What else can you do?
Whew…I’m tired! The horse is down, but no matter how much we beat it with data, facts, math, inventories, etc. ‘the horse’ will just not believe it one bit that real estate can go down.
I have covered most of the popular mortgages….from 2/28, 3/27, 5/25, 3/1, 5/1, 7/1, 10/1 ARMs, interest only ARMs, option ARMs, fixed rate loans, even 40 year mortgages on up to 100 year mortgages. We have looked at HELOC’s (home equity line of credit), seconds, 125% loans, sub 500 FICO score loans, stated loans, NINA loans (no income no asset), no doc loans, and more.
We have looked at the data for ARMs and option-ARMs. We have seen that in many ‘bubble areas’ ARMs are used well over 70% of the time. It doesn’t matter if the option-ARM is tied to the COSI, COFI, MTA or LIBOR…it is going to adjust or recast sometime. It doesn’t matter if the I/O period is 1 year or 5 years, it is going to adjust. When these loans adjust, people better have equity to refi, or the income needed to support the payment. When I see things like THIS, I think people just might be a little too comfortable with 50-100k in equity.
I have looked at the data, and compared it with my personal experiences, and nothing surprises me based on what I have seen. I have seen the option-ARM become 80-90% of the business at some of my broker shops. I have seen the way they are sold, and how many clueless borrowers fall for the ‘low payment’.
We have looked at income, inventories, and housing statistics. If I were in Vegas, I know where I would put my money on the direction I think things are headed…and I think many of you feel the same way.
That said, no great long post from me tonight. There are now over 160 active topics and over 1000 posts in the forums. Use the comments here, or the forums to chat back and forth over the weekend. Lots of good posts in there. It is worth checking out if it has been a while since you last stopped by…it has grown a lot!
As usual, I look forward to the comments and feedback!
Have a great weekend!
SoCalMtgGuy
February 24th, 2006 06:57
I’d bet that a lot of us would like to know how many slices and how big those slices are for the loan creation participants. Who gets paid up front, how much the secondary market pays related to the loans list price, etc.
February 24th, 2006 07:03
Robert,
I wish I had more ‘detailed’ info on the secondary market. I hear it when some company gets killed trying to sell a portfolio of loans and I hear when they take big losses…but those stories can usually be found in the media as well.
I can talk more about commissions next week.
I wish I had the data that broke down each type of ARM.
SoCalMtgGuy
February 24th, 2006 07:13
We haven’t had any FB stories in a while. Have any good ones lately?
February 24th, 2006 07:21
What’s going on in the loan business? Do you still have your job? I hope you do; there are still people needing loans. How is the month compared to Feb 05? What kinds of calls are you getting? Are you seeing people trying to get into that fixed rate loan, so they can get rid of that ARM? Or do you think most borrowers won’t be able to swing those higher payments?
February 24th, 2006 07:22
I agree with Fred Fry. SoCalMtgGuy, we *love* the f’d borrower stories! Where are the f’d borrower stories?
February 24th, 2006 07:25
I have data, but no real stories behind the data. I have FICO scores, loan amounts, etc. but not the info behind it. Brokers are burning up internet leads, etc. so they aren’t really knowing too much about the person other than the data they filled out on the internet or that they got through phone contact.
Things are MUCH slower. Running into people that are generally in a tight spot, but a lot of them are convinced things will ‘take off’ in the spring and they will get more ‘equity’ to refi, or the fed ‘has to’ lower rates again, etc.
I’ll keep you posted…
SoCalMtgGuy
February 24th, 2006 08:26
We all know people will gladly line up for a 40 or 50 year loan. Heck it could be 200 years, it don’t matter how long the loan period is because all that matters is payment. If there is a faint opportunity for someone to own a home they will do whatever it takes. If you have a choice of a shotty loan or not owning at all what will people do? From my experience owning a home is so emotionally powerful that they will do almost anything to get one. The lending industry has this in their arsenal of tools to make a profit from this emotion. If the loan is available people are going to take it.
February 24th, 2006 08:31
Thanks for putting together this excellent blog, I’ve become a daily reader!
February 24th, 2006 09:56
I have become a daily reader - this is addicting. I love this, Ben’s, and Patrick’s site.
February 24th, 2006 09:57
I have become a daily reader - this is addicting. I love this, Ben’s, and Patrick’s site. Many others are excellent - just too much to read all of them. SO CAL - thanksfor your hard work, and hopefully we have some from life time bondage.
February 24th, 2006 09:59
Need 2 leave:
How do you like abq? Seems nice out there from what I’ve seen.
February 24th, 2006 11:20
Anyone who thinks the fed ‘has to’ lower rates obviously doesn’t follow what’s going on in the trading pits at the CBOT. They’ve priced in two more 0.25% raises this year…
Dumb idiots. They’re going to be f’d, f’d, f’d borrowers!
