HousingPANIC - The Housing Bubble Blog with an Attitude Problem, 2005 - 2008: BUBBLETALK - new thread to talk about the housing collapse

July 05, 2007

BUBBLETALK - new thread to talk about the housing collapse

Here's the thread for random thoughts, articles you think I should post (use tinyurl and don't post full articles) and general discussion about the housing crash underway

340 comments:

«Oldest ‹Older 201 – 340 of 340

Anonymous said...: The housing recovery isn't going to occur next year, or even the year after that. It's gonna take 5 years.

Next Apr-Jun, 2008, every swinging Dick is gonna say, "Look, housing prices are up, the recovery has begun!"
But it ain't. Still they will be asked for predictions.

In 2009, ditto above.
In 2010, ditto above.
In 2011, ditto
ditto
ditto.............

Housing prices will actually overcorrect. (plot prices - compound inflation)

I will be one rich mo-fo.

Bush Amnesty bill will pass. Not one single illegal will go through the painstaking process. (why the hell would they pay $5000 and go back?) Dems will pat themselves on the back.
Illegals will double pop in 3-4 years, having been given the green light. (via cruising over the border, there will be no effective change in security)

Dems will take control of the White House. They will begin legislating control of the airwaves, to "ensure equal access and forced 'balance' of views".; June 27, 2007 8:17 PM
Anonymous said...: Come On RAPTURE!; June 28, 2007 1:26 AM
Anonymous said...: U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering ``higher risk'' loans outside the so-called subprime market, Standard & Poor's Corp. said today.

Rising late payments and defaults on so-called Alt A mortgages made last year are ``disconcerting'' and delinquent borrowers appear to be ``finding it increasingly difficult to refinance'' or catch up on their payments, S&P analysts said today in a statement. ``Serious'' delinquencies, foreclosures and seized property among ``prime jumbo'' mortgages in bonds from 2006 reached the highest among loans of less than 13 months since at least before 2000, S&P said in a separate report.

S&P, one of the two largest ratings firms, is now ``examining how the risk profile clearly increased'' in the Alt A market, it said in a statement sent by e-mail today.

http://www.bloomberg.com/apps/
news?pid=20601009&sid=
aXDYv12DZNcc&refer=bond; June 28, 2007 3:40 AM
Anonymous said...: My mistake was in accepting Simon's assumption that Ron Paul wants to "return" to the gold standard of the 19th century. Nothing could be further from the truth, as this interview with Dr. Paul in the Columbia Tribune (June 15, 2007) makes abundantly clear.

http://tinyurl.com/3y73za; June 28, 2007 4:51 AM
Anonymous said...: This will be the nail in the coffin for US Auto industry if Toyota release a hybrid Toyota Tundra by 2010.

2010 Toyota Tundra Hybrid will Have 400 Horsepower and Get 20/25 MPG

According to TundraHeadquarters Toyota is going to release a hybrid version of the Tundra in 2009 as a 2010 model. The truck will feature the 4.7L V8 and a hybrid system that combined will put out 400 horsepower, gobs of torque and manage to achieve 20 mpg in the city and 25 mpg on the highway.

There have been many rumors and internal statements from Toyota about the future of their hybrids. The automaker has already stated that they hope to reduce the cost of hybrids by the end of the decade, which would make them about the same price as their gas powered counterparts. This would mean that Toyota could put a hybrid in every one of their vehicles.

TundraHeadquarters expects the first Tundra Hybrid to be the CrewMax version. Ford, GM and Dodge are also expected to have hybrid versions of their large trucks on the market by the end of the decade. Gas prices are expected to be in the $3.50-$4.50 range by that time, so there should be demand for these trucks.

http://www.tundraheadquarters.com/
blog/2007/05/16/
toyota-tundra-hybrid-no-later-
than-2010/; June 28, 2007 7:36 AM
Anonymous said...: Yup nobody is moving to Phoenix anymore:

http://money.cnn.com/2007/06/27/rea
l_estate/fastest_growing_cities/ind
ex.htm?postversion=2007062805; June 28, 2007 2:18 PM
Anonymous said...: Gas prices are expected to be in the $3.50-$4.50 range by that time, so there should be demand for these trucks.

===================================

Gas will be at $2.25 then. You read it here first.; June 28, 2007 2:20 PM
Anonymous said...: "Other cheerleaders in college:

Dwight Eisenhower was a cheer leader too.

June 27, 2007 8:36 PM"

Eisenhower was a five star general, by the way...; June 28, 2007 2:41 PM
Anonymous said...: Anon said:"U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering ``higher risk'' loans outside the so-called subprime market, Standard & Poor's Corp. said today".

Laura Vella said: "No kidding!

Both my husband and I have stellar credit, a 20% downpayment and still...the only loan we could qualify for to buy a house is an interest only/arm/ sucide loan. It only takes two seconds to come to this conclusion in one's own head.

And now, finally, the media is letting the cat out of the bag - but we here at HP knew was the case all along.

What is wrong with America??!

Whats scary....everyone thought only the $10 an hour illegal subprimers were the ones buying over they heads - well guess what????; June 28, 2007 2:44 PM
Anonymous said...: Anon said:"jim cramer was very subdued today....gee i wonder why? could there be trouble in cramerica"???

Exactly...this guy was saying "RE is always a good investment" and "it never goes down"!

I'm sure Cramer is leveraged to his eyeballs, and is JUST now getting it that prices will go down because of these hedge funds and CDO's and that interest rates have no were to go but up..; June 28, 2007 3:20 PM
Anonymous said...: Laura Vella said: Two Youtube videos recently posted: "Workers Get Soaked by Pulte Homes!" - I'm assuming these workers weren't paid and decided to picket the construction site, then a water truck hosed all the of down.

And here's a youtube real estate satire called: "downsizing" - it's good!; June 28, 2007 3:41 PM
gregoryw said...: http://tinyurl.com/2wkqk6

Bloomberg: "KB Home reported an unexpected second- quarter loss"

Well, you might say some people were expecting it. Like HP.; June 28, 2007 4:00 PM
Anonymous said...: AMERICANS WON THE FIGHT AGAINST THE TRAITORS IN THE SENATE

From: Roy Beck, President, NumbersUSA
Date: Thursday 28JUN07 11:30 a.m.

Your activism won -- America won because of you -- Amnesty loses 46-53

This is one of the biggest victories I've ever seen for grassroots activism.

I'll write more in a few minutes. Just wanted you to know in case you weren't watching C-SPAN.

We need 40 NO votes to beat this cloture vote.

Instead, we got 53!

18 Senators who vote YES on amnesty cloture on Tuesday switched to NO today!

You all are absolutely amazing.

Now if we can only get government to enforce the laws that we already have, we can start reversing the invasion. (one step at a time I guess); June 28, 2007 4:55 PM
Anonymous said...: If ethanol is such a good idea today.. why was it such a bad idea back in 1920-1940 that the G men were kicking in peoples front doors and destroying the stills they used to manufacture what was ethanol?? hint.. the regulators were paid by big business? the enforers were paid by big busines? the ,skimjobbing,rakeoffs bribe moneys,KICKBACKS,are somewhere else???; June 28, 2007 5:47 PM
Anonymous said...: The moonshining incidents of the past [and a few in the present] are indeed revenue incited. It was going on long before prohibition. In the theme of things I think the government agents were called 'revenuers' before prohibition and generically 'gmen' during and after,as interagency cooperation on a federal level was required because of the prohibition laws. Please consider the names used as possible wrong colloquial information.

Anyway, ethanol has been around forever. It is not as cheap to make as you would be lead to believe and it gets about 20% less mileage than gasoline. It causes all sorts of internal problems for an engine when used in too high of a concentration. Farmers have been able to get an exemption/license to make ethanol for I'm guessing close to 20 years now. I don't think they could find anymore than a hobbiest use for the stuff.
USA TODAY readers of course gobble it all up and bandwagon till the cows come home.
I read recently that a tank of methanol takes 62 bushels of corn to make....
That's a lot of tortillas and polenta and Fritos per tank.; June 28, 2007 7:57 PM
Anonymous said...: Welcome to DC Metro

http://tinyurl.com/362ywu; June 28, 2007 9:29 PM
Sellin @ Da Drop said...: ""U.S. homeowners with good credit are increasingly falling behind on mortgage payments"

I dont think it is the toxic loans alone, but many 'good credit' home owners, they did the cash-refi and HELOC thing to the hilt. Here in Southern California. Every single one of my circle of friends, family and co-workers that I know, that own a home, has done cash-refi/HELO Cat least twice in the last 5 years. Some even more. Its almost as if these people thought it was like free money and they didnt have to pay it back! Now they cant handle the new higher cash-refi mortgage payment or the 2nd equity loan payment they used to buy the Harley and the boat. Now that prices are dropping, they try to consolidate but cant because they dont have much equity padding left and banks wont take them due ti stricter rules.; June 28, 2007 10:50 PM
Anonymous said...: 'Both my husband and I have stellar credit, a 20% downpayment and still...'

You're looking at too much mortgage/house. Put more down or find something you budget for. If the mortgage you are looking at is more than 2.5 times you're annual income you're after too big of a mortgage.
If you had 200k down would you be looking at a 1 mill house? No, BECAUSE IT'S TOO BIG OF A MORTGAGE.; June 29, 2007 1:08 AM
Anonymous said...: Subprime lending: Business as usual

It would appear that subprime lenders have yet to learn from their mistakes. According to a consumer advocate group, abuses persist industry wide, despite the recent subprime mortgage meltdown.

At a Senate subcommittee hearing on ending mortgage abuse this week, the Center for Responsible Lending (CRL) presented its findings on subprime loans included in 10 recent packages of mortgage backed securities.

"A lot of the terms that make these loans so dangerous are still being used," said Keith Ernst, CRL's senior policy counsel. "We had been told that these things are going away."

More than three quarters of the subprime loans CRL looked at turned out to be adjustable rate mortgages (ARMs). 90 percent of those were hybrid ARMs - otherwise known as "exploding" ARMs.

Hybrid ARMs have two- or three-year periods of cheap, low-interest, fixed-rate payments, or "teaser rates." But after two years, the loans reset at much steeper rates, which can prove fatal for homeowners who can't handle the higher payments.

On a $200,000 loan with a teaser rate of 5 percent, for example, borrowers would pay about $1,074 a month. At reset, the interest rate could jump to 8 percent, adding nearly $400 to payments, which could continue to increase every six months.

CRL also found that more than two thirds of the subprime loans it looked at contained prepayment penalties. By charging borrowers up to six months of mortgage payments to retire mortgages, prepayment penalties lock borrowers into onerous loans by making it very expensive to refinance out of them and into a lower-rate fixed rate mortgage.

CRL also uncovered many "liar loans," which don't require proof of earnings, assets or both.

During the last housing boom, increased home equity insulated lenders and borrowers from the worst impacts of these loans. Your loan reset and you could no longer afford the payments, but your property value had risen 50 percent, so you could just skim off some of that increased equity with a cash-out refinancing.

And if lenders were ever forced to actually take back a property through foreclosure, the increased equity would make it worth their while.

"Foreclosure is a product of the cycle [of high price appreciation and tapping equity] that allowed the subprime market to balloon and that cycle now has been broken," said Ernst.

But why should lenders continue to offer subprime loans when they've proven so dangerous?

According to Doug Duncan, chief economist for the Mortgage Bankers Association, troubled lenders are aggressively making new loans for an infusion of cash.

"They're gambling," said Ernst, "doubling down and that's a recipe for disaster."

http://biz.yahoo.com/cnnm/070628/
062707_subprime_abuses_may_
persist.html?.v=3; June 29, 2007 2:41 AM
Anonymous said...: Subprime shakeout claims another fund

Caliber Global, which controlled almost $1 bln in assets, to shut down

Caliber Global Investment Ltd., a London-listed fund that controlled almost $1 billion of mortgage assets, said on Thursday that it's shutting down after turmoil in the subprime market cut demand for its shares.

http://www.marketwatch.com/news/
story/story.aspx?guid=
%7B0D2A07EF%2DB2E6%2D423A%2D89C1
%2DE4F1B19AA164%7D&siteid=rss; June 29, 2007 2:44 AM
Anonymous said...: **** WAKEUP CALL!!!! ****

When CDOs Trump Paris Hilton, There's a Problem: Caroline Baum

By Caroline Baum

(Bloomberg) -- If you're like me and can't seem to get your arms around the concept of home loans pooled into mortgage-backed bonds packaged into collateralized debt obligations carved up into tranches combined to form other CDOs (CDOs-squared), you may wonder what all the hullabaloo has been about these past few weeks.

Unless you're a Bear Stearns Cos. stockholder or an investor in a hedge fund that owns the riskiest piece of a CDO (the equity tranche), the owners of which line up behind everyone else when it comes time to get paid, why should you care about complex Wall Street structured-finance products designed to turn a hefty profit without landing the issuer in jail?

Answer: Because losses in one area have a way of rippling through to others; because risk is a four-letter word, especially if priced improperly; because uncertainty about the value of illiquid, opaque securities backed by home loans breeds risk aversion on the part of mortgage lender and CDO investor alike; because the lightly regulated derivatives market has become so big and so diffuse that some out-of-nowhere event may bring the domino theory back for a retest; and because each of us, directly or indirectly, owns a small piece of the rock.

When he was Federal Reserve chairman, Alan Greenspan extolled derivatives as a way to unbundle and transfer risk to those willing to assume and manage it.

But first the risk has to be identified and priced as such. Many CDOs were considered practically risk-free, with their ability to deliver a steady, reliable return month after month.

Safety in Numbers

It's true there's safety in numbers. Put enough junk bonds or subprime mortgages into a composite entity, and a default here or there isn't going to matter.

It may be easy, with the benefit of hindsight, to say ``there was insufficient capital at the very beginning, but it was not impossible to determine it at the closing date based on the underwriting characteristics of the loans,'' says Sylvain Raynes, a principle at R&R Consulting, a structured valuation boutique in New York, and author, with Ann Rutledge, of ``The Analysis of Structured Securities.''

The delinquency rate for subprime loans rose to 13.8 percent in the first quarter, according to the Mortgage Bankers Association. It was 11.5 percent a year earlier.

When the collateral in residential mortgage bonds is impaired, ``nothing will undo the losses,'' says Joseph R. Mason, associate professor of finance at Drexel University in Philadelphia. ``It's a static pool of investments, a brain-dead trust.''

Buying Time

With the residential real estate market continuing to deteriorate, mortgage-related derivatives aren't only a concern for sophisticated investors, rating companies and regulators. Subprime delinquencies may cause problems for everyone from potential homebuyers to small investors to the Federal Reserve to the man on the street. It's something everyone should care about.

If you are a Bear Stearns shareholder, you should care. The securities firm will inject about $1.6 billion into one of its failing hedge funds to prevent a fire sale of illiquid assets, including CDOs, by creditors. The stock has lost $6.46, or 4.4 percent, since the announcement.

In becoming its own lender of last resort, Bear Stearns bought itself some time. If neither housing nor market conditions improve, time may not be on its side.

Hedge funds should care. The over-the-counter CDO market is opaque. The value of any CDO is primarily model-determined. There is no active market and no fair market value. It's a kind of don't-ask-don't-tell-'til-you-gotta-sell system.

Making a Mark

Once a CDO is sold, it forces other investors to revalue, or mark to market, that security. Last week, creditors of Bear Stearns's hedge funds seized collateral to cover the funds' losses and ended up selling only a small portion of the assets. It's not far-fetched to think other lenders to other hedge funds will come a knockin', forcing liquidations into a poor market.

The small investor, who may have no idea what a CDO is, should care.

``We should care because our money market account, pension account, insurance company all may be invested in these securities, which have not been tested in a down cycle,'' says Joshua Rosner, managing director at Graham Fisher & Co., an independent financial-services research firm in New York. ``We should care because as we saw last week, an asset carried at a value determined subjectively maybe be worth a lot less when it's traded.''

S&L Crisis

The Federal Reserve should care. While Bear Stearns's bailout of its hedge funds is being compared to Wall Street's rescue of Long-Term Capital Management in 1998, a better paradigm might be the savings and loan crisis in the early 1990s. Insolvent thrifts saddled with -- guess what? -- bad real estate loans depleted the now-defunct Federal Savings and Loan Insurance Corp., which provided deposit insurance to S&Ls. The U.S. government created the Resolution Trust Corp. to dispose of bad loans, auction off the underlying properties, shut insolvent thrifts and arrange for solvent institutions to assume the performing loans of insolvent ones.

