From Paul Krugman:
Paul Krugman: Financial meltdown looks like the one in ’98, but worse
In September 1998, the collapse of Long Term Capital Management, a giant hedge fund, led to a meltdown in the financial markets similar, in some ways, to what’s happening now. During the crisis in ’98, I attended a closed-door briefing given by a senior Federal Reserve official, who laid out the grim state of the markets. “What can we do about it?” asked one participant. “Pray,” replied the Fed official.
Our prayers were answered. The Fed coordinated a rescue for LTCM, while Robert Rubin, the Treasury secretary at the time, and Alan Greenspan, who was the Fed chairman, assured investors that everything would be all right. And the panic subsided.
On Wednesday, President Bush, showing off his MBA vocabulary, similarly tried to reassure the markets. But Bush is, let’s say, a bit lacking in credibility. On the other hand, it’s not clear that anyone could do the trick: Right now we’re suffering from a serious shortage of saviors. And that’s too bad, because we might need one.
What’s been happening in financial markets over the past few days is something that truly scares monetary economists: Liquidity has dried up. That is, markets in stuff that is normally traded all the time – in particular, financial instruments backed by home mortgages – have shut down because there are no buyers.
This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.
…
of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.
Everyone knows now about the explosion in subprime loans, which allowed people without the usual financial qualifications to buy houses, and the eagerness with which investors bought securities backed by these loans. But investors also snapped up high-yield corporate debt, a.k.a. junk bonds, driving the spread between junk bond yields and U.S. Treasuries down to record lows.Then reality hit – not all at once, but in a series of blows. First, the housing bubble popped. Then subprime melted down. Then there was a surge in investor nervousness about junk bonds: two months ago the yield on corporate bonds rated B was only 2.45 percentage points higher than that on government bonds; now the spread is well over 4 percentage points.
Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average the rule rather than the exception for the past two weeks.
…
When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C – and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.And here’s the truly scary thing about liquidity crises: It’s very hard for policy-makers to do anything about them.
…
Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it.
From MarketWatch:
Hovnanian deliveries down 31%, to take $90M-$110M in charges
Homebuilder Hovnanian Enterprises said it delivered 3,179 new homes in the third quarter, down 31% from a year earlier. Net contracts decreased 24% to 2,539, excluding 255 net contracts for unconsolidated joint ventures. Contract backlog as of July 31 stood at 7,126 homes, down 31% from the year-ago period. As a result of the continued deterioration in demand and pricing in certain communities since the end of the second quarter, the company said it expects to take pre-tax charges of $90 million to $110 million related to land impairment and write-offs of development costs and land deposits in the third quarter.
From the Jersey Journal:
Developers: Project to go on despite plummeting stock
Tarragon Corp., which has paired with Hoboken-based URSA Development Group for the past several years to redevelop sections of Hoboken, has seen a 91 percent drop in share prices since the beginning of the year – but both companies say the city will not be affected by Tarragon’s “serious problems.”
“We weren’t planning on building anything in Hoboken with our stock,” said Bill Friedman, CEO of New York City-based Tarragon. “We’re building it with our capital, which has already been invested in Hoboken.”
Tarragon/URSA has committed to several redevelopment zones in Hoboken, including 900 Monroe St. and the Western Edge, Friedman said, and Councilman-at-large Ruben Ramos said the developers’ promise for a movie theater is “locked in” with the current negotiations for a community center and swimming pool, items long on the city’s wish list.
Tarragon’s stock, however, has dropped from $11.64 in January to $1.09 Friday, and TheStreet.com reported Thursday that Tarragon “may not be able to continue.”
But Michael Sciarra, owner of URSA, said it is unlikely Tarragon will file for bankruptcy.
“If this was Houston, I’d say, ‘hold on for a while, we’re in trouble,'” Sciarra said. “But Hoboken is a good, stable market.”
He added that Tarragon should be able to fulfill all its obligations, but said even if it did not, URSA would be able to complete the promised projects on its own.
“URSA is separate from Tarragon,” Sciarra said. “I have enough capital to do the entire Hoboken project, including the pool and community center.”
Paul Krugman. Isn’t he the guy who predicted nine of the last two recessions?
From BusinessWeek:
Accredited files lawsuit vs. Lone Star
Subprime lender Accredited Home Lenders Holding Co. said Monday it filed a lawsuit against Lone Star Fund V LP and two affiliates in an effort to get the private equity firm to follow through with its planned takeover of the embattled company.
Lone Star on Friday said in a filing with the Securities and Exchange Commission that Accredited Home wouldn’t meet the conditions of its offer, initially launched in June.
Last month Lone Star extended its tender offer until Tuesday to buy the Calabasas, Calif.-based mortgage lender for $15.10 per share, or $400 million. Lone Star said July 30 that Accredited Home Lenders’ shareholders had tendered just 8.2 million shares, or less than a third of the company’s outstanding stock.
Over on NJ.com, there is a page where you can look up real estate sales data for individual communities. Here’s the page:
http://www.nj.com/news/bythenumbers/
After perusing data from a few communities, it’s looking to me like median prices are down 0 to 10%, with bigger drops in more expensive areas.
Seasonally adjusted units sold are off in the range of 50 to 75%. It’s not a good year for real estate agents.
From the WSJ:
ECB, BOJ Again Add
Liquidity to Markets
By JOELLEN PERRY
August 13, 2007 6:25 a.m.
The European Central Bank and the Bank of Japan again pumped cash into markets Monday morning, amid continuing concern about a global credit crunch, but the ECB said market conditions are “normalizing.”
In its third consecutive unscheduled cash injection, the ECB pumped €47.665 billion ($65.28 billion) into euro zone money markets. That follows the €156 billion the bank put into markets last week as overnight lending rates shot up on concerns about European banks’ exposure to the U.S. subprime market. The Fed injected $38 billion on Friday, following a $24 billion intervention Thursday.
“The ECB notes that money market conditions are normalizing and that the supply of aggregate liquidity is ample. With this fine tuning operation, the ECB is further supporting the normalization of conditions in the money market,” the ECB said in a statement. The Bank of Japan added 600 billion yen ($5.06 billion) on Monday.
Is this area really different? I don’t know…saw a young couple, early 20’s visit the open house this weekend down the block from me. They pulled up in a new Infinity SUV…I just can’t get my head around that.
JB –
When can we expect the next lowball? It’s great fun.
From the NY Daily News:
Bad home loans cause high finance tremors
That may not be easy: While stocks come with price tags, hedge funds can’t so easily put a value on bundles of mortgage debt. But with foreclosures rising, there’s little doubt the value is dropping.
“These fund managers have been saying they have X, and now they’re going to their investors to tell them they have .4X,” said Manhattan money manager Cody Willard.
Mike O’Rourke, chief market strategist at Bear Stearns, wrote in a research report to investors that funds are finally taking a hard look at these investments and finding what they thought were safe sources of revenue are in big trouble.
“The bigger question out there is how many other money-market funds are holding theoretical AAA and AA-rated garbage?” O’Rourke asked.
Also from the Daily News:
(But this one is interesting)
Mortgages test Muslim faith
Most New Yorkers leave their finances in the hands of brokers, bankers and planners, but Muslims often turn to their religious leaders.
Soulemaine Konate knows: As imam of the 1,500-member Masji Aqsa Mosque in Harlem, he said he gets money questions daily.
For strict Muslims, financial decisions must adhere to Sharia, or Islamic law, as written in the Koran. Interest is forbidden, making Muslims’ path to home ownership difficult.
But some Islamic leaders, including Konate, tell their congregations it is okay to get a mortgage.
“If you buy a house with interest, hey, it’s for your family,” said Konate, who emigrated from the Ivory Coast. “You’re not going to let them live on the street.”
But some disagree.
“Only in a case of absolute necessity may you pay interest or receive interest,” said Imam Omar Abu-Namous of New York’s Islamic Cultural Center.
But Abu-Namous said that doesn’t mean Muslims can’t buy homes.
…
Approved Muslim lenders typically set up Sharia compliance boards, with input from scholars and clerics, to guide their policies, and devised variations on acceptable loans.
Under the plan of Guidance Financial, for example, a home buyer enrolls in a co-ownership program with Guidance. The lender buys the house, then sells it to the homeowner in increments over the next 15 to 30 years.
“Some people would say, ‘That sounds like the same thing as a mortgage,’ ” said Guidance spokesman Hassam Qutub. “The difference is the risk is shared in the event of a foreclosure. The lender assumes more risk than a conventional bank.”
