From the Wall Street Journal:
CREDIT AND BLAME
How Rating Firms’ Calls Fueled Subprime Mess
Benign View of Loans Helped Create Bonds, Led to More Lending
By AARON LUCCHETTI and SERENA NG
August 15, 2007; Page A1
In 2000, Standard & Poor’s made a decision about an arcane corner of the mortgage market. It said a type of mortgage that involves a “piggyback,” where borrowers simultaneously take out a second loan for the down payment, was no more likely to default than a standard mortgage.
While its pronouncement went unnoticed outside the mortgage world, piggybacks soon were part of a movement that transformed America’s home-loan industry: a boom in “subprime” mortgages taken out by buyers with weak credit.
Six years later, S&P reversed its view of loans with piggybacks. It said they actually were far more likely to default. By then, however, they and other newfangled loans were key parts of a massive $1.1 trillion subprime-mortgage market.
Today that market is a mess. As defaults have increased, investors who bought bonds and other securities based on the mortgages have found their securities losing value, or in some cases difficult to value at all. Some hedge funds that feasted on the securities imploded, and investors as far away as Germany and Australia have suffered. Central banks have felt obliged to jump in to calm turmoil in the credit markets.
It was lenders that made the lenient loans, it was home buyers who sought out easy mortgages, and it was Wall Street underwriters that turned them into securities. But credit-rating firms also played a role in the subprime-mortgage boom that is now troubling financial markets. S&P, Moody’s Investors Service and Fitch Ratings gave top ratings to many securities built on the questionable loans, making the securities seem as safe as a Treasury bond.
Also helping spur the boom was a less-recognized role of the rating companies: their collaboration, behind the scenes, with the underwriters that were putting those securities together. Underwriters don’t just assemble a security out of home loans and ship it off to the credit raters to see what grade it gets. Instead, they work with rating companies while designing a mortgage bond or other security, making sure it gets high-enough ratings to be marketable.
The result of the rating firms’ collaboration and generally benign ratings of securities based on subprime mortgages was that more got marketed. And that meant additional leeway for lenient lenders making these loans to offer more of them.
…
The subprime market has been lucrative for the credit-rating firms. Compared with their traditional business of rating corporate bonds, the firms get fees about twice as high when they rate a security backed by a pool of home loans. The task is more complicated. Moreover, through their collaboration with underwriters, the rating companies can actually influence how many such securities get created.Moody’s Investors Service took in around $3 billion from 2002 through 2006 for rating securities built from loans and other debt pools. This “structured finance” — which can involve student loans, credit-card debt and other types of loans in addition to mortgages — provided 44% of revenue last year for parent Moody’s Corp. That was up from 37% in 2002.
When Wall Street first began securitizing subprime loans, rating firms leaned heavily on lenders and underwriters themselves for historical data about how such loans perform. The underwriters, in turn, assiduously tailored securities to meet the concerns of the ratings agencies, say people familiar with the process. Underwriters, these people say, would sometimes take their business to another rating company if they couldn’t get the rating they needed.
“It was always about shopping around” for higher ratings, says Mark Adelson, a former Moody’s managing director, although he says Wall Street and mortgage firms called the process by other names, like “best execution” or “maximizing value.”
Executives at both ratings firms and underwriters say the back-and-forth stopped short of bargaining over how to construct securities or over the criteria used to rate them. “We don’t negotiate the criteria. We do have discussions,” says Thomas Warrack, a managing director at S&P, which is a unit of McGraw-Hill Cos. He says the communication “contributes to the transparency” preferred by the market and regulators.
Some critics, such as Ohio Attorney General Marc Dann, contend the rating firms had so much to gain by issuing investment-grade ratings that they let their guard down. They had a “symbiotic relationship” with the banks and mortgage companies that create these products, says Mr. Dann, whose office is investigating practices in the mortgage markets and has been talking to rating firms.
…
The chief credit officer at Moody’s, Nicholas Weill, replied that some of the original subprime data provided to rating firms weren’t “as reliable as expected.” He also said Moody’s put out “early warnings” of downgrades as far back as November 2006. Instead of cutting ratings right away, he added, Moody’s needed time to see whether the loans would start to recover. “What we do is assess information available at the time,” Mr. Weill said.S&P, Moody’s and Fitch Ratings have reacted by repeatedly toughening their ratings methodology for new subprime bonds, requiring significantly bigger cushions. They now assume more and quicker defaults among pools of loans, especially those with piggybacks.
The changes have had an effect. About 27% of loans made in the first quarter of this year had piggybacks attached, down from 35% a year earlier, according to S&P research. Overall, issuance of subprime-mortgage bonds is down 32.5% this year through June, according to Inside Mortgage Finance. That is resulting in lower Wall Street profits and tighter lending standards for consumers.
Committees in the U.S. House and Senate are broadly examining the mortgage market, as are various state and federal agencies. It’s not clear whether ratings firms will become a focus of the inquiries.
From Bloomberg:
Basis Capital Tells Investors Loss May Exceed 80%
Basis Capital Fund Management Ltd. told investors losses at one of its hedge funds may exceed 80 percent as the U.S. subprime mortgage rout prompted creditors to force the Sydney-based company to sell assets.
Basis Capital is unable to “accurately estimate” the value of units in its Yield Fund, the hedge fund said today in a letter sent to investors and obtained by Bloomberg News. The losses have worsened since a month ago, when it said the fund may decline more than 50 percent. The firm managed $1 billion in March.
“Any fund with securities backed by lower quality U.S. mortgages is having trouble finding prices and valuations,” said James Alexander, who helps manages the equivalent of $9.9 billion at AllianceBernstein Holding LP in Melbourne.
Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, also reported losses today sparked by the subprime crisis. Asian stocks slumped to a three-month low on concern that falling credit markets may trigger a wider slowdown in economic growth.
“The situation in global structured credit markets remains fluid and uncertain,” Basis said in the letter.
…
Basis Capital’s financiers have increased margin requirements “as a result of a global market-wide increase in risk aversion and a general desire to reduce their exposure to these markets,” the letter said.
The hedge funds ran into trouble by investing in the unrated, riskiest portions of collateralized debt obligations and then leveraging the investment. The portions, also known by bankers as “toxic waste,” are first in line for any losses when borrowers fall short on mortgage payments.
From Bloomberg:
At Mortgage Banks, `Going Concerns,’ Going, Gone: Jonathan Weil
You think your job is tough? Think about the poor schlimazels from Deloitte & Touche LLP who blessed the books at American Home Mortgage Investment Corp., mere months before it went belly up.
The Deloitte accountants faced a crucial decision as they finished their audit work in March. Deloitte could resign and walk away. The firm could qualify its audit opinion by saying there was “substantial doubt” about American Home’s ability to continue as a “going concern” through the end of the year — as many short sellers already had concluded. Or it could give the company a clean opinion, expressing no doubt, which is what Deloitte did.
Five months later, on Aug. 6, American Home filed for Chapter 11 bankruptcy-court protection, still brandishing the firm’s clean audit-opinion letter.
There’s a reason why you don’t see auditors pursuing second careers as tarot-card readers. They wouldn’t be very good at it. Yet every time an accounting firm renders an opinion on a client’s financial statements, the auditing standards say it must evaluate the company’s ability to continue as a going concern, and warn the public if it concludes there’s “substantial” doubt, a term the rules don’t define.
The home-mortgage industry’s growing casualty list is a reminder: They’re not very good at that either.
You almost have to feel sorry for the Deloitte accountants who drew this thankless task. While in hindsight it looks like they made a bad call, they also were in a pickle.
From the SF Chronicle:
Mortgage crunch has even wealthy buyers scrambling for credit
Mortgage woes have moved upstream, landing even in tony neighborhoods.
The credit crunch now is hitting home buyers from all walks of life, not just subprime borrowers with poor credit. That in turn could mean fewer buyers – and lower prices.
For instance, a multimillion-dollar deal in Larkspur went belly-up last week when the lender yanked the financing at the last minute.
“Everything was perking along smoothly. All contingencies were removed,” said Bill Hogan, a Realtor with Coldwell Banker in Greenbrae, who sold the four-bedroom home for $2.45 million and expected to close the deal later this month. “The loan was approved and locked in. People were ordering moving trucks, everyone was feeling euphoric.”
On Thursday, the couple buying the house learned that their lender was rescinding their loan because they were making only a 10 percent down payment.
“All of a sudden the lender, because it is backed by a series of investors that are feeling very shaky and panicky, decided it could no longer honor the loan commitment,” Hogan said. “This was not a subprime loan; this was fully documented, people with outstanding credit who own a $5 million home now and didn’t need to sell it to buy this one.”
The buyers could have gotten a mortgage at a substantially higher rate – just under 8 percent – Hogan said, but “they crunched the numbers and said, ‘Hell, no, maybe this is a sign for us to get out.’ ”
The buyers walked away from the deal, forfeiting their $73,000 deposit. The home is back on the market for $2.2 million, its original asking price.
The incident underscores how the mortgage crisis could undermine real estate prices.
Lenders nationwide have drastically tightened their purse strings because Wall Street investors, spooked by rising foreclosures and defaults, no longer want to buy mortgages. Earlier this year, both lenders and investors soured on subprime loans to people with poor credit.
But starting last week, Wall Street started to spurn jumbo mortgages – those above $417,000 – even for borrowers with sterling financial profiles. Those loans have become scarcer, harder to qualify for and more expensive.
…
“A month from now, when we’re reporting closings for the month of August, we think that will be a pretty lousy number because of the mortgage market crunch,” said Andrew LePage, an analyst with research firm DataQuick Information Systems of La Jolla (San Diego County).
these people are really stupid. the market is going to crash and bargain will be everywhere in winter.
Market Watch: Mortgage applications up 3.4% last week
http://www.marketwatch.com/news/story/mortgage-applications-up-34-last/story.aspx?guid=%7B5382489E%2DE98E%2D4DF3%2DBB19%2DD68B275BD9DC%7D
KKR Financial cut at Lehman due to capital markets risk
http://www.marketwatch.com/news/story/kkr-financial-cut-lehman-due/story.aspx?guid=%7B443ECCE9%2D6EC9%2D4C05%2D8B7C%2DE5BF364EFDB6%7D&dist=hplatest
Countrywide cut at Merrill on liquidity concerns
http://www.marketwatch.com/news/story/countrywide-cut-merrill-liquidity-concerns/story.aspx?guid=%7BF4DFC861%2D4209%2D492D%2DA9FB%2D36817B8F7AC3%7D
Merrill Lynch downgraded Countrywide Financial Corp. to sell from buy…
Here is another troll we should bash. How come San Diego condos will not go down 50% before hitting the bottom? it must come down 40% this winter since it went up more than 120% in 3 years from 2002 to 2005.
“DataQuick analyst John Karevoll interpreted the prices and sales as a sign that San Diego real estate may be nearing the bottom of the post-boom period.
