Homeownership a poor decision for some?

From the Wall Street Journal:

Payback
August 22, 2007; Page A14
BUSINESS WORLD
By HOLMAN W. JENKINS, JR.

Bailout has been a busy word in the last two weeks. But lending so solvent institutions won’t go under for lack of short-term liquidity is very different than bailing out insolvent institutions from their bad decisions. In any case, we’ve made peace with a financial system that lives a little closer to the edge on liquidity than it would if there weren’t a Federal Reserve. Whether the alternative would be a more stable world, with as much growth, is uncertain. But there’s no doubt that the system has been conditioned to expect a general subsidy to risktaking by way of the Fed’s willingness to provide cheap money in an emergency.

Everybody talks about moral hazard. A wisp of memory came to mind last week. Then-Fannie Mae chief Franklin Raines visited The Journal years ago and entertained himself by mocking editorial writers who assume that establishing that a policy is economically inefficient is enough to establish that it’s unwise.

He yukked it up quite a bit, in fact, noting that voters are perfectly entitled to assert values other than those of the market, namely that homeownership is a social blessing and should be encouraged with subsidies. And so we’ve done with tax subsidies, lending subsidies and a concerted set of policies by Bill Clinton’s HUD to move low-income people out of rental units and into homes they own. His goal, which was achieved, was to lift the homeownership rate from 64.2% to 67.5% of households.

But a home financed by a mortgage is not just an asset. It’s also a liability. We owe thanks to Carolina Katz Reid, then a graduate student at University of Washington, for a 2004 study of what she dubbed the “low income homeownership boom.” She considered a simple question — “whether or not low-income households benefit from owning a home.” Her discoveries are bracing:

Of low-income households from a nationally representative sample who became homeowners between 1977 and 1993, fully 36% returned to renting in two years, and 53% in five years. Suggesting their sojourn among the homeowning was not a happy one, few returned to homeownership in later years.

Even among those who held on to their homes for 10 years, the average price-appreciation gain was 30% — less than if their money had been invested in Treasury bills. This meager capital gain was about half that enjoyed by middle-income homeowners.

A typical low-income household might spend half the family income on mortgage costs, leaving less money for a rainy day or investing in education. Their less-marketable homes apparently also tended to tie them down, making them less likely to relocate for a job. Ms. Reid’s counterintuitive discovery was that higher-income households were “twice as likely to move long distance if they’re unemployed.”

Almost needless to add, the great squarer of circles for middle-income homeowners, the mortgage-interest deduction, won’t turn a house into a paying proposition for those with little income to shelter.

Bottom line: Homeownership likely has had an exceedingly poor payoff for millions of low-income purchasers, perhaps even blighting the prospects of what might otherwise be upwardly mobile families.

And yet subprime lending wouldn’t be a business without a flow of customers, and politicians and a vast array of interest groups flog the notion that owning a home is the American dream for anyone who can squeeze sideways through the door. Now this curse is being repaid with interest, and by an inherently unpredictable route — don’t buy any “news analysis” that says that because subprime lenders were known to be making risky or fraudulent loans, last week’s credit meltdown in unrelated markets from here to Tokyo should have been foreseen

For the sake of people trying to climb into the middle class, let’s hope that one lesson will be a rethinking of policies designed to saddle them with money pits. The Democratic presidential contenders are currently outbidding each other in ways to help “homeowners” (a dubious term in the present instance) avoid foreclosure. What might really benefit these citizens is being freed to return to renting, where some real bargains will likely be had in the months and years ahead.

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212 Responses to Homeownership a poor decision for some?

  1. James Bednar says:

    From Bloomberg:

    Toll Brothers Profit Drops on Writedowns, Weak Demand

    Toll Brothers Inc., the largest U.S. luxury homebuilder, said fiscal third-quarter profit fell 85 percent as the deepening housing slump cut sales and led to land writedowns.

    Net income in the three months ended July 31 declined to $26.5 million, or 16 cents a share, from $174.6 million, or $1.07, a year earlier, the Horsham, Pennsylvania-company said today in a statement. The average earnings estimate of analysts surveyed by Bloomberg was 2 cents a share.

    Five of the largest U.S. homebuilders reported combined losses of $1.85 billion and took charges of $2.9 billion to write down land values and walk away from property options in their most recent quarters. The limited availability of “jumbo” mortgages of more than $417,000 and higher interest rates are cutting the number of buyers for Toll, which sells homes at an average price of more than $600,000.

    “It’s pretty ugly out there right now,” said Dave Crossman, senior research analyst at Kirr Marbach & Co. in Columbus, Indiana, before the earnings were published. “They’re doing about as well as they can.”

    The uncertainties surrounding sales, mortgages and possible future charges means Toll is “not comfortable providing fourth- quarter guidance at this time or confirming any previous guidance,” Chief Financial Officer Joel Rassman said in the statement.

    Chief Executive Officer Robert Toll said on Aug. 8 that tightening credit standards are cutting the pool of potential buyers. A glut of new and existing homes for sale and prospective buyers’ inability to sell their existing homes is reducing demand. Consumers are also holding off on purchases on concern prices will fall further.

    “Our buyers generally should be able to continue to secure mortgages, due to their typically lower loan-to-value ratios and attractive credit profiles,” the CEO said in today’s statement.

  2. James Bednar says:

    From the WSJ:

    Credit Crunch
    Moves Beyond
    Mortgages
    Individuals See Higher Rates,
    Harsher Terms on Credit Cards
    And Other Consumer Loans
    By JANE J. KIM
    August 22, 2007; Page D1

    It’s not just mortgages. As it gets tougher to land a home loan, some people are also finding it harder and more expensive to get other types of consumer credit.

    Some lenders, such as USAA, are nudging up credit-score requirements across their auto loans, credit cards and personal loans. Bank of America Corp. and Capital One Financial Corp. recently raised fees and interest rates for some of their credit-card customers. And this month, Citigroup Inc.’s CitiFinancial Auto started charging higher auto-loan rates for borrowers with less-than-perfect credit.

    All this comes as lenders continue to tighten guidelines on mortgages and home-equity loans and lines of credit as investors back away from subprime loans and other perceived credit risks. For the most part, lenders say the changes aren’t directly tied to the mortgage mess, but reflect concerns about an economic slowdown and uncertainty about interest rates. Still, some lenders are becoming more cautious about extending credit in weaker housing markets and to people who may have exposure to certain riskier mortgages.

    “In the past few months, we’ve been tightening up our credit underwriting standards and raising our score cutoffs slightly,” says Barbara Johnson, vice president of USAA Federal Savings Bank, referring to the bank’s credit cards, auto loans and personal loans. The bank has also scaled back credit-line increases in its credit-card business. “We used to offer frequent, automated line increases, and now, we’ve pulled back on that a little bit,” she says.

    A spokesman for J.P. Morgan Chase & Co.’s Chase says the company has been tightening up credit guidelines across some consumer products, such as home-equity and auto loans, mainly among customers with weak credit who live in markets that have been hurt by a decline in home prices.

    Lenders aren’t tightening credit standards nationwide. That’s why the average interest rates on many types of consumer loans haven’t changed much since the beginning of the year. Rates on variable-rate credit cards, five-year new car loans and personal loans are averaging 13.9%, 7.8% and 14.5%, respectively, roughly the same as they were in January, according to Bankrate.com.

  3. James Bednar says:

    From the NY Post:

    N.Y. FORECLOSE FRENZY

    The nation’s housing foreclosure crisis has walloped Manhattan with a vengeance this summer – as the number of filings leaped 184 percent in one month alone, according to new statistics released yesterday.

    Staten Island also suffered from the frightening flood of foreclosures between June and July, recording a 102 percent jump, reports industry expert RealtyTrac.

    “It may have taken a little bit longer, but the subprime [mortgage foreclosure] wave has finally hit New York,” one industry source said.

    The total jump among the city’s five boroughs was 55 percent in the past year, soaring from 1,648 to 2,561 foreclosures, the figures show.

    The borough that took the worst hit overall was Queens, which racked up a 126 percent increase in its number of foreclosure filings from July 2006 to July 2007.

    Its numbers rose from 390 to 882.

    Queens was followed by The Bronx, with an increase from 208 to 321, or a 54 percent surge.

    In Brooklyn, the figures rose from 581 to 875, for a 51 percent jump.

    While Manhattan was hit particularly hard at the start of this summer, its total increase in foreclosures for the past year was moderate by comparison: just over 12 percent.

    Its foreclosures rose from 225 to 253.

    Staten Island actually recorded a decline of 5.7 percent for the year – dropping from 244 to 230 cases.

    The state registered an overall 22.5 percent rise in foreclosures.

  4. James Bednar says:

    Foreclosure drives wife to poison husband…

    Wife accused of trying to poison N.J. man

    A former township woman was jailed Monday after being charged with trying to poison her husband by putting antifreeze in his juice and cyanide in his food.

    Karen L. Tubertini, 46, who recently moved to Cherry Hill, was being held on $350,000 bail in the attempted murder of Ronald Tubertini, 49, a retired Lumberton police officer.

    On Aug. 17, the wife admitted to county authorities she tried to poison her husband to “punish him” for their problems, according to a court document. She said she was overwhelmed by the stress of household financial troubles, managing the family business — Arylin Construction Co. — and dealing with her three children.

    The Lumberton home and a farm the couple owns in Monroe, Pa., are both in foreclosure proceedings, county authorities said. However, the husband’s life insurance policy and mortgage insurance were paid.

  5. James Bednar says:

    From MarketWatch:

    Volume of mortgage applications down 5.5%

    Filings of applications seeking mortgage loans dropped a 5.5% last week compared to the prior week as interest rates increased, the Mortgage Bankers Association said Wednesday.

    On a seasonally adjusted basis, mortgage applications to refinance existing loans were down 6.4% in the week ended Aug. 17, according to the MBA’s latest survey. Week-to-week applications for mortgages to purchase homes were down a seasonally adjusted 5.0%.
    But the state of the mortgage market makes it necessary to view these data in context, said Jay Brinkmann, the MBA’s vice president of research and economics.
    “Given the current turmoil in the mortgage market, week-to-week changes in the purchase applications index should be treated with a certain degree of caution,” Brinkmann said in a news release.
    “For example, the sudden exit of a major originator several weeks ago may have led to a bump up in applications over the last two weeks as those borrowers caught in the shutdown reapplied for mortgages at other institutions. The drop in applications we see here may be an indication that those borrowers have now been taken care of,” he said.

  6. James Bednar says:

    From Bloomberg:

    Subprime Crisis Isn’t Fault of Ratings Companies: Matthew Lynn

    Every market crisis needs a scapegoat. After the dot-com crash in 2000, big accounting firms and investment-bank analysts were hung out to dry.

    The whipping boys for the subprime meltdown now appear to be ratings companies such as Moody’s Investors Service, Standard & Poor’s and Fitch Ratings. The lynch mob is out to get them, and it can smell blood.

    Already, politicians such as French President Nicolas Sarkozy are calling for the credit assessors to be investigated. Plenty of others will climb on that bandwagon.

    Yet they shouldn’t kid themselves that it will fix anything.

    Sarkozy, Dodd and the rest are right to identify something odd about the way the debt graders operate. You would hesitate to buy a used car when the guy in the sheepskin coat gets paid by the vehicle’s owner to say it was fine. Likewise, you should balk at buying a bond when the bank selling it has paid a ratings company to say it is worth the money.

    Now, in much the same way, fund managers are blaming the ratings companies for the way they bought securities based on an inflated U.S. property market.

