March 31, 2007

Noooooooooooooooo! For the love of god noooooooooooooooooooooo!

This has to be a joke. The single worst urban housing project in the HISTORY OF THE WORLD, the hilarious and horrific "Chateaux on Central" bankrupt condo/castle project in Phoenix, supposedly was taken out of foreclosure by a new lender and will restart. In other words, some fool just bought the "pets.com" of the housing bubble out of foreclosure auction.


Well, that's lovely and all, but dear god tell me there's not one single solitary fool in this world who'd buy one of these eyesores. Even for $100,000, let alone $4 million...

Anyone want to bet the "developer" and "lender" both go belly-up too, with not one single unit sold? Man, I smell a rat. (note - someone in Phoenix keep an eye on this project for us and keep us posted - maybe even go tour the model home and make an offer!)

Chateaux project is revived

Construction of the mini-castles that have been sitting half built on Phoenix's Central Avenue should start again soon.Chateaux on Central got new financing last week, and the foreclosure sale of the property was called off.Mortgages Ltd. is now backing the $65 million development.

And the project's developers are bullish on when they can complete the project and see the first buyer move in.

In November, days after a 30-ton copper turret was lowered onto one of the multimillion homes, Chateaux's lender, Desert Hills Bank, filed to foreclose. Early this year, construction stopped on the property on the northwestern corner of Central and Palm Lane.Then on Jan. 30, Central PHX Partners filed for Chapter 11 bankruptcy.

A foreclosure sale date for the property initially was set for February and was pushed back a few times before being called off.

Scott Coles of Mortgages Ltd. said Chateaux would bring "buyers back to the city."But those buyers will have to have deep pockets. The five-story homes that come with private elevators, wine cellars, maid's quarters, private movie theaters and Viking appliances are priced between $2 million and $4 million.

File under you can't make this stuff up - Casey at iamfacingforeclosure.com is having a "casey-a-thon" to raise $200. He has no money left.

Come on HP'ers, I know most of you think the kid is scum, I know you think he helped inflate (and crash) the housing market, but DAMN, the kid is entertaining. I love that trainwreck/blog, and the housing crash wouldn't be the same without it, or Casey.


I can't even imagine what it's like for someone to have $2.4 million in debt and not $1 to his name to eat, drink jamba juice or god forbid make a payment on the debt (anyone think IndyMac holds Casey's liar's loans?).

If you give a donation, even $1, in keeping with the HP mantra, let him know it's only to be spent on ramen noodles.

Chicken flavor.


HousingPANIC Stupid Question of the Day

Do you think ramen-eating real estate clerks and mortgage brokers have figured out yet that their greed, lies and corruption killed the golden goose?


The economy will collapse, lives will be ruined and millions of them will go unemployed, all because the corrupt NAR leaders, conmen mortgage brokers and unethical real estate clerks just couldn't help themselves.
They wrongly focused on the short-term windfall and their greed, at the expense of their morals, value as human beings, and career futures.

They made their beds. Now they get to sleep for the rest of their lives in the moral gutter, knowing they lied to, cheated, conned and stole from their fellow man. Yes, there may be a few moral, honest, ethical and genuine ones amongst the professions. But the majority killed it for the minority, and the rot at the top (TCDL) stained the lot.

The terms "Mortgage Broker" and "REALTOR®" will forever have a stench associated with them, and for good reason. The golden goose is dead.

Today is Iran Hostage Crisis Day #9


Has the US lost its moral authority to lead?

Got Yen?


You can move some of your dollar holdings easily into the waaaaaaaaaaaaaaaaaaaaay underpriced yen via the yen etf FXY. Buy low sell high. The Fed will be lowering rates soon, the BoJ will be raising rates, and we all know how the yen carry trade bubble will end - just like all bubbles. The only question is when.

Why Americans put all their savings into dollars I'll never understand. Well, when you pay $15 for a glass of so-so wine at a pub (as I did last night), then it really comes to life. The dollar will continue to shrink and shrink and shrink. We're insolvent folks. And all that funny money Bush and Congress keep spending? The only way we'll ever pay it back is through the printing press.

Neil Mellor, currency strategist at Bank of New York, warned that with a large amount of uncertainty still surrounding the health of the US economy and with continued geopolitical tensions, there was a good chance that carry trades could face further pressure.

"The fact is the trigger is cocked," he said. "Given the recent rise in volatility, the risks investors are taking to get yield smack of the end of a bubble.There is little rationale that this bubble will not meet its end."

March 30, 2007

Today is Iran Hostage Crisis Day #8



Day #8 of Iran gaining strength and confidence through propaganda and world weakness.

Day #8 of oil prices going up (benefiting Iran greatly).

Day #8 of UK troops being humiliated, embarrassed, demasculated and belittled.

Day #8 of the British leadership looking like Chamberlain in 1938.

So, how do you easily raise the price of your primary product and source of your economic engine? You got it - cause trouble. Is there any incentive for Iran to NOT cause trouble? Can you think of one?

The other housing crash shoe will soon drop. What will it be?

Open thread to make fun of mortgage brokers and real estate clerks


By popular demand... Fun on a Friday...

Go ahead, dance on their graves, get it out of your system, keep it clean



Hmmm.... Anyone think London housing looks a bit "frothy"?

Century 21 Canada did a survey of "executive-level" housing around the world on a sales per square foot basis, and trust me, I'd say it's spot-on. My 1-bedroom flat in Chelsea would sell for $1.3 million my estate agent told me the other day, or about $2,000 a square foot. So a nicer executive home, more bedrooms, nicer neighborhood, better finishes, $3,000+ a square foot is actually probably a bit low (for this area).


One word: INSANITY.

What's funny though is to see California real estate clerks point out London and Paris prices and they make the jump to "see - California isn't overpriced - it's downright cheap!"

Not.

