Transforming wealth into debt

From the NY Times:

Debt and Spending May Slow as Housing Falters, Fed Suggests

A new research paper co-written by the vice chairman of the Federal Reserve says that consumer debt soared over the last six years mainly because of the rapid increase in housing prices.

The research suggests that consumer spending may slow down over the next few years.

The paper will be presented this morning by Donald L. Kohn, the second-highest ranking Fed official after Ben S. Bernanke, during a conference of central bankers in Sydney, Australia. Mr. Kohn wrote the paper with a Fed economist, Karen E. Dynan.

Ms. Dynan and Mr. Kohn say that higher housing prices made many homeowners feel wealthier and more willing to take on debt, which they then used to finance more spending. This spending helped to keep the economy growing at a healthy pace since the last recession ended in 2001.

But the increase in debt “is not likely to be repeated,” according to an advance copy of the paper, unless home prices rise as rapidly as they have in the recent past and mortgages become even easier for borrowers to obtain.

Home prices are already falling in much of the country, and mortgages have become far harder to get in recent months.

Higher home prices also raised debt in recent years by causing families to take out large mortgages in order to afford the houses they wanted.

The Fed’s study, which has been in the works for months, helps highlight some of the difficulties that policy makers are facing.

The authors note that the average household now owes more money than it makes in annual income. In the early 1980s, the debt-to-income ratio was below 60 percent.

The fact that the population is older and richer than it once was explains part of the rise. So do financial innovations that have made it easier to borrow money. But “the increase in house prices — particularly, but not exclusively, over the past half-dozen years — appears to have played the central role,” the authors write.

Among nonhomeowners, the debt-to-income ratio has not risen significantly since the early ’80s, the authors said.

In some cases, the authors said, homeowner families might have taken on more debt than was wise, out of a misplaced belief that the rise in prices would continue for years.

The Fed’s analysis is noteworthy because consumer spending has been arguably the economy’s biggest strength since 2000.

From MarketWatch:

Home prices boosting U.S. household debt: Kohn

Rising home prices and innovations in the financial sector are the two biggest factors in the spike in U.S. household debt and the related decline in savings, Federal Reserve Vice Chairman Donald Kohn wrote in a research paper presented Sunday.

In a paper presented to a conference held by the Reserve Bank of Australia, Kohn and a Fed economist wrote that a “wealth effect” caused by rising home prices could boost consumption, leading in turn to an increase in household debt. Expenditures for more expensive homes are another factor behind an increase in debt, wrote Kohn and co-author Karen Dynan, chief of the household and real estate finance section of the Fed’s Division of Research and Statistics.

In their paper, Kohn and Dynan noted that the personal savings rate in the U.S. has fallen from an average of 9.1% in the 1980s to an average of 1.7% so far this decade. In the same period, the ratio of total household debt to aggregate personal income has risen from 0.6 to 1.0.

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242 Responses to Transforming wealth into debt

  1. James Bednar says:

    From MarketWatch:

    Countrywide laying off loan-origination staff: WSJ

    Countrywide Financial Corp., reducing costs as part of its effort to weather a credit crunch, has begun laying off employees involved in originating loans, according to a media report Sunday.

    The layoffs occurred in the company’s Full Spectrum Lending unit, which handles many home mortgages in a category known as Alt-A, or mortgages between prime and subprime that often involve borrowers who don’t document their income, The Wall Street Journal reported in its online edition, citing a Countrywide internal email.

  2. James Bednar says:

    From the Wall Street Journal:

    Countrywide Begins Staff Layoffs
    By JAMES R. HAGERTY
    August 20, 2007; Page A6

    Countrywide Financial Corp., reducing costs as part of its effort to weather a credit crunch, has begun laying off employees involved in originating loans, according to an internal email.

    The layoffs occurred in the company’s Full Spectrum Lending unit, which handles many home mortgages in a category known as Alt-A, or mortgages between prime and subprime that often involve borrowers who don’t document their income. Such borrowers typically don’t qualify for a conforming mortgage, the type that can be sold to government-sponsored mortgage investors Fannie Mae and Freddie Mac.

    The email, sent to employees Friday by a senior official of Full Spectrum, discussed layoffs made that day but didn’t specify the number. The company as a whole employs about 61,000 people. It had a sales force of about 6,800 in Full Spectrum out of a total loan-origination sales force of about 18,000 as of June 30, according to a Securities and Exchange Commission filing.

    Less than two weeks ago, Countrywide said it was hiring more loan officers from rivals forced to close down. But the company now is expected to reduce sharply its lending and costs because investor anxiety over rising defaults has made it almost impossible for lenders to sell many types of loans now deemed too risky. That is likely to lead to a steep drop in earnings, at least in the short term, analysts say.

  3. James Bednar says:

    From MarketWatch:

    Solent Capital may sell hedge fund assets on subprime losses

    Solent Capital said in a statement Monday that it’s going to wind down its Mainsail II fund on losses tied to U.S. subprime market woes. The fund invested in CMBS, RMBS and CDO asset-backed securities. “Current market volatility and lack of market liquidity with respect to sub-prime lending markets have caused adverse conditions with respect to the liquidity and market risk exposures on the company’s underlying portfolio of investments,” it said. “As a result of such adverse liquidity and market conditions, a market value coverage test wind down event has occurred.” The fund may have a forced sale of investments or a closing out of hedging instruments at a loss that may “materially” impact principal and interest repayments.

  4. James Bednar says:

    From Bloomberg:

    Dumping the Real-Estate Agent Can Spur Home Sale

    If you are selling property now in a market bedeviled by huge inventories of homes and a credit crunch, you could do better if you dumped your real-estate agent.

    With a wide range of flat-fee and Internet-based services, you may fare well on your own, yet it’s still important to know your options.

    For years, homeowners relied upon licensed real-estate agents or brokers, who charged from 5 percent to 7 percent commissions. These middlemen included your home in the industry’s Multiple Listing Service and did marketing, advertising and negotiating.

    What if you listed and sold the property yourself and avoided the commission?

    According to a recent study, people who used a “for sale by owner” Web site, also known as FSBO, got at least as much for their homes as those who went through a conventional broker.

    In many cases, considering the Web site only charged a flat fee, the vendors obtained a higher net selling price than through broker contracts.

    Although the study only looked at one Internet service, it noted that listing on the MLS — instead of the Web site — “does shorten the time it takes to sell a house.”

    The study is welcome news for sellers who want to lower their commission costs and boost net sales prices.

    Homeowners could use some help when dealing with the real- estate industry these days. As the revolution in do-it-yourself home selling takes on new forms, it isn’t having a significant impact in lowering brokerage expenses.

    While housing prices have risen over the past five years, when adjusted for inflation, commissions haven’t dropped, even with new services and increased efficiencies in real-estate transactions.

    “From 1998 to 2005, U.S. housing prices climbed 37 percent in real terms, and, although national average commission rates appear to have fallen from 5.5 percent to 5 percent, average brokerage fees per transaction rose 26 percent in real terms during the same period,” according to a U.S. Federal Trade Commission report published in April.

    The mainstream real-estate brokerage industry has fought discounting in a number of ways.

    In 10 states, the industry has succeeded in having “anti- rebate” laws enacted that forbid brokers from discounting commissions, according to the FTC.

    Agents typically split their fees with cooperating brokers. In anti-rebate states, no commission discount would be allowed, a practice that clearly hurts home sellers.

    Another seemingly anti-consumer tactic is a “minimum- service law” in seven states that requires real-estate brokers to provide specific services to sellers, which can discourage discounting.

    Local real-estate groups were also accused of restricting flat-fee brokers’ access to multiple listing services, which has resulted in several suits against industry organizations by the FTC during the past year.

    Keep in mind that if you take the do-it-yourself route, while your net sales proceeds will be higher, you will have to do much more work and it may take longer to close a sale.

    The bottom line is finding a legitimate buyer who is willing to pay the highest possible sales price. If you have a buyer already lined up or live in a high-demand neighborhood, you certainly don’t need a full-service broker.

    Should you not feel comfortable marketing your home, brokers with advertising and referral resources may be a better bet. They are also helpful in finding financing.

    Although commissions are still too high in an era in which securities and mutual-fund commissions have dropped to practically nothing, there’s still the guiding hand of economic self interest that influences who is likely to close a deal.

    As the FTC study notes, “brokers have certain incentives to `steer’ consumers toward those homes that offer the highest cooperating broker commission and away from homes listed by brokers known to charge discounted commission rates.”

    Some things don’t change and the guiding hand may be even firmer in a weak market.

  5. James Bednar says:

    From Fortune via CNN/Money:

    Housing woes hit high end

    What could the collapse in the subprime mortgage market possibly have to do with whether Dr. Jeffrey and Madeline Stier get full price for their four-bedroom house in the wealthy New York City suburb of Larchmont?

    Not much, you would think. After all, the people who live in Larchmont tend to be lawyers, doctors, and Wall Streeters. Generally speaking, they aren’t the credit-challenged borrowers who must resort to subprime mortgages to finance their homes.

    And yet talk to the Stiers about the tepid demand for their home — a lovely Tudor on a tree-canopied cul-de-sac near the local elementary school — and it’s clear that what’s happening in the subprime market is reverberating all the way up the real estate food chain.

    Not only has the collapse driven up rates on many kinds of mortgages, but fear of a stock crash — one perhaps sparked by the bursting of the credit bubble — has for now prompted many high-end homebuyers to either trim their offers or stop shopping altogether.

    “It’s the hysteria on Wall Street,” Jeffrey Stier says. “It’s frightening people.”

    The timing has been unfortunate for the Stiers. Their house, which they’ve owned for 30 years, boasts a stylish outdoor pool, a modern kitchen, and a nicely renovated master bathroom.

