"US mortgage crisis goes into meltdown"

[FourScore]

"US mortgage crisis goes into meltdown
By Ambrose Evans-Pritchard
Last Updated: 1:15am GMT 24/02/2007

Panic has begun to sweep the sub-prime mortgage sector in the United States after the bankruptcy of 22 lenders over the past two months, setting off mass liquidation of housing loans packaged as securities.

Analysts say the housing bust is pulling America into recession, citing a 14.4pc drop in housing starts

The rapid deterioration could not come at a worse time for British bank HSBC, which has set aside $10.5bn (£5.4bn) to cover bad loans in the US.

The cost of insuring against default on these loans has rocketed in recent weeks, from 50 basis points over Libor to 1,200, raising fears that a credit crunch could spread to the rest of the property market..."

SNIP

"...Peter Schiff, head of Euro Pacific Capital, said the sector was in an unstoppable meltdown. "It's a self-perpetuating spiral: as sub-prime companies tighten lending they create even more defaults," he said..."

SNIP

"...For now, the US Federal Reserve believes the damage can be contained. "I don't think there'll be a large impact on prime mortgages from the sub-prime market," said governor Susan Schmidt Bies.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/02/24/cnusecon24.xml&ref=patrick.net

I gotta' say, I'm not an economist. Any experts out there want to comment on this?


MORE AT LINK...

-------------------------------------------
EDIT: COPYRIGHT. PLEASE POST ONLY 4 OR 5
PARAGRAPHS FROM THE COPYRIGHTED NEWS SOURCE
PER DU RULES.

[asthmaticeog]

1. For non home-owners,

does this suggest that real estate will become cheap and plentiful, or the opposite? :shrug:

[ScreamingMeemie]

16. Appraiser opinion... It will become glutted, cheap and plentiful at

about the point that no one will be able to afford the interest rates.

[asthmaticeog]

20. But if someone had saved a humungous down payment, for exapmle,

they'd be in the catbird set, pretty much? Sorry to press on, it's just that I don't know squat about the finance or real estate worlds. The one thing I *do* kinda get is how housing prices lately have been determined more based on the availability of loans than the intrinsic value of a given property or dwelling, but after that I tend to glaze over.

[ScreamingMeemie]

21. Believe me, it took me a long time to stop glazing over...and forever

to figure out income ratios. ;)

If one had a huge down payment and enough money to buy down the points, one could make a killing yes. But the market is already so over valued, (this is my opinion) it will take a while for those homes to even out and once more become an investment. It will almost be like remapping flood plains.

[asthmaticeog]

23. Thanks. I'll quit fretting about still being a renter, then.

:hi:

[Tsiyu]

26. Don't stop fretting yet

The fact is, most Americans haven't been saving. We are in a negative savings zone in the US, and too many have been living off the equity in their homes.

The only people who will be able to buy up all the cheap properties? Affluent Repukes who have stolen war funds and who have not had to pay taxes in years, that's who.

They will jack up the rent and gouge the renter once they get their hands on a lot of property. Remember Pottersville in the movie "It's a Wonderful Life?" That's a Repuke developer's wet dream.

[Xenotime]

58. Only the super rich can afford to save..

How can you save when you live paycheck to paycheck. * has raised the cost of living so high it's impossible to get ahead.

[slackmaster]

61. I'm not super rich by a longshot, and I'm saving a lot

Stage of life has a lot to do with it. Someone in their 20s just getting into a profession or starting a business, and starting a family, would be far from able to buy a house unless they won the lottery or got a big handout or inheritance from family. From their perspective it would seem like an impossible dream.

That's how I felt until my late 30s. I was unable to save any meaningful amount until after age 40, at which time I got divorced and went to zero net worth, like the day I was born and the day I finished school.

Now I am a divorced empty-nester, 49 years old. My then-wife and I purchased my house in 1994 when prices seemed somewhat reasonable, although interest rates were higher than we would have liked. We split up in 1998. I kept the house and paid her half our equity. We split the difference between our retirement savings and other assets. (We are both computer professionals with decent jobs.)

