From BusinessWeek:
The canaries in the coal mine are keeling over fast. After years of easy profits, the $1.3 trillion subprime mortgage industry has taken a violent turn: At least 25 subprime lenders, which issue mortgages to borrowers with poor credit histories, have exited the business, declared bankruptcy, announced significant losses, or put themselves up for sale. And that’s just in the past few months.
Now there’s evidence that the pain is spreading to a broad swath of hedge funds, commercial banks, and investment banks that buy, sell, repackage, and invest in risky subprime loans. According to Jim Grant of Grant’s Interest Rate Observer, the market is starting to wake up to the magnitude of the problem, entering what he calls the “recognition stage.” Says Terry Wakefield, head of the Wakefield Co., a mortgage industry consulting firm: “This is going to be a meltdown of unparalleled proportions. Billions will be lost.”
Hedge funds, those freewheeling, lightly regulated investment pools, seem particularly vulnerable. BusinessWeek has learned that $700 million Carrington Capital and $3 billion Greenlight Capital may have gotten badly burned because of their intricate dealings with New Century Financial, a major subprime lender whose stock has plunged 84% in four weeks amid a Justice Dept. investigations into its accounting. Magnetar Capital, a $4 billion fund formed two years ago, may be on shaky ground, too. The question is, how many others may be suffering? “This is a very opaque industry, so no one really knows,” says Mark M. Zandi, chief economist and co-founder of Moody’s Economy.com (MCO) “My guess is that if you look at the top hedge funds, they’re bearing most of the risk.”
…
The biggest fear is that the trouble will move up the food chain. The same questionable lending practices that were used for subprime mortgages during the boom were also used for regular, or “prime,” mortgages—among them low or zero downpayments, loose loan-to-value ratios, and exotic mortgages with low up-front payments that balloon later.While subprime loans accounted for 20% of mortgages originated last year, David Liu of UBS estimates that fully 40% of last year’s loans are “showing a lot of signs of stress.” Says Nouriel Roubini, economics professor at New York University’s Stern School of Business: “The risk that prime borrowers will start to feel financial stress in 2007 cannot be underestimated.”
FBI: “Mortgage Fraud is pervasive and growing”
Amerifunding was a Mortgage Brokerage owned and operated by Gerald Small in Colorado, which maintained two “warehouse” lines of credits, each at a large federally-insured financial institution in the U.S. In order to support a lavish lifestyle, Small created fictitious loans to live off of the lines of credit. The borrower information, name, and social security number, were invented. Eventually, one of the creditors asked for verification of identification thereby defeating the “invention” process. To deal with this, Small placed an advertisement for a $100,000+ Account Representative position at his company. Applicants eagerly completed applications inclusive of names, social security numbers and copies of driver’s licenses which Small wasted no time in utilizing for more fictitious loans. Investigation determined that Small had kited over $200 million in fraudulent mortgage loans and used the stolen identities of 47 job applicants to obtain mortgage funding for fictitious home loans, or “air loans” totaling over $21.5 million during a 24-month period.
more at –
http://calculatedrisk.blogspot.com/2007/03/fbi-mortgage-fraud-is-pervasive-and.html
Everybody is convinced that the fire is contained. I wouldn’t put on a trade under that assumption. The IB packages the crap and sells it off. However, what goes out the front door probably returns through the back door. Doesn’t the IB have trading,clearing,financing and custodial relationships with the same funds that are levering the crap??
ECB lifts rates to 3.75
From the AP:
ECB Raises Interest Rate to 3.75 Percent
The European Central Bank raised its key interest rate by a quarter percentage point to 3.75 percent on Thursday, despite subdued inflation and volatile global stock markets.
The increase from 3.5 percent had been widely expected. It was the seventh increase since December 2005 when the rate was 2 percent.
Retailers mostly miss the mark; blame weather
http://www.marketwatch.com/news/story/weather-chills-february-retail-sales/story.aspx?guid=%7B9826A4B2%2D53CD%2D4C96%2D9F38%2DCD9BAD9ADE51%7D
Jobless claims below expectations
328,000 filed first-time jobless claims, slightly better than 330,000 expected.
http://money.cnn.com/2007/03/08/news/economy/jobless.reut/index.htm?postversion=2007030809
But the four-week moving average for initial claims, a better look at the underlying trend, rose to 339,000, which is the highest since the week of Oct. 29, 2005, when it was also 339,000.
Who could have ever guessed that providing arms to subprime borrowers when rates are historically low while housing is near historically high in price to income would create a wave of bad loans 1 to 3 years later as the arms reset.