When comparing prices to sizes of the homes, the CENTURY 21 survey found that the 10 most expensive housing markets in the world for executive home buyers working in the downtown business districts per square foot are:


London, England, $3,156;

Paris, $1,163;

Seoul, $1,097;

Calgary, $800;

Sydney, Australia, $722;

Taipei, $613;

Vancouver, $574;

Athens, $491;

New York, $480;

Tokyo, $385


The survey found that the 10 most expensive housing markets for executive home buyers working in the downtown business districts are


London, England, $5.68-million;

New York, $2.5-million;

Vancouver, $1.55-million;

Sydney, Australia, $1.4-million;

Paris, $1.39-million;

Seoul, $1.25-million;

Calgary, $1.2-million;

Nicosia, $1-million;

Toronto, $890,000;

Victoria, $850,000

Bear Stearns and IndyMac say Alt-A (liar's loans) won't have trouble. HousingPANIC says they will. Who you gonna bet on?


Remember the scenes in Titanic when the captain and crew assured passengers that all would be well?

We all know how that one ended, and many of us know how the Liars Loan Debacle will end too.

You cannot lend money carelessly to anyone who can smoke a mirror (Casey Serin), with no proof of income, no proof they can pay the money back and no proof they didn't take out multiple other liar's loans concurrently.

Oh, I correct that. Yes, in today's environment, you CAN lend money out carelessly to anyone. And that's why the mother of all meltdowns is underway.

Note, I'm short IndyMac (NDE), far and away the biggest issuer of liar's loans, via an October put.

Bear Stearns, IndyMac Say Subprime Woes Won't Spread

March 29 (Bloomberg) -- Bear Stearns Cos., the biggest U.S. underwriter of mortgage-backed bonds, said the surge of defaults in subprime home loans won't spread to other parts of the mortgage market, and IndyMac Bancorp Inc. said losses from more creditworthy customers are far below industry averages.

Lending 100 percent of the home value, not verifying borrowers' income and lower credit scores caused U.S. subprime defaults to rise, said Tom Marano, head of Bear Stearns' mortgage business, in a New York meeting with investors today. Only 7 percent of Alt-A mortgages, another low-documentation loan that's drawn scrutiny, combine all three risk factors, he said.

Shares of companies that offer less-risky mortgages including IndyMac Bancorp have fallen this year partly because investors were concerned Alt-A loans may go sour. Regulators including Federal Reserve Chairman Ben Bernanke said they don't see any ``spillover'' of defaults into safer mortgages, and IndyMac said today the industry's loss rate on Alt-A is one- seventeenth the level of subprime loans.

``The contagion isn't that big a problem,'' Marano said. ``I don't see the risk as being that significant at this point.''

March 29, 2007

After watching this video, you'll understand how dot-condo is the new dot-com

Today is Iran hostage crisis day #7

Seven days of the British government acting like scared little girls

Seven days of the Iranian government showing the world why allowing them to have nukes would be insanity

Seven days of reminding all of us why the Iranian cult leaders need to be destroyed

Seven days for the Iranian underground opposition to (hopefully) plot the overthrow of the mullahs

Seven days of some serious 1979 deja-vu

HousingPANIC Stupid Question of the Day


Bitter Renters - are you getting some hostility ("shut the f*ck up you renting scum!) from your Desperate Homdebtor friends and co-workers now? Or do you just avoid all talk of housing collapses for your own health and safety?


Get out the handcuffs... SEC probes mortgage lenders for fraud

It's funny to have the SEC, FBI, Senate, House, States Attorneys General and Federal Reserve all doing "investigations" and "getting to the bottom of it" when as we all know, it's way to late.


The crimes have been committed, the system got gamed, nobody was watching, the damage is done, and the NAR and NAHB made sure everyone who should have been watching was on the take.

US authorities stepped up investigations on Tuesday into possible fraud by companies in the high-risk mortgage market.

The Securities and Exchange Commission told Congress it had set up an enforcement unit to probe possible fraud involving subprime mortgage lenders.

The move comes as lawmakers increase political pressure on regulators to act over a growing crisis in the mortgage market. Lawmakers fear more than 2m Americans could be vulnerable to foreclosure on their homes in the next two years following a loosening of lending standards and allegations of mis-selling by mortgage companies.

More than two dozen mortgage lenders have shut down or gone bankrupt in recent months after a sudden increase in defaults.

Christopher Cox, chairman of the SEC, told the Senate banking committee the regulator had created a 25-person enforcement unit to investigate whether proper disclosures were made to investors who bought mortgage-backed securities.

"To the extent that these loans are securitised and to the extent that they become part of problems, fraud or accounting problems related to that, we want to be there as enforcers," said Mr Cox.

The SEC is also conducting a preliminary investigation into New Century Financial after the lender advised investors it was in talks with creditors.

The stepping up of enforcement action came as shares in Beazer Homes plunged amid reports that the homebuilder's lending practices and financial transactions were being scrutinised as part of a broader federal probe.

This time it's the Brits turn to be Iran's toothless poodle




March 27, 2007

FLASH FLASH FLASH: FBI launches investigation of Beazer Homes - stock collapses




Deja vu WorldCom and Enron anyone? Man, it's like this stuff was pre-written. Get out the paddywagons - here come the arrests (Toll, Mozilo, Karatz, McCarthy, the list could get big - just follow the money)...

FBI Investigating Beazer Homes - BusinessWeek Says Builder Beazer Homes Is Under Investigation; Stock Plunges in Late Trading

NEW YORK (AP) -- Shares of Beazer Homes USA Inc. plunged in Tuesday's aftermarket trading session following a report from BusinessWeek magazine that federal investigators have opened a broad criminal probe of the homebuilder's lending practices, a number of financial transactions, and other matters.

According to BusinessWeek, the North Carolina field offices of the FBI, the Internal Revenue Service, and the Justice Department have opened a joint investigation into Beazer.

FBI spokesman Ken Lucas told the magazine Beazer is being investigated for "all types of (potential) fraud associated with Beazer -- corporate, mortgage, investments."

I'd say tonight's news makes this warm and fuzzy "about us" Beazer profile a bit outdated, eh?

