October 12, 2007

Wall Street Journal Page One Expose: The United States of Subprime


Thanks to Beth over at the WSJ for sending this one over. I rip on the MSM for not doing their jobs during the bubble (or the Iraq invasion) but damn, some of 'em are making up for lost time now (the WSJ, the FT, the Economist and more).

Too much in here to list, but I'd encourage all of you to read the full article, and know what's coming.

This is gonna be ugly, it's gonna last for years and years, and the impact of the housing crash and mortgage meltdown will be felt worldwide.

No matter what realtors on commission try to tell you.

The United States of Subprime - Data Show Bad Loans Permeate the Nation; Pain Could Last Years

As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

"We had an aggressive home-mortgage industry trying to get people into homes they couldn't afford at a time when home prices were very high. It turned out to be a house of cards," says Karl Case, an economics professor at Wellesley College. "We're in the early stages of the cleanup."

26 comments:

Anonymous said...

I just love this statement in the article
"Last year, the number of new high-rate loans fell 2% to about four million, after jumping 88% in 2005. That reflects the collapse of some of the most aggressive lenders and tightening credit standards of others."

A 88% rise followed by a 2% decline represents a 'collapse' .. riiight.

Anonymous said...

S.D. and L.A. are very low percentages. This explains why prices aren't falling that hard. Intereior CA is buh bye

borkafatty said...

Quick someone get a band aid California is bleeding to death..

You know its funny driving to work in the morning I see more and more out of state license plates no not just neighboring states..more like halfway across the country license plates..The big move is on..or coming at least..people will be trying to move away from the dust bowel for sure...what F'en a mess.

And yet our great leader and king almighty G.W.B and congress spew about the mouth, and nothing is being done to try and stop the bleeding...no I am not for a bail out...NOPE!! You signed on the dotted line you own it:

But something has to be done...family's are going to be living in Cardboard Boxes.

Paul E. Math said...

So the drop of high-rate loans fell only 2% in 2006 - I wonder what kind of a drop has occurred since the subprime meltdown in August?

No, a 2% decline is not much. But unless you've been living in a cave you have to know the drop in subprime loans in late 2007 and 2008 will fit absolutely anyone's definition of collapse.

Butch said...

Sorry, but the numbers are too low.

The totals, after all the bad news is "trickled out" will be as such:

-Ten million houses dumped back on the market via foreclosures.

-Somewhere around $3 trillion lopped off the so-called "value" of real estate.

-Approximately twice the above number wiped out in the MBS/CDO scam marketplace.

-Who knows how far GDP drops, but it wouldn't surprise me if we go negative.

Nope, even now the MSM doesn't get it.

But they will.

Oh yes, they will....

Anonymous said...

Huh? O.K.

The real point of the article was to dispel the myth that "subprime loans were issued only to those with "shaky" credit" and minorities.

Virtually EVERY article and subsequent discussion it inspired blathered on about how it won't affect "more creditworthy or mainstream buyers". Well, o.k whatever. This is the result of a pretty comprehensive study and the truth is that the demographic subprime served should be more accurately described as those with STRETCHED FINANCES!

Be they investors, speculators or white, upper middle class, middle managers subprime's true appeal was for those with STRETCHED finances! For a large swath of minorities or those with "shaky credit" just *not having a landlord is the American Dream (TM) but just moving from 67% to 70% home ownership cannot begin to explain the explosion in subprime loans!

Can we put this myth to rest once and for all now?

DinOR

Anonymous said...

I see south florida is all in the red! Although Cali's redness is bigger florida people have no idea what's going on here! There is a red spot in upper central florida where a boom of land was bought by so many people in a part of horse country called ocala. These people are the same people who bought a condo in palm beach county, broward or dade following the boom anywhere they thought they could make $$$$

Mammoth said...

Was speaking to the couple who bought the house (at the Seattle-area peak last year) next door to my old rental house yesterday evening. Nice young couple.

When they found out that I am asking $20K less than they paid for their home, they expressed some surprise.

When the woman said, “We bought this home as an investment” and told me that they have an adjustable-rate mortgage, I just had to bite my tongue.

