The national foreclosure rate was one for every 557 households.
This does not count defaults, or notices of defaults, and I believe it to be the first surge of what will be a tsunami.
Category: Housing Crash
OK, No Way that I Saw THIS Coming
It appears that illegal aliens are better credit risks for mortgages than citizens and legal residents.
Because they have no SSN to provide, banks made loans involving far more research and verification, so they are not defaulting.
When I read about it, it makes sense, but I never would have come up with this on my own.
The Grim Future of Real Estate?
Here is a story that we will see repeatedly over the next few years, entire neighborhoods blighted by foreclosures.
In this case, you have half million dollar homes that people have simply walked away from, and police have to patrol in order to prevent squatters. There are swimming pools that have moved from assets to West Nile and Malaria infested health risks.
We are going to see a lot of this, and a lot of people trapped in their homes because the entire neighborhood is illiquid, because no one wants to live there at any price.
Pleasant picture this.
Luckily, I live in an old neighborhood, built in the 1960s, so we won’t see as many exotic mortgages, and hence foreclosures.
2007 Mortgage Backed Bonds Go Belly Up at Unprecedented Rate
One trader said that “Anything securitized in 2007 has got to have the worst collateral performance of any trust I’ve seen in my life,” which is truly alarming, since teaser rates and similar incentives are still in effect for these financial instruments.
If All Housing is Local, This is Local For Me
This is the data on my house, purchased with a fixed 30 year mortgage with 20% down:
This is the price variations
This is the year over year percentage change.
I think that it will get worse before it gets better.
All data from Zillow.
Deutsche Bank Writes Off $3.12 Billion in US Mortages
People keep claiming that the Subprime mortgage meltdown is over. It is not.
We will see more, and from higher grade loans, both in and out of the real estate market.
Countrywide CEO Dumped Stock Before Crash
And it looks like he might very have gotten away with it. Where are Fred, Daphne, Velma, Shaggy, and Scooby when you need them.
Basically, he handled his shares through a trading plan, a sort of high level document which one gives to a broker, which is intended to avoid even the appearance of insider trading.
However, Countrywide Financial Corp. Chairman and CEO Angelo Mozilo revised the plan repeatedly in the summer of last year, at about the time that he would have been aware that Countrywide was circling the drain.
….
If a guy is changing his plan around, I would think that would send up a red flag. I wouldn’t allow my clients to do it,” said Thom F. Carroll, a financial planner with the Baltimore wealth management firm Carroll, Frank & Plotkin.
Mozilo adopted a new trading plan, added a second one and then revised it while the housing and mortgage industry slumped, the Times reported, citing regulatory findings.
The changes allowed him to sell hundreds of thousands of additional shares before Countrywide stock plunged.
Sandy Samuels, Countrywide’s chief legal officer, said Mozilo’s stock sales were all “in accordance with company policy.”
….
Yeah, right.
Economic Links For the Day
Citigroup sees 3Q earns down 60 percent
UBS forecasts pretax loss up to $690M
Dollar Slumps to All-Time Low Vs Euro: Financial News
So the dollar is at an all time low, but the Dow hits an all time high. I’m inclined to view the dollar as trend, and the Dow as noise, but YMMV.
FDIC Shuts Down NetBank
This will be the first of many, and proves that online business (NetBank was an online bank) obey the same economic laws as other businesses.
NetBank Inc., an online bank with $2.5 billion in assets, was shut down by the government on Friday because of an excessive level of mortgage defaults.
It was the largest savings and loan failure since the tail end of the industry’s crisis more than 14 years ago. Federal regulators appointed the Federal Deposit Insurance Corp. as a receiver for Alpharetta, Ga.-based NetBank.
This is just the beginning.
Nouriel Roubini Says that He Was Too Optimistic on Housing
Nouriel Roubini is an economist, a good one, and he’s been one of the voices in the wilderness about the housing bubble popping, and now he has a post up, I Was Way Too Optimistic on the Housing Recession…, that bears reading.
He’s been a housing bear, and a consistent voice of reality, and the housing market has exceeded his worst case scenario.
Go read it.
Rating Agencies and Appraisors and Free Market Failure
It appears that Congress is getting ready to bash the rating agencies. We’ve seen similar things with real estate appraisers, though more at the local level.
What we are seeing here is a basic failure of a largely unregulated part of the market. Moody’s, S&P, and your local appraiser are all in a similar situation. If they look too closely, their customer will go to another appraiser or rating agency, hence you have unrealistic ratings on securities and unrealistic appraisals on houses.
The financial markets cannot police themselves.
Real Estate Continues to Crater
We now havelowest sales level in 5 years, and the steepest price drop in 16 years, a 4.3% drop from July, and the Case-Shiller index showing a 4.5% price drop. Foreclosures have more than doubled, and we have a 10+ month inventory.
Why Markets Cannot Be Relied on to Police Themselves
Prudent Bear has put it better than I ever could* in his post, When markets lose their mind.
His point:
Subprime mortgages themselves exemplify irrational markets, yet the participants’ activities at each stage were economically in their own rational interest:
- Low income consumers took on mortgages they had no prospect of affording because they believed from the experience of others that house prices would rise sufficiently to bail them out. In any case being often near bankruptcy the potential profit from successful speculation appeared to them greater than the potential loss from default.