    And yet, people have been warning for years that U.S. real estate was dangerously overvalued. If you bought into it, surely you only have yourself to blame. (And in case you missed all the others, here is yet another warning that the U.K. and Spanish housing markets are in a similar situation.)

    Investors have to take responsibility for their own decisions instead of accepting someone else’s judgment of whether a stock or bond is sound.

    A company doesn’t necessarily make huge profits even if a big accounting firm says it does.

    A technology company isn’t still a “buy” when it has a price-earnings ratio of 500, even if the ritziest investment banks say it is.

    And, for that matter, lending lots of money to poor people with a record of not paying their debts is risky regardless of how many A’s a ratings company stamps on the bond issue.

  7. Bloodbath in Winter 2007 says:

    Wait … i thought foreclosures never happened in NY. What gives? Man, i wonder if that number is going to rise this Fall … when the rest of the country is going through the first tsunami of foreclosures …

  8. pesche says:

    Which major home builder will file an 11
    first?

  9. James Bednar says:

    The uncertainties surrounding sales, mortgages and possible future charges means Toll is “not comfortable providing fourth- quarter guidance at this time or confirming any previous guidance,” Chief Financial Officer Joel Rassman said in the statement.

    What happened to “dancing on the bottom”?

    jb

  10. James Bednar says:

    From HousingWire:

    A Recovery That Will Lead to Relapse: Why We’re Not Out of the Woods Yet

    I probably don’t need to recap what the past few weeks have been like for the mortgage industry, especially for those that regularly read this blog. And I probably couldn’t do a recap anyway, even if I wanted to — there’s just been an overloading avalanche of information, and unfortunately most of it has been bad. Some of it very, very bad.

    While I’m happy to see things calming down in terms of the financial markets today (especially for the Apple stock I so proudly own), I wanted to take some time to remind HW readers that I don’t think we’re out of the woods yet. Not by a long shot.

    There is one simple, over-arching reason why this is the case, and you don’t need to be an economist to understand why: outstanding 2005 and 2006 mortgage resets.

  11. pesche says:

    Sharp James needs a lawyer. Should we give
    him a hand?

  12. R Patrick says:

    As a college student who owned his own apartment ( yes totally paid by me ) being low income and having a property can be a disadvantage.

    Fridge breaks, which it did so now I need to spend 400-600 dollars or half my monthly paycheck on the fridge. ( And yes thats for the barebones rental unit model )

    Now that I am working it hurts to still need the fridge but it’s an annoyance not a crisis. Same thing with dental work, ect.

  13. Bloodbath in Winter 2007 says:

    It really is amazing to see all these industry types just seeing these problems now. DO they wear blinders? Were they that caught up in the money?

    It just seems strange that a bunch of people on a message board (this one) could see it from miles away, but everyone else is SHOCKED! at what’s happening.

    I will say this – it does feel good to have been chirping this ‘RECESSION IS COMING!’ stuff for months … and then having friends and family saying, ‘you totally called this.’

  14. thatBIGwindow says:

    RPatrick: You should buy a used fridge. I am sure you can find a cheap one on craigslist.

  15. pesche says:

    I wonder if the NJ pension fund has invested
    with the heggies.

    Will the NJ taxpayer take any losses?

  16. James Bednar says:

    From Bloomberg:

    U.S. MBA’s Mortgage Applications Index Fell 5.5% Last Week

    Mortgage applications fell 5.5 percent last week, the biggest decline in almost three months, reflecting less demand to refinance and purchase homes amid a widening credit squeeze.

  17. James Bednar says:

    From CNN/Money:

    Mortgage meltdown: Here come the judgments

    Earlier this year, a Wisconsin couple won a judgment against Chevy Chase Bank that said the bank deceived them over the terms of their mortgage.

    The judge ordered Chevy Chase to rescind the loan and certified the lawsuit as class-action, which could potentially release thousands of other borrowers who felt misled.

    According to their attorney, Bryan and Susan Andrews believed they were getting a loan with a fixed 1.95 percent annual interest rate for the first five years. What they got was an option adjustable-rate mortgage (ARM); the 1.95 percent rate only applied for the first month and rose every month afterwards.

    “The second month, the interest rate was about 5 percent,” said their attorney Kevin Demet. “After a year it was about 7 percent and now it’s in the 8s.”

    The bank said it clearly spelled out the loan terms, but the judge found that Chevy Chase violated the Truth in Lending Act (TILA), which mandates that mortgage documents must be clear and understandable. Chevy Chase is appealing the judgment, and did not respond for comment for this article.

    “It’s a three-part business cycle now,” said Don Lampe, a partner with the law firm Womble Carlyle, whose specialty is mortgage matters. “Boom, bust and recrimination. We’re moving into the recrimination phase.”

  18. Mortgage Observer says:

    #18
    We’re moving into the recrimination phase.”

    If judicial actions like this are upheld the banks and mortgage companies will all be out business.

    The mortgage market will shrink even more as few lenders would want to take on the risk of lending on housing.

  19. Richie says:

    Anyone here work for Bear Stearns? Have a job offer from them.. but hesitant based on their performance and outlook…

    -R

  20. RentinginNJ says:

    Hamilton council heeds call to bump pay for top police officials
    http://blog.nj.com/timesupdates/2007/08/hamilton_council_heeds_call_to.html

    HAMILTON — A cadre of police officers turned out Tuesday night in support of Chief James Collins and Deputy Chief George Zimmer, asking the council to grant them an extra salary raise in the coming fiscal year.

    Representatives from the police department’s two unions asked the council to approve a 4 percent raise for both in the first six months of the year and an additional 4 percent beginning six months from now.

    Last year, the township council denied the chief and his deputy a raise, treating them the same as the township’s department directors. But the officers have taken offense at last year’s action and are lobbying the council for an extra 4 percent beginning Jan. 1 to make up for the missed raise.

    Council members passed the ordinance with the initial 4 percent raise Tuesday night, but held off on granting the additional raise until later in the year.

    Editors note…What they don’t tell you is that Collins made $147k last year and Zimmer made $143k….Way to keep property taxes in check

  21. James Bednar says:

    From the Wall Street Journal:

    Accredited Stops Accepting
    New U.S. Loan Applications
    Subprime Lender Plans Deep Job Cuts
    Amid Continuing Credit-Market Woes
    By KEVIN KINGSBURY
    August 22, 2007 8:49 a.m.

    Subprime mortgage lender Accredited Home Lenders Holding is no longer accepting new U.S. loan applications and will cut more than half its work force as the company deals with the ongoing credit-market turmoil.

    The San Diego firm said “substantially all” of its retail lending business, which is made up of 60 retail branches and five retail support locations, “will be effectively closed” as of Sept. 5, affecting 480 positions. Another 490 jobs will be lost at the wholesale operations, which will close 5 of its 10 divisions and cut staff at the other five. About 340 jobs will remain.

    Also, staff at Accredited’s headquarters will shrink to about 220 from 400 and the company’s settlement and insurance-services business “will be substantially reduced.” No details on the unit’s cutbacks were provided.

    Once the moves are completed, the firm’s work force will be about 1,000, down from 2,600 as of June 30. Accredited’s Canadian operations aren’t affected by the restructuring.

    “These difficult decisions were made out of necessity in light of the continued and widely publicized turbulence in the mortgage and financial markets, but with a heavy heart,” said Chairman and Chief Executive James A. Konrath.

    The restructuring announcement comes a day after Accredited said it would trade $1 billion in home loans to an investor in exchange for the right to buy those loans back later this year at a premium. The complex deal essentially protects the lender from loans losing value while offering the chance to turn a profit if the turbulent mortgage market improves.

  22. Kettle1 says:

    #14

    There has be some blinders involved and apparently some rather large ones, as i mentioned in a previous thread, one of my inlaws in a CFO for a corporate real estate group in NJ, and for the last 2 years all i have heard is “why havent you bought?”, ” “buy as much as you can now and you increasing future income will balance the debt load out in a few years…”

    Fortunatly i have not taken that advice, but it still baffles me that this comes from someone so deep in the field. Lately when i have asked him what he thinks about the current fiasco he is still saying it will work out…???

  23. Bloodbath in Winter 2007 says:

    JB – Any take on that CNN piece? Now that it’s on CNN, i predict lawyers EVERYWHERE are being called this morning with claims that people were ‘misled.’

    Some probably were. But it also might be a he said/she said type of situation. If lots of these are tied up in the courts … could that delay the impending foreclosure disaster?

  24. James Bednar says:

    From Bloomberg:

    Accredited Home Halts Loan Applications, Cuts Staff by 1,600

    Accredited Home Lenders Holding Co., the subprime lender whose sale to Lone Star Funds collapsed, will close almost all of its retail lending business, shut half of the 10 divisions serving brokers and halt U.S. mortgage applications.

    About 1,600 people are losing their jobs, the San Diego- based company said in a statement distributed today by Business Wire.

  25. newbie says:

    #20 Richie,

    I am. Which dept are you going to be working in?

  26. make money says:

    #24

    Great time to be a RE lawyer.

    MM

  27. BklynHawk says:

    #4-
    We will be able to write a book about crazy stories like this…

    I’m sure some people saw the story about a NJ house (I think Ocean county)mysteriously blowing up and the owner just happened to be away that night?

    Also, watch arson rates rise…already happening in some areas.

    JM

  28. James Bednar says:

    JB – Any take on that CNN piece? Now that it’s on CNN, i predict lawyers EVERYWHERE are being called this morning with claims that people were ‘misled.’

    While I’m sure consumer advocates are cheering over this, it’s not going to be good for anyone.

    This is, ideally, the best way to “punish” the lender and originator, unfortunately, the potential for abuse is massive. If this becomes commonplace, realize what the fallout will be:

    Lenders and originators will begin refrain from making loans with even a touch of risk or exposure, or if they do, the cost will be high. If you thought credit was tight now, what happens if lenders begin to reduce the number of ARM or other non-traditional mortgages being written? Going back to a world where a 30Y FRM is the only option will decimate housing demand.

    Some probably were. But it also might be a he said/she said type of situation. If lots of these are tied up in the courts … could that delay the impending foreclosure disaster?

    Any positive benefits this might have will be vastly outweighed by the negative impact to lenders. Can you imagine the legal costs associated with defending against these lawsuits? These suits would be the first step, they would quickly be followed by investors suing the originators, lenders, servicers, etc.

    The losses would be massive, and would likely implode even more subprime and alt-a originators. We also risk triggering another liquidity event as investors attempt to dump any holdings with exposure.

    jb

  29. Richie says:

    #27 Newbie

    I’m in IT.. I’m a computer nerd.

    -Richie

  30. gary says:

    Why am I reading on every financial link that the FED is going to cut rates on Sept. 18? Why is this a given? And what do they wish to accomplish? I thought they were worried about inflation? The rest of the world is increasing rates to fight inflation and we’re talking about cutting? Do they want to kill the dollar? And if they cut, doesn’t that just refill the punch bowl? Sure, go out and borrow and spend some more.

  31. James Bednar says:

    From MarketWatch:

    WCI Communities Swings To 2nd Quarter Loss; Revenue Falls 54%

    WCI Communities Inc. swung to a second-quarter loss of $33.2 million, or 79 cents a share, from a year-earlier profit of $22.7 million, or 52 cents a share. Results include a gain of 27 cents a share from the sale of a recreation facility. The Bonita Springs, Fla., builder of traditional and tower residences had a loss from continuing operations of $1.07 a share. Analysts surveyed by Thomson Financial expected, on average, a loss of 96 cents a share. Total revenue dropped 54% to $241.8 million from $527.7 million, as homebuilding revenue fell 62% and the number of unit orders fell 83%. WCI said it has a backlog of about 700 traditional homes as of June 30, including about 500 homes scheduled to close by year end. In premarket trading, WCI shares were at $8.16 after closing Tuesday at $7.95.

