From the Daily Record:
N.J. senator wants to aid subprime borrowers
A New Jersey state senator wants to create a program to help homeowners refinances mortgages they can’t afford, mirroring a similar plan in Ohio.
Sen. Ronald Rice, D-Newark, said Wednesday that he plans to introduce a measure that would allow the state’s housing agency to borrow at least $100 million to offer 30-year fixed-rate loans to homeowners facing foreclosure.
”Many of my neighbors face real financial peril because of rising interest rates and changes to the housing market,” Rice said. ”More people are making late mortgage payments, missing payments altogether and going into foreclosure.”
Rice’s plan comes after a move by Ohio, which had the highest foreclosure rate among the 50 U.S. states at the end of 2006, to issue $100 million in taxable municipal bonds to help homeowners refinance mortgages they can’t afford.
A March 13 survey by the Mortgage Bankers Association found that Ohio’s foreclosure rate across all loan types was 3.38 percent while New Jersey’s was 1.85 percent.
The survey also showed Ohio had the highest rate of subprime loans in foreclosure at the end of 2006, at 11.32 percent, compared with New Jersey at 4.18 percent.
…
Rice blamed lenders for offering low introductory ”teaser” rates that reset higher after a certain period of time and for allowing subprime borrowers to get loans without making down payments or documenting their income.He said the state was justified in bailing out homeowners and mortgage lenders who made the loans.
”It’s going to cost us a lot more if people become homeless,” he said in a telephone interview. ”We have a real problem out here.”
…
Rice said he needed to work with the administration of Gov. Jon S. Corzine to determine eligibility requirements and efforts to safeguard homeowners who refinance their loans from foreclosing again.
In other important news… NJ maintains its #16 slot as the 16th most healthy state in America. NY-27,PA-23.
http://www.morganquitno.com/hcrank07.htm
NJ about to do what it does best: class warfare and pandering to the urban poor.
It’ll be interesting to see how many bailed-out homeowners will still manage to go under.
I knew it.
This is one of those social issues that NJ just can’t pass up. There is no way they are going to be upstaged by Ohio on a social issue like this. There are just too many sob stories in the media about the “victims” of subprime loans.
It makes me sick to think that I will now (if Rice gets his way) be required to subsidize the people who priced me out of buying a house for my family.
You can contact Senator Rice here:
http://www.njleg.state.nj.us/SelectRep.asp
Here’s an interesting point of view. I read somewhere that the subprime lending started as a social relief for the minority group as there is disproportionate disparity of home ownership between white vs. hispanic and black family. I believe that the study was published in 1992 by Federal Reserve Bank in Boston.
P.S. I am a liberal and I have a mixed feeling towards subprime bail-out. It’s a right thing to do but at what price?
Rice is a licensed NJ real estate broker
Rice owns a title agency in Newark (inactive)
Rice ran for Newark mayor against Booker
Rice lives in Newark
Newark foreclosures seem to be running above trend.
JB,
The site seems to be running better this morning.
have you given any thoughts regarding setting up a jar of “Help Jimmy’s Kids”?
#6: And I also remember reading about the Federal Government pressuring the banks to lower the lending requirements for the black and hispanic family.
while the Feds are going after subprime lenders, wouldn’t it eventually come back and bite them in the butt realizing that it’s the faults of Feds?
Just like the concepts of public housing, welfare and a host of other government handouts, giving people something for nothing achieves exactly the opposite of what’s intended.
Those we try to lift from poverty end up beaten down by the programs that were meant to help them. On top of that, the cycle of poverty is reinforced by the passive, “victim” mindset that’s reinforced by handouts.
The worst thing that can be done to a human being is to take away his opportunity to fail.
InvestorDavid (7)- you are a prime example of the self-destructive fallacy of liberalism. Why is a bailout- at any price- a “right thing to do”? Why should there be reward for predatory lenders and consumers who cannot take responsibility for the consequences of their actions? What do you say to the many here on the board who have been priced out of homeownership by a market pumped with the steroid of toxic loans? What reward is there for those who play by the rules?
Any examination of these questions must lead thinking people to the conclusion that this canker must be allowed to fester, burst and slowly heal on its own in order for our system of homeownership and financing to return to a normal state.
So it is good to go foreclosure. And you get bail-out. Homeowners, please take advantage of it, even you can afford your payment, just file forclosure and you will get bail-out.
it’s the faults of Feds
Then they can foot the bill. I’m COMPLETELY against rewarding ignorant behavior.
He said the state was justified in bailing out homeowners and mortgage lenders who made the loans.
At the cost of many who took the time to learn and realize that they didn’t want to risk their financial freedom (and their families) by getting into debt they couldn’t afford.
I’ll be mass emailing many of my local representatives.
clotpoll,
You have many great points. :)
I wasn’t suggesting the bailout at any price. I was wondering where we draw the line. I wasn’t suggesting rewarding the predatory lenders nor the uneducated consumers.
I was simply pondering whether there is a way to give a second chance to the downtrodden, who deserves a 2nd chance.
Clotpoll,
I am completely for the punishing the predatory lenders.
However, I feel for the downtrodden folks, not all, but some, who were “tricked” into getting these toxic loans. I don’t feel bad for the greedy ones. But I feel for the uneducated and uninformed people.
Yes, they do share the blame for not doing their due dilligence – like reading this blog – but some doesn’t have the education, nor the cerebral power, etc.
Bailouts will benefit the lenders and investors.
Why? Because their loans will be paid off as borrowers take out new loans backed by state bonds. They get spared the expense of foreclosure and get their investment back in full.
The lenders walk away scot-free.
The state, however, will face crisis as borrowers default on these new “bailout” loans. Every underwater borrower will opt to take the state loan, even if they can’t afford it. Borrowers will jump to take these new loans as a stop-gap against foreclosure.
…and many of them won’t be able to afford it. What Rice fails to realize is that borrowers took out risky mortgages because they couldn’t afford the fixed-rate options. Borrowers used risky loans to stretch affordability.
jb
I’ll be mass emailing many of my local representatives.
I’ve sent out more than 100 emails this morning.
jb
from patrick.net… contact your rep’s
Why should everyone who was responsible and did not borrow too much for a house be asked to bail out the gamblers who did?
This is the worst kind of government interference with taking responsibility for your own actions. Sure, some poor old people will be trotted out to get sympathy for the proposal to bail out the cynical gamblers who were flipping properties until they got burned. But there are better ways to help than redistributing the tax money from the rest of us to everyone who speculated on housing.
Check out http://patrick.net/housing/contrib/nobailout.html and please make suggestions on how I can make it more effective.
Patrick
Headline Q4 GDP revised slightly higher. From MarketWatch:
U.S. fourth-quarter GDP revised up to 2.5%
The U.S. economy grew at a 2.5% annual pace in the final three months of 2006, slightly faster than the previous estimate of 2.2%, the Commerce Department reported Thursday. The upward revision to gross domestic product mainly reflected higher prices for trucks that boosted vehicle inventories. Investments in software were revised slightly lower. Economists were expecting the 2.2% estimate to be unrevised. The core PCE price index, which excludes food and energy, was revised down a tenth to 1.8%. Meanwhile, corporate profits declined for the first time in five quarters, falling $4.9 billion, or a 0.3% quarterly rate, in the fourth quarter. For all of 2006, before-tax profits rose by a record $285 billion, or 21.4%, the best annual percentage growth since 1983.
#16. JB. excellent points. I am glad that I am learning something new every day.
I wonder whether there might be a way to help the borrowers but not the lenders or the investors?
What I don’t get is what exactly are you getting if you bail them out. Net net…is it cheaper for them to lose the house and start renting somewhere than to bail them out? You are saving someone who made a bad financial decision. If I invested in Enron (shamelessly I did and purchased more on the way down) should I get bailed out? Or at least Enron employees who lost their retirement savings. How many other stupid financial decisions have been made but the people were not bailed out. What’s the criteria for determining who gets bailed out? You have two subprime borrowers who are late on their payments but one of them also just purchased a new car as well. Or for that matter, assuming they are bailed out, take advantage of the fact they now have lower interest rates and purchase a new car.
I would also ask mortgage servicers about the recidivism rate for the state on their loss mitigation programs before I tried this. But that’s just me.
Good Morning NJ Report viewers
Is Rice just making a political correct reaction to NY Times Newark Subprime Foreclosure yesterday???
May be he is adding poltical capital to his next local election.
CC
From Bloomberg:
HSBC to Scale Back U.S. Subprime Mortgage Division
HSBC Holdings Plc Chairman Stephen Green said the U.S. subprime mortgage services division will be “run down significantly” as the world’s fourth-biggest bank by market value tries to recover from loan losses.
HSBC has said it will reduce so-called mortgage services to riskier borrowers after rising defaults on such credits caused U.S. earnings to plunge. “Whether or not we completely write it off I’m not sure,” Green said, speaking to reporters in Kuala Lumpur today. The mortgage services business buys subprime mortgages through brokers.
…
“The subprime lending market is going to get worse,” said Jim Rogers, chairman of Beeland Interests Inc., who is selling short shares in Fannie Mae, betting on a price drop. “We’ve had many housing bubbles in America in the last couple of hundred years. This is going to be the worst.”
Where the $100 million dolloar come from? Through bond? Who want to purchase such risk bond? What is the percentage of return? 6% or 7%? then the mortgage rate will be higher than this and the person need to forclosure still can not afford it.
Could somebody post a sample letter to be sent to representative about objecting this idea?
BC Bob,
another excellent point.
Well, let the flippers and greedy take the loss.
and help the downtroddens by taxing the IB’s, hedge funds and Chinese?:) Is that even possible?
Rice caused a bit of an uproar around this time last year:
https://njrereport.com/index.php/2006/02/22/say-no-to-new-jersey-senator-rice/
Here is a sample letter over at Patrick.net. It most certainly needs work/polishing.
Dear X,
Please do not support the efforts to bail out subprime borrowers with my tax dollars. As a responsible citizen, I do not feel it is right
for you to ask me to pay for other peoples’ financial mistakes.
I appreciate the intention of helping people to have access to housing. However, the money would be much better spent in creating more affordable housing for everyone, including renters, the elderly, minorities. The proposed subprime bailout will only reward people who
acted irresponsibly, and punishes people who carefully manage their finances by not buying houses they can’t afford.
The housing market has begun a process of correction. This is necessary in order to keep housing affordable in the long-term. Let
the market correct so we can achieve stability again, and people are able to save and afford the house of their dreams over time. That’s the
way it has always been.
Sincerely,
Your Name
City, State
We can argue the merits of a bailout in Newark, but I object to the proposal starting with a loan of a least $100 million dollars. I don’t think the state, or its Housing Authority, needs to borrow any more money. Maybe a hedge fund can float us some subprime terms on that loan?
Does anyone think rising foreclosures, subprime bailouts, lender implosions, etc. is the sign of a healthy housing market? I’d like to hear some RE bulls spin this. I’m all eyes.
JB,
Can you give a link to the email addresses of your local senators or assemblymen?
thanks.
Rice caused a bit of an uproar around this time last year
I recall that! That one really lit a fire under my A$$ and another flurry of emails!
PS I’ve sent my emails out today.
investor,
They [fed orchestrated, ib’s] bailed out LTCM, close to $3.7 billion. If each state wants approx $100 million, we’re talking $5 billion. However, then you must bail out every investor that has been wronged by corporate greed and corruption. The list is endless there.
The WSJ has a map today that plots sub-prime. Here’s the legend that goes with it:
Where Subprime Delinquencies Are Getting Worse
SUBPRIME MORTGAGES have been cropping up in surprising spots. Typically, these loans to home buyers with the weakest credit were concentrated in lower-income or economically depressed areas. But over the past few years, a large chunk of the subprime-loan market has shifted to higher-income metropolitan areas. In many of those wealthier areas, the delinquency rate has increased quickly. In the Sacramento, Calif., region, where the median household income ranks among the top 10th of major metropolitan areas, the portion of subprime mortgages delinquent for 60 days or more hit 14.1% in December — more than four times the level a year earlier. Other parts of California, as well as sections of Florida and Massachusetts — especially those areas where housing prices have surged — also logged rapid increases in delinquencies.
