the factors involved as OPEC cuts and decreased oil production in Iraq and Nigeria caused shortages.

Bush is still requiring more troops and war bucks in his effort to dole out oilfield contracts to multinational oil companies. Halliburton was reported to have made 20 billion of revenues in Iraq so far. Nice fat checks for friends of Bush and Cheney. Inflation, debt, and taxes for the US citizen. For Iraq, a nation torn down as US intelligence did not realize Iraqis shut down their nuclear weapons development programs c. 1990.

SeattleMoose said...

Theme song for March 07

“Time Has Come Today” - The Chambers Brothers

Time has come today
Young hearts can go their way
Can’t put it off another day
I don’t care what others say
They say we don’t listen anyway
Time has come today
(Hey)

Oh
The rules have changed today (Hey)
I have no place to stay (Hey)
I’m thinking about the subway (Hey)
My love has flown away (Hey)
My tears have come and gone (Hey)
Oh my Lord, I have to roam (Hey)
I have no home (Hey)
I have no home (Hey)

Now the time has come (Time)
There’s no place to run (Time)
I might get burned up by the sun (Time)
But I had my fun (Time)
I’ve been loved and put aside (Time)
I’ve been crushed by the tumbling tide (Time)
And my soul has been psychedelicized (Time)

(Time)
Now the time has come (Time)
There are things to realize (Time)
Time has come today (Time)
Time has come today (Time)

Oh
Now the time has come (Time)
There’s no place to run (Time)
I might get burned up by the sun (Time)
But I had my fun (Time)
I’ve been loved and put aside (Time)
I’ve been crushed by tumbling tide (Time)
And my soul has been psychedelicized (Time)

Now the time has come (Time)
There are things to realize (Time)
Time has come today (Time)
Time has come today (Time)

God I love this song……

Anonymous said...

Glad this post explains it.

I was beginning to think the black helicopters had arrived and whisked you away to GITMO as a "person of interest".

Anonymous said...

Hello. How is it going up there ? Back home real estate continues to slide...

GK said...

Workers find it tough to relocate

"But the real estate slowdown means there's no such thing as an easy move anymore: Slumping prices have put a sudden chill on employees' ability to relocate for a job and employers' ability to get new hires to move. Cashen's house languished on the market for more than three months, and he was eventually forced to take a $90,000 loss."

http://tinyurl.com/25u8bw


The Snow Ball Effect starts rolling...

Anonymous said...

No one cares!

Anonymous said...

Check my video.....
Lets see what was said 1 year ago shall we?

http://www.youtube.com/watch?v=QE7fC0aXea4

Sicilianguy said...

If you haven't already, you should check out Sicily before you leave Europe, if you ever do. And Malta.

Anonymous said...

Heading to North county San Deigo to visit my inlaws who still have not done any work on their house after taking out two helocs to pay to remodel and cash out and move to Montana. He's got 3 5th wheel trailers in the back yard with family living in them(no I'm not making this up) He has bought every toy you can own and takes hunting trips all around the country with that cash. It should prove interesting, since my parents were childern of the 1930s and don't spend it if you can't afford it. I'll try and keep my mouth shut, bucause I warned him 2 years ago about housing.

Anonymous said...

Keith I lived in Naples for 4 years and those crafty people now how to live. The workers I worked with made a living working for the US gov't BUT they all worked under the table for cash on the outside. They always talked about no money, but when they bought you a cup of coffee their wallets were always stuffed with cash. Great people, food, wine and just pure crazy.

Anonymous said...

Too bad you don't own. Your house would have appreciated 15% by the time you returned. You could have HELOC'd this whole trip, first class of course, all while smoking a big cigar with a smirk. Enjoy the trip.

Lost Cause said...

Jeeze Keith -- sure living it up for being such a bitter renter.

Anonymous said...

Steve said:

Keith,

You have created a bunch of HP addicts. I need my fix. Got a Q for you.

Lost in S.E. Utah said...

Whoops! guess Charlotte's in North Carolina, not south. Sorry about that.

(Hey, YOU try living in a place where it's a sin to drink coffee and where people say they're going back to the U.S. when they leave the state. And did I mention the green jello?)