Interesting read by Bill Gross over at PIMCO
Ten Little Assets
“…sort of like Agatha Christie’s “Ten Little Indians” where one guest and then another was picked off by a mysterious murderer. In this case, the murderer is known ahead of time – a 5 1/4% overnight rate. That is the strangler that has led to the demise of at least the first four or five of our ten little assets.
1. Yen
2. Bonds
3. Housing
4. Commodities
5. High Yield Mortgages
6. High Yield Bonds
7. Stocks
8. EM Bonds
9. EM Currencies
10. Private Equities
The first to be knocked off was of course the Yen as it sunk lower and lower under the burden of negative dollar carry – a 500 basis point gap as recently as three months ago, and now only slightly less. Bonds then began a mild bear market as the positive carry derived from historically low Fed Funds disappeared, resulting for the past three quarters in a negative yield curve – and negative carry. Should it have been any wonder that our third “little asset” (actually a pretty big Indian by Agatha Christie standards) was an asset supersensitive to financing costs and expectations for positive total returns? Home buyers and speculators have only recently realized that not only were they in a significant negative carry position relative to realized income (rents), but because houses have gone up so much in price that capital losses, not capital gains, might actually compound their negative carry. In the past few months, home prices have begun to sink YOY for the first time in decades. …”
More at the link above,
Rich
Who could have ever guessed that providing arms to subprime borrowers…
Ponzi? :)
It all falls down:
http://biz.yahoo.com/ap/070308/economy.html?.v=7
“The biggest increases in layoffs occurred in Massachusetts, a rise of 4,621, reflecting layoffs in transportation, and New Jersey, with an increase of 3,449, and Connecticut, where the increase was 2.992.”
“Who could have ever guessed”
[6],
Actually it was simple. That’s why I took the chips off the table.
Do a search on Bill Gross’s Plankton Theory. That pretty much sums it all up.
A house I looked at in Watchung a few weeks ago for around $485k is now listed for rent at $2,200 a month. Lets see. Put 100k down and spend 3k + a month for PITI plus lose at least $400 a month in opportunity costs for not having the down payment in CDs. That means roughly $3,500 a month in payment and lost interest without counting repairs. Bubblicious.
wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated! less facts and stats, more of the tabloid stuff. I wonder why?
I see there’s just a handful of people left. Probably even those calling for 25%-40% off MSRP bought houses anyway. Even Booyaa Bob’s gone huh? Did he move to Raleigh too :)
Can anyone post a link to a good rent vs. buy calculator?
If someone have to decide between renting a house for upto $1700/month, and buying a correctly price house upto $375K, which alternative he should prefer?
Thanks
VJ, I don’t have a rent vs. buy but I found this helpful in terms of what you can really afford when you put everything together:
http://tinyurl.com/2yg7uw
I didn’t know Businessweek was considered a tabloid.
With the weekend open discussion at 490 responses, I agree, no one visits here anymore :(
where bob? Says:
March 8th, 2007 at 10:50 am
wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated! less facts and stats, more of the tabloid stuff. I wonder why?
I see there’s just a handful of people left. Probably even those calling for 25%-40% off MSRP bought houses anyway. Even Booyaa Bob’s gone huh? Did he move to Raleigh too :)
Houses have MSRP now???
Plankton Theory. Reminds me of Soylent Green.
VJ..you could try http://www.dinkytown.com/
But remember to read some commentary on rent v. own calculators and the transparency of the formula.
commentary on rent v. own calculators
http://www.nmhc.org/Content/ServeContent.cfm?ContentItemID=1160
We are looking for a single family home in Monroe Twn, and found this listing interesting : MLS ID#: 2361407. Our agent told us that this house was relisted for 583,900 and is under contract for 550k. Do you guys think that this house deserves more than 500K. We have noticed the price drop for several other homes in that development and same time there are many homes for sale. When i asked my agent the reason for selling, she said, they get profit. Is that the only reason for selling these homes? If you know any secrets (good or bad) of this development, i would like to know. Please advise.
wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated!
Whats with the pot-shots friend? I don’t think I’ve ever insulted you, so what gives you the right to come to my home and insult me? I’ve easily spent more than 1,000 hours on this site, all for free. What have you provided to the community? Nothing.
What did Yogi Berra say? “That place is so crowded that nobody goes there anymore”..
We’ve been averaging approximately 20,000 unique visits a week now.
jb
I wonder what the MSRP on this blog is…
With or Without you Bob [13],
Have you been in a coma, or just have your head stuck somewhere in the back?? Take the time to navigate through the zillion pages, on this site, regarding this market. Better yet, just read Don Homnitz’s [spelling ?], D.R. Horton, quote yesterday.
By the way, are you the guy who has problems reading charts[BIA]??
