Foreclosure "Crisis" Overblown?

[NeMont]

http://articles.moneycentral.msn.com/Banking/HomeFinancing/ForeclosureCrisisIsOverblown.aspx

Foreclosure 'crisis' is overblown

Sure, there are pockets of pain around the US, but it's not as if most Americans are losing their homes. More than 99% of homes aren't in foreclosure.

By Scott Burns
3/5/08

A recent list of year-end mortgage foreclosure rates in 100 top metropolitan areas drew a lot of attention. Released by RealtyTrac, a company that compiles data on home foreclosures, the list showed the number of foreclosure filings in each metro area, the percentage of homes being foreclosed and the percentage change from the previous year.

Though the report had some dismal news -- such as the nearly 4.9% foreclosure rate in the Stockton, Calif., area -- a close look at the data also provides some reassuring information. It tells me, for instance, that the foreclosure crisis is a regional problem, not a systemic one. It could become a systemic problem, of course, but we're a long way from that now.

This news will//isappoint the gloom-and-doom crew and all those seeking the excitement of financial upheaval. But it may be time to temper our worry and take a closer look at some of the year-over-year foreclosure statistics:

-Though the national rate of foreclosure increased by a whopping 79% between December 2006 and December 2007, the rate was still only 1.033%. Because about 30% of all homes are owned mortgage-free, this means that for all the noise about a crisis, only seven-tenths of 1% of all homes were in foreclosure.

-In the top 100 housing markets, the average foreclosure rate was somewhat higher -- 1.38% -- and it was up 78% over the previous year. But if you rank-ordered the list of the top 100 areas, only 34 had foreclosure rates above the group average. Fifty-one areas had rates of 1% or less.

-Foreclosure rates actually fell in 14 of the 100 areas. More important, many of the areas with the highest increases in foreclosure rates were rising off rates that were tiny. The Bethesda, Md., area, to offer the most extreme case, saw foreclosures rise 1,288% -- to a rate of 0.682%. In other words, foreclosures there were virtually nonexistent the year before. Today they are still well below the national average. The same can be said for the Albany, N.Y., area (up 638% to 0.25%), the Baltimore area (up 544% to 0.73%) and the Providence, R.I., area (up 354% to 0.41%).

Another pattern emerges if you cross the foreclosure rates with the Office of Federal Housing Enterprise Oversight (OFHEO) index of home prices. It shows that the top 10 foreclosure areas in America are areas of extreme price change -- changes far from the national average of 46.92% over the past five years.

 

[JimNv]

I mentioned this on another thread a couple of weeks ago, NeMont. I was, of course, blown off by the lefties on this site.

The MSM took this downturn and blew it into a crater. I'm seeing people now able to refinance houses with lower interest rates and some folks are moving up in their housing.

 

[202typical]

One of the sevices my company provides is horizontal curb cutting. We cut curbs in front of new homes for driveway aproaches.
The subprime crash has put a hurt lock on the new home construction. I typically run 4 trucks. Now I am struggling to keep one truck working. The tract home builders over built. Too much inventory and they have shut down production. They can not sell what they have.
It is killing me!!!!!!!!


"Thanks climate PhD 202" - TFinalshot Feb-05-08, 02:16 PM (MST)

 

[huntindude]

The proof is in the pudding, if it was no big deal why did Bush push the stimulus plan and Bernanke cut interest rates by a big chunk? now they're doing a big money dump on banks to keep them solvent, if it's over blown this administration is as guilty as anyone.

Even if the housing deal is over blown the cost of energy is going to cripple the economy to the point people can't afford the high house payments they have anyway. this problem is real and to blow it off as only political is a witch hunt, it may not be quite as bad as some think it is but it's bad enough to concern the top dogs, that's what matters. if you want something to really fret about it should be $105+ crude, this isn't funny anymore. I just priced UN 32 which like all sources of nitrogen is made from natural gas, $468 a ton. last year was $360 and two years ago it was $275. if you think food is high now hang on to your shorts.

 

[NeMont]

LAST EDITED ON Mar-12-08 AT 04:52PM (MST)[p]>The proof is in the pudding,
>if it was no big
>deal why did Bush push
>the stimulus plan and Bernanke
>cut interest rates by a
>big chunk? now they're doing
>a big money dump on
>banks to keep them solvent,
>if it's over blown this
>administration is as guilty as
>anyone.

Because for some reason the American People have come to believe that they should never experience economic pain and therefore spinelessly stupid American Politicians keep intervening to "help" them not feel pain. All these politicians are doing is giving a drink to a drunk. The housing market is over built and a correction is necessary. It is even a good thing to get the speculation premium out of the housing market.

> Even if the housing deal
>is over blown the cost
>of energy is going to
>cripple the economy to the
>point people can't afford the
>high house payments they have
>anyway. this problem is real
>and to blow it off
>as only political is a
>witch hunt, it may not
>be quite as bad as
>some think it is but
>it's bad enough to concern
>the top dogs, that's what
>matters. if you want something
>to really fret about it
>should be $105+ crude, this
>isn't funny anymore. I just
>priced UN 32 which like
>all sources of nitrogen is
>made from natural gas, $468
>a ton. last year was
>$360 and two years ago
>it was $275. if you
>think food is high now
>hang on to your shorts.

The cost of oil and gas will be a bigger drag on this countries economy then the subprime mess. It doesn't help that the dollar continues to slide in value against nearly all currencies, that puts upward pressure on oil prices as the producers need more dollars to pay their bills.

