This chart is very troubling. Things are only accelerating. 4.5% of mortgages in the 4 trillion portfolio are over 90 days late. From Calculated Risk. Detail: Oh the Parabolic Troubles.
Showing posts with label mortgage meltdown. Show all posts
Showing posts with label mortgage meltdown. Show all posts
Friday, October 30, 2009
0
Oh the Parabolic Troubles.
This chart is very troubling. Things are only accelerating. 4.5% of mortgages in the 4 trillion portfolio are over 90 days late. From Calculated Risk. 
Friday, September 4, 2009
Making a Mess a Bit Better Looking?
This is a Wordle of the Blog. I am an optimist and generally a happy person. As I close out a tough week I am looking forward to the day a few years from now when the new Wordle has recovery and stability as the primary keywords. Have an excellent weekend.
Saturday, June 6, 2009
Friday, May 29, 2009
Vicious Circles in the Mortgage Market
The recession(newpression) is not finished with us yet:
Foreclosure Woes Mount for Those With Good Credit: A record 12 percent of homeowners with a mortgage are behind on their payments or in foreclosure as the housing crisis spreads to borrowers with good credit. And the wave of foreclosures isn't expected to crest until the end of next year, the Mortgage Bankers Association said Thursday. The foreclosure rate on prime fixed-rate loans doubled in the last year, and now represents the largest share of new foreclosures. Nearly 6 percent of fixed-rate mortgages to borrowers with good credit were in the foreclosure process. At the same time, almost half of all adjustable-rate loans made to borrowers with shaky credit were past due or in foreclosure.
The worst of the trouble continues to be centered in California, Nevada, Arizona and Florida, which accounted for 46 percent of new foreclosures in the country. There were no signs of improvement. The pain, however, is spreading throughout the country as job losses take their toll. The number of newly laid off people requesting jobless benefits fell last week, the government said Thursday, but the number of people receiving unemployment benefits was the highest on record. These borrowers are harder for lenders to help with loan modifications.
President Barack Obama's recent loan modification and refinancing plan might stem some foreclosures, but not enough to significantly alter the crisis.
"It may be too much to say that numbers will fall because of the plan. It's more correct to say that the numbers won't be as high," said Jay Brinkmann, chief economist for the Mortgage Bankers Association.
Friday, October 3, 2008
Depending on a Bailout: Slide Show
Great slide show on making sense of the mortgage meltdown from a seminar today at the Milken Institute in Los Angeles. They always have the best and most data-rich slides, bar none. Press the easel button in the viewer to blow up it to full screen.
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Tuesday, December 4, 2007
Mortgage Bailout Cost Will Hit Everyone
Yesterday, Mrs. Clinton wrote the Secretary of the Treasury about her bailout plan. This whole idea of freezing mortgage rates and foreclosure bailouts is bad medicine with unbelievable side effects. The equivalent to taking a drug to treat your fever but it gives you cancer a year later. We need to let free markets work. Flush out the people who can't afford their homes and took out loans that they could never pay. Otherwise, the housing crisis that is now a credit meltdown will last much longer.
Who would want to lend money to homeowners or other borrowers for that matter knowing that the government stepped in and altered the terms of millions of mortgages during the meltdown? Borrowers with less than perfect credit were given rates and terms much better than they otherwise would have received because the investors/banks were counting on the reset to make up for a teaser rate that didn't compensate for the credit risk of a non-prime borrower or high loan to value mortgage. Without the teaser rates borrowers would likely have had rates of 8-11%. That is what we see now at the remaining lenders that work in the non-prime market. If the bailout proponents win, we will see credit costs increase and credit availability dramatically decline. Someone pays, it will be the tax payer and anyone who borrowers will see increased requirements and higher rates. This has already happened with subprime rates, stated loans, and down payment requirements. I agree things were way out of hand but a bailout will only make the patient much worse off in the long run. Let the fever run its course. Terrible ideas found below:
December 3, 2007
The Honorable Henry M. Paulson, Jr.
The Honorable Henry M. Paulson, Jr.
Secretary
United States Department of the Treasury
1500 Pennsylvania Avenue,
N.W.Washington, D.C. 20220
Dear Mr. Secretary:
I am encouraged by news accounts that Treasury officials are negotiating an agreement with the mortgage industry to curb the foreclosure crisis. Reports of this agreement indicate that it will allow homeowners to apply to quickly refinance their mortgages or temporarily stop their adjustable rate mortgages from resetting at higher levels.
An effort to end the foreclosure crisis is long overdue. 1.8 million foreclosure notices have been sent out this year, an increase of 74% from last year. And with the monthly payments set to rise on more than 1 million subprime loans next year, the situation is likely to worsen. Experts now say that the foreclosure crisis is weakening the economic outlook, hurting industries from construction to autos, and making banks reluctant to lend companies the capital they need to expand and create jobs. Cities face the prospect of vacant properties marring neighborhoods, cutting tax receipts, and dragging down property values.
It is critical that we address this crisis. The Administration and the mortgage industry must reach an agreement that matches the scale of the problem. If you produce an inadequate agreement, or fail outright, the cost to our economy will be incalculable. A satisfactory agreement must do at least the following: impose a moratorium on foreclosures, freeze mortgage rates before they escalate, and require that the mortgage industry report its progress on loan modifications:
Impose a foreclosure moratorium of at least 90 days on subprime, owner-occupied homes. The moratorium will stop foreclosures until lenders and servicers have an opportunity to implement the freeze in mortgage rates. Servicers have complained that they do not have the systems in place to quickly contact the large numbers of at-risk borrowers. Servicers can certainly expect that during the moratorium at-risk borrowers will contact them. The moratorium will also give state and city organizations as well as community groups the necessary time to provide financial counseling to at-risk homeowners. The moratorium only applies to owner-occupied houses, and therefore excludes real estate speculators.