    Given its location and amenities, it probably would have sparked a bidding war had it been put up for sale a year ago. But today, six months after the Stiers first listed it for sale at $2.5 million — a price only slightly above what comparable homes had been selling for — the house remains unsold. Tired of waiting, the Stiers finally capitulated and recently dropped their asking price to $1.99 million.

    The market’s psychology has changed more than the fundamentals, argues Phyllis Radding, a veteran Coldwell Banker agent who is selling the Stiers’ home. “All the negative articles in the press have made buyers more cautious,” she asserts.

    Psychology does seem to be darkening the high-end market. But it’s more than just fear. A recent spike in rates on so-called jumbo mortgages is raising the cost of buying an expensive home. The combined effect of psychology and higher rates is simple but brutal: A theoretical buyer is likely to offer you less — maybe 10% to 15% less — than he might have just one month ago.

    For years jumbo rates were only 0.25 of a percentage point above those of “conforming” loans — those below the cutoff (now $417,000). In recent weeks that spread has exploded to 0.75 of a percentage point or more. BankRate.com reports that the average tariff on jumbo loans soared to 7.35% nationally in August, and many mortgage brokers are reporting figures that exceed 8%.

    Increased rates on big home loans translate to a substantial decline in buying power. Two years ago a $6,000 monthly payment would support a $1 million, 30-year mortgage at 6%. Today that same $6,000 payment covers only an $870,000 mortgage at 7.35%.

    In other words, higher rates have trimmed the buying power of luxury-home buyers by 10% to 15%. Throw in the fact that some buyers can’t get a mortgage at any rate right now, and you’ve got all the makings for a national price correction for luxury homes.

    “Eventually it’s going to take its toll on the higher end of the market,” says Karl Case, a Wellesley College economics professor and a co-founder of real estate consulting firm Fiserv CSW.

  6. James Bednar says:

    From the Record:

    Home loans cut off at the passkey

    Some New Jersey home buyers and mortgage-refinance customers became victims of the subprime and alternative mortgage meltdown before they even got their loans.

    When lenders lost financial backing, hundreds of would-be borrowers were left wondering where to turn, according to state officials.

    Since March, the state has taken legal action to revoke the licenses of six lenders, in part because they left customers in the lurch. Sometimes loans were closed, but the funds were never paid out.

    The latest company to face legal problems with state banking officials is Aegis Wholesale Corp., a subsidiary of Houston-based Aegis Mortgage Corp., which has an office in Clark.

    In New Jersey, Aegis ranked 22nd last year out of 1,200 state-licensed mortgage lenders by loan volume, said Jim Gardner, a spokesman for the state Department of Banking and Insurance. The company made 397 loans statewide totaling $82.7 million in 2006.

    State officials said in March that New Century Mortgage Corp. of Irvine, Calif., which was one of the top five lenders in New Jersey in 2006, failed to provide funds to 59 customers after the loans had closed because its funding sources dried up.

    By state law, funds must be disbursed at the closing in home-purchase deals and within three business days for refinancing deals.

    More than 400 New Century customers had loan applications in progress when the company stopped funding new loans, state officials said.

    Since then, LoanCity Inc. of San Jose, Calif., Southstar Funding LLC of Atlanta and American Home Mortgage of Melville, N.Y., have been served with cease-and-desist orders from New Jersey banking regulators, for similar reasons.

    State officials say they still are trying to determine how many customers were affected, and they have enlisted the help of the New Jersey Mortgage Bankers Association and the New Jersey Mortgage Brokers Association to match jilted borrowers with solvent lenders.

  7. Essex says:

    Bad habits are going to be hard to break….most will probably be forced into a new era of austerity. But with food and housing costs taking upa growing percentage of flat wages, do not look for personal savings to increase soon.

  8. bergenbuyer says:

    “The authors note that the average household now owes more money than it makes in annual income.”

    In what terms? Do they mean I make $100K and I have a mortage of $300K? Or I make $100K gross, take home $70K and my debt service on my $300K mortage, my credit card debt, school loans, etc. is $80K a year?

    I would assume most peoples total mortgage is greater than their annual income.

  9. James Bednar says:

    From Bloomberg:

    Subprime Infects $300 Billion of Money Market Funds, Hikes Risk

    Money market funds were invented 37 years ago to offer investors better returns than bank savings accounts while providing a high degree of safety. Most of the $2.5 trillion sitting in these funds is invested in such assets as U.S. Treasury bills, certificates of deposit and short-term commercial debt.

    Unlike bank accounts, money market funds aren’t insured by the federal government. They almost never fail.

    Unbeknownst to most investors, some of the largest money market funds today are putting part of their cash into one of the riskiest debt investments in the world: collateralized debt obligations backed by subprime mortgage loans.

  10. James Bednar says:

    I would assume most peoples total mortgage is greater than their annual income.

    We would need to look at the entire series to determine whether or not the move was significant.

    Realize we’re talking “average” here, this would include folks that have already paid off mortgages, own homes outright, etc.

    jb

  11. BC Bob says:

    “Did Countrywide Get a Hand from the Fed?”

    “The central bank’s discount-rate cut probably wasn’t aimed directly at the lender, but the move may have helped save it from bankruptcy”

    “The direct effect on Countrywide is limited. However, as a bank, it could also use the discount window if it wanted.”

    “Analysts have criticized its aggressive hiring this summer as the firm tries to expand its mortgage business while smaller and weaker competitors fail. “We believe CFC is not responding to slower market conditions as nimbly as we would have hoped,” JPMorgan (JPM) analyst George Sacco Jr. wrote this week. (Countrywide is a JPMorgan client.)”

    “Stuart Plesser, an equities analyst at Standard & Poor’s, has warned that 37.5% of the loans Countrywide holds are option adjustable rate mortgages. He has called option ARMs “very dangerous” because he believes defaults on the loans are about to rise quickly, following the problems with subprime and other risky loans.”

    http://www.businessweek.com/investor/content/aug2007/pi20070819_751874.htm?chan=search

  12. James Bednar says:

    The number also includes renters.

    jb

  13. James Bednar says:

    Interesting piece by Lee Adler over at Wall Street Examiner:

    Throwing a Bone To A Starving Dog

    There sure has been a lot of nonsensical gibberish flying around the financial infomercial media, and in the world of blogs and message boards since Friday. So let’s try to separate fact from fantasy.

    We’ll start with something I agree with. I do believe that the Fed’s action had everything to do with Countrywide’s bank arm, the well publicized run by their customers, and the fact that they were forced to borrow apparently all of their $11 billion bank credit facility. This is a dangerous and volatile mix in the arena of the public confidence game that fiat money systems depend on. The Fed had to do “something” to give the world the impression that they were actually “doing” something.

    What did they actually do? Not much.

    Countrywide Securities Corporation is one of the Fed’s 21 primary dealers. They are a direct participant in the Fed’s daily open market operation repo auctions. If the Fed was going to prop up anyone, this group would be first in line. And given that the vast majority of Countrywide’s assets are residential MBS, clearly they would stand to be the first of the first in this situation. The Fed’s actions on Friday were designed to soothe the fears of the biggest financial actors, the market, and the public in regard to the apparently sudden meltdown of this one particular bad actor.

    But the Fed did not lower rates. It didn’t even increase the monetary base. It just put on a show designed to keep the public con going.

    Any depositary institution can borrow at the discount window, but it is essentially only an emergency facility for banks that do not have access to the Fed Funds market for whatever reason. The rate at the discount window has been set at a premium of 1% above the Fed Funds rate since the Fed changed the policy on use of the discount window in January 2003. All Friday’s move effectively did was to lower the premium for these emergency loans to problem children by 1/2%. And right now Countrywide is the Fed’s seriously delinquent teenager in big trouble with the law.

    So is the Fed’s action as a big deal as the market’s subsequent action and the punditic (yeah, I just made up that word) euphoria would have you believe?

    No.

    The Fed does not buy securities at the discount window. It makes emergency loans there, and since the rate is at a premium to the market, no one would use the Window if they weren’t in deep squat and were locked out of the Fed Funds market. How much lending is done at that Window? As of Wednesday of last week the total outstanding was $294 million. Not billion, million! Compare this with the total size of the Fed’s asset base of over $800 billion, and you get some idea of how truly insignificant the Fed’s symbolic ploy was.

    But the market took the bait, hook, line, and sinker. The flipping and flopping will be something to see when the fish have their oxygen cut off.

  14. James Bednar says:

    Interesting piece on China from the AP:

    Food Prices Fuel China Inflation Fears

    Grocery shopping has become a painful experience for Zhang Xueyi. Meat prices have risen 50 percent in the past year, and eggs and other products are not far behind, forcing the 31-year-old railway technician’s family to spend a third of its $400 monthly income on food.

    “If prices go up more, we have to pay. We’ll cut back somewhere else,” said Zhang as he hefted bags of eggs, vegetables and rice from the market down a narrow Beijing lane.

    After a run that has seen sizzling growth top 10 percent for four years, analysts say China’s supercharged economy is facing strains that could break out into an upsurge of inflation.

    Pressure is growing in energy, where Beijing is holding down retail prices by blocking state-owned gasoline and power companies from passing on higher costs, said Nicholas Kwan, an analyst for investment bank CLSA in Hong Kong.

    Chinese oil refiners are losing $5 per barrel of oil that they process into gasoline or diesel, he said.

    “I think it’s just a matter of time until they have to bite the bullet and raise domestic prices,” Kwan said. “Otherwise they risk an artificial shortage because oil companies will refuse to refine oil into gasoline if they are losing money.”

  15. daniel says:

    #13 Adler:

    thanks james, for posting an insightful piece breaking down the particulars of friday’s fed move.

    the commensurate “pop” on financial markets immediately following speaks volumes to the global sensitivity existing at the present. dark days to follow.