My last refinance was in 2003. Now my house payment is just over 1,000 per month. I'm putting almost that much into savings. The house has quadrupled in value. I'm in year 4 a a 15-year fixed note at 4.75%. All I have to do is keep working for another 10 years and not have a major medical disaster.

[slackmaster]

64. I know a lot of Boomers who are having parents' homes transferred to them

The Greatest Generation is dying off and moving into retirement homes at a phenomenal rate.

[slackmaster]

60. Isn't that a self-correcting condition?

If nobody can afford the interest rates, lenders can't make loans.

[MADem]

2. Have a link, so we can see the whole thing? NT

[FourScore]

3. Oops. Sorry. My bad.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/02/24/cnusecon24.xml&ref=patrick.net

[spinbaby]

4. Empty houses, yes

I'm seeing more and more of them. Also, more houses for rent. Of course we still have homeless people, too, which seems bizarre when you consider how many empty buildings are around.

[ChairmanAgnostic]

5. hey, the economy's great. George told us so!

it must be true.

[TechBear_Seattle]

6. Frankly, I have little sympathy

I know that a lot of ordinary people will be hurt by this, and I do feel bad for them, but in the same way I'd feel bad about a child who burns himself on a stove after being repeatedly told not to touch it because it is hot and he will get burned. As for the banks... I feel bad for them like I would feel bad for a college graduate who burns himself for the fifth time on the same stove after hearing the same admonitions.

[A HERETIC I AM]

7. Note that it is the "Sub-Prime Sector", not the entire Mortgage industry.

These are loans that were made to people who have dubious credit ratings in the first place and therefore could not qualify for better terms and rates.

Sub Prime means just that - Loans made to higher risk individuals or to buy higher risk properties.

[FourScore]

8. Exactly. My question though

is how much effect this will have on mortgage rates. I also wonder how this "housing correction" is going to effect housing prices as well as the economy in general. Again, I'm not an expert, do any economists have any input on this?

[A HERETIC I AM]

14. Housing prices are a result of supply and demand, just like everything else...

Right now supply is high and demand is falling (for new homes, anyway)

For now - RENT! You'll get a better deal. (Typically)

[poverlay]

9. Do you know how big a percentage of the whole the "sub-prime" portion is?

I just read that housing starts were up the largest amount in Dec. since '05...

[A HERETIC I AM]

13. 19% according to this article i found....

<snip> "Subprime mortgages accounted for 19% of all mortgage originations in the first half of 2006, according to the Mortgage Bankers Assn. " <snip>



http://www.businessweek.com/investor/content/feb2007/pi20070214_954191.htm


BTW, Durable goods orders down but consumer confidence is up and so are sales of existing homes.

The Yen rallied yesterday as well.

Don't worry, you won't be in a soup line tomorrow!

[ScreamingMeemie]

17. I'm a real estate appraiser...and 19% is the cover number.

It is higher and yes people better be worried. I work at the ground zero of the automotive job loss situation. My workload (refi's, purchases and foreclosures) is at about 35% foreclosure work. Yes, you should be worried.

[Gormy Cuss]

33. A third of your workload is foreclosures?

Wow. Your market area isn't even one of the most overheated, is it?

I worry about the California fallout. It won't be evenly distributed statewide but in recent years the riskier loan products like zero downs, negative ams, and stated income have become the norm. The San Diego area is crashing pretty hard this time around and even the SF Bay Area is showing some cracks.

[ScreamingMeemie]

37. Michigan: Top ten in Mortgage Fraud

Michigan: Top 3 in Foreclosures quarter after quarter

Michigan: Top in job loss

Michigan: Top 3 in credit card delinquencies.

7 or so years ago people started buying into that which they couldn't afford. Interest only and creative financing, 2nd mortgages were putting $20/hour workers into $350,000 homes. Now it's time to start paying up and they can't do it because the jobs gone and the money wasn't there in the first place. I predict this will happen all over the country. And it keeps me from sleeping well.

[FourScore]

38. Wow, MrsG, those are some terrible numbers!

That's very sad. (I wish you sweet dreams nonetheless. :boring: )

[notadmblnd]

43. I was wondering how all those people could afford to live in the McMansions

that have popped up all over Rochester, Troy and Auburn Hills. For the longest time I kept wondering, where do all theses people work? I had a good job 55-60k and year and my husband made approx 45k and we could never afford one of those homes. Thanks for the info.