Beazer is a highly regarded industry leader, using technology to improve company efficiency and provide enhanced customer service to homebuyers. A model of financial strength and stability, Beazer Homes USA is listed on the New York Stock Exchange (NYSE: BZH).

MELTDOWN MELTDOWN MELTDOWN MELTDOWN MELTDOWN MELTDOWN


Has housing just gone China Syndrome?

Congressman Ron Paul for President (not gonna happen, but sure would be fun)

ABC News on the "home wreckers" and "the American nightmare"

Stupid is as stupid does...

BUBBLETALK - Post housing crash articles and random musings here

If bubbles are for bathtubs...


What are crashes for?

Post article snippets (use tinyurl.com) keep it clean, have a good chat.

The Corrupt David Lereah throws new home builders under the bus, starts taking real crazy now


It's all coming apart now for TCDL. Now he's not even making sense.

Man, it's time for a new spin/strategy session over at the ol' NAR, because today's line of BS isn't even making sense. To say existing homedebtors trying to sell will be fine, and new home builders will struggle, is the exact opposite of reality. Everyone (except TCDL) knows the homebuilders will ALWAYS win a selling battle versus the suckers they sold homes to (existing homedebtors) who can't cut prices like the builders can.

Hmmm.... why do "Mugabe" and "Lereah" seem so similar today? Could we see a violent overthrow soon? The 1.3 ramen-eating natives are probably getting a bit restless right about now, don't 'cha think?

David Lereah, the head economist for the National Association of Realtors, said the landscape for the resale market is very different from new-home sales.

There is a recovery in existing home sales, but for new home builders, the market will be very bumpy going forward,” he said. “New-home sales are still in recession, and increased foreclosures and subprime problems will make the next two years difficult.”

Washington Post: Foreclosure Wave Bears Down on Immigrants (who they call "victims")

Oooohhhh, those poor "victims" - the immigrants (legal and illegal). No, I guess they didn't sign the loan paperwork. No, since they're immigrants, they have no sense of supply and demand. No, they weren't as greedy as regular Americans. And no, they should have no personal responsibility, after all it was the evil realtor who conned them into joining the ponzi scheme (ok, that one has a bit of truth...)


Man, this article (and this reporter's attitude) make me sick.

Tip of the iceberg folks, tip of the iceberg. Remember all those illegals getting no-doc loans to buy homes at the peak? The ones employed by the REIC to build homes for more suckers? Well, they'll be zipping home now, turning in the keys, walking away, and saying "adios!" to a country of bagholders.

There's something almost poetically circular about that one, eh muchacho?

"¡Andale! ¡Andale! ¡Arriba! ¡Arriba! ¡Yii-hah!"

Foreclosure Wave Bears Down on Immigrants - Economic Success Story Turns Sour as Thousands May Face Losing Homes

By Kirstin DowneyWashington Post

Immigrants are emerging as among the first victims of a growing wave of home foreclosures in the Washington area as mortgage lending problems multiply locally and across the country.

Nationally, 375,000 high-interest-rate loans were made to Hispanics in 2005, and nearly 73,000 of them are likely to go into foreclosure, said Aracely Panameno, director of Latino affairs for the Center for Responsible Lending. About 1.1 million homes in the United States are expected to go into foreclosure in the next six years, and many native-born Americans are likely to be stuck with burdensome loans. But immigrants are getting hit first in part because their incomes tend to be lower and many have lost construction jobs.

Homeownership rates among immigrants surged in the first half of the decade, making their prosperity an economic success story. Now it is becoming apparent that many people managed to buy homes in an inflated real estate market by turning to unusual new mortgages only now receiving scrutiny from regulators and legislators. Many of these loans start with attractive low "teaser" rates but feature payments that can suddenly increase.

Unfamiliar with the U.S. mortgage market, unable to speak or read English well and vulnerable to the blandishments of real estate professionals who told them property values always rise, many immigrants are struggling to deal with high mortgage payments as their homes sag in value, making it harder to escape the loans by selling.

Tysons Corner mortgage broker Jose Luis Semidey, who has a popular Spanish-language real estate talk show on Radio Universal, is being deluged with calls from desperate homeowners who are falling behind on their mortgages. The calls started in late 2005 and have steadily risen; he now receives 40 to 50 calls a day from throughout the area.

"I see more coming," Semidey said.

March 26, 2007

If homebuilders can't sell homes at firesale prices, what hope do existing homedebtors have?


Memo to MSM: I DON'T FU*KING CARE!




Sorry, just had to get that off my chest.
Revolution anyone?

Gee, what a shock. February new home sales crash 18.3% vs. February 2006, prior months worse than previously reported (shock!)


Man, it sucks having to deal with such lazy reporting. Year over year? Versus prior month? Margin of error? You wouldn't know reading lazy AP stories these days...

Update (thank you marketwatch):

Sales were down 18.3%, compared with February 2006. Sales in January were revised lower to show a 15.8% drop to an 882,000 annual rate, compared with the 937,000 reported previously. Reported sales for December and November were also revised lower.

Now here's the lazy AP story as most MSM are going with - the down 3.9% number which is worthless:


Sales of New Homes Fall Sharply for 2nd Consecutive Month in February

WASHINGTON (AP) -- Sales of new homes fell sharply for a second consecutive month in February, a weaker-than-expected performance that dimmed hopes for a rebound in the troubled housing market.

The Commerce Department reported Monday that sales of new single-family homes fell by 3.9 percent last month to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years. All regions of the country except the West experienced weakness last month.

The February decline followed an even larger 15.8 percent drop in sales in January, which had been the largest one-month plunge in 13 years. The back-to-back declines provided evidence that the housing market is continuing to struggle with lagging demand and a glut of unsold homes.

The sales decline that has occurred over the past year has left a glut of unsold homes on the market, forcing builders to slash prices and offer a number of incentives to attract buyers.

For February, the number of unsold homes rose by 1.5 percent to 546,000. That meant it would take 8.1 months to sell all of those homes at the February sales pace, up from 7.3 months in January.

