Subprime funds “practically wiped out”

From the Wall Street Journal:

Subprime Uncertainty Fans Out
Bear’s Hedge Funds
Are Basically Worthless;
More Bond Fire Sales
July 18, 2007; Page C1

Investors in two troubled Bear Stearns Cos. hedge funds that made big bets on subprime mortgages have been practically wiped out, the Wall Street firm said yesterday, in more evidence of the turmoil in this corner of the bond market.

Bear said one of its funds was worth nothing and another worth less than a 10th of its value from a few months ago after its subprime trades went bad, according to a letter Bear circulated and to people briefed by the firm. The Wall Street investment bank — known for its bond-trading savvy — has had to put up $1.6 billion in rescue financing.

The revelations marked another anxious day for subprime investors. As a market index that tracks the performance of subprime bonds hit new lows, signs emerged that the pain experienced by Bear’s hedge-fund investors is being felt by investors around the world.

Wall Street firms yesterday circulated at least a dozen lists of subprime-related bonds they planned to hastily sell to investors. Some of the assets were from a fund managed by Basis Capital, a large hedge-fund manager based in Australia, and were put on the block by Citigroup Inc. and J.P. Morgan Chase & Co., according to people familiar with the matter.

Basis Yield Alpha Fund last week informed its investors it had lost around 14% in June. Another fund, called Basis Pac-Rim Fund, was down 9.2% that month. Basis said the declines came after bond dealers abruptly marked down the value of the securities, which it said were “otherwise fundamentally sound.”

Investors are struggling to place values on assets tied to subprime home loans. Because some of these instruments aren’t actively traded, investors worry that they are holding securities on their books at values that are no longer accurate.

“The Funds’ reported performance, in part, reflects the unprecedented declines in the valuations of a number of highly rated” securities, Bear brokers wrote in a letter disseminated to clients yesterday.

Last week, Moody’s Investors Service and Standard and Poor’s, the two big credit-rating services, knocked down their assessments on hundreds of mostly lower-rated subprime-backed bonds.

Delinquencies and defaults have been rising on subprime mortgages — which are taken out by borrowers with shaky credit backgrounds. Some of these mortgages were subject to fraudulent loan documentation when they were written.

The net value of assets in Bear’s highly indebted fund, High-Grade Structured Credit Strategies Enhanced Leverage Fund, is wiped out, according to people familiar with the matter, who were briefed on the contents of a late-afternoon call with brokers. The net value of assets in its other, larger, less-leveraged fund is roughly 9% of the value at the end of March, these people said. The net-asset value represents the value of an investor’s holdings after debts have been paid.

The ABX index, which tracks the performance of various classes of subprime-related bonds, hit new lows yesterday. In the past few months, the portions of the index that tracked especially risky mortgage bonds with junk-grade ratings had been falling. But now, the portions of the index that track safer mortgage bonds, with ratings of triple-A or double-A, are also falling sharply.

The portion of the index that tracks triple-A subprime debt issued last year has fallen about 5% in the past week. The portion of the index that tracks low-rated triple-B bonds is down more than 50% this year.

Investors have been buzzing for days, trying to explain the latest losses in the ABX index, which signaled a deepening panic in the mortgage market. Several factors have been at play, including the ratings downgrades.

It also could have been related to mortgage-backed-securities holders’ hedging of positions by making bets against the index. Or it could have been because speculators are betting the subprime woes will worsen.

The index isn’t a perfect indicator of the health of these securities, because it represents only a narrow slice of the subprime-bond market, and it isn’t widely traded. Nevertheless, investors are watching it closely.

“The decline in the ABX indexes has been significant, and certainly some people are panicking and shorting it further because many assets they own are going down in value,” says Alan Fournier of hedge fund Pennant Capital, which has been betting against the subprime market.

Link to the letter sent to Bear clients can be found here.

This entry was posted in National Real Estate, Risky Lending. Bookmark the permalink.

243 Responses to Subprime funds “practically wiped out”

  1. James Bednar says:

    From the WSJ:

    Moody’s Says It Is Taking Hit
    Ratings Firm Loses Business
    As Tougher CMBS Stance
    Spurs Issuers to ‘Rate Shop’
    July 18, 2007; Page B7

    Moody’s Investors Service says it is paying a high price for its tough stance on lax lending standards for commercial mortgage-backed securities.

    In a new report that assesses the status of the market, the Moody’s Corp. unit said it was passed over and not hired for 75% of the commercial mortgage-backed securities rating assignments issued in the past few months as a result of its requirement that issuers add an extra layer of credit enhancement. Moody’s said issuers are “rating shopping” — meaning they were hiring competitors that would hand out higher ratings on securities. Because Moody’s makes money rating the creditworthiness of bond issuances, blacklisting could potentially eat away at the firm’s bottom line if the trend continues.

  2. James Bednar says:

    From the WSJ:

    Subprime Staple Is Phased Out
    Firms Stop Offering
    Popular Mortgage
    As Investors Retreat
    July 18, 2007; Page C7

    Some lenders are eliminating what until recently was the most popular type of home-mortgage loan for subprime borrowers, or borrowers with weak credit histories.

    Countrywide Financial Corp., Option One Mortgage Corp. and Merrill Lynch & Co.’s First Franklin Financial unit told employees and mortgage brokers this week that they would no longer offer so-called 2/28 subprime loans, ones that carry a relatively low fixed rate for the first two years and then jump to a much higher, floating rate, often more than 10%.

  3. James Bednar says:

    From the WSJ:

    Is Slip in Homeowner Costs a Trend?
    By GREG IP
    July 18, 2007; Page A4

    A big reason that inflation measures that exclude food and energy have decelerated lately is a slowdown in growth in the government’s measure of the cost of owning a home.

    Economists have been wondering if that is a durable trend or a temporary statistical quirk. The uncertainty is a reason that the Federal Reserve has said that a “sustained moderation” in inflation hasn’t been “convincingly demonstrated” and thus still sees inflation as its principal policy concern.

    New research at the Bureau of Labor Statistics suggests the slowdown in homeownership costs reflects fundamental features of the housing market, and thus is likely to persist. That’s a potential source of comfort to the Fed, which has been briefed on the BLS’s findings. “It’s something that, behind closed doors, has got to be making them more confident that the improvement in core inflation can be sustained,” said David Greenlaw, economist at Morgan Stanley.

    In producing the consumer-price index, the BLS measures homeownership costs not directly, but with “owners’ equivalent rent.” Essentially it estimates how much more — or less — a homeowner would receive for renting out his or her home. Owners’ equivalent rent, or OER, makes up a whopping 24% of the consumer-price index, and an even larger share of the core index. It is a smaller but still substantial share of the price index of personal consumption expenditures, which the Fed prefers to the CPI.

    The government’s measures of owners’ equivalent rent and a separate measure of rents actually paid by those people who actually rent, rather than own, are based on a sample of thousands of rental units across the country. The two tend to move together. But sometimes they diverge. This is such a time, sowing skepticism of the measures. In the 12 months through May, rent rose 4.4% and OER 3.5%. In the past three months, both have slowed: Rent rose 3.5% and OER 2.1%. Details on June come today when the latest CPI is reported.

    The deceleration in OER is the major reason the core inflation rate has dropped. If OER were rising as rapidly as regular rents, core inflation would be higher — and the Fed would have more reason to worry.

  4. James Bednar says:

    From Bloomberg:

    Bernanke Reluctant to Risk Credibility With Inflation Forecast

    Federal Reserve Chairman Ben S. Bernanke, praised for averting a recession and containing prices, may be reluctant to risk his credibility by predicting a significant further easing of inflation.

    While Fed policy makers may reduce slightly their forecast for inflation this year after prices moderated last quarter, their outlook will probably be unchanged for 2008, according to economists including former Fed Governor Laurence Meyer.

    The caution suggests Bernanke and his team are prepared to keep interest rates unchanged well into next year, economists project. The chairman will likely tell lawmakers in Washington today that inflation is the Fed’s main concern because unemployment is near a six-year low and the economy is picking up. Altering the forecast may encourage traders to renew bets on a rate cut.

    “It would surprise me if they opened that can of worms,” said Peter Kretzmer, a senior economist at Banc of America Securities LLC in New York who used to work at the Fed. “I’m not sure they want to go there.”

    Federal Open Market Committee members may cut the projection for their preferred price measure, which excludes food and fuel costs, to about 2 percent for the fourth quarter, said Meyer and Kretzmer. In their semiannual report to Congress, policy makers are also likely to reiterate a 2008 prediction of 1.75 percent to 2 percent, they said.

  5. James Bednar says:

    Busy morning, we’ve got the MBA Mortgage Applications due out, as well as Housing Starts and the CPI at 8:30am.


  6. James Bednar says:

    From Reuters:

    Pulte sees second-quarter loss

    Pulte Homes Inc., the No. 3 U.S. home builder, on Tuesday estimated a second-quarter loss from continuing operations of $2.00 to $2.10 a share, and said new orders fell 20 percent from a year earlier.

    Bloomfield Hills, Michigan-based Pulte previously said it expected to break even or lose 10 cents per share, before charges, in the second quarter.

    “The difficult conditions that plagued the homebuilding industry in the first quarter of 2007 worsened in the second quarter, with increased competitive pricing pressures, elevated levels of new and resale home inventory, and weak consumer sentiment for housing affecting the entire industry,” Pulte Chief Executive Richard Dugas Jr. said in a statement.

    During the quarter the company closed on the sale of 5,938 homes, down 40 percent from a year earlier, the preliminary results indicate.

    Net new orders in the second quarter fell 20 percent to 7,532 compared with the year-ago period.

  7. James Bednar says:

    Mortgage purchase applications fall 1.6%, refinance applications up 4.9%.

    Latest week’s mortgage applications up 0.9%

    The volume of applications filed for mortgage loans increased slightly last week as interest rates for fixed-rate loans decreased, the Mortgage Bankers Association reported Wednesday.

    Total volume for the week ended July 13 was up a seasonally adjusted 0.9% compared with the previous week, according to the MBA’s latest survey. Volume was up 15.7% compared with the same week in 2006.

    Also on a seasonally adjusted basis, the volume of loans to refinance existing mortgages increased 4.9% on a week-to-week basis, while loans to purchase homes decreased 1.6%.

    The four-week moving average for all loans was down a seasonally adjusted 0.5%, the MBA’s data showed.

    Refinancings made up 37.7% of total applications, up from 36.2% the previous week. The proportion of adjustable-rate mortgages amounted to 21.0%, up from 20.4%.

    The MBA survey clocked last week’s average interest rates for 30- and 15-year fixed-rate mortgages at 6.61% and 6.29%, respectively, down from 6.65% and 6.31% the previous week. The rate on one-year ARMs remained at an average 5.60%, unchanged.

  8. James Bednar says:

    From Bloomberg:

    CIT Group Posts Unexpected Loss on Home-Lending Exit

    CIT Group Inc., the largest independent commercial finance company in the U.S., reported an unexpected loss for the second quarter after exiting the home- lending business.

    “Although we made progress executing on our business strategy, it was a challenging quarter where we had to make some tough decisions,” Chief Executive Officer Jeffrey Peek said in the statement.

    CIT booked a loss of $495.3 million, or $2.58 per share, in revaluing about $10.6 billion of home-loan receivables as part of its decision to exit the business. The company cited weak results in home lending in reducing its second-half per-share earnings forecast by 25 cents to between $2.60 and $2.70.