February 24th, 2006 11:34
Arizonadude - I agree that people will take the lowest payment, but with interest rates so high, hardly anyone can even buy the median price home, regardless of the loan product. I think that’s a big reason that homes are sitting. There are still plenty of RE bulls, but they can’t qualify for ANY loan right now. As we’ve seen, even a 100 yr doesn’t help too much. You can spend $2000/mo on a $400K house, but you can’t find a house for that price in SD. If you get a median priced house at $600K, even a 100 yr loan would run $3000/mo + insurance + taxes, so about $3900/mo. Who could afford that? The point is - a 100 yr loan won’t help. You need lower interest rates or a resurgence of I/O neg am, teaser rates to get buyers back in. But the MBS market wants to be paid for the higher risk, so those low rates are becoming less available?
February 24th, 2006 14:00
So what is the deal with the oc register? If I remember correctly they used to post median housing prices every sunday. But after the huge drop they displayed on Feb 12,2006 they have not updated the graph?
Am I wrong or did the register get some pressure from all the big OC mortgage companies and builders to stop posting the results?
http://www.ocregister.com/ocregister/money/atoz/article_998178.php
February 24th, 2006 14:18
Here in Austin the Kia dealership is running ads on the radio touting that they’re selling Kia Rios with 72 month financing.
Think about that a second… An $11,000 car financed over 72 months. Not $60,000 BMWs or Mercedes which are both expensive to purchase and maintain value (relatively speaking for cars) over a long period, but a cheap essentially disposable car. You’re probably underwater for 60 of those 72 months.
The difference between that Kia over 60 months and over 72 months is $31/month. And if people are that sensitive to monthly payment, there’s going to be blood in the streets when the ARMs start adjusting upwards.
February 24th, 2006 15:12
Fred Fry wrote:
We haven’t had any FB stories in a while. Have any good ones lately?
Check the forum:
http://housingbubblecasualty.com/forum/index.php?board=46.0
February 24th, 2006 19:39
Homer: “No. Homer Simpson does not lie twice on the same form. He never has and he never will. ”
Marge: “You lied dozens of times on our mortgage application.”
Homer: “Yeah, but they were all part of a single ball of lies.”
February 25th, 2006 06:57
OC 4 Life:
See Auction Heaven in 2007’s posts from earlier in the week on the OC posting on Ben’s thehousingbubbleblog.com
He was giving the OCR a bunch of shit for not covering the bursting of the bubble.
February 25th, 2006 07:10
mtnrunner2
I agree that homes are way overpriced right now. I do think the creative financing has allowed things to get out of control. When you can speculate with no money down we have a problem for sure.
February 25th, 2006 07:28
here is an FB story from japan. A friends dad bought with upper middle class income built a really nice home an hour&half outside of Tokyo in 1980, beautiful area apparently with a univ. nearby, lake and all that. paid about $900,000. In 1980 jp. that was good chunk of money but he was 35 and had several years of upward moving salary ahead of him.
His employment was steady as expected and he had a great time. the late 80’s everybody in japan was doing well, lot of god times, the bubble period was crazy, his house was worth so much that if he sold it and paid taxes, there was no way he could buy something remotley similar. He paid the minimum on it all those years, afterall whats the point if it keeps going up anyway. lived large, maybe even occasionally borrowed against it or refi-ed.
The bubble came and went, now he is 60 facing early retirement, the house if sold will not pay off the loan.
they are in effect bankrupt and if they sell , homeless.
so their daughter, my friend is having to sign on the loan
to take care of the aging p[arents. Dad’s hoping to work another 3 years and make as much of a dent as possible and with her signing the bank wont force a repossesion.
I think now she is fucked as well and if she ever gets married, it will affect that as well. a 25 year old indulgence and its still playing out.
February 25th, 2006 10:32
SoCal,
check this website out. It is your competition
.
http://www.fantasylandmortgage.com
February 26th, 2006 06:44
I drove to Riverside yesterday (Saturday) for a school activity. Riverside is one of the great armpits of Southern California i.e. high crime, unbearable hot in summer, no culture. I was amazed to see all the building going on on a torn up two-lane road. Exhibit A of George Bushes vision of the new America. You live in a mansion in a city with absolutely no infrastructure. Just imagine that 50 mile commute. I also judge economies by the look on people’s faces while driving. Boy does the SUV, 18 foot long stars and stripes flowing in the smoggy breeze, crowd look weary now. They haven’t even got the energy to raise their middle finger in salute when they blow past you with their “monsta truck” with two offroad bikes precariously strapped on in the rear. Lots of pain in the future for L.A.
February 27th, 2006 09:01
ArizonaDude. I am loving ABQ. We just purchased a 2700 sq ft home at the foot of the Sandias, and 10 min from downtown for $299K, market value is about $330K. My wife is very happy with that. It is nice not to be one of the FBers in CA, where this home would be north of$1M (pre-bubble burst). The skies are clear, weather temperate, lots of outdoor stuff, mountains, skiing (next year at least), lots of restaurants, less traffic, much cleaner, and more affordable than the Bay area where I was living before. I am passing through AZ on I40 while travelling between CA and NM for awhile. I am so anxious to see the bubble burst in CA, so I can say (even silently) I told you so, to all of the FBers that were giving me a hard time for refusing to buy into that crazy market.