The problems in housing are being increased by spreading financial difficulties with mortgage lenders who specialized in the subprime market, where borrowers with weaker credit histories could qualify for mortgages.

The plunge in housing has trimmed overall economic growth and is occurring as part of an effort by the Federal Reserve to raise interest rates as a way of slowing economic activity and keeping inflation under control.

HousingPANIC Stupid Question of the Day

How much did all the subprime and "liars loan" Alt-A buyers artificially inflate housing prices the past few years?

5%?
10%?
20%?

And who's gonna buy all these damn houses now?

Manias, Panics and Crashes... And Housing Crash Reality

Loyal HP'ers know we've been following the "Manias, Panics and Crashes" playbook perfectly. And when I say perfectly, I MEAN ABSOLUTELY INCREDIBLY HILARIOUSLY PERFECTLY.


So there are no surprises (for HP'ers), here's another check-in with the HP bible...

Here's where we are today:

* Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

Here's where we'll be soon:

* The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

March 25, 2007

Fill up those tanks, sell those houses - Iran's getting nutty...

Ya really gotta give it up for Iran, their nutjob President and their shia islamic doomsday-cult-leaders. They sure have cojones...


* Continue building nukes - check

* Thumb nose at UN, Security Council and world community - check

* Abduct British hostages, threaten with death - check

* Kill American soldiers while meddling in Iraqi affairs - check

* Call for the destruction of Israel and deny the Holocaust - check

* Eagerly await the return of the Hidden Imam - check

Yup, everything is right on track I'd say. President Cheney must be barely able to control himself tonight, as he rolls on the ground with glee...


Stay tuned...

Very nice, how much?

HousingPANIC Stupid Question of the Day


Are you as disgusted, sickened and fed up with the MSM as I am?

The NAR f*cks over the gullible MSM and sheeple, leads them to believe used home sales were up last month. That was NOT the case.

Yup, the spinmeisters at the NAR are good. Real good. To be matched only by the laziness and incompetence of the mainstream media.


Why do the bloggers have to do the work of the MSM? For god's sake - they get paid to do a job, not copy and paste NAR press releases!

Anyway, as any dolt knows, home sales increase in the springtime month over month, every year, even if the world is ending. It's called "the home buying season" for a reason. So you don't look at February vs. January, or April vs. March. No, just like retailers look at Christmas vs. Christmas, not Christmas vs. July, any dummy that follows the housing market, INCLUDING THE FU*KING NAR, looks year over year.

Here's the real numbers, and headline the MSM should have reported:

Dubious NAR report shows home sales continue to crater, off 3.7% vs. last year, while unsold inventory explodes by another 763,000 units and median sales price (without incentives) is down 7.6% from peak

February used home sales (per the dubious NAR numbers) were supposedly 387,000 units, vs. 402,000 units February 2006, down 3.7%. Inventory is now at 3,748,000, vs. 2,985,000 in February 2006, up 763,000 unwanted homes, or 25.6%. And the median sales price (without cash back or incentives) in February of $212,800 is down $17,400 from the July 2006 peak.

Suck on that MSM. And next time, in April, or May, when the NAR spins you like a top again, wake the fu*k up and do your f*cking jobs. Here's the breathless report in the New York Times, one of many with the same headline and spin.

(chart from the always-spot-on housingdoom blog, who is all over this NAR spin and BS)

Existing-Home Sales Rise Most in 3 Years

Sales of existing homes rose in February by the largest amount in nearly three years, but worsening troubles in subprime mortgages were viewed as a roadblock to a full-fledged rebound.

The National Association of Realtors reported on Friday that existing-home sales climbed 3.9 percent last month, pushed higher by a milder-than-normal winter that increased sales in some areas like the Northeast.

It was the biggest one-month gain since March 2004 and left sales at an annual rate of 6.69 million units, a pace that was still 3.6 percent below a year ago.

Existing-home sales were up 14.2 percent in the Northeast, a gain attributed in large part to warmer-than-normal weather.

March 24, 2007

Nostalgic late great housing bubble tribute video

Trump: "The prices are starting to come down bigtime"

New movie and book on credit-addicted Americans - Maxed Out by James Scurlock



Some smart people are starting to write books and make movies about everything we've been talking about here at HP.

The American economy isn't fine folks. People aren't doing well. All that wealth you see is just a mirage. And out of control consumerism is not a good thing.

It was all bankrolled by debt, massive, out of control debt. And now the bill is coming due.

Here's a book (and movie) on this out of control debt and addiction to credit cards - I encourage all of you to go see it, or read the book.

Deep in Debt, Deeper in Denial

"Maxed Out," a documentary that opens nationwide next week, examines the dark side of America's love affair with debt.

"Maxed Out" is directed by filmmaker James Scurlock, a Wharton business school dropout and entrepreneur. Scurlock also wrote a book based on the film, which is due out next week from Scribner, a division of Simon & Schuster.

Scurlock says he started out hoping to do a lighthearted riff on consumer irresponsibility, but was shocked by what he found: College students and housewives committing suicide over their credit card debt, and the nation's biggest banks involved in predatory lending schemes.

"I wanted to know why people are living so close to the edge," says Scurlock. "A lot of people just haven't been able to keep pace with expenses like health care, education, and housing.

"It's not in anyone's interest to have a financial industry that behaves like a used-car dealership," says Scurlock. "I think it's conservative to expect that credit will be regulated in this country. People need to have to have strong financial industry that's trusted -- and to the extent that that erodes, that's very bad for the country and the economy."

Why, I asked Scurlock, don't people understand this? Why do so many consumers buy things on credit and then pay double for them over time? Why do they sacrifice what they want most in life for what they want this very second?

It's pretty simple, Scurlock says: "I think there's a lot of denial. Most people can't do the math. There is very little, if any, focus on the balance sheet side of the equation."

A house of cards


I think by now we're all pretty clear on why and how the subprime and Alt-A (liar's loan) house of cards is collapsing.

But I think you should all game this out farther down the road - all the way to seemingly safe 30-year fixed good credit loans, and the fate of the American consumer-driven economy.