Others said it’s a matter of semantics, and point out that consumers pay more with approved lenders.
“I see it as exploiting the religious by invoking religion where it doesn’t belong,” said Mahmoud Amin El-Gamal, who chairs the Islamic Finance program at Rice University in Houston.
“We weren’t planning on building anything in Hoboken with our stock,” said Bill Friedman, CEO of New York City-based Tarragon. “We’re building it with our capital, which has already been invested in Hoboken.”
I could be mistaken but I think your stock tanked because you have run out of capital.
Lots of chatter over at the mtg broker sites regarding new changes at Countrywide. Hat tip to the folks over at CR.
Countrywide making changes to all channels products this evening..News at 10 CST
New Lending Guidelines
Due to ongoing changes in the market, Countrywide®, America’s Wholesale Lender® is introducing an entirely new set of lending guidelines effective immediately. Our new guidelines reflect several changes from our previously communicated loan parameters. To assist you in quickly reviewing and leveraging our new guideline set, new quick reference guides are now available as follows:
Conforming Programs (all new)
Non-Conforming Programs (all new)
Expanded Criteria Programs (all new)
PayOption ARM (all new)
Payment Advantage (all new)
Fixed Rate Second / HELOC (all new)
Please note that these reference guides now represent our complete guideline set. Furthermore, we are quickly working to update our automated systems on CWBC to support your online loan submission efforts under the new lending guidelines.
Goldman Sachs: GEO fund has “suffered significantly”
Goldman Sachs says many funds undervalued
Goldman Sachs, others placing $3 bln in Goldman’s GEO unit
http://www.marketwatch.com/
Fool me once, shame on you; fool me twice, shame on me.
Goldman Sachs, others placing $3 bln in Goldman’s GEO unit
AKA Bailout?
jb
The ECM actually took money out of the market. The 47B euros replaced the 61B Euros they pumped in last week.
We will probably see more of these “undervalued funds” listed as buys.
There is no mention of their Alpha fund :)
Can someone do the math for me, I’m not sure I understand this…
Goldman says hedge fund hit, GEO fund gets $3 bln injection
Goldman Sachs Monday acknowledged steep losses at its Global Equity Opportunities fund and said the firm and others are making a $3 billion investment in the fund. The new investors include Goldman, C.V. Starr & Co., Inc., Perry Capital LLC, and Eli Broad, among others. The company said the fund, which originally had a value of $3.6 billion has suffered significantly.” Goldman said it has reduced risk and leverage in the fund, but it did not put a specific number on the size of the loss.
Original Fund Value: $3.6 billion
Losses: Unknown, but significant
Injection required: $3 billion
How great were the losses that a $3b injection was necessary to save a $3.6b fund?
jb
Take out the leverage and you are left with ….
“financial instruments backed by home mortgages – have shut down because there are no buyers.”
And where is all this pent up demand in the RE market? Your property is only worth what a ready, willing and “able” buyer is prepared to pay. Still confused? Prime buyers rule.
By the way, it is really comforting that Bush and his top aides are on top of this situation.
JB [18],
No problem. Just dollar cost averaging.
“Take out the leverage and you are left with ….”
bear [19],
A ton of feet on the street looking for a job?
Why do writers insist on personally making fun of President Bush. The USELESS comment about Bush using his MBA vocabulary was just too silly. Making fun of Bush is so cliche anymore, anyone who does loses instant credibility with me. I have been shorting the home builders, I just wish journalists would be a little less sophmoric with the personal jabs and report more news than the fluff they use to try and make themselves appear intelligent.
“Why do writers insist on personally making fun of President Bush.”
Mike [23],
Start ducking.
looks like we will have another goldilocks day! sp futue up 1.2%. libor rate down to 5.77% from 5.96% last week. hov up slightly after 3rd quarter update.
better to lose some on the upside then jump in too soon. I think there will be one more AMH type fall out and then after that we will have clear sailing. AMH couldn’t have been stuck with all the Alt A paper
BC Bob Says:
August 13th, 2007 at 8:06 am
JB [18], No problem. Just dollar cost averaging.
Bost: bar none….your wittiest post
BC BOB, one can be wrong without being stupid. Last time I noticed, no one forced anyone, including the banks and the consumer to get into these flimsy rose-colored financial contracts. It’s a free country and I for one have never thought it was the governments job to control or guarantee a good economy. But go ahead and put emphasis on President Bush and whatever intelligence you and other writers think he has. As far as I’m concerned, that attitude/perception is annoyingly irrelevant and useless. I don’t have time to waste on that garbage. I want real news that I can profit on. Talking about someone personally like the media has done over the past seven years is of no use to me, I didn’t like that kind of wasteful talk when I was in High School and I don’t like it now. That’s all you’ll hear from me today, so go ahead and throw around that useless garbage all you want.
Mike (23)-
They make fun of Bush because he is a clown. His #2 economic hack (Paulson) is staring at the sun and declaring that all is well, while his central bank is caught in an almost Hamlet-like paralysis, with their only real option to address the roiling credit markets being an application of a dose of the same medicine ($$$) that made everybody sick to begin with.
Mike,
I am not arguing against your statement. I agree regarding culpability. My point was that others will respond to that one quote.
Mike (23)-
The personal is the political.
It is significant when the chief executive of the US, who has been known to have a problem with denial, weighs in on a nasty financial crisis. It’s also significant when some of his most trusted advisers are shouting “all is well” a little too loudly.
If all that tumult makes George & Co seem a little more Barnum & Bailey than Executive branch, don’t be surprised when it’s noted in the press.
bi (25)-
Nice to see your doc got your Wellbutrin dose calibrated.
bi (25)-
Long the HBs today?
“The Fool gets Angry. The Wise Person Understands.” (Ancient Indian Wisdom)
Accredited Home Lenders Holding Co. (LEND US) fell $4.89, or 55 percent, to $4.02 in extended trading after the close of markets on Aug. 10 after Lone Star Funds said it won’t take over the mortgage lender, citing “drastic deterioration in the financial and operational condition” at Accredited since the deal was announced.
By the way, haven’t we seen this game before?
1987
1)Computerized Trading
2)Portfolio Insurance
3)Junk Bonds
2007
1)Statistical Arb
2)Derivatives
3)CDO’s
Main difference, we have never been so overleveraged on a global basis as we are today.
bi (34)-
“When the going gets weird, the weird turn pro.”
-Hunter S. Thompson
The wise man learns more from his enemies than the fool does from his friends. – Ben Franklin, thanks to Carl McFarland
From FinancialWeek:
Subprime meltdown: Commercial market singed
From FinancialWeek:
Subprime meltdown: Commercial market singed
The problems in the residential mortgage finance sector are now taking a toll on the availability and terms of financing in the commercial real estate market, which raises the specter of weakening resale prices, something that was unimaginable in the red-hot property-flipping market of just a few months ago.
That’s because the problems uncovered in the residential mortgage market meltdown have become too big for investors to ignore, so they’re cutting back on the whole real estate sector, including their use of commercial mortgage-backed securities (CMBS), which is what lenders rely on to get their loans to developers off their balance sheets.
As a result, the CMBS market has been hit by a double whammy: skittish investors cutting back on purchases and a glut of supply because of the record $137 billion in CMBS issued in the first half of this year as private equity and institutional money flooded into the commercial property market.
Because of those factors, the cost of borrowing is up as yield spreads, the difference between the yield on CMBS and the yield on comparable-maturity Treasuries, have widened significantly in the past few weeks.
“The overall negative pricing impact on commercial mortgage spreads has been about 20 to 25 basis points on 10-year fixed-rate mortgages,” Jones Lang LaSalle, a real estate services company, said in a research report last week. “The greater concern has been our increased difficulty in obtaining debt quotes; when quotes are available, the spreads are often significantly wider than recent experience.”
In the past few weeks, as the drumbeat of problems in the residential mortgage market has picked up, so has the lack of confidence in the CMBS market. “The market for debt financing for commercial properties got smaller and it has repriced, making it more difficult and expensive to put a deal together,” said Jere Lucey of Jones Lang LaSalle real estate investment banking group in New York.
bi,
Yup, the discount window is open, the FED will cut 50 bps and the party will ROCK ON, dude. And all us “nobodys” will keep saving our little scheckles like a bunch of dolts. I should’ve been a rock star.
since most of these credit products are of contract type, some people must benefit from thse losses. but nobody raised hands yet and i guess not many will do in the future. Also please note that VIX is around 30 from 10-15 in last 4 years. it makes equity trading guys happy. but current home owners and buyers benefited most since they are locked in very low interested rates.
i guess even goldman doesn’t get it right every time.
http://news.yahoo.com/s/ap/20070813/ap_on_bi_ge/goldman_funds_1;_ylt=AtPKOSWM9_GY4JFTK04isOEE1vAI
Clot [31],
Somehow I knew the guns would be blazing.
