|
Search:
|
|
 |
|
|
|
||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
CATEGORIES XML FEEDS CONTACT Send suggestions to:
Links
Powered by Movable Type 3.2 |
|
January 05, 2008 Evaluating Return on Real EstateFrom the Wall Street Journal: Posted at 04:59 PM | TrackBack December 19, 2007 Figuring Your Credit ScoreFair Isaac Corporation, the inventor of the ‘FICO Score‘, is changing how it figures your credit score. The FICO score, which measures the credit risk of an individual borrower, is the most widely used credit scoring system in the word. The following are some hypothetical examples of the changes could affect scores (provided by the Wall Street Journal):
Posted at 07:42 PM | TrackBack December 13, 2007 Warren Buffett on SIV'sPosted at 02:56 PM | TrackBack A Persistent Financial Crisis The Wall Street Journal: Posted at 02:45 PM | TrackBack August 27, 2007 Origins of the credit boomThe Wall Street Journal's Jon Hilsenrath discusses the origins of the credit boom and some lessons to be learned from its demise. Posted at 08:57 PM | TrackBack August 13, 2007 Jim Cramer's MeltdownWith over 1 million YouTube views, Jim Cramer's reaction to the sudden panic that gripped credit markets last week was, to say the least. passionate: Posted at 11:24 PM | TrackBack August 08, 2007 Unch.The Fed kept its key interest rate and policy focus unchanged. The reaction on Wall Street and among Fed analysts was varied. Key quotes from the Fed statement: "financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing." Although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected." On Fed policy: “I think this means that the Fed isn’t preparing the market for a rate cut anytime soon,” said Tom Gallagher, a Fed analyst with the ISI Group in Washington, a financial research firm. “On the other hand, they set up a statement that they could use to justify a rate cut if things deteriorate faster than they now expect.” On Bernake: “Ben Bernanke is more standoffish,” said Drew Matus, an economist with Lehman Brothers. “He’s the guy sitting there watching the kids in the playground. And if there’s a fight, he’s going to stay out of it unless somebody’s going to get hurt. Greenspan was more like a doting parent.”
Posted at 01:09 PM | TrackBack May 21, 2007 Mortgage & Loan: The All-Broad Fraud Squad
This entire article is made of concentrated pure awesome: Nearly a decade ago, concerned that mortgage fraud was threatening their pastoral towns, the women — two full-time mothers and a mortgage executive then in their 40s — got together to write down license plate numbers of suspicious cars in their neighborhoods, scour public documents for housing titles and deeds and seek the help of local law enforcement. At first they were ignored, written off as bored housewives. Today, the three women — Ann Fulmer, Alicia Sheppard and Julia Barrette — are helping train F.B.I. agents, speaking to lending associations across the country and lecturing college students on how to identify mortgage fraud. Good stuff. Much like ol' Nancy Drew mysteries, it really comes down to the town busybodies unearthing all of the skeletons and secrets. Imagine how much more mortgage fraud could have been exposed if we'd had more people like these working the streets and speaking truth to power, eh? Keep in mind that they were doing this during the height of the last housing boom, yet, when even the slightest mention of flipping or specuvesting got you labeled a "hater." Who's laughing now, eh? Posted at 01:59 PM | TrackBack Credit & Debt: Housing Woes Drag Down Economy
Despite Ben Bernanke's protestations to the contrary, it seems that the housing slump is going to drag the economy down more than estimated: Real gross domestic product, the government's broadest measure of economic output, is expected to advance 2.3 percent in 2007. That is down from an earlier estimate in February for 2.8 percent growth, a survey conducted by the National Association for Business Economics found. The lower forecast came after the government reported anemic 1.3 percent GDP growth during the first three months of this year..."Residential investment remains a dominant force dampening growth in 2007," NABE wrote, adding that almost half of those surveyed expect the bottom in housing will not be reached until the fourth quarter. A third of those surveyed think problems in the subprime market are delaying or deepening the housing correction. This should come as no surprise to anyone who's been reading this blog, other blogs like it, or following the markets in general. Any time someone makes a prediction as to how long a bubble or bust will last, take that figure and tack on another six months to it. I like to call it the "Lereah Extra." So buckle in, strap down, and hold tight for at least the remainder of 2007, because that's how long it's going to take for the market to flatten at bare--or is that bear?--minimum. Posted at 12:02 PM | TrackBack May 17, 2007 Credit & Debt: The Many Faces Of Ben BernankeAlthough Bernanke was completely wrong in his estimates of how long housing failures would affect the economy, he continues to insist that the troubles are contained. Bernanke pledged that the Fed will do all it can to prevent abuses in the subprime sector, which would be a lot more impressive if it wasn't five years too late. More typical of Bernanke was his stressing that any regulation not actually affect the market overall. So, to recap...everything is okay, but we need more regulation, but don't actually stop subprimes from lending, because there's just so much gosh-darn homeownership! All of the aforementioned comes from a single speech on the subprime market, mind you. Is it any wonder we're in the fix we're in, with leadership like this? Posted at 03:57 PM | TrackBack May 16, 2007 Mortgage & Loan: More Bad Housing News