‘Most of the declines in San Diego have happened,” Karevoll said. “Now it appears to be re-establishing a balance that we have yet to see for the (Southern California) region.’ ”
http://www.signonsandiego.com/news/metro/20070814-9999-1n14prices.html
Banks not accepting credit portfolios as collateral: report
http://www.marketwatch.com/news/story/banks-not-accepting-credit-portfolios/story.aspx?guid=%7BAB417908%2DB787%2D45B4%2D9FD3%2DDD35E9D38880%7D
U.S. banks caught in the credit market upheaval have started refusing to lend money against hedge funds’ subprime credit portfolios, the Financial Times reported Wednesday. Hedge funds said several banks in recent days had cut off lending to funds that use credit portfolios, including mortgages, collateralized debt obligations and subprime securities, as collateral, the newspaper said.
From MarketWatch:
Mortgage applications up 3.4% last week: MBA
The volume of applications filed seeking mortgages increased at a seasonally adjusted 3.4% last week compared to the prior week, according to the Mortgage Bankers Association’s weekly survey.
…
However, this uptick may be misleading: The industry group’s chief economist said “recent upheavals” that have hit the mortgage industry may be contributing to that boost.
In particular, the industry’s turmoil “may be temporarily increasing the level of retail application activity at the large lenders that participate in the MBA survey rather than representing a systemwide increase,” said Doug Duncan, the MBA’s chief economist and senior vice president of research and business development.
Some industry observers have suggested in recent months that stricter lending standards are causing some borrowers to submit more than one application for a mortgage loan, thereby weakening the correlation between the volume of applications and the number of home sales.
…
The volume of loan applications to refinance a home was up 2.6% last week over the previous week, according to the survey. The volume of purchase loan applications was up a seasonally adjusted 3.9%.
The four-week moving average for all mortgage applications was up a seasonally adjusted 1.9%.
Meanwhile, the refinance share of mortgage activity stayed at 39.9% of all applications, unchanged from the previous week. The adjustable-rate mortgage share was 21.0%, down from 22.5% of total applications the week before.
“Banks not accepting credit portfolios as collateral: report”
bear [8],
Not a problem. The fed will accept them.
This is amusing…
http://www.njherald.com/289592896182469.php
Senior citizen condos aren’t selling, so they open them up to “single professionals”. The problem is that anyone who wants to live in Sussex County (and has to commute) wouldn’t want to live in the heart of Newton. But you have to love how they spin these things. Out of 45 units they only sold 2!
“But starting last week, Wall Street started to spurn jumbo mortgages – those above $417,000 – even for borrowers with sterling financial profiles. Those loans have become scarcer, harder to qualify for and more expensive.”
Good friend of mind just got his JUMBO mortgage pulled after being approved last week. His words: “This real estate market is in trouble if nobody can get a JUMBO”.
Senior citizen condos aren’t selling, so they open them up to “single professionals”.
I wonder if this will become more common, or even move to the next step where units are non-restricted.
jb
RE Mortgage Applications:
How come they don’t give the number of approvals?
to post 11:
Aside from its upscale quality, the next biggest marketing tool is expected to be the price. The starting price has been decreased from $299,900 to the low $200,000 range for about six of the units. Cleary declined to provide a specific starting price. Penthouse units are priced from $374,900 to $442,900. The one- and two-bedroom condominiums range from 745 to 1,139 square feet. Each unit has one designated parking space, and 10 additional parking spaces are available for penthouse residents
Modeled after the old Newton School formerly on Halsted Street, Aberlour was originally meant to be an age-restricted community for people ages 55 and older, but those restrictions were lifted in June because the units were not selling to the older buyers. Three units have been completely sold, Cleary said.
How pathetic – 3 units have been sold out???
Also – what happens if single young professional get married and have children – do they have to sell??
Was not that the idea – not bringing more kids into town??
Again – big scam – providing insentives for builders whithout even considering feasibility of hte plan to begin with…
Thats why NJ is doomed and in 5 years taxes will be double of what they are now. Why would anybody want to live here unless they are working in finance in NYC??
I was goint to buy a house sometimes next year, but now looking at 300-500 increase in taxes this year (about 11% on average home where I live) right after 4% cap was approved – I do nto think so.
I think what have to happen – homeowners will revolt against state goverment as taxes raise and they can not sell their homes and move away at all – or state will default on its pensions obligations.
Very few people would even consider buying a home with 18K taxes, and mortgage….
People in NJ are “not very smart” I guess. otherwise I can not explain why in NJ taxes are 12K on the similar house that in any other part of the country taxes would be 1800$/year.
13 & 15 – I’m not sure you can restrict sales to “single professionals”. How do they define this and how do they enforce it? Is a “single professional” with a child ok? Is a single person with a blue collar job good enough if he has the $$$? Are they going to turn sales down if the buyer doesn’t fit the mold? I think not.
#11 – Senior citizen condos aren’t selling, so they open them up to “single professionals”.
I wonder if the Newton will make the developer compensate it for the impact lifting the age restriction has on its Affordable Housing (COAH) Obligation, since even upscale age restricted housing can be counted towards the town’s COAH obligation.
There are very few single professionals in Sussex County. It is a family oriented area.
Re: Jumbos Killing Housing Market. Your are only supposed to take at MAX a loan for 2.5 income. So you need over 175K income just to afford the smallest jumbo possible and you guys have been telling me something like 95% of NJ makes less than this. Also you still can borrrow up to 50K from your 401K for a house purchase so if your wife works that is 100K and banks would like to go back to 20% down. Plus banks are still going to allow up to 100K home equity loans after your close. So you an borrow 100K from Mommy and Daddy and pay them back after the close, cause you can’t piggy back at closing anymore. So that means you can borrow up to 417 confirming, 100k 401k and 100k home equity. That is 617, which at the 2.5 rule you need almost 250K income which 98% of NJ does not make.
That is why housing collasped – pre-funny money you could still leverage your self pretty damm good. My brother 15 years ago did the 100K 401K approach and borrow 100K in home equity the mommy method and put down 100K from his savings account and they were rolling nickles and pennies the first year litterally to buy pizza. Wow today they could have done it without the 100K downpayment and a fixed rate, too much leverage for a young couple. I hope the piggyback nothing down jumbo is gone for good. It was great for the mexican gardners who got to live in Alpine until their 3/27 reset, but to the rest of us hardworking folks it was a nightmare.
Re – to get the tax write off to be a senior complex they can sell to no buyer with a child under 18. That is their school tax break. So whoever they sell too has to either agree to not put kids in the school district or pay full taxes. Singles make the most sense, they would agree to buy a one bedroom with that catch, that save couple thousand a year on taxes so who cares if they have to sell when they have a kid, a young married couple would never agree
cynicalgirl Says:
August 15th, 2007 at 8:12 am
13 & 15 – I’m not sure you can restrict sales to “single professionals”. How do they define this and how do they enforce it? Is a “single professional” with a child ok? Is a single person with a blue collar job good enough if he has the $$$? Are they going to turn sales down if the buyer doesn’t fit the mold? I think not.
From Newsday:
Feds want lenders to disclose more
Federal bank regulators want to make it easier for subprime borrowers to understand the terms of adjustable rate mortgages.
Adjustable rate mortgages, which provide low “teaser” rates for the first few years before converting to a higher fixed rate, have become increasingly popular in recent years. But borrowers and consumer advocates have complained that they are not told just how high their monthly payments can go after the teaser rate expires. This has left some homeowners struggling to pay their bills, leading to the recent wave of delinquencies and defaults. Subprime borrowers have weaker credit backgrounds and pay higher interest rates.
The regulators, including the Federal Reserve, are proposing giving borrowers two forms that provide more detailed information about how ARMs work, highlighting that the monthly payments could increase significantly over time. The first form is a tip sheet, while the second provides a comparison of monthly payments under a fixed rate mortgage and an ARM. The form shows that borrowers with a 30-year fixed rate mortgage pay $1,598 a month to borrow $200,000 at a 7.5 percent rate, while those with ARMs see their monthly payments rise from $1,531 in the first year to $2,370 in years 5 thru 30.
BC Bob 10],
Do you think Feds will accept non-agency MBS as collateral?
What should be your investment strategy
1] if feds cut rates.
2] Heli Ben starts carpet bombing with dollars.
3] both.
From Bloomberg:
U.S. Subprime Woes to Cost $150 Billion in Losses, Calyon Says
The U.S. subprime mortgage crisis will cost credit investors about $150 billion in losses worldwide, according to Calyon, the investment banking unit of Credit Agricole SA, France’s third-largest bank by market value.
Foreclosures may reach 20 percent of the $1.3 trillion of subprime mortgages outstanding, according to a research note today. Assuming investors can recoup half their investments, losses would be $130 billion, it said. A further $20 billion could also be lost from the $1 trillion of outstanding Alt-A mortgages offered to borrowers with better credit who fell just short of typical standards.
…
Since people in the bottom 20 percent of the income bracket in the U.S., including most of the subprime borrowers, account for 8 percent of personal consumption, “this is likely to lower but not sink economic growth,” Parameswaran said.
Various other estimates for total subprime losses range from $50 billion to $200 billion, according to the report. Federal Reserve Chairman Ben S. Bernanke last month cited potential estimated losses of between $50 billion and $100 billion.
Among subprime mortgages in bonds, late payments of at least 90 days, foreclosures and already-seized property rose to a 10-year high of 12.4 percent in May, from 6.72 percent a year earlier, according to Arlington, Virginia-based Friedman Billings Ramsey Group Inc. By May of 2008, the rate may reach 14.6 percent, Friedman Billings analyst Michael Youngblood said.
…
“Although the eventual subprime losses are unlikely to be overwhelming, the markets are not sure who will be left nursing the wounds,” Parameswaran said. It’s likely to take two to three years for the loss estimates to be known and realized, as the repossessed homes are resold.
22] that’s just subprime.
Re – to get the tax write off to be a senior complex they can sell to no buyer with a child under 18.
Are you saying if single lady bough a condo and than she had a baby she’d have to sell??
I also believe that you have it wrong – buyer’s do not get tax abatement when they buy, – it is the builder who gets tax abatement.
question to John et all,
you can borrow 50K? from your 401K towards your first home? i thought it was only 10K with not penalties?….i may consider this option for a bigger downpayment when the time is right! i knew about all the other options such as gifts..etc
please advise
thanks
CAIBC
Re – to get the tax write off to be a senior complex they can sell to no buyer with a child under 18.
Are you saying if single lady bough a condo and than she had a baby she’d have to sell??
I also believe that you have it wrong – buyer’s do not get tax abatement when they buy, – it is the builder who gets tax abatement. and anyways taxcx abatement only for 5 years total – I believe.
