BUBBLETALK: Fresh thread to talk about the Late Great Housing Ponzi Scheme

February 23, 2007

BUBBLETALK: Fresh thread to talk about the Late Great Housing Ponzi Scheme

Post "Great Unwinding" article highlights and tinyurls, talk about random stuff, have a good chat, keep it clean...

440 comments:

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Anonymous said...: "I thank my parents for this as well. Instead of a new car for graduation they gave me a downpayment on a home."

LOL. Sounds like you've had a rough life there Skippy. I've heard it can be painful being born on 3rd base and desperately trying to convince yourself that you hit a triple. But I'm sure that has nothing to do with your need to talk like a big man on the Internet.; February 15, 2007 10:56 PM
Anonymous said...: "Ladies and gentlemen I present to you the typical HP poster...a coupon cutting renter.

Sad."

At least the Vail/Chili's Restaurant Playboy and Mr. Trustafarian are putting some effort into their trolling. You, OTOH, would last about 3 posts on FC.; February 15, 2007 11:02 PM
Anonymous said...: Why the antagonism between bitter renters and bellicose mortgage debtors? It's such a beautiful day in the neighborhood.

Why not be satisfied with giving 30% of your income to the landlord (his take these days going mostly to the banker to pay interest) or 25-40% of your income directly to the lender?

In either case, one is a feudal peasant bound to the land via a perpetual mortgage (with an effectively infinite term) that will never be paid off. The only way the debtor can realize all or a portion of "his asset" is to sell the house and rent, sell the house and live in his SUV or a tent, or sell the house and buy something less pricy, pocket the cash, and chase cockroaches and crackheads off the property from time to time.

The 30-32% of US householders who are renters are no better off in the long run, and the mortgage debtors might well be clipping coupons and eating cat food on sale if the housing market dips further into recession.

The mortgage debtor might build up lots of paper equity, but he has to borrow his own money (or is it...?) from the banker at 8-9% compounded. Who's asset is it, anyway? The debtor or the lender?

It is said that real estate is the best investment, but for whom? Certainly it is a great investment for the banker. He takes $1 of actual cash, creates $9-$10 of book-entry credit/deposit, lends it out, and grows that leverage at 10-12%+ per year (or as fast as he can) until compounding hits a limit of growth of an order of exponential magnitude. This typically over the business/credit cycle takes 5-6 years before house prices spike and top, equity declines, lenders pull back, prices fall further, lenders panic, foreclosures soar with bankruptcies, recession ensues, banks fail, depositors lose their money, the gov't steps in as always far too late to bail everyone out, and the Fed panics and again gives away reserves to member banks and monetize the debt the gov't floats to start the reflationary bubble cycle over again.

Won't you be my peasant renter or debtor neighbor?; February 15, 2007 11:04 PM
Anonymous said...: "That Bubble What now? Not in the NYC area there wasn't. Where are those 50% price drops all you nutjobs are talking about?"

Oh no, a few people bought houses with the biggest Wall Street handout of all time. I guess the bubble never happened. Has Goldman's Sac sent you your check yet? Didn't think so :(; February 15, 2007 11:10 PM
Anonymous said...: YOY Price changes as % from money.cnn.com

Seattle 11.3
Los Angeles 3.2
San Francisco 2.0
San Jose 2.7
Chicago 0.9
Las Vegas (0.8)
Phoenix (2.3)
Sacramento (4.1)
San Diego (4.5)
Miami (6.2)

So this is the great housing crash I keep reading about here? Miami is down 6% after up 100% in 4 years. WOW. Las Vegas is down less than 1% after up 100% over 3 years.

You really can't be serious with your doom and gloom. If you are you're one nutty bunch of people....entertaining nonetheless but nutty still.; February 15, 2007 11:35 PM
Anonymous said...: So this is the great housing crash I keep reading about here?
+++++++++++++++
Well, Helicopter Ben has been promising a "soft landing" for the housing bubble and IMHO, that's what I think we're getting. We're sinking into the Ocean of the Great Unwinding more slowly than anticipated, but when we reach the bottom at about 35,000 feet, I can guarantee we'll be in a world of hurt....; February 16, 2007 12:36 AM
Anonymous said...: >>So this is the great housing crash I keep reading about here? Miami is down 6% after up 100% in 4 years. WOW. Las Vegas is down less than 1% after up 100% over 3 years.<<

You only need a 50% decrease to erase a 100% increase, and this is only just beginning.; February 16, 2007 1:00 AM
Anonymous said...: "You really can't be serious with your doom and gloom."

Listen here douche, no need to get nasty because you bought at the peak. Speaking of..how's that 60 year, Option ARM, Neg-Am. mortgage on your Vegas stucco crapbox doing? Just be sure to lets us know when you get the stainless steel appliances, granite countertops and the spinners on your escalade are up on craigslist for sale. You can always donate your douchebag uniform ($200 jeans, striped untucked shirt and black Kenneth Cole shoes) to Goodwill. Good luck jackass!; February 16, 2007 1:05 AM
Anonymous said...: Easy big boys, I've never seen a train as big as the U.S. crash and all its cars stop at once. There is plenty of time to get scared...real scard!; February 16, 2007 1:12 AM
Anonymous said...: We shall see soon.; February 16, 2007 1:59 AM
Anonymous said...: OMG. Illinois went up 1.5 percent! I guess there was no bubble!

Meanwhile, this just in from your heroes at the NAR:

http://money.cnn.com/2007/02/15/real_estate/home_prices/index.htm?cnn=yes

"Record home price slump

Fourth-quarter report from National Association of Realtors shows largest price drop on record as markets with price declines now outpace those with gains.

By Chris Isidore, CNNMoney.com senior writer
February 15 2007: 6:46 PM EST

NEW YORK (CNNMoney.com) -- The slump in home prices was both deeper and more widespread than ever in the fourth quarter, according to a trade group report Thursday.

Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter a year earlier, according to the report from the National Association of Realtors (NAR). That's the biggest year-over-year drop on record and follows a 1.0 percent year-over-year decline in the third quarter."

But, but, I thought prices never went down at the national level! All those screeching homedebtor morons on FC and HP told me so!

"In addition, 73 metropolitan areas reported a decline in the fourth quarter, compared to a year earlier. That outpaced the 71 that saw a gain. It was both a record number and percentage of markets showing a decline in the group's quarterly report. Five markets saw prices unchanged.

That decline was a far more widespread than the third quarter, when only 45 markets reported drops and 102 saw gains, or the second quarter when only 26 saw a year-over-year slump in prices. The national median price was still showing a year-over-year gain in the second quarter.

The most recent median prices are down even more: 3.4 percent since hitting record highs in the second quarter. Almost three-quarters of the markets, reported on by the group, saw declines in median prices over the past six months, with eight reporting double-digit declines.

Vacation markets, where investor-buyers had driven up prices during the building boom of 2005, were particularly hard-hit.

The Sarasota-Bradenton-Venice, Fla., market saw the biggest year-over-year decline in the fourth quarter, with prices plunging 18 percent.

When looking at the change between the fourth quarter and the second-quarter peak, the Palm Bay-Melbourne-Titusville, Fla., market saw the biggest drop, with median prices plunging 19.5 percent.

But the weakness in prices wasn't restricted to those kinds of markets. Springfield, Illinois, reported a 16.2 percent drop in the fourth quarter compared to the third quarter, the biggest decline during that time frame, along with a 10.4 percent decline compared to a year earlier.

Still, the trade group statement said it believed that the worst was over for the drop in prices.

"ARGHGHRUGHHRUUVANKERUGH! BOONGA BOONGA," said a statement from David Lereah, the NAR's chief economist. "GARG!"

Part of the decline in prices was attributable to the drop in sales pace. Total existing home sales, including single-family and condo, were at a seasonally adjusted annual rate of 6.24 million units in the fourth quarter, down 10.1 percent from a 6.94 million-unit level in the fourth quarter of 2005.

And the slower pace of sales, coupled with investor-buyers from 2005 trying to sell homes and condos they had bought, created a glut of homes on the market, according to other real estate readings, which also fed into the decline in home prices.

NAR President Pat Vredevoogd Combs, a Grand Rapids, Mich., realtor, admitted the group doesn't expect to see a big gain in 2007 statistics.

"ARRRRAAAARRRRAAABAAABMBAABBAAAAMBMMMPBPBPBPBPBP," she said in the group's statement. "UNNNNNNGGGGGHHHHHH!"

She said that since most homeowners stay in a home six years on average, a look at five-year price gains shows most homeowners are doing OK despite the recent weakness. The median five-year price gain is 41.8 percent, according to the group's figures. [Translation: have fun holding those underwater mortgages, retards. Opportunity cost much?]

The nation's leading homebuilders have all reported declining prices for new homes, which are not captured in this report. KB Home (Charts) reported a net loss of $49.6 million, or 64 cents per share, for the fiscal fourth quarter ended Nov. 30, earlier this week. Other leading builders reporting weakness in prices include Lennar (Charts), Pulte Home (Charts), Centex (Charts), D.R. Horton (Charts) and Toll Brothers (Charts).

The most expensive market in the latest report was San Jose-Sunnyvale-Santa Clara, Calif., where the median home price $760,000. That was up $20,000, or 2.7 percent, from a year earlier but down $19,000, or 2.4 percent, from the third quarter and off $35,000, or 4.4 percent, from the second-quarter peak.

The cheapest market was Elmira, N.Y., where the median price was $78,400. That was off 0.5 percent from a year earlier and down 16.2 percent from the third quarter, which is when prices there peaked.

Despite the record weakness, there were some markets that showed strong price gains. The best was Atlantic City, N.J., where the median price was $339,800, up 25.9 percent compared to a year earlier."

LOL! Maybe that was our $30K millionaire Vail/Chili's Restaurant playboy buying a house! LIVIN' LARGE AT PRESSBOARD ESTATES!

Better get started spinning, realtwhoretrolls. Looks like you've got some work ahead of you.; February 16, 2007 2:30 AM
Anonymous said...: "So there you have it, we all dont think renters are broke. We just think some are just plain stupid for not buying a home when they had the income and cash available yeara go AND homes were affordable. That's all."

No worries. They will be again.; February 16, 2007 2:34 AM
Anonymous said...: "So this is the great housing crash I keep reading about here? Miami is down 6% after up 100% in 4 years. WOW. Las Vegas is down less than 1% after up 100% over 3 years."

Jump off a 60-story building and let me know how you're doing as you pass the 58th floor.; February 16, 2007 2:38 AM
Anonymous said...: mr. wogers: you're right. OTOH it's not as if there's an honest-to-god debate in here. Not even homedebtor trolls are dumb enough to actually believe what they're spewing. It's solely for entertainment.; February 16, 2007 2:44 AM
Anonymous said...: How could all the "there is no bubble" experts ever be wrong? I mean when the expert consensus in our world are so often right?! Just look at the great forcast in Iraq.

Truth is, I know ALMOST NO SEASONED SMART WEALTHY person in my bubble town who was buying investment property or trading up to another property in the last 4-6 years. It was all young, dumb, and full of ... um... Anyhow.

But if you feel better, I'll say it - you win! (kinda) I should have bought 6-11 years ago. But it wasn't right for my place in life at that time. I was busy living like the young should live, traveling, and experiencing exciting new things every year.

If I am wrong and prices don't go down enough from here, I will move somewhere cheaper and miss my family in the bubble area where I live now. Sad but oh well, that is life. You, however, will never get me and my wife (with pretty-good 2 income household) and turn us into your sheeple debtors working for nothing but some tiny house (with no yard) to live in. That just does not make financial sense for the future. So maybe you really won't win after all.; February 16, 2007 3:24 AM
Anonymous said...: BWA HA HA HA!!

You renters are getting more and more delusional.

Skiers are now financially suicidal for taking a trip to Vail. A kid getting a downpayment from his parents for a home is a trust fund baby. Every home owner is about to default on their home.
Every home buyer in NY is a Wall St. tycoon. Anyone who eats at Chili's must be bankrupt or about to become so.

And of course through all that everyone renting is doing so by choice and is the paragon of financial aptitude.

Reading this blog is funnier than going to a comedy club. Please tell me more, I'm dying to know what else your feeble minds hold.; February 16, 2007 3:36 AM
Anonymous said...: Fed Chainman Bernanke did a televised Q & A with the House Finance committee in Congress today. I had one eye on it but even so, one thing struck me. Congress Reps geddit ! - the housing bust I mean - over 70% of the questions were about the housing bust and the related issues. Bernanke of course continued his "signs of stabilization" crap - he doesn't get it yet.

Well done all the bloggers for keeping this issue in focus when the MSM did such a lousy job..

In that context, here is a shameless plug for another blog:
www.strandedpassengers.blogspot.com

The main thrust is for a passenger bill of rights, by law - it will limit the amount of time you can be STUCK on a plane, on the ground, to 3 hours - After that they have to deplane you - no more of these 9, 10 11 hours that people have been stuck - with overflowing washrooms, no water except for the faucets in the WASHROOM, no food of course - cramped, bad air, claustrophobic - you get the picture.

I have no stake in the blog but having once been STUCK on a plane, ON THE GROUND for 8 hours way back in 1998, and seen a bill banning this practice die in Congress due to usual lobbyist activity, this is an issue that's close to me.

-K; February 16, 2007 4:27 AM
Anonymous said...: It must be time to buy! Wow money magazine and CNN say prices are up! Sir, do you know about averages and quartiles? Did you know what year on year data as used by CNN and Money really mean? In real terms houses in Miami top 75% price have dropped in price by 14%. Also the number sold has decreased as people know that they cannot get the price they want. Hey wait a minute, why am i bothering to say anything to this nimrod. Yes, dude the earth is flat and yes its a great time to buy--especially in Miami hey who cares if there are 42,000 units for sale and 20,000 new condos comming on line. Who cares that typically only 1k condos were absorbed in miami per year in the last 10 years--its different this time, yes miami real estate and economy will go up up up. Yessir, its a groundfloor opportunity........What inflation? What credit crunch? What asset bubble? Nahhh. Its all a fantasy and we are crazy. So guy buy some maiami condos with zero down and in 18 months let us know how it all worked out for you.; February 16, 2007 5:01 AM
Anonymous said...: Actually to anonymous poster caliming Miami increased 6% the CNN list developed by NAR and David L shows a 6.2$ decline for the median price house--the middle of the price range. The higer priced homes in Miami have dropped by nearly 15%. Bear in mind that annual data understate price changes as the numbers are nominal and are not adjusted for inflation. So in your example the 6.2% decrease (which you mistook for an increase) is closer to a 9% as the price of everythihg (excpet housing!) has increased. The prices for places in the top quarter of the miami market are stated by price tracker to have dropped close to 15% and this is likely higher due to incentives not included in price. Also time on market increases and this reduces the "value" of equity in an "assett". Lastly, the data was produced by NAR. Simple reality 101--do you think a realtor trade association has incentive to produce reports that a.) serve their interests, b.) serve the interests of the homebuying public or c.) serve the interest of best possible analytic research to serve the public good Please answer a, b or c. Hint: Real estate firms are paying for this research.; February 16, 2007 5:57 AM
witzend said...: Anon, 11:35 pm

Hey numbnuts, YOY figures go back to include this time last year, and are therefore skewed.

Try this for a more relevant indicator.

http://tinyurl.com/293hfq

Btw, I can see the argument that some of the posters here are "bitter renters" sure there are some, however, what makes no sense to me is that people that are both successfull and satisfied homeowners (and who therefore do not believe in, or have fear of, a RE bubble) would take time to post here - let alone post hatefull coments towards renters and other "bubbleheads"

You should know that most everyone here is aware of that.

Boy, I'd hate to know this "blow fly" guy, he sounds like a real FREAK!; February 16, 2007 6:01 AM
Anonymous said...: Wouldn't it be funny if Blowfly is actually a sweetheart of a grandmother living in Kansas who bakes chocolate chip cookies, steaming out of the oven and reads cute little nursery rhymes when not bashing our brains in with insults.

More like he's the discarded prison b*tch of cell block H.; February 16, 2007 6:13 AM
Anonymous said...: The year-end Illinois median home sale price for 2006 was $203,900, up 1.5 percent from $200,900 in 2005.

Take out the incentives and rampant mortgage fraud (what is Illinois, #3 in the counrty now?) and you've got a handful of sh*t.; February 16, 2007 6:17 AM
Anonymous said...: "Noveaux Rich.

Uhm if you are going to use bg French words at least know how to spell them. "

Bad spellin'?!? That 'sinis' poster is the #1 offender to date.; February 16, 2007 6:20 AM
Anonymous said...: From someone who grew up in Atlantic City...

Hottest Market
A Real Shocker
For edition of February 16, 2007

Urban homes prices fell across the U.S. in the fourth quarter, according to the National Association of Realtors. No surprise there, given the glut of supply and the growing feeling among buyers that waiting might bring even better deals come spring. This seems logical, since would-be sellers who gave up are apt to try again, flooding the market with re-listings.

The shocker in the Realtors’ report was that among cities where real estate prices rose, my hometown, Atlantic City, topped the list with a 26 percent gain. Twenty-six percent! When I left for California in 1978, the first casino had just opened and the faded Queen of Resorts looked like it was on its way to becoming Camden with casinos. And so it did, as anyone who has visited the town would attest. With all those new billions of dollars flowing through Resorts International, Bally’s, Golden Nugget et al., just enough of it trickled onto Atlantic City’s streets to make the city the ugliest, most unredeemably trashed-out cesspool-of-a-resort in the history of urban redevelopment.

Politics and Prison

Am I being a bit harsh? Well, you’d have to have grown up there to know just how far the town fell after it supposedly hit bottom as a result of a failed urban renewal project in the 1970s. The city had razed 80 acres of mostly big old houses built in the 1930s and 1940s, but when it came time to replace them with bigger and better amenities, the lead developer got cold feet and walked; then others followed. The city couldn’t sue the builders because it had negotiated contracts that were full of holes. After that, a few mayors and councilmen went to prison, an Atlantic City tradition. By the time the casinos got rolling in 1978, they were able to run roughshod, since there was no political leadership in Atlantic City to negotiate with them.

And that’s why the town, even with a dozen casinos, is such a dump. I grew up on the other end of the 7.8-mile island – “Downbeach” – in Margate, which was to Atlantic City what West Caldwell is to Newark. Margate continued to prosper when the casinos came along, and even the somewhat run-down neighborhood where summer rentals thrived grew less seedy over the years. But I can’t imagine which homes in Atlantic City might have helped to produce a 26% price gain in the last year. It’s certainly more appreciation than I’ve had in my home since moving to the Denver area in 1999.; February 16, 2007 6:39 AM
Anonymous said...: "This is HIGH-larious. Renters with millions of dollars saved up yet they cut coupons."

Who said anything here about having millions of dollars? Do you know that Ivanka Trump flies coach and wears $25 vintage dresses? That's what you learn in great B Schools, respect for money and follow the principle.

Please, read the book "The Millionaire Next Door", or check the reviews on amazon.com. You need to get back to reality.; February 16, 2007 6:49 AM
Anonymous said...: Homedebtors-hamsters, how's that crappy credit going because of late mortgage payments or foreclosure? Don't forget that the insurance companies are coming for your wallet.
That's right, you'll be paying premium for everything. BTW, do you know that many employers check credit ratings before hiring?

Spin that hamster wheel faster, faster!; February 16, 2007 6:54 AM
Anonymous said...: Math Lesson for Deniers

We all know that we Americans pretty much suck at math. I constantly see basic math errors in the comments of MSM talking heads, crash deniers and even my fellow crash aficionados. The misuderstandings of simple math are legion, now add rates of change, percentages and time. To really get it you have to really have at least gotten a "C" in calculus. Anyway here goes the lesson by way of example.

Blowfly buys a house for 100k no money down in 2000

Its 2005 house has increased in "value" by 50% House is now worth $150k.

Its February 2007. Blwoflys house has decreased in value 15% from its peak value in 2005 (reminder value at peak was 150k).

What is the value of the house now?

$127,500.00

What would have to be the rate of increase for house to return to peak value?

17.6%

What is house drops an another 15% in 2007?

Its now $108,375.00

so while some of the deniers do not get it. A couple of years of 15% decreases (or 5 years of 4-6% decreases) The origianl gain of 50% will be essentially eliminated when inflation is considered.

Here is the big point to the deniers who dissmiss what may appear as a small percentage decrease in prices (and don't know basic calculus):

a large gain on the way up is cancelcced out by a smaller percentage decrease.

100K house--increase by 50%. Now its worth 50%.

Now market decreases by 33% So now that vaules have decreased by 33% the 150k house is worth what? Well its now worth 100k. (150 X .33=50k).

Anyway its funny that the mentality is such that someguy that gained 50% and hears the market is donw 33% still thinks he is up 17%! I love it!!!!!!

So deniers be sure and get that 7th grade math book out before you delude yourself as to the real magnitude of your gains!; February 16, 2007 8:20 AM
Anonymous said...: A last comment on increases decreases.

It really is important to get the difference between increases and decreases in real time terms

A 100% increase in the value of Blowflys house--100k in 2000 to 200K 2005 will now be completely eliminated by a 50% decrease in the 2005 price that say occurs by 2008--50% of 200k is 100k. A 100% increase is eliminated by a 50% decrease, a 50% increase wiped out by a 33% decrease. Yep, this seems obvious but like so many things that appear obvious its suprising how many people do not get it. Its a function of base and rate of change. Most percentage declines are based on the the price at a peak price not bottom price. So to my non mumerate pals--its worse than your brain imagines it is.

Consider the example of the Miami market (median). It went up according to a poster by 100% in 4 years and is now down by 6.5% compared to a year ago. Same math, buy 200k condo in 2002 that became by virtue of a 100% 400k in 2006. Now the mere 6.5% decline makes the value what? Its now 374k. If the market drops a mere 6.5% for another 5 years? Well I will help you--$281000. Not too bad you say. But if now you want to sell after commissions and the like you get $261,000.00 Not bad 61k for 6 years for having borrowed 200k, a nominal 30% of return for the period or aobut 6% per year. Of course this can all be thrown out the window if you got so excited by the dramatic increase and got a HELOC and now have 75k on it. Now you are hosed and that great 100% becuase you were so smart to buy is wiped out by a few measely 6% decreases.....
Now you cannot sell. This is why crashes take a while to wind out. This is why housing is not an investment and why a 6% decline likely followed by 10% is not a matter to be dismissed.; February 16, 2007 8:48 AM
Anonymous said...: LOL anon, obviously you don't get how housing busts work, nor how they contract. Especially with the improper counting systems.; February 16, 2007 10:17 AM
Anonymous said...: The new housing starts and permits number for January are out. The official press release from HUD and the census bureau is at:
http://tinyurl.com/ywr866

Some numbers: Housing starts down 14.3% (±7.1%) over December, a MoM figure, and down 37.8% (±5.2%) Year on Year.

That is a lot !

-K; February 16, 2007 2:11 PM
Anonymous said...: This is just the beginning of the housing crash. The exotic mortgage loan failures haven't truly hit their peak. The bad news will worsen with the 1Q numbers of the financial institutions that are getting burned on bad loans.

God only knows how far this will progress, bank failures, hedge funds, pension plans, the USD, world economy, etc? It's going to be brutal though.; February 16, 2007 4:57 PM
Anonymous said...: Just an aside, appears there is a lot of talk about the positives in equity in owning a home. True, to a point. Im not trying to be offensive in any way, but, tell that to those who lost thier homes in the gulf states from hurricane Katrina for example. Their insurance companies are not paying to fix or replace their houses for one reason or another. Now what for them? Althought an extreme example, owning is not 100% pure benefit. Those who were renting, can simply move on. Just a thought.; February 16, 2007 5:41 PM
Anonymous said...: Is this a housing crash? I dn't think so.

http://ziprealty.typepad.com/marketconditions/
las_vegas_real_estate/index.html; February 16, 2007 6:04 PM
Anonymous said...: Homedebtor-hamsters are sooooo smart. Pay attention to the Baby Boomer wannabes who "invested" their "life savings" of $200k:

"KISSIMMEE, Fla. -- The condominium boom that ended last year made a lot of developers very rich. Aleem Hussain, a journeyman property salesman with a winsome personality, wanted to be one of them.

He formed his real-estate company in 2004, calling it Main Street USA, after a nearby Disney World attraction. He bought a complex of 27 aging, two-story apartment houses in Orlando and set out to convert them into condos. His timing looked favorable. That year, for the first time, the average price of a condo in the U.S. exceeded that of a single-family home, and in the Orlando area, condo and house prices jumped 15%.

But not much has gone as planned for Mr. Hussain, 42 years old, nor has it for his hundreds of investors, who include a bunch of local sheriff's deputies. Today, Mr. Hussain's company is being liquidated by a federal bankruptcy court, and he is residing in the Seminole County jail, charged with 23 counts of federal mail and wire fraud.