Although the overall economy is demonstrating resiliency and flexibility, the housing market continues to sag like Zsa Zsa Gabor's breasts: The Commerce Department reported Wednesday that construction of new homes and apartments rose by 2.5 percent in April compared to March to a seasonally adjusted annual rate of 1.528 million units. Even with the improvement, housing construction is 25.9 percent lower than a year ago. And in a worrisome sign for the future, builders cut their requests for new construction permits by 8.9 percent in April. That was the sharpest drop since a 24 percent fall in February 1990, another period when housing was going through a significant downturn. And NAHB economist David Seiders' forecast doesn't quite pack the rosy punch of his old buddy David Lereah: David Seiders, chief economist for the home builders, said the survey found that the rising defaults in the subprime mortgage market were adding to concerns about the ability to reduce a huge inventory of unsold new homes and causing builders to cut back on their plans. "We're now projecting that home sales and housing production will not begin improving until late this year and we're expecting the early stages of the subsequent recovery to be quite sluggish," Seiders said. What, no sunny forecasts about how the market has nowhere to go but up? Why isn't Lereah spinning his gospel on this? Posted at 02:53 PM | TrackBack May 15, 2007 Credit & Debt: CNet Vs. Casey Vs. "Haterz"
Peep this profile of the "most hated blogger alive," complete with comments from our old pal Robert Cote. It's ironic--I wonder how much more traffic I could have generated for this blog if I'd jumped on the Serin hate train and devoted my posts to chronicling his misadventures. People thrive on negativity and controversy. Positive news is often boring. And certainly, given the deluge of crappy developments in the real estate market over the past two years, there was no small amount of negativity to go around. But ultimately, what does it serve? Guys like Serin thrive on the attention and get money from the site hits. The "haterz" become so obssessed with criticizing Serin that they lose any interesting viewpoints of their own. And it doesn't change any root causes of why things like this happen in the first place. It's really the Internet equivalent of the gladiatorial games--as guys get mauled for the crowd's amusement, we forget about the crumbling of the world beneath our feet. Posted at 11:29 AM | TrackBack May 11, 2007 Credit & Debt: KB Home Seeks To Unload French Division
As yet another sign of how tough times are for the homebuilding industry, former mega-giant KB Home is looking to trim its supply of French cuisine, so to speak: KB Home might be tempted by the $783 million such a sale could bring. The company said it is currently evaluating that offer and is also evaluating other strategic alternatives, including a public or private offering of its shares in the French unit or retaining its shares. The money could come in handy as the U.S. housing market continues to buckle. Thomas Smith, an analyst with Standard & Poor's Equity Research, says the company could use the money to bolster its balance sheet, or to fund future land acquisitions if prices fall to the point where the company sees a good opportunity. Either way, "cash gives you maximum flexibility," Smith says. Longtime readers will remember KB Home being notorious for their mandatory arbitration practices, and for their former CEO Bruce Karatz being booted for shady stock options scams. Given that the company's reputation as a homebuilder is generally one of the worst in the business, I'd say they need all the flexibility they can handle. Posted at 04:50 PM | TrackBack May 09, 2007 Credit & Debt: Fed Leaves Interest Rate Unchanged...Again
The Federal Reserve unanimously voted to keep the Federal Funds lending rate (what most lenders index their own rates to) at 5.25 percent: So far, the Fed's plan seems to be working to slow economic growth and lower inflation pressures. But the steep slide in the once-booming housing sector has raised concerns among some economists that the slowdown could worsen into a more severe downturn. Actually, if this information is any indication, the Fed's going to have a tougher time containing the damage by far: Employers added 90,000 positions in February, versus the 113,000 reported last month. Payrolls grew by 177,000 in March, slightly less than the 180,000 previously reported. Workers' wages grew more slowly...Wage growth is important for worker and supports consumer spending, a vital ingredient to the economy's good health. But a rapid pickup — if not blunted by other economic forces — can fan fears about inflation. The slower growth in wages could ease Federal Reserve fears that inflation might not recede as they have predicted. Anything to keep those horrible "labor costs" down, eh? You can read the full text of the Fed's statement here. Posted at 04:12 PM | TrackBack May 07, 2007 Buying & Selling: Washington Post Vs. Housing Market