Why?

Because Americans stupidly extracted their paper profits, their fake equity, and went on a spending binge the likes we've never seen. And now that fake equity is disappearing.

So many Americans will owe way more than their home is worth, many Americans with ARMs won't be able to make the higher payments, millions of Americans will lose their jobs as housing-ATM consumer driven spending dries up (especially the auto industry), and millions will now lose their homes.

Just game it out. And get ready.

The state of the home mortgage industry is one of the hottest news stories these days. And frankly, it's scaring me.

I'm worried that many folks are headed for financial trouble because they've taken on mortgages that are too large; and I'm scared that others have finally realized it wasn't a good idea to pull out all their home equity.

According to Synergistics Research, 24 percent of homeowners took out a line of home equity credit to buy a car or truck. And 8 percent purchased a vehicle with a second mortgage.

In Sunday's column, "Loan Loser: Home-Financing A Car," I challenged people to stop and do the math before using the borrowed money from their home to purchase a depreciating asset. Too many people just assume that a home equity loan is cheaper than a traditional car loan.

March 23, 2007

HousingPANIC Stupid Question of the Day


Will history see the dot-com and dot-condo bubbles as one and the same?

The new American pastime - watching the housing ponzi scheme implode

The S&L Crisis cost US taxpayers $125 Billion. How much will the Housing Debacle cost us?

Here we go again...


Folks, if US politicians spend one single fu*king American taxpayer dollar bailing out the subprime / Alt-A / Housing Bubble mess, either from a consumer or business end, then you know the system is corrupt, the game is rigged, and any confidence you may have had in your blowhard government or your fiat currency is completely misplaced.

Not one single fu*king dollar should be spent on this disaster. The market will take care of itself, even if it gets ugly (which it must if we're to cleanse this mess). So why do I have the nagging fear we may potentially be talking over $1 Trillion in taxpayer dollar support before we're done? Fannie & Freddie? Foreclosure support? Bank bailouts?

The Neil Bush S&L Crisis will be child's play after this Housing Debacle is over. And both could be subtitled "While Congress Slept"...

The Federal Reserve helped create a "perfect storm" in the US subprime mortgage market that could expose up to 2.2m more Americans to the threat of home repossession, Chris Dodd, chairman of the Senate Banking committee, said on Thursday.

Mr Dodd, who is also a Democratic party candidate for the 2008 presidential nomination, alleged that the Fed had failed in its oversight role at a time when the growth in high-risk "adjustable rate mortgages (ARM)" to risky borrowers was exploding.

Mr Dodd said that US regulators had relaxed guidelines on mortgage lending at precisely the point in 2004 and 2005 when the riskiest ARM loans – which impose initially light monthly payments that escalate rapidly at a later date – were growing most rapidly. This also coincided with the start of the Fed's consecutive 17-stage rise in US interest rates.

"Despite those warning signals . . . the leadership of the Federal Reserve seemed to encourage the development and use of ARMs that, today, are defaulting and going into foreclosure at record rates," he said.

Miami condo buyers: "I want out". Developers: "F*ck you!" REALTORS: "I want my commission check!"

The funniest thing about the rush for the condo-investor exits is all those real estate clerks who've already spent the commissions they'll now never collect.


Man, do I have dot-com deja-vu today...

Isn't it fun to watch a ponzi scheme unravel? What were they thinking? What were they thinking...

Nervous condo buyers want out - Jittery over the cooling condo market, some buyers seek to break their deals as developers resist.

In a cool housing market already overflowing with condos, what were once hot properties are now hot potatoes that many don't want in their hands. Buyers seeking to get out of contracts are pouncing on changes in developers' plans, including those related to higher insurance costs. Some are even combing through documents for blown deadlines, which developers blame on hurricane delays.

The tension is rising as closing day approaches for the roughly 25,000 new condos expected this year and next. And the spats between buyers and developers will help decide one of the biggest questions in the troubled housing market -- how many condo sales will actually close. If the spats continue, they would signal a rocky time to come, with unsold units and falling prices.

'This may be the beginning of the `interesting period,' '' said real-estate analyst Michael Cannon. ``We will see it evolve through 2008.''

So far, there have not been widespread defaults or much litigation, and by most accounts, buyers are going to the closing table, however reluctantly. Still, there is evidence of growing unease.

''The scary thing is, people who have flaked on me tell me they have like five other contracts in other buildings under construction,'' Covin said.

March 22, 2007

Now we've come full circle - Casey Serin and iamfacingforeclosure.com make The Economist - the poster boy of a system run amok


When HP originally broke the iamfacingforeclosure.com story back on September 21, 2006, just six months ago, I had an inkling that the kid would end up getting worldwide pub, and eventually (after a stint in jail) rich from being the poster boy of the late great housing ponzi scheme and everything that went wrong with a corrupt REIC and a financial system designed for a meltdown.

Ah, the American dream...

Well, now the kid has hit The Economist. No, seriously, Casey Serin has hit The Economist. No, seriously. I'm not kidding. Seriously. Yes, the magazine who wrote the best housing bubble story of all time - In Come the Waves. Yes, the world's greatest magazine. That Economist. And now Casey Serin....

Cracks in the façade - America's riskiest mortgages are crumbling. How far will the damage spread?

The Economist

CASEY SERIN knows all about the excesses of America's housing bubble. In 2006 the 24-year old web designer from Sacramento bought seven houses in five months. He lied about his income on “no document” loans and was not asked for anything so old-fashioned as a deposit. Today Mr Serin has debts of $2.2m. Three of his houses have been repossessed; others could share that fate. His website, Iamfacingforeclosure.com, has become a magnet for those whose mortgages are in trouble.

Mr Serin and people like him are Wall Street's biggest uncertainty just now. How many Americans are saddled with mortgages they cannot afford on houses that are losing value? The answer matters to anyone who bought high-yielding mortgage-backed securities when a booming property market made mortgages look safe. It also matters to investment banks, which packaged the securities and often own subsidiaries that originate mortgages. It may determine whether America's economy falls into recession. It could even affect the outcome of next year's elections.