Jonesing for HP said...

You'll have a lot to write about, enjoy your trip.

Anonymous said...

has anyone heard of Nouveou Riche University?

Anonymous said...

Keif,
Please stay in Europe, the crash thats gonna take place in the EU will be a lot bigger and way more fun than the one here in the US.

BTW, is it true that if you're cought watching another channel other that 'the BBC' (AKA Al Jazeera)in Europe that you can get arested?

Anonymous said...

Subprime Defaults to Soar, Hurt Lenders, Funds Say (Update1)

By Jenny Strasburg

March 15 (Bloomberg) -- Harbinger Capital Partners and Paulson & Co., hedge-fund managers who profited when subprime- mortgage defaults surged, told investors that delinquent loans will soar and more lenders will disappear.

``We believe we are in the early stage of a correction in this market and that the market will eventually implode,'' New York-based Paulson & Co., which manages $11 billion, said in a letter to investors last week. Paulson said bad loans held by the riskiest borrowers will ``skyrocket'' and ``most, if not all, of the independent originators will go bankrupt.''

Paulson and New York-based Harbinger posted record gains last month on credit derivatives that increased in value as prices for securities backed by subprime loans fell. Paulson's 8-month-old credit fund gained 67 percent, swelling assets to almost $2 billion. Harbinger's $6 billion distressed-debt fund returned 8.1 percent, according to an investor update. Both firms said they continue to bet loan defaults will rise.

Investors holding mortgage-backed bonds stand to lose $100 billion from defaults on $10 trillion in outstanding home loans, Citigroup Inc. bond analysts said this month. Hedge funds have profited from the rising costs of insuring against defaults and from fears that Wall Street will finance fewer subprime loans, hurting new-home sales and the economy.

Banks ``will shut down their origination platforms,'' and the business of pooling subprime loans into packages of securities ``will all but disappear,'' Paulson said in its letter. ``While the bonds have fallen significantly, we think they have much further to fall.''

Greenspan Warning

John Paulson, president of Paulson & Co., declined to comment through a spokesman.

Former Federal Reserve Chairman Alan Greenspan said today that he expects subprime-mortgage defaults to ripple through other areas of the economy, especially if home prices fall. ``If prices go down, we will have problems,'' he said at the Futures Industry Association meeting in Boca Raton, Florida.

Hedge funds are private and mostly unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. They are allowed to take short positions, which is a bet that the value of a security will fall.

They returned an average of 0.65 percent globally in February, which ended with a selloff that battered stock markets, according to Hedge Fund Research Inc. The industry oversees $1.4 trillion, the Chicago-based firm estimates.

Credit-Default Swaps

Harbinger's $6 billion fund that invests in high-yield debt and assets of troubled companies had 60 percent of its assets allocated to short positions, including bets on declines in mortgage securities, according to its monthly investor update from Philip Falcone, 44, the firm's founder and senior managing director. That compared with the fund's typical 35 percent allocation to short positions, according to an investor who declined to be named because the information is private.

``Note that these are individual collateral pools, not the ABX Indices,'' Harbinger said in its investor letter.

ABX indexes allow investors to buy into derivatives called credit-default swaps on multiple securities. Bearish investors have used ABX bets to wager against the health of subprime mortgage lenders.

More than two dozen mortgage lenders have closed or sold assets since the start of 2006 as delinquencies and defaults among high-risk borrowers climbed to their highest rate since at least 2003. Shares of New Century Financial Corp., Fremont General Corp. and other companies have plunged, while foreclosures have increased even among borrowers with high credit scores.

Kensico

``We believe that the market will continue to be tested in the weeks and months ahead, as the subprime situation unfolds amid a choppier market backdrop,'' Falcone said in the letter.

Paulson wagered on declines in mortgage-backed bonds in every strategy it employs, including through funds that invest in companies going through mergers. ``While not directly related to merger activity, we thought the subprime short provided a valuable indirect hedge,'' according to the fund's investor letter.

The bet helped Paulson return 13 percent and 25 percent last month in its two merger arbitrage funds, which have $6 billion in combined assets, it told investors.