>>A house I looked at in Watchung a few weeks ago for around $485k is now listed for rent at $2,200 a month. Lets see. Put 100k down and spend 3k + a month for PITI plus lose at least $400 a month in opportunity costs for not having the down payment in CDs. That means roughly $3,500 a month in payment and lost interest without counting repairs. Bubblicious.
lay out all the fact bub. it’s more like $3300 if you go 30-year fixed but you aren’t counting equity built (figure $400 a month average first 3 years) + tax deductions (figure $650 a month first 3 years) = $3300 – $1050 = $2250 or about the same as the rent. the advantage of renting is you’re shielded from home repairs.
A question for the board:
Do you think that NYC will continue to be a desirable place to live in/next to in the next 20-30 yrs?
wonder what the MSRP on this blog is…
that all you got?? anyway, good luck with the fire sale..
With the weekend open discussion at 490 responses, I agree, no one visits here anymore :(
wow, 490 huh? impressive. 2-3 people with nothing better to do than basically “hang out” on a blog. check it out for yourself. it’s just the same characters going back and forth about nothing all weekend long. some nerd cracks a joke and he gets 4 to 5 LOL’s and ROFLMAO’s. I guess your counting those?
Richard: what about property taxes..got to include those as well
the advantage of renting is you’re shielded from home repairs.
Don’t forget, you’re also shielded from depreciating home prices.
wherebob: this site has grown from what I can tell…but then again, I visit it daily.
We’ve been averaging approximately 20,000 unique visits a week now.
FYI – might be the virtual IPs from firewalls…could be the same people.
wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated! less facts and stats, more of the tabloid stuff. I wonder why?
I see there’s just a handful of people left. Probably even those calling for 25%-40% off MSRP bought houses anyway. Even Booyaa Bob’s gone huh? Did he move to Raleigh too :)
We’re going to top the tabloid charts next week when we reveal that the father of Anna Nicole Smith’s baby was former governor of NJ, Jim McGreevey.
-R
Richard,
Not only shielded from home repairs, but loss as well. Realize that a portion of the rent paid is a “risk premium” to compensate the owner for bearing the risks of ownership.
When the cost to rent is lower or equal to the cost to buy, the renter is not compensating the owner for that risk of loss or repair.
jb
Boooya Bob is still here too btw…
might be the virtual IPs from firewalls
Much more common are the same people hitting the site from work, Blackberry, home, coffee shop, the neighbors’ WIFI network, etc.
jb
I’m nosy, so I’m always looking at the domains folks come in under. Likewise, I’m always looking at my top referrers, and if those referrals are coming in from search engines (Google, MSN, Yahoo), I’m looking at the search strings that people used.
Direct visitors only make up about 1/3rd of the daily traffic. The other 2/3rds come from search engines and other referring sources. Usually about 75% of daily traffic is new visitors, 25% are regulars. Pages per visit usually averages between 3 and 4.
jb
Arrival of “What hit me?” indicates another level of price drop :)
From Marketwatch:
U.S. Q4 mortgage equity withdrawal falls to $18 bln
U.S. Q4 mortgage borrowing up 6.4%, slowest in 8 years
I think we are all still here, and the market is correcting as we all predicted, the only question is how much and how long will it take.
Me personally I belive we willsee around 20%, and I will throow out there that if the amrket deoes nto correct int eh neighborhood of 10 to 20%, then it really does not makee sense for me to buy, no upside, but massive increase in taxes will continue.
#13 where bob? Says:
A few other changes since we had our last troll post.
Sub prime market has taken a huge it removing many fringe buyers from the market.
New construction dropped significantly.
Spring 2007 rout is just beginning.
Thanks NJGal and Pat for valuable inputs.
Congratulations NJGal and good luck with your home inspection this weekend.
>>Not only shielded from home repairs, but loss as well
and gain. you missed out on a rare opportunity if you owned before 2005.
to post #30,
why would anyone go that far to mask their visits to this blog?
>>Richard: what about property taxes..got to include those as well
i included those and assumed a 25% fed income tax rate.
James Bednar Says:
March 8th, 2007 at 11:20 am
Whats with the pot-shots friend? I don’t think I’ve ever insulted you, so what gives you the right to come to my home and insult me? I’ve easily spent more than 1,000 hours on this site, all for free. What have you provided to the community? Nothing.
jb
grim: part of what makes you a superior moderator is your even keel – don’t let a troll set you off
think coral…serenity now, serenity now
#24 Richard,
By renting you are shielded from repairs, falling house values, emminent domain, if the neighborhood deteriorates you simply move, to buy and sell the house would cost you at least 30k in closing costs and commissions (if you hold the house for 3 years your tax deductions and principal paydown are wiped out by the transaction costs). More middle class people are being bumped into the Feds alternative minimum tax (see article on today’s front page of money.cnn.com. NJ property taxes are awful and yet NJ keeps increasing its budget deficit. If property taxes are reduced, what will replace the money? higher sales taxes? An asset based tax?