Lenders got the demand for loans that they wanted—and more fool them. Amid the continuing boom, some 40% of all originations last year were subprime or Alt-A. But as these mortgages were reset to higher rates and borrowers who had lied about their income failed to pay up, the trap was sprung. A new study by Christopher Cagan, an economist at First American CoreLogic, based on his firm's database of most American mortgages, calculates that 60% of all adjustable-rate loans made since 2004 will be reset to payments that will be 25% higher or more. A fifth will see monthly payments soar by 50% or more.

A glut of unsold homes will also push down prices, particularly in areas such as California and Florida, which had a disproportionate share of riskier loans. House prices have already been falling in parts of both states, as they have in Midwestern states, such as Michigan, where manufacturing industry has shed jobs in recent years. Will those declines accelerate and spread?

Few doubt that the subprime mess was, in part, a regulatory failure. But now the mistakes have been made, the biggest risk is that populist politicians rewrite the rules hamfistedly. Fraudulent activity should be punished. The vulnerable need protection from predatory lenders. But an ill-conceived swathe of new “consumer protection” could easily make matters worse. If restrictive regulation scared investors away from the subprime market for good, that really would hurt the poor.

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.

HousingPANIC Stupid Question of the Day


At this point in the meltdown, should we feel sorry for real estate clerks (formerly known as REALTORS®)?




March 21, 2007

Failure


And it's just gonna get worse, and worse, and worse, and worse...
President Cheney anyone? (oh dear god help us)

Trump. Kiyosaki. Punchline?

FLASH: UK central banker comes clean: Admits causing housing bubble for short-term gain, leaves financial catastrophe for others to deal with

You'd like to think the world's central bankers were smart people. That they cared about short term issues, but had their eye mainly on the long term welfare of people, families and society at large.


That's not the case folks. The US and UK central banks are evidently made up of incompetent, clueless, morally-questionable boobs, driven by short-term business profits and serving their political masters, who could care less about the societal and personal destruction caused by their misguided, short-sighted, greed-inspired ways.

Seriously.

Here's a startling and bizarre admission from UK bank governor Lord Eddie George, where he admits he and his crew inflated the biggest bubble the world has ever seen simply because they thought they had no other short-term option to deal with the 2001 slowdown.

Here's one they should have considered in 2001 - go into recession. Taking that medicine then would have prevented the bubble, and prevented the biggest asset crash in recorded human history now underway.

You should all be outraged, sickened... and not surprised.

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee " did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

"We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said.


What goes boom must go bust - U.S. housing collapse comes as liquidity dries up

There are days when reading the headlines is like reading "Manias, Panics and Crashes". It's all just so damn OBVIOUS. At least to HP'ers...


Like night follows day, credit crunches and panics follow gleeful financial manias. And now we're here.

My question is, now that a credit crunch and contraction of historic proportions is to come, will the Fed start cutting rates?

NEW YORK (MarketWatch)

Official news over the last several weeks that lenders from Countrywide to Freddie Mac would be tightening their lending standards in the subprime sector of mortgage originations positively begs the question: what's changed?

But before we can attempt to limn even the faint outlines of the answer, we need to countenance the conclusion that such question asking as: "Do you have an income?" and "Can I see proof?" has one and only one effect on credit supply and demand: a decrease.

And that means liquidity is drying up in the mortgage market.

Which means someone is stuck with $2,350 per month in maintenance, taxes, insurance, and mortgage costs on an 'investment property.' And $3,775 when the re-set comes in late 2007.

Whomever it was that first came to his/her senses in this credit madness is moot; it's the fact that his/her action -- that mortgage banker, that CDO trader, whoever -- catalyzed the opposite trend toward probity.

Booms turn to busts not because something 'happened.' They turn to bust because there is simply no other path.

It is said that when men go mad they do so all at once. But they gain their sanity slowly and one by one.

That credit supply is being tightened means we've passed the 'one-by-one' stage and we're approaching 'all-at-once.'

March 20, 2007

HousingPANIC Stupid Question of the Day


Who was the worst person in the late great housing bubble world?

Candidates (vote, or add your own - I had to forget someone):

Alan Greenspan
George Bush
Bob Toll
Angelo Mozilo
Casey Serin
Greg Swann
Nicholas Retsinas
Suzanne
Kendra Todd
Catherine Reagor
David Lereah
Leslie Appleton-Young
Donald Trump
The HGTV programmer
Bruce Karatz
Chris Dodd
Jim Cramer

Shocked! Shocked I say! Subprime lenders targeted blacks, hispanics, poor people

Part of Bush's call for an "ownership" society of course was for rich people and bankers to own poor people. Call it the New Serfdom. Or financial slavery. And of course, those at the bottom of the socio-economic status ladder were easy targets for the subprime lenders empowered by Bush and Greenspan's call to ARMs.


I don't think the subprime lenders were verifiably racist. They were simply going after the easy targets (suckers) - the group of financially unsophisticated, underemployed, renting suckers who were made to believe that home ownership at any cost was a smart move.

Unethical mortgage brokers make more commission the more they screw someone, so they went all out and screwed people as hard as they could.

Payback is a bitch, and even though millions will go bankrupt and lose their homes, at least they took down the lenders, bankers and world financial system with them this time.


BOSTON (Reuters) - Barbara Anderson and her husband know racism. Among the first blacks to move into an Ohio neighborhood 25 years ago, she watched in horror as white neighbors burned her garage nearly to the ground.

Fast-forward to 2007 and Anderson talks of a different sort of discrimination: brokers of subprime mortgages who prey on borrowers with weak credit histories like the Andersons, who raised eight children in Cleveland's Slavic Village district.

"These subprime lenders target you to take you through disaster," said Anderson, 59, who filed for bankruptcy after a legal tussle with a subprime lender, a "nightmare" that she said ended four years ago when her home was nearly foreclosed.