Kensico Capital Management, a Greenwich, Connecticut-based hedge-fund firm with more than $1 billion in assets, returned 5.4 percent in February in the onshore version of its Kensico Partners LP fund, bringing the gain to 8.6 percent at month's end, according to an investor.

`Stay Tuned'

The fund, which started in January 2000 and is closed to new investors, invests primarily in stocks. In the fourth quarter, Kensico added credit-default swaps on subprime mortgage securities it saw as ``particularly vulnerable to future losses, such as loans with low documentation or high ratios of loan to value,'' according to a quarterly update sent to investors Feb. 7. The letter came from Michael Lowenstein and Thomas Coleman, co-founders and co-presidents of the fund. Lowenstein, 48, declined to comment.

``We can make money if credit spreads return to the more historical norms, and we can make a lot of money if subprime mortgage losses are somewhat higher than forecast at the time of issuance,'' the managers told Kensico investors. ``Stay tuned.''

GreedKills said...

If you don't post pictures of your trip you KNOW we're gonna be pissed.

Are you wearing your "capri" pants. ;o)

Anonymous said...

When the Crash Hits Your Eye Like a Big Pizza Pie and to Capri you fly... That's amore!

Anonymous said...

"Unlike their usual topics of UFO, ghosts, and government conspiracies..."

What, don't you believe that there are shapeshift-reptilian extraterrestrials running this government? Man, Karl Rove loves people like you.

http://tinyurl.com/dnp7l

couponcutter said...

Hey, Keith. If you are looking for a place where to buy real estate overseas, I know just the right place. The exchange rate is favorable too, 2.5 : US$1

You are looking in the wrong places. Those places are over speculated already.

Anonymous said...

OMG - It's Italian Keith:

http://video.google.com/videoplay?docid=-9148602728649390194&q=channel+4+duration%3Along

Don't worry, there are subtitles!

gringo star said...

keith, enjoy italy!
when you come back, maybe you can cover the topic of excess liquidity. M3 (total money supply) keeps rising and money is always looking for some kind of return. now that real estate has been officially burned where do you think it is going to flow to?
-stocks are falling
-gold is falling.

Anonymous said...

What does this mean for housing?

Sen. Dodd sets subprime hearing for Thursday...
"As chairman, I will use all the powers and tools at my disposal to keep families victimized by predatory loans in their homes and ensure that America's dream of home ownership remains alive," said Dodd.

Will this prolong the time the market should correct?

FlyingMonkeyWarrior said...

Barclays demand squeezes US lender

By James Quinn and Edmund Conway
Last Updated: 2:03am GMT 15/03/2007

# Comment: UK has its own bad debt crisis just waiting to emerge

Barclays, one of Britain's biggest banks, has demanded the immediate repayment of about $900m (£465m) of mortgage loans from New Century Financial, America's second largest sub-prime lender.

Barclays building, Barclays demand squeezes US lender
Barclays' demand shows how the US mortgage crisis is starting to hit Britain's financial giants

In a filing to the Securities and Exchange Commission, the US regulator, New Century confirmed the British bank had issued a notice of default under a repurchase agreement. It is the latest illustration of how the US mortgage crisis is starting to hit Britain's financial giants.

for the rest of the story:

http://www.telegraph.co.uk/money/main.jhtml?
xml=/money/2007/03/15/cnbarc15.xml

Anonymous said...