CPI rises 0.1% in July; core rate up 0.2%
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B9E5AED31%2D7F94%2D4E88%2D8580%2DA125E5B084EF%7D&siteid=mktw
Text from the MW link above:
With gasoline prices falling, U.S. consumer prices increased 0.1% in July, the slowest inflation rate in eight months, the Labor Department reported Wednesday. The core consumer price index, which excludes volatile food and energy prices, increased 0.2% for the second straight month. The seasonally adjusted inflation figures were exactly as expected by economists surveyed by MarketWatch. Falling energy prices, a moderate rise in housing costs and flat auto prices held the CPI down in July, partially offsetting higher prices for apparel and medical care. The CPI is up 2.4% in the past year, while the core CPI is up 2.2%, close to the upper end of Federal Reserve’s target zone.
Does the credit crunch apply to car loans and other small products as well?
Senior citizen condos aren’t selling, so they open them up to “single professionals”.
I wonder if this will become more common, or even move to the next step where units are non-restricted.
JB,
I read about this place a few months ago. In reality, they did drop all restrictions. You can’t have “single professional” housing; it’s discriminatory and illegal. With age restricted housing, they get away with it by saying, “well, everyone will be old one day, so we aren’t really discriminating against anyone”.
What happen is the developer sold Hewitt a bill of goods. They get approval for building the condos on the assumption that seniors mean property tax revenues without pressure on the school system. The units weren’t selling, so they apply to the town to get the age restriction dropped. They argue, “don’t worry, we are going to market to single professionals; Families won’t want to live here”.
This happened in my town in the late 1980’s. The developer built condos telling the town that they would be marketed toward NYC commuters. In reality, families moved in by the droves because the town had decent schools and the condos were affordable verses SFHs.
23 dead dogs and cats found in feces-filled mansion
This is a classic example of what’s going to happen to all homes in foreclosure.. It’s obvious that the owners were quite pissed off, and put a ton of cats & dogs in the house to ruin it for the mortgage owner…
classic.. but sad indeed…
Here’s a link to the full article on northjersey.com:
3-car garage hid 23 pets’ bodies
Real wages -0.1% in July.
Anyone know much about Newton? I’m not too familiar with the area, but the development might be pretty interesting.
I found a house on fsbo.com last night that I thought everyone here would appreciate. Of course, for reasons I can’t understand, fsbo.com is blocked from my office. Anyway, it’s in Tenafly, if you search for it, you will instantly know what I’m talking about (my comment about it was going to be something to the effect of how they say Bergen county prices don’t drop…).
Isn’t such good news for the owners of homes on Burning Hollow trying to sell:
12 Burning Hollow
15 Burning Hollow
22 Burning Hollow
29 Burning Hollow
This is a classic example of what’s going to happen to all homes in foreclosure..
The article must have gotten it wrong. Everyone in Saddle River makes at least $250k and works on Wall Street. How could they possibly be in foreclosure?
I’ll bet that they were so busy making money on Wall Street that they just forgot to come home and feed their pets. Their personal assistant probably just forget to drop the mortgage check in the mail.
I can understand this happening someplace else, but Bergen County is special. There must be a reasonable explanation.
From MarketWatch:
Hanover Capital Mortgage delays earnings release
Hanover Capital Mortgage Holdings Inc. Wednesday said the release of its second-quarter financial results and conference call have been rescheduled for Aug. 21. The mortgage REIT “had to re-examine its position regarding declines in the fair value of its available for sale portfolio of its subordinate mortgage-backed securities collateralized by prime mortgage loans,” said Chief Executive John Burchett in a statement. He also cited “a financing transaction that will have a material impact on the company’s financial position” as a reason for the delay.
34#, i guess you found this great deal:
http://www.fsbo.com/list/93719?search=TRUE&state=NJ&search_x=7&search_y=11&zipcode=&range=&type=&county=BERGEN&sprice_min=&sprice_max=&Action=Get+Listings&zipcode=07670&range=&type=&county=BERGEN&sprice_min=&sprice_max=&Action=Get+Listings&start=0
#33, Newton is the county seat for Sussex. Sussex County is rural and Newton is a small town.
I like Sussex County because I can afford to live in a nice home with a large piece of property, but there are no jobs so you have to commute.
The condos in question are in a busy part of town. It would be nice for seniors who like to walk to shopping. I don’t see why anyone else would want to live there–if you’re going to live in the boondocks, do it in a nice house, not in the middle of a town with no public transportation. I’m not surprised that they only sold 3 of them.
You can look at other homes by searching realtor.com for 07860. But be careful that the properties you are looking at are actually in the town of Newton, the zip code is shared by other towns that fit the rural character I just described.
pre-open: s&p futures down 0.7% will easily push dow under 13K i predicted one week ago. 10 yr up 10/32 due to low inflation CPI number.
yesterday most people here predicted re will be down 20% to 50% from 2005 high. my prediction is average 4.5%, which has already happened. due to seasonal effects, the average price may be down 1% to 2% from today at most.
From MarketWatch:
U.S. July industrial production up 0.3%, as expected
U.S. industrial production rose 0.3% in July, the Federal Reserve reported Wednesday. Capacity utilization rose to 81.9%, the highest level since last September. Economists were expecting production to rise 0.3% and capacity utilization to remain at 81.7%. Output in July was revised up to a 0.6% gain from the previously reported 0.5% increase. Capacity utilization in June was revised from 81.7% to 81.8%. Production is up 1.4% in the past 12 months. Manufacturing output rose 0.6% in July. Output of utilities fell 2.1%.
Aug. 15 (Bloomberg) — Countrywide Financial Corp., the biggest U.S. mortgage lender, was downgraded to “sell” by Merrill Lynch & Co., which raised the possibility of bankruptcy if the company loses access to short-term financing.
“We cannot understate the importance of liquidity,” Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note today. “Effective insolvency” would result should Countrywide’s creditors force it to sell assets at depressed prices or investors lose confidence in its ability to raise cash, he wrote.
“If liquidations occur in a weak market, then it is possible for CFC to go bankrupt,” said Bruce, who had rated Countrywide a “buy” since April 2005, according to data compiled by Bloomberg. Countrywide trades under the ticker CFC.
bi (40):
Where are the buyers coming from? How can they afford the houses? Where are they getting loans? What leads you to believe that RE isn’t a bubble, that prices rose 150%-300% in eight years, and will only decline at a fraction of that rate, before continuing their unprecedented ascent? Are you saying that, despite indications to the contrary, RE was UNDERVALUED?
RE is already down 20% -Just yesterday Newsday said that homes in Queens appear to have the same listing price in July 2007 as July 2006, howver in July 2006 most homes went at or near asking and in July 2007 the average home in Queens sell for 20% less than asking. I think that is a huge move.
yesterday most people here predicted re will be down 20% to 50% from 2005 high. my prediction is average 4.5%, which has already happened. due to seasonal effects, the average price may be down 1% to 2% from today at most.
43#, i am not saying every places are undervalued in NJ. if you look at the areas with biggest gains from 2001 to 2005. they are southern jersey coast areas, newark, trenton, new brunswick and etc. most desirable towns are appreciated at normal rates (maybe slightly higher due to catch up from recession from 92 to 98)
34 Lurker-
I posted the link last night. Here it is again:
lostinny Says:
August 14th, 2007 at 10:37 pm
Thought you’d all get a kick out of this:
http://fsbo.com/list/93719?search=1&search=1&search=1&search=TRUE&state=NJ&search_x=13&search_y=6&zipcode=07003&range=25&type=&county=&sprice_min=&sprice_max=320000&Action=Get+Listings&&&&start=0
Who says BC is untouchable?
08/14 14:36 DJ Sovereign CEO: Co Not Currently Selling Loans In This Market
NEW YORK (Dow Jones)–Sovereign Bancorp Inc. (SOV) is holding onto its loans and isn’t selling them on the secondary market for the time being, Chief Executive Joseph Campanelli said Tuesday in a CNBC interview.
“There’s no sense in trying to sell into an extremely volatile, illiquid market,” he said.
Sovereign, however, is still originating jumbo loans, but at higher rates around 8%, significantly higher than the average loan rate about one month ago, he added.
While investors shouldn’t panic, Campanelli said, the credit markets are “very tight,” though the issue remains centered on Wall Street, not Main Street.
“There are a lot of people pulling back,” he said.
Here’s the problem with senior housing and property taxes. Seniors living in their current homes—the ones they’ve occupied for years and years—are getting big property tax help in the form of senior rebates and taxes that were “frozen” at the rates they were paying when they retired. If they move into a senior complex, that tax break goes away and they pay the full bill, which, at least in my mother’s case, would be about three times as much as her current property tax bill.
Al—thanks for correcting John’s statement about property taxes on these units. Whatever abatements are given to build senior complexes are given by the individual towns. In some cases, there are no abatements at all. The towns just make senior housing the only approvable projects for the developers to build.
HE (14)-
Those “approvals” are conditional. Too many things can cause them not to go through to a formal commitment.
Kinda like reporting resale homes under contract as sales.
44#, it is not very accurate when you compare transaction price to listing price. there are at least two reasons: 1) the house with higher price tag is selling slower (it is normal); 2) some sellers mark up asking price to leave rooms for bargain.
It’s interesting, because in my hometown, they built some heinous condos – really bad finishes, cheaply done. They couldn’t sell them for their lives – I think they were asking in the 400-500 range. So now they have made them into “senior” housing with prices in the 300s – and they still can’t sell them, because well, they’re garbage. People will try anything and everything I guess. I suspect they will turn into low income rentals soon enough.
44#, if it was down 20% norminal term (25% inflation-adjusted), don’t you think its good buying opportunity?
Re Senior Housing – It depends on the location. For instance Suffolk County gives a huge school tax break to senior communities who restrict to over 55 owners and who have bylaws that state no children under 18 can live there. No students at all in the school district. Litterally at the Suffolk border just over the Nassau line their are lots of beautiful complexs that get seniors from the tristate regiion who don’t want to do that Florida thing but be driving distance to kids. The seniors get the break not the owners. My aunt moved to a new one when she was 57 and most people were couples 55-70, most work and a lot have kids at home in college over 18. A one million dollar top of the line mc mansion, with pool house, GC club etc 4K square foot unit is less than 6k in total re taxes.
CAIBC (25)-
IMO, it is almost always a mistake to borrow against your 401k for ANY reason.
from market watch : Chinese investors held $405.1 bln in Treasurys in June
>>
It looks like the Chinese are selling Ts.
from the wiki: Chinese owned 420B worth of US treasuries at the end of first quarter 2007.
http://en.wikipedia.org/wiki/U.S._public_debt
DOW – 12993…..
54#, Clotpoll, i agree with you on this even though we hardly agree on anything
Grim (35)-
They should change the name of that street to Burning Equity.
(40)-
Bi…now scarfing Wellbutrin from a Pez dispenser.
You go, Goldilocks!
BTW, are you really Larry Kudlow?
bi (57)-
That genuinely frightens me.
“you can borrow 50K? from your 401K towards your first home? i thought it was only 10K with not penalties?….”