Mr. Hussain's rise and fall illustrates one of the hazards of a frothy property market: inexperienced developers get in over their heads and drag unsophisticated investors down with them. "Schoolteachers, cops, doctors, priests, everyone thought they were Donald Trump," says Lewis Freeman, the court-appointed trustee administering Main Street's bankruptcy proceeding. Mr. Hussain's company, he contends, was a "microcosm of the total market. You had a lot of unqualified people getting easy money and able to go into businesses in which they didn't know what they were doing."

Mr. Hussain's 300 or so investors face potential losses of up to $400,000 apiece. Alan Cayo, 76, a retired Army officer who says he invested his "entire life savings" of $280,000 with Mr. Hussain, conjectures that the developer crossed the legal line only after financial problems began mounting. "It was incompetence, fraud, plus the market going down -- a triple whammy," he says."; February 16, 2007 6:17 PM
Anonymous said...: Another coupon-cutter here. Just got a rebate of $50 for a Maxtor One Touch 500GB External Hardrive, which I will use to do backups.

I bet the big shot Baby Boomers here throw these rebates of $50 in the trash. But give thousands to a sleazy banker or collection agency. Go figure!; February 16, 2007 6:32 PM
Anonymous said...: o while some of the deniers do not get it. A couple of years of 15% decreases (or 5 years of 4-6% decreases) The

A couple of years with 15%? Can you point to any historical basis for this? No area of the country to my knowledge has ever seen two years of 15% declines or 5 years straight years of 4-6% declines with the exception of Houston and that was a very special case.
Sounds to me like you are suggesting this time it is different. Hmmm where did I hear that before, let me think....of yeah from the NAR, yeah that's it.

What is most likely going to happen, judging by history is 2-3 years of 3-4% declines. Meaning if you bought for $100K, doubled to $200K in 3 years you'll be at down to $170K. Still better than never having bought and rented all the time. Peak was mid-2005. We're 1.5 years past it, do the math, we have 1-2 years more to go. Again unless you are suggesting this time it's different.

Face it renters, no matter how you spin, you missed out on the boom. Those that sold at the peak, you made the right call, good for you. Those that rented 2001-2005 (majority of bitter HPers), you fucked up and missed out. Those that bought pre-late 2004 and didn't sell at the peak, you lost out on some gains but you'll still make out quite well. Those that bought at the peak, well if you have to sell within 3 years you're fucked. If you can wait for 5 years, you'll be back to even.

Again, unless this time it's different.; February 16, 2007 7:10 PM
Anonymous said...: This comment has been removed by a blog administrator.; February 16, 2007 7:12 PM
Anonymous said...: NYTimes article:

http://www.nytimes.com/2007/02/16/business/16home.html?_r=1&oref=slogin; February 16, 2007 7:42 PM
Anonymous said...: "BWA HA HA HA!!

You renters are getting more and more delusional."

Tell us again how national prices have never gone down and never will.; February 16, 2007 8:13 PM
Anonymous said...: "Comments from Forbes Magazine, or, why I will never take any advice from Forbes seriously ever again from writers like this."

Man, I was just going to post my comments on this article too! Is this guy toking weed at his desk? He has to be juiced up. It's remarkable that this magazine has become a PR rag for the REIC and right wing conspi... oh shoot, I'm right wing!.. never mind that last bit..I auto piloted that blame heard always from the anti-rights who blame FOX for everything...
Anyway back on track here...FORBES has become the business section for MAD MAGAZINE! :-); February 16, 2007 8:49 PM
Anonymous said...: "Jump off a 60-story building and let me know how you're doing as you pass the 58th floor."

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

Excellent! Very creative!

Many who predict that housing will take a downturn aren't saying it will happen by 9:15am tomorrow.; February 16, 2007 9:04 PM
Anonymous said...: Tell us again how national prices have never gone down and never will.

Tell us again how 70% price drops are happening in Miami and LA. Oh wait, 5% drop in Miami and a 6% increase in LA. Ooopsie.; February 16, 2007 9:10 PM
Anonymous said...: Enjoy the long weekend holed up in the 1 bed / 1bath clipping coupons and reading library books about Mexicans and Jews raping your sisters.

I'm off to the beach myself, housing crash, no housing crash, who the fuck cares? I have more important things to worry about. And if the crash comes, oh well, you idiots voted in the Democrats. They'll bail me out faster than you can say Nancy Pelosi and raise your taxes to do so. So again renters are on the losing end. Either prices go back up and you lose. Or the gubbermint bails me out with your tax dollars, you lose again.

careful with the sharp scissors while cutting coupons now kidz, I would hate for you to hurt yourselves.; February 16, 2007 10:07 PM
Anonymous said...: Here's the news from The Economist. Now the denial crowd has to admit something bad is happeing.

Bleak houses
Feb 15th 2007 | NEW YORK
From The Economist print edition

America's riskiest mortgages are set to pop. Where will the shrapnel land?
Satoshi Kambayashi
LAST March, ResMAE, a mortgage lender catering to risky borrowers, cut the ribbon on its new headquarters in Brea, California. The sprawling, 135,000-square-foot building dwarfed the company's 458 local employees. But it fitted the firm's outsized ambitions. Less than a year later the company, rather than its ribbon, was facing the chop. This week it said it had filed for bankruptcy and was selling its assets for a diminutive $19m.

ResMAE is one of over 20 casualties among America's “subprime” mortgage lenders, which serve borrowers with spotty credit histories at higher interest rates. This end of the market took on $605 billion of new mortgages last year, more than a fifth of the total. But as interest rates have climbed, these loans have soured and the shares of bigger subprime lenders, such as Countrywide Financial and IndyMac, have sagged.

Does the rot run deeper? That fear ran down a few spines on February 7th, when HSBC, Europe's biggest bank, revealed that bad loans at its American subprime mortgage division were 20% higher than expected. The same week New Century, the second-biggest such lender in America, projected a big drop in loans this year because of poor market conditions.

They are not the only ones exposed to America's home-loan blues. Citigroup peddles mortgages to risky borrowers through CitiFinancial, its consumer-finance arm. Subprime lenders have also been scooped up by investment banks, including Morgan Stanley, Merrill Lynch and Deutsche Bank, in recent months. Notably absent are Fannie Mae and Freddie Mac, America's government-sponsored mortgage giants. Both were set up for people who dreamt of homeownership, but could not afford it. They also have the best data on borrowers, including those rejected for loans in the past. Perhaps they knew something others did not.

Indeed, the woes of the subprime lender are mostly self-inflicted. After interest rates turned up in 2004, mortgage-makers could no longer count on custom from homeowners looking to switch to new mortgages at cheaper rates. Saddled with expensive lending platforms, mortgage-writers were desperate for a new source of revenues. They found two: riskier borrowers and riskier products.

They loosened their lending standards as the demand for loans started to drop in 2004. They also resorted to “alternative” products with enticing terms and off-putting names, such as “negative-amortisation” loans (which set repayments so low that the debt gets bigger) or “hybrid” adjustable-rate mortgages (with low teaser rates that jump after a few years). About 27% of all mortgages made in 2006 were of such non-traditional kinds, according to Inside Mortgage Finance, a newsletter.

Not content with these two moneypots, the more eager lenders began to combine them to make a third. They offered risky products to insecure borrowers. According to the Federal Deposit Insurance Corporation (FDIC), hybrid mortgages made up three-quarters of all new subprime loans in 2004 and 2005. The FDIC reckons many firms underwrote hybrid loans assuming that borrowers would refinance them quickly, before the low introductory rates jumped. But this was a reckless assumption when interest rates were rising and house prices softening.

An over-reliance on unseasoned risk models is also partly to blame for bad underwriting. Subprime and alternative mortgages belong to “uncharted territory”, says Sheila Bair, head of the FDIC, making “modelling credit performance exceptionally difficult”. The chief executive of HSBC, Michael Geoghegan, admitted as much in a conference call last week: “You've got to have history for analytics...the fact of the matter is there [isn't history] for the adjustable-mortgage rate business when you've had 17 jumps in US interest rates.”

The pressure to lend did not only come from within. Even as mortgage-writers lured borrowers with soft terms, they were themselves tempted by the strong appetite of investors for riskier assets. Wall Street banks did a roaring trade packaging bunches of subprime loans into mortgage-backed securities, and selling them on to investors, greedy for yields (see chart).

The art of securitisation, as it is called, adds liquidity to the market and allows risks to be parcelled out to those most eager to bear them. Over the past few years, it has also freed up cash for more lending and earned banks pots of money. But it may have made a wobbly subprime market even wobblier. Banks are traditionally supposed to know a bit about the borrowers on their books. But in many cases, their loans did not stay on their books long enough for them to care. Mortgages were written for a fee, sold to investment banks for a fee, then packaged and floated for another fee. At each link in the chain, the fees mattered more than the quality of the loans, which could always be passed on. “This was classic market failure,” says Anthony Sanders, a mortgage expert at Ohio State University's Fisher College of Business. “The private sector wanted fees and got them, and they did not much care what happened afterwards.”

Some banks do get caught holding the live grenade. FDIC reckons that depository institutions hold $3 trillion of mortgages. Much of this is higher-quality stuff, but not all. And even banks eager to securitise their loans sometimes retain the “residual”—the most risky slice where losses hit first. CreditSights, a research firm, notes that Bear Stearns holds about $6.8 billion in residuals, although only a fraction is below investment grade. Banks that write mortgages are also contractually obliged to buy back securitised loans if their underwriting is shown to be shoddy or if the loans sour too quickly. That is what felled ResMAE and is hurting Accredited Home Lenders Holding, a San Diego lender.

Burnt palms
Diversified banks will not meet the same fate. Many big ones, notes Howard Mason of Sanford Bernstein, a research outfit, were careful not to mix risky products with risky borrowers. Wells Fargo, for instance, sells most of its alternative mortgages to “prime” customers. Citigroup sells to subprime borrowers but does not offer alternative mortgages. However, the unregulated non-bank mortgage lenders, like New Century, could suffer.

Should loan losses climb, investors in mortgage-backed securities will also get burnt, especially those holding the riskier, higher-yielding bonds. Financial engineers worked their mysterious magic with these securities, turning the junkiest mortgages into high-grade, sometimes AAA-rated, securities. They could do this only with the blessing of credit-ratings agencies, which made a profitable business out of rating these securities. But critics say the agencies got complacent, and doubt the pooled loans were sufficiently diverse, or sliced up with sufficient art truly to have dispersed risk. One possible blind spot is that the dodgiest mortgages all behave similarly in times of stress. Another is that it is hard to avoid heavy exposure to mortgages from California, the biggest market in America, where alternative products were popular.

No one quite knows in whose hands these little bombs will ultimately explode. The hope is that the risks are widely and thinly spread. The fear is that they all sit in the lap of a few big hedge funds. But the real casualties may be homeowners, who often took out risky loans they could barely afford or did not understand. The FDIC has already tightened rules on underwriting negative-amortisation loans, and the Senate has begun to hold hearings on predatory mortgage lending. With Democrats now in charge of Congress, there is a fair chance the politicians will act. The Eliot Spitzer of the housing downturn may be about to start his charge.; February 16, 2007 10:18 PM
Anonymous said...: This has been noted before but it bears noting again. When I did a search on short sale on San Diego Craiglist, for the period of February 9 - 16 just ONE WEEK, there are 184 listings. SHORT Sales is going to become one of Websters new words in its dictionary. Somehow, the impact of short sales is not being factored in to the very small decline in average prices for the San Diego area. Eventually they are going to kick in and smash appraisal prices when people try to refinance their ARMs. Can you say SHORT SALE?!; February 17, 2007 1:47 AM
Anonymous said...: "reading library books about Mexicans and Jews raping your sisters. "

Time to ban this ip address.; February 17, 2007 2:03 PM
Anonymous said...: 02-15-07, 09:51 PM
EJ
Administrator Join Date: Jun 2006
Posts: 386

How to read the main stream press wearing your Finance Economy hat

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

How to read the main stream press wearing your Finance Economy hat

Today Alan Murray makes an admirable attempt to deal fairly with a topic we've been reporting on for a while now, the crazed money party in private equity. Funny thing is, when we talk to private equity guys, they tell us the madness is in the securitized debt and credit derivatives markets that have been fueling the now collapsing housing bubble. Talk to the securitized debt and credit derivatives guys and they tell us to keep an eye on private equity. It's gonna blow! Unfortunately, we think they're both right.

Alan gets a lot of this right, to his credit.

A Question for Chairman Bernanke: Is It Time to Yank the Punch Bowl?
February 14, 2007 (Allan Murray - WSJ)

Less than a week after completing the Equity Office deal, Blackstone is well on its way to selling off half the property it bought, locking in billions of dollars in profit. Insiders believe the massive buyout will yield 30%-plus returns for Blackstone and its investors.

Should any of Blackstone's moves concern policy makers? Join the forum and give us your thoughts.

In normal times, a decision to dump $20 billion of office buildings onto the market might depress prices. Anyone remember the law of supply and demand? But these aren't normal times. Some analysts have argued with a straight face that Blackstone's gambit may actually accelerate office-price increases. That suggests buyers are willing to pay Mr. Schwarzman more because they think he knows something they don't.

AntiSpin: No, these are finance economy times. The reason that monetary authorities don't take away the punch bowl that's causing asset inflation is because in the Fed's view, asset inflation is an objective, not a problem. Wage inflation. Now there's a problem. High rents–those are bad, too.

And in normal times, tapping the mortgage-debt markets for four or five times as much money as has ever been raised there before, to finance a $39 billion real-estate extravaganza, might cause a meltdown. But today, that money flows like cheap champagne.

So think of Mr. Schwarzman's 60th birthday as a sign of the times. There is a big, bubbly investment party going on out there, rolling from one asset class to the next, inflated by remarkably easy credit. Or as Mr. Zell puts it: "We have a massive excess of capital."

AntiSpin: Yes, the Finance Economy is alive and well, and doing exactly what it is supposed to do: generate large capital gains at low tax rates for owners of assets, profits from the sales of which are in turn channeled back into the capital markets to create yet new sources of money for leverage. The process is not unlike the venture capital, dot com, IPO money amplifier of the 1990s, except the speculative asset in question is office buildings and EBITDA positive companies versus parodies of technology companies. That makes this finance economy money machine all the more dangerous, as far as we're concerned. A lot of people are employed by these now debt laden companies.

A venture capital firm is a bank that funds losses. We expect they are going to get a lot of competition soon, at least with respect to opportunities to fund losses. Big ones, and lots of them.

Ben Bernanke wasn't going to go to Mr. Schwarzman's party either. Instead, the U.S. Fed chairman had to prepare for his semiannual testimony before Congress, where he is likely to address two serious questions that arise from all this.

The first: Should the Fed take away the punch bowl before the party gets out of hand?

AntiSpin: Too late. The PE (LBO) party was "out of hand" two years ago.

Mr. Bernanke is an economic historian and knows that when the Fed tries to stop investor speculation, it gets in trouble. Witness the Fed's tightening in the late 1920s, and the dismal decade that followed.

AntiSpin: Greenspan tried that in 1994. Didn't work.

Moreover, the Fed chief argues the liquidity flooding today's markets isn't really a monetary phenomenon. The world's central banks, he believes, are doing a good job keeping money creation in check. And ultimately, it is excess money creation that leads to inflation -- the Fed's No. 1 enemy.

Instead, Mr. Bernanke argues that the funds flowing into investments are coming from what economists call the "real" economy. Fast-growing countries in Asia, and the oil-rich nations of Russia and the Middle East, are growing and earning money faster than they can spend it. The result is what Mr. Bernanke has called a "savings glut." The world's newly affluent, who might have stuffed their money in a mattress in an earlier era, now are parking funds in U.S. Treasury securities and driving down interest rates. That leads other investors, unhappy with low rates, to chase after higher returns, wherever they can find them.

AntiSpin: Correct on the first point. It ain't Fed money–it's money created by the latest Finance Economy money machine. Rich Chinese are not buying U.S. treasuries. Global central banks are, to prevent their nations' currencies from appreciating. Why aren't rich Germans buying? Italians, French, Dutch? Don't they get as much joy from placing their "excess savings" into U.S. debt?

Even if it isn't a purely monetary phenomenon, however, Mr. Bernanke surely sees the danger for the economy in this scenario. A glut of savings pushes interest rates down, bids up risky assets and prods investors to do things they otherwise wouldn't -- and probably shouldn't do. Moreover, measuring the central bank's creation of "money" is an imprecise art. Such measures aside, at some point plentiful credit buoys the economy and greases the way to higher inflation.

AntiSpin: Creates desirable Finance Economy asset inflation without the undesirable traded goods type, but even the good inflation can spill over into the Industrial Economy, to the extent that those of us who live in it have to eat, and sleep in a dwelling that we have to heat and insure.

The second question is more political than economic, and more difficult to answer: Will disaffected workers crash the party? Mr. Schwarzman's birthday party, and the swelling private-equity fortunes it symbolizes, are manifestations of the rising inequality that Mr. Bernanke referred to in a speech in Omaha, Neb., this month, and that he will certainly be asked about today and tomorrow.

Americans have long been willing to tolerate unequal economic outcomes, because of a faith that they, too, might someday have a shot at the brass ring. Recently, however, there are signs that faith is fraying. Financiers who celebrate fast fortunes made while workers face stagnant pay and declining job security risk becoming targets for a growing dissent.

AntiSpin: Ten points for Mr. Murray. As concluded in Economic Cognitive Dissonance, the long term problem with the Finance Economy racket is that it produces wealth inequality that can turn into a political nightmare if and when the music stops and the 90% of the population comprised of debtors looks for political solutions to their plight.

That is why investors will likely conclude, after listening to the Fed chief's two-day talkathon, that he is far more likely to raise short-term interest rates in the coming months than cut them.

AntiSpin: Don't tell that to Goldman Sachs. Today GS issued a report to clients today that predicts GDP will grow 2.3% this year, slightly below the 2.5% consensus. GS expects the Fed Funds rate to end the year at 4.25%, implying not one or two but three quarter point rate cuts this year.

GS sees the Industrial Economy slowing, with the rate of growth in Business Fixed Investment to decline from 7.4% in 2006, to 4.3% in 2007 and 4.0% in 2008. This causes the rate of increase in consumer spending to decline from 3.2% in 2006, to 3.0% in 2007 and 2.4% in 2008.

This prediction contradicts the consensus among those we talk to in the collateralized debt market, who are expecting, if any change, a rate hike or two. There is also an apparent internal contradiction in GS's expectations. We observe the not too hot, not too cold Bernanke body language on inflation and hear the upbeat blah, blah, blah on the economy. GS expectations take us from this benign outlook land to a scary place where the rates are cut and then back again to an expanding economy, with the story ending happily with 2.3% growth, full circle all in the span of ten months.

Does GS see something to trip the U.S. economy that no one else sees? It wouldn't be the first time.

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Last edited by Fred : 02-15-07 at 11:58 PM.; February 17, 2007 2:22 PM
Anonymous said...: Yesterday, 11:30 PM
EJ
Administrator Join Date: Jun 2006
Posts: 386

Diving for Pearls in a Sewer

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

April last year we warned in Risk Pollution that the banking industry had for years externalized credit risk costs the way chemical companies externalized toxic waste costs in the decades leading up to the chemical pollution crisis of 1960s.

A year later, as a few thousand carefully modeled but carelessly made property loans turn turtle, the toxic risk is starting to ooze out of the bottom of the credit market sea, in the form of sub-prime market loan defaults. As our qwerty pointed out, anyone trying to find good debt plays in the current risk polluted sea of bad credit is diving for pearls in a sewer.

Our Aaron Krowne's lender implode-o-meter site got some press this week from Bloomberg. Listed among his news links is this story from HousingWire, Mortgage Risk Exposes CDOs to Significant Potential Losses.
Risk in the U.S. mortgage market may have been severely understated for years, according to market analysts in a paper presented late Thursday at Hudson Institute, a public policy research organization.

Drexel University’s Joseph Mason and housing analyst Joshua Rosner from Graham Fisher & Co. unveiled new research which raises concerns that mortgage-linked collateralized debt obligations (CDOs) are exposed to significant and unanticipated losses if the U.S. housing market continues to stagnate.

CDOs are structured derivatives that aggregate existing securities, and the authors argue that MBS pools have become the predominant class of assets backing a majority of collaterized debt obligation issuance.

“The FDIC reports that 81 percent of the $249 billion of CDO collateral pools issued in 2005, or $200 billion, was made up of residential mortgage products,” the study said. “Moody’s CDO Asset Exposure Report for October 2006 reveals that 39.5 percent of the collateral within the 678 deals covered by Moody’s consists of RMBS, just over 70 percent of that in subprime and home equity loans and the other 30 percent in prime first-lien loans.”

Next week we publish an interview of Jim Finkel, CEO of Dynamic Credit. Dynamic compiles collateralized debt obligation (CDO) packages for investors, specializing in bond portfolios and hedge funds. Mr. Finkel has been in the CDO market for more than twenty years. He Numera Securities lead banker in starting 1992, helped form Bear Sterns' structure products group 1995, was a pioneer in the euro CDO market in 1998, and founded Dynamic Credit in 2005. Jim explains the current market for CDOs, and tells us what be believes is likely to transpire in the CDO market as the market for sub-prime and second homes goes through stress.

The highlights are that vintage 2006 mortgage loans are ugly, that the risks are in the sub-prime and second home markets, but that the CDO market will hold up if home prices nationally do not decline more than 15%, and if they decline 20% or more, all bets are off. Robert Shiller predicts such a 20% decline nationally is likely, and the lesser known Karl Case, as reported here, believes a greater than 20% price correction is virtually guaranteed.

Makes for an interesting interview. Look for it next week.

Our Sean O'Toole's proprietary data from his new company Foreclosure Radar–released today and only available here–shows the dollar volume of properties returned to lender at auction. Volumes were $543 million in September last year and... $1.3 billion in January 2007.

On careful inspection, it doesn't appear that this particular set of defaults conforms to model. Sean reports that vintage 2005 loans dominate the 3000 properties in January's count, not 2006. That makes sense, as three year ARMs are just starting to adjust from 2005. What does this bode for the 2006 vintage? Even worse, we'd guess.; February 17, 2007 2:32 PM
Anonymous said...: http://baldstars.fineststars.com/baldstar/index.htm

Britney Spears just shaved her head, so here is what the other stars look like bald. Fun sight, and nothing to do with anything.; February 17, 2007 3:31 PM
Anonymous said...: Lots of homes up for auction today in Beloit, Wisconsin.

http://www.proxibid.com/asp/Catalog.asp?aid=5922; February 17, 2007 3:42 PM
Anonymous said...: Nevada Lender Shuts Wholesale Unit

Silver State Mortgage

Late Wednesday closed its wholesale division, which funded $1.1 billion loans in the fourth quarter, a 52% increase from the volume in the same quarter last year.

The wholesale unit is based in California, a state whose mortgage community has been hammered by the current meltdown in the subprime market. As of MortgageWire's deadline, the company had not returned telephone calls about the matter. Silver State is a nondepository that funded home loans in several states, including the once red-hot Nevada real estate market.

According to the Quarterly Data Report, it ranked 36th among wholesalers in the third quarter. It also operates a retail division whose fate is unknown at this time.

http://originationnews.com/
plus/#5; February 17, 2007 8:42 PM
Anonymous said...: Washington Mutual axing 100
Stockton employees notified of cuts

Long Beach Mortgage became part of Washington Mutual in 1997.

Long Beach Mortgage is one of the nation's major subprime mortgage lenders, operating as a wholesale lender and catering to customers with unfavorable credit histories, high debt-to-income ratios or other circumstances that make it difficult for them to obtain home loans through traditional channels.

Past legal problems have forced the company to pay out large sums after being found guilty of gouging older, female and minority borrowers.

"Our decision is a reflection of the weakening overall of the subprime mortgage market," corporate spokesman Tim McGarry said

http://www.recordnet.com/
apps/pbcs.dll/article?
AID=/20070214/A_BIZ/
702140303; February 17, 2007 8:53 PM
Anonymous said...: WASHINGTON - Is a blowout taking shape in the impaired-credit mortgage market? Could lax underwriting standards during the housing boom years -- no verification of applicants' incomes or assets, low or no down payments, and big mortgages to people already saddled with heavy consumer debts -- finally be coming home to roost?

Delinquencies in the $1.3 trillion impaired-credit mortgage market hit 12.6 percent in the latest quarter, up from 11.7 percent. Delinquencies exceeded 13 percent among borrowers with subprime adjustable-rate loans.

One of the mortgage industry's top executives, Angelo Mozilo, CEO of Countrywide Financial, was quoted as saying "there's probably 40 or 50 (subprime loan originators) a day throughout the country going down in one form or another. And I expect that to continue throughout the year."

What's going on here? At a recent Senate hearing, a leading consumer-protection advocate, Martin Eakes, CEO of the Center for Responsible Lending, called the subprime market "a quiet but devastating disaster."

The "ultimate effects are very much like Hurricane Katrina," he said, but "the difference is that this disaster ... is occurring every single day across the country, house by house and neighborhood by neighborhood."