>>early 20’s visit the open house this weekend down the block from me. They pulled up in a new Infinity SUV…I just can’t get my head around that.
i got 2 words for you. parents money. that’s all i seem to hear these days from paying one’s rent to down payments on houses to gifts for marriage. glad someone’s rolling in the bucks.
“but current home owners and buyers benefited most since they are locked in very low interested rates.”
I can’t even respond.
More on Hovnanian from Reuters, interesting that the cancellation rate is moving upwards again.
Hovnanian sees $90-$110 mln charge in slow market
On a preliminary basis, Hovnanian said it delivered 31 percent fewer homes in the third quarter than a year earlier, while net contracts fell 24 percent, excluding unconsolidated joint ventures.
The third-quarter cancellation rate was 35 percent, compared with 33 percent a year earlier.
(emphasis added)
When the talk around here is about subjects I know little of, I read and learn.
“Better to keep your mouth shut and be thought a fool, than to open it and remove all doubt.”
KL
LIBOR was delayed this morning, I wonder what the BOE told them to have it announce it.
Wouldn’t you like to know what it was sitting around the evening call… “You go first! No. You go first…” ha ha ha.
BOE comes in and tells them, “Alright people, you can have it at 5.77 else, we are all losing out cushy gig.”
Oh, and by the way: ISN’T LIBOR USED TO SET THE APR ON ARMs?
Ouch!
Sapiens,
The most common ARM index categories are the CMT (Constant Maturity Treasury), COFI (11th District Cost of Funds), and LIBOR (London Interbank). Within the CMT category, the 1-year CMT is most common, within LIBOR, the 6-month LIBOR is most common.
I’ve been looking for a percentage breakdown of existing ARMs, but haven’t been able to find it. The above is based on whatever information I could clean from news sites, mortgage sites, and anecdotal info..
jb
If wishes were horses, there would be a lot more horses.
My weekend anecdote.
We drove by a nice little 4br. 2.5ba colonial near my current place in Middletown that recently appeared on the market. The house had sign w/ a telephone # and code that you could call and get the house detials sent via text message.
I called the number and got the details, asking price was 724k, taxes, etc. I then got a text message from a morgtage broker with some silly advertisement.
About 1 hour later, I got a call from the listing agent (VRI, Better Homes NJ), she asked if I had sent the text request. I confirmed and she asked if I would like to see the house – at this moment or sometime that day! I told her it was not necessary since in my opinion the house was 15-20% over priced. She said nothing and just hung up.
Must be getting tough out there.
China toy boss kills self after recall
http://news.yahoo.com/s/ap/20070813/ap_on_bi_ge/china_tainted_products;_ylt=AjZuhqatQJp05jRjWMsP4u1v24cA
“Liu said Zhang hung himself on Saturday, according to the report. It is common for disgraced officials to commit suicide in China.”
———————————————-
In America, a disgraced CEO gets a similar job at Chrysler.
Blackstone fund net income triples, Goldman injects $3,000,000,000 on bailout, consumer retail spending is up, Central Banks are injecting more money, the LIBOR rate dropped and the market is back in the saddle. I guess house prices have reached the bottom.
It is trendy to live in Greenwich Village
It is trendy to lease a new Mercedes
It is trendy to wear really big sun glasses
It is trendy to make fun of Bush
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/04/AR2007080400109.html
Nice paper – to illustrate what will prop real estate prices up. That is untill organized crime unit will. come down on this.
de facto gary Says: #55
“I guess house prices have reached the bottom.”
———————————————-
I hope that is sarcasm. I’m just about ready to pull the trigger on a 2% leveraged inverse fund for a while. That’s how confident I am in this economy.
Actually, the parents are not giving the downpayment so much as setting them up for life prior to that. For instance a guy I work with 28, made 100K with bonus this year, got married last weekend 400 people at wedding both Dads paid whole thing they get to keep all gifts, his 28 yo wife if a doctor, her Dad paid all tuition she has no loans. Finally, the hospital she is in has given her a signfifcant below market two bedroom to live in as a tax free incentive. So now you are talking close to 300K income with expenses of 700 a month rent.
Think that is an exception, the building by the Stock Exchange has tons of Goldman people, new MBAs relocate to NYC being put up in Goldman Condos for a year or two below market while the 29 yo husband banks 250K a year and his BS level wife banks her 100K a year. Even better, at the end of the two years the firm takes the couple on a tour of “appropriate” neighborhoods to live in. You know, Harrison, Greenwich, Saddle River, Manhasset etc. where they plop down the cash to buy. Oh yea even better if they are at Citi or BOA or JPM’s IB they will give them a below market mortgage. My friend at HSBC got 5% on a 30 year with hardly any closing as part of the deal. Do an open house in a rich neighborhood and you will be suprised. The 40 yo joe with a stay at home wife and three kids ain’t got a spare 7K a week to buy one of these homes.
i got 2 words for you. parents money. that’s all i seem to hear these days from paying one’s rent to down payments on houses to gifts for marriage. glad someone’s rolling in the bucks.
J.P. Morgan To Target Mass Affluent
By Madalina Obogeanu
Wall Street Letter
August 10, 2007
J.P. Morgan Chase has launched a mass affluent platform which caters to clients with $500,000 to $2 million in investable assets, and has named executive v.p. Michael Cleary, formerly with the retail banking unit, chief.
regarding President Bush, there is a chinese saying: A man of great wisdom often seems slowwitted.
Harrison?? As in Harrison, NJ??
Appropriate place to live?
#23 Mike –
Agree – when a writer betrays their bias (against Bush in this case, but for any public figure) in such juvenile ways my eyes usually glaze over and I stop reading – why trust anything they have to say – their judgement is probably too clouded by their hatred.
There’s lots of information out there, can’t read it all, so I try to find sources I can trust.
62#, Harrison, NY is an affluent town. Harrison, NJ is actually good for rentors and investments for renting properties. it is very close to NY and cheap and there is a river separates it from newark. the apartments there are ususally rented out before putting to local newspapers.
It is trendy to create phony lists.
#3
“Paul Krugman. Isn’t he the guy who predicted nine of the last two recessions?”
I thought he was the guy who got in a dispute with Greenspan about ARMS, was widely ridiculed, and turned out to be absolutely right.
#10
“Interest is forbidden, making Muslims’ path to home ownership difficult.”
Actually, this is true for Christians as well (really, just check your bible, there’s no confusion about it). It’s just one of the rules that people choose to ignore.
Quote of the Week \”The Americans want so much to be winners. The fact that they are sick with this illness, this winners complex, is the main reason why everything in the world is so confused and so complicated.\” MOSCOW, July 28, 2007 – Mikhail Gorbachev to a packed news conference.
#37
LOL!!!
You can daemonize Greenspan as much as you can but Greenspan will be remembered in history for at least two things: helped the country pulling out of extremely high inflation inherited from carter years and avoided recession after 9/11 by discovering extremely undervalued real estate market.
In 2001, buying a townhouse in central jersey cost $1500 per month including mortage, tax and associtation fee but renting an equivalent property cost $1800 per month. The RE market reached to fair value in 2005 and now back to undervalue again.
JB -51
Thanks for the info.
Harrison, NY as in where Joe Torre lives.
Muslimism is actually a religion that just combines aspects of judism and christianity. Interesting enough the religion was very pro women and very forward looking towards equality of women. As the centuries wore on the religion became anti-women which is exactly the opposite of it’s orginal intent. Well I guess you can fly a plane into a building full of banks and that is not a sin but to take a mortgage from one of the banks is a sin. COO COO.
There are tons of places that do Muslim friendly loans for houses anyhow. My favorite is the one that calculates the total interest and principal owed on the plan and then inflates the purchase price and then calls the payments 100% principal only. Mind you the seller only gets normal price, this is just a way to alter the bank statement from P&I to P so Mr. Muslim can remain sin free. So the interest thing does not stop the Muslims from buying a house.
“avoided recession after 9/11 by discovering extremely undervalued real estate market.”