"I was fortunate. I went to another bank that decided to give me a chance with a new loan. The day that happened my headache stopped, my blood pressure lowered, my sick stomach went away, and it was because now I could see some daylight."

Across the United States, blacks and Hispanics are more likely to get a high-cost, subprime mortgage when buying a home than whites, a major factor in a wave of foreclosures in poor, often black neighborhoods nationwide as a housing slowdown puts millions of "subprime" borrowers at risk of default.

Even more troubling, real-estate industry analysts say, is an alarming proportion of blacks and Hispanics who received subprime loans by predatory lenders even when their credit picture was good enough to deserve a cheaper loan.

Yee-HA!!!! Adding fuel to the housing crash fire, housing starts supposedly jump 9% in February (vs. January)

When you find yourself in a hole, quit digging.


Right?

Not if you're the barge-like US homebuilders. When they should be laying off and shutting down, they do the opposite. We already have record inventory sitting around gathering dust, we have over a million potential buyers unable to buy with the lending tightening, and we have a massive dropoff in demand. Yup, that's a great time for more inventory!

Everyone remember Cisco and Global Crossing in 2000? Well, now it's Toll Brothers and KB Home. Massive oversupply combined with a crippling drop in demand equals an upcoming fire sale unlike anything ever seen in US housing history.

Got popcorn?

WASHINGTON (Reuters) - The pace of U.S. home construction rose 9 percent in February, beating analysts' predictions and running against dismal news in the subprime home financing sector, a government report showed on Tuesday.

The report turned U.S. stock futures positive and was expected to firm the Federal Reserve Board's resolve to hold interest rates in place when policy-makers meet Tuesday and Wednesday.

"I don't think it changes things for the Fed at all, they are most likely going to leave rates unchanged and to maintain their bias toward tightening," said Mark Vitner, senior economist at Wachovia Securities

"The market will ultimately find demand data more interesting," said Alan Ruskin, chief international strategist, Greenwich Capital Markets in Greenwich, Connecticut, referring to Friday's existing home sales data.

"The home sales data will also be heavily distorted this month, and we will probably have to wait another month for a clear sign of demand trends and the beginnings of the fall-out from tighter lending standards. All in all, too many distortions here to get the market excited," Ruskin said.

HousingPANIC Stupid Question of the Day


Has the HousingPANIC blog changed your life in any way, shape or form? If so, how?


Are selling a home and ticket scalping similar? (hey there - who needs two?!)


BusinessWeek's Hot Property had this one the other day. For someone who buys tickets to events after they start from desperate scalpers looking to take any price, I thought the analogy was "spot-on" as they say here...

The panic that could occur in the housing market is akin to what I experience in buying tickets from scalpers at a rock concert.

A few minutes before the show starts, even professional scalpers lose their cool – vigorously competing against others, they drop their prices in an attempt to monetize the rapidly declining value of their tickets.

This results in drastic price drops.

What does rock concert ticket scalping have to do with the housing market you may be wondering…one concern is that much like ticket scalpers, sellers will aggressively discount their homes (to lock in profits or minimize losses) before they further decline in value.

This will lead to even more supply and lower prices.

March 19, 2007

FLASH: Senate subprime fiasco hearing on Thursday (after Sen. Dodd is done blowdrying hair)

HP'ers know we've predicted Senate hearings for over a year now, but I thought they'd take off in 2008, as a way for incompetent and corrupt congressmen to show the voters that they're on top of things.


Which is humorous, as we know now that not only were they complacent as the out-of-control REIC gamed the system, not only were they bribed by the NAR and homebuilder lobbies, but that their incompetence was directly responsible for the housing bubble and now resulting crash.

Now "presidential hopeful Dodd" (say that a couple of times without laughing) is having hearings on Thursday to "investigate" the subprime bomb.

Oh, won't this be fun!

WASHINGTON, March 19 (Reuters) - U.S. Senate Banking Committee Chairman Chris Dodd said on Monday he asked executives at the top five subprime mortgage companies to testify at a Thursday hearing and explain their lending practices.

Dodd said he asked executives from HSBC Holdings Plc, New Century Mortgage Corporation, Countrywide Financial Corp., General Electric Co's WMC Mortgage unit and First Franklin Mortgage.

Federal and state banking regulators and consumer advocates have also been asked to testify at Thursday's hearing, Dodd said in a statement. Dodd, a Connecticut Democrat, is a U.S. presidential hopeful.

HousingPANIC Stupid Question of the Day

When will the following official housing crash signs happen:


1) Bush addresses the housing-panicked nation, telling people that the only thing we have to fear is fear itself, and that home prices would stabilize if everyone just calmed down

2) Time magazine FINALLY puts the housing crash on the cover

3) David Lereah is fired

4) Bob Toll, Angelo Mozilo or Casey Serin are arrested

5) US REIC job losses surpass 2,000,000

6) The congressional housing bubble / housing crash hearings begin

7) The US housing crash spreads to Europe

8) The US median home price falls 10% from peak

9) Phoenix median home price falls 30% from peak

10) 500,000 realtors have been culled from the NAR's total membership

Any other big housing crash mileposts or predictions?

How bad is the "direction of the country" poll gonna get now that housing is melting down


As you know, my theory is that the Late Great Housing Bubble served as a nice comfortable little band-aid for the past few years, letting Americans live beyond their means, feel wealthy and fund Wal-Mart Chinese cheap crap shopping sprees.

It feels pretty good when you feel wealthy. And it sucks bigtime when you wake up to realize that the wealth was a mirage, your job has been exported, and you have crushing, lasting, paralyzing debt.

The latest Newsweek "on the right track" number is a shockingly low 28% - with 64% feeling dissatisfied with how things are going in the US.

So, how low will the "satisfied" number get now? And for extra credit, how low will George Bush's 30% "favorable" rating go, now that home wealth is disappearing faster than his 2004 campaign pledges?

March 18, 2007

The housing crash is here. The final act is now upon us. So where does HousingPANIC go from here?

HP went through a similar transition a year or so ago, when we moved from "Act I: Is there a housing bubble?" to "Act II: The housing bubble ends".