Eakes' organization published a study last month that estimated that 2.2 million overextended subprime mortgage borrowers will lose their homes to foreclosure -- a projection hotly disputed by the mortgage industry.

Eakes told the Senate banking and housing committee that subprime lenders have "virtually guaranteed" high levels of delinquency and foreclosures by offering borrowers excessively risky loans with teaser rates and low payments for the initial two or three years that later explode into sharply higher payments.

Lenders also have allowed unqualified borrowers to merely "state" -- not verify or document -- their incomes, putting large numbers of them into loans they should never have been granted, said Eakes. He quoted industry research that found that 90 percent of stated-income mortgage applicants "had inflated incomes compared to IRS documents," and that 60 percent of them exaggerated their incomes by 50 percent or more.

http://www.charlotte.com/
mld/observer/living/home/
16719928.htm; February 17, 2007 9:01 PM
Anonymous said...: Keith, You should put up that video of the mini race cars crashing as they come over the hill to that funny music. It is perfect for visualizing what is happening to borrowers as the greated ponzi scheme unfolds.; February 17, 2007 11:43 PM
Anonymous said...: “The story of this Iowan’s home refinancing was told to us by Iowa Assistant Attorney General Patrick Madigan. The woman was a so-called ’subprime’ borrower. The loan officer at this company made up a home-based day care, ‘Debbie’s Little Dolls’,’ Madigan said, even though Debbie had never even worked in child care. The lender made up the company name and years she had worked there, filled out the paperwork and showed up at Debbie’s house for her to sign the document.”

“When Debbie asked the lender whether it was OK to do this, the lender replied that companies did it ‘all the time,’ Madigan said.”

“Last year, more than 40 percent of subprime loans in Iowa were based on stated income.”; February 18, 2007 12:59 AM
Anonymous said...: “Tringali offered a number of homes and lots in Sarasota and Manatee counties for sale at the auction, but few bids came in at more than half of the property’s value during the boom.”; February 18, 2007 1:13 AM
Anonymous said...: “Mr. Margeson refers to the affair as his ‘$100,000 lesson.’ He notes that he ‘never saw people strong-armed to invest. The sad part is people lined up to invest their money. It was the whole furor of the real-estate market.’”; February 18, 2007 1:18 AM
Anonymous said...: This comment has been removed by a blog administrator.; February 18, 2007 1:24 AM
Anonymous said...: “Bay Area home prices slipped last month and home sales fell for the 24th month in a row, a real estate service reported. The Bay Area’s 6,168 sales of houses and condos last month were down 26.3 percent from December and marked the lowest total for any January since 1996, when 5,504 homes were sold.”

“‘We are scraping along the bottom of the market,’ said economist Christopher Thornberg. ‘Prices are going to languish in the nether zone for some time. I don’t see any substantial recovery on the activity side until 2010 or 2011,” he said.”

“LePage agreed, although he emphasized that DataQuick does not make market predictions. ‘The market almost never turns fast,’ he said. ‘There’s hope in some areas of the industry that we’re about to stabilize and coming up on hitting bottom, but I’m not convinced of that looking at the data.’”; February 18, 2007 1:31 AM
Anonymous said...: This comment has been removed by a blog administrator.; February 18, 2007 1:37 AM
Anonymous said...: “After 28 years of service, Pat Russell’s career at Hanson Realty ended in one meeting Thursday.”

“Tom Crowley, a real estate broker and spokesman for the new owner, said the action was a direct result of the downturn in the real estate market. ‘By my opinion we’re in a (real estate) recession,’ he said. ‘It was just a practical business decision.’”

“‘Nobody knew anything about it,’ said former Hanson agent Lynn Genovese. ‘They came in and said, ‘Bye, bye.’”; February 18, 2007 1:39 AM
Anonymous said...: “The glut of vacant houses is readily apparent throughout the Northern San Joaquin Valley, as bank foreclosures and former rental homes flood the for-sale market.”

“For 10 months, Harold and Donna Suender have tried to sell their empty Salida house. When they put the 2,305-square-foot home on the market in April, they priced it at $515,000. But the slumping real estate market has forced them to repeatedly lower their price. This week, they dropped it again to $399,996.”

“‘I’ve never seen anything like this,’ said Harold Suender, who bought a new home in Riverbank before the market turned. ‘That (near 20 percent price reduction) is a lot of money, but we have to get it sold. We can’t cover two house payments forever.’”

“Their renter moved out shortly after the home went up for sale. So no money is coming in. ‘Probably the smartest thing to do is try to rent it again, at least until the market comes back up,’ Suender said. ‘But I don’t know how the rental market is now.’”

“The answer to that is: Not good. ‘The rental market is very soft and very tough right now … and it’s deteriorating,’ said Paula Leffler Zagaris, who handles about 1,500 rental homes in the Northern San Joaquin Valley. Zagaris estimated that a home in Salida such as Suender’s now would rent for about $1,250 a month… because so many homes that have lingered on the sales market have started flooding the rental market.”

“Since the oversupply of rental property has pushed down rents, many former rental-home owners are trying to sell instead. ‘I get at least five or six calls a week from investors who want to know how much their rental home is worth. Then, when I give them the price, they get really quiet,’ said Mary Prieto, an agent who sold 80 homes in Stanislaus County last year.”

“Prieto said nine of her current 28 listings are vacant homes. Some are former rentals, but most are houses owned by people who bought elsewhere and since have been unable to sell.”

“Another reason behind the surge in empty homes, Prieto said, is the region’s rapidly increasing foreclosure rate. ‘I would say more than half the vacant homes on the market are owned by banks that have repossessed them,’ Prieto said.”; February 18, 2007 1:45 AM
Anonymous said...: “A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. and J.P. Morgan Chase.”

“In recent weeks, warnings from banking giant HSBC Holdingsand New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls. Accredited Home Lendershas had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.”

“‘We have eight different warehouse lenders; I would say the majority of them are acting very rationally,’ Marvin said. ‘There is one that is acting somewhat irrationally, although I won’t mention them by name.”

“Industry publication National Mortgage News said this week that Merrill Lynch has been making margins calls. A Merrill spokesman declined to comment. In late January, J.P. Morgan CEO Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.”; February 18, 2007 1:55 AM
Anonymous said...: “In recent months, as home-price appreciation fell and borrowers faced rising interest rates, more people defaulted on their mortgages. Under mortgage contracts, mortgage originators must often repurchase loans that default very early in their term or that come with underwriting mistakes, such as flawed property appraisals.”

“‘Following early payment defaults, we exercised our contractual rights to return loans to ResMae and protect our financial interests,’ a Merrill spokesman said.”; February 18, 2007 1:58 AM
Anonymous said...: “Mortgages were written for a fee, sold to investment banks for a fee, then packaged and floated for another fee. At each link in the chain, the fees mattered more than the quality of the loans, which could always be passed on.”

“‘This was classic market failure,’ says Anthony Sanders, a mortgage expert at Ohio State University’s Fisher College of Business. ‘The private sector wanted fees and got them, and they did not much care what happened afterwards.’”; February 18, 2007 1:59 AM
Anonymous said...: “Many in the media have opined that the bears ‘don’t understand the conditions under which real estate markets collapse, and these conditions (suggestive of a broadening credit problem) are not present.’”

“It appears that the principal reason these observers are ignoring the subprime problem and its ramifications is that the equity markets are ignoring them. Ergo, it must not be a problem. This is the definition of a Goldilocks mindset (see no evil, hear no evil), not a Goldilocks scenario.”

“There is an emerging credit crisis and it will lead to rapidly rising charge-offs. Construction lending on land and condominium loans are the next area to implode. As night follows day, the enormous securitization markets will shortly begin to demonstrate the same sort of delinquencies we have witnessed in subprime mortgage lending.”

“Restrictive credit practices are just beginning to unfold as a consequence of the poor underwriting standards applied over the last decade.”; February 18, 2007 2:01 AM
Anonymous said...: “Tringali’s 253-acre tract near Myakka City was bought by an unidentified Manatee County rancher for $6,500 per acre. That is is $5,500 less than the $12,000-per-acre price Husani paid for the property in August 2005 and $23,500 less than the $30,000-per-acre price Tringali supposedly paid a week later.”

“If it accepts that price, Coast Bank, which loaned $4.94 million to Tringali in August 2005, would have to take a $3.3 million loss.”; February 18, 2007 2:11 AM
Anonymous said...: “Just trying to sell a deluxe downtown condo is no picnic in this market. Yet a few developers in Dorchester and Roxbury are finding buyers willing to shell out big numbers as if it were the summer of 2005 all over again. But hold the champagne.”

“Many of those buyers are facing foreclosure after signing up to buy not one, but two, three or four units for numbers well higher than $1 million. Sometimes the foreclosure notices are arriving before anyone has even moved in.”

“These developers appear to have recruited their own pool of live bodies ready to sign off on whatever mortgage paperwork they are shown. The developer walks away with a big sale. A profusion of easy, ’stated-income’ loans makes it all possible.”

“‘When you couldn’t put together a legitimate deal (anymore), you had to sell scams,’ Dorchester housing researcher John Anderson said of real estate downturn. Anderson has identified three or four groups of speculators who are scoring big at a time when most are not even scoring at all.”

“These real estate wheeler-dealers have bought and quickly flipped at least 150 to 200 units. The prices are often more than $300,000, or even $400,000, not bad for tough neighborhoods in a down market. As many as 30 units are now mired in foreclosure proceedings, often just a few months after the sale. It’s about as fast as a mortgage can go into default.”

“This suspicious sales boomlet is producing what should be a statistical impossibility, two and often three condos in a triple-decker all facing foreclosure at the same time. Examples can be found on Park, Dix, Armedine, Draper and Bowdoin streets.”; February 18, 2007 2:14 AM
Anonymous said...: “For the first time in a decade, the median price of an Orange County home failed to post a gain from the year before, falling to $600,000 in January, DataQuick reported. It also was the sixth month-to-month price drop since the median hit a record high of $642,500 in June, and was the lowest median in a year.”

“‘It could have been worse,’ added Jan Brueckner, professor of economics at UC Irvine. ‘We could be San Diego.’”

“Chapman University economist Esmael Adibi believes Orange County is on the verge of seeing negative annual price appreciation. Indeed, prices may already be in negative territory since DataQuick’s figures don’t reflect the concessions homebuilders are offering new home buyers in lieu of cutting their recorded prices.”

“‘The median is not really reflecting what’s going on because of that,’ said Adibi.”; February 18, 2007 2:22 AM
Anonymous said...: “San Diego County housing prices slid a bit further last month, returning to mid-2004 levels, as buyers pressed for more concessions from builders and discounts from sellers.”; February 18, 2007 2:25 AM
Anonymous said...: “‘The real estate bubble has effectively burst as sales have collapsed and price appreciation has subsided,’ Schniepp’s forecast said.”; February 18, 2007 2:27 AM
Anonymous said...: “DataQuick analyst John Karevoll said Southern California continues to have a glut of unsold homes, created in large part by sellers still trying to capitalize on a market peak that has passed. ‘Half are unrealistically priced,’ said Karevoll."; February 18, 2007 2:30 AM
Anonymous said...: “Major financial firms like Merrill Lynch, which bought large amounts of high-risk, high-return mortgage loans in 2005 and 2006, are now trying to force the firms that originated those loans to buy them back, The Wall Street Journal Online reported. The moves reflect the increasing numbers of Americans who are falling behind in their mortgage payments.”; February 18, 2007 2:33 AM
Anonymous said...: “Accredited Home Lenders Holding Co., which sells mortgages to customers with poor credit, on Wednesday reported a loss of $37.8 million for the fourth quarter of 2006.”

“The company’s financial performance, combined with the declining subprime lending market, has led Accredited to put a stronger emphasis on screening subprime borrowers to make sure that they can repay their loans, the company said Wednesday.”

“Joseph Lydon, the company’s COO, speaking during a telephone conference, said that the subprime market could get worse before it gets better. ‘Unless the market moves the way it should, there will be plenty of additional blood flowing in the streets,’ he said.”

“Keith Gumbinger, a VP at the mortgage research firm HSH Associates, said the declining housing market, combined with loose lending standards during the last two years, have come back to haunt the subprime market. However, he said, the current industry troubles could be beneficial in the long term.”

“‘We are going to see more losses as 2007 goes on, (and) more companies could close their doors,’ he said. ‘This is the first step toward getting back to lending sanity.’”

“Gumbinger said no one should be surprised that subprime customers are defaulting on loans: ‘They got that way for not paying their bills in the first place.’”; February 18, 2007 2:38 AM
Anonymous said...: “During the housing boom, scores of lenders entered the niche business of making loans to borrowers with tarnished credit. The increased competition for loans led to easy credit. There are only so many people in that market, said Lou Galuppo, at the University of San Diego. ‘The only way to enlarge the market is to drop the (credit) score.’”

“‘I just don’t think there’s a whole lot of room for anyone in the business to continue to book bad loans,’ Lydon said. ‘The buyers of the loans are putting them back fairly quickly’ if they default.”; February 18, 2007 2:42 AM
Anonymous said...: “Former Federal Reserve Chairman Alan Greenspan said the U.S. housing slowdown may be coming to an end, citing sales of new homes. ‘I think the worst is behind us,’ Greenspan told a Toronto conference.”

“‘The worst of the adjustment is over, meaning not that the market is turning,’ Greenspan said, ‘but that the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.’”

“Greenspan also said ‘disarray’ in the U.S. subprime mortgage market, which serves borrowers with weak credit who typically pay higher interest rates, isn’t likely to create greater financial instability in the rest of the economy.”

“‘We do have a problem here; it’s probably not over,’ Greenspan said. ‘It may actually infect some parts of the prime mortgage market, but there’s no real evidence that this is a significant issue.’”; February 18, 2007 2:44 AM
Anonymous said...: “The slump in housing deepened in the final three months of last year with sales falling in 40 states and median home prices declining in nearly half of the metropolitan areas surveyed, a real estate trade group reported Thursday.”

“The National Association of Realtors report showed that the biggest declines were in former boom areas.”

“Median home prices fell in 49 percent of the 149 metropolitan areas surveyed in the fourth quarter, compared to the same period a year ago. That was the largest percent of metro areas reporting price declines since the Realtors began tracking price data in 1979.’

“David Lereah, chief economist for the Realtors, said he believed the data shows that housing, which had enjoyed a five-year boom, was bottoming out in the final three months of last year.”

“‘This information confirms 2006 was the year of contraction and hopefully the fourth quarter was the bottom,’ Lereah said. ‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.’”; February 18, 2007 2:47 AM
Anonymous said...: “Hundreds turned out to a Long Island Marriott Hotel to hear one of several presentations that led many northeastern investors into perhaps the biggest financial catastrophe of their lives. As the historic 2003-05 Florida real estate boom peaked, Seashore Resorts LLC and its agents regaled investors with stories about…the potential for 30 percent annual returns on residential real estate.”

“Seashore pitched ‘100 percent spec investor pre-construction loans’ requiring little or no money down so long as the investor had good credit: a score of 680 or higher. By the time most investors were brought aboard, the music had all but stopped, along with the work on their homes.”

“Scores of investors are now preparing to go to court, saying they were swindled and sucked into a deal where they lost control of their credit lines. They say that Bradenton’s Coast Bank, now wrestling for its own survival, did not adequately supervise the loans, allowing large draws by Construction Compliance Inc, with no proof that work had been done.”

“At first, many deals worked out in the booming Florida housing market of the last several years. Investors watched as friends made killings, and those tales of success drew more friends, family and club members into the fold.”; February 18, 2007 2:54 AM
Anonymous said...: “The quick sale of homes for a fast buck is fading rapidly in Florida and even faster in Central Florida. Sales of homes owned less than six months fell again in the fourth quarter, as flat home values continued to cool the practice of speculative, quick sales known as ‘flipping,’ according to a company that tracks sales and home values.”

“Speculators’ ability to make money on a quick sale has plummeted, Ela said. The company’s analysis of Florida sales found that the number of flippers who lost money on their gambles more than doubled last year, from 10.4 percent in 2005 to 24.4 percent. ‘That’s a big jump,’ said HomeSmartReports President Mike Ela.”

“Of those speculators who lost money on a Florida home sale, the median loss was $23,250 in the most recent quarter, up from about $15,000 a year earlier. ‘They were losing more money every quarter,’ Ela said.”; February 18, 2007 2:56 AM
Anonymous said...: “Almost three years ago, Al Vazquez bought a historic fixer-upper next door to him in the Parker Ridge neighborhood of West Palm Beach. He transferred his homestead exemption to the new house, then watched in disbelief as the property taxes on the first home ballooned to $3,500 from $650.”

“Carrying two mortgages, Vazquez recently tried to unload the tiny home off Forest Hill Boulevard to a friend for about $200,000, or about 20 percent below market value. ‘It would have been a steal,’ Vazquez said, ‘but his property taxes would have doubled.’”

“After almost three years of frustration, Vazquez said he can’t wait for the day his home sells. ‘We just want to get rid of it and go on vacation.’”; February 18, 2007 3:00 AM
Anonymous said...: “A Tampa title agency under investigation by state and federal authorities for its role in questionable property transactions has closed. Ocean Title’s sole underwriter, Houston-based Stewart Title Guaranty Co., terminated its relationship with the company in November, two weeks after The Tampa Tribune published a story detailing how the agency handled some of the sales.”

“Stewart ‘has continued to cooperate with the various investigative agencies,’ Susanne Hawkins, regional claims counsel, said in a statement Wednesday.”

“The Tribune’s story in October detailed 36 area homes sold over seven months by Tampa real estate agent Dawn L. Molen. Her buyers, most from Indiana and in an investment club, consistently paid $50,000 to $70,000 more than the sellers were asking.”

“All the deals were closed by Ocean Title, and the money beyond the seller’s price, an average of $60,000, was paid as an ‘assignment fee’ to third parties associated with Molen.”

“The story prompted investigations by the state attorney general’s office and three other state agencies. Stewart representatives have said the FBI also is investigating. Nina Banister, spokeswoman for the Florida Department of Financial Services, which oversees title agents and agencies, said its investigation is ongoing. ‘It is very active,’ Banister said.”

“Amity Bernhard, an officer of Ocean Title, said the company closed because it could not do business without an underwriter. ‘We haven’t been indicted, but because of the bad publicity … the business I worked so hard to build is now defunct and all my employees have been laid off.’”; February 18, 2007 3:05 AM
Anonymous said...: “Five-Fifteen Park Avenue has everything one could want in a Manhattan home. But on most days, the limestone and beige-brick tower at the elegant Upper East Side address lacks one thing: many of its residents. More than half of the building’s 35 units belong to absentee owners.”

“‘It can feel a little empty,’ says Las Vegas developer and billionaire Phillip Ruffin.”

“A number of the 180-plus residences at the Time Warner Center condominium belong to absentee owners. Thomas Siebel, who paid $28 million for his full-floor home, has rarely been there since buying it early in 2006, say real-estate professionals. The condo fees and taxes on the 79th-floor unit total almost $20,000 a month.”

“Michael Linn recently spent about $2.3 million for a Manhattan residence. He says he bought the Manhattan home for convenience, but ‘putting money in New York real estate was an important investment for us.’”

“The occasional occupants are troubling to some full-time residents, who say their buildings are left depressingly hollow. ‘It deadens the whole neighborhood,’ says Keith Irvine, a long-time Upper East Side resident. ‘You sometimes get a sense that whole streets are deserted.’”; February 18, 2007 3:07 AM
Anonymous said...: Study shows the housing market has peaked not bottomed.

http://www.bankrate.com/
images_MRA/charts/
nar-chart.gif

More than half the cities in the U.S. experienced housing price declines in the fourth quarter of 2006, a new report says, confirming what home buyers and sellers have known for many months: The once hot housing market is in serious decline.

Prices fell in 73 metropolitan areas surveyed by the National Association of Realtors; they rose in 71. Five were unchanged. Two states that had the biggest declines were Ohio, where the loss of manufacturing jobs has shredded the economy, and Florida, which had enjoyed stratospheric price appreciation during the housing boom.

In addition to the price declines shown by the National Association of Realtors' fourth-quarter report, the volume of sales also plummeted compared to the last quarter of 2005. Total home sales, seasonally adjusted, were at 6.24 million units, down 10.1 percent.

http://www.bankrate.com/
brm/news/mortgages/
home-values1.asp; February 18, 2007 6:26 AM
Anonymous said...: Japan's currency last week plunged to a 21-year low on a trade-weighted basis.

With its ultra-low interest rates, Japan has become a massive "easy-money" machine for the rest of the planet.

The resulting liquidity boost has flattered asset prices everywhere, pushing major stock markets to multi-year highs while fuelling booms in housing and commodities too.

As Chrysler, GM, and Ford are telling US workers they have no jobs because the artifically low Yen gives the Japanese competitors an unfair advantage.

Will this new US Congress be any better then the last do nothing Congress.

Will this new US Congress be able to force a change to BOJ decision this Wednesday as everyone in the streets knows that BOJ will not raise rate unless US Congress force it to do so.; February 18, 2007 6:51 AM
Anonymous said...: Keep in mind bubble sitters that exchange rates are not determined by the markets, and unless BOJ start raising interest rate no bubble will ever callapse it only goes to another asset class ie Dow.

That is why Greenspan fail to stop the bubble in 1994, because he could not influnce the Bank of Japan to raise their interest rate.

You seen the effect of the Dot com bubble, and you are witnessing the effect of the subprime bubble.

Unless BOJ start raising rate to the 2 to 3 percent we will all witness that this bubble will only move to one place to anther place. This bubble will only grow larger and larger until Central Bankers around the World find itself between a rock and a hard place when it lose control (the point of no return when lowering interest rate has no impact to stimulating spending).

The US as the Leading Currency Manipulator

Reflecting popular misconception, the Senate Banking Committee focused its hearing on exchange-rate policy with a flawed assumption that market-determined exchange rates would solve the problem of US trade deficits.

Yet market exchange rates are determined by government interest-rate policies. And the very concept of a government exchange-rate policy is fundamentally opposed to the concept of free markets.

For the global marketplace to be truly free and fair, all currencies must be equally subject to the impartial discipline of market forces.

Yet despite neo-liberal rhetoric, no government today or even in history, particularly the US government, leaves the exchange rate of its currency to market forces.

In reality, market forces anticipate and respond to government tax and trade policies as well as central-bank deliberations on interest-rate moves.

The differences among the exchange-rate policies of different governments reflect the differences in each country's economic, financial and monetary conditions as well as political ideology, social structure and societal values, but all governments manipulate the currency market to sustain the exchange rates of their currencies at levels best suited to their separate national needs.

www.globalresearch.ca/
index.php?context=
viewArticle&code=
LIU20070215&articleId=4816; February 18, 2007 7:28 AM
Anonymous said...: The dollar slipped to the lowest in almost six weeks against the euro on Wednesday after Federal Reserve Chairman Ben Bernanke told Congress that inflation risks started to diminish, boosting chances of an interest rate cut this year.

So why the recent change of heart?

Federal Reserve Chairman Ben S. Bernanke yesterday rejected a Democratic lawmaker's suggestion that he consider cutting interest rates to bolster the economy.

But the Fed also thinks inflation is too high and might go higher, Bernanke said. If he and his colleagues adjust borrowing costs in coming months, they are more likely to raise rates than lower them.

www.washingtonpost.com/
wp-dyn/content/article/2007
/02/15/AR2007021501750.html; February 18, 2007 7:52 AM
Anonymous said...: Inflation or no Inflation?

The US Consumer Price Index for January will be released by the Bureau of Labor Statistics on Wednesday at 1330 GMT.; February 18, 2007 8:03 AM
Anonymous said...: Plan it well Bernanke, plan it well.

Weave A Seamless Blend of Fact and Fiction: Misperception strategies.

Since no creature can survive without the ability to see or sense what is going on around it, make it hard for your enemies to know what is going on around them, including what you are doing. Feed their expectations, manufacture a reality to match their desires, and they will fool themselves. Control people's perceptions of reality and you control them.

Is Bernanke playing the role of a Hawk when he knows that he has to cover for a subprime crisis?

Bernanke is probably more fearful of a speculative mad rush out of the US Dollar and is probably trying to disguise his plan.

Jim Cramer is right Subprime May Give Fed a Crisis Cover.

Read Jim Cramer's article

Bring on the bad!

I wish the bears understood how important subprime lending is to my thesis about the market going higher. But then again, if they did, they would be forced to cover everything.

For as long as I have been at this game, it has taken a crisis for the Federal Reserve to move. The Fed is always reluctant to move because it needs the crisis as a cover so it doesn't look like it's soft on inflation. Maybe you think we have good growth in this country; I think we just have easy retail comparisons because of nat gas and gasoline bills being down but that in reality we're in a slump that the international portions of our great businesses are saving.

That's not enough for the Fed to cut on. That's not obvious enough.