The Post has published some yeoman articles dealing with the collapse of the housing market in recent months, and the last two days have been no exception. Sunday's edition had a story detailing the fight by lenders to keep their buyers from foreclosing: "We would much rather work with a borrower than go through the foreclosure process," said Steve Bailey, Countrywide's senior managing director of loan administration. "We lose money on a foreclosure, the borrower is out of their home, and nobody is happy. The math works against us." The article includes some detailed advice on what to do if you are falling behind on your payments, including the sobering advice that sometimes it's better to just hand over the keys in a short sale than be foreclosed on. Not to be outdone, today's edition has a look at how mortgage firms such as New Century were pressuring brokers to rubber-stamp bad loans: "The stress in that place was ungodly. It was like selling your soul," said Hardiman, who worked for New Century in 2004 and 2005. "There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals." This is EXACTLY why we need stronger oversight, regulation, and transparency of the markets. Wall Street turned its head and let itself be deafened by the sound of the cash rolling in like ocean waves, and as a result, "sweatshop lenders" like New Century pushed through loans that should never have been approved, under appalling conditions. As long as the market was good, no one gave a damn, but once the delinquencies started rolling in, everyone had one eye on the exit. This cannot be allowed to happen again, and kudos to the Post for shedding light on these issues. Posted at 01:28 PM | TrackBack Credit & Debt: "Credit Crunch" Locks Buyers Out Of The Market As has long been prophesized by myself and others, the tightening of lending standards and reduced access to credit is locking many would-be buyers out of homes they would have qualified for even as recently as two years ago: Rising interest rates and dropping home prices have squeezed a market that had been propped up by risky loans and easy credit during the housing boom. As mortgage bills came due, foreclosures rose, and the easy credit dried up for families like the Shieldses. "Now we're stuck in the apartment," said Shields, 31, a firefighter who lives in Manifee, Calif. His wife gave birth to baby Gabriella at the end of March, and they are running out of space without options for a house. This is a necessary evil to ensure the markets can recover and prices will drop, but it's still heartbreaking to witness people who thought they could have the American Dream realize that it may take longer, if ever, to achieve. And then, on the other hand, you have this: Deborah Beatty recognizes that she and her family could lose their home in Jersey City, N.J., across the Hudson River from New York, because they can't afford the mortgage. The newly constructed three-level home offers a view of the Manhattan skyline and the Statue of Liberty from Beatty's master bedroom window. "I'm going to miss that," said Beatty, 53, who collects disability payments and does not work. "When I come in, I like to see the lady (the statue), especially when it's a beautiful clear night." Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans at 8.75 percent and 12.5 percent interest rates. With income from tenants, which didn't come right away, Beatty's daughter thought she could afford monthly payments of nearly $5,000.But she hasn't made a mortgage payment in more than three months, and she's receiving letters threatening foreclosure. I'm sorry, but this is just insane. You're living on disability payments and have a daughter making slave wages and you think you can afford a home that's worth nearly a million dollars? People in their prime earning years with loads of sheepskin to their name often don't make the scratch necessary for a home like that. This is a situation where everyone is to blame: The adults of the family for convincing the daughter to take that suicidal risk, the shady loan brokers for giving them the real estate crack to do it, and the daughter for letting herself believe that real estate would be the key to living beyond their means. It's a perfect example of how lunatics who think they can game the system not only have ruined their own lives, but have screwed things up for rational homebuyers as well. Posted at 01:07 PM | TrackBack May 04, 2007 Credit & Debt: General Motors Affected By Subprime Slump
You wouldn't necessarily think that an auto manufacturer--even one as bedeviled and nearly bankrupt as GM--would be affected by failures in a totally different market, right? Well, behold the price of mass acquisition: GM Chairman Rick Wagoner was quick to point to losses in the residential mortgage business at GMAC Financial Services from continued weakness in the subprime mortgage sector for the earnings decline. GM owns a 49 percent interest in GMAC after selling 51 percent to Cerberus Capital Management late last year. GM lost $115 million from its stake in GMAC in the quarter. GMAC posted a first-quarter loss of $305 million, primarily due to a $910 million loss from its troubled residential loan business. "Housing starts were down 30 percent in the first quarter and that had a great impact on trucks," which contribute high profits, said Erich Merkle, director of forecasting for IRN Inc., in Grand Rapids, Mich. "Those in the skilled trades don't buy a truck when they don't