[slackmaster]

62. There's another way people can afford McMansions

Inherited wealth.

[aquart]

15. Washington Mutual won't even hire you unless you are willing

to push loans on people with dubious credit. And Washington Mutual storefront banks have proliferated in every empty store in Manhattan. Everytime I see one I wonder where they're getting the cash for all that real estate.

Has anyone else noticed storefront banks taking over where regular stores used to be?

[ScreamingMeemie]

19. It is not just the storefront banks. I know of two major lenders currently

on the watch list for shady deals. I'm an appraiser.

[geiger]

66. Washington Mutual stopped servicing loans they knew they were selling to Wells Far go

six months before the transfer occurred. I know from first-hand experience; they are the worst.

I had a HUD loan, for which I qualified after a divorce. I guess I was a sucker, too. I thought I was down-sizing and consolidating debt, and I got taken, big-time.... I'm reasonably intelligent and had worked all my life since the age of twelve. Never imagined I would be out of paying work for eleven months, and I was sunk.

[sendero]

52. Problem is..

... there didn't used to BE a subprime mortgage industry and now a huge percentage of mortgages made are "subprime".

This IS a big deal, it WAS as expected as the events in Iraq by anyone with 2 brain cells and the effects will be long lasting and harsh for many.

[FourScore]

10. from MoneyWeek...

"Will the US sub-prime mortgage meltdown spread?
by John Stepek

If the US housing market has turned a corner, then no one told banking giant HSBC.
The group warned on profits last week, reporting that bad debt provisions would be 20% higher than expected in 2007, with the overall damage coming in at $10.6bn.

What was the problem? Simply put, more customers at its US mortgage unit Household, which writes mortgages for sub-prime customers (ie those who can't get credit anywhere else), have stopped paying their bills than it expected.

And it's far from being the only one having problems…"


http://www.moneyweek.com/file/25376/will-the-us-sub-prime-mortgage-meltdown-spread.html

[BlueManDude]

11. Evans-Pritchard was one of the leading RW Clinton conspiracy hawkers

back in the day.

[Dr.Phool]

12. It's not just the sub-prime market.

In my Tampa Bay area neighborhood, real estate is stalled.

The area I live in isn't an upscale new development, but a desireable, affordable, middle class community. Two years ago, a house on the market would sell in days. Now some houses sit empty for 6 months or longer.

I'm talking about affordable riverfront houses with gulf access.

[ScreamingMeemie]

18. This article is truthful if you look at 5 years ago.

You are absolutely correct. It is not just the subprime market. Not when major lenders are on the watch list for shady deals

[leftofthedial]

22. there is a townhome in the community where I live for sale

it is the most popular of the four different floorplans, completely remodeled about five years ago, in great shape, two doors away from a magnificent park . . .

Asking price? About $10K less than what I paid 15 months ago for an un-remodeled, more dated unit farther from the park.

The repukes have yet again ruined the American economy. Never fails.

It should be ILLEGAL to be a repuke.

[FourScore]

27. A friend of mine has been unable to sell

her front range Boulder, CO home for over two years! A location that would have sold overnight three years ago.

[EVDebs]

24. The power of Keyne's 'marginal propensity to consume' in reverse

with less in their pockets and high mortgage payments, a downward spiralling economy creates it's own vortex. Maybe Congress should propose another tax cut, this time for the ones who most need it, not the richest one and a half percent of taxpayers and corporations !

BTW, how much Saudi money is invested in the US mortgage markets ? It would be of interest to find out. That is, national interest, as the price of oil rises you would expect more foreclosures. And the money flow continues...

[w4rma]

25. Good. This will reduce housing prices and banks are being smacked for their shady loans. (nt)

[ScreamingMeemie]

28. ...and increase interest rates. Not good.

[w4rma]

36. Personally I think it would be dumb for the feds to increase interest rates.

But, the GOP feds do what they do to protect the ultra-wealthy and that might include increasing interest rates.