$468 a ton for fertilizer doesn't sound so bad around here these guys are paying $545 ton. Some of the Wheat guys will have almost $50 an acres in just fertilizer costs, not to mention fuel, labor, taxes, SEED (if they can even buy it), equipment and dept service. They need $15 wheat to make it.

I never said whether I agree or disagree with the article posted I just posted it.

Nemont

 

[huntindude]

I agree with you , if the feds would let the chips fall then those who take stupid risk would learn from their mistakes. anyone should have seen this coming, nothing that good last forever and the run away real estate deal is no different.

The energy deal is my number one concern, at what point do people start spending so much of their income on fuel and the increased cost due to it such as food, manufacturing, transportation that we have a depression? I honestly can say I can't believe how well everyone is accepting it and not changing anything to offset it . either most people make more money than I thought or they're stupid, time will tell.

 

[eelgrass]

If the government bails these people out, it will be a diservice to the natural market. Not to mention a kick in the nuts to those who live fiscally within their means.

I agree, oil prices are going to hurt, big time! People have to eat, but they don't have to eat strawberries, almonds, or rib-eye steak. I think it's going to get a lot worse, for everybody.

One way to get oil prices down would be to increase supply. It might be too late for that though. You can't increase supply over night.

 

[202typical]

I agree let the folks feel some pain. It will do us good.

Oil? Lets drill ANWAR now and in the mean time lets unleash the eggheads like we did with the space missions back in the 60's to come up with good alternatives for oil in the future. It can be done.



"Thanks climate PhD 202" - TFinalshot Feb-05-08, 02:16 PM (MST)

 

[huntindude]

Oil hits a new record high high, the dollar weakens and Chrysler is shutting down for a few weeks to cut losses. no problems here.

 

[264winmag]

Dude,
your right about the cost of nitrogen. Between the cost of fertilizer, tractor fuel and pumping water, its hard to make ends meet on the farm.

It is also taking a toll on my farm equipment dealer buddy.
Growers can't afford new machinery.


Take a kid hunting. You will enjoy it more than they will!

 

[huntindude]

If they can survive until harvest they should play some catch up, inputs are up but commodity prices are up even more. everyone in ag and those dealing with the ag industry are going to be the bright spot in the ecomomy this year, other than energy companies of course.

For once those of us in ag are in the rare position to pass our increased cost onto the consumer, sad part is with the economy floundering and other consumer goods like gas so high this is a bad time to do it.

This energy cost has me very worried about the economy , I think the proverbial substance is about to hit the fan.

 

[MortgageMan]

Do you really think that what we are seeing is all we are going to see in the subprime mess. We have only seen the tip of the iceberg fellas. I am not saying step in and help everyone but we aren't even feeling the full effects. Give it one or two more years.

 

[CAelknuts]

Mortgageman,you beat me to it. If you guys think this housing/mortgage problem is anything less than a serious national crisis, you're either in denial or severly short on understanding of economics.

The problem goes far beyond just mortgages and foreclosures, money center banks are in trouble, you just saw Bear Stearns nearly fail today and only make it due to a big emergency bailout. If we have more central financial institutions fail or get into serious trouble,and that is a strong probability, you'll see an economci crisis in this country the likes of which none of us have seen in our adult lives.

The price of oil, the drop in value of the dollar, the price of food and just about everything else, and the housing mortgage meltdown have the likelihood of becomming a Perfect Storm of monumental proportions. We aren't close to seeing the worst of it yet, or the end of it.

But don't take my word for it, I've only been in real estate lending and banking for the last 15 years.

 

[CAelknuts]

LAST EDITED ON Mar-15-08 AT 08:15AM (MST)[p]Everyone on here would do well to read this morning's newspaper stories about the near collapse of Bear Stearns. This is a far more dangerous problem that many people who aren't employed in finance realize, but you need to understand it. Bear nearly collapsed, and will probably be acquired or liquidated now. They probably aren't the only Wall Street firm in trouble, we're likely to hear of more, especially if Bear's bailout ultimately fails.

If you still doubt me, ask yourself if you own any mutual fund shares with Vanguard, Janus, Fidelity, Van Kampen, T. Row Price or other mutual fund companies. They are some of the largest shareholders in Bear Stearns, and have already lost many millions of dollars just in their investment in Bear. Some of these mutual funds owned over 7 million shares of Bear. If you own shares in these funds, YOU have also lost money.

If one big Wall Street investment bank fails, the danger of others following grows exponentially. This is a very serious danger. If you are getting close to retirement age, or are already there, you'd be well advised to check in with your investment advisor very soon and discuss asset allocation. Hopefully, you're well positioned and don't need to do anything, but if you need to adjust your portfolio you should probably do it now, rather than wait to see how bad things might get.

By the way, a central reason for the problems at Bear Stearns is the hit they've taken from mortgage backed securities devaluation; and the resulting loss of confidence other Wall Street firms have with Bear over their mortgage securities issues.

Still think the mortgage "crisis" is overblown?

 

[huntindude]

I'm not going to argue with you because I agree with how severe the effects could be if it's let go. the concern I have is when the feds step in and bail out a company like this isn't it a little like an FDIC gaurantee on stupid investing?

 

[Cornhusker]

For once after reading an entire thread on here I feel a little smarter. Great points, all sides I'm doing my catch up reading to get some of the understanding that many of you have.

 

[CAelknuts]

'dude, it's not the time to worry about the Gov't bailing out a firm over stupid investing. IF one or more of the big investment banks fails, that can cause a crisis of confidence in our investment markets and banking system in general. If that happens, it'll affect small town America as much as Wall Street. We potentially face a situation where the last thing anyone will worry about is some big company being bailed out.