CAIBC, you can borrow up to $10K from your IRA without paying any penalties or tax. If you borrow from your 401k, you will be hit with a 10% penalty, plus pay federal and state taxes. Think of the 401 withdrawal as getting approx 60 cents on the dollar.
If absolutely necessary, borrowing against a 401k account (if employer allows it) is a better option, since you’re paying back yourself. The risk is that if you quit or are fired, the 401k loan becomes immediately due (within 60 days). If not paid back, it is deemed a withdrawal and penalties will apply.
DJIA 12970.39 -58.53 9:41am
NASDAQ 2490.22 -8.90 9:41am
S&P 500 1420.21 -6.33 9:41am
59#, i hate to use glodilocks again. but it is really goldilocks: stocks down, bonds up. it means fed will cut rate to give more credit to borrowers and RE will hit my target 10% appreciation in certain areas next spring.
You guys are mixing apples and oranges. You can BORROW 50K. There is no penalities or taxes. You are talking Withdrawl. Contrary to popular belief it sometimes is a good deal, I did it in Feb 2000 at bubble prices and by pure luck paid my self back with interest post bubble and I made money off the deal and it helped my 401K. On the other hand if you did this March 03, you borrowed at the bottom and paid back at the peak with higher interest. Hey its VEGAS baby.
(63)-
Correction: Bi is chasing those Wellbutrin with Johnnie Walker.
Fed funds has nothing to do with mortgages, why does this guy think RE is going up. It makes no sense. As Jim Cramer said recently, “I just sold my last house for a 200K loss and I feel sorry for the idiot who bought it”.
you can borrow 50K? from your 401K towards your first home? i thought it was only 10K with not penalties?….i may consider this option for a bigger downpayment when the time is right! i knew about all the other options such as gifts..etc
please advise
Problem is that the 401k loan needs to be repaid. So, as far as your debt load goes, it’s still part of your monthly payment.
Also, when you repay a 401k loan, you do so with after tax dollars. However, when you withdraw money upon retirement, it will be considered a before tax contribution and you will be taxed again.
401k loans should really be avoided unless absolutely necessary.
RE 61:
If absolutely necessary, borrowing against a 401k account (if employer allows it) is a better option, since you’re paying back yourself. The risk is that if you quit or are fired, the 401k loan becomes immediately due (within 60 days). If not paid back, it is deemed a withdrawal and penalties will apply.
In this scenario isn’t one borrowing pre-tax dollars and paying back with after-tax dollars? If so, sounds like a raw deal.
66#,
look at yield curve:
http://money.cnn.com/markets/bondcenter/?
this curve cannot sustain forever. there is arbitrage opportunity here. either fed will cut short-term rate or banks will bring up long-term rate. i bet the former.
#68, WickedOrange
That’s why I said ‘absolutely necessary’ before considering a loan from a 401k.
It all depends on what the cost of taking a withdrawal is (lost tax-free compounding inside 401k, ASSUMING your 401k balance is growing). It may be a better option than paying an exorbitant rate on a piggyback loan.
Now, taking a premature 401k withdrawal is pretty much shooting yourself in the foot.
starter house (up to $650k) inventory in my town (westfield) of any quality and value has completely dried up. even if buyers wanted to spend now there’s nothing to choose from except overpriced splits and a couple of way overpriced decent houses. in this case you either pay the piper or sit tight and wait for more inventory. i know several people ready to pounce as soon as something of decent quality and priced 5-7% off near peak 2005 prices comes available.
#12 HEHEHE Says:
Good friend of mind just got his JUMBO mortgage pulled after being approved last week.
What’s he going to do? Get another mortgage but at a higher rate? What are his options? I’m assuming htis delays the closing.
Also, what’s his mindset on the housing market? I’d like to hear some views as to why he wanted to buy now. Whether he thinks it’s the bottom, whether he found a good deal where the price is more reflective of 2003 vs. 2005. Whatever.
John, #19 & #53, if you’re going to talk about NY State, please clarify that that’s where you mean, especially since this is a NJ blog. Just sayin’.
BTW, if you take the 10K out of your retirement fund you must use it within 2 years of a closing. I know this from hard experience.
“Also, what’s his mindset on the housing market? I’d like to hear some views as to why he wanted to buy now. Whether he thinks it’s the bottom, whether he found a good deal where the price is more reflective of 2003 vs. 2005. Whatever.”
His wife is pregnant, live in Hoboken. Found a 3bd condo, parking, balcony, private backyard for $950K. Wife in love with the place. Figured if he bought they’d be in the place for at least 5-7 yrs. He has good job but sure as hell doesn’t have 500K lying around to put down or if he did that he’d want to put down.
A year ago, I was going on my own personal experience that a lot of bad loans were being done and that it would eventually lead to a real estate crash. I don’t work in mortgage backed securities, so much of the news information we’re reading about now is new to me. I knew it would happen but I didn’t know how it would play out. I remember back then so many people were more than happy to gloat about how their house had more than doubled in value in two years but when I mentioned to them it might not last the reactions was always, “Naw, you’re crazy. Prices are never coming down”. Now, those same people are asking me what’s going to happen. My status of being the boy crying wolf is over. I now say “Go read the Wall Street Journal. I know as much as you do”. I also put a lot of my retirement assets into cash, earning 5% guaranteed interest. That didn’t seem like a good idea to many until the last few weeks either.
In the Newton article they said “if this building was in Morristown, it would’ve sold out.” Too bad it’s in NEWTON!!! And if I owned 5 acres of land worth $500K in Newton it would be worth $50M if it was in Manhattan, dumb ases.
look at yield curve
Tail wagging the dog?
The Fed will not defend or facilitate a positively sloping yield curve.
jb
From the AP:
Home Sales Fall Nearly 11 Percent in 2Q
Existing Home Sales Fall by Nearly 11 Percent in Second Quarter, Home Prices Drop
U.S. existing home sales fell nearly 11 percent in the second quarter from last year’s levels as the residential real estate market’s slump continued, an industry group said Wednesday.
The National Association of Realtors said existing homes sold at a annual rate of 5.91 million homes in the second quarter, down from a pace of 6.63 million in the quarter a year ago.
Nationwide median home prices dropped 1.5 percent to $223,800 from $227,100 in the same quarter last year. The median price is the point at which half the homes sold for more and half for less.
#76, I question that entire Morristown theory. Things aren’t much better there, except for the train. Yes, they might be worth a bit more, but I wouldn’t expect them to sell any faster.
77#, sometimes inverse yield curve exists since fed wants to curb the inflation. normal yield curve is upward and holds over 80% of the time. the problem here is the midterm is slower than both. even bc bob’s quant can easily construct a product to profit from it. yes yield curve does not need to be upward all the time. another case is longer term (30yr) rates goinng lower.
bi (69)-
A yield curve normalization- after a period of inversion- is a hallmark of the onset of a recession.
Just sayin’.
Interesting trend over at Downey. Note, this is not investment advice, just using reported data as a proxy.
Downey Financial Corp. Announces Thirteen Month Selected Financial Data
Non-performing assets as a % of total assets
(2007)
Jan – 0.78%
Feb – 0.88%
Mar – 0.95%
Apr – 1.04%
May – 1.30%
Jun – 1.52%
Jul – 1.77%
bi (80)-
“…another case is longer term (30yr) rates goinng lower.”
The 30 is irrelevant. It’s a dead product. Has been since it was done away with at the end of the Clinton days.
sometimes inverse yield curve exists since fed wants to curb the inflation.
Very nice, but the Fed has no control over the yield curve. While you can argue they have influence over the short-end, Greenspan’s conundrum clearly shows the Fed has little to no influence at all on the long-end.
Nice try though.
jb
Richard Says:
August 15th, 2007 at 10:04 am
starter house (up to $650k) inventory in my town (westfield) of any quality and value has completely dried up. even if buyers wanted to spend now there’s nothing to choose from except overpriced splits and a couple of way overpriced decent houses. in this case you either pay the piper or sit tight and wait for more inventory. i know several people ready to pounce as soon as something of decent quality and priced 5-7% off near peak 2005 prices comes available.
Richard – we Know Westfield is Different. You do not need to post it anymore.
Grim (84)-
Stop interrupting bi’s pipe dream!
84#, if you looked current economic condition and inflation numbers, my bet is it is more logic for fed to lower rate. just my bet.
For the Benefit of a certain Mr. Kite:
From Morningstar today:
“Add up these elements and you get the potential for more tales of woe in mutual fund land. Take the case of Regions Morgan Keegan Select High-Income Manager James Kelsoe said the fund held about 15% in subprime ABS and MBS. We’ve been watching the fund’s performance deteriorate in recent weeks, and the advisor issued a prospectus supplement Monday stating the fund had been facing redemptions and that insufficient liquidity in the markets for these bonds can result in sales at much lower prices. Although it’s an extreme example, the fund had lost a breathtaking 27% for the year to date through Aug. 9. No doubt that redemptions have exacerbated the situation because the managers were forced to sell when no one wanted to buy.”
I prefer Xanax and Dewars myself.
BTW, I asked this on another thread but I’ll ask again. There’s a Center Hall on Greenbrook Rd. in North Caldwell that was listed in the high 800s for a year with no takers. They just raised the price to 929K. What is the thought process here?
double wammy – fed lowers rates, uinflation spikes – long term rates spike…
Could it be that Lowering the overnight rate by fed would lead to big jump in long term rates????
bi (87)-
Here’s a tip for you if that happens: invest in wheelbarrows, short the wallet industry. You’ll be toting around your beer money in this:
http://www.biblehelp.org/images/wheelbarrow%20money.jpg
Al (89)-
Then, taking out an ARM will make sense again (LOL!).
To post #91
LOL but nobody would give you an ARM or they would charge you Arm and a Leg for it . :)
46 lostinny – sorry about that, i hadnt seen that you posted it last night, i haven’t been around much the last few weeks.
fed rates are coming down folks. you can spin your jargon all you want about the fallout but it will happen if things continue on this course. i’m thinking 5% by year end.
Meaning they would break your legs if you do not pay back :)
fed rates are coming down folks.
Sorry Richard, not everyone here is a “doom and gloomer” like you.
jb
From the NAR:
Total Sales: Single-Family, Apartment Condos and Co-ops
New Jersey
Total Home Sales (SAAR)
2006.II – 1,123k
2007.II – 1,047k
Down 6.8%
Northeast
Total Home Sales (SAAR)
2006.II – 157.9k
2007.II – 148.1k
Down 6.2%
KKR Financial KFN tumbled 21%. The highly leveraged buyer of mortgage loans and securities sold $5.1 bil of residential mortgage loans, nearly half its portfolio, as it faces funding disruptions.
We’re seeing the vicious circle of mortgage financing continue. In the first of half of the decade, The expansion of mortgage-backed securities and related derivatives encouraged lenders to not be as careful with loans, because they could sell them to Wall St.
