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From Bloomberg

Mortgage Lenders Network USA Inc. became the third company in a month to stop issuing some loans as U.S. housing sales slowed and defaults by borrowers rose.

The company, known as MLN, said today in a statement it will ``temporarily discontinue'' wholesale lending operations. The Middletown, Connecticut-based company is ``involved in strategic negotiations with several Wall Street firms'' about the wholesale unit, which consists of a network of independent mortgage brokers that bring in loan requests.

MLN was the 15th largest issuer of sub-prime mortgages.

``The economics of the wholesale mortgage market have deteriorated dramatically over the past two months industrywide,'' MLN Chief Executive Officer Mitchell Heffernan said in the statement, which added that retail operations and the mortgage-servicing unit remain open. ``Until we see credit quality and margins return to acceptable levels, we have determined that MLN needs to pause from wholesale broker originations.''

This is the third sub-prime mortgage lender to either stop taking applications or close its doors in the last month.

The first was Sebring Capital:

Sebring Capital Partners LP has shut down, according to the company's Web site, which said the Carrollton-based wholesale mortgage lender employed 325 people.

"Sebring Capital will cease operations and no longer accept new submissions," according to a statement on the site's front page. "We apologize for any inconvenience this may cause you or your borrowers. It has truly been a pleasure doing business with you."

...

Sebring posted strong growth after it was launched in 1996. It was named several times as a winner of the Dallas 100 Awards, a list of the fastest-growing private companies in North Texas presented by Southern Methodist University's Cox School of Business and the CEO Institute.

The second also occurred in early December:

Ownit Mortgage Solutions Inc., a California-based home lender part-owned by Merrill Lynch & Co., closed this week and told more than 800 workers not to return, a former employee said.

The company informed its staff of the closure on Tuesday, Kevin Panet, who was a training manager for the Agoura Hills- based lender, said in a telephone interview today. Chief Executive Officer William Dallas didn't return messages left on his voicemail and with an assistant.

...

Nonprime News, an industry newsletter, ranked Ownit as the 11th-largest U.S. issuer of so-called subprime mortgages, or home loans made to borrowers with low incomes, untested credit or a track record of default or delinquency. The company issued $5.46 billion of loans during the first half of the year, 44 percent more than a year earlier, according to the newsletter.

Ownit has filed for bankruptcy.

Other, larger sub-prime lenders have started to have problems as well:

Atlanta-based NetBank last month closed its subprime lending unit and transferred most of its employees to another company. H&R Block is seeking a buyer for its Option One Mortgage Corp., a subprime lender. Key Corp. is selling its subprime Champion Mortgage business.

The basic problem is the sub-prime mortgage market isn't doing very well:

In a conference call titled "How Bad is Subprime Collateral?" Tom Zimmerman, head of ABS research for UBS, and David Liu, head of mortgage credit, discussed how much higher loan delinquencies and foreclosures are for 2006 subprime loans compared with similar subprime loans from earlier years -- the result of deteriorating underwriting quality from lenders combined with a slower housing market.

Still, despite the adverse conditions, "I guess we are a bit surprised at how fast this has unraveled," said Zimmerman. While it's "not a secret that subprime collateral has performed pretty disastrously so far," he said, "I must say we were a bit surprised by the magnitude with which" the loans "deteriorated this year."

The rate of subprime loan delinquencies of 60 days or more -- meaning borrowers are that far behind in their payments -- has climbed to about 8 percent, up from about 4.5 percent a year ago.

These 60-day plus delinquencies jumped up fairly sharply in the past few months, to 3.63 percent for the 2006 loans in October, up from 2.95 percent in September and 1.62 percent in July, according to UBS research.

Comparing loans of similar age, 2006 loans are performing worse than 2005, which are worse than 2004. In fact, given where delinquencies are now, loans from 2006 are on track to be among the worst-performing ever, along with the 2000 to 2001 years, according to UBS research.

And not only have delinquencies risen faster in 2006 than in earlier years, Liu noted in the presentation, but 2006 loans have entered the foreclosure process faster. In October 2006, the foreclosure rate was about 2 percent, while a year earlier it was 1 percent.

So, we have the following problems.

1.) Large, sub-prime lenders are closing their doors, not taking any more mortgage applications.

2.) The larger issuers have already gotten out of the market.

3.) More recent sub-prime loans (2006 vintage) are performing poorly right out of the gate.  Performance has continually worsened over the last three years.

4.) 60-day sub-prime delinquencies have doubled since July.

More importantly, this is the third sub-prime lender to stop doing business in a month.  That's a terrible sign for the coming year.

Originally posted to bonddad on Wed Jan 03, 2007 at 04:45 AM PST.

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Comment Preferences

  •  scary (13+ / 0-)

    How long before the problmes with the sub prime market begin affecting the rest of the market?

    The world will end not with a bang, but with a "Do'oh!"

    by Love and Death on Wed Jan 03, 2007 at 04:44:46 AM PST

  •  So... (11+ / 0-)

    I get that this is bad, but I'm having trouble understanding the nuts and bolts of what this means for the economy at large. Could you elaborate further?

    Thanks in advance, and keep up the good work.

    •  Let me try until Bondad gets to it (23+ / 0-)

      I am not an economist but I have been watching this economy pretty closely for the past six months so let me try at an answer that may get a discussion going among more informed commenters.

      As far as I can tell, nobody really knows what the effects of the deterioration of the subprime market will be, but there are real concerns both for Wall Street and Main Street.

      For Wall Street, the concern is that we have a cascade that produces a systemic crisis in the banking system.  Basically, after origination mortgages get turned into bonds that then get traded throughout the financial system.  Fannie Mae and Freddie Mac are important players in the process of securitizing mortgage debt and ensuring liquidity in mortgage banking.  The bonds make there way to hedge funds, pension plans, insurance companies, mutual funds, and foreign entities.  The problem is that the mortgage backed securities then serve as a basis of leverage in the derivatives market.  Last year the volume of derivatives trading was nearly 1000 trillion dollars.  Hedging is supposed to buffer financial shocks, but the fear is that the market has been systematically underpricing risk which may have a multiplicative effect through leverage.  The scary fact about the subprime failure happening now is that it the beginning of a crack in the financial system revealing how poorly the system has been performing at assessing financial risk.  So day by day there is the chance of something akin to Long Term Capital erupting that cascades through the derivatives market.

      Furthermore, there is a problem of bank capitalization.  Washington Mutual, for example, banked hundreds of millions of dollars of negative amortization as earnings last year.  From an accrual accounting standpoint, that might be technically correct, but if the first guarantor, the homebuyer, is not going to be able to service the loan, then much of those earnings are questionable.  What does that mean for solvency.

      From the broader system perspective, in a fiat system, when a loan is originated, that increases the money supply.  As time passes, interest accrues, so the economy must generate even more loans to pay the original back.  Foreclosure destroys money.  If it gets bad enough, you have deflation.

      If we don't have a systemic problem, a Wall Street crisis, there will still be problems for Main Street.  Many of these subprime lenders are failing because property owners no longer have rising home values to use to refinance and kick the can down the road.  When the bank forecloses and sells the house at auction, that further depresses the value of every other house in the neighborhood.  Furthermore, when the subprime lender lays of 1000 people, often they have to put their house on the market.  Real estate agents, lawyers, inspectors, contractors, all stop spending and often have to sell their houses.  For Main Street, the danger is in pushing the positive feedback loop of falling home prices, unemployment, and foreclosure.

      It may not be so bad, though.  We still do have a dynamic economy.  It does seem like the American standard of living is going to move backwards.  Hopefully it can be a soft landing, not off the cliff.

      Stop the bullshit.

      by wetzel on Wed Jan 03, 2007 at 07:24:41 AM PST

      [ Parent ]

      •  Excellent description (12+ / 0-)

        I've been following the housing/mortgage situation closely for about three years. You did an excellent job describing the "cancer" of a mortgage industry that is over the top.

        The one piece you left out is that if home prices fall and the homeowners are no longer to refinance, or "kick the can down the road," they also lose their "disposable" income. Americans have a negative savings rate, and view their homes as their savings. As the ability to refinance and withdraw equity evaporates, so does all of that disposable income that was obtained from home equity.

        Since our economy is based on "consumerism," which is about 70% of our GDP, what happens to our economy if the mortgage industry does fall off a cliff and consumers are left with little/zippo disposable income? That's the only part of your analysis I disagree with. Our economy is nowhere near as dynamic as the pundits and government would have you believe. Personally, I find it hard to hope/believe there will be a soft landing. If there is, it will be for one reason only -- the fed will hyperinflate to keep the bubbles going. If they do, the middle class as we know it will cease to exist.

        •  You've hit the nail on the head (4+ / 0-)
          Recommended by:
          ckaupp, 3goldens, dirge, ca democrat

          Essentially, the Fed has painted itself into a corner.  To prop up the consumption component of GDP after the tech bubble, they kept interest rates too low for too long, creating what is referred to as the "Housing ATM" effect.  The housing appreciation slowdown has effectively shut down the ATM and rates have gone up dramatically since the housing bubbble started.  The Fed now has a quandary.  It needs to keep rates as they currently stand or higher in order to ward off inflation and maintain the dollar's global competitiveness, due to our debt addiction, however, keeping rates this high will have a negative wealth effect on consumers that will get hit by the interest adjustment of ARM loans taken out during the bubble.  Since dramatic rate cuts are not an anticipated outcome, we will likely see consumers curtail spending or cut home prices to compensate for their inability to make mortgage payments.  The yield curve is already inverted and has priced in a significant likelihood of recession.  I believe it's just a matter of time.

      •  Re: Main Street (0+ / 0-)

        One of the big problems with subprime loans systemically, is that even if a borrower can see trouble coming, pre-payment penalties provide a huge barrier to refinancing or selling the house, and paying off the subprime loan while there is still still hope of salvaging the situation.

        Predictable disasters aren't averted, even when they could be in the absence of the pre-payment penalty.

        "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

        by ohwilleke on Wed Jan 03, 2007 at 11:48:19 AM PST

        [ Parent ]

      •  I am an economist (1+ / 0-)
        Recommended by:
        deathsinger
        And this is the best summation of the issue that I have read here by a non-economist:

        As far as I can tell, nobody really knows what the effects of the deterioration of the subprime market will be, but there are real concerns both for Wall Street and Main Street.

        [snip]

        It may not be so bad, though. We still do have a dynamic economy.

