Posted on 03/10/2007 4:34:57 PM PST by Bluestateredman
Crisis Looms in Mortgages (subprime, teaser rate loans come due)
(Excerpt) Read more at nytimes.com ...
Hah? The only thing that will happen is that hundreds of thousands of homes will sell for lower prices. The banks have already collected hundreds of millions of dollars in interest on these same homes.
It's going to be a buyer's market, baby.
And I should believe this analysis by Gretchen Morgenson and the New York Times because . . .
Does this mean I'll stop getting 3-4 offers to refinance my home every single day?
"And I should believe this analysis by Gretchen Morgenson and the New York Times because . . ."
because the sky is falling.
A wise investor once said that the word "bull" has more than one meaning [could have been Warren Buffett, but I am not sure of this]. The commentary dwells upon the vital importance of distinguishing between the bullishness and bulls**tishness.
If the current market prices for homes drop below their outstanding mortgage amounts, the banks are in trouble. It will also be interesting if more and more people who need to move discover that the prices they can get for selling their homes have dropped below their mortgages
You shouldn't.
Typical alarmist nonsense.
Slowing credit expansion introduced the first stages of the correction. The asset market's values were terribly overvalued due to credit booming and procyclical lending behavior among bankers (their appetite for risk increases or decreases into macroeconomic achievement -think the worst sort of herding behavior).
The abundance of credit, though, suggests that the correction won't be disorderly, nor bleed through the real economy, nor spill over to other asset markets.
Even so, we should see continued, orderly correction. One FReeper suggested it's a buyer's market. My suggestion would be to wait for default waves to begin in earnest, and a little more alarm among the pundits... then buy.
Actually, no...
Banks protfolios, by and large, are hedged against much of this.
Risk analysis and loan portfolio diversification are the norm. We are in no way likely to see a non-performing loan crisis. The financial system is very fit. Very.
If all their loans were going into default, you would be right. Or even if half their loans. But obviously it won't even come close to that.
The banks will be fine. But this will be a good excuse for them to start raising interest rates.
It is already a buyer's market in Phoenix. Many home builders have let their crews go. They are unloading homes for bargain prices - incentives as high as $50k.
I know a couple who bought a home in Phoenix after selling their old home. They used a lot of their equity to buy three cars. Pretty soon the lender was phoning me, asking about them. He wasn't getting his money. My guess was that foreclosure was not far away either.
And even when they do default on the loan, the property goes to the bank to sell. It's collateral. Many times they make a profit on the defaulted property. That's why the reserves that are on the books for real estate property is low in banks. They're worried about the unsecured loans. Those go belly up or the slime ball goes Chapter 7, there's nothing but a black hole left to collect from. Kiss it good bye and it goes straight to the bottom line.
"And I should believe this analysis by Gretchen Morgenson and the New York Times because . . ."
It is so.
Some companies made risky loans. Some sold those loans to other companies that bought risky loans.
Some loan companies may go out of business, while others are cutting staff.
Some borrowers will stop making payments, and the underlying collateral may be worth less than the loan balance.
Some companies may wind up owning the collateral for their risky loans.
In few cases will anybody sell property for "bargain" prices.
Real estate markets are local.
Phoenix, Vegas and a few other places have completed new homes in standing unsold inventory. These would be your "boom" markets.
All local markets will NOT bust.
This has already happened in some places in the country, mostly in California and Florida.
It is a very bad thing when you discover your mortgage is more than your house is worth.
It was in the Lender's interest if the house appraised for higher. Sometimes, they relied on "comparable" properties "nearby" that were neither comparable nor nearby.
The people who bought those homes for high prices now realize they are screwed.
Trust me on this one. I work for a bank that is one of the biggest mortgage lenders in the nation.
The subprime and Alt-A meltdown is in full effect and there is going to some serious damage to parts of our economy from this.
A lot of money is flowing out of hedgefunds right now. Many of these funds bought a lot of mortgage backed securities filled with these toxic loans as a big part of their portfolios.
Everything was peachy for the subprime and Alt-A loan market as long as housing prices contined moving up in a parabolic fashion the past couple years, but now that prices have flatlined or started to correct in many markets, the real estate flippers who pumped up this market are bailing. Recent stats show over 20% of all existing subprime loans are currently deliquent on repayment.
"It's going to be a buyer's market, baby."
I got money to buy, just waiting to see where the bottom will be.
I'm waiting for the bottom too. Will turn the home I own now into a second rental property. :)
The housing slowdown is a year and a half old. What took so long for subprime mortgages to get in trouble?
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