— Compiled by Pat Minczeski and Brett Taylor
I don’t have a comprehensive list. Instead, I use the webmail tool on the NJ Legislature site:
http://www.njleg.state.nj.us/districts/municipalities.asp
Find your District, select your Senator, click “Contact Your Legislator(s)”, click all the boxes for that district, click “Select”, and paste in the info. Rinse, repeat.
jb
Also, the WSJ has another story on how Wall Street turned off the spigot with New Century, which says:
“What we’re seeing [is] a good opportunity for us around the subprime space,” Lehman Brothers Chief Financial Officer Christopher O’Meara said March 14. Goldman and Bear Stearns executives also have expressed interest in finding subprime opportunities amid the wreckage.
Morgan Stanley, which had loaned $2.3 billion to such companies, says its subprime business was a “significant contributor” to robust first-quarter profits. The firm made some good trades betting that subprime woes would deepen, hedging their exposure to the market, and had collateral to back up money it loaned to now-struggling subprime companies, people familiar with the matter say. Even New Century’s expected bankruptcy filing presents an opportunity: Lazard Ltd. has been hired as a restructuring adviser to the company.
“Shed no tears for the titans of Wall Street,” Kathleen Shanley, an analyst at bond-research firm Gimme Credit, wrote in a report. Its title: “Never Bet Against the House.”
Full story: http://online.wsj.com/article/SB117513373262752793.html?mod=home_whats_news_us
I pledge allegiance, to the bourgeoisie, of The People’s Republic of New Jersey. And to the proletariat for which they rule, one state, very divided, with toothpaste and chickens for all.
I’m no lawyer or scholar and have very little experience. But maybe you could bail people out in cases of fraud. I don’t know all the definitions of fraud or what’s needed to prove it but it sounds good.
If your broker didn’t tell you all the facts, or outright lied about the facts, and your lawyer can prove that, then is that a strong enough case for a guilty verdict? I mean, the courts would probably get overloaded with cases and it’d be a mess, but requiring proof of fraud before a bail-out sounds like a happy median.
The bail-out would simply be the equivalent of compensatory damages, except at a cost to the taxpayers. Of course, fine the sh!t out of guilty brokers. I have no problem with my taxes being used to bail out people that were victims of fraud, but not investor, stupid people and all those others.
Given the intensity of this debate, I immediately regret my previous post.
investorDavid, don’t jump onto the ‘welfare state’ argument. you weren’t wrong. it is the ‘it’s not my problem’ mentality that has put NJ mostly in its dysfunctional current predicament.
With respect, there are 5 exhausted categories that I find tiring sometimes.
-The Fool (bagholder)
-The Flipper (overleveraged idiot opportunist)
-The Realtor (SOB selling an overpriced product)
-Hedge Sharks (mysteriously running the world)
-All immigrants… both responsible for our high crime in NJ and our loss of jobs it seems.
That’s unfair of course. Many sub-primers deserve what they get, but they are already under-represented and some of the products that were introduced were too complex. Home ownership is a most emotional purchase…and some were taken advantage of. Those that were deserve to be heard & represented, given an opportunity to correct their errors and educated. Those wronging them should be punished… and those that disagree with what I just wrote here will talk again about the $300K home of 4,000 sq.ft. in southern texas they could buy when they leave the state before the day is over.
#39.
“The bail-out would simply be the equivalent of compensatory damages, except at a cost to the taxpayers. Of course, fine the sh!t out of guilty brokers. I have no problem with my taxes being used to bail out people that were victims of fraud, but not investor, stupid people and all those others.”
My sentiment exactly. But I guess the problem is figuring out who the victims are and who the greedy ones, stupid, etc.
The problem I have is….when everything was supposedly good in the market, everyone up the food chain from RE agent, mortgage broker, mortgage companies on up where making truck loads on money (BENEFITS). On the flip side when the market is bad….me (aka Joe or Jane Taxpayer) is forcibly asked to bail the borrowers out (PAYING).
So in its simplest sense…I am paying for their benefits.
Caveat Emptor…. I’m actually on both sides of the equation.
I just called my State Senator and Assemblymen/women.
I was told that they received ton of email overnights and many phone calls.
I asked about Senator Rice and I was told that his constituents kept voting him in.
“Feel good” legislation is that path to ruin.
If you make a mistake and are not punished, you never learn. Charity to those who have not really been smacked down instantaneously is construed as an entitlement.
This talk is all about buying votes, nothing else.
That said, look at the origin…..Ohio/Michigan….possibly some of the most hard hit areas in the country.
That WSJ map is telling. FYI – NNJ stands out there – not good
CF,
A link?
jb
Q: Why is the Boston area getting killed? Pure excess?
curiosd,
I wasn’t jumping into welfware state argument.
I still believe that downtrodden who were misled should be given a 2nd chance.
I am just staying that it would be hard to figure out who has been victims and who are the greedy ones, flippers, etc.
I strongly believe that the lenders, flippers, IB’s should be punished.
I think most subprime borrowers knew what will be payment after a few years ( otherwise they ar r really dumb!!!). The reason they still want to buy some house they can not afford is betting the house price will keep climbing up.
What about tying a bailout together with legislation that significantly restricts the riskiest of subprime loans?
Eliminate Teasers
Eliminate Neg Am Options
Qualify the borrower at a fully amortizing payment
Cap LTVs at 95% (No 100% Loans)
Cap DTIs
jb
Maybe it’s easier think about this issue in this manner.
Hi. I’m an American. I will eat whatever I want and not exercise. What diabetes? Do you have a pill? You do! Great, now I don’t have to change my habits.
James Bednar Says:
March 29th, 2007 at 9:59 am
What about tying a bailout together with legislation that significantly restricts the riskiest of subprime loans?
grim: see if you can locate an agenda for what the relevent lobbyists are going to push on congress. Don’t be distracted by the grandstanding and soundbites. Ultimately we want to get a sense of what the new legislation WILL look like, not what will be put on campaign flyers in 2008.
CF,
Hi, I’m an American. I exercise and I eat properly. I am a type II diabete. Genetics. yes, I take pills. I did change my habits. But I am still a diabete.
Here’s the Gary rule: If you don’t have at least 20% down with a 30 year fixed as the term, then tough sh*t.
#50.
JB,
That sounds like a great idea. I am all for that idea.
#49 Zane,
Isn’t it too simple and easy to paint most subprime borrowers as greedy gamblers?
Is it possible that even though you are poor, you still have the desire to own a home (even in bad neighbourhood)?
Isn’t poor people’s desire any less than the ones with money?
Interesting
Click on the New York Area map
http://www.huduser.org/maps/subprime.html
I still believe that downtrodden who were misled should be given a 2nd chance
Let the forclosure happen or go into bankrupcy. Work hard, don’t live beyond your means, save money and rebuild your credit.
Once you saved, try buying a house the old fashion way; with good credit and a real downpayment.
This is a fair second chance. It will involve some pain & sacrafice. It’s not the quick fix or the magic pill the we American’s like, but it is a second chance.
“Those that were deserve to be heard & represented, given an opportunity to correct their errors and educated.”
curious [41],
………….and why not hear and educate every single person who is over margined, over leveraged, lost $ trading stocks/commodities/bonds. Hell, why not educate those that made the wrong choice regarding leasing/buying a car. In addition, get evey single person who has bought the wrong type of insurance, educate them. As a matter of fact, have the whole damn state march to Trenton for a free handout and free education. Totally absurd.
You guys are way off suggesting this is for the borrowers. I can see the noteholders salivating over this; The government is going to pay off these crap loans scott free!
You can pick up a turd by the clean end if you convince somebody else to do it.
This is purely for the banks.
Once this program is in place what is the incentive for someone with a subprime loan to continue paying the mortgage?
investor[53],
I fast walk/jog 5 miles a day and eat salads at least 4 times a week, dinner. I am type 2.
This bail out is a bunch of nonsense. I am tired of hearing about poor down trodden people who have been taken advantage of etc.
Its personal repsonsibility, plain and simple. How could you not know, if for example you only make 24K a year and the house costs 400k, simple common sense would tell you you cannot afford it, simple as that.
I am the child of immigrant parents, they went to school up to the 5th grade, worked hard saved their money asked nothing from nobody, and certainly blamed nobody for any setbacks along the way.
And God knows nobody ever took advantage of them, even today in their 80’s. God, Americans are such crybabies.
No bailout plain and simple. It’s as matter of simple fairness.
****** When the 500k POS colonial becomes 400K, and the 450K POS Cape becomes 360k, than I will buy. Until then I rent!
#58 Rent:WAHHHHHHHHHHHHHHH, that is too hard, i don’t wnat to do that, its not fair, I am being picked on, my American dream is turning into a nightmare. WAHHHHHHHHHHHH!!!!!
BC Bob,
Do you still take pills?
just read the article at the top of this post and am going to effing puke. Can we all please call this Ronald Rice character and tell him where to stuff it?
Here’s his number:
(973) 371-5665
politely, I should add….
investor [65],
Yes. However, I’m going to borrow Chi’s 2X4 and hit the Dr. over the head and tell him I want off.
It does seem strange though, don’t you think? We’re bombarded from every angle with a message to CONSUME, CONSUME, CONSUME and then some of us cry that we can’t handle the debt load. You gotta be responsible for your actions, plain and simple. I drive a 10 year old car, half of my wardrobe is from Target, brown bag it everyday and I have a white collar job.
Take a lesson from the old timers, save prudently and only buy when you can handle the load.
I see I was way behind the curve on this – you guys are good. I am about to call my state senator (though I don’t think he’ll need much convincing since it’s Kean).
In a way, it is actually damaging for the subprime borrowers in a roundabout way. If the default and go back to renting, they are off the hook. If they get one of these program loans, they are still in hock for a ponzi inflated house. In seven years the ones who foreclosed will be better off.
#56 investdavid
I understand everybody has a desire to own a home. But they should not buy a house they can not afford. What I am saying is that most subprime borrowers definitely know what the payment will be after 1-3 years. I also think the realtor should take responsibility to make them believe the price will keep up. It make no sense for somebody to buy some house they can not afford and the price will not keep climbing up.
Aaron: “You guys are way off suggesting this is for the borrowers. I can see the noteholders salivating over this; The government is going to pay off these crap loans scott free!”
Grim: “their loans will be paid off as borrowers take out new loans backed by state bonds. They get spared the expense of foreclosure and get their investment back in full.”
Exactly right. The result will be that the lenders will be rewarded for their bad behavior, the borrowers will be rewarded for their bad behavior, and the 100% innocent people who have sat out the bubble will (a) foot the bill for the bailout and (b) have to wait even longer for housing prices to return to normal.
The incentives here are incredibly perverse. Lenders will learn the lesson that sub-prime loans are not at all risky because in the end the gov’t will make good on the note. Because they can get a higher rate with no risk we’ll be swimming in those loans again as soon as the noise dies down a bit.
Bob (#59) et al,
Do you understand the federal bankruptcy, chapter 11 process for companies in US? It is not perfect, and by far, the BEST in the world. Mistakes get made, companies blow up. Happens all the time and the US economy absorbs them better than ANYWHERE in the world.
with all do respect, the ‘2nd chance’ philosophy built this country. enough of the ‘they should have known, they’re all idiots’ front.
‘Do not complain too much about society, only those that cannot get into it do.’ – Oscar Wilde
From MarketWatch:
Home equity delinquencies rise 7% in 4Q
The rate of delinquencies on home equity loans rose about 7% in the fourth quarter from the third quarter in the latest sign of cracks in the credit business attached to real estate.
The overall rate of delinquencies among all eight loan categories tracked by the American Bankers Association crept up to 2.23% in the fourth quarter from 2.12%, staying close to the 10-year average rate of 2.20%.
Gary says “Take a lesson from the old timers, save prudently and only buy when you can handle the load.”