I would also never factor in the tax deductions when purchasing a home to rationalize buying vs renting. The US is having record budget deficits and it is one of the only if not the only western country that allows people to deduct the mtg interest off of their fed taxes. I would not be surprosed to see the tax deduction and the 500k in tax free capital gains for a couple selling a home be reduced or eliminated.
“U.S. Q4 mortgage equity withdrawal falls to $18 bln”
WOW! that’s a big drop!!!!
http://www.nytimes.com/imagepages/2006/11/04/business/20061104_MONEY_GRAPHIC.html
>>Do you think that NYC will continue to be a desirable place to live in/next to in the next 20-30 yrs?
depends on your definition of desirable. for me yes i believe so. nyc is a unique place. the capital of the world so to speak. i see it being popular for many reasons for a long time.
>>By renting you are shielded from repairs,
True but assuming you can even get a landlord to fix something it’s at their discretion how to fix it meaning it might not be to your satisfaction. when you own you do it the way you want to.
>>Falling house values
and rising house values. historically houses have appreciated just ahead of inflation
>>emminent domain
pretty much a non-event for most when considering pros/cons of buying versus renting
>>if the neighborhood deteriorates you simply move
you can move and retain the value of your place long before a neighborhood deteriorates as you can see the early signs. now if they decide to run a train line behind your house then no.
>>to buy and sell the house would cost you at least 30k in closing costs and commissions
yes that’s the biggest downside to owning short term. you can go the FSBO direction with today’s technology/information dissemination but still the majority still use traditional channels
one other point. don’t think you’re escaping rising taxes and such by renting. it just goes into your rent. sure you can pick up and move but you’ll have to alter something else to keep your payments the same like location, size, etc. if you own you can’t shield yourself from tax increases but if you get a fixed mortgage there’s one major outlay that’s fixed for as long as you live in the house.
vj, if you want a “bumper sticker” calculator here it is:
“$1000 monthly expenses for every $100,000 you borrow”
one other point. don’t think you’re escaping rising taxes and such by renting.
Likewise, don’t purchase because you think it is a way to escape rising rents. I’ve heard too many people come here and say “Your rent goes up every year, my mortgage stays the same”. Unfortunately, it doesn’t seem like there is any upper limit to how high taxes will rise in this area (or how quick they’ll get there).
jb
“historically houses have appreciated just ahead of inflation”
You statement is true if a buyer waits 10+ years to buy a house. Past Performance Does Not Guarantee Future Results.
“you can move and retain the value of your place long before a neighborhood deteriorates as you can see the early signs.”
Early signs as in the number of houses entering foreclosure?
“wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated!”
Have you been to this site since 25 subprime lenders have gone bust?? Also, you have probably missed the news that the H-B’s have puked out more than $1 billion in land options. Amazing what occurs in just a short period of time.
wherebob (13)-
Put down that pipe! Tabloid? Huh? The subprime is what it is, and there are scores of blogs out there (Implode-o-Meter comes to mind) that feature much more of a hysterical bent than anything you’ll find here.
In fact, the only thing that’s changed much over the past few weeks around here is that trolls like you arn’t getting fed.
BTW…Booyah Bob is still stuck at the Super Bowl.
more on MEW – check page 6
http://www.federalreserve.gov/releases/z1/current/z1.pdf
“you missed out on a rare opportunity if you owned before 2005.”
Some did, others didn’t.
Ah, Richard’s on a condescending streak again. Bairen, you have to do what you are comfortable with, and if you believe that prices will continue to drop, or that you would only be in the house in question a short time, rent.
To me, if the house is offered for rent, they haven’t had any luck selling it for a reason, either because it’s overpriced, in poor condition or in a bad location. I would venture to say they’re probably asking too high a rent!
Stages of a Bear Market in Real Estate
1st Stage is the almost complete drying up of sales as buyers refuse to pay up and as the number of real buyers (as apart from shoppers) dwindles. At the same time sellers, still caught up in the rising expectation hype, not only refuse to lower their prices but actually raise them, having gotten used to houses being sold above their asking price.
2nd Stage There is a dramatic increase in the number of foreclosures. This begins in the last stages of the boom, but dramatically increases as the homeowners who cannot meet their obligations, can no longer refinance at lower interest rates while extracting money to meet their obligations. As prices begin to first stabilize and then turn down, they can no longer sell their home for any price that even remotely approaches their outstanding mortgages and are left with no other choice but to mail their keys back to the mortgage holders.