  32. Aaron says:

    Rolex owners tend to get further in life than those without. Let’s help poor people finance Rolexs!

  33. James Bednar says:

    From CNBC:

    Toll Brothers Profits Fall Sharply, Sees Pool of Homebuyers Shrinking

    Toll Brothers Wednesday reported sharply lower quarterly profit amid tightening credit standards that the builder said looked likely to shrink the number of potential home buyers.

    Toll said it would not give an outlook for the current quarter, citing uncertain market conditions, including the pace of sales and the state of mortgage markets. The luxury builder also did not confirm any of its previously issued outlook.

    The company also previously said that prospective home owners signing contracts during the quarter had canceled their orders at a rate of 23.8%, compared with 18.9% in the prior quarter.

    On Wednesday, Toll CEO Robert Toll said its cancellations had reached their highest rate in more than two decades.

  34. newbie says:

    #30 Richie,

    If you are in IT, you will be in Whippany office? I am in MBS trading desk support team. not much to do these days with everything going on…

  35. James Bednar says:

    From Bloomberg:

    Solent, Avendis Fund Ratings Slashed to Junk by S&P

    Two European mortgage-backed securities funds had their ratings slashed to junk from AAA by Standard & Poor’s after investors refused to provide short-term financing as the fallout from the U.S. subprime slump spreads.

    S&P cut the rankings on $3.2 billion debt issued by funds of London-based Solent Capital Partners LLP and Avendis Group in Geneva by as much as 17 levels to CCC. The credit ratings may be cut further, S&P said today in a statement.

    The rout in subprime mortgages has roiled the $1.1 trillion market for asset-backed commercial paper, short-term IOUs secured by home and car loans. Investors including Bill Gross, chief investment officer at Pacific Investment Management Co., have criticized ratings firms for failing to accurately value collateral backing the debt and waiting too long to cut rankings.

    “With the benefit of hindsight, the agencies clearly got it significantly wrong,” said Mark Bowles, who oversees $10 billion of asset-backed securities at UniCredit SpA in London. “But we are in market conditions that nobody could have foreseen.”

    Solent’s $4.5 billion Mainsail II Ltd. fund and Avendis’s $5 billion Golden Key Ltd. unit were forced to sell assets after they couldn’t find buyers for their short-term debt, causing “an erosion of capital,” S&P said.

  36. HEHEHE says:

    Re: Accredited Home Lenders is anybody doing the “balls of steel trade”?

  37. CB in SJ says:

    “Return to the Mean” Here is an old (last fall), yet still interesting article on housing price dynamics long term.

    http://usmarket.seekingalpha.com/article/18667

  38. Comrade 3b says:

    #36 JB “But we are in market conditions that nobody could have foreseen.”

    The guy has to be kidding.

  39. HEHEHE says:

    “The company also previously said that prospective home owners signing contracts during the quarter had canceled their orders at a rate of 23.8%, compared with 18.9% in the prior quarter.

    On Wednesday, Toll CEO Robert Toll said its cancellations had reached their highest rate in more than two decades.’

    I wonder how many are in Hoboken?

  40. Comrade 3b says:

    #40 hehe: Oh I am sure none, absolutely none.

  41. HEHEHE says:

    Accredited Home Lenders was to be bought by a PE Firm, I think Lone Star?, at $15 a share. It is currently trading at $6-7. The PE firm wants out of the deal but the merger agreement is supposed to be air tight. It’s likely going to head to court. Accredited Home may end up getting liquidated. You can buy the shares at $6 end up losing everything if the PE firm wins in court, or nearly double your money if Accredited Home wins.

  42. HEHEHE says:

    I am course not advising anybody to do anything with their money.

  43. Mike NJ says:

    # 30 Richie,

    I used to work in IT at Bear until recently and I have many friends still there. From what I hear things are still going strong from an IT perspective. The business at Bear (especially the Mtg desks) are taking a beating but most everything else is chugging along as Bear usually does. 383 Madison is a great place to work and the Whippany office is not bad as well. My only advice, your first year bonus (unless it is guaranteed) will stink to high heaven. Now that Bear has some profit issues expect it to stink even more. As long as you are happy with your base then make the move. I was there over 6 years so I can tell you point blank, yearly increases stink, so be prepared to move on in a few years for more $$ on the base, as I learned the hard way. As much as they screwed me on $$, I do still hold the place in high regard, as I told the HR guy on the way out. Who are you dealing with in HR, Kevin P?

  44. James Bednar says:

    From Bloomberg:

    U.S. Notes Fall on Speculation Yields Too Low for Rates Outlook

    .S. two-year notes dropped for the first day in eight on speculation the outlook for interest-rate cuts by the Federal Reserve reflected in yields is excessive.

    Ten-year notes also declined for the first time in five days as global stocks rose and Federal Reserve policy maker Jeffrey Lacker suggested the central bank is seeking to avoid an emergency cut in borrowing costs. Interest-rate futures show traders are still betting on a reduction in its overnight lending rate by half a percentage point next month.

    “We’ve reached an extreme, exaggerated, panic-like condition, but in the past 24 hours there was a sense of a bit of normalization,” said Fred Goodwin, a fixed-income strategist at Lehman Brothers Holdings Inc. “That led to a sell-off in bonds.”

  45. chicagofinance says:

    newbie Says:
    August 22nd, 2007 at 9:37 am
    #30 Richie, If you are in IT, you will be in Whippany office? I am in MBS trading desk support team. not much to do these days with everything going on…

    R & N: The real issue here is that there is a very strong likelihood that Bear will be bought outright or else have a massive equity infusion by a third party. If so, then to the extent that there is redundancy removal [i.e. synergies], or slash and burn necessary, to bring the surviving entity to “right size”, such a position could be in jeopardy. More likely, a needed position was made available due to staff bailing.

    R: can you get some assurances from them in the form of a “guaranteed sign on”, “guaranteed 2007 EOY bonus”, or else a 12 month employment contract.

    Ultimately this is the question. Do you have the requisite skills so that if you were cut loose into the middle of a recession that you could still find employment? Wherever you are now, don’t burn bridges and leave it open that you like them and would want to come back. You may live up to that promise in the next 24 months.

  46. James Bednar says:

    Rents dropping in NYC? How can it be?

    Report of Rent Decline ‘Not Cause for Concern,’ Analysts Say

    A report that shows rents in the city are on the decline is not necessarily a sign that the real estate market is in trouble, analysts say. Rents are down in nearly every neighborhood across the city after peaking earlier this summer, with prices retreating for all classes of apartments except studios in buildings with doormen and two bedrooms in non-doorman buildings, according to a report by a Manhattan residential real estate brokerage, the Real Estate Group. Since July, rents for one-bedroom apartments in buildings with doormen dropped by $250 in the East Village and by $450 for two-bedroom apartments in buildings with doormen in SoHo, the report said.

    “This is not a cause for concern,” the chief operating officer of the Real Estate Group, Daniel Baum, said. It is more a sign of “property owners becoming a bit more rational about what the market will bear for their properties,” he said. Mr. Baum said the rental market has been “overheated” and that the drop in rents is a sign that potential tenants are simply unable to pay the prices being offered.

  47. James Bednar says:

    Folks, don’t miss the article posted directly under this one on the main page, it’s a major story. The only reason it was pushed to the second position is because it is two days old (I missed it).

    It has major implications for anyone that was considering the foreclosure bailout to have a positive effect on the NJ market.

    http://njrereport.com/index.php/2007/08/22/no-rescue-for-nj-foreclosures

    The foreclosure bailout was basically cancelled, it turns out that they couldn’t help many borrowers at all.
    jb

  48. Comrade 3b says:

    #44 Mike IT does not make money for Bear or any other Wall St firm, along with many areas.

    So when teh layoffs come, the hardest hit areas often times tend to be the areas that do not produce revenues/profits for the firm. It has been the case over and over again on the street.

  49. pesche says:

    lets bail out the floks who can’t even balance a check book. Is the State kidding?

    Screw them, let them work like the rest of
    us and learn from mistakes.

    Sell the property , get a job, and don’t
    depend on the Fed or State, or Local to
    bail you out when you go bellyup.

    NJ an origianl Welfare State

  50. njpatient says:

    #14 bloodbath

    I’ve been asking Mrs. njpatient that exact question for awhile now.

  51. James Bednar says:

    From MarketWatch:

    Bank earnings drop in second quarter on real estate, rates

    Bank earnings dropped in the second quarter of the year by 3.4% as troubled loans for real estate continued to pile up and net interest margins narrowed, the Federal Deposit Insurance Corp. reported Wednesday. Earnings fell to $36.7 billion from $38 billion in the same period a year ago, the regulator said. FDIC Chairman Sheila Bair said in a statement that the subprime mortgage market is a “major concern” and that delinquent loans and leases grew for the fifth straight quarter, up by 10.6% or $6.4 billion. Still, earnings at FDIC-insured commercial banks and savings institutions were the fourth-best quarterly earnings on record, the FDIC noted, and Bair said the banking industry’s fundamentals are “strong.”

  52. chicagofinance says:

    $300 jeans?

    For $725, Skull-and-Crossbone Loafers Whisper Cachet, Comfort
    http://www.bloomberg.com/apps/news?pid=20601093&sid=ar_y0AxragWM&refer=home

  53. Mike NJ says:

    #49, I totally agree. IT gets the short end of the stick when the times are good and is one of the first to get “right sized” when things go south. The key, like any industry, is to keep your contact list active and growing so that you can make the jump when the time is right and to make sure you are always on the cutting edge of what is happening on the street. For the larger banks, IT will always be a cost center. I moved to a “smaller” company recently where over half our business is electronic, so yes I do directly make the company profit now. Our transactions are well over a Trillion a day and growing and since we are a volume shop, any volatility is good volatility.

    I totally agree with Chifi, Bear is ripe for a takeover and a complete change in mgmt. The place is run like a private company headed by Jimmy and when he goes things will change very quickly. The only ones I would feel bad for would be the purchasers as they would literally have no idea what they were really buying. Bear is a collection of mini fiefdoms and people still don’t like working with each other. I still had fun there though so it is not a bad place.

    As fast as IT changes, don’t think the same is not true on the business side. We put many desks on the street out of business on a monthly basis by taking certain markets electronic. It is just the way things are going. No place is safe these days. When I was at Bear I worked on a project to outsource IB business work offshore to India. It all can and will be done.

    The moral of the story is to always keep those feet dancing like Ali to miss the axe.

  54. stuw6 says:

    Investors gauge Fed’s plans as ECB acts again

    http://biz.yahoo.com/rb/070822/economy_credit.html?.v=10

  55. Ed Sanders says:

    I don’t know who Holman Jenkins is, but I’m pretty sure he’s nuts and he doesn’t like Bill Clinton.

    (In case you were wondering, the current mess we’re in with Housing is Clinton’s fault. I know because Holman Jenkins told me.)

    This whole piece is a hodge-podge of incoherent ramblings and nonsequiturs.

    There’s more nonsense here than I can handle, but I think this was my favorite:

    “…don’t buy any “news analysis” that says that because subprime lenders were known to be making risky or fraudulent loans, last week’s credit meltdown in unrelated markets from here to Tokyo should have been foreseen.”

    God forbid the jokers on Wall Street be held responsible for their role in this mess. There’s no way anyone could have seen this coming.

  56. Richie says:

    Wow! Thanks for all the great feedback.

