This is what an unregulated lending market gets you, people with good credit steered toward sub prime loans because the lenders made more money that way.
According to the WSJ article, 55% of all sub prime loan borrowers were qualified for prime loans.
The brokers make big bucks over this.
This is a legacy of Republithug philosophy….The idea that, unfettered by regulation, sophisticated players will be honest.
The median price of a Palm Beach County condo fell to $158,900 in October 2007, from $225,500 in October 2006.
This is not a declining market….This is blood in the streets. This means that people who got a 20 year fixed rate with 20% down are under water.
HUD is starting to dump foreclosed homes, teachers, police officers and firefighters in Charlotte, NC can get homes for fifty cents on the dollar, Third-quarter home prices dropped 1.7% from the second quarter as measured by the Case-Shiller index, and houme values are expected to drop $1.2 TRILLION next year, with a drop of $6.6 billion in property taxes.
So a federal agency is marking down homes that they can’t get rid of 50%, house prices are dropping at an annualized rate of about 7% a year, and property tax revenues are falling through the floor, and what is likely a 5+ year decline is only about 14 month along.
Noriel Roubini’s latest prediction:
I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before. In this extreme scenario whose likelihood is increasing we could see a generalized run on some banks; and runs on a couple of weaker (non-bank) broker dealers that may go bankrupt with severe and systemic ripple effects on a mass of highly leveraged derivative instruments that will lead to a seizure of the derivatives markets (think of LTCM to the power of three); a collapse of the ABCP market and a disorderly collapse of the SIVs and conduits; massive losses on money market funds with a run on both those sponsored by banks and those not sponsored by banks (with the latter at even more severe risk as the recent effective bailout of the formers’ losses by theirs sponsoring banks is not available to those not being backed by banks); ever growing defaults and losses ($500 billion plus) in subprime, near prime and prime mortgages with severe known-on effect on the RMBS and CDOs market; massive losses in consumer credit (auto loans, credit cards); severe problems and losses in commercial real estate and related CMBS; the drying up of liquidity and credit in a variety of asset backed securities putting the entire model of securitization at risk; runs on hedge funds and other financial institutions that do not have access to the Fed’s lender of last resort support; a sharp increase in corporate defaults and credit spreads; and a massive process of re-intermediation into the banking system of activities that were until now altogether securitized.
Let’s be clear, Dr. Roubini is, and always has been, a bear. Truth be told, Since I started following this in 2001, so have I.
More important that this is that the bears in general, and Dr. Roubini in particular, have been right time and time again.
We have trillions of dollars in leverage in instruments that no one understands, and when this unwinds, it will be ugly.
Something that I hadn’t thought about before, but when a property is foreclosed on, renters are frequently evicted. As a result, renter protection was included in the House mortgage reform act, and Chris Dodd has proposed the same in the Senate.
Generally the protections come in the form of requiring purchasers continue leases of for 6 months following foreclosure.
Considering that about more than 10% of all foreclosures are non-owner occupied, and as the Times notes, “This figure probably underestimates the problem, according to the association, because buildings receive tax benefits if they are registered as owner-occupied”, we could see well in excess of 100,000 tenant evictions.
This is a bailout. Bank of America will purchase $2 billion worth of preferred Countrywide stock yielding 7.3%, and that can be converted into common stock at $18 per share. It should be noted that Countrywide is currently selling at $26.19, up 20% from before the infusion purchase.
This is a juxtaposition of desperation on the part of Countrywide and vulture opportunism on the part of BoA.
Honestly, I think that they will end up losing money on this.
291-127, with all the Bush Dogs, and in fact all the Democrats, supporting it.
It will make mortgages harder to get, which will depress the housing market, but the loans in question are those that never should have been made in the first place.
Additionally, home sales are at a 20 year low. Of interest is the reports of some “bargain hunters” returning to the market.
When one looks at crashes, whether real-estate, or other assets, I think that this qualifies as a whistling in the dark.
We’ll have some more of that, and at least one dead cat bounce* before this is over.
*It refers to a short term spike in values during a bear market. It comes from the expression that “even a dead cat will bounce if it falls from a great height”.
The decrease in commercial/multifamily lending activity during the third quarter was driven by decreases in originations for most property types. When compared to the third quarter of 2006, the overall decrease included a 31 percent decrease in loans for office properties, a 20 percent decrease in loans for retail properties, an 18 percent decrease in loans for hotel properties, an 8 percent decrease in loans for industrial properties, as well as a 149 percent increase in loans for health care properties and a 14 percent increase in loans for multifamily properties.