3rd Stage One by one, the sub-prime mortgage brokers shut their doors and go bankrupt, but that is not the end of it. The brokers and banks that have packaged these junk mortgages and sold them off to the public and institutions such as insurance companies and pension funds have also securitized them and thus far, we have not yet seen the carnage that will occur as $1.3 trillion of junk bonds comes home to roost. As in every bubble that bursts (as they all must eventually do), the BANKS are always left holding the bag. At least until the Government (read Public) bails them out.
Federal bank regulators using their Moral Suasion” have asked lenders to be more cautious when making the high-risk loans and scrutinizing borrower’s ability to repay them; thus marking the end to undocumented loans. The banks have now “locked the barn door” after all the horses (read Money) have gone, drastically tightening up lending standards, making sure that their wishful game plan can’t possibly materialize. The final nail in the coffin came last Tuesday when giant Freddie Mac said it will no longer buy sub-prime home mortgages it deems most vulnerable to default or foreclosure. Where will all the new buyers come from to support a resumed housing boom and more importantly, where will they get their financing from?
4th Stage Layoffs and drastically reduced earnings and salaries; first due to the sharply reduced construction followed closely by a reduction in all of the auxiliary industries, ranging from real estate agents and mortgage brokers to furniture and landscaping. So far, this stage remains hidden as it is masked by the backward looking unemployment and economic numbers being reported. I expect that it will be a shocker when next quarter’s numbers are reported..
5th Stage Economic recession (if we are lucky). By next quarter, as the economic numbers begin to reveal the truth as to what is really going on in the economy is the time when we will be facing our greatest danger. What type of legislation will Congress propose and will the President have the guts to veto it? There is no question that Bernanke, like Greenspan before him, will rush to the rescue with the FED’s liquidity hose, but this time it won’t work. There is already too much liquidity in the system. Especially under conditions of tightened lending standards. What happens to all that take-over money under the new lending standards?
HISTORY REPEATS
Although history always repeats, it never does so in an identical fashion, thus it only ends up being recognizable long after the fact. The first causality will be to exacerbate the crash of the real estate market; then comes the imploding of the stock and bond markets. We are about to witness the Laws of Supply & Demand in action. Balance of payment deficits of an unprecedented magnitude have resulted in credit induced economic over heating on a global scale. There is a limit to how much money created out of thin air can keep the US and world economy going.
Missing Bob,
Much more important than your nonsense;
G’Town up 16 over Nova
Fla St, Clemson in a barn burner. Where’s Pro??
Dook playing in the first round of the ACC.
Now we’re talking, Bob.
“wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated”
I don’t even think you deserve a response from JB. We are still here. I am still here but too busy to catch up with my work. I don’t want to be the next guy being lay off.
JB, thanks for what you did for us.
Ricahrd: The mtg payment is fixed, but certainly not the tax payment.
I am in my rental house for 3 years now, with no rent increase, long term owner of the house 25+ years, and he loves us.
As far as repairs, if there are any I get them done, and simply deduct them from the rent, so I choose who to hire and make the repairs.
Now if I had remained in the house I owned my mtg pyment (the escrow portion) would have increaded $287 )property tax increases), in three years, so I am a head of the game.
As far as rare opportunities before 05, there willl be those opportunities gain, for those who buy at teh bottom of this decling real estate cycle, just like there was in the 90’s.
why would anyone go that far to mask their visits to this blog?
I didn’t imply that at all..I just meant that the virtual IPs generated by routers and any number of wifi devices people use like jb mentioned kind of skew the number of “unique visitors”.
Perhaps Richard is just a born optimist? :)
Wonder how many real estate bulls were long tech in Jan 2000? Coworkers/friends/family that are bullish on NJ real estate were also big tech/internet bulls in 99 and 2000.
to joe m.
ok. thanks for IT education. your comment made sense now.
:)
Joe M (#60):
If the people are behind a router; shouldn’t the outgoing IP be the IP of the Router, not the internal (Virtual) IP address. If so then you should have more unique visits if people from behind the same router accessed this page.
“Do you think that NYC will continue to be a desirable place to live in/next to in the next 20-30 yrs?”
Sure, if you don’t mind swimming to work ;)
Seriously though, a few bad years on Wall St and continued high taxes, in concert with lagging job growth could make for a radicalized environment that would elect more Dinkins-style mayors, putting NYC on a downward spiral…
Safe bet: the cost of living in NYC will continue to outpace salary and job growth, and the gap will continue to widen and spread out into the boroughs. And any high-paying jobs (such as tech) that can migrate away to lowtaxland, will. And NYC will still have the best pizza and bagels on Earth.