There are more financial institutions in trouble than most of you realize. Bear Stearns might be the worst, but Citibank, Countrywide, and other giants are facing dangerous times as well. Imagine a scenario where not one, but several of these firms come close to the brink within a few days or weeks of each other. So far, that has happened with Countrywide and Bear Stearns, but how many of them can be bailed out? If this keeps happening we potentially face devastation of our banking and investment systems.

If you think this doesn't affect you, you're mistaken if you have an IRA or 401k or similar investment vehicles. YOU can be seriously hammered as well.

I'm going to type the following in CAPS to emphasize an important point for these times. CASH IS KING!!! Those with access to cash (NO, you don't go borrow it now, either), and who are willing to carefully consider opportunities, stand to make large profits over the next few years from the mistakes of many and the turmoil in the markets. The trick is to figure out which opportunities are greatest, with manageable risk and having the guts or balls to deploy capital when others are getting wiped out. Despite the articles about the mortgage problem being past it's worst point, there are many IN the mortgage industry who feel we've got another 18-24 months of rough sailing ahead, IF the economy doesn't sink into a bad recession. If we get into a prolonged or deep recession, all best are off.

If you have adult children who haven't yet purchased a home, I'd have them start accumulating cash, managing their debt obligations to enhance their credit scores, work as much as possible to support income and get ready to make one of the best investments many of them will ever be able to make. They're going to be able to purchase their 1st homes at prices nobody would have expected as recently as 24 months ago. As the markets recover, and they will in time, they will realize serious equity buildup in their homes. Anyone who is renting right now should be thinking of this opportunity. These situations only come along a few times during our lifetimes.

And for those who think that only our left leaning friends have these views, I'm one of the more politically conservative people around here. I have my views due to working in the finance industry. We're seeing a lot more difficulty happening to companies than is generally reported, or realized, by the media or public at large.

 

[huntindude]

I tend to agree with you but I still feel there is danger in bail outs where even a chimp could see the market was over heated and couldn't last. crap if things has kept going the way they were a single wide in a trailer park would be 1.7 mil today. I think greed and stupidity are being rewarded and excused here but maybe for the sake of our economy there is no other way.

I just hope there are some lessons learned, unless somebody gets their fingers smashed they'll stick their hand back in the cookie jar again 90% of the time. we'll see.

 

[huntindude]

If it's overblown Bear Stearns going from $170 to $2 a share is a pretty good trick.

 

[NeMont]

Look at Wells Fargo. They were smart enough to see the hand writing on the wall.

While Bear Stearns collapse is a frightening thing for Wall Street Bankers, because they think they are untouchable, is it a really bad thing for the overall economy?

If they couldn't forsee the mortage market being WAY oversold and overvalued then they deserve to be out of business. Does it affect others? Of course it does.

Is the economy having some big problems? Sure seems like it. Oil continues to drag down the economy but I am starting to see the annual parade of $250,000 motorhomes getting 5 miles to the gallon moving through town here. It is a hell of a recession we are having.

Nemont

 

[CAelknuts]

NeMont, some people will take a little longer to figure this out, and some people will be a lot slower. If you don't undertand what's going on, hopefully you're in a position where it won't hurt you too badly, since you don't seem to believe how bad things are, and how bad they are likely to get.

Most of you now know that Bear Stearns is selling for $2.00 per share to JP Morgan Chase. That is a gigantic reduction in value of a once great company. Now, Lehman Bros looks like they may be the next to have serious problems.

We're getting nearer to a scenario where a crisis in confidence is possible, and if that happens, even 'dude won't be worrying about the feferal gov't bailing out some big company. That'll be the least of the problems.

If you're looking for some bright news, here's a tidbit. If you have a home loan currently in process, today is probably an excellent day to lock in your rate if you haven't done so yet. Rates took a BIG dip since Friday afternoon, and are likely to give some of these gains back soon. When the market moves as much as it has, as quickly as it did, things usually correct backward within a short period of time. Consider locking in today, if you have a loan in process.

 

[CAelknuts]

By the way, if you think you're having a bad day, try being Joe Lewis, the British investor. He just lost $800,000,000.00 in value in his Bear Stearns holdings. OUCH doesn't do that justice.

 

[wetmule]

 

[TFinalshot]

Nemont, youre a level headed guy, but if BS would have been allowed to go belly up, it would have started the card house crumble, it IS the reason the Government allowed the sale. You are wrong if you think our economy and the mortgage industry is in good shape. . .

 

[Boskee]

I think I would be paying attention to what Caelknuts has to say on this thread. We're not out of the woods yet fellas not by a long shot!

 

[NeMont]

First off I never said anything about any sector of our economy, mortgage or otherwise as being in good or bad shape.

Secondly all I did was post the story and point out that Banks like Wells-Fargo had the foresight not to play fools poker with bad credit risk sold as investment grade paper.

As for Bear Sterns, I know why the government did the bail out, I just disagree that they deserved any taxpayer money to be bailed out. The economy cannot be micro managed and often times the treating the symptoms only worsens the cure in the end.

Did anybody with two firing brain cells not understand that the housing market was over heated and speculators were bidding prices up beyond the actual value of the property? Look at all the idiotic vehicles made available to people to get them into more house then they could afford ARM's, Interest only loans, etc, etc. Now I have to help fund the bailout of both the banks and borrowers? Why should I continue to pay my mortgage if the government will come in and bail me out?

I understand things are bad out there and that people are getting hurt by the economic down turn, the mortgage meltdown, increasing price of food and energy etc, etc.