  9. Outofstater says:

    Good Morning. OK, I freely admit that I am not an economist so someone please tell me what I am missing. It seems to me that Moody’s is losing business because it wants to accurately rate the risk of securities. So, if a security is rated by someone other than Moody’s wouldn’t it cross people’s minds that it might be a little riskier than advertised? On the inflation front, excluding food and energy is just plain nuts. That’s like an EMT telling a patient, “well, except for the part about you’re not being able to breathe, you should be just fine.” Does anyone really think that oil prices will go down or that the price of oil doesn’t really reverberate throughout the economy? Just trying to understand….

  10. James Bednar says:

    Very interesting piece from Lou Barnes.

    New loan guidance wrong for housing

    On Friday, July 13th (of all days), Fannie Mae and Freddie Mac dropped a bomb on weak home and mortgage markets. The new damage will take time to quantify, but may be considerable. The tale behind the act is clear, and just shy of unbelievable.

    On Friday, Sept. 29, 2006, the Federal Reserve (joined by all other banking regulators) issued a “guidance” on nontraditional mortgage risks. It demanded that any mortgage containing an interest-only feature be underwritten at the highest possible interest rate or subsequent amortizing payment, and that any mortgage containing a negative-amortizing feature be underwritten at the highest possible balance and interest-rate adjustment.

    I read the Sept. 29 guidance that night, and went to work the following Monday afraid, asking our underwriters to evaluate the credit contraction from e-mail bulletins certain to arrive.

    The e-mails never came. The industry, increasingly nonbank, Wall Street-based, ignored the guidance. Three months later, OFHEO, the regulator of Fannie and Freddie, sent those two agencies a heated blast demanding a response. Nothing followed. I hoped that the Fed and others had second thoughts, realizing the intellectually lazy foundation for the guidance and its meat-cleaver approach, right out of the rulebook for 1932 bank examiners, requiring rapid foreclosure and seizure and closure of banks.

    This winter and spring I called and called, trying to figure out the future of the guidance … the Fed, OFHEO (no stuffier press offices on the planet; the Kremlin is happier to hear from you), Fannie, mortgage insurers, and got nothing. I do not know what internal politics forced the thing forward, but here it is. Fannie’s “Desktop Underwriter” will be recalibrated on July 22 to enforce the guidance.

    Two forms of hell will break loose, and one good outcome. The good: the industry will shortly have fewer salespeople, with luck losing the ones who should not have been given a telephone in the first place. Then, quickly, troubled borrowers trying to refi off their subprimes or other re-setting ARMs into interest-only loans to minimize payments will be out of luck. Add to that the rising foreclosure count. Also out of luck, the millions who planned defined ownership periods, safely using 7- or 10-year interest-only loans. Then the families with solid but unpredictable incomes (sales or seasonal, for example), for whom an option ARM was a godsend … the Fed and its pinched pals just made your lives riskier. It will take a little while longer to assess the harm to housing markets already desperate for demand.

  11. James Bednar says:

    From MarketWatch:

    U.S. June CPI up 0.2% vs. 0.1% expected
    U.S. June core CPI up 0.2% as expected
    U.S. CPI up 2.7% in past year; core CPI up 2.2%

  12. James Bednar says:

    From MarketWatch:

    U.S. June housing starts rise 2.3% to 1.467 million pace
    U.S. June building permits fall 7.5% to 1.406 million pace
    U.S. June housing starts down 19.4% year-over-year
    U.S. June building permits down 25.2% year-over-year
    U.S. June single-family housing starts fall 0.2%

  13. James Bednar says:

    From the U.S. Census Bureau:


  14. James Bednar says:

    From the BLS:


  15. James Bednar says:

    From Bloomberg:

    U.S. June Housing Starts Rise 2.3% to 1.467 Million Rate

    U.S. builders unexpectedly started work on more homes in June while permits for future construction fell to the lowest level in a decade, suggesting the housing industry may be slow to recover from deepest slump in 16 years.

    Housing starts rose 2.3 percent to an annual rate of 1.467 million, led by an increase in apartment buildings, the Commerce Department said today in Washington. Building permits, a sign of future construction, fell 7.5 percent to a 1.406 million rate.

    Rising mortgage rates and stricter lending rules are impeding a rebound in housing, even as builders lower prices and add more incentives. A glut of unsold properties will probably continue to drag down construction and the economy for the rest of the year, economists said.

    “The timetable for any recovery in housing starts is many months off,” Avery Shenfeld, an economist at CIBC World Markets in Toronto, said before the report. “There is still a huge overhang of unsold new and existing homes that has to be cleared.”

    Housing starts in May were revised down to a 1.434 million rate. Economists forecast starts in June would fall to a 1.45 million rate, from a previously reported 1.474 million for May, according to the median of 73 projections in a Bloomberg News survey. Estimates ranged from 1.38 million to 1.53 million.

    Construction of single-family homes fell 0.2 percent last month to a 1.15 million rate. Work on multifamily homes, such as townhouses and apartment buildings, rose 13 percent to an annual rate of 316,000.

    The rise in starts was led by a 9 percent increase in the West. Construction also rose in the South, by 2.4 percent. It fell by 3.7 percent in the Midwest and declined by 2.4 percent in the Northeast.

  16. RentinginNJ says:

    In producing the consumer-price index, the BLS measures homeownership costs not directly, but with “owners’ equivalent rent.” Essentially it estimates how much more — or less — a homeowner would receive for renting out his or her home.

    The owners’ equivalent rent statistic is a joke.

    As massive asset price inflation was occurring during the run-up in the housing bubble, the owners’ equivalent rent statistic didn’t signal any problems. Why? Because high demand for owner occupied housing pushed down rents.

    Now that the bubble is beginning to collapse, we essentially have an oversupply of housing (nationally) that is pushing down rents. Result? Inflation isn’t a problem.

  17. 3b says:

    #15 rent: Except for Westfield.

  18. make money says:

    Seems liek the time for Alt-A financiang to dry is getting here.

  19. fanshawe says:


    I heard that in Westfield, they chain renters in blocks in the town center and then make them embroider a big “R” on their clothes.

  20. 3b says:

    #18 And they are shunned, and they all live on the wrong side of the tracks.

  21. twice shy says:

    Richard’s posts on the Westfield housing market accurately reflect the views of many owners or sellers in the town. They are for me a useful gauge of sentiment for an albeit small but exclusive market segment.

  22. 3b says:

    #20 True. Except there are so many towns in north Jersey who consider themselves exclusive, and that makes them delusional.

  23. al says:

    3b Says:
    July 18th, 2007 at 9:28 am
    #15 rent: Except for Westfield.

    And “certain” towns in BC

  24. James Bednar says:

    From Reuters:

    Popular Inc. profit falls 23 pct, bad loans soar

    Popular Inc., the parent of Banco Popular and Puerto Rico’s largest bank, on Wednesday said second-quarter profit fell 23 percent, hurt by rising loan losses amid a weak Puerto Rican economy and the U.S. housing downturn.

    Popular said it set aside $115.2 million for loan losses in the quarter, up 72 percent from $67.1 million a year earlier. Net charge-offs, or loans it does not expect to be paid back, rose 78 percent to $92.1 million.

    “These are not good results,” Chief Executive Richard Carrion said in a statement. “Market conditions have deteriorated, but we continue to make progress and we feel confident about our future.”

    Popular said charge-offs rose in its Puerto Rican consumer and commercial loan portfolios, and in U.S. consumer and mortgage loans, “especially in the subprime sector.”

    In the first quarter the company wrote down nearly $70 million of loans and securities amid U.S. subprime deterioration, and incurred $15.1 million of costs related to a unit’s decision to quit wholesale subprime mortgage lending.

  25. APAULIPTICA says:

    Hell hath no fury like that of a scorned
    sub-prime !! The beginning of the end ! Greed is good, until it turns and bite you.

  26. lostinny says:

    That whole article is designed to keep comp prices up.

  27. Read my Lips:Fall 2007 Spring 2008 Nightmare says:

    House prices are in meltdown



  28. Steve says:

    3b Says:
    July 18th, 2007 at 9:37 am
    #18 And they are shunned, and they all live on the wrong side of the tracks.

    Don’t you mean UNDER the tracks? :)

  29. James Bednar says:

    From the Morning Call:

    Broken Dreams

    When Charline Pillinger thinks about the cozy twin home in North Catasauqua she bought two years ago, she finds it hard to believe how quickly her little bit of the American dream turned into a nightmare.

    Pillinger, a dental assistant, and boyfriend Christopher Dorsey, an auto mechanic and handyman, wanted more space for themselves and their five children, so they moved out of a $500-a-month two-bedroom apartment to the house not far from Dorsey’s boyhood home. The couple had no savings and earned only $40,000 combined, but they still qualified for a mortgage to buy the $124,000 home in May 2005.

    The investment, they now know, was a disaster.

    Like millions of others, the couple got caught up in a time two years ago when getting credit was easy, even for people with questionable or poor credit and modest to low incomes. In the majority of cases, they got 30-year loans in which the payment held steady for two years before the interest rate readjusted — usually upward — costing the borrowers more. Even that riskiest class, known as ”subprime” borrowers, received millions of new home-buying loans, home equity loans or lines of credit with similar terms.

    ”They came up with these crazy mortgage things that lenders used to get people into the market,” said Ryan Sweet, an economist at Moody’s, the online component of Moody’s Investors Service. ”When the mortgages reset, that was the straw that broke the camel’s back for many of their home loans.”

    Statewide, nearly 14 percent of all subprime loans in Pennsylvania are past due, and more than 5 percent of all subprime loans are in foreclosure, according to the state Department of Banking, which oversees lending laws and regulations in Pennsylvania. Both statistics are above the national average of 11.63 percent and 3.56 percent, respectively.

    The couple said they let their agent from Weichert Realtors in Bethlehem, whom they met through a friend, guide them through the process of buying a home. Neither made more than $20,000 per year, nor did they have much money saved. With a bankruptcy in his past, Dorsey’s credit rating was so poor he couldn’t be on the mortgage application, so it included his income but was in Pillinger’s name only, according to the documents provided to The Morning Call by the couple.

    Less than a decade ago, a lender would have told them to stay in the apartment, save money and rebuild Dorsey’s credit.

    But in the freer lending climate of 2005, Weichert, which also makes loans, could offer them a mortgage. Pillinger said she did not understand the paperwork, and that her financial ignorance and excitement over buying a house led her to sign her name to an adjustable rate on a $99,200 first mortgage. It had a manageable $603-a-month beginning payment, but an interest rate that could swing from an opening rate of 6.125 percent to a crushing 11.125 percent.

    She also took out a second loan for $24,800 to cover the down payment. That loan, costing them another $217 a month, is due in 15 years and packed a second punch: a balloon payment of more than $20,000 at the end.

    ”I didn’t know nothing about a balloon payment,” Dorsey said.

    Weichert declined to discuss the specifics of the couple’s loan. ”The company’s policy is not talk about any individual loan,” said Steve Alessandrini, Weichert’s director of corporate communications in Morris Plains, N.J.

    Even if their $40,000 family income hadn’t been reduced by injury and temporary job loss, Pillinger and Dorsey said there’s no way they could have handled the more expensive mortgage payments in their future. The nearly $1,000 a month they already were paying was too much, she said.