The result was a true credit crunch, with banks unable to make new loans until they repaired their balance sheets. The economy hobbled along until the process was complete.

Nowadays banks are only a small part of the home-loan market. Outside the banking system, the situation is worse. Rising defaults on subprime mortgages have forced some 60 mortgage companies to close or sell their operations since the start of 2006, according to Bloomberg data.

Prime Real Estate

Lenders are tightening credit standards on mortgages to non-creditworthy borrowers at a time when the inventory of unsold homes is at a record of 4.43 million. The overhang has doubled in a little more than two years.

Potential homeowners should care. First-time buyers may have greater difficulty getting a mortgage, which means owners of starter homes may have trouble selling theirs, and so on up the food chain.

The man on the street should care. It gets tiresome reading primers on structured finance on the front page day after day when Paris Hilton is achieving new levels of self-awareness. The sooner newspapers can get back to what sells, the better.

Lastly, your humble correspondent should and does care. My brain is fried, my energy sapped, and my spirit depleted from talking to structured-finance gurus. At my lowest point, I even began to understand how an investor could buy this stuff without asking the appropriate questions.

(Caroline Baum, author of ``Just What I Said,'' is a columnist for Bloomberg News. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net .

Last Updated: June 27, 2007 00:03 EDT; June 29, 2007 4:59 AM
Anonymous said...: Yes, these people are really in
for some tough times - even their combined wages aren't enough to get them out of debt.

These problems, combined with the other "creative" lending methods, will weigh heavily on the borader economy.

Sellin @ Da Drop said...
""U.S. homeowners with good credit are increasingly falling behind on mortgage payments"

I dont think it is the toxic loans alone, but many 'good credit' home owners, they did the cash-refi and HELOC thing to the hilt. Here in Southern California. Every single one of my circle of friends, family and co-workers that I know, that own a home, has done cash-refi/HELO Cat least twice in the last 5 years. Some even more. Its almost as if these people thought it was like free money and they didnt have to pay it back! Now they cant handle the new higher cash-refi mortgage payment or the 2nd equity loan payment they used to buy the Harley and the boat. Now that prices are dropping, they try to consolidate but cant because they dont have much equity padding left and banks wont take them due ti stricter rules.; June 29, 2007 5:10 AM
Anonymous said...: Wow!! - that is scary!!.

You and your husband did everything
right - good credit, a minimum 20% down-payment, kept extravagant spending to a minimum.

Yet still, you're in trouble
as well.

Wake-up call US citizens, it's not
a problem that the people on the "other side of the tracks" have to deal with only.

It's hitting *everyone*, across *all* income brackets.

Anonymous said...
Anon said:"U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering ``higher risk'' loans outside the so-called subprime market, Standard & Poor's Corp. said today".

Laura Vella said: "No kidding!

Both my husband and I have stellar credit, a 20% downpayment and still...the only loan we could qualify for to buy a house is an interest only/arm/ sucide loan. It only takes two seconds to come to this conclusion in one's own head.

And now, finally, the media is letting the cat out of the bag - but we here at HP knew was the case all along.

What is wrong with America??!

Whats scary....everyone thought only the $10 an hour illegal subprimers were the ones buying over they heads - well guess what????; June 29, 2007 5:16 AM
Anonymous said...: If you put all your eggs in one basket, you'd fight really hard to
keep them all also.

That's exactly what many of these debt-bound people have done.

They know full well that the bottom will cave in pretty soon on their depreciating asset - and the truth is out more widely know.

More and more people are wising up to the entire housing scam.

In that respect, this blog has
been very beneficial to those wanting to know what's really going on with the housing crisis.

Anonymous said...
Sellers are still holding on to ridiculously high prices here in Northern Virginia. Sorry I am not purchasing a $400,000 townhouse or $500,000+ single family house-get real.; June 29, 2007 5:24 AM
Anonymous said...: Why are so many folks b*tching and moaning about illegals? Just wait until the investment banks and hedge funds cry to the government for a bailout because of all the toxic CDO crap they hold.

If you're obssessed about one illegal urinating behind your garage, the CDO bailout is going to be the equivalent of 500 illegals urinating in your house!; June 29, 2007 7:43 AM
Anonymous said...: You're right there.

Besides, it's not the illegals that
should be blamed - they just wanted a better life, something their own country had no problem denying them.

It's our congress, and crooked business men and women who have created this mess, both in housing and the broader economy.

Oooh that smell!!! said...
Why are so many folks b*tching and moaning about illegals? Just wait until the investment banks and hedge funds cry to the government for a bailout because of all the toxic CDO crap they hold.

If you're obssessed about one illegal urinating behind your garage, the CDO bailout is going to be the equivalent of 500 illegals urinating in your house!; June 29, 2007 5:33 PM
Anonymous said...: This is from
http://tinyurl.com/2hz9ws

"Top 10 ways to sell your Florida house in this market
Feel free to add your own.

10) Offer owner-financing at interest rate pegged to George Bush's approval rating.

9) Before the Open House, wash the dishes and put on a shirt. This isn't 2005..

8) For incentive, offer either granite counter tops, a HDTV or two weeks of hurricane insurance.

7) Use bleach to shape bathroom mildew stain into image of Mary.

6) When asked why you are selling, do not say, "Are you kidding me? I'm getting the hell out of here and moving to North Carolina.''

5) When the buyer makes an offer for 60 percent of your asking price, try not to scream, "God, yes!''

4) Put marijuana brownies on Open House greeting platter.

3) Explain that rusting trailer park down the street actually is A-rated school.

2) Plant perennials in neighbor's backyard cockfighting ring.

And the No. 1 way to sell your house: Fire your real estate agent!"; June 29, 2007 7:11 PM
Anonymous said...: 11) Schedule your showing times when all the colored kids are'nt playing basketball in the street.; June 29, 2007 8:29 PM
Anonymous said...: K.W. - Southern Ca.

Are you gonna reply to every friken comment?; June 29, 2007 8:31 PM
Anonymous said...: American Home Loan Repurchases Mount, Shares Plunge

http://www.bloomberg.com/apps/news?pid=20601206&refer=realestate&sid=a_WfwxQklYcE

June 29 (Bloomberg) -- American Home Mortgage Investment Corp. shares fell as much as 17 percent after the lender said it's being forced to repurchase larger than expected numbers of loans that soured.

How CFC can escape this fate is beyond me. Although when somebody whispers "takeover" there damn shares skyrocket.; June 29, 2007 8:51 PM
Anonymous said...: As housing continues to unwind, I suspect we can expect more (a LOT more) stories like this one:

"Lecturer shot his wife dead when their house failed to sell
Last updated at 00:37am on 30th June 2007

London Daily Mail

"Edward Edrich was 'suffering from mental illness' when he killed his wife.

"A former lecturer killed his wife after their house failed to sell.

"Edward Edrich, 59, gunned down Claire in the lounge of their Grade II-listed country home.

"A court heard yesterday that he was in financial trouble and depressed that the £575,000 home had not sold because it lay on the path of a planned runway at Gatwick. ..."

Full story here:

http://tinyurl.com/2zjorg; June 30, 2007 1:27 AM
Anonymous said...: Somewhat off-topic from the housing bubble, but still dealing with the topic of government ineptitude, some friends of mine have managed to decode 2006 election data in Ohio, thus compromising the so-called secret-ballot. Thanks, electronic voting machines. They have the data to prove it - and can actually match ballot data to individual voters. Frightening.

Read about it at
http://thepublicballot.org; June 30, 2007 2:25 AM
Anonymous said...: Subprime Shoes Continue To Drop

Peter Schiff

The meltdown in the subprime mortgage market is inexorably spreading throughout the U.S. economy. The first shoe dropped in February, when scores of mortgage originators went bust amid rising defaults and tightening lending standards. Last week, the second shoe dropped as two CDO-focused Bear Stearns hedge funds blew up. Overshadowed by the Bear Stearns drama which unfolded at the same time, California-based brokerage firm Brookstreet Securities shut its doors when unsecured customer losses from margined investments in collateralized mortgage obligations were "unrepentantly" marked down. However, as the subprime monster likely resembles a giant centipede, this will not be the last show to drop.

Bear Stearns' reluctance to mark down the value of their overpriced CDOs is mirrored by an equal desire among homeowners to hold tight to their fantasies of real estate riches. Despite the obvious weakness in the current market, deluded sellers continue to behave as if the boom of 1998-2005 never ended. A recent survey by Boston Consulting Group showed that 55% of home owners believe they could sell their house for more now than a year ago, and nearly three-quarters think they could sell their homes within the next six months at a price they set. Is it any wonder that there is a record 8.9 months supply of new homes on the market?

Just as CDOs are not worth the "marked to market" value conveniently assigned by Wall Street, homes throughout the country are not worth anything near the asking prices listed on "For Sale" signs. Wall Street may be able to buy some time by bailing out troubled hedge funds to keep their worthless subprime mortgage investments off the market, but no such safety nets exist for strapped consumers looking down the barrel of resetting adjustable rate mortgages. Inventories will continue to balloon until reluctant home owners come to their senses and slash prices.

If they do not do it themselves, appraisers, just like Brookstreet Securities' clearing firm will do it for them. Imagine the effect on the economy when America consumer's biggest assets turn into their greatest liabilities!

However, as I have been writing for years, the biggest losers in the real estate bubble will not be the borrowers who took advantage of easy credit, but the lenders who foolishly underwrote the loans. Whether they be unsophisticated clients of small brokerage firms like Brookstreet, or big time hedge fund clients of Bear Stearns, anyone who owns subprime mortgages is going to lose money. Some will lose 100% of what they invested, and those who used margin may lose even more.

The main problem was that Wall Street, hungry to feed the profit-rich CDO market, convinced the mortgage industry to abandon all traditional lending standards. In prior years, when borrowers were required to make sizeable down-payments, lenders were assured that borrowers would not knowingly commit themselves to mortgages that they could not afford, and that sufficient collateral would exist were defaults to occur. In addition, by verifying incomes and assets, lenders gained further assurance that loans would actually be repaid.

Once lenders dropped down payment requirements, the stage was set for the unfolding disaster. The advent of no-documentation loans, especially ARMs with teasers rates, interest-only payments and negative amortizations, further allowed risk free speculation to run rampant. Is it any wonder house prices rose so high when Wall Street allowed so many people to gamble with other people's money?

If borrowers actually had to put their own hard-earned money down, they would have thought twice before committing themselves to mortgages they could not afford. But once Wall Street took all of the risk out of real estate speculation, there was no reason not to roll the dice. So borrowers lied about their incomes and stretched to meet payments because if home prices kept rising all the profits would belong to them. For years it was a stunningly successful bet that minted real estate tycoons by the hundreds of thousands. And, if prices reversed course, they had nothing to lose, as they put nothing down. Buyers could walk away from their bad bets none the worse for wear, leaving lenders to cover their losses.

However, amidst the hysteria and oblivious to their own roles in perpetuating the bubble, lenders also believed that real estate prices could only go up. With such assumptions, defaults seemed unlikely and ultimately riskless (a foreclosed property worth more than the underlying mortgage is a boon). Also, in many cases, as hedge fund managers made huge profits by risking their client's money, both the borrowers and the lenders had no skin in the game. All the risks were transferred to those who purchased the re-packaged loans, and who are now left holding the bag.

All of the pundits and so called "experts" who did not see this coming still do not appreciate the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation, and the price of gold. They are content to believe government hype about the resilience of the American economy. On Tuesday, just as home building giant Lennar reported huge losses due to a weak pricing environment, the government told us that new home prices basically held firm to last years gains. Later in the week, similar losses blamed on falling home prices were reported by KB Homes. Just like with the CPI, this is yet another example of government numbers being in sharp contrast with reality and why they should always be taken with a grain of salt.

The curtain has yet to close, but if you listen closely you can hear the fat lady warming up in the wings. It has been one hell of a show, but there will be no encore. For those holding toxic mortgage paper there is nothing left to do but sue. However, even those who do not own this stuff are not in the clear. A much larger disaster looms for holders of U.S. dollar denominated assets in general. It will not be long before our foreign creditors realize that Uncle Sam is the biggest subprime borrower of them all and will similarly mark down the value of its debts as well.
June 28, 2007; June 30, 2007 3:36 AM
Roccman said...: MEXICO CITY, June 29 (Reuters) - Mexican President Felipe Calderon said on Friday he expected the country's crude oil exports to slip further this year and next, continuing a decline seen in 2006.

"Starting in 2006, the volume of our oil exports has been falling at an alarming rate and from what we have observed up until now, this year and the next will be no exception," Calderon told a banking event.

Mexico's oil exports slipped 1.3 percent in 2006 to an average of 1.793 million barrels per day (bpd) as state oil monopoly Pemex grappled with lower output at its huge but aging Cantarell oil field.

http://tinyurl.com/2vlnfe

BTW - Mexico's Cantarell oil field is the second largest in the world and the US gets upwards of 15% of our daily 21 million barrels from this oil field.

Ghawar in KSA is the largest oil field in the world and has been declining by 8% per year since 05.

Got bunker?; June 30, 2007 7:45 AM
Anonymous said...: Yes - this is no surprise, and
to be expected.

It can be much harder to have money and loose it - knowing
it means a drastic change in
lifestyle.

Arlene said...
As housing continues to unwind, I suspect we can expect more (a LOT more) stories like this one:

"Lecturer shot his wife dead when their house failed to sell
Last updated at 00:37am on 30th June 2007

London Daily Mail

"Edward Edrich was 'suffering from mental illness' when he killed his wife.

"A former lecturer killed his wife after their house failed to sell.

"Edward Edrich, 59, gunned down Claire in the lounge of their Grade II-listed country home.

"A court heard yesterday that he was in financial trouble and depressed that the £575,000 home had not sold because it lay on the path of a planned runway at Gatwick. ..."

Full story here:

http://tinyurl.com/2zjorg; June 30, 2007 5:30 PM
Anonymous said...: Great posts deserve recognition
my friend.

~~~

Anonymous said...

Are you gonna reply to every friken comment?; June 30, 2007 5:40 PM
Anonymous said...: This was started on 6/19, don't you think it is getting a little old, one with fewer than 200 comments already posted?; June 30, 2007 8:55 PM
edd browne said...: WARNING !!!

If extremists end up in control
of Iraq's oil, they will gain
an incredible fortune for
extreme weapons, plus oil
supply leverage.

Where is the rest of the World
when civilization is on the brink ??; June 30, 2007 11:05 PM
Anonymous said...: Kieth: Read Saturday June30 Washington Post online. Front page article on foreclosures and full page continuation. A lot of talk about immigrants walking away from properties.; June 30, 2007 11:09 PM
Roccman said...: http://tinyurl.com/3aqbox

"Beazer Homes, Oliver North on line 2!"

As if weak housing numbers, declining prices, and greater buyer incentives weren't enough, Beazer Homes (NYSE: BZH) reported it fired its chief accounting officer yesterday for attempting to shred documents related to a federal mortgage-lending probe.; July 01, 2007 1:13 AM
Anonymous said...: Captain America is Dead!

I just sold all my belongs and bought a gold & silver coins plus a couple of guns.

http://www.msnbc.msn.com/id/17534644/site/newsweek/; July 01, 2007 9:25 AM
Anonymous said...: Laura Vella said:

Keith, lets have a thread about the different toxic loans over the last three decades and why the outcome is always the same.

It would be great to compare all of them.; July 01, 2007 3:05 PM
Anonymous said...: ARM- Adjustable Rate mortgage- reset schedule that Credit Suisse produced:

http://www.attheselevels.com/archives/678-The-Forgotten-Resets.html

We expect more foreclosures as these rates rise. Currently here in Alabama , 18.2% of subprime loans are delinquent according to the Mortgage Bankers Association. As Wells Fargo CEO Richard Kovacevich said in December about the subprime market: ``I am not a forecaster of the future; I'm a historian. And history says this will blow up. It always has. And there will be some blood on the street.'' But whose blood?; July 01, 2007 4:59 PM
Anonymous said...: On June 29 U.S. Federal regulators tightened rules for lenders issuing risky sub-prime mortgages, but it may be a case of too little too late to stanch the hemorrhage of foreclosures blanching the economies of many communities in the Greater Washington D.C. area, a region Lyndon LaRouche has dubbed "Ground Zero" of the U.S. housing bubble.

The new guidelines are aimed at the 8,000 Federally regulated lenders--only a sub-group of all loan-makers, and require such lenders to underwrite loans based on the higher adjusted loan rates, not the low "teaser" rates used now.

http://www.larouchepac.com/pages/
breaking_news/2007/06/30/
mortgage_bust_ground_zero.asp; July 01, 2007 8:51 PM
Anonymous said...: S&P, Moody's Mask $200 Billion of Subprime Bond Risk

http://www.bloomberg.com/apps/
news?pid=20601087&sid=
aN4sulHN19xc&refer=home

Standard & Poor's, Moody's Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.

The highest default rates on home loans in a decade have reduced prices of some bonds backed by mortgages to people with poor or limited credit by more than 50 cents on the dollar and forced New York-based Bear Stearns Cos. to offer $3.2 billion to bail out a money-losing hedge fund. Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.

That may just be the beginning. Downgrades by S&P, Moody's and Fitch would force hundreds of investors to sell holdings, roiling the $800 billion market for securities backed by subprime mortgages and $1 trillion of collateralized debt obligations, the fastest growing part of the financial markets.

``You'll see massive losses from banks, insurance companies and pension managers,''

``The longer they wait, the worse it's going to be.''

The current debacle threatens the growth of asset-backed bonds, securities that use consumer, commercial and other loans and receivables as collateral. That market, which includes mortgage securities, has doubled to about $10 trillion since 2000.

`Knee-Jerk Responses'

Homeowners may be delinquent on mortgage payments for at least three months before foreclosure proceedings begin, and the process can be delayed if a borrower files for bankruptcy or fights eviction. Even when lenders repossess a home, the value of the mortgage isn't written down until the house is sold. Bondholders only see a loss if the price of a house is lower than the loan used as collateral for debt securities.

Losses may rival the savings and loan crisis of the 1980s and 1990s.

The S&L Crisis:
A Chrono-Bibliography

http://www.fdic.gov/bank/
historical/s&l/; July 01, 2007 9:04 PM
Anonymous said...: In the end it is all about leverage.

What happens when MBS securities companies decides to all liquidate at the same time?

http://www.annaly.com/
about-us.html

Leveraging only liquid assets that are easily priced and have well defined active markets

In the example used below, let’s say we are given $1 million to invest. We would purchase a portfolio of agency securities and use them as collateral to borrow $10 million (leverage 10x) which we would use to purchase additional securities. In total we would have purchased $11 million of securities paying us a rate of 6.01% and borrowed $10 million at a cost of 5.26%. (The interest rates used in this example are for illustration purposes only. They are not indicative of rates currently available.)

Without leverage we would have purchased $1million of securities and made a total of $60,100 ($1,000,000 x 6.01%) for the year. Using leverage in the above example we earned $135,100 ($1,000,000 X 13.51%) or $75,000 more than we would have earned with no leverage.; July 01, 2007 9:10 PM
Anonymous said...: Impac Mortgage Holdings is backed into a corner and must fight for it life to survive.

http://www.ocregister.com/
ocregister/news/local/irvine/
businessnews/article_1747408.php

Impac suspends dividend payments
Irvine mortgage holding firm cited losses on foreclosed homes.

Impac Mortgage Holdings of Irvine halted dividend payments to shareholders for the first time in more than five years, citing higher losses on delinquent home loans.

The real estate investment trust, which lends to borrowers in the credit category above subprime, said late Tuesday it will not pay a second-quarter dividend and gave no indication of when it will resume payments.

Its stock plummeted 22 percent Wednesday, closing at $4.59.

Impac said it's auctioning off its foreclosed properties, known as real estate owned, or REOs. It added that losses on those properties are higher than expected.

Joseph Tomkinson, chief executive, said in a statement, "In light of increased delinquencies, REO and loan losses, we believe it is prudent to aggressively liquidate REOs in this market."

At the end of the first quarter, Impac held $1.4 billion in loans 60 days or more past due, which equates to 6 percent of its assets. The total included $252 million in real estate owned.; July 01, 2007 9:38 PM
Anonymous said...: Should banks show leniency on defaulting subprime borrowers?

Banks that have to cut rates on subprime loans that have been securitised will still need to pay their mortgage backed security investors. For a bank to be lenient to their defaulting subprime borrowers will mean that the bank will need to cut dividends for their shareholders.

Cutting dividends will means plummeting share price as stock holders dump their bank shares and look for better returns else where. For example, Impac Mortgage Holdings (ALT-A) stock stock plummeted 22 percent on Wednesday when it announced that it will not pay dividends.

If banks should show leniency and do not cut dividends, then investors of mortgage backed security (MBS) will be the one who has to be paying for the banks' subprime SCAM.

Either way stock holders or MBS investors will have to pay.

http://www.business-standard.com/
ft/storypage_test.php?&autono=
289718

US regulators on Friday told banks to be more lenient with subprime mortgage borrowers in difficulties, potentially compounding uncertainties in the troubled mortgage securities market.

The bank regulators issued guidance urging lenders to work with borrowers, for example by modifying loan terms.

Such changes could affect the value of securities backed by subprime loans, which have already fallen sharply following a recent surge in defaults.

“Banks will have to work out how to reconcile the requirements of the regulators and the interests of holders of mortgage securities,” said one official.

American International Group has said implementing the guidelines will cost it at least $178 million, while Washington Mutual has committed to cut rates on up to $2 billion of subprime loans, some of which have been securitised; July 01, 2007 10:06 PM
Anonymous said...: In the end it is all about leverage.

http://news.moneycentral.msn.com/
provider/providerarticle.aspx?
Feed=FT&Date=20070629&ID=7106097

Bear Stearns told potential investors in a now-stricken hedge fund that it could cope with even higher leverage because it put money into "high quality" assets – many of them hard-to-value structured products based on subprime mortgage bonds.

However, Bear also warned investors that taking on higher leverage could increase its volatility and brings with it "an additional risk element".

That warning, in marketing material inviting investors to switch into a more highly-geared version of its High-Grade Structured Credit Strategies fund last year, proved prescient.; July 01, 2007 10:17 PM
Anonymous said...: 92 major U.S. lenders have "imploded"

http://ml-implode.com/; July 01, 2007 10:31 PM
Anonymous said...: Do you know any Submarine captains?
I have 2 friends that are so underwater in their houses that they need a periscope to see the surface. One of them told me he talked to a real estate sales liar that the marker was going to go up next spring! Just hold on! He is paying out $60,000 a year for loan, tax and insurance. He'd be better off just selling the place!; July 01, 2007 10:43 PM
Anonymous said...: Why is everyone down on illegals? Here are some benefits-
Before the illegals it was tough to get goood carne asado burritos in Des Moines. The illegals have lowered the price for drugs and made them more plentiful. I couldn't get any white kids to mow my yard as cheap as Juan does. Their are more cheap hookers around. You have some one to practice your Spanish with. The "chicas" fighting each other on the street is a real turn on. You don't have to go to Mexico to visit a Latin country, since they brought it to us. All those fat, ugly white woman are happy because the illegals are marrying them just to get their green cards. All the shoot outs with the cops makes the nightly news more "spicy". If someone cuts you off in traffic just shout out the window, "Chinga tu madre! Pinche puto!" and look at their faces trying to fixure out how that "gringo" learned Spanish! "Viva los Estados Unidos!"; July 01, 2007 11:06 PM
Anonymous said...: Subprime derivatives explained

http://www.youtube.com/
watch?v=0YNyn1XGyWg; July 01, 2007 11:08 PM
Anonymous said...: Hey girlz & boyz!

It's "Mutually Assured Mayhem"!!!!!

From BusinessWeek magazine:

JULY 9, 2007

NEWS & INSIGHTS

Mutually Assured Mayhem
Wall Street is on edge, scrambling to buck up Bear Stearns and avert a domino-effect debacle

On June 26 managers of Credit Suisse's (CS ) alternative investment group sent an e-mail to investors reassuring them that its portfolios "have minimal direct exposure" to subprime mortgages and "do not have any direct exposure" to the two Bear Stearns & Co. (BSC ) hedge funds that had nearly collapsed the week before. As that note was wending its way through the ether, other investors were quietly trying to sell their stakes in hedge funds full of subprime securities. Some were noting that Toronto bank CIBC holds many subprime bonds. Paris bank BNP Paribas (BNPQY ) was fending off questions about its investment in the Bear fund with heaviest losses.

It's white-knuckle time on Wall Street as firms try to prevent the subprime mess from spreading. The hedge fund blowup has suddenly thrown the world's biggest financial institutions into a game of brinkmanship that will end in one of three ways: a quick, brutal crash of the subprime mortgage market and possibly the broader corporate bond market; a slow, painful meltdown of one or both lasting many months; or a short-term blip that, over time, will be forgotten as conditions return to normal.

Disaster has been averted so far. But pressure continues to come from all sides. The decisions made by Wall Street's bankers, hedge fund managers, and bond raters over the next several weeks will determine which way the game plays out. One twitchy move by any of them could lead to mutually assured destruction.

ELBOW DEEP
At first the subprime mess looked more or less like a Bear Stearns problem. When its funds stumbled, it was Bear that put up a staggering $1.6 billion in loans to stanch the bleeding. It was Bear's stock that took the biggest hit of any brokerage house, falling some 3.2% in a day. And it was Bear that, as reported by BusinessWeek.com on June 25, drew the scrutiny of the Securities & Exchange Commission, which has opened up a preliminary investigation into what went wrong inside the 84-year-old firm led by CEO James E. Cayne.

Ordinarily, rivals wouldn't shed tears if Bear Stearns were suffering—they'd pounce on the weakness. But much of Wall Street is elbow-deep in the same troubled securities, all created during the height of the mortgage boom, that are now coming back to bite Bear. Last year, Wall Street churned out some $550 billion in so-called collateralized debt obligations (CDOs): complex bonds often backed by subprime loans that pay high yields in good times but are dangerous when the market gets rocky, as it is now. "This is not [only] a Bear Stearns problem," says Joseph R. Mason, associate professor of finance at Drexel University's LeBow College of Business.

A DOZEN PROBES
CDOs are especiallY troublesome in a choppy market because they're illiquid— difficult not only to sell but even to value. Until now, accounting rules have let firms peg their CDOs at roughly the price they paid for them. But if the market sets new prices, then others must use those prices to value their holdings. What gives Wall Street nightmares is the possibility that Bear Stearns' struggling hedge funds, which once controlled $16 billion in assets, will be liquidated by their creditors. A shotgun sale of poorly performing securities would provide Wall Street with a true price for valuing the slumping assets. "Nobody wants to officially acknowledge the worthless nature of these products," says Peter Schiff, president of Euro Pacific Capital, a Darien (Conn.) money management firm. Indeed, SEC Chairman Christopher Cox, during a hearing on Capital Hill on June 26, disclosed that regulators have opened a dozen separate probes on the subprime market and the issue of CDO pricing, in addition to the Bear inquiry.

If Bear's holdings were auctioned off at, say, 60 cents on the dollar and other firms marked down their CDOs accordingly, losses would spread. Firms would start dumping their CDOs to get what they could for them. Thus would begin a quick, brutal crash.

That's one reason Wall Street firms such as Merrill Lynch (MER ), JPMorgan Chase (JPM ), Goldman Sach (GS )s, and Deutsche Bank (DB ), all of which had financed the funds in the first place, have been in no rush to liquidate them. A liquidation would have hurt everyone.

There's another force bearing down on CDO holders: credit rating agencies such as Moody's Investors Service (MCO ) and Standard & Poor's, which like BusinessWeek is a unit of The McGraw-Hill Companies (MHP ). If the ratings agencies were to downgrade the CDOs, it would force holders to mark down their values accordingly, potentially igniting the same sort of disaster scenario. That hasn't happened yet. "Our surveillance involves significant testing and analysis, and our long-term record is excellent," says an S&P spokesman. Noel Kirnon, head of global CDO ratings at Moody's, says the firm has a rigorous process for monitoring CDOs, and adds that deterioration in the underlying assets "has not exceeded expectations."

The wild card is institutional investors such as pension funds, university endowments, and foreign governments. If they get more nervous about the hedge funds they're invested in, they could start looking to cash out—as some have done already. If they rush for the exits, hedge funds will feel pressure to get out of CDOs, perhaps prompting a downward spiral.

The broader housing market also presents a potential threat. In Maricopa County, Ariz., which includes Phoenix, houses are entering foreclosure at a rate of more than 50 a day, according to Foreclosure.com, up 60% from last year, as recent buyers are hit by high payments and falling equity. The faster foreclosures rise, the more it may become apparent that the loans held by the CDOs are in trouble and the greater the risk of CDO downgrades.

In this high-stakes game, the risks to other lines of business are major. Already, concerns are growing that the Bear situation may be spilling over to junk bonds and leveraged loans—two red-hot markets that have kept leveraged buyouts booming and generated big profits for big banks. An index of leveraged loans has fallen 2% the past two weeks. Junk bonds are down as well. Steven C. Miller, managing director of Standard & Poor's LCD, a loan market research service, says that for the first time in two years, investment bankers have had to issue "bridge" or back-up financing for an LBO after running into difficulty selling junk bonds to fund the deal. LBO firms are going back and offering investors higher yields and better protections to raise money for pending buyouts such as the one for retailer ServiceMaster Co. (SVM ), owner of Terminix and Merry Maids. "There's a much more sober view in the leveraged finance market right now," says Miller.

For all the pressure on CDOs, though, a crisis hasn't yet been touched off. Some observers are downplaying the significance of the hedge fund blowup to Bear Stearns' bottom line. Roger Freeman, an analyst at Lehman Brothers Inc. (LEH ), says in a June 26 research note that the matter will not have "a meaningful impact on Bear's earnings." Likewise, Miller of S&P LCD predicts that, for all the consternation over Bear, the LBO pace will only slow, not stop. CIBC, meanwhile, rejects suggestions that it could be the next firm to tumble. The assumptions about its subprime exposure "are simply not true," says bank spokesman Stephen Forbes. Paribas declined to comment.

Wall Street's strategy from here will be to try to maintain the status quo, putting out new fires quickly. "They are hoping to buy themselves as much time as possible," says James Melcher, founder of Balestra Capital, a hedge fund. "The game could work out if the top dozen firms get together to hold the market and gradually deflate it over time."

But the prospect of a meltdown is on everyone's mind. On June 26, UBS (UBS ) analysts held a conference call with money managers to review the Bear situation. "There's a search for contagion going on," says Douglas J. Lucas, a UBS analyst on the call. "I've talked to people from as far away as Australia." Everyone is watching to see who might blink.

Join a debate about whether the U.S. stock market is overheated.

By Matthew Goldstein, David Henry, and Mara Der Hovanesian, with Peter Coy in New York and Dawn Kopecki in Washington; July 02, 2007 1:24 AM
Anonymous said...: >>>> Anonymous said...

Hello Jim,