Once I went through some of the worst financial times anyone could go through and I almost lost my house. I would have lost everything during the house buying era. People were coming to my door daily, leaving leaflets on my porch, mailbox (nice neighboorhood and house)but something good in a way happened and everything was cleared up (did include ch 13 although) but I will never forget how I was called a deadbeat. Didn't want to pay my bills and looser (my son answered the phone and he asked me what a deadbeat was).
Now I have NO credit cards and I pay cash only. I have a truck payment but I make twice the payments to get rid of the payments, I mail my mortgage payment on the 1st of each month to make sure there is no problem there.
I still have "bad" credit but I am not concerned because I will never go through that horror again. So therefore I will find ways to pay cash at all cost rather than financing anything, if I have to finance a shopping spree I don't need it. Anyway I am wondering if these mortgage companies are feeling the pain like they gave it to me. Will a kinder more gentle collection practice come out of this. Obviously calling people and threatening them with taking their house is not working. Will all the demand for loan paybacks and there is no money to pay the bills is sending these companies out of business or bankruptcy sounds a little bit like my story. LOL
The downfall of all these mortgage companies is proof enough that anyone can get into trouble and some things can be out of our control. Although they saw it coming just not to this degree. To any one the employees that called my house and said that nasty thing to my son I hope that you are first to go and you recieve the same type of phone calls you gave to me threatening, harrassing and embarrassing because you have no money and the paychecks stopped coming during a bad time in your life. They come and get your car at 2:30 in the morning and they cut your lights and water off and call you at your new job at walmart. I am gleeful watching these companies falter as well as FORD.
As for me I want to see one more bank go and I will feel my pain has gone full circle and then we will all go forward.
I do understand the pain the people who loose their homes will feel and I can do nothing to help them but trust me there will be a brighter day.
Also have a wonderful wonderful time in Italy.

I Love Broadband over PowerLine said...

watch them all: http://www.paperdinero.com/BNN.aspx?id=100

Let others know these videos on SUBPRIME MELTDOWN !!!

Richard said...

HOUSING BUBBLE: Anecdotes from around the country / Subprime Defaults to Soar, Hurt Lenders, Funds Say


“‘It’s really a liquidity crunch,’ said Scott Bice, commissioner of the Mortgage Lending Division of Nevada. ‘I could give you horror story after horror story over here of a maid owning eight rental properties, a Clark County worker making $30,000 a year who got into an investment club and now she’s got a $2.5 million mortgage in her name,’ he said.”
“There’s no way to spin this into good news, investor Gary Anderson of Reno said. He wants to know how people with low credit ratings, the target for subprime lenders, are going to come up with just 5 percent, or $20,000, to buy a $400,000 starter home. And where are people with good credit going to turn when they want to refinance out of their exotic loans?”

“‘The party is over and the fat lady is singing. (Federal Reserve Chairman Ben) Bernanke may lower rates, but the dollar will tank if he does,’ Anderson said.”

+++

The Star Ledger from New Jersey. “A property appraisal Michael Meehan conducted in Chester Township more than two years ago noted improvements such as a new kitchen, two new bathrooms, new plumbing and 17 new exterior windows.”

“NJ Affordable Homes then used that appraisal to help one of its investors obtain a $375,000 mortgage. But there were at least two problems with Meehan’s work, federal prosecutors said: He never went to Chester to visit the property, and the land was vacant.”

+++

The Salinas Californian. “The number of foreclosures in Monterey County surged by more than 150 percent over the past year. The month of February saw 62 foreclosures in the county, a roughly 400 percent increase over the same month in 2006, which saw 12 foreclosures, according to the Monterey County Recorder’s Office.”

“In February, the median price for a single family home in Monterey County was $657,000 — down from $700,000 the same month last year, according to the Monterey County Association of Realtors. In north Salinas, the median price last month was $568,000, compared with $665,000 the year before.”

“‘Buyers have time to look around (and) take their time,’ said Lucy Jensen, a Soledad-based real estate agent. ‘The days of the buying frenzy are gone.’”

“Subprime lending is especially prevalent in Salinas, where the median home price is about $550,000, but the median household income is less than a 10th of that. Nationally, subprime lending accounts for about 10 percent of home loans. One local real estate agent said that figure could be as high as 70 percent in Salinas.”

“‘These are just foreclosures waiting to happen,’ said Ariel Torres, an agent in Salinas.”

+++

From Reuters. “Only a few weeks ago, a borrower in Southern California could qualify for 100 percent financing for a house, with no proof of income or assets. Now, the lending spigot is dry.”

“‘Everybody is running scared,’ said Yamila Ayad, a San Diego mortgage broker. ‘I have been getting these flashes across my screen: This product is going away,’ she said. ‘They have retracted the products.’”

+++

“It was all too easy for Jason St. Martin of Franklin to get a $600,000 loan in the summer of 2005. ‘I’m a teacher. There’s no way that I could have afforded a $600,000 loan for two years,’ St. Martin said.”