Nemont

 

[TFinalshot]

The entire economy is overheated nemont, just like the stock market! At some point there has to be value, in the past that's been in our industrial and manufacturing sector, those are largely gone.

Things are not that good, due to the Bush policy of "stay the course" "I'm the Decider" and "consumer confidence" aint going work anymore. . . we cant keep propping up the economy and "believe" our way though this mess.

I also agree 100% with you, we also cant keep micro managing the economy, it makes my good credit and careful planning worth less, much less. Hell anyone can get a CC even people who just went bankrupt. It makes doing things right worth only your good name. The people of this nation keep thinking there's no risk because the government bails them out at every step. . . Thanks to Ronald Reagan this today is the status quo, - remember who developed the new bankruptsy laws?

 

[huntindude]

It does baffle me that this real estate thing got so out of hand. people flipping houses and selling first positions making more money than a rock star and thinking there was no end.

We're in for some tough times, interest rates are so low that the feds can't keep tossing Wall Street a bone every week forever to keep them fed. so what's left? bail outs and government gaurantees for the stupid.

I'm not one to defend this administration but in the case of Bear Stearns they really had no choice. I don't agree with the concept but at the same time a recession would have turned to a depression without it. this is one of those situations that could have been avoided easier than alleviated, there is no easy or fast way out.

 

[JohnSWA]

there
>is no easy or fast
>way out.

Better yet... there is no way out period! We are destined to live in a hyper-inflation economic period within the next 5 years! Mark my words. We can only inflate our fiat currency so high. Christ, our president is doling out thousands to every family to stimulate the economy and we all know that that won't work! Folks, save all that you can and do your best to get out of debt. I hate to sound like chicken little, but I prefer to be the ant vs. the grasshopper.

 

[huntindude]

You're right about this stupid stimulus plan , how many people in a recession, $4 gas and rising cost of living are going to go on a spending spree with a few bucks? the only ones who would already have maxed out credit cards. flat stupid thinking, and the dems are as dumb for going along with it as Bush was for bringing it up.

 

[1911]

With any luck there are some lessons to be learned from this mess for individuals and government alike. LIVE WITHIN YOUR MEANS. I'm going to go way out on a limb here and even suggest using a budget to include savings.

 

[cqh1]

LAST EDITED ON Mar-19-08 AT 10:17AM (MST)[p]Most mortgage companies put themselves in this position by lending to people who were not qualified to borrow money. And for paying thier leaders exorbitant salaries. Bear Stearns CEO James Cayne was paid $232 million from 1993-2006. Not a bad deal for leading a company to its ruin.

cqh1

 

[Boskee]

Not quite that simple we have governmental pressure to make more affordable housing loans and questioning lenders why they turn people down. Then we have congress adapting fair lending practices and making sure that no discrimination exists. Then you have congress going around to all the big banks and wanting them to loosen up the guidelines because they're being to restrictive. FORGET THE FACT THEY MAY NOT QUALIFY To add to this we have the government and municipality's coming up with forgivable loans to allow more borrowers to buy a home when they haven't been able to save a downpayment. All these vehicles streamline the borrowing process and make it easier than ever to buy a home but yet the lenders still aren't making enough affordable loans so the guidelines loosen up again and then we find a few more creative ways to promote the American dream by adapting payment terms and qualifications once again. The fault with this mess doesn't lie entirely on the shoulders of the mortgage industry although they did completely throw qualifiing out the window with some of the ill designed products that came about around 2002 on. No income, no assets, no job and yep we have a loan for you! At that point insanity run amuck! Yes there's a whole lot of industries and people responsible for this but the one common denominator fueling all this was greed. The economy flourished, angels sang and the american dream may become the american nightmare!

 

[CAelknuts]

Boskee, I'm really glad that you brought the federal govt's role into this, as not enough people realize the role congress and HUD played in the debacle. Big lenders have been under a lot of scrutiny by the gov't to make more loans to more people, and to expand home ownership. Lenders complied, and now many are paying the price for it. On the other hand, those same politicians (read, many in congress) are now crticizing lending practices and wanting to hold someone accountable, when they need to be put in the same boat themselves. Of course, that's not gonna happen.

 

[Boskee]

The other issue is that so many people don't feel they should have to assist with a bailout. Farmers have been getting their incomes subsidized for years and so have many other industry's. So what's wrong with helping most Americans with the biggest asset they own, when in effect you're helping yourself? Many don't realize the importance of making sure the housing market is in good shape because so many vehicles in the economy are dependent on a sound housing industry. Most 401 k, Reits,Insurance policy cash values,pensions & retirement dividends and plans, and mutual funds are tied to some form of mortgage backed security's because of the security they've offered over the years.

Real estate has alway given a good net return on investment that has been highly desirable by many other facets of our financial sector and offered stability that was desirable to investors. It's also very important to each of us in any area regardless if your home is paid off or not to help this market recover to protect your own investment in your real estate holdings. A sagging or deflating market will only hurt your long time earning potential and reduce your retirement opportunity as it devalues your assets and your estate. Your $400,000 investment may wind up being worth $150,000 or less and with social security tapped out in the future you may be working a lot longer than you planned. Caelknuts has made some very valid points on this thread and getting yourself in an improved cash position is not something to scoff at. Nobody knows what the future holds and it's not time to panic but we all could benefit from some sound financial planning till these waters calm.

 

[huntindude]

Farmer's incomes have been subsidized JUST enough to keep most of them from going broke. it's not all out of the goodness of our hearts either it's to insure a cheap stabile food supply, other than that they can go to hell.

