Posted on 02/24/2007 5:42:05 AM PST by shrinkermd
Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities...
...The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US...
...The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market.
Low-grade BBB-rated securities - measured by the ABX index - have crashed from near par of 100 in early November to 72.5 this week.
Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. "It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said...
...California's ResMae Mortgage filed for bankruptcy last week as it struggled to cope with defaults on a $7.7bn book of sub-prime loans issued last year, while Accredited Home Lenders in San Diego warned that bad debts had reached 7.18pc of its portfolio.
(Excerpt) Read more at telegraph.co.uk ...
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults,"
So how does that work....if credit in sub prime is tightened then less risky sub prime loans will be made....
Net result more renters for all those houses on the market....owners can now pay their mortgages....
Problem solved.
Except . . .
too much inventory.
"The Census Bureau reported yesterday that the number of vacant homes on the market swelled 34% to 2.1 million at the end of 2006 versus the end of 2005, the fastest increase ever. The vacancy rate for owned units set a record at 2.7%, up from 2.0% a year earlier. That rate has not been above 2% for forty years."
Forty Years.
Easy. You just "refi" into another negatively amortizing "exotic" mortgage - - with the same fee-hungry loan officer, of course.
I said the market is regional and the places showing the largest inventory and consequently the biggest p[rice declines are those that ratcheted up the fastest in the past. Many people put their homes on the market for no other reason then to cash in and pocket the appreciation. It's not the same as people retiring and selling to head to wherever or for people to sell and move up in the same area. AS to who will blink 1st in your case? Who knows but there is something you ought to know. No one rings a bell when a market cycle bottoms and begins to head upwards. The recovery will be regional and uneven, just as the upward cycle was. Some areas never saw a slackening of demand of more then 1-2% over the records of previous years. Personally I believe the overall existing home market bottomed in September of 06.
"I currently see prices being dropped daily on current listings, listings at a higher level than last year and increasing, foreclosures in N. VA increasing at a dramatic level, and builders with more land in the pipeline."
Again, a regional phenomenon. Actually, nationwide, the inventory of existing homes has dropped about 1% from the peak in 2006 due to sellers becoming more realistic. Price reductions are merely a normal part of the cycle since the way to move excess inventory is to "put it on sale". Works every time.
"There was a pick up in this market in Winter 2005-2006 from people who thought they were getting "deals", and now those are in foreclosure. There was an assumption that prices would rise in the Spring "as they always do", and thus the panic buying that Winter."
That's all ancient history. It is the CURRENT trend that must be viewed. As I said before, the existing home market (80% of all home sales)must turn before the new home market (20%) does and we have already begun to see that with existing home sales up 4 of the past 5 months and with RE tracking services reporting higher traffic and more web site hits then last year during the same period.
"A daily read for me is www.bubbleinfo.com, (great realtor in Carlsbad, CA), and he pointed out a chart a year ago that shows how the "Spring Selling Season" has been getting shorter and shorter for the last several years. There is a flurry of activity in February/March/April, and then it flatlines for the rest of the year."
How does this man become an expert on the national market? The peak selling months have always been March-May followed by a drop off in June and a comeback in July and August, another drop in Sept and a short flurry in late Sept-end of October. Even this is regional and what I have noted is for the south Eastern part of MASS.
The bottom line is that no one knows exactly when and how the cycle will turn. All one can do is look at what has already happened in the past and by doing that we see the trend of existing homes sales has indeed turned. Will it last? Only time will tell.
I used to sell mortgage-backed securities through Wall Street firms. They were sold and gone, as far as my company was concerned. Then on the other side, I would sell the servicing to mortgage servicing ("lockbox") companies who collected payments and sent the proceeds (minus the servicing fee) along to the bond-holders. The people originating the loans are entirely fee-oriented and couldn't care less what happens to the loans after they are closed.
Because they didn't like the sound of 'sub-primate'?
;-)
I think that's exactly what I said in less then 10 paragraphs. The S&L "crisis" was a pretty good example of what could/would happen.
Ambrose is one of the best reporters in media.
Dismissing him without backup smacks of denial.
"Someone tell me why they would make all these loans in the first place.'
To forestall legislation in blue states forcing them to stop redlining, profiling, and discriminating against the leftist constituency. In other words, adopting bad business practices to avoid losing market share or being forced to adopt bad business practices.
Are these defaults nationwide, or concentrated in a few hot spots like California, Florida, etc.? Does the long-term tightening of mortgage money look like it will result in some lowering of housing prices, eventually making it actually easier for prospective home buyers, or is it more likely to end up with houses being unsellable, and ending up with rows of vacant houses?
Let's see. Break it down.
First: Some lenders believed their own hype and spin about a never-ending housing-sales boom. So, they took in mortgages from applicants with credit ratings which - when compared to their additional debt load with the new mortgage - would not have normally got them a mortgage, if the lending institution didn't believe their own sales-pitch-myth that continuing rising values would quickly make up the difference. They expected the boom to quickly create more equity for the "sub-prime" borrowers and help keep the mortgage, and the lender solvent. It didn't happen. Most likely the worse off institutions were playing this game after the boom - the housing value increases - had already peaked.
Next: Someone who was just as greedy as the foolish and risky lenders decided to help the risky lenders out by packing bundles of the risky loans into REITS (real estate investment trusts), and sold shares in the REITS.
Next: HSBC (and others) took the sales pitch from the lenders and those who packaged the REITS, and did not do their own due diligence on the creditworthiness of the underlying mortgages.
Now: The inflationary expansion in the U.S. housing market is in the natural reverse of that inflationary expansion and someone wants us to feel sorry for the likes of HSBC and others who took more risk than prudence dictated.
O.K. so, he's our offering. Oh boo hoo, boo hoo.
That is the clearest explanation yet I have seen of the housing finance market.
The industry averages over the last 20 years have been between 1.5 and 2%. That has grown anywhere from 4 to 6% with some investors seeing as high as 8%
ping, fyi.
To wit: tightening new lending standards doesn't create "even more defaults" from existing debtors. They've already got their loans.
Ok then. If the sub prime market is about 6% of the over all mtg market and approx 5.5% of that 6% goes bad, that still constitutes only a bit over 3% of total loans.
It's all a matter of perspective. A business can do $1000.00 in it's 1st year and increase that by 1000% in year 2 and still only do $10,000.
Problem with most people is that they will assume a market in decline, be it stock market or housing market, will remain in decline and search for stats that underline their position. It is these same people that will push stocks ever higher in the belief a rising market knows no end and that this time it is different.
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