Freeze the monthly rate on subprime adjustable rate mortgages, with the freeze lasting at least 5 years or until the mortgages have been converted into affordable, fixed-rate loans. After the moratorium, there should be a long freeze in rates on adjustable rate mortgages. The overwhelming majority of subprime mortgages have adjustable rates. The long rate-freeze will give the housing market time to stabilize. It will give families an opportunity to rebuild equity in their homes. It also gives the mortgage industry time, and incentive, to convert mortgages that were designed to fail into loans that are actually affordable. The rate freeze and loan modification must be extended not only to borrowers who are current but to some who have fallen behind. After all, it is indisputable that brokers and mortgage companies lured families into mortgages which were designed to end in foreclosure. This was only possible because regulators were asleep at the switch. A rate freeze is critical. An average of $30 billion in loans will reset monthly next year. One study indicates that the average reset increases monthly payments by 40%. It is no surprise that rate resets are the major driver of the foreclosure crisis. The rate freeze and loan modification would only apply to owner-occupied houses.
Require the mortgage industry to provide status reports on the number of mortgages it has modified. Resolution of the foreclosure crisis will require that large numbers of unworkable mortgages be converted to more stable loans. To date, however, despite pressure from Congress and the press, lenders and servicers have modified only about 1% of subprime mortgages. This obviously has to change. We cannot take the industry at its words that it will follow through on an agreement to convert loans expeditiously. Accordingly, the agreement must impose on lenders and servicers an obligation to regularly report their modifications.
Mr. Secretary, if you produce an agreement that lacks these provisions, I will pursue another course to end the crisis:
I will consider legislation that enables lenders to convert unworkable mortgages into stable, affordable loans without the permission of investors. Protection from lawsuits will remove the obstacle that keeps lenders, servicers and others from turning mortgages that were designed to fail into mortgages families can afford. Right now, servicers who process monthly loan payments and interface with homeowners have flexibility to modify loans. However, they are reluctant to fully exercise this discretion in part because they fear investor lawsuits. Investors who own the securities into which the mortgages have been packaged may assert that they are harmed when servicers help at-risk borrowers. Protection from lawsuits could enable the servicers to help homeowners avoid foreclosures, help investors avoid the losses they would otherwise suffer, and help the economy.
I also propose to provide financial assistance to communities on the frontlines of the crisis:
A fund of up to $5 billion to help hard-hit communities and distressed homeowners weather the foreclosure crisis. The fund will support initiatives by states, cities, and community groups to reduce foreclosures, and to help cities cope with the financial and social costs associated with an increase in vacant properties. The fund will provide a much-needed boost to communities already feeling the effects of the economic downturn. States are already piloting programs to stem foreclosures. Many of the programs provide financial counseling to at-risk homeowners, help borrowers work out solutions with lenders and educate homeowners about predatory lending. Studies demonstrate that the overwhelming majority of families that receive financial counseling ultimately avoid foreclosures. Financial counseling can cost as little as $3,000 per household, while each foreclosure costs a local community $227,000 when the harm to surrounding property values is included. Foreclosure prevention is more critical than ever. The concentration of foreclosures in particular neighborhoods has a negative ripple effect on communities. It leads to higher rates of crime, lower tax revenues, and lower property values. Low-income communities are especially at risk. Risky subprime loans are three times more likely in low-income neighborhoods than in high-income ones. Minority communities are also disproportionately at risk because subprime loans are five times more likely in predominantly black neighborhoods than in predominantly white neighborhoods. The Center for Responsible Lending estimates that 55% of African-Americans and 46% of Latinos who purchased homes in 2005 received subprime mortgages. Those loans were mostly adjustable rate mortgages, and most of them will experience escalations in the monthly payments either this year or next. The foreclosure crisis threatens to undo the gains in minority homeownership rates. Lawsuits have been filed against mortgage lenders alleging discriminatory practices. Regulators should be especially attentive to these concerns.
In March I called on the mortgage industry to observe a “foreclosure timeout” so that lenders and borrowers could work out solutions. I also wrote to Federal Reserve Chairman Ben Bernanke urging him to act swiftly to curb abusive and irresponsible lending practices. Just two weeks later, however, you told Congress that the subprime problem was “contained.” Unfortunately it was not. While you and others in the Administration misdiagnosed the problem, over 1 million additional foreclosure notices were sent out. Later, I called on the Administration to convene a “crisis conference” that gathered the housing stakeholders–lenders, investors, mortgage servicers, regulators, representatives of homeowners, and others–to devise a way of modifying the large number of unworkable mortgages. I am glad that the Administration has at least heeded this call.
Now that you have gathered the housing stakeholders, it is imperative that you negotiate an agreement appropriate to the scale of the problem. The proposals I have outlined provide the framework for a comprehensive workout, not a bailout. This is a moment of shared responsibility. Investors, lenders, and homeowners all have a part to play and sacrifices to make. While we work to solve the immediate problem, I call on the Administration, the regulators, and the mortgage industry to ensure that the abuses of recent years never recur. There must be a commitment to tightening underwriting standards and disclosure obligations. Federal prohibitions against abusive lending must be vigorously enforced. Prepayment penalties must be eliminated. Brokers must be subject to federal registration. Mortgage servicing fraud and foreclosure rescue fraud must be prosecuted. Homeowners and homebuyers must have greater access to financial counseling. I have already announced proposals to accomplish many of these things. It is unfortunate that the Administration has been so slow to act. But now that you and others are engaged, I urge you to make the bold decisions that the situation warrants. Thank you for your attention to this critical issue.