I think Tanta pointed out that MLynch, GS et al were at the table with BSC about a month ago. Suddenly ML gets up screaming and runs for the exit with a wet spot on the front of their pants.

So, they seem to the first group to cut their losses. The debt is all exhausted in the market. No where to go but down.

The larger question that looms in my mind will be the relationship between Moody's and the other bond rating agencies. They rated all this garbage AAA or something like that. Many of the bonds are held by pension funds and Frannie Mae and Freddie Mac.

I think the SEC should be investigating the relationship between bond rating houses and the big banks that packaged all this garbage. Probably ought to carefully examine the models if they were based on any real basis or just cooked books so that the investment banks could package them and sell them off to pensions.

I worry that this transfers the bad debt to many public pensions which will fail and go to the federal insurance.

This is a bigger scandal than the Arthur Anderson accounting scandal. It will probably turn out that the investment banks colusion with the rating agencies defrauded people. Rating agencies had zero buisness rating these things at all since it seems they didn't have a model.

LAEF2

Wednesday, June 27, 2007 8:52:00 AM <<<

anon post taken from the 'great depression of 2006' blog....

my sentiments exactly. what is the damn relationship between the rating agencies and the sellers of these junk cdo's.....

don't tell me good old uncle sam is going to have to pick up the tab on this scam???? how can this be????; July 02, 2007 2:58 AM
Anonymous said...: From now on, call me "LIONSTONE®"
If the "REALTORS®" can do it, so can I.; July 02, 2007 3:25 AM
Anonymous said...: Yo Keith, check out this post at

www.oftwominds.com/blog.html

Gotta love the picture that goes with this caption: "If you blow away my CDOs (marking them to market), I'll blow away yours."; July 02, 2007 3:43 AM
Anonymous said...: Anyone wanna bet the Bear Stearns tremor was picked up in Moscow and Putin is in town to see what W is doing about it?; July 02, 2007 3:48 AM
Anonymous said...: Back to business as usual for the 600,000 Japanese Housewives/Speculators.

http://www.bloomberg.com/apps/
news?pid=20601081&sid=aR7Vfccw9S50

New Zealand Dollar Rises to 22-Year High on Appealing Yields.

`Japanese investors are very focused on the yield pick-up, which isn't going to go away any time soon,'' said Michael Gordon, currency strategist at Westpac Banking Corp. in Wellington. ``I haven't seen anything that would cause any significant New Zealand dollar selling.''

There is a 25 percent chance Bollard will increase the official cash rate to 8.25 percent at his next monetary policy review on July 26, according to a Credit Suisse Group index based on overnight trading in interest-rate swaps. It was at 19 percent on June 19.; July 02, 2007 4:37 AM
Anonymous said...: 9,495 REO offered for sale on Countrywide Financial's website

http://countrywide-foreclosures.
blogspot.com/2007/06/
9495-reo-offered-for-sale-on.html

Bank of America REO

http://bankofamerica.reo.com/
search/

Chase REO

http://mortgage02.chase.com/alt/
altdel/REOSearch.jsp

Coldwell Banker REO

http://www.reoexperts.net/

Downey Saving REO

http://www.downeysavings.com/
ffs/properties

HSBC REO

http://www.banking.us.hsbc.com/
HICServlet?cmd_PropertySearch
Default=cmd_PropertySearchDefault

Indymac Bank

http://apps.indymacbank.com/
Individuals/Realestate/Search.asp

OCWEN REO

http://www.ocwen.com/reo/
residential/
res_reofindbystate.cfm?proptype=VA

Regions REO

http://realestate.regions.com/
servlet/Ore/
ForeclosedPropertySearch.jsp

Wells Fargo REO

http://www.premierereo.com/reo/
consumerSvlt//nav/
ConsumerNavL1.jsp/requestPage/
consumer/PropertySearch.jsp; July 02, 2007 5:11 AM
Anonymous said...: Holy sh*t! said...
Hey girlz & boyz!

It's "Mutually Assured Mayhem"!!!!!

==============================================

Not until the fall.; July 02, 2007 12:01 PM
Anonymous said...: BIS warns of Great Depression dangers from credit spree
By Ambrose Evans-Pritchard
Last Updated: 9:02am BST 25/06/2007

The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.

"Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived", said the bank.

The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

advertisement"Behind each set of concerns lurks the common factor of highly accommodating financial conditions. Tail events affecting the global economy might at some point have much higher costs than is commonly supposed," it said.

The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity.

"The Chinese economy seems to be demonstrating very similar, disquieting symptoms," it said, citing ballooning credit, an asset boom, and "massive investments" in heavy industry.

Some 40pc of China's state-owned enterprises are loss-making, exposing the banking system to likely stress in a downturn.

It said China's growth was "unstable, unbalance, uncoordinated and unsustainable", borrowing a line from Chinese premier Wen Jiabao

In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be "cleaned up" afterwards - which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.

It said this approach had failed in the US in 1930 and in Japan in 1991 because excess debt and investment build up in the boom years had suffocating effects.

While cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and "sowing the seeds for more serious problems further ahead."

The bank said it was far from clear whether the US would be able to shrug off the consequences of its latest imbalances, citing a current account deficit running at 6.5pc of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unprecedented drop in the savings rate. "The dollar clearly remains vulnerable to a sudden loss of private sector confidence," it said.

The BIS said last year's record issuance of $470bn in collateralized debt obligations (CDO), and a further $524bn in "synthetic" CDOs had effectively opened the lending taps even further. "Mortgage credit has become more available and on easier terms to borrowers almost everywhere. Only in recent months has the downside become more apparent," it said.

CDO's are bond-like packages of mortgages and other forms of debt. The BIS said banks transfer the exposure to buyers of the securities, giving them little incentive to assess risk or carry out due diligence.

Mergers and takeovers reached $4.1 trillion worldwide last year.

Leveraged buy-outs touched $753bn, with an average debt/cash flow ratio hitting a record 5.4.

"Sooner or later the credit cycle will turn and default rates will begin to rise," said the bank.

"The levels of leverage employed in private equity transactions have raised questions about their longer-term sustainability. The strategy depends on the availability of cheap funding," it said.

That may not last much longer.; July 02, 2007 12:14 PM
Anonymous said...: Liquidity underthreat as banks' capital is about to be slashed
By Charles Dumas

Published: June 27 2007 03:00 | Last updated: June 27 2007 03:00

The bright, liquidity-driven prospects for the stock market, versus the hard landing for the US economy, have been a puzzle all year. Prolonged weakness in the economy without some stock market weakness would be odd. Yet the implication of a hard landing, lower interest rates, has even boosted stock prices, given the predominance of debt-driven private buy-outs in setting prices.

The Bear Stearns hedge fund fiasco removes the paradox. Banks' capital is about to be slashed, and with it excess liquidity in the global system. Look at mortgage-backed collateralised debt obligations -- pools of debt assets, in which investors take stakes with different levels of risk. Suppose those held by banks were valued at "market" rather than "model" levels (a fancy new euphemism for illusionary historic book values). Their capital would turn out to be lower. Preservation of capital ratios against loans would require fewer loans: liquidity would have imploded.

Bear Stearns has made a $3.2bn secured loan to one of its hedge funds. Yet this is the better of the two that are threatened with collapse. Investors in the more highly indebted one face bleaker prospects. Yet in neither of these funds is one likely to find much of the low-quality, "toxic-waste" CDO paper.

These funds mostly hold the higher-rated, single-A (and better) paper that is protected from the first impact of any defaults in the underlying mortgages. By what? By the lower-rated toxic waste that takes the first few percentage points of default on any of the underlying mortgages: this stuff is optimistically rated at such levels as BBB-minus. Only defaults above the rate that wipes out the low-rated paper affect the higher-rated paper. Hedge funds generally deal in the upper-rated, single-A and better, paper.

But even with this support the attempted liquidation of $800m of mortgage-backed collateral seems to have hit a rather large rock: after getting bids of a mere 85-90 per cent of face value for about a quarter of the securities, the auction was called off: better to let the Bear flounder than reveal just what a low value the Street puts on even the A-rated paper.

A bunch of hedge funds may have problems, but that is the tip of the iceberg for "Titanic" Wall Street. Who holds the toxic tranches? Answer: the originating banks and syndicating investment banks for the most part.

As these lower-rated tranches retain the bulk of the credit risk in the mortgages, their retention by such banks means the much-trumpeted shifting of credit risk off balance sheets was less than met the eye. If the higher-rated stuff is worth 85-90 per cent of face value at best, what is the value of the $750bn of mortgage-backed securities said to be held in US commercial banks' balance sheets?

The toxic tranches have been valued in recent days at prices as low as 60 per cent of face value.

If a fair proportion of $750bn is wiped out by mark-to-market - or the simple incidence of losses - that will be a fair proportion too of the commercial banks' $875bn of capital. And how good are the balance sheets of the major investment banks?

Liquidity is a complex thing. It can mean simply the ability to place a large line of stock at the broadcast market price. This creates debt capacity for the investor, of course, as leverage becomes safer: the result is growth in loans and deposits, which is how liquidity is often measured.

With this mortgage-backed crisis we could simultaneously see market-price liquidity implode just as banks are forced to shrink their books by capital losses. It was always likely that the chief source of problems (as in any downswing) would be the chief area of excess in the previous boom - in this case the mortgage market and mortgage-backed securities.

Defaults are at their highest in the 37 years records have been kept; adjustable interest rates and withdrawal of "teaser" start-up rates on recent mortgages are still largely to come. It could be a long, hot summer. Any major non-Fed rescue operation or cover-up adds to the risk: rumours without solid information make fertile ground for panic.

Charles Dumas is chief economist at Lombard Street Research; July 02, 2007 12:15 PM
Anonymous said...: **** A bunch of hedge funds may have problems, but that is the tip of the iceberg for "Titanic" Wall Street. Who holds the toxic tranches? Answer: the originating banks and syndicating investment banks for the most part. ****; July 02, 2007 12:23 PM
Unknown said...: Something from another area that you might all be interested in:
http://tinyurl.com/2hookj; July 02, 2007 12:50 PM
gregoryw said...: http://tinyurl.com/2t7ltz

Capital One has made a profitable business out of easy lending to consumers most banks didn't want through credit cards then auto loans and mortgages. Remember when you were 17 and Capital One would give you a $1500 credit limit? Well now they're feeling pain. I'd bet people are having trouble paying.; July 02, 2007 3:40 PM
gregoryw said...: http://tinyurl.com/2ex8a8

Step 1: Pay too much for house.
2. Set the asking rent too high.
3. Leave it unattended hoping the market turns.
4. Padlocked, broken windows, 5 foot tall grass. County sends you notices.
5. Fines and Foreclosure.; July 02, 2007 3:52 PM
gregoryw said...: And then the foreclosures started hitting three of the wealthiest counties in the United States. Arlington, Fairfax and Loudon surrounding our nation's capital.

http://tinyurl.com/ypy483

THE HALLMARKS OF A CRASH IN DC:

Dump truck drivers buying houses with a $4200 a month payment.

6.5% loans adjusting to 10%.

New houses falling into disrepair. Neighboring houses fall further.

Counties realizing they shouldn't have gone a spending spree as their tax rolls get pinched when people go over the edge.

"It's not a good community if everything is foreclosed. I can't wait to get out."

"I've been here four months, but I'm looking for another place to go -- I have to," Mendes said in Spanish. "I'll be on the road."; July 02, 2007 4:01 PM
Anonymous said...: San Diego - Just how much longer will it be - before the housing prices get back to a real price - I see some housing prices drop but not enough for me to buy?? Hey the house prices prior to 2002-2003 were OK - but not the best that that same house that sold for 325K in 2002 is not worth 900+K now!!!!; July 02, 2007 4:21 PM
Anonymous said...: This is what you get with unlimited legal and illegal immigration.

http://kob.com/article/stories/S127071.shtml?cat=516

Thanks to the sheeple that continue to elect corrupt, bought and paid for politicians, I hate this country. Ironic thing is, corrupt politicians are not limited to the US and none of them NONE of them know how to manage.; July 02, 2007 5:54 PM
Anonymous said...: I just saw that stupid Ditech commercial again. The one where a guy in a turban cuts your house in half with a sword while the announcer says 'people are smart'.
Who are they trying to capture with that?; July 02, 2007 6:21 PM
Anonymous said...: From a Phoenix area Paper today;

Queen Creek homeowner Kathrine Partridge fell behind on payments this year after taking on her family's mortgage, car payment and credit card bills, following a divorce.

Now, the property, where she lives with her 2-year-old daughter and takes care of four horses, is scheduled for auction next month. "You always think of what you could have done to change everything," she said.

So are we supposed to feel sorry for some dimwit that would feed four horses before saving her house?!

This mouthbreathing nose picker deserves to fail! Man, let her be the one that actually makes it to a jury trial during a ambulance chaser sponsored bailout trial. One in 1000 deserve to be bailed out, the others are this trash!

Here's something that changed my life and calmed considerably; ANY room you walk into that has people in it, half of those people are of below average intelligence.
And I'm ok with that, just why do they persist? How can they be so pitifull [I don't meant I pity them, I mean they make me wretch] so much of the time?; July 02, 2007 6:52 PM
Anonymous said...: I just realized I'm so much more f*cked than I thought. I'm a renter now because the hubby got sick in 99 and we had to sell our house - we live well below our means because I knew that I might one day be the primary breadwinner - but truthfully - neither of us have had a meaningful raise in at least 5 years. When we first started renting I figured if anything happened to him, I could buy a $250K condo in town outright with $6K taxes and ~$200 cc - that would put me at $700/month + utilities, insurance, food and misc which I can definitely afford on my own. But now after the housing boom - that same condo is selling for $550K which I cannot afford to buy outright - the cc with the current assessment is up to $300/month and the taxes doubled to $12K. So in 2000 - $700/month is within my budget - In 2007 I would now have to pay $1,300/month plus a mortgage for the same place and would have to work 2 jobs for the pleasure of doing so.; July 02, 2007 7:01 PM
Anonymous said...: Very nice site, which puts all the news on subprime together on one simple site.

subprimemess.blogspot.com; July 02, 2007 7:04 PM
Anonymous said...: westchester chick said...
I just realized I'm so much more f*cked than I thought....

Thank you for being reasonable. Thank you for not buying the condo in spite of what you learned. I am truly proud that you are a part of our real world instead of the 'right of entitlement' weaksux who would of bought the place no matter what.
Homeownership is not what it's cracked up to be.
Pay yourself the difference [or all you can] between the rent and what your mortgage would of been, put it in a 5% eloan savings account, or treasury bill, and wake up wealthy in a very short time.
My primary savings is 400 miles from my home in a little credit union. Any time I want to tap it for something it would mean a 6 hour drive, a stay in a hotel, and 6 hours back. So needless to say I don't own the big screen TV or the Corvette....
Instead of being slightly bitter and down because of the situation use the situation to work for you. Your friends with homes sure aren't enjoying them these days. Look at all you save in Home Depot purchases and taxes and fees. It's a blessing you saw it, now bless yourself with it.; July 02, 2007 7:19 PM
Anonymous said...: “Banks will have to work out how to reconcile the requirements of the regulators and the interests of holders of mortgage securities,” said one official.
________________________

The banks are in a no-win situation. I suggest everyone have some cash on hand at home. If we have a bank run, you'll need it....; July 02, 2007 8:02 PM
Anonymous said...: Happy as hell to report that a coworker took my advice not to give 6% away. She's going to use Redfin!!; July 02, 2007 8:46 PM
Anonymous said...: Which Representative from the Houston area would you bet has the most earmark requests? Well, the surprise is that the leader is the libertarian Ron Paul who supposedly disdains almost all federal spending.

http://tinyurl.com/2e7beq; July 02, 2007 9:52 PM
Anonymous said...: From Dallas Morning News, sone news about your fellow wackjob, paranoid fool Ron Paul

Wanted: consistency
U.S. Rep. Ron Paul, R-Lake Jackson, is known for principled libertarian stands against government spending. But it turns out Dr. Paul's principles don't apply equally to procuring pork for his Southeast Texas district. According to letters released by his office, Dr. Paul, who's running for president, has requested millions for the Army Corps of Engineers to do maintenance on the Texas City Channel, as well as money for a bridge in Galveston. Fair enough – even a small government has to take care of infrastructure. But why has Dr. Paul requested $8 million for shrimp marketing? Physician, heal thyself.; July 02, 2007 10:45 PM
Anonymous said...: Subprime lending problems ensnaring big Wall Street firms
By Michael Hudson
THE WALL STREET JOURNAL
07/01/2007

Twelve years ago, Lehman Brothers Holdings Inc. sent a vice president to California to check out First Alliance Mortgage Co. Lehman was thinking about tapping into First Alliance's lucrative business of making "subprime" house loans to consumers with sketchy credit.

The vice president, Eric Hibbert, wrote a memo describing First Alliance as a financial "sweat shop" specializing in "high-pressure sales for people who are in a weak state." At First Alliance, he said, employees leave their "ethics at the door."

The big Wall Street investment bank decided First Alliance wasn't breaking any laws. Lehman went on to lend the mortgage company roughly $500 million and helped sell more than $700 million in bonds backed by First Alliance customers' loans. But First Alliance later collapsed. Lehman landed in court, where a federal jury found the firm helped First Alliance defraud customers.