know where their next job is coming from." And the paper pushers on Wall Street are concerned about GM's continued dalliances in the subprime market: GM Chief Financial Officer Fritz Henderson said weaker GMAC results were the major reason earnings missed even the lowest of Wall Street expectations. But analysts raised concerns about both GM's remaining exposure to the riskiest segment of the U.S. mortgage market and the pace of the automaker's efforts to restore its North American operations to profitability. This is another reason why Bernanke's statements about "containing the subprime failures" are so much bullshucks. When you have megacorporations with diverse assets in all these sectors, the losses from one will be felt in all others. If the subprime failures continue, you'll see more stories like this, and the shocks will reverberate throughout the whole economy. Posted at 12:54 PM | TrackBack April 30, 2007 Mortgage & Loan: Bad Foreclosure AdviceFrom the Pensacola News-Journal: For those clients who face foreclosure, Daniell answers their question with a direct and simple strategy: Do whatever it takes to keep your home. "It's very hard for people to not pay their credit cards, but saving the home is the most important thing," Daniell said. "You can push credit card payments to a later date, and bad credit can be overcome." No, no, no. This is just wrong. You shouldn't fall into the trap of thinking you can blow off one form of debt to service another. It's all going to look bad on your credit report, whether it's a foreclosure, a charge-off, or a bankruptcy, and given the tightening of credit standards, any one of these might hamper your chances of buying another home for a loooooooong time to come. Before you let yourself go deeper into debt, talk to your lender. Many of them are increasingly willing to renegotiate your loan terms to something more favorable, just to keep that revenue coming in. Call the National Foreclosure Prevention Program and see what you can do to keep your head above water. Posted at 01:26 PM | TrackBack Buying & Selling: Flippers Flop As Market Cools Sunday's Associated Press had a marvelous gem chronicling the faltering fortunes of flippers in a cooling market: Jason Beaver, a Sunnyvale, Calif.-based Apple Inc. programmer, got caught up in the talk of the hot housing market from friends who bought multiple homes in Las Vegas and made a killing. His name was drawn in a buyers' lottery in the Solera subdivision and he put $35,300 down on a $353,000 home in February 2004. The community is restricted to people age 55 or older; the 37-year-old Beaver had no intention of moving in. I think these are the people Rob Dawg was talking about when we discussed whether or not to be merciful to f$#ked borrowers. People like Beaver are amazing--they're all about the market when it benefits them, but things suddenly go wrong and they want to sue? The kind of conditions he fell victim to were written on the wall months in advance--if the blogerati could see it, why couldn't they? Because they didn't want to. Because people will start with a belief and selectively look for facts to justify said belief, no matter how crazy. And because of the shortsightedness and selfishness of people like Beaver and specuvestor poster boy Casey Serin, many honest buyers are going to be locked out of the market due to severely restricted credit and tighter loaning standards. I hope people like Casey and Beaver can learn from their mistakes and provide examples to benefit others, but I can't shake the belief that this could have all been averted if they'd paid attention to the warning signs earlier on. Posted at 11:24 AM | TrackBack April 27, 2007 Mortgage & Loan: Foreclosures Rise, Rescue Efforts Continue
I hate to end the week on a downer, but looking around, I see the rising tide of foreclosures nationwide and no sign that it's cresting anytime soon: Delaware, home of credit card companies and tax-free shopping, has posted a 178 percent increase in foreclosures between Q4 2006 and Q1 2007. That is, simply put, unbelievable. Massachusetts governor Deval Patrick is calling his state's epidemic of foreclosures a crisis, and is pushing stronger state legislation to combat predatory lending--even as foreclosures were up 47 percent from last March. There is some good news on the front, however: New York City has set up a >call-in hotline to help distressed homeowners connect with nonprofit groups that will help advise them on getting out of foreclosure and find better refinancing plans. It's not much, but it's better than nothing. ACORN has joined the call of consumer groups that want a moratorium on foreclosures: Among the major points of the ACORN campaign is a proposal to state attorneys general to seek injunctions to stop foreclosure proceedings caused by predatory loans. The plan also calls for tougher laws against predatory lending. The group says predatory lending has lead to an epidemic of foreclosures. Last year there were 1.2 million foreclosure filings, a large increase from the 900,000 foreclosures that were filed in 2005. This year, foreclosure filings are expected to reach 1.5 million. It's terrifying to think about statistics like that, but I'm heartened by the response to the foreclosure tsunami. Maybe this really is a watershed in our thinking about real estate, and the laws that will come from this crisis will make lending safer and more responsible for all concerned.