Seattle IS different. Still a lot of denial here…

-Mammoth

resisting husband said...

Yay! I am a bubblesitter and live right in the middle of that giant red splotch in Cali. got my big stack of worthless american dollars and ready to buy sometime in 2010 or 2011....after waiting for 10 years!!!

RayNLA said...

Borkafatty said...

But something has to be done...family's are going to be living in Cardboard Boxes.
***********************************

No new revelation here Borka...exept for the fact that the majority of the families living in the boxes will be former suburban middle class whites who thought they were rich because they "owned".

RayNLA

FaceDown said...

borkafatty wrote:

"no I am not for a bail out...NOPE!! You signed on the dotted line you own it:

But something has to be done...family's are going to be living in Cardboard Boxes."

Essentially you are saying, "I'm not for a bailout but I am for a bailout." Make up your mind, man.

COFFEE IS FOR CLOSERS WEARING WRISTBANDS said...

DOPES!

HIGH RATE LOANS DECREASED 2%!!!!

HA! HA! SOME IMPROVEMENT!!!

I'LL BE RENTING FOR PENNIES ON THE DOLLAR RIGHT UP TILL THE TIME I TAKE POSSESSION OF YOUR STINKING MCMANSION!!!

I'LL PUT THOSE FREAKING IILLEGAL IMMIGRANT ROOMIES OF YOURS RIGHT ON THE CURB WHEN I TAKE OVER THE JOINT!!!

KEEP MAKING THEM HOUSE PAYMENTS YOU BUTT WIPES. THE PLACE IS MINE. ALL MINE!!!

HA! HA! 2% YEAH! SOME IMPROVEMENT BITTER OWNERS!!!

Tangelo Mozilo said...

Absolutely correct, DinOR.

It would appear to me that the largest group of people with stretched finances, but not necessarily bad credit, would be young people (first-time homedebtors).

Imagine what the median salary is for people between the ages of 25 and 30 in bubble areas. I will be ubergenerous and say that it is $50,000.

By that measure, a young single person could, by traditional standards, afford a $150k mortgage. (a $190k house with a 20% downpayment)

Double that. Now we have a 30 year-old couple in Northern Virginia making $100k combined. Not bad, you say. Together, they can afford a $300k mortgage. (a $380k house with a 20% downpayment)

Now think of what $380k will get you in NoVa or another bubble area. Not much. I would venture to say that most young professionals in bubble areas spent more than $380k on their first home.

Now this above scenario makes some dubiously generous assumptions:

(1) That these young people actually make this much money.

(2) That in order to make this much money, they did not become saddled with outrageous student loan debt.

(3) That they are not excessively burdened by other consumer debt.

(4) That they were able to come up with the downpayment.

When you think about it like this, you realize that virtually no firt-time homedebtor in a bubble area under the age of 30 borrowed according to traditional standards.

Upshot: The use of the word "subprime" to describe bad loans is misleading when it is used to connote loans made to lower-class people. People should instead be talking about the fact homedebtorship under the terms of traditional lending standards has not, as a practical matter, been available to ANY entry-level homedebtor for quite some time.

Then the question becomes, "Are there reasons for traditional lending standards, or have we entered a new paradigm?" If there is still a sound basis for adherence to traditional lending standards, then all of these loans are bad, and a whole generation of young sheeple are now subprime debt slaves.

I feel for young people who have to subsidize their parents' and grandparents', and great grandparents'retirements through Medicaid and Socialist Security. I do not feel sorry for young sheeple who voluntarily mortgaged their lives away to support their ancestors' real estate extravigances.

Daphne64 said...

You have to get more than halfway through the original article before you get to the BIG disclaimer:

This doesn't include most of the toxic mortgages, because they are still at teaser rates.

I wish they had put disclaimer up front. Still it's an angle I hadn't seen before, that so many people have high rates of interest, and many of those are middle or upper middle class with decent credit ratings.

I am guessing that inflation will spiral to the point where in 3 years or so mortgage rates climb back up to the 10 to 15% range - right where "high rate" mortgages are now. Why? The world's biggest debtor is in charge of the US monetary supply.

Anonymous said...