How are those baby boomers doing with the fiscal budget? Not exactly a pay-as-you-go system.
jb,
link to the WSJ map:
http://online.wsj.com/public/resources/documents/info-subprimemap07-sort2.html
Hey,
I finally made it into moderation!
congrats, scribe. I’ve never figured out what causes that. I thought I might do by publishing a phone number, but it didn’t happen.
“How are those baby boomers doing with the fiscal budget? Not exactly a pay-as-you-go system.”
There are no economic conservatives in office anywhere in the United States.
curiousd #77,
I have no control over the state and federal budget, just my own. If they keep hitting me (taxes) more, I got to pull back more.
I just called Senator Rice’s office and expresed my opinion that I am absolutely against helping the lenders.
And I also said that I don’t want any banks getting any money.
I want the lenders to be punished.
And only help those who have been misled.
Just called Kean and Rice. Will feel better when this gets slapped down.
Al,
The article above states that the Ohio bailout loans will have a fixed rate of 6.75%.
jb
How many distressed borrowers can really be helped with $100,000,000? Not many.
Let’s just say that the average subprime loan balance facing foreclosure is $250,000. I don’t think this number would be considered extraordinary, in fact, I might be swayed into believing that $300,000 would be more representative.
Given a loan amout of $100k, 1000 borrowers can be given loans.
At $250k, 400.
At $350k, 285.
Will this even make a dent?
jb
I was thinking — this might be the best bail out plan.
Let the subprime lenders face the foreclosures and no money to the Lenders.
But No reporting of foreclosures on their credit record – they will still be the sub prime borrowers and have to work harder to get the loans the next time.
In that case, no burden to the tax payers.
Robert Shiller: “Bernanke Underestimating Downward Risk”
http://www.paperdinero.com/BNN.aspx?id=127
Shiller discusses housing, the January S&P/Case-Shiller results, the CME housing futures as well as his outlook. Shiller thinks that the Fed is underestimating the extent of the housing decline. Remember to check out PaperMoney’s S&P/Case-Shiller Tool to fully visualize the home price indexes.
Originally aired on: 3/28/2007 on CNBC
Running Time: 5 minutes 39 seconds
At this point, I think it’s politicians being politicians. No elected official wants to get a finger pointed at him/her that says they did nothing about this. As JB pointed out, $100 million won’t even make a dent. How will they determine who gets those loans? Those who don’t get aid because it’s all gone will be screaming bloody murder…a horror show no politician really wants to have his fingers in
Will this even make a dent?
From the NY Times:
Behind Foreclosures, Ruined Credit and Hopes
Nearly 250 homes within one mile of Mr. Abazie’s home in Newark’s South Ward have been in some form of foreclosure in the past six years, according to sales data from the Essex County Sheriff’s Department analyzed by The Times. In that time, more than 4,000 homes in the city have gone into foreclosure, according to the data.
More than 4,000 homes were foreclosed in Newark since 2000? If only a handful of borrowers should be helped, who should it be? Should it low-income borrowers from the inner city? What about the first-time buyer roped into a teaser neg-am and purchased a $500k home in Bergen Co.? Should they be helped too?
jb
What about these folks? Should they be bailed out too? From Reuters:
Mortgage crisis hits million-dollar homes
Sheriff Leo McGuire presides over foreclosure auctions in Bergen County, New Jersey, where the bidding for a home reached $1.2 million last June — a record for one of the wealthiest counties in the nation.
Homes sold on the auction block for as much as $852,000 this month — more than quadruple the median home price in the United States. County officials believe they are close to setting another record soon.
In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure.
Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston — once the summer retreat for Henry Ford, founder of Ford Motor Co.
“Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside,” says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. “People across all income brackets are having financial hardship.”
BC,
‘due respect’ not ‘do respect’…
sorry, working and fighting this passionate battle at same time. :P
More from that link:
At the Justice Center in Hackensack, New Jersey, on Friday, the wood-paneled room is filled with about 40 people and the auction is routine. The first property on the sales sheet lists a Korean homeowner with $509,000 of outstanding debt. There are no bidders. Deutche Bank, holder of the busted loan, buys the property with a quick $100 bid.
Sheriff McGuire calls the process “one of the most distasteful parts of my position.” He places most of the blame on bankers who allowed questionable lending practices.
“This might not have happened if not for these new type of loans,” McGuire said, minutes before the auction. The loans also have helped millions of Americans purchase new homes, he concedes.
“The banks took a chance on the future, and the homeowners took a chance so there’s enough blame to go around,” McGuire said. Still, “the banks and lenders have largely set them up for this downfall.”
Adding to the grief, mortgage scams and con artists trying to take advantage of distressed homeowners abound, boosting foreclosure rates, county workers said.
“It’s not the American Dream anymore,” said Fran Napolitano, a county clerk in Hackensack. “It’s ‘who can I stab next.”‘
From what I can tell, don’t we all agree that
lenders, flippers and greedy ones should be punished?
But we disagree on helping the misleds?
Liberals, including myself, believe that we should help the misleds
And Conservatives believe that it’s their fault?
To me, this sounds too much like Social Darwinism.
What separats us from the animals?
How about little compassion for less fortunate?
x-underwriter Says:
March 29th, 2007 at 11:24 am
At this point, I think it’s politicians being politicians. No elected official wants to get a finger pointed at him/her that says they did nothing about this. As JB pointed out, $100 million won’t even make a dent. How will they determine who gets those loans? Those who don’t get aid because it’s all gone will be screaming bloody murder…a horror show no politician really wants to have his fingers in
I believe that there will be one side which will hugelly benefit from this Bail-out – some lending company which will be selected to distribute these bail-out loans.
at 3% fee – it is guaranteed 3 millions for distributing let’s say 300 loans.
I have a simpler solution.
Since most of these people have no equity anyway, let the banks foreclose on the homes and then rent them back to the current occupants – then no one will be homeless.
I know – silly idea …
I think we should bail out the Upper Bergen foreclosures as well. Give them a 3% fixed, unlimited length term and 20% of the current value of the home. They could use that money to buy a flat screen for the new addition which will help keep the economy going. That’s fair, no?
By ‘helping’ them you continue misleading them.
We aren’t talking about a kidney transplant here, this is about going back to renting a house.
JB wrote,
“At the Justice Center in Hackensack, New Jersey, on Friday, the wood-paneled room is filled with about 40 people and the auction is routine. The first property on the sales sheet lists a Korean homeowner with $509,000 of outstanding debt. There are no bidders. Deutche Bank, holder of the busted loan, buys the property with a quick $100 bid.”
what??? $100 Bid? I am going to start attending these acutions.
JB, any info on this auctions?
and NO. They should not be bailed out.
NO NO NO.
how about putting the info on this auction so that some of the readers from this blog can benefit?
Al,
Don’t forget about the fees generated by the investment bank that underwrites the bonds…
jb
#97,
I think you are on to a great idea. :)
Builders often key players in high-risk game
By David Olinger, Jeffrey A. Roberts and Greg Griffin
Denver Post Staff Writers
Article Last Updated: 12/26/2006 10:35:44 AM MST
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent.
But when she came to the loan closing, a surprise awaited her. No one was in the room except a stranger from the title company. And after Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother’s take-home pay.
Because she had already signed one contract, “I felt trapped, like I couldn’t get out of it any more,” Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy. This year, she became one of 11 homeowners in a small Greeley neighborhood who have lost new houses in foreclosure sales.
In August, Weld County had the worst foreclosure rate in the United States. Many foreclosures came on new homes sold by aggressive builders to people who had no money for a down payment and no real estate agent representing them.
On one Greeley street, seven adjacent new homes have been foreclosed. In Pedrego’s former neighborhood across town, dozens of families paid $40,000 to $50,000 too much for a new home, according to an analysis by David Kiekhaefer, a Greeley broker and builder.
That neighborhood “is primed for foreclosure,” he said.
A computer-assisted geographic analysis of Weld and metro-area foreclosures by The Denver Post found many concentrated in new neighborhoods developed by local builders. Others clustered in new neighborhoods where national builders doubled as lenders. In one, more than 90 percent of foreclosures on the original buyers involved loans from the builder.
Too many new homes
http://www.denverpost.com/ci_4890161
#100
The bank already owns the property – the bid means that they will then have to sell it themselves.
David,
If you bid $100 on that property and won the auction, you would be liable for repayment of the outstanding note. That property would have cost you $509,100.
The fact that nobody bid on that property means the outstanding loan balance is greater than the current market value.
jb
So the Bank bought a house in Bergen County for 100? So why are we not all there? Or am I missing something?
Kinda lends a whole new meaning to NJ’s ‘Property Tax Reform’, eh?
106 oops nevermind I saw 105
The bank already owns the property – the bid means that they will then have to sell it themselves.
Technically, the bank doesn’t own the property, the owner does (holds title, that is). By winning the auction the bank takes title to the property, and can dispose of it as necessary.
jb
To paraphrase Robert De Niro:
It’s all designed to get your money.
So the Bank bought a house in Bergen County for 100? So why are we not all there? Or am I missing something?
You are missing something.
Nowhere has anyone released any lien on that property. By purchasing that property, you become responsible for any and all liens on that property (Taxes, IRS, mechanics, second mortgages, equity lines, etc).
jb
See Rice Bio from NJ site..Serving NJ since 1986… 21 years…
Rice only has part of Newark. If you want him out, the fine people living in Belleville, Bloomfield and Irvington have the votes to have him replaced.
Sen Rice is a career bureaucrat holding multiple government positions entitling him mulitple pensions. Only in NJ will you find State Senator RICE serving on the Joint Legislative Committee on Public Employee Benefits Reform. So who is watching the hen house, Rice get you hand out of my wallet.
District 28 – Belleville Township, Bloomfield Township, Irvington Township, Newark City (partial)
Senator
Ronald L. Rice (D)
DISTRICT OFFICE ADDRESS: 1044 South Orange Ave.
Newark, NJ 07106
PHONE NUMBER: (973) 371-5665
ELECTRONIC MAIL: Contact Your Legislator(s)
BORN: December 18, 1945
EDUCATION: A.S. Essex County College (Police Science)
B.S. John Jay College of Criminal Justice (Administration and Planning)
M.A. Rutgers University (Criminal Justice)
Rutgers University School of Law
OCCUPATION: Legislator
PUBLIC/PARTY SERVICE: Newark, Deputy Mayor 2002-present, City Council 1982-98
MILITARY SERVICE: U.S. Marine Corps 1966-70, Sergeant
LEGISLATIVE SERVICE: Senate 1986-present, Associate Minority Leader 1998-2001, Assistant Deputy Minority Leader 1994-97, Assistant Majority Leader 1990-91
COMMITTEES: Community and Urban Affairs, Chair
Joint Committee on the Public Schools, Co-Chair
Health, Human Services and Senior Citizens
Joint Legislative Committee on Public Employee Benefits Reform
jb,
I presume all liens are spelled out before the auction on a given property begins?
AL Says:
I believe that there will be one side which will hugelly benefit from this Bail-out – some lending company which will be selected to distribute these bail-out loans.
at 3% fee – it is guaranteed 3 millions for distributing let’s say 300 loans.
Here’s the thing:
These bail out loans will probably have a loan $amount well over what the property is worth. It’s already known that the borrower doesn’t have sufficient income or credit to adequately support the loan, even at a reasonable interest rate.
What kind of loans will these be? What would be a reasonable rate of interest? I’m thinking very high, given the amount of actual risk.
No bank will go near these with a ten foot pole. The government doesn’t really want to get in the lending business and the lending business doesn’t want to get involved in gov’t bailout loans. Even if we give these people a fixed rate loan at a reasonable rate, there’s no way in hell they will be able to afford it. That’s why they got into these idiot loans in the first place. Many of them will eventually wind up in forclosure anyhow.
Politicians can grand stand all they want but no organization will really want to be the one holding the Sh*t stick and actually making these loans.
http://news.yahoo.com/s/nm/20070329/us_nm/usa_subprime_foreclosure_dc
I presume all liens are spelled out before the auction on a given property begins?
