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 ...
Don't know about that, it's been all over Bloomberg the last few days and some homebuilder stocks have been taking a beating. It will interesting how all of this shakes out.
They were so overblown in the first place, it's about time for a correction.
The decline in active listings for Northern Virginia began long before winter, which starts December 21 and includes only one full month (January) in the data available at this time. The decline actually began in the middle of the summer.
To make my case, here are a few statistics from the Northern Virginia Association of Realtors (I am not a realtor. Nor do I play one on TV):
For Northern Virginia as a whole:
The numbers in parenthesese are for the same month a year earlier (2005)
June 2006: Active Listings: 12,096 (4,061); Sales: 2,252 (2,654)
July 2006: Active Listings: 11,956 (4,843); Sales: 1,856 (3,058)
Aug. 2006: Active Listings: 11,320 (5,005); Sales: 2,029 (3,112)
Sept. 2006: Active Listings: 11,147 (6,693); Sales: 1,547 (2,377)
Oct. 2006: Active Listings: 10,380 (7,122); Sales: 1,498 (1,901)
Nov. 2006: Active Listings: 8,861 (6,744); Sales: 1,475 (1,933)
Dec. 2006: Active Listings: 7,205 (5,659); Sales: 1,710 (2,131)
Jan. 2007: Active Listings: 6,949 (5,876), Sales: 1,349 (1,225)
The above numbers show that not only is inventory declining every month, but the gap between one month's inventory and the lower level of inventory a year earlier has declined every single month since June. At the same time, the percentage of decline in sales from the previous year has narrowed every month since July (except for November), and reversed in January to become a gain.
Here are the numbers in percent change from the year earlier, also from the realtors:
June 2006: Active Listings: Up 197.86 percent; Sales: Down 36.76 percent
July 2006: Active Listings: Up 146.87 percent; Sales: Down 39.31 percent
Aug. 2006: Active Listings: Up 126.17 percent; Sales: Down 34.80 percent.
Sept. 2006: Active Listings: Up 66.55 percent; Sales: Down 34.92 percent.
Oct. 2006: Active Listings: Up 45.75 percent; Sales: Down 21.20 percent.
Nov. 2006: Active Listings: Up 31.39 percent; Sales: Down 23.69 percent.
Dec. 2006: Active Listings: Up 27.32 percent: Sales: Down 19.76 percent.
Jan. 2007: Active Listings: Up 18.26 percent; Sales: Up 10.12 percent.
While one wonders what happened to the listings taken off the market, one can only speculate what it means. Some may have been taken off the market and sold privately and so do not appear in the multiple listings. No doubt some were testing to see how much they could get for their house, realizing the peak of the market had been reached. When it didn't sell at an inflated price, they took it off the market. Some no doubt rented their houses and took them off the market. While others thought they would wait until the market recovered.
Bottom Line: The worm has turned.
Says you.
If the payment you're considering would kill you instantly in that scenario, downsize your dreams a little. Security is better than square footage or marble.
Rule 1: Don't panic.
Rule 2: If you are going to panic, panic first.
Loans that were amortized on a 2 to 3 year fixed that are adjusting to a max 3% rate increase very soon. Yes, the tightening of guidelines will have a direct result in the level of default rates as those families will no longer be able to afford their mortgage payments and because of restricted guidelines and lack of equity, they're faced with some tough financial decisions.
"My advice to everybody, don't take out a loan on a house that you can't afford."
Excellent advice. Real Estate has been very, very good to me through the years; but then, I never bought more than I could afford, fixed 'em up, flipped 'em in a few years and bought something bigger and better. And now with the tax break, I don't have to "flip" this last house because there isn't the panic to roll the proceeds into another property to avoid a tax penalty.
'Tain't Rocket Science. And between you, me and the fencepost, I'm looking FORWARD to downsizing in the future. I can't believe how "house poor" some of my friends are because their McMansions suck up so much of their income.
But they just don't get it. ;)
Doesn't matter if it's $10,000 or 10 TRILLION, it's still only 6% of the total mortgage market and as such it's effects will be minimized. Remember not ALL of those loans or even half will go bad. People don't just up and walk away from their homes at the first sign of trouble and you can bet the lenders will bend over backwards to help them keep these homes. The last thing any mortgage lender wants is the property back.
"...but I can tell you that this is not a blip on a radar screen. The trickle down effects are very destructive and it is not over. Industry giants such as Option One (H & R Block), New Century (both REITs) and Argent (Ameriquest) are all on the ropes and the performance of these stocks is causing much of the finance industry stock gains of the last 3 years to be erased. HSBC just put back $1.8 Billion in loan loss reserves and the list goes on."
Half a dozen Financial outfits taking a hit won't matter a tinkers damn in the end. Like I said, it all comes down to the fact that the overall exposure the industry has to the sub prime loans is just about 6% and even if HALF go bad it only amounts to 3% of total RE loans. The fact the gains of the past three years have gone south for a few fianacials means the stock was sold because investors decided to take their profits and invest them elsewhere. The stock market is a crap shoot anyway and must not be confused with he overall state of the economy, which is superb. And not just here in America but throughout the world.
"No, it won't sink the economy, but to say it is insignificant is incorrect",/i>
Ok, it is not insignificant. Let's say it is merely not very important in the over all scheme of things based on the relatively small amount of money involved.
Last year this time my Fairfax VA neighborhood had dozens of for sales signs up. This year most have sold or have been taken off market. Prices seem to be stabilized back to beginning of2005 before prices went crazy (we saw 30% jump in a matter of months in summer of 2005 ). I think prices may start appreciating a little again if mortage rates stay around 6%.
A friend of mine was all set to close on his very firt home last week in Las Vegas (Henderson actually). He got a call one hour before the big event saying that his lender had declared bankruptcy. Fortunately for him, he was able to salvage the deal with another lender in a few days somehow.
The problem I see is the "knee-jerk" reaction that will result.
Subprime loans are riskier by their very nature. However, they serve a purpose and can be the most profitable when properly done. Subprime lending has existed for decades. The last couple years, guidelines went too soft. Now, for a year or two they'll be too strict, and the cycle will start over again.
Ownit Mortgage by chance?
Actually, it is a British bank.
And while THIS article hasn't been posted yet, HSBC's problems have been known on FR for a few weeks.
They have GREAT rates on their online savings accounts though! ;-) 6% till April then 5% after that, IIRC. I just opened one.
That name doesn't ring a bell. He told me who it was, which was some company I had never heard of but I can't seem to recall the name right now. It was an interest-only loan, since his credit wasn't so hot, and the interest rate was 8%.
Wow that was a great post JasonC. Do you have a ping list?
Very informative. Thanks for the wrinkles on the brain.
Bingo, this is definitely part of the rush to provide "affordable housing" aka taxpayer secured/fleecing that is the unintended consequence of blue state legislation and the enabling of corrupt financing schemes...we'll all pay for this one way or another eventually.
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