Update…there is MORE bad news coming
I know I haven’t posted much lately…hasn’t been much to say. Sure, I could analyze the way things are falling out, but a million other people are doing that. I gave my input as to what I thought was going to happen, and for the most part, things are progressing as I said it would.
That said, I have been busy lately starting a new company. When I have been working, I have a little picture-in-picture window on my monitor where I can watch TV. I usually keep it tuned to CNBC as it is ‘business’ related news. They have been all over the subprime mortgage mess, with lots of attention on Bear Stearns and their hedge fund issues with the subprime market.
Then today they went somewhere new. This is something I have also said: this goes WAY deeper than just subprime mortgages. Alt-A and A-paper loans are next. That was the ‘big’ story CNBC was just talking about. The huge jump in alt-a loan delinquency, and how soon it was happening.
Here are the ALT-A delinquency numbers from CNBC:
2004 - 0.9%
2005 - 1.59%
2006 - 4.21%
To compare, subprime used to be in the 2-4% range, but is now over 14%. That said, I was talking to a contact who deals with capital markets and they were telling me about some pools of ‘recent’ alt-a loans where the delinquency rate had 18-20% of the loans 60 days late or more.
Alt-a loans were famous for the low and no-doc loans, stated income, stated assets, etc. Just because these people had ‘good credit’ doesn’t mean they made the money to afford the homes they were buying. These borrowers are probably a bit smarter, and will be able to ‘hang-on’ a bit longer than the typical subprime borrower, but don’t think there isn’t going to be double digit delinquencies in the ALT-A markets in the near future.
Investors and speculators made up a large part of the alt-a market. As these ‘investments’ become huge financial burdens, watch them cut their losses by cutting prices to sell, or just foreclosing. These properties will add even more downward pressure on the market.
Let’s not even think about the financial impact all this easy money is going to have on the bond market. Bear Stearns is doing ‘corporate’ damage control by firing some senior execs who were ‘responsible’ for their subprime mortgage mess. Lots of hedge funds, mutual funds, and retirement funds have exposure to mortgage backed securities in one form or another.
So watch the ALT-A loans next and look for eventual increasing delinquencies with even A-paper loans.
Now for a quick story…. I was in Las Vegas this past weekend. Ran into a guy I used to know who worked mortgages there. He and his wife were both in the industry. They had 4000+ sqft house, and both were driving nice Cadillac Escalades. I ran into the guy when he got out of the limo to open the door for our party. He said they took a bath on the house when they sold it, and both of the Escalades are now gone. He drives nice limos and she works at one of the local casinos. They are still making ‘good’ money, but nowhere near enough to afford the lifestyle they were living when the Vegas mortgage market was on fire. $700k houses and $1000 a month car payments need lots of income to maintain.
Well, there you go. I know it has been a while, but I have been busy. Like I have said before…this is going to take YEARS to pan out, so don’t worry if I go a little while between posts. I’ll be here watching the entire thing, so don’t worry about that. Thanks for your patience.
Stay tuned….
SoCalMtgGuy
June 29th, 2007 20:40
Thanks for checking in SoCal.
-Chris
June 30th, 2007 12:21
SoCalMtgGuy,
I am a Canadian who very much wishes we had someone like you to tell us where we are headed! In my city, prices have gone up more than 100% between 2005 and 2007……I am a renter looking to buy but very nervous about the market. Know anything or anyone who might know about Edmonton, Calgary and Vancouver?
Thanks!
June 30th, 2007 13:31
Good to see you back! That is a remarkable story - a slice of the real impact of all the fraud that has created this mess. I think there is still quite a bit of denial here in Southern California - I see absurd prices on shacks that don’t look much better than the Texas chainsaw massacre house in neighborhoods where your chances of being murdered are three times the national average - houses that would be difficult to afford on a six-figure income in an area with a median income of 25K.
It is hard to imagine just how big the fall outs going to be here when it all comes tumbling down - but the possibilities make my hair stand on end.
I’m glad I resisted the pressure to “buy before you’re priced out!”
June 30th, 2007 13:35
Yet another very informative post. I have a neighbor/friend who owns his own mortgage business, and I am always skeptical about how upbeat he is about market conditions and the inevitablity of real estate to keep increasing in value. I asked him about the probablity of interest rates increasing and he practically said interest rates can’t go much higher. I asked him about the 70’s and 80’s when mortgage rates were 12-15%, and he seemed to think that will never happen again because of the global economy that we now play in. I see todays low interest rates as the only thing holding everything together. If they rise, look out.
Great post, keep em coming.
June 30th, 2007 13:48
The Alt-A stated income gravy train is crashing right now.
[ABX Index History]
July 1st, 2007 14:26
One of my close friends in the Show Me State recently fired his office staff and is 1099ing his wife for running most of the operation while he treads water in his mortgage sales business. A few years ago he was getting unsolicited offers from “investment managers”. They wanted to package 10s of millions of dollars into loans pushed through his operation. I’m glad he refused that and stuck to reselling.
July 2nd, 2007 19:17
Well, thanks for stopping in and posting that relevant information. The real zaniness is just starting to get rolling. It will gain momentum.