$65 Much of the other boros are still quite poor/working class, and will probably remain that way. Most of Manhanttan will probably remain expenseive, but nos so for the other boros.
Even with manhattan remaining expensive, it is still not immune from prices dropping.
And drop they will as they have in the past;it will simply remin expensive vs other areas.
bergenbubbleburst you have a sweet deal in your rental. most people don’t have such luxuries.
BC (57)-
Prof is sweating big bullets right about now. Guaranteed he ain’t here.
Hope Dook wins today. I want them bad…so does Mr. Hansbrough.
(((I’m nosy, so I’m always looking at the domains folks come in under)))
I’m sorry that kind of creeps me out )-:
I might be known to look at this site more than once a day. Did you already know that???
KL
JB –
Can you tell if a lot of realtors check the site (other than Clot)?
Rumor that New Century Financial will file for chapter 11…couldn’t find a buyer…stock down 22% on rumor.
Clot [67],
Be careful what you wish for, it may be granted.
So ChiFi,
What’s it like having the governor’s “special friend” “buy” her own place in your building?? She must really know where the skeletons are buried.
#66 Richard: you or I do not really know if others have th deal I have or not, I would guess that some don’t, but many perhpas do.
I woudl think if you are a landlord, and have been one for some time, and you have a good tennant, you might think twice before raising rent. Plus I think with all teh coops, condos, and SFH’s for rent in Bergen County right, I wouls think there are quite a few gracious and grateful land lords out there.
bbb [73],
I don’t have a rate increase for 2 years, after that it is capped at max 3% per year. I pay cash.
bergen – very similar situation here.
my landlady cares a hoot what I do.. she doesnt even deposit my check till late in the month. She’s just happy it’s rented.
KL,
I’m sorry that kind of creeps me out )-:
What, you don’t have a myspace page?!!!
Time Magazine gave me the “Person of the Year” award… and I’m using this capital to prick the RE bubble
How Countrywide CEO Wins Amid Mortgage Mayhem
March 7, 2007; Page A10 Wall Street Journal
________________________________________
If you’re looking for a big winner in the subprime-mortgage meltdown, try Angelo Mozilo.
The take-no-prisoners chief executive of Countrywide Financial sold $140 million of his personal holdings of Countrywide’s stock in the past 14 months — before last week’s news that the delinquency rate on his company’s subprime mortgages was soaring.
Mr. Mozilo makes no apologies for any of this. The self-made son of a butcher started working as a messenger for a New York mortgage company at age 14 and went on to build the largest mortgage company in the U.S. At age 68, he expresses no regrets and has no sign of slowing down. Just a few months ago, his board asked him to extend his stay as CEO for three more years, after a succession plan that, in his words, “didn’t work out as I planned.”
As for the $140 million in stock sales, Mr. Mozilo says: “I’m 68 years old and I’m running out of time. Everything I have for myself and my family is in Countrywide. There is a point at which I have to balance my life.”
Countrywide and its shareholders now need to hunker down for a tough year, or maybe two. But the company will survive. While it is one of the nation’s four-largest subprime lenders, subprime loans account for less than 10% of its total business. Moreover, most of the loans have been sold off to others, partly shielding the company from the risk of default. When the dust settles, Countrywide will find some of its most aggressive competition has gone out of business.
As for Mr. Mozilo, he will emerge from the wreckage a very wealthy man.
___________________________________________
Remember that Toll and other home builder management cashed in millions of chips last year. And the end of every bubble there’s hardworking and/or stupid individual *investor* who is left holding the bag. The top dogs come out ahead.
What is funny however, is the hosue next to me sold 2 years ago, buyers bought it with an I/O, no money down mtg. The place is a mess, I on the other hand keep my rental nice, just like I used to keep my own house when I owned.
Option One isn’t the only lender that will exit at least a portion of the subprime lending business. Sources confirmed to HW this morning that Wachovia (NYSE:WB) has shuttered its correspondent lending program; competing mortgage publication MortgageDaily.com was first to report on the story yesterday.
Rumors are also swirling today that Wells Fargo (NYSE:WFC) is likely to shut down its B/C lending platform, although any such move has not been confirmed by bank officials. Housing Wire first reported on the rumors on March 3; Wells officials wouldn’t comment at that time, citing company policy, but said that the company remains committed to providing affordable housing options to its customers.
Washington Mutual (NYSE:WM) has also allegedly quit funding all subprime loans, according to an email notifying brokers of the the alleged shutdown of subprime wholesale operations at Charlotte, NC-based Ameritrust Mortgage Company. “Due to market conditions, our warehouse provider, Washington Mutual, ceased funding for subprime loans,” said the email. “This has left Ameritrust with no alternative to fund subprime loans.”