- Mortgage brokers sold subprime mortgages because they got a commission for selling them and were not responsible for the credit risk.
- Investment banks packaged the subprime mortgages into multiple-tranche mortgage backed securities because they received fat fees for doing so and again had no real responsibility for the credit risk.
- Rating agencies gave the upper tranches of mortgage debt favorable ratings, because they made a great deal of money from providing ratings for asset backed securities, needed to keep in the favor of the investment banks who brought them this attractive business, and had mathematical models (either their own or the investment banks’) “proving” that the default rate of the securitized mortgages would be low.
- Investment bank and rating agency mathematicians produced models “proving “ that default rates would be low, ignoring the real-world correlations between defaults on low quality consumer debt, because they were well paid to do so – the alternative was to return to a miserable cheese-paring existence in academia.
- Finally the investors bought asset backed securities because they could achieve a higher return on them in the short term than their borrowing costs, and could tell their funding sources (in the case of hedge funds) or bosses (in the case of foreign banks) that they were taking very little risk because of the securities’ high rating.
I do think that his post is incomplete in one area, which is in explaining how so many people with decent credit got caught up in this too.
American Home Mortgage Goes After Retirement Funds – Credit Market * US * News * Story – CNBC.com
Let’s be clear, this is the exception, not the rule. These folks were crooked, and hoped that housing appreciation would cover their tracks.
Fed Drops Interest Rates 50 Basis Points, USD hits all Time Low Vs Euro
Note: 100 Basis Points is 1%.
The dollar is now $1.3972:€
Note the spike that happened as soon as the Fed announced at 2:15 (Times are in GMT), so 6:15 GMT is 2:15 EDT).
I think that we got the worst of both worlds today, the currency traders care if the fed slashes rates, but mortgages, commercial paper, and interbank lenders don’t.
Baltimore Area Lender’s Checks Bounce
Thankfully, it’s not my lender, but American Home Mortgage Investment Corp. is bouncing property checks in Baltimore City and Baltimore County.
Over 100 Grand so far, and this is the camel’s nose under the tent.
In addition to everything else, there is going to be a lot of unpaid property tax at the local level, and falling assessments, putting cities and counties in a cash crunch.
Thank you Alan Greenspan.
Sunday Foreclosure Chart Extravaganza | Piggington’s Econo-Almanac | Southern California Housing Bubble News and Analysis
Well, Rich Toscano does it again, with a series of charts that reflect how bad things are in San Diego.
Yep, you read that chart right, notices of default (NOD) are higher than house sales. Notices of trustee sales (NOT—Foreclosure auctions), and real estate owned (REO, basically no one would buy at the foreclosure auction) are skyrocketing too.
Truth be told, San Diego was one of the 10-20 most over heated markets in the country, but it’s effects are nationwide.
You see accelerated NOD, NOT, and REO levels in places as “un-overheated” as Toledo, and you see people who have used their equity in overheated markets to make investment and vacation home purchases in cheaper areas, which inflate prices everywhere.
Fannie Mae and Freddie Mac, in particular, and the mortgage resale market in particular, have made real estate markets more national, and even global.
Good Proposal by Chris Dodd on the Subprime Mess
Chris Dodd, chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, has put forth interesting proposals on the current housing/mortgatge* mess.
- Require lenders to assess borrowers’ ability to pay the mortgage even after a rate reset if they’re signing up for an adjustable-rate loan.
- Require lenders to verify subprime borrowers’ income with documentation. Earlier this year, the Federal Reserve
- Prohibit pre-payment penalties and yield spread premiums (YSP) in subprime loans. A pre-payment penalty is the fee some lenders charge if you end up paying off your mortgage early, including if you choose to refinance. It sometimes can be as high as six months’ worth of mortgage payments. A YSP is the difference between the the lowest interest rate a borrower qualifies for, and the actual rate he gets. A broker’s fee may be based on it.
- Prohibit steering borrowers to more expensive loans when they qualify for lower cost ones.
- Hold lenders liable for appraisals and for brokers’ actions when the broker is paid based on yield spread premiums.
These are good policies, and they would have been much better had they been implemented, or at least proposed, 2 or 3 years ago. to the degree that these can be made retroactive, they should be (you could make prepayment penalties immediately illegal, for example).
More importantly, it places much of the onus upon those who profited through their highly leveraged, and ruinous, financial products.
It’s taken him up a notch in my view of the presidential candidates.
*To all but the blind, this horse has left the subprime stables, and is roaming the prairie.
Countrywide Mortgage is Going Down
Well, it looks like Countrywide is looking for its second cash infusion in as many weeks.
They are going to collapse like wet broccoli, or the taxpayer is going to bail them out….
McMansions Become ‘McApartments,’
It should be noted that this phenomenon happened with Brownstones too.
These days, they are 3-4 apartments.
McMansions don’t seem as readily adaptable to dividing into apartments, but a lot of them are going to end up as such, because there is no market for them.
It will have the effect of “urbanizing” those neighborhoods though, exactly the opposite of what was intended by the folks who bought and live in such homes.