[walldude]

40. Yup I wish I remember where I saw this but I read that

the adjustable rate mortgages are going to go up this year and many people, I believe the number was 22% are probably going to default on their loans.

[Virginia Dare]

59. That's how I understand it as well...

there will be a large percentage of ARMs that will come up for readjustment starting at the end of this year, resulting of mass defaulting when people can no longer afford their mortgages and they owe more than the property is worth. Thus, the bubble pops.

[BlooInBloo]

45. I guess you didn't hear about the bankruptcy bill.

[meldroc]

29. OK, housing, mortgage and finance jockeys, my lease on my apt. is up: BUY OR RENT?

Well, it's up in the beginning of August. I've been thinking of buying a house, but I'm really, really not sure I won't get burned in this housing market. It looks like they'll get me coming or going - if I buy now, the prices will crash, I'll owe far more than the house will sell for, and if the rest of the economy tanks and I lose my job and can't make payments, I'll get foreclosed and driven into bankruptcy.

If I rent, I'll probably avoid some of the above consequences, but then again, I'm not building equity - just feeding that money to the landlord. Maybe I'll hold off another year or two, and continue to build my savings, then buy when the housing market settles down. Of course, at that point, houses may be more reasonably priced, but the interest rates will have skyrocketed to the point where owning a home is still unaffordable.

Advice? I do have a few thousand in savings that can be used for a down-payment, and a lot of the lenders don't require that nearly insurmountable traditional 20% downpayment, but then again, I'm financing yet more debt if I only make a small down-payment. I know enough to make sure I get a fixed interest rate - people with variable interest rates are going to be eaten alive shortly.

[FourScore]

30. Where are you located? n/t

[meldroc]

31. Northern Colorado.

Without giving too much away about myself, let's just say that if I use the traditional mortgage formulas, I'm theoretically able to afford a $165,000 house.

[FourScore]

35. Granted, I am no expert

but I think Northern Colorado is a pretty safe place to invest. I only asked because I know that some areas are really over-inflated right now.

My husband and I have a house just outside Boulder. We could not sell it three years ago without dropping the price way below what it had been appraised for only one year before. We knew that housing was in a slump in that area, but we also knew that it would eventually come back. So, we decided to take it off the market and rent it until better times. We're still waiting. Nonetheless, I feel confident that the prices in that area will eventually rebound once again.

I think real estate should be viewed as a long-term investment. Don't over-extend yourself and have savings onhand to dip into in case you run into tough times.

I know a great quote from Roy Rogers:

"You don't wait to buy real estate. You buy real estate and wait!"

That motto has worked well for me and other members of my family. For what it's worth, my advise is to go shopping for a new home. Good luck to you and enjoy the process! It can be pretty exciting!

[Gormy Cuss]

34. If you can't put 20% down, think carefully about your risk tolerance.

Note that I didn't say that you should put 20% down. From your post it sounds as if you are not willing to risk a negative return on investment, should the prices drop dramatically or should your finances collapse. That suggests that you might be a bit risk adverse. As for not building equity because you rent, remember that there is no equity building to be had in a house with falling value unless you are willing to hold on to it until the prices begin to climb. As a renter, if you lost your job and couldn't afford to rent, you would probably be able to walk away without declaring bankruptcy.

There is no easy way to guide you to the right choice for you. One thing to do is calculate the cost to own vs. rent using a ready-made calculator. Most of these are posted by mortgage companies and may be a bit rosy, so I would suggest that in addition to using one of those tools read the links offered by a landlord association for balance:

http://www.mmha.com/Rent%20vs%20Own/The%20%20New%20American%20Dream.htm


If you believe that the values of houses in your area will decline over the next year, it may make more sense to wait it out and build your savings.

[mnhtnbb]

42. It is a buyers' market. If you are planning on being in the house

for at least five years, I'd go ahead and look around. You may be able to find a really good deal.

Location, location, location. Look for the least expensive house in a neighborhood with more expensive places--that will protect the value of the one you buy. If you are handy and like doing fix-it projects, look for a place
that needs cosmetic work but has great bones.