Ah, but if all of the subprime lenders pull out of that market and if Merrill (MER - Cramer's Take - Stockpickr - Rating) and Bear (BSC - Cramer's Take - Stockpickr - Rating) and Lehman (LEH - Cramer's Take - Stockpickr - Rating) -- big subprime lenders via acquisition -- start saying "it's a crisis" and New Century (NEW - Cramer's Take - Stockpickr - Rating) goes belly-up or Accredited Home (LEND - Cramer's Take - Stockpickr - Rating) takes down a big part of its book value or Countrywide (CFC - Cramer's Take - Stockpickr - Rating) leaves the business -- then we'll have a crisis that can justify not one but maybe three or four cuts.

When you have the housing industry building a fraction of the homes it was building and credit hard to come by, you are giving Bernanke the crisis cover he needs.

Some of my friends who read RealMoney are freaking out about the negative columns that are being written about how dangerous this subprime crisis is. I'm taking those columns very seriously, which is why I am growing more bullish by the day. The fact that the Fed chairman bought into it today in front of the House of Representatives shows me that the Congressional drumbeat -- remember, prime is Republican, subprime is Democrat -- could be building and building fast.

Am I Mr. Brightside? No, I believe that subprime's awful, even worse than the bears think. When I look at the cancellations that a KB (KBH - Cramer's Take - Stockpickr - Rating) or a Toll (TOL - Cramer's Take - Stockpickr - Rating) has, I know that the same rate applies to those who took these loans down. That's maybe 30%-40%, not the 7%-10% default that their models presume when employment is this low.

If anything, they're saying there might be a fire. I say it's raging, which is why I believe the crisis is about to give us that May cut that I am counting on to take the Dow up 17% this year.

http://www.thestreet.com/
_googlen/newsanalysis/
investing/10339453.html?
cm_ven=GOOGLEN&cm_cat=
FREE&cm_ite=NA

The fundamentals says start shorting the dollar
and get a jump on the big boys.

But how long can Foreign Central Bankers keep on buying the US dollar to stop this fundamental from occuring.

In the back of their mind Foreign Central Bankers realize the end game is near for the ability of US consumers to take on more debt.

Perhaps the US consumers can take on one more interest rate cut cycle, but that would mean US Fed fund rate would have to go to zero percent to save the subprime lenders.

What will the impact be on the unwinding of the Yen Carry Trade as US Fed fund rate equal that of BOJ?; February 18, 2007 8:48 AM
Anonymous said...: “Dale Erwin, broker in Fort Worth, said his own neighborhood of 200 homes in west Fort Worth has been affected by foreclosures. Erwin said he and his neighbors have seen about 15 foreclosures in the past year. He figures that the less than 8-year-old homes had appreciated by 10 percent to 15 percent at one point. ‘Now they’re back to where they were,’ he said.”

“The economy in the Metroplex has been steady since the 2001-2002 slump, and the rates of illness and divorce have not changed enough to explain why foreclosures have tripled.”

“David O’Brien Jr., executive director of the nonprofit Housing Opportunities of Fort Worth said the market has seen a stratospheric rise in mortgage fraud and in the default rate of subprime loans, typically written at a higher interest rate for people with the lowest credit scores.”

“‘Someone will loan you money for anything in this country,’ O’Brien said. ‘The thing is finding out how much that money will cost you.’”

“Appraisers get pressure from lenders and homeowners to meet a certain price so that the loan will go through. ‘It happens daily, hourly,’ said Greg Stephens of LandSafe Appraisal Services. ‘It’s rampant.’ He said he has seen mortgages taken out for $100,000 more than the recorded sales price.”; February 18, 2007 4:53 PM
Anonymous said...: Buy gold & pray

“‘In recent years, investor thirst for the higher yields of mortgage-backed bonds has allowed lenders to relax credit standards,’ Dotzour said. ‘Many people who have bought homes in the past five years would never have been able to buy a home at any other time in our country’s history. It stands to reason that you are going to have more foreclosures.’”

“So who will lose when the expected tsunami of foreclosures washes through the system? Dotzour said…hedge funds, pension funds and endowment associations that have been chasing yield by accepting more risk, or large commercial banks offering complex derivatives to allow traders to hedge their risk in mortgage bonds are likely to feel the pinch.”

“‘It’s safe to say that nobody knows exactly where the ultimate risk really lies in the financial markets,’ Dotzour said. ‘Look at how long it is taking Fannie Mae to get their accounting straightened out. There is no way a layperson will ever be able to understand the risk they take when they buy stocks in large financial institutions.’”

“Dotzour said price pressures on foreclosure sales could retard equity growth for other neighborhood homeowners, many of whom have bought homes with a small down payment. With negative equity, these homeowners may not be able to sell their homes if they need to.”

“‘We have seen the good parts of the social experiment in expanding the credit risk of mortgage borrowers,’ he said. ‘We may be getting ready to see the consequences.’”; February 18, 2007 4:57 PM
Anonymous said...: Keith, a new word for the HP vernacular:

"Bubbleotomy" Getting one's head handed to themself for believing the REIC and buying into a speculative housing market.; February 18, 2007 5:06 PM
Anonymous said...: “New home construction is way down in the Richmond area. But that is good news, said David Lereah, chief economist for the National Association of Realtors. ‘You want to see construction activity down when real estate is contracting so much,’ Lereah said during a visit to Richmond last week. ‘Richmond is looking a lot better than most areas of the country,’ he said.”

“Speculative investors, who got into the market to make a fast dollar, turned the recent boom into a frenzy, Lereah said. ‘When lenders offered exotic mortgage loans, that was fuel for the fire.’”; February 18, 2007 5:11 PM
Anonymous said...: Inflation or no Inflation?

The US Consumer Price Index for January will be released by the Bureau of Labor Statistics on Wednesday at 1330 GMT.
+++++++++++++
According to the Shadow Statistics website, the rate of inflation is actually 6%. So no matter where the flaky CPI ends up, Bernanke needs to raise the interest rate to save the US Dollar.

http://www.shadowstats.com/cgi-bin/sgs; February 18, 2007 7:50 PM
Anonymous said...: Well, as it turns out, Kiplinger Magazine ran an article based on Cheney’s financial disclosure statement and, sure enough, found out that the VP is lying to the American people for the umpteenth time.

Deficits do matter and Cheney has invested his money accordingly.

The article is called “Cheney’s betting on bad news” and provides an account of where Cheney has socked away more than $25 million. While the figures may be estimates, the investments are not.

According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in “a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund.

The first two hold up if interest rates rise with inflation. The third is protected against inflation.”

Cheney has dumped another (estimated) $10 to $25 million in a European bond fund which tells us that he is counting on a steadily weakening dollar.

So, while working class Americans are loosing ground to inflation and rising energy costs, Darth Cheney will be enhancing his wealth in “Old Europe”.

As Blackburn sagely notes, “Not all ‘bad news’ is bad for everybody.”

http://www.infoshop.org/
inews/article.php?story=
20070218082106650; February 18, 2007 8:05 PM
Anonymous said...: Bubblelectomy losing one's nutsack to a speculative market; February 18, 2007 8:13 PM
Anonymous said...: With such extensive US media control and propaganda, are we really free? What are they not telling us? Watch Video Pass it on and help free our media.; February 18, 2007 8:32 PM
foxwoodlief said...: Annonymous, your post on Ft Worth seems to think the problem is lending...that is only part of the problem. Texas has a high foreclosure rate because of their regressive tax laws that put an un-due burden on homeowners to fund the state's expenses via property taxes. The Achilles heel of Texas is those taxes. The homes are not cheap when the property tax is taken into account as it doesn't reflect one's ability to pay, like an income tax.

Texas gave us Bush, can anything good come out of Texas? Not as long as the Republican's rule and the legislature continues to rob Texans of the thier wealth and their homes through a regressive tax system. Texas could be a great and dynamic economy if they reformed their tax laws to give relief to property owners (corporate and residential), until then, they will always remain at the top of the list for foreclosures.; February 18, 2007 8:44 PM
Anonymous said...: Did you mean FONZI, not ponzi?; February 18, 2007 11:13 PM
Anonymous said...: WASHINGTON, Feb. 16 LAWFUEL - Class Action Litigation News -- Klafter & Olsen LLP announces that
it has filed a class action lawsuit in the United States District Court for the Central District of California on behalf of purchasers of the common stock and other securities of New Century Financial Corp. ("New Century" or the "Company") (NYSE: NEW) who purchased during the period from May 4, 2006 through February 7, 2007, inclusive (the "Class Period").

The claims against New Century and certain of its officers and
directors allege that the defendants violated the federal securities laws
by making false and misleading statements and omissions concerning the
Company's operations and financial results for the first three quarters of
2006. New Century, a mortgage finance company, makes substantial amounts of
residential mortgage loans.

It does not hold these loans but sells the
loans to banks and investors. The purchasers can require New Century to
repurchase loans which become troubled.

On February 7, 2007 the Company shocked the market by announcing that
it was going to restate its financial results for the first three quarters
of 2006 because the Company had failed to account for all of the
re-purchased loans, and had failed to properly reduce the value of the
loans repurchased.

The Company was forced to admit that its financial
statements could no longer be relied upon.

As a result of this unexpected
news, New Century shares slumped to a 52-week low, plunging $10.92, to
close at $19.42 per share a decline of over 36% on extraordinary volume of
over 25 million shares.

However, before that announcement, Company insiders
sold more than $26 million worth of their personal holdings during the
Class Period.

http://www.lawfuel.com/
show-release.asp?ID=10749; February 19, 2007 1:24 AM
Anonymous said...: For One Condo Developer,
Boom Ends With Arrest

The condominium boom that ended last year made a lot of developers very rich. Aleem Hussain, a journeyman property salesman with a winsome personality, wanted to be one of them.

He formed his real-estate company in 2004, calling it Main Street USA, after a nearby Disney World attraction. He bought a complex of 27 aging, two-story apartment houses in Orlando and set out to convert them into condos. His timing looked favorable.

That year, for the first time, the average price of a condo in the U.S. exceeded that of a single-family home, and in the Orlando area, condo and house prices jumped 15%.

But not much has gone as planned for Mr. Hussain, 42 years old, nor has it for his hundreds of investors, who include a bunch of local sheriff's deputies.

Today, Mr. Hussain's company is being liquidated by a federal bankruptcy court, and he is residing in the Seminole County jail, charged with 23 counts of federal mail and wire fraud.

Mr. Hussain's rise and fall illustrates one of the hazards of a frothy property market: inexperienced developers get in over their heads and drag unsophisticated investors down with them.

"Schoolteachers, cops, doctors, priests, everyone thought they were Donald Trump," says Lewis Freeman, the court-appointed trustee administering Main Street's bankruptcy proceeding.

Mr. Hussain's company, he contends, was a "microcosm of the total market. You had a lot of unqualified people getting easy money and able to go into businesses in which they didn't know what they were doing."

Mr. Hussain's 300 or so investors face potential losses of up to $400,000 apiece. Alan Cayo, 76, a retired Army officer who says he invested his "entire life savings" of $280,000 with Mr. Hussain, conjectures that the developer crossed the legal line only after financial problems began mounting. "It was incompetence, fraud, plus the market going down -- a triple whammy," he says.

Mr. Hussain and his partners formed "No-Fee Realty" to broker condo sales, and two subsidiaries, "USA Mortgage" and "Main Street USA Mortgage," to broker mortgages and home-equity loans, in some cases to enable property owners to invest in condos.

http://www.realestatejourna
l.com/buysell/regionalnews/
20070216-frangos.html?
refresh=on; February 19, 2007 1:37 AM
Anonymous said...: The Vice President has virtually no official power. He has no power to change the situation except perhaps by giving speeches.

All he can do is sit by and watch the destruction that the Federal Reserve and Congress (by borrowing money) have wrought on the United States.

He's very low on the scrotum pole of who is to blame here.; February 19, 2007 5:55 AM
Anonymous said...: According to the Shadow Statistics website, the rate of inflation is actually 6%. So no matter where the flaky CPI ends up, Bernanke needs to raise the interest rate to save the US Dollar.

http://www.shadowstats.com/cgi-bin/sgs
++++++++++++
And if Bernanke starts lowering interest rates, we'll end up with another 30% loss in the value of the dollar that we first saw after 2001 when interest rates began their first descent....; February 19, 2007 6:58 AM
Anonymous said...: The latest HOT MARKET story from the NYTimes...My favorite quote is where a "bedding designer"...(yup...you're gonna do well in a recession)...was looking for a 750K place and says that she wishes she had started looking before Thanksgiving.

WOW

http://tinyurl.com/2d3f7w; February 19, 2007 7:42 AM
Anonymous said...: and for the Goldbugs.

http://tinyurl.com/3c9o2m; February 19, 2007 8:04 AM
Anonymous said...: "...But hopes, such as those expressed by Federal Reserve Chairman Ben Bernanke in congressional testimony this week, that a bottom in the housing market has been reached will have to be reconsidered in light of January's starts and permits data. " - By Rex Nutting, MarketWatch; February 19, 2007 4:02 PM
Anonymous said...: Anonymous said... February 08, 2007 6:08 PM "If housing were a good investment, the government wouldn't have to give the mortage interest deduction to get you to buy it."

It's a tax avoidance scheme. There was a time when only the rich could buy property, so the deduction was created so they didn't have to pay tax. It's one of the last ones left. Probably because it's a good way to convince the poor that it's a good idea to get a no-doc, interest only 50yr ARM to buy an overpriced house...; February 19, 2007 4:13 PM
Anonymous said...: Live the American dream!

Buy a home you can't afford, pay nothing on it, bring on the lawsuits against anyone involved in the lending process!

I'm so Proud!; February 19, 2007 4:17 PM
Anonymous said...: Keith reminds us that everything is related. Others on this blog talk about the law of unintended consequences. Read this to know more about the consequences of exporting all those dollars to China.

http://tinyurl.com/2f3aph; February 19, 2007 5:39 PM
Anonymous said...: The New Road to Serfdom

An illustrated guide to the coming real estate collapse

By Michael Hudson; February 19, 2007 6:05 PM
Anonymous said...: Is it time to rethink how you build your wealth?

A new study finds that the returns on stocks and bonds beat home value gains -- despite the recent housing boom.

Over the more than 40-year period, real compound returns on stocks outpaced that of residential real estate, according to the study, with 5.95% average annual returns on stocks compared with 1.35% in realty. A dollar invested in stocks in 1963 would have compounded to $12.36 by 2006, while the same dollar would have grown to $1.79 in real estate.

http://biz.yahoo.com/cbsm/070214/
6c85ce03eabe46e6ac8c04bcfbb670d0.
html?.v=1&.pf=retirement; February 19, 2007 8:49 PM
Anonymous said...: This comment has been removed by a blog administrator.; February 19, 2007 9:22 PM
Anonymous said...: It's amazing how long it can take investors to see that the wheels are coming off a prized investment vehicle. Denial, after all, is a powerful thing.

But when an imperiled favorite happens to be a pool of asset-backed securities — especially those involving home mortgages — denial can be compounded by outright blindness to the real risks of that investment.

That may explain why, even as everyone concedes that the subprime or low-grade mortgage market has fallen into the sea, the vast pools of mortgage-backed securities built in part on those risky mortgage loans still appear to be on solid ground.

Investors, chasing the buzz of ever higher yields, have flocked into the mortgage-backed market in recent years. Nobody wants to think that the possibility of a wide-ranging subprime debacle is also a harbinger of looming problems for investments tied to those loans. But the reality is that these vehicles — and the collateralized debt obligations that hold them — are not as secure as many believe. And that has broad implications for the capital markets.

Consider how torrid the issuance of these securities has been in recent years. In the last three years, for example, big banks and brokerage firms almost doubled the amount of residential loans they issued, going to $1.1 trillion last year from $586 billion in 2003.

Many of these loans have been packaged into collateralized debt obligations and sold to pension funds, hedge funds, banks and insurance companies. For example, 81 percent of the $249 billion in collateralized debt obligation pools in 2005 consisted of residential mortgage products.

Collateralized debt obligations are made up of different segments — known as tranches — based on credit quality. Because buyers of these securities were looking for yields, subprime loans make up a large portion of most collateralized debt obligations.

Wall Street, of course, has coined major money in this area.

Mortgage-related activities at the major firms generate an estimated 15 percent of total fixed-income revenue, according to Brad Hintz, an analyst at Sanford Bernstein.

But few seem worried about what might happen to these players if tremors in the subprime market worsen, or if supposedly more-creditworthy loans in the upper tranches begin to go bad.

One of the arguments for why mortgage loan pools have held up even as the subprime mortgage industry has collapsed is that their collection of a wide array of debt obligations provides a margin of safety. In addition, downgrades on these loans from the major rating agencies have been relatively modest.

This is puzzling, given the wreckage in the subprime market — lenders going bankrupt, stocks of issuers falling, default rates on new loans well above historical averages. Last year, Moody's Investors Service, for example, downgraded only 277 subprime home equity loan tranches, just 2 percent of the home equity securities rated by the agency. So far this year, the firm has issued 30 downgrades, mostly on mortgages issued from 2001 to 2004. Among the 2005 and 2006 issues, many of which are defaulting at high velocity, Moody's has put 62 tranches on review for possible downgrade. That is less than 1 percent of the total subprime deals rated in those years.

"Seeing weaknesses in collateral or subprime loans, we have increased our loss expectations by 25 to 30 percent," said Debashish Chatterjee, a senior analyst in the residential mortgage-backed securities area at Moody's. "We see the ratings outstanding on deals securitization in 2005 and 2006 and have taken steps to provide credit enhancement on them."

But credit enhancement does not necessarily involve cash. Instead, the cushion can be additional mortgages or loans, which may also become vulnerable.

It is becoming clear, however, that subprime mortgages are not the only part of this market experiencing strain. Even paper that is in the midrange of credit quality — one step up from the bottom of the barrel — is encountering problems. That sector of the market is known as Alt-A, for alternative A-rated paper, and it is where a huge amount of growth and innovation in the mortgage world has occurred.

The Alt-A segment of the market used to consist of mortgages issued to professionals — like doctors — with unpredictable incomes. Now Alt-A is dominated by so-called affordability mortgages — adjustable-rate interest-only loans, 40-year loans and silent- second loans. You, dear risk- taking homeowner, know all about these loans that allowed people to buy a house that might have been beyond their means but looked attractive because they did not need to make payments on the principal in the early years.

In 2006, according to UBS, interest- only loans, 40-year mortgages and option-adjustable-rate mortgages comprised more than 75 percent of Alt-A issuance. These loans often have little documentation of a borrower's income and rack up higher mortgage debt against the value of the underlying collateral (i.e., the house). UBS said that 76 percent of adjustable-rate interest- only loans written in 2006 had low documentation, while 57 percent had loan-to-value ratios greater than 80 percent. No surprise, then, that 3.16 percent of these loans are already delinquent by two months or more.

Worried?

http://www.iht.com/articles
/2007/02/18/yourmoney/
morgenson.php?page=2; February 19, 2007 10:58 PM
Anonymous said...: Be careful of REITs.

Another sign of danger in real estate – some of the REITs showing signs of final bubble burst after 500% increase in seven years
Fred Day
Feb. 18, 2007

Real Estate Investment Trusts always top out after the real estate market starts falling. These are excellent income generators in normal markets. Some of the REITs have gone up in prices over 500% in the last seven years.

The REIT bubble is real. The technical chart patterns are bearish like never before. The charts look similar to that of stocks in 1929 just before the crash.

There can be a genuine REIT crash in this year. All bearish patterns in the chart shows that the REITs are in the final stages of bow off with Mergers and Acquisitions providing the final fuel for the last stage vertical run off!

The REIT indices are showing signs of extreme bullish sentiment. That is dangerous for the REIT market. With mortgage delinquency, defaults and real estate foreclosures skyrocketing, REITs are in trouble.; February 19, 2007 11:06 PM
Anonymous said...: NAR Releases Year End Existing Home Data - Sunny Side Up

Existing-home sales had a rough 2006 fourth quarter according to figures released Thursday by the National Association of Realtors.

Total existing-home sales including single-family houses, condos, townhouses, and coops were at a seasonally adjusted annual rate of 6.24 million units during the quarter. This is 10.1 percent off the pace of sales in the fourth quarter of 2005.

The downturn was wide-spread, affecting 40 states. Six states showed an increase of sales year-over-year, one state was unchanged, and sufficient data was not lacking from three other states.

Indiana had the biggest sales increase; existing homes sold at a pace 13.7 percent above the last quarter of 2005. Second was Arkansas which showed an 11.1 percent improvement and Texas, with sales running 6.22 percent ahead of one year ago was third.

Prices nationwide were also down. The median existing home price nationwide was $219,300, 2.7 percent lower than the median in the fourth quarter of 2005.

The largest price increase for single family houses was the Atlantic City, NJ areas where the median price of $339,800 represented an increase of 25.9 percent over the fourth quarter of 2005. Salt Lake City was second with a gain of 22.7 percent to $223,600.

Condo prices now are at a median of $220,900, 2.1 percent lower than in the fourth quarter of 2005. Prices increased in 31 metro areas and seven of those had double digit increases but in 27 metro areas prices declined.

Strong condo prices were evident in Wichita, Kansas, San Francisco/Oakland/Fremont and in much of Southern California.

On a more local level overall existing home sales and median prices were down in every region:

Region Northeast
Sales 10.4 million
% Sales Change -6.60%
Median Price $274,600
% Price Change -2.5

Region South
Sales 2.49 million
% Sales Change -8.50%
Median Price $181,700
% Price Change -3.7

Region Midwest
Sales 1.43 million
% Sales Change -8.60%
Median Price $161,800
% Price Change -4.2

Region West
Sales 1.23 million
% Sales Change -17.80%
Median Price $355,100
% Price Change 0.4

The best performing metro areas price-wise were (after national leaders listed above), Pittsfield, MA in the Northeast, Beaumont-Port Arthur, Texas in the South; Davenport-Moline-Rock Island, Iowa in the Midwest; and Salem, Oregon in the West.

David Lereah, NAR's chief economist stated that the fourth quarter would be the bottom for the current housing cycle. "This information confirms 2006 was the year of contraction, and hopefully the fourth quarter was the bottom of this current business cycle. Home sales are leveling at historically high levels, and examination of data within the quarter shows home prices stabilizing toward the end. When we get the figures for the spring I expect to see a discernable improvement in both sales and prices."

But did you notice a trend in the figures reported above? Not only is Lehreah's forecast typically optimistic, but while the report did say that sales were down or prices fell in this region or that, the only specific areas which were mentioned (Salt Lake, Pittsfield, Port Arthur) were where sales improved or prices were up. The report went so far as to fall back on reporting that typical sellers in metropolitan areas "experienced healthy gains on the value of their homes over the last five years in almost all 131 available areas, even in areas with recent price declines." Yeah, we know. It was called "the bubble."

If the market appears to be bad in your state, we are sorry we cannot tell you where you are vis-୶is the overall statistics. If the situation in your area improved in terms of sales or price appreciation, NAR trumpeted that information but if your metro area or state is in trouble you will have to learn about it elsewhere. Perhaps we can tell you when the quarterly same house report from the Office of Federal Housing Enterprise Oversight is issued later this month.

NAR stands to lose credibility unless it also loses its Pollyanna approach to reporting the data for which it pretty much holds a monopoly. Realtors and by extension their customers and clients, rely on this information to price homes and set business strategy. It is time that NAR bites the bullet and get real about the full measure of statistics it collects. It is a public service to do so and even the most transparent of cover-ups eventually has drastic consequences.

www.mortgagenewsdaily.com/
2192007_Existing_Home_
Sales_2006.asp; February 19, 2007 11:09 PM
Anonymous said...: Did allot of people die or did the planet get bigger last year?

In 2005 everyone real estate person you spoke to said that real estate price only goes up. The recent run up in price from 2001 to 2005 was justified because on limited land and population increasing.

The thirty fix rate has not gone up more then 0.5 to 1.25% from the lowest point depending what city you're applying for a loan so why did we not see the 20% price increase in 2006?; February 19, 2007 11:30 PM
Anonymous said...: Calif. Bay Area Home Prices Fall to Mid-2005 Levels; Sales Volume Slowest in 11 Years

Home sales in the California Bay Area fell for the 24th month in a row in January, as prices slipped to their lowest level in a year and a half.

A total of 6,168 new and resale houses and condos sold in the nine-county Bay Area last month. That was down 26.3 percent from a revised 8,372 in December, and down 4.1 percent from a revised 6,434 for January last year, according to DataQuick Information Systems.

A decline from December to January is normal for the season, but sales last month were the lowest for any January since 1996 when 5,504 homes were sold. The average January since 1988 has had 6,455 sales; last month’s year-over-year decline was the most moderate since March 2005 when sales fell 2.7 percent.

The median price paid for a Bay area home was a revised $601,000 last month, down 2.8 percent from a revised $618,000 for December, and down 1.5 percent from a revised $610,000 for January last year. Year-over-year price changes have been negative three of the last four months, ending a 57-month rise that started in December 2001.