“He used the loan to commission two ’spec homes,’ houses that, once built, he intended to sell at a profit. But things went wrong, and he wound up with two half-built houses in a market flooded with inventory - and $535,000 still due.”

“His foreclosure process started last week.”

+++

The Press & Argus from Michigan. “The home of recently divorced state Rep. Chris Ward is in the process of bank foreclosure. According to a legal notice, Ward and his ex-wife owe $158,292 on their home in Brighton Township. County records put the value of the property at less than $100,000.”

“The Wards are not alone in Livingston County. In the first two months of this year, 138 foreclosures have been filed with the Register of Deeds. During the same period in 2006, 72 were filed. And in the same two months in 2005, only 31 were filed.”

+++

“Homeowner Tom McClaughlin is familiar with foreclosures. McClaughlin refinanced his mortgage but with bad credit, his only option was a high interest loan with payments higher than his first mortgage that he couldn’t afford. ‘Ended up making the worst mistake of my life,’ said McClaughlin.”

“McClaughlin said it was something he couldn’t afford but the broker falsified his income so he’d qualify. ‘They did that just so I could get the loan,’ he said.”

“Minnesota Attorney General Lori Swanson said falsifying income is a common practice. ‘In some cases brokers will make up jobs that people don’t have or extra income that they really don’t have,’ said Swanson.”

“She said some brokers don’t care if homeowners default since they will sell the mortgage anyway. ‘Putting people from product to product, refinancing them in order to make a commission and not really caring about what’s in the best interest of the consumer,’ said Swanson.”

+++

Some housing bubble reports from Wall Street and Washington. “Pulte Homes Inc., the fourth- largest U.S. homebuilder, said the housing market is unlikely to have a quick recovery as buyers wait out the drop in prices. ‘We’re not projecting anything to bounce off the bottom at this point,’ CFO Roger Cregg said at a UBS conference in London. ‘There’s been a lot of buyers that have moved to the sidelines.’”

+++

The Associated Press. “Financial services company National City Corp. on Wednesday said it has not been able to sell some $1.6 billion in nonconforming loans amid a downturn in the market for mortgage loans made to borrowers who do not qualify for conventional loans.”

“The company has written down the fair value of those loans by $11 million through February and said further write-downs are likely.”

+++

“Lawyers for investors hurt by the meltdown of mortgage lenders that cater to risky borrowers are likely to file a wave of class-action lawsuits against the lenders and possibly their auditors and bankers as well.”

“‘There is no question that there are lots of bells and red flags as to where were the third parties and what was their role in this,’ he said. ‘What about the auditors? What about the banks. These are questions that the investors that bring these cases are going to have to really work hard to figure out.’”

+++

“House prices could tumble 10% this year and force the United States into recession if a credit crunch taking shape in the mortgage market gathers steam, Merrill Lynch said in research notes this week.”

+++

From Peter Schiff. “Those who believe that the subprime market is unrelated to the broader economy do not understand that…it’s just that the subprime sector, being one of the most vulnerable spots, is where the problems are first surfacing.”

“The bottom line is that far too many Americans, not simply those with low credit scores, have borrowed more money than they are realistically capable of repaying.”

+++

“The fix now being suggested by some members of the U.S. Congress demonstrates how Washington completely misunderstands market dynamics. Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels.”

“However, continuing to look the other way is no panacea either, as the real estate market is already in the process of collapsing under its own weight.”

“It is also typical and very disingenuous for lawmakers to feign outrage and to have waited until a collapse has occurred before taking action. Had the government taken preemptive action with regard to mortgage lending, the real estate bubble never would have inflated to the degree that it has.”

+++

The News & Observer reports from North Carolina. “Raleigh Realtor Gary Hooker already has lost three sales to first-time homebuyers since lenders this month began cracking down on easy mortgage money. But his real worry is the effect that tougher restrictions on subprime borrowing may have on the Triangle’s unsteady housing market. Hooker said his clients weren’t able to get mortgages because they could not meet a new requirement for a 5 percent down payment.”

+++

“Robin Green is finding out just how hard. Green fell in love with a $164,000 house. Even though her credit history suffered from large medical bills and a recent bankruptcy, she was able to get a contract on the home. Then Green got a call from her mortgage broker telling her things had changed. She would need to increase her credit score substantially or come up with a 5 percent down payment.”