Well, now it feels like Act II firmly and unequivocally ended last week, and we've now entered Act III - The Great Downfall (and eventual recovery).

During Act II, the REIC liars, conmen and manipulators were harshly and solidly exposed. HP and the bubble bloggers were validated. The HP community did a good job pulling the various pieces together, getting a robust feel of how the bubble happened, who and what was involved, and what the crash will look like. And the MSM finally got off their ass (except for Time magazine), taking some of the burden off of HP, and started reporting the truth, vs. REIC and NAR spin and lies.

So now we enter the final act.

How long will Act III last? What should HP's role and focus be? What is our raison d'être?

HP has been accused by corrupt REIC blowhards of being evil, and in our role as messengers we will continue to be personally attacked and blamed. I think that's a certainty, especially with millions of REIC about go unemployed, trillions of dollars of paper wealth disappearing, and millions of homedebtors and speculators facing certain financial ruin.

However, HP'ers know that what we do here is good. While the REIC is trying to protect their fat commissions, the HP community fights on as a rag-tag volunteer army. We didn't want this fight - all we wanted was for the damn bubble to end.

All we want now is simply for houses to be homes again - not get rich quick lottery tickets. We want the REIC and NAR lying and deception to stop. We want young couples out of school to be able to buy a nice home, with a reasonable payment, and the security that the asset value will keep up with inflation.

We want the commission-hungry realtors and mortgage brokers gone. Now. All of them. We want the NAR and realtor profession to be discredited and disbanded. We want the REIC to be regulated. We want the MSM to do their jobs and report, versus copy and paste. And we want people to wake the f*ck up and live within their means once again.

So have at it. What do you want from HP? Where do we go from here? How can we continue to best serve our fellow man? And how can we help each other weather this unavoidable storm?

With the housing crash and Great Unwinding stories everywhere, is ANYONE stupid enough to buy a home today?

Wow. Where do we even start. The Great Housing and Credit Crash is Here

Five days away and it feels like five years. Everything has become so clear now, so horrifically clear. We are now firmly, securely and undoubtedly in total and complete meltdown mode.


Historic, devastating meltdown mode.

The MSM still hasn't quite caught up - they're still talking about the now-obvious subprime meltdown. Some of the smarter folks in the room though are saying what's the next big problem - the Alt-A (liars loan) implosion, and the overall impact of this credit unwinding on home prices.

I see Merrill predicting a 10% decline in home prices now this year, and I read waaaayy too many stories on the plane about the house of cards falling in, how subprime's implosion will mean even fewer buyers, taking prices down even faster, causing more loans to go bad, causing prices to fall even faster, causing more loans to go bad... Well, add millions of loans that investors thought were much safer - the Alt-A pool, and that bonfire burns even hotter.

Folks, even the Greg Swann's, Bob Toll's and Ben Bernanke's of the world are going to have a tough time staying in denial or liar-mode now. This game is over. The Housing Ponzi Scheme has been exposed, the Great Unwinding is underway, and the panicked rush for the exits is here.

What you are witnessing, and what you will witness, will truly be historic. Never before has such a great financial bubble arisen, propped up by such a staggering amount of leverage. The size, scope, reach and depth of the collapse will shock the world.

But not HP'ers. We saw it all coming. All of it.

And I hope you're all ready.

Get ready Phoenix etc: "Real estate prices will go down 40-50 percent in bubble areas. You can't believe how bad it's going to get"

You thought HP was brutally honest? Check out what Jim Rogers has to say:

Real Estate in Certain Areas Will Go Down 40% to 50%

Jim Rogers, former George Soros partner and co-founder of the original Soros' hedge fund, is on the Reuters wire this morning, forecasting a real estate crash:

"You can't believe how bad it's going to get before it gets any better. . 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."

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

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

March 13, 2007

HousingPANIC Stupid Question of the Day


"Bull Trap" dead ahead?

Schiff: The house of cards collapses, home prices must collapse, recession an outright certainty

Why people think the biggest financial mania in recorded human history only merits a tiny little readjustment period, I'll never understand. Get off the crack, I'd say, and embrace the new reality - housing is crashing after the biggest bubble ever.


Regression to the mean will happen, must happen, and always happens. Calling bottom is a fools game - yet time and time again, that's what people do and that's what people want to hear.

It just never quite works out like that. Here's Schiff:

The Worst is Far from Over!

by Peter Schiff

As for the likelihood of recession, not only does it seem to be highly probable, but it is more of an outright certainty. With the construction industry shedding 62,000 jobs last month (the most in sixteen years), it is clear that housing is already in recession! The major question is when the overall recession will begin: the second half of "07 or early '08?

The current train wreck unfolding in the sub-prime lending sector provides a good preview as to what will happen to the entire credit-financed bubble economy when the funding dries up. Contrary to the self-serving rhetoric of Wall Street and housing industry shills, the entire mortgage sector is not insulated from sub- prime. In fact, sub-prime is just the tip of the credit iceberg. Beneath the surface lie similar problems in Alt-A and prime loans, where borrowers also relied on adjustable rate mortgages to purchase over-priced homes that they could not otherwise afford.

With the sub-prime market drying up, most first-time home buyers will be unable to buy. Without those "starter-home" buyers, the trade-up buyers (most of whom have the ability to make down-payments and are therefore considered "prime borrowers") will be unable to sell their existing homes, and hence unable to trade up. This brings down the entire house of cards. Home prices must collapse, affecting all homeowners, regardless of their credit ratings.

Since 70% plus of the U.S. economy is based on consumer spending, how can we possibly avoid a recession if the credit well financing much of it runs dry? Since home equity has been the principal asset collateralizing that credit, how can consumers keep borrowing and spending when housing prices fall? I heard one commentator on CNBC claim that the U.S. economy was in great shape except for housing. To me that's like a doctor telling a patient that he is in great health, except for the javelin sticking out of his chest. If housing is going down, there is no way on earth the entire economy does not get caught in its undertow.