  30. Sapiens says:

    Thanks for all the awesome links JB.

  31. 2010 Buyer says:

    #9 Interesting article but has a few inaccurate details.

    His argument all boils down to the effects of taking away all of these affordability products like IO’s, POA, etc. Brokers got fat (the lucky ones, especially in Cali made well into the 6 figures) because they had all these new products which expanded the number of borrowers coming into their door. Now that these products are no longer available, he’s crying the blues.

    The only companies that can offer back-alley “his definition” type loans would be small mortgage brokers who are originating for a portfolio. Wall Street does not portfolio loans, they repackage and sell. If there isn’t a buyer for the product, which are few and far between, no one will originate those loans, plain and simple.

    When the FED offers guidance, all responsible lending institutions know about the pending changes. Some are aggressive and start making changes to their process early some wait until the guidance goes into effect.

    The change to qualify at the fully indexed rate is the right thing to do. Sure there are some borrowers who will be hurt who can handle their payments and subsequent resets, but it will save a lot of people from doing harm to themselves. Its like car salesmen who used to drive a car to the persons home because they couldn’t drive a manual (could afford it though) and now the law forbids them from selling a car unless the buyer can drive it off the lot. Sure they will lose some sales, but when the buyer comes in wanting to a manual, they will definitely know how to drive it.

  32. James Bednar says:

    Well whatdya know, turns out Jimmy Weichert is a loan shark too.


  33. bairen says:

    What’s that sound? Oh, the fat lady is getting ready to sing.

    Pop goes the bubble.

  34. Orion says:


    Your take on Bears’ letter yesterday (#322) is classic. Right on target.

    Interestingly though, the original you posted was not on Bears’ letterhead, no identification anywhere, no signatures. It looked fake, imo.

  35. Read my Lips:Fall 2007 Spring 2008 Nightmare says:

    Tsunami wave 2 is upon us..


  36. 3b says:

    #28 NO we hang out under the tracks, wehn we come out of our rental hovels, for some needed space, or to get away from the stifling heat of our rental apartments.

    You can see us in the evenings hanging out, wearing “wife beaters”, and drinking beers.

  37. James Bednar says:

    From the Federal Reserve:

    Testimony of Chairman Ben S. Bernanke
    Semiannual Monetary Policy Report to the Congress
    Before the Committee on Financial Services, U.S. House of Representatives
    July 18, 2007

  38. ac says:

    It will be interesting to see what happens to the equity markets if and when credit for all the LBOs and M&As dry up.

  39. HEHEHE says:

    Dealbreaker take on the Bear Letter (the Bastille Day comment still makes me chuckle):

    Fund managers and account executives have been informing the Funds’ investors of the significant deterioration in performance for May and June [significantly after the deterioration has taken place]. The preliminary estimates [Dr. Spock: “There appears to be no life on this planet, sir”] show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for investors in the High-Grade Fund [by “High-Grade” we mean D+] as of June 30, 2007. In light of these returns [always look on the bright side of liquidation, do do, do do do do do do], we will seek an orderly [think Bastille Day] wind-down of the Funds over time. This is a difficult development for investors in these Funds and is certainly uncharacteristic of BSAM’s overall strong record of performance [at BASM, we don’t make the highly leveraged hedge fund fail, we make the highly leveraged fund fail better].

  40. James Bednar says:

    I highly recommend reading the testimony above. But for those who just want the Cliff Notes.

    From MarketWatch:

    Bernanke says core inflation should edge lower through 2008
    Bernanke: headline inflation should dip if energy levels off
    Bernanke: economy likely to grow moderately through 2007
    Bernanke sees U.S. growth strengthening a bit in 2008
    Bernanke sees risks of slower growth, higher inflation
    Bernanke: housing may weigh on growth in coming quarters
    Bernanke: pace of job growth will slow in months ahead
    Bernanke repeats higher inflation is Fed’s top concern
    Bernanke sees risk of larger housing correction

  41. Orion says:


    Thanks for all your effort and great links.

  42. James Bednar says:

    While everyone was fixated on the subprime and Alt-A purchase market, who was watching the refi market?

    From Reuters

    JPMorgan profit hurt by home equity loans

    JPMorgan Chase & Co. said on Wednesday it tripled the amount set aside for loan losses as even borrowers with good credit defaulted on home equity loans, hurting the bank’s quarterly profit.

    The negative trend provides a new worry for investors. Until now, most of the angst has been focused on subprime lending, or loans to people with weak credit.

    JPMorgan Chief Financial Officer Mike Cavanagh said losses on home equity loans to prime borrowers, or those with good credit, will steepen, partly because U.S. housing prices have flattened or fallen in some areas.

    Cavanagh said the bank had problems with home equity loans started by independent mortgage brokers. The bank has since tightened underwriting standards and raised prices to reflect elevated risk.

    Did I read that correctly?

    Prime borrowers are defaulting on home equity loans? PRIME!?!


  43. HEHEHE says:

    You must have read it wrong JB, only those unwashed ignorant subprime masses would borrow more money/live a lifestyle they couldn’t afford!

  44. skep-tic says:

    info on NYC foreclosures from Crains:

    “Overall, there were 643 new residential foreclosures in New York City during the quarter, marking a 19.5% increase from the same period last year and a 16.1% rise from the first quarter. All of the boroughs reported a quarterly increase in foreclosure auctions, with the largest quarter-over-quarter increase coming from the Bronx, which jumped 76.6% from the first three months of the year, and Staten Island, which increased by 58.8%. Seventy-three percent of the city’s foreclosures were on Queens and Brooklyn properties.

    But increases in New York were dwarfed by foreclosures elsewhere. In Miami, foreclosures rose 146% from first quarter 2006, and in Los Angeles they climbed 202%. Miami had 136% more properties scheduled for foreclosure per household than Los Angeles, and 775% more than New York City.”

  45. James Bednar says:

    Seems like an earthquake hit the lending market too. Contained? Just like the coolant in that Japanese reactor. The coolant was contained. Theoretically it should have stayed contained. Nobody could have forseen that pesky earthquake.

    Unfortunately, now it isn’t contained.

    But don’t worry, it was only a little leak.


  46. RentinginNJ says:

    we will seek an orderly wind-down of the Funds over time.

    What does this mean?
    If the fund is worth zero…how do you wind down from nothing?

  47. James Bednar says:

    The fund assets did not fall to zero, but they fell enough to wipe out investor funds. The joys of leverage.

    The net-asset value represents the value of an investor’s holdings after debts have been paid.

    Fund investors could care less about an orderly wind-down, but the rest of the market certainly does. While that statement appeared in that letter, I don’t think it was directed at fund investors.


  48. make money says:

    #47 rest,

    It just sounds good, there’s paperwork that has to be done and files with regulatory agencies etc.

  49. James Bednar says:

    there’s paperwork that has to be done and files with regulatory agencies etc.

    Can you go into some more detail about the regulatory filings required in this situation?


  50. BklynHawk says:

    JB (#43)-
    That’s what’s still kind of making me scratch my head. I know plenty of prime borrowers who have probably gotten in over their heads (or pretty darn close to it). Now, with no way to refinance, they are heading to the same rough waters.

  51. James Bednar says:

    From Bloomberg:

    Bernanke Says Fed Will Write New Mortgage Rules

    Federal Reserve Chairman Ben S. Bernanke told Congress the central bank will propose new mortgage-lending regulations to strengthen consumer protections, responding to lawmakers’ pressure to address the subprime mortgage crisis.

    Based on information Fed officials are gathering in their review of a 1994 mortgage consumer-protection law, “I expect that the Board will propose additional rules” later this year, Bernanke told the House Financial Services Committee.

    In a departure from previous semi-annual reports to Congress about the economy and economic policy, Bernanke devoted about half of his testimony on steps the Fed is taking to tighten consumer protections in financial-services transactions.

    In recent months, congressional leaders have repeatedly rebuked the Fed for failing to curb the lending abuses that contributed to the subprime mortgage crisis. At a June 13 hearing, House Financial Services Committee Chairman Barney Frank threatened to strip the central bank of its authority to write consumer-protection rules if it doesn’t act.

  52. James Bednar says:

    That’s what’s still kind of making me scratch my head.

    What is making me scratch my head is trying to understand how prime borrower defaults could be increasing at the same time the economy is supposedly ‘strong’ or ‘strengthening’.


  53. UnRealtor says:

    Moody’s said issuers are “rating shopping” — meaning they were hiring competitors that would hand out higher ratings on securities.

    Similar to lenders “appraiser shopping.”

  54. James Bednar says:

    Remember, we’re talking about prime home equity. These aren’t purchase loans. Presumably, these are not brand new homeowners either, after all, they had enough equity to be able to take it out. We’re not talking flippers, so I don’t understand how flat or stagnant pricing would have any impact on default rates for this group.

    Don’t folks take out home equity loans to pay back debt? To be able to refinance existing debt at lower rates? Should make loan repayment easier, shouldn’t it?

    What about refinancers that took money out to make capital improvements? Surely the value of those capital improvements hasn’t fallen to zero. There should be some amount of recapture there.

    So what does that leave? Appraisal fraud in order to cash out significantly more equity than exists? Serial refinancers? ATM cash outs to keep up with the Joneses?


  55. x-underwriter says:

    What is making me scratch my head is trying to understand how prime borrower defaults could be increasing at the same time the economy is supposedly ’strong’ or ’strengthening’.

    I think what we are seeing in the recent stock market numbers is the flight to quality out of the bond and credit markets and into equity securities. I can see no other real reason for this additional demand on stocks. Retail sales continue to worsen, as does the housing industry.

  56. al says:

    well with real average wages growing hardly above inflation, I wonder how is our economy can be called strong as well.

    I see in real life that good paying Jobs are very hard to come by, ans practically there was no income growth to support Home Equity withdrawal.
    But hey – as long as loan brockers make their money everything is fine.

    There is huge inflation going on but companies are not raising salaries – global market for workforce prevents it: still have people in Asia and India, working at less than 1$/hour – sometimes 1$/day!!!

  57. James Bednar says:

    Moody’s said issuers are “rating shopping” — meaning they were hiring competitors that would hand out higher ratings on securities.

    Competitors lowering standards to attract customers? Lax lending standards causing a “race to the bottom”? That sounds awfully familiar, where have I heard that before?


  58. HEHEHE says:

    “ATM cash outs to keep up with the Joneses?”

    That’s my bet.

  59. Jason says:

    Euro, Pound Continue to Soar As Housing Woes Drag Down Dollar.

    Europe’s 13-nation currency hit new highs against the dollar Wednesday and the British pound traded above $2.05 for the first time in 26 years amid ongoing worries about the U.S. economy driven by its weak housing market.

  60. gary says:

    Jimmy Weichert, Jimmy Swagart…. they have sinned.

  61. make money says:

    This is amazing. These are supposed to be Prime borrowers with 700+ FICOS and Documented income. I guess they took out all the Money they can out of the Housing ATM machine and are left with an asset that’s worth less then what they owe.

    Their home is now worth 1.3 and they owe 1.6M with two mortgages and increasing rates, eventhough they have a job paying 120K it seems like they’re getting tired of throwing money away. Does this mean that in 2YRS will see Million dollar homes on fire sale?

    This is crazy and I hope it’s an isolated incident with JP and not an industry wise thing. Can the Home equity Prime be the next Subprime and Alt A?