This whole housing mess, this whole house of cards was just flim-flam from the git go. You don’t need a PhD from Yale to understand basic fundamental economics 101.
Who in their right friggen’ mind would loan people making less than $20K a year picking tomatos, hundreds of thousands of dollars?
What kind of sense does that make besides nonsense?
I think your analysis is correct, this thing will take years to pan out, but the misery will fan out in waves and waves that crash upon the shores of our economy like tsunamis.
This is going to be a violent series of rolling-wave defaults and time-phased crashes.
It’s going to be long and fugly, that’s for sure. Many people are going to take big hits, some won’t recover in their lifetimes.
How it finally shakes out is anyone’s guess, but I have a pretty good idea, and it’s not nice.
But, if you had a little foresight and were prudent enough to get out of the market & you’ve managed to stash away a few dollars, you should be able to make out like a friggen’ bandit.
Late.
July 4th, 2007 21:40
Your infrequent posts have made me check back all the more frequently..hehehehe
Although I check a number of the “other” housing sites.. your insights are always well appreciated and insightful. I’m getting my popcorn ready right now to watch the Alt-A loan debacle.
July 5th, 2007 22:45
hey Jim in San Marcos:
i’m on the westside of l.a. where unfortunately, prices are not dropping yet. can you give me a sense, in percentage terms, what kind of decline you have seen in prices in san diego?
July 6th, 2007 15:51
waiting,
I am in Santa Monica and can definitely agree that prices are not really down yet. There have been signs of stress though…foreclosed condo on 26th and Wilshire, some scattered short sales, etc.
I think a lot of San Diego is down somewhere around 5-10% and is much worse off further inland where the builders are slashing prices.
I don’t know if you have seen the westside bubble blog but that is where I talk about the westside a lot…
July 6th, 2007 18:55
“I don’t know if you have seen the westside bubble blog but that is where I talk about the westside a lot…”
do you mean the one with the “meltdowns”? if so, that site seems to never get updated, so i have stopped reading it. if you are referring to a different website, can you please provide a link? thanks.
July 20th, 2007 20:41
Thanks for checking in, SoCalMtgGuy. I really appreciate the insightful comments that you provide on the housing market. I have seen graphs indicating that there will be lots of ARM’s resetting through the rest of this year and next year, so I figure the market is going to remain weak at least until the end of 2008.
Anyway, please keep us posted on your thoughts on how this is all playing out.
July 24th, 2007 12:31
SoCal,
Good to see you are still out there. The original blog has an interesting entry on how a borrower is suing his lender and finding all kinds of fraud in the paperwork of his loan. I think a look into what he is going through may be an interesting blog entry as well as the testimony he gave the federal reserve.
August 1st, 2007 10:30
Hey SoCal, it’s playing out just as expected
I’m really glad I didn’t buy in the South Bay of LA in early ‘05 - although everyone around me told me I was nuts, including my wife who was very frustrated with my “beliefs”. Oh, how times have changed! Looking forward to your next post.
August 1st, 2007 12:58
In the forum, I told the story of an 89 year old woman who was given a $256,000 option ARM by American Broker’s Conduit. ABC went out of business yesterday when their parent company, American Home Mortgage, had it’s credit lines pulled by it’s creditors. I have another story I will be posting shortly about a retired senior citizen couple whose combined income is $28,000/yr but somehow managed to receive an option ARM for $274,500. The culprit there was MortgageIT. To my knowledge, these loans are still be being paid as agreed. Somehow, I don’t think they will be able to afford the reset. For as many foreclosures we’ve already seen this year, this is just the preview before next year’s subprime and option ARM horror flick feature.
It sure didn’t take long before Alt-A = subprime. Fundamentals are coming back big time.
August 1st, 2007 19:49
Alt-A..
Accredited Home Lenders (AHM) just went belly up!
Who’s next?
Impac Funding (IMH)
IndyMac Bank (IMB)
The ‘fun’ is just starting!
August 2nd, 2007 05:05
You really do need a scorecard to keep track.
It’s American Home Mortgage (AHM) that went under.
Accredited (LEND) is still around because they got an emergency loan at 13% interest. They are in the process of being taken over by a private equity firm, but evidently there are second thoughts by the buyer, they want to lower the buy price.
Impac (IMH), might be suffering because of guilt by association (Alt-A), however their stock price is now about $2, massive layoffs, and who knows if they can survive? There is definitely smoke here.
IndyMac (IMB) will probably survive because they are a little more diversified than Impac (although they just bought Pinnacle Financial, it may be too late for it to make an difference). They have a servicing operation and they do make money with their reverse mortgage subsidiary Financial Freedom (FF is the biggest player in the reverse mortgage market, although there is more competition this year, they aren’t as profitable as they were the last few years).
Whoever owns World Savings (huge Option ARM lender) would be the one I would be looking to short.
August 6th, 2007 12:37
Come on, SoCal — at least surface to gloat a little!
August 6th, 2007 19:54
Hi SoCal,
Long time, drop me a note will you? I added you to a list of recipients about something pressing right now.