    The position is in Whippany. The offered base salary is 10% lower then what I’m guaranteed here at my current spot. The HR Person (Jason W) gave me the base salary, along with the “Target” Bonus which in total is a nice compensation, but I hate the fact that I have to way 1 year for a lump sum bonus that isn’t guaranteed.

    Mike: What area of IT did you work in? Just curious. I ran into one of my old colleagues who’s working there in the Storage team who seems to like it there. How bad does the yearly increase stink? I’m accustomed to 4-6% yearly. The bonus excites/scares me. I’ve always liked the idea, but I don’t want to sacrifice monthly expenses on the hope that I’m going to get a huge bonus. Did your bonuses ever exceed your target amount? (my target is 20% of yearly salary). Why did you leave and where did you go?

    Chicago: A layoff wouldn’t necessarily affect me in terms of finding a new position, but finding the right position would be something that would prolong my search. I like to be within 30 minutes of work, so my options for companies are limited. I hate commuting to JC/NYC because of the hour-long train-ride from my town.

    I also read a lot about how Bear may be a potential merger/takeover company. That bothers me a bit, because the field of work I’m in (Active Directory) is definitely impacted by these types of activities..

    -R

  57. Mike NJ says:

    Richie,

    email me at (email address removed – jb) and I will be happy to share this info.

  58. RentinginNJ says:

    The foreclosure bailout was basically cancelled, it turns out that they couldn’t help many borrowers at all.

    Many of us here predicted as much when the bailout was first announced.

    First, $30 million probably amounts to less than 100 bailouts.

    Second, if these buyers could afford a fully amortizing 30 (or even 40 year) fixed rate loan in the first place, they probably would have done it. These buyers were barely making ends meet based on teaser rates. What makes you think they can now afford a 40-year fixed rate loan at 7%?

    By the time they call the PRNJ bailout hotline, their credit is shot & they are up to their eyeballs in debt.

    The truth is, we already have a bailout mechanism in place. It’s called foreclosure. You walk away, your debt is forgiven, you get put in the bad credit penalty box for a few years, you spend that time renting, saving money and rebuilding your credit. Hopefully you learned your lesson and in a few years you can try buying a house again when it makes sense. In the long run, you will be much better off.

    It’s not the magic pill or quick fix most people are looking for and it doesn’t give the politicians their “we need to keep people in their homes” sound byte, but it’s fair and it works.

  59. njpatient says:

    #56 Ed

    Thanks – I needed that.
    “There’s no way anyone could have seen this coming.”
    Yep.
    “No one could have foreseen the breach of the levees.”

  60. James Bednar says:

    Mike,

    I forwarded your email address to Richie.

    jb

  61. Eagle says:

    MLS inquiry:

    address, sales and listing history, etc.
    THanks!

    MLS 2385322 (appears to be repeated at 2709966)
    Ridgewood, 5br, 2.5 bath, list for 1.399
    THanks,
    Eagle

  62. njpatient says:

    #60 renting

    “The truth is, we already have a bailout mechanism in place. It’s called foreclosure. You walk away, your debt is forgiven, you get put in the bad credit penalty box for a few years, you spend that time renting, saving money and rebuilding your credit.”

    Too right. And how bad is this anyway? The subprime borrowers already had bad credit and should have been renting and saving money in the first place. How are they any worse off ex post than ex ante?

  63. James Bednar says:

    Eagle,

    Listed on two different MLS systems:
    2385322 – GSMLS Number
    2709966 – NJMLS Number

    Here is the history from NJMLS:

    MLS# 2614740
    Listed: 4/18/2006
    Original List Price: $1,695,000
    Price Change: $1,499,000 5/30/2006
    Withdrawn: 3/14/2007
    DOM: 331

    Relisted under

    MLS# 2709966
    Listed: 3/14/2007
    Original List Price: $1,399,000
    DOM: 1

    GSMLS history is basically the same, it was originally listed under MLS# 2269108

    jb

  64. Bloodbath in Winter 2007 says:

    Good input on the lawsuits, JB. Still, as a potential buyer who IS doing things right – saving money, renting, not taking a risky loan, not over-spending – it is disturbing that some of these idiots could get bailed out.

    I don’t wish ill will upon anyone, but there should be no bailout.

    This may not be the correct question … but can we determine whether or not the bailing out to HELP is a democrat or republican thing? Is either side attempting to help these greedy overspenders?

  65. James Bednar says:

    I quote Jack Guttentag (the Mortgage Professor) very often here, so it’s only fair that I post this justly deserved criticism.

    From Tanta at Calculated Risk:

    Just Say No To Stated Income

  66. stuw6 says:

    The Democrats plan is to bail out the affected individual.

    The Republicans plan is to bail out the affected companies.

    Neither group will actually act on their plans as usual.

  67. James Bednar says:

    I don’t wish ill will upon anyone, but there should be no bailout.

    I agree with njpatient above, foreclosure *is* the bailout. You get to walk away from your mistake. What, you want cake too?

    Lest we forget that debtors used to be put in prison.

    jb

  68. thatBIGwindow says:

    “… but can we determine whether or not the bailing out to HELP is a democrat or republican thing? Is either side attempting to help these greedy overspenders?”

    I don’t know, which party typically uses tax payer money to help out the poor?

  69. Sapiens says:

    Anyone heard of a major investment bank filing chap. 11? Rumor or …

    http://www.forbes.com/markets/feeds/afx/2007/08/21/afx4039427.html

  70. scribe says:

    Re Bear:

    Fortune has a story:

    How Bear Stearns lost its way

    Entrepreneurial but plodding: That was Bear Stearns. Then it strayed into high-risk hedge funds. Fortune reports.

    FORTUNE Magazine
    By Corey Hajim and Adam Lashinsky, Fortune
    August 21 2007: 5:59 AM EDT

    (Fortune Magazine) — By all rights, this should be a Bear Stearns moment. Investors are skittish, and Wall Street players are unsure what to do next — precisely the conditions under which the scrappy independent has traditionally thrived.

    Its bare-knuckle approach to the mundane business of trading, especially complicated debt securities, made it the classic countercyclical play — successful in up markets, stellar in downturns. Bear is a link to Wall Street’s past, when brokerages survived more on their moxie than on their spreadsheets.

    After CEO James Cayne booted his heir apparent in early August, investment banker Alan Schwartz became the next in line to lead Bear Stearns.

    Instead of reveling in the moment, though, Bear Stearns has stumbled; now CEO James Cayne must lead it through one of the biggest crises of confidence in its 84-year history.

    http://money.cnn.com/2007/08/20/magazines/fortune/bear_stearns.fortune/index.htm?postversion=2007082105

  71. njpatient says:

    “I don’t know, which party typically uses tax payer money to help out the poor?”

    You mean like when Neil Bush got bailed out in the S&L crisis?

  72. Mike NJ says:

    Thanks JB

  73. njpatient says:

    “I don’t know, which party typically uses tax payer money to help out the poor?”

    You have a point. The counterpoint is: Which party typically uses tax payer money to help out the rich?

  74. James Bednar says:

    From Bloomberg:

    HSBC Will Eliminate 600 Jobs, Close Office in U.S.

    HSBC Holdings Plc, Europe’s biggest bank by market value, will eliminate 600 jobs and close an office in Carmel, Indiana, as it retreats from subprime home loans.

    The London-based bank will close the mortgage-services office by the end of the second quarter of next year, spokesman Michael Trevino said in an interview today. HSBC employs 60,000 people in the U.S., Trevino said.

    “It’s about matching capacity with business volumes,” he said. “It’s about fat.”

    HSBC’s provisions for bad loans, made primarily to U.S. borrowers with poor credit histories, climbed 63 percent to almost $6.4 billion in the first half of the year, HBSC said last month. Chief Executive Officer Michael Geoghegan said at the time the bank is “working through the challenges of subprime lending.”

  75. t c m says:

    # stuw6 Says:
    August 22nd, 2007 at 11:25 am

    “The Democrats plan is to bail out the affected individual.

    The Republicans plan is to bail out the affected companies.

    Neither group will actually act on their plans as usual.”

    Aside from hand wringing, and promises of future higher standards, there hasn’t been much in the way of real bailout that I have seen. There are some democrats who talk about “keeping people in their homes”, or increasing Freddie and Fannie limits, but other than that, what plans are there? Even the small 30MM NJ plan didn’t work. As for the republicans, what plans have they proposed to bail out companies?

  76. RentinginNJ says:

    This may not be the correct question … but can we determine whether or not the bailing out to HELP is a democrat or republican thing?

    Both. Homeowners represent the majority of the population. Whether or not they actually do anything, saying “We need to work to keep people in their homes” is a catchy sound byte and is the politically correct thing to say.

    Ultimately, we just can’t afford a bailout. There is just too much money involved. So, politicians will “call on lenders to work out loans”, you will see congressional hearings and calls for tougher penalties and tighter standards, but at the end of the day, it will just be a big dog and pony show.

  77. chicagofinance says:

    Sapiens Says: August 22nd, 2007 at 11:28 am
    Anyone heard of a major investment bank filing chap. 11? Rumor or …

    Homo:
    http://en.wikipedia.org/wiki/Nick_Leeson

  78. stuw6 says:

    As for the republicans, what plans have they proposed to bail out companies?

    They already have with the opening of the discount window and pushing the FED to cut lending rate, which IMO is only delaying the agony and reducing the FEDs insurance against a ‘real’ crisis such as another terror attack or natural disaster.

  79. James Bednar says:

    Love the spin!

    Citibank taps Fed discount window for $500 mln for clients

    Citi said Wednesday it Citibank unit, on behalf of clients, has accessed $500 million in 30-day term financing under the discount window program announced on Friday by the Federal Reserve Bank of New York. “Citibank stands ready to continue to access the discount window as client needs and market conditions warrant,” the New York-based financial services giant said in a statement. “Citi is pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients.” Shares of Citi fell 9 cents to $47.97 in Wednesday afternoon trading.

  80. James Bednar says:

    From Bloomberg:

    ECB Signals Readiness to Raise Rates, Adds More Cash

    The European Central Bank indicated it may still raise interest rates in September and announced an extra 40 billion euros ($54 billion) three-month loan to ease lending between commercial banks.

    The Frankfurt-based bank responded to speculation that it may hold off raising interest rates next month by saying it’s sticking to the policy stance expressed by President Jean-Claude Trichet on Aug. 2. At the time, Trichet pledged to show “strong vigilance” on inflation, a phrase to signal each of the eight rate increases since late 2005.

    Investors today raised bets the ECB will lift the benchmark one-week refinancing rate by a quarter point to 4.25 percent in September. The ECB has injected emergency funds into the financial system over the past two weeks after the U.S. subprime crisis made commercial banks more reluctant to lend to each other, pushing three-month money-market rates to a six-year high.

    “They’re testing the water to see what the markets response would be to the idea of another rate hike,” said Michael Hume, chief European economist at Lehman Brothers Holdings Inc. in London. “This is about trying to get liquidity back into the market and keeping monetary policy oriented to fighting inflation.”

  81. t c m says:

    # stuw6 Says:
    August 22nd, 2007 at 12:29 pm

    “As for the republicans, what plans have they proposed to bail out companies?

    They already have with the opening of the discount window and pushing the FED to cut lending rate, which IMO is only delaying the agony and reducing the FEDs insurance against a ‘real’ crisis such as another terror attack or natural disaster.”

    Is it a fact that the repulicans opened the discount window and are pushing the fed or your opinion?

    My question is not to defend republicans (or democrats for that matter) – i’m not loyal to any party – just want to know the truth.

