Is this the first of the big boys? Who owns your mortgage when your lein holder goes tits up?! 
Full article is available here.
Full article is available here.
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Housing market casualty
- Thread starter DaveNay
- Start date
Junkman
Extra Super Moderator
DaveNay said:Is this the first of the big boys? Who owns your mortgage when your lein holder goes tits up?!
Full article is available here.
It will be bought by one of the regular mortgage companies at a deep discount, and they will be ready to foreclose on a moments notice if you default. In the end, it is going to be the stock holders that are the big losers in this. Reminds me of the Savings & Loan debacle that happened a decade ago. Loaning large amounts of money to people that just aren't credit worthy, even at a higher rate just doesn't make good business sense.
The difference between all of this "sub-prime" lending and the S&L debacle is that the sub-prime housing market is actually very small in the big scheme of things the total mortgage world. I was reading where it up to 20% of the sub-prime loans made in the past 2 years will likely end in forclosure. Certainly that is a problem. However in the total scope of the financial markets, it this is really a pretty small amount.
Most major financial companies shun the sub-prime loans. Ditto most neighborhood and regional banks, savings & loans, etc. So while this is "big news" every week, and while it has caused the stock market to hiccup, I really don't believe it is a huge problem. I could be wrong. But right now The sub-prime market is only a small fraction of the lending market. The forclosure rate is roughly 00.54% of the market. Those who pay late (30 days behind) is right about 5.00% of the whole market. Now presume the forclosure rate roughly doubles, that will put it at 1%, but from what I read, that is not expected. It might happen. But I've not seen any projections that suggest that the forclosure rate will go up to 1%.
I do tend to agree with Junkman that some of the companies are going to go bankrupt and their loan portfolios are going to be purchased at a discount, and there will be forclosures on many of those loans that probably should not have been made in the first place.
I also think that these easy to get loans are part of the reason the real estate markets in many areas have been booming. They made it easy for people to get into home, and because the teaser rates for the first 2 to 5 years were low, people often bought bigger homes than they needed. The average home size has increased from about 1400 sq ft in the 1940s to someting like 2400 or 2600 sq feet today. Surprisingly the average number of people living in the average house has gone DOWN. Houses are double in size, families are smaller. I've also read that for the past 10 years 4 bedroom homes have been increasing in value faster than any other type of home, but projections for the future show that 4 bedroom homes will probably hang on the market and be very difficult to sell so many of the newer homes are going to drop in price because people bought large homes that eat up energy, have huge mortgages, and are overall very expensive to maintain. These same homes may well lead the plunge in values over time. Part of this is due to the sub-prime issue. Part of this is due to the gluttony of consumers who buy homes with little to no money down just to keep up with their neighbors. JMO
Most major financial companies shun the sub-prime loans. Ditto most neighborhood and regional banks, savings & loans, etc. So while this is "big news" every week, and while it has caused the stock market to hiccup, I really don't believe it is a huge problem. I could be wrong. But right now The sub-prime market is only a small fraction of the lending market. The forclosure rate is roughly 00.54% of the market. Those who pay late (30 days behind) is right about 5.00% of the whole market. Now presume the forclosure rate roughly doubles, that will put it at 1%, but from what I read, that is not expected. It might happen. But I've not seen any projections that suggest that the forclosure rate will go up to 1%.
I do tend to agree with Junkman that some of the companies are going to go bankrupt and their loan portfolios are going to be purchased at a discount, and there will be forclosures on many of those loans that probably should not have been made in the first place.
I also think that these easy to get loans are part of the reason the real estate markets in many areas have been booming. They made it easy for people to get into home, and because the teaser rates for the first 2 to 5 years were low, people often bought bigger homes than they needed. The average home size has increased from about 1400 sq ft in the 1940s to someting like 2400 or 2600 sq feet today. Surprisingly the average number of people living in the average house has gone DOWN. Houses are double in size, families are smaller. I've also read that for the past 10 years 4 bedroom homes have been increasing in value faster than any other type of home, but projections for the future show that 4 bedroom homes will probably hang on the market and be very difficult to sell so many of the newer homes are going to drop in price because people bought large homes that eat up energy, have huge mortgages, and are overall very expensive to maintain. These same homes may well lead the plunge in values over time. Part of this is due to the sub-prime issue. Part of this is due to the gluttony of consumers who buy homes with little to no money down just to keep up with their neighbors. JMO
Well it is almost 2 months later and today I saw this headline & it caught my eye!
So is the crap lending market going to destroy the economy, or will conventional loans prevail, or what the heck is going on?
So is the crap lending market going to destroy the economy, or will conventional loans prevail, or what the heck is going on?
Stocks surge on record home sales data
By JOE BEL BRUNO, AP Business Writer 50 minutes ago
NEW YORK - Wall Street powered higher Thursday after the government's new homes data in April soared to its biggest increase in 14 years, allaying investor concerns that the housing market will tip the economy into a recession.
Investors were enthusiastic after the Commerce Department reported sales of single-family homes increased 16.2 percent last month, after falling slightly in March. With first-quarter earnings reports mostly over, Wall Street now hangs on economic data to give direction on both the economy and stocks.
The Dow Jones industrials surged 74.68, or 0.55 percent, 13,604.80 soon after the housing numbers came out.
By JOE BEL BRUNO, AP Business Writer 50 minutes ago
NEW YORK - Wall Street powered higher Thursday after the government's new homes data in April soared to its biggest increase in 14 years, allaying investor concerns that the housing market will tip the economy into a recession.
Investors were enthusiastic after the Commerce Department reported sales of single-family homes increased 16.2 percent last month, after falling slightly in March. With first-quarter earnings reports mostly over, Wall Street now hangs on economic data to give direction on both the economy and stocks.
The Dow Jones industrials surged 74.68, or 0.55 percent, 13,604.80 soon after the housing numbers came out.
http://captaincapitalism.blogspot.com/2007/05/housing-will-bottom-in-2011.html
"Housing Will Bottom in 2011"
I've said it before and I'll say it again;
It will vary depending on the region you're from, but housing would have to correct between 20-40% in order to come back in line with historical valuations relative to rents and income (or incomes and rents would have to increase by that much, ha ha ha!)
However, some crafty soul has expanded Robert Shiller's now-famous chart to forecast when and how the housing crash will occur. He forecasts a bottoming out in 2011 and a price drop of 43.5%.
I wouldn't be quite that pessimistic, but it just amazes me how a bunch of yahoo bloggers in their spare time were able to predict this happening long before hoity, toity, big time, and much higher paid Wall Street and banking hot shots did. Similar to how some unknown bloggers brought down Dan Rather. In both instances though I think there was a bias or incentive to ignore reality.
In the case of Dan Rather, it was simply political bias that blinded the entirety of CBS.
But this housing bubble, it was much worse and much more detrimental to the economy and American society; bankers had the incentive to keep loaning out money because bankers are primarily paid in commission, not salary. Therefore it didn't matter whether the loan was good or not, as long as it got through the door, commissions got paid and bankers were happy. Management was happy as sales were up and growing at a record clip. But what amazes me is how wide spread this turning-the-eye to bad loans must have been to even have Wall Street investment banks who bought portfolios of subprime loans didn't pick up on the problems of these subprime lenders that are now bankrupt. And now, that the entire financial services industry has turned a blind eye to poor credit, they have allowed a large (arguably the largest) financial bubble in the history of the world build up.
2011 may not be too far off.