Last month’s median was the lowest since $597,000 in May 2005.

The typical monthly mortgage payment that Bay Area buyers committed themselves to paying was $2,804 last month, DataQuick said, down from $2,828 the previous month and down from $2,812 a year ago. Adjusted for inflation, current payments are 11.6 percent above typical payments in the spring of 1989, the peak of the prior real estate cycle, but are 12.1 percent below the current cycle’s peak last June.; February 20, 2007 12:12 AM
Anonymous said...: American Mortgage Acceptance Cuts 2006 Earnings Guidance By 65 Percent

American Mortgage Acceptance Company (AMEX:AMC), a real estate investment trust that specializes in multifamily and commercial real estate finance, said late Friday that it had revised its adjusted funds from operations per share guidance for 2006 to a range of $1.08 to $1.13.

The company had previously issued AFFO per share guidance in a range of $3.00 to $3.20, and will report 2006 earnings on March 20.

The earnings miss represents the latest REIT outside of the subprime credit sector to post poorer-than-expected performance in the fourth quarter. Florida-based REIT Opteum Inc. reported last week that it lost $33.9 million during the fourth quarter of 2006, driven in part by losses in the company’s investment portfolio.

“The reduction in AMAC’s expected 2006 AFFO per share is primarily due to write downs of $12.0 million in principal and the reversal of $908,000 in accrued interest relating to three non-performing mezzanine loans in the Company’s investment portfolio,” said J. Larry Duggins, AMAC chief executive officer.; February 20, 2007 12:15 AM
Anonymous said...: Another one bites the dust!!!

Mortgage Firm's Implosion Rocks State

Was once-high flying MLN a victim of housing downturn or author of own ills?

Business New Haven
02/19/2007
by Liese Klein
When it's completed, the 310,000-square-foot structure along I-91 in Wallingford will be a showpiece - a striking blend of arched rooflines, cubic office blocks and glass. The building's skeleton is impressive even now as cranes and dozens of workers cluster at the site, at the intersection of I-91 and Route 68.

But in the first weeks of February, workers took down signs trumpeting the future owner of the building - Middletown-based Mortgage Lenders Network (MLN). Even as hardhats braved freezing temperatures to install the structure's environmentally friendly elements, Mortgage Lenders filed for bankruptcy, then revealed its intentions to liquidate.

A company once touted as one of the state's brightest hopes for job growth is now facing complete disintegration, with customers, creditors and employees alike threatening legal action.

MLN officials did not respond to repeated requests for comment.

How did a company that drew Gov. M. Jodi Rell to the groundbreaking of its new headquarters less than a year ago fall so far, so fast?

One clue can be found on a Web site (http://ml-implode.com/) illustrated with big red letters and an image of an explosion: "The Mortgage Lender Implode-O-Meter." The site, run by a self-described "scientist, mathematician, entrepreneur and activist," tracks the fate of the 20 mortgage lenders that have "gone kaput" just since December of last year.

Many of the casualties specialized in so-called sub-prime lending, or mortgage loans to those with poor credit. Sub-prime lending took off in the recent housing boom as a high-risk, yet high-profit niche in an industry with traditionally low margins.

But lenders nationwide who leapt into the sub-prime market are suffering as those homeowners fall behind in a tough housing and job market.

Fueling the crisis is a clampdown by those who keep the money flowing behind the scenes. Big commercial and investment banks keep smaller firms afloat with so-called "warehouse" lines of credit until they can sell their loans to investors. But when mortgage payments flag, those banks can pull back, threatening the smaller lender's viability.

Poor underwriting and risky financial moves have added to the woes of many mortgage lenders, says Allen Puwalski, senior financial analyst at the Center for Financial Research & Analysis in Maryland.

"It's a combination of a lot of competition in the sub-prime lending space during 2005 and '06," Puwalski says. "They started loosening their underwriting standards - the kinds of loans they were underwriting became dependent on home prices appreciating at a pretty rapid pace. When that stopped, the underwriting issues came back to haunt many of the players."

Despite its recent growth, Mortgage Lenders Network (MLN) suffered for its lack of financial heft, Puwalski says.

"They were vulnerable because of their size and their concentration in that kind of lending," Puwalski says. "You're going to have a shakeout of weaker players."

MLN, which started with just seven employees in 1997, followed the trajectory of many of the recent failures: rising high with the housing boom and then going into free fall with the downturn.

By early 2006 the company had grown to 1,300 employees in five states, and the 650-person Connecticut workforce was expected to balloon to 1,200 strong by the time MLN moved into the Wallingford headquarters at the end of this year.

The company's high point was probably the groundbreaking of the Wallingford headquarters last May. Town and state officials praised the company and its promised $2 million contribution to the town's grand list.

"MLN is a model for job growth in Connecticut," Rell said at the event. "MLN's decision to build their new headquarters in Connecticut speaks volumes about the state's high-skilled workforce and diversified financial services industry, as well as our ever-improving business climate."

By then the housing market had weakened and foreclosures nationwide were inching up. But MLN continued to add workers through the fall, to a total of 850 in the state at its peak, and was on track to make $3.3 billion worth of sub-prime loans in 2006.

As late as December 5, Jim Smith, MLN's senior director of corporate real estate and facilities, told the Hartford Courant, "As a business, we're growing very quickly."

One former employee, who asked not to be named because he's still looking for a job, says the company's problems were evident much earlier.

"They just played with the numbers - that's the feeling I got," says the worker, who began working at MLN in 2005. One sign of trouble, he says, was that MLN could close only on a very small percentage of the prime mortgage applications he submitted. Even as the market sank, the employee adds, top executives were "spending money like there was no tomorrow.

"It was huge mismanagement right from the top," the employee adds.

The privately held MLN sent out its first public distress call on December 29, when it shut down its largest lending division. It announced 100 layoffs in the state in early January. Then state banking regulators stepped in, suspending the firm's license to make home loans on January 30.

On February 5, the first of several Chapter 11 filings in Delaware federal court revealed that Mortgage Lenders Network owed at least $100 million on assets of about $100 million. Later filings that same week clarified the firm's intention to liquidate.

The boom and bust is evident at the firm's current headquarters, in the Middlesex Corporate Center in downtown Middletown, where MLN is listed as occupying five floors and even spilled into a neighboring bank building at one time.

MLN's offices were darkened and deserted on a recent afternoon earlier this month. Boxes of records were piled up against on conference-room window and the building's security guard said Mortgage Lenders was slated to move out of the building completely by the end of February.

For the former employee, MLN's collapse has scared him away from the mortgage business - for good. The state's Department of Labor has set up a special program to help the hundreds of MLN workers now searching for jobs.

For homeowners, the failure of firms like Mortgage Lenders Network means it's going to be that much harder to buy a house if your credit is less than stellar.

"It's going to bring some pricing power back to the larger remaining lenders," says Puwalski of the Center for Financial Research & Analysis. "It's going to cost more for the sub-prime homeowner to have a mortgage."

For Mike Robertson, a worker at Klekolo World Coffee downstairs from MLN, the company's woes means his morning rush is half the size it once was. MLN workers - who usually ordered just plain coffee-are missing in action.

"It's caused a couple of really slow days," Robertson says. "A lot of the faces I've been used to seeing, they haven't been around."; February 20, 2007 12:16 AM
Anonymous said...: Sub-Prime "Meltdown”, ABX “Carnage” and the Risk of a “Credit Crunch”

When growth optimists such as the wise Richard Berner of Morgan Stanley (not just Roach, their resident long term bear) start talking about a sub-prime and ABX “meltdown”; when the terms “carnage” and “time bomb” are used by mainstream observers to describe the sub-prime and ABX market; and when the same Berner needs to write a long piece to convince you that there will be no “credit crunch” following the sub-prime meltdown you know that some serious trouble may be brewing. The trouble takes the form of three problems:

Risk of the subprime "meltdown" becoming contagious to prime mortgages;
Risk of the beginning of a broader credit crunch;
Risk of the ABX "carnage" leading to more serious losses and implications for credit markets.
Of course last week many investment banks had conference calls to reassure their clients with the message that the subprime meltdown is contained, that other credit spreads are holding in spite of the free fall of the ABX (BBB-) indices, and that there is very little risk of a broader credit crunch.

That optimistic scenario is of course possible and we do not know yet how these credit markets will behave over the next few months. But the same cycle of minimizing the potential risks from the housing fallout has occurred all along since last year: the housing recession was first defined as “housing slowdown” and is now argued to be “bottoming out” based on relatively little evidence; today’s subprime “meltdown” was yesterday’s subprime “correction”; and today’s worries of a “credit crunch” are widely dismissed as unlikely.

But consider the following issues. Normally when a sector like housing or real estate or tech goes into a boom and bust cycle, the “real cycle” precedes the “credit cycle”. In other terms we would have expected that weakness in housing would lead first to large job losses, lower income generation, higher unemployment first (the “real” cycle). Only when the “real” cycle is underway one would usually expect – as in the 1980s S&L fiasco – that a “credit” cycle would be triggered and emerge leading to further real and financial distress.

Instead the most surprising thing about this housing bust and subprime meltdown is how the “credit” cycle started much earlier than the “real” cycle and much more rapidly than anyone would have ever suspected. Now in an economy with still high growth, still high job creation, still very low unemployment rate, still high income generation we are already observing massive increases in subprime defaults and foreclosures, 20 subprime lenders going out of business in two months, the ABX going into free fall and the cost of insuring against the BBB- tranche of the ABX index going to a spread relative to LIBOR of over 1000bps. So, if all this happening in what the consensus terms as a “Goldilocks economy” what would happen if the economy – as likely – will start to slow down more in 2007? How much more carnage can we expect in many sectors and markets when the economy is weaker than in recent months?

The fact that the downward “credit” cycle has emerged so fast and so sharply in a still “strong” economy is the most important signal that this sub-prime mess cannot be easily dismissed as a niche problem that will have no contagious effects on the rest of the economy and of financial markets.

So let me explain in detail why there are meaningful risks that sub-prime meltdown could infect prime mortgages, why we could be at the beginning of a more serious credit crunch for consumers, and why there is a risk that the ABX carnage could spillover to other credit markets…

http://www.rgemonitor.com/
blog/roubini/178576; February 20, 2007 12:22 AM
Anonymous said...: Subprime Mortgage Bondholders to Get Earlier Warnings From S&P

Standard & Poor's said it will no longer wait for homes to be foreclosed and sold for losses before alerting investors in mortgage-backed securities that it expects to lower ratings on their bonds.

The ratings company will now consider issuing downgrade warnings based on the amount of loans that are delinquent, in foreclosure proceedings or already backed by seized property, Robert B. Pollsen, an analyst at the firm, said on a conference call today.

S&P is reacting to rising delinquencies and defaults on the riskiest types of home loans made in 2006. The New York-based firm said yesterday it's considering downgrades on 18 low-rated bonds from 11 separate securitizations of U.S. home loans last year because of early delinquencies.

``It is a watershed event'' because it means S&P is now actively considering downgrading bonds within their first year and has a new program to address high levels of early delinquencies, said Daniel Nigro, an asset-backed securities portfolio manager in New York at Dynamic Credit Partners, a manager of about $6 billion in hedge funds and collateralized debt obligations. ``We welcome them being more open.''

The riskiest mortgages made last year are experiencing more delinquencies than ones from previous years at comparable ages, following a period when some companies lowered lending standards to attract business. S&P's warnings yesterday were on bonds backed by so-called subprime, Alt-A and home-equity loans.

Behind on Payments

Borrowers are 60 days behind on payments or worse on 11- month-old 2006 subprime mortgages that represent 8.24 percent of the loans' total original balances, Steven Abrahams, an analyst at New York-based Bear Stearns Cos., wrote in a Feb. 13 report.

The levels were ``well ahead of the second-place class of 2000,'' whose problems totaled 5.16 percent at the same point, Abrahams wrote. ``Given the underwriting legacy already in the pipeline and the tendency for serious delinquencies to develop slowly, news about subprime is likely to continue for months.''

Probably the biggest issue is that many of the subprime loans were given out with small down payments, often through the use of ``piggyback'' home-equity loans, Ernestine Warner, an S&P analyst, said on the call. Subprime loans are made to borrowers with poor or limited credit histories or high debt burdens.

`Piggyback' Mortgages

In mid-2006, S&P began requiring more protection for bond investors when mortgages with ``piggyback'' down payments were included in securities, after finding they were 50 percent more likely to default. Santa, Monica, California-based Fremont General Corp. this week eliminated its so-called combo loan programs.

One of the bonds S&P warned about yesterday was backed by Alt A -- often called ``near prime'' -- mortgages, the firm's first warning about that type of security sold last year.

Alt A loans are defined as ones that fall only slightly short of the credit standards of Fannie Mae and Freddie Mac, the two largest U.S. mortgage companies. They often involve loans made with less proof of borrowers' pay, purchases of houses by investors or interest-only loans and ``option'' adjustable-rate mortgages, whose minimum payments can fail to cover the interest owed.

``In terms of performance, I'd say there are equal concerns'' about Alt A loans and subprime loans at S&P based on early delinquencies, Warner said. The Alt A bond that S&P warned about was issued by Calabassas, California-based Countrywide Financial Corp., the country's top mortgage lender.

Before yesterday, S&P had already told investors it might downgrade several low-rated subprime and home-equity mortgage bonds created last year. Competitors Moody's Investors Service, Fitch Ratings and Dominion Bond Rating Service have also notified investors they're considering downgrades on similar bonds.

Their announcements were a departure from past practices of waiting for at least one year from issuance to review their initial assessments about the quality of the debt.

http://www.bloomberg.com/
apps/news?pid=20601009&sid=
aUlpv5Um_168&refer=bond; February 20, 2007 12:25 AM
GowdTeef$ said...: Nobody talks too much about Chicago, but look at how much we are up in median price compared to 10 years ago, over 100%. At the same time, inflation would put us at roughly 25-30% increase. Got a long way to drop here, although nobody is talking like it will drop more than 10%. I guess it takes awhile for reality to set in since news travels a little slower to the midwest.

http://chicagohousingbubble.blogspot.com/; February 20, 2007 12:39 AM
Anonymous said...: Bids low at Tringali auction

Offers on investor's foreclosed property come in at a fraction of their original prices

MANATEE COUNTY -- Martin Higgenbotham did everything he could to get people bidding on Michael Tringali's high-end Sarasota and rural Manatee County properties.

The auctioneer joked, pleaded, cajoled and berated the standing-room-only crowd of 150 real estate agents, developers, bankers, ranchers and homeowners that filled an anteroom of the Sarasota Bradenton Convention Center.

But everybody on Thursday night seemed to be waiting for someone else to raise a hand or shout out a price.

In the end, high bids on properties came in at a half or a third of what the real estate sold for at the height of Southwest Florida's phenomenal boom.

The 253-acre tract that Tringali's partner, Neil Mohamad Husani, bought in August 2005 for $3.04 million, or $12,000 per acre, went for just $1.6 million -- $6,500 per acre.

The high bid for a 3,300-square-foot luxury home in Tringali's Portofino on the Bay subdivision off Vamo Road in Sarasota, that might have commanded more than $1 million in the boom, was just $500,000. Bids for undeveloped lots in the same subdivision that sold for $325,000 and up in 2005, came in at $170,000 or less.

And finished homes in the Golden Verna Estates subdivision near Myakka City, selling for around $380,000 during the boom, generated bids of no more than $240,000 and most garnered no more than $170,000.

"That's low," said Barbara Anson, a veteran Realtor with Wagner Realty in Myakka City. "But this is an auction."

Higgenbotham Auctioneers, the Lakeland organization hired to conduct the sale, had hoped to sell 32 of Tringali's properties, but many, especially the building lots at Portofino on the Bay, didn't draw any bidders.

It will not be clear until Monday night whether bankers, who loaned millions of dollars to Tringali during the boom, will be willing to accept the bids that did come in.

www.heraldtribune.com/apps/
pbcs.dll/article?AID=/
20070216/BUSINESS/702160492; February 20, 2007 12:45 AM
Anonymous said...: This comment has been removed by a blog administrator.; February 20, 2007 12:51 AM
Anonymous said...: This comment has been removed by a blog administrator.; February 20, 2007 1:10 AM
Anonymous said...: More and more sellers in Southwest Florida are coming to the conclusion that the only way to attract buyers in a sagging real estate market is by slashing prices.

That's what serial condo converter Matt Kihnke has been doing.

The Chicago real estate developer, who spent nearly $60 million buying four Manatee County apartment complexes during the boom years, is now offering one-bedroom Bradenton apartments for $99,900.

"You're not likely to find anything else for that quality at that price on the market," Kihnke said.

And price is everything right now, said Ross Bryans, the co-owner of Central Park Realty, who is helping Kihnke sell the converted units.

What a change from the frothy exuberance of early 2005, when it only took a few weeks for Bryans and his partner, John Petitti, to sell 174 units at the converted Garden Walk Apartments in Bradenton.

Kihnke had bought that complex for $7.6 million, or $43,678 per unit, in November 2004, and ended up more than doubling his money in less than a year.

But Kihnke's next conversion -- The Sanctuary, a 274-unit complex adjacent to Garden Walk on 26th Street West in Bradenton -- has taken much, much longer to sell out.

Kihnke, who bought The Sanctuary for $15.5 million, or $57,000 per unit, started selling the units in the late summer of 2005.

Eighteen months later, about 30 percent of the units remain unsold.

"Some of them are the best units, the ones with water views," Kihnke said. "We kept them because they were set at the highest prices, but we have had to come down in price."

Units that were listed at $169,900 are now on the market for $129,900.

Bryans said the reason Garden Walk apartments sold so much faster than units at The Sanctuary is that most of Garden Walk's buyers were investors looking to cash in on the rapid appreciation of Southwest Florida real estate.

By late summer 2005, those investors had vanished, and Bryans and Petitti had to begin the slow, arduous process of marketing dwellings to first-time home buyers.

"We're now selling four a month, compared to 40 a month at the peak," Bryans said.

www.heraldtribune.com/apps/
pbcs.dll/article?
AID=/20070205/COLUMNIST58/
702050625/1007/BUSINESS; February 20, 2007 1:36 AM
Anonymous said...: Short Sale May Be an Option When Mortgage Debt Looms Too Large

A short sale -- that is, a sale in which the proceeds fall short of what you owe.

It can be a win-win situation for you, the lenders and the buyer (often an investor) of your house. But since you're asking lenders to accept less money than you promised to pay them, there's no guarantee that they'll go along with such a sale. And preparing for it will take considerable work on your part.

First, you must prove that you really can't pay your loans -- and that the reason is new, not something that you concealed from your lenders when you originally applied for the loan.

Then you or someone else, like a real-estate agent, must find a buyer willing to purchase your house at market value. Market value can be determined through a formal appraisal (your lender may insist on one) or by an agent's comparative market analysis.

You or your agent also must figure out all the costs of selling the property. That includes the balance of both loans, accrued interest up until the day of closing, closing costs and fees, and unpaid property taxes.

You then must present the facts to your first mortgage holder, which has the top lien position and gets paid first. If your plan will bring them more money than they'd get if the house were sold at auction, they'll most likely go along with it -- and sometimes pick up some of your costs as well, like real-estate commissions and closing costs. However, it may be difficult to get your second mortgage holder to sign off on the deal because if they do, they might not be repaid what they're owed. But they may be willing to go along with a short sale if the buyer or the first mortgage holder offers to pay them some money, especially if the amount you owe on your second mortgage is small.

Once you close the sale, your problems may not be over. Some hard-nosed lenders may insist that you pay the difference between what the buyer pays for the house and what you owe on the mortgage. Others may forgive that portion of the debt -- but unfortunately, Uncle Sam won't. "Forgiven" debt is considered taxable income.

www.realestatejournal.com/
columnists/housetalk/
20070219-fletcher.html?
mod=RSS_Real_Estate_Journal
&rejrss=frontpage; February 20, 2007 2:01 AM
Anonymous said...: According to California foreclosure expert, Patrick McGilvray, J.D., President of www.TheHomeBuyingCenter.
com, 'foreclosure rates are ‘lagging indicators' that show the impact of economic trends in retrospect. It can take years for the impact of large-scale job losses to be fully felt in the economy.-

Another foreclosure expert, George Roddy, President of Addison, TX based Foreclosure Listing Service Inc., had this to say about Texas' residential housing crisis in the late 1980s, 'too many people had gotten into homes artificially inflated by the availability of too much money. By the late 1980s people were having trouble selling their homes for what they paid for them.-

The availability of cheap money has been a prominent theme, and ‘crazy loans' such as interest only adjustable rate mortgages have grown exponentially in recent years. Additionally, many borrowers throughout the country are going into foreclosure because they cannot afford their housing payments, and currently owe more than their homes are worth.

Mr. Roddy hd this to say, when asked about today's statistics, 'We're not yet seeing a slowdown in the foreclosure figures; in fact, we're seeing higher numbers. Where's this going to take us? We could be in for a long haul.-

http://www.pr-inside.com/
chrysler-layoffs-will-
impact-foreclosure-rates-
r53906.htm; February 20, 2007 3:27 AM
Anonymous said...: Subprime Mortgage Derivatives Tumble for a Fourth Straight Week

A derivatives index used to bet on bonds backed by the riskiest U.S. mortgages fell for the fourth straight week as more subprime lenders reported losing money.

Prices for credit-default swaps linked to 20 securities rated BBB-, the lowest investment grade, and created in the second half of 2006 fell 2.8 percent to 82.82 this week, and are down 15 percent since being introduced Jan. 18. The decline means an investor this week would have paid more than $950,000 a year to protect $10 million of bonds against default.

The tumble is being exacerbated by hedge funds using the index to make bearish bets and a dearth of investors willing to use them to make bullish bets.

Stock investors using ABX indexes to hedge positions or those that might sell short shares of subprime lenders add another ``unusual burden of selling pressure,'' Friedman Billings' Youngblood said in an interview last month. A short sale entails selling borrowed securities in the hopes of profiting by acquiring them at a lower price later.

More lenders may be using ABX contracts to protect against falling values for loans they plan to sell,

http://www.bloomberg.com/
apps/news?pid=20601087&sid=
a.AVY7fR_KVw&refer=home; February 20, 2007 3:40 AM
Anonymous said...: Hey dip-shit renters. How was the weekend cutting coupons in your decrepit, dilapidated, ramshackle shit-shack rental apartments? Having fun hanging in the ghetto and watching the rats and cockroaches procreate? Only an imbecile, asinine, retarded moron could believe that it is advantageous to sit in a tumble down, roach infested, derelict, senescent, antediluvian and evil smelling rental home than to lodge in your very own 4 walls. Go get a life you uneducated, lamebrain, jackass renter meatheads. You just don’t get it that RENTING SUCKS!; February 20, 2007 1:14 PM
Anonymous said...: Housing market hits Home Depot profit

The No. 1 home improvement retailer says earnings in the fourth quarter plunged 28% as sales at its retail stores fell.; February 20, 2007 1:22 PM
Anonymous said...: "Anonymous said...
Housing market hits Home Depot profit

The No. 1 home improvement retailer says earnings in the fourth quarter plunged 28% as sales at its retail stores fell."

Home Depot (and Lowes) needs to listen to the same advice we give to the FB's.

Are you listening HD and Lowes?

Here it is:

LOWER THE DAMN PRICES! YOU ARE NO LONGER GOING TO GET THE PRICES YOU FELL THAT YOU "DESERVE" FOR YOUR OVER-PRICED BUILDING MATERIALS.

None of these guy's is going to go under anytime soon, but they had better get an attitude re-adjustment real quick!

They just might follow the housing market down, who knows? But with spring just around the corner, and the building rebound/boom that is SURELY to accompany it, I won't hold my breath! Spring 2007= Dead Cat Bounce #1 ???

"And don't call me Shirley"; February 20, 2007 3:54 PM
Mammoth said...: This comment has been removed by a blog administrator.; February 20, 2007 4:41 PM
Anonymous said...: Where's Vail Colorado?

He may be measuring lift lines there to guage US economic status.; February 20, 2007 4:55 PM
Anonymous said...: blowfly's cute isn't she?; February 20, 2007 5:46 PM
Anonymous said...: Good find! This is where the contagion starts in the U.S. financial markets:

"Subprime Mortgage Derivatives Tumble for a Fourth Straight Week

A derivatives index used to bet on bonds backed by the riskiest U.S. mortgages fell for the fourth straight week as more subprime lenders reported losing money."; February 20, 2007 6:51 PM
Anonymous said...: "Anonymous said...
blowfly's cute isn't she?

February 20, 2007 5:46 PM"

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

Blowfly overspent on a fixer in an exurb and is watching his paper losses increase everyday. Soon the repo man will take his modem and it'll be back to the overnight shift at Taco Bell.; February 20, 2007 6:54 PM
Anonymous said...: "You just don’t get it that RENTING SUCKS!"