        Bondad tends to be, too, well, melodramatic in a Chicken Little sort of way and he obviously hasn't had a lot of formal training in Economics. My dissertation advisor once told me that he had given up telling folks that he was an Economist. Seems everyone thinks they know how the economy works even when it is clear that they don't have a clue. My father, a Physicist, never had that problem. Very few people will claim they have a knowledge of physics when they haven't had any formal training in the field.
        •  Well, (0+ / 0-)

          I for one appreciate you interjecting thoughtful comments in Bonddad's diaries.  I would appreciate you hanging around more.  Daisycolorado is spread way too thin at times.

          BTW your comment the other day about being too tired to explain, the universe will not last long enough for you to explain economics to some people...

          The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

          by deathsinger on Wed Jan 03, 2007 at 02:47:47 PM PST

          [ Parent ]

          •  Thanks, but (0+ / 0-)
            I for one appreciate you interjecting thoughtful comments in Bonddad's diaries. I would appreciate you hanging around more.

            My wife is looking over my shoulder and saying to you "No, don't encourage him! He spends too much time babbling about economics already!"
            •  Ah, but you see this isn't babbling (0+ / 0-)

              this is typing.  How much typing do you do about economics?

              Seriously though, this forum could really use a professional viewpoint more often.  People are entitled to their opinion, but opinion without fact is less useful than cow manure (which at least is good fertilizer.)

              I went back and read the comments you have made in econ threads.  Your comment about SS not being indexed was so well stated, that if you don't hang around I'm liable to plagiarize it.

              The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

              by deathsinger on Thu Jan 04, 2007 at 01:08:20 PM PST

              [ Parent ]

    •  The problems in the sub-prime market (10+ / 0-)

      are a symptom, not the disease itself. Someone in the investment string (the original lender, the buyer of the note, or the subsequent buyer of the mortgage backed security) will get hurt. As will the borrower, who may lose his house to foreclosure.

      The disease however, is what it will do to the housing market overall. Housing prices will tumble even further as foreclosed properties come on to the market. Non sub-prime loans with no equity, and only marginally distressed borrowers can no longer re-finance because equity is gone due to falling values. Foreclosures increase, home values continue to fall.

      Extra homes on the market (in addition to creating downward pressure on values) means homebuilders won't build. Out of work construction workers. Out of work lenders, brokers, agents. Unemployment in those fields drive consumer spending down. With lower consumer spending, retail employment falls.

      No homes being built means durable goods sales fall. (washing machines, big home appliances). More unemployment.

      And so on. And so on.

      •  Not just "won't build" (0+ / 0-)

        Where I am, a builder who was making late payments to contractors just had a large condo unit (converted to rental units part way through construction) burn down before it was finished.  I don't have any evidence of foul play, but I'm mighty suspicious.

      •  San Diego still the dead zone? (0+ / 0-)

        Looks that way to me.....

        •  It is (1+ / 0-)
          Recommended by:
          MKS

          But its holding on much better than I anticipated. Transactions are few. Lots of cancelled listings. But default notices are way up, as are trustee sales. Developers are offering all kinds of upgrades and other incentives and paying full commissions to agents. Its finally hitting prices the last couple months. Agents with their head in the sand are telling buyers that its hit bottom. It hasn't. It isn't even close. When the REO starts hitting the market, the bleeding really begins. 20% by year end. From today's prices. Not the highs from 15 months ago. And thats SFH's. Condos will be even worse.

          •  20%?!! (0+ / 0-)

            I had heard 10% from peak....

            The prognosis keeps getting worse....Bernanke had better not raise rates.....

            •  Thats my prediction (1+ / 0-)
              Recommended by:
              MKS

              If i'm right, call me nostradamus.

              If i'm wrong, its just a matter of time. It may take 18 months instead of 12. But anyone expecting a quick bottom and turnaround hasnt been through it before.

              Take the downtown condo market, for instance. They've been selling at about 40-45 per month. There are currently over 500 listed. Almost a years supply. There are another 3,000 under construction. Thats a 5 year supply at current sales rates on top of an existing 1 year supply. There are another 7000 units in some stage of planning, some already permitted. Most I suspect won't get built or converted, but some will. At least equal to the sales rate. In that market, a 20% drop will be good news.

              •  Aren't the downtown condos (0+ / 0-)

                an anomaly?  A unique local condition?  (They do look pretty.)  But at those numbers, 7000 units, the effects would extend just beyond downtown.

                And, have you heard the latest pie-in-the-sky from real estate folks?  Commercial properties will bale out the lackluster residential market--all those high rise office buildings under construction in Orange County and LA will buoy the market.....  The whole market just floats on clouds, on nothing really.

                •  Its all local (0+ / 0-)

                  Some neighborhoods will get harder, some not so bad. But there are similar condo numbers all over town. Nationally as well in most larger metro and virtually all retirement destinations like vegas, phoenix and florida.

                  With regards to other than residential: Industrial and retail, i have no idea what is going on. But commercial market is softening. Vacancies are up slightly, and rents are down a little in almost all markets. Not quite a real tennants market but my office building in la jolla is currently renting at .40 per sq ft less than my 40 month old lease (about the same as my 1st year rent was). Its similar in most of the A and B office markets around town. I don't follow how thats going to bale out the shitty residential market. But my finger is on the pulse of the residential market daily and commercial much less, so i hesitate to make any predictions there.

  •  Could this be a normal process? (7+ / 0-)

    By lending money to riskier home buyers, they're putting themselves out for increased risk.

    So could this just be a correction or do you feel it's a natural end to predatory lending practices?

    Sorry if my questions don't make sense, this economics stuff is hard.

    I'm kind of stalling for time here...They told me what to say. George W Bush, 03-21-2006 10:00 EST Press Conference

    by Tamifah on Wed Jan 03, 2007 at 04:54:02 AM PST

    •  It depends on the portfolios (8+ / 0-)

      My guess from general business experience is that:

      • Some of the subprimes have actually been doing a good job, particularly those who have been around for ten years or more (if any);
      • Some jumped in to make money on the fees and managed to shove all the risk to the lending pool and, however much evil they have brought to the market, they will walk away with nary a scratch unless they failed to disclose perfectly to their bondholding victims; and
      • Some will get what they deserve, though the original principals have probably managed to walk away with money falling out of their pockets.

      The rule of finacial musical chairs is that there is always someone out there who is more greedy and willing to ignore the risk, until there isn't.

      Democrats: Giving you a government that works.

      by freelunch on Wed Jan 03, 2007 at 06:10:33 AM PST

      [ Parent ]

    •  My question also (5+ / 0-)

      Marginal businesses are always hit hard in a downturn--could this just be a shakeout?
      Ownit was the 11th largest, MLN was the 15th largest, Sebring's placing  not given. These aren't exactly the loan industry's major players. If the top 5 were going out of business things might be seem more imperative.
      Sup prime lending, as has been noted above, is the pawnshop of real estate lending--it is hardly surprising these loans go bad.
      I agree with Bonddad (almost always) things are on a downturn. I personally am waiting for the bottom to do a little investing in Real Estate.

      INVESTIGATE THE CBS PAPERS!!! THEY ARE FEDERAL DOCUMENTS!! Don't let Bush win WITHOUT PROVING A THING!

      by exlrrp on Wed Jan 03, 2007 at 06:18:23 AM PST

      [ Parent ]

    •  One thing: make your Visa payments: (16+ / 0-)

      They are starting to panic.

      I have (or had) stellar credit. But I am a caricature of the absent-minded professor. I often carry thousands of dollars on my credit card, mostly work-related travel expenses that I can't always collect for promptly. In my nature (see above) I occaisionally forget to make a monthly payment on time. In consequence, I have started to see signs of this panic which I mention. Their simple-hearted algorithms can't seem to distinguish me from an overextended deadbeat.

      These lenders are going to make sure that everyone "feels their pain"

      It's a lousy world, Sir Magnus. A few happy fish will make it better. (Le Carré)

      by Boreal Ecologist on Wed Jan 03, 2007 at 06:24:05 AM PST

      [ Parent ]

      •  Auto Payments (6+ / 0-)

        Set your credit card up to automatically take out a payment from your checking account, even if it's only the minimum.

        Democrats: Giving you a government that works.

        by freelunch on Wed Jan 03, 2007 at 06:34:27 AM PST

        [ Parent ]

      •  i do that (11+ / 0-)

        i've learned i have to keep all my bills either smack dab in the middle of the living room table until paid or, if they're e-payments, up front and center on my email AND desktop.

        otherwise, they go la la.

        even my property tax  payment almost went la la this year because i stupidly moved it from the living room table to my "things to think about but not too seriously but maybe a bit" basket. the only reason i found it is because i was commiserating with a friend about my flakiness and happened to glance in that basket. now that was a holy shit! moment and landed me standing in line for hours at City Hall with everyone else who forgot to pay.

        i've paid dearly for this over the years, but have found nothing that can really compensate for being a space case.

        Cornbread is square, but pi are round.

        by cookiebear on Wed Jan 03, 2007 at 07:28:22 AM PST

        [ Parent ]

        •  do that (forget) all the time too (4+ / 0-)
          Recommended by:
          Xan, cookiebear, means are the ends, jfm

          and I don't object to paying the interest penalty for my ineptitude and scattered brains. What I do object to is to be further penalised by childish profiles that evidently completely ignore a 25yr credit history with a consistent pattern that only makes my creditors more money.

          It's a lousy world, Sir Magnus. A few happy fish will make it better. (Le Carré)

          by Boreal Ecologist on Wed Jan 03, 2007 at 08:13:30 AM PST

          [ Parent ]

          •  everyone i know is in the same boat (5+ / 0-)

            i consider myself a pretty extreme exception because i am such a space case

            but the only people i know who've escaped the bullet on this are very very wealthy with sizeable bank accounts and savings, and hefty incomes

            all "normal" people i know have been hit, though. these days, even a late payment on a utility bill will get you.

            i remember the days when utility companies knew that certain times of the year (summer in this area, winter in other) were particular hard for many people. no more.