  62. skep-tic says:

    the rise in prime HELOC defaults doesn’t seem so surprising.

    Howeowners’ equity actually declined during the boom, meaning that people borrowed every dollar of expected appreciation and then some.

    Plus, homeowners no longer have the escape hatch of selling as readily available.

    Credit card debt rapidly rising during the past couple of months– it seems clear that many homeowners are stretched financially despite their prime ratings, employment and recent housing windfall.

    Scary to think what will happen in a recession

  63. 3b says:

    #54 JB Why? This has perplexed me to no end. So many say that the economy is good, so what is the problem.

    If jobs are plentiful, then real estate should be fine, and or people should be able to pay their bills etc.

    But to me being the contrarian I am, I look at it in a different way. If you got in over you head what difference does it make how many jobs are out there?

    If you income is 100k, but you live like its 200K what possible benefit is there that there are all these jobs available, unless you can go from the 100k to the 200K job etc.

    How many people are willing to take on an extra or part time job, how many hours are there in the day/week so to speak, even if they wanted to, and how much additional income would that bring in?

    Also all these new jobs being created how many are high paying (define as you wish high paying), with benefits and all the rest?

    Finally how many people are under employed? I know quite a few people late 30’s early 50’s who are working for a third less or more than they were when they were at the peak in their former careers/jobs.

    This whole thing IMHO, is like putting wall paper over a wall that has not been properly prepped, you slap it up, it looks good for a while, but look closely and you will see, the wall paper starts to peels off after short time.That may be happening now.

  64. UnRealtor says:

    Statewide, nearly 14 percent of all subprime loans in Pennsylvania are past due

    Channeling Keanu Reeves: Whoah.

  65. 3b says:

    #63 MM: Do you really think it is an isolated incident with JP? Not being confrontational, but wny an isolated incident with JP, and not Citi, and BOA etc.

    They were all out there aggressively peddeling HELOC’s etc. Seems to me to be the begining of more to come for other lenders as well.

  66. al says:

    So what does that leave? Appraisal fraud in order to cash out significantly more equity than exists? Serial refinancers? ATM cash outs to keep up with the Joneses?

    NO WAY!!! People would not do this. Appraisal fraud – never!!!

    Serial refinancers? ATM cash outs to keep up with the Joneses? no they are all smart investors – they did withdraw non-prodictive Home equity and invested into bullish stock market!!! IF needed they will just sell some stocks!!!Americans are smart!!

  67. 3b says:

    #69 Ah jeez he’s BAAAAAAAAAAACK

  68. al says:

    How many people are willing to take on an extra or part time job, how many hours are there in the day/week so to speak, even if they wanted to, and how much additional income would that bring in?

    The last sentence hit bullseye!!!

    I was considering part time job – but with my profession it is impossible to get part time job. So I was limited to inskilled workforce… It seems that extra gasoline for commuting, wear on a car and extra costs realted with getting next job making getting this extra -ob meaningless.

    Of course I work regular hours.

    for some people here who commented on the fact that they are working 3×12 hours/week shifts – it is quite possible.

  69. 3b says:

    #71 And those people are probably in the minority over all.

  70. Donald says:


    Sorry to disappoint you, but many homes still sell for close to asking price. Here are some examples:

    Location:19 Biscayne Drive,Ramsey NJ Price: $815,000
    SOLD $792,500

    Location:21 Coach Lane,Upper Saddle River NJ Price: $1,999,999
    SOLD! $1,950,000

    Location:IO NEW JERSEY AVE Bergenfield,NJ Price: $589,000
    SOLD 589000

    Location: 361 Grove Street, Oradell NJ 07649 Price: $1,895,000
    Sold! $1,700,000

    Location: 99 Lambert Place,Paramus NJ Price: $599,900
    SOLD! $550,000

    Location: 16 Berkeley Place,Fair Lawn NJ Price: $529,900
    SOLD! $500,000

    Location: 225 Addison Place,paramus NJ Price: $499,000
    under contract!

    Location: 52 Maple Lane, Emerson NJ 07630 Price: $649,900
    SOLD! $649900

    Location: 1119 Linwood Ave,Washington Twp NJ Price: $554,900
    SOLD! $535,000

    Location: 41 Kent Road,Hillsdale NJ Price: $834,900
    SOLD! $810,000

    Location: 109 Cypress Street,Park Ridge NJ Price: $875,000
    SOLD! $857,500

    Location: 540 Bogert Road,River Edge NJ Price: $539,000
    SOLD! $525000

    Location: 99 BERGEN AVE.,WALDWICK Price: $419,900
    sold $412500

    Location: 38 BEDFORD PLACE Price: $524,900 sold 511000

    All information from:

  71. Donald says:


    Location: 738 Grant Ave,Maywood NJ 07407 Price: $399,000
    SOLD for $399,000

    Location: 1012 Abbott Blvd,Fort Lee NJ 07024 Price: $799,000
    SOLD for $770,000

    Location: 21 Westbrook Street,Midland Park NJ Price: $454,500
    SOLD! $450,00

    Location: 687 Doremus Ave,Glen Rock NJ Price: $699,999
    SOLD! $700,000 ($1 OVER Asking)

    Location: 12-37 Western Drive,Fair Lawn NJ Price: $449,900
    Sold! $445,000

    Location: 202 Harding Road,Glen Rock NJ Price: $464,900
    SOLD for $464,900

  72. HEHEHE says:

    Thanks Donald.

  73. Donald says:

    Your welcome #76. I like to back my statements up with facts rather than talking out of my behind like 95% of the people here.

  74. HEHEHE says:

    From DealBreaker:

    Rumored: Bear Stearns in Good Company With Lehman Brothers?
    We’re hearing that Lehman is about to make a major announcement about its hedge funds being damaged by subprime. Lehman would not immediately comment. Heard anything?

  75. 3b says:

    #74 Clueless, yesterday’s news.

  76. make money says:


    “Not being confrontational, but wny an isolated incident with JP, and not Citi, and BOA etc. ”

    When do they report earnings? This is interesting. it’s a new wave of defaults that will lead to more credit tightening, which lean on asking prices and eliminate the notion that you can use the housing ATM to get you through this correction and hold on to your asking price.

  77. HEHEHE says:

    I thought that’s where your brain was located Donald, your behind.

  78. UnRealtor says:

    “Don’t folks take out home equity loans to pay back debt?”

    For the last few years, they took out suck loans to install “granite” and “stainless steel” in the kitchen — selling points when the property turns REO.

  79. James Bednar says:

    Tom with the builder issue, please email me


  80. make money says:


    I just got a call that pretty much conformed that lehman is making a bad news annoucnet today….

  81. Mortgage Observer says:

    Implode-o-meter hits 100 as CIT bites the dust.

  82. The other doyle says:

    re #75

    Last year we almost bought a house in Cape May–we debated low-balling, and now the house is listed at less than what we thought might have been an insulting low-ball.

    Now a housing bull gets excited because a sale went 1 dollar over the LP (“($1 OVER Asking)”–in case we couldn’t do the math).

    We own a home in Essex County, we’re in no rush, but again, I want to thank JB for his invaluable service. We’re going to go peek at it again on Friday. If we end up owning it, I will owe JB more than a few nice words on his blog.

  83. Richard says:

    >>#20 True. Except there are so many towns in north Jersey who consider themselves exclusive, and that makes them delusional.

    if everyone in town has prices that are comparable with each other but higher than everywhere else in the world it doesn’t matter as the reality is you either pay the entrance fee or you don’t get in. that’s the very definition of reality, the state of things as they exist.

  84. make money says:

    Chief Executive Officer Jeffrey Peek decided to quit the home-loan business, focused on subprime lending to borrowers with weak credit or heavy debts, after late payments rose and investor demand for mortgages waned. ….

  85. APAULIPTICA says:

    #62, gary:
    >Jimmy Weichert, Jimmy Swagart…. they have >sinned.

    No one sinned. It was all legal – no one forced anyone to sign the dotted lines for their easy loans. Where ignorance is bliss, tis folly to be wise ! Where was the govt in preventing/regulating such sub-prime madness to spiral out of control. No, our govt was saying business and the economy are doing great – making houses,buying housues, making arms and its trickle-down businesses, buying cheap, and cheap-quality imports, record profits for the brokerage houses. When are we going to learn that our business is basically just a transferance of taxpayers taxes to the wealthy and the corporations. Isn’t war good for the economy ? That’s what I was told !

  86. UnRealtor says:

    “suck loans” LOL.

    That should be “such loans.”

  87. gary says:


    Weichert is a pimp like 99% of the industry, that’s my point.

  88. gary says:

    Um… can anyone tell me what the average closing costs should be on say, a $500,000 purchase? Is there a general rule of thumb? I can’t quite remember what I paid in the past.

  89. 3b says:

    385 Richard: And nothing lasts forever, and when these bust happen, the sellers are alwasys the last to know.

  90. Pooch123 says:

    Before everyone bashes Richard, lets take a second and note that the 10y has dropped below 5.0

  91. chicagofinance says:

    If we have a lot of 2/28 floating around, we are going to be seeing a lot of the 2 year resets coming up. I know grim et al. have been trumpeting the numbers recently, but starting now and continuing for the next 12 months is when the resets for all the “missed the boat” fools are going to start really at the mortgagees. I think I appreciate a bit better why clot keeps pointing to Labor Day. You can also build the case for building panic.

    Prime borrowers in trouble? Of course. I know from my work that a good FICO score means that you have a good FICO score. A bad FICO score is significant. A good FICO score signifies – NOT NEGATIVE…really nothing more than that….

  92. chicagofinance says:

    Is anyone an energy trader?

    Is there a significance on oil due to the fact that it is priced in USD? With USD weakness, does it create a dynamic that oil prices must react or be influenced? I heard some opinions, and I am just trying to theorize why an analyst would say such a thing?

  93. make money says:

    Why is the 10yr dropping? dollar is super weak. Inflation is high. Credit is tightnening. Housing is in a recession. What am I missing here.

    Richard please help I’m confused.

  94. gary says:

    The 10 yr. is dropping because China wants the U.S. to keep spending itself into oblivion.

  95. 3b says:

    #93 Flight to quality.

  96. Pooch123 says:

    “Richard please help I’m confused”

    I never imagined I’d see those words posted here, but the “flight to quality” explanation is relevant, as stock market is sucking pretty bad today.

  97. dreamtheaterr says:

    The 10 Year could be dropping because it’s partly cloudy, partly sunny today. Tomorrow it might rise because it will be partly sunny, partly cloudy.

    Observe the forest, not the trees (noise).

  98. Sapiens says:

    Look at Gold and Silver jump! Flight to quality!

  99. Jill says:

    Hey, Ducks #72-73….I notice you didn’t list the DATES of those sales. Why don’tcha add the DATES and then we’ll see if houses are still selling for close to asking price. And while you’re at it, let’s see the ORIGINAL asking price, not the price at time of sale.

  100. schabadoo says:

    Could someone with knowledge of the stock market explain to me why something like this would occur?

    The New York Stock Exchange asked ACA Capital Holdings Inc. (ACA) to issue a public statement indicating whether there are any corporate developments that may explain unusual market activity in the company’s shares.

  101. make money says:

    #103 good question.

    I see average daily volume has doubled and it seems to be caused by iniders selling by the masses.

    Any other thoughts?