“‘I was like, ‘Oh my God, I’m not going to be able to get this house,’ Green said.”

+++

“‘As Florida was rocketing up in values, we had lots of investors that bought with the expectation of flipping these homes,’ said Jim Sahnger, VP of Palm Beach Financial Network in Sewall’s Point. ‘Many of these people are now over-leveraged or they’re ‘upside down’ - they owe more than their house is now worth.’”

+++

“The number of late payments in Broward County hit 983 in February, a 333 percent increase over the 227 last February, according to Realestat.com. Broward had 315 foreclosures last month, compared with 206 in February 2006.”

“Last month, Palm Beach County had 733 property owners with late payments, up 382 percent over the 152 last February.”

“Honey Hartman of Hollywood is facing a mortgage crunch. A huge property insurance increase this year pushed her monthly mortgage payment to $770, which exceeds her income of $643.”

“She negotiated with her lender to cut some of the added costs, and her two grown children are helping her make up the rest of the shortfall. Hartman expects she’ll ultimately have to sell her two-bedroom home and leave South Florida. ‘I’m in dire straits,’ she said.”

+++

The St Petersburg Times. “The developers of Trump Tower Tampa learned Wednesday that they can’t stop buyers from suing to get back deposits on the much-delayed condo high-rise.”

“For Tom Long, the attorney arguing against Trump Tower, the ruling has significance beyond his clients. ‘I think this now, frankly, opens the floodgates to others to demand their money back,’ Long said. ‘It’s a three-year project and they’re at ground zero.’”

“Long said developers, more than $3-million behind in paying contractors, may lack the money to come up with refunds.”

+++

Top investor sees U.S. property crash
Wed Mar 14, 2007 12:59PM EDT http://www.reuters.com:80/article/newsOne/idUSL1470530620070314


By Elif Kaban
MOSCOW (Reuters) - Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.

"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.

Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.

Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said

"When markets turn from bubble to reality, a lot of people get burned."

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.

Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.

But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."

The last stock market bubble to burst was the dot-com craze which sparked a crash from March 2000 to October 2002

When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

+++

Excerpt from Richard Russell's Dow Theory Letter:

I just received the latest copy of Robert Campbell's terrific "Campbell Real Estate Timing Letter" (858 481 3235). Robert was one of the very first to call the top of the real estate boom back in August 2006. Robert uses both fundamentals and technicals in his report. He runs what he terms his "Real Estate Crash Index" which is a composite of various vital items such as existing home sales, notice of defaults, and the number of foreclosure sales. The Index applies to Southern California, but I think it acts as a barometer for the entire nation's real estate situation. Robert notes that the current reading on the Crash Index "is the lowest reading since the data was first collected in 1982."

Writes Robert, "If falling home prices put the US economy in recession, as I suspect it will, my guess is that a credit contraction will be far worse for the US housing market. This is because housing is highly overvalued and so incredibly over-leveraged. Trillions of dollars of mortgage debt were extended to people with no ability to pay them back."

Robert Campbell sees the picture as an enormous credit boom just a huge expansion of credit. And he notes that every boom based on a massive credit expansion ends with a massive credit contraction.

I'm very much afraid that Robert Campbell will prove to be right. If so, it promises to be a heck of a year in 2007.

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http://www.bloomberg.com/apps/news?pid=20601103&sid=agHGvijV55fM&refer=us

Subprime Defaults to Soar, Hurt Lenders, Funds Say (Update1)


By Jenny Strasburg

March 15 (Bloomberg) -- Harbinger Capital Partners and Paulson & Co., hedge-fund managers who profited when subprime- mortgage defaults surged, told investors that delinquent loans will soar and more lenders will disappear.

``We believe we are in the early stage of a correction in this market and that the market will eventually implode,'' New York-based Paulson & Co., which manages $11 billion, said in a letter to investors last week. Paulson said bad loans held by the riskiest borrowers will ``skyrocket'' and ``most, if not all, of the independent originators will go bankrupt.''