  16. Al says:

    To post 12

    Renters are not people. They do not count :)

    there are “only” about 32% of population

    the reality is: if you home went up in price – you are not richer or poorer – you still own the same home and nothing changed. But people got carried away with HELOCing their life…. just a little bit…

    Originally HELOC’s were for medical emergencies, lay-offs and other crisis in people life’s

    Lately people would borrow to pay for borrowed money interest – borrow heloc to pay heloc and mortgage…. To buy boads/cars/stuff…

  17. Al says:

    TO post #14
    James Bednar Says:
    August 20th, 2007 at 8:36 am
    Interesting piece on China from the AP:

    Food Prices Fuel China Inflation Fears

    It will be interesting if we will see world-wide inflation spiraling up in the next years…

  18. Al says:

    Italics Off

  19. Chong says:

    “The authors note that the average household now owes more money than it makes in annual income.”

    In what terms? Do they mean I make $100K and I have a mortage of $300K? Or I make $100K gross, take home $70K and my debt service on my $300K mortage, my credit card debt, school loans, etc. is $80K a year?

    I would assume most peoples total mortgage is greater than their annual income.

    bergen [#8] –

    My take on this statement is that they are really talking about net worth rather than total debt. Ie – most families now have a negative net worth equal to their annual income.

  20. James Bednar says:

    From MarketWatch:

    Thornburg Mortgage sells substantial part of AAA securities

    Thornburg Mortgage Inc., the Santa Fe, N.M., residential-mortgage lender focused on jumbo adjustable-rate loans, said it sold a “substantial” part of its triple-A -rated mortgage securities porttfolio and significantly reduced its borrowings portfolio. The moves “address challenges in meeting its liquidity and financing needs caused by rapidly declining mortgage-securities prices and simultaneous declines in the value of its hedging instruments,” the company said in a statement. The company will report a third-quarter capital loss of about $930 million as a result of the mortgage-securities sales, Thornburg said. Of this amount, $700 million was reflected as an accumulated comprehensive loss on the balance sheet at June 30.

  21. James Bednar says:

    From Reuters:

    Chicago Fed national activity index lower in July

    The Federal Reserve Bank of Chicago on Monday said its gauge of the national economy was lower in July, hurt by weakness in employment and housing indicators.

    The Chicago Fed said its National Activity Index was -0.10 for July against June’s downwardly revised +0.06 reading. June was initially reported at +0.11.

    Among the four broad categories comprising the index, one made positive contributions, two were negative and one was neutral.

    The index’s three-month moving average was held at -0.12, the same as June’s upwardly revised reading, previously reported at -0.15.

    A reading below zero for the three-month average is associated with below-trend economic growth. The index has been below zero since September 2006, but the matching June and July readings are the highest so far in 2007.

    Employment-related indicators made a bigger negative contribution for the month as payroll employment expanded less than expected and the jobless rate rose. Housing indicators were hit by a drop in housing permits and building permits.

    Production indicators were positive on the back of a 0.3-percent increase in industrial production and higher capacity utilization.

  22. James Bednar says:

    A copy of the Dynan and Kohn paper can be found here:

    The Rise in U.S. Household Indebtedness: Causes and Consequences

  23. James Bednar says:

    Bergen/Chong,

    Here is a chart of the income/debt data from the paper referenced above.

    https://njrereport.com/images/debttopi.jpg

    jb

  24. Bloodbath in Winter 2007 says:

    Just go through late posts on the weekend thread and this is just one guy’s opinion … everyone is eager and poised to snatch up deals tomorrow.

    Going to open houses, getting the realtor on the case … I just wanted to once again stress patience.

    If you see prices falling in the next three weeks, just smile and consider this: once Sept. 10 arrives, realtors will be telling their clients that the buying season is OVER and the competition to sell will be FIERCE, so they all must lower their prices.

    Then in Oct the massive foreclosures begin … Nov/Dec is when the real deals will begin.

    This is, of course, assuming folks can hold off …

  25. Stu says:

    ?Stuart Plesser, an equities analyst at Standard & Poor?s, has warned that 37.5% of the loans Countrywide holds are option adjustable rate mortgages. He has called option ARMs ?very dangerous? because he believes defaults on the loans are about to rise quickly, following the problems with subprime and other risky loans.?
    http://www.businessweek.com/investor/content/aug2007/pi20070819_751874.htm?chan

    ———————————–
    UNPRECEDENTED SITUATION. A 3/1 ARM has a fixed interest rate for the first three years, and thereafter adjusts each year. A 5/1 ARM is fixed for the first five years and then resets. A major concern is that the number of ARMs issued at subprime rates to borrowers with lower credit ratings is not known. “We know that ARMs default at a higher rate than fixed, and subprimes default at higher rates than primes,” says Sharga. “Never have so many ARMs reset at the same time. There is no precedent for it.”

    Many industry observes are concerned that the default rate could reach dangerous economic proportions. Government-sponsored enterprises (GSEs), such as Fannie Mae (FNM) and Freddie Mac (FRE), as well as lenders such as Countrywide Financial (CFC) and Wells Fargo (WFC), are all looking at foreclosure prevention strategies, according to Sharga. “The GSEs and lenders are developing novel solutions on workout programs to prevent people from going into foreclosure,” he says. “Because if the number of foreclosures is too great, it drives down the market and they find themselves stuck with a lot of depreciating property on their hands. It is much more in their interest to educate homeowners on what their options are and come up with ways to help them keep their homes.”
    http://www.businessweek.com/investor/content/aug2006/pi20060810_284614.htm?chan=rss_topDiscussed_ssi_5

    ———————————-

    The worst-hit loan category will be subprime adjustable-rate mortgages (ARMs). Economy.com expects foreclosures for those loans to hit 10 percent of that group by mid-2008. The foreclosure rate for that group is currently 4 percent and was as low as 2.5 percent in 2005.

    Subprime ARMs issued during the last three months of 2006 could fare worst of all, with a projected foreclosure rate of just under 20 percent during the fall of 2011. That would mean a full one in five owners still paying off subprime ARMs from late 2006 – about 12,000 in all – would lose their homes. Many others from that group would have already lost their homes to foreclosure in the previous years.

    http://money.cnn.com/2007/08/09/news/economy/bc.aig.subprime.reut/index.htm

    ————————————-

    If 37.5% of all of the loans generated by CFC are ARMS and 10% of those will default, can CFC handle a default of nearly 4% of all of their loans generated? Especially when considering that both home prices are falling and property taxes are rising at a breakneck pace?

  26. Everything's 'boken says:

    Poor ducks, how long must they shed water?

  27. Stu says:

    JB, my post 25 is stuck in moderation ;)

  28. RentinginNJ says:

    Bad habits are going to be hard to break…do not look for personal savings to increase soon.

    True. Old habits die hard.

    People have grown accustomed to being able to tap cheap and easy credit for just about any reason. There was no need to save for an emergency. Lose your job? No problem, live off your home equity and credit cards until you find a new job.

    What happens next will largely depend on the availability of easy credit going forward and whether or not the fear of not having savings in the bank trumps the discomfort cause by tightening one’s belt.

    What happens when Boomers, who are staring down retirement in the near future, come to the realization that their home isn’t going to do the retirement saving for them? That you are no longer going to save for retirement simply by virtue of being a homeowner enjoying 15% YOY gains?

    I think we will see some belt tightening. At a minimum, we will see the negative savings rate come to an end (an increase to zero). Even this level of savings, consumer spending is likely to take a hit.

  29. Comrade 3b says:

    Just back from a wekks vaction in Md, condos every where for sale.

    Massive projects everywhere. many of them are empty at night whole buldings are unlit. For sale signs every where, free boat slips, paidd closing costs etc. etc.

    Tried to follow as much as I could all that transpired last week. (too busy having a good time.

    It is amazing to me after going through the weekend discussion that there are still some posters who believe that with all that has transpired, real estate in NJ will remain unscathed, and all will be well. Truly amazing!

  30. Comrade 3b says:

    #28 rent: not easy to save, if much of your income is going to service your debt.

  31. Jamey says:

    “Turning Wealth into Debt.” Sounds like we have a title for Bush’s presidential memoirs.

  32. bi says:

    Shanghai index up 5% overnight and within 2% to 5000 mark. chinese stock market is a replay of japanse stock market 20 years ago. on top of that, U.S. is adding pressure on chinese to increase yuan rate. this inflated value is coming to the real-state market of tr-state area and california soon and we will see the property value in nyc and certain nj towns up 100% in 5 years.

  33. Everything's 'boken says:

    So only Asians will be able to afford living here?

  34. bi says:

    oil traders were waiting for natural hurricane. dean did not come but gone. bears on this blog are waiting for financial hurricane. it came ande gone. i did not see house inventory spile in my area in last two weeks. if this trend continues to the middle of october, i might raise my target of 10% appreciation to 15%.

  35. Al says:

    bi Says:
    August 20th, 2007 at 10:00 am
    Shanghai index up 5% overnight and within 2% to 5000 mark. chinese stock market is a replay of japanse stock market 20 years ago. on top of that, U.S. is adding pressure on chinese to increase yuan rate. this inflated value is coming to the real-state market of tr-state area and california soon and we will see the property value in nyc and certain nj towns up 100% in 5 years.

    all I can say – LOL

  36. Al says:

    I think Bi really trying too sell his “Investment” before his ARM reset and he will be foreclosed on…

  37. Bloodbath in Winter 2007 says:

    Bi, are you drunk? I must know.

    Maybe you’re trying to take the place of the Troll and be a firestarter? That charade can only last so long.

  38. bi says:

    34#, all my posts were laughed by most blogggers here at first but now all that with current time frame are realized. 4 weeks ago when i said in this blog that fed had no choice but cutting rate, everybody laughed. now you have to laugh at yourself. besides, oil is moving to $40+ target price this morning.