I agree that Riverside is one of the armpits of CA. However, there are too many armpits there to mention. Many people will be living in their McMansion tombs for many years, commuting only 50 miles if they are lucky, or will be mailing the keys to the bank,and fleeing to Mexico to escape the horrifying debt that they will be in.
February 27th, 2006 09:26
need 2 leave ca
I’m glad you are enjoying it out there. I drove out there about 6 weeks ago looking around. I’m a cali native but got disgusted with home prices too. In the foothills near sacramento is where I’m from. Hopefully the bubble bursts sooner than later out there.
I was looking around rio rancho area. Seems nice out there.
I’m in arizona right now renting waiting for bubble to pop. I have to go back to cali for work in a few weeks. I will rent a room up there and just keep watching things.
Glad someone is thinking like me.
February 27th, 2006 09:32
Arizona Dude. Come out to ABQ. Rio Rancho is also a nice town, but a lot of building going up there. I prefer being east of the Rio Grande river, so I won’t get caught in the traffic crossing the few bridges. That would be the only drawback to Rio Rancho is if someone had to cross the river in rush hour. I am headed back to CA for a week and have a friends place to stay in while there. I watch this close. If you get to ABQ, let me know ambell1@iwon dot com
February 27th, 2006 10:54
Hello need 2 leave,
Have you seen any evidence of new second/vacation condos being repriced for quick sale? I am thinking about the Angel Fire area among others in NM in future, and am wondering whether out-of-staters stressed by first home mortgages are starting to unload. I see signs on eBay of some uncompleted complexes in the Southwest seeking new investors.
February 27th, 2006 12:12
To all you Riverside detractors; NO. When you call Riverside “an armpit” you are way off. I don’t even understand how you can think such a thing. Knowing about armpits implies you have at least a cursory understanding of anatomy. That said you can see why if you understand anatomy that armpit is just not even a close approximation of the correct body part. Not even within farting distance.
February 27th, 2006 15:16
I’ve been tracking the bubble from Chicago for a while. The midwest in general isn’t in one (you can buy a 2 bedroom house in Champaign-a culturally inclined college town-for 100 grand or lower). But many areas in Chicago have gone off the deep end, particularly in the area I currently live in. My SO and I have gone to a couple open houses for amusement.
Here is the first culprit, if you have a ziprealty account:
http://tinyurl.com/qs6co
It’s a ONE MILLION dollar, 3 bedroom rowhouse sandwiched on a small strip of land between two major streets, a White Hen, a Gas Station, and overlooking a cemetery (a plus or a minus, depending on personal taste). Given the crime is low, it has granite countertops in the bathroom and kitchen, and a patio overlooking said cemetery, as well as a two-car garage, and lots of square footage (but 3 flights of stairs, so not for the weak-kneed), so the property itself is nice. It’s been on the market…. 1214 days! I don’t think it has ever gotten a price reduction.
This is the kind of place that a family with two children should live in. Yet… How many of those kinds of families are making the 300 grand to be able to “afford” that kind of place to live in? Keep in mind that you have to send your kids to private school, and that food and gas a more expensive in this area.
There are other houses that are much more expensive (1.3 mil range) in this area, but generally have an extra bedroom and lots of luxury furnishings: two steam baths, overflow bathtub with a remote (not joking), expensive cherry hardwood floors, a BACK YARD, ethernet and audio wiring throughout the home, balconies, etc. etc. Not to mention that it’s further away from the gas station and the White Hen.
http://tinyurl.com/zow4z
Boy am I glad I’m renting a 2-bedroom flat in the SAME NEIGHBORHOOD for 1250 a month
I don’t get a remote-controlled fireplace though. But I do get a free one-car garage and water. And Joan Cusack supposedly lives nearby.
February 27th, 2006 16:18
socal….have you thought about moving the whole operation over to the bulletin board? it seems to be gaining momentum. you could probably get a couple of trusted regulars to do moderator duties. and be sure to give yourself a forum to post up fb stories.
February 27th, 2006 21:57
Cereal,
Thanks for the input!
As you can tell, no new post today. The blog was taking up quite a bit of time…I need a bit of a break to work on a few other things.
The forums are doing great for barely being up 3 weeks now. I’m working on a few things in and out of the mortgage industry at the moment. As I have alluded to on other occasions, I’m not going to ride-out the next few years in the subprime industry.
Thanks for the input!
SoCalMtgGuy
February 28th, 2006 10:16
Is there any news on how many of the variable rate mortgages have been refinanced to fixed rate? I “hear” that a lot of people have done that, and if so, it would reduce the effect of interest rate resets, right?
December 30th, 2006 18:44
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