Today, Lehman is a prime example of how Wall Street's money and expertise have helped transform subprime lending into a major force in the U.S. financial markets. Lehman says it is proud of its role in helping provide credit to consumers who might otherwise have been unable to buy a house, and proud of the controls it has brought to a sometimes-unruly business. Advertisement

Now, however, that business is in deep trouble, and some consumer advocates and policymakers are pointing the finger at Wall Street. Roughly 13 percent of subprime loans stand in or near foreclosure, bringing turmoil and sometimes eviction to tens of thousands of homeowners. Dozens of lenders have gone out of business. Bear Stearns Cos. is trying to bail out a hedge fund it manages that was hurt by subprime mortgage losses.

Critics say Wall Street firms helped create the mess by throwing so much money at the market that lenders had a growing incentive to push through shaky loans and mislead borrowers.

At a hearing in April, Sen. Robert Menendez, D-N.J., said Wall Street firms "looked the other way" as they profited from questionable loans, "fueling a market that has very little discipline over itself."

Federal Reserve chief Ben Bernanke said in a May speech that some lenders focused more on feeding the marketplace than on the quality of loans, in part because most of the risks that loans would go bad were passed on to investors. As a result, "mortgage applications with little documentation were vulnerable to misrepresentation or

overestimation of repayment capacity by both lenders and borrowers," he said.

A generation ago, housing finance was different. Bankers took in deposits, lent that money to house buyers and collected interest and principal until the mortgages were paid. Wall Street wasn't much involved.

Now it plays a central role. Wall Street firms provide working capital that allows thousands of mortgage firms to make loans. After lenders sign up consumers for home loans, investment banks pool the income streams from these loans into bonds known as mortgage-backed securities. The banks sell them to yield-hungry investors around the world.

Before the mid-1990s, mortgage-backed securities consisted mostly of loans to borrowers with good credit and cash to make ample down payments. Then investment banks found they could do the same with riskier loans to borrowers with modest incomes and flawed credit. Pooling the loans created a cushion against defaults by diversifying the risk. The high interest rates on the loans made for bonds with high yields that investors savored. New technology helped make it easier for lenders to collect and collate mounds of information on borrowers.

Lehman, one of Wall Street's biggest players in the subprime boom, says it has gone to great lengths to screen loans for fraud and vet the lenders it works with.

At the sector's peak in 2005, with the housing market booming, loan defaults remained low. Wall Street pooled a record $508 billion in subprime mortgages in bonds, up from $56 billion in 2000, according to trade publication Inside Mortgage Finance. The figure slid to $483 billion last year as the housing market slumped and subprime defaults picked up.

Lehman topped other Wall Street firms over the last two years, packaging more than $50 billion in subprime-mortgage-backed securities in both 2005 and 2006. Overall, Lehman officials say, the subprime business has accounted for 3 percent of the firm's overall revenue in recent quarters, or roughly $500 million in 2006.

Lehman has also been a leader in investment banks' push to buy their own lenders. Through its subprime unit BNC Mortgage Inc., it lends directly to consumers, bringing in more fees and giving it more control over the quality of the loans.

Lehman's deep involvement in the business also has made the firm a target of criticism. In more than 15 lawsuits and in interviews, borrowers and former employees have claimed that the investment bank's in-house lending outlets used improper tactics during the recent mortgage boom to put borrowers into loans they couldn't afford.

Twenty-five former employees said in interviews that front-line workers and managers exaggerated borrowers' creditworthiness by falsifying tax forms, pay stubs and other information, or by ignoring inaccurate data submitted by independent mortgage brokers. In some instances, several ex-employees said, brokers or in-house employees altered documents with the help of scissors, tape and Wite-Out.

"Anything to make the deal work," said Coleen Columbo, a former mortgage underwriter in California for Lehman's BNC unit. She and five other ex-employees are pursuing a lawsuit in state court in Sacramento that claims BNC's management retaliated against workers who complained about fraud.

Lehman officials say there's no evidence to support such claims. They say the firm has tough antifraud controls and goes to great lengths to ensure that it works with mortgage brokers and lenders who meet high standards and that loans are based on accurate information.

Lehman said company records clearly refute specific details of the accounts given by these former employees. It said most of them never raised concerns during their tenures at Lehman lending units, even though that was a requirement of their jobs. Some employees contacted by The Wall Street Journal said they weren't aware of improper practices.

"We think it is misleading to extrapolate from a handful of cases, in each of which we have a strong defense, and make a judgment about the way we conduct our business," Lehman said.; July 02, 2007 11:07 PM
Unknown said...: Since July 2002, or over the last five years, here is what has
happened:

DJIA stocks have appreciated 26%. "Great!" you say. Well, wait a minute.

The US Dollar has dropped 19% against the Swiss Franc since July,
2002.

The US Dollar has dropped 30% against the British Pound since July, 2002.

The US Dollar has dropped 38% against the Euro since July, 2002.

The US Dollar has dropped 105% against gold since July, 2002.

The US Dollar has dropped 152% against silver since July, 2002.

The US Dollar has dropped 372% against copper since July, 2002.

The US Dollar has dropped 505% against lead since July, 2002.

The US Dollar has dropped 1,200% against uranium since July, 2002.

Have a nice day!; July 02, 2007 11:56 PM
Anonymous said...: Hello HP community. I have been reading this blog for about a year now. We have been renting and packing away money for a home for a few years.

Recently my wife (just married) and I have been going around and looking at houses in the Denver area. We do know the market is bad, and is likely to adjust downward. Denver didn't have the huge speculative run up, but we do have a problem with mortgage fraud and appraisals to "hit the number".

We have no debt, live well within our means, and have the following criteria for a home purchase:

roughly 2x household income
priced under recent comps (3 months) by 10 percent

Pretty simple. We looked at a house that we liked. They were asking $285k, it was purchased in 2004 for $270k. They just replaced the roof and countered my preliminary offer of 255k with an offer of 265k.

I have read some research stating that Denver is overpriced by roughly 8%. My square footage, this home is would sell at a discount to market of 9% and is much nicer.

My question is, am I crazy to consider purchasing it? Do the fundamentals seems alright to you?

Many thanks for your time!; July 03, 2007 2:50 AM
Anonymous said...: Housing affordability index of Walla Walla county verse State of Washington.

http://www.portwallawalla.com/
ec_profile/ec_profile/charts/
chart19.pdf; July 03, 2007 3:06 AM
Anonymous said...: national open house, channel 67 cable..........people said they bought the house for about $400k and now they say it is worth 1.2M

good luck......its amazing , all hell is breaking loose in the housing industry and the blind still lead the blind.......when will it end?; July 03, 2007 3:39 AM
Anonymous said...: WOOHOO, its a start:

Napolitano signs immigrant bill targeting employers

http://www.azcentral.com/business/articles/0702sanctions02-ON.html

First two paragraphs:

Gov. Janet Napolitano today signed sweeping legislation against employers of undocumented workers, and asked for cooperation from legislative leaders to call a special session to address what she called critical flaws in the bill.

With the governor's approval of House Bill 2779, Arizona takes the lead among states in dealing with the underground market in illegal labor. Napolitano termed the bill “the most aggressive action in the country.”; July 03, 2007 4:07 AM
Anonymous said...: Are Subprime Mortgages an Illiquidity or Credit Event?

“Liquidity follows credit quality.” Bonds with improving credit quality tend to become more liquid, and vice-versa for bonds with deteriorating credit quality.

One of my biggest professional investing mistakes was buying a gaggle of Manufactured Housing ABS bonds back in late 2001. I only bought bonds in vintages prior to mid-1997, because I knew later credit quality was horrid. I also stuck mainly to AA-quality mezzanine bonds. All of those bonds are still “money good” today, but when the market fell apart due to the horrid 1998 and after vintages, the bonds with relatively good underwriting got taken to the cleaners as well. Money good bonds trading in the 60s? It can happen.

Markets are discounting mechanisms; with asset-backed securities, if the projected losses make it virtually certain that a tranche of a securitization will lose principal, the tranche will quote like the losses have already happened. It doesn’t matter that the losses won’t allocated for a few years; the tranche will trade at the discounted value of reduced future payments, at a high discount rate, if it trades at all.

The issues with the Bear Stearns funds are future credit issues, which produce present liquidity issues. It gets noticed there first because of the concentration of the risk in the fund, and the leverage employed. This is similar to what happened in 1994, when the prime mortgage market blew up over extension risk. There was no contagion there; many in the bond market absorbed losses from rising rates, but only a few notable players that took on the negative convexity risks in a big way got killed.

Derivatives are funny, or maybe I should say, people using derivatives are funny. Alan Greenspan thought that derivatives spread out the risk, making the system more stable. Nothing could be further from the truth, at least in terms of spreading out the risk. With derivatives, some market players, out of greed, concentrate the risk because they are trying to make a killing. When the negative part of the credit cycle hits, the speculators get destroyed. Contagion happens when the lenders to the speculators face major losses also. In 1998, that was the worry over LTCM.

With derivatives, speculators absorb the losses that previously might have been borne by the banking system. (Now, those speculators could be DB pension plans, endowments, or wealthy individuals, working through hedge funds.) If the banks overlend to these speculators, they can bear risk as well.

My view is that there are a small number of greedy players that hold most of the credit risk from subprime mortgages, and that their ultimate owners have enough capacity to bear losses that there is no significant contagion risk to the debt and equity markets, even if some players are wiped out, and the banks take modest losses.

That said, I would wait awhile to buy any subprime mortgage ABS, even at the AAA level. The market is dislocated, and has not fully realized the true level of losses that will be taken. The same goes for Alt-A loans, and make that a double!

In summary, this will not be a “piece of cake,” but the losses will be concentrated among a small set of investors. As for the CLO market, it will have its troubles, but not yet. Prudent investors will avoid it, but there may be some rallies there in the short run, away from subprime and Alt-A.

http://usmarket.seekingalpha.com/
article/39863; July 03, 2007 6:01 AM
Anonymous said...: Vladimir is now learning quickly

It took him a few years, but Vladimir Putin seems to have finally figured out how the world economy really works and he clearly doesn't like what he has learned.

The Russian President also looks determined to change things up at least a little bit, a task that is much easier to accomplish when you're sitting on a huge chunk of the world's natural resources - energy and other raw materials that much of the rest of the world wants badly and for which they are willing to pay high prices.

It seems that one of the big problems is that Russia's customers pay in U.S. dollars, which, here in 2007, nearly twenty years after the fall of the Berlin Wall, must be a bit irritating.

The International Herald Tribune reports that while the fate of a $17 billion oil and natural gas field of energy giant BP hangs in the balance, the Russian President seeks to assure the Western world that he remains committed to free trade.

Free trade, apparently, on his terms.

Speaking at a business forum here Sunday, Putin called for a new world economic framework based on regional alliances rather than global institutions like the International Monetary Fund.

The new system, he said, would reflect the rising power of emerging market economies like Russia, China, India and Brazil, and the decline of the old heavyweights of the United States, Japan and many European countries.

The developed countries, Putin said, were dominating the institutions of world trade in an "inflexible" manner, even as their own share of the global wealth is diminishing. He said the world needed a "new architecture of international economic relations based on trust and mutually beneficial integration."

Putin said 60 percent of the world's Gross Domestic Product was now produced outside of the Group of 7 countries - the United States, France, Germany, Britain, Italy, Japan and Canada.

That sounds a lot like the "Old Europe" talk we all heard a few years back from former Defense Secretary Donald Rumsfeld just before embarking on the Iraq adventure.

In this case, the swipe will not likely prove to be misguided.

Wasting little time in demonstrating just how much he has learned about how things really work, Putin got right to the heart of the matter - the money. More specifically, the Russian President now questions why everyone has to use U.S. Dollars for international payments and play by the rules of the IMF and WTO.

Not coincidentally, over the past few years the Russian central bank has been furiously building up its gold reserves, buying more than half of Russian mine production in the process.

http://themessthatgreenspanmade.
blogspot.com/2007/06/
vladmir-is-now-learning-quickly.
html; July 03, 2007 6:30 AM
Anonymous said...: Nishimura: BOJ shouldn't wait long to raise rates

The Bank of Japan should not wait too long to raise interest rates, with the nation's economic conditions favourable and prices clearly showing an upward trend, central bank board member Kiyohiko Nishimura said.

But he said the adjustment of monetary policy cannot be prescheduled or come at some fixed interval, sticking to the BOJ's official line that it will adjust rates gradually in line with improvements in the economy and prices.

"To stand pat (on policy) for a long period of time is not a prudent strategy" since accelerated economic activity could cause sharp economic swings ahead and require large policy adjustments, Nishimura said in a speech at a seminar in Washington on Monday.

But the timing of policy adjustment should be in line with Japan's general economic improvement, which does not follow a fixed schedule, he said.

Nishimura also pointed to the sizeable impact that Japanese retail investors have on the foreign exchange market, with the stable outflow of their funds partly offsetting speculative trades and pushing down volatility in dollar-yen moves.

The seminar was closed to the media, but the BOJ made copies of the speech available in Tokyo on Tuesday.

The remarks did not move financial markets much as they did little to alter the dominant market view that the BOJ will raise rates as early as August.

But some market traders took then as a warning shot against betting too much on the chance of an August rate rise.

"In financial markets, there are some views that the next rate hike will take place in August because it will be six months since the previous hike in February," said Susumu Kato, chief economist at Calyon.

"I think Nishimura's comment that there is not preset schedule for future policy moves was a warning on that view." The BOJ has kept monetary policy on hold since raising its key policy rate to a decade-high 0.5 percent in February, which was the first rate rise since July last year.

Swap contracts on the overnight call rate showed markets see a 74 percent chance of a rate hike in August and just a 12.5 percent probability at next week's policy meeting.

http://asia.news.yahoo.com/
070703/3/3491o.html; July 03, 2007 6:40 AM
Anonymous said...: Is Paulson the New Lereah?

From Reuters: Paulson: Housing 'at or near bottom'

Treasury Secretary Henry Paulson said Monday the U.S. housing market correction was "at or near the bottom," although it could be some time before an upturn.

"In terms of looking at housing, most of us believe that it's at or near the bottom," he told Reuters. "It's had a significant impact on the economy. No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it's at or near the bottom."

Perhaps Paulson missed the BofA Monthly Real Estate Agent Survey released on Friday. The analysts wrote:

"Another leg down in June as traffic and prices worsen further."

Or maybe Paulson missed the incredible surge in inventory in the recent housing reports.

Maybe Paulson should spend a few minutes looking as this graph. This graph shows Total Inventory (new and existing homes) vs. housing starts.

http://bp0.blogger.com/
_pMscxxELHEg/Rol4phgnIuI/
AAAAAAAAAqI/9HUwIT3hAek/
s1600-h/Starts+Inventory.jpg

Existing homes are a competing product for new homes, and the record inventory of total homes for sale will continue to negatively impact home-building activity. Until inventory drops significantly, starts will most likely continue to fall. And, with tighter lending standards, demand will probably continue to fall too. Instead of calling the bottom for home-building activity, perhaps Paulson should be looking for the next decline in housing starts.

Or maybe Paulson is just repeating the same comments he made in April:

"All the signs I look at" show "the housing market is at or near the bottom," Paulson said.

The more he repeats the same positive comments, the more he sounds like NAR economist David Lereah.

http://calculatedrisk.blogspot.com/
2007/07/is-paulson-new-lereah.html; July 03, 2007 6:44 AM
Anonymous said...: United Capital's Devaney Halts Redemptions on Funds

United Capital Markets Holdings Inc., a brokerage run by John Devaney, halted redemptions on some of its hedge funds that invest in subprime-mortgage bonds.

The funds are within the company's Horizon Strategy group, including the Horizon ABS Fund LP, said Michael Gregory, a spokesman for the Key Biscayne, Florida-based firm.

``We did that as a defensive move because we had an unusually high number of redemption requests and we didn't want to be a forced seller in this market,'' Gregory said in a telephone interview. One of the redemption requests was from an investor who had put up about 25 percent of the funds' money.