            Cornbread is square, but pi are round.

            by cookiebear on Wed Jan 03, 2007 at 08:20:16 AM PST

            [ Parent ]

            •  I'm not very, very wealthy (6+ / 0-)

              but I have automated nearly every bill I have.  My utilities/phone/cell/cable/etc are all drawn automatically each month on the last day they are due.  My cost: $0.  My credit cards now allow scheduling a payment option.  When I get the email I log in and schedule the payment for the due date right then.  My cost: $0.  The only bill left is my mortgage, which is due the same day I get paid.  Pretty easy to deposit and pay at the same time.  (They would even automate this for me if I wanted, again at $0.)

              The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

              by deathsinger on Wed Jan 03, 2007 at 08:25:04 AM PST

              [ Parent ]

              •  some of mine is automated (2+ / 0-)
                Recommended by:
                Boreal Ecologist, jfm

                my problem is, i'm stretching a not entirely adequate paycheck while simultaneously trying to preserve a not gigantic savings account

                as a result, for many of my bills, i have to know the exact amount so i can adjust my budget elsewhere. this is especially true for my electric payment, as it varies wildly from month to month - $40 last month, $85 this month). that $45 may not make a difference to a lot of people, but for me, it means an extra trip to the grocery and some new socks and suet for the birds.

                in addition, many of my monthly bills don't offer an auto-withdraw option. my water bill, property taxes, etc. don't.

                and i have a student loan payment to a university which doesn't have any auto-withdrawal option. that's a set payment which i add onto, as i'm hoping to have it paid off in two years.

                and i forgot to pay it one month. fortunately, the bursar's office retains old fashioned values (?) and it didn't result in catastrophe, as it would have were it a utility or other payment.

                the good news is, i own my place lock, stock and barrel. i did this intentionally - i got it for a song and just paid for the whole thing upfront because i wanted the certainty of having a home, no matter what. i haven't regretted it.

                when my financial situation improves (which it will, but not for a while), i will likely put as much as possible on autopay. for now, though, not an option.

                Cornbread is square, but pi are round.

                by cookiebear on Wed Jan 03, 2007 at 08:44:54 AM PST

                [ Parent ]

                •  It might not help (3+ / 0-)

                  but many utility companies offer a balanced pay option.  My father, now retired, uses this option.  Basically they average a full years worth of bills and set your monthly bill just slightly higher than that.  It has worked well for him.

                  My water company will direct withdraw from a checking account.  You could try calling yours to find out if they do the same.  Nice thing for me is it pays on the last day the bill is due.  Nice thing for them, they get paid every month.

                  The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

                  by deathsinger on Wed Jan 03, 2007 at 08:49:38 AM PST

                  [ Parent ]

                  •  i've thought about that (3+ / 0-)
                    Recommended by:
                    Xan, deathsinger, jfm

                    but i keep chipping away at my energy usage so, in the long run, it's better for me to pay the actual amount each month. eg, when i moved in here, my electric was running $100-160 a month, and i was paying ~$60/month for propane.

                    but i've gotten that way down, even though electric rates have gone up here. and propane? ptoooey! i'm getting ready to call them to have them yank the tank, as i don't even use it anymore.

                    so balanced payments would result in me paying even more.

                    and my water company is rural. they didn't even have an office til a year ago, as far as i know. i have to physically go to their bank to pay them. i think the idea of autopay would make their heads explode. :=D

                    Cornbread is square, but pi are round.

                    by cookiebear on Wed Jan 03, 2007 at 08:55:56 AM PST

                    [ Parent ]

              •  no more am I... (3+ / 0-)
                Recommended by:
                cookiebear, deathsinger, jfm

                ... and sincerely, more power to you, deathsinger, for being so together. Most (or at least very many) of us   evidently are not. That is just a fact which the credit card companies rather count on, s'how they make a lot of their money.

                But today, they can't seem to distinguish trivial faults by low-risk debtors (like YT) from huge faults by high risk debtors (what bonddad was talking about).  That's why I am used the word "panic", upthread.

                Must get to work now, and earn some of the taxpayers money.

                It's a lousy world, Sir Magnus. A few happy fish will make it better. (Le Carré)

                by Boreal Ecologist on Wed Jan 03, 2007 at 08:46:23 AM PST

                [ Parent ]

        •  Yep, and time seems to vary, too! (6+ / 0-)

          Notice how some months fly by, and those bills just seem like they came yesterday?

          I also have a special spot where unpaid bills go, and nothing else, so that I see them constantly until they are paid.

          The best compensation I've found for my particular spaciness is that I married a grounded techie. My tech-support consists of yelling, "Help, Lee!". And he actually pays the really-super-important-effect-your-credit-rating stuff.

          On the other hand, he's a slob, and he can't cook. It balances out.

      •  Yup (1+ / 0-)
        Recommended by:
        cookiebear

        I'm looking at a 30% rate (technically 29.99%) on one of my cards. I'm paying off that balance as fast as I can - should be gone by early March.

        But, as I keep saying in these kinds of conversations, individual action can only help us so much. Eventually we will need government policy to remedy the situation. Massive reform at that.

        I'm not part of a redneck agenda - Green Day

        by eugene on Wed Jan 03, 2007 at 07:33:14 AM PST

        [ Parent ]

      •  They've been doing this for years (5+ / 0-)

        I,too, have good credit. No bankruptcies, lots of credit buying when the kids were at home, paid off gazillions of loans. Stable job with good income, and always pay my bills on time.

        None of that matters. If you're late by one day, or you underpay (say, due to a purchase which pushes your payment up and you have an automatic payment plan and forget to adjust the payment upwards) by one dollar, you will get hit with a obscenely high interest rate.

        Lenders really don't care how "good" your credit rating is once they have you hooked. They care about making money, and they are just waiting with fingers crossed that you do something to give them an excuse to gig you for more money.

        It sounds like you really have to keep credit cards due to the nature of your business. Ouch.

        •  same problem (0+ / 0-)

          They bumped us up to 25% on two of our cards after the payments didn't arrive on time. And then there are the $40 fees they charge you as well. I can understand why people pay off credit card debt with equity from their home now.

          "The power to dominate rests on the differential possession of knowledge" -Foucault

          by Jett on Wed Jan 03, 2007 at 11:42:07 AM PST

          [ Parent ]

      •  CONFIRM: Visa is flipping out (9+ / 0-)

          I'm an official deadbeat with a credit score on par with that of a Nigerian advanced fee scam artist but this has more to do with divorce laws in Nebraska than my nature. I have a credit card with a limit in the low thousands and if I carry a balance its purely by accident - my worst month last year I probably pushed $1,000 through the thing.

         This December something ... changed. I can no longer pay my balance off on the spot, but instead have to wait for the card to cycle. They're forcing me to carry a balance long enough for them to get their interest. I guess I can understand it business wise, but its going to get them paid off and used for nothing but the occasional car rental.

         Leeches, all of them, with their risk premium and no way to bankrupt out of it ...

        "Religious bondage shackles and debilitates the mind and unfits it for every noble enterprise" - U.S. Constitution author and fourth President James Madison

        by Iowa Boy on Wed Jan 03, 2007 at 09:25:47 AM PST

        [ Parent ]

  •  do you think (4+ / 0-)

    that this will have a net effect of deflating housing prices?  and will it raise interest rates in the prime market as lending institutions are forced to make up profits elsewhere?

    My friend is running a marathon for cancer research. Help sponsor her--tax deductible too!

    by Dante Atkins on Wed Jan 03, 2007 at 04:56:50 AM PST

    •  adsf (15+ / 0-)

      that this will have a net effect of deflating housing prices?:

      Yes and in several ways.  If we see a rash of foreclosures we'll also see a spike in inventory.  More supply =  lower price.  However, we're not at that point yet.

      will it raise interest rates in the prime market as lending institutions are forced to make up profits elsewhere?

      Watch the 10-year Treasury market for where mortgage rates are going.  I wrote about it on my blog here

      "You think you can intimidate me? Screw you. Choose your Weapon." Eliot Spitzer

      by bonddad on Wed Jan 03, 2007 at 05:00:14 AM PST

      [ Parent ]

      •  This morning's NY Times was suggesting (7+ / 0-)

        that the Manhattan market is in for a soft landing. The Times suggested that princes were slightly lower, but that inventories were decreasing. Any thoughts? The Times argues that those huge year-end bonuses on Wall Street were helping maintain the stratospheric price levels.

        •  Foreclosures up in Wisconsin.... (11+ / 0-)

          The plunging housing market and the softening economy are taking a toll on borrowers with subprime mortgages, which are mortgages with relatively high interest rates given to consumers who would not qualify for traditional mortgages. In most cases, those consumers are the least capable of absorbing higher interest rates. Most consumer advocates consider subprime lending to be predatory lending.
          The impact is being felt in Wisconsin. According to the report, the projected rates of subprime mortgage foreclosures for 2006 in Wisconsin metropolitan statistical areas (MSAs) include: Milwaukee-Waukesha-West Allis, 20.4 percent; Madison, 19.7 percent; Racine, 19.5 percent; Lake county-Kenosha County, 19.2 percent; Janesville, 19.1 percent; La Crosse, 18.9 percent; Eau Claire, 18.4 percent; Sheboygan, 18.3 percent; Fond du Lac, 18.1 percent; Oshkosh-Neenah, 17.9 percent; Appleton, 17.8 percent; Wausau, 17.6 percent; and Green Bay, 17.0 percent.
          The rates of projected foreclosures in the Madison and Milwaukee markets rose by more than 50 percent in 2006 from their rates between 1998-2001, reflecting the proliferation of rising adjustable rate mortgages (ARMs).

          link

          You shall know the truth, and the truth shall make you mad. Aldous Huxley

          by murrayewv on Wed Jan 03, 2007 at 05:25:26 AM PST

          [ Parent ]

          •  Rates and growth (5+ / 0-)

            The rate of default isn't normally a huge problem in subprimes, it tends to be high at all times, sometimes 5%, sometimes ten, sometimes twenty, depending on the economy but the more serious problem over the past five years was the explosion in the market. The number of people lured by the siren song of "The Ownership Society" was at record highs and the increase was in people who should not have qualified because there was no realistic way they would ever be able to manage the payments over time.

            If there are ten buyers in a neighborhood who aren't really qualified to buy and one or two are foreclosed on, that's not much of a problem. If there are fifty and we are looking at ten foreclosed homes in the same, often marginal, neighborhood, not only is there a problem for the buyer and the banks, but there is also one for the neighborhood. Who can sell and who wants to buy in such an area?