  39. Stu says:

    Just after the market opened, the U.S. Federal Reserve said it added $3.5 bln in reserves via overnight repurchase agreements. Evidently participants are still struggling to grasp whether additional infusions are good or merely echo uncertainty as to the extensiveness of the credit turmoil.

  40. James Bednar says:

    i did not see house inventory spile in my area in last two weeks.

    You don’t really think that the housing market would have responded that quickly, do you? Housing market moves take months and years, not days and weeks.

    jb

  41. Al says:

    oil is moving to $40+ target price this morning.

    Siryr it is last reply to Bi’s nonsense…

    oil moving to 40$????…..
    We will never see iol below 60-65… By next summer it will easilly hit 80.

  42. General Tso says:

    I guess I should follow BI’s advice and try to buy as many of the Chinese restaurants in my area as I can. Could you just imagine the demand as the Asians move in?

  43. James Bednar says:

    Just after the market opened, the U.S. Federal Reserve said it added $3.5 bln in reserves via overnight repurchase agreements.

    A $3.5b TOMO looks status-quo to me. If anything, this 1-day repo was smaller than most.

    jb

  44. Comrade 3b says:

    339 bi: I ma not laughing at myself, but I am congratulating myself.

    As far as the Fed, they have not cut yet, have they? And do you really belive they will cut 100 basis points between now and year end? if they do, then things are worse then even us doom and glooemrs would have imagined.

    And if they do cut, it will not help all the ARm resets that are coming;it won’t help at all.

    As far as inventory,it is still rising, only at a slower pace. I believe we will see that spike again after the Labor Day holiday.

    As far as oil at $40 if you say so. As far as prices rising 15%, well you are delusional.

  45. General Tso says:

    It’s only 10:30am JB…There’s a whole trading day left for the FED to continue to need to rescue our failing markets.

  46. bi says:

    actually i have most conservative investment strategy in this blog: long pharmas instead of sp500, long gold short oil, long homebuilders sort lenders, long home short IRS…

  47. James Bednar says:

    From MarketWatch:

    U.S. leading indicators rise 0.4% in July

    U.S. leading economic indicators increased by 0.4% in July, pointing to slow growth for the rest of the year, the Conference Board reported Monday. The index, designed to forecast economic trends six to nine months ahead, has risen in three months so far this year. It’s up 0.1% in the past six months, with half of the 10 indicators growing over that time. The leading index “continues to suggest that the economy is likely to grow in the near term, albeit at a slow pace,” the private research group said in a statement. Six of the 10 leading indicators advanced in July.

  48. stuw6 says:

    Long winded, short common sense ;)

  49. bi says:

    48#, in my 15 years in this greatest country in the world, i only learned one thing: when it comes to make investment decisions, all greatest investors throw away what they learned in academics but use common sense. this is true applying to warren b., peter l., bill m., bill r….

  50. BC Bob says:

    bi [46],

    Repeat, repeat, repeat. There is absoulutly nobody on this site that gives two s*its about your stock position. If you really had one, your positions would have been blown out by this time.

    Why don’t you go out and start buying RE, in those certain towns that you feel will be up 100% in 5 years. Let us know how you do obtaining that jumbo loan.

  51. make money says:

    And if they do cut, it will not help all the ARm resets that are coming;it won’t help at all.

    100 basis points will cause the FFR to get to 4.25%. Do you really think the long end of the curve would be above 6%. 30yr Fixed under 6% will cause a major psychological change and the bulls could come out again.

    If this happens it could delay the inevitable and create 2003 all over again.
    There could be some opportunities to get in and get out in the next 3yrs.

    Larry Cudlow pointed out that this should happen and happen quickly. Just look at the 90 day T-bill and where it’s selling.

    WHY?

  52. bi says:

    credit to NJ buyer posted in weekend. you can find good jumbo rate as long as you dig hard enough. a lot of folks here are just keeping complaining on higher rate, affordability,……

    >If anyone is buying in Bergen County I highly recommend (removed – jb) Bank. If you have solid credit and 20% down, they are currently offering 6.375 with $300 in fees (as far as I can see the lowest out there for a 30 year) and will go above the $417 Jumbo limit with that same rate. My previous 2 mortgages were with USAA (not always the least expensive but the best service), and they tried to match this deal but could not.

  53. Bloodbath in Winter 2007 says:
  54. New Investor says:

    “bi Says:
    August 20th, 2007 at 10:27 am
    48#, in my 15 years in this greatest country in the world, i only learned one thing: when it comes to make investment decisions, all greatest investors throw away what they learned in academics but use common sense. this is true applying to warren b., peter l., bill m., bill r….”

    So you’re comparing yourself to warren buffet? I don’t think you’re drunk, I think you’re tripping…

  55. RentinginNJ says:

    i said in this blog that fed had no choice but cutting rate

    I never said they wouldn’t cut rates. I don’t think it’s the right think to do, but doesn’t mean Bernanke won’t bow to political pressure & cut.

    Will this save housing? Probably not. I didn’t in the early 1990’s. In fact, a rate cut could cause a flight out of the dollar and cause interest rates to rise. Additionally, investor’s appetite for risk has changed. The Fed can cut all it wants. People are getting out of the business of lending people with bad credit risky loans.

    But lets assume I’m wrong and a rate cut leads to reinflation of the bubble and a continuation of big YOY gains? What happens once the rate cut is “priced-in” and we are back to where we are today? Cut rates again? Cut to zero? Offer direct govt. subsidies to buy homes?

    everybody laughed. now you have to laugh at yourself. besides, oil is moving to $40+ target price this morning…we will see the property value in nyc and certain nj towns up 100% in 5 years.

    Can’t have it both ways.

    Either we have massive inflation. Money gets dumped from helicopters. The world economy avoids recession. RE continues to rise in NYC as it becomes cheap for foreign investors, but at the same time we are competing for oil with a weakened dollar against strong foreign demand. Oil priced in US$ continues to rise.

    Or;

    The US enters a serious recession and brings down the world economy with it. Aggregate demand drops and oil prices fall. RE prices in NYC and the surrounding burbs drop as the economy can not sustain current prices.

  56. stuw6 says:

    Subprime Infects $300 Billion of Money Market Funds, Hikes Risk

    http://www.bloomberg.com/apps/news?pid=20601206&sid=aEUtlgwzL_qc&refer=realestate

  57. scribe says:

    Countrywide has raised its 1 year CD to 5.65%.

    The “advertiser comments” section on bankrate is a terse “FDIC insured.”

  58. bi says:

    55#, the impact of oil to overall u.s. economy is no long as great as that 20 years ago. when gas price hit $3 3 years ago, everybody panic. 3 years later, what happened? nothing except a few more dismal outlooks from this blog

  59. scribe says:

    From the Economist:

    And Ben Bernanke keeps his cool

    BEN BERNANKE, as chairman of the Federal Reserve, is a man of many hats. For most of his short chairmanship, he has been lucky in needing to don only one: that of the defender of price stability. By presiding over three upward ticks of the federal funds rate early last year, Mr Bernanke gave the necessary outing to that particular headpiece. The Fed has continued to keep a sharp eye on inflation, occasionally tweaking pronouncements to reflect tiny variations in its outlook, but Mr Bernanke’s method became, until recently, one of watchful inaction.

    That began to change on August 9th, when the world woke up to what was quickly dubbed an important liquidity event. The evaporation of short-term credit pushed the federal funds rate well above its target level, forcing the Federal Reserve to intervene and defend the target, accepting mortgage-backed securities as collateral for its loans in some cases. Since then, Mr Bernanke has carefully worn his lender-of-last-resort chapeau, making it clear to markets that sufficient credit will be available to ensure the orderly operation of markets.

    But conditions have continued to deteriorate. A steady drumbeat of bad news from firms and funds involved in American mortgage markets has caused a global round of financial migraines.

    http://www.economist.com/displaystory.cfm?story_id=9673437

  60. Comrade 3b says:

    #52 MM Do not think it willplay out that way, the psychological damage is done.

    I do not think the Fed wants to reinflate, in fact I believe Bernanke is acutely aware of the mess that his predecessor made. The last thing he wants is to reinflate the real estate bubble.

    If he cuts we wil see declining rates,and declining prices. A 4.25 FFR will not help when people were taking out teaser rate mtgs when the FFR was 1 or 2%.

  61. scribe says:

    From the Washington Post:

    Fed Chief ‘s Measured Response to Crisis

    By Neil Irwin
    Washington Post Staff Writer
    Sunday, August 19, 2007; A01

    As the world’s financial markets experienced a wrenching upheaval and markets for home mortgages and many other kinds of debt came to a standstill, Wall Street begged Ben S. Bernanke and the Federal Reserve to do something about it.

    On Friday, they did. Wall Street rejoiced when the Fed cut the interest rate on loans to banks and indicated that it would do what it takes to protect the economy from problems in the markets.

    But the Fed, chaired by Bernanke, was not as disengaged before Friday as conventional wisdom suggested, and it is not now as eager to take dramatic action as some investors seem to hope, close watchers of the central bank say. Friday’s moves were narrowly tailored, and they stopped well short of using all the tools in the Fed’s arsenal to ease the crisis, such as lowering a key interest rate that would make it cheaper for consumers and businesses to borrow money.

    The Fed’s actions, say market watchers and longtime friends of the Fed chief, are consistent with the Bernanke they know: cautious, cerebral, and disinclined to react to the rumor and speculation that are among Wall Street’s greatest exports.

    http://www.washingtonpost.com/wp-dyn/content/article/2007/08/18/AR2007081801220_pf.html

  62. RentinginNJ says:

    55#, the impact of oil to overall u.s. economy is no long as great as that 20 years ago

    I’m not making a judgment about whether or not American consumers can absorb higher oil prices. I’m saying I can’t envision a scenario where real estate doubles but oil drops to $40 over the next few years.