  82. James Bednar says:

    This reeks of coordination…

    J.P. Morgan, B of A, Wachovia tap Fed discount window

    I hate to don the tinfoil cap, but it seems like we’ve got a coordinated effort to borrow from the discount window to make it difficult to identify the firms that are truely distressed.

    There is no way that all these firms need to borrow money at penalty rates.

    Tinfoil cap off..

    jb

  83. James Bednar says:

    Not to say there is anything wrong with it, hats of to Benny and crew if they indeed came up with this [creative] idea. Discount window borrowing has always been looked upon in a negative light, could there be any better way to change that image?

    jb

  84. stuw6 says:

    TCM:

    I suppose you are correct. The FED may not be politically motivated. I guess the decision was more pro business than a partisan political decision. Actually, both parties have become pro business lately so my original statement had been made in error. Call me a flip-flopper if you must ;)

    Disclaimer: I am independent too.

  85. stuw6 says:

    Does politics influence Fed decisions?

    http://www.msnbc.msn.com/id/7089794/

  86. ac says:

    I wonder if this is an indication that the Fed will be less likely to drop the target.

  87. stuw6 says:

    JB:

    The Fed “has made clear that it considers the appropriate use of the discount window a sign of strength,” the statement continued, and the companies added that they hope their actions “will highlight that point for the financial community and promote broad acceptance of the use of the facility.”
    ———————————————-

    How long are they going to try to cover up the enormity of the problems at hand? This is just ludicrous IMO.

  88. Kettle1 says:

    # 66

    It is equally disturbing that wallstreet is calling for a bailout in the form of rate cuts and it appears that they may get at least part of what they want if not all.

    Everyone is deriding the possibility of bailing out individual home owners (which i agree with) but the banks dont seem to be held to the same standards (yes i know several people on this board have said this, i am speaking more generally). This is what really bugs me, its not ok to bail out individuals who made dumb choices but the banks were victims of unforeseen events, not there own stupid/risky choices

  89. ac says:

    12:41 22Aug2007 RTRS-UPDATE 1-Fed’s Fisher: Not Fed’s job to protect risk-takers
    WASHINGTON, Aug 22 (Reuters) – The job of the U.S. central bank is not to protect individual risk-takers, but the system itself, Federal Reserve Bank of Dallas President Richard Fisher said in a magazine article published on Wednesday. The Dallas Fed said the interview with International Economy was conducted in June, well before the recent turmoil struck financial markets due to fears of contagion from problems in the U.S. subprime mortgage market. “I don’t mind tears among individual market operators, as long as we don’t get tears in the fabric of the financial system,” Fisher said. “I do not believe the Federal Reserve’s job is to protect against the failure of specific risk-takers. Its job is to protect the system,” he said. Fisher, a former hedge-fund manager, said that corrections in markets were inevitable and warned that as yields got low investors would seek other assets to buy to enhance returns and this could cloud their judgment. “When the yield on highest quality credits are low, all kinds of ‘new paradigms’ spring forth in search of greater returns. When they do, investors and financial agents too often forget the difference between price and value,” he said.

  90. James Bednar says:

    From Bloomberg:

    Mortgages Push Late Loans to 17-Year High, FDIC Says

    U.S. banks and thrifts suffered the biggest increase in late loan payments in 17 years as more homeowners fell behind on mortgages, the Federal Deposit Insurance Corp. said.

    Loans more than 90 days past due rose 10.6 percent to $66.9 billion in the period ending June 30, the largest quarterly rise since 1990, the FDIC said in its Quarterly Banking Profile released today.

    “The bottom line for banks is that the credit environment continues to be more challenging now than it has been in recent years,” FDIC Chairman Sheila Bair said during a news briefing at the agency’s Washington headquarters.

    The report reflects the growing strain lenders are facing as the collapse of the subprime mortgage market roils the banking industry. At least 90 U.S. mortgage companies have halted operations or sought buyers since the start of 2006, according to Bloomberg data.

    Loans more than 90 days past due grew 36.2 percent from $49.1 billion in the second quarter a year ago, the largest 12- month increase since 1991.

    Residential mortgage loans 90 days delinquent increased 12.6 percent to $27.5 billion in the second quarter from $24.4 billion in the first quarter.

    “Current conditions do underscore that regulators must be vigilant and banks need to follow sound risk-management practices,” Bair said.

  91. reinvestor101 says:

    I think your assessment is spot on. The FDIC issued a statement today stating that it’s reviewing bank balance sheets to make sure that all is ok. I don’t find that reassuring.

    James Bednar Says:
    August 22nd, 2007 at 12:44 pm
    This reeks of coordination…

    J.P. Morgan, B of A, Wachovia tap Fed discount window

    I hate to don the tinfoil cap, but it seems like we’ve got a coordinated effort to borrow from the discount window to make it difficult to identify the firms that are truely distressed.

    There is no way that all these firms need to borrow money at penalty rates.

    Tinfoil cap off..

  92. Richard says:

    >>I hate to don the tinfoil cap

    ah but you are ;) if you follow the greed trail of whore street, these guys are getting more favorable terms and taking advantage of the fed’s proposal. the press release explanation is a bunch of bs.

  93. scribe says:

    From Financial Week:

    It’s hard out there for a bank: Suddenly on the hook for LBOs, short-term debt

    Here’s the new math: With bigger balance sheets, banks can’t afford to lend as much.

    Will the Fed injection be a plus or minus?
    Matthew Quinn and Marine Cole

    August 20, 2007

    After years of record earnings thanks to unprecedented cash flow, banks are suddenly feeling exposed as liquidity is drying up faster than the ink on loan papers.

    The reason is that banks have been left holding the bag on bridge loans for buyouts and more recently have been faced with the prospect of tapping backup liquidity facilities to support the asset-backed commercial paper market.

    That exposure could ultimately put a crimp in earnings and create an even tighter lending environment for customers as bank balance sheets become stretched.

    The capital markets have already priced in a big hit. In the last four weeks alone, Citigroup, J.P. Morgan Chase, Goldman Sachs, Lehman Brothers and Morgan Stanley have collectively lost over $100 billion in market capitalization, or 16% of their value. A rally following the Fed’s discount rate cut on Friday, whittled that to $60 billion by the close of trading.

    The development of the securitization and derivatives markets presumably removed risk from the balance sheets of large banks. Non-traditional liquidity providers, such as hedge funds, now purchase 70% of leveraged loans, whereas in the past that debt was held by banks.

    But in a report last week, Standard & Poor’s had a simple comment for those who believe banks are carrying less credit risk than in the past: “They would be wrong.”

    http://www.financialweek.com/apps/pbcs.dll/article?AID=/20070820/REG/70817030

  94. ac says:

    But why would they tap the window if they can fund it cheaper in the interbank market?

  95. Aaron says:

    There is no way that all these firms need to borrow money at penalty rates.

    Maybe these banks are having a serious cash flow problem… late payments on mortgages and credit cards are piling up.
    The sickness of ponzi finance is finally starting to show.

  96. stuw6 says:

    It would seriously not surprise me if some of our banks fail. I just don’t understand how they could have offered these mortgages in the first place. If the customer had no skin in the game (due to their bad credit), what did the bank stand to gain? A few months of IO payments or 2% annual interest payments and mortgage closing costs will not come close to the cost of the bank holding the bag for what could be a third or more of these depreciating homes. How are they going to survive this hit?

    I only hope that this downturn ends up as a recession as opposed to a depression.

  97. Rich In NNJ says:

    Wow, I haven’t seen this much agreement on this board since… well, never.

  98. t c m says:

    Maybe a dumb question – but…..

    What I don’t understand is exactly how does a rate cut bailout Wall St?

    I understand that it makes money cheaper, therefore more readily available – which may or may not be good for the economy in the long run, but how does it help with all the bad loans that were already made? – how does cheaper borrowing costs prevent investment banks from losing lots of money on bad loans?

  99. James Bednar says:

    From Reuters:

    S&P cuts 26 Countrywide ABS classes

    Standard & Poor’s Ratings Services cut 26 Countrywide Financial (CFC.N: Quote, Profile, Research) asset-backed securities classes on Wednesday, citing erosion in underlying credit support.

    S&P said current collateral performance has reduced available credit enhancement while noting that deals downgraded has experienced greater-than-expected severe delinquencies since July, 2007.

  100. njpatient says:

    “If the customer had no skin in the game (due to their bad credit), what did the bank stand to gain?”

    Don’t forget that banks are inanimate objects and don’t have motivations. Banks are run, however, by people. The executives who run banks are interested in massive bonuses based on massive returns, and if they get a few years of massive bonuses based on massive returns, but longer term the bank is going to go belly up, what do they care? They already got paid.

  101. Aaron says:

    Yes, exactly. The people running the banks don’t have skin in the game either. They are playing games with other people’s money.

  102. Eagle says:

    JB,

    Thank you very much. (as always). One related question – do you have sales history for the house? (i.e., how much and when the current owners bought)

    Thanks,
    Eagle

  103. stuw6 says:

    NJpatient #103 said:

    The executives who run banks are interested in massive bonuses based on massive returns, and if they get a few years of massive bonuses based on massive returns, but longer term the bank is going to go belly up, what do they care? They already got paid.
    ———————————————
    So you are saying that the banks have followed the mortgage broker model?

  104. Richard says:

    >>But why would they tap the window if they can fund it cheaper in the interbank market

    they can’t it’s bs

  105. Kettle1 says:

    Forgot one…

    [IMG]http://i228.photobucket.com/albums/ee303/werty123q/Image00005.jpg[/IMG]

  106. James Bednar says:

    “It would seriously not surprise me if some of our banks fail.”

    “Maybe these banks are having a serious cash flow problem…”

    “they can’t it’s bs”

    You folks are downright grim.

    jb

  107. James Bednar says:

    I wonder if this is an indication that the Fed will be less likely to drop the target.

    I believe it is, but my opinion isn’t worth very much.

    The issue here is liquidity, not a restrictive Fed Funds rate. I think we’ll see some jawboning in the future that indicates that inflation remains the primary concern, and that credit market liquidity issues are slowly resolving.

    jb

  108. kettle1 says:

    No charts JB?

  109. Eagle says:

    JB,

    Never mind (and thanks again for listing info)

    Eagle

  110. HEHEHE says:

    If it’s bs why are they floating the story?

  111. chicagofinance says:

    Do not read too much into this information. However, the signs are there and so when you hear news in the future, you note it instead of being shocked.

    WSJ
    Volatile Markets Spook Money Centers’ Landlords
    By JENNIFER S. FORSYTH and MOLLY DOVER
    August 22, 2007; Page B1

    [edit]
    But now the two cities’ heavy dependence on financial-sector jobs has real-estate brokers and analysts debating whether the gusher will shut off. Caveats abound, with experts saying the answer depends on how long the turmoil continues, how much bad debt financial firms end up swallowing, and how many hedge funds go under. One thing market experts agree on, though: Most finance firms will take a timeout on real-estate decisions until they see how everything shakes out.

    [edit]
    If the problems in the credit markets turn out to be no more than a summer cold and the financial system recovers quickly, the office markets in the world’s financial centers may see little change. But there is some fear that the sniffles could become a lingering malaise and banks will start to cut back.

    UBS AG analysts last week downgraded to “hold” from “buy” SL Green Realty Corp. and Boston Properties, two office real-estate investment trusts with heavy exposure to New York, saying that earnings should remain strong but that the possibility of layoffs at banks and implosions at hedge funds could weigh on the stocks. “Dislocation in the credit markets in recent weeks appears to have begun a ripple effect through the employment levels at Wall Street firms,” writes analyst James Feldman.