The decision by Devaney, 37, follows the collapse of two hedge funds run by Bear Stearns Cos., which also lost money amid a plunge in bonds backed by subprime mortgages. As the Bear Stearns funds faltered, prices of the securities tumbled on concern the bonds would be dumped on the market at fire sale prices. Owners of similar securities may face $90 billion in losses, Deutsche Bank AG analysts predicted June 29.

``People are very nervous about how deep the revaluations of these securities will have to go,'' said Virginia Parker, who helps advise about $1.8 billion in client money at Parker Global Strategies LLC in Stamford, Connecticut. ``These positions didn't get marked down until June. Nobody's hand was forced in the market until then.''

Caliber, Queen's Walk

Caliber Global Investment Ltd., a $908 million London-listed fund managed by Cambridge Place Investment Management LLP, said June 28 that it would shut down within a year following subprime losses. Queen's Walk Investments Ltd., a fund investing in the riskiest portions bonds backed by mortgages, reported a $91 million loss from its investments in the year ended March 31.

UBS AG, the world's biggest asset manager, shut down its New York-based Dillon Read Capital Management LLC hedge fund unit in May in part because of losses attributed to U.S. mortgage investments.

The firm, which Devaney founded in 1999, had $619 million in assets under management as of March, according to a filing with the U.S. Securities and Exchange Commission. United Capital began as a broker-dealer specializing in low-rated and distressed asset-backed securities, collateralized debt obligations and collateralized mortgage obligations, according to its Web site.

It has since branched out into real estate and money managing, with a similar focus.

`Arbitrage Players'

Devaney prides himself on finding a bargain.

After the 9/11 terrorist attacks, United Capital ``stood there waiting to make a bid'' on bonds created by bundling together aircraft leases, as insurers and other investors dumped them, Devaney said in an interview in November 2006.

In times of market stress, ``we figure out a bond is worth 80, and we go in and buy it for, say, 60,'' he said at the time. ``We're arbitrage players.''

Fixed-income arbitrage managers try to exploit price differences between fixed-income securities.

The Horizon ABS Fund's offshore version gained 0.27 percent this year through May 31, according to Bloomberg data. That compared with a 6.8 percent average gain by hedge funds globally and 3.2 percent by fixed-income arbitrage managers, according to Chicago-based Hedge Fund Research Inc.

The Horizon ABS offshore fund lost 5 percent from March 31 through the end of May. The fund gained almost 40 percent last year.

Delinquencies Rise

Assets managed by hedge funds globally have more than doubled over the past five years to almost $1.6 trillion as of the first quarter of 2007, according to Chicago-based Hedge Fund Research Inc. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested.

While prices of mortgage-backed securities were declining earlier this year, many funds probably weren't recording those drops until the Bear Stearns funds collapsed, Parker said.

``Based on what we were hearing about the lack of liquidity and absence of bidders in the market, it's hard to fathom that these securities weren't worth less back in March, April and May,'' Parker said. ``These positions didn't get marked down until June. Nobody's hand was forced in the market until then.''

About 12 percent of subprime mortgages packaged into bonds were delinquent by at least 90 days, in foreclosure or already turned into seized property, according to a report today by Friedman Billings Ramsey Co. in Arlington, Virginia. That's up from 5.37 in May 2005, and the highest since August 1997. Subprime home loans are given to borrowers with poor or limited credit histories or high debt burdens.

`News Likely'

``There is likely to be news around quarter end of more hedge funds that need to recognize large losses, possibly forcing liquidation of the funds,'' Deutsche Bank analysts led by Mustafa Chowdhury wrote in the June 29 report. Chowdhury said total losses probably will range from $70 billion to $90 billion.

Bear Stearns agreed to a $1.6 billion bailout of one of its money-losing hedge fund and is liquidating a second fund after they made bad bets on securities including collateralized debt obligations, many of which were backed by subprime bonds.

After the funds reported losses, investors demanded their money back, forcing the funds to halt redemptions. Bear Stearns stepped in when lenders began seizing assets.

http://www.bloomberg.com/apps/
news?pid=20601087&sid=a3McD.
nQwvR8; July 03, 2007 6:48 AM
Anonymous said...: Wall Street, banks must take blame for hedge fund mess

Some on Wall Street want to blame the little guy for the latest hedge fund mess. People with shoddy credit histories couldn't pay their mortgages, so that pushed some funds to the brink of collapse and sent shock waves through financial markets.

Talk about a cop-out. Looking at things that way conveniently shifts blame away from the Wall Street firms and banks that had a hand in many aspects of the subprime mortgage mess, but aren't taking responsibility for their role in creating it.

Not only did the banks and firms encourage lending to borrowers with shaky credit so they would have lots of loans they could package and sell, but Wall Street's money men then started hedge funds that used borrowed funds to leverage their bets on the mortgage markets many times over.

When things were going good, they made out big. Ever since the rise in subprime mortgage defaults, things haven't been going so well.

Bear Stearns Cos. Inc. is the most glaring example. The investment firm decided to build on its expertise in the subprime mortgage securitization business by creating funds tied to that corner of the lending market.

The rosy picture began to erode this year as home-loan borrowers began defaulting at an unexpectedly fast pace amid higher interest rates and a slowing housing market. That knocked down the value of the assets underlying those bonds.

Investors, seeing that situation unravel, started cashing out, until Bear Stearns froze all redemptions starting in May - signaling to the market that there was trouble. Its lenders - which included many of its investment banking rivals - began to demand more collateral.

Bear Stearns found itself in a tough spot as the funds neared collapse. Not only was its reputation on the line, but fears grew that lenders would force a fire sale of those assets at low-ball prices. If that happened, the effect could have been widespread since it would have triggered a revaluation at much lower prices of assets underlying all such securities in the market.

Once its Wall Street peers declined to help rescue the funds last week, Bear Stearns had to act to avoid market mayhem. On Friday, it announced it would bail out one of the funds with up to $3.2 billion in secured loans.

This crisis may look as though it has been averted for now, but there is still reason to worry. For one, the newer Bear fund is still in trouble. Bear Stearns also certainly wasn't alone in making such bets on the mortgage market; it's just the only one that publicly melted down so far.

It also shouldn't be forgotten that many of these firms are unusually linked, a point not lost on investment strategist Ed Yardeni.

Given the already apparent fallout in the subprime mortgage market, lending standards have shot up and the market for such investments has deteriorated. But that won't erase what's already out there, which is ugly and could get worse.

http://www.dailybulletin.com/
business/ci_6277757; July 03, 2007 7:03 AM
Anonymous said...: June 2007 home sales for Colorado Springs are just in and they are down 17.5% yoy for existing and new homes combined. Inventory up 25% yoy and 55% since 2005. I feel so lucky to live in a town that is this screwed; July 03, 2007 7:04 AM
Anonymous said...: "Anonymous said...
Hello HP community. I have been reading this blog for about a year now. We have been renting and packing away money for a home for a few years.

Recently my wife (just married) and I have been going around and looking at houses in the Denver area. We do know the market is bad, and is likely to adjust downward. Denver didn't have the huge speculative run up, but we do have a problem with mortgage fraud and appraisals to "hit the number".

We have no debt, live well within our means, and have the following criteria for a home purchase:"

Congratulations on being cash flow positive w/ no debt! Unfortunately, many other folks here are not in the same boat. And in worse shape is the massive private equity bubble (Google up those terms and read up for your own knowledge). After a speculative fervor which saw 0 down, no doc mortgages get financed thanks to the Wall St. CDO machine, the bond market is likely to seize up and force a return to the days where would be buyers have to put 20% down in order to get the mortgage funded. This will be a brutal change, akin to taking away the smack from the heroin addict.

Time is on your side as a buyer. Just make sure your money is diversified and in safe locales. Keith has posted an article about a hedge fund refusing redemptions; this can happen in other places as well. Remember the run on the banks from the 1930s and FDR declaring a "bank holiday" to stop the hemorraging? I would rent now and be thankful you haven't put your roots down just yet.; July 03, 2007 11:05 AM
Anonymous said...: westwest888 said...

http://tinyurl.com/2t7ltz

Capital One has made a profitable business out of easy lending to consumers most banks didn't want through credit cards then auto loans and mortgages. Remember when you were 17 and Capital One would give you a $1500 credit limit? Well now they're feeling pain. I'd bet people are having trouble paying.

July 02, 2007 2:40 PM

===================================

Wasn't just Capital One. My first week of college there must have been 15 booths around campus with credit card offers. Visa, MC, Capital One, Amex, Discover, you name it.

Like a kid in a candy store I signed up. Ran up about $5000 on them. Luckily moms and pops bailed me out and then did it again a year later. My sister too, she racked up about $10K worth of clothes her first semester on credit cards. Moms and pops bailed her out too.

And that is what they count on. 18 year olds will be irresponsible, but most will get bailed out by the parents. At the end of the day lending to teenagers is a profitable venture.

Before posting some snide comment, yet my parents have money and I was a spoiled rich kid, sue me.; July 03, 2007 12:29 PM
Anonymous said...: From MSN.com today:
--------------------------

Repossession agents in areas hit by foreclosures say they've been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents.

"It is actually stunning the number of cars we're taking from people who are supporting the local real-estate market," said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. "It's almost the type of thing where we see it and you wonder if anyone else sees it. . . . It's like they turned off the spigot."

Hmmmmmm, hard for even someone in denial to rebut that.; July 03, 2007 3:13 PM
Roccman said...: "Before posting some snide comment, yet my parents have money and I was a spoiled rich kid, sue me. "

Won't need to sue you...you will starve to death like the other 90% of the human species.; July 03, 2007 4:02 PM
Anonymous said...: The meltdown is accelerating in Spain: http://tinyurl.com/2bba7y; July 03, 2007 5:02 PM
Roccman said...: http://www.pbs.org/moyers/journal/06292007/transcript3.html

Bill Moyers interview about--US economic crash:

"So the woes on Main Street reach back to Wall Street and vice versa. That's behind the fear of a financial meltdown. Gretchen Morgenson covers the financial world for the New York Times. A former stockbroker, she's now a columnist and assistant business and financial editor at the Times. She won the Pulitzer Prize in 2002 for her trenchant and incisive coverage of Wall Street. Welcome to The Journal"; July 03, 2007 5:54 PM
Anonymous said...: ARTILCLE ON MSN MONEY TODAY

Repossession agents in areas hit by foreclosures say they've been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents. "It is actually stunning the number of cars we're taking from people who are supporting the local real-estate market," said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. "It's almost the type of thing where we see it and you wonder if anyone else sees it. . . . It's like they turned off the spigot."; July 03, 2007 6:58 PM
Anonymous said...: From ITulip.com:

Fire Sale: 1st Meeting

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

In the spirit of our original USA Bankruptcy Filing posted on iTulip.com in 2001, and the faux iTulip interview with Alan Greenspan (google: "greenspan interview") from 1999, the following is the transcript of the first meeting in 2010 between a fictitious character Henry Cheng who represents U.S. creditors, and Hank Anderson, seller of U.S. assets.

Cheng: We have $1.2 trillion. What do you have for sale?
Anderson: Our first item is a portfolio of ABS CDOs.

Cheng: ABS is asset-backed security. What's "CDO"?
Anderson: CDO stands for collateralized debt obligation and in this case it means packages of debt based on parts of asset-backed securities which were previously low rated but which, because of the way they are packaged, have high ratings as CDOs.

Cheng: Why is a package of parts of things worth nothing worth more than nothing?
Anderson: Well, it's complicated but it has to do with the models of the risk of default under various conditions...

Cheng: We will give you one dollar.
Anderson: Mr. Cheng, I haven't told you what we are asking, yet. This collection of CDO portfolios originally sold for $140 billion...

Cheng: Ok, we'll give you two dollars.
Anderson: How can they be worth two dollars if they were once worth $140 billion?

Cheng: If you have a better offer, take it.
Anderson: Um, let's move onto our next asset. This is a big opportunity. We have $460 billion in asset backed securities and bonds on defaulted sub-prime mortgages. These were owned by hedge funds and investment banks, then purchased by the Federal Reserve following the passage of the 2009 Emergency Asset Classification Act.

Cheng: What is "sub-prime"?
Anderson: Sub-prime is a loan a lender offers to borrowers who have higher default risk than a prime borrowers.

Cheng: Why?
Anderson: Why is the default risk higher? Because the borrower is less creditworthy than a prime borrower.

Cheng: No, why lend money to borrowers when you know they cannot pay back?
Anderson: Well, statistically, many can pay back, enough for the loans to make money, usually, and in terms of policy, we want poor families to own homes and build wealth.

Cheng: Ridiculous. A poor family needs income and equity, not credit and debt. "Usual" is never usual for long. What else do you have?
Anderson: We have $560 billion in bonds on defaulted adjustable rate mortgages. These were "A" rated, prime.

Cheng: But not now, right? So not rate correctly. How are they rated now?
Anderson: Ratings vary but mostly this portfolio is rated "B" or less.

Cheng: Junk.
Anderson: Well, technically, yes...

Cheng: Not buying that, sand in a desert.
Anderson: Let's move on. We see you are looking for high quality items. We have Treasury and agency bonds...

Cheng: You joke! We sell US Treasury bonds, buy for our economic needs. What else is for sale?
Anderson: We have $490 billion in distressed bonds from corporations that were financed by private equity firms in 2006 and 2007.

Cheng: Interesting. We buy energy, manufacturing, resources. We like oil, coal, gas, metals. Fifty cents on the dollar! Very good price!
Anderson: Uh, those are not for sale. As I am sure you know, laws passed by Congress in 2008 prohibit foreign ownership of US companies in strategic industries. All of the industries you name are strategic. Sorry.

Cheng: Pharmaceutical. Biotech. Technology, networking, comms, wireless?
Anderson: Those are strategic.

Cheng: We buy stem cell R&D companies. Your laws prohibit. Ours do not. Good?
Anderson: Right, so we have not developed that technology. Sorry, none for sale.

Cheng: It's ok. You will buy new medicines from us later. Anything else?
Anderson: This is what we came prepared to offer today.

Cheng: Ok, we wait, come back later and buy "strategic" industries... ten cents on dollar. Goodbye.; July 03, 2007 8:49 PM
Anonymous said...: Can anyone explain to me the reason that Manhattan real estate prices keep escalating? I understand that Wall St. handed out bonuses this year, but not everyone works on Wall St.; July 03, 2007 9:32 PM
Anonymous said...: Can anyone explain to me the reason that Manhattan real estate prices keep escalating? I understand that Wall St. handed out bonuses this year, but not everyone works on Wall St.
_____________________________

Manhattan is a GLOBAL destination. Rich people from all over the world want to own property there, so there is current demand for the real estate. That said, keep in mind that this set of circumstances may not last if we have a global meltdown of the credit market....; July 03, 2007 11:30 PM
Anonymous said...: Hey there tinfoil hat gang,

Happy 4th to you all. May your day spent in the basement 1 bedroom apartment be fun. I'll be at the lake myself on my boat. On the way I'm looking at a '72 Camaro listed on ebay as well. You know how it is with the great depression and all, there will be no traffic since everyone is too poor to drive.

Idiots; July 03, 2007 11:47 PM
Anonymous said...: Anonymous said...
Can anyone explain to me the reason that Manhattan real estate prices keep escalating? I understand that Wall St. handed out bonuses this year, but not everyone works on Wall St.

July 03, 2007 8:32 PM

Simple. Unlike the lunatic fringe on HP, the other 99.9% of the population knows r/e is a good investment. But you all go ahead and keep aying $4000 rent for a 1 bedroom shithole.; July 03, 2007 11:50 PM
Anonymous said...: Knock knock
Who's there?
Real
Real Who?
Real tore
Real tore Who?
Real tore up about the housing market.

hahahaha; July 03, 2007 11:50 PM
Anonymous said...: Gov. Janet Napolitano today signed sweeping legislation against employers of undocumented workers, and asked for cooperation from legislative leaders to call a special session to address what she called critical flaws in the bill.

With the governor's approval of House Bill 2779, Arizona takes the lead among states in dealing with the underground market in illegal labor. Napolitano termed the bill “the most aggressive action in the country.”

Hold your horses there Janet. Georgia has the same law which took effect July 1st and was actually signed by the governor long ago. Yet the governor here isn't calling for any special sessions to address issues. It will be enforced as is. What crucial flaws is she talking about? The fact it might actually force employers to NOT hire illegals? Hmm yeah I suppose for a liberal Democract that is a crucial flaw of the bill.

And Georgia has also gone a step further in fighting illegals. As of July 1 in order to get licence plates, you need a GA licence. This was done with the intent on stopping illegals from getting plates without a licence. It's a common sense law but man was it ever opposed by the usual suspects (NAACP, LA Raza, etc) on the grounds that it was, you guessed it, racist. Imagine that, requiring someone to have a licence in order to get licence plates, racism knows no bounds!!

Both bills in GA by the way passed along almost party lines, with Democrats opposing both bills and Republicans supporting both bills. The Republican governor signed both bills without hesitation.

Both AZ Senators (Kyl and McCain) voted for amnesty. Both GA Senators (Chambliss and Isakson) voted against amnesty.