After years of boom, the housing market peaked and all those subprime mortgages and alt-A “liar loans” started going sour. Wall St. lost its appetite for mortgage securities, so lenders couldn’t sell their loans. Pure-play lenders have seen their funding restricted or cut off. Banks are jacking up rates on jumbo loans or no longer making certain loans.
There are now reports that banks are cutting off funding to hedge funds that use credit portfolios, including mortgage securities, as collateral. Highly leveraged funds were big buyers of mortgage debt.
And all that will likely pinch housing activity even more and make it hard for all those homeowners with teaser rates to refinance. That will put further pressure on consumer spending. But it depends on how long this credit squeeze lasts. And it will be a while before we see the impact on the real economy.
Also, today is the day that many investors may ask hedge funds for their money back. It may be a long time before we have any idea how heavy those quarterly redemptions are. And depending on the fund, managers might have several weeks to meet those redemptions. But this could lead to more selling.
fed rates are coming down folks. you can spin your jargon all you want about the fallout but it will happen if things continue on this course. i’m thinking 5% by year end.
yes, please keep your predictions coming. I plan my life around them.
Snobby ass aquaintance works in commercial real estate and his wife was crowing about buying a McMansion in Marlboro (because my neighbourhood just isn’t good enough for Weinie, Weinie Wife and the Junior Weinies).
Just heard on the grapevine that they backed out of the deal and are staying put.
>>Sorry Richard, not everyone here is a “doom and gloomer” like you.
a 25-50bps drop isn’t a doomsday move.
re: His wife is pregnant, live in Hoboken. Found a 3bd condo, parking, balcony, private backyard for $950K. Wife in love with the place. Figured if he bought they’d be in the place for at least 5-7 yrs. He has good job but sure as hell doesn’t have 500K lying around to put down or if he did that he’d want to put down.
Well if he does not have 500K lying around he should not be looking at 950K houses. Pre-funny money, not many people went into a jumbo, they did confirming to max and maybe did mommy borrow of 100K and paid back her with 100K home equity after close. That brings him up to 517K, so he should put down $433. Plus what the hell does he need a three bedroom with one kid, a two bedroom will do.
>>yes, please keep your predictions coming. I plan my life around them.
you’d probably be much better off if you did.
lisoosh 101,
LOL! Great Post! I love the “weinie” family!
Anyone have a sense whether mortgages with less than 20% down are still available for creditworthy borrowers with full doc and verifiable assets? If the answer is no, that will spell trouble for the RE market. Can one still get prequalified with 10 or 15% down I wonder? Any insights?
Gary,
Here is the history on that:
MLS# 2333235
Listed: 10/20/06
List Price: $899,900
DOM: 98
Withdrawn
MLS# 2374273
Listed: 02/11/07
List Price: $879,000
DOM: 80
Withdrawn
MLS# 2405393
Listed: 05/10/07
Original List Price: $859,000
Raised to: $929,000 (8/14)
DOM: 97
Home sales fall 11% in 2Q
Yeah richard people are waiting to buy but there is no inventory. That’s a good one.
http://biz.yahoo.com/ap/070815/home_sales_second_quarter.html?.v=1
#106
my cousin closed yeasterday with 75K in DP for a 585K home.
An observation: Townhome prices that I’ve have been tracking around where I rent are down 14-15% since 05. A few FSBO’s have recently come to the party and are undercutting by another 4-5%. The race is on….
Reechard-
Just FYI, found 63 listings on Realtor.com in Westfield for between $325k and $650k.
JM
um, and what’s your point if there is one?
rah rah rah rah
continues from NAR…
“Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming-out in the fourth quarter of 2006,” Lawrence Yun, NAR senior economist, said in a statement. “Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets.”
bi (45)
So, you’re basically saying that RE only goes up. Good plan!
A flaw I found in your “logic”: If certain markets appreciated faster to “make up” for the recession 92-98 (guh?), then wouldn’t it also make sense that these communities, absent fully-funded buyers and easy credit, might also lag, in essence falling further, even when other places start to rise? (Assuming the competing markets’ prices fall enough to reach a larger proportion of buyers’ budgets.)
Or does the momentum of the housing markets only defy gravity, and not succumb to it?
don’t quote nationwide statistics they mean jack to the local market.
but the fundamental momentum clearly suggests stabilizing price trends in many local markets.”
This is based on sales that happened before the meltdown. From a mortgage perspective, the entire universe just changed in the last two weeks.
What a cluck!!!
jb #107,
Thank You! I can’t figure out what the seller is thinking here? Better yet, what’s the realtor thinking?? What am I missing?
continued panic selling on ETF’s due to hedge fund de-leveraging. i think they have to liquidate today or tomorrow then this nonsense will stop. if you have a set it’s a good time to go window shopping.
bi Says:
August 15th, 2007 at 9:54 am
66#,
look at yield curve:
this curve cannot sustain forever. there is arbitrage opportunity here. either fed will cut short-term rate or banks will bring up long-term rate. i bet the former.
bipolar: don’t throw the term “arbitrage” around when you have no idea what it means
I wrote this in the summer of 2005…..
Understanding Arbitrage Trading
Today was a hot and sweltering day, signaling the true beginning of summer. As usual, I decided to walk to the local café, because I enjoy the caffeine jolt of a strong cup of coffee. I regularly purchase the 20 ounce size, and at my outlet they charge $1.80 for the privilege. Some people think it’s a bit much for a cup, but I gladly pay for what I think is good value.
On this particular day, I decided that drinking something with the warning “…careful, the beverage you are about to enjoy is extremely hot…” might be a mistake. So instead I asked what an Iced Coffee would cost.
“That would be $2.80” was the reply.
“One dollar for a cup of ice?” I asked in a puzzled tone.
Well, I decided to order my regular burning hot cup on principle.
After my order was rung-up on the register for $1.80, I asked how much would a large plastic cup of ice with a straw would cost. “Oh! – no charge of course.”
Fine. I took my booty, walked over to the condiment station, poured the hot coffee over the ice, threw the paper cup away, and merrily left to face the heat and humidity.
Believe it or not, if this example makes sense to you, then you understand what participants in the financial markets call an “Arbitrage Opportunity”.
A clever person (let’s call him a “Trader”) will identify opportunities in the market, and trade to take advantage. One of the fascinating innovations of the Financial Markets is the ability to sell something “short”. To sell short is to establish a market position by selling a security one does not own. We will use our Iced Coffee example to illustrate.
In the market, a Trader seeing an opportunity will offer $2.80 cups of Iced Coffee to the public at a nearby street corner. The Trader doesn’t have any coffee, so if he sells a cup, he quickly rushes into the café, and orders a coffee at $1.80 with a free cup of ice. He quickly converts the regular coffee into Iced Coffee, and delivers it to the purchaser to close out the sale from a few moments earlier.
In our example, Trader was “short” an Iced Coffee when he accepted an order on the street corner for a product he wasn’t immediately able to deliver. He “closed out” his short position only after he bought (or went “long”) a cup of hot coffee at the café and delivered it to his street corner customer.
What happens now? Well, not everyone is going to want to pay $2.80 for Iced Coffee, especially when they realize after watching the Trader run back and forth that they too could create the drink for less money. So as the Trader cycles more and more coffee through this profit-making machine, the market notices, and he has to drop the price so people will continue to buy. The offers begin at $2.75, soon $2.60, and finally $2.50.
Our café friends are not too happy either. It would not take very long for them to figure out what the Trader was doing, so they soon start charging 25¢ for the ice, then 50¢, and finally 75¢, and then “presto” the opportunity is gone. The Trader can create an Iced Coffee from piece parts that now cost more than $2.50, but can only sell it for $2.50. So he’ll pack his bags and wait for the next chance.
This type of activity occurs from time to time in the financial markets in all sorts of assets, including stocks, bonds, and commodities. In fact participants have computer programs that are constantly analyzing different combinations of investments to find less expensive ways to buy and sell equivalent assets. Once these programs identify an opportunity, they automatically trade to profit from it.
Amazing isn’t it? Easy to understand. However, because our financial markets are reasonably efficient, arbitrage is difficult to execute. At least not without a few Physics and Math PhD’s at your disposal, along with an investment banker or two.
I enjoy pondering this kind of stuff, because the financial media often reports on these concepts in a manner that is almost impenetrable for the public. Ripping away all the jargon, it’s fun to talk about a complex activity in an accessible way, and share my expertise.
Alright. All this talk is making me thirsty.
Richard,
We can’t ignore the psychological impact of negative housing data, national or local. To some extent, these national statistics, along with national anecdotes of “real estate riches” helped feed the boom. Do you really believe that negative housing news, nationwide or not, won’t have a negative impact on buyer psychology?
jb
From Reuters:
Benchmark subprime index falls to record low
The benchmark subprime mortgage index linked to home loans made in last year’s second half fell to a record low on Wednesday, as nervous investors sold risky bonds and liquidity fears rose, traders said.
“ABX is lower today. This is both in sympathy with wider corporate spreads as well as the unrelenting negative news in the mortgage market,” said one trader.
The index, used by investors to hedge subprime mortgage risks, has posted a series of steep declines over recent months as pools of loans in underlying securities experienced a sharp rise in delinquencies and defaults.
The ABX 07-1 “BBB-” index fell to a record low 34.66 on Wednesday, versus 36.75 at the prior close and a record low close of 35.14, traders said.
“So far everyone that has tried to pick a bottom has been disappointed. Fears of continued liquidations are really pressuring the market. We continue to see large volumes of cash bid lists and bonds trading,” the trader said.
The weakness traveled up to higher-tier rated segments of the index, as well, traders said. The ABX 07-1 “A” series slid to 45.66, versus 48.06 on Tuesday, traders said.
I know most of you don’t care, but if you want to understand what the Fed did late last week and on Monday, this commentary is superior.
Also, it comes from my favorite mope – the Roubinator – 20 minutes of your day to forfeit, skip to minute 7 for the fed if you only have margianl interest….
for econogeeks this stuff rates A++
http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/v57s3Y2MiI4Q.asf
unmoderate
#109,
That means your cousin got a jumbo with, as of last week, jumbo rates. Since they closed yesterday their loan was already in the pipeline so they may have done OK.
I’m most curious about conforming loans, $417k or less. Will they still get underwritten for qualified buyers with less than 20% down? Anyone active in mortgage financing or real estate deals who has anecdotal evidence?
A moment of truth
As John Mauldin points out in a recent newsletter, resets scheduled for next February and March alone will be more than all the resets in the first six months of this year, $197 billion. Resets in the first six months of next year, $521 billion, will be greater than all of 2007.
Talk about moments of truth. That’s when many owners will become renters and many lenders will become harried owner/sellers. Then, not now, is when the housing market should start to bottom. It’s also when consumers will be tightest with their spending, so we’re likely to see a weaker economy than we see today.
A moment of truth – resets scheduled for next February and March alone will be more than all the resets in the first six months of this year, $197 billion. Resets in the first six months of next year, $521 billion, will be greater than all of 2007. That’s when many owners will become renters and many lenders will become harried owner/sellers. Then, not now, is when the housing market should start to bottom. It’s also when consumers will be tightest with their spending, so we’re likely to see a weaker economy than we see today.