    Mr. Feldman writes that one Wall Street firm has canceled contracts with some newly hired analysts, several hedge funds have closed their doors, and merger activity has clearly slowed.
    [edit]

  112. James Bednar says:

    From Reuters:

    Indymac to Return to Prime Jumbo Loan Home Market

    IndyMac Bank, a unit of IndyMac Bancorp Inc. on Wednesday said it is again originating prime, single-family residential, full-documentation jumbo loans and is “fully committed to the market.”

    IndyMac said it had temporarily reduced originations due to illiquidity in the secondary market.

    Michael Perry, IndyMac’s chief executive, said that until the secondary market recovers, the bank plans to retain these loans in its investment portfolio “at what we believe will be attractive returns.”

    The prime jumbo products will be available through all Indymac’s distribution channels for borrowers providing full documentation only.

  113. HEHEHE says:

    Things seem reltively troll free today, what’s up?

  114. PGC says:

    So I have a small question on FDIC. If I have over 100K in the likes of a CITI or a BoA and it files for Chp11 am I going to lose out on anything over 100K.
    What strategy should be taken to protect liquid assets. Dump the excess into CD’s or a short term bonds?

  115. stuw6 says:

    Troll convention today. You fortunately, were not invited.

  116. stuw6 says:

    PGC,

    The only safe investment is actually gold in it’s elemental form. The FDIC insurance is no guarantee that you will get all of your money back. If a large number of banks were to fail simultaneously, the FDIC couldn’t pay you back in full. But your saved money would probably be the least of your problems.

    If the government was forced to print money to meet it’s FDIC obligations, the value of your $100,000 would diminish in ‘real’ worth.

  117. James Bednar says:

    From CNN/Money:

    Fed rate cut? Don’t bank on it

    Investors who are counting on the Federal Reserve to cut interest rates sometime in the next month may end up badly disappointed.

    The credit crunch of the past month has convinced many on Wall Street that a cut in the central bank’s key short-term interest rate is basically a lock.

    But a number of economists believe that the Fed will hold rates steady next month.

    Baumohl said that before the Fed will move to cut rates, it will need to see some new signs of weakness in consumer spending or employment. He does not believe the turmoil in the credit markets alone will be enough to convince Fed Chairman Ben Bernanke and other Fed governors to cut rates.

    “He very much believes the main job of the Fed is to control prices and inflationary expectations,” said Baumohl “He wants to be viewed as a chairman vigilant in not letting prices get out of control. It all depends on what economic indicators point to from this point on. Assuming nothing else changes, I do not see the Fed cutting rates, even on the 18th.”

    “I think Bernanke still feels this is a financial markets issue, this is not an issue for the overall economy, and that financial market illiquidity should be addressed by opening the discount rate liquidity window, not with by cutting the fed funds rate,” said David Wyss, chief economist with Standard & Poor’s.

    “If the Fed does cut, it will be inviting serious inflation pressure that could send the long-bond yield skyward,” said Rich Yamarone, director of economic research at Argus Research. “That could cause serious problems for mortgage rates, that would trigger the resets [of adjustable-rate mortgages], and then you’ve got the calamity you’re looking for.”

  118. CAIBC says:

    oh my…never thought i would see this..

    on BoA Foreclosure website…SHORT HILLS!!!!

    10 NOTTINGHAM ROAD
    SHORT HILLS, NJ 07078

    jb, could you pull up history?

  119. stuw6 says:

    The FDIC has about $50 billion in reserves, which it has been investing in Treasury securities, spokesman David Barr said. Over the past 11 years, the interest on those reserves hasn’t quite kept pace with increased deposits, so the reserve ratio slid to about 1.2 percent. To bring that back up to 1.25 percent, banks had to start coughing up extra money starting this year.

    1.25%…It’s laughable actually.

  120. pretorius says:

    Chicagofinance 114,

    The question is will the current financial crisis cause the New York office market to soften, as it did in 1998, or crash as happened in 2001.

    Rent and occupancy growth in the New York office market slowed during the Asia-LTCM-Russia situation in 1998, but rents and occupancy didn’t go down. However, the market flat out crashed during the 2001 recession.

    I expect another 1998 in New York. Securitized residential mortgages are only a small part of the investment banking business and most investment portfolios. Orange County office landlords are going to feel some real pain though due to the concentration of mortgage companies based in that market.

  121. James Bednar says:

    The Nottingham property has been discussed before on a number of occasions, it’s not new by any stretch..

    The irony of the Nottingham property is that it was used as an example of how “hot” the real estate market was in 2006.

    http://njrereport.com/index.php/2006/08/31/million-doesnt-go-far-in-jersey

    I believe asking price on the Nottingham property was approximately 1.3-1.4 million prior to the foreclosure.

    jb

  122. dreamtheaterr says:

    Since 2005, asking prices for townhomes I’ve tracked have fallen 15-17%. After accounting for the increasing NJ property taxes, utilities and mortgage payment (since interest rates have ticked up appreciably, my monthly outlay has decreased just 3% if I bought today compared to 2005. Am frickin ecstatic….

    Also, I just wonder how some people who bought out in PA to avoid NJ property taxes are feeling during their 2 hour I80 and I78 commute during rush-hour. Extra commuting time, declining house prices and escalating transportation costs nullify any perceived benefits.

  123. make money says:

    I believe it is, but my opinion isn’t worth very much.

    JB,

    You got that right. We pay closer attention to BI, Richard, and Duck.(sarcasm off)

  124. njpatient says:

    “We pay closer attention to BI, Richard, and Duck”

    But today they’re at that troll convention.

  125. James Bednar says:

    Oh boy, this is getting ugly fast..

    From Bloomberg:

    Lehman Brothers Shuts Down Subprime Unit, Fires 1,200 Employees

    Lehman Brothers Holdings Inc., the biggest underwriter of U.S. bonds backed by mortgages, became the first firm on Wall Street to close its subprime-lending unit and said 1,200 employees will lose their jobs.

    Shuttering BNC Mortgage LLC will cut earnings by $52 million, Lehman said in a statement today. Lehman acquired Irvine, California-based BNC in 2004 and used it to expand in lending to homeowners with poor credit or heavy debt loads. The job cuts are equivalent to about 4.2 percent of Lehman’s workforce of more than 28,000.

    “Market conditions have necessitated a substantial reduction in resources and capacity in the subprime space,” the New York-based firm said.

  126. Hehehe says:

    Here we go…….Yikes!

  127. chicagofinance says:

    pretorius Says:
    August 22nd, 2007 at 2:34 pm
    Chicagofinance 114,
    I expect another 1998 in New York. Securitized residential mortgages are only a small part of the investment banking business and most investment portfolios.

    pret: I don’t know enough to give an informed answer, but there is an element to the commercial real estate market that is similar to 2001. The space devoted to hedge funds is similar in NYC to the dot-com “silicon alley” from the late 1990’s, if not even more robust.

    Also, you have to believe that it’s not just the CDO sausage makers at the banks, but as soon as operations wind down, some of the prime brokerage slickers are going to bite the big one.

  128. Hehehe says:

    Who will be next? That’s usually how it happens with the layoffs.

  129. CAIBC says:

    are you guys expecting the commercial market to take a hit also? thats interesting cuase this morning, NPR had someone on that cited a survey of architects and how they have seen a continued high demand for office space architecture! report said that usually the commercial markets will be good for another 1.5 years after a favorable survey like this comes out!

    CAIBC

  130. chicagofinance says:

    James Bednar Says:
    August 22nd, 2007 at 2:42 pm
    Oh boy, this is getting ugly fast..
    From Bloomberg: Lehman Brothers Shuts Down Subprime Unit, Fires 1,200 Employees

    grim: where are these people? SoCal?

  131. Hehehe says:

    How long until the CDO slicers’ get that Friday afternoon tap on the shoulder?

  132. syncmaster says:

    I just wonder how some people who bought out in PA to avoid NJ property taxes are feeling during their 2 hour I80 and I78 commute during rush-hour. Extra commuting time, declining house prices and escalating transportation costs nullify any perceived benefits.

    I have friends who made the move. I think your analysis might be right, but the people I know don’t see it that way. To them, that’s their new life. They have a nicer home, they have a backyard to relax in and they’ve gotten used to the drive. Declining home values don’t matter because they’re settled in and have no plans to sell anytime soon. As for the increases in energy/gas/taxes, it’s incremental enough that most financially sound households don’t need to expend a whole lot of mental energy worrying about it.

    Bottom line, they think they have a better quality of life. They’re happier. You can’t really put a price on that. Sounds corny, I know.

  133. chicagofinance says:

    I say September

  134. Hehehe says:

    You think that long? They may want to clean house before month end.

  135. James Bednar says:

    cf,

    Marketwatch is reporting approximately 23 locations, no specifics.

    jb

  136. Aaron says:

    Six extra rent free months. Foreclosing sounding better every day!
    http://www.signonsandiego.com/uniontrib/20070822/news_1b22subprime.html

  137. James Bednar says:

    From the AP:

    Mortgage Job Losses Surpass 37,000

    At the North Carolina offices of mortgage lender HomeBanc Corp., Archie Clark is the only employee left. But in a few days, he’ll be gone, too.

    “It’s pretty much a ghost town over there,” Clark said. “Somebody went in and took the furniture from the lobby. I don’t know who did that. I put some of the other stuff in the back and locked it up.”

    More layoffs are announced daily. On Wednesday, Scottsdale, Ariz.-based 1st National Bank Holding Co. closed its wholesale mortgage unit and cut 541 jobs, while Accredited Home Lenders Holding Co. added 1,600 positions to the heap. The night before, banking giant HSBC said it would close a main financing office and cut 600 jobs.

    Since the start of the year, more than 37,000 workers have lost their jobs at mortgage lending institutions, according to recent company layoff announcements and data complied by global outplacement firm Challenger, Gray & Christmas Inc. Meanwhile, construction companies have announced nearly 20,000 job cuts this year, while the National Association of Realtors expects membership rolls to decline this year for the first time in a decade.

    It’s an employment collapse that threatens to rival the massive layoffs in the airline industry that followed the Sept. 11, 2001, terrorist attacks, when some 100,000 employees lost their jobs.

    “It’s far from over,” said Bart Narter, a senior analyst with Celent, a Boston-based financial research and consulting firm. “The subprime lending collapse will continue to ripple through the financial sector.”

    America’s largest mortgage lender, Countrywide Financial Corp., began an undisclosed number of layoffs this week. Last week, Arizona mortgage lender First Magnus Financial Corp. shut down its operations and laid off nearly 6,000 workers. On Monday, Capital One Financial Corp. said it would shutter Greenpoint Mortgage, its wholesale mortgage banking business, and lay off 1,900 employees.

    “It’s only been weeks,” Challenger said. “These companies are acting remarkably quickly, stopping on a dime.”

    “The mortgage business isn’t dead — there’s just going to be less people in it,” Roach said.

  138. billz says:

    i think that the state should bail the banks out…all they have to do is buy all the bank foreclosures at 50 cents on the dollar, then “sell” them to the needy and that’ll take care of the affordable housing issue in the state.

  139. syncmaster says:

    “Somebody went in and took the furniture from the lobby. I don’t know who did that. I put some of the other stuff in the back and locked it up.”

    Now why did he go do that? Plunder while you have the chance!

  140. chicagofinance says:

    Hehehe Says:
    August 22nd, 2007 at 2:55 pm
    You think that long? They may want to clean house before month end.

    Hehehe: you don’t fire people from the beach on a cell phone – after Labor Day

  141. bi says:

    all my bear friends: quarter to half percent o/n rate cut is almost certain.
    if the price is really down 15% from 2005 high, what are you waiting for?