Look for houses that have been sitting on the market for extended period of time. Don't be shy about making a first offer at 20% less than asking price.

Good luck. Shopping for your first place is exciting.

[slackmaster]

32. A different perspective that says the sky is not necessarily falling

Editorial from the Sunday San Diego Union-Tribune:

...Mortgage defaults normally rise after a housing boom, because some lenders and clients agree to excessive payments in hopes that ever-rising values will cover any financial stumbles. With prices slipping, some families face the sort of forced sales that can push everybody's values down.

However, most homeowners in San Diego County are sitting on plenty of equity. Home prices have tripled in a decade; housing assets have more than doubled in inflation-adjusted terms. Resale houses have given back just 3.6 percent of their value in the last year – far from a crisis.

And breathless reports of percentage jumps in defaults mean little; absolute numbers remain small. Locally, a scant 0.3 percent of homes went into foreclosure last year, well below historic peaks, says the DataQuick information clearinghouse.

Absent widespread job losses, few prominent economists foresee a market collapse....

Full editorial at http://www.signonsandiego.com/uniontrib/20070225/news_lz1ed25top.html

Basically the problem is confined to high-rate, high-risk instruments for now but it can become critical if the job market falls apart.

[ScreamingMeemie]

39. The sky is falling; my business has proven it to

me.

[Rage for Order]

44. But it's not falling everywhere

It's falling where you are located, but Michigan has been bleeding jobs for years. To wit:

http://news.yahoo.com/s/ap/20070227/ap_on_bi_ge/chrysler_buyouts

"Chrysler Group will offer all 49,600 hourly workers in the U.S. up to $100,000 to leave the company as part of a recovery plan announced earlier this month. The company, which lost $1.475 billion in 2006 and said it expects losses to continue through 2007, said on Feb. 14 it intends to shed 13,000 jobs, including 11,000 hourly positions and 2,000 salaried, as it tries to further shrink itself to match reduced demand for its products."

However, in other areas that are adding jobs, the sky is most definitely not falling. For example:

http://news.yahoo.com/s/ap/20070228/ap_on_bi_ge/toyota_mississippi;_ylt=AjPPFuZVu2Tgfa51b78.V02yBhIF

TUPELO, Miss. - Toyota Motor Corp.'s Highlander sport utility vehicle should start rolling off the assembly line at a new, $1.3 billion plant in northeast Mississippi by 2010, company and state officials said Tuesday.

The Mississippi plant will manufacture 150,000 Highlanders a year. It also will create 2,000 badly needed jobs in an area with an economy that has slowed because of losses in furniture manufacturing positions.

The plant will be the second automaker to locate in the state. Nissan Motor Corp. opened its assembly plant north of Jackson in 2003. The 4,000-employee plant produced about 278,000 vehicles last year.

The opening of a new auto plant can be a big boon to the local economy. The new Toyota Tundra plant in San Antonio, Texas, brought 2,000 jobs with the 2.2 million square-foot manufacturing plant. Twenty-one onsite suppliers brought an additional 2,000 jobs."


The housing market "crash" will be localized to areas that experienced quick increases in home values and areas where jobs are leaving, such as Michigan.

[ScreamingMeemie]

49. And if one doesn't believe that won't bleed all over the country,

one isn't paying attention. It's what I do. I don't only pay attention to what's going on in Michigan, I watch the country. Major lenders aren't in trouble just in MI, it's across the country.

[raccoon]

63. That'll help Mississippi..except for the times when gas goes up to $3.00 a gallon.

Or more, Heaven help us.

[notadmblnd]

46. Mrs Grumpy...

do you think that because Michigans's economy is ahead of the curve with the devastation of the auto industry, that maybe people in other parts of the country can't see how bad it is yet? the other question is.. do you think because we Michigan has been so devastated so early on, that we could be on the mend by the time it begins to affect others or will it just get worse for us?

[ScreamingMeemie]

50. I think what the poster above doesn't realize is exactly what you said

Michigan is ahead of the curve. I am not a doom and gloomer, but this is my job. It's what I do. Global economization isn't just affecting Michigan; it's just affected us on a grander, and quicker scale.