Thanks, bi. That’s the funniest thing I’ve read in a long time.
…and I’m a big fan of Ben Franklin, but was he really imparting deep insight when he suggested that wise men learn more than fools (regardless of the source)??
“helped the country pulling out of extremely high inflation inherited from carter years”
bi [70],
Wrong. Paul Volcker.
patient [73],
It is hilarious.
recently came across some fannie mae mbs data. I would say at least 30 percent stuff is not even rated. may be data issue, but that’s the best source I have. sorry can’t give more details.
Fed Treads Moral Hazard
Step In and Cut Rates
Or Stand By and Watch:
Whither Helicopter Ben?
By E.S. BROWNING
August 13, 2007; Page C1
Link for above #77.
http://online.wsj.com/article/SB118696170827295489.html?mod=hpp_us_whats_news
greenspan is hard to understand but he is consistent for at least one thing. hint: Mitchell.
From Wikipedia
“Alan Greenspan has been married twice. His first marriage was to Joan Mitchell in 1952. The marriage ended after only one year in divorce in 1953.
In 1985 Greenspan began dating tv personality Andrea Mitchell. Greenspan at the time was 59 and the also once divorced Mitchell was 20 years his junior at the age of 39.”
Household income (overall percent of US households over):
Income Percent of Households over:
$65,000 34.72%
$80,000 25.6%
$91,705 20.0%
$100,000 17.8%
$118,200 10%
$166,200 5%
$200,000 2.67%
$250,000 1.5%
$1,600,000 0.12%
Some of you may be surprised to see this data. If anything, it should point out to you that there is not nearly enough of an income base to support the $500,000 median home prices in any overpriced metro area in the country. Even a household with dual income earners making $100,000 a year, after taxes they are pulling in a monthly nut of approximately $5,900 without contributing to a 401(k). And what is the monthly mortgage payment on a $500,000 home with 5% down ($25,000) at 6.5% over 30 years? The principle, interest, and taxes will cost you approximately $3,600. After taxes you are paying 61% of your income toward your home. Moreover, this is for families that fall in the top 17% of income earners. Last time I checked, we have a national homeownership rate of 70%. Since we realize that income isn’t the main protagonist of amazingly high home prices, then what is it? Surely there must be an explanation for the radical jump in home prices over the past decade.
Risky Loans and Easy Credit
How can a family earning $65,000 a year, jump into a $500,000 home? Easy. We can lock them into the world of subprime loans. Only a few years ago, it was incredibly easy for a family to go stated income and jump into a 2-year teaser rate mortgage with a 1.25% rate. The rate would adjust but by that time, you could flip your home and make a nice little return. Don’t know how? Just watch the show Flip this House. I remember a mortgage broker telling me, “it is easy to get anyone into any home. All they need is the willingness to find a place and sign.” He even told me about his ability to squeeze in families with $50,000 incomes into $500,000 homes and got joy how he was churning $10,000 a month in commissions. That was 2005. Fast forward to 2007. He is no longer working at the company since it imploded early this year. When I last talked with him, I asked him what his plans are now that he is unemployed. “I’ll go work for another lender but one that focuses on foreclosures. That’s the next big market.” Didn’t want to burst his bubble but in a bear housing market, sales drop massively therefore cutting into the churning of transactions. Therefore, his $10,000 a month will only be seen again if he has some advanced college degree or sells crack on the streets. Ironically, this person has nothing saved up after 3 years of being in the business and making $100,000+ each year. The product of conspicuous consumption and financial irresponsibility – easy come easy go.
This is only one case of many. The person above is young. But so many people got caught up in this housing frenzy and believed it was a ticket for easy street. They under funded their retirement accounts in belief that Social Security will be there for them. But think about the culture of credit that they blossomed in to. They entered the workforce with a national negative savings rate, credit cards being given out like candy at colleges, and cash becoming almost a thing of the past. People even pay for $1 cheeseburgers at McDonalds with a credit card! So is it any wonder that they have no fear issuing out or taking on absurd mortgages? Credit will always be there for them. It was there in the past, why not in the future?
Age and Culture Conflict
I have a colleague telling me how buying a home is always expensive. He tells me about earning only $30,000 a year and buying a home that cost $110,000 back in 1988. He is also proud that he would not be able to afford his current home if he bought it at today’s market value. It is a sense of pride that he can’t afford his own home, “if I were in the market today, I wouldn’t be able to afford my own home!” This from a baby boomer nearing retirement with a locked in pension. Looking deeper into the income stats, we realize that the top earning households are those headed by working baby boomers. The exact range of top earners is 45 – 54. The conflicts of managing a high cost of living seems to be disconnected from those from the 25 – 39 age group. For one, we do not have the luxury of having a Social Security safety net, therefore many of us actually have to over fund our 401(K) if we do not want to live off government cheese. Yet we pay 15% of our income into a fund we will not see. Not only that, but many companies are now eliminating defined pensions and passing on the cost of health insurance to the young working class. The cost of living is much higher even though incomes on the surface may seem high for young working professionals.
In addition, housing has never been this expensive in relation to income. Even though buying a home may stretch a family’s budget, anyone buying a home in today’s market would need the flexibility of Gumby to purchase a starter home. There is a generational divide in our culture. Many young folks feel they are getting advice from a person that has a locked in retirement, years of Social Security, and locked into affordable housing – things that are not in our lexicon. These items are remote to any young professional. So the “live and spend” culture of today has some direct correlation to the psychology of both generations. Even though I disagree with this mentality, I can understand where it comes from.
Yet this housing market also affects baby boomers. Many are counting on their equity in their home for retirement. I’ve talked with many people telling me that in 5 years when they retire, their home will be worth $1 million and they’ll use the equity to downsize. When I ask them how they know 10% annual appreciation will occur from 2007 to 2012, they reply, “real estate always goes up.” So not only does this housing market hurt families looking for a starter home, it also hurts those nearing retirement with an inflated few of their home and a perceived idea that a built in safety net will always be there for them. In general, the young overestimate the difficulty in paying back large amounts of credit (i.e., buying a $50,000 car) and the older generation underestimate the need for a larger retirement nest egg (i.e., American’s nearing retirement have an average nest egg of $50,000).
In the end, looking at income numbers, home prices do not justify their current market rates. These rates are inflated on bubble psychology and easy credit that is slowly evaporating. The market will contract and a major shift in cultural psychology will occur.
There can be no doubt that Krugman is a twit, with a serious case of BDS, and has been proven wrong on just about all of his nonsensical rantings during the past 8-10 years as the lead mouthpiece for the Democrat party, but he may have stumbled on something close to the truth with this article. Good for him, now we can go back to ignoring him.
John Says:
August 13th, 2007 at 10:36 am
“Well I guess you can fly a plane into a building full of banks and that is not a sin but to take a mortgage from one of the banks is a sin. COO COO.”
Sir John, no person in his right senses would say the former was not a sin. Generalizing a religion with such broad statements is as dangerous as taking an ARM mortgage… :)
bi Says:
August 13th, 2007 at 10:33 am
In 2001, buying a townhouse in central jersey cost $1500 per month including mortage, tax and associtation fee but renting an equivalent property cost $1800 per month. The RE market reached to fair value in 2005 and now back to undervalue again.
I’m sorry, but shouldn’t renting a place be more expensive than owning? Isn’t that the motivation behind owning rental properties?
Bi, you’re like a mirror that shows everything backwards. Your numbers here make perfect sense. Your conclusions are completely backwards.
Don’t even get me started about your “avoided recession after 9/11 by discovering extremely undervalued real estate market.” comment.
http://www.slideshare.net/Mormons4justice/how-to-survive-the-coming-economic-collapse
Greenspan husband is something which A. Mitchell should disclose when she reports on Greenspan policy, but she never does. So much for ethics.
#81
Sorry. I have doubt. Somehow I keep missing these occasions that Krugman has been “proven wrong”, but perhaps that’s because I don’t read Free Republic.
Richard aka RSF,
RSF ss down another 8% today. Any heads up ono when you plan to start dollar cost averaging?
From #57 linked article-
“To participate, buyers sign a joint-venture agreement with an entity called POS Dream Homes”
POS DREAM HOMES!!! You can’t make this stuff up.
RSF was at $11.35 when Richard recommended it on July 26. It’s now at $8.60.
Of course, he also recommended BGY at $17.98, and that’s only fallen to $17.67, so it’s not all bad.