No one here is going to disagree with you that yes, renting does suck.
However, it makes pretty good sense to stick to renting right now, especially first time buyers.
Does it make sense to drop 600k on home that in, lets say, 1 year will be up for grabs at 520k? Absolutely fucking not. However, if you are coming in to the sale with 50% down from a pre-bubble home sale, then chances are you will be in that new home for a while, so fuck it, do it and enjoy.
Let me ask you this douchebag, so you never had to rent? During college? After college? When your career was just starting out. Or did you go straight form mommy and daddys house to your first shitshack? Whats your deal estupido?; February 20, 2007 7:29 PM
Anonymous said...: The guilt is just too much. The shake out is hear.

Mortgage fraud's 'very hard lesson'
Jill Lehn pleaded guilty and lost her real estate license. Now she's sharing her story in a magazine article.
BY JENNIFER BJORHUS
Pioneer Press
In an unusual about-face, a Prior Lake woman at the center of an ongoing federal investigation into mortgage fraud will bare her soul in an upcoming issue of Minnesota Realtor magazine.

Jill M. Lehn, who pleaded guilty to one count of wire fraud and one count of money laundering in U.S. District Court in Minneapolis in December, tells all in a four-page article she wrote for the magazine due out March 1. The article details her misdeeds while working as a closing agent at First Advantage Title Co.'s Burnsville office, which has since closed.

"It's a very hard lesson," Lehn told the Pioneer Press, adding that real estate "has been my whole life."

Lehn, 39, has admitted to preparing fraudulent documents in more than 60 real estate transactions between December 2004 and August 2006 where home values had been inflated. She puts a human face on what authorities and industry professionals describe as a near epidemic of fraud that has plagued the mortgage industry in recent years, helping fuel surging foreclosures.

Lehn said she had nothing to do with inflating the home values, but was responsible for dispersing some $3 million in extra money concealed from lenders, by cutting checks to buyers and sellers. The checks averaged about $40,000, she said. According to her plea agreement, the buyers knew in each case that they were signing fraudulent documents she had prepared, in order to get the pay out.

Both Lehn and a co-defendant are cooperating with the IRS, which started the case and is heading an investigation that industry professionals said they expect to result in several more arrests.

"We want to make sure the message gets out that IRS Criminal Investigation is taking a close look at abuses in this area," said Special Agent Janet Oakes in the St. Paul office.

The Minnesota Department of Commerce on Tuesday permanently revoked Lehn's real estate and notary licenses, barring her from working in the state. Lehn said she's staying home now to care for her baby and set her life straight. She wrote the article, she said, to warn other professionals about the schemes and to advocate for change. She said she deeply regrets what she did.

"It's something I did as a favor to people that has come back to bite me in ways I never imagined," Lehn said.. "I foolishly said yes once and opened up that pathway."

Lehn said she clearly recalls the first instance, about three years ago. A particular loan officer requested a favor, she said, to get a homebuyer extra cash back to improve the property.

Lehn told the Pioneer Press that her Minnetonka-based employer did not play an active role in the fraud, but that she thinks they knew it was occurring.

"Do I believe they had a knowledge? Yes," Lehn said.

The owner of First Advantage Title Co. was out of the country on vacation Wednesday, an employee said, and not reachable for comment.

One of Lehn's clients, Isadore Stewart, a real estate investor who lives in Bloomington, has also pleaded guilty in the scheme. Stewart pleaded guilty to one count of wire fraud in relation to three properties he purchased at inflated prices last year, including one house in St. Paul's Frogtown neighborhood.

Sentencing dates have not been set for Lehn and Stewart. Lehn faces up to 71 months in prison and $100,000 in fines, according to her plea agreement. Stewart faces up to 33 months in prison and $60,000 in fines, according to his plea agreement.

Stewart said he couldn't discuss his case. Phillip Resnick, the Minneapolis attorney representing Stewart, described him as "a guy that bought a couple of properties." He described the ongoing probe as wide and "pretty extensive."

"[Lehn's] got dozens, if not hundreds more than just him," Resnick said. "My sense is that it goes beyond just her. That there are people that are higher up than she is."

The IRS probe is unrelated to a different cluster of appraisal-kickback schemes that the state Commerce Department is investigating, Commerce spokesman Bill Walsh said. Commerce has issued at least 25 subpoenas since April on similar schemes but hasn't closed any of the cases yet.

"There's plenty of work to go around," Walsh said.

Glenn Dorfman, chief operating officer of the Edina-based Minnesota Association of Realtors, applauded the federal investigation. He called Lehn and Stewart "just the beginning" of a fairly large federal operation.

"The next 90 days are going to be action-packed," Dorfman said.

Jennifer Bjorhus can be reached at jbjorhus@pioneerpress.com or 651-228-2146; February 20, 2007 8:51 PM
Anonymous said...: Finally, the news is breaking and it's not good news for housing and sub-prime borrowers.

The WSJ Editorial Page Worries About a “Credit Crunch” and a “Recession”
Nouriel Roubini | Feb 19, 2007
The Wall Street Journal editorial (op-ed) page is not used to expressing economic alarmism and worrying about hard landings and recessions. Its respectable – if debatable – economic conservative philosophy is that, as long tax rates are kept low (supply side economics), regulation and government interference kept at a minimum, and government spending kept as low needed, the economy will grow at a sustained rate. For years now this WSJ page has criticized those who worry about fiscal deficits, current account deficits, financial risks and hard landings of the economy.

So it was something of a surprise that, on Saturday, the WSJ op-ed page – under the title “How Expansions Die: Credit Cracks in the Economic Foundation” made the argument – as in my Friday blog - that the sub-prime mess may lead to a broader credit crunch that may cause a recession. This alarmed analysis of the usually sober WSJ op-ed page is in stark contrast to most research and analysis on Wall Street where the conventional wisdom is still that this is still a niche problem and that there is little risk of contagion or of a wider credit crunch.

In my blog I worried about the sub-prime meltdown affecting prime mortgages and consumer borrowing; about the risk of a wider credit crunch; and about the risks that the carnage in the ABX market may spread to other credit risks. Similarly, according to the WSJ op-ed page (underline added):

“… we finally have a threat that really does bear watching -- namely, a potential credit crunch precipitated by the housing downturn and rising default rates. As Federal Reserve Chairman Ben Bernanke noted in his Senate testimony this week, the economic damage from the real-estate slide has so far been contained to housing. But in addition to the pain that homebuilders have experienced, banks and mortgage brokers are increasingly feeling the pinch, especially in the sub-prime sector. And in a perverse sort of populism, lawmakers are making noises about reducing access to credit for the riskiest borrowers, which would only exacerbate the crunch and could help take the economy down into recession.

I argued that it was unusual that a “credit cycle” would precede rather than follow the economic slowdown (the “real cycle”). The WSJ fully agrees on this reverse cycle where this time around the credit crunch is coming first and risks to cause a real economy recession:

The delinquency rate on sub-prime mortgages, now above 10%, is near record levels. Banks that bought up those loans for securitization are now demanding to be repaid, meaning that smaller institutions who thought they'd sold off their exposure are finding themselves on the hook, in some cases forcing them into bankruptcy.This accumulation of bad loans represents a crack in the foundations of the recovery. Typically, a housing downturn and the credit problems that accompany it are a result of underlying economic weakness, rather than their cause. The economy slows, people lose their jobs and are forced to sell under duress lest they default. The distressed selling drives prices down. But in this case, it may work the other way around.

The WSJ then discusses how a virtuous credit and economic cycle (or a bubble fed by Fed policy as I argued before) is now turning into a vicious circle:

The Fed's remarkably easy monetary policy helped goose house prices over several years. In turn, a large number of first-time buyers took advantage of low mortgage rates, especially on adjustable-rate loans, to stretch their buying power in the hopes of leveraging their way up the home-buying ladder. But someone finally blew the dog whistle in late 2005, and the buying dried up.Now the housing market is flat to down across most of the country and loans with adjustable rates are adjusting upward. So even with unemployment low and the economy still humming, marginal buyers can suddenly find themselves forced to sell. And if they had little equity to begin with, they may not have much money left after they sell -- if they can sell at all. If they can't, they fall behind on their payments and the banks have to book the loans as delinquent.Thus does a virtuous circle caused by easy money turn vicious, and interest rates aren't even all that high -- at least not yet. The Fed's concern over housing's potential effect on the broader economy is no doubt one reason it has kept short-term rates at 5.25% for several months, despite signs that inflation risks remain.

I worried about a potential contagion from sub-prime to other credit risk premia and suggested that the valid concerns of Congress about predatory lending may exacerbate the credit crunch. The WSJ agrees:

The unknown is how far the credit contagion will spread. While rising, overall delinquency rates are still fairly low. But if banks continue to be hit by defaults, it may constrain their lending in other areas. Credit spreads, which have remained remarkably narrow, could widen. Meanwhile, Congress's newfound preoccupation with "predatory lending" could, if it leads to changes in the law or in tough lending standards, increase the credit squeeze currently beginning to be felt. Decreasing consumer access to credit would in turn cast a pall over consumer spending and add another drag on the economy.We aren't joining the partisans at certain newspapers who have predicted recession each of the last four years. The labor market remains healthy, the consumer resilient, business investment robust and equity markets buoyant. But this certainly is no time for Congress to add to the risks of a credit crunch by committing such policy blunders as raising taxes, imposing trade barriers or punishing foreign investment in the U.S. Secretary Hank Paulson has prudently been adding financial plumbing capacity at Treasury, and he will need it to limit any credit fallout.As for the Fed, we hope the tale Mr. Bernanke told Congress this week about perfect "soft landings" was right. But we also suspect that the Fed chief has his fingers crossed that the rest of the economy, at home and abroad, is strong enough to withstand the housing credit woes that the Fed did more than its share to inspire.

So if the cautious, optimistic, generally Goldilocks-biased editorial page of the Wall Street Journal starts to worry about a credit crunch coming even before the economy has slowed down, worsening housing and mortgage problems, and about the risks of a recession other folks in financial markets may want to reconsider the tired arguments about sub-prime problems being a niche problem, about housing having bottomed out (can they still say that with a straight face when housing starts fell another 14% in January alone?), and about the risks of a credit crunch being “dramatically overblown”. It is time for a reality check: a credit crunch causing a hard landing of the economy is not a far fetched argument any more. The WSJ op-ed page worries about it. Maybe Wall Street will also start worrying about it.

Indeed, the biggest risk right now is that these financial problems (sub-prime mortgage meltdown, ABX carnage, credit crunch) will cause an economic hard landing and a recession. Let me explain in the rest of this blog why the risk of a hard landing of the economy in 2007 is high...; February 20, 2007 9:18 PM
Anonymous said...: stuck in so pa

Remember, that 28 per cent drop is coming down from a 3-5 year high. As far as sales go, HD and Lowes sales are probably still way above their yearly sales averages, allowing for inflation.Dont expect any price breaks for quite some time,aint gonna happen.; February 20, 2007 11:12 PM
Anonymous said...: This comment has been removed by a blog administrator.; February 20, 2007 11:31 PM
Anonymous said...: What was that about construction workers going hungry? In Las Vegas contractors are poaching employees and PMs are making $250K a year. But keep on thinking the building industry is dead if it makes you feel better while lying in bed at night in the 1 bed/1bath ghetto apartment surrounded by negroes and mexicans.

BY TONY ILLIA & VALERIE MILLER

Southern Nevada's building boom has stretched its construction workforce paper-thin, causing contractors to compete for top talent, including project managers, engineers and superintendents. Demand for skilled help has also resulted in everything from out-of-state recruiting and signing bonuses, to flex hours and 401(k)s.

"Nevada's job growth has been running three to four times the national average in the past several years," said Terry Johnson, Department of Employment, Training & Rehabilitation director. "Businesses are adding jobs at a staggering rate." The construction industry is expected to grow by about 10,000 jobs in 2007, including positions for heavy-equipment operators, carpenters, electricians and other craftsmen, DETR reports.

"More than 110,000 Southern Nevadans are employed in construction trades and nearly 150,000 Nevadans are employed by construction businesses statewide," said Steve Hill, president of Silver State Materials and chairman of the Southern Nevada Coalition for Fairness in Construction. "It is important that we as a group consider not only how the economy impacts our industry but also how our industry impacts the economy."

Courtesy Kirvin Doak Communications
MGM Mirage's $7 billion Project CityCenter, the largest construction effort in Strip history, is perceived as sucking the Vegas market dry of labor and materials.

Courtesy Kirvin Doak Communications
MGM Mirage's $7 billion Project CityCenter is the largest privately financedconstructed project in U.S. history, according to company officials.

Jeferson Applegate | Business Press
Larry Johnson, president of Blackstone Builders, says he can't go to his usual subcontractors, who have either closed their doors or are laboring under heavy workloads.

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THE STRIP DRIVES THE MARKET

The boom has certainly made the industry a major force in the local economy. "Southern Nevada's construction industry accounts for just over 12 percent of the region's workforce, twice the national average. The industry is inextricably linked to the state's economic and fiscal successes during the past two decades," said Jeremy Aguero, principal of Applied Analysis. "(Construction) generated $643 million in tax payments during the past fiscal year, second only to Nevada's leisure-and-hospitality industry."

Much of the construction demand is occurring on the Las Vegas Strip, with roughly $28.27 billion worth of resort expansion planned through 2010, reports the Las Vegas Convention & Visitors Authority. That figure includes 36,725 more hotel rooms, 964 additional timeshare units and another 3.47 million square feet of convention space.

No job, however, is bigger than MGM Mirage's Project CityCenter -- a $7 billion, 18-million square foot hotel/condo/entertainment complex being built on the Strip between the Bellagio and Monte Carlo resorts. The general contractor, Phoenix-based Perini Building, will employ up to 7,000 people during the peak of activity. That's about one-third of Southern Nevada's total union trade workforce, says Perini Chairman Richard Rizzo.

WORKERS IN THE CATBIRD SEAT

Perini hires headhunters to find construction managers and superintendents nationwide, paying signing bonuses, housing assistance and moving expenses. CityCenter, which isn't scheduled to finish until November 2009, has ratcheted the competitiveness and pay level among local firms higher.

"There are craftsmen that are making $90,000 to $100,000 a year, with overtime, and project managers earning up to $250,000 annually," said Robert Potter, chairman of Affordable Concepts and 2007 president of Associated General Contractors, Las Vegas chapter. "I won't announce recent hires in the paper anymore because it's advertising for my competitors to come and steal them."

The carpenters union now has roughly 9,700 members in Las Vegas -- its largest size ever, says Marc Furman, senior administrative assistant for the Southwest Regional Council of Carpenters, which represents Nevada. His union has seen a 300 percent growth in membership since 1996, he says. Currently, the union is recruiting nationally to ramp up its workforce to meet the valley's construction demands.

Although the union logged a record 11.8 million man hours last year, it expects to see about a 10 percent growth in 2007, Furman says.

http://www.lvbusinesspress.com/
articles/2007/02/19/news/iq_12582944.txt; February 21, 2007 1:16 AM
Anonymous said...: Come on now Keith.

You're really Blowfly, right?

Just trying to stir the pot. I mean, no one can be that stupid for real right?; February 21, 2007 3:55 AM
Anonymous said...: The housing ATM rot is just beginning – Bill Fleckenstein; February 21, 2007 4:12 AM
Anonymous said...: Executing the pump and dump means pulling the rug out before those who have been pumped can dump. The downturn is going to be swift and sudden and everyone will be caught by surprise.; February 21, 2007 4:15 AM
Anonymous said...: The Santa Cruz Record, a legal publication that tracks forecloures, has expanded to 20 pages, mostly due to foreclosure-related activity.
Real estate agents and mortgage brokers are getting advice on how to handle foreclosure transactions, which are strictly regulated. One session took place last week; another will take place Wednesday, sponsored by the Santa Cruz chapter of the Women's Council of Realtors.
The number of defaults in the county — cases where people fall behind on their mortgage payments — has jumped from 59 to 83, adding to the likelihood that more homes will be sold in foreclosure.

Homeowners traditionally fall behind on monthly mortgage payments due to outside catastrophe, such as a loss of a job, a divorce or a death in the family. Now, though, Simmons is seeing problems arise for other reasons.

Investors who planned to sell homes got caught as the housing market cooled and they couldn't find buyers. Home prices are so high — last year's median was $744,000 — that it's near impossible to rent a house at a price that will cover the mortgage and the property taxes. A three-bedroom, two-bath home might fetch $2,000 a month in rent, not enough for a mortgage payment that tops $4,000. Charging more rent just makes it harder to find renters.
Buyers eager to become homeowners opted for new types of mortgages that put them at risk, such as mortgages offered with initially low rates that increased after a certain period of time. Some of these offers were advertised as "fixed payment" loans with an asterisk indicating it was actually an "ARM," an adjustable rate mortgage. Buyers who focused on the monthly payment without devising a plan to pay higher rates are now in trouble.

Another kind of mortgage creating problems is the kind where borrowers pay less than what they actually owe. The interest is tacked on to the total, and interest accrues on the interest. The payment is recalcuated upward after a few years. This kind of payment plan could work for borrowers who expect their income to rise; one example might be a new physician opening a practice. Borrowers whose income is stable are having problems making payments.

Some people bought homes they could not afford, given their income. In the past, lenders loaned their own money and borrowers had to prove they could make payments, but a new mortgage product didn't require that proof. Instead, borrowers pay higher interest rates and lenders pooled the loans and sold them, sometimes within a week, to investors who took the risk.

www.santacruzsentinel.com/
archive/2007/February/20/
local/stories/
02local.htm; February 21, 2007 6:15 AM
Anonymous said...: MAJOR! MAJOR! MAJOR! NEWS

Novastar (NFI)went from 17.56 to 11.81 down 5.75 or (32.74%) in afterhour trading.

http://finance.yahoo.com/
q?s=NFI

NovaStar Financial said late Tuesday that it's considering whether to change its Real Estate Investment Trust status after the subprime mortgage lender reported a fourth-quarter net loss.

Novastar reported a net loss available to common shareholders of $14.4 million, or 39 cents a share, in the fourth quarter. A year earlier, the company generated net income available to common shareholders of $26.4 million, or 84 cents a share.

Problems with mortgages originated in 2006 knocked $17.4 million, or 47 cents a share, off fourth-quarter earnings.

Provisions for losses on loans NovaStar has been forced to repurchase cut $13.4 million, or 36 cents a share, off results.

More provisions for losses on a package of early 2006 mortgages the company securitized cost it another $10.3 million, or 28 cents a share, NovaStar said.

Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards.

Companies like NovaStar that specialize in this type of loan have suffered as housing prices stopped rising and interest rates climbed from record lows.

http://www.marketwatch.com/
news/story/novastar-mulls-
reit-status-change/
story.aspx?guid=%
7B23609BD8%2D0EED%2D4930%
2DA729%2D858B2D479D89%
7D&siteid=yhoo&dist=yhoo; February 21, 2007 6:27 AM
Anonymous said...: Mortgage Backed Security Investor at Risk

S&P says downgrades 7 bonds backed by 2nd-lien mtgs

Standard & Poor's on Tuesday said it lowered ratings on seven classes of bonds backed by second-lien mortgages in 2005 and 2006.

The company cut ratings on bonds in the MASTR Second Lien Trust issues 2005-1 and 2006-1, leaving three on watch for further downgrade, it said in a statement.

S&P has stepped up actions on securities backed by second-lien loans -- often called "piggyback" loans since they are created concurrent with first-lien mortgages -- as the cooling housing market sparks losses just months after the loans were created.

The loans have played a major role in losses of subprime lenders including Fieldstone Investment Corp.

http://yahoo.reuters.com/
news/articlehybrid.aspx?
storyID=urn:newsml:reuters.
com:20070220:MTFH26192_2007
-02-20_22-32-
10_N20216672&type=comktNews
&rpc=44; February 21, 2007 6:31 AM
Anonymous said...: Finally, BOJ has done the honorable thing.

It has earn respect under tough political pressure, it is functioning independently.

This is the role that all other central banks should follow.

The Bank of Japan raised its key interest rate on Wednesday by a quarter percentage point to 0.50 percent, placing more emphasis on signs of a strengthening economy than a lack of inflationary pressure.

Financial markets had been divided on whether the central bank would keep rates steady, as many politicians hoped it would, or whether it would move to head off the economic risks that arise from having ultra-low money rates for too long.

The BOJ voted 8-1 in favour of the rate rise. Benchmark rates are now the highest in more than a decade.

http://www.reuters.com/
article/bondsNews/
idUSTKU00284020070221; February 21, 2007 6:46 AM
Anonymous said...: A brand new day in moron town. Here is some language you understand you unthinking, blundering, witless imbeciles.

First: Only a maladroit, incompetent, brainless, inane, laughable, ludicrous renter brain farts would believe that renting a dilapidated, rat infested, shit encrusted rental crapper box is a GOOD THING. Educated serfs have a mortgage, renters have a slum lord like Blowfly!

Last: This blog consists exclusively of moronic, puerile, stupefied drivel about a so called Housing Crash. Ham handed psychopathic retarded idiots, there is no crash! Renting is the most stupidest thing you can do. If you don’t want to pay for a mortgage then Blowfly suggests that you move in with Jackass Sam who lives under the bridge eating rare rat steaks.

Security:
Main activities of a renter: Cutting coupons, picking up aluminum cans to get the deposit, dumpster diving, window washing at the intersection, defecating behind bushes, hoarding nickels and pennies, masturbating, etc.

Get the hell out of Blowfly’s face you shit-eating, annoying renting retards. Idiotic 8th grade drop out dip-shits go screw yourself!; February 21, 2007 2:25 PM
Anonymous said...: Larry from MoneyandMarkets.com newsletter says he "tore
apart the government's 2006 financial statements", and
here's what he found: "The actual annual federal
deficit for the fiscal year [ending] September 30, 2006
was $4.6 trillion, up from $3.5 trillion a year ago.
That's an astounding $1.1 trillion increase, or a 31.4%
jump in the deficit." Yow! This is not to mention that
it is more than a third of GDP!

As for the budget (a cash-accounting format), he notes,
"The actual deficit is nearly nineteen times larger
than the reported $248 billion deficit."

And last, but certainly not least, the accrual-system
of accounting shows, "Total federal obligations at
year-end were $54.6 trillion, up from $50 trillion in
2005...$46.4 trillion in 2004...and $32.7 trillion
in 2002."

Did I say, "We're freaking doomed!" in the last ten
minutes? If not, insert said comment here. Maybe with
an exclamation point or two to add the emphasis
it deserves!

Until next week,

The Mogambo Guru
for The Daily Reckoning; February 21, 2007 3:14 PM
Mammoth said...: Comment on Home Depot: Last Friday the contractors came to install the carpet I purchased from Home Depot back in January. They were two Mexicans, who could barely speak English. (Although I am fluent in Spanish, I always play dumb around Mexicans so that I know what they are up to.)

They showed up ~½ hour early, which was o.k., since it meant they’d be done early - check.

They worked hard, didn’t even take any breaks; they were serious about getting the job done. I was impressed with their work ethic - check.

The quality of the work was acceptable - check.

Then, when the workers were leaving, the driver’s foot slipped off the brake, and their Chevy van rolled into the garage door and surrounding framework, causing quite a bit of damage. I heard the driver mutter to his partner: “Great. Now he’s going to call the police, and they will send me back home.”

Nice. Through its contractors, Home Depot has illegals doing their work. They must have a “don’t ask, don’t tell” policy with it’s contractors.

Right away I called both Home Depot and their contracting firm and offered to send them the digital photographs I had just taken. I politely told them that I would not involve my insurance company or an attorney if they take care of the matter right away.

The repair man came out yesterday.
-Mammoth 2/20; February 21, 2007 3:46 PM
Anonymous said...: Over the long weekend while you renters were at home in your apartment, clipping $0.50 off coupons or riding the bus to the library to read a free $0.75 newspaper, my wife and I took a trip up the coast. We did the wine tasting thing in the Los Olivos area, went up to San Luis Obispo to see some college friends and spent 3 nights in Santa Barbara.

It was eye opening tp see how the housing crash is affecting people. Nothing but misery, homelessness, soup kitches...no wait that is the HP/Democratic party view of things.

Here is reality:

Every hotel was booked solid. From the Four Seaons in Montecito on down to the Motel 6 off the highway, 100% occupancy. Motel after motel in Solvang, Buellton and that whole area had the NO Vacancy sign up.

Wineries were absolutely packed with people tasting and buying cases. And this isn't the $3 Costco crap you people drink, this is the
$75 a bottle stuff.

Restaurants packed from IHOP on Saturday morning where it was a 30 minute wait for a table to downtown SB restaurants where I had to call 4 places before getting a table for Firday night at 8:30.

Oh and of course every 2nd car on the road is a new $50K+ BMW, Range Rover or Porsche.

And in the Sunday local newspaper R/E section they had a breakdown of January sales. Median price in Santa Barbara for 57 January sales was $1.2M. Yup a housing crash of historical proportions indeed going on. But reading HP I know that will fall down to $200K by April.