Calls to Ameritrust and Washington Mutual officials for confirmation of the company’s shift in credit policy were not returned by HW’s press deadline on Thursday.
While many rumors of a shift in credit policy remain unconfirmed, a few large mortgage banking operations have confirmed a shift in underwriting criteria for subprime loans, with Merrill Lynch’s First Franklin eliminating some subprime lending programs on March 1 and Freddie Mac announcing new criteria for subprime fundings on February 27.
These subprime lenders were too focused on building revenues, market share, and short term profits. Were any of their executives wondering what happens to all these loans when they reset at higher rates or the housing market flatlines or goes down?
Charlie Munger says you always have to think about potential downsides to investments. I guess none of those execs who were approving the underwriting criteria had read Buffet’s letters to the shareholders or Poor Charlie’s almanac.
Greenlight’s David Einhorn Quits New Century Board (Update3)
By Bradley Keoun and Jenny Strasburg
March 8 (Bloomberg) — Greenlight Capital LLC founder David Einhorn resigned from the board of New Century Financial Corp., the subprime-mortgage lender facing a criminal accounting probe and a credit crisis that may put it out of business.
Einhorn, 38, quit yesterday, Greenlight said today in a filing with the U.S. Securities and Exchange Commission that didn’t give a reason. The New York-based hedge fund holds a 6.3 percent stake in New Century, the filing said. Shares of the Irvine, California-based company have plunged almost 90 percent since Einhorn joined the board last March, handing Greenlight a loss of about $140 million on its stake during his tenure.
http://www.bloomberg.com/apps/news?pid=20601087&sid=asiYkh.yMqYw&refer=home
Holy Cow.
From Bloomberg:
New Century Stops Taking Loan Applications as Cash Runs Short
New Century Financial Corp., which specializes in mortgages to people with poor credit, said it stopped accepting loan applications.
The Irvine, California-based company said in a regulatory filing that while New Century “expects to resume accepting applications as soon as practicable,” it could offer “no assurance that the company will be able to resume accepting applications.”
Report: GM could take $1B subprime hit
Automaker may be on the hook for home loans to borrowers with weak credit, paper says.
March 7 2007: 9:13 AM EST
NEW YORK (CNNMoney.com) — General Motors may owe as much as $1 billion to cover defaulted mortgage loans made to borrowers with less than top credit by its former home lending unit, according to a public report.
The Detroit News, citing estimates from several analysts, said that problems with loans made by units of GMAC such as Residential Capital could cause the automaker to make the payments. General Motors would not comment to the paper on the report.
http://money.cnn.com/2007/03/07/news/companies/gm_subprime/?postversion=2007030709
Fixing subprime mortgage lending isn’t easy
By Holden Lewis • Bankrate.com
http://www.bankrate.com/brm/news/mortgages/20070308_Fed_guidance_loan_rules_a1.asp
Misssing Bob,
Regarding posts 80-83, how about these facts??
Hehehe Says:
March 8th, 2007 at 3:10 pm
So ChiFi,
What’s it like having the governor’s “special friend” “buy” her own place in your building?? She must really know where the skeletons are buried.
She is stopping on Eli’s head….that’s not nice…http://tax1.co.monmouth.nj.us/cgi-bin/m4sr.cgi?&srch_type=1&ms_user=monm&district=090513844
“stomping” that is
Some points from Bankrate article,
In late 2005 and into 2006, regulators tightened guidelines on interest-only mortgages. Thomas believes they should have addressed subprime ARMs then, too. But Republicans were in charge of Congress at the time, and they didn’t ask regulators to change the guidelines for subprime mortgages.
“The most obvious concern is the section suggesting that hybrid ARMs should be underwritten at the fully indexed rate at full maturity,” says Steve O’Connor, senior vice president of public policy for the MBA. “The fully indexed rate at full maturity” is another way of saying, “the highest possible rate for a particular loan.”
“When you underwrite at that level, you have the potential to knock a lot of borrowers out of the marketplace,” O’Connor says. Among the affected borrowers, he says, are people “who use these products as credit improvement vehicles” by getting a 2/28 mortgage, making on-time payments for two or three years, raising the credit score above 660, then refinancing into a lower-rate loan.
It would be disruptive to virtually eliminate an entire class of loans such as 2/28 and 3/27 ARMs, says Paul Halpern, a partner with Chrysalis Capital Partners, a private equity fund that invests in distressed companies, including financial services companies. “The number of choices of lenders that a consumer might find for a given credit score, and dollar need, is going to shrink,” Halpern says, adding that some people will be waiting for their loan to close when suddenly the company they’re working with “shrinks out of play.”