  102. BklynHawk says:

    ChiFi (#94)-

    I guess my wording wasn’t great on my original comment. What I meant was, it doesn’t shock me that even prime borrowers are having trouble. When they were classified as prime, they probably weren’t in over their heads. Now, different story for quite a few formerly, prime borrowers.

    It’s very possible many of them could still be classified as prime just because they’re diligent about making payments. However, they could not stand one tweak in their debt service without heading down a slippery slope.


  103. Can’t afford in BC says:

    JB…a lot of us including Jill would like to know the dates and OLP of Donald’s #72 and #73 listings (although it may be tough to do without the listing numbers). i know Donald isnt going to list them cause i already recognize a few of those listings that are over a year old! lets get the real truth out there!!!!


  104. 3b says:

    #102 Jill: In my local paper they list recent sales for houses that sold 6 or 7 monts ago, right next to the Ask the Realtor column. Like I said quack, quack is peddling yesterday’s news.

  105. Pat says:

    CF, did you go snag one?

    I’m waiting for the one with Mackey’s mug shot on it with stripes behind him.

  106. Read my Lips:Fall 2007 Spring 2008 Meltdown says:

    Tsunami wave 2 upon us….


  107. James Bednar says:

    From Reuters:

    US housing slump to continue through 2007-economist

    The U.S. housing market will continue to slump for the remainder of 2007, with home sales falling further and price growth will continue to slow, a leading industry economist said on Wednesday.

    David Berson, vice president and chief economist at Fannie Mae (FNM.N: Quote, Profile, Research), said 2006 and 2007 combined will show the biggest drop in sales since the housing downturn of 1989-91.

    “If you combine the drop in affordability, the slowdown in job growth, the still-good demographics for housing and the continued pull-out of investor demand, we expect housing activity to continue to fall this year,” he said on the company’s 2007 Economic and U.S. Mortgage Market Outlook conference call.

    An increase in mortgage rates over the past few months, particularly in the past month, will soon have an additional negative impact on housing demand, he said.

    Berson expects new and existing home sales to decline by 10.2 percent in 2007 to the lowest level since 2002. Single-family starts are expected to fall 21.7 percent.

    “That’s a decided slowdown from even last year’s numbers,” he said.

    Berson said at some point in 2008 he expects unsold inventories to have fallen enough to relieve downward pressure on house prices.

  108. Mortgage Observer says:


    ACA has lost 50% of its value in less then a month. Another victim of Sub-Prime maybe.

    Their shareholders need to here something from the company don’t you think?

  109. thatBIGwindow says:

    Re: Stainless steel appliances:

    We opted for white appliances because…

    1. Cheaper
    2. Will always be in style
    3. Match our 1920’s house quite well

    When we eventually change the counters, we will probably go with butcher block. Much more classy than granite (at least on a 1920’s house with actual character)

  110. DoughBoy says:

    See, in my house (when I ever actually buy one), I don’t think I’m going to do stainless appliances, but I want to do stainless countertops.

  111. James Bednar says:

    From MarketWatch:

    House bill would protect consumers from predatory lending

    Consumers would be protected from a number of predatory lending practices including no-documentation loans and the “steering” of loans that only benefit originators under a bill introduced in the House Wednesday. Sponsored by Rep. Keith Ellison, D-Minn., the bill would also ban prepayment penalties on adjustable-rate mortgages and strengthen mortgage brokers’ duties towards consumers. The bill is the latest response from Washington to the fallout underway in the subprime-mortgage market. Regulators have also issued guidance telling lenders to make loans only to customers who can afford them.

  112. 2010 Buyer says:

    For the most part, PRIME borrowers are supposedly more financially savvier than a SUBPRIME borrower. And the major determination of determining what type of borrower you are dealing with is based on the FICO score. For the full picture, ALT-A is in between but has more PRIME type FICO scores but wants to go with less documentation.

    My guess on why prime borrowers are defaulting…. If they stretched (e.g. 45+ dti) getting into the loan coupled with the HELOC at a variable rate, that’s raising now…it can get a little tight. And those life events like divorce, lost job, etc will affect them as well. A PRIME borrower typically has more cushion (disposable money) to work with.

    Its all about disclosure….Chase has decided to come out, although I would expect that the other banks like BOA and Citi are experiencing the same issues. Sort of like all of the other hedge funds with underwater MBS/CDO have not announced.

    Funny thing about buying a home. Some people immediately get happy about being a homeowner. Fill the need to buy a new car for the garage, have to get new furniture for the house, have to get $300 jeans to wash the new car. FICO score drift is the drifting down of your FICO score when you first got the loan and how you look different when you want to refi that loan.

  113. pesche22 says:

    here comes goldman off the bottom.
    buy of the year

  114. RentinginNJ says:

    We’re not talking flippers, so I don’t understand how flat or stagnant pricing would have any impact on default rates for this group.

    I guess it depends what you did with the money. I think we might be talking flippers…I just don’t know to what extent.

    Whenever you hear a story about the Florida condo market collapsing, there often appears to be a NY metro area bagholder who got caught in the downturn. Since it was tough to play “pre-build condo speculator” in the NY metro area due to high prices and more limited supply, NY metro area “investors” took out home equity loans on their inflated property values and plunked down the equity on a pre-construction condo in another market. They neither had the intention or the ability to pay their first mortgage plus home equity loan plus the mortgage on their new place, but that didn’t matter because they were going to flip the condo for big money…

    Well that didn’t happen. Some people just had a $100k pre-construction deposit vanish into thin air. Of course, they now have to pay this back, which wasn’t exactly part of the plan.

  115. pigpen says:

    Donald #72 & #73
    What exactly is that supposed to prove???
    20 houses in bergen county sold close to asking price.
    How long of a time span is that over? That list could span back to 2005 for all we know.
    Is that the first time the house was listed?(this is a favorite REALTOR®; trick to screw with the MLS to conceal the true state of the market) What was the ORIGINAL list price?
    Reasonably priced homes will sell in any market, and I don’t think think anyone disputes that. We know nothing of the condition or size of these properties. Perhaps those asking prices are considerably lower than what the same property would have fetched a few years back.

  116. chicagofinance says:

    Pat Says:
    July 18th, 2007 at 1:42 pm
    CF, did you go snag one?

    Pat: the only things I would stand in the rain for are Mets & Depeche Mode tickets……if you twist my arm, maybe a few cases of really good wine on the cheap.

    I sure within a few years I will be standing at a Toys ‘R Us in sub-zero weather to buy Hunter some useless piece of crap toy :(

  117. James Bednar says:

    For those following the Barnes piece above, I managed to find the Freddie release that discusses the changes:

    Haven’t had a chance to go through it yet.


  118. SG says:

    Do we know how many NJ home buyers are sub-prime?

    I found article that says in year 2000, 27% of NJ home buyers were sub-prime. I am sure that percentage has increased in 2004-2005 timeframe.

    Anyway, would be good to know.

  119. 3b says:

    #111 tbw I like formica, cheap lots of great colors and patterns, gets beat up you can change it every few years,a nd the Boss gets a whole new look for the kitchen for a few bucks.

  120. Donald says:

    “Hey, Ducks #72-73….I notice you didn’t list the DATES of those sales. Why don’tcha add the DATES and then we’ll see if houses are still selling for close to asking price. And while you’re at it, let’s see the ORIGINAL asking price, not the price at time of sale.”

    Sorry, but I do not have access to the MLS.

  121. Chiato says:

    In response to #73

    When you state that they are selling close to their listing price do you mean that they are finally listing at the current market value or that home values are not dropping?

    I am assuming that you listed properties that sold this year.

    I looked up three of the properties you listed as examples and found that they were purchased in 2005 for approx same value as they sold “recently”.

    “Location: 1012 Abbott Blvd,Fort Lee NJ 07024 Price: $799,000
    SOLD for $770,000”

    Purchased for 790,000 in Jan 2005. Sold for a loss.

    “Location: 21 Westbrook Street,Midland Park NJ Price: $454,500
    SOLD! $450,00”

    Purchased for 444,900 in 2005.

    Location: 687 Doremus Ave,Glen Rock NJ Price: $699,999
    SOLD! $700,000 ($1 OVER Asking)

    Purchased for 700,000 in 2005.

    If you adjust for inflation and add all payments/fees these are all losses.

    I am not sure what you intended these numbers to represent. To me they indicate the owners of these properties sold for a loss.

  122. chicagofinance says:

    SG Says:
    July 18th, 2007 at 3:04 pm
    Do we know how many NJ home buyers are sub-prime?

    shail: NJ is not a sub-prime issue at least for the areas we care about….the only NJ sub-prime areas are the usual suspects: Newark, Paterson, Camden, Trenton, Plainfield etc.

  123. James Bednar says:

    #111 & #120

    Best of both worlds.. Formica ™ has a line of metal laminates that look drop dead gorgeous. I’ve used the “Copper Stratos” before and it’s almost indistinguishable from oil rubbed copper. It’s as easy to use as any other laminate.


  124. chicagofinance says:

    note: grim’s focus on Alt-A & Prime is much more relevent…..

    sub-prime affects NJ because Wall Street takes a hit

  125. njpatient says:

    From CBS Marketwatch:

    A Bear Stearns Cos. hedge fund that made leveraged bets in the subprime mortgage market is worth nearly nothing, according to two people briefed by the investment bank.

    Investors have been waiting for Bear to update them on the High-Grade Structured Credit Enhanced Leveraged Fund and a larger, less leveraged fund called the High-Grade Structured Credit Fund.

    The Wall Street Journal reported on Tuesday that the larger High-Grade Structured Credit Fund is worth roughly 9% of its value at the end of April.

  126. 3b says:

    #122 chgo: Well according to The Star Ledger Tool information on home sales etc. my minutes from NYC BC town had over 20% of mtgs in 2005 and 2006 that were sub-orime.

  127. dreamtheaterr says:

    “I sure within a few years I will be standing at a Toys ‘R Us in sub-zero weather to buy Hunter some useless piece of crap toy :(”

    Years? It just might be months….. :)

  128. RentinginNJ says:

    note: grim’s focus on Alt-A & Prime is much more relevent…..

    sub-prime affects NJ because Wall Street takes a hit

    According to Credit Suisse, 55% of the loans originated in the NY Metro area were no/low docs. Agree, Alt-A’s are a bigger concern for NJ.

  129. skep-tic says:

    People may have prime FICOs but still have borrowed an irresponsible amount of money with an IO loan

  130. James Bednar says:

    Please scroll up to #124 if you haven’t read it yet. It was stuck in moderation and should be seen.


  131. SG says:

    chicago: I was thinking the same. But if you look at the document at link I kept earlier, I was surprised.

    Prestigious Bergen County: 23%
    Middlesex, Somerset, Hunterdon: 22%
    Monmouth, Ocean: 24%

    Suspect areas were,
    Newark: 27%
    Camden: 30%
    Jersey City: 35% !!!

    Again these are numbers from 2000.

  132. Hehehe says:

    #124 Awesome!

  133. James Bednar says:


    Thanks for doing some of the legwork.


  134. RentinginNJ says:


    Nice job!

  135. dreamtheaterr says:

    Would the high FICO scores or AAA tranches reflect the future probability and risk of prime borrowers mucking around with their erstwhile housing ATMs? Too much money was made available to people, some of who could not handle it. Now that the musical chairs have stopped, it’s a slow-motion stampede unfolding.