Posted at 11:53 AM | TrackBack April 25, 2007 Buying & Selling: "Due Diligence" In Home Buying
Not long ago, the legendary Marinite asked a bunch of us bubble and housing bloggers this question: What constitutes "due diligence" in home buying? What kind of research is necessary to make the deal? What avenues should you pursue to make sure you're not saddled with a lemon? Here are some basic tips I'd recommend: * Get as accurate a valuation of the property as possible. Many home sellers let ego and social conditioning push them to list their home at the highest price possible, regardless of the local market or national housing conditions. There are numerous market valuation tools available to give you a decent picture of what the home is really worth, and what kind of an offer or counter you can make. In addition to the many Open MLS sites out there, there's Zillow, Ziprealty, HomeGain, etc. * Investigate the property's history. This is where the REAL due diligence comes in--hire a lawyer to look into the property, find out if it's distressed, foreclosed, if it has claims, etc. This 2003 New York Times article explains the process in more detail. * Know your loan potential. Find out what you can qualify for before you sign any papers. Consumers who let themselves be talked into a "creative" mortgage product that trapped them in a mortgage well beyond their years are regretting it now. Terri Cullen discussed this in a good Real Estate Journal article from 2005. * Check up on any potential real estate broker, realtor, or agent you use. It shouldn't take are-reading of Freakonomics to remind you that your transaction agents aren't always acting in your best interest. Investigate the agent's reputation. Find out what transactions they've closed and how they performed. How long have they been in the business? Are they part-time or full-time? Are they licensed? So on and so forth. All it takes is one unscrupulous broker to muck the whole process up permanently. Here are some more resources to help you through the process of due diligence in your home purchase: eBay Residential Real Estate Buying Guide Ten Tips For Home Buying And Selling Posted at 11:20 AM | TrackBack April 22, 2007 Buying & Selling: Buying A Home In Foreclosure
ConsumerAffairs.Com, which has done masterful work in covering the many stages of the housing collapse, has an article today on buying a home in foreclosure. Author Fred Yager walks you through all the steps you need to buy a property on the auction chopping block. It's by no means a cakewalk, as Yager notes: [F]oreclosure homes are sold "as is" which means that the 25 percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. That's because when you buy a home in foreclosure, you may not be able to look inside let alone have an inspector detect structural problems that you'll need to fix before moving in...be prepared to pay for any problems such as electrical or plumbing repairs, leaky roofs, or even vandalism by angry homeowners who break things or punch holes in walls and doors, an unacceptable but not that uncommon way that some homeowners deal with the angst of losing their home to foreclosure. A lot of bloggers and specuvestors alike crow about the ease of picking up foreclosed properties, especially now as delinquencies and foreclosures are reaching record levels all over the country. Yager's article is a good bit of cold water in the face on that score. Yager previously wrote about what to do if you find yourself on the other side of the foreclosure gun, which I also recommend. Posted at 06:08 PM | TrackBack April 18, 2007 Mortgage & Loan: Foreclosure Fight Forward!
The news that foreclosure in California is reaching record highs is the latest volley in the war between the merciless entropy that is the housing slump and homeowners' desire to hang in no matter what the cost. For a while there, it seemed like most of the folks who made the mistake of buying too much home with too little money would be left to twist in the wind. But as with all previous bubbles, some genius finally realized that this will threaten the bottom line of many prominent financial institutions, and as such, the forces of finance are stepping up to offer favorable terms for owners on the verge of delinquency: The agencies advised lenders that prudent workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrower...Examples of constructive workout arrangements include modifying loan terms, and/or moving borrowers from variable-rate loans to fixed-rate loans. Bank and thrift programs that transition low- or moderate-income homeowners from higher-cost loans to lower-cost loans may also receive favorable consideration under the Community Reinvestment Act (CRA), provided the loans are made in a safe and sound manner. No less than Fannie Mae and Freddie Mac have stepped up and offered their own products to help people stay in their homes. My one caveat is that simply extending the "teaser" period for an ARM is like giving a cancer patient morphine rather than chemo--it may hurt less, but it won't solve the problem. The 30-year-fixed is the way to go, always. Still, it's a good start. Let's see more of that, and soon. God knows it's needed. Posted at 11:41 AM | TrackBack April 13, 2007 Mortgage & Loan: Fighting Mortgage FraudOne of the sadder aspects of the housing collapse has been overturning the rock to see how much of the market was infected with mortgage fraud. Many subprime loans were pushed with outright fraudulent terms, and many homeowners have lost their homes to terrible "foreclosure rescue scams" and the like. It's good to see people like Massachusetts AG Martha Coakley taking a strong stand against mortgage fraud as foreclosures ravage the state: “These defendants, many of whom were professionals, preyed on vulnerable homeowners facing foreclosure to deceive them out of their home and life savings,” Coakley said in a press statement. “With the number of foreclosures increasing daily, this type of mortgage fraud is particularly troubling.” HUD Inspector General Kenneth Donohue correctly pinned the explosion in mortgage fraud to a lack of oversight and a willingness to look the other way, and recommended some new steps: What are some of the key changes that need to be made at FHA? Mortgage bankers have been creating a predictable model on screening some of these loan applications and that’s good thinking. That’s using technology to your advantage. I think FHA has to weigh in on that. I have not seen that. Well, let's hope he sees it soon. I've mentioned her before, but Rachel Dollar writes and runs what is probably the best and most comprehensive mortgage fraud site around. If you are a victim of mortgage fraud, or are worried about becoming one, go read that right away to get the answers you need. Posted at 06:26 PM | TrackBack April 11, 2007 Credit & Debt: Meanwhile, Back At The Fed...