No, as a bidder it’s assumed that you’ve done the necessary due diligence.
jb
Thanks JB.
#105 JB,
My understanding of foreclosure auction was that the bidding starts at the amount owed (only the first mortgage, not the 2nd mortgage).
I was wondering how DB was able to get the property back at $100.
Perfectly said.
The right thing to do? What’s next, bailouts for people who lose money in Atlantic City?
Unrealtor (120)
Exactly.
My understanding of foreclosure auction was that the bidding starts at the amount owed (only the first mortgage, not the 2nd mortgage).
The Morris County Sheriff’s Office has a good overview of the process:
http://www.mcsheriff.org/main/civil_sheriffsales/
#95 Investor Dave: With all due respect please take your hand out of my pocket, not paying any more for any one, it is as simple as that.
What happens if we have $4.00 gas by labor day??
Do we offer rebates to all, so they can drive their cars to the lottery machine?? In addition to this, health costs are soaring. I can’t afford my premium increase. I guess I should march to Trenton and ask for a handout. Wait a minute, I know individuals that worked for Enron,they were looted. Where’s their check. When does the American public stand up and be held accountable for their actions?? Has responsibility been deleted from the dictionary?? Don’t you think our federal govt should clean up the mess in New Orleans before the masses use their bailout $ to buy a new car/plasma screen.
Who will assist me in buying a house, I need a place to store my gold bars.
By the way, I wonder how many supporting a bailout were also convinced that there is no bubble??
Bill Gates, high school speech;
“Before you were born, your parents weren’t as boring as they are now. They got that way from paying your bills, cleaning your clothes and listening to you talk about how cool you are. So before you save the rain forest from the parasites of your parent’s generation, try delousing the closet in your own room.”
“Life is not divided into semesters. You don’t get summers off and very few employers are interested in helping you find yourself; do that on your own time.”
“Life is not fair – get used to it.”
All I have to say is this… I know plenty of people I worked with who did not want to work overtime or didn’t want to get a raise because they wouldn’t qualify for WIC and other gov. handouts. We are talking NJ here. I have yet to meet anyone in the area especially minorites who are soo trusting as to not do the math.. I know more who know their way around the system then who don’t.
Comedian Kathleen Madigan presents an excellent argument against a bail out:
http://www.paperdinero.com/BNN.aspx?id=123
BAILOUTS FOR MILLION-DOLLAR HOMES going for Foreclosure in New Jersey too ?????
Can Taxpayers afford these expenses ???
read: http://news.yahoo.com/s/nm/20070329/us_nm/usa_subprime_foreclosure_dc
Mortgage crisis hits million-dollar homes
By Walden Siew
1 hour, 36 minutes ago
3/29/07
NEW YORK (Reuters) – Sheriff Leo McGuire presides over foreclosure auctions in Bergen County, New Jersey, where the bidding for a home reached $1.2 million last June — a record for one of the wealthiest counties in the nation.
Homes sold on the auction block for as much as $852,000 this month — more than quadruple the median home price in the United States. County officials believe they are close to setting another record soon.
In Troy, Michigan, Dorothy Guzek, a credit counselor since 1988, has also seen the changing face of foreclosure.
Her clients, while predominantly poor and minorities, increasingly are neither. Nowadays, homeowners holding professional careers with six-figure salaries regularly drop by her office. More and more they come from upscale Michigan communities such as Independence and Clarkston — once the summer retreat for Henry Ford, founder of Ford Motor Co.
“Because of the financing that was possible, so many people bought the bigger house, the million-dollar house with the bowling alley or the tennis court outside,” says Guzek, who works for GreenPath Debt Solutions, a nonprofit service based in Farmington Hills, Michigan. “People across all income brackets are having financial hardship.”
For those on the frontlines of the growing U.S. mortgage crisis, these are the early signs that the explosion of subprime loans made to mostly poorer borrowers is reaching higher ground. The damage is hitting homes financed through jumbo loans for more than $400,000 and so-called Alt-A loans that are a notch above subprime and a step below prime.
Americans already are facing foreclosure at a record pace, according to the Mortgage Bankers Association. Lenders started foreclosure actions against more than one in every 200 U.S. mortgage borrowers in the last quarter of 2006.
About 2.2 million foreclosures due to bad mortgage loans may cost U.S. homeowners $164 billion, mostly from lost home equity, according to the Center for Responsible Lending, a Durham, North Carolina-based research group.
In the last three months, the percentage of foreclosures for U.S. homes valued at more than $750,000 has climbed to 2.5 percent, the highest since early 2005, when RealtyTrac, a online marketplace for foreclosed properties, began tracking data. The overall rate of foreclosures also is on pace to increase by a third this year.
“Everyone’s looking at subprime. The rock they aren’t looking under are the adjustable rate mortgages and teaser rates and low money-down loans,” said Mark Kiesel, a portfolio manager for Pacific Investment Management Co., the world’s biggest bond manager. “It’s going to affect prime as well.”
Keisel said he sold his Newport Beach, California, home for more than $1 million in May last year after the property appreciated more than 20 percent in two years. He believes delinquencies and defaults will rise, weighing down most of the housing market.
California, with 3,384 foreclosures of higher-scale homes since December, is leading the nation, followed by Florida and New York, according to RealtyTrac. The MBA doesn’t track foreclosure data by home value.
In February, the median price of existing homes, which represent 85 percent of the housing market, rose 0.9 percent to $212,800, according to the National Association of Realtors.
ICEBERG
Josh Rosner, managing director at investment research firm Graham Fisher & Co., says the growing numbers of foreclosures outside the subprime market is just the start.
“To define the problem as a subprime problem is short-sighted,” Rosner said. “It’s really seeing the tip of the iceberg as the iceberg.”
Compounding the risk is the nature of homebuyers of higher-end homes, says Rosner. About 40 percent of homes bought last year were second homes or investment properties. Speculative buyers may be more at risk, he said.
“There’s a different underpinning and thought and relationship between the buyer and home, which is a unique feature of this credit cycle,” he said.
CDOs
The latest foreclosure data also may spell trouble for Wall Street, where pools of bonds may be susceptible to non-performing loans that underpin debt vehicles known as collateralized debt obligations.
CDOs group debt based on credit quality and are similar to mutual funds in packaging securities to help diversify risk. In CDOs, the strongest debt is at the top of the capital structure, helping to smooth out any drag on performance from weaker debt, such as subprime loans.
Just as more expensive homes are beginning to fall through the cracks, the fear is higher-rated bonds within CDO structures may be vulnerable.
The declining performance of subprime loans have resulted in CDOs losing about $20 billion in market value, according to investment bank Lehman Brothers.
UBS Securities said in a report last month that rising delinquencies may cause losses within some subprime mortgage bonds rated as high as the “A” category.
FRAUD-FUELED
At the Justice Center in Hackensack, New Jersey, on Friday, the wood-paneled room is filled with about 40 people and the auction is routine. The first property on the sales sheet lists a Korean homeowner with $509,000 of outstanding debt. There are no bidders. Deutche Bank, holder of the busted loan, buys the property with a quick $100 bid.
Sheriff McGuire calls the process “one of the most distasteful parts of my position.” He places most of the blame on bankers who allowed questionable lending practices.
“This might not have happened if not for these new type of loans,” McGuire said, minutes before the auction. The loans also have helped millions of Americans purchase new homes, he concedes.
“The banks took a chance on the future, and the homeowners took a chance so there’s enough blame to go around,” McGuire said. Still, “the banks and lenders have largely set them up for this downfall.”
Adding to the grief, mortgage scams and con artists trying to take advantage of distressed homeowners abound, boosting foreclosure rates, county workers said.
“It’s not the American Dream anymore,” said Fran Napolitano, a county clerk in Hackensack. “It’s ‘who can I stab next.”‘
In Detroit’s suburbs, hit hard by the U.S. auto industry downturn and financial troubles at General Motors Corp. and Ford Motor Co., the story strikes home each day for GreenPath’s Guzek.
“It’s sad. It’s just an awful feeling,” she said. “You hope that you can come up with a financial plan to help people remain in their homes, but sometimes it’s not the best thing for them.”
These days, her calendar of eight counseling sessions a day, 40 a week, remains full. Increasingly, she offers different advice than devising financial plans to save her clients’ homes.
“If they can’t afford it, sometimes the best thing for them is to walk away,” Guzek said.
#116
I hate to dispute JB in my first post here, but in the newspaper advertisement, which is required, all liens need to be disclosed. If a bidder buys the property and later finds there was an undisclosed lien, he can make a motion within the foreclosure case to be relieved of his bid.
To answer some other questions, the bidding begins at the bank’s judgment amount. If no one bids at that amount, the bank gets to purchase the property at $100, and do with it as they please.
Not a dispute by any means. You sure about that first point? I’ve always been under the impression it was the buyers responsibility to perform a title search prior to bidding. Are you talking about property tax or other municipal (water, sewer) liens?
jb
By the way, I have a stack of resumes on my desk from those that have recently been employed in the mortgage business. Many of these, lost their jobs through no fault of their own. Do we offer them a bailout in addition to 6 months of unemployment insurance??
The best headline that I saw;
Anything But Mortgages.
rmb [126],
Excellent point.
I heard from a close source that a few banks are starting “short sales”.
And soon, many banks will start the “short sales”.
Maybe some of you guys looking to buy home can get lucky. Good luck.
AP Article Re Million Dollar Foreclosures:
http://news.yahoo.com/s/nm/20070329/us_nm/usa_subprime_foreclosure_dc
How does a short sale work?
nwbergen,
The lender bank is willing to take less money than the mortgage owed on a property from a future buyer.
Banks now realize that either they take less or they might lose everything.
This is from N.J.S.A. 2A:61-16, which states,
“Any purchaser of real estate at any public sale, held by any officer or person mentioned in section 2A:61-1 of this title, […] shall be entitled to be relieved from his bid if, before delivery of the deed, he shall satisfy the court by whose authority such sale was made of the existence of any substantial defect in or cloud upon the title of the real estate sold, which would render such title unmarketable, or of the existence of any lien or encumbrance thereon, unless a reasonable description of the estate or interest to be sold, and of the defects in title and liens or encumbrances thereon, with the approximate amount of such liens and encumbrances, if any, be inserted in the notices and advertisements required by law, and in the conditions of sale; but, if the court shall direct any lien or encumbrance not described, and which is due and payable, to be paid out of the proceeds of sale, the purchaser shall not then be relieved by reason of such lien or encumbrance.”
But in reality, you are correct in that the bidder needs to do his due diligence. Im not sure the sheriff actually makes an announcement before the sale, and I would consider looking up the newspaper as being duly diligent.
#125 RMB,
Your statements border racist remarks.
Dear Senator XXX,
I urge you to reject any taxpayer funded bailout for home buyers who used subprime mortgages. While I share you concern about the growing number of foreclosures facing borrowers with poor credit who borrowed more than they could afford to repay, a bailout its not the answer.
A taxpayer funded bailout is patently unfair to those of us who were responsible with our finances and didn’t buy a home we couldn’t afford. Forcing taxpayers to subsidize buyers who irresponsibly used highly risky mortgages, the type of buyer who made homes in New Jersey unaffordable for those of us not willing to gamble with our finances, is clearly unjust.
A bailout will only encourage risky behavior by borrowers, reward subprime lenders by paying off on their risky investments, and put New Jersey deeper in debt.
The housing market in New Jersey is in the process correcting from the speculative excess of the last several years. While this correction may be painful for some people, it is absolutely necessary for the long term viability of our state. Artificially propping up excessive home prices though a subprime bailout will only serve to keep New Jersey unaffordable and force more people to leave the state.
Thank you
I hope the bailout happens, I hate to see my money wasted in Baghdad instead. Please bail out my subprime mortgage on my MacMansion!!
Ok so theoetical house has a 100K mortgage and 20K in back taxes
It forcloses, sherrif puts the person or family out of the place and puts that orange sticker on the door.
The then list it for 4 weeks and then the sherrif holds an auction.