This mortgage thing is a totally different deal, dumb people with little fore sight looking for a quick buck. some of the reasons the mortgage companies got in as deep as they are make sense but I don't have much sympathy for the house flippers or the people who should have known they couldn't buy a house on the golf course with a $15,000 a year income.

I hope there's enough pain here for some idiots to get some learnements , but not enough to keep us in a long deep recession.

 

[CAelknuts]

LAST EDITED ON Mar-20-08 AT 01:45AM (MST)[p]'dude, you can't seriously believe that many people were "buying a house on a golf course with a $15,000 a year income." There may have been a few isolated incidents such as you believe are common, but for the most part you're way off. Even Stated Income loans had and have underwriting guidelines designed to eliminate unqualified borrowers. For the most part, those guidelines have protected many lenders. There are many self-employed borrowers who can't qualify for a home loan based on their tax returns, but who have credit scores in the 700s, substantial liquid assets for reserves, and high net worth. Those borrowers generally are paying their mortgages on time, and don't represent the problem that is going on.

A far bigger problem than what you perceive is that lenders made a huge number of Negative Amortization loans that are now coming back to bite everyone on the ass. This type of loan got a very bad reputation, deservedly so, back in the early 1990s, which was the last time we had a big real estate retraction. The Neg Am loans had a very bad rep, so lots of lenders gave them sexy new names such as Pay Option ARM, Freedom Loan, Pick A Pay loan and other such nonsense. There IS a certain segment of the homowning public for whom this loan is a viable or even best option, but that is really a narrow segment and it was widely sold. Even though rates on the old standby 30 year fixed have been very low (from a historical standpoint) for about the last five years, lenders could make a LOT more fee income by selling a Neg Am loan. The problem is now that many of the borrowers with these loans made "minimum" monthly payments, which don't even pay all the accrued interest, and the unpaid interest is added to the loan balance. A lot of people speculated that housing prices would rise and bail them out, but now that values have declined and have a way to go still, many people find themselves owing more than their house is worth, and have much higher payments now that they've maxed out their negative amortization. In a nutshell, that's one of the single biggest problems that is contributing to the current mess.

Another problem in some markets, including where I live, was amateur speculators who thought they knew a lot more about real estate investing than they did, and when the market turned they got burned BIG TIME.

'Dude, you're being more than a bit unfair or simple minded to suggest that anyone could have/should have seen all this coming. It is far more complicated than you suggest, and perhaps realize. For you to suggest that all the people running the bigmortgage banking firms were stupid, and anyone with half a brain would have realized what was going to happen suggests that you are throwing stones from a glass house. However, if your intetlligence is so superior, word has it that Countrywide will soon be looking for a new CEO to replace Angelo Mozillo. Perhaps you should apply since you could have kept them out of this mess.

 

[Boskee]

Some of us may have seen a few tax returns in our careers to know about farmers being subsidized for non food crops too. You can't eat cotton and quite a few other crops so it just isn't about the food supply and it most certainly isn't about just giving them enough to get by though that most likely was the intent. Some farmers live very well not growing anything when the supply is too plentiful. The mortgage thing isn't really just a dumb deal(though its a huge part of it). Mortgage delinquencies aren't only tied to these liberal mortgages.

They may have been very qualified to buy that home at the time they bought it and things changed. Companies downsizing jobs, going off shore for production have all played an integral part in this mess. During good times in any economic cycle these trends normally only show as minor abberations in the market but when the market turns their numbers usually rise accordingly. Couple that with coming off a too liberal credit cycle then the tightening of all credit and escalating fuel prices like you have pointed out, trade imbalance because more of our funds are going to foreign countries for labor, product and materials, reduced wage pool and things start to boil a bit (from fewer dollars in our economy) further aggrevating the trends. That's part of what we are starting to see here. This will correct itself over time, it usually does and when it does home prices will be more realistic and markets will begin to stabilize but you have to have the confidence factor like Caelknuts pointed out or the cards and markets will start to fall a bit more. Some of you may not agree with shoring up the dike but I can tell you it's the smartest move to come out of congress in quite a while. Yes we are in a recession and I too hope it's of a short duration but it looks like that may not be the case unless we can help some folks save their homes.

 

[NeMont]

If we must help people who get in over their heads in a mortgage then why should I, who has made every payment on any home loan I have had, continue to make them?

If I care about my own and take care of my own business by being frugal, paying on time, eliminating personal debt and living within my means. Whether or not home value hold steady, increase or decline shouldn't really matter a whole lot.

Americans make the mistake of thinking of their homes as their biggest asset. Most homes do not come close to realize a very good net return if you consider all the maintenance, taxes, opportunity costs and transaction cost of owning a home. You need a place to live so that is fine but if your home is your biggest asset you are a dumb investor.

Also why should I care about either a bank or borrower who was speculating in a home. A crisis of confidence is looming regardless of whether the government steps in or not. I have little cofindence in bankers and lenders who couldn't see things were over heated and a correction was obviously over due.

Tell where it says that the American economy will always grow and always flourish? We have borrowed ourselves into a deep, deep hole and the bill is coming due soon. The bankers solution to the problem is borrow more to prop up homeowners.

