Jan
16
Video: The Subprime Meltdown of 2007
Filed Under mortgage | Leave a Comment
Reuters video on the Subprime meltdown via youtube:
Nov
6
Building aint easy
Filed Under mortgage, real estate, rocky mountain news | Leave a Comment
when no one’s buying:
The subprime market meltdown is hitting home builders in the
Denver area harder than anytime since the 1980s, when the economy collapsed in the wake of an oil and gas bust.
Read the full story:
Sep
17
It’s not Easy Being a Borrower
Filed Under rocky mountain news | Leave a Comment
Last December I had a subprime loan not go through underwriting with an approval. It was awkward for me since I pride myself on being thorough. The start reality is that it was the start of the meltdown of subprime mortgage companies.
The Denver Post explores this issue in depth:
Gone are the days of easy loans. Foreclosures and a subprime loan-market meltdown have left buyers scrambling to ante up.
The article is full of stories from buyers, sellers, investors, et.al. who have been impacted by the credit crunch.
Read the full article: BUYERS: Lenders tighten loan standards
The article is fairly accurate
Aug
28
Ben Stein’s take on the Market
Filed Under mortgage, rates, real estate | 1 Comment
I usually rely on Andy Rooney Ben Stein to make sense of whatever ails America. His self-effacing wit tends to overshadow his knowledge. He’s like the “very rich and very eccentric” grandfather we wished we had, the one who was wise beyond his years who spoke from the heart. My maternal grandfather fit this profile except there a distinct language barrier as he spoke Tagalog and I didn’t.
Earlier this month Ben Stein wrote a piece called How Speculators Exploit Market Fears. It discusses what hedge fund managers do to create action in the stock market. Rather than take snippets from the article, here’s the full article:
Here’s a fact: The speculators and hedge fund managers who run today’s stock market need market volatility in order to make money.
They can’t make enough money if the market stays flat or moves only a bit, so they like extreme and unexpected price movements. They especially like sudden, surprise movements down, when they can make money off stocks they borrow and sell — or, as they say, “sell short.”
Money Lust Satisfied
That’s what’s been happening the past couple of weeks. But it’s not interesting to say that the speculators are whipping the market around to satisfy their money lust. So the speculators themselves make up reasons for why the market is fluctuating, flog those reasons to the media, and then profit if some other speculators believe the jive reasons and jump in the way the manipulators want them to.
Supposedly, the market is “correcting” because of worries about the housing slowdown, and also because of fears that the debt markets that support mergers and acquisitions is drying up.
These are interesting theories, and people who don’t know a lot about the stock market or the economy might find them beguiling. What follows are a few truths that show how shallow these “reasons” for the stock market moves are.
Housing a Theory
Yes, the housing market has slowed from a spectacular bubble level to a simply pretty good level. Housing sales and starts are now about what they were in 2002, and no one thought we were in a housing depression then.
In any event, housing is only about 5 percent of the economy. If it falls by 15 percent, that would represent a fall-off of about .75 percent. That’s not trivial, but it’s also not the stuff of which recessions are made.
The fact is that there is no recession. The economy is suffering from a labor shortage, not a surplus of unemployment. The Fed is worried about excess demand, not slack demand.
Corporate profits set new records every day. Whatever’s happening in residential sales and building is simply not slowing down the economy. Why should a Boeing or a Merck or a Pfizer have any reaction to housing at all? Because the speculators sell everything they can when nervousness sets in — and for no other reason.
A Minor Major Mess
Subprime is a mess. But it’s a small mess. Subprime mortgages account for roughly 20 percent of mortgages even in the most heavily exposed states. About 20 percent of them are delinquent in some way. That’s 4 percent of mortgages.
Of these, maybe half, or 2 percent, will go into foreclosure. There will be roughly 50 percent recovery on sale of these. This is a loss of 1 percent in the mortgage market — a sum the lenders have already made many times over because of the hefty fees on those deals. In the context of the size of the U.S. financial sector, it’s nothing.
And why should a crisis in subprime drive down stocks in Mexico and Thailand? Again, because the speculators seek to create panic to make money by selling short, and they sell short everything.
There’s simply no connection between subprime and developed or developing nations’ stocks. This by itself shows the thin context of the selling wave late last month.
Money’s Still Cheap
What about the supposed drying up of loans for mergers and acquisitions by private equity firms? Well, here’s a good, simple test of just how valid that explanation is for stock market moves: The majority of private equity takeovers are financed with junk debt.
If there really were a major shortage of funds for these deals, the interest rate on the junk would skyrocket. Instead, while the rate has risen by about 150 basis points in the past month, the spread between junk and investment grade is now about 290 basis points, according to leading junk analyst Martin Fridson.
This is a lot lower than the year-end average of the spread from 2002 to 2006, and far below the almost 800 basis point spread during a true interest-rate crunch like the one after the tech meltdown in 2000-2002.
So that’s phony, too. Interest rates have risen, but not anything like what they’ve done in real crises. And besides, the Dow fell by about 550 points the week before last, yet not one of the Dow stocks is involved as either acquiror or acquiree in a private equity deal.
In short, money is no longer virtually free the way it was for private equity deals in the past year. But it’s not expensive by historical standards, either.
