I’ve been telling the people here who have been claiming that I was a doomer-gloomer on the real estate market to “follow the money” into the debt markets and they’d see what I saw.
What we’re now seeing was what I’ve been saying for the last six months. When you followed the money from the real estate borrower’s pocket, through the mortgage broker, to the bank writing the mortgage, to the bond companies to the investment banks, hedge funds, etc buying the bonds.... you saw a really huge under-estimation of the risk involved.
Now the risks are coming true, and the situation is turning out even worse than I feared: I didn’t know (and couldn’t, not being on Wall St. directly) the level of margin lending for funds involved in the mortgage market, and the extent of the derivatives in the mortgage lending market.
Things are going to get ugly. Real ugly.
There are some who believe this won't hit the high-end mortgage market, and I disagree.
With Wells Fargo increasing it's rate on PRIME Jumbo loans (loans over $417k) this will virtually shit down the high end of the market as others follow.
Wells Fargo and many of the large banks appear to be hell-bent on bringing about a full correction of both the mortgage market and the housing market.
The bubble has burst and there will be havoc as the outcome. If you purchased a home in one of the hot markets in the last 2-3 years, you better be bale to make your payments for the next 10 or you're going to lose, big time.
Things are going to get ugly. Real ugly.
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I believe you! I have seen, even in this area where housing prices are still relatively tame, a tendency for people to sink every penny into a house. I have talked to real estate people who say that most of the big “McMansions” in this area are owned by couples who both work and who are mortgaged to the max on both incomes and many, perhaps most, are just one missed paycheck away from losing their home. That is an awful way to impress the neighbors! My wife has nephews and nieces in Virginia who are making good money but living as if there is no tomorrow and no piper who could possibly ever stop playing and ask for his fee.
Not very good timing on my part--I just moved to Minneapolis, for a new job.
My wife joins me tomorrow and we go house hunting Sunday.
I just hope I can get a decent interest rate, grrr.
(20% down in CASH and an "excellent" credit rating...)
Cheers!