BITTER OWNERS!!!
Suckas!
lol!

Anonymous said...

To anon 12:27

LA, SD, Orange, and Ventura counties look more like moderate to moderately high exposure, compared to the rest of the states.

You're right on about the interior. Any CA community that is blistering hot, dusty, polluted, crime-ridden, illiterate, and full of illegal aliens and stucco boxes is toast. Their economies have always been based around cheap land and affordability. It will revert back to this.

urgent wake-up call said...

AND...

Now ADD all of the American workers who either:

Lost their job
Fired
Laid off
Reduced wages
Reduced sales commissions
Reduced bonuses
Reduced hours of work

And you'll see the REAL picture.

Bush, Cheney and the rest of the GOP regime are now considered as a gang of criminals, thieves, liars and mass-murderes. From the fake election results, to the 9/11 fake attacks, to the "no-oath" 9/11 investigation cover-ups, to the lost and unwanted Afgan and Iraq bush-co wars, death and injuries to thousands and thousands of American troops, to the massive authorized home loan scams, moving jobs overseas, not taxing foreign auto imports, the destruction of the US Constitution, providing fake economic data, increased gas prices, triple house prices, to fake national news stories, to illegal torturing, countless international war crimes, illegal spying on ALL americans, consentration camps, illegal profiteering and wasting over $2 trillion in unneeded bush-co theft wars, I would say we have WAY enough information to arrest any republican who supports the bush and cheney criminal regime.

Supporting a criminal (or hiding the truth about a criminal act) is a criminal act. Bush and Cheney need to be impeached and/or arrested ASAP! If you do not support impeachment, you are now considerd a criminal (either for republicans (except for Ron Paul), democrats, independents or mass media CEO's and board members as well)

Osman said...

I've got a post coming comparing our local market with a real out of control (former) bubble. This was a pretty good piece.

The Wicked Witch of the West said...

I know plenty of people who used them in the last 4 years.

The bay area market has more toxic loans than this map shows.

LauraV said...

Bork said:"But something has to be done...family's are going to be living in Cardboard Boxes";

Don't know how much will be actually done to stop it from happening.

Welcome to the new "Bush Pad" generation.

Anonymous said...

Actually the Economist was running global housing bubble articles roughly quarterly since 2002 or so.

Anonymous said...

Florida, inland California--who care nothing but douchebags live there.

Anonymous said...

HOT STOCK TIP!!!!


CARDBOARD SPIKES ON THE NEWS THAT
THERE WILL BE VAST CONDO CARDBOARD
CAMPS NATIONWIDE. A STEEP SHORTAGE
IN CARDBOARD HAS CAUSED WARREN BUFFET TO IN INVEST IN

CHINA CARDBOARD TICKER SYMBOL (CC)

CRAMER SAYS TRIPLE BUY
BACK UP THE TRUCK BABY!!!

STAY TUNED FOR NEXT WEEKS TIP
TRASH CANS (BONFIRE)

LauraVella said...

"CARDBOARD SPIKES ON THE NEWS THAT
THERE WILL BE VAST CONDO CARDBOARD
CAMPS NATIONWIDE. A STEEP SHORTAGE
IN CARDBOARD HAS CAUSED WARREN BUFFET TO IN INVEST IN"

LOL. Warren's buying everything in sight!

railroad stocks, Bear Stearns

Lets all buy these stocks to so we can make tons of money!!! (not).

Anonymous said...

"S.D. and L.A. are very low percentages. This explains why prices aren't falling that hard. Intereior CA is buh bye"

SD and LA are Alt-A (PayOption ARM, etc.) central. The 2004-7 vintages of these loans will blow up later than the teaser-driven products that are in mass default now.

I wish the media would get ahead of the curve here. "Subprime" is so 2006.

Anonymous said...

Be careful if you are in a high Alt-A area of the country. Those loans will not begin adjusting til 2009/10. They were used for people with "good credit" but not enough money to buy overpriced RE on a sane mortgage in the uber-bubble areas. There are maps on the internet that show percentages for Alt-A loans. Seattle is in the top 10, as are parts of CA. and I can't remeber where else. So Google Alt-A maps if youy are a future buyer.