    Sub-prime, Alt-A, Prime; call it what you want based on FICO. What models will capture what reckless people do in the future with their financial GPA?

  136. make money says:


    Thank you.

  137. pesche22 says:

    please add englewood,garfiel,lodi,wallington,
    clifton,rahway,elizabeth,and many others
    where sub prime is probably the first choice.

    NJ, the welfare state.

  138. RentinginNJ says:

    Countrywide Financial Corp., Option One Mortgage Corp. and Merrill Lynch & Co.’s First Franklin Financial unit told employees and mortgage brokers this week that they would no longer offer so-called 2/28 subprime loans,

    I just picked up a Countrywide rate sheet for New Jersey. The 2/28 was changed to a 3/27 loan.

    What’s the point? Maybe they figure the housing market will recover by the time the teaser expires?

  139. Chiato says:

    Thank you.

    Actually JB I should thank you for this site. It has helped immensly.

    At the time I found this site I was working with an agent who believed that the price of a house was simply determined between the buyer and the seller. CMA? Fair Market Value? Nope.

    I offered her $50 for her Benz. She refused. lol

  140. James Bednar says:

    What is the rate differential between the old 2/28 and the new 3/27?


  141. James Bednar says:

    Looking through some older rate sheets, looks like the 3/27 was priced about 20bps more than 2/28.


  142. par4156 says:

    Question…(maybe someday someone will actually answer)…
    Is the hedge fund trouble with subprime mortgages related to initial overvaluation of the fund product and not some sort of mass defaulting by homeowners? I haven’t seen anything significant as far as subprime defaults go to suggest that this should be happening. Has anyone figured out if the defaults in subprime mortgages are statistically significant?

  143. gary says:

    Does anyone have a general rule of thumb concerning closing costs? In other words, if a house cost 500K, the total closing costs should be… what, 2% of this? 2.5%?

  144. bi says:

    To #124,
    These are the worst cases so far since they bought in 2005. How much loss did you take when you sold your .com stocks?

  145. Donald says:

    “Location: 1012 Abbott Blvd,Fort Lee NJ 07024 Price: $799,000
    SOLD for $770,000″

    Purchased for 790,000 in Jan 2005. Sold for a loss.


    For the above house, the address is in Fort Lee and the link you posted is for a house in Maywood. You have 2 houses mixed up.

  146. bi says:

    closing cost is kind of static: legal fees $700 – $1000, title insurance $1500 to $4000, first one or one-and-half month mortgage and taxes and some misc. fees. I would assume $5000 to $7000 for $500K house.

  147. chicagofinance says:

    par4156 Says:
    July 18th, 2007 at 4:07 pm
    Is the hedge fund trouble with subprime mortgages related to initial overvaluation of the fund product and not some sort of mass defaulting by homeowners? I haven’t seen anything significant as far as subprime defaults go to suggest that this should be happening. Has anyone figured out if the defaults in subprime mortgages are statistically significant?

    par: “overvaluation” is not the right word, but it is the correct relationship, so “yes”. Basically “yes” to everything you said. Yes – mass defaults; yes – statistically significant

    The “overvaluation” is better describe as underpricing actual risk. Also, “adverse selection”….you offer something the creates the biggest commission for sales people and it is alluring specifically to those who have financial skeletons in the closet. Guess what happens?

  148. James Bednar says:


    From the Fed:

    See Page 12, the figure on the left side of the page. Keep in mind Alt-A is missing, and the data is thru May ’07 only.


  149. Pooch123 says:

    Bi, the point of this was to show that these 2005 buyers suffered actual losses.

    The fact that many people lost money in a different asset bubble seems not so relevant

  150. cliffy says:

    I have unrelated question to the thread.
    I am making an offer on a house in Northvale . Any input regarding this twon will be appriciated.

  151. john says:

    WASHINGTON -(Dow Jones)- U.S. Federal Reserve Chairman Ben Bernanke said Wednesday the central bank would likely propose banning certain mortgage practices across the lending industry to bolster its consumer protection efforts.

    “Based on the information we are gathering, I expect that the (Fed) will propose additional rules under” the Home Ownership and Equity Protection Act later this year, Bernanke told the House Financial Services Committee, in the prepared text of his remarks.

    He said the central bank was conducting a “top-to-bottom” review of possible regulatory tools it could use to prevent a recurrence of weak underwriting standards that fueled some problems in the housing markets.

    Bernanke singled out several activities Fed officials were reviewing closely and could ultimately curb. Among them were certain prepayment penalties, loans that require very little if any documentation to prove income, and loans that don’t require borrowers to put money in escrow for taxes and insurance.

  152. par4156 says:

    Re: 128.
    Alt-A is such a broad term though. Makes it easy to get “supporting” data on almost any perspective. Seems to me that an occasional hedge fund meltdown should come with the risk and high potential returns. I don’t see why this should have a big effect on the market…should be expected to some extent…no?

  153. Hehehe says:


    I’d guess 8K-10K including attorney fees and everything.

  154. john says:

    I guess 2005 will be remembered as the year you had to take a subprime loan to afford prime housing or you took a prime loan to afford subprime housing.

  155. SG says:

    This was amazing find. Following is percentage of sub-prime Borrower Income for New Jersey homebuyers.

  156. gary says:

    Thanks all for the closing info.

  157. chicagofinance says:

    par4156 Says:
    July 18th, 2007 at 4:28 pm
    Re: 128.
    Alt-A is such a broad term though. Makes it easy to get “supporting” data on almost any perspective. Seems to me that an occasional hedge fund meltdown should come with the risk and high potential returns. I don’t see why this should have a big effect on the market…should be expected to some extent…no?

    par: put it this way….imagine you were working with a [white glove] financial advisor who promised you access to a great fund from Bear Stearns that would return 10%-20% a year even though it didn’t own stocks. It owned mortgage pools. It was a little more risky that some of the other funds you owned, but they have a great track record. You give the guy authorization to use $500K of your portfolio. It didn’t just lose value. Your investment is worth $45K in one case and zero in the other.

  158. SG says:

    Borrower Income New Jersey

  159. James Bednar says:

    Alt-A is such a broad term though.

    “Prime” or “Subprime” are generalizations as well. Are we talking Agency? Non-agency? Jumbo? Fixed? Adjustable? First-lien? Junior-lien? HE? Refi/Purchase? Doc? No Doc?


  160. James Bednar says:


    Shoot me an email if it’s not being posted.


  161. par4156 says:

    Chi and JB,
    thanks for the tutorials!
    I actually made my second post before seeing your replies.

  162. SG says:

    Sorry for earlier posts without numbers. here are the numbers,

    Borrower Income New Jersey

    less then $15000 0.44%
    $15000 – 24999 2.25%
    $25000 – 34999 5.47%
    $35000 – 49999 17.85%
    $50000 – 74999 29.47%
    $75000 – 99999 21.24%
    $100000+ 23.28%

    23% of Subprime borrowers in NJ made more then $100K in income !!!

  163. rhymingrealtor says:


    HEHE is closer 8-10,000$ on the $500,000 unless you use a title company instead of attorney shave $2000 off


  164. gary says:


    Thank You!

  165. 2010 Buyer says:


    I guess you can say its partially the initial overvaluation of the underlying mortgages (think of paying for a house, once you move in, you find wall paper covering up a hole in the wall) you find out you over paid for the asset. And partially the defaults are significant because pools are experiencing is that the defaults at a faster and 2006 vintage performing worst than 2005 vintage (meaning MORE borrowers are defaulting EARLIER).

    Everyone has models, usually with historical data as a component which attempts to predict a reasonable amount of default in a pool. They also use the model to help in setting the initial price. In an appreciating market is easy for the model to be right (sort of under valued the assets) because everyone is making their payments or can sell their home if they get into trouble. What’s happening now (stagnant, depreciating market) the pools are performing worst than what the model (overstating the assets) predicted.

  166. par4156 says:

    #160 – ok, I see…and we’re talking billions here! I’m going to look for some data on hedge fund failures and see the areas in which they were invested…

    #162 – You’re right. There’s lots of overlapping and many different types of loans. So maybe there is room for regulation??? Having firm definitions may be helpful to buyers, especially if they can identify non-prime products more easily. I think that prime products should be defined as well as sub-prime (seems the gov’t is trying to regulate only sub-prime???), otherwise we will eventually have prime” products marketed to “sub-prime” borrowers and the pitch will be “we treat you better than company Y…” and these prime loans will have the same crappy features with slightly lower rates….or something like that.

  167. Richard says:

    >>here comes goldman off the bottom. buy of the year

    always a winner. i bought some in early 2002 after working for the co-chairman on a non-profit related venture where he told me his company is going to see explosive growth over the next 5-10 years. who am i to argue? i haven’t sold but haven’t added to the positions either. i bought around $80. since y’all seem to think all i do is pick winners i also bought PDLI at $18 a share and held for 2 years before selling at close to break even. 3 weeks after i sold it it proceeded to shoot up quickly to $175 post-split. still kicking myself.

  168. make money says:


    Where did you get those numbers?

    Can you add the sales price/dates/towns/% of DP/ That would help paint a better picture.

    Can someone be classiefied as prime borrower if they took out 107%LTV, just because of their FICO?

  169. Chiato says:


    Hi Donald. The link was wrong but the data is correct.

    Thank you

  170. make money says:


    Why are you posting your stock performance? What’s your motivation?

  171. par4156 says:

    Where did you get that info? Is the also data for FICO? I’d like to see the correlation between FICO, Income and type of mortgage.

  172. James Bednar says:

    From Bloomberg:

    Moody’s Shut Out of Rating Commercial Mortgage Bonds

    Moody’s Investors Service has been excluded from rating 70 percent of new commercial mortgage-backed securities after toughening its guidelines.

    Moody’s has been shut out of nine of the past 13 deals as underwriters sought better ratings from rival companies, Tad Philipp, a managing director at Moody’s said today in a telephone interview. The securities had a face value of more than $25 billion.

    “There’s no doubt in my mind that it’s because of the change” said Philipp, who included a chapter titled “Rating Shopping is Alive and Well” in a report released today. “Normally, we’d rate 75 percent of the issues, not 30 percent. I guess this is sort of like, no good deed goes unpunished.”

    Moody’s, which was criticized by investors for being too slow to cut ratings on subprime residential bonds, in April increased its requirements for the level of protection carried by bonds backed by mortgages on apartment buildings, offices and other commercial property. To get a high rating for some pieces of the bond, Moody’s now requires lower-rated pieces to be larger, reducing losses further up the chain. The changes add to the costs to create the securities.

    The decision by Wall Street underwriters to snub Moody’s highlights the relationship between credit ratings companies, the firms that pay for the ratings, and investors who rely on them to make decisions. Moody’s charges fees for its credit ratings.

  173. James Bednar says:

    For those looking for some information on how the new underwriting guidelines will impact lending:

  174. par4156 says:

    2010…ahhhh. Those models again. Evryone seems to have them and I can’t get a date ;)

  175. make money says:

    This is interesting.

    I just walked out of Northfork Bank, while there I was chatting with the branch manager and he’s a little concerned after Capital One takes over August 1st. I asked him how their mortgage dep’t was doing and he replied “Not good at all, Capital One doesn’t want it”. I then asked him well what’s gonna happen to it? he said Greepoint is picking it up for pennies on the dollar”

    Any truth to this?