So please don't give me this bullshit about AZ taking the lead against illegals, it's all smoke and mirrors. AZ is quickly turning into California East and will be the basketcase California is in no time.; July 04, 2007 12:00 AM
BrianM said...: Google Maps Mashup of Minneapolis foreclosures

http://preview.tinyurl.com/yutq8c; July 04, 2007 2:18 AM
Anonymous said...: 1 ounce of gold will buy a house soon.; July 04, 2007 9:05 AM
Anonymous said...: only an idiot would buy a house now!!!!!!!!!!!; July 04, 2007 9:10 AM
Anonymous said...: Debt buries mortgage lender
By Elizabeth Rhodes

Seattle Times business reporter

In April, as he shut down the 300-employee mortgage business he'd built from scratch, Layne Sapp said he hoped to find a buyer who would resuscitate MILA.

Instead, the Mountlake Terrace firm Monday asked the federal bankruptcy court to protect it from its creditors, joining scores of other lenders felled by the subprime-mortgage implosion.

The Chapter 11 bankruptcy petition listed less than $8 million in assets and $174.7 million in liabilities. The company said it has more than 200 creditors and $98.7 million in secured debt.

Some $76 million in unsecured debt was claimed by some of the nation's biggest lenders. Among them are Bear Stearns, with a $21 million claim; GMAC/RFC, $10.5 million; and Goldman Sachs Mortgage, $6.8 million.

Others with multimillion-dollar claims include Wachovia Mortgage, Deutsche Bank, Countrywide Home Loans and Indymac Bank.

All have asked Mortgage Investment Lending Associates (MILA) to buy back mortgages that presumably did not meet their standards.

Sapp founded the firm in 1984, eventually operating in 26 states. In 2005, it funded at least $4.5 billion in mortgages, according to The (Everett) Herald, which placed it among top 30 U.S. subprime lenders.

Subprime loans are aimed at borrowers with impaired financial histories. Their high interest rates make them lucrative for lenders.

Rather than writing loans itself, MILA matched funds from big lenders with the subprime clients of mortgage brokers. Its proprietary online loan-management system was designed to tell in minutes if those clients were good loan risks.

Lenders are saying they were not.

Sapp, 44, was not available for comment Monday. His attorney, James Day of the Seattle firm of Bush Strout & Kornfeld, did not return phone calls.; July 04, 2007 11:01 AM
Anonymous said...: Is it a bit hypocritical to accept advertising from "consolidate your credit cards" and "get a great mortgage"?

Since your blog appears antithetical to these ads, maybe pick someone else to advertise if you have control over that...

BTW, I love your blog. I just get enough mortgage and credit ads in just about every other form during the day.; July 04, 2007 5:57 PM
blogger said...: FYI google picks what ads appear. I do think it's funny if mortgage ads show up on a housing bubble site. Hopefully you cost them some money; July 04, 2007 6:15 PM
Anonymous said...: Brokers' wrong bets cost South Florida seniors millions

By Ian Katz
South Florida Sun-Sentinel

July 4, 2007

Dozens of South Florida senior citizens have lost millions of dollars of their savings because their brokers bet wrong on risky mortgage-backed securities after promising them a stable investment.

Coral Springs lawyer Darren Blum said Tuesday that his firm, Blum & Silver, is representing about 25 investors who had invested $20 million with Brookstreet Securities, a California firm that has brokers in at least a half-dozen South Florida offices. Many investors are planning legal action to recover their losses, and for damages and attorney's fees.

The Securities and Exchange Commission and brokerage regulator NASD are reviewing Brookstreet's financial records and the firm has started shutting down its operations.

"We've had people in their 80s in here in tears," Blum said. "These people are devastated."

The seniors invested in securities called collateralized mortgage obligations, or CMOs. Some independent brokers working in Brookstreet offices pitched the CMOs to wealthy seniors at dinner seminars and condominium meetings.

"They presented these as very safe, like a bond, paying 7 to 8 percent," Blum said. The CMOs the brokers invested in, however, were complex and highly speculative, he said. Investors also received inaccurate brokerage statements that overstated how much they had in their accounts, Blum said.

Brookstreet executives could not be reached for comment Tuesday. Brookstreet's CEO and Chairman Stanley Brooks said last week that he had fired 80 employees at the firm's Irvine, Calif., headquarters and left about 15 people to wind down operations.

Brookstreet has said the money was lost in part because of too much securities trading on margin, or borrowed money. The value of the CMOs declined, Brookstreet said, as the so-called subprime mortgage market worsened. The firm that administers Brookstreet's accounts, National Financial Services, then demanded to be paid for the investments bought on margin.

The margin losses mean that investors not only lost their funds, but could owe money that was borrowed to trade in their accounts. Blum said he talked with one client Tuesday who has about $12 million in margin losses.

One of Blum's youngest clients is Gail Fisher of Boca Raton. After her husband died in 2001, Fisher, 54, was looking for a safe investment that would give her steady income to help pay for expenses, including college education for two children.

Several months later, she heard a Brookstreet broker based in Coral Springs give a seminar at the Boca Raton condo development where her 87-year-old father lives. She was told that the investment was a mix of CMOs and mutual funds designed to work like a seesaw.

"Basically if one goes down the other would go up, so it was supposed to be very safe," Fisher said.

Fisher initially invested $410,000, then $50,000 and later $60,000. Her father invested $50,000. She was receiving monthly income of about $4,000. Fisher now thinks that money was being paid out of her principal and that the vast majority of her investment is gone.

She said she received brokerage statements that, while somewhat confusing, indicated that her investment was safe. Last year, Fisher's accountant told her he was troubled by the statements and urged her to have another financial specialist study them. That specialist "took one look and said, 'You have to see a lawyer,'" Fisher said, sobbing as she spoke. "He couldn't believe what [investments] they had me in."

The SEC does not confirm or deny whether it is investigating a firm, and the NASD declined to comment. Blum said he was aware the SEC was looking into Brookstreet and had offered to make his clients available to talk with SEC investigators.

Blum and partner Scott Silver have filed four NASD arbitration cases against Brookstreet and individual brokers, and plan to file 25 more in the next month. They said they have received at least 50 phone calls from Brookstreet clients, most of them in South Florida.

A spokesman for Fidelity Investments, the parent company of National Financial, said Brookstreet customers can make withdrawals from their accounts as long as the securities in those accounts have been paid for.; July 04, 2007 6:39 PM
Anonymous said...: people on this thread dont celibrate the 4th of July. Bunch of conspiracy 'blame the US'....lets all live abroad in someones 600 sq. ft. dump....Ron Paul has a shot, idiots.

They are too busy keeping eyes open for 'tha Man', and black sedans parked outside.

BUY CAN FOODS AND SHOT GUNS! THE CATASTROPHY THAT WAS PREDICTED HERE 4 YEARS AGO IS VERY NEAR NOW! BUY GOLD.

Sad bunch of has-beens.; July 04, 2007 9:32 PM
Roccman said...: Another hedge fund on skid row...

http://tinyurl.com/2pqneg; July 04, 2007 10:11 PM
Anonymous said...: Deep do-do for former real estate hot-shot David Crisp in Bakersfield, CA.

http://wcvarones.blogspot.com/2007/07/apparent-massive-bakersfield-mortgage.html; July 04, 2007 11:03 PM
Anonymous said...: Anon 8:32,

Nah they celebrate the 4th. Most of them are 16 year olds. They celebrate with mom and dad.; July 04, 2007 11:11 PM
Anonymous said...: SCHADENFREUDE!!!!!!!!!!!!!!

How many of you glossed over the long article the anonymi posted on brokers wrong bet costs Florida seniors? HOLY SHIT WHAT AN EYEOPENER. Makes me want to take the trolls and shove there head in the toilet and flush it.

READ IT!!!:

Brookstreet has said the money was lost in part because of too much securities trading on margin, or borrowed money. The value of the CMOs declined, Brookstreet said, as the so-called subprime mortgage market worsened. The firm that administers Brookstreet's accounts, National Financial Services, then demanded to be paid for the investments bought on margin.

The margin losses mean that investors not only lost their funds, but could owe money that was borrowed to trade in their accounts. Blum said he talked with one client Tuesday who has about $12 million in margin losses.

Will this be the only brokerage to shaft there clients? Doubtful.

The Big Puzzle is coming together folks.; July 05, 2007 12:00 AM
Anonymous said...: Keith I recommend a threadline allowing people to predict when the contagion will spread to the equity markets.

The stress cracks in the dam are multiplying exponentially.

I don't see how this can go on much longer.

Something major HAS TO POP before Christmas. This Christmas is going to have Scrooge all over it.; July 05, 2007 1:28 AM
Anonymous said...: I drove across the Country to AZ from NYC and saw enough open real estate in OK, MO, TX, NM, to house the free world so lets get building and lending here. Mesa to NYC 2462 miles; July 05, 2007 2:05 AM
Anonymous said...: Anonymous said...
people on this thread dont celibrate the 4th of July. Bunch of conspiracy 'blame the US'....lets all live abroad in someones 600 sq. ft. dump....Ron Paul has a shot, idiots.

They are too busy keeping eyes open for 'tha Man', and black sedans parked outside.

BUY CAN FOODS AND SHOT GUNS! THE CATASTROPHY THAT WAS PREDICTED HERE 4 YEARS AGO IS VERY NEAR NOW! BUY GOLD.

Sad bunch of has-beens.

July 04, 2007 8:32 PM

===================================

has-beens? I thik you mean never weres. The posters here are your high school losers, your loners, the 34 year old virgins, etc.

At least they have a hobby and aren't out shooting people Columbine style.; July 05, 2007 1:06 PM
Anonymous said...: GWK said...
I drove across the Country to AZ from NYC and saw enough open real estate in OK, MO, TX, NM, to house the free world so lets get building and lending here. Mesa to NYC 2462 miles

July 05, 2007 1:05 AM

==================================
With the Democrats in power and pusing for open borders, soon enough we will house the world in that space.; July 05, 2007 1:15 PM
Anonymous said...: Doesn't sound like a recession to me.

NEW YORK (CNNMoney.com) -- Most employers plan to hire applicants than fire employees, according a survey released Monday that suggests slower hiring but continued strength in the job market, USA Today reported.

More than a third of the managers said they would hire more employees, which was lower than the 41 percent polled in a previous survey, but only 5 percent said they would fire workers this quarter, according to an online survey conducted by USA Today and CareerBuilder.com.

Of the hiring managers polled, 52 percent said they expect the number of full-time workers to remain unchanged from July through September, and nearly half said they would increase pay, the paper reported.; July 05, 2007 2:11 PM
Anonymous said...: "Guy Daley said...
SCHADENFREUDE!!!!!!!!!!!!!!

How many of you glossed over the long article the anonymi posted on brokers wrong bet costs Florida seniors? HOLY SHIT WHAT AN EYEOPENER. Makes me want to take the trolls and shove there head in the toilet and flush it."

Thank you, that was mine. Might I also recommend the Businessweek article "Mutually Assured Mayhem"? I posted that one a few days ago and not one comment. It's a look at Bear Stearns recent trouble and attempt to sell some of their CDOs.; July 05, 2007 2:26 PM
Roccman said...: http://tinyurl.com/37uxyy

The Bank for International Settlements issued a warning this week that the Federal Reserve’s monetary policies have created an enormous equity bubble which could lead to another “Great Depression”. The UK Telegraph says that, “The BIS--the ultimate bank of central bankers--pointed to a confluence of worrying signs", citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.

The IMF and the UN have issued similar warnings, but they've all been shrugged off by the Bush administration. Neither Bush nor the Federal Reserve is interested in “course correction”. They plan to stick with the same harebrained policies until the end.

The “easy credit” which created the subprime crisis in mortgage lending has now spread to the hedge fund industry. The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is “contained” is pure baloney. The contagion is swiftly moving through the entire system taking down home owners, mortgage lenders, banks, rating agencies, and hedge funds. We are just at the beginning of a system-wide breakdown.; July 05, 2007 2:38 PM
Anonymous said...: Here's an excellent article about inflation and why the fed won't recognize how bad it has gotten:

http://tinyurl.com/2sfpbp; July 05, 2007 4:19 PM
Anonymous said...: Another puzzle piece, of course this one looks much like a lot of the other puzzle pieces:

Bassett Furniture swings to a second-quarter loss

By Gabriel Madway

Thursday it swung to a second-quarter net loss of $2.42 million, or 20 cents a share, from a year-ago net profit of $2.83 million, or 24 cents a share. The Bassett, Va.-based furniture maker said revenue in the 13 weeks ended May 26 fell to $75.4 million from $87.7 million in the comparable period last year. The company expects to open three to four new stores in the second half of the year. Bassett shares fell 2.5% to $13.33 in Thursday morning trade.; July 05, 2007 4:30 PM
Anonymous said...: has-beens? I thik you mean never weres. The posters here are your high school losers, your loners, the 34 year old virgins, etc.

============================================

At least we don't write messages to ourselves, troll.; July 05, 2007 5:36 PM
Anonymous said...: Thursday, June 19, 2008

What happened to the rest of 2007???

Did I van winkle?; July 05, 2007 6:06 PM
Anonymous said...: Wow! This is ingenious! You can keep up prices if you don't allow redemptions or people to sell! How long before seniors start going loco?

The Redemption Trap & Merrill Lynch Cover-Up The UK Telegraph is writing about a the near collapse at Bear Stearns and the subsequent cover-up by Merrill Lynch.

When creditors led by Merrill Lynch forced a fire-sale of assets, they inadvertently revealed that up to $2 trillion of debt linked to the crumbling US sub-prime and "Alt A" property market was falsely priced on books.

Even A-rated securities fetched just 85pc of face value. B-grades fell off a cliff. The banks halted the sale before "price discovery" set off a wider chain-reaction. "It was a cover-up," says Charles Dumas, global strategist at Lombard Street Research. He believes the banks alone have $750bn in exposure. They may have to call in loans.

Not even the Bank for International Settlements (BIS) has a handle on the "opaque" instruments taking over world finance. "Who now holds these risks, and can they manage them adequately? The honest answer is that we do not know," it said.

Wobbles are turning to fear. Just $3bn of the $20bn junk bonds planned for issue last week were actually sold. Lenders are refusing "covenant-lite" deals for leveraged buy-outs, especially those with "toggles" that allow debtors to pay bills with fresh bonds. Carlyle, Arcelor, MISC, and US Food Services are all shelving plans to raise money. This is how a credit crunch starts.

"This is the big one: all investment portfolios will be shredded to ribbons," said Albert Edwards, from Dresdner Kleinwort.
Bear Stearns Buyers Strike

The Financial Times is talking about fire sale bids for Bear Stearns debt.

Investors in the worse-hit of two stricken Bear Stearns hedge funds are offering to sell their holdings for as little as 11 cents on the dollar but still finding no buyers, according to unfilled trades on Hedgebay, a secondary market for funds.

Vulture funds and others have been quick to bid for holdings in the two funds, but the best bid for Bear Stearns High-Grade Structured Credit Strategies Enhanced Leveraged Fund, the more geared of the two, is just 5 cents on the dollar.

Private sales of stakes are the only way investors can exit the two Bear funds, after the bank suspended redemptions in May amid a wave of withdrawals.

"There are buyers but they can't agree on price," said Jared Herman, co-founder of Bahamas-based Hedgebay.

The less-geared Bear Stearns High-Grade Structured Credit Strategies Fund, which the bank has rescued with a $1.6bn loan, is being offered at about 70 cents on the dollar. The fund is only attracting bidders at about 30 cents, according to people who use the system.

Market participants estimate the CDOs the Bear funds held would sell for at least 10 per cent less than the values calculated by lenders. "Where things transact is still many points below where dealers have been marking them," said one manager of CDOs and hedge funds. "That is the big ugly secret of this market."
Marked Down

No takers at 11 cents on the dollar should put a new perspective on the meaning of marked to market. The best bid was 30 cents on the dollar for assets held by the High-Grade Structured Credit Strategies Fund and a mere 5 cents on the dollar for the High-Grade Structured Credit Strategies Enhanced Leveraged Fund.

Wow. 5 cents on the dollar. That's quite an enhancement for something supposed to be High-Grade. Given that redemptions are suspended there is no escape for many investors caught in the jaws of this Bear Stearns Trap.

The Redemption Trap

It's not just Bear Stearns that has stopped redemptions. Consider United Capital Asset Management Suspension of Redemptions.

July 3 /PRNewswire/ -- The structured-finance marketplace was very volatile during June as news broke early in the month of significant losses in a large ABS/MBS hedge fund. June saw a dramatic widening of credit spreads across asset-backed securities ("ABS"), mortgage- backed securities ("MBS") and collateralized debt obligations ("CDOs"). Because of the current negative sentiment, other risks have been heightened in the past month such as liquidity risk, redemption risk, and the pricing risk resulting in margin calls issued to the entire structured-finance sector.

Over the past 10 days we have received an unusually high number of redemption requests, including a request from our largest investor that accounts for nearly one-quarter of our assets under management. As has been announced in the press, United Capital Asset Management ("UCAM") has temporarily suspended redemptions for the Horizon Fund L.P., Horizon ABS Fund L.P., Horizon ABS Fund Ltd. and Horizon ABS Master Fund Ltd. ("Horizon"). We wish to emphasize that UCAM and Horizon are not liquidating and intend to continue in operation.

Observing these serious market conditions highlighted above, we reduced many cash bond and all synthetic positions in June. We have greatly lowered the Horizon's leverage. We sold a large amount of cash securities into the market without issuing bid lists or conducting auctions.

Horizon lost money in closing down its positions in the ABX. We view the synthetic markets as highly volatile and, at this time, have stopped trading them entirely.