Does the Fed’s actions to inject money into the money supply over the last week help confirm “Helicopter” Ben’s reputation as a Fed Head willing to toss money out of helicopters to stimulate the economy?
Speaking of TOMOs, why was the weighted average rate of today’s operation so low?
http://www.ny.frb.org/markets/omo/dmm/temp.cfm?SHOWMORE=TRUE
jb
Central Banks Step Aside as Turmoil Continues
FRANKFURT/HONG KONG (Reuters) – Central banks on Wednesday progressively withdrew the cash they recently injected into money markets as the focus of the global credit storm rolled into emerging markets and currencies.
For the first time since last Thursday the European Central Bank, like the U.S. Federal Reserve a day earlier, gave no extra short-term money to keep the financial system operating smoothly and central banks in Japan and Switzerland actively drained cash from their local markets.
More at: http://www.reuters.com/article/ousiv/idUSL1584818220070815
twice shy Says:
August 15th, 2007 at 11:54 am
Does the Fed’s actions to inject money into the money supply over the last week help confirm “Helicopter” Ben’s reputation as a Fed Head willing to toss money out of helicopters to stimulate the economy?
2x: yes and no…people got the money, but not at the price they wanted….they are looking at the glass half-empty….
CF,
great example of arbitrage 101.
thanks.
I had forgotten about this theory until the Roubinator brought it up in his commentaty…
Minsky Moment
http://www.moneyweek.com/file/27889/have-we-reached-a-minsky-moment.html
http://www.theonion.com/content/statshot/how_are_we_paying_off_our
“Richard Says:
August 15th, 2007 at 11:06 am
>>yes, please keep your predictions coming. I plan my life around them.
you’d probably be much better off if you did.”
Yeah – for instance, you would have bought BGY at $17.98 (now at $15.97) and you would have bought RSF at $11.35 (now at $6.65).
135]
Yeah – for instance, you would have bought BGY at $17.98 (now at $15.97) and you would have bought RSF at $11.35 (now at $6.65).
You got it all wrong. They were actually short recommendations.
http://sports.espn.go.com/mlb/news/story?id=2975386
They’re lucky he hit them with his bat rather than his glove, the latter being more rigid.
Talking about Roubinator, here’s a bit from his blog today:
“First, you take a bunch of shaky and risky subprime mortgages and repackage them into residential mortgage backed securities (RMBS); then you repackage these RMBS in different (equity, mezzanine, senior) tranches of cash CDOs that receive a misleading investment grade rating by the credit rating agencies; then you create synthetic CDOs out of the same underlying RMBS; then you create CDOs of CDOs (or squared CDOs) out of these CDOs; and then you create CDOs of CDOs of CDOs (or cubed CDOs) out of the same murky securities; then you stuff some of these RMBS and CDO tranches into SIV (structured investment vehicles) or into ABCP (Asset Backed Commercial Paper) or into money market funds. Then no wonder that eventually people panic and run – as they did yesterday – on an apparently “safe” money market fund such as Sentinel. That “toxic waste” of unpriceable and uncertain junk and zombie corpses is now emerging in the most unlikely places in the financial markets.
Second example: today any wealthy individual can take $1 million and go to a prime broker and leverage this amount three times; then the resulting $4 million ($1 equity and $3 debt) can be invested in a fund of funds that will in turn leverage these $4 millions three or four times and invest them in a hedge fund; then the hedge fund will take these funds and leverage them three or four times and buy some very junior tranche of a CDO that is itself levered nine or ten times. At the end of this credit chain, the initial $1 million of equity becomes a $100 million investment out of which $99 million is debt (leverage) and only $1 million is equity. So we got an overall leverage ratio of 100 to 1. Then, even a small 1% fall in the price of the final investment (CDO) wipes out the initial capital and creates a chain of margin calls that unravel this debt house of cards. This unraveling of a Minskian Ponzi credit scheme is exactly what is happening right now in financial markets.”
comarades: RE crash justed started. look at Newark-Union area…
Metropolitan Area Median home price %Change
New York-Northern New Jersey-Long Island, NY-NJ-PA $482,300 1.7%
New York-Wayne-White Plains, NY-NJ $557,500 6.3%
NY: Edison, NJ $385,100 -0.1%
NY: Nassau-Suffolk, NY $479,800 0.2%
NY: Newark-Union, NJ-PA $416,000 -6.4%
Trenton-Ewing, NJ $313,900 8.1%
bi #140,
% change is over what period of time?
from Dow Jones:
UPDATE: Thornburg Mtge Pres: ‘Business As Usual’ By Next Week
11:37 AM EDT August 15, 2007
(Updates with additional COO comments starting in seventh paragraph.)
NEW YORK (Dow Jones)–Thornburg Mortgage Inc. (TMA) President and Chief Operating Officer Larry Goldstone Wednesday said that the lender is still having trouble raising financing but hopes to be back to “business as usual” by next week.
“There are a variety of strategies that we’ve been working very hard on the last couple of weeks to stabilize our liquidity position,” Goldstone said in an interview on CNBC. “I think by next week we’re going to be on the other side of this.”
The comments come after the real estate investment trust specializing in high-quality mortgages said Tuesday that it is delaying a dividend payment and considering asset sales as it struggles with a liquidity squeeze that has been hurting the home-loan industry.
As for the dividend, “I am pretty confident we are going to make that payment,” said Goldstone. “We will have most of our liquidity and credit issues behind us hopefully by next week.”
As a REIT, Thornburg must pay out 90% of its earnings to shareholders each year as dividends, in exchange for tax breaks for the REIT status. But such a structure has proved constraining to a growing number of mortgage-focused REITs as it leaves them less capital to cope with the cash crunch.
Goldstone added that the company has paid off some of its maturing commercial paper. It also plans to be in rebuilding mode in the next 30 days.
“We are receiving incredible inquiries from investors who see the value in this company’s long term and they want to put capital into this company,” Goldstone said. “This is a tremendous opportunity to be buying mortgages and adding mortgages to the portfolio.
“We are going to be on the offensive, as opposed to on the defensive,” said Goldstone. “I am pretty optimistic that that dividend is going to be paid.”
Shares of Thornburg were recently trading $3.57, or 46.9%, higher at $11.18, largely retracing sharp losses Tuesday.
-By Aja Carmichael, Dow Jones Newswires; 201-938-5218; aja.carmichael@dowjones.com
(END) Dow Jones Newswires
08-15-07 1136ET
Copyright (c) 2007 Dow Jones & Company, Inc.
141#, i think it is YTY. full article:
http://money.cnn.com/2007/08/15/real_estate/NAR_home_prices_lower/index.htm?postversion=2007081512
Am I crazy or is GSMLS inventory surging?
RE: 70
valid point, but owning a home is really never “absolutely necessary”.
Hey Chicago, about the coffee….
When you take a hot coffee and pour it over a cup of ice, you get diluted, weak coffee. I pay more for iced coffee that is brewed the proper way, which is via the cold press method. You get a smoother, superior brew. It takes much longer to make, thus the difference in price.
While most are fooled, don’t be a sucker and pay more for an inferior product which is either chilled leftover coffee or hot coffee poured over ice.
% change is over what period of time?
2006.Q2 to 2007.Q2
jb
FYI i just bought RSF at 6.40. Last day of redemptions and this thing is paying over 20% yield. It should bounce back at least over 10.
Joe R Says:
August 15th, 2007 at 12:56 pm
Hey Chicago, about the coffee….
When you take a hot coffee and pour it over a cup of ice, you get diluted, weak coffee. I pay more for iced coffee that is brewed the proper way, which is via the cold press method. You get a smoother, superior brew. It takes much longer to make, thus the difference in price.
While most are fooled, don’t be a sucker and pay more for an inferior product which is either chilled leftover coffee or hot coffee poured over ice.
Joe: I think investors who bought AAA-rated CDO’s are thinking the same thing you are. Good info, and great to carry forward the analogy…
“I pay more for iced coffee that is brewed the proper way, which is via the cold press method. You get a smoother, superior brew.”
This is absolutely true, the difference between cold-pressed and hot brewed iced coffee is vast, and it’s crazy how hard it is to find properly brewed iced coffee in this neck of the woods.
That being said, ChiFi’s tutorial was well done, and the style of coffee brewing wasn’t really the point.
>>Do you really believe that negative housing news, nationwide or not, won’t have a negative impact on buyer psychology?
sure it does but don’t over blow its impact.
Just for the record, if you buy a venti coffee and pour it into a “venti” cup of ice, it only can fit about 12-13 ounces. Even though the coffee is somewhat diluted, you still have the remaining coffee. Also, you are paying (note prices have increased) what was $2.80 for only 2/3 a cup of $1.80 coffee.
>>Talk about moments of truth. That’s when many owners will become renters and many lenders will become harried owner/sellers.
utter nonsense.
From MarketWatch:
Home builders’ sentiment sinks further in August
Battered by daily headlines about severe problems in the credit markets, U.S. home builders grew even more pessimistic in August, driving a monthly sentiment gauge to the lowest levels since January 1991, the National Association of Home Builders reported Wednesday.
The NAHB/Wells Fargo housing market index fell two points in August to 22, which means about a fifth of builders nationwide think the market is “good.” A year ago, the index was at 33. Two years ago it was at 67.
Numbers over 50 would indicate more builders think conditions are good than think they are bad.
…
All three components of the home builders’ index fell to cyclical lows in August, with two of them matching the lowest readings in the 22-year history of the index. Confidence fell in three of four regions and was unchanged in the South.
“There is no question that problems in the subprime mortgage sector have spilled over to other components of housing finance, including the Alt-A and jumbo markets, delaying a revival of the single-family housing market,” said NAHB chief economist David Seiders in a statement.
The index measuring current sales of single-family homes dropped by one point to 23, the lowest since the record-low 19 in January 1991. The index measuring expected sales in the next six months dropped by two points to 32, matching the record low. The index measuring traffic of prospective buyers through developments fell by three points to 16, also matching the record low.
…
Regionally, the index was unchanged at 25 in the South, fell one point to 23 in the West, fell five points to 14 in the Midwest, and fell two points to 30 in the Northeast.
dreamtheaterr Says:
August 15th, 2007 at 12:45 pm
yan: I love this…thank you!
CR, as always, has the data graphed:
http://bp0.blogger.com/_pMscxxELHEg/RsMxIghNRWI/AAAAAAAAAx4/v0rudGLO5HQ/s1600-h/NAHB+HMI+August+2007.jpg
Don’t listen to richard. he doesn’t know what he is talking about. For all you know he might be a RE broker or Agent and hence his optimism
154#, index should be used as contrarian indicator – IMO
Chicago: I’m glad that you understood the way I meant it.
njpatient: I was adding to Chicago’s analogy about coffee to make a point that inferior products (lower rated CDOs) were being repackaged as AAA with a little creativity.