Nemont

 

[huntindude]

CAelknuts I don't claim to be the sharpest knife in the drawer but I did see it coming, you didn't? during the peak I sold off a few million dollars worth of hobby ranches, carried as much paper as I could get and bought NOTHING. in a normal situation I would have done a 1031 with a lot of it but I figured why sell at a high point and buy at a high point. so now after eating the capitol gains I could go buy what I wanted at a discount large enough to way more than pay my taxes. now if dumb rancher could see this coming why couldn't the pro's? where does anyone think a 25% a year increase in real estate prices can go on forever? I can understand maybe regulations forced some loans to be made that shouldn't have but that doesn't excuse it all, or the house flipper's problems being stuck with multiple houses they can't afford to keep. this whole situation is flat stupid and a chimp should have seen it coming, blind with greed as they say.

I'm on board with the Bear Stearns bail out but only because I see what could happen without it, and we're not yet. that doesn't mean I excuse the stupidity or greed that got us to this point.

 

[CAelknuts]

Don't worry 'dude, a lot of us saw it coming. That doesn't mean that it could be stopped so easily. You seem to discount that our economy, and every contributing sector, doesn't turn on a dime. It takes time for things to change, and in this case the housing problem was too far along when a lot of really smart people realized they were going to get slapped down hard. As for people not realizing that high rates of appreciation can't be sustained, you obviously haven't lived in California, where Bay Area housing remains extremely expensive. Funny how the most politically liberal cities in northern CA, San Francisco and Davis, have some of the most extreme housing prices; locking out the very people they claim to care so much about.

This problem is far more complicated than you acknowledge and will take time to overcome. In the meantime, some smart people who are sitting on lots of cash stand to do very well if they deploy it wisely.

 

[huntindude]

I'm sure you're right, I guess my anger is more directed at the house flippers wanting me to cry big crocodile tears for their misfortune. a few years ago they were banging down 50 grand a pop and selling first positions for 10-20, when it stopped they were in shock looking like they couldn't believe it. if the banking industry was smart enough to see it coming and I don't doubt some were then they need to make some changes in policy, if that requires a change in government policy as well then lets get it done.

This is Katrina for dumb bankers and dumb investors as far as I'm concerned, easier to see coming than the storm but a disaster with people asking for a hand out just the same. and right or wrong we have to help.

 

[Boskee]

LAST EDITED ON Mar-20-08 AT 11:57AM (MST)[p]LAST EDITED ON Mar-20-08 AT 11:56?AM (MST)

LAST EDITED ON Mar-20-08 AT 11:54?AM (MST)

Nemont for the very reasons I stated to protect your investments. For the most part their not dumb investors their home is all they have when they're living paycheck to paycheck raising a family in these times. No it's not fair I agree!! This isn't about bailing out investors & speculators for the large part (that's their problem) it's about helping some families save their homes and helping to protect our markets in the process. If we find a way to do that it will help minimize the damage from this. Borrowers primary residences comprise the largest segment of this market.

Those that refi'd and went out and ran their bills up most likely wouldn't qualify anyway and will most likely be a statistic. But there are some that can be helped in this process and that can help the situation greatly. Everybodies not going to get bailed out in this and that's the way it is. These are trillion dollar domino's that are starting to lean here not million or billion dollar ones and that's why they will do something to try to shore this up. These domino's start falling and it could make the great depression look like childs play in comparision. Frankly that's why we all need to help and are as our tax dollars go towards this situation. Those that are sitting in a good cash position will have some great opportunites in the future. Dude I concurr with your feelings and understand your position too. In the end right will prevail and we as Americans have to help.

 

[NeMont]

LAST EDITED ON Mar-20-08 AT 11:59AM (MST)[p]I understand all the reasoning behind the big banks move and the Feds actions but underlying the entire system of TRILLIONS of dollars there has to be some kind of tangible value. The current system has a pretty limited tangible value. If the worlds economy is dependent on American homeowners making their mortgage's work then that is a genuine house of cards.

If our economy implodes so does China's and nearly every developing countries, so does Europe's as they are not immune to a global economic melt down.

Wouldn't it be better to endure the short term pain of letting some people and banks go under rather then watching the Fed inject fake liquidity into the credit market? Also what happens when China doesn't want to buy our debt anymore? When the U.S. cannot create credit at will what are we going to do then.

I don't wish for my kids to have to live through anything approaching the Great Depression but we have squandered much of our wealth on stupid things and deserve economic problems. A few hundred billion here and a few hundred billion there to keep some banks afloat isn't going to change the fundemental flaws in our economy. We are over leveraged, over regulated and unable to compete in world markets for labor and manufacturing.

Nemont

 

[CAelknuts]

UHH, Nemont, buyers of American debt are already starting to back away. Auction Market Rate bonds are not selling like they used to, and as a result the interest expense on a lot of municipal debt is rising at a rapid rate. As an example, Sacramento County (near where I live) had their interest expense on bond debt rise $500,000.00 in one month. That was due to the failure of several large bond auctions that saw weak buyer interest. This isn't happening just in Sacramento County, but all over the country. This is part of why I saw this whole problem is way more complicated than many people realize. There are many different things happening that are adverse, and they're all starting to occur at the same time.

Some people may feel pain because their mortgage debt has risen above the market value of their home, and they can't easily afford their payments, either. At the same time, government is seeing their debt service costs rise rapidly, and you can be assured that somehow, someway, they're going to try to recover it from their "customers" i.e. taxpayers. Just another straw being loaded onto the camel's back....

 

[NeMont]

Failure to find buyers for Municipal bonds has happened in our history many, many times. Auction Rate Bonds have not sold well at all since the liquidity crisis started. It has affected the Montana Student loan program as they have failed to sell their Acution Rate Bonds and the current holders have had to renew them whether they wanted them or not.