Horizon has taken the step to suspend redemption requests in order to protect the interests of our investors while we continue to analyze the risks highlighted above, and we expect to resume processing these redemptions as soon as it is prudent, which we hope will be in the very near term.

I see that it took a disaster for Horizon to realize synthetic markets are highly volatile and stop trading them. Did they not know this before?

Furthermore, Horizon may be making the exact same mistake Bear Stearns made. Bear Stearns suspended redemptions way back in February. The assets are now worth 5 cents on the dollar. It's highly likely that investors would have gotten more than 5 cents on the dollar back then.

I talked about this in Bear Tracks & CDOs and A Bear's Bath. Here is a snip from the latter.

The situation is so bleak that Bear Stearns' asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that's got some hopping mad.

An investor in Europe, who didn't want to be identified, says he's been trying to get his money out of the hedge fund since February.

He's particularly incensed that on a June 8 conference call the fund's managers set up to discuss performance, Bear Stearns officials refused to field investors' questions. "They specifically said they weren't taking any questions," says the investor. "They didn't want to say anything."

A Bear Stearns spokesman declined to comment.
Part of the excuse given by Horizon for suspending redemptions was that the largest investor accounts for nearly one-quarter of our assets under management and that investor wants out.

Isn't it gross mismanagement for an entire fund to be at the mercy of a single investor? Horizon doesn't want to liquidate but it may have to unless it wants to lock in that investor until this credit crisis blows over which could be something like forever at least in the eyes of someone who wants out and wants out now.

See Who's Holding The Bag? for comments from Buffett about derivatives, but my favorite has to be "the derivatives business is like hell easy to enter and almost impossible to exit".

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/; July 05, 2007 6:08 PM
Anonymous said...: Here is an interesting article from Economist describing the income vs. housing prices around the world in recent years.

http://tinyurl.com/35rhf7; July 05, 2007 6:12 PM
Anonymous said...: The seniors invested in securities called collateralized mortgage obligations, or CMOs. Some independent brokers working in Brookstreet offices pitched the CMOs to wealthy seniors at dinner seminars and condominium meetings.
________________________

I wonder how many other pensions, annuities and retirement funds are filled with these CMOs. I fear there will be rioting in the streets all across the country when the credit market finally tanks....; July 05, 2007 6:29 PM
gregoryw said...: Maybe people's parents ran out of HELOC money and can't help their kids out any more. Or realized they weren't going to retire any time soon and are buckling up.

==========

anon July 03, 2007 11:29 AM said...

Wasn't just Capital One. My first week of college there must have been 15 booths around campus with credit card offers. Visa, MC, Capital One, Amex, Discover, you name it.

Like a kid in a candy store I signed up. Ran up about $5000 on them. Luckily moms and pops bailed me out and then did it again a year later. My sister too, she racked up about $10K worth of clothes her first semester on credit cards. Moms and pops bailed her out too.

And that is what they count on. 18 year olds will be irresponsible, but most will get bailed out by the parents. At the end of the day lending to teenagers is a profitable venture.

Before posting some snide comment, yet my parents have money and I was a spoiled rich kid, sue me.; July 05, 2007 6:58 PM
Anonymous said...: Everybody is familiar with the debowelings in Sacramento. Most alert HPers know that CA, FL, AZ and NV are ground central for collapsing realty markets. But I beg you to reconsider and give Colorado its due:

http://denverrealestatebubble.blogspot.com/

Colorado (Denver metro area) really deserves to be mentioned in the same breath as the aforementioned.

I'll pop up a fresh batch of corn.; July 06, 2007 12:53 AM
Anonymous said...: The MSM is catchin' up with the "news".

Buying or refinancing a home? Watch out that the loan isn't more expensive than it looks.

http://tinyurl.com/2w3g2j; July 06, 2007 12:55 AM
Anonymous said...: I am seeing lots of complaints about a Jewish Problem here.

I am not seeing any suggestions on how to solve the problem.

Anyone have the stones to let this Jew know your suggections for the Final Solution?

I will be waiting.; July 06, 2007 12:56 AM
Anonymous said...: july 4 8:05am anon said,

1oz. of gold will buy a house soon!

***************************

I'd like to see that house!; July 06, 2007 5:07 AM
Anonymous said...: Renters Unite! Let's Pop This Real Estate Bubble

Jul 05, 2007 -- The facts are in. We are embroiled in the biggest real estate bubble in U.S. history. So why are buyers still paying top dollar for homes in many areas of the country? Are they crazy?

By Ben W. (bdarbs) - Renter by Choice

Homebuyers who think now is a good time to buy into the housing market are crazy. If they aren't crazy, then these poor souls have been deluded by mind bending real estate propaganda. Here's why:

Home prices are currently disconnected from the basic fundamentals that rule the real estate market. Rents have not kept pace with home prices. On average, it costs two to three times more to buy, and no matter how you stack the numbers, in almost every rent versus buy analysis, renting makes the most financial sense.

There is also an enormous problem with affordability. From coast to coast, potential homebuyers are finding that they cannot reasonably afford to buy a median priced home when they earn the median household income. This is because, like rents, salaries did not keep pace with rising home prices during the boom.

Our nation is trapped in the largest bubble in U.S. history. There is little doubt that the very circumstances that led to the bubble will inevitably pop it, driving home prices down. This is a nationwide crisis, even in the most desirable regions.

Prices can't be disconnected forever. They will come down. However, there are still buyers out there that don't care or don't know and are traveling from open house to open house ready to offer more than the asking price if need be. These misguided individuals justify the decision by saying things like 'it's a buyers market...I need to make my move now', 'renting is just throwing money away', and 'real estate is always a good investment'.

These people unfortunately are about to make the worst financial decision of their lives because they have been brainwashed by organizations such as the NAR and DataQuick (two entities the mainstream media relies on for reporting reliable housing data). These two organizations, and others like them, have a vested interest in keeping home prices roaring higher and have been deliberately misguiding the public with their sales speak and creative ways of manipulating data for years.

The real estate industry has found a way to spin everything and create a sense of urgency among buyers. The scare tactics have the public thinking they need to buy now before sellers get the upper hand, or my personal favorite, 'before interest rates go up'. That line of thinking is insane. How is buying a home with a low interest rate justified if the home's real value is on its way down? It isn't. If rates go up then housing affordability will get even worse and prices will be driven further into the ground.

The bottom line is that no matter how you look at it, now is a terrible time to buy.

Why are real estate prices being so sticky?

There are several reasons why real estate prices are being so sticky. For one, real estate takes a long time to sell compared to stocks and other securities. Other reasons:

Sellers are reluctant to take a loss. Because sellers are mere mortals, they become attached to their personal residences and often assume the house is worth more than it actually is. In other cases, sellers simply can't afford to take less because they bought when prices were extremely high. They're not looking for profit, they're looking to pay off their mortgage debt and break even.

There is also the case of the market being propped up by the smoke and mirror organizations that dominate the press. Quite frankly, the truth about the state of our housing market (such as disconnected fundamentals) isn't getting out because it is being skewed by the biased and deceiving statements released by these influential organizations.

As I write this, the market is crumbling. Yet, there are still more stories about the easy money made in real estate during the boom than there are about people who lost money. It is no wonder that consumer sentiment is so remarkably bullish.

The bottom line is that now is a great time to sell. Sellers should cash out now while they still have some equity left over from the boom and become a renter until the dust settles. This is exactly what I did. I acquired three properties during the boom years and cashed out on all of them just over a year ago. Now I rent with my wife and child in a very nice neighborhood in the San Francisco Bay Area, waiting patiently for the market to come back to reality. The fact is that I can rent a MUCH NICER home than I can afford to buy right now. Once that is no longer the case, the market will be at equilibrium and it will be safe to buy a house again.

Will a tipping point come, when home prices all over the country finally come crashing down?

I believe there will be, and as terrible as it sounds, I truly hope it will be soon; otherwise we could suffer a multi decade housing recession like Japan. If the market corrects quickly, it will be much better for our economy.

What is needed to expedite the turnaround is a change in consumer sentiment. A shift in consumer sentiment will bring about the tipping point, and inevitably, bring the market back to reality. This will most likely occur when tales of lost equity, adjusting ARMs, and subprime foreclosures become mainstream and glamorized TV shows of house flippers making easy money disappear.

And for the record, I do not think the government should step in. All I will say is this:

The proposed subprime bailouts, as well as some of the other half-cocked schemes, are a terrible idea. Innocent taxpayers should not be responsible for funding other people's greed and stupidity.

How can we burst this bubble?

Well, we certainly can't count on the NAR, DataQuick, or even the Fed to change their ways and start educating the public with the truth. If they did this, they would first need to admit that they intentionally lied to the public to serve their best interests. Not good PR by any means.

What we need to change buyer sentiment is a grass roots effort that focuses on educating the public with the truth. You can help by educating yourself and sharing what you learn with others. Start by reading eFinanceDirectory.com's daily housing bubble news

articles, Patrick.net's housing crash news, and the contributions of other housing experts like Rich Toscano, Schahrzad Berkland, and Warren Brusse. eFinanceDirectory.com has conducted great interviews with many of them here

ein

You can also share your housing crash stories with eFinanceDirectory.com and with others. If you lost a house in foreclosure, are in debt up to your eyeballs due to an adjusting mortgage rate, or just have an opinion to share about the housing market send your story to moreinformation @ efinancedirectory.com. They'll publish it and make sure it is seen by thousands.; July 06, 2007 6:02 AM
Anonymous said...: The roosters are coming home to roost!!!

Thursday, July 5, 2007
Foreclosures soar, casting a pall over real estate
Owning property weighs heavily on banks. But if they unload homes at low prices, the bottom falls out of the housing market.
By KATHLEEN M. HOWLEY and BOB IVRY
Bloomberg News

Only the possums are enjoying the backyard of 2035 Lilac Lane in Decatur, Ga., where Wall Street titan Bear Stearns Cos. is just another homeowner by default.

"It's a mess," said Kiwanna Ford, 31, who grew up next door to the now-vacant ranch-style brick house four miles south of the DeKalb County Courthouse. Bear Stearns seized the property three months ago after Ford's neighbor stopped making payments on his mortgage. "If we wanted to sell our house right now with that next door, it would hurt," she said.

Bear Stearns, the second-biggest U.S. underwriter of mortgage-backed securities, never planned to take possession of the three-bedroom house. After selling the property last week, Bear Stearns said it still owns 18 houses in the Decatur area acquired since November. Citigroup Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and JPMorgan Chase & Co. own at least 35 homes in the suburb seven miles east of downtown Atlanta, where 19,000 people live.

As foreclosures climb, Wall Street's lenders and investors are claiming a bigger chunk of Main Street. The value of U.S. homes held by commercial banks swelled 53 percent nationwide to $2.3 billion at the end of March, the highest since 1992, from $1.5 billion a year earlier, according to the Federal Deposit Insurance Corp.

A nationwide problem

Bear Stearns and its affiliates are listed as buyers of at least 53 homes so far this year in San Diego County, 48 in Maricopa County, Ariz., and 40 in Cuyahoga County, Ohio, according to a search of property records.

JPMorgan, the third-largest U.S. bank, and its subsidiary Chase Home Lending acquired at least 194 homes this year through foreclosure in Wayne County, Mich. Merrill, the third-biggest securities firm by market value, and its mortgage unit, First Franklin, took possession of at least 87 homes this year in San Diego County. Citigroup and affiliates are the new owners of at least 47 homes in Clark County, Nev.

Countrywide Financial Corp., the largest U.S. mortgage lender, said it had $110.1 million of foreclosed real estate at the end of March, quadruple the $27.4 million it held three months earlier. Calabasas -based Countrywide has acquired at least 21 homes in Decatur since November.

The dilemma facing banks is whether to pay maintenance costs or dump the properties at fire-sale prices, said Keith Gumbinger, vice president at HSH Associates, a mortgage research firm in Pompton Plains, N.J. Both options can reduce real estate values. Homes that sit vacant can become neighborhood eyesores, while rock-bottom sale prices drag down values of similar properties in the area, he said.

"No lender wants to own real estate, but at the same time you can't just unload these properties because you would send home prices into a freefall," Gumbinger said.

Downward Spiral

Home values and the $6 trillion U.S. mortgage-backed securities market are locked in a downward spiral. Bear Stearns is bailing out one money-losing hedge fund it controls and leaving another to liquidation by creditors. Both funds invested in securities backed by subprime loans. The loans, for borrowers with bad or limited credit histories, are secured by houses such as the one on Lilac Lane.

Bear Stearns took possession of the three-bedroom Lilac Lane house for $76,500 on March 6, according to the foreclosure deed. The owner who defaulted had purchased the house in April 2005 for $160,000 using a subprime loan that required no money down.

The lender was Meritage Mortgage Corp., one of more than 60 subprime home loan companies that have halted operations, gone bankrupt or sought buyers since the start of 2006, according to data compiled by Bloomberg. Bear Stearns had bought the mortgage from Meritage at a discount.

The firm sold the Lilac Lane house on June 28 for $84,000, said Elisa Marks, a Bear Stearns spokeswoman. That's about half the price paid two years ago. Other homes on the street sold this year for $85,000 to $185,000.

Auctions

Lenders often outbid competing buyers to take title and then offer it for sale on the open market unless the auction price goes above the amount owed, said David Stich, an attorney at Solomon Pearl Blum Heymann and Stich LLP in New York. The "sale price" on a foreclosure deed doesn't always reflect the amount the lender is owed, he said.

Whether selling at auction or using a real estate broker, lenders usually get cents on the dollar, which undermines the confidence of mortgage bond investors by showing property values are nowhere near the loans they collateralize, said Keith Shaughnessy, president of Foundation Mortgage Corp. in Littleton, Mass.

"It will have a decimating effect on the mortgage-backed securities market when lenders start facing the music and letting property go at whatever price people will pay," he said.

Appraisers determine home values using "comparable sales," the prices paid for nearby homes that have similar features. If foreclosed properties are used as comparables, it drags down values throughout the neighborhood, said John Kilpatrick, president of Greenfield Advisors, a Seattle real estate consulting firm.

Subprime Loans

The share of subprime loans entering foreclosure in the first quarter was 2.43 percent, the highest in almost five years, the Washington-based Mortgage Bankers Association said. Subprime late payments rose to 13.77 percent, compared with 11.5 percent a year earlier.

Prices are tumbling in the U.S. housing market as inventories grow. In the second quarter, the U.S. median home price probably dipped 2.4 percent from a year earlier, the fourth consecutive quarterly decline, according to the National Association of Realtors. Before the third quarter of 2006, prices hadn't dropped since 1993.

Measured annually, the national median price for a previously owned home probably will drop 1.3 percent this year, the first decline since the Great Depression in the 1930s, according to Lawrence Yun, an economist at the Chicago-based National Association of Realtors.

U.S. sales of previously owned homes fell in May to 5.99 million at an annualized pace, the slowest in almost four years, and the number of properties for sale was the highest on record, the Realtors' group reported last week. That number doesn't include most foreclosed properties slated for auction.

Sales of new houses fell to an annual rate of 915,000 in May, 16 percent lower than a year ago, the Commerce Department said last week. There were 536,000 new homes on the market in May. The average over the last 20 years is 346,000.

History repeats

Conditions are the worst since the 1990-91 recession, which was caused by a credit crunch that followed a boom-bust real estate cycle similar to the last seven years, Gumbinger said. Like the 2000-05 boom, the previous surge in sales and prices was sparked by a decline in mortgage rates and featured "risky mortgage lending," he said.

The number of homes either sold at auction or taken back by the lenders after the bids failed to reach a high enough price has surged – 43,295 in May, up 67 percent from a year ago, according to Sacramento-based Foreclosures.com.

At some point in the next two years, most of those properties, known in the industry as REO, or real estate owned, will be sold, said Jack McCabe, chief executive of McCabe Research & Consulting LLC in Deerfield Beach, Fla.

"We'll see those deals being done in the next 18 to 24 months," he said.; July 06, 2007 6:17 AM
Anonymous said...: Anonymous said...
I am seeing lots of complaints about a Jewish Problem here.

I am not seeing any suggestions on how to solve the problem.

Anyone have the stones to let this Jew know your suggections for the Final Solution?

I will be waiting.

July 05, 2007 11:56 PM

"shall a nation be born at once?" Isaiah 66:8 You`d better believe it! Israel!!!! You`ll have to go through this Gentile before you get to the above Jew!; July 07, 2007 7:55 PM