In Miami, there are still Dozens of cranes building new condos - what are they Thinking??
The condos will be the worst of it here due to over-supply. That’s what starting rotting on the vine first…. Last time too, in the late 80’s & early 90’s. I read Something last week hinting at some gov’t intervention, but it seems Ben & the guys are talking “containment”.
Did you guys see the article on MSN or CNN, where this guy was giving them hell about that ‘pollyanna’ stuff? I agree with all that! Who Do they think they’re kidding?
Of Course it’s Got to affect “the greater economy” with this much sh** hitting the fan in waves, like someone said. The re-sets aren’t all that bunched up though, because during the frenzy, the typical cycle or seasonal sales rythm was just all-out panic to buy something before the next fool - at the time I wondered if I had some kind of natural immunity to the buying bug! I just couldn’t bring myself to jump into water I Knew would inevitably be at least 1/10th blood….
Took a ride to Palm Bch today to see a foreclosure that I’d say has been empty since Wilma. Caved in ceilings, mold on the walls. Beautiful landscaping, though totally jungle now. Good ‘bones’ but the skippy who appraised it about 20% high for the 3rd in a series of refi’s Summer 2005 should be put with his mortgage broker client, in front of a firing squad.
Homeowner probably just couldn’t resist the temptation, it was so easy to just get more money each time…. bastards, and the fools that fall for it. Back when, I used to Hate seeing baby clothes & tricycles in the houses. This one had evidence of deliberate damage, tearing out drywall around the bathroom walls?? For the copper maybe? but the pipes looked pretty intact - maybe done by crackheads after they split.
Come to think of it, the reviewer oughta have her head examined walking into that place, right?
I have an investment idea and I’m doing it with a rental house here - check out healthcare REITs and other related stuff - doing very well. This can be a kind of ‘kit’ or franchise thing, once I get info for each state - there are probably few variations with the standardized medicare, VA & all. Need at least 4 BR’s - Duplexes & other multifamily are better in FL, due to cost of place to put them in vs. income and economy of scale. But with foreclosures, it’s safe to say there will be a lot of rambling homes & also multi-units for a cheap price soon.
I’m very surprised I’m not seeing more for sale now, actually. What are they doing, sitting on them? What I’ve seen is that the $350 for an appraisal chokes them, so they want to be “smart” and get a BPO (Broker’s Price Opinion) Those only cost $50 but you Get what you Pay for! Sure, the boom-puppy either Overprices it, so that it Sits, or he Low-balls it so his wife can pick it up cheap, or his brother in law. These people do NOT know value, just how to cash a commission check - sorry to the ones who are ethical but as SoCal said, most will do anything to protect their 6% and don’t give a rat’s behind if the buyer or seller win or lose.
Gotta go, take care all and wait til there’s more blood in the water. It’s coming, don’t jump yet - the bottom only appears in the rearview mirror - the boom won’t start up again overnight without you knowing….
Doreen
August 6th, 2007 20:02
Subsonic22 said “Whoever owns World Savings (huge Option ARM lender) would be the one I would be looking to short.”
Actually World sold their mtg co to Wachovia several months ago and the transition is now complete though they still do business under both names. BOA is puzzling the hell out of me and many borrowers. One I spoke with today said 3-4 mo ago they Had to refi (same lender mind you) out of a nightmare loan, into fixed rate. Bank of America charged them $26k!! for about a $375k loan (small equity, they haven’t got ahead enuf to fix the house yet, bought 2 yr ago - small wonder) and then just the other day, they’re calling them and offering No Clos. Costs, etc, their new miracle loan, I guess you’ve all heard of it…. Who are you and what have you done with my sharks, I mean, bank?
Doreen
August 6th, 2007 20:08
Metro:
What original blog? I’m interested in that - I’m going to be working on lawyers on that issue, for extra work. Ok, for any work at all, as an honest appraiser….
But I’ve personally Seen loan apps changed by Fr****t myself, after they were submitted to the broker. Stips/conditions included signing the new applic with the jacked up income…
No Wonder it’s in foreclosure you fools! But the borrowers Signed it. Of course, they were desperate by then, to trade one bad loan for a bigger one, so now the bank has a home to sell with a BPO of $700k! I gave it $450k 6 mos ago & someone offered $500 but they refused it. Still empty and now the HOA may take it! This is nuts, for $10k in unpaid dues dating back nearly to Wilma now.
Doreen
August 7th, 2007 09:23
Everybody…
Thanks for the comments. Look for an in-depth post coming soon. After seeing Hillary on CNBC this morning I NEED to post again. Let me just say that 1 Billion in taxpayer dollars to ‘help’ people is NOT the solution.
Look for more as I further discuss the mortgage meltdown and how the financial press is covering things.
Stay Tuned…
SoCalMtgGuy
August 20th, 2007 11:46
sorry it took so long to get back at you Doreen (FL Appraiser) . same entry but on
www.anotherfuckedborrower.blogspot.com
October 12th, 2007 14:38
If there are any lawyers needing a expert witness as a mortgage broker please check out: http://www.expertwitnessmortgagebroker.com/
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