#87
I had to click the link because I didn’t believe you. Maybe they chose the name to give themselves a defense to fraud – “we told them it was a POS, your honor…”
From MarketWatch:
Mortgage market in ‘downward spiral’
Problems in the nation’s mortgage and housing markets are feeding off each other and creating a “vicious cycle,” analysts at Stifel Nicolaus & Co. said Monday.
“The rapidly increasing scope and depth of the problems in the mortgage market suggest that the entire sector has plunged into a downward spiral similar to the subprime woes whereby each negative development feeds further deterioration,” wrote analysts Chris Brendler and Michael Widner in a research note.
…
Investors are uncertain about where the pain in subprime mortgages, which are designed for home buyers deemed greater credit risks, may spread next.
In the view of Brendler and Widner, the U.S. economy may end up in recession.
Secondary mortgage markets where large investors trade debt are “practically frozen,” which has led to “dramatic additional tightening of underwriting standards that will likely serve to only exacerbate the imbalance in the housing market,” according to Stifel Nicolaus.
The analysts said rates on home loans should rise as lenders try to compensate investors of mortgage-backed securities with more yield to make up for the added risk they entail. The mortgage-backed securities market has been crushed with foreclosures on the rise, and hedge funds and investment banks that bought the debt have been feeling the pain in turn.
Underscoring the shaky conditions in housing, Stifel Nicolaus said its earlier forecast calling for home-price deprecation between 10% and 15% may prove optimistic.
The analysts see a worsening tailspin as housing prices fall harder, leading to more credit deterioration.
“With the coming wave of adjustable-rate mortgage resets, foreclosures, and actual MBS defaults, we continue to believe we are far from the bottom,” they wrote. “As a result, we remain bearish on the entire mortgage sector and are increasingly concerned about the broader market as we believe the depth of the mortgage [and] housing and related credit market problems may be enough to tip the economy into a recession.”
Pressure for Rate U-Turn
http://www.bloomberg.com/apps/news?pid=20601109&sid=abJ_b1ElEoYQ&refer=exclusive
#57- if you’re a seller, call this company up. I’d be very cautious (ie I wouldn’t do it) if I was a buyer, but a seller seems to make out pretty good. Get your cash and run.
“POS DREAM HOMES!!! You can’t make this stuff up.”
bergen [87],
That’s copyright infringement.
Question for those who know about taxes:
How can someone write off the whole amount of interest paid on a mortgage if they paid more than the house is worth and rec’d a ton of money back. That portion of the loan should be considered an unsecured loan – the people can use the money for anything (car, vacation..etc.) Why are they able to write this interest off?
Add record inflation in China to the list of declining market impetuses.
Looks like the price of our cheap Chinese imports may go up a bit.
From Weiss Research 8/13/07:
“In its latest survey, the Bank of International Settlements (BIS) calculates that the total “notional” value of all derivatives outstanding in the world is a mind-boggling $415 trillion.
That’s over eight times the GDP of the entire world economy … twenty times the total value of all U.S. stocks … and fifty times all the Treasury debts of the United States Government.
The fear: That any unexpected disruption in this $415-trillion market could throw the world’s financial markets into turmoil … bankrupt hundreds of hedge funds … wipe out the profits of big-name financial institutions … sabotage the investments of pension funds … and scramble the portfolios of millions of average investors.”
I’m not an economist and don’t understand the derivatives market.
So I ask:
1) How would a crunch in the derivatives market affect the US housing market?
2)In light of current market conditions, is the derivatives market really at risk?
http://biz.yahoo.com/ap/070813/china_inflation.html?.v=7
Link for Chinese inflation story.
Orion [97],
Do you have a link to that article? Much appreciated
98#, with GDP up 12% and inflation up 5.6%, it is noy big deal. with yuan appreciating and stock market skyrocked, chinese money will eventually flow back to tri-state area to grab your POS just like japanses did 20 years ago.
http://finance.yahoo.com/charts#chart1:symbol=000001.ss;range=1y;charttype=line;crosshair=on;logscale=on;source=undefined
t c m Says:
August 13th, 2007 at 11:40 am
Question for those who know about taxes:
How can someone write off the whole amount of interest paid on a mortgage if they paid more than the house is worth and rec’d a ton of money back.
Because it is just a phony bank statement, their accountant writes off the interest paid. It is all smoke an mirrors. Almost like my Orthodox friend who can’t use a key to open his apartment on Saturday as that is work, so he had his key fashioned into Jewlery and uses that to open the door, he can’t push the elevator buttom so he has his elevator stop at all floors and he leaves his oven on all weekend so he can cook without turning it on.
Most extreme religions that have rules that make it impossible to live make up ways to bend them.
My favorite is if your are a jewish landlord you can’t pay interest on a rental deposit to a jewish tenant, but by law must pay interest on a deposit, therefore you can’t collect a rental deposit for a jewish tenant. I have a lot of friends, including myself became jewish for a day when renting an apartment.
“Investors snapped up the $340.7 million CDO, a collection of securities backed by bonds, mortgages and other loans, within days of the Dec. 12, 2000, offering. The CDO buyers had assurances of its quality from the leading credit rating companies — Standard & Poor’s, Moody’s Investors Service and Fitch Group. Each blessed most of the CDO with the highest rating, AAA or Aaa.”
“Credit-rating companies help the financial firms divide the CDOs into sections known as tranches, each of which gets a separate grade, says Charles Calomiris, the Henry Kaufman professor of financial institutions at Columbia University.”
“Credit raters participate in every level of packaging a CDO, says Calomiris, who has worked as a consultant for Bank of America, Citigroup, UBS and other major banks. The rating companies tell CDO assemblers how to squeeze the most profit out of the CDO by maximizing the size of the tranches with the highest ratings, he says.”
“It’s important to understand that unlike in the corporate bond market, in the securitization market, the rating agencies run the show,” Calomiris says.
“S&P charges as much as 12 basis points of the total value of a CDO issue compared with up to 4.25 basis points for rating a corporate bond, company spokesman Chris Atkins says. (A basis point is 0.01 percentage point.)”
“That means S&P charges as much as $600,000 to rate a $500 million CDO. Fitch charges 7-8 basis points to rate a CDO, more than its 3-7 basis point fee to rate a bond, based on the company’s fee schedule. Moody’s doesn’t publish its pricing for any ratings.”
“CDOs are the cash cow for rating agencies. They’re clearly a gold mine,” says Frank Partnoy, a former bond trader, now a University of San Diego law professor and author of a book on the financial markets.”
“That euphoria has blinded investors — and the rating companies — to the true risk of CDOs, Partnoy says.”
http://seattletimes.nwsource.com/html/businesstechnology/2003832275_subprime12.html
From the AP:
JP Morgan Wants HomeBanc Assurances
Failed mortgage lender HomeBanc Corp., which filed for Chapter 11 bankruptcy last week, is being threatened with foreclosure by JP Morgan Chase Bank, the lead lender on $68 million worth of operating loans.
Court papers filed Sunday in a Delaware bankruptcy court say JP Morgan Chase, as agent for the syndicate of banks that funded HomeBanc’s operations, is demanding assurances it won’t get stuck for the money.
JP Morgan Chase wants an emergency hearing Tuesday on its bid for guarantees that Atlanta-based HomeBanc will be able to cover its secured debt. The bank wants to be able to foreclose on its collateral if no assurances are forthcoming.
bi [25],
Is the fed funding your account with emergency reserves? Taking your HB’s stock as collateral?
104#, today’s market seems indicate $40b fed fund so far is not enough to stablize the market. people are waiting for rate cut.
BC Bob #99
Here’s the link for #97.
http://www.moneyandmarkets.com/press.asp?rls_id=892&cat_id=6&
NO RATE CUT – I don’t want a Bernakee Put. I think the market today will go south after three pm.
104#, today’s market seems indicate $40b fed fund so far is not enough to stablize the market. people are waiting for rate cut.
What on earth are you talking about. Fed funds are trading at, or close, to the target rate this morning.
jb
There will not be a rate cut. At lost not until the market drops another 10%. Do you have any idea what that will do to the strength of the dollar? China and many other countries own our debt. China has already played the nuclear option in telling Bush’s economic mercenaries to stop urging them to float their currency. If Bernanke lowers the lending rate, the value of the debt worsens. China would not like that very much. These outrageous Republican deficits are killing our great country. I can’t believe most feel that the Dems are the tax and spenders.
executive search…comments at the end about Bear
http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vkXwDBciclEk.asf
Here is a top ten list of why you shouldn’t wait to sell your house:
Renting is Cheaper – Renting is almost always cheaper than buying.