Sincerely,
I am encouraged by news accounts that Treasury officials are negotiating an agreement with the mortgage industry to curb the foreclosure crisis. Reports of this agreement indicate that it will allow homeowners to apply to quickly refinance their mortgages or temporarily stop their adjustable rate mortgages from resetting at higher levels.
An effort to end the foreclosure crisis is long overdue. 1.8 million foreclosure notices have been sent out this year, an increase of 74% from last year. And with the monthly payments set to rise on more than 1 million subprime loans next year, the situation is likely to worsen. Experts now say that the foreclosure crisis is weakening the economic outlook, hurting industries from construction to autos, and making banks reluctant to lend companies the capital they need to expand and create jobs. Cities face the prospect of vacant properties marring neighborhoods, cutting tax receipts, and dragging down property values.
It is critical that we address this crisis. The Administration and the mortgage industry must reach an agreement that matches the scale of the problem. If you produce an inadequate agreement, or fail outright, the cost to our economy will be incalculable. A satisfactory agreement must do at least the following: impose a moratorium on foreclosures, freeze mortgage rates before they escalate, and require that the mortgage industry report its progress on loan modifications:
Impose a foreclosure moratorium of at least 90 days on subprime, owner-occupied homes. The moratorium will stop foreclosures until lenders and servicers have an opportunity to implement the freeze in mortgage rates. Servicers have complained that they do not have the systems in place to quickly contact the large numbers of at-risk borrowers. Servicers can certainly expect that during the moratorium at-risk borrowers will contact them. The moratorium will also give state and city organizations as well as community groups the necessary time to provide financial counseling to at-risk homeowners. The moratorium only applies to owner-occupied houses, and therefore excludes real estate speculators.
Freeze the monthly rate on subprime adjustable rate mortgages, with the freeze lasting at least 5 years or until the mortgages have been converted into affordable, fixed-rate loans. After the moratorium, there should be a long freeze in rates on adjustable rate mortgages. The overwhelming majority of subprime mortgages have adjustable rates. The long rate-freeze will give the housing market time to stabilize. It will give families an opportunity to rebuild equity in their homes. It also gives the mortgage industry time, and incentive, to convert mortgages that were designed to fail into loans that are actually affordable. The rate freeze and loan modification must be extended not only to borrowers who are current but to some who have fallen behind. After all, it is indisputable that brokers and mortgage companies lured families into mortgages which were designed to end in foreclosure. This was only possible because regulators were asleep at the switch. A rate freeze is critical. An average of $30 billion in loans will reset monthly next year. One study indicates that the average reset increases monthly payments by 40%. It is no surprise that rate resets are the major driver of the foreclosure crisis. The rate freeze and loan modification would only apply to owner-occupied houses.
Require the mortgage industry to provide status reports on the number of mortgages it has modified. Resolution of the foreclosure crisis will require that large numbers of unworkable mortgages be converted to more stable loans. To date, however, despite pressure from Congress and the press, lenders and servicers have modified only about 1% of subprime mortgages. This obviously has to change. We cannot take the industry at its words that it will follow through on an agreement to convert loans expeditiously. Accordingly, the agreement must impose on lenders and servicers an obligation to regularly report their modifications.
Mr. Secretary, if you produce an agreement that lacks these provisions, I will pursue another course to end the crisis:
I will consider legislation that enables lenders to convert unworkable mortgages into stable, affordable loans without the permission of investors. Protection from lawsuits will remove the obstacle that keeps lenders, servicers and others from turning mortgages that were designed to fail into mortgages families can afford. Right now, servicers who process monthly loan payments and interface with homeowners have flexibility to modify loans. However, they are reluctant to fully exercise this discretion in part because they fear investor lawsuits. Investors who own the securities into which the mortgages have been packaged may assert that they are harmed when servicers help at-risk borrowers. Protection from lawsuits could enable the servicers to help homeowners avoid foreclosures, help investors avoid the losses they would otherwise suffer, and help the economy.
I also propose to provide financial assistance to communities on the frontlines of the crisis:
A fund of up to $5 billion to help hard-hit communities and distressed homeowners weather the foreclosure crisis. The fund will support initiatives by states, cities, and community groups to reduce foreclosures, and to help cities cope with the financial and social costs associated with an increase in vacant properties. The fund will provide a much-needed boost to communities already feeling the effects of the economic downturn. States are already piloting programs to stem foreclosures. Many of the programs provide financial counseling to at-risk homeowners, help borrowers work out solutions with lenders and educate homeowners about predatory lending. Studies demonstrate that the overwhelming majority of families that receive financial counseling ultimately avoid foreclosures. Financial counseling can cost as little as $3,000 per household, while each foreclosure costs a local community $227,000 when the harm to surrounding property values is included. Foreclosure prevention is more critical than ever. The concentration of foreclosures in particular neighborhoods has a negative ripple effect on communities. It leads to higher rates of crime, lower tax revenues, and lower property values. Low-income communities are especially at risk. Risky subprime loans are three times more likely in low-income neighborhoods than in high-income ones. Minority communities are also disproportionately at risk because subprime loans are five times more likely in predominantly black neighborhoods than in predominantly white neighborhoods. The Center for Responsible Lending estimates that 55% of African-Americans and 46% of Latinos who purchased homes in 2005 received subprime mortgages. Those loans were mostly adjustable rate mortgages, and most of them will experience escalations in the monthly payments either this year or next. The foreclosure crisis threatens to undo the gains in minority homeownership rates. Lawsuits have been filed against mortgage lenders alleging discriminatory practices. Regulators should be especially attentive to these concerns.