It so amuses me to read your posts here. I really do wonder where the hell you people live to see nothing but misery out there.; February 21, 2007 4:01 PM
Anonymous said...: Hey blowfly,
thanks for a wonderful evening!

rodger!; February 21, 2007 4:49 PM
Anonymous said...: From an article on CNN.com today regarding what is better-waiting for a lower price or buying when rates are low...

"If prices are stagnating or dropping in your area, you can offer about 10 percent below the asking price to start off the bidding, says Miller, and ask the seller to pay for closing costs, which can run to 2 percent or 3 percent of the value of the mortgage.

Or see if you can get a new roof, wiring or better appliances thrown in ( just don't get greedy: Your seller might walk away if you demand a Jacuzzi to boot)."

In view of the article, I think all should demand jacuzzi's.; February 21, 2007 5:01 PM
Anonymous said...: anon February 21, 2007 4:01 PM

That settles it, the economy is strong because the Four Seasons was sold out. Send your post to Ben Bernanke so he is aware. You forgot to mention the median price of the dinners you had on this trip.; February 21, 2007 6:55 PM
Anonymous said...: That settles it, the economy is strong because the Four Seasons was sold out.

and the best western, and the motel 6, and the hilton, and the marriott, and the doubletree, and the fairfield inn....; February 21, 2007 8:22 PM
Anonymous said...: only people who think the economy is not doing well are the usual suspects; life's losers who no matter what happens will never make it.

This is the typical HPer. A loser all his life be it personal, professional or financial. He needs someone to blame. Today's scapegoat is illgeals and David Lereah with the occasional George Bush and Walmart thrown in for good measure.; February 21, 2007 8:35 PM
Anonymous said...: Skyrocketing Foreclosures Bring Rental Home Scams

Feb 20, 2007 06:11 PM PST

Skyrocketing Foreclosures Bring Rental Home Scams

As foreclosure rates continue to skyrocket in the Las Vegas Valley, homeowners are still falling victim to tricky mortgage plans they can't keep up with. But renters are also caught in the mess.

When renters sign on the dotted line, they assume the property is in good standing with the mortgage company. However, with the current state of foreclosure rates, assuming can leave renters looking for a new place to live and not a whole lot of time to do it.

For almost two years, Bobbie Caldwell called the three-bedroom condo she was renting home. Now, her "home" is empty after her dream rental property went under.

Caldwell's landlord was not making the mortgage payments, which put the house on the road to foreclosure. Caldwell took her chances, kept paying rent and stayed.

Caldwell said, "She could have picked back up, paid the mortgage up to current and been fine."

But the owner never did and Caldwell had no way of knowing until the day a bank representative showed up at her door.

"If the bank takes over the property, you only have three days to get out," Caldwell said.

Thinking her rent was helping the owner pay the mortgage, she was shocked to find out the landlord stopped paying and possibly pocketed the cash. Caldwell had to pack up her stuff and get out in a matter of days.

Broker Thomas Blanchard says it's a situation that's growing due to increasing foreclosure rates, but tenants can negotiate protection.

Blanchard explained, "There's nothing that says you can't have someone write in a lease that says the tenant can check on the mortgage to make sure it's in good standing on a monthly basis."

He also suggests working with a property management company and not paying rent directly to the owner to ensure you get back your security deposit.

Quick scams can also leave you hanging.

"People have taken a first month's payment, last month's payment and security deposit the night before we showed up with the constable to do an eviction or lockout," Blanchard continued.

Caldwell has learned her lesson. "If an owner is on the up and up with their mortgage, I don't know why they wouldn't be able to show you proof every month they're paying."

She now knows that even though she keeps up her end of the deal, the owner may not be doing the same.

The bank can take the renter to court if they do not move out within those three days. There are occasions the bank will offer you some money to relocate as soon as possible rather than spending money on attorneys and court fees.; February 21, 2007 10:54 PM
Anonymous said...: Chrysler Layoffs Will Impact Foreclosure Rates in the Eastern U.S.

Press release from: Thehomebuyingcenter.com
Published date: 02-20-2007 10:35 AM - CET - Business, Economy, Finances, Banking & Insurance
PR agency: GroupWeb EmailWire.Com
archiveprintpdf-versionmail
(openPR) - ( EMAILWIRE.COM, February 19, 2007 ) SACRAMENTO, CALIF – On Valentine’s Day in 2007 Auburn Hills, MI based Chrysler announced that it will be laying off 13,000 workers at plants in Michigan, Delaware, and elsewhere. The immediate impact of this on the affected employees and their families will be serious, and a corollary impact will be felt in the housing sector.

Students of the history of real estate cycles and residential foreclosure rates will be able to make a connection between past examples of how massive employer layoffs can have a ripple effect on home selling prices and mortgage default rates. It is no secret that foreclosures are on the rise in the United States, and many experts agree that we have not seen an end to the increase in these sad happenings.

According to California foreclosure expert, Patrick McGilvray, J.D., President of www.TheHomeBuyingCenter.com, “foreclosure rates are ‘lagging indicators’ that show the impact of economic trends in retrospect. It can take years for the impact of large-scale job losses to be fully felt in the economy.”

Another foreclosure expert, George Roddy, President of Addison, TX based Foreclosure Listing Service Inc., had this to say about Texas’ residential housing crisis in the late 1980s, “too many people had gotten into homes artificially inflated by the availability of too much money. By the late 1980s people were having trouble selling their homes for what they paid for them.”

The availability of cheap money has been a prominent theme, and ‘crazy loans’ such as interest only adjustable rate mortgages have grown exponentially in recent years. Additionally, many borrowers throughout the country are going into foreclosure because they cannot afford their housing payments, and currently owe more than their homes are worth.

Mr. Roddy hd this to say, when asked about today’s statistics, “We’re not yet seeing a slowdown in the foreclosure figures; in fact, we’re seeing higher numbers. Where’s this going to take us? We could be in for a long haul.”

In auto industry dependent Michigan, for example, home foreclosures in January occurred at a 2.5 times higher rate than in January 2006. The state is among the most deeply affected by foreclosures. One in every 366 houses there was in foreclosure last month according to California-based RealtyTrac, Inc.; February 21, 2007 11:10 PM
Anonymous said...: This would be great. Renters paying 13.5% sales tax so home owners pay $0 property tax. Ya think this might just get the housing market back on track if all of a sudden the equation of rent vs. own took out property taxes? Republicans control both houses and the governorship in FL so this could happen. And as an added bonus the president of the FL Senate is a ...drum roll please....real estate agent.

By Jason Garcia
Tallahassee Bureau
Posted February 20 2007

Tallahassee · Republican leaders in the Florida House are floating a radical tax overhaul that would eliminate property taxes paid by homeowners in favor of a 3-cent increase to the state sales tax.

The tax swap would be paired with stiff spending or revenue caps on cities and counties intended to limit the amount of property taxes they could collect from all other property owners, including owners of businesses, rental property and second homes.

"It's been kicked around," said Senate Majority Leader Daniel Webster, R-Winter Garden, who was briefed of the concept Monday.

House Republicans, who on Monday began a two-day property tax conference, say they still are considering an array of possible property tax changes. Measures that have been considered range from replacing school property taxes with a several-cent sales tax hike to scrapping all property levies and more than doubling the state's 6 percent sales tax rate to 13.5 percent.

Cities, counties and other governments are expected to collect just more than $30 billion in combined property taxes this year. A penny increase in the state sales tax would generate about $3.8 billion a year.

Critics argue the sales tax is too regressive, because lower-income residents pay a higher percentage of their incomes in sales taxes.
5505369.story; February 21, 2007 11:33 PM
Anonymous said...: Crashing to Earth
The Second Great Depression
By MIKE WHITNEY

"The US economy is in danger of a recession that will prove unusually long and severe. By any measure it is in far worse shape than in 2001-02 and the unraveling of the housing bubble is clearly at hand. It seems that the continuous buoyancy of the financial markets is again deluding many people about the gravity of the economic situation."

Dr. Kurt Richebacher

"The history of all hitherto society is the history of class struggles."

Karl Marx

This week's data on the sagging real estate market leaves no doubt that the housing bubble is quickly crashing to earth and that hard times are on the way. "The slump in home prices from the end of 2005 to the end of 2006 was the biggest year over year drop since the National Association of Realtors started keeping track in 1982." (New York Times) The Commerce Dept announced that the construction of new homes fell in January by a whopping 14.3%. Prices fell in half of the nation's major markets and "existing home sales declined in 40 states". Arizona, Florida, California, and Virginia have seen precipitous drops in sales. The Commerce Department also reported that "the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate." (Marketwatch)

The bottom line is that inventories are up, sales are down, profits are eroding, and the building industry is facing a steady downturn well into the foreseeable future.

The ripple effects of the housing crash will be felt throughout the overall economy; shrinking GDP, slowing consumer spending and putting more workers in the growing unemployment lines.

Congress is now looking into the shabby lending practices that shoehorned millions of people into homes that they clearly cannot afford. But their efforts will have no affect on the loans that are already in place. $1 trillion in ARMs (Adjustable Rate Mortgages) are due to reset in 2007 which guarantees that millions of over-leveraged homeowners will default on their mortgages putting pressure on the banks and sending the economy into a tailspin. We are at the beginning of a major shake-up and there's going to be a lot more blood on the tracks before things settle down.

The banks and mortgage lenders are scrambling for creative ways to keep people in their homes but the subprime market is already teetering and foreclosures are on the rise.

There's no doubt now, that Fed chairman Alan Greenspan's plan to pump zillions of dollars into the system via "low interest rates" has created the biggest monster-bubble of all time and set the stage for a deep economic retrenchment. Greenspan's inflationary policies were designed to expand the "wealth gap" and create greater economic polarization between the classes. By the time the housing bubble deflates, millions of working class Americans will be left to pay off loans that are considerably higher than the current value of their home. This will inevitably create deeper societal divisions and, very likely, a permanent underclass of mortgage-slaves.

A shrewd economist and student of history like Greenspan knew exactly what the consequences of his low interest rates would be. The trap was set to lure in unsuspecting borrowers who felt they could augment their stagnant wages by joining the housing gold rush. It was a great way to mask a deteriorating economy by expanding personal debt.

The meltdown in housing will soon be felt in the stock market which appears to be lagging the real estate market by about 6 months. Soon, reality will set in on Wall Street just as it has in the housing sector and the "loose money" that Greenspan generated with his mighty printing press will flee to foreign shores.

It looks as though this may already be happening even though the stock market is still flying high. On Friday, the government reported that net capital inflows reversed from the requisite $70 billion to AN OUTFLOW OF $11 BILLION!

The current account deficit (which includes the trade deficit) is running at roughly $800 billion per year, which means that the US must attract about $70 billion per month of foreign investment (US Treasuries or securities) to compensate for America's extravagant spending. When foreign investment falters, as it did in December, it puts downward pressure on the greenback to make up for the imbalance. Everbank's Chuck Butler put it like this:

"Not only did the buying stop in December by foreigners in December, but the outflows were huge! Domestic investors increased their buying of long-term overseas securities from $37 billion to a record $46 billion. This is a classic illustration of 'lack of funding'. So, the question I asked the desk was 'Why isn't the euro skyrocketing?'"

Why, indeed? Why would central banks hold onto their flaccid greenbacks when the foundation which keeps it propped up has been removed?

The answer is complex but, in essence, the rest of the world has loaned the US a pair of crutches to bolster the wobbly dollar while they prepare for the eventual meltdown. China and Japan are currently hold over $1.7 trillion in US currency and US-based assets and can hardly afford to have the ground cut out from below the dollar.

There are, however, limits to the "generosity of strangers" and foreign banks will undoubtedly be pressed to take more extreme measures as it becomes apparent that Team Bush plans to produce as much red ink as humanly possible.

December's figures indicate that foreign investment is drying up and the world is no longer eager to purchase America's lavish debt. The only thing the Federal Reserve can do is raise interest rates to attract foreign capital or let the dollar fall in value. The problem, of course, is that if the Fed raises rates, the real estate market will collapse even faster which will strangle consumer spending and shrivel GDP. In other words, we are at the brink of two separate but related crises; an economic crisis and a currency crisis. That means that the unsuspecting American people are likely to be ground between the two mill-wheels of hyperinflation and shrinking growth.

In real terms, the economy is already in recession. The growth numbers are regularly massaged by the Commerce Department to put a smiley face on an underperforming economy. Industrial output continues to flag (In January it was down by another .5%) while millions good paying factory jobs are being air-mailed to China where labor is a mere fraction of the cost in the USA. Also, automobile inventories are up while factory production is in freefall.

In addition, new jobless claims soared to 357,000 in the week ending February 10. 44,000 more desperate workers have been given their pink slips so they can join the huddled masses in Bush's Weimar Dystopia.

December's net capital inflows are a grim snapshot of the looming disaster ahead. As the housing bubble loses steam, maxxed-out American consumers will face increasing job losses and mounting debt. At the same time, foreign investment will move to more promising markets in Asia and Europe causing a steep rise in interest rates. This is bound to be a stunning blow to the banks which are low on reserves ($44 billion) but have generated $4.5 trillion in shaky mortgage debt in the last 6 years.

It's all bad news. The global liquidity bubble is limping towards the reef and when it hits it'll send shock-waves through the global economic system.

Is it any wonder why the foreign central banks are so skittish about dumping the dollar? No one really relishes the idea of a quick slide into a global recession followed by years of agonizing recovery.

Maybe that's why Secretary of Treasury Hank Paulson has reassembled the Plunge Protection Team and installed a hotline to his Chinese counterpart so he can quickly respond to sudden gyrations in the stock market or a freefalling greenback; two of the calamities he could be facing in the very near future.

Greenspan successfully piloted the nation into virtual insolvency. In fact, the parallels between our present situation and the period preceding the Great Depression are striking. Just as massive debt was accumulating in the market from the purchase of stocks "on margin", so too, mortgage debt between 2000 and 2006 soared from $4.8 trillion to $9.5 trillion. In both cases the "wealth effect" spawned a spending spree which looked like growth but was really the steady, insidious expansion of debt which generated economic activity. In both periods wages were either flat or declining and the gap between rich and working class was growing more extreme by the year. As Paul Alexander Gusmorino said in his article, "Main Causes of the Great Depression":

"Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade".

The same factors are at work today except that the speculation is in real estate rather than stocks. Just as in the 1920's the equity bubble was not created by wages keeping pace with productivity (the healthy formula for growth) but by the expansion of personal debt. Also, one could buy stocks without the money to purchase them, just as one can buy a $600,000 or $700,000 house today with zero-down and no monthly payment on the principle for years to come. The current account deficit ($800 billion) could also weigh heavily in any economic shake-up that may be forthcoming. Bob Chapman of The International Forecaster made this shocking calculation about America's out-of-control trade deficit:

"US debt was up 10.1% to $4.085 trillion and accounts for 58.8% of all the credit issued globally last year. That means the US expanded credit at a much faster rate than the economy grew. This was borrowing to maintain a higher standard of living and attempt to pay for it tomorrow."

Think about that; the US sucked up nearly 60% of ALL GLOBAL CREDIT in one year alone. That is truly astonishing.

There are many similarities between the pre-Depression era and our own. Paul Alexander Gusmorino says:

"The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. The depression began in late 1929 and lasted for about a decade....The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the misdistribution of wealth, caused the American economy to capsize.

"(The income disparity) between the rich and the middle class grew throughout the 1920's. While the disposable income per capita rose 9% from 1920 to 1929, those with income within the top 1% enjoyed a stupendous 75% increase in per capita disposable incomeA major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing8. During that same period of time average wages for manufacturing jobs increased only 8% (This ultimately causes a decrease in demand and leads to growth in credit spending)

The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge's (pro business) administration passed the Revenue Act of 1926, which reduced federal income and inheritance taxes dramatically(At the same time) the Supreme Court ruled minimum-wage legislation unconstitutional.

The bottom three quarters of the population had an aggregate income of less than 45% of the combined national income; while the top 25% of the population took in more than 55% of the national income...Between 1925 and 1929 the total credit more than doubled from $1.38 billion to around $3 billion". (Just like now, the growing wage gap has spawned massive speculative bubbles as well as a steady up-tick in credit spending. Wage stagnation forces workers to seek other opportunities for getting ahead. When wages fail to keep pace with productivity then demand naturally decreases and business begins to flag. The only way to spur more buying is by easing interest rates or expanding personal credit, and that is when equity bubbles begin to appear. That's what happened to the stock market before 1929 as well as to the real estate market in 2007. The availability of credit has kept the housing market afloat but, ultimately, the result will be the same.

On Monday October 21, 1929, the over-valued stock market began its downward plunge. It managed a brief mid-week comeback, but 7 days later on Black Tuesday it plummeted again; 16 million shares were dumped and there were no buyers.

The game was over.

Confidence evaporated overnight. People stopped buying on credit, the bubble-economy collapsed, and the mighty locomotive for growth, the American consumer, hobbled into the Great Depression. Tariffs were thrown up, foreigners stopped buying American goods; banks closed, business went bust, and unemployment skyrocketed. Tens years later the country was still reeling from the implosion.

Now, 77 years later, Greenspan has led us sheep-like to the same precipice. The economic dilemma we're facing could have been avoided if the expansion of personal credit had been curtailed by prudent monetary policy at the Federal Reserve and if wealth was more evenly distributed as it was in the '60s and '70s. But that's not the case; so we're headed for hard times.

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

SMALL HAT; February 21, 2007 11:40 PM
Anonymous said...: blowfly u weren't supposed to swallow; February 22, 2007 12:05 AM
Anonymous said...: Keith is this you?

http://www.youtube.com/watch?v=9upiYQ7VzpM&mode=related&search=; February 22, 2007 12:25 AM
Anonymous said...: Gold 560oz. Oct '06

Gold 680oz. Feb '07

Not to Shabby!; February 22, 2007 2:04 AM
Anonymous said...: Wine taster:
Glad you had a good experience in the Los Olivos area, but how many people out there on those spending sprees’ are funding it with a dedicated vacation savings.
Maybe not yourself, but a large % of the smiley folks out there may actually have money worries on their mind.
That is because; this is being paid for with borrowed money and will need to be paid back some day with interest.
Look, the sky isn’t falling the hospitality industry may continue doing well, many areas of the economy do very well in times when people are more frugal, not everyone is screwed.
But if you check the value of your house today, it has risen soo much in such a short time that smart people (aka HPers J ) are questioning the fundamentals… and its blaring obvious that there is no foundation beneath these incredibly inflated prices.; February 22, 2007 2:18 AM
Anonymous said...: Blowfly said . . .

"Renting is the most stupidest thing you can do."

No, composing such a sentence is the stupidest thing one can do. Are you illiterate? You English is terrible, and your word usage is appalling. Your logic, however, is non-existent.

Only an idiot would buy in a falling market. I've rented for years, and I much prefer renting to owning. I also couldn't care less about impressing others.

Sure, there are millions of millionaires in the U.S., but how many of them got that way without doing harm?

Your obsession with money and pretentious status symbols suggests to me that you are an unevolved twit. More likely, you are an unevolved twit real estate speculator grasping at last straws. Or perhaps you're just a twit with nothing better to do that spend hours surfing bubble blogs. Clearly, you aren't out making any money. Watching a promotional DVD about the Wine Country doesn't qualify as an actual trip.; February 22, 2007 2:38 AM
Dr. Brightside said...: Silicon Valley job market is hot again and so is the luxury housing market. Will it work it's way through northern california?

http://drbrightside.blogspot.com/2007/02/bay-area-luxury-housing-hot.html#links; February 22, 2007 2:52 AM
Anonymous said...: Had a bumper sticker moment:
“We won’t pay! more than a hundred kay!”; February 22, 2007 2:53 AM
Anonymous said...: Quotes on gold and silver in New York Wednesday shot up, driven by higher-than-expected inflation in the United States during January.

On the Commodity Exchange (Comex), the gold contract for delivery in April soared 21.70 dollars, or 3.3 percent, to close at 682.70 dollars per ounce, after posting an intraday high of 686.40 dollars, its highest value since May 19.

On the same market Wednesday, the silver contract for March advanced 42.5 cents, or 3.1 percent, to finish at 14.255 dollars per ounce.

http://www.elfinanciero.com
.mx/ElFinanciero/Portal/cfp
ages/contentmgr.cfm?
docId=44408&docTipo=
1&orderby=docid&sortby=ASC; February 22, 2007 5:57 AM
Anonymous said...: “One set of victims bought a house as an investment, only to realize that it belonged to someone else. Another had a lender knock on the door and immediately foreclose on the home, leaving the family on the street. They’re just a few examples of how a Valley mortgage-fraud ring with ties to a former Goodyear real estate agent left seven families in the lurch.”

“This notion of stealing someone’s house and borrowing money against it, something this blatant is new to me,’ said Ted Noyes, who prosecuted the case for the Arizona Attorney General’s Office.”

“‘This mortgage-fraud case had a lot of impact on a lot of families,’ said James Todak, a special agent for HUD. ‘They were defrauded, and we investigated the suspects aggressively.’”

“With the cooling real estate market in the Valley, Todak expects that HUD will get slammed with more bank- and mortgage-fraud cases. Technically, a crime doesn’t occur until a bank suffers a loss. In the hot housing market, people could turn around and sell their properties for a profit to pay off loans. But in the shadow of the prosperous market, that option isn’t as readily available, and banks end up foreclosing.”

“And that’s when cases of fraud start bubbling to the surface. ‘We expect losses to go through the roof,’ Todak said of cases in the dwindling market.”

“‘The best thing a person can do is be proactive and monitor their holdings with the Recorder’s Office,’ he said. ‘Oftentimes, these crimes prey upon people who are already in financial trouble. But when something sounds too good to be true, it usually is.’”; February 22, 2007 6:13 AM
Anonymous said...: “To understand what’s happening to the mortgage industry, take a look at Douglas County. One of the country’s most prosperous communities now has a foreclosure rate approaching what its former public trustee calls a ‘tipping point.’”

“In 2006, foreclosures as a percentage of population were higher than any other year since 1991, said Jack Arrowsmith, Douglas’ former public trustee and its current clerk and recorder.”

“At a recent foreclosure sale, Douglas officials offered 32 residential properties for auction. According to Arrowsmith, nobody bid on 31 of them. That’s why mortgage companies making risky loans are now closing by the hundreds.”

“So on Tuesday, when a Federal Reserve governor expressed shock at the quick national collapse of the risky lending market, she sounded vaguely like Capt. Reneau in ‘Casablanca.’”

“The explanation for crazy lending has always been crazy. ‘It is no longer community banks making mortgage loans,’ Englewood lawyer Robert Hopp told a recent foreclosure seminar at the Colorado Bar Association. Out-of-town lenders provide mortgage money for a fee. Risky loans are quickly packaged with other mortgages and sold as securities for a fee. Investors buy the mortgage-backed securities expecting a fat return.”

“Everybody gets paid. Risks get diluted in big loan portfolios. Those who can’t afford houses suddenly can. It all sounds too good to be true because it is. Now, the only people capable of stopping the madness, the money grubbers, are getting a clue.”

“Arrowsmith lived through the real estate bust of 1988, when home values actually declined. It was ugly. ‘It’s a positive thing that lenders are starting to review the process,’ Arrowsmith said of the risky-loan meltdown. ‘But it’s going to take time. In the long term, lenders are going to require borrowers to put some money into their property.’”

“Sure, that thins the homebuying herd, but it forces folks back to the reality, and responsibility, of homeownership.”

“The risky-lending boom of the early 21st century was a Ponzi scheme. It depended on constant growth in real estate values. For lenders, growth meant collateral would always be worth more than the money tied up in it.”

“According to Hopp and Arrowsmith, some lenders made loans worth up to 20 percent more than the assessed value of homes. These lenders believed appreciation would make up for negative equity. When the market stagnated and borrowers couldn’t keep up with mortgage payments, negative equity and zero-down lenders ended up with a bunch of houses worth less than the amount of money owed on them.”

“When that happens, you get foreclosure auctions where only one house in 32 is worth a bid.”; February 22, 2007 6:22 AM
Anonymous said...: "Wheat is up in price by more than 50 per cent year to date; corn is up 75 per cent, but this story is only beginning.

In commodity production price is chiefly determined by the supply-demand balance. More demand than supply leads to price rises; and vice versa.

"For about 25 years from the mid 1970s, commodities markets worldwide were in a slump i.e. in a bear market with low prices. Since then, we have seen a huge shift globally in commodity markets.

Over the last 10 years we have gradually seen hard commodities swing into a bull market, e.g. oil, cement, zinc, nickel, copper, silver, platinum, etc.

Occasionally, prices fall somewhat as demand temporarily drops, or more supply is brought on stream as we have seen this month, but essentially we are in a fantastic bull market for hard commodities.

"The informed view is that we are just at the early stages of a period where soft commodities (i.e. foodstuffs) will join this trend. Sugar in 2005 and grain in 2006 are the first soft commodities to join the bull market."