Spreading the Fear
In other words, it’s all the speculators trying to panic us so their sell programs will make money. And they’ll make money as long as they can spread their panic. When they can’t do that any longer, they’ll work the long side — and make up reasons for that, too.
In the meantime, the economy is strong. Profits are great, and interest rates are low and will stay that way. Don’t sell. With all the shrieking about the market, it only fell to what it was about five weeks ago — and we didn’t think we were poor then.
So let the speculators shout “fire.” As of right now, they’re not blowing anything but smoke.
Two quick points:
131+ mortgage companies have shut down. If you’re a consumer chances are you’ve never heard of these companies. If you’re in the mortgage business, you’ve probably heard of a fraction (i’d say 25%) of these companies. For the most part, those that bet on high risk loans (subprime, alt-a, non-owners, etc.) lost. The ones that bet on low risk loans (conforming) are still open for business.
However, one quick look at Google Trends and you’ll notice that countrywide, mortgage, credit, or liquidity don’t show up as “hot searches” in Google.
Sometimes you need Ben Stein to make sense of a nonsensical world.
May
23
Debt and the American Family
Filed Under personal finance | Leave a Comment
Has the mortgage meltdown brought an awareness to how people especially the subprime borrower handle money?
The answer is NO. Instead the media and just about anyone who has an opinion has decided to blame the mortgage and real estate professionals who put them in mortgages and homes they couldn’t afford.
If you really want to understand how the average American family handles money especially debt, read this article by the New York Times entitled Couple Learn the High Price of Easy Credit. (Login required)
Rather than summarize the article, here are some of the interesting snippets:
“The Sears one is 32.24 percent,†Ms. Moellering said, reading a credit card statement with a balance of $5,955, including $155 in monthly finance charges. The high interest rate took her by surprise. “That’s nice,†she said sarcastically.
Their debt escalated when they decided to get married. They paid for rings, a reception, a honeymoon and a new bathroom — about $50,000 in a seven-month stretch. “In such a short period of time, there’s no way to do it other than credit card debt,†Mr. Moellering said.
“It’s been almost two weeks since we’ve had time to sit down and go over the bills,†Ms. Moellering said. “You can’t do it every day because we both work full time. I’ve got two kids; they want all our attention; they haven’t seen us all day. We’re trying to cook dinner. We have to do the dishes, fold the laundry. We’re exhausted. And on the weekends the kids want our attention, and we want to spend time with them; we don’t want to spend time going through the bills.â€
Is this how your family handles debt?
Mar
19
On Sunday mornings I usually enjoy a cup of coffee, read the paper, eat a pastry (usually a blueberry or lemon poppy seed muffin) and watch Sunday Morning on CBS. As a news program, they always seem to have interesting stories. This past weekend they had a commentary on the subprime meltdown by Ben Stein:
The U.S. mortgage market is immensely large, spectacularly large. Total foreclosures are a large amount in dollar terms, but a tiny amount in percentage terms. Foreclosures are now about 1 percent of loans. The lenders will sell the houses and recover at least fifty per cent of the value. That means the total loss may be about ½ of one percent of the mortgages made and probably less, and a lot of it is insured. This is an absolutely trivial number in the context of a $14 trillion economy with net wealth in the realm of $60 trillion.
This whole subprime mortgage mess is just an excuse for the gunslingers and river boat gamblers on Wall Street to use their tricks to move markets and make money. The economy is still very strong. The most cagey players on Wall Street like Goldman Sachs are now trying to buy — not sell — as much distressed merchandise in the mortgage area as they can. This is a good clue about where the smart money is going.
As long as people want to buy homes, real estate will always be in demand even the foreclosed homes and eventually mortgage companies will find a way to recapture the subprime market.
Atlanta Foreclosure Homes - ForeclosureConnections.com
Jan
4
Subprime Meltdown
Filed Under foreclosure, mortgage | Leave a Comment
Most consumers really don’t know much about the mortgage world. I know I didn’t before I got into the mortgage world. The extent of my knowledge was applying for a loan, getting hosed (e.g. fleeced) on fees at closing and then having to pay a mortgage payment every month. What I didn’t know was that my mortgage was never truly held by the company that I made payments to, they simply serviced my loan. Mortgages are packaged as mortgage backed securities and sold on the secondary market i.e. Wall Street.
Subprime mortgages or loans with less strict underwriting standards have followed the same process of selling their loans on the secondary market but with dismal results. Due to the multitude of delinquent payments and ultimate foreclosure on subprime loans, these loans are being rejected by Wall Street en masse. Several subprime lenders have already shut the doors: Mortgage Lenders Network, Ownit Mortgage, Sebring Capital with many more on the horizon. In other words, we’re headed for a sub prime meltdown of epic proportions.
What does this all mean for the consumer?
- Borrowers with questionable credit will find it harder to qualify for a mortgage.
- The number of borrowers looking to buy homes will probably be reduced substantially.
- If borrowers who have questionable credit can’t refinance, they may be facing foreclosure.
- People who can’t buy will continue to rent so rents may increase.
- Hard money lending will become the only option for many. Learn how to swim with sharks.
- Look for credit counseling/improvement to be heavily marketed. Desperate borrowers beware.