In March I called on the mortgage industry to observe a “foreclosure timeout” so that lenders and borrowers could work out solutions. I also wrote to Federal Reserve Chairman Ben Bernanke urging him to act swiftly to curb abusive and irresponsible lending practices. Just two weeks later, however, you told Congress that the subprime problem was “contained.” Unfortunately it was not. While you and others in the Administration misdiagnosed the problem, over 1 million additional foreclosure notices were sent out. Later, I called on the Administration to convene a “crisis conference” that gathered the housing stakeholders–lenders, investors, mortgage servicers, regulators, representatives of homeowners, and others–to devise a way of modifying the large number of unworkable mortgages. I am glad that the Administration has at least heeded this call.
Now that you have gathered the housing stakeholders, it is imperative that you negotiate an agreement appropriate to the scale of the problem. The proposals I have outlined provide the framework for a comprehensive workout, not a bailout. This is a moment of shared responsibility. Investors, lenders, and homeowners all have a part to play and sacrifices to make. While we work to solve the immediate problem, I call on the Administration, the regulators, and the mortgage industry to ensure that the abuses of recent years never recur. There must be a commitment to tightening underwriting standards and disclosure obligations. Federal prohibitions against abusive lending must be vigorously enforced. Prepayment penalties must be eliminated. Brokers must be subject to federal registration. Mortgage servicing fraud and foreclosure rescue fraud must be prosecuted. Homeowners and homebuyers must have greater access to financial counseling. I have already announced proposals to accomplish many of these things. It is unfortunate that the Administration has been so slow to act. But now that you and others are engaged, I urge you to make the bold decisions that the situation warrants. Thank you for your attention to this critical issue.
Sincerely,
Hillary Rodham Clinton
Tuesday, November 20, 2007
Countrywide:Sorry you can't afford it.
Obviously, you are well aware of the credit crunch and the impact it has had thus far on the once roaring real estate markets. I say it's just the tip of the iceberg. Over half the loans in CA in 2006 were NEGAM or interest only. That is a small window into the loans that pushed the bubble further and will lead to a larger, more protracted collapse than anyone anticipates. Those days seem like ancient times in the mortgage world. Countrywide announced this today:
As you may be aware, federal regulatory agencies have issued joint guidance which impacts the qualifying methodology for non-traditional mortgage products. This guidance was designed to better address risks associated with non-traditional mortgage products that offer interest-only and/or negative amortization payment features and to better support the needs of those borrowers who might not understand these types of risks. In an effort to further align our lending strategy with this guidance, effective Monday, November 19, 2007 Countrywide®, America's Wholesale Lender® began calculating borrower repayment capacity for non-traditional mortgage products using the following three criteria:
The greater of the Note Rate or the Fully Indexed Rate
A full amortizing payment
A loan amount which includes the total potential negative amortization
The resulting qualifying payment amount will be used to calculate both the Housing and the Debt-to-Income (DTI) Ratios for the loan transaction. The qualifying loan amount including the total potential negative amortization is determined as follows:
New York - 110% of the original loan amount
All other states - 115% of the original loan amount Please note, for ARM loans with MTA or COFI indices, the qualifying interest rate will be calculated using the fully indexed rate (index + margin) plus an "adjuster." The adjuster is a variable which will be used to annualize the MTA or COFI indices due to the "lagging" nature of these two indices.
A full amortizing payment
A loan amount which includes the total potential negative amortization
The resulting qualifying payment amount will be used to calculate both the Housing and the Debt-to-Income (DTI) Ratios for the loan transaction. The qualifying loan amount including the total potential negative amortization is determined as follows:
New York - 110% of the original loan amount
All other states - 115% of the original loan amount Please note, for ARM loans with MTA or COFI indices, the qualifying interest rate will be calculated using the fully indexed rate (index + margin) plus an "adjuster." The adjuster is a variable which will be used to annualize the MTA or COFI indices due to the "lagging" nature of these two indices.
The bottom line is that a borrower has to qualify at the highest possible payment the loan could have in the future. During the boom everyone underwrote to the minimum payment, either the interest only or the lower NEGAM payment. Otherwise very few of these loans would have been approved. That's how you had someone making $100k buying a 800k house. The normal historic lending ratio is to have a loan balance that doesn't exceed 4x your gross annual income.
The exotic loans that were everywhere and are now like neutron bombs, destroying the borrower but leaving the home standing are no longer available. Countrywide's action is not the first major lender to dramatically tighten lending guidelines. But, I highlight their action because they originated about 20% of all mortgage loans year to date. The removal of leverage has been very rapid. The decline of real estate in the hot markets has just begun. I am an optimist by nature but I believe we are in a recession now and we likely will be in a deep recession until 2010. The FED can't cut rates to bail anybody out because the dollar will collapse even further. Creating a whole series of global problems. It's time for belt tightening for the American consumer. Don't let this spoil your Thanksgiving. Be thankful for what matters most in life. Pray that we buckle down and fight our way back to becoming the shinning beacon of hope on the hill that world expects and we deserve to be.
Friday, November 16, 2007
Recession and possible depression. Can I get some prozac with that?
Finally the "recession" talk is making headlines. The only thing right now that drives me wild is that there is still a discussion that the US will face a recession.... If the US would use a more "realistic" formula I assume that the recession is already here.... The clearest sign might be that Starbucks reported the first decline ever in customer visits. Hmm, five dollar coffee is a necessity right? Watch for 7-11 to pick up all the old Starbucks customers who downgrade. The good old substitution effect. Take a look at the warnings we have seen from Coach, Kohl's, JC Penny, etc. They are all reporting sharp drop offs in traffic YOY. Walmart is reporting various signs of consumer downgrading as well. But Ferrari is sold out for the year. So at least the rich are still doing well. I know you were worried for a minute that we were in serious trouble.