  63. make money says:

    nonsense. If you think 4.25FFR will not halp you’re saddly mistaken.

    Americans in general are a very optimistic bunch and when they see the fed is behind them with a 100% cut in just a couple months then it will be 2003 all over again.
    and double digit growth. The Psychology will be as long as we have the Fed behind us then just follow the money and the masses and you’ll Make Money.

    Ben Bernanke is no Paul Vocker make no mistake about it.

  64. scribe says:

    Was this posted yet? From Saturday’s Hartford Courant:

    Dodd Stresses Credit Crisis
    Says Administration Needs To Do More

    By DAVID LIGHTMAN

    Washington Bureau Chief

    August 18, 2007

    WASHINGTON

    Senate Banking Committee Chairman Christopher Dodd said Friday he welcomed the Federal Reserve Board’s moves to settle the markets, but wants the White House to act more quickly to restore consumer and investor confidence in the nation’s increasingly shaky housing market.

    “Where’s the president?” asked the Connecticut Democrat, speaking from Iowa, where he is spending the week campaigning for the Democratic presidential nomination. “This is an economic crisis that demands the leadership of the president and the treasury secretary.”

    Dodd has joined other Washington lawmakers in urging regulators to allow Fannie Mae and Freddie Mac more ability to get involved in mortgage markets, a step many think will help calm the markets as well as add liquidity.

    http://www.courant.com/business/hc-doddbank0818.artaug18,0,6942320.story

  65. bi says:

    last week, a lot of folks here were talking about hedging re, for example, buying srs. my experience told me that most time you acctually don’t need hedging when you feel you need hedging just as you don’t need acondom when you feel you need a condom. you need hedge when you take a position

  66. stuw6 says:

    I prefer to wear a condom when I take a new position.

    Is this guy for real?

  67. James Bednar says:

    Please stop the nonsense.

    jb

  68. Comrade 3b says:

    #64 MM: With all due respect, I believe many Americans are clueless, about most things.

    Again I belive a FFR of 4.25 will not kane a difference to many of those who are/will be stuggling with ARM resets. Will the lenders loosen their standards again, and give mtgs to one and all, will the street resuem bindling and selling sub-prime mtgs as CMO’s/CDO’s? Ain’t happening.

    If you belive a FFR of 4.25, restarts the party and the madness, it is you who is sadly mistaken.

    Have teh Fed bail out the recklessness, so we can start the recklessness again? Ain’t happening.

    As far as BErnanle being no Volcker, lets just wait and see.

  69. HEHEHE says:

    Bi,

    What’s your ticker? I want to short you.

  70. bi says:

    67#, you interpreted in a wrong way. i am talking something serious. when most people feel desprately need to do something, it is capitulation point and the market is starting to turn. it is happening to re market right now.

  71. New Investor says:

    #68

    jb,

    You’re too polite.

  72. bi says:

    70#, BI is the ticker -:). just for your info, warren buffet bought it at one point in the past and sold it. it is the only tech company warren entered into position.

  73. James Bednar says:

    From Bloomberg:

    Ten-Year Treasuries Gain on Signs Credit Crunch to Cost Jobs

    Ten-year Treasuries gained, extending last week’s rally, on signs the credit crunch in the U.S. will cost jobs and may slow the economy.

    More than half of the 21 primary government security dealers that trade with the Fed now expect the central bank to cut its benchmark interest rate by next month. SunTrust Banks Inc., the seventh-largest U.S. bank, said it expects to eliminate 2,400 jobs by the end of next year as part of a plan to cut costs.

    “The focus this morning looks to be turning to the amount of job cuts you’re going to have from this fallout,” said Sean Murphy, a Treasury trader and strategist in New York at RBC Capital Markets, the investment-banking arm of Canada’s biggest bank.

  74. scribe says:

    just posted on marketwatch:

    Fannie Mae to skip benchmark debt offering in August

    By Robert Schroeder
    Last Update: 11:17 AM ET Aug 20, 2007

    WASHINGTON (MarketWatch) — Mortgage-buyer Fannie Mae (FNM) will skip a benchmark debt offering for the first time since May 2006, the company said Monday. “We utilized our option to pass,” a spokeswoman said, without elaborating further. Fannie is permitted to pass twice a year on the offerings. On its web site, Action Economics said the move “suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency.” Shares of Fannie Mae were recently off 1.1%, at $66.55. End of Story

  75. dreamtheaterr says:

    I wonder how many people have given much thought to what their ARM is going to reset to? 20, 30, 50% higher. How in the world are they going to cut corners to afford that extra payment? They could if they were already contributing 10-15% to retirement and college funds, etc and divert the allocation towards their house. Housing costs, anyone? It’s much more than meets the eye. If they were already on the edge with their ARM, kiss that house goodbye.

    I wanted to share an experience with my credit cards over the past 2 months. I have never carried a monthly balance, but wanted to ‘stress test’ if I need to carry a balance for an emergency. I did not pay off the monthly balance in full for 2 cards that have 9.99% APR and 14% APR; I underpaid each by just $5 each. The next month I was hit with finance charges of $4 and $9 respectively. So I paid $13 in interest charges for carrying over $10 – nowhere close to the 9% and 14% stated by the credit card companies. The two cards were MBNA and Citi, and not some shady company. Upon calling them (they removed the charges as a one-time courtesy), they said that everything is detailed in the fine print, and that I incur charges based on the average balance for the preceding two months and new purchases. I am glad to have come to know this now, rather than later when I actually might need to carry a balance.

    My guess is that a lot of people out there have no idea what they might actually land up paying for their ARM resets, or when they get hit with universal default clauses, etc on their credit cards.

  76. scribe says:

    This is a link on marketwatch – about how vulture investors are starting to nibble at the assets of distressed mortgage lenders:

    August 20, 2007
    After More Than 90% Plunges, Investors May Be Nibbling In Mortgage Land (LUM, LEND, NLY)

    [snip]

    According to the Letter of Intent, going forward, Luminent’s business strategy is expected to include acting as a multi-channel manager for asset- backed securities. So investors are starting to snap up more and more assets on the cheap it looks like. A letter of Intent is not binding per se because the conditions would allow it to back out, but maybe the buying on the cheap will come up more. Luminent shares closed at $0.75 on Friday, and its 52-week trading range is $0.36 to $10.84.

    Elsewhere, Accredited Home Lenders Holding Co. (NYSE:LEND) shares are up another 3% pre-market at $6.97. If you will recall, just on Friday we showed how this Chimera IPO filing with Annaly Mortgage (NASDAQ:NLY) was actually a vulture fund set up to buy mortgage and loan assets on the cheap.

    http://www.247wallst.com/2007/08/after-more-than.html

  77. bergenbuyer says:

    bi Says:
    August 20th, 2007 at 11:20 am
    70#, BI is the ticker -:).

    You’re down 7% today and 50% for the past 6 months…sounds about right.

  78. James Bednar says:

    From Reuters:

    Rescue deal to force sale of SachsenLB

    SachsenLB, the second German bank to be hit by difficulties stemming from the U.S. subprime mortgages crisis, must be sold as part of a state-led rescue deal, sources familiar with the matter said on Monday.

    Late last week, a group of publicly owned German banks gave a credit line of more than 17 billion euros ($23 billion) to help SachsenLB withstand the credit market turmoil.

    In return, the group has demanded the lender be sold by the local state of Sachsen.

  79. HEHEHE says:

    I think the foreclosure aspect of the ARM resets is being overstated while the effects on consumer spending is being grossly understated. It’s going to be a permanent drag on consumer spending. A $100-500 reduction in a household’s monthly discretionary spending adds up to a likely recession.

  80. James Bednar says:

    From HSH Associates:

    Mortgage Rates Surf Wild Market Ride

    It was a crazy week in the mortgage and credit markets, as subprime woes tag-teamed with liquidity issues and a roller-coaster stock market. Still, in the end, while mortgage rates rose a bit this week, they surfed the market turmoil relatively unscathed. The combined average 30-year FRM rose by three basis points (.03%) to close the nation’s leading mortgage pricing survey at 7.02%. Hybrid 5/1 ARMs, a popular alternative to the benchmark 30-year FRM, jumped a tenth of percent to finish the week at 6.78%.

    Jumbo mortgage rates, which spiked last week as the subprime mortgage market turmoil tainted other non-conforming loan products, rose only slightly to 7.44% after spiking by nearly 30 basis points last week. Conforming mortgages rose a little, to 6.66% from 6.61% last week. The spread between the two widened sharply last week as liquidity issues made it much more difficult for many lenders to fund jumbo mortgages, but HSH’s daily mortgage statistics suggest that jumbos have stabilized somewhat since last week’s jump.

    It’s important to note that the hoopla over mortgage-market issues is confined to the so-called non-conforming mortgage market. The credit market’s concerns began with subprime mortgages, where liberal underwriting fostered the current credit-quality crisis. Those concerns have now spread to jumbo and alt-A mortgages, which — being non-conforming loans — suffer from the same suspicions as subprime loans, deservedly or not. The market for conforming loans (those destined to be sold to Fannie Mae or Freddie Mac) has been all but untouched by these concerns due to their rigid lending strictures. Credit for conforming loans, which make up the bulk of the nation’s credit market, is widely available; the ongoing liquidity issues are the province of the subprime mortgage market (and will continue to be) as well as — until quality issues are worked out between mortgage sellers and those who would buy them — the jumbo mortgage market.

  81. x53Teter says:

    bi Says:
    August 20th, 2007 at 10:27 am
    48#, in my 15 years in this greatest country in the world, i only learned one thing…

    that just about says it all. forget about anything else this clown has to say. he’s an idiot.