The Joneses are Crazy – just because the Joneses own a home, it doesn’t mean you should too.
Real Estate is a Terrible Investment -Your house is not an investment vehicle. Not anymore. Nowadays, it’s just a dead asset.
Selling is More Profitable Than Renting – you will probably not make enough money in rental income to pay the mortgage payment and cover the hassles that come with being a landlord.
The Market is Cooling – Home sales are slowing, foreclosures are rising, and inventory is growing.
Home Values Will Plummet – Home prices couldn’t be more disconnected from fundamentals. Because Japan Says So – After home prices doubled nationally and tripled in Japan’s largest cities, they fell sharply to pre-boom levels.
Location is Irrelevant – Many people think that because they live in a desirable area that they will not be affected by falling home prices. This assumption is generally incorrect. If prices have reached an unsustainable height, they are going to fall regardless of how nice it is to live there.
Recession is in the Air – Talk of a recession is at near manic levels.
Consequences of Not Selling are Too Ghastly to Consider – Once prices fall, you could lose your ability to refinance, to borrow from equity, and to sell for a profit (or to break even).
“What on earth are you talking about.”
JB [108],
Is this really BIA, just dropped the A?
Orion [106],
Thanks.
Stu [109],
Agree, no rate cut
All the fed has done is provide reserves to keep overnight rates close to its target. Accepting mbs as collateral, well that’s another topic. This action doesn’t signal a policy shift on rates.
>>regarding President Bush, there is a chinese saying: A man of great wisdom often seems slowwitted.
#61, I have an American saying for you: Stupid is as stupid does.
Stu,
From a non-political type, it seems the Republics are spending the money on wars at the federal level while the Dems are spending it at the municipality level. Bums all of them.
Jersey4Life
Bums all of them.
We are in agreement ;)
116 AMEN
This is really annoying:
http://www.nytimes.com/2007/08/13/us/13stockton.html
The deadening market for houses has only worsened problems for people like Alma Neri, a mother of three boys who bought a modest house in Stockton in 2002 for $223,000. Three years later, Ms. Neri and her husband, Juan, found an even better house — three bedrooms, two and a half bathrooms, a two-car garage — around the corner. The plan was to sell the old house to pay off its mortgage, and live out their days in their dream home.
But now, both of the Neris’ houses are languishing on the market, and the debt from two mortgages — and an equity loan they took to remodel the new house — is piling up.
“We made bad decisions,” said Ms. Neri, 30, who commutes to her job as a contractor in Pleasanton, about 50 miles to the west. “We’re worried if we don’t sell by the end of the year, we will lose one of them. We just didn’t see the downturn coming.”
…..
“Immigrants, seniors and people of color are more likely to have been victimized by bad lenders,” said Kevin Stein, the coalition’s associate director. “But what’s evident looking at these numbers is that the problems being faced are cutting across racial and ethnic lines.”
Not that I particularly care for CNBC…
Fed Rate Cut Appears Less Likely As Credit Markets Stabilize
As financial markets appeared to calm Monday, so did speculation that the Federal Reserve would quickly cut interest rates.
…
With credit panic subsiding, more experts appeared to reinforce the view that the added liquidity from central banks was enough to prevent a credit meltdown, making a Fed rate cut unnecessary for now.
“I think a lot of people are expecting a September rate cut already, at least if you look at Fed Funds futures,” says Sam Stovall, chief investment strategist at Standard & Poors. But “I am not as certain as the fed funds futures that the Fed will do this. They’ve been able to respond with liquidity to stabilize the market.”
Northern Trust chief economist, Paul Kasriel is wary of talk about a pre-September rate cut saying, “the Fed would not do this unless the situation got extremely dire and market troubles were having a profound negative impact on the economy.”
JB – can you unmoderate 120 please?
Anyone with MLS access have details (address, prior and current listing history, etc.) for the following Ridgewood house, a 5 bed, 3 full bath, 2 half bath, asking 998? (Talk about a price with an illusion of precision.)
MLS 2421825
Thanks,
Eagle
Eagle,
72 Ridge
Originally listed under:
MLS# 2369593
Listed: 1/29/2007
OLP: $1,275,000
Reduced to: $1,190,000
DOM: 152
Withdrawn
Relisted by the same agent/agency:
MLS# 2421825
Listed: 6/30/2007
OLP: $998,000
DOM: 44
Active
120#, njpatient, i guess you should be more patient to let all this play out itself… emotion is the worst enemy
BC (113)-
Fed as methadone clinic?
#80 John – I agree with you. NJ RE prices are nuts and they must fall. If they don’t then younger people will leave the state and THEN prices will fall. I grew up in NJ but it seems like another planet now. I’m still shocked when people mention “$400K starter homes.” As far as pensions and Social Security goes, the only money you can be sure of having is the money you’ve already got, provided it’s well taken care of.
MarketWatch:
2:00Majority of banks leave commercial loan standards unchanged
Bank willingness to make consumer loans unchanged: Fed
Banks tighten mortgage standards again: Fed survey
Majority of banks leave commercial loan standards unchanged
Bank willingness to make consumer loans unchanged: Fed
From Inman:
Number of ARM borrowers refinancing into another ARM rises
Although they remained a distinct minority, more borrowers looking to refinance their adjustable-rate mortgages during the second quarter went with another ARM loan instead of a fixed-rate mortgage, Freddie Mac reports.
About 4 percent of borrowers with 1-year ARMs stayed with that product when they refinanced during the second quarter, compared with 1 percent in the first quarter and 2 percent a year ago, Freddie Mac said.
Another 10 percent of 1-year ARM borrowers went with hybrid ARMs when they refinanced during the second quarter, compared with 8 percent in the first quarter.
Mortgage rates on 30-year fixed-rate loans went up in the second quarter to 6.4 percent, while rates on 1-year Treasury-indexed ARMs were 5.5 percent, said Amy Crews Cutts, deputy chief economist for Freddie Mac.
“While most borrowers still prefer to refinance into fixed-rate mortgage products, the widening spread between fixed- and adjustable-rate mortgages in the second quarter made ARMs a bit more attractive than they had been,” Crews Cutts said in a statement.
Since then, interest rates on conventional fixed-rate loans have fallen, while worries about credit quality have pushed rates on some nontraditional and ARM loans up. That should result in more ARM borrowers choosing fixed-rate loans when they refinance, Crews Cutts said.
“With the recent contractions in mortgage lending standards and increasing emphasis on underwriting borrowers to fully indexed rates on adjustable-rate mortgages, it is likely that we will see more demand for fixed-rate products for both new home purchases and refinance in the future,” Crews Cutts said.
The vast majority of borrowers refinancing 1-year ARM loans — 85 percent — chose fixed-rate loans during the second quarter, down from 89 percent in the first quarter. About 86 percent of those refinancing hybrid ARM loans during the second quarter chose a fixed-rate mortgage, compared with 88 percent during the first quarter.
From MarketWatch:
Bank tighten mortgage loan standards again: Fed survey
U.S. banks continued to tighten their standards for approving mortgage loans again in the spring and early summer but mostly for nontraditional and subprime loans, the Federal Reserve said Monday. Fifty-six percent of the 16 banks that make subprime loans toughened their standards through July, the Fed found. This was roughly the same percentage to tighten standards in the first quarter. The survey found 40% of banks raised standards for obtaining a nontraditional mortgage through July, compared with 46% in the first three months of the year. Meanwhile, 14.3% of banks made it harder to get a prime mortgage loan, compared with 15% in the first quarter. The Fed also said 25% of banks surveyed raised standards for getting a commercial real estate loan. But standards for commercial loans and consumer loans were unchanged. Analysts are worried that the market volatility since late July will cause banks to curtail credit in coming months, endangering a fragile economy.
From MarketWatch:
Bank tighten mortgage loan standards again: Fed survey
U.S. banks continued to tighten their standards for approving mortgage loans again in the spring and early summer but mostly for nontraditional and subprime loans, the Federal Reserve said Monday. Fifty-six percent of the 16 banks that make subprime loans toughened their standards through July, the Fed found. This was roughly the same percentage to tighten standards in the first quarter. The survey found 40% of banks raised standards for obtaining a nontraditional mortgage through July, compared with 46% in the first three months of the year. Meanwhile, 14.3% of banks made it harder to get a prime mortgage loan, compared with 15% in the first quarter. The Fed also said 25% of banks surveyed raised standards for getting a commercial real estate loan. But standards for commercial loans and consumer loans were unchanged. Analysts are worried that the market volatility since late July will cause banks to curtail credit in coming months, endangering a fragile economy.