From Bloomberg:
U.S. Homebuilder Confidence Declined in August to 16-Year Low
Confidence among U.S. homebuilders fell more than forecast in August to the lowest since 1991, as cancellations and more restrictions on lending took a toll.
The National Association of Home Builders/Wells Fargo index of builder confidence declined to 22, from 24 in July, the Washington-based association said today. A reading below 50 means most respondents view conditions as poor. The gauge has decreased for six consecutive months.
Mounting defaults on subprime mortgages are extending a slump in home building that is already the worst in 16 years, forcing real estate companies to slash prices and offer more incentives to buyers. Declines in residential construction will weigh on the economy until 2008, economists said.
“Builders realize that issues related to mortgage credit cost and availability have become more acute,” Brian Catalde, president of the group, said in a statement. “We’re dealing in a difficult market environment.”
The confidence index was forecast to drop to 23 this month, according to the median estimate of 40 economists surveyed by Bloomberg News. Projections ranged from 20 to 26.
This month’s reading is the second weakest since the survey’s inception in 1985. It reached a record low of 20 in January 1991, when the housing market and the economy were both in recession.
The survey asks builders to characterize current sales as “good,” “fair” or “poor,” and to gauge prospective buyers’ traffic. The survey also asks participants to assess the outlook for the next six months. All three of these components fell to their lowest since 1991, today’s report showed.
#159 Joe
Thanks – went over my head completely. Good point.
Chifi # 120
I appreciate the way you have explained Arbitrage Trading, however let me explain to you about Iced Coffee. Hot coffee put into a cup of ice tastes like cr*p, dirty dishwater, warm watery sh*t.
Iced coffee must be brewed at 1.5 to 2x strength,chilled and then it can be poured over ice and enjoyed. FYI
KL
What about good fish and chips?
my guy pours the hot coffee right over the ice. you guys are nancy boys with your cold brewed coffee.
Are builders dependent on pre-construction financing? If so, is it harder for them to get loans now to finish up on the developments that are already underway?
I’ve always assumed that they get some sort of short-term bridge financing to pay for construction and then they re-pay the bank when the house is sold(?).
This is another one where I’m realizing that I don’t really know much about how these builders operate in terms of financing. I know that during the boom, one of the things that fueled the building spurt was pre-construction buyers with down payments.
But is it still possible for an individual to get a mortgage on a “to be built” pre-construction home?
What if everyone in Jersey did this?
http://news.yahoo.com/s/ap/20070815/ap_on_fe_st/odd_payment_protest;_ylt=AgEQc2eCCD3xjWDOH8d3WS4Z.3QA
scribe-
Are builders dependent on pre-construction financing?
Yes. Most projects have to be self-contained and finance themselves.
If so, is it harder for them to get loans now to finish up on the developments that are already underway?
Yes, if you remember, about a year ago, BofA pulled all financing for RE LLC’s which are used for building projects.
But is it still possible for an individual to get a mortgage on a “to be built” pre-construction home? I’m pretty sure NO. There usually has to be a certificate of occupancy in place. A homeowner has to payoff the construction loan with the mortgage loan.
JM
From Reuters:
Freddie Mac opens doors to embattled Alt-A market
Freddie Mac said on Wednesday it will back more Alt-A loans after lenders urged the home loan finance company to jumpstart part of the mortgage market frozen by Wall Street and skittish investors.
The Alt-A market includes loans that typically fell short of the stricter requirements of Freddie Mac, but will now be a more prominent part of the company’s activity in an effort to soothe market turmoil, said Charles Coulter, a vice president in Freddie Mac’s single-family mortgage operations.
Freddie Mac late on Tuesday announced it would provide 90-day forward commitments to lenders with terms that accommodate most Alt-A loans.
Alt-A loans have credit scores above subprime, but include characteristics that have become common among loans gone bad — such as no proof of income or loans to borrowers with no stake in the property. The market for Alt-A loans has dried up in recent days as investors increasingly balk at any security that is not guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae.
“We felt it was important for us to make a statement saying we are active in this marketplace,” Coulter said. It is also “a good opportunity” to “add value” to lenders’ loans, he said, compared with times when Wall Street was a more aggressive bidder for the mortgages.
Scribe-
A little bit more follow up…you’re right. Some of the money that added momentum was the deposits. There was a book I read just on contractor financing that spent a chapter talking about float amongst the GC and all the sub’s, banks, etc.
JM
From MarketWatch:
Banks: Subprime rules should apply to all lenders
Bankers’ groups urged the Federal Reserve on Wednesday to apply any forthcoming rules about subprime lending to banks and nonbanks alike.
The board’s use of its authority to regulate subprime-lending practices can only be effective if it applies equally and effectively to all lenders,” the American Bankers Association and America’s Community Bankers wrote to the central bank.
New rules issued by the Fed should apply to banks, nonbank lenders, service providers and brokers, the groups said.
John – lol at #164
Somehow I picture you with your top button undone and your tie around your head like in the linked picture below, and the young ‘uns call you “Sarge”.
http://www.education-action.org/client/gallery/gallery_8/The-Rambo.jpg
or maybe
http://www.vgmuseum.com/scans/scans3/Rambo.jpg
brlynhawk,
Thank you.
I was curious because there are still a lot of “to be built” and “under construction” ads in the MLS in Woodbridge Township.
My guess is that pre-construction buyers are largely speculators who are – or were – betting that prices would be higher by the time the houses were built – a la all the people who were buying FLA condos in the hopes of flipping them.
CountryWide is hurting down 15% today.
Can the largest Mortgage Company in the world implode?
They have over 60,000 employess. Home many deliquencies do they have?
Can you even imagine the psyhological effect on Wall street and main street if this giant implodes due to being overleveraged.
How many people were short on CFC this week? I wish I was.
jb – ok to unmoderate 171?
Ah-ha! #168 Freddie + AltA = why VA is now promoting “qualified veteran” vs. “Last, First” on the paper work.
Goldilocks is heading for the exit again ;) Someone needs to tell her that the show isn’t over till 4pm!
>>Can you even imagine the psyhological effect on Wall street and main street if this giant implodes due to being overleveraged.
this isn’t a fantasy blog. some of you people are over blowing the situation just like the market panic participants. there’s been too much leveraging and it’s now unwinding but doomsday isn’t at hand. now focus and make some money these moves don’t come around all that often.
Stu – at least gold is rising and oil is falling.
Oh – wait…my bad.
Richard,
How’s that GS purchase you supposedly made a few weeks ago doing? As good as their hedge funds?
http://www.thestreet.com/_yahoo/markets/activetraderupdate/10374378.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
I am sorry Richard, wrong link:
http://www.reuters.com/article/reutersEdge/idUSN1434596720070814
#166, if everyone in NJ did that it would make things tough for the municipal workers who have absolutely nothing to do with the tax policy you are protesting. Not sure why someone would think it would change anything.
My Ultra Short RE hedge is working perfectly. The 200% leverage is covering my other equity losses almost perfectly. I know it’s only 2 days, but I saved $1500 yesterday and another $500 so far today for 2 virtually break even days. When the panic subsides, I’ll have that much more to reinvest. Unfortunately, I doubt the panic will end until the economy digests the arm resets that are a coming.
cynicalgirl Says:
August 15th, 2007 at 3:35 pm
everyone sing….
We are living in cynical world…
and you are a Cynical Girl…
OK – we are just about at an official “correction” on the Dow and S&P
…only buyers who save their pennies
get their loans toda-ay
coz we are living in a cynical world…
Amazing volume on CFC today..
jb
chicagofinance 184,
Too bad houses prices don’t correct, also. At least not here in North Jerky.
Apologies for the coffee lesson – seems I was a little late on that one, but you do know the best fish& chips are in Kearny ( pronounced Karnee not kernee) and Belmar of course for the one that left us.
KL
#188, can you suggest a place in Belmar for fish n chips after a day at the beach?
An observation: Townhome prices that I’ve have been tracking around where I rent are down 14-15% since 05.
dreamtheaterr #110,
Where are you tracking?
I don’t want it you take it, no you take it no you…
http://www.ft.com/cms/s/46813ec2-4a91-11dc-95b5-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F46813ec2-4a91-11dc-95b5-0000779fd2ac.html&_i_referer=http%3A%2F%2Fdealbreaker.com%2F
Dream
http://www.thompsonsfishnchipsofkearny.com/index.html
KL
#192, thanks!
#190, southern North Brunswick.
#189 – don’t know about fish and chips…but havens and hampton and kleins both do seafood stuff…ok atmosphere but good food.
Lenders are tightening their standards, which is making it harder to qualify for loans, resulting in even less demand for homes. Some analysts think the mortgage and housing markets are caught in a “downward spiral” in which negative events feed off each other.
I love comments like this!!!
ChiFi (118)-
Sure, bi knows what arbitrage is. He does it daily, on the tightrope between Johnnie Walker and Wellbutrin.
You could call it “dosage arbitrage”.
Thornburg feeling pretty optomistic about Divident, what an IDIOT. AMH also set itself up as a REIT which means it has to pay out all its profits in the dividend, therefore no cushion in a downturn. My friends at D&T who signed off on AMH said that was the cause of their death spiral. They knew at the end of 2006 that their business was a train wreck waiting to happen and they needed to reserve cash. Instead they had to keep paying the damm divident and when the train crashed so did they, CHOO CHOO Thronburg, good luck on that damm Jumbo Crap. My friend has a 800K jumbo locked in at 5.25 that adjusts in 2011, CHOO CHOO who wants to buy that crap. I can get a ING CD at that rate with ZERO risk and get 5.25%.
2x (125)-
Almost all mortgage products are alive and well and can be found somewhere.
The big difference is that now, the average borrower needs some kind of DP, pretty much nobody can piggyback and if you don’t have good credit, you’re gonna get a sucky rate.
FYI it would be great if countrywide collasped, that would be the bottom the Fed would cut rates and we can move forward, that would be a big BUY signal. Lehman also has a lot of crap paper, maybe they could take a huge hit.Someone big is holding another bag of poop and the market will be nervous until we see who is holding the bag. Right all the stocks related to housing and mortgages stink of poop but I can’t tell who has the poopy diaper.
2x (128)-
No. Any responsible central bank should inject liquidity when banks are too skittish to lend each other money overnight.
Are the BOJ or ECB irresponsible currency inflators? They are doing the same thing.
>>How’s that GS purchase you supposedly made a few weeks ago doing? As good as their hedge funds?
i didn’t buy more GS i have had some for a couple of years now. i said GS is always a good buy for the long term. practically the entire market is doing s*itty right now so quoting anything is useless. cost average and diversify you’ll always come out ahead.
201.
I can’t believe we actually agrre on something.
203-
You and bipolar agreeing with me on the same day?
Now, I’m really scared!