  176. john says:

    Greenpoint is owned by them already, another sub

  177. James Bednar says:

    Big news from WAMU. From Reuters:

    Washington Mutual halts some exotic subprime loans

    Washington Mutual Inc. (WM.N: Quote, Profile, Research), one of the largest U.S. mortgage lenders, said it will no longer offer some subprime home loans that had become popular before soaring defaults caused distress for dozens of lenders.

    In an interview, Chief Executive Kerry Killinger said that effective immediately, the Seattle-based thrift will require full documentation of income and assets from prospective subprime borrowers, eliminating riskier “stated income” loans.

    He also said Washington Mutual will not offer any subprime adjustable-rate mortgages with initial fixed terms of fewer than five years.

    This would eliminate so-called 2/28 and 3/27 subprime loans, which carry low rates for two or three years and then jump to much higher rates that float.

    “Too much money, and some would say, irrational money flooded the subprime market in the last couple of years,” Killinger said. He said that despite the changes, “we’re absolutely committed to the subprime mortgage business. It serves a very important customer need.”

  178. otis wildflower says:

    Is anyone an energy trader?

    Not me, but I’m always interested in holistics, N-order effects of things, etc.. Complex systems..

    Is there a significance on oil due to the fact that it is priced in USD? With USD weakness, does it create a dynamic that oil prices must react or be influenced?

    Well, the US wins when the USD is the default petrocurrency since there is a market for dollars if only to buy oil on the open market, guaranteeing a basic value of dollars. If the USD loses its reserve status (if oil exporters start to demand other currencies for their oil) then the underlying dollar demand would shrink I’d assume, sending the market value of dollars lower. Also, the fact that China can’t take its surplus dollars and use them to buy oil (or any other *Dollar commodity). I know Iran recently has asked Japan to buy oil in yen, that’s as much a political stunt as anything, but if the dollar remains low and continues to drop then more oil sellers will probably want to diversify their sales into petroyen, petroyuan, and petroeuro..

    The US does benefit from lower currency valuation: exports are more competitive, tourists get a better value (and with the CAD$ approaching parity, a welcome boost to Buffalo, NY ;), unindexed debts are easier to pay, resulting higher interest rates make carry trade more lucrative (borrow yen at 0%, buy an inflation-indexed instrument in dollars, assume the USD will continue to tank, repay yen and clear a tidy profit)…

    The US suffers from more expensive imports, but as long as China is using exports as a means of keeping the population employed, dumb and happy that will continue to act as an inflationary “heat sink”. Oil will continue to get more expensive, but that means drivers will have to economize more and despots will have to deal with depreciating pallets of petrodollars (interesting idea: devalue the dollar to bankrupt saudi arabia?). Higher prices for imported agricultural goods? Let’s get rid of price support subsidies and balance our books?!

    The biggest threat IMO is the USD losing its reserve status, but I’d think the US would stop guaranteeing the freedom of the seas and start withdrawing police troops from around the world if that is allowed to happen..

  179. AntiTrump says:

    If any of you have access to bloomerg TV. There is a special report on the Sub-prime meltdown. also avaliable on am 1130. I believe there is a replay at 11:00 pm. Pretty interesting stuff.

  180. SG says:

    FROM OFHEO Director:

    With respect to house price trends, as has been widely reported, appreciation rates have fallen dramatically over the last two years. (#6) Both OFHEO’s “all-transactions” House Price Index (HPI), which uses purchase prices and appraisals for refinancings, and OFHEO’s “purchase-only” index show sharp slowdowns. The annualized rate of appreciation between the fourth quarter of 2006 and the first quarter of 2007 was 1.8 and 1.1 percent, respectively. This is a sharp drop from previous years and lags the rate of inflation.

    The next slide, using the purchase only index, reveals that every region of the country has seen a sharp decline in appreciation rates over the last year. (#7) The deceleration has been particularly extreme in the areas of the country that once had the hottest markets, such as the West and South Atlantic. However, in the lower growth areas of the East North Central region, the so-called “rust belt,” and New England, price appreciation was actually negative over the latest four quarters. If other price indices are any indication, we may see more negative states in our second quarter HPI release.

    Now, let’s take a look at the subprime market. Over the last several years, you might say there were “triple-witching” factors that created the subprime turbulence we are seeing today. First, the share of subprime mortgage originations tripled from 2002 to 2006 to 22 percent of the mortgage originations, so that there is now about $1.5 trillion outstanding. Second, as this graph shows (#8), the type of subprime loans shifted dramatically. In
    2002, about 95 percent of new subprime loans were the traditional, fully amortizing loans — either fixed or adjustable rate mortgages — and that fell to about 35 percent in 2006. Nontraditional mortgages, including interest-only and negative amortization, made up most of the difference. In some cases, these loans were not explained well to the borrowers. Third, lending standards fell dramatically. In the first quarter, only about 50 percent of subprime loans were fully documented and only 50 percent had debt to income ratios lower than 40 percent.

    Not surprisingly, delinquencies and foreclosures on subprime mortgages began to rise in 2005. Two statistics are presented in this chart (#9). Serious delinquencies are loans 90 days past due or already in foreclosure processing. They were 5.8 percent of all subprime loans in the second quarter of 2005 and have risen significantly to 8.3 percent in the first quarter of 2007. Subprime loans starting foreclosure processing almost doubled. Expectations are that both of these numbers will escalate over the next year as many hundreds of thousands of “teaser,” adjustable-rate mortgage subprime loans will reach their payment reset dates.

  181. SG says:

    make money: Here is the link to numbers that I posted earlier.

  182. James Bednar says:

    From the Star Ledger:

    Layoffs looming in Newark

    The city of Newark is seeking state approval to eliminate as many as 400 City Hall job titles, far fewer than the 1,000 job cuts Mayor Cory Booker said would be necessary to plug a looming budget deficit.

    The plan being submitted to the state Department of Personnel calls for cutting hundreds of administrative or desk positions in departments throughout the city. The administration announced late today that it was planning on making the cuts, confirming fears that have swirled around City Hall for months.

    “We need to save about $50 million in personnel costs,” said Booker. “We believe right now, we have identified approximately 400 titles that will lead to approximately 400 people.”

    In June, the Booker administration offered 3,000 non-uniformed city employees a voluntary buyout to close a looming $180 million budget deficit. Earlier this month, after only 100 employees signed up for the voluntary buyouts, Booker warned that as many as 1,000 people would have to be laid off if enough people didn’t take the voluntary buyouts.

    A total of 190 employees signed up for the voluntary buyouts, saving the city an estimated $13 million. A limited number of police and fire fighters have until Friday to sign up for the buyout.

    Booker would not rule out the possibility of more layoffs later this year, but said the city is looking at other ways to save, such as possibly closing a library or reducing other services.

    “We still have a budget shortfall of $30 million going into 2008,” Booker said. “We may try some various big sacrifices. We may say a library might have to close. We may have to go back to the DOP and have another round of layoffs.”

  183. Richard says:

    >>Why are you posting your stock performance? What’s your motivation?

    because since practically everyone here is a renter and has money on the sidelines maybe they can benefit from some investment advice. speaking of advice, let me give you as much of a guaranteed double digit+ annual gains pick as one can give you. IGNBX. bought this when the fund was incepted and the fund manager is way ahead of the pack.

    disclaimer this is my sole opinion and does not express the viewpoints of this blog.

  184. AntiTrump says:


    Can you please give me address of GS MLS Number: 2422305 .

    It is an as-is sale with buyer responsible for co/etc. Just wondering what the deal is.

  185. gary says:

    JC says, houses are becoming too much money. It’s not worth it. If you’re trying to move, don’t do it so quickly.

  186. James Bednar says:


    45 Brier Ct. It is currently in attorney review. I believe it is an estate sale.


  187. Orion says:

    Re: Hedge Funds

    “All truths are easy to understand once they are discovered; the point is to discover them.”
    Galileo Galilei

  188. Possiblebuyer says:

    JB, do you have access to info as to whether the following rentals are still available? (from gsmls)


    If so do you have addresses? Thanks.

  189. syncmaster says:

    For those with MLS access, what is status on these GSMLS listings – 2377477, 2338524, 2398054? Thanks.

  190. chicagofinance says:

    Richard Says:
    July 18th, 2007 at 7:57 pm
    speaking of advice, let me give you as much of a guaranteed double digit+ annual gains pick as one can give you. IGNBX. bought this when the fund was incepted and the fund manager is way ahead of the pack.

    reech: come on…..

  191. James Bednar says:

    2411784 – 306 Walnut
    2415348 – 1 Trails End
    Both still available

  192. James Bednar says:

    2377477 – Sold, $350,000
    2338524 – Withdrawn
    2398054 – Expired

  193. dreamtheaterr says:

    “speaking of advice, let me give you as much of a guaranteed double digit+ annual gains pick as one can give you. IGNBX.”

    Richard, will you pick up the difference in tab if the fund turns south? I’m ready to buy.

  194. syncmaster says:

    JB, do sellers ever withdraw listings and re-list them under different MLS #s?

  195. Possiblebuyer says:

    #196- thanks!

  196. James Bednar says:

    Relisting is still pretty commonplace. I always watch the withdraw/relist offenders and it seems like certain offices do it more often than others. There are a handful that make it seem like relisting is SOP.


  197. still_looking says:


    do you know the UC price for 240 paramus rd ridgewood?

    thx in adv,


  198. bairen says:

    #191 45 Brier Ct is on a cul-de sac. The train tracks border its back yard.
    There’s a similar house on that culdesac for 699k, but across the street from the tracks.

    I drove through it a couple of times. Don’t want to live next to the tracks.
    Preschooler who loves trains + train tracks in back yard= high potential for disaster.

  199. BC Bob says:

    “because since practically everyone here is a renter and has money on the sidelines maybe they can benefit from some investment advice.”

    I would rather attend an ethics class taught by
    Bill Clinton.

  200. Pat says:

    Show of hands.

    Anybody ever actually act on any “tips” tossed here?

    Anybody, like me, store the tip and watch it? That’s been fun for me. It’s like portfolio practice.

  201. chicagofinance says:

    reech emu: troll!

  202. Pat says:

    Grind Mates. No, I mean Great Minds.

  203. James Bednar says:


    That property is a hoot.

    Listed on GSMLS for $695,000 in 2000 – Expired
    Relisted on GSMLS for $595,000 in 2002 – Expired
    Relisted on NJMLS for $895,000 in 2005 – Expired
    Relisted on NJMLS for $925,000 in 2006 – Expired

    Foreclosed by Countrywide, taken REO on 12/18/2006

    Listed on NJMLS for $550,900 in 2007, Reduced to $524,900 – Under Contract


  204. James Bednar says:

    No price until it closes.


  205. Everything's 'boken says:

    re 205
    Fat chance. Very entertaining though.

  206. Pat says:

    ‘Boken, I have to say, I am a guilty party.

  207. Pat says:

    That was said in a Yogi Bear voice.

  208. Pat says:

    Come to think of it, that would actually be fun.

    Phantasy Portfolio Teams:

    “The Richard”

    “The Duck”

    “Who killed Yogi”

    “Reits RIP”

  209. BC Bob says:

    “Anybody ever actually act on any “tips” tossed here?”


    Yes. My LCD TV, for March Madness. Also, Irish Soda Bread.