From the Federal Reserve:
The July 2007 Senior Loan Officer Opinion Survey
on Bank Lending Practices
As in the April survey, domestic banks were asked to report separately about changes in standards on, and demand for, prime, nontraditional, and subprime residential mortgages. In the July survey, banks indicated that they had tightened their lending standards on each of the three mortgage loan categories over the past three months, and the net fractions of banks that reported doing so in each case were roughly the same as in the April survey. About 14 percent of domestic banks tightened their lending standards on prime residential mortgages over the past three months.6 Of the forty-two institutions that reported having originated nontraditional residential mortgages, around 40 percent noted that they had tightened standards on these mortgage products.7 Of the sixteen institutions that reported having originated subprime residential mortgages, about 56 percent indicated that they had tightened standards on such loans.8
As in the April survey, tighter standards on subprime and nontraditional residential mortgage loans were not necessarily associated with more-stringent lending policies on prime residential mortgage loans. Indeed, only two of the nine institutions that reported having tightened standards on subprime mortgages over the past three months also indicated that they had tightened standards on prime mortgages, and six of the seventeen institutions that reportedly tightened standards on nontraditional mortgage loans noted that they also had tightened standards on prime mortgages.
Regarding demand for residential mortgages, 10 percent of respondents—a smaller net fraction than in the April survey—reported weaker demand for prime residential mortgage loans, and about 20 percent of respondents—around the same net fraction as in the April survey—experienced weaker demand for nontraditional residential mortgage loans. By contrast, about 44 percent of respondents—more than twice the net percentage reported in the April survey—reported weaker demand for subprime residential mortgages over the past three months.
On balance, domestic respondents’ willingness to make consumer installment loans and their lending standards for approving applications on credit card loans were little changed over the past three months. A small net fraction of banks reported having tightened lending standards on non-credit-card consumer loans over the same period. Some terms on both categories of consumer loans were tightened a bit during the survey period. On net, about one-eighth of the respondents reported having raised spreads of interest rates charged on outstanding credit card balances relative to their cost of funds, and about one-fourth of the respondents reported having reduced the extent to which consumer loans other than credit card loans were granted to customers who did not meet credit-scoring thresholds. The remaining terms on both types of consumer loans were reportedly little changed, on balance. Finally, about one-fifth of domestic respondents reported that they had experienced weaker demand for consumer loans of all types, about the same net fraction as in the April survey.
The full report can be found here:
http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200708/fullreport.pdf
Page 31 is the most interesting..
Prime Mortgages
All Respondents
Tightened somewhat 14.3%
Remained basically unchanged 85.7%
Nontraditional Mortgages
All Respondents
Tightened considerably 4.8%
Tightened somewhat 35.7%
Remained basically unchanged 59.5%
Subprime Mortgages
All Respondents
Tightened considerably 25%
Tightened somewhat 31.3%
Remained basically unchanged 43.8%
JB,
Thanks as always!
Eagle
These guys thought page 31 was interesting too..
From the AP, via the IHT:
Federal Reserve finds U.S. banks tightening standards on subprime mortgages
Most U.S. banks have tightened lending standards on subprime mortgages, the Federal Reserve said Monday in a survey that provided further evidence of the spreading problems in mortgage lending.
The Fed said it found that 56.3 percent of banks responding to a survey reported that they had tightened their lending standards for subprime mortgages, loans offered to borrowers with weak credit histories.
The survey found that 40.5 percent of banks responding said they had tightened loan standards for so-called nontraditional mortgages. The Fed defines this category as adjustable-rate loans with multiple payment options, interest-only mortgages and products referred to as “Alt-A” loans that offer such features as limited verification of incomes.
The Fed survey found that even on prime loans, which offer traditional payment options such as 30-year mortgages to borrowers with strong credit histories, 14.3 percent of the banks responding said they had tightened their lending standards “somewhat.”
JB,
This is another “train track” special. Unlike the other house that literally backed onto the tracks, this is less than a tenth of a mile from the tracks (appears to be about 300 feet, maybe less).
ES
120 – njpatient,
you cant completely blame those who hadnt sold their now vacant home to buy their second home…i have friends who needed to move up (kids) that had to price their current home at these high prices to buy their bigger home – which also was priced too high!
so 2001 – 2006 RE just got into a vicious cycle – i believe its going to take a hard beating to correct itself…
120 – njpatient, 124 – bi,
you cant completely blame those who hadnt sold their now vacant home to buy their second home…i have friends who needed to move up (kids) that had to price their current home at these high prices to buy their bigger home – which also was priced too high!
so 2001 – 2006 RE just got into a vicious cycle – i believe its going to take a hard beating to correct itself…
Anyone know where to get a topography map for Bergen county that has elevations on it? I’ve found some different things online, but I didn’t see elevations noted on them.
Page 31 is the most interesting..
Prime Mortgages
All Respondents
Tightened somewhat 14.3%
Remained basically unchanged 85.7%
Nontraditional Mortgages
All Respondents
Tightened considerably 4.8%
Tightened somewhat 35.7%
Remained basically unchanged 59.5%
Subprime Mortgages
All Respondents
Tightened considerably 25%
Tightened somewhat 31.3%
Remained basically unchanged 43.8%
What Credit Crunch?
72 Ridge- what are the taxes? $16K?
i have friends who needed to move up (kids) that had to price their current home at these high prices to buy their bigger home – which also was priced too high!
Sounds like a justification, not a reason.
jb
Eagle,
72 Ridge was also listed on NJLMS and is now under contract with a estimated close date of August 27
ACT 72 RIDGE RD $1,275,000 1/29/2007
PCH 72 RIDGE RD $1,190,000 2/26/2007
W-C 72 RIDGE RD $1,190,000 6/29/2007
EXP 72 RIDGE RD $1,190,000 7/29/2007
ACT 72 RIDGE RD $998,000 6/29/2007
ACT* 72 RIDGE RD $998,000 7/27/2007
U/C 72 RIDGE RD $998,000 7/27/2007
Rich
72 Ridge- what are the taxes? $16K?
Closer to $18k ($17,905 – from the listing).
jb
72 Ridge taxes: $17,905
Stop following me…
Rich
JB/or anyone with MLS access-
would you mind giving me the history on these two addresses:
39 Maltese Dr.
43-06 Williams St.
Both Fair Lawn…thanks in advance.
JM
Buy Low, Divorce High
http://www.nytimes.com/2007/08/12/fashion/12divorce.html?_r=1&oref=slogin
“The client, a former high-ranking fashion executive and perpetual volunteer at her children’s private schools, was checking the price she could get for her nine-room co-op in a prewar building. When the market reached a high, she told Ms. Kleier, she planned to divorce her husband, sell the apartment and live on her share of the profits.”
“She felt that she couldn’t walk out on him until she had the money to move away and buy something on her own,” Ms. Kleier said. “The real estate market allowed her to buy her freedom.”
Rich,
Thanks- it would not shock me if this one also fell out of contract. (I think that other dramatic price drop house is still under its second attorney review.) That street-Ridge Road- just does not appear to support that price. I found one sale in late 03 (height of market)for 900k, but the other sales, in 2000 or so, were in the 300s and 400s (or maybe low 500s).
The only good thing is it is definitely walk to the train station.
#137
“you cant completely blame those who hadnt sold their now vacant home to buy their second home…i have friends who needed to move up (kids) that had to price their current home at these high prices to buy their bigger home – which also was priced too high!”
Yes, I can blame them, and I do. I “need” to move up, but I don’t because it would be fiscally stupid to do so. Here’s an old fashioned concept: if something is, as you say, “priced too high”, don’t buy it.
They didn’t “need”, they “wanted.”
39 Maltese Dr. sold $445,000 6/30/2006
ACT 43-06 WILLIAMS ST $579,000 5/3/2005
PCH 43-06 WILLIAMS ST $568,900 6/13/2005
PCH 43-06 WILLIAMS ST $549,000 7/21/2005
ACT 43-06 WILLIAMS ST $538,000 9/13/2005
PCH 43-06 WILLIAMS ST $528,000 11/1/2005
PCH 43-06 WILLIAMS ST $518,000 11/28/2005
PCH 43-06 WILLIAMS ST $498,000 1/23/2006
PCH 43-06 WILLIAMS ST $478,000 4/5/2006
SLD 43-06 WILLIAMS ST $450,000 6/16/2006
njpatient, i dont think they would make that decision (not to sell first before they move) now! yes, to me it was always a stupid move but there was a time (01 – 05) when you could pull something like that off! some (probably a lot)folks just timed it wrong thats all…we now have a new demographic in this country – bagholders!