  82. bergenbuyer says:

    #80- I agree, until recently I thought we wouldn’t enter a recession as I thought the American consumer would always find a way to keep up with the Jones’ even when they are the Jones’ that everyone else is trying to keep up with. A perpetual spending cycle. But the more I look at it, the numbers don’t lie, I can’t see spending staying anywhere near recent levels. I’m now on the other side of the fence, trying to figure out how we won’t have a recession.

    This Christmas will be telling.

  83. HEHEHE says:

    I never saw this government agency website, OFHEO, pretty good mortgage breakdown info:

    http://www.ofheo.gov/media/pdf/SFMortOriginations1990to2006Q2.xls

  84. Richard says:

    >>I’m now on the other side of the fence, trying to figure out how we won’t have a recession. This Christmas will be telling.

    never bet against the american consumer. he’s felled every prediction for his demise so far.

  85. Comrade 3b says:

    #85 And I guess we should be proud of that?

  86. dreamtheaterr says:

    ChiFi & other finance folks, please enlighten me:

    How are/would money market funds reacting to the increase in spreads? Bond returns for short/inter/long term bonds are yield + increase/decrease in NAVs. Since money market funds aim to keep NAV at $1, do the funds tilt towards T Bills (less yield)? Or CP (more yield), along with the risk that NAV will fluctuate more on their books, but the investor will see a $1 NAV and perhaps higher yield?

    Are funds with higher expense ratios more at risk, because they have to chase yield (either by extending duration or going down the credit spectrum), to offer a competitive enough yield, and make up for the extra expenses?

  87. RentinginNJ says:

    It’s important to note that the hoopla over mortgage-market issues is confined to the so-called non-conforming mortgage market.

    Do you think the mortgage fiasco will disproportionately impact high-cost areas?

    The conforming mortgage limit is $417,000. In North Jersey, this gets you a handyman special starter cape. Unless you have a good down payment to bring the loan into the conforming range, most first time buyers looking at SFH’s would need a non-conforming loan in NNJ. This could take away another chunk of an already diminishing first time buyer pool.

  88. Comrade 3b says:

    #88 rent: I think it already is taking away that other chunk.

  89. James Bednar says:

    The conforming mortgage limit is $417,000. In North Jersey, this gets you a handyman special starter cape.

    Assuming 20% down (I know, a *big* assumption), we’re talking about a home priced at approximately $520,000.

    jb

  90. James Bednar says:

    Anyone watching Treasuries?

    jb

  91. bi says:

    91#, 10 year up 13/32, yield 4.62%, moving to target 4.5%

  92. RentinginNJ says:

    Anyone watching Treasuries

    Painfully. I put in a buy order for some 6 month T-bills last week. The order is supposed to get filled this week and the rate is 3.86%. I have to see if I can cancel.

  93. James Bednar says:

    From MarketWatch:

    Short-term bond rally puts Fed to the test

    A rally in short Treasury bills Monday, which sent their yields lower, raised questions about the effectiveness of the Federal Reserve’s move to boost liquidity by cutting its discount rate on Friday.

    In recent action, the three-month Treasury bill was rallying, while its yield fell almost a whole percentage point to 2.815%.

    Analysts said the rally in short-term T-bills indicated nervousness remained in credit markets, leading investors to seek the safe-haven of government bonds. Expectations that the central bank will cut its key Fed funds rate was also boosting short-term Treasury bonds.

    But money failed to convincingly return to the commercial bond market on Monday, where liquidity has been drying up in recent weeks.
    “Low T-bill yields indicate that liquidity is not yet flowing to those areas of the credit markets that need liquidity most, such as toward the mortgage market and the commercial paper markets, for example, where investors have been on a buying strike,” said Tony Crescenzi, fixed-income analyst at Miller Tabak.

  94. Bloodbath in Winter 2007 says:

    Once upon a time, I was one of those overspenders. I had a job that was heavily dependent on a vehicle, so i got a brand new car for about $21,000. It was awesome.

    Problem is, i was making about $30,000 (this was two years out of college). I wanted the fast life, so i moved into NYC, got some help from my parents each month, and was enjoying life.

    Then i met the woman who would become my wife, and in about a year, i turned it completely around. Sold the car, and instantly started wiping out CC debt. I probably went out to eat or ordered in a grand total of five times in a 6 month span. I brown-bagged it for lunch that entire time. I drastically cut down drinking. (Amazingly, the girl stayed with me!)

    It can be done people. My humble 2-step process:

    1) move all the CC balances to no-fee cards.
    2) no restaurants or ordering in for one month

    Stop caring what your neighbor has and worry about yourself! Also, i should plug the book, ‘millionaire next door’ which is great.

  95. afe says:

    jb,
    thanks!

  96. Orion says:

    Real Estate Auction-Asbury Park, NJ

    I was in Asbury on Sunday and came upon this:

    17 Condos to be sold at auction Sept. 16, 2007
    304 Fourth Avenue, AP

  97. skep-tic says:

    the average American is financially illiterate. he has no idea what the fed funds rate is and how it might affect his mortgage. what he does understand is the collection agency that calls him every day and the guy down the street whose house is in foreclosure.

    we are in a completely different world than two years ago. we have gone from houses being instant wealth to debt traps. Take a look at the front page article from sunday’s NYT. The foreclosed homeowner’s message, “They should make it harder for people to buy houses.”

  98. James Bednar says:

    Real Estate Auction-Asbury Park, NJ

    I was in Asbury on Sunday and came upon this:

    17 Condos to be sold at auction Sept. 16, 2007
    304 Fourth Avenue, AP

    Take a peek at this:

    http://www.conovernj.com/ocean_arms/

    Due to the strong demand for these units we cannot guarantee that all types of units will be available at all times. Therefore, we ask for your patience and please let us know your unit preference. We will do our best to accommodate your needs.

  99. ricky_nu says:

    re: #91

    1 month and 3 month treasuries have gone absolutely nuts.
    3month yields down 100bp on the day, 200bp in two days.

    Is it now time to PANIC!!??

  100. rhymingrealtor says:

    Asbury

    Asbury Park, NJ – September 16 – Ocean Arms Condominiums
    17 CONDOMINIUMS

    4 TO BE SOLD ABSOLUTE REGARDLESS OF PRICE!

    ORIGINALLY PRICED TO $249,000
    SUGGESTED OPENING BIDS FROM $75,000

    Open Houses begin this Sunday 11am- 2pm.

    Located only two blocks from the famous ASBURY PARK BOARDWALK and beachfront are the beautifully renovated homes at OCEAN ARMS CONDOMINIUMS. Each of the one-bedroom residences offers a thoughtful floor plan and has been meticulously finished with modern touches. Features of these skillfully renovated residences include: modern kitchen with stainless steel appliances, new windows, hardwood floors, and crown molding; and an on-site property manager.

  101. James Bednar says:

    Is it now time to PANIC!!??

    From Bloomberg:

    Treasury Bills Gain Most Since at Least 1987 on View Fed to Cut

    Treasury bill yields fell the most in at least two decades on speculation the expanding credit crunch will lead the Federal Reserve to cut borrowing costs next month.

    Three-month yields fell to the lowest since 2005. More than half of the 21 primary government security dealers that trade with the Fed now expect the central bank to cut its target interest rate by next month from the current level of 5.25 percent.

    “The Fed is going to lower the funds rate, it’s a question of when,” said Thomas Tierney, head of U.S. Treasury trading at Citigroup Global Markets Inc. in New York. “Credit’s gotten tighter, and it’s going to slow the economy.”

    The yield on the three-month Treasury bill fell 1.23 percentage points today to 2.53 percent as of 12:26 p.m. in New York. It’s the biggest drop since at least Oct. 20, 1987, when it fell 85 basis points on the day the stock market crashed.

  102. bi says:

    103#, it is good for me. i can refin my arms.

  103. Rachel says:

    #96 Bloodbath in Winter 2007–

    I just finished Millionaire Next Door and my boyfriend can’t put it down. It is a quick read and keeps reinforcing to live below your means to acheive wealth. I also highly recommend the book.

    On a somewhat similiar topic. I saw this on yahoo finance today.
    Top 10 Money Drains

    http://finance.yahoo.com/banking-budgeting/article/103379/top-10-money-drains

    Rachel

  104. James Bednar says:

    No takers for GSE paper? If so, this could be getting ugly quick.

    From MarketWatch:

    Fannie Mae to skip August debt offering
    Move suggests demand for high-rated mortgage paper ‘scant,’ analyst says

    Giant mortgage-buyer Fannie Mae will skip a benchmark debt offering for the first time since May 2006, the company said Monday, prompting an analyst to declare that demand for high-rated mortgage paper is “scant” amid an investor boycott of mortgage-backed securities.

    “We utilized our option to pass,” a spokeswoman for Fannie Mae said, without elaborating further.

    The company is permitted to pass twice a year on the offerings.

    “Though mortgage lending via the quasi-governmental agency appears to be the only game in town amid [a mortgage-backed security] investor boycott, this news suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency,” wrote Action Economics on its Web site.

  105. James Bednar says:

    Has anyone else seen this, subprime locations in NJ?

    Patiently waiting for the 2006 version.

    jb

  106. JBJB says:

    Question for the savvy real estate folks here.

    We learned this week that my partner’s employer offers a mortgage assistance program where they will lend us up to 15% of a down payment (capped at 250K) towards a primary residence. We would have to come up with 5% + closing costs, and then work with one of three banks for the 80% primary mortgage. During the first 6 years, payment on the 15% is allowed but not mandatory. The 15% loan will have a rate of interest equal to the rate on a bank loan for a similar time period. The employer forgives the interest on the 15% loan for the first six years. The forgiven interest is treated as supplemental compensation and thus taxed as personal income. The 15% loan has a maximum term of 25 years. If she were to leave the company, the loan would need to be paid back in 120 days. The loan requires a security interest in the property; the property is collateral for the loan.