Paulson and New York-based Harbinger posted record gains last month on credit derivatives that increased in value as prices for securities backed by subprime loans fell. Paulson's 8-month-old credit fund gained 67 percent, swelling assets to almost $2 billion. Harbinger's $6 billion distressed-debt fund returned 8.1 percent, according to an investor update. Both firms said they continue to bet loan defaults will rise.

Investors holding mortgage-backed bonds stand to lose $100 billion from defaults on $10 trillion in outstanding home loans, Citigroup Inc. bond analysts said this month. Hedge funds have profited from the rising costs of insuring against defaults and from fears that Wall Street will finance fewer subprime loans, hurting new-home sales and the economy.

Banks ``will shut down their origination platforms,'' and the business of pooling subprime loans into packages of securities ``will all but disappear,'' Paulson said in its letter. ``While the bonds have fallen significantly, we think they have much further to fall.''

Greenspan Warning

John Paulson, president of Paulson & Co., declined to comment through a spokesman.

Former Federal Reserve Chairman Alan Greenspan said today that he expects subprime-mortgage defaults to ripple through other areas of the economy, especially if home prices fall. ``If prices go down, we will have problems,'' he said at the Futures Industry Association meeting in Boca Raton, Florida.

Hedge funds are private and mostly unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. They are allowed to take short positions, which is a bet that the value of a security will fall.

They returned an average of 0.65 percent globally in February, which ended with a selloff that battered stock markets, according to Hedge Fund Research Inc. The industry oversees $1.4 trillion, the Chicago-based firm estimates.

Credit-Default Swaps

Harbinger's $6 billion fund that invests in high-yield debt and assets of troubled companies had 60 percent of its assets allocated to short positions, including bets on declines in mortgage securities, according to its monthly investor update from Philip Falcone, 44, the firm's founder and senior managing director. That compared with the fund's typical 35 percent allocation to short positions, according to an investor who declined to be named because the information is private.

``Note that these are individual collateral pools, not the ABX Indices,'' Harbinger said in its investor letter.

ABX indexes allow investors to buy into derivatives called credit-default swaps on multiple securities. Bearish investors have used ABX bets to wager against the health of subprime mortgage lenders.

More than two dozen mortgage lenders have closed or sold assets since the start of 2006 as delinquencies and defaults among high-risk borrowers climbed to their highest rate since at least 2003. Shares of New Century Financial Corp., Fremont General Corp. and other companies have plunged, while foreclosures have increased even among borrowers with high credit scores.

Kensico

``We believe that the market will continue to be tested in the weeks and months ahead, as the subprime situation unfolds amid a choppier market backdrop,'' Falcone said in the letter.

Paulson wagered on declines in mortgage-backed bonds in every strategy it employs, including through funds that invest in companies going through mergers. ``While not directly related to merger activity, we thought the subprime short provided a valuable indirect hedge,'' according to the fund's investor letter.

The bet helped Paulson return 13 percent and 25 percent last month in its two merger arbitrage funds, which have $6 billion in combined assets, it told investors.

Kensico Capital Management, a Greenwich, Connecticut-based hedge-fund firm with more than $1 billion in assets, returned 5.4 percent in February in the onshore version of its Kensico Partners LP fund, bringing the gain to 8.6 percent at month's end, according to an investor.

`Stay Tuned'

The fund, which started in January 2000 and is closed to new investors, invests primarily in stocks. In the fourth quarter, Kensico added credit-default swaps on subprime mortgage securities it saw as ``particularly vulnerable to future losses, such as loans with low documentation or high ratios of loan to value,'' according to a quarterly update sent to investors Feb. 7. The letter came from Michael Lowenstein and Thomas Coleman, co-founders and co-presidents of the fund. Lowenstein, 48, declined to comment.

``We can make money if credit spreads return to the more historical norms, and we can make a lot of money if subprime mortgage losses are somewhat higher than forecast at the time of issuance,'' the managers told Kensico investors. ``Stay tuned.''

Anonymous said...

"I am going to get right to the point. Housing, especially in California, is dead money for many years to come. Game over. It’s that simple."

But, but, but... Kendra Todd said that it was going to keep going up at a rate of 20% a year for the next 100 years. How can this super intellectual woman be wrong?