IN 1929, days after the stockmarket crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the range of probability”. In a survey in March 2001, 95% of American economists said there would not be a recession, even though one had already started. Today, most economists do not forecast a recession in America, but the profession's pitiful forecasting record offers little comfort Recession in America / America's vulnerable economy
IN 1929, days after the stockmarket crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the range of probability”. In a survey in March 2001, 95% of American economists said there would not be a recession, even though one had already started. Today, most economists do not forecast a recession in America, but the profession's pitiful forecasting record offers little comfort Recession in America / America's vulnerable economy
Also in case you think BusinessWeek and The Economist forgot to take their anti-depressants I would encourage you to think about what the CEO of the one largest banks in the US said today:
Wells Fargo CEO John Stumpf dropped the "D" word today: "We have not seen a nationwide decline in housing like this since the Great Depression," Stumpf said at a banking conference in New York. Stumpf said the second-largest U.S. mortgage lender and fifth-largest U.S. bank was "not immune" from the storm, but was well-positioned to ride it out, despite expectations for "elevated" credit losses from home equity loans into 2008. Are we in a recession? Post your thoughts or anecdotal evidence. Free speech still works here.
Monday, October 22, 2007
Pain or Pleasure:Two Charts.
I present for your viewing pleasure or pain depending on your position in this market the latest mortgage reset chart and the foreclosure time table.
Remember that the foreclosures that are on the auction block or listed on the local MLS have been in process for many months. Word on the street is that lenders are trying to delay foreclosures in the "HOPE" that the borrower will be able to begin making the payments again. Seldom happens. The bulk of foreclosure filings won't occur in my informed opinion until 2009. The big resets of ALT-A(above subprime but below prime) occur in the period of 09-11. This will be very interesting, as these folks will reset to full market rates or if they are smart they would have refinanced their mortgage before the market rate reset.
We live in an instant society, unfortunately this slow unwind of Candyland prices will take years. Every bubble cheerleading pundit wants to say, "It's over and we go up from here." How long in your infinite wisdom will the unwind last? Comment, your opinion counts.
Detail: Pain or Pleasure:Two Charts.
Tuesday, October 16, 2007
September Southland home sales lowest in more than 20 years
September Southland home sales lowest in more than 20 years
by Real Estate Analyst John Karevoll-->October 16, 2007
by Real Estate Analyst John Karevoll-->October 16, 2007
La Jolla,CA----Home sales in Southern California plunged to the lowest level in more than two decades, as financing with "jumbo" mortgages dropped by half. The median price paid for a home dropped sharply as a result, a real estate information service reported.
A total of 12,455 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in September. That was down 29.9 percent from 17,755 for the previous month, and down 48.5 percent from 24,195 for September last year, according to DataQuick Information Systems.
Last month's sales were the slowest for any month in DataQuick's statistics, which go back to 1988. The previous low was in February 1995 when 12,459 homes sold. The September sales average is 25,258.
"Some of last month's drop was part of the longer-term slowing trend, but most of it was due to mortgage market turbulence and difficulties in getting jumbo financing. There's a good chance there will be some "catch-up" sales activity between now and the end of the year as jumbo loans become more available. Still, we can't expect the market to re-balance itself until sometime in 2008," said Marshall Prentice, DataQuick president.
The number of Southland homes purchased with jumbo mortgages dropped from 5,359 in August to 2,681 in September, a decline of 50.0 percent. A jumbo mortgage is a home loan for $417,000 or more. For loans below that threshold, the sales decline was 19.3 percent, from 9,237 in August to 7,459 in September. Historically, sales drop by about 10 percent from August to September.
The median price paid for a Southland home was $462,000 last month, down 7.6 percent from $500,000 in August, and down 4.0 percent from $481,000 for September last year. If the jumbo-financed portion of the market had remained stable, last month's median would have been $487,000.
DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,198 last month, down from $2,422 the previous month, and down from $2,295 a year ago. Adjusted for inflation, current payments are about the same typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 11.7 percent below the current cycle's peak in June last year.
Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages is flat, financing with multiple mortgages has declined significantly. Down payment sizes are stable, flipping rates and non-owner occupied buying activity is flat, DataQuick reported.
A total of 12,455 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in September. That was down 29.9 percent from 17,755 for the previous month, and down 48.5 percent from 24,195 for September last year, according to DataQuick Information Systems.
Last month's sales were the slowest for any month in DataQuick's statistics, which go back to 1988. The previous low was in February 1995 when 12,459 homes sold. The September sales average is 25,258.
"Some of last month's drop was part of the longer-term slowing trend, but most of it was due to mortgage market turbulence and difficulties in getting jumbo financing. There's a good chance there will be some "catch-up" sales activity between now and the end of the year as jumbo loans become more available. Still, we can't expect the market to re-balance itself until sometime in 2008," said Marshall Prentice, DataQuick president.
The number of Southland homes purchased with jumbo mortgages dropped from 5,359 in August to 2,681 in September, a decline of 50.0 percent. A jumbo mortgage is a home loan for $417,000 or more. For loans below that threshold, the sales decline was 19.3 percent, from 9,237 in August to 7,459 in September. Historically, sales drop by about 10 percent from August to September.
The median price paid for a Southland home was $462,000 last month, down 7.6 percent from $500,000 in August, and down 4.0 percent from $481,000 for September last year. If the jumbo-financed portion of the market had remained stable, last month's median would have been $487,000.
DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.