    Now, we have 20% for a down payment saved (we are looking in the 500-550k range), >750 FICO, but I am trying to figure out if we should take this deal for the first six years of a 30 yr fixed and keep our 15% in cash or some sort-term instrument. Also, from the perspective of the primary (80%) lender, would we be considered as having a LTV of 80% or 95% if we used this product? I worry that if we use the deal offered by the employer, we would get hit with a much higher interest rate on the primary as compared to the traditional 20% down.

    Of course, we are going to wait before doing anything as we watch the sub-prime fallout continue, but we do plan to buy sometime in the next year, probably in late winter or spring. Any comments or thoughts would be appreciated.

  107. James Bednar says:

    From Reuters:

    NY Fed to redeem $5 bln of bill holdings on Thurs

    The Federal Reserve Bank of New York said on Monday it will redeem $5 billion of Treasury bill holdings on Thursday, which would effectively remove some of the cash the Fed has injected into banking system to curb a credit squeeze.

    The draining of money from the system would help hold the federal funds rate at the Federal Reserve’s target of 5.25 percent.

    As a result of Fed’s recent dramatic liquidity moves, including a 50 basis point cut in the discount rate, the fed funds rate has often slipped below Fed’s target. Last week, the fed funds rate fell as low as zero percent in overnight trading.

    To achieve the $5 billion redemption, the Fed’s System Open Market Account (SOMA) will buy $7.1 billion of 26-week Treasury bills due Feb 21, 2008, and $5.2 billion of 13-week bills due Nov. 23, 2007. It will refrain from purchases in the auction of 4-week bills due Sept. 20, 2007, the New York Fed said.

    Thursday’s action is designed to give the Fed “greater flexibility in the day-to-day management of reserve levels to offset factors that may add reserves to the banking system such as additional discount window borrowings,” the Fed said in a statement.

  108. dreamtheaterr says:

    “bi Says:
    August 20th, 2007 at 12:57 pm
    103#, it is good for me. i can refin my arms.”

    You sound like a drowning fish.

  109. bi says:

    107#, yes. although the number is for 2005, the distribution will not change that much since there is less sub-prime origination after that. acctually you can find sub-prime rate for the town you want to move in in “nj by numbers”. amazingly you will see it is less than 5% for most of desirable towns.

  110. MJ says:

    “it is good for me. i can refin my arms.”

    Try your head first, its facing foreclosure

  111. James Bednar says:

    amazingly you will see it is less than 5% for most of desirable towns.

    I would think, that for these towns, we would be more interested in the Alt-A percentages, not subprime.

    It’s no stretch to assume that these folks had good credit, thus wouldn’t have used a subprime loan.

    Ideally, we’d need to know how many of these buyers used the Alt-A “affordability” products (IO/NegAm/ARM) or liar loans (no doc, SISA, SIVA, etc). None of these loans would have been reported as subprime.

    jb

  112. chicagofinance says:

    dreamtheaterr Says:
    August 20th, 2007 at 12:04 pm
    How are/would money market funds reacting to the increase in spreads? Bond returns for short/inter/long term bonds are yield + increase/decrease in NAVs.

    yan: a little unclear what conclusion you are trying to reach….basically you cannot screw up a money fund unless you are trying to be a hero; so anyone who has screwed up a money fund in this environment has just watched their current employment relationship end

  113. the other doyle says:

    “STRAIGHT TALK FROM COUNTRYWIDE BANK.

    In light of recent media attention, we’d like to offer some reassuring facts….”

    (terminally sweet ad-speak deleted)

    “…So the future is bright. Which helps explain why we’ve become the third largest federal savings bank in the U.S.”

    Timothy Wennes, President and COO
    Countrywide Bank, FSB
    (Full page ad in today’s NYT, p. A11)

    I blame Wayne Gretzky–

  114. James Bednar says:

    Those ads can’t be a good idea, nobody is going to believe leatherface.

    jb

  115. pesche says:

    wci rolling over very sad.

  116. James Bednar says:

    From the Telegraph:

    Top Swiss banker attacks US lending standards as ‘unbelievable’

    Switzerland’s top banker has warned of massive losses from the unfolding credit crisis, describing the collapse in US lending standards as “unbelievable”.

    Jean-Pierre Roth, president of the Swiss National Bank, said market turmoil was far from over as tremors from the sub-prime debacle continued to rock the world.

    “We’re certainly not at the end of the story. There are question marks surrounding the development of the American economy,” he said. “Something unbelievable happened. People who had neither income nor capital got credit with very attractive conditions. Now reality is striking back,” he said.

  117. bi says:

    a few days ago i pointed out that that yield curve could not sustain. check it again today, it became more normal curve now.
    http://money.cnn.com/markets/bondcenter/?

  118. pesche says:

    wci gets a reprive

  119. x53Teter says:

    bi –
    do you have any friends?

  120. stuw6 says:

    Yes he does. His mortgage broker who puts him into multiple arms considers BI a very good friend.

  121. bi says:

    123#, 124#, in addition, trend is my best friend.

  122. bi says:

    124#, 1 week before my arms is scheduled to reset. 3 month dropped 200 bps. i love this game.

  123. James Bednar says:

    Some harsh words from Fleckstein and Xie:

    Central banks are stealing from the average citizen

    As regular readers know, I have been a longtime critic of the Federal Reserve. Not too far back, that view was a decidedly minority one.

    But as our credit bubble undergoes an ugly unwinding, it’s dawning on folks that central banks lie at the epicenter of the problem. Andy Xie nailed it in Tuesday’s Financial Times, which is why I’ve chosen to begin my column with quotes from his article “It’s time for central banks to stop bailing out markets.”

    He writes: “The global credit bubble is bursting. This bubble is primarily leverage financing for owning risky assets. The people who were responsible for what happened played with other people’s money, marketed arcane financial products with false promises of fat profits, but stuffed their own pockets with big bonuses. Neither these masters of the universe nor their greedy but naive investors deserve to be bailed out. They deserve what is coming to them.

    “The central banks should focus on price stability, not financial market stability, and should provide liquidity only to contain the multiplier effect of the bubble bursting on the economy. Nor should central banks stimulate to avoid recession at any cost. Business cycles are not bad. Excesses must be followed with cleansing. . . .

    “Markets have been taking more risk than they should because they believe that central banks will come to their aid during times of crisis, like now. The penchant of Alan Greenspan, former U.S. Federal Reserve chairman, to flood the market with liquidity during financial instability is the genesis of this ‘central bank put.’ As long as this expectation remains, financial bubbles will occur again and again. Now is the time to act. Let the crooks go bankrupt. Central banks should bury the Greenspan ‘put’ for good.”

    “Markets have been taking more risk than they should because they believe that central banks will come to their aid during times of crisis, like now. The penchant of Alan Greenspan, former U.S. Federal Reserve chairman, to flood the market with liquidity during financial instability is the genesis of this ‘central bank put.’ As long as this expectation remains, financial bubbles will occur again and again. Now is the time to act. Let the crooks go bankrupt. Central banks should bury the Greenspan ‘put’ for good.”

  124. skep-tic says:

    #127

    completely agree. no pity for overleveraged homeowners either

  125. James Bednar says:

    From Reuters:

    Lawmaker sets credit, mortgage hearing September 5

    The U.S. House Financial Services Committee asked the Federal Reserve and the U.S. Treasury Department to testify at a hearing on September 5 that will examine the current crises in the credit and mortgage market, Chairman Barney Frank, a Massachusetts Democrat, said on Monday.

    The hearing will also examine the implications for the U.S. consumer and the economy, Frank said in a statement.

    The committee will hear from witnesses from the U.S. Treasury Department and the Federal Reserve, as well as from the mortgage banking industry, he said.

    The hearing comes as markets around the world have weathered steep losses due to problems in the U.S. subprime mortgage sector that have spread to global credit markets.

    The subprime loans, which were made to borrowers with poor credit histories, have roiled the mortgage industry as higher interest rates and other issues have led to delinquencies and defaults.

    Senate Banking Committee Chairman Christopher Dodd has also called for an examination of the credit rating agencies’ role in valuing the mortgage-backed securities. Dodd is a Connecticut Democrat and presidential hopeful.

  126. Essex says:

    Dodd is the same guy who held the hearings months ago on the credit card companies practices for a thrilling result of…………………………………nothing.

  127. RentinginNJ says:

    103#, it is good for me. i can refin my arms.

    You have multiple ARMs? Ouch.

    124#, 1 week before my arms is scheduled to reset. 3 month dropped 200 bps. i love this game.

    What is your ARM based on? If it’s based on treasuries, it’s likely based on the 12-month Treasury Average Index (MTA) or the Constant Maturity Treasury (CMT). I don’t know how much a short-term drop in the 3 month bill is really going to help. Maybe some, but not by 200 bps.

  128. James Bednar says:

    Dodd is the same guy who held the hearings months ago on the credit card companies practices for a thrilling result of…………………………………nothing.

    I think this part sums it up nicely..

    Dodd is a … presidential hopeful.

    jb

  129. njpatient says:

    “Dodd is a … presidential hopeful.”

    And I hope I win the lottery.

  130. Comrade 3b says:

    #93 bi: and than what happens?