            Democrats: Giving you a government that works.

            by freelunch on Wed Jan 03, 2007 at 06:18:26 AM PST

            [ Parent ]

        •  Just anecdotal, but around my neighborhood (4+ / 0-)
          Recommended by:
          cookiebear, vassmer, sccs, ca democrat

          in MN, houses are staying on the market for very long periods of time, with lots of "reduced" prices advertised, whereas a couple of years ago, a house would go up for sale and be sold within days, sometimes hours.  In my neighborhood in NM, where I work some of the time, people don't seem to be putting their houses on the market at all, considering this a bad time to be a seller.

          In MN, at one time (around l985, I think), nearly 60% of MN residents owned a second home (the lake cabin).  What percentage of these coming foreclosures will be on second homes rather than the primary residence?  I don't worry so much about that second home, but I am really, really worried about primary home loss, throwing the lower wage earners out on to the street.

          •  We looked at homes in Las Vegas.. (2+ / 0-)
            Recommended by:
            cookiebear, ca democrat

            for perhaps a "snow bird" destination a few years down the line.
            Shocking. Row after row of empty houses from forclosure or lack of buyers. It was creepy looking at these semi-empty subdivisions.
            New pre-construction home prices we looked at have been quietly slashed from 400,000 to 250,000.

            We decided to hold off buying despite the price drop. Still afraid of the water situation 20 years down the road.

            "I belong to no organized party, I am a Democrat" Will Rogers

            by vassmer on Wed Jan 03, 2007 at 07:15:53 AM PST

            [ Parent ]

        •  This is a good test of Inflation vs. deflation (7+ / 0-)

          Over on Mish's blog, he posted yesterday about how deflation would play out (well worth a read).   A commenter pointed out that much of the demand for NY apartments is coming from foreigners with their newly appreciated (vs. the dollar) currencies.

          We have two types of debt dislocations at play, and they intersect at NY apartments:

          1.  consumer debt.  American consumers are highly indebted; corporations are so flush with cash they don't know what to do with it.
          1.  trade debt.  America as a going company is highly indebted to foreigners to keep the place a going concern.

          Most "deflationists" point to number 1.  Most "inflationists" point to number 2.  

          In fact, 1 is deflationary (the Fed, representing the banking system, is NOT going to bail out American consumers).  They will be allowed to sink.  That is highly deflationary.

          Number 2, however, is inflationary (as in, the US prints money to pay off its foreign creditors more cheaply).

          Wrt NY apartments, you are seeing the deflationary impact of number 1 being set off by not only Wall Street bonuses, but also number 2 as foreigners use cheap dollars to buy real US assets.

          So, you have a test case for how deflation vs. inflation will play out over the next 10 years.

          Cheers!

  •  IMHO, these sub-prime loans were a bad idea (11+ / 0-)

    from the beginning. If you can't afford a house without a "teaser rate," you can'tt afford the house period.

  •  it surprised me like the sun coming up today (13+ / 0-)

    The expansion of the "sub-prime market" was another maneuver by the assorted interests comprising the real estate industry to keep the party going in the present through predation and by destroying all plausible future demand.  I think the only remaining untapped groups of people wanting to buy houses in this country for any reason are in high school or jail. Let me guess, they're already pre-qualified.

  •  This will filter to new (9+ / 0-)

    Home sales which will trickle down to the retail sales and so on and so on.If it goes far enough it will trickle down to the people who cut the trees for lumber. We could be in deep sh@t before long if this continues. What goes up must come down.  Isn't that the law of gravity?

  •  How many people are going to be (8+ / 0-)

    made virtually homeless by this trend?  I assume there will be a great number of foreclosures and where are these unfortunate people going to live?  

    This movement toward a second Gilded Age is incredibly dangerous for any society, truly scary, but how can one address the problem politically without acting in a way that saves the banks rather than the home buyers?

    My real question here is the first one:  what is the actual number of people likely to be foreclosed on?

  •  40k jobs lost in december (7+ / 0-)

    U.S. ADP employment index down first time in nearly 4 years

  •  Perhaps this was their business plan all along (9+ / 0-)

    Rake it in when the getting is good. And then be the first out the door when things start to dry up. Bush's banckruptcy law is protecting these banks from their client's misfortunes, but somehow I don't think it will prevent them from closing shop when it suits them.

    The same crooks will be putting up shingles to cash in on the next business wave, whatever it happens to be.

  •  Construction spending (8+ / 0-)

    continues to fall.

    A Commerce Department report at the same hour will say that construction spending fell 0.5 percent in November, following declines of 1 percent in October and 0.8 percent in September, according to the Bloomberg survey median. Spending hasn't fallen three months in a row since October 2001.

    •  A lot of signs are pointing toward a recession. (10+ / 0-)

      Employment is down; construction spending is down. And we are limited in what we can do to counteract a recession, since Bush spent our money (and our kids' and grandkids' money) on the war in Iraq and tax cuts for Paris Hilton. what a waste!

      •  If anything (1+ / 0-)
        Recommended by:
        ca democrat

        we are going to see an acceleration in growth from here out.

        For the past five years 1Q real GDP has accelerated q/q, it is quite likely that a sixth is underway.  This acceleration was driven by a stock market rally toward the end of the year, an improvement in housing (in part due to a string of warm winters). Gift cards and aggressive price cutting by retailers and auto manufacturers have also contributed to a 1Q acceleration.  

        And here we are again, with stocks having rallied, unusually warm weather, housing doing better with new home sales up in 3 of the past 4 months, retailers and auto manufacturers cutting prices, and gift cards to be spent in the coming weeks

    •  Actually (0+ / 0-)

      this was better than expected, also October and September numbers were revised upward.  If anything, this number points to a stablization of construction as strong spending by government and business is offsetting weakness in residential.

      •  The housing market in my area is firming (0+ / 0-)

        I don't know about mortgages, but I think the housing market in my area is getting a little more active, partly because the sellers are getting more flexible about prices. Which may not be good for the sellers, but is good for the market.

  •  Terrible? (2+ / 0-)
    Recommended by:
    ohwilleke, cookiebear

    Terrible if you want a sub-prime mortgage (or if you are in the business of making money on sub-prime mortgages).  They made risky loans, now they are reaping what they sowed.  I see this as just another part of capitalism.

    The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

    by deathsinger on Wed Jan 03, 2007 at 05:58:47 AM PST

  •  A Realtor's perspective (13+ / 0-)

    I never liked the idea of "100% financing," but just about every fourth prospective buyer I meet says something about it. You can't argue with them, obviously, but even if I could explain why it's important to scrape together SOMETHING for a downpayment -- from a rich uncle or a loving mother -- I don't think it would register. Subprimes did enable some very good people to begin building equity in a home, but for the most part their financing packages only created a Wal Martization of real estate investment and home buying.

    "Follow those who seek the truth. Beware of those who find it."

    by gnolti on Wed Jan 03, 2007 at 06:03:26 AM PST

  •  Bonddad, how is the exotic loan market (2+ / 0-)
    Recommended by:
    ohwilleke, cookiebear

    doing, the interest-only and other even more dangerous loan types. These are not, I think, sub-prime loans. I know of someone who got an interest only loan on a house costing a couple of million, then put a hundreds of thousands into renovations, with the expectation that they will be able to sell it a profit in a couple of years because they've done it before. It's not exactly flipping, they live in the house for several years, and have equity from previous transactions, but it still seems dangerous to me. Are these loans going into foreclosure at a higher rate than before?

    You fell victim to one of the classic blunders, the most famous of which is "Never get involved in a land war in Asia".

    by yellowdog on Wed Jan 03, 2007 at 06:25:25 AM PST

    •  I don't believe in flipping (2+ / 0-)
      Recommended by:
      eugene, ca democrat

      Call me Un-American. A home is an investment, but it isn't just any investment, like 10,000 shares of Pfizer. It's bad enough if you pay cash for a fixer-upper, only to sell at a loss in a market downturn; but taking out a LOAN to do this is indeed risky as hell. As far as I'm concerned, real estate should be a buy-and-hold proposition.

      "Follow those who seek the truth. Beware of those who find it."

      by gnolti on Wed Jan 03, 2007 at 07:45:50 AM PST

      [ Parent ]

      •  I've always thought... (4+ / 0-)

        ...that second homes should be taxed out the wazoo.

        I'm not part of a redneck agenda - Green Day

        by eugene on Wed Jan 03, 2007 at 07:49:18 AM PST

        [ Parent ]

      •  Investment advice or moralistic hogwash? (1+ / 0-)
        Recommended by:
        johnshaft

        I don’t find your sentiment to be “Un-American” just close-minded and judgmental.  If folks want to take this kind of risk, with what one can only assume is an equally great expected reward, who are you to tell them what the nature of real estate investment should be?

        Seriously, some folks should probably buy and hold.  Other can flip if they want to take the risk.  Still others (and now I am the Un-American one) probably should not own property at all, given their finances and the terms they would have to agree to in order to buy it.

        I have no problem with you wanting to buy and hold, but nothing in real estate makes it intrinsically suited to such a strategy.  Do what you think is best for you and don’t opine about what is best for the rest of us.

        Sometimes I think that I'm bigger than the sound . . .

        by TastyCurry on Wed Jan 03, 2007 at 10:20:23 AM PST

        [ Parent ]

        •  What about Habitat for Humanity? (0+ / 0-)

          While there may be some people who aren't able or willing to own property, there is no reason to not provide everyone with the opportunity to own.

          Here's how Habitat for Humanity does it in Pensacola, based on my conversations with a couple of people who were getting Habitat homes or volunteered for Habitat.

          Individuals receiving Habitat homes are required to put in hours of sweat equity first.  Then they have to take personal finance classes and then when their home is ready they aren't the owners immediately.

          Instead, Habitat leases the home to them for two years and if they are able to make all of the payments over that two year period then they become the owner.

          That seems like a good way to work things to me.

          Formerly of Los Angeles, now in the FL Panhandle(Lower Alabama) I blog at ThisIsWhatDemocracyLooksLike.com

          by Thom K in LA on Wed Jan 03, 2007 at 12:23:12 PM PST

          [ Parent ]

          •  I agree 100% (0+ / 0-)

            And you will note that the Habitat folks are not the ones defaulting on these idiotic loans.

            Some folks, also, do choose not to own property because, I assure you as a new home owner, it was much easier to call the landlord when the basement flooded then to take care of it myself.