They but it up for auction at what it’s worth and if it does not sell they start the bidding at 100?
So the Bank just bought the house for 120,100 dollars or for 100?
Frank,
Now, that’s funny. :) (baiout about McMansion).
I do believe that we wasted so much money in Iraq – but most of all, so much unnecessary American blood spilt in Iraq.
Site working well for everyone today?
jb
JB,
No problemo here. Did you promise the techs at the hosting site free housing info?
Subprime share by market and median loan
http://www.ocregister.com/ocregister/money/housing/article_1615833.php
PS to my last post,
If it was that good there would me more than 40 people there. My boss would be there for sure.
I get the feeling this is like when many of you talk about derivitives. Puts and all of that. I could learn more about it, I probably should.
This could make lots of cash, but I could end up being very badly burned…
#140
Well, technically the answer to your question as posed is yes. The bank owns it for $100, and then will sell it for less than what they are owed, therefore taking a loss.
But in reality, your example would not come to fruition, because there would not be an additional lien for taxes of $20,000. (Taxes and tax liens are a whole ‘nother animal in the lien world). Most likely the bank would have just paid the back taxes to forego a tax sale certificate from being sold. The judgment amount would then be 120,000. They could still purchase the property for $100 assuming no one purchases it for 120K or higher.
Great piece by Professor Austan Goolsbee (U. Chicago) in the NYT:
‘Irresponsible’ Mortgages Have Opened Doors to Many of the Excluded
“We are sitting on a time bomb,” the mortgage analyst said — a huge increase in unconventional home loans like balloon mortgages taken out by consumers who cannot qualify for regular mortgages. The high payments, he continued, “are just beginning to come due and a lot of people who were betting interest rates would come down by now risk losing their homes because they can’t pay the debt.”
He would have given great testimony at the current Senate hearings on subprime mortgage lending. The only problem is, he said it in 1981 — when soon after several of the alternative mortgage products like those with adjustable rates and balloons first became popular.
site’s in good shape, JB
btw, has anyone heard about massive layoffs at Citibank? (10K or more)
#136 investorDavid
I think that border was crossed.
#147 JB I read this peice this morning, and thought basically that the writer’s belief was that this whole sub-prime thing is over blown, and much ado about nothing.
Did not sound at all like he felt there should be any real regulation, and thought regulation will close possibly many out etc.
$147 12 to 15k is the latest number that is being talked about, and this is through out the firm, including its investment banking/brokerage arm.
In addition they are looking to cut another 24K thorugh attrittion, and moving jobs from NYC to lower cost areas in NJ, NC and India.
JB#146,
We (mrs PBW and I) have been amazed by all the focus on ‘subprime’ rather than ARMs, Option ARMs, and ‘stated’ loans. The million dollar foreclosure mentioned earlier in this thread reveals the segment that could have an even larger impact.
And one aspect of this that never gets mentioned – Subprime lenders DO offer FIXED rate mortgages. Of course the monthly payment is higher than the teaser rates, but…
“This could make lots of cash, but I could end up being very badly burned…”
R Patrick [145],
Not to worry. The spend/print machine will be at your beckoning call.
Next thing you know, we’ll be voting for Chavez in 2008. When Ronnie told Gorby to tear down that wall, did Gorby assume he meant to ship it to NJ??
We’ve got to draw some distinction between trying to curb predatory lending and restricting the mortgage markets.
Predatory lending is taking place, and we need tighter controls to stop it. People are being taken advantage by brokers who are interested only in their own commissions. Recently, predatory lending and affinity fraud seem to be going hand-in-hand.
However, this is very different from banning or regulating certain types of mortgages. My take is that Goolsbee is in the camp that says “Let the markets work it out”. And I’ve got to agree with him. Once lenders and investors get burned, they’ll learn how far down they can push those limits. Lenders that pushed through bad loans will close up, investors will avoid riskier loans without adequate compensation. The market *will* work it out. Once we start to try to fiddle with the market, we risk the possibility that our fiddling might muck up the works completely.
Strict regulation of the Subprime and Alt-A mortgage markets will send the U.S. housing market into an even deeper slump.
There is no easy way out. Bailouts (fiddling) rewards risky behavior, prolonging the problem. Tight regulation will reduce the buyer pool, pushing sales volumes and prices even lower.
So what to do? Nothing might just be the best course of action (doesn’t apply to predatory lending regulations, of course).
jb
Unfortunately, it means we also stand by idle as homes are foreclosed on. Politically, this might be a difficult thing to do.
jb
No Essex County properties listed here.
I can’t vouch for this site but for those interested.
http://www.njsheriffsales.com/default.aspx
David (16)-
Here’s a good bailout price: 0.
As far as the uneducated & uninformed, too bad. Much of life is a zero-sum game. If the public sector’s so interested in “helping” them,let ’em FC and BK, then go into Section 8 housing.
Homeownership isn’t a right that must be preserved for some by taxation of the many.
God must have first created an idiot. When God decided that the fit was right, God then utilized this model and then created the American public, not all of them, but certainly a large majority. One will never go poor underestimating the intelligence of the American public.
How is that racist? I know very few minorities that do not know there way around they system. BTW what is the definition of a minority?… The people I was speaking about are all WHITE women…. Before you create a drama which is typical on this board maybe you should ask me to clarify what I mean by minority.
It must be the site, there are numerous properties going to sheriff’s sale every Tuesday in Essex County. Essex has the largest volume of any county in the state.
The company servicing the loans will sometimes pay the taxes on a property so that the company does not lose their position (i.e. someone paid the taxes and can place a lien) in a property.
This list some of the nuances involved.
http://www.realtytrac.com/education/noframes/overview.html
For that reason due to the many moving parts, dealing with foreclosures seems like too much of a headache to me. I would stick with REO properties that are outright owned by the financial company.
#155 Some good points, but I still think things should fall where they might fall, but I do think there must be some regulation.
much as we might like to think markets will not regualte themselves unless forced. There has to be basic regulation as there is on the Street, and even then there is and always will be abuses.
The markets huff and puff and complian about regulation,a nd if left completely to theri own devices, they will push as far as they can, until something blows up, and then we need a bail out, the old too big to fail rationale
#159 BC Bob, or what big cry babies Americans are, or have become.
njpatient Says:
March 29th, 2007 at 1:41 pm
site’s in good shape, JB
btw, has anyone heard about massive layoffs at Citibank? (10K or more)
njp: I’ve heard stories such as….we are moving your job to eastern europe – you have three choices:
1. agree to a severence
2. keep job and move to new location
3. keep job and stay in NYC – however your salary will be dropped to the level it would be in Europe
no kidding
jb, I was having withdrawals the last couple of days this site was down.
much better now!
JB Life is good again (now that the site is back)
Wanted;
An investment that is not affected negatively, [but rather positively], by hidden coordination, fudged stats, the gargantuan creation of money while abusing the power to do so. Also, it should not be burdened by vast quantities of sovereign debt and prior obligations. Finally, it must shield me from the financial consequences of corrupt management and incompetent politicians.
“What reward is there for those who play by the rules?”
Thank you. It is not the “right thing” to take money from those who were good stewards of their money to bail out those who were not. If those who signed up for risky sub-prime mortages are mentally incompetent, then the contract should be voided. Otherwise, they need to bear the cost of their bad decision and not foist it upon the rest of us.
>>By the way, I have a stack of resumes on my desk from those that have recently been employed in the mortgage business
i got 9 open slots in my organization and i’ve seen a couple of folks returning from ‘mortgage land’. i want to call these guys just to hear their stories.
Rent [166],
Your buddy, Schiff, called this charade a free option. He had it right.
You can call it a free call or put. You put nothing down and finance at a temporary low rate. When the market rises you suck all the paper equity out. Subsequently, when your rate adjusts and the market corrects, [sorry begins to go bust],you realize you can’t refinance and keep this ponzi scheme going, well just scream and kick and claim that you are a victim of some predatory lending. Now you refinance at a higher fixed rate than was available and you prolong the agony. That’s because you can’t afford a fixed rate, you go bust within a year. Hopefully, you get to keep the hummer. $4.00 gas by labor day, go ask the legislators for gas $.
On the other hand, if you have a zero down payment and the market tanks, you have the option to either scream and kick and claim you were abused by some sophisticated mortgage lender/product or you simply walk away. However, if this occurs, you never had the opportunity to suck the house dry and decorate your driveway.
Free puts and calls, no down payment…….and a bailout to boot. I must have wasted my time going to school. One hell of a country. Do our politician’s notice our dollar tanking??
[i] “Rice said he needed to work with the administration of Gov. Jon S. Corzine to determine eligibility requirements and efforts to safeguard homeowners who refinance their loans from foreclosing again. “[/i]
How exactly do they put this safeguard in place? Did they forget they are dealing with “subprime” borrowers who couldn’t afford a fixed rate “non-teaser” payment?
What’s the big deal about this program? Fixed 30 year rates are still in the low 6% range, which is VERY low historically. If these borrowers were so inclined to keep their house, they could have already refinanced at this rate a long time ago.
Richard[170],
Even if you have no intention of hiring them, give a few a call. The stories are unbelievable.
#160 rmb,
I didn’t realize that white women were considered minority. So only white men are majority?
I assume that you meant Hispanics, African Americans. I stand corrected. White Women, the minority.
And I didn’t realize that this blog was known for Drama.
From Reuters:
Bear Stearns: 7 pct of Alt-A loans may be at risk
About 7 percent of Alt-A mortgages — loans that don’t always document a borrower’s income — may be susceptible to the same problems hurting risky subprime loans, a Bear Stearns executive said on Thursday.
Tom Marano, global chief of mortgages and asset-backed securities at Bear Stearns (BSC.N: Quote, Profile, Research), said the Alt-A loans likely to default are ones that have three layers of risk.
The combined risk factors include home loans that have loan-to-value ratios approaching 100 percent; income isn’t documented; and low credit scores are used to qualify borrowers.
Marano described those layers of risk as a “very potent cocktail.” He said layered risk is what has roiled subprime mortgages, or loans to borrowers with poor credit histories.
“We believe maybe 7 percent of the Alt-A market has this layered effect (of risk),” Marano said during a presentation to analysts and investors.
#171 BC Bob: Sadly that is why I stopped believing the land of the free home of the brave stuff a few years ago. It used to be, but not any more.
#169 There is no reward for doingt eh right thing, that is now a myth, see my post # 176. There is absolutely no reward for doing the right thing. But we can put big letter A’s on our foreheads if we want.
“If these borrowers were so inclined to keep their house, they could have already refinanced at this rate a long time ago.”
Rich52,
This makes logical/prudent sense. However,when did logic or simple economics enter the building? Long ago they carried a teaser rate. They could have obtained 5.25, 30 year in 2004, but they could not afford this and probably could not qualify for the loan. Present day, they can’t refinance since they may be required to bring a boatload of cash to the closing.[today’s appraised value] They either walk or apply to the STC or BTC, Subprime Trust Corp or Bust Trust Corp.
Bergenbubbleburst,
“There is no reward for doingt eh right thing”
How about clear conscious? How about being a good Christian/Jew/Buddhist, etc? :)
Do we still need a pat on our back from others for doing the right thing? Isn’t knowing that you did the right thing good enough?
What ever happened to bankruptcy being the “bailout” or “alternative” for when you were no longer able to pay your debts.
jb
The combined risk factors include home loans that have loan-to-value ratios approaching 100 percent; income isn’t documented; and low credit scores are used to qualify borrowers.
Keep in mind that a credit score is driving in the rear view mirror. Many people with bad credit also had good credit at one point. Usually what happens is loss of job, divorce, ect forces them to miss payments. An event like a huge adjustment in housing costs can also throw people over the edge. Don’t bet on a loan with a good credit score but stated income and high LTV as being a solid loan.
You know, it wasn’t so long ago that they put debtors in prison.
jb
investor [179],
I feel that I am a good Christian. I go to mass and pray for the sick, the elderly, the physially challenged and our troops in harms way.
I also pray that a truck-load of gold will appear in my driveway, so far the Good Lord is not cooperating.