  131. bi says:

    lunch time break – u.s. news ranking of top universities ranking 2007:
    http://colleges.usnews.rankingsandreviews.com/usnews/edu/college/rankings/brief/t1natudoc_brief.php

    in case you want to go back to get e-mba, cnn money top business school: Babson College?
    http://money.cnn.com/galleries/2007/fsb/0708/gallery.bestcolleges_mbas.fsb/index.html

  132. James Bednar says:

    From Fortunes via CNN/Money:

    Where were the cops

    On a recent conference call with ratings agency Standard & Poor’s, Steven Eisman, a managing director at hedge fund Frontpoint Partners, had a question. Referring to the agency’s move to downgrade billions of dollars of mortgage-backed securities, he said, “I’d like to understand why you’re making this move today and why you didn’t do this many, many months ago.”

    “It’s a good question,” responded the S&P analyst.

    “You need to have a better answer,” said Eisman.

    Hedge fund managers aren’t the only ones demanding answers as estimates of global losses due to U.S. subprime mortgages mushroom to as much as $150 billion. While out-of-date banking regulations and lax federal oversight didn’t help matters, it was the complicity of the rating agencies — Standard & Poor’s, Moody’s, and Fitch Ratings — that enabled the boom.

    So what will that mean for our markets — or for the agencies themselves?

    Josh Rosner, a managing director at research firm Graham Fisher, co-authored a paper in February in which he predicted “significant losses” in even investment-grade securities because the agencies’ models were so far off. He also expects that rating agencies will face litigation as a result of the role they played in creating these instruments.

    The bigger question may be an existential one. Asks Jim Chanos, the head of Kynikos Associates, which has a short position in Moody’s stock: “If the rating agencies will downgrade only when we can all see the losses, then why do we need the rating agencies?”

  133. Chuchundra says:

    JBJB – re: #110

    If I read you right, the company is effectively offering you a six year, no interest loan. What possible reason could you have for not taking it?

  134. James Bednar says:

    From Bloomberg:

    Countrywide Cut by KBW on Concern About Bank Deposits

    Countrywide Financial Corp., the biggest U.S. mortgage lender, was downgraded to “underperform” by KBW Inc., which said a liquidity crisis has spread to the company’s bank.

    “There appears to be a meaningful flow of depositors to the Countrywide Bank offices to either withdraw funds or to be reassured,” KBW analysts led by Frederick Cannon said in a report on the Calabasas, California-based company today.

    Countrywide is counting on its bank unit, which has access to cheaper funding through the Federal Home Loan Bank System, to help rescue the company’s mortgage lending business. It said last week after tapping $11.5 billion in emergency credit lines that it will make all home loans through Countrywide Bank by the end of September.

    Cannon said he sent a team member to a Countrywide branch, who observed about nine people waiting to see two bank employees. The counter at the branch had two lists: a sign-up sheet for people waiting to be seen and a withdrawal sheet.

    “We would characterize the situation as one of concern, not panic,” Cannon wrote in the report. “Nonetheless, depositor concern is real, in our view, and likely to create some outflow of customer deposits, especially those greater than $100,000,” the limit on insurance from the Federal Deposit Insurance Corp.

    About 64 percent of Countrywide’s customer deposits are greater than $100,000, according to KBW.

    Countrywide took out a full page advertisement in the New York Times and other newspapers today that repeated assurances the company made last week. The ad was in the form of a letter from Countrywide Bank Chief Operating Officer Timothy Wennes.

    “The highly publicized issues related to the mortgage market do not impact the safety of FDIC insured deposits at Countrywide Bank,” the ad said.

  135. make money says:

    I think the foreclosure aspect of the ARM resets is being overstated while the effects on consumer spending is being grossly understated. It’s going to be a permanent drag on consumer spending. A $100-500 reduction in a household’s monthly discretionary spending adds up to a likely recession.

    US economy is soleley dependant on the consumer to keep spending. Without the consumer buying while borrowing we don’t have an economy as our manufacturing is becoming more and more miniscule. So the consumer will keep spending borrowed money and the fed will lower FFR by at least 100 basis points by sept. meeting.

    my two cents…

  136. Lincoln78 says:

    Quick diversion from all the financial talk:

    I’m a happy plankton, renting in Hoboken but tired of the town. I’d like to move and start renting in a NNJ “starter town” to see how things like the commute are before I settle down and buy.

    Are there any suggestions on what a good “starter town” for a plankton like me may be? (and why)?

    Lincoln78

  137. bi says:

    you cannot make money that quick. i thought 25 to 50 bps is maximum in 4 weeks.

    > So the consumer will keep spending borrowed money and the fed will lower FFR by at least 100 basis points by sept. meeting.

  138. subprimate says:

    No. 110–JBJB

    ****

    JBJB, the big drawback is the due-on sale clause requiring repayment of the loan to the company within 120 days of leaving the company’s employ.

    To me, that is a deal-killer. It traps your wife at that employer. No way can you put yourself in position of being at the mercy of an employer by letting them hold a second mortgage loan under those circumstances. If for any reason your wife is laid off, finds a better opportunity, or there is some kind of dispute in the future, you have zero leverage. And at that time you might have difficulty selling or refinancing w/i 120 days. Beside, just because she might change jobs at some point doesn’t mean you will want to refi or sell, does it?

    You have the 20% downpayment, so you don’t need the employer’s second mortgage.

  139. bi says:

    140#, if you have no kids yet, i would strongly recommend harrison nj, where new condos are built up river front.

  140. stuw6 says:

    MM 139:

    So you suggest that the FED should just prolong the agony? Are you in government? You seem to understand how bond issuing works well enough.

  141. Richard says:

    RSF on a tear. for one of the few moments in my life i actually bought near a bottom, at least for now ;)

  142. JBJB says:

    re:Chuchundra – 137:

    Thats right, I am just curious as to what this would mean to the primary lender. Since we wouldn’t be putting our own 20% down, are we then going to have to take a much higher rate on the primary mortgage thus negating any advantages to the 6 year no interest loan?

  143. Eagle says:

    anyone with MLS info:

    We saw the following listing for a Ridgewwod rental (4200/month). Any help on knowing if it previously may have been an attempted sale, listing history, sale history, etc?

    MLS 2726040

    THanks,
    Eagle

  144. NJ Buyer says:

    Lincoln78
    Try Craigslist. Ridgewood, Westwood, Oradell, Ramsey. All have trainstations and apartments or homes within walking distance of the train.

  145. make money says:

    Stu,

    I’m not suggesting what the fed should do. I’m telling what it’s gonna do. It mean I agree with it. I always thought that IO mortgages should be outlawed but I sold several properties to “investors” with IO mortgages. I laughed on my way to the bank.

    Wall street is counting on a big cut, see treasuries. Wall street can’t afford to be wrong.

    in 20yrs, we went from being the worlds biggest producer and Creditor to being the worlds biggest consumer and debtor. We are the millionaire next door to the world who is spending fathers income and to maintain his image continuous spending and borrowing. We will continue spending the worlds money as long as they keep lending it to us. When they stop then that’s when the party stops. No one has the courage and the balls to say there needs to be a recession today to prevent a depression in 5-10yrs.

    If you’re asking if the fed and Ben have the balls to send this economy through a correction(recession) and deliver the election to democrats you’re sadly mistaken.

    I hope you’re saving are in Euro’s as the Dollar will be throughn under the bus come in the next couple of months.

  146. bi says:

    145#, warning: you are only allowed to report loss here.

  147. Comrade 3b says:

    #139 MM You may be right that the Fed will lower, although, I do not think by 100, at least not that much by the Sept meeting.

    It stii in will not save real estate. Ans I have been saying for the last couple of years that we need a goeed refession to clear out all teh excess, I still believe that. The longer a recession is put off the worse it will be when it gets here.

  148. stuw6 says:

    MM: thanks for the explanation.

    I guess I can be hopeful that the FED doesn’t behave like the FEDeral government. Who am I kidding?

  149. Justin says:

    The cycle continues.

    Mortgage meltdown: The lawsuits
    The housing market went boom. Then it went bust. Now it goes to the courts.

    http://money.cnn.com/2007/08/16/real_estate/here_come_the_judgements/index.htm?postversion=2007082012

  150. Market Watcher says:

    The Fed cut interest rates by half a percent

    Home prices are up 1.7% in north Jersey. It is good to know that we have reached the bottom and will return to 05 prices by this time next year.

  151. James Bednar says:

    Eagle,

    I can post the rental history..

    MLS# 2421059
    Listed: 7/19/2004
    Asking: $4,000
    Leased: $4,200

    MLS# 2514359
    Listed: 5/11/2005
    Asking: $4,200
    Leased: $3,700

    MLS# 2630532
    Listed: 8/2/2006
    Asking: $4,200
    Leased: $4,000

    MLS# 2726040
    Listed: 6/26/2007
    Asking: $4,200

    Last sale listed on the MLS:

    MLS# 2021216
    Sale date: 2/2/2001
    Amount: $500,000

  152. Frank says:

    #120,
    Guess who was giving the credit away, entire boat load? Swiss Banks, UBS and CSFB.
    People who had neither income nor capital got credit with very attractive conditions from UBS and CSFB. Now reality is striking back.

  153. James Bednar says:

    From Bloomberg:

    Punk Ziegel’s Bove Says Fed Shouldn’t `Bail Out’ Countrywide

    The Federal Reserve’s decision Aug. 17 to cut the interest rate it charges banks is essentially a bailout for companies such as Countrywide Financial Corp., said Punk Ziegel & Co. analyst Richard X. Bove.

    “There are too many people who have made too many bad business decisions that are getting bailed as a result of the Fed’s decision,” including Countrywide’s Chief Executive Angelo Mozilo, Bove said in an interview.

    The Fed lowered the so-called discount rate by 0.5 percentage point to 5.75 percent Aug. 17 and acknowledged that an extraordinary policy shift was needed to contain the subprime-mortgage collapse. It was the first unanticipated reduction in borrowing costs between scheduled meetings since 2001.

    “There are dozens of people