            My point above was simply that it is not some sort of morally reprehensible position to view Real Estate as an admittedly less-then-liquid investment,

            The person I was replying to seemed to imply some sort of moral depravity to those who choose to try and flip houses.  That just seemed ridiculous.  As I said, some folks like to take risks and, hopefully, reap the rewards and whether or not the poster "believes" in it is hardly relevant.

            Sometimes I think that I'm bigger than the sound . . .

            by TastyCurry on Wed Jan 03, 2007 at 04:55:37 PM PST

            [ Parent ]

    •  The best single indicator of default risk is down (0+ / 0-)

      payment size.

      "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

      by ohwilleke on Wed Jan 03, 2007 at 09:11:25 AM PST

      [ Parent ]

  •  Sub-prime lending will continue and continue (1+ / 0-)
    Recommended by:
    cookiebear

    Homeownership rates have climbed consistently, year after year, with only one small dropoff sinse 1960.  There comes a point where all the buyers with good or fair credit are already in their home and making payments.  The largest market left is the subprime market.  There are ways to exploit it, and it will be done.  As long as housing is built at a rate higher than population growth, subprime lending will have to grow.

    Right now Arizona and California are considering laws that would make it illegal to sell or rent to anyone who is in the country illegally.  Home values will plummet when the wringers get their way.  Subprime lending will flourish.

    Real Patriots Love Freedom

    by greasymadness on Wed Jan 03, 2007 at 06:32:34 AM PST

    •  They just had one of these no rent ordinances (1+ / 0-)
      Recommended by:
      eugene

      die a noisy death in Escondido, CA. Turns out that immigration and citizenship issues can not be regulated by a city so their ordinance preventing property owners from renting to Illegal Immigrants was unconstitutional. I think this will prove to be an unenforcable and unconstitutional trend and will, I hope, die a quick death. Since most employers can't tell if a person is legal or not how is a landlord supposed to tell? You can buy good fake papers for a couple of hundred dollars on the streets of LA, if a cop can't tell how is anyone else supposed to know?

    •  There is a good chance that (1+ / 0-)
      Recommended by:
      eugene

      many subprime lending techniques will disappear due to legal regulation of the industry.

      If this happens, the formal subprime industry probably will vanish and be replaced by a far more decentralized and less sophisticated owner-carry, rent to own market.

      "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

      by ohwilleke on Wed Jan 03, 2007 at 09:13:20 AM PST

      [ Parent ]

      •  An old method (0+ / 0-)

        In Wisconsin its most popular form is the land contract from the seller to the buyer. They are particularly popular among retiring farmers who know that the buyer doesn't have the money to put a proper downpayment on a farm.

        They aren't abuse free, but tend to have far less of a misleading sales pitch.

        Democrats: Giving you a government that works.

        by freelunch on Wed Jan 03, 2007 at 09:33:37 AM PST

        [ Parent ]

        •  Land Sales Contracts (0+ / 0-)

          are extremely abusive-- where the seller retains title.  Theoretically one missed payment and the buyer gets kicked out and the seller retains all the equity.

          There are a number of statutes that in effect convert a land sale contract into a straight mortgage.

          Carrying back paper may have its advantages but which seller would prefer that?...Such a system would crash residential real estate.

          •  These informal transactions tend to happen (0+ / 0-)

            even when they don't have the legal consequences expected.  They are often (usually) devised without consulting lawyers.

            "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

            by ohwilleke on Wed Jan 03, 2007 at 10:18:28 AM PST

            [ Parent ]

  •  Bonddad, a 'dollars and sense' question: (5+ / 0-)

    Will this subprime lending mess, coupled with massive US trade deficit, budget deficits, slowing economy, debt consumption and dollar sinking vs Euro lead to higher US interest rates (10-yr and 30-yr)?  Will the Fed just keep whistling in the dark?

    Other than buying a Wiemar Republic wheelbarrel to cart my stacks of paper to the store - to buy a loaf of bread - how can little ol' me protect some of my paper $$ assets in the face of this gloomy fiscal mess?

    I'm a renter, so my assets are just paper (401k, Roths, savings).

    I know, I know - you're not my financial advisor.

    However would you, in general, recommend a protective asset allocation into non-U$D vehicles: Euro, metals, inverse US Treasury funds, inverse US stck market funds, etc?  What action steps make sense with the icebergs popping up all 'round?

    Any advice to a semi-knowledgable newbie is appreciated.

    Thanks!

    HEY Pathetic Media! "Follow-Up Questions" Remember them from J-school? Effin' Use Them!

    by JVolvo on Wed Jan 03, 2007 at 06:38:41 AM PST

    •  impeachment (1+ / 0-)
      Recommended by:
      SensibleShoes

      the sentiment of the global capital market needs a shot in the arm.

      Diversity is the key to economic and political evolution.

      by MarketTrustee on Wed Jan 03, 2007 at 07:16:14 AM PST

      [ Parent ]

    •  My 22 yo daughter has all her equities outside (2+ / 0-)
      Recommended by:
      cookiebear, ca democrat

      the US. I wonder how many of her generation are doing the same? It would become a vicious circle, I would think.

      Be very kind, for everyone you know is fighting a great battle.

      by Wee Mama on Wed Jan 03, 2007 at 07:23:02 AM PST

      [ Parent ]

      •  Um (2+ / 0-)
        Recommended by:
        tiggers thotful spot, tryptamine

        Most of us of her generation don't have any equities at all. What excess cash we have after paying bills goes to service debt.

        US economic policy needs to be geared to getting people out of debt as quickly as possible. I shudder to think of the good people who are facing a catastrophe with these subprime loans.

        I'm not part of a redneck agenda - Green Day

        by eugene on Wed Jan 03, 2007 at 07:39:26 AM PST

        [ Parent ]

      •  Most of her generation (3+ / 0-)
        Recommended by:
        eugene, tryptamine, gatorcog

        are in debt.

        Especially the ones who went to college!

        •  And student loan debt (3+ / 0-)

          Is virtually impossible to discharge in bankruptcy.

          That law needs to be changed. The 2005 Bankruptcy Bill needs to be repealed outright and student loans need to be fully dischargable - otherwise folks of our generation are going to be totally and completely fucked when deflation hits.

          I'm not part of a redneck agenda - Green Day

          by eugene on Wed Jan 03, 2007 at 08:12:08 AM PST

          [ Parent ]

          •  Well, that would be the bright side of (1+ / 0-)
            Recommended by:
            eugene

            hyperinflation. It would make student loans easy to pay off.

          •  Another worthy reform (2+ / 0-)
            Recommended by:
            eugene, blue jersey mom

            A student loan reform I would like to see is the ability to consolidate multiple times. The way things work now, you get to consolidate once and that's it. Meanwhile, you can refinance your mortgage ad infinitum.

            Because of when I finished my schooling I consolidated in 2000 before interest rates dived. 6.5% isn't an awful rate but there are plenty of people paying about half of that.

            •  Agreed (2+ / 0-)
              Recommended by:
              Joe Bob, blue jersey mom

              Most of my loans were consolidated in 2004 at 3.5%. I have had to take out a few more since then, but they're still at decent rates.

              There've been some good diaries here on the student loan racket, especially by a guy named studentloanjustice. The whole industry is legalized theft, at least as it currently exists.

              I'm not part of a redneck agenda - Green Day

              by eugene on Wed Jan 03, 2007 at 09:41:04 AM PST

              [ Parent ]

          •  I completely disagree (0+ / 0-)

            The non-dischargability of student loan debt is the very reason that many people can secure financing to go to college in the first place.  You think interest rates are high now?  Try financing college education with unsecured, unguaranteed, dischargeable loans made to 18-22 year olds, most of whom have limited credit histories.  You'd be lucky if interest rates were lower than 16%.  Non-dischargability is necessary for expanding educational opportunity.

            If deflation were to hit, any sensible person would refinance and consolidate their loans, in much the same way they did when interest rates bottomed out in 2003.

            •  It worked fine (0+ / 0-)

              The old program guaranteed the loans at excellent rates -- default was a problem for the Feds, yet they were still dischargable. I don't want a lawyer to discharge his school loans in bankruptcy as his first professional act, but it is clear that certain circumstances make it impossible to pay off student loans.

              I would propose moderate reforms: we should not normally allow discharge in bankruptcy until ten years after the last student loan was taken; the bankruptcy would have to be calculated without regard to student loan debt; and the professional value of the education would be taken into account.

              It might also be useful to tighten up the standards of higher education that we provide loans for.

              Democrats: Giving you a government that works.

              by freelunch on Wed Jan 03, 2007 at 01:54:01 PM PST

              [ Parent ]

    •  If things really get bad (2+ / 0-)
      Recommended by:
      eugene, ca democrat

      the government will probably figure out some way to confiscate assets invested overseas.

      So, the ideal would be to set up a bank account overseas in a country that has such a bad relationship with the United States that it wouldn't honor requests about the U.S. government to confiscate your assets.

      For most people, the practical thing is to get a great education and to know how to do a lot of useful things that could help you earn a living if you're ever a refugee. Example: if you know how to tend bar or bus tables, maybe that could come in handy some day.

      Be nice to those immigrant refugees you see in your corner restaurant today, because you might be a refugee in their countries 10 years from now.

  •  Washington Mutual (7+ / 0-)

    Washington Mutual must be in dire straits, because for the last 6-12 months, they have mailed me solicitations so frequently I almost started collecting them. We're talking 2 or 3 times per week! Just the cost of the stamps and paper puts their expense at nearly $100, just to hound a guy who's not interested.

    Dailykos: Keeping tabs on the Democracy

    by winstnsmth on Wed Jan 03, 2007 at 06:45:10 AM PST

  •  Serious cutbacks are taking place (5+ / 0-)

    in the largest homebuilding companies in Wisconsin. They aren't just laying off carpenters and other workers on a seasonal basis, they are shutting down entire operations, including local management. The condo market is also seriously over extended with many units being rented rather than sold. I wouldn't be surprised to see a couple big condo developers go under.

    •  A common problem (2+ / 0-)
      Recommended by:
      eugene, Catte Nappe

      There are lots of developers right now who are asking themselves, "WTF do we do with all these condos?" The answer is usually rentals, but I have seen several projects reconfigured as 'boutique' hotels. I've also seen a couple of projects under construction where the developers were able to change gears and build something like office space instead.

      However, aside from these things I don't know what you do except wait.