So the things that increased were our tremendously inefficient health care system, and apartments for people who are no longer buying homes.
In 1994, Black home ownership was at 42.3%. In 2004, it was 49.7%. It has now dropped to 46.7%.
The rise in home ownership rates was really pretty meteoric, and the drop is even steeper.
Dean Baker makes the point, which I agree with, that the idea that increased home ownership is a good in and of itself is a bad policy with significant negative consequences, or as he so eloquently puts it, “In other words, the big push to increase African American homeownership rates was in reality a big push to increase foreclosure rates among African American households, but the ideologues of homeownership were too blind to notice the impact of their policies.”
Home ownership provides benefits, like the creation of equity, but it also adds significant risks to the equation. When something major breaks, roof, hvac, plumbing, the home owner can face SIGNIFICANT unanticipated expenses, and the downsides of foreclosure are worse than those of eviction.
This policy was a centerpiece of the conservative “Ownership Society”, and it is having disastrous consequences, and it appears that these consequences will become more dire for the foreseeable future.
Fannie Mae has changed the way it computes credit loss ratio, a measure of the quality of its loans.
Bigger numbers are bad, and under the new scheme, the number is 4 basis points, but under the old scheme, it would have been 7½ basis points.
I believe that Fannie is the 2nd biggest issuer of debt in the world, and the fact that the quality of their loan portfolio is almost twice as bad as their numbers suggest is scary.
Well, despite the best efforts of the craven Bush Dogs to kill it, Barney Frank’s mortgage reform bill was voted out of committee.
It tightens restrictions on issuing mortgages (a barn door cow thing, but still good), and gives people more options in bankruptcy.
This is why Democrats matter.
6 days ago, I noted Andrew Cuomo’s investigation of collusion between banks and property assessors.
Now, he has expanded the investigation to include Fannie Mae and Freddie Mac.
I think that we are going to find that corruption was the rule, not the exception, in the real estate bubble, at all levels.
Well, the economy logged a brisk 3.9 growth rate, which is pretty stellar, particularly since it would have been about 1% higher if the housing market were not tanking, but still, the Fed cuts rates by 25 basis points.
Maybe they know that there is some level of bullsh&% in the figures that they cannot trust.
In response, the dollar tumbled. The Canadian dollar bought more than $1.06 for the first time since 1957, the Euro broke the $1.45 barrier, going to $1.4503:1.0000€, and the Sterling is now $2.0813:£1.0000.
I said that the dollar would break through $1.50:1.00€ before year’s end, and I stand by that.
As to the Chinese Yuan, it doesn’t move as much, as it it still partially pegged to the dollar,
but it has risen by about 10 % since it became more loosely pegged about 27 months ago.
I expect a run on the US dollar sooner, rather than later, perhaps before the 2008 elections.
This subprime mortgage default and derivative thing is not just effecting the united states. They have already had what amounted to a bank failure, Northern Rock Plc, and the Bank of England raised its rate to 5.75% in July so the era of easy money in British real estate is over.
Seeing as how a lot of Brits have been bidding up properties in places like Spain for vacation homes, this contagion will spread.
The only place possibly innoculated against this is Japan, since they just finished a 15 year long real estate crash.
It just gets better and better.
It not appears the Merrill Lynch will take losses of at least $8 billion, up $3 billion from a few weeks ago, they are predicting 2 million foreclosures, 4x the estimate of the Bush administration, and housing inventories are at their highest in 20 years.
This neglects the fact that it’s not just subprime though, so it will get worse.
This has been todays bit of sunshine.
Down 8%, they were expecting a 4% drop. Don’t let anyone tell you that this is over.
He is co-exeutor of his Uncle’s estate ($25g/year for not doing much) and the properties in Stamford Connecticut that he was supposed to manage were dilapidated, garbage strewn, and occupied by squatters.
To be fair, he did eventually sell his uncle’s property for $17 million, after he had arranged for millions of dollars in earmarks for the Stamford Urban Transitway, which increased the property’s value.
What a prince.
Here is the chart: 
As the folks at calculated risk explain, the subprime resets will be done with in a year or two, but then the Alt-A and Option ARM mortgages kick in.
Alt-A may not be that bad, it’s basically the bottom end of prime, kind of like being slightly pregnant, but the Option ARM mortgages are a different story. A lot of these folks are paying the minimum, which means that they are going deeper and deeper into debt as we speak.
This will get uglier before it gets better.