The typical monthly mortgage payment that Southland buyers committed themselves to paying was $2,198 last month, down from $2,422 the previous month, and down from $2,295 a year ago. Adjusted for inflation, current payments are about the same typical payments in the spring of 1989, the peak of the prior real estate cycle. They are 11.7 percent below the current cycle's peak in June last year.
Indicators of market distress continue to move in different directions. Foreclosure activity is at record levels, financing with adjustable-rate mortgages is flat, financing with multiple mortgages has declined significantly. Down payment sizes are stable, flipping rates and non-owner occupied buying activity is flat, DataQuick reported.
My comments:
For every foreclosure and distressed seller there is a happy buyer waiting for the right price/home. Prices will drop to levels that can be supported by the down payment and income of the borrower(s) using sensible mortgage financing. Every market is different. Every city and block has micro markets. I have always thought the national figures were meaningless. Comment as free speech is still in effect. You won't be carried out of the debate and pepper sprayed.
Realtors moving offices to Candyland?
Below for your enjoyment is a collection of article headlines posted today from various news services. Can you spot the one that's from Candyland? The mythical place where everything is great. The roads are paved with chocolate and the sky is full of rainbows.
Links
Articles:
California median home prices are predicted to fall next year for the first time in ten years, according to a a recent forecast released by the California Association of Realtors(CAR). CAR is predicting that in 2008, the median price of a resale home in the state will drop 4 percent to $553,000 and sales will fall another 9 percent in addition to the 23-percent plunge that is predicted for this year. Riverside, San Bernardino and the Central Valley counties are experiencing the steepest declines, the forecasters said, largely as a result of an exceptional amount of new-home construction, which has forced builders to take large price cuts to clear unsold inventories. CAR President Colleen Badagliacco predicts that Riverside and San Bernardino counties will continue to suffer more than the rest of the state because of the large number of subprime mortgages that were used by first-time buyers who moved inland from coastal counties to buy affordable housing. Badagliacco said she expects the California housing market will again be jolted in the second and third quarters, when more adjustable-rate subprime mortgages are scheduled to reset, possibly at higher interest rates. "Tighter credit standards, affordability concerns and a continued standoff between buyers and sellers will contribute to continued weakness in the market going into next year," Badagliacco said. Badagliacco added that the industry is hoping the federal government will help by raising the lending limits on government-sponsored mortgages. Chapman University economist Esmael Adibi said the significance of CAR's projection is that it reflects a growing pessimism among real estate experts. Adibi said it is the first time that Badagliacco's group has acknowledged the downturn may continue for another year. "We haven't seen any turnaround in sales, and the inventory of unsold homes keeps rising," Adibi noted. "For sure there will be no rebound."
Several major banks, including Citigroup, Bank of America Corp. and JPMorgan Chase & Co. have announced they are pooling money to prevent investment funds from having to dump assets into the market. The pool will prop up funds known as structured investment vehicles (SIVs), which have had trouble refinancing their debt recently and in the worst case scenario would have to sell their assets to pay off investors.
NAR Says Improvement in Mortgage Market Bodes Well for Housing in 2008
NAR Says Improvement in Mortgage Market Bodes Well for Housing in 2008
Conditions in the mortgage market are improving for consumers, according to the latest forecast by the National Association of Realtors (NAR). Lawrence Yun, NAR vice president of research, notes that widening credit availability will help turn around home sales. “Conforming loans are abundantly available at historically favorable mortgage rates. Pricing has steadily improved on jumbo mortgages since the August credit crunch, and FHA loans are replacing subprime mortgages,” he said.
If you would like to subscribe to our Mortgage Market Update report send an email to mrmortgage at thegreatloan.com. Would prefer to put a link but then we would be too busy sorting through all the great deals for Viagra. Have a prosperous day.
Thursday, October 4, 2007
The loans from 06 and 07 are the worst performing in history.
Moody's released a report highlighting the various vintages of subprime mortgages and their default characteristics so far. It shouldn't be a mystery to any of my readers that the worst loans were done right before the bubble popped. The reason being is that these were the last available buyers ("greater fool theory") or the most banged up refinance loan scenarios. The market had scraped the bottom of the barrel to approve people that wouldn't have been able to get a loan but the lenders were letting bad loans fund just to keep the volume up and maintain market share. Lenders who are now out of business which number over 161 according to our friends at the Implode-O-Meter would send daily emails and faxes to brokers advertising how crazy their programs were. It was a game of one upmanship. They then pass the loans to the investment banks like Lehman, Goldman Sachs, etc where they were packaged into billion dollar mortgage pools. The "lenders" didn't really care and the investment banks were just passing off the ultimate lending risk to other banks, hedge funds, and foreign governments. I heard a rumor that China has 300B worth of mortgage paper and a lot of it is subprime. They can't be happy. Maybe that's why they are sending shoddy products over. "You sold us bad loans, here are some badly made toys. Enjoy."
Subprime lending is still functioning albeit at much higher interest rates to compensate for the risk. The difference during the bubble years was .50-1%. Now most subprime investors are demanding 2-3 higher than prime and will only lend up to 85%. The sanity is returning to the market. Two forces in Wall St are fear and greed. The greed will return over the coming months and more products will be available to subprime borrowers but the rates will be much higher than Joe Sixpack is expecting.
Tuesday, October 2, 2007
100% Home Purchase after 04 can't refinance!