My question is what happens when the U.S. Government holds a bond auction and gets no takers? Tough to finance the government when the bonds go unsold. The fact that China has been in the market for our debt for years has held interest rates down. With the weakened dollar and less of an appetite to buy more U.S. debt with their horde of cash what happens when China takes away our national credit card?

The Chinese are battling their own economic problems: Mainly increasing inflation and growing unemployment. If their dollar demoninated holdings are losing value faster then they can covert them to other currency holdings or buy up American properties and companies fast enough then they may decide to spend their cash somewhere other then with Uncle Sam.

I understand alot, not all, but alot of why the government is doing what it is doing but in the end I don't believe it will stave off a sevre slow down nor do I believe that our broke government can "manage" the economy. The banking system will face difficulty ahead as will most Americans, just going to be a fact. Wait until 30% of the federal outlays are for interest and the remaining goes to entitlements. We won't be able to consider waging a war as we will not be able to afford it.

Nemont

 

[MortgageMan]

Hdude - It has been my experience that many of the house flippers are not the ones going into foreclosure. There were some programs that allowed for 100% financing for investment properties but the guidelines were very strict to qualify and most didn't. Most investers (flippers) had to have some skin in the game (down payment) to get financing so they understood the risks involved when they signed up and were prepared for this. Obviously there were some that weren't.

Many of my investors are doing extremely well right now because people that have lost their homes cannot buy again. But they can rent homes. Many are paying more to rent than they were paying on their mortgage that they lost due to foreclosure, go figure. In my opinion it all goes back to money mis-management and the lack of it. Some of this is necessary obviously.

When the government lowers interest rates, mortgage companies usually see an increase in 30 year mortgage rates. So don't think that the feds lowering the rates is to help out mortgages. Sure, it helps out HELOCS and Construction loans which are based upon the prime interest rate but we are adversely affected by the changes. In fact, just when mortgage rates get decent the feds come back and lower their rate which makes ours jump up dramatically.

As for the guy that bought a house on the golf course that only makes $15,000 a year. That is blatant loan fraud in my opinion and it is the loan officer, lender, borrowers fault. The lender should have done some more due diligence before funding the loan and the loan officer should have known that his borrower couldn't afford the house. The borrower knew the payment that he was signing up for and still closed on the loan knowing he couldn't make the payment.


Regarding stated income loans:

I think the requirements from the lender on this type of loan are misunderstood. I will try to give you some ideas of what has to be done to get a stated income loan all the way to funding. Many people do not know what you have to go through as a broker or borrower to get one of these loans. You just don't state the income and the lender takes your word for it. That is what most people think when they hear "stated income loan". This is wrong, many lenders ask to verify assets to support the income stated on the loan application via bankstatements, verification of deposit, etc.

Most lenders use salary.com to cross reference the borrowers job title with the amount of income stated to make sure that it is in line with what that person should be making. They also call the lender themselves and verify their employment. They will not call a number that a mortgage broker supplies to them. They have to call a number that they can get out of the phone book or off the internet to make sure that the person they are calling does in fact work for the company. These are a few steps to eliminate fraud. Many big companies outsource their verifications for employment by using theworknumber.com so that lenders can call them directly and verify employment.

There have always been alot of steps to get a stated income loan. There is no such thing as a NINJA loan. No-income, no-job, and no-assets, no verification.

 

[CAelknuts]

Thanks for jumping back in, mortageman. I'm glad that someone else will pick up some of the slack of explaining this more fully to everyone.

 

[NeMont]

MortgageMan and CAELK,

Then explain why this whole thing is called the "Subprime" mortgage crisis. Doesn't that implying some kind of substandard loan risk or lending to people who are not able to get a conventional loan?

Maybe I am missing something but according to my banker the problems isn't even centered with banks but more with mortgage brokers.

Nemont

 

[MortgageMan]

LAST EDITED ON Mar-20-08 AT 05:07PM (MST)[p]CAelknuts - Work has been crazy lately and I haven't been on as much as I would like because of it.

While I don't have the answers to solve the problems I can and will point out the perspective from a mortgage brokers point of view. There are many fallacies when it comes to obtaining financing from your mortgage broker because most of this is done without the borrower knowing. The quality control from the lenders standpoint is quite extensive as I have pointed out.

Now the Mortgage Insurance companies have basically dropped out as of Monday and the government is getting more pressure to pick up the slack. The situtation is not cut and dry but it isn't something to be overlooked either. Like I mentioned before, just wait until these notes start adjusting. You think foreclosures are high now? These are the people that couldn't afford their homes in the first place that are currently going into foreclosure. Wait until the people that can afford their homes now but can't when their rate jumps through the roof. They will have no financing options anymore because all of the mortgage lenders have tightened their guidelines so now they won't qualify. Then you will see massive foreclosures.

 

[MortgageMan]

Nemont - Then your banker isn't even being honest with you and I would find a new one. Most banks are brokers. Shocking isn't it? Anything they can't do in-house they broker to lenders just like a mortgage broker. Only they don't even have to have any education or a license to do mortgages. This is your average Joe with no mortgage education giving you a mortgage loan. How can they do that you ask? Because the government has made it so that banks and credit unions don't have to license their loan officers. That's a typical case of the pot calling the kettle black there. Please at least get your facts straight.

 

[huntindude]

LAST EDITED ON Mar-20-08 AT 03:50PM (MST)[p]Just yesterday alone unidentified firms borrowed 28 billion in emergency funds from the feds, what is the plan for repayment on this? is there one or will this be rolled over into a bail out donation? not arguing, just asking.