Mortgage Brokers will definitely lobby to overrule new proposed rules. Lets see who wins this time.
where bob? Says:
March 8th, 2007 at 10:50 am
wow! haven’t been to this blog in a while…just as I thought – it has really deteriorated!
So why did you show up?
The blog is the same in a relative way, but you’re meaner.
Shorter of cash and one day closer to death.
Zac,
Going to see Waters?
jb
“Do you think that NYC will continue to be a desirable place to live in/next to in the next 20-30 yrs?”
As someone who moved from Manhattan to Jersey in 2005, I must say I can’t wait to go back. Others have posted reasons why NYC will remain desirable (or events that might make it undesirable), but I think it’ll all come down to transportation and the price of oil. No need for a car in NY (or car insurance, or gasoline); no high heating bills for huge single-family houses. If 9/11 didn’t destroy NYC’s desirability–and I lived only 15 blocks from the trade center–nothing will.
Didn’t know he was local again, I saw his show twice before at the Arts Center and saw David Gilmore in Philly.
Waters’ “Amused to Death” has to be one of the best recordings of all time.
Probably not. I didn’t know he was local again.
I saw him twice before at the Arts Center and saw Gilmore in Philly.
Waters’ “Amused to Death” has got to be one of the best recordings of all time.
hmmm, delayed update, so i sent it again.
I miss Syd. “Ummagumma” by Pink Floyd is still a fave.
OT, but question for Clotpoll and JB and other realtors (and this may have been asked before but I don’t recall): buyer is working with buyer’s agent. Buyer sees property and asks listing agent if buyer can see it, fully disclosing that buyer already has agent (but buyer’s agent is unavailable). Listing agent insists that if she shows the property to buyer, she will be buyer’s agent for that property. A friend of mine (looking for a house, I know, I told him not to, but he wants a house)got chewed out by a listing agent for trying to see a house without his buyer’s agent (who was unavailable). Thanks.
Anyone going to see The Police this summer? It’s great to see them reunite.
Who says we have to play by THEIR rules?
He can do whatever he wants.period.
The loyalties should be played by the realtors. The listing agent should have showed him the house as a courtesy and ‘throw him back’ to his agent. He should tell the sellers of that house his experience.
Tommy (97)-
I’ll try to give the short version:
The listing agent may insist that a buyer purchase his listing through him. The listing agent can even go through all the ceremony of having the buyer sign agency agreements, dual agency disclosures and any other binding docs he sees fit.
The problem is, NONE of that stuff binds the buyer to placing an offer through the listing agent! The buyer may simply state he’s had a “change of heart” or “doesn’t trust the listing agent”, and he’s free to place the offer with any other agent of his choosing…even if the listing agent originally showed him the house! There is also no such thing as the “threshold rule” or any other silly thing that forces allegiance to an agent not of the buyer’s choosing. Once any buyer breaks the chain of events leading to purchase that defines “procuring cause”, that buyer is free of obligation to any agent.
On top of all that, listing agents are charged- BY LAW- to DISCOURAGE DUAL AGENCY! NJ law stipulates that disclosed dual agency (aka buying through the listing agent) is an UNUSUAL form of agency, and that listing agents should steer buyers toward agents from other companies.
It is a shame that a listing agent would chew out a buyer, especially in this market. It’s no fun to show a home to a buyer who might come back with another agent- and an offer- in tow, but that’s what listing agents have to do sometimes (esp. in a tough market). And, it is certainly not helping the seller to refuse to show to qualified parties or say things that would discourage a buyer from placing an offer.
Jesus, stories like Tommy’s (97) make me want to retch. This is the downside of what I do…a*&h^les who look to serve themselves before their clients and have no clue about basic salesmanship or even civil behavior.
Unfortunately, I can’t make the show, I’ll be in Arizona that week.
jb
Thanks much, Clot (and Zac). I thought it was pretty bizzare (and, Zac, I had the same reaction when he told me – contact the seller and tell him that his agent just cost him a sale!)
No need for a car in NY (or car insurance, or gasoline); no high heating bills for huge single-family houses.
Different strokes for different folks.
Personally, I prefer to live without the sound of my upstairs neighbors f–king coming down thru the ceiling, or their post-coital vacuuming at 1am on a wednesday… I also prefer the solitude and lack of urine/feces odor or oddball homeless panhandlers during my commute.
IMO the best compromise would be to live (and preferably work) in a small college town with a reasonable set of local amenities, shops, bicycle paths all over the place, and an accredited university that offers evening courses. Which is why I did it ;)