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aAgdaM_.zCSo&refer=home

  142. Hehehe says:

    I would, get rid of the dead weight asap, chop chop!

  143. scribe says:

    This is from a column in today’s Marketwatch:

    “Mr. Bernanke could learn a lesson or two from another former Fed chairman: Paul Volcker.

    In the 1970s, inflation surged to 13.5%. The rate was at 15% on a monthly basis. It ranks as the highest inflation level the U.S. ever experienced. Paul Volcker proceeded to limit the growth of the money supply. His very restrictive monetary policy made the prime rate hit 21.5% in December 1980 — a record. A significant recession developed.

    Unemployment reached the highest level since the Great Depression. Political attacks and widespread protests were hurled at the chairman.

    However, by 1983, inflation had plunged to 3.2 percent. The criticism of Volcker changed to accolades, praises and compliments. He was labeled a “genius.” Today, the man has earned a legendary status in the annals of financial history.”

    I was surprised at the inflation number he uses for the 1970’s – 15% on a monthly basis. True, gasoline and oil went to the moon during the first oil crisis in 73/74. Commodities were highly inflated – from sugar to gold and silver.

    But wages weren’t. Neither were rents or housing prices. The stock market was in the dumper – below 1,000. Predictions that the market would one day reach 2,000 or 3,000 were seen as being kooky, pie-in-the-sky.

    Compared to today, where housing prices and rents are sky high, but so, too, are the costs of medical bills and medical insurance and a gallon of gas, the economy in the late 70’s, at the time, seemed fairly depressed. Or maybe it seemed that way in NYC, with its fiscal problems, while the Sun Belt was booming.

    But here’s the column:

    THE GURU’S CORNER
    The Fed blinked
    Commentary: Where have you gone Paul Volcker?

    http://www.marketwatch.com/news/story/have-you-gone-paul-volcker/story.aspx?guid=%7BFC39F929%2DB835%2D431D%2D90E7%2DC48585790133%7D

  144. bi says:

    you guys already missed one opportunity. Dow up more than 5% from the intraday low of last thursday. the market did a great favor to you but you were adding shorts to sp500 futures and doubled srs hedge.

    i believe this credit crunch created a gold opportunity for all home buyers and re investors. with lower rate and more inventory, the re will be transferred to strong hands from weak hands just as in stock market. you will be much better off sticking with the doctrine: location, location and location. forget about foreclosure!

  145. pretorius says:

    cf,

    I think up to 5% of finance jobs in New York could go, along with a smaller % of other jobs from lawyers to shoeshiners due to the multiplier effect.

    Investment bank bonuses have already been wiped out by LBO loan losses.

    Still, I expect a quick rebound from the slowdown; a repeat of 1998.

    Impact on northern New Jersey home prices: no end in sight to supply-demand mismatch and prices will remain stagnant for a couple of years.

  146. Outofstater says:

    The 1970’s were godawful. I had to take a day off from work just to be in line to fill my POS American-made car up with gas. Prices were rising so quickly that the Stop and Shop in my neighborhood had kids taking items off the shelves to re-price them. Stagflation didn’t just hurt in the pocketbook – it was tough to take psychologically because there didn’t seem to be any solution to it all. Thank God for Paul Volcker!!

  147. stuw6 says:

    The convention has apparently ended early :(

  148. njpatient says:

    pity.

  149. James Bednar says:

    From NJ.com:

    AG: Cops must ask suspects for immigration status

    Attorney General Anne Milgram today required all local police officers in New Jersey to inquire about the immigration status of suspects charged with serious crimes, and to notify federal immigration authorities if there is reason to believe the suspect is in the country illegally.

    The requirements, which go into effect immediately, apply to suspects arrested for indictable offenses and for driving while intoxicated, Milgram said. If the suspect is unable to prove he or she is legally in the United States, the police officer is required to notify Immigrations and Customs Enforcement, she said. The policy also specifies that prosecutors and courts be notified.

    Local officers cannot inquire about the immigration status of crime victims, witnesses to crimes or persons requesting police assistance, she said.

  150. chicagofinance says:

    pretorius Says:
    August 22nd, 2007 at 3:24 pm
    cf, Investment bank bonuses have already been wiped out by LBO loan losses. Impact on northern New Jersey home prices: no end in sight to supply-demand mismatch and prices will remain stagnant for a couple of years.

    pret: bonuses have not been levelled yet – think of 2000, when the first four months was so strong that it did not make payments at the end of that year too bad. It is possible that 2007 will be similar. However, with the thought that 2008 might be a goose egg, you get the feeling that 2007 money will go right into the pocket instead of the closest Mazarati dealership.

    Also, there are a lot of people on the Street that hate NYC and NYC-suburbs. They put up with it because of the money. If the money disintegrates…..A – B – see you later.

  151. CAIBC says:

    has anyone tried http://www.sheriffsalesonline.com

    just wondering how reliable/good they are? are they better than realty trac?

    i did a free search on BC and there were 1000s of hits! is this really true?

  152. James Bednar says:

    From the Wall Street Journal:

    http://blogs.wsj.com/marketbeat/2007/08/22/five-reasons-why-the-fed-wont-cut-rates/

    The market wants it. Blowhard commentators are clamoring for it. And the various prognosticators that trade futures contracts see the Federal Reserve dropping the funds rate prior to its meeting in four weeks.

    Farmers are told not to count their chickens before they hatch, though, and the collective market is hovering over a very large egg right now, waiting to see if the Fed produces a juicy Rhode Island Red, or if a face-hugging alien emerges to suck the rally out of the market. All premature jubilation aside, there are several indicators that the Federal Reserve has no plans to change current market policy, at least until the September 18 meeting, and perhaps beyond:

    1. Official on-the-record Fed commentary

    2. Off-the-record whisperings

    3. What’s Been Done So Far: The cut in the discount rate may be mostly symbolic — after all, that rate is still higher than the federal-funds target. However, through open market operations, the Fed has maintained a lower funds rate than the 5.25% target for the last couple of weeks (see chart). In addition, the Fed also reduced the fee on lending from the System Open Market Account — a Fed account comprising dollar-denominated assets acquired through open-market operations — to help liquidity in the bills market. When Sen. Chris Dodd said Mr. Bernanke told him they would use all tools available, it seems he meant he’d try them all before turning to the fed-funds rate.

    4. Key economic indicators: The U.S. household unemployment rate in July was 4.6%, which was up from the yearly low of 4.5%. Generally, it takes at least a change of 0.2 percentage points in this rate for the Fed to act, notes Ashraf Laidi, head of forex strategy at CMC Markets. Meanwhile, the year-over-year rate of consumer inflation still remains above the Fed’s upper target of 2%.

    5. Moral hazard: The comments by Messrs. Poole and Lacker, along with the Fed’s seeming reticence to overdo it in their response (it took until August 10 before the Fed even released a statement regarding liquidity), suggests the Fed is reluctant to be seen as bailing out hedge funds and other Wall Street players who became too intimate with leverage. There’s an expectation of rate cuts as a result of the rapid-fire response Wall Street players became familiar with during Alan Greenspan’s tenure, but the Fed, mindful of the inflated housing bubble (which followed the deflation of the tech bubble) seems to want to avoid this now.

  153. bi says:

    i did not see any inventory spike in last 3 weeks in central jersey area. it was 2,441 on August 7 and now it is 2,371. i was expecting some degree of adding-up just as what happened after katrina in 2005.

  154. James Bednar says:

    CAIBC,

    Why pay for it? Bergen County Sheriffs Dept makes that data available for free:

    http://www.bcsd.us/sheriff_sale.aspx

    jb

  155. CAIBC says:

    JB,

    thanks! this site is just awesome!

    CAIBC

  156. RentinginNJ says:

    all my bear friends: quarter to half percent o/n rate cut is almost certain.

    Bi – did you actually read the article you linked to?

    U.S. Notes Fall on Speculation Yields Too Low for Rates Outlook

    By Deborah Finestone

    Aug. 22 (Bloomberg) — U.S. two-year Treasury notes led the bond market lower on speculation the Federal Reserve will cut its benchmark interest rate no more than a quarter-percentage point in the next month.

  157. James Bednar says:

    i did not see any inventory spike in last 3 weeks in central jersey area.

    Looking back at historic inventory changes, it’s unlikely that you would see any kind of sharp inventory movements (in either direction) at this point in the year. Realize that inventory levels are highly seasonal, and if you are looking at monthly (or weekly) inventory changes alone (and not YOY changes, or changes in growth rates), you’ll only really see sharp movements during the spring, or late fall.

    http://njrereport.com/images/jul07_salesinv.gif

    jb

  158. bi says:

    157#, JB, is the judgement value the initial bid price? Thanks

  159. Aaron says:

    The dollar slumped some more today
    Last trade 81.230 Change -0.271 (-0.33%)

    If the FED cuts rates there will be a rout on the dollar like no other.

  160. CAIBC says:

    as far as i know, thats the price it went for…all bids start at $100

    ok so now i see a problem brewing…if we all show up at the next auction and bid up the prices of homes, its going to counterproductive…

  161. CAIBC says:

    i only say this becuase i believe there are some real values here – these type are true flips…we havent really had these kinds of choices for a while now!

  162. James Bednar says:

    From MarketWatch:

    Moody’s may downgrade Centex, Lennar, Pulte

    Moody’s Investors Service said late Wednesday it has placed all of the ratings of Centex Corp. , Lennar Corp. and Pulte Homes Inc. under review for possible downgrade. The agency said the review was prompted by the “materially weaker operating environment facing homebuilders, the dramatic change in the credit environment surrounding the industry versus only a few weeks ago, and the possibility of a substantive spill over effect on the industry if the blowback from the structured products markets continues unabated.” Moody’s expects its review to be conducted on an expedited basis.

  163. Sapiens says:

    “Barclays reported to be borrower of BoE £314m emergency loan”

    http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=148566&d=340&h=341&f=342

  164. T.J. says:

    Does anyone have comments about Toms River waterfront real estate. I am looking at a property now and I think I can get it for a great price. What would you pay for a little ranch on a 50 x 100 lot on the water in Toms River? I am thinking about buying this and keeping it as my shore house, living in it for a five years an then later buy a house with better schools in Somerset county when kids are ready for school. I am a consultant and have the luxury of living pretty much any place as long as I can get to an airport. Since I am keeping for the long run, I am not to worried about price decline, but I want to know what a good/fair price is. What would you all pay?

  165. Domi says:

    No Bail Out.

    Please sign the petition and pass it on to those you know. The more people that know about this and are aware of what is going on, the better. Please pass this on to others via email and blogs.

    http://www.petitiononline.com/bailout/petition.html

  166. syncmaster says:

    If you can live anywhere you want, and you presumably want to live by the water, why do it in New Jersey? The water is cold up here.

  167. T.J. says:

    syncmaster Says:
    August 22nd, 2007 at 4:52 pm
    “If you can live anywhere you want…”

    Answer:

    #1. Having kids soon, family close by.
    #2. Jersey Shore much better than rest of east coast. Better protected from hurricanes, not the boondocks.
    #3. West Coast water, much much colder.
    #4. It’s not Bayville

    – T.J.

  168. Joeycasz says:

    This is a bit off topic but here’s my dilemma. I have a retirement fund which i moved out into cash (fixed fund) because i must admit i got a bit taken back with how housing is and didn’t want to ride the rollercoaster. Now it’s a retirement fund and because of my age i really won’t be touching it for probably the next 30-40 years. Should i take what’s happening now as the market is stabilizing or should i wait for the Fed to make more annoucements? My gut tells me to put my money back in because let’s be realistic it’s a retirement fund, not day trading. Any advice is greatly appreciated.