  210. Eisbär says:

    given how faulty Richard’s views are on real estate, why would anyone in their right mind listen to any of his “advice” on securities?!?

  211. Pat says:

    Bob, I went out and bought wurst last week.


  212. chicagofinance says:


    Not Invested in the Credit Markets? Why Their Woes Could Be Your Woes
    July 19, 2007

    The economic news these days is thick with the jargon of the bond market. CMO, CDO and RMBS. Triple-A-rated tranches, risk spreads and liquidity.

    If you’re not a bond trader, should you care? After all, the nation’s stock market is giddy. The economy, despite the housing bust, is growing. Unemployment is low. Inflation, though higher, remains moderate.

    Business borrowing remains brisk, the buyout boom isn’t over and consumers outside the subprime market are still borrowing — albeit at a slower pace. There are signs of strain in commercial real estate and lower-quality corporate debt, a point Federal Reserve Chairman Ben Bernanke made on Capitol Hill yesterday. But if you aren’t buying an office tower or trying to sell junk bonds to take over a company, why worry?

    Reason one: As Mr. Bernanke taught at Princeton: What happens in credit markets and banks doesn’t always stay in credit markets and banks.

    The simple textbook explanation is that interest rates are all that matter. They go up, and consumers and businesses borrow less and spend less.

    But for 25 years, Mr. Bernanke’s academic work has emphasized that the health of an economy also depends on the health of the lending business. If something makes lenders reluctant to lend — jitters about market volatility, the realization that they’ve taken bigger risks than they intended, pressure from regulators — the ripples can spread to the overall economy. And if anything impairs the value of would-be borrowers’ collateral (think home prices), that, too, can discourage lending and hurt the economy.

    A corollary: Having studied so closely how changing financial conditions can amplify the impact of Fed-rate increases, the tumult in credit markets could lead Mr. Bernanke to move cautiously on raising rates to damp inflation.

    Reason two: The economy is leveraged. Credit markets are the lever.

    Borrowing to make bigger bets (the definition of leverage) looks smart when times are good. Lending to subprime home buyers — those with sketchy credit records — was easy money until housing prices slumped and borrowers couldn’t refinance. Private-equity firms make big bucks as long as they can borrow easily and cheaply. But when something goes wrong, leverage magnifies the problem.

    Analyst James Bianco points out that in 2000 stock-market leverage (which he measures by margin loans on New York Stock Exchange-listed equities) and bond-market leverage (which he measures by net borrowings of big Wall Street firms) were about $300 billion each. After the tech-stock bubble burst, lending on stocks fell and then rebounded to $350 billion. Bond-market leverage has skyrocketed to about $1.4 trillion.

    “This helps explain the fear of the bond market that is worrying the marketplace,” Mr. Bianco says.

    Why is Wall Street taking on so much leverage? Perhaps markets have been so calm that Wall Street pros figure bets aren’t as risky as they once were, Mr. Bianco speculates. Or perhaps derivatives help them hedge so much better they’re willing to risk more.

    CAN IT LAST? Sure, as long as enough investors believe that today’s problems will be limited to the most risky bets and that there’s enough liquidity so they can sell the IOUs they hold to someone else without big losses. Those are big ifs. A hint that the markets are worried: Yesterday, J.P. Morgan Chase reported a 20% increase in profit, and its stock fell.

    Reason three: Credit markets are a frightening mix of hubris and opacity.

    That’s the lesson of Bear Stearns, the Wall Street firm that spawned two hedge funds whose bets on subprime mortgages went bad. These were supposed to be the smart folks.

    It’s easy to tell what a share of stock is worth — thanks to global, round-the-clock, increasingly electronic markets. It’s harder to get a reliable price on a bond. And it’s even harder to be certain of a price quoted for a security that represents a slice of a pool of mortgages, let alone a derivative whose value depends on pricing such a security.

    That’s probably why so many of the financial mishaps that shake the system and threaten economic growth seem to have their roots in credit markets, not stocks. Think bank loans to Latin America and the savings-and-loan crisis of the 1980s, Long-Term Capital Management and the Asian financial crisis of the 1990s. (The 1987 stock-market crash is a lonely exception.)

    The good news is that all the turmoil in credit markets hasn’t harmed the overall economy — yet. A credit crunch is a threat, not a reality — yet. The bad news is those sentences need to be qualified with the word “yet.”

  213. Pat says:

    When did “leverage” become the 2007 Man of the Year?

  214. James Bednar says:

    I’ve acted on more scotch recommendations than I should probably admit.


  215. BC Bob says:

    “Bob, I went out and bought wurst last week.”


    If you had some skin in Bear’s High Grade fund, that’s about the value of the account. Possibly, a flight to Germany for wurst. Then again, the dollar? Oh well, how about a trip to Milwaukee?

  216. Pat says:

    No, need for Milwaukee, my man. Spiciest and tastiest wurst this side of Wienerwald is located in Reading Terminal Market, home of the fat Italian guy with the ten varieties of links and a hundred varieties of etc misc.

    Just don’t call him fat until he wraps the goods.

    I’m there in 19 minutes, no need to park, just leave the car running.

  217. dreamtheaterr says:

    Richard, you seriously are absolutely nuts to suggest people who are saving for a house to park some of their funds in a natural resource mutual fund. The fund lost almost 30% the last time it was hammered, and 8 years of positive returns increases the odds of a substantial decline in the future.

    Recommendations like yours again confirm you being a Lucy in the Sky with Diamonds kinda guy. It almost makes me think that you perhaps you don’t want others to accumulate a down payment.

  218. Pat says:

    Anybody need any of this guy’s stuff? He just wants a gameboy or anything “cool” in exchange:

  219. bairen says:

    Can someone help me with the data n real estae guide. I’m looking at Basking Ridge and Warren. The volume had dropped about 75% from March-may 02 to same period 07. For Warren the median price is down 14% for the same time period, but the median price is down 26% from Dec 06-Feb 07 compared to March-May 07. Are prices really falling this fast, or is it a combination of higher priced stuff sitting and prices dropping?

  220. still_looking says:

    “Anybody ever actually act on any “tips” tossed here?”

    yeah, I recall a really good steak recipe!!

    And you may recall some good medical tips: e.g. skin cancer screening and recommendations for certain testing such as colonoscopy and mammograms….


  221. still_looking says:

    221, Pat- Where??? Where?


  222. James Bednar says:


    Lifelong dividends? Now you’re talkin’.


  223. James Bednar says:

    From Bloomberg:

    MGIC Profit Drops 49 Percent on California Weakness

    MGIC Investment Corp., the largest U.S. mortgage insurer, said profit fell 49 percent in the second quarter as it paid more in claims.

    Results were negatively affected by weakness in California, Florida and the Midwest, said Curt Culver, MGIC chief executive officer, in the statement. Mortgage foreclosures in the U.S. rose 87 percent last month due to falling home prices and tighter lending standards, RealtyTrac, a seller of foreclosure data, reported on July 12. California, with one filing per 315 households, had the second-highest foreclosure rate, after Nevada. Colorado was third, followed by Florida.

    MGIC’s losses incurred in the quarter climbed 61 percent to $235.2 million. The company protects banks against defaults on loans for more than 80 percent of a home’s market value.

    The company, which reported earnings after the close of regular trading in U.S. markets, is the first of the publicly traded mortgage insurers to report second-quarter earnings. Stocks of mortgage insurers have been under pressure as failures of so- called “subprime” mortgages have mounted.

  224. still_looking says:


    If it saves me from diagnosing a bad-a$$, far spread cancer in my ER, I am all for it.

    Save your life. Get screened.

    Just a humble recommendation from the med-geek.


  225. bairen says:


    Some very useful tips

    Always use protection.

    Don’t drink the water.

    Wear a seatbelt.

  226. bairen says:


    “be fearful when others are greedy and greedy when others are fearful”

    Warren Buffett

  227. Pooch123 says:


    Using past performance as a predictor of future results is a dangerous game, especially during a bull market. See

    It is well known that a superior indicator is the fund’s expenses, and this fund’s expense ratio is 2.25% – that’s 7.5 times more expensive than my most expensive mutual fund, vanguard total international stock market index, which may only be up 12% ytd, but is far less volatile.

    As an aside, I think people dramatically underestimate the impact high expense ratios have on their returns. Say you have two mutual funds, one with a 2.25% expense ratio and one with a .2 expense ratio, and both go up 20% in a year, so your 10K investment turns into 12K by year end.

    Your after-expense return on the expensive fund is really only 11730, while the after-expense return on the cheap fund is 11976. Compounded yoy in a larger portfolio, this seemingly innocuous difference does quite a bit of damage to your portfolio.

    And don’t even pretend that you know an active fund manager who is guaranteed to beat their respective indices every year. There aren’t too many Peter Lynches and Bill Millers out there, and to the extent that there are some, you wouldnt know it until ten years down the road.

    I can go on forever about index investing, but that fight has already been played out here, you’re probably better off reading one of John Bogle’s books and deciding for yourself and/or hanging around the vanguard forums, see

  228. Pat says:

    Sorry, SL, I’m north of Phila.

    Heh, Heh, Heh. I can have garlic basil weisswurst with some kind of red chopped hot peppers whenever I want.

  229. James Bednar says:

    I hope this Bloomberg piece makes it’s way to YouTube. Only 7 minutes in and Richard Syron has already said “we’ve had a bubble” three times…


  230. James Bednar says:

    Even worse, he seemed to agree with everything Shiller said.


  231. UnRealtor says:

    “Listed on GSMLS for $695,000 in 2000 – Expired
    Relisted on GSMLS for $595,000 in 2002 – Expired
    Relisted on NJMLS for $895,000 in 2005 – Expired
    Relisted on NJMLS for $925,000 in 2006 – Expired

    Foreclosed by Countrywide, taken REO on 12/18/2006

    Hysterical. Greedy Grubber indeed.

    I guess this fool was a hero to the neighbors — didn’t want to “lower the comps.”

  232. still_looking says:


    {sigh} oh well… stuck with the local stop-n-shop’s stuff! :(


  233. still_looking says:


    actually the dude that bought it thought he could farm it. Didn’t realize (or ignored the wetlands restrictions) and then got fine 126K by the DEP for clear-cutting the entire front of the lot (over 4 acres or so)

    Finally got foreclosed on. Unfortunately state, fed and municip fines stick with the prop as a lien. Building code fines go away with the former owner after foreclosure and a prop is offered with “clear title”

    Hopefully the person who is UC on it now knows about the 126K fine.

    I spoke with the Ridgewood Engineering office about it. They are also on the pipeline to severely restrict development in August. Seems a developer had originally submitted plans to convert it to a 4 home dev’t but also needed state approval because of the location right next to rt 17 off ramp — can’t convert the driveway without state approval.

    IOW, it’s a mess to deal with. And not farm assessable due to wetlands restrictions. Thus high taxes on 11.25 acres. Ick.


  234. Hobokenite says:


    Which bloomberg piece (#234)?

  235. James Bednar says:

    The television special focusing on housing and subprime that ran at 7pm and 11pm yesterday.


  236. BC Bob says:


    Yes. I forgot to add that I acted on another tip from this site. Free skin screen at PV.
    Thanks Again.

  237. Everything's 'boken says:

    Welcome to the New Jersey Health and Food network.

  238. lostinny says:

    BC Bob
    I’m glad we could help with the LCD. Which one did you get?

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