JB,
Thank god to “Mortgage” in England.
Now we get to enjoy Healthy Long legged blondes from Down Under. :)
BC Bob,
You have a point, I guess the state’s lending requirements would probably be much looser than a bank nowadays. Isn’t that how a lot of this mess started? Loose lending standards? I believe it will just buy some extra time before the inevitable. This is just NJ politicians playing politics at its best.
BC #171 – Schiff is sooo right in his book. It’s an eye opener for a newbie economics enthusiast like me.
I also got hold of John Murphy’s Intermarket Analysis. But I have to admit I am disappointed. The correlations of the markets in history are interesting from a high-level, but I am not sure how relevant it is in the current fiasco to analyze them as in depth as he did.
BC Bob,
I did have a long conversation with the Good Lord, not too long ago.
I made it clear to him that I am allergic to work and I didn’t think he intended me to work this hard.
According to him, just like on earth, there is bureaucracy and paper work is a bit behind. As soon as it’s cleared up, he will send me a truck load of Gold to my driveway (I do have a nice drive way – park up to 8 full size cars).
Just so you know, the entire gold human race found since the dawn of history, is only 20 cubic meters (size of tennis court). Amazing, isn’t it?
investor,
I may have to lease your driveway, to park my tractor trailer.
Off topic question: Are there circumstances where a bank will let you refinance out of an ARM when the appraisal comes in lower than what is owed on the mortgage? If you have great credit and plenty of $ in the bank?
#179 Investor: You have a point; and as my better half always says, you do the right thing, because if not, then you become just like them.
My better half still belives, in that, i do not any more, sad to say.
As far as looking for a pat on the back, nope I don’t want or need that, but at the same time, if doing the right thing means my family gets hurt, then it is not happening.
All that want a bail out, plese take your hands out of my pocket.
BC Bob,
Does BC stand for Bergen county? or Before Christ? :)
I live in BC also.
Feel free to use my driveway for free as long as your tractor trailer is filled with 24K gold. :)
Interesting data/presentation from UBS:
http://www.aei.org/docLib/20070327_ZimmermanPresentation.pdf
JB, I’m awaiting moderation #189, not sure why?
Out.
#190 Invstor It is prestigious close to NYC Bergen County. That is how we prefer to describe our county.
BergnBubbleBurst,
Think of it as accumulating your treasure/wealth in Heaven.
Much appreciated…
BBB, you can call me David rather than Investor. :)
I just think of my town (I live in Closter) as a sleepy little town, nothing more, nothing less.
Stop the Subprime Bailout!
http://patrick.net/housing/contrib/nobailout.html
Inventory seems to be continuing to come on the market at a good pace (2%/wk).
jb
JB,
It looks like inventory is finally moving up in Closter, NJ.
A question: my post 196 says, waiting for moderation. What does that mean?
You can see your own locked comments, but they are hidden from everyone else. I had to “approve” that comment.
Typically gets tripped for using blacklisted words. It’s not that you explicitly used one of those words, it’s just that they tend to appear within other words.
jb
JB-
OT, but I know you like modern and ran across this earlier today…
http://www.squidoo.com/midcenturymodernhomes/
JM
David: I am just kidding around with the prestigius bitCloster is a nice littel town. had a good friend who used to teach in the high school.
David won’t need any treasure or wealth if we make it to heaven. Or so I was always told.
Well, I’m a liberal but I don’t support a bailout.
I might consider supporting legislation which would mean that if fraud was proven before foreclosure, the original lender would be forced to offer, without penalty to the borrower, a 30 year fixed rate of the original loan amount, even if the property dropped in value. In that way, the lender eats costs and maintains risk, and IF the borrower can afford the home on regular terms, then they can keep it, and of course will be stuck with the consequences of a depreciating asset.
BBB,
Been living here for a while. I like the fact that my kids can run around without any problems, leave the garage and house doors open without any problems, leave the bicycles outside without any problems (except the rusting when it rains – I kept telling my kids to put the bicycles to garage, not leaving them on the drive way or the front yard).
We have a decent school – probably not the best. I plan to send my kids to boarding schools.
From the Star Ledger:
Feds subpoena records on Sharpe James, businesswoman
Federal criminal investigators filed fresh subpoeanas in Trenton today, seeking all records and correspondence related to Sen. Sharpe James and state human services grants to Tamika Riley, a businesswoman who earned more than $650,000 through the sale of Newark land she had acquired at a discount while James was mayor.
…
Riley, 37, is a publicist and former clothing store operator in Newark who apparently made hundreds of thousands of dollars in profits buying property from James’ administration in Newark and reselling it at a profit, often within weeks of her initial purchase.
Between 2002 and 2005, Riley and her company purchased nine city-owned lots for a total of $46,000 and resold them quickly for a total of $700,000, real estate records show. Federal investigators subpoenaed city records regarding those transactions late last year as part of a wide-ranging probe into James.
#207 Closter, or at least I thought always had a reputation as having a good school system, but perhaps that has changed, as it has in other towns. Perception vs. reality.
IMO, credit score is an almost useless predictor of defaults, etc. since it cannot predict the future.
Two folks have the same credit score and qualify for the same mortgage amount. One guy does a 30 yr fixed and his PITI is 25% of salary. The other guy does IO financing, and PITI consumes 40% of salary. Who is the guy with the more risky credit profile? The FICO score cannot capture it.
Mostly greed and a bit of ignorance just got the better of everyone in this RE run-up; common sense was flushed down the toilet. Now that fear has started entering the equation again, normalcy will eventually return.
Greed and fear go hand in hand. Eventually, there is no free lunch. Free dessert? Maybe…
David (101)-
No, you cannot buy these houses for $100.
If you go to a Sheriff Sale without having done your due diligence, God bless you. You’ll be more f—ed than the losers getting crushed by subprime.
Why should Grim post Sheriff Sale announcements? They’re in the paper every week.
BBB,
If you live in Closter, you go to Northern Valley Demarest (Closter, Haworth, Demarest). It’s a good school – but nothing compare to schools like Lawrenceville, Groton, Andover, St. Paul, Exeter, etc. Maybe my expectation for my kids is a bit higher?
If you graduate 200 out of 300 from Northern Valley Demarest, you go to BC or BU. I think that last year, everyone except one kid went to 4 year colleges. One kid volunteered to join the service.
BBB,
and Closter public school teachers have the highest salary in entire NJ.
Folks living in Demarest are complaining that their teachers are asking for a raise to match the salary of Closter.
Clotpoll,
That’s why I was amazed at $100 sale price. I don’t take heavy risks when I buy properties. I buy, hold and sell them years later.
I try not to be greedy. If I make enough profit, I get out. I can’t time the market.
From MarketWatch:
IndyMac: subprime contagion concern overblown
Alt-A lender notes delinquencies lower than subprime; tightens guidelines
IndyMac Bancorp said on Thursday that concerns about subprime mortgage problems spreading into so-called Alt-A home loans are “overblown.”
The company, which was the largest Alt-A originator in 2006, disclosed loss and delinquency data on its loans to show that its business is withstanding the shakeout in the lower end of the mortgage market.
…
The rate of losses on Alt-A loans IndyMac originated from 2002 through 2006 is less than one basis point. The industry’s rate was 4.7 basis points, the company said. (A basis point is one hundredth of a percentage point.)
“There’s nothing really new in the data,” Paul Miller, an analyst at Friedman, Billings, Ramsey, said. “The data is somewhat misleading on the losses too. They used a five-year time frame. That includes 2002 to 2004 when there were very few losses. People are really worried about 2006.”
A lot of investors have bet against IndyMac shares through short sales, the analyst noted.
“This gets some shorts squeezed out of the stock,” Miller said. “The company seems more focused on hyping the stock.”
More at link above,
Rich
From MarketWatch:
U.S. corporate profits have peaked, economists say
Lower earnings could cut into capital spending, hiring
U.S. corporate profits fell in the fourth quarter of 2006, signaling the end of one of the greatest profit cycles in post-war era, economists say.
Economic growth is slowing, hurting corporations’ top line. Meanwhile, costs are rising, squeezing profit margins.
“Profits growth has turned decisively down, and the end is not yet in sight,” wrote Gabriel Stein, an economist for Lombard Street Research.
Much more at the link above,
Rich
My future prediction: RE market will bottom out in 2009 and 2010. I will buy heavily around 2010 and 2011 and hold them for 4 or 5 years.
I am waiting for 25-28% drop in price from the peak price of Summer 2005. I think that price went down about 10%. I am waiting for another 15% drop in price.
As someone wrote, subprime lending is the first wave.
The real Tsunami will be when ARM and IO will re-set.
It will be devastating.
David Northern Valley has a good reputation, but personally I think all of the public schools are very over rated, I also think the Catholic HS’s in Bergen County are extremely over rated as well.
The teachers in Demarest will rpobably get what they want, ebcasue the teachers in this state are all powerful. One teracher union official threatened to have the union shut the state down, if any attemot was made to realign their benefits.
Plus I might get slammed here, but I am going to say it any how,a tremendous amoutn of money ahs spent on special education over the years, and the test scores fot the general population in the publis schools are now on the decline.
You cannot keep raising taxes , there is a finite number of resources, and I believe monies have to be spent for the whol coomon good.
Anyhow I have gone from being a huge public school supporter over the years to being quite ambivilant at this point.
Perhaps vouchers is the way to go.
I think that a bailout of some sort is inevitable. We can debate the wisdom of such a bailout, but I don’t think that politicians (local and national) will ignore large numbers of foreclosures.
What I would like to know is, how will such bailouts affect prices? Will one of the prices of such bailouts be continued high prices for real estate? My (undergrad) understanding of economics leads me to believe that a government bailout may well lead to artificially-high real estate prices — unless any relief package allows the distressed properties to deflate in value (but how?)
I should clarify, one of the CONSEQUENCES of such bailouts.
“Feel free to use my driveway for free as long as your tractor trailer is filled with 24K gold. :)”
David,
I’m afraid it would be looted, used as a part of the bailout.
I’m wondering if the gold should be held in a Swiss vault, show zero assets and then buy a house with nothing down and a low teaser rate. If the adjustment in rates is too restrictive, or the house plummets in value, I can argue that I didn’t understand the consequences of my signature. Yes, maybe foolish on my part, however, I was violated. It seems to work.
BBB,
1. Catholic schools are way over-rated. Their college placement is way below the public schools in Bergen County.
2. I almost ran for the School Board once so I am familiar with these issues.
3. yes, you are right. Many family with kids who need special attention move to this area. I look at it this way. If we educate them now and make them functional members of society, it will cost society less down the road. I should know. My property tax went up 120% during the past 7 years.
4. I still support public school system but I like what these exclusive boarding schools offer. I want my kids to be educated in places like Lawrenceville, Groton, Andover or Exeter.
5. I personally tutor my kids 2 hours every in math and writing. My older son is in advanced classes but he complains that classes move too slow for his own taste. He is in 6th grade right now and he is preparing to take SAT next January (requirement for Johns Hopkins Cetner for Talented Youth program). He thinks that he would master Calculus by this December (I patted him for his fantasy goal. :)
David (179)-
Let’s play the flipside of that argument: why do the people who do the right thing have to be punished for the idiot acts of others?
I’m all for altruism. However, I am not for the self-destructive fallacy that is American liberalism.
BTW, I am not a Republican, Bush-backer, Goldwater-worshipper or any kind of neo-con, right wing wacko. Stupid is just stupid…it needs no political monicker.
“My future prediction: RE market will bottom out in 2009 and 2010. I will buy heavily around 2010 and 2011 and hold them for 4 or 5 years.”
David [218],
………….and then as a result of some divine intervention, I shall make a charitable donation, signing over the deed to the individual who was not as fortunate as myself, maybe even give it back to the poor soul who capitulated at the bottom of the market. After all, that would be taking advantage of those less informed.
BC Bob,
yes, it might be looted but all under good cause. hahaha.. Your reward will await you in heaven.
I made some money investing in gold, silver and palladium (I had this dicussion with JB around October 2005).