  •  Bonddad, can you please post a (1+ / 0-)
    Recommended by:
    cookiebear

    comparison of the default rate on subprime loans for the past 10 years, so we can see just how bad this is compared to say Clinton's prime?

  •  Now if we could get those paycheck loan places (3+ / 0-)
    Recommended by:
    ohwilleke, eugene, ppluto

    to also go belly-up...

    "It's better to realize you're a swan than to live life as a disgruntled duck."

    by Mumon on Wed Jan 03, 2007 at 07:57:01 AM PST

  •  Not to sound predatory, (1+ / 0-)
    Recommended by:
    tryptamine

    because I'm not, but...

    What happens to all the forclosures? When the market gets flooded with them, what do the lenders do? Who buys these houses, then? Do they get all their money back, or, how do they decide how much to sell the houses for? Sorry, it's a scary situation but I'm also wondering about the fallout...

    •  Depends on if the Dems lead (3+ / 0-)
      Recommended by:
      eugene, montpellier, ca democrat

      If the Dems lead -- they set up a Resolution Trust Corp. to make sure that people who need homes get homes, and the people who are selling the homes have to accept the fact that they are getting about 70 percent of what they thought they would get. Then people will cry about the missing 30 percent for awhile, then get over it.

      The new RTC would be acting on the true philosophy Keynes: not that deficits are irrelevant, but, that if  sellers of anything are acting like econo-idiots and refusing to accept what the market is telling them, you have to threaten to take their TVs away until they break down, sell stuff to people who need it, and get the market functioning again.

      If the Dems and the Republicans aren't able to set up an RTC, and the market crashes as much as people think it will, then sellers and lenders will refuse to accept reality. They will let millions of units of housing sit empty for years, crumbling into fake stucco dust, while people who are working and could pay something every month either double up with friends and relatives or end up living in caves, shantytowns, cardboard boxes, etc.

      •  Not really (2+ / 0-)
        Recommended by:
        ca democrat, konscious

        Banks sell off REOs all the time without an RTC--which was set up to bail out S&Ls, not homeowners.  Right now, S&Ls and Banks are not threatened, so no need for an RTC.  

        •  But, if you have a mortgage market (1+ / 0-)
          Recommended by:
          ca democrat

          collapse, the inventories will be pretty huge. Owners may hold onto houses partly because they and the lenders want to pretend that the original value described when  the owners bought the homes still mean something.

          If banks and S&Ls continue to be aggressive about somehow making sure that housing units are occupied, then the government can hold back.

          If the market truly breaks down, and respectable people with decent incomes still can't afford suitable homes (as is still true in my area, despite the soft market), and that condition persists, then the government, or Microsoft, or Google, or Disney, or some other big entity has to step in and figure out how to get the market functioning again.

          Of course, right now, the market is functioning reasonably well. The fact that some builders overbuilt and have a hard time selling crummy houses is just a sign that we live in the real world, not the market has stopped working.

          •  If we have a collapse (2+ / 0-)
            Recommended by:
            ca democrat, konscious

            a' la the early 1990s all bets are off....So far, though, employment is holding.

          •  Keep in mind that (0+ / 0-)

            about half of mortgages out there at any one time are more than ten years old, and are largely conventional with considerable equity built up.  They still have very low default rates.

            There are also plenty of new mortgages (a large majority -- subprime refers generally to people who don't qualify for conventional interest rates because they have bad credit, not all exotic arms and interest only loans), that are not subprime.

            And, while the default rate is high, it is still only 8% of subprime loans outstanding at any given time (over the life of the loan the percentage is higher, but still, probably less than 50% ultimately go into default).

            Bottom line: Even an intense subprime market crisis, and we are close to that now, impacts only a small percentage of the total inventory of real estate, and this impact is largely confined to specific neighborhoods which tend to be among the least expensive in the overall housing inventory.

            Situations where "respectable people with decent incomes still can't afford suitable homes" are problems quite distinict from the subprime collapse, which generally occur when a localized area (i.e. within commuting range) is experience job growth that happens faster than new housing units can be created for some reason (growth boundaries, limited numbers of home builders, geographical boundaries, limits on subdividing existing housing into multiple housing units, etc.).

            "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

            by ohwilleke on Wed Jan 03, 2007 at 11:33:48 AM PST

            [ Parent ]

            •  Also: 80 percent of the subprime borrowers (0+ / 0-)

              have homes and are making payments on the loans.

              For the most part, that's something Democrats should be applauding, not criticizing.

              If we're unhappy with the default rate, we should really try to focus on making sure that the "subprime borrowers" -- the working poor -- have some kind of safety net other than the emergency room and the soup kitchen.

              •  Don't agree. (0+ / 0-)

                Almost everyone with a subprime loan is getting screwed, even the ones who are making payments and not getting foreclosured upon.

                They are still paying far more than they have to for housing, in exchange for an ability to put a pittance of that towards building equity.

                Renting a few more years until they have saved enough for a down payment would save them a lot of money in the short run because they are paying less for housing (rent is almost always cheaper than a subprime mortgage), and would also save them a lot of money in the long run because when they do get a loan it will be at a rate with half the interest rate or less.

                "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

                by ohwilleke on Thu Jan 04, 2007 at 09:19:54 AM PST

                [ Parent ]

      •  asdf (0+ / 0-)

        I'm confused now.

        You're going to tell people that they must sell houses for whatever price they can get, even if they can't afford to sell their house for that price?  How is that going to make the world any better?

      •  Isn't this what they do in Venezuela? (0+ / 0-)

        If a property, residential or factory, is not being utilized because the owner is refusing to sell it despite chronic shortages, then they are forced to sell for a fair market price.

        Sounds like a sensible solution to me.  

        Formerly of Los Angeles, now in the FL Panhandle(Lower Alabama) I blog at ThisIsWhatDemocracyLooksLike.com

        by Thom K in LA on Wed Jan 03, 2007 at 12:32:50 PM PST

        [ Parent ]

        •  In the Netherlands, they allow legal (0+ / 0-)

          squatting of vacant homes.

          So, there's a precedent for doing this sort of thing, even in the developed world.

          The thing is to prevent either central cities or (more likely) the McMansion suburbs from turning into wastelands, the way Tribeca and Alphabet City were in Manhattan for many, many years.

          I wasn't there, but I think it's famous that you'd have young professionals tripling up in apartments on the Upper East Side even though there were tons of abandoned buildings on the Lower East Side. Mainly because the sorts of people who read Daily Kos today would have been scared of trying to live on the LES 30 years ago, no matter how progressive they might be.

    •  Usually foreclosures (3+ / 0-)
      Recommended by:
      eugene, ca democrat, konscious

      are highly concentrated in particular neighborhoods, often existing low income neighborhoods, or new starter home developments.

      What happens is that these neighborhoods empty out until prices fall enough to lure people back in.

      This makes existing housing in these neighborhoods more affordable, less well maintained, and more dominanted by rental property owners who bought at foreclosure sales or from foreclosing banks.

      It also kills the starter home market by creating a glut of starter homes and small homes for sale for less than the cost of construction.  Here in foreclosure capitol Colorado, several developers who build homes in that market have laid off thousands of people.

      "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

      by ohwilleke on Wed Jan 03, 2007 at 09:17:00 AM PST

      [ Parent ]

  •  Another question (0+ / 0-)

    I've got a 10 year ARM that I bought almost 3 years ago, and a second that rides prime (and I'm now only able to make the minimum payment on that, unfortunatley, as my other debts have risen).

    I'm concerned about all this news, but is my situation more stable than others? How predatory is this situation, and shoudl I be concerned?

    Thank you

    •  Well, not to be a bummer, but (3+ / 0-)
      Recommended by:
      SeekCa, ca democrat, konscious

      When the value of your house drops 20+%, due to market conditions and the fact that three of your neighbors bought in 2005 for 100% financing with a payment-option ARM that just reset the interest rate and dropped the negative-am option (the payment just doubled), so they mailed in the keys instead of the check....

      You'll be upside down due to new comps, and you won't be able to refinance.

      If you're getting scared, in this market, you're probably right. The train's a' comin', figure out how to get off the tracks.

      --Shannon

      •  Any suggestions? (2+ / 0-)
        Recommended by:
        eugene, ca democrat

        Put the house on the market now? I'm in Southern California, and I've been told (!) that the markets will hold better here.

        Plus, for now, there are three adults w/ incomes living here, so I think I'll be able to make the nut. Besides, I've been looking at rentals, and they're insane! as much as I'm paying for mortgage, almost, which is just nuts.

        Thanks for your reply, btw

        •  If you're paying the same as you would renting (1+ / 0-)
          Recommended by:
          ohwilleke

          (approx), and you can afford the payments (now and in the forseeable future)and aren't planning to move in the next few years, you should be all right.  Being upside down is frustrating, but if you don't need to sell or refinance, it doesn't make that much of a difference (assuming interest rates don't go way up).  If you could afford it, you'd probably sleep better if you refinanced now to a fixed rate though.

          Just my opinion, though, and I'm just another average joe w/ no special expertise.

        •  The problem with selling (4+ / 0-)

          Is that everyone else has the same idea. There will be a spring bounce... in inventory. Take a look at Rich Toscano's blog,

          http://www.piggington.com

          and don't be blind to what's coming.

          If you need to sell, find a realtor whose been through at least 1, and better, 2, down markets. You'll need to price well below comp, because with not much moving, the comps are lagging behind reality. Only about 10% of listings are moving. There just aren't that many buyers left, and the ones who are buying have the whip in their hand, and they know it.

          There is no longer any such thing as an insulting offer. Your first offer, if you get one, will likely be the best one you're gonna get.

          If you're already upside down, or are HELOC'ed to the hilt, you might want to consider renting now, and stopping payments on your mortgage. If foreclosure is your best financial option (sometimes it is), make sure you've secured a long-term rental before your credit rating takes the hit. Also, be very careful when evaluating potential landlords. You don't want to rent a house from a failed flipper, who's only getting 50% of the monthly nut in rent. He will be foreclosed, and you'll be out in the street, lease or no lease.

          If the decision is to ride it out, be aware that it will be many, many years before your house is again worth what it was in 2005. Just to revert to the mean (normal house-price appreciation is inflation + 1% or so) would mean a 40% decline. And remember that the downside always overshoots. Folks that bought at the last peak (1989 or so) didn't break even until 2001. This peak was twice or more what the last one was. The trough will be correspondingly deep.