However, I’ve now got my 14 y/o daughter set up to short against Reech’s picks. Will update periodically…
this whole ‘crisis’ has been overblown IMO. in 2 weeks time all of a sudden a sizable majority of mortgages are going to go unpaid, funds won’t be able to pay their high yields and consumers will stop spending? it’s ridiculous the reaction the market has had and if things don’t calm down it’ll become a self-fulfilling prophecy.
I dated James Keegan’s (as in Morgan-Keegan) daughter when I was growing up in Memphis.
Maybe I can call her and get some inside dope on that Enhanced Leverage Knockwurst Liar Loan Fund thingy (or whatever they call it).
Beazer Delay in Filing 10Q: Key Dates
Beazer Homes (BZH): Ba2 *-/BB- *-/BB *-
Fundamental Credit Opinion: Deteriorating, High Risk
Beazer announced late last week that it will delay filing its 10Q for the quarter ended June 23, 2007, as
a result of its internal investigation into its mortgage unit.
While the company cannot predict the outcome of this investigation, Beazer does not believe that the
amounts at issue are quantitatively material. In addition, the company does not believe these issues will
result in an adjustment to previously reported cash positions.
This delay in filing its 10Q has implications for the company’s bank and bond covenants.
According to the company’s new $500 million bank revolver, Beazer has until August 19 to supply the
banks with financials. If the company misses this deadline, there is a 30-day cure period. That is, the
company has to provide documents by September 18 or it would be considered an event of default.
According to the senior unsecured bond documents, the company has 55 days from the end of the quarter, or August 24, to submit a 10Q to the trustee. If the company fails to deliver the 10Q at this time, there would be a five-day grace period (through August 29) after which the trustee would issue a notice of default. At this point, Beazer would have 60 days, or by October 28, to cure this notice of default or the trustees could declare an event of default at the company. At that point, 25% of bondholders could put the bonds back to the company.
According to the company’s junior subordinated bond document, the company has until 45 days after the end of the quarter, or August 14, to submit financial documents. After that, it has a 30-day cure period, or until September 13, 2007. These are approximate dates.
At this time, we are maintaining our Deteriorating, High Risk fundamental credit opinion on Beazer Homes. We believe the delayed filing represents additional credit risk to the company. However, in our opinion, we think Beazer will be able to obtain a waiver from the banks for either a one-time fee or a
higher interest rate (as we saw with KB Home in late 2006).
Since the announcement of the delayed 10Q, Beazer’s outlook has been changed to watch negative at both Moody’s and S&P and the company’s credit ratings have been downgraded at Fitch.
BZH 6.5s of 2013 are quoted at 78, spread of +705bp, yield 11.5%.
(205)-
“…if things don’t calm down it’ll become a self-fulfilling prophecy.”
How improper…the people who are actually responsible for what’s going on are telling the rest of us that things are about to begin sucking.
So, where’s the person who’s gonna wade into that mess and tell everyone that it’s just an illusion, and that things are actually OK?
gs is great in here . im a buyer.
a year from now you wish you had it.
buy em when you got the blood in the streets.
um, scary:
“Aug. 15 (Bloomberg) — U.S. three-month bill yields fell the most since October 1989 as investors sought out the safety of government debt amid a flight from risky assets.
The yield on the three-month Treasury bill fell 0.61 percentage point to 4.025 percent, the lowest since 2005 and the biggest single-day decline since Oct. 13, 1989.”
also scary:
“U.S. Stocks Drop, Erasing S&P 500’s Gain for 2007; Banks Fall
By Lynn Thomasson
Aug. 15 (Bloomberg)
“The Chicago Board Options Exchange Volatility Index increased as much as 15 percent to 31.76. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
“What that indicates is that people are worried not about this move or the past couple of weeks but the possibility of a real market sell-off or crash scenario,” said Ben Londergan, co- CEO of Group One Trading LP in Chicago. “We’ve seen not that large a move to the downside in percentage terms but we’ve really had a big move up in the VIX.”
#205 Reech
“this whole ‘crisis’ has been overblown”
c.f.
#205 Reech
“if things don’t calm down it’ll become a self-fulfilling prophecy”
In which Reech argues with himself.
Good times.
clot:
Didn’t they put Mike Tyson on Wellbutrin so he wouldn’t “kill y’all”? Didn’t he mix his meds with cocaine and alcohol too?
Where is bipolar on this continuum?
bipolar is probably well past chewing a dude’s ear off.
“Don’t listen to richard.”
Actually I did. When he said to buy Goldman around $195-200, I did. That is puts. Covered today. Thank you Richard.
I remember him saying it has always worked for him in the past, buying pullbacks. What the hell does that have to do with today?
I’m only responding since it was Richard’s past post. I agree with Rich NNJ, nobody gives a rats *ss about anyone’s stock selections/bias.
Didn’t he mix his meds with cocaine and alcohol too?
You say it like it’s a bad thing.
chicagofinance Says:
August 15th, 2007 at 1:38 pm
What about good fish and chips?
Now that is something I do know about.
Best in the world is in the fishing area in the North of Scotland, from Inverness all the way to Fraserburgh and Peterhead, although Fife isn’t bad. Preferrably Haddock, caught the same day and fried on request. Batter needs to be soft and chewy on the inside, thick and with a crispy outer crust. Salt only for me although many like malt vinegar.
Chips should be made from real potatoes, not reconstitued crap, cut thick and nice and soft. They should NOT be crispy.
They should then be eaten outside, bent over to protect them from the wind. Facing the sea for a little extra salty tang is nice too.
Oh and should come wrapped in yesterdays newspaper. Plain is OK but the newsprint adds that certain something.
S&P cuts Hovnanian corporate credit, debt ratings
S&P outlook on Hovnanian is negative
When Buyers Snub Sellers
By IAN MCDONALD, CARRICK MOLLENKAMP and DAVID REILLY
August 15, 2007; Page C1
Typically to “mark” or estimate the value of a holding, funds use market prices, quotes from broker-dealers, values tallied by third-party pricing services, internal models or some combination of all four.
How to do so is open to debate, and in some cases the methods may be pretty unpalatable for managers dealing with the turmoil now gripping markets. One answer is that everything has a price — if it is low enough.
But if there are no buyers to be found, there may be an even worse alternative. “Then the price is zero,” says Jack Ciesielski, editor of the Analyst’s Accounting Observer newsletter. “If there’s a bid out there, then there’s a price. Take your pick.”
#173,
They can and they will. Their financing is so shaky, Enron had better financing. In addition their servicing portfolio is a huge cash drain; they have to advance on all these deadbeats with no relief any time soon.
I just wonder who is going to clean up at the end of all this.
From what I can see all the money is bailing out of MBS on the fear of foreclosures. But will all those mortgages in the bundle, if 90% are not going to foreclosure, then that paper is going to look very cheap and appealing. The funds are having problems finding the price and having to short sell to cover the exits. I think this is an opportunity to get into the funds at bargain basement prices when the dust starts to settle. For all the valid concerns on ARMS resetting, there are still a lot of 30yr fixed in those bundles that will not hit foreclosure.
I think this is where BNP and the like may be looking.
From Bloomberg:
Poole Says `Real Economy’ Unhurt by Subprime Collapse
William Poole, president of the Federal Reserve Bank of St. Louis, said there’s no sign that the subprime-mortgage rout is harming the broader U.S. economy, and an interest-rate cut isn’t yet needed.
“I don’t see any impact as yet on the real economy or on the inflation rate,” he said in an interview in the bank’s boardroom. “Obviously, there could be an impact, but we have to rely on some real evidence.”
Barring a “calamity,” there is no need to consider an emergency rate cut, Poole said. His comments were the first by a Fed official since the U.S. central bank joined counterparts in Europe and Asia to inject emergency funds after a surge in money- market rates. The Fed has added $71 billion of reserves in the past five trading days.
Poole, 70, said businesses have maintained their hiring and investment plans and banks have sufficient capital to weather the credit-market turmoil. The St. Louis Fed chief stressed that the best course is for policy makers to assess the latest economic data when they next meet Sept. 18. The comments contrast with the certainty that traders put on a rate cut next month.
“If the data confirm the market’s view that the economy is sagging, we’ll have to decide whether to share that view,” said Poole, who votes on the rate-setting Federal Open Market Committee this year. He cited the monthly jobs, retail sales and industrial production reports as key gauges he’ll be watching.
ChiFi (213)-
My doctor calls cocaine, alcohol and SSR inhibitors the “trifecta”.
Evidently, it both relaxes you and simultaneously makes you feel like Vlad the Impaler.
Clot: thanks for the replies.
Moving on, you ask me this is one ugly market. We’re only about 9 or 10% off the high but it feels worse due to the extreme volatility. The S&P as already broken it’s 200-day moving average and the DJI has a handful of points to go. Haven’t checked the NAZ but once all three major averages break their 200-day support lines it’s all hands on deck, we’re in for some dirty weather.
I’m not offering any advice, just making observations. I have a hunch we’re due for a wicked counter-trend rally that may last a day or two and then fizzle. Nothing wrong with a defensive posture at this juncture and capital preservation. Let’s see how wrong I can be.
From Bloomberg:
HFA Says It Benefited From Exposure to U.S. Subprime Mortgage
HFA Holdings Ltd., an Australian hedge fund manager that manages more than $3 billion, said its funds have benefited from the turmoil in the U.S. subprime mortgage market.
Sydney-based HFA’s shares jumped 17 percent on the Australian stock exchange after the company said it anticipated the crisis in U.S. subprime mortgage securities as long as two years ago and benefited by selling securities that it didn’t own.
“Our investors will be well rewarded by their allocations to HFA’s absolute return funds over the coming 12 months,” the company said in a statement to the stock exchange.
2x (223)-
Wait’ll that .vix is pushing 50. It’s in the 30’s now, and people are wetting their pants. Gotta learn to love it, pull the trigger when it feels right, walk away at the bell, have a drink, get up again and do it tomorrow. I thought I was gonna be 90% cash until the Fall, but this market is too fun not to get in and get wet.
There are now some companies with big earnings, fat dividends and ridiculously-low multiples. Lost in all the credit blather is the fact that a select group of top-notch companies already see earnings expansion in H2/07. Q3 earnings season is gonna separate the wheat from the chaff, IMO.
117#, gary, they are stupid greedy!
go ahead knock’em down, put $730k green bucks on their stomach, grab the key and run! its yours now.
225#. i hate to use G word… but isn’t it as expected?
twice shy-
Are you a market timer?
Overseas markets taken a beatin’ tonight:
Seoul Composite down 6.6%
Australia down 5%
Nikkei down 3.3%
I love watching this housing crash start to pickup velocity…
Wait till the end of the year. yikes!
sas
#229,
I am a long-term investor, not a market timer. Timing markets is a fool’s game. That said, there are always prudent moves to make approaching a correction or even a bear market. Buying selectively, as Clot mentioned above, is one. Another is raising cash, and, most important, cutting losses (if any) where appropriate.
Hi,
Thanks for sharing this info. Anyway, great post.