Do some reearch http://www.kitco.com
And when you talk to them, you will find out some “tax benefits”. That’s your reward for good deed of letting your gold looted. :)
BC (183)-
A guy at Yamana (kinda like Jehovahs…LOL) told me they’ve got a barge of gold headed your way.
Also included in the shipment are 40 virgins.
Doyle (189)-
Yes. If you transfer some of your many $$$ in your bank to their bank…like at least the difference between the deficient value of the property and amount financed.
Jesus.
Clotpoll,
Good deed is its own reward.
BC Bob (#225),
I do make donations. :) I don’t buy properties in downtrodden areas. I buy properties in middle and upper middle class areas.
I will buy properties cheaper from those greedy folks whose ARM or IO are resetting.
I don’t feel sorry for the greedy folks.
Clotpoll,
#227.
40 virgins? is this some sort of punishment?
One woman is hard enough. 40 women? What did I ever do to deserve that kind of punishment?
clot [227],
Fed-Ex could not deliver a better package than that.
David [226],
Thanks. However, know the site well. Have been in this for years. Being a taxpayer in NJ should automatically qualify me for the gates of heaven.
David (229)-
Middle-to-upper-middle areas? Be careful.
If your bailout scenario works to plan, those areas will become tomorrow’s slums.
In fact, I think they’re already on the way there…just the way all those former inhabitants are on the way to NC.
In 10 years, there won’t be a middle class in NJ.
BC Bob,
I guess that means I also get to go to heaven for being the NJ taxpayer.
About 2 months ago, I received an interesting mail from State Labor board that I owe $19K for my company. Talked to my CPA and lowered it to $1800. MY CPA tells me that NJ State is just sending out all kind of bills to taxpayers and expect us to respond to them and justify ourselves.
I have to figure out what to say to St. Peter.. Howdy Pete. or is that, I am a Joisey tax payer. I suffered enough.
Let me go on the record right now…if NJ actually passes this insane bailout legislation, I will sell my business, sell my house and move to NC.
Clotpoll,
I keep an eye on Fort Lee, Teaneck, and northern Bergen County area for investment.
clot [228],
Simply amazing.
David (235)-
I can either wholesale or bring investors into anything that makes sense- best case being retain properties at positive cash flow- anywhere in NJ. I can wholesale, invest or do short sale packages in Hunterdon/Morris/Somerset/Middlesex/Warren/Union.
clotpoll,
If there is positive cash flow, I am game as long as I am not hurting the downtrodden folks. I like the idea of positive cash flow, hold it, and sell it 4-5 years from now.
Do you have a website?
P.S. JB, can Clotpoll post his website?
Clot #234,
What are you, a Baldwin?
Eisbär–#120
Excellent point. Any bailout would tend to keep prices artifically high.
David,
It is posted, just click his name.
jb
What numbers are we talking about when it comes to foreclosures? If the subprime foreclosure rate is 4% and the rate of subprime mortgages is 25%, then we are talking about 1% of all mortgages. Not exactly Armageddon.
Could someone please correct my numbers?
Wall Street Journal
Mortgage Meltdown
By ANDY LAPERRIERE
March 21, 2007; Page A19
[edit]
Even if bad loans are more widespread than previously expected, many housing bulls say, the impact on the housing market and the economy will be minimal because total losses due to foreclosures will be a small percentage of outstanding mortgage debt and a still smaller share of the economy. A similar argument holds that bad loans won’t lead to a broader foreclosure problem because the average American has plenty of equity in his home.
Foreclosure losses as a share of the economy will be small and most homeowners have a comfortable amount of equity in their homes. In fact, about one-third of homeowners have no mortgage and own their homes outright, but they are not the reason home prices have been driven to the stratosphere. Home prices — like all prices — are set at the margin. It was the marginal buyer, particularly the subprime borrower and housing speculator, who drove prices higher. The easing of lending terms increased the demand for homes, and since the supply of homes is relatively fixed (or inelastic), this increase in demand quickly translated into higher prices. As the loose lending practices are inevitably reversed — and there is a wide chasm between current lending practices and prudent lending terms — fewer people will be able to afford to buy a house, which will reduce demand and push home prices lower.
It’s not the size of foreclosure losses as a share of the economy that matters, it is the effect those losses have on the availability of credit. When banks (and investors in mortgage-backed securities) begin suffering losses, they inevitably pull back. This is why so many subprime companies have gone bankrupt virtually overnight; investors balked at buying subprime loans except at a steep discount, which produced immediate losses. In effect, their ability to profitably finance new loans was eliminated.
What’s more, the bank regulators are only now beginning to tighten lending standards and will be under increasing pressure from Congress to do more. After growing by nearly 50% in the first half of 2006, nontraditional loan growth has turned negative since the bank regulators issued new guidelines last September. The CFO of Countrywide recently told an investor conference that 60% of the subprime loans the company is making won’t meet proposed federal rules likely to take effect during the summer. The concern that tighter lending standards could reduce access to financing is the reason a widely watched survey of homebuilders conducted by the National Association of Homebuilders dropped earlier this week.
The report by Credit Suisse estimates mortgage originations could drop 21% during the next year or two because of tighter credit standards. Coupled with high inventories of unsold homes and the additional supply likely from distressed sellers, this drop in demand could produce an unprecedented nationwide decline in home prices. Merrill Lynch estimates prices could drop as much as 10% this year. A price drop of this magnitude would lead to a vicious cycle in the housing market and pose a major risk to economic growth. And, of course, it would create a raging political firestorm.
[edit]
I’m of two minds re bailouts for FBs. On one hand, I don’t like the idea of fiscally responsible taxpayers bailing out fiscally irresponsible borrowers (much less flippers, kannekt klowns, subprime lenders, etc). Why should someone who paid too much for a POS property be given relief when someone who, in the late 90s, bought tons of pets.com stock on margin be thrown to the wolves? And I’ll put my liberal bona-fides against anyone else’s — I’m not heartless, but I am not a moron either and I don’t support subsidizing reckless behavior.
On the other hand, I understand that it may be politically unacceptable to have large numbers of foreclosures. If a borrower can establish that the lender steered them into high-risk loans when they would have qualified for lower-risk loans — or any other sort of fraudulent and/or unconscionable action on the part of the lender (such as little old ladies being sweet-talked by financial piranhas into refis) — then I can accept bailouts for THOSE sorts of borrowers. I could also accept a scheme where some entity (governmental, private, or quasi-governmental) assumes distressed loans at a DISCOUNT of the purchase price (i.e., let the lender eat the loss) in turn for the borrower making payment to such an entity where, in turn, the borrower (a) would qualify under some sort of reasonable underwriting standards (income, other assets, etc.) and (b) continues to make timely payments (i.e., if they stiff the new borrower then too bad game over it’s time for foreclosure, etc.) I’m just brainstorming and even such a scheme doesn’t sit entirely right with me (b/c it DOES reward fiscally irresponsible behavior), but it may be able to avoid throwing SOME people out of homes without subsidizing TRULY irresponsible lenders (e.g., someone with a $50K/yr. salary won’t be able to keep a $500K Toll Bros. condo) AND doesn’t bail out the flippers, lenders, and other financial parasites AND may allow prices to fall to more reasonable/affordable prices.
Wow.
Looks like prospects of govt. bailout is making everyone’s blood to boil.
NJ is being scre**d royally by it’s politicians. What a waste that a state with such huge advantages as good educated, workforce, wealthy population, proximity to ny has nothing better to do than bailout morons who made RE akin to date with Las Vegas poker.
I’m relatively new to the area. Question – why do people of NJ keep voting the same democrats again and again ( they scr** up all the time)? I’m no republican, but if everyone is so unhappy with govt. incompetence – why keep voting them into power each election?
How many people who are clinging by their fingernails (who can go on clinging) will let go simply because they can?
How many who are staying in because it’s “the right thing to do” will see no more point in “honor” once “everyone” is flocking to the gubmint bailout trough?
How do we know who is “downtrodden” and who is really greedy? What about people who are both?
And what does “downtrodden” mean anyway? Where does “downtrodden” end and “people with poor life management skills” begin?
att:
My answer? Better than what Bush has been doing with this country. I wanted to send a message to our Shrub government, especially that rotten Cheney.
But I didn’t vote all Democrats – I voted some local Republican candidates based upon issues.
BLB,
You ask many great questions. It will take some work to figure out who have been greedy and who have been conned.
If a person is downtrodden and greedy, I would put that person into Greedy category.
#245:
b/c the NJ republicans aren’t any better? before we had mcgreevey, we had difrancesco and HIS ethical foibles. and christie whitman wasn’t above playing fast-and-loose with the state budget, either (like stealing money from the state pension and replacing it with bonds; plus she and her people deserve their share of blame for rising local property taxes).
that said, i do believe that GOP incompetence and extremism has much to do with why they are the minority party in NJ now. i am a democrat, but i also live in hudson county and believe me the hudson county democratic organization is an open sewer ethics-wise who have a mindset strongly reminiscent of brezhnev-era soviet bureaucrats. i could vote for a MODERATE, sensible republican just to get rid of those people.
David (247)-
For about the fifth time today, you once again demonstrate the self-destructive core of liberalism.
“I’m mad at you…so I’ll pound my fingers with this ballpeen hammer. Ugh…ugh…take that!”
Nothing would give me greater pleasure that seeing Dick Cheney delivered to The Hague on war crimes charges. The lying incompetence of the Bush administration won’t be fully unraveled until we’re all doddering old men. It will take years to clean up their mess.
However, the way to deliver a message to the President is not to whack yourself upside the head in order to make noise.
Investor David. If you only knew… How did the whole suffragette movement start and why?? But really my point was lost in your judgement. My point was whether minority or not.. people here are alot smarter then they appear sometimes to get what they want and to make the system work to their advantage..
On the other hand…if any of us married into the Steinbrenner family, wouldn’t we drink heavily too?
Come to think of it…heavy drinking may be the solution to A-Clod’s yips.
I predict that he will begin to bleed from the ears during his first big AB this season.
What’s the big deal about this program? Fixed 30 year rates are still in the low 6% range, which is VERY low historically. If these borrowers were so inclined to keep their house, they could have already refinanced at this rate a long time ago.
Because these people have already demonstrated they can’t repay their debts. They are a poor credit risk, so free market lenders won’t give them the loan. Instead, the taxpayers of NJ become the guaranteeor of this debt. If they continue to default, we the taxpayers, still need to make good on those bonds.
Eisbar (249)-
You wrapped up 20 years of NJ history in two paragraphs. Nice!
There are no moderates left. Incumbents are tough to beat by the opposite party in general elections; the only way to beat them is with same-party challenges in the primaries. In order for that kind of challenger to gain traction, he has to appeal to the extreme wing of his party. After enough time passes, you get a legislature full of extremist incumbents.
And that’s how you get idiots like Rice holding high office.
Ugh! 255 moderated.
Zippy fast site today, Grim. Thanks for continuing to feed my jones.
NJ state government bailout of soon to foreclose subprime mortgages?
WAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAH!!!!!!
He is in 6th grade right now and he is preparing to take SAT next January (requirement for Johns Hopkins Cetner for Talented Youth program)
David [223],
Went through that program, it’s certainly an interesting opportunity but I’d really caution if they push to make the leap to college and/or many grades ahead.. intellectually able is one thing, but social development just takes time and maturity. Knew kids who did it (my family declined), they were really messed up later in life. There’s just no way a 7th grader will ever be at home amongst 18 or 19 year olds…
once again the welfare state,(NJ) .
Rice, he’s black and a friend of corzines.
did anybody expect anything else.
the nj taxpayer takes it in the shorts again.
This is a state were the gov. bed downs
the union boss katz, the former gov. wants
custody, does this suprise anyone.
it goes on and on.
Why not throw in a car to go with the loan
and investordavid must have had some of the
pet food.
#250
You are right on the money. NJ seems to have this political martyrdom thing going, where we will throw ourselves under the bus just to spite the Bush administration. I’m not a big Bush, but I think it is crazy to base NJ’s policy agenda on giving him a black eye.