Mr Murphy said the reason was the world's economy was growing very rapidly, creating a huge demand for all kinds of material. In 2006 it was estimated that the world economy grew by 4.75 per cent – the fastest growth for at least 30 years.

"What is driving the very fast growth? Asia. In particular China, India and Vietnam.

http://www.stuff.co.nz/
stuff/dailynews/
3970072a6551.html; February 22, 2007 6:24 AM
Anonymous said...: In congressional testimony last week, Federal Reserve Chairman Ben Bernanke said that the Fed expects inflationary pressures to moderate. However, the hotter-than-expected CPI report suggests otherwise.

Consequently, the central bank might be losing credibility among some investors. As a result, expectations about the risk of future inflation are on the rise and that, in turn, helped drive gold prices higher on Wednesday.

Strength in other commodities also helped. Crude recaptured the $60.00 a barrel level early in the trading session.

Meanwhile, corn jumped to ten-year highs. The gains across various markets helped push the Goldman Sachs Commodity Index to its best levels of the year.

In short, the rise in commodity and consumer prices stoked concerns about inflation, which helped push gold prices sharply higher on Wednesday.

http://www.optionetics.com/
market/articles/16731; February 22, 2007 6:27 AM
Anonymous said...: “Eagerness among mortgage lenders to increase their fee income pushes them to sell as many loans as possible, even ones they know borrowers can’t afford, outgoing Federal Reserve Governor Susan Bies said. That is driving more people to fall behind on payments and default, she said.”

“‘There’s a real transaction-based mentality in the industry today that you didn’t have 20 years ago,’ Bies said. ‘To make a decision faster, and try to get the customer to say yes to you before they go and shop anywhere else, they’ll waive terms.’”; February 22, 2007 6:35 AM
Anonymous said...: As subprime company like NovaStar is falling off a cliff (NovaStar Q4 Earnings Drop 150 Percent), what is going on in the world of weaker traditional loans products like ALT-A loans?

Mortgage lender LoanCity closed seven branches recently, leaving it with five nationally, BankNet360 has learned.

The San Jose, Calif.-based lender closed offices due to a “softer market and improved technology, which allows for better load balancing among branches,” according to a company spokesman.

LoanCity originated about $5 billion of loans last year, which includes prime, alt-A and jumbo mortgages.

http://www.banknet360.com/
news/NewsAbstract.do?
na_id=7572&service_id=
1&bi_id=; February 22, 2007 6:42 AM
Anonymous said...: Watch Out! Falling Mortgage-Backed Securities Ahead

It is becoming clear, however, that subprime mortgages are not the only part of this market experiencing strain. Even paper that is in the midrange of credit quality — one step up from the bottom of the barrel — is encountering problems.

That sector of the market is known as Alt-A, for alternative A-rated paper, and it is where a huge amount of growth and innovation in the mortgage world has occurred.

The Alt-A segment of the market used to consist of mortgages issued to professionals — like doctors — with unpredictable incomes.

Now Alt-A is dominated by so-called affordability mortgages — adjustable-rate interest-only loans, 40-year loans and silent- second loans.

You, dear risk- taking homeowner, know all about these loans that allowed people to buy a house that might have been beyond their means but looked attractive because they did not need to make payments on the principal in the early years.

In 2006, according to UBS, interest- only loans, 40-year mortgages and option-adjustable-rate mortgages comprised more than 75 percent of Alt-A issuance.

These loans often have little documentation of a borrower's income and rack up higher mortgage debt against the value of the underlying collateral (i.e., the house).

UBS said that 76 percent of adjustable-rate interest- only loans written in 2006 had low documentation, while 57 percent had loan-to-value ratios greater than 80 percent. No surprise, then, that 3.16 percent of these loans are already delinquent by two months or more.

http://usmarket.
seekingalpha.com/article/
27531; February 22, 2007 6:52 AM
Anonymous said...: Mortgage Downgrade Hitting Alt-A Loans as Well

Rising delinquencies on U.S. home loans are hitting higher-quality home mortgages for the first time, Standard & Poor’s said Thursday, as it put some of the bonds backed by the largest U.S. home mortgage company’s loans on review.

The rating company said that it placed a Countrywide Financial mortgage-backed bond issue under review for downgrade.

It was the only so-called “Alt-A” (or bad credit mortgage) loan from 2006 to be placed on such a review based on poor performance of underlying loans.

S&P on Wednesday also put 10 subprime issues on CreditWatch negative.

Representing one of the fastest growing segments of the $10 trillion U.S. home mortgage market.

www.mtgfoundation.com/2007/
02/mortgage-downgrade-
hitting-alt-a-loans-as-
well.html; February 22, 2007 7:21 AM
Anonymous said...: NetBank annual loss reaches $202 million

NetBank Inc. went deeper into the red in 2006, impacted by restructuring costs, increased provisions on the non-conforming mortgage channel and impairments charges on its ATM and merchant processing business.

http://www.bizjournals.com/
atlanta/stories/2007/02/19/
daily13.html; February 22, 2007 7:34 AM
Anonymous said...: No Spring Bounce for George Wimpey Plc.

``Customer cancellation rates in the U.S. during the first few weeks of this year have fallen significantly,'' Wimpey Chief Executive Officer Peter Redfern said.

George Wimpey Plc, Britain's second-biggest homebuilder, said second-half profit fell 32 percent after it wrote down the value of U.S. land holdings amid the worst housing slump there in 15 years.

Wimpey, which builds houses in five U.S. states through its Georgia-based Morrison unit, pulled out of contracts to buy land as about half of its

``It's going to be a pretty bloody year in the U.S. for Wimpey,'' said Simon Brown, an analyst at Evolution Securities in London

Wimpey, which builds in Arizona, Florida, California, Texas and Georgia, booked a 60.7 million charge against the value of U.S. land after it pulled out of options to buy plots.

http://www.bloomberg.com/
apps/news?pid=20601206&sid=
a5cNWZvGCw38&refer=
realestate; February 22, 2007 8:01 AM
az_mtb said...: Toll Profit Drops on Land Writedowns, Falling Orders

Feb. 22 (Bloomberg) -- Toll Brothers Inc., the largest U.S. luxury-home builder, said profit tumbled 67 percent in the fiscal first quarter because of a drop in the value of the company's land.

Net income in the three months ended Jan. 31 fell to $54.3 million, or 33 cents a share, from $163.9 million, or 98 cents, a year earlier, the Horsham, Pennsylvania-based company said today in a statement. The average estimate of analysts surveyed by Bloomberg was for earnings of 27 cents a share excluding some items.

Chief Executive Officer Robert Toll reduced the company's land holdings as demand wanes for its houses, which sell for an average of $676,523, about three times the national median price. The prospect of lower house prices prompted some people to delay their purchases, and Toll today cut a forecast for the number of homes it will sell this year.

``There are too many soft markets at this stage of the selling season to call a general upturn in the new home market,'' Robert Toll said in the statement. ``Demand varies greatly from week to week in individual markets.''

Toll forecast earnings of $1.46 to $1.85 a share for fiscal 2007. The company said it will probably deliver 6,000 to 7,000 houses during the year, compared with an earlier forecast of 6,300 to 7,300 properties.

Land Writedowns

In the fiscal first quarter, Toll wrote down the value of assets by $96.9 million and took a charge of $9 million relating to an acquisition in Detroit in 1999. Excluding the writedowns and charge, earnings fell 27 percent to 72 cents a share. Revenue dropped 19 percent to $1.09 billion.

Toll's earnings forecast for the fiscal year assume additional writedowns of $60 million in the remaining three quarters. Homebuilding revenue will be between $4.2 billion and $4.96 billion, the company said.

Toll Brothers forecast on Feb. 8 that writedowns in the fiscal first-quarter would be as high as $160 million. At the time, the company also reported a 33 percent drop in orders, to 1,027 units.

Shares of Toll Brothers fell 6 cents to $32.86 in New York Stock Exchange composite trading yesterday. The stock has gained 1 percent in the past year. During that period, a Standard & Poor's measure of 16 homebuilding stocks has dropped 21 percent.

`Pent-Up Demand'

Economists have said the housing market is showing signs of stabilizing as sales start to increase and builders whittle down the inventory of unsold homes. Still, builders are reporting declines in orders.

``We believe that pent-up demand is building in many markets as potential buyers bide their time until they are confident prices have firmed,'' Robert Toll said in the statement.

Toll canceled about 6,300 land plots in the quarter and now has 67,500, compared with 91,200 at the end of April last year, it said today.

Toll said 436 customers, or 30 percent, canceled contracts in the first quarter, down from 585, or 37 percent, in the previous three months. A year earlier, there were 151 cancellations.

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

Yeah folks....we've definitely reached a bottom! [sarcasm off]; February 22, 2007 2:25 PM
Anonymous said...: This stupefying drivel makes me want to chuck it up. Who gives a rats ass about you numskull, retard, meathead, dumbbell, dim-witted, addle-pate renter idiots. Coupon cutting, can collecting, nickel hoarding renter ass-wipes. Even Blowfly knows that renting is one step above living in the homeless shelter and that one step above life under the bridge. So here’s to your contemptible, repulsive, loathsome, stinking rental shit-hole where you can hang with da homies, deep in the ghetto where you live in.; February 22, 2007 2:54 PM
Anonymous said...: from Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601103&sid=aCrdgd5WDnbs&refer=news

But don't worry, the lift lines at Vail are long and many hotels in wine country are sold out.; February 22, 2007 4:56 PM
Anonymous said...: Blowfly your a broken record. Say something else. At least use different bad words to keep it interesting.; February 22, 2007 5:28 PM
Anonymous said...: What a bunch of dolts on this blog!!!!

February 22, 2007 4:09 PM

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

autofx, does that include you? All Im asking for is a clearification.; February 22, 2007 5:30 PM
Anonymous said...: Unbelievable:

Time article: Will The Housing Bubble Burst in 2007?

http://www.time.com/time/business/article/0,8599,1592751,00.html; February 22, 2007 8:08 PM
Anonymous said...: thanks autofx, I guess I had the auto spell check off. But that's what your here for, to manage us uneducated bloggers. Your name should be PHX-puts.; February 22, 2007 8:48 PM
Anonymous said...: "clearification"

OMG!!!!!!!!

That's some TERRIBLE spellin'!!!; February 22, 2007 11:05 PM
Anonymous said...: "We did the wine tasting thing in the Los Olivos area, went up to San Luis Obispo to see some college friends and spent 3 nights in Santa Barbara."

That's a very cheap trip. I've done that several times since the 80's. Is that all you have to brag about, especially for people like me who have been traveling around the world for decades? Let me see what I have done with my savings from renting, being frugal, and selling at the peak of the bubble: 1. Paid cash for property in a paradise island in Brazil; 2. Spent the holidays in Brazil at the most beautiful coast in that country (lots of hot girls); 3. Maxed all my retirement accounts. 4. Maxed Roth IRA; 5. Went to the Miami Boat Show to buy an used boat cash; 6. Raised my emergency fund to cover now 24 months of expenses (do you have that?); 7. Invested in foreign currency to hedge vacation trips to Europe this year; 8. Lowered my AGI to the max so I can give the finger to the IRS (my effective tax rate is about 5%); 8. NO DEBT; 9. My NET WORTH continues to rise every month as planned; 10. Funded my savings accounts to trade my car at the end of year (i'll pay cash), etc, etc. etc.

Isn't great HP's to sleep at night with NO DEBT, money in the bank, large emergency fund, growing NET WORTH, and NO hamster wheel to spin? Man, I've been sleeping like a baby. Everyday, I wake up and have my breakfast at my balcony with that beautiful ocean view and say, "life is great!" Tehn I go for a jogging on the sand, jump on the water to refresh, take a shower, and commute 8 minutes to work.

BTW, how's that NEGATIVE NET WORTH of yours doing, homedebtor-credit card and HELOC slave-wannabe? How's that commute from hell in California? Enjoy that last cheap trip on credit and leased car because your foreclosure, late payments, and crappy credit rating are breathing down on your neck. And if you are one those real estate clerks or sleazy mortgage brokers, it's back to waiting on tables.

We, HP's really love when you homedebtor-hamsters blow money you don't have. When you all go down in flames and that depression hits, we'll be laughing our asses off. Hey, I think that you should buy a brand new Mercedes (those very expensive ones) right now, a brand new Cartier watch to your wife, upgrade to a bigger McMansion, and go to Paris and stay at the Ritz for 3 weeks. C'mon, you guys deserve it, since you all work so hard to spin that wheel!; February 22, 2007 11:26 PM
Anonymous said...: Hey blowfly!

Know one cares about your childish rants!

From the eloquence of your written lunatic ravings you are obviously a disturbed individual with sexual ambiguity!

Find a competent shrink and have yourself committed!; February 23, 2007 1:11 AM
Anonymous said...: In April 2007, nine practical consequences of the unfolding crisis will converge:
Acceleration of the pace and size of bankruptcies among US financial organisations: from one per week today to one per day in April
Spectacular rise of US home foreclosures: 10 million Americans out on the street
Accelerating collapse of housing prices in the US: - 25%
Entry into recession of the US economy in April 2007
Precipitous rate cut by the US Federal Reserve
Growing importance of China-USA trade conflicts
China's shift out of US dollars / Yen carry trade reversal
Sudden drop of US dollar value against Euro, Yuan and Yen
Tumble of Sterling Pound
In this February issue of the GlobalEurope Anticipation Bulletin LEAP/E2020 details the nature and sequence of these developments meant for all concerned players (currency or financial market operators, investors, international traders, political and economic decisions-makers or analysts) to better anticipation events. Strategy is time mastery! In the present issue of GEAB, our teams endeavoured to build a device to overcome this quarter's accelerating developments.

In this public announcement, LEAP/E2020 describes one of these nine direct consequences otherwise detailed in GEAB N°12 i.e.:

Spectacular rise of US home foreclosures: 10 million Americans out on the street

In 2006, US foreclosures increased by 42%, directly affecting an average of 1 US household out of 92. In states such as Colorado, California, Ohio, or Texas, 1 household on 35 or 40 falls victim of foreclosure. In October through December 2006 in Ohio, 3.3% of homes and apartments were filed in foreclosure . The pace of foreclosures accelerates as the number of insolvent US households increases (cf. GEAB N°10 on the issue of insolvency): in 2006, over 1.2 million foreclosures affected 4 to 5 million US citizens (counting between 3 and 4 persons per household).

Level of foreclosures in the US in December 2006

According to LEAP/E2020, the year 2007 will register at least a doubling in the number of foreclosures (3) due to the surge of record high numbers of mortgage loan refinancing on the market (close to 2,000 billion USD). 2 to 3 million homes will probably be filed in foreclosure and about 10 million US citizens thrown out of their homes in the course of this year. All those who doubt whether the US actually entered a “very great depression” should pay a visit to field reality and observe the devastating effect of the housing and financial crisis for millions of Americans (4). Scores of blogs appeared on the web trying to review the on-going housing disaster and the stream of human tragedies (5). Taking into account that a US citizen has three months between initial default on interest repayment and actual foreclosure, LEAP/E2020 estimates that it is indeed in April that the second wave of foreclosures will hit the US market.

Subscribe for the complete report. Use iTulip referral code 754HT7 for a 20% discount.; February 23, 2007 1:56 AM
Anonymous said...: We're a long way away from a gold bubble - remember that in inflation-adjusted terms, the 1980 high of around $850 works out to over $2,000 today.

A slow steady rise at a rate far above the official measure of "inflation" would be best for everyone involved (that is, except for the central banks who continue to sell the stuff).

In this report from Bloomberg, it sounds like the combination of a higher than expected CPI and changes to open interest made sellers scarce.; February 23, 2007 2:18 AM
Anonymous said...: HOLY SNOTBURGERS BATMAN!!!!

New data for San Diego County reveals that 67 percent of loans made in the first 11 months of 2006 were interest-only or negatively amortized.”

“Of that 67 percent, 30 percent were negative-amortization loans, a threefold increase since January 2004 and 30-fold jump since January 2003, according to FirstAmerican Loan Performance.”

“Last week, a San Diego-based subprime lender, Accredited Home Lenders, joined the ranks of companies vowing to tighten standards after reports of significant losses last quarter. Rick Sharga of RealtyTrac said he’s noticed the link between the lenders’ stricter regulations and the rate of foreclosure activity. ‘I think the two go hand-in-hand,’ Sharga said.”

“Now, home values have stopped appreciating and pricing in some areas has leveled or even declined. Last month, the median sale price for a home in San Diego County was 5.6 percent lower, nearly $30,000, than the $500,000 price logged in January 2006, according to DataQuick.”

“In a report published in December, the Center for Responsible Lending stated that the default rate for subprime loans made between 1998 and 2001 was 3.2 percent in San Diego County. But for the nearly 5,000 such loans originating in 2006, the center predicts that 21.4 percent are headed for default.”

“‘There are some fundamental flaws in the underwriting process that are coming back to haunt lenders,’ the centers’ Paul Leonard said. ‘The lenders seemed to count on appreciation rather than the people’s actual income.’”; February 23, 2007 3:01 AM
Anonymous said...: Bitter Renters are f*$ked. Yes, you are:

http://www.usatoday.com/money/perfi/housing/2007-02-04-renters-usat_x.htm; February 23, 2007 3:06 AM
Anonymous said...: “‘When I look at the data, I don’t believe the builders think the worst is over,’ report author Peter Butzelaar said, referring to $1.4 billion the top 10 builders collectively wrote off their balance sheets for the last three months of 2006. ‘To me, you don’t write off future opportunity unless you don’t believe there is an economic opportunity there.’”; February 23, 2007 3:51 AM
Anonymous said...: “One passionate supporter of NovaStar went so far as to start a Web site to rebut negative reports on the company. Yesterday, in what he described as ‘probably my last writing here,’ the investor had this to say on the site: ‘I am shell shocked after the conference that took place yesterday, and quite annoyed that I participated in the collective hallucination that led so many into such a disaster.'’; February 23, 2007 4:05 AM
Anonymous said...: “‘The majority of the subprime business is with first-time buyers. So it may take several years to shake out,’ Simonsen says. ‘But when it comes time to sell and trade up we may find that the low end has been squeezed out.’ In other words, a meltdown in the subprime market could affect the supply of future buyers for years to come.”; February 23, 2007 4:11 AM
Anonymous said...: “‘It was a groundswell,’ said Jerry Manning, who runs J. J. Manning Auctioneers, which sells homes in the Northeast and in South Florida. ‘Everybody thought that they were going to be a real estate mogul.’”

“‘You will have a correction, and the correction will make regional homeowners unhappy’ as property prices fall, said John Lonski, chief economist at Moody’s Investors Service. ‘Regional mortgage bankers will find their livelihoods threatened.’”

“Transeastern Homes, which builds homes in Florida, is in settlement talks with lenders who contend it is in default on debt totaling hundreds of millions of dollars. ‘We’re going to see much bigger builders and much bigger lenders facing bankruptcy because so much of the building has been on a speculative basis,’ said real estate consultant Jack McCabe.”; February 23, 2007 4:25 AM
Anonymous said...: “In spite of the problems, Mr. Matera, for one, believes that real estate is a safer investment than stocks. ‘I would rather have a house that I can’t sell at the moment than a stock certificate,’ he said. ‘I still have a house. It’s not what an owner of Enron stock can say.’”; February 23, 2007 4:28 AM
Anonymous said...: Apocalypto time...

The BBB- rated portions of ABX contracts are "going to zero"...And the "Subprime Carnage" Worsens...

Nouriel Roubini | Feb 22, 2007

The two panicky statements above (The BBB- rated portions of ABX contracts are "going to zero" and "subprime carnage") are not mine. The "carnage" metaphor was used today by the usually sober and not panic-prone Wall Street Journal (and used interchangeably in recent days with the "meltdown" term by other mainstream media and analysts). While the former statement comes from the head of a securities brokerage cited today by Bloomberg:

The BBB- rated portions of ABX contracts are ``going to zero,'' said Peter Schiff, president of Euro Pacific Capital, a securities brokerage in Darien, Connecticut. ``It's a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults'' by removing demand from the housing market and hurting home prices, he said.

Taken literally the statement above is an obvious and clear exaggeration as ABX prices are nowehere close to zero. But from a substantial point of view - and as a metaphor of that ABX market - the statement is actually correct as prices of ABX BBB- indices are literally in a free fall. At the current asymptotic rate of fall (see charts here) they could in principle reach zero in a short time. For example the price of the ABX-HE-BBB- 06-2 - that was trading close to par (100) between August and Nobember 2006 - is now down to 72.71. The price fall since November could be well described by an exponential hyperbolic function (a "free fall of the cliff" in the layman's language of those who do not have a Ph.D. in finance). And at this rate of price fall of course - as argued by Mr. Schiff - prices are "going to zero".

But you do not need to reach zero to have an sub-prime "carnage" or "meltdown" (the latter term used - among many others - by the smart and still bullish Richard Berner of Morgan Stanley): even at the current price of 72 the cost of insuring against default on the riskiest tranches of subprime mortgages is already literally astronomic, having surged from the 50bps over Libor of a few weeks ago to the 1200bps plus (and rising by the hour) in recent days. To cite Bloomberg:

Subprime Mortgage Derivatives Extend Drop on Moody's Reviews

By Jody Shenn and Shannon D. Harrington

Feb. 22 (Bloomberg) -- The perceived risk of owning low- rated subprime mortgage bonds rose to a record for a fifth day after Moody's Investors Service said it may cut the loan servicing ratings of five lenders.

An index of credit-default swaps linked to 20 securities rated BBB-, the lowest investment grade, and sold in the second half of 2006 today fell 5.6 percent to 74.2, according to Markit Group Ltd. It's down 24 percent since being introduced Jan. 18, meaning an investor would pay more than $1.12 million a year to protect $10 million of bonds against default, up from $389,000.

Moody's said late yesterday that it may cut the so-called servicer ratings for affiliates or units of lenders including Irvine, California-based New Century Financial Corp., the second- largest lender to subprime borrowers. Declines in the ABX-HE-BBB- 07-1 and similar indexes accelerated this month as New Century and HSBC Holdings PLC, the biggest lender, said more of their loans were going bad than they expected. London-based HSBC today said the head of its North American unit stepped down.

``I do not think it is surprising we have trouble in this sector of the market; I think the surprise is the speed at which it has unfolded in the last couple of months,'' said Mary Miller, director of fixed-income at Baltimore-based T. Rowe Price Group Inc., which manages about $335 billion in assets...

Moody's Review

``Protection-sellers largely have stepped away until the market settles down,'' Peter DiMartino, asset-backed securities strategist at RBS Greenwich Capital, wrote in a note to clients today. ``Recent mini-rallies were just a few brave souls hoping they could actually catch the falling knife.''

Moody's said it also may reduce servicer ratings of affiliates or units of Ameriquest Mortgage Co., Accredited Home Lenders Holdings Co., Winter Group and NovaStar Financial Inc., which this week reported a surprise fourth-quarter loss of $14.4 million. The ratings affect how much protection for mortgage bond investors ratings firms require. Potentially weaker servicing at the companies may hurt existing bonds, Moody's said...

The level of delinquencies and defaults on subprime mortgages made last year is the highest ever for such loans at a similar age, according to New York-based Bear Stearns Cos.

`Taken a Hit'

Concern about low-rated subprime mortgage bonds have caused yield premiums to rise on low-rated bonds of so-called collateralized debt obligations backed by the debt. Yields on typical BBB bonds from such CDOs widened 1 percentage point relative to benchmarks in the week ended Feb. 15 to 5.50 percentage points, according to JPMorgan Securities Inc.

``Liquidity has taken a hit as market participants wait for the dust to settle,'' Christopher Flanagan, an analyst at New York-based JPMorgan, wrote in a Feb. 20 report. CDOs buy loans, bonds and derivatives, and resell the cash flows in new bonds, some of which have higher credit ratings...

Low-rated subprime bond prices are getting to the point where Kirby said he may need to ``reassess'' whether the yields are high enough to cover the risks.

`Going to Zero'

New series of ABX indexes are created every six months by securities firms including Bear Stearns, and Goldman Sachs Group Inc., and London-based Markit. They indicate prices for default swaps linked to 20 bonds, not prices for swaps on each.

Besides bondholders, stock investors have used ABX contracts as a way to bet on the declining fortunes of subprime mortgage companies or the housing market.

The BBB- rated portions of ABX contracts are ``going to zero,'' said Peter Schiff, president of Euro Pacific Capital, a securities brokerage in Darien, Connecticut. ``It's a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults'' by removing demand from the housing market and hurting home prices, he said.

This ABX and sub-prime "carnage" is bad enough. However, the most interesting macro question is how this "carnage" will affect the credit crunch that is now hitting sub-prime mortgages and that is at risk of spilling over to other mortgages and to other credit spreads? Let us think in some detail about this most important question...; February 23, 2007 4:38 AM