Thousands of prime full doc homeowners are shocked/angry to discover that they can't refinance under any terms. Washington Mutual, Bank of America, Indymac, etc don't allow above a 95% Loan to Value on jumbo loans after losing their shirts on risky loans in the last few years. Many people are coming out of adjustables or want a better fixed rate. These aren't risky cashout, stated deals. This is bread and butter lending. The banks and Wall St based money sources have completely pulled back on risk and this is terrible for client's trying to refinance anything above a conforming loan limit, (417k for a single family home.) The biggest problem is values in bubble market have collapsed back to 2004 or 05. These homeowners don't have equity and their loans are adjusting. This is the tip of the iceberg of the housing meltdown. The entire lending industry better get the math wizards in a room and whip up some products to do these loans otherwise you haven't even seen round 1 of this housing meltdown.
Wednesday, September 5, 2007
Job Losses Heaviest in months.
What's the trickle down from these job cuts? Many of these have occured in the hottest job areas. Have you heard any stories or any anecdotial evidence of this affecting your local economy?
Detail: Job Losses Heaviest in months.
Saturday, September 1, 2007
"When should I buy a home?" The quick answer.
Thousands of numbers, graphs, charts and economic reports can be boiled down for the first time home buyer looking in the previously smoking hot markets for the quick explaination to the question of "When should I buy a home?" When you see this chart of Countrywide's total national foreclosure inventory that they own and are trying to sell via thousands of realtors across the country start to stabilize and then move down again things are getting better. I don't think that will happen until 2010-11 as the amount of loans resetting to much higher rates is just starting in earnest this Oct/Nov, right before Christmas. These are homes that went to the auction step and Countrywide was the high bidder and won because they were trying to protect their skin in the game. Chart courtesy of the good guys at Countrywide Foreclosure Blog. Here is a recent scheduled adjustable mortgage reset chart also:
Friday, August 31, 2007
FHA Plan:Bring a water gun to fight a fire.
The markets waited with baited breath for the announcement of the Bush adminstration's plan to rescue subprime home owners from foreclosure:"Traders seem to have packed away concerns regarding a speech by Federal Reserve Chairman Ben Bernanke, focusing instead on aid for subprime lenders being hinted at by the Bush administration. According to The Wall Street Journal, about an hour after Bernanke's speech, Bush is expected to announce plans for a change in the Federal Housing Administration mortgage insurance program to allow more people to refinance with FHA insurance if they fall behind on adjustable-rate mortgages. The change would allow 80,000 more homeowners in 2008 to receive federally insured mortgages on top of the 160,000 projected to use the insurance, the Journal reported."
This helps very few people in California, Nevada, Florida, etc. The states most affected by the resetting of subprime loans and the rising wave of foreclosure filings. As an example visit the Countrywide Foreclosed Home Blog. Notice how many foreclosed homes are above the FHA limit of 417k? Another point is that these folks could have received a number of different mortgage loans from Fannie Mae and FHA over the last few years but they wouldn't have qualified because their debt to income numbers are too high. The mortgage payment with taxes, insurance and all their debt(cars, credit cards,etc.) can't be over 50% of their gross income. They couldn't make the payments on time with a 5-6% 2Y or 3Y adjustable rate mortgage with interest only in the majority of cases. What makes people believe these folks can be helped? This is political grand standing at it's finest. This isn't a rescue plan nor should we allow one to happen. Unless fraud was involved on the part of the mortgage bank or lender these folks signed loan documents and commited to house payments that were beyond their means. They had ample opportunity to refinance throughout the last two years when subprime and ALT-A was available. They received an unbelievable amount of calls and junk mail to refinance.
More often than not they were hoping against hope that they could refinance into even lower rates. The back up plan was to sell the house and pocket 100-200k of their "equity" that they had earned for being a home owner in the great housing boom. Believe me, you couldn't get these folks to get a fixed rate mortgage during the boom years of 03-06. Because the rate was .25-.50% higher. All the subprime shops offered a 30Y fixed, and even had an interest only option available. They all qualified for it. They always opted for the cheapest payment. People need to downsize their home and/or lifestyle, work more or relocate to a city or state with more affordable housing. Taxpayers shouldn't bailout the home owners and the lenders who made foolish decisions.
Don't believe for a minute that all subprime borrowers were screwed over. Sure just like anything their was fraud and ignorance. But, in California, I witnessed a lot of people driving Hummer's and buying plasmas at Best Buy with the cashout from their Ameriquest ineterest only 2Y fixed adjustable rate mortgage. I work in the industry and have a million stories. What's your take, it might be your money on your 2008 or 2009 taxes?
Tuesday, August 28, 2007
Senators and Bankers beg for Jumbo Loan Changes
In response to a tightening of credit in the jumbo-loan market, lawmakers are calling on Congress to let Fannie Mae and Freddie Mac purchase substantially larger loans on homes in high-cost metro areas. Currently, Fannie and Freddie can purchase single-family homes for up to $417,000 in the continental U.S. In May, the House passed a bill that would let Fannie and Freddie purchase and securitize bigger mortgages in high-cost areas within the continental U.S. In areas where the median price exceeds to $417,000 cap, the current proposal would permit Fannie and Freddie to purchase loans up to that region's median price or $625,000, whichever is lower. Now Reps. Barney Frank, D-Mass, and Gary Miller, R-Diamond Bar, have called on the Senate to raise the conforming loan limits even higher. "It now is clear that we underestimated in the House bill how far we should raise the conforming loan limit, and the current crises in the mortgage market demonstrate we should raise it to a higher level," said Frank, chairman of the House Financial Services Committee and sponsor of the House bill, HR1427. However, neither Frank nor Miller would say exactly how much higher they would like the limit raised. In the past few weeks, several large lenders have cut back or ceased making loans that can't be sold to Fannie and Freddie, primarily because investor demand for these jumbo-mortgages has dried up. Investors are still willing to buy securities from Fannie and Freddie because these securities come with guarantees that investors will get cash flows - principal and interest - from the mortgages in their pool. The decrease in investor demand for jumbo mortgages has pushed up the rates relative to conforming loans. At this point, the difference in rates on jumbos as compared to conforming loans is almost three-quarters of a percentage point, about three time as wide as normal.It is still not clear whether Congress will agree to the increase in the limits. The California Association of Realtors and others have been lobbying Congress for at least 4 years to raise the loan limits in high-cost areas. Last year, the House passed a similar bill to the one now before Congress, but it never got far in the Senate. The Mortgage Bankers Association (MBA) has declined to endorse higher loan limits. One reason is that some of the MBA's large members make and securitize jumbo loans and don't like the idea of two giants such as Fannie and Freddie entering into their market. Another concern is that investors might get cold feet if Fannie and Freddie started putting jumbo loans into conforming-loan securities. The MBA believes a faster way to add liquidity to the mortgage market would be to let Fannie and Freddie keep more mortgages in their portfolios. Both companies are still operating under the portfolio caps imposed after accounting deficiencies were uncovered. The agency that regulates the companies has said that it is still unwilling to lift these caps for the time being. However, if the mortgage crises does not ease up soon, the MBA says it might reconsider its neutral stance on higher loan limits.