          Bottom line, this is a business decision. Take all the emotion out of it, and find the most benefit for you. If there is no benefit, choose the least pain.

          I'm not any kind of financial planner, or expert. Just someone who tries to be as informed as possible, and projecting out from what I've seen. I'm renting, and will continue to do so until I can afford to buy the house I want with a 30-year fixed at 20% or more down. You know, the way houses were bought from 1945 till 2003. I'm not even thinking about moving into the market until 2009 at the earliest, and maybe 2012. We'll see how steep it comes down. And know, too, that history says that after the fall does not come the rise. Prices will be flat for along time before you see real appreciation again. And I'm not talking about 20% appreciation, either. I doubt I'll see that in my lifetime, and I'm only 33.

          The point is, take what I say with a good-sized chunk of salt. Don't bet your financial future on what some random guy on the internet said. It sounds to me like you need some experienced finacial help. I'm not that.

          --Shannon

          •  Avoid foreclosure at all costs (2+ / 0-)
            Recommended by:
            ohwilleke, ca democrat

            Sell--now before your credit is screwed.

            The advice to price below comps is excellent...they are stale in any event....

            If you price high thinking you can always reduce your price later, you are falling into a very common trap.  A house newly listed on the MLS gets all the attention.  If you drop your price 4 weeks into the listing, you are not going to get much attention--except the bad attention of a "defective" home that needs to be marked down.

            Do not let the bank simply have the house back--there is always someone who can buy it before then, many of them private investors.

            Be ready to let go of the house.....

            •  Maybe not... (0+ / 0-)

              Now, we have no idea if the poster is in this boat, but I've seen people who are already over 100K upside down, in a market that's just started to turn. If the bank approves a short sale, the difference is reported to the IRS as taxable income, unless the borrower has the difference to give to the bank at closing. I don't think that happens in foreclosure. Maybe it does, I don't really know.

              There is a level of upside-down-ness where foreclosure makes more financial sense than other options. Granted, it sucks to be there, but if you are, you'd be better off to take the credit rating hit than to loose hundreds of thousands of dollars. Most people can rebuild their credit faster than they can rebuild that kind of money.

              It's never a good idea to do anything "at any cost." There's always a level of cost that exceeds any possible benefit.

              --Shannon

              •  Not really (0+ / 0-)

                In foreclosure, a deficiency may also be reported as income...

                And, no, taxpayers who are insolvent may avoid the effects of a 1099.....

                •  Wouldn't that (0+ / 0-)

                  Increase the incentive to walk away?

                  •  Garbled? (0+ / 0-)

                    I don't think that insolvency allows one to walk away from 1099 income. You just don't have any cash flow to go with the income.

                    Democrats: Giving you a government that works.

                    by freelunch on Wed Jan 03, 2007 at 01:17:11 PM PST

                    [ Parent ]

                  •  The idea is to avoid (0+ / 0-)

                    a foreclosure on your credit report--which is devastating.....

                    •  I get that foreclosure is devastating (0+ / 0-)

                      Where you & I part company is the assumption that foreclosure is so bad that it should be avoided at all  costs.

                      There are times when, as bad as it is, it's the best decision. I don't plan to ever be that screwed, but it happens.

                      When people are looking at million dollar loan balances on properties that are worth less than 500 grand, they may be that screwed. A lot of them are going to think so. And yes, I think it is going to be that bad. Take a look at the incomes of folks living in million-dollar McMansions here in SoCal, and figure what they could afford on a traditional loan. That's what their house will be worth. They're gonna mail in the keys. To quote Gary "15% in '06" Watts, "It's in the bank."

                      --Shannon

                      •  I don't see a price drop of more than 10% (0+ / 0-)

                        So, the $500,000 write off would not occur....If prices drop that much, the world as we know it would have come to an end....You are talking Great Depression type stuff....(which I think implausible for a number of different reasons.)

                        I lived through the early 90s real estate bust and it was nowhere near what you are talking about...The figures showed less than a 10% drop, believe it or not.....If we have a 50% drop, no one will have a job and the banks would have all gone belly-up.  Anything's possible, I guess....just not very likely.  

                        Right now most homes in foreclosure actually have positive equity balances....

                        •  I think you underestimate the risks (0+ / 0-)

                          Take a look at the price/income graph here:

                          http://piggington.com/...

                          and you'll see why a soft landing is very, very unlikely. The peak values, rerlative to income, in San Diego this time around were 6 times higher than the previous two. Previoius two peaks were around 9.5:1, vs a historical average of 8.5:1. (+1, normalized) This time, it was around 14.5:1.

                          To expect a peak that large to be followed by a "normal" ~10% decline is, IMHO, unrealistic. Granted, I could be wrong, but I think that this is going to get far, far uglier than the cheerleaders would have you believe.

                          Take 1997-1999 prices (since those years were pretty much post-trough, and clearly pre-peak, so a 'normal market) and add an appreciation of inflation + 1-2%, which is historical for real estate. Subtract that from the 2005 prices. That's the loss just in a reversion to the mean, without overshoot. There's always overshoot. By those calculations, the place I rent from my inlaws would be "worth" somewhere between 235-250. Recent sales on my street are above 400K. Inlaws paid 200K in 2000. Nobody on my street has seen their income double in 6 yeasrs.

                          To support higher valuations, you'd have to come up with some underlying real econmic reasons for them, anad they simply don't exsist. It wasn't different this time. It's never different this time.

                          There seems to be more behind the extreme bear position than the soft landing one, to say nothing of the bullish fantasy.

                          --Shannon

                          •  Okay (0+ / 0-)

                            Income is one component, no doubt.  The other issue is land is just finite, so there is a floor to the value of the asset....

                            Rental income is one of three accepted methods of appraisal, and the preferred method for commercial properties.  Residential property appraisals go primarily the comparative sales approach, and there will always be plenty of people who will want to live in coastal California.....

                            What may happen is the (even greater) gentryfication of coastal California.....

                            I don't dispute a decline is occurring and will continue--I just don't see a Great Depression around the corner.  And I don't see all the appreciation realized since 1995 evaporating (I remember the the slogan, "stay alive till '95; do great in '98.")   If we do have another Great Depression, we will all have more to worry about than home ownership issues.....  

                          •  I don't see 95 prices happening either (0+ / 0-)

                            But you've got to pick a year, after which the gains were illusory. 2002 maybe. When the prices, fueled by speculative mania and easy money, disconnected from reality. Pick your year, and write anything above that off. While they aren't making any more land, they're sure building on a lot of land they weren't 6 years ago.

                            People who bought in the early phases of 4s Ranch (whoever picked that name should be fired) and Del Sur have already lost 10s of thousands, just based on what the builders are getting for the same units today. When you add in the 50k+ in upgrades they're now throwing in, the losses get much greater, and they don;t fully show up in the sales data. Do a google on "4closure ranch" and read the series of posts on the Bubble Markets Inventory Tracking blog. There was a story in the OC times recently about some folks who just got a 100K+ haircut from their builder.

                            History doesn't lie, although historians occaisionally do. If you're going to discount historical averages, you need to come up with a reason why it's different. The San Diego Union Tribiune's "Bowtie Bob" has been trying for 2 years now. A look at the numbers shows him to be either a liar, a fool, or (likely) both.

                            We'll see in 2012 or so who was right, but my money's on this being very ugly.

                            --Shannon

                      •  Mailing in the keys (0+ / 0-)

                        does not avoid a tax bill.  Nor does foreclosure.

                        In your hypothetical, you would have both a tax on the $500,000 (although the tax consequences are more complicated than that), and a foreclosure.....

                        There are many who have argued that a foreclosure by itself will avoid tax consequences.  Those folks (not you) have a "solution" that has garnered attention from the IRS and people like Spitzer....

                        Mailing in the keys is not the answer.

  •  Gotta ask (0+ / 0-)

    Where's Daisy?

  •  Affecting large banks, too (1+ / 0-)
    Recommended by:
    ca democrat

    HSBC, the world's 3rd-largest bank, has seen problems from its US subsidiary Household International, a subprime lender, according to the WSJ (Dec. 20). The fear is that problems from the subprime market are going to expand into unsecured loans (auto, credit card, etc.)

    The London bank is facing rising problems with its U.S. consumer-loans portfolio nearly four years after its acquisition of Household International Inc., a U.S. lender that specialized in subprime loans, or loans to people with spotty credit records. The acquisition has been well-received because it raised HSBC's U.S. profit, complementing its huge Europe and Asia businesses.

    Last month, the U.S. unit said a portfolio of consumer loans it acquired recently had quickly soured. This month, HSBC underscored the loan situation was worsening. That has led to an unexpected rise in delinquency rates in mortgage-related debt. These loans are secured with collateral, so the bank's ultimate losses may be pared. Still, it could portend further losses in unsecured credit-card loans. The problems have arisen despite HSBC's having one of banking's best computerized systems for analyzing consumer risk.

  •  A sign of hidden inflation (5+ / 0-)

    I know this is partly because of interest rates and all that, but I think it's partly because a lot of "little" expenses, ranging from food to daycare costs, keep going up a lot more quickly than people realize. Now that people can't take out home equity loans to cushion the blows, it's obvious how much more rapidly expenses are increasing than income is.

  •  The media doens't help here... (5+ / 0-)
    Recommended by:
    eugene, Catte Nappe, ppluto, ca democrat, jfm

    When every story about subprime lending starts with a reference to people with bad credit. Lots of folks think "that's not me, so I'm OK."

    10 years ago, that was true enough. But in the last 2 bubble years, a majority of borrowers were sub-prime, regardless of their credit score. There was no other way for people to afford to buy houses. Anybody who financed 100%, got an interest-only or payment option loan, is subprime.

    Here in San Diego, that's around 70% of the 2005 and 2006 buyers.

    As long as house ("home" is not a synonym for "house, damnit!!) values continued to go up at 20-30% a year, it was all good. You could refinance, paying off those nasty loans and buying a new Escalade to boot. Or you could sell to the next greater fool, who would be writing you a letter begging you to sell him your zero-lot-line, thrown-up-in-2-months, unlandscaped McCrapBox for 10% more than you listed it for.

    And hey, "real estate always goes up," right? After all, "they're not making any more land." Better "buy now before you're priced out forever."

    Except, it really wasn't different this time. Prices got out of line with reality, even previous bubble realities, in 2003. By previous market history, the downturn should have begun then. But the realtors and mortgage brokers and other associated parasites figured out how to keep the party going for another 2 1/2 years. Simple, really. Just pay less per month that it really would take to buy that house, and let the magic appreciation money machine do the rest.