 

[NeMont]

LAST EDITED ON Mar-20-08 AT 03:54PM (MST)[p]Ummm...What facts are you demanding I get straight? I repeated what I was told. I then asked a question, generally that is how one determines which things are facts and which are opinions?

So Mortgage brokers are just innocent bystanders in the subprime lending crisis? The brokers and bankers did all they could in their power to make certain that the loans they provided to people were not risky?

Why is it called subprime?

I can do without a lecture on facts when all I am doing to trying to have a discussion about an important part of our economy.

Nemont

 

[CAelknuts]

"dude, who knows what will happen with those borrowings? Obviously, the intent is that they'll be paid back, but I guess none of us is at a level to truly have first hand knowledge of that, are we?

Now, I don't completely agree with Mortgageman on some of what he says. I've sat on both sides of the broker/banker fence over the last fifteen years, and there are very good people on both sides, bad guys on both side and outright crooks on both sides. I will say that while I've known more incompetent people on the bank side of lending, I've known more without ethics to outright crooks on the broker side. My first 3 years I was a broker, the next 11 a banker/broker and now again I'm on the broker side. So, I've seen both sides and can assure you that neither side has the market cornered on ethics, ability, morality or anything else.

Nemont, a big portion of the problem is pay option arms, not just subrprime loans. Sure there are subprime loans that are going bad, but they weren't that big of a percentage of the overall mortgage market in this country to create the problems we're facing. The media has named it the "subprime" problem, probably because it sounds dramatic and they aren't that interested in really understanding what is going on since it won't fit into a 30 second to two minute story. The overshelming majority of subprime borrowers are in good standing with their mortgages, though they are certainly a significant component of those in trouble. There are far more pay option and other alternative program borrowers who are doing well, but also a bigger overall number of them who are in trouble.

Another problem, corectly identified by Mortgageman, is fraud. I've been through the good and bad times in real estate lending, and can assure you that every time the market gets good, there are a ton of new people who jump into the business. Some of them are crooks who are out to make a quick buck (or many thousands of quick bucks!)by preying on unsophisticated borrowers. My office has been asked to review several of these transactions by people's financial planners or accountants and subsqeuntly we've referred the files on the the California Attorney General's office, as well as notify their lender that they have a borrower who is a victim of fraud, right along with the lender. It happens more often than you'd like to believe. There are substantial provisions in place to deter fraud, but when there is a lot of money to be made, crooks will find ways around those safeguards and people will get ripped off. Of course, if the market keeps climbing, many of these are not noticed for a long time. In a climate like we're in now with falling values, these problems come to the forefront much more quickly.

 

[MortgageMan]

LAST EDITED ON Mar-20-08 AT 04:17PM (MST)[p]What facts? The fact that your banker is entirely incorrect.

Mortgage brokers have to have training and continuing education every year to have a mortgage originators license. They have to know the laws. Some do not follow this, as is the case with any industry. While I don't blame the bankers they are not innocent like yours portrays by any means.

I guess my point should be that don't believe everything you hear and take it as factual when it comes to the mortgage industry and the mortgage crisis. I said there were alot of a fallacies in the mortgage industry and you proved my point.

What do you think subprime means and I will elaborate on what is actually considered subprime by mortgage lenders?

 

[MortgageMan]

Hdude - I don't know the particulars so I really can't comment on it. I'm not defending the mortgage industry at all. There are mistakes made at every level but you can't single out one part of the problem.

 

[Boskee]

Nemont you would not be correct in thinking it was only brokers. Bankers by nature like to distance themselves from any type of adversity, believe me Wells Fargo, Chase, National City, Citibank, Countrywide Bank and many other small banks were doing these type loans through their wholesale and retail origination channels. Your banker may not have been affiliated with any of these companies so that's probably his take on the situation. You are correct in thinking that a lot of these loans were subprime and alt A loans that did associate a higher level of risk to the investor and traded at higher risk levels in the secondary market most of these were arms and I/o type mortgages with easier qualifiing and less stringent documentation requirements with adjustment rates set out 3-7 years. Bear Stearns and others came up with some mortgage backed securites that these instruments were bundled in for sale and let out to bid. Initially they had been performing at acceptable risk levels and as such represented a fair risk to investors. They were conventional and jumbo loan amounts.

There was another market out there for some hybrid products like CAelknuts had mentioned in the arms game. These also had seemed to perform well with certain investors that had a good track record with these type mortgages but a more reduced ltv structure. Other investors realizing that they were losing market share set up correspondent relationships with some of the investors to market their prodcut or developed their own version of that type mortgage and usually at more liberal LTVs and documentation. This substantially increased the penetration on these type mortgages in the market place and they had a much higher level of risk associated with them do to the neg am feature. These also got bundled and sold in the secondary market as mortgage backed securities by some brokerages.

The deliquency numbers on hundreds and then thousands of both types of these instruments and then other mortgages started to rise as the interest rate adjustments and the reamortization feature was executed on the neg am loans. Remember these are loans that in most cases had been performing at a reasonable risk level over the past 24 months or longer. With the rise in delinquency they started trading at lower levels and then the market demand for the products started to erode till no demand was there. Things started to change and products were eliminated as the risk ratios demonstrated increasing trends toward delinquency. Credit guidelines started to tighten and adjust so that many of these people couldn't qualify under full doc loans that were a done deal 12 months before. The fact many of these banks purchased these loans and many held them for servicing is where we're at today. That's why it does effect the banks too not to mention them investing in these mortgage backed securities in their trust departments in their customers portfolios. So the treads are more intertwined than many would want to have you believe.