Too bad the author of this story found it necessary to have it printed in the UK - because it would be laughed off the page in the US.
By the way, the writer of this article was a great help to FR and other conservatives holding the fort against the Clinton Crime Machine - he wrote the book "The Secret Life of Bill Clinton" .
Lost another family to Ditech.
Someone tell me why they would make all these loans in the first place. If they want to bet on an ever-rising real estate market they should just buy the property themselves.
Left unsaid in this article is that the sub prime market constitutes just a bit over 6% of the entire mortgage market. It is folly to assume ALL these loans will become non performing. It would be amazing if even 30-40% of them did. So then, taking 35% as an average this would mean that about 2% of the loans would default (35% of 6%). Hardly something that would lead to the calamity some believe.
"However, she warned of a "hidden" problem caused by sellers pulling property off the market. " The percentage of homes where nobody is living in them is at a record level. So the potential for inventory correction is still very high," she said.
I'm not aware there have ever been statistics kept on this phenomenon. Even so, since when is a home pulled from the market relevant in the argument that high inventory causes price erosion. While it is true the market forces dictate high inventory equals lower prices, once a home is pulled from the market, for any reason, it becomes one less home in inventory. As inventory shrinks, prices stabilize and as they shrink further they will rebound keeping in place the cycle that has been apart of the industry since the beginning.
"Nouriel Roubini, economics professor at New York University, says the housing bust is slowly pulling America into recession. He cites a 14.4pc drop in housing starts last month;
And a damn good thing it is happening. For new home builders to continue building in the face of slowing sales would be sheer stupidity. Cutting back to a rate considered normal in new home building just 3-4 years ago will allow inventories to reduce and a new cycle to emerge. Keep in mind that the housing industry as a whole is comprised of 80% existing home sales and 20% new home sales. Since the purchase of a new home is always more expensive then that of an existing home, all things being equal, the majority of new homes bought are by those selling an existing home. As the existing home market turns so then will the new home market improve and it will happen in that order.
"...an expected loss of 600,000 real estate jobs in 2007; a sharp fall in home equity withdrawals - down from 6pc of GDP at the top of the boom; and a squeeze as $1,000bn of mortgages are adjusted upwards this year to higher interest rates.
Many in the RE business are retired folks or those working 2nd jobs. Also, barring ineptness in the extreme almost no one gets fired in RE since they do not collect salary or benefits but work strictly on commission. As for the escalation of ARM payments. it will cause a bit of pain for some but as I said before, it is foolish to believe every rate increase will cause all affected to default. Also many borrowers saw this coming and have already switched to fixed rate loans, which, btw, are as low or lower then they were in the late 1960's.
Personally I think the problem we are facing is exaggerated by at least 50% and possibly more. In the way of our esteemed media, "If it bleeds it leads". After all the hand wringing we have seen about the "collapse" of the housing market last year, it turns out it was the 4th year in history. We all know that investors are taught that the trend is your friend. In keeping with that it is advisable to note that existing home sales have risen 4 of the last 5 months and price erosion has stopped except in those areas that saw out of control increases. In some areas prices have actually started their upward swing.
It's not quite fair to say the mortage market is in meltdown. More accurate to say the subprime market is fairly very poorly. The potential hit of the entire subprime market is 7 percent of mortgages. As these houses come back onto the market, they can be absorbed, but builders will have to stop buildinig new houses to keep supply from growing. In many places the housing market turned sour because too many developers were building too many houses. The worry is over whether or not the Alternative A market, which is viewed as prime light, has hidden problems.
Indeed...unfortunately, I think that over time you're going to find that this isn't just an issue of sub prime lenders running into trouble. Mortgages are bought, sold, and transferred in ways that are unimaginable to the average person who pays a monthly mortgage payment.
"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
And never forget that the "Maestro" Greenspan in congressional testimony advised the masses to go into ARMs just before he started raising rates.
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.
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.
ping, fyi.
Rule 1: Don't panic.
Rule 2: If you are going to panic, panic first.
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.