I can see this subprime bailout going this way…”NJ needs to step in because the Bush administration failed to act”.
My only solace in these moronic bailout proposals, is that even if they do go through, there’s just no way the gov’t will be able to afford to do anything on the scale necessary… this mess will be truly unprecendented, and playing by “the rules” will still prove out in the end.
Sure, a few on the margin may make out, but on the whole those who were extremely greedy or foolish – no matter what FICO – will pay in the end, one way or the other.
If it turns out any other way, Clot be sure to save me a spot down in NC !
Steve (257)-
I did that whole skip grades thing (skipped 2) and came this close to being scarred for life (hell, I might be and just don’t know it).
The disconnect between mental & emotional development, as well as the social adjustment- or constant maladjustment- are incredibly stressful and a setup for a constant string of failures. Even while you’re excelling in one area, you’re failing in several others…all the time.
If the alternative to this hamster-on-a-wheel act is a bored, yet contented teenager, it’s still better.
Quick comments, then this white chick minority-type is gonna go do some research on the Easy Life.
InvestorDavid, where’ve you been? Someplace exotic?
Speed of the blog is not paramount to the quality of the read, but it sure is nice.
Bailout’s looking like in one pocket and out the other. Tougher bankruptcies? Watch the incredible shrinking 401(K) get sucked down the toilet.
http://www.law.com/jsp/article.jsp?id=1174554223354
I say, if fraud is proven, call it white-collar crime, and then take their 401(k)’s and use that to pay the weeping victims. Put that case reference in your letters and send a copy to Arlen Specter. He talks like a Pennsyltuckian, but he’s a wise man.
When communicating with your fearless elected leaders, the old rule of handwriting with a pen and putting a stamp on it goes a long way.
pesche[258],
I knew this topic would bring you out of hibernation.
“On the other hand…if any of us married into the Steinbrenner family, wouldn’t we drink heavily too?”
Clot,
I think I need a vodka martini, extra dry. It does wonders for the blood sugar. It’s a better bailout than subprime. The liver??
Tobacco Road, HHHMMMNNN. The 4 Corner Hedge Fund. The only other optiom seems to be working on Sapien’s farm in Argentina.
Clot,
Couldn’t agree more…especially today & here in the tri-state area, where it’s so competitive & parents are stressed about getting their kids into the right kindergarden to start building their resumes, kids just have to be able to be kids.
I don’t have any of my own (yet), but I hope when I do I’ll be able to strike that balance, between wanting them to excel but still being well-balanced, happy people…
BCB [264],
Sometimes I wonder if our fish friend is recruiting for the Aryans of NJ…
Thankfully, being a mutt (Lebanese, English, Slavic, French & Irish) I wouldn’t make the cut.
Steve,
You are a FISLE, not to be confused with THISTLE,[fish and chips].
Steve (266)-
Nothing is sadder than meeting a 19 y/o kid who’s an academic burnout. There are lots of them out there, too.
“Let’s look at a hypothetical, example that is based on facts from real circumstances. John worked as a laborer making about $30,000 per year and he was current on his payments on his two credit cards with limits of $2,000 and $4,000. He bought a new house in 2005 for $400,000 with the builder picking up the closing costs. He found a mortgage company that offered to help him buy his first home with no money down and an 80/20 loan. This means that he did not have to pay any money into his first house. Further, he does not have to pay PMI or mortgage insurance. John pays on the 80% first loan, meaning he is not paying down the mortgage, but rather increasing his debt. The negative amortization loan helps him afford the payments.
So after a couple of years John owes more than $420,000 on his house. He also realizes that he has overpaid for the house and it hasn’t appreciated in value like he thought. In fact he probably owes more than $100,000 than the house is worth. There are also a number of other houses for sale in his neighborhood all for sale at much less than he owes on his mortgage.”
“So what are John’s options? He can try to refinance, but with the tighter mortgage requirements now, he cannot get a loan. He cannot keep up with the payments, so that won’t work. If he can sell the house, he will owe the difference between what he gets from the sale and his outstanding mortgage, leaving him still in debt. That one is hard to take for a first time home buyer. Or he can walk away and let the house go into foreclosure. Those holding the mortgage will then lose money. Likely they will also look for ways to recover their investment by hiring a lawyer. Not a good situation for anyone, except maybe the lawyers. Oh, and John no longer owns a home and is facing bankruptcy.”
http://www.financialsense.com/fsu/editorials/wagner/2007/0329.html
(Edit),
Not on my watch, says Donald Rice. Hey, wait a minute says Wayne Bryant and George Norcross. Why does north jersey get all the benefits?? Can we also squeeze in a few Christmas Items with this legislation? Hell, just shut down the govt until we can decide who gets more grease. However, please keep the lottery machines humming.
Rice: ”It’s going to cost us a lot more if people become homeless,” he said in a telephone interview. ”We have a real problem out here.”
Perhaps this is simplistic but….since when are non-homeowners “homeless?” I don’t own. Never considered myself homeless.
if you are not interested, at a minimum forward ahead to time 3:00
all anyone around here needs to know about dogs in Hoboken….
mild amount of profanity
http://video.google.com/videoplay?docid=-7921952067935941940&q
Chifi,
Forget the dogs man, everybody knows the best sandwich at Fiores is the Roast Beef on Thursdays and Saturdays. That dude is wack.
possible [271],
It’s not too simplistic. It’s just the simpletons whom the simpletons elect. I thought the same when I shorted pet.com. I said, there must be something wrong with this trade, it’s too easy. I always thought that when it’s so damn obvious, it’s obviously wrong. This lunacy certainy disputes that theory.
Spacious home, near LBI, coming soon to a sheriff’s sale near you.
Note the 2001 purchase price.
http://www.pressofatlanticcity.com/top_story/story/7364011p-7259084c.html
http://www.marketoracle.co.uk/Article639.html
If anyone’s still up, this was a funny/sad but hauntingly true, interesting article
KL
# 12 – The worst thing that can be done to a human being is to take away his opportunity to fail.
Clotpoll:
You certainly are articulate but the above quote is profound – worthy of Bartlett’s I think!
Rice, he’s black and a friend of corzines.
did anybody expect anything else.
pesche22 #258,
Every time you show up to post this blog sounds more like some kind of skinhead hangout.
Hi guys,
I’ve been looking for a house in Bergen county (fort lee, tenafly area) but it’s still very expensive and the property taxes are very high. So, I’ve decided to expand my search areas to other counties as well. Can someone please recommend towns in other counties where commute to NYC (port authority) is less than an hour and is in decent neighborhood? Thanks in advance.
Dave
1. Kids, had this convo with some of the moms in school. Most of them want their kids to be kids. I can understand some of you wanting to push them since well it takes money to live around here. But I know som every driven kids in my program that just ran out of steam at 19-20.
2. NPR MarketPlace/Watch did a piece of the coasts and Texas and how in the middle of the country make little less money but the house costs a whole lot less.
3. The derivitives comment and the 100 dollar house was not supposed to be sarcasm. I am pretty sure that I should not be trading or playing with pros or against pros.
newbie,
Princeton area is nice. Express train will take you into NY Penn in 1 hour.
South Brunswick is nice too.
And I am personally partial to Highland Park but many don’t like it.
I never pushed myself hard and I still ran out of steam at 19 anyway. LOL. That’s an easy age to “run out of steam”. So many other things to do and look at.
#279:
Highland Park was nice when I went to college across the river. Their cops were pretty infamous and zero-tolerance, though — which sucked when I was a college student, but now that I am not (and live in the middle of Post-Undergrad FratBoy Central — i.e., Hoboken) strikes me as being quite nice! :-)
Syncmaster,
thanks for your recommendation.
do you know this town called Old Bridge or something by any chance? someone told me it’s decent town and not so far from NYC. But I don’t even know which county that is in.
I like the “Main Street” along Rt 27 in HP a lot. And if you live in the right part of HP you can walk to the New Brunswick station.
How can this even be contemplated? And how can anyone really think this is the right thing to do?
Next up – Florida issues bonds to pay for people’s credit card bills.
Unbelievable!
You dug your grave, pay the piper. Why shouldn’t people have to face up for bad decisions?
Unbelievable x2!
Sync (280)-
“When the going gets weird, the weird turn pro.”
Hunter S. Thompson
Old Bridge is Middlesex county. It’s nice too, if you’re looking in that area check out Sayreville too. Schools arent so good but it has some nice quiet neighborhoods and easy commute to the city via bus.
Here’s a catalog of “Shrub”/Cheney lies to the American people:
http://freedomagenda.com/iraq/wmd_quotes.html
I plan to write to my NJ senators and assembly members as well as to Senators Clinton, Dodd, Schumer, et al to express my displeasure at their suggestion that subprime borrowers (and consequently the subprime lenders) should be bailed out while the rest of us who were careful to avoid a financially ruinous situation foot the bill.
But why don’t we do this one better? Why don’t we show up in Trenton en masse and pay our beloved senators a visit? I have a car and am willing to drive.
I’ll even take a day off work to do it. Anyone else interested?
The only people I think deserve a pass would be the elderly who were conned by these con artists masquerading as mortage brokers. No one else deserves a free pass.
Mortgage crisis
Million-dollar homes get hit.
Watch video
http://cosmos.bcst.yahoo.com/up/player/popup/?rn=952695&cl=2215593&src=news
enjoy NJ …
Rich in NNJ — thanks! I will repost in the a.m. tomorrow in case you didn’t see this…. currently at-home playing bucket and gatorade fetcher to 2 puke-y family members.
sl also the gsmls# is the same as the mls number (I think.) 2390261
thanks again!
roadtripboy,
righton!!
i think we need a petition
Petition not to bailout? I want to see the class actions being filed.
After all, Dodd says there was a mandate and an obligation to control this.
I’m hearing the fraud word, but nobody’s organizing the townsfolk for a class. What IS the deal?
“The only people I think deserve a pass would be the elderly who were conned by these con artists masquerading as mortgage brokers. No one else deserves a free pass.”
This is a criteria I can buy into.
syncmaster Says:
March 29th, 2007 at 10:37 pm
newbie,
Princeton area is nice. Express train will take you into NY Penn in 1 hour.
South Brunswick is nice too.
And I am personally partial to Highland Park but many don’t like it.
Trains…. Waiting list for assgned parking.
How about 2-4 years!!
How about actually getting to the train station and finding parking – how long does this take?
Nobody ever talks about it – this make you commute – espetially if you have 10-15 minutes more in NYC easilly 1hour 45min or more one way.
#250.Clotpoll: So what do you suggest? keep voting for Shrub but let him know that I am not happy? How do you do that? Don’t we express our opinion with our vote?
#251 rmb: Yes, many Moons ago, unless you are white male, you were minority. But you do know that Lincoln is not our President any more, right?
#257 Steve: Thanks for the concern. School asked me whether I want my kid to move up and I declined. When I was working on my doctorate, the smartest kid in the class was 14 year old kid. He wanted to get his doctorate by 16 since his brother received doctorate from MIT at 17. No, we never invited him for beer after classes (most of us were in late 20’s). I did feel for the kid, though. I won’t ever make that mistake for my kid. He is happy where he is at. My son just wants math out of his way when he is in boarding school. He needs extra time since he does traveling hockey, golf and water polo.
#258: No comment. I respectfully decline to make a comment on t*rd.
#263 Pat: Hi. No place exotic. Spending 2 hours every day with my son for his studying. Driving/flying my son on weekends from Florida to Canada for his traveling hockey, Water polo and Golf. And once in a while, working. Tough being a dad.
#266 Steve: I read it somewhere that the mst viscious sports of all is called.. parenting. :)
How about actually getting to the train station and finding parking – how long does this take?
Nobody ever talks about it…
Al #296,
You can do street parking at Edison. But you gotta get there real early to find a spot. I know people who’ve been doing it for years.
Same is true for Metro Park.
Ok I will be sure to start my sentance with “I read somewhere..” the next time because that seems to me more acceptable…. Sorry to offend you.