#151
“yes, to me it was always a stupid move but there was a time (01 – 05) when you could pull something like that off! some (probably a lot)folks just timed it wrong thats all”
They went to Vegas, let it all roll on Red 23 and lost a mint. Now they want me to make them whole.
Like I said: gambling insurance.
From the AP:
Thornburg Shares Hit 52-Week Low
Shares of Thornburg Mortgage Inc., a prime mortgage lender and real estate investment trust, fell in Monday trading after Standard & Poor’s downgraded its credit rating Friday and as concerns in the mortgage market persist.
…
&P downgraded Thornburg Mortgage’s long-term counterparty credit rating to “B” from “BB” Friday, citing the “unsteady state of secured financing capital markets” that the company relies upon to fund operations.
The credit-rating downgrade means Thornburg will likely have to pay higher interest or provide more collateral to borrow money in the future.
Coupled with increasingly illiquid capital markets, Thornburg could see a “significant impact on the company’s ability to retain assets and generate income,” David Hochstim, an analyst for Bear Stearns Cos., said in a research note Monday.
…
The capital markets, from which mortgage lenders can access capital to provide more loans, have been disrupted in recent months as investors shy away from purchasing mortgages or lending money tied to those loans. Investors are worried about rising delinquencies and defaults among subprime mortgages — loans given to customers with poor credit history — spreading to the greater market.
Thornburg Mortgage, which is not a subprime lender, could end up being caught in the middle, Hochstim said in the note.
“Despite the fact that Thornburg has executed well on its strategy to underwrite, purchase, and hold extremely high quality assets, it appears lenders are not differentiating,” among mortgage products, Hochstim wrote in the note. “Thus, Thornburg may be getting very little credit for its careful management of credit risk.”
Rich in NNJ- thank you. do you know how many bedrooms/baths those two had?
JM
Maltese Drive condo: 3 bedrooms, 3 baths, 1 half-bath
Williams Street split-level: 3 bedrooms, 2 baths, 1 half-bath
Regarding the $3 billion bailout to the Goldman funds: Anyone know how much fees Goldman raked in through these funds since inception? The net hit to Goldman isn’t as much as the headlines state.
Some buyers will just never learn. Sellers will have the last laugh.
For topos google Terraserver ($)
JPJP no worries pricess will come down 20-30% ,,,agent will be calling you. :)
Homeowners Pile Out of Adjustable Mortgages
NEW YORK (Reuters) – U.S. homeowners continued to pile out of adjustable-rate mortgages taken out during the housing boom in a bid to escape interest-rate volatility plaguing markets, according to Freddie Mac data.
Some 86 percent of borrowers in hybrid adjustable-rate mortgages — loans with a fixed rate for the initial three to 10 years — guaranteed by Freddie Mac obtained fixed-rate loans last quarter, the McLean, Virginia-based company said. In the first quarter, 88 percent of hybrid ARM borrowers refinanced to a fixed-rate loan.
More at: http://www.reuters.com/article/domesticNews/idUSLAU36888020070813?src=081307_1530_DOUBLEFEATURE_noriega_in_court
BC Bob & Chifi >
Wall Street bonuses, jobs lose certainty
http://www.reuters.com/article/marketsNews/idUKN1335944420070813?rpc=44
It would not be surprising, should the market continue to correct, that come December people will be surprised by the paucity of their bonuses next year,” said Harlan Platt, a business professor at Northeast University who has written books about corporate meltdowns. “And a goodly number may find themselves looking for work elsewhere.”
>>RSF ss down another 8% today. Any heads up ono when you plan to start dollar cost averaging?
i haven’t bought it yet dope. i told you i was watching it waiting for another leg down. the leg hasn’t finished falling yet. i did buy some BGY at a bit above $18 though. if you don’t have the stomach for risk keep your money in the bank.
#160,
Mr. RSF
I have the stomach for risk, not for gambling my down payment away. So yes, my money is in the back. Envious?
>>Do you have any idea what that will do to the strength of the dollar?
if the economy hits the skids the first order of business will be to lower the rates. it’s nice to have core directives but they go out the window when higher priorities manifest.
I hate to say this, Richard, but your post at #160 is simply incorrect. You did say you were probably buying on July 26th or 27th. Perhaps you forgot, so perhaps you aren’t lying.
To quote you on July 26th: “i also mentioned RSF but that has more high risk debt exposure hence the near 15% yield. probably pick some of this up today or tomorrow it’s at the right price point for my purposes.”
“if the economy hits the skids the first order of business will be to lower the rates. ”
Don’t believe in the free market, do you?
market recap: 10 yr yield down to 4.76%. stock index going nowhere, waiting for fed decision on interest rate.
hey einstein note the word probably. i decided not to due to the submprime issues brewing and it looks like i got it right. still i look at these things long term not in a couple of weeks. for example i bought EEM in april 2004 and still have it.
#166
Nice try, Sherlock
You again:
“Richard Says:
July 26th, 2007 at 4:27 pm
while my comment on recommendations is sitting in moderation, i’ll give you the summary. check out BGY and RSF. about time to buy both of them.”
I think we know what your stock picks were. Keep dancing.
“due to the submprime issues brewing ”
That was July, not March.
BI: Beezer was down 20% today. Did you buy on Friday when you said the homebuilders had bottomed? 4 for 4 my butt!
170#, check out “weekend discussion” – i flattened out all longs/shorts. only long pph in case you need more Wellbutrin next spring
Stu (170)-
Note bi’s silence today since I asked him if he was long the HBs at the opening bell.
My 14 y/o daughter woke up this AM and wanted to short the HBs with her brokerage account. I felt terrible to have to tell her it doesn’t have a margin feature. If I see any more tips here from bi and reech, I may have to rectify that.
Just think: I can teach my daughter how to short sell by having her shoot against those two!
Good times.
bi (171)-
“…i flattened out all longs/shorts…”
Was that before the bell on Friday, or at the bell this morning?
BI only trades on the LSE.
The Lemonade Stand Exchange.
He may buy some December Car Wash puts as well.
Former Enron advisor Paul Krugman is, let’s say, a bit lacking in credibility:
“…i flattened out all longs/shorts…”
Meant to say, my margin clerk flattened me.
Can someone with GSMLS access please give me the history for 42 Christopher in Montclair?
This is a cheap flip renovation that was way overpriced (original asking price $140,000 above new assessment). Am trying to find out if it is under contract or was just withdrawn.
Thanks.
UC
#177
How long has it been?
He’s probably right.
Very late to the party, but I’ll add my 2 cents just the same.
I think my favorite comment of the day came from good ol’ Mike at 23. A man about whom the most charitable view to be taken is that he is telling the truth when he posits himself as a scrambling investor. How he managed to acquire those riches while lacking basic understanding of a newspaper is another question.
The fact that the writer is Paul Krugman, an economist whom every poster on this board would love to be able to say is one of his children’s teachers, also says a little something about Mike’s knowledge of the world in general, but in fairness, is not necessarily all that telling.
The fact that he would take half a dozen words Krugman throws away on Bush as indicating anything tells me his motives in that post are something other than his immediate financial condition, which I suspect is deteriorating nonetheless.
BTW TBW at 56,
I was making fun of Bush before making fun of Bush was cool. (I never really could enjoy it though, the guy is one scary nutcase)
SPECIAL BONUS: It’s always a good sign to find yourself in 100% opposition to Bi. (post 61)
Sometimes people who seem slow witted are slow witted. Other times they are just preening arrogant assholes who don’t give a shit about anything other than their old boy’s network, but are willing to pretend otherwise to get what they want.
Thanks, JB (#180). This house was bought by the flippers last year for $485k and originally listed for $829k and dropped several times until the final LP of $769k. I’d be interested in finding out what it sells for. Is there an estimated close date?
I have friends that looked at this place and am told it was a really cheaply done renovation. Layout is weird (converted back from a 2 family), deck wood is rotting and the corners don’t match up….the driveway is even gravel.
I live in Rumson where the normal taxes are about 30K to 60K ,some places are over 100K I was wondering what happens if we have a depression and the property tax is more than what the home is worth?