Should congress raise the conforming loan limits to ease the crunch?
Jumbo definition: "The term jumbo mortgage loan refers to any loan that is higher that the maximum dollar amount established in Fannie Mae and Freddie Mac's guidelines. At this time, any loan for a single family property greater than $417,000 is considered a jumbo loan. The limits increase to $533,850 for two-unit properties, $645,300 for triplexes and $801,950 for 4-unit homes. There are also some areas of the Country where the limits are higher including Alaska and Hawaii."
Monday, August 27, 2007
A Distorted View:Existing Home Sales.
Today we received the existing home sales from the National Association of Realtors and I wanted to comment on these a bit. The headline numbers are off 9% from last year and the median price is down only 0.6% nationally. The median is being distorted by sales volumes above the median in each area propping up what would otherwise show falling home prices in these areas. The greatest decimation in the market has been in middle class housing. Homes priced below 500k have seen the largest price declines and volume decreases. Sales at the high end of the market continues to stabilize the median value. The western region has a median home value of $349,400. The median in Los Angeles for example is about $575k. I think median values are pointless as a forecasting tool. What would be the point of knowing the median price of stock on the NYSE? What's the point in knowing the median price of gas nationally? The price of gas in CA is higher than most other markets because of taxes and a lack of refining capacity boosting the price at the pump. The price you pay in your market matters. Real estate is a locally priced good. It doesn't matter if a similar home is $250k in Chicago and $400k Los Angeles. A home is only worth what a buyer in that local market is able to pay vs other comparable properties in that immediate surrounding market. This is largely dependent on available financing. As the financing has become tighter and more expensive because of higher rates across the board the volume has dramatically declined from prior years. You can't compare the median value in Malibu to Compton. Pointless. Those markets are at the opposite ends of the spectrum. The only value in my opinion in the NAR home sales numbers are volume and the amount of existing inventory. Volume leads price. The amount of available homes for sale allows the potential home buyer to have more choices and bargaining power. This pressures asking prices. Then as properties languish on the market sellers realize they are above the market and often lower their prices or remove their home from the market altogether. The amount of homes on the market locally and nationally leads me to believe that we will continue to see price declines across the country but especially so in bubble markets for years to come. Notice the big drop off in sales around Mar 2007. That's the start of the implosion of subprime lending. The July numbers are barely reflecting the implosion of ALT-A lending that started in mid July and ran throughout August. I believe the August numbers will post an all new low as financing has become much tighter in the last few weeks. Bar chart courtesy of Calculated Risk.
Saturday, August 25, 2007
Bailout?
In the spirit of democracy and a good Saturday round table discussion, what is your view on the proposed bailout plans that the presidential candidates have been discussing?
If you would like to voice your opinion on a bailout please visit: Petition.
Please voice your thoughts and comments below:
Detail: Bailout?
Friday, August 24, 2007
Where did the punchbowl go?
Having personally lost a small fortune in the stock market in 1999 and 2000. I can tell you that markets can stay irrational for a very long time. Any seller that has had his/her property on the market for 60-90 days and hasn't received a reasonable offer is nuts. They need to drop their price or sit out the credit crunch. The credit crunch could last many years.
The big problem I see and I speak to dozens of realtors a week; is that sellers feel that their "equity" is real money. I always have to remind people that something is worth only what another person is willing and able to pay. The ability of people to pay irrational prices for homes in bubble areas is gone for the middle class market. Remember the rich are different. Working class vs asset class. The loose financing is gone. Stated loans are on life support. Real income for middle class Americans has barely kept pace with inflation the last few years. At the end of the day Wall St can create the wildest financing known to man but it has to be repaid some day. Investors don't give money away. The market for ALT A and subprime mortgages is DEAD. In addition, a knee jerk reaction has occured in large prime loans as well requiring extreme levels of documentation and big down payments on the order of 20-25%. No stated income loans unless you are putting 20% down and have a 720 FICO. That is a generalization of course as every loan scenario is unique.
I am a very optimistic person by nature so negative views are seldom heard from my lips. I am sorry to say that we are in for a very long period of recession or stagflation(low growth with inflation i.e. late 70's). If you need a broader clue as to how bad our nation is currently behind the eight ball check our dollar vs major currencies and you will see what the world thinks of our prospects. Too much governement and household debt. The world's appetite for our excess is over. It's time to save and be prudent. Back to reality. The punch bowl of easy money is gone. Parties over it's time to sober up.
Detail: Where did the punchbowl go?
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