  169. chicagofinance says:

    Joeycasz Says:
    August 22nd, 2007 at 5:14 pm

    1. Come up with an allocation.
    2. Look at the best funds your plan offers.
    3. Funnel the money back into the funds.
    4. Put at least 15% away a year [includes any company match, profit sharing and bonus contributions].
    5. Put your statements in your sock drawer or shred them upon receipt.
    6. Lose the PIN for your online access.
    7. Check balances after 12 months.

  170. HEHEHE says:

    30-40 years? That’s about 7-8 business cycles dude relax.

  171. stu says:

    Call Wilson and tell him to selllllllllllll!

  172. HEHEHE says:

    Anybody see this on Seeking Alpha yesterday?

    http://usmarket.seekingalpha.com/article/45172

  173. pretorius says:

    hehehe,

    Coastal markets boomed while middle American markets stagnated, even though interest rates and mortgage financing availability were nearly identical across different markets.

    I believe the reason is supply and demand fundamentals are better on the coasts. Smart, high-earning people are flocking to coastal cities but it is harder to build new homes in those places.

  174. James Bednar says:

    From the WSJ:

    Bank of America to Invest
    $2 Billion in Countrywide
    By VALERIE BAUERLEIN
    August 22, 2007 5:47 p.m.

    Bank of America Corp. is making a $2 billion equity investment in Countrywide Financial Corp., the embattled mortgage giant, according to people familiar with the situation.

    Bank of America will purchase $2 billion worth of preferred Countrywide stock yielding 7.25%, and that can be converted into common stock at $18 a share, those people said.

  175. 3b says:

    #149 pret You never lived through the last real estate down turn or a recession for that matter;its hard to take you seriously.

  176. Bloodbath in Winter 2007 says:

    re: Toms River – was down there recently and hung out at someone’s house on the river. Dock in the backyard. Went home and looked it up on zillow for a few days, and dreamed of having a place like that.

    Price tag way, way out of our range, but man it looks like it would rock.

  177. njpatient says:

    “Coastal markets boomed while middle American markets stagnated, ”

    pre – Phoenix, Las Vegas, Chicago, Minneapolis, Denver and Cleveland are coastal?!?

  178. James Bednar says:

    The date range used in that Seeking Alpha bit is very odd.

    jb

  179. James Bednar says:

    How do you explain Phoenix appreciation being greater than NYC?

    Especially since the Phoenix area isn’t known to have a great number of high paying jobs, nor does it have any shortage of land.

    jb

  180. James Bednar says:

    From Reuters:

    Moody’s downgrades several mortgage servicer ratings

    Moody’s Investors Service on Wednesday downgraded the servicer quality ratings of several mortgage servicers, citing increasingly difficult market conditions.

    Moody’s downgraded the servicer quality rating of NovaStar Mortgage Inc. to SQ4-plus from SQ3-plus. NovaStar Mortgage is a unit of NovaStar Financial Inc.

    It downgraded servicer quality ratings on Accredited Home Lenders Inc. to SQ4-plus from SQ3-plus, Specialized Loan Servicing LLC to SQ4-plus from SQ3, and Fremont Investment & Loan to SQ4 from SQ4-plus.

  181. HEHEHE says:

    “I believe the reason is supply and demand fundamentals are better on the coasts. Smart, high-earning people are flocking to coastal cities but it is harder to build new homes in those places.”

    Pre,

    People keep saying that and I don’t believe a word of it people I live around in Hoboken are just as much of a mix of smart/stupid people as it’s always been.

    As JB points out the rise in Phoenix is essentially people getting fed up and leaving California. Same can be said about many areas.

    I think the point of the piece is that from 2000-2006 the price increase in real estate is about 2 to 3 times what it was during the entire decade of the 90’s.

  182. sas says:

    Its going to be interesting when those interests rates reset…

    Can they afford the new rates?
    The answer is No.

    Taint possible.

    Get ready for some more rollar coasters on the St.

    The bankers don’t need the OREOs on the books.

    SAS

  183. James Bednar says:

    Its going to be interesting when those interests rates reset…

    sas,

    http://mortgage-x.com/general/indexes/charts/a_arm_index.gif

    Any ARM holder that originated from 02-04 is likely to see a sharp rise. ARM indicies look to be up roughly 300bps.

    It would take a tremendous drop in rates to dampen the shock these ARM resets will bring.

    jb

  184. pretorius says:

    Phoenix and Las Vegas prices rose rapidly due to extraordinary population growth (from California, Mexico, and rustbelt retirees). No major cities (1 million plus) in the 1st world grew as fast as Phoenix and Las Vegas.

    Demand for homes was rising at 5% per year while supply was growing at a much slower pace, causing a price spike. Today, so much new supply has been delivered that there is an overhang of homes there.

    But in general, coastal cities (New York, LA, San Francisco, DC are the biggest) performed better than inland cities (Houston, Detroit, and Atlanta are the biggest).

  185. T.J. says:

    All I am asking for is a number (Post #168). Please (Whiney Voice). I don’t care if it is a best guess. What does one do to have to get a response around here, make fun of Bi or say something like preturning-Richardesque?

  186. njpatient says:

    T.J. – way to ask! But sorry, I don’t really have anything resembling an informed opinion.

  187. James Bednar says:

    TJ.

    You haven’t provided anywhere near enough information for someone to provide an opinion on.

    Post MLS numbers, this at least provides some kind of comparable.

    jb

  188. scribe says:

    T.J.

    Try propertyshark.com. You can sign up for free and get the data on up to 6 houses a day for free. That will give you the history of the house you’re interested in – prior sales.

    You can also try nj.com’s “NJ by the numbers” to find out what houses in that area have sold for over the last 18 months.

    http://www.nj.com/news/bythenumbers/

    another source: The Courier News database on property sales. You can search in a number of ways – for example, the street in Toms River.

    http://www.c-n.com/specialsections/datauniverse/

  189. scribe says:

    Grim,

    #192, please unmoderate. some resources for TJ.

  190. T.J. says:

    Okay, Okay. Here it is.

    20720886. It is Monmouth MLS. I just didn’t want reinvestor101 scooping it up with some sort of option ARM no interest teaser loan, when I actually have money and sense of value. Can you please provide an opinion. JB, yours is would be greatly appreciated.

    Thanks – T.J.

  191. T.J. says:

    and so is everyone elses, except Bi’s. hehehehe.

  192. James Bednar says:

    TJ,

    I wish I could offer an opinion, but I can’t. Mainly because I’m not familiar with the area, but also because I don’t have access to Monmouth/Ocean MLS. I have no way of pulling comps, reviewing similar listings, or looking at prior sales.

    jb

  193. James Bednar says:

    Sorry for any downtime, running some upgrades.

    jb

  194. Pat says:

    TJ, did you ever think about checking out Little Egg Harbor? You can get a 3/1 down there for under $250.

    http://tinyurl.com/2lqmql

  195. James Bednar says:

    From Reuters:

    Impac Mortgage Holdings cuts 350 jobs

    Impac Mortgage Holdings Inc one of the largest “Alt-A” lenders, said it has cut 350 jobs to reduce its operating expenses.

    Impac Mortgage said the volatility in the secondary and securitization markets has significantly limited the origination of non-conforming residential mortgages, resulting in cost-cutting initiatives.

    The company, whose primary product is Alt-A loans that are typically between prime and subprime in terms of quality, had said on Aug 15 it has no intention of declaring bankruptcy despite the turmoil in the mortgage market.

  196. ADA says:

    I’ve been gone for awhile;
    What happened to the Duck? did his retaining wall finally collapse?

  197. njpatient says:

    Rangers 30, Orioles 3.

    Oh my.

  198. Everything's 'boken says:

    Broke rules, got boot, sneaked in, booted again. I missed the apparently very amusing posts, BOO HOO

  199. Joeycasz says:

    Thanks to all that replied(especially chicagofinance), it was much appreciated.

  200. Richard says:

    >>But today they’re at that troll convention.

    non-bubble believer = troll. nice place ya got here jb.

  201. scribe says:

    Everything,

    The Duck got booted twice?

    The thread you want is the one from 7/30.

  202. Home Seller says:

    Ditto to #173

    If you have 30-40 years to retirement, this volatility will be forgotten in a few months..

    Sock as much as you can into your 401k/Roth, set it w/low cost funds/ AA to your risk tolerance and rebalance in 12 months..very simple

  203. dreamtheaterr says:

    Joeycasz,

    A lot of great advice dished out to you. If you’re initially starting out investing, the near-term volatility/noise can lead to the feling of myopic loss aversion.

    Since you are anyway contributing to your 401k every month, try to focus on the number of units of the fund you are buying, not the market value of your portfolio. When the market drops, you are actually buying more of the units for the same dollar amount you are investing, which is good for you. At higher prices, your money is buying less units.

    One additional suggestion: Contribute to your 401k to at least get the company match. After that, max out your Roth IRA. This combination gives you tax diversification also – tax-deferred account and a tax-free account for 30 odd years. If you still have money to put away, go back and stuff the balance into your 401k.

    ALso, plug the funds symbol into the Portfolio Allocator tool in Morningstar to see if you are adequately diversified among value, groth, large cap and small cap. You’d want international diversification also.

    I would also suggest a dose of bonds just so that you can sleep well at night and tone down the volatility of your portfolio initially. Once you get used to the volatility and seeing your portfolio grow, you could reduce the portion of bonds.

    But as ChiFi said, even better would be to not watch your portfolio. Set your asset allocation, have the money go in monthly from your paycheck, set the auto-rebalance option (if you have it) set for once a year, and you’re all set.

    Remember, you will go through at least 2 bear markets in your investing life span. But many bull markets. So be prepared, not paranoid and you’ll do just fine.

    Hope this helps.

  204. syncmaster says:

    Stribling Private Brokerage has a new report out about the over-$5 million Manhattan home market and guess what? It’s better than ever!

    Why, there’s been more such townhouse sales—56—in the first six months of 2007 than there were in all of 2005, 2004, 2003 or 2002. And last year had 60 townhouse sales at $5 million or more, so 2007 should beat it big-time. Finally, there were more townhouse sales of at least $20 million each in the first six months of 2007 than there were in every other year combined.

    http://www.observer.com/2007/more-20-m-townhouse-sales-07-every-other-year-combined

  205. Orion says:

    Financial Services Job Losses as of 8/22/07
    (from Global Economics)

    Very troubling……….

    Accredited Home Lenders (LEND) 1600

    Bear Stearns (BSC) 240

    Capital One (COF) 3,900

    Citigroup (C) 17,000 with another 9,500 moved to low cost locations

    Countrywide (CFC) 500 with 7,000 workers added in 2007. Those jobs are at risk.

    First Magnus (private) 6000

    H&R Block (HRB) 615 but expected to grow

    HSBC (HSBA) 600

    National City (NCC) unspecified eliminations coming

    SunTrust (STI)2,400

    Wachovia (WB) 4,000

    Washington Mutual (WM) 10,688

    Wells Fargo (WFC) 237

  206. UnRealtor says:

    RE: Retirement fund temporarily sitting in cash

    Would you give the same advice (invest, don’t worry about it, check it in 12 months) if the year was 1928?

    Sound over the top? Perhaps. Perhaps not.

    Who knows where, and when, this unprecedented debt/credit madness will come to a halt.

  207. Comrade 3b says:

    #204 Richard: I think now most people would agree that it was a bubble. The question now is how will the popping of the bubble play out.

    If you still deny that there was a bubble….. I just don’t know what to say.

  208. Joeycasz says:

    #207

    Thanks dreamtheaterr!

Comments are closed.