It's good to see that Bernanke has his priorities in order: In the minutes, Fed officials worried that the latest readings on core inflation were higher than expected and might not moderate as hoped. They also decided that holding rates steady was the best course to foster moderate economic growth and to bring core inflation down from "its elevated level." But policy-makers also felt surprisingly weak business investment and the rise of delinquencies in subprime mortgage markets were risks to economic growth."The combination of generally weaker-than-expected economic indicators and uncomfortably high readings on inflation suggested increased downside risks to economic growth and greater uncertainty that the expected gradual decline in core inflation would materialize," the Fed said. If you're hoping that the Fed would recommend stronger regulation of predatory lenders and oversight of the subprime sector, think again. Bernanke is a firm believer in the invisible hand: Regulatory oversight of hedge funds is relatively light. Because hedge funds deal with highly sophisticated counterparties and investors, and because they have no claims on the federal safety net, the light regulatory touch seems largely justified. However, the growing market share of hedge funds has raised concerns about possible systemic risk. In other words, the more complex something is, the less likely there is to be anything guiding or watching it. Yep, we're screwed. Posted at 06:37 PM | TrackBack Buying & Selling: Home Prices, Mortgage Apps Both Tumble
This morning we had the news that refinancings were dropping even as new home applications rose: Refinancing applications dropped for the fourth straight week, declining 4.0 percent to 2,015.0, its lowest level since mortgage rates reached their recent peak in late February. But the MBA's seasonally adjusted purchase index rose 2.7 percent to 413.8 last week. Applications to buy homes have been more choppy week to week than refinancings, though are generally trending higher. I'm probably grossly oversimplifying here, but it seems to me that the refinancings are slowing because of higher borrowing costs due to interest rates holding steady. The key to the housing boom was encouraging people to refinance using "creative" mortgages and take out home equity loans out the kazoo. Now, people are simply trying to dump their homes as fast as possible, and that means cutting prices--which opens the door to first-time buyers. And it seems that the NAR agrees with that assessment: The National Association of Realtors said Wednesday it expects its measure of home prices to fall this year for the first time since the group began tracking sales nearly 40 years ago. In its latest monthly forecast, the group said it expects a 0.7 percent decline in the median price of an existing home sold in 2007. A month ago it had been projecting a 1.2 percent increase. Half of all homes sell for more than the median and half for less. The CNN article goes into gruesome depth about how all homebuying statistics are expected to dip through 2007 and pick up again in 2008, but I wonder if even that is too generous. We're in a long slide, folks, and the bottom is--while getting closer--not quite there yet. Posted at 06:08 PM | TrackBack Mortgage & Loan: Foreclosure Rescue Rangers
As the sad reality of mass foreclosures settles in across the nation, we're seeing a lot of news, punditry, and advice on how to handle the events that surround losing the American Dream. Some of the better links I've come across of late include: * David Bach writes for Yahoo on six ways to avoid foreclosure. Bach makes the point that even when your loan is in default, many banks would rather simply work out a new payment plan than just take your house, as it costs them more to do so--and they'd rather have you as a paying customer for years to come. Well worth reading. * Several prominent civil rights groups are calling for a moratorium on foreclosures , as the epidemic is targeting primarily--but not exclusively--minority homeowners who were snowed with predatory lending and lacking good financial educations. Money quote: "Latino and African-American families are being pushed into high-cost and risky home loans. The result," said Janet Murguia, president of the National Council of La Raza, "is that more of our families are falling victim to loans that were not a good fit in the first place. This is eroding the hard-earned wealth our communities spent decades fighting for." * Much like Best Buy sends out the "Geek Squad" to help you with your technical problems, some lenders are even dispensing mortgage rescue squads to help homeowners in trouble and get them back on their feet. These are all positive developments, and we certainly could use them now--but then again, we could have prevented all of this years ago. I worry that these responses are too much of the "Band-Aid on cancer," and too little of the "castor oil." Posted at 02:08 PM | TrackBack April 04, 2007 Mortgage & Loan: Predatory Lending Targets Higher-Income Homebuyers