    And for while, it worked. But then the music stopped. And this time, the ones without chairs (houses) are the winners, along with the ones who sat down in the first round and never stood up. But now, they're going around the room, yanking chairs out from under people.

    And oh, by the way, the spin from the NAR and other shills is "2007 will be a great time to buy!!" Sorry, folks. 2007 will be a great time to catch a falling knife, barehanded.

    2012 will be a great time to buy, unless you really believe that it's different this time, right after it failed to be different this time.

    --Shannon

    •  I fear you are right (0+ / 0-)

      And San Deigo has been screwed for at least a year....But San Diego leads the market, no?  So, things may get better sooner there than elsewhere.

      The key is employment.  Will it hold?  If it does not, the early 90s here we come.

      •  Did you know (1+ / 0-)
        Recommended by:
        ca democrat

        that around 40% of the job growth in SoCal over the last 6 years has been in real estate? Construction, brokers, agents, mortgage folks, etc.

        That's not even counting the secondary effects driven by HELOC withdrawls. Big box retail, cars, home improvements, you name it, it was funded by the magic ATM that folks were living in.

        The ATM is out of money. Thnk about everybody you know who bought a new car, remodeled their kitchen, put in a pool, whatever. Much of that activity is going to come to a screeching halt, because the money that was funding it is gone.

        But look on the bright side... In a couple of years, not only will you be able to buy a house at 40% off current prices, but you'll be able to get a hell of a deal on a 2005-2006 Hummer H2!

        --Shannon

        •  You have described the worst case (0+ / 0-)

          scenario.  Definitely possible.  I tend to think it won't be that bad.....We do not have the Defense Industry cut backs that we had in the early 1990s.....

          •  And that's exactly the point... (0+ / 0-)

            Win 1991, the loss of high-paying jobs crashed the real estate market. This time around, the real estate maraket crashed itself, and is already causing a loss of high-paying jobs.

            When you have a region whose economic growth has been tightly tied to the performance of a particular asset, which is observably true with the SoCal economy and residential real estate, what happens when that asset starts performing poorly?

            What has fueled the consumption around here? It sure as hell hasn't been wage growth. it's been largely the "wealth effect" (where have we heard that one before?) of insane real estate value growth, unsupported by any underlying economic reason for same. Look at the data.  

            When everybody's getting "rich", or more acacurately, borrowing every dime they can to support lifestyles they cannot afford, you have a house of cards. And the wind is rising...

  •  Good news in my book and good riddance. (2+ / 0-)
    Recommended by:
    Cal4Clark, jfm

    So, we have the following problems.

    1.) Large, sub-prime lenders are closing their doors, not taking any more mortgage applications.

    2.) The larger issuers have already gotten out of the market. . . .

    More importantly, this is the third sub-prime lender to stop doing business in a month.  That's a terrible sign for the coming year.

    While the pain suffered by subprime customers who already have loans is bad news.  The decline of the subprime mortgage lending industry and demise of the major players is great news in the medium to long term.

    Sub-prime lenders are an economic pathology we would like to see market forces destroy, not a valuable part of the economy whose decline should disturb us.

    A majority of foreclosures in Colorado (the #2 foreclosure state in the country) are subprime, despite the fact that they make up a fairly modest share of the total market.

    These lenders do many things which would be considered fraud if they were securities brokers rather than mortgage brokers.

    1.  They encourage inappropriate churning among people who have equally good or better mortgages now, simply to generate fees.
    1.  They routinely secure customers through deceptive advertising, often having fine print that actually contradicts the big print, or creates a strong false implication that the ad is government sponsored.
    1.  They offer products that are inappropriate for their customers.  

    a. Sometimes they do this by offering loans that customers are unlikely to be able to pay as agree over the loan term as soon as teaser rates end or adjustable rates kick in.  

    If there is a reasonable probabilty that a mortgage borrower will default in a five or ten year period, that borrower shouldn't be getting a loan in the first place.  Missing a mortgage payment, even once or twice, is far more serious than missing a credit card or rent payment to that mortgage borrower's long term financial future.

    b. Sometimes they do this by offering mortgages at such high interest rates that the customers would be much better off renting than owning, in markets where real estate appreciation is not big enough to make this gamble a wise one.

    A subprime mortgage is a worse choice than renting for the vast majority of people who take out subprime loans, and is almost always a worse choice than renting for people who take out subprime loans with little or no down payment in real estate markets that aren't rapidly appreciating.

    One of the main virtues of renting is that rental costs typically approximate the owner's cost of owning the property in a competitive market (i.e. interest plus property taxes plus depreciation plus insurance plus maintenance, with profits coming largely from long term real estate appreciation), and as a result, renters benefit from the fact that investment property owners generally have better credit than they do.

    c. Sometimes they do this by offering high interest rate loans (often with prepayment penalties) to minorities in predominantly minority neighborhoods who qualify for conventional rate lower interest loans but aren't aware that they qualify.

    This goes hand in hand with the illegal practice of major banks refusing to lend in minority neighborhoods.  With fewer subprime lenders in the market, it is more likely that the people who are eligible for and should be getting prime mortgages will get them, because fewer bad choices are out there.

    "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

    by ohwilleke on Wed Jan 03, 2007 at 09:04:35 AM PST

    •  Agreed (0+ / 0-)

      Ohwilleke's explanation is far more expanded than mine would have been, but the key point is exactly right - sub-prime lenders are essentially parasites rather than economically productive lenders.  The fact that several of them are shutting down is probably a bad sign in the short term - it implies that they see the housing market as continuing to stagnate or even actually decline over the next year or so, so they can't make profits even with extensive foreclosures.  But in the longer term, having these guys gone is a benefit.  

  •  Housing has been a bubble (1+ / 0-)
    Recommended by:
    jfm

    with rising prices paid for poorly built pieces of crap financed with irrational schemes.

    Most of the stuff built in the last 20 years has been literally "thrown up" - some are already in need of major repairs.

    Of note, "synthetic stucco" - cement over insulation board - has been a recipe for rot and mold.

  •  Well (0+ / 0-)

    The reality is that a lot of these borrowers should never have been approved for their mortgages. And now everyone is suffering the consequences.

    http://www.keen.com/jiacinto For DC related travel advice, please visit that link.

    by jiacinto on Wed Jan 03, 2007 at 09:48:34 AM PST

  •  As I said last time we had one of these . . . (0+ / 0-)

    Good riddance.  They wrote bad paper and they deserve to go under.

    Lets remember we are talking about professional finance guys here.  They knew the risk; they took it, now they get to take it up the ass.  Forgive me if I don’t weep.

    Sometimes I think that I'm bigger than the sound . . .

    by TastyCurry on Wed Jan 03, 2007 at 10:36:15 AM PST

  •  What a piece of junk (0+ / 0-)

    They should be called junk mortgages.  They weren't designed for people to ever be able to own their own homes.  They are just renting from Fannie Mae, because the original mortgage company always flips the loan to somebody else.  The beneficiary of these loans were the homebuilders.  They fueled the so called boom of the last 5 years, but it was done with borrowed money.  Now the wolf is at the door.  Meanwhile, manufacturing had a better month to everyone's surprise. (Who knew we still made anything here?)  I suspect it's due to the falling dollar.  People overseas can afford to buy our stuff.  People here won't be able to afford anything but our stuff.  It's the silver lining in the falling dollar story.

    Winning without Delay.

    by ljm on Wed Jan 03, 2007 at 10:41:22 AM PST

  •  I'm Not an Economic Genius But... (1+ / 0-)
    Recommended by:
    pissedpatriot

    I'll tell you this much:

    It doesn't take a genius to figure out that in a time of $700,000 mortgages and little more than Wal-Mart jobs available to pay them down, something is going to give.

    •  my (0+ / 0-)

      my prediction for the 21st century is the rise of the gated community with a continuation and birth of a ever growing slums and ghettos which will surround them.

      The US will become like most island resorts.  The rich living in the gated off hills mantions, and all the rest of the hourly workers scarbbling about in the low lying ghettos.

      mr republican, is that a flag in your pocket or are you just glad to see my son?

      by pissedpatriot on Wed Jan 03, 2007 at 11:18:16 AM PST

      [ Parent ]

    •  Not necessarily. (0+ / 0-)

      If the expensive homes are purchased primarily with inherited wealth, and the number of big mortgage holders is fairly small and made up of people in the small percentage of people in the economy who are thriving, this could be sustainable.

      We could simply be returning to pre-industrial economic situations where inherited land and other wealth, rather than current income, is the main determinant of social class.

      "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

      by ohwilleke on Wed Jan 03, 2007 at 11:40:15 AM PST

      [ Parent ]

      •  It's not sustainable (0+ / 0-)

        When all of the peons grab their guns and torches and go after the folks up on the hill. It doesn't take a very big mob to crash throuogh the gates, kill the rent-a-cops, and burn your quiet, gated "community" to the ground, hanging folks from lamp posts as they go.

        If your scenario happens, mine will follow. It always has.

        •  That's why I'm 100% against gun control. (0+ / 0-)

          I don't know which side of the two-way shooting range I may end up on, but a decent rifle should come in handy regardless :).

          •  That is why I'm for gun control. (0+ / 0-)

            After scenario's like Leftie Gunner's, the rioters are always defeated, the insurance companies always pay to fix the damage and compensate the dead rent-a-cop's families and those of other victims, the walls to the communities just get higher, and the rioters under up in prison or dead, often before courts-marital instead of civil ones.  And, legislators refuse to enact reform after incidents like that because they don't want to look like they are giving in to terrorism.

            The only way to secure meaningful change is to crash the gates of legislatures.

            "Those who can make you believe absurdities can make you commit atrocities" -- Voltaire

            by ohwilleke on Thu Jan 04, 2007 at 09:15:23 AM PST

            [ Parent ]

  •  DEBT (0+ / 0-)

    DEBT is a form of slavery and the rich know it. They can continue to get us slaves to do their bidding as long as we are behind the eightball.  Keep us in debt, keep us a few paychecks from homelessness and the slave workers will keep nice and quiet.

    Debt is about power.

    mr republican, is that a flag in your pocket or are you just glad to see my son?

    by pissedpatriot on Wed Jan 03, 2007 at 11:14:46 AM PST

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