The hopeful side of me wants to say that we'll be recovering, but this is a long term (10 year) thing.

[BlooInBloo]

41. And the perfect moment is close, to sweep out everyone who voted for the bankruptcy bill...

... Including Biden. But not including Lieberman (I *think* he voted for it), because one clearly can't depend on the idiotfuckwipe voters of Connecticut to do anything right.

[Yavin4]

47. Time for An Economics Lesson

No job growth = No wage growth

We have not had significant job growth in the private sector since 2000. As a result, we have not had any wage growth. In reality, wages have declined slightly when you subtract benefits like healthcare. Because most of us are not unionized, we rely on a strong labor demand to raise wages. The job demand has been outsourced overseas. Thus, housing valuations have been inflated for the past three years given that the population cannot find the kind of employment to support the valuations.

Greenspan's Historically Low Interest Rates Helped Bush, but created a Housing bubble

To offset my earlier point, Greenspan lowered interest rates to their lowest levels since the end of WWII. This move created a major housing bubble since the cost of borrowing was incredibly cheap. You can't walk down a street in NY without passing a construction site for a new condo.


China Keeps Our Long Term Rates Down, But They're Highly Unstable

Long term interest rates are determined by the sale of U.S. treasuries, and because China has been buying them, our long term rates have been low. However, unlike the Japanese that bought our debt in the 80s, China is a highly unstable nation both politically and economically.

[FourScore]

48. Do tell more!!! n/t

[ProfessorGAC]

53. That's A Finance Lesson!

Just kidding! What you're describing is all finance not macroeconomic, but you make some very cogent points. Nice job.
The Professor

[sendero]

54. Exactly.....

... not only that, but the mortgagers are becoming like "We Finance" car lots. Those lots exist and operate the way they do for a simple reason - there are lots of folks who have no credit and need a car. So they pay 30%-100% extra to get a car on payments. The terms and conditions are draconian. Many lots repo cars if you are only a couple days late with your payment.

Housing is now going the same direction. because so few folks can qualify for a mortgage for THE HOUSE THEY WANT. So, anywhere there is a demand there will emerge a supply. Not that serving this market is a good idea, the prices of cars is unaffected by the repossession of a delinqent account, with houses it is a whole new ball game.

I suspect that the practice of making subprime mortgages is not going away, but I will bet that the mortgagors get a lot smarter about how they go about this. In the meantime, this is another blow to the overall ailing housing market IMHO.

[trumad]

51. My business is buying foreclosures here in Florida

I'm about to get real busy.

Hell---I'm buying a brand new home in a short sale today...the dude paid 465,000 for it (again it's brand new) and he just tried to auction it but only got a 365,000 bid for it. He's fucked.

So I'm going to short sale buy it from the lender. A short sale simply means that the lender has to let it go at a discounted price. The discount on this one was 150,000. That's huge but the lender had no choice. These new homes are just not selling.

Like I said--- I'm getting busier by the day.

[salin]

55. 150 off the original price, or 150 off the auction price

the first would be amazing enough - the second 215,000 for a home that sold for 465,000 would be astounding.

I bought a foreclosed home from HUD - paid less than 60% of the original asking price.

[trumad]

57. It is amazing----

thing is--- the guy tried to auction it and only got a 360,000 bid. In order for me or any other investor to even look at this house, it has to be around around 310,000.

He bought it for 465,000---and now the comps for the new homes in his neighborhood are around 360--370.

It's sad as shit. The dude bought when things were flying high---what, just a year ago. That's how flat the market is today.

You'd think that if I could short sell for 150 off, I'd make a killing... I might make 30 to 40 if I'm lucky.---er which aint bad in itself.

[BurtWorm]

56. I don't really trust the competence of the messenger

It could be true, but this is the same reporter who pushed Clinton conspiracy theories at the Telegraph, in books, and on right wing radio in the 1990s. He is probably as full of shit now as he was then.

[geiger]

65. I had a buyer for a house I own last month, and the bank wouldn't do a short sale

for 1000 less than the principal owed, because I hadn't lived there in more than a year. They're a bunch of greedy idiots if you ask me.

[geiger]

67. important to be aware of.