It would seem that the report from the Center for Responsible Lending on subprime mortgages targeted to higher-income buyers was on the mark after all. The Washington Post yesterday looked into the spread of the spread of subprime mortgages in Philadelphia: The Philadelphia study concludes that predatory lenders are not targeting the poorest neighborhoods. Rather, they're seeking moderate-income neighborhoods where they can squeeze the equity of a house. The higher the interest rate on a mortgage, the more commission a loan provider typically makes. The Post article also notes the efforts of D.C. Council member Mary Cheh to introduce legislation to spell out lending terms in clear prose on red paper. I'm not sure why it has to be red, but as long as it's read, that's all that counts. And on the federal level, no less than Dem presidential heavyweight Hillary Clinton is saying the same thing: The New York senator said borrowers should have more access to counseling and unbiased advice on lenders, loan types and refinancing options and that mortgage documents should be written in plain, easy-to-read language. "We need clear, easily understood language in all these documents," Clinton said. "Enough with the confusion and complexity." Now that it's clear that subprime lending and predatory practices are not the exclusive province of the poor-and-nonwhite markets, hopefully we can finally see some good laws put into play that will keep this from happening again. Posted at 05:48 PM | TrackBack April 02, 2007 Mortgage & Loan: New Century Files For BankruptcyThis certainly doesn't come as a particular surprise. From Marketwatch: New Century Financial filed for bankruptcy protection on Monday and said it would lay off 3,200 people, or half its workforce, immediately as the second-largest subprime mortgage lender succumbed to a credit crunch in the sector. Reuters has a timeline of New Century and subprime history in general. Here's an interesting nugget: 1998 - Rising delinquencies and the aftermath of the Russian debt crisis spook investors in subprime, but U.S. Bancorp likes the business enough to strike a strategic alliance with New Century, buying $20 million of its preferred shares. Boy, why don't we pay more attention to the cycles of history, eh? I like the UPI take on it best: The company -- once a multibillion-dollar lender listed on the New York Stock Exchange and now trading on the over-the-counter pink sheets -- said its creditors included Countrywide Financial Corp., Bank of America Corp., Lehman Brothers Bank FSB, Residential Funding Corp. and Goldman Sachs Mortgage Co...The company, founded in 1995, went public two years later and was named to Fortune magazine's list of the 100 fastest-growing companies in 2003 and 2004. From the top of the world to Chapter 11 in twelve years. It could be written off as a poignant metaphor for the housing industry as a whole if it wasn't for the very real 3200 people who are about to be looking for work. Posted at 03:21 PM | TrackBack March 30, 2007 Credit & Debt: Bernanke Comes To Jesus On Easy Credit
OH, PLEASE, GOD, JUST LET ME GET OUT OF THIS WITH WHAT LITTLE HAIR I HAVE LEFT.... In a speech detailing the merits of the Community Reinvestment Act, Fed chair Ben Bernanke had some interesting comments: Third, access to credit in lower-income communities is obviously much greater today than when the CRA was enacted. This greater access has had tangible benefits, such as the increase in homeownership rates (Joint Center for Housing Studies, 2006). However, recent problems in mortgage markets illustrate that an underlying assumption of the CRA--that more lending equals better outcomes for local communities may not always hold.12 Whether, and if so, how to try to differentiate "good" from "bad" lending in the CRA context is an issue that is likely to challenge us for some time. One possible strategy is to place more weight in CRA examinations on factors such as whether an institution provides services complementary to lending--for example, counseling and financial education. This is as close as you probably will ever get to hearing Bernanke or anyone else admit that the ocean of credit extended to the subprime markets was a prime factor for inflating home purchasing in the last half-decade. It's also a prime signal that banks and lenders are going to tighten things up for the foreseeable future. Less available credit = fewer new home buyers = fewer home sales = flattening market. The Center for Responsible Lending has a new study out which indicates that even the saw about available credit increasing homeownership is false. Instead, they claim that the subprime market was chiefly targeted to refinancing existing loans rather than originating new ones. It makes sense when you think about it--how often did you hear and read about people swapping their fixed loans for fancy new interest-only products without much in the way of documentation or money down? The housing boom and bust was a tremendous example of letting short-term thinking and the desire for easy profits trump responsibility, frugality, and accountability. Now we have a sagging, fragile economy, millions of homeowners in foreclosure or default, lenders going belly-up like dying whales, and the creeping fear that it will get worse before it gets better. That Bernanke has his Jesus moment now is convenient, and not particularly impressive, to say the least. Posted at 02:28 PM | TrackBack March 29, 2007 Mortgage & Loan: Million-Dollar Mortgage MeltdownIt would seem that the mania that possessed people to buy homes far beyond their means is indeed not confined to the In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure. Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities..."Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside," says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. "People across all income brackets are having financial hardship." As I've said before, there tends to be very little sympathy for people caught in dire mortgage straits. Indeed, the reaction of many bloggers seems to be open contempt that these people got in so far over their heads. Now, to be fair, many of the people stuck with high mortgage payments are flippers, specuvestors, etc., but not everyone is a Casey Serin. So, watch this ABC News/BBC clip and judge for yourself: Are these folks guilty of "house gluttony" and rampant consumerism, or did they just get dealt a bad hand? For me, I say what I've always said: The American Dream of home ownership should not come at such a high cost that any misstep could mean a wreck for life. And the idea that your entire financial history and future should be tied so closely to a stupid three-digit-number is an idea only fit for the nuthouse. Clip found courtesy of Housing Panic. Posted at 01:31 PM | TrackBack March 28, 2007 Credit & Debt: Bernanke: "The Economic Expansion Continues"It seems that on Ben Bernanke's world, the interest rate is still 4%, home sales are on a permanent upward trend, and any damage you may have seen from the subprime implosion is nothing to worry about: Even so, Bernanke stuck with the Federal Reserve's assessment that the economy is likely to grow at a moderate pace over the coming quarters. He also repeated the Fed's belief that inflation also should ease in the months ahead, but he warned that underlying inflation remains "uncomfortably high."...On the other hand, consumers, who proved "quite resilient" despite the housing slump and increases in energy prices, could continue to keep spending at a pace that would make the economy grow faster than currently expected, he said. And, there are other forces, including a still-good jobs market that is producing fatter paychecks, that could push up inflation. Bernanke's formal comment on his hopes for consumer spending from his testimony: The continuing increases in employment, together with some pickup in real wages, have helped sustain consumer spending, which increased at a brisk pace during the second half of last year and has continued to be well maintained so far this year. Growth in consumer spending should continue to support the economic expansion in coming quarters. And just how is that working out?: "Despite diminishing expectations, consumers' assessment of present-day conditions remains steady and does not suggest a weakening in economic conditions. The recent turmoil in financial markets coupled with the run-up in gasoline prices may have contributed to consumers' heightened sense of uncertainty and concern. The direction of both components over the next few months bears watching to determine whether this decline is just a bump in the road or something more substantial." The key phrase there is "diminishing expectations." People are realizing that the housing market is crumbling, that their paychecks are stretched to the max, and that they have no savings cushion if an emergency strikes. These are not the hallmarks of a bull psychology by any stretch. Bernanke better bet on something else to keep his helicopter blades spinning. Posted at 01:01 PM | TrackBack March 26, 2007 Buying & Selling: New Home Sales Continue To Tank
A few days ago, Corey from InfoHype wrote in asking if the bust was over yet. If today's news about decreasing home sales for February is any indication, I'd say the answer is "No:" The Commerce Department reported Monday that sales of new single-family homes fell by 3.9 percent last month to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years. All regions of the country except the West experienced weakness last month.The February decline followed an even larger 15.8 percent drop in sales in January, which had been the largest one-month plunge in 13 years. The back-to-back declines provided evidence that the housing market is continuing to struggle with lagging demand and a glut of unsold homes. There are simply too many factors working against a resurgence in home buying on a nationwide level. Too many people are maxed out on credit and loans, there's too much inventory available, and prices for median homes are still too high. Marketwatch took special note of the increasing backlog of unsold homes contributing to the slowdown: Inventories of unsold homes rose 1.5% to 546,000, representing an 8.1-month supply, the largest inventory in relation to sales since January 1991, at the tail end of a recession. The inventory is up 27% in the past 12 months. And as you might expect, the stock market isn't responding too favorably to the news. So it looks like we have to ride this train for a few more months at least. InfoPath looks like a good read, by the way. Check it out. :) Posted at 01:00 PM | TrackBack March 21, 2007 Credit & Debt: Fed Holds The Course On Lending Rate; Stocks Party
As it seems everyone expected, the Federal Reserve voted to maintain the Federal Funds lending rate at 5.25 percent. AP coverage here, and the predicted stock rally coverage here. Quick refresher as to the importance of this from Wikipedia. Essentially, any change to the Federal lending rate will result in an adjustment to the prime lending rate, which will affect any loans you want to take out or already have in effect. I tend to agree with Calculated Risk's parsing of the statement. It seems like they're saying the economy is slacking and inflation is on the horizon, but the stocks rallied on even the faintest hope of a cut, evinced by the more moderate language in the statement. It always amazes me how much of the modern economic process is influenced by hunches, blind faith, and superstition. In this case, parsing every word of a four-paragraph-statement and making huge stock moves because of that. ;) They might as well consult runes and horoscopes. :) Posted at 04:10 PM | TrackBack March 20, 2007 Buying & Selling: D.C. Doldrums,Revisited
The lovely Velvet in Dupont has composed a lacerating no-love note to Alan Greenspan for enjoying the irrational exuberance of his retirement while the market he propped up crashes around him: Your intent in keeping the economy afloat was a wise foresight on your part. But, you should have stopped with the rate reductions at some point earlier than 2003. You should have also increased the rates at a much faster pace than you did. Since you are so good at shooting your mouth off, you should have also warned all those homebuyers: If they can’t afford a fixed rate mortgage, then they can’t afford that particular house. Of course, you didn’t though. You’re saying it now, but back then, you were happy that the homebuilding industry was keeping the economy afloat and that you looked like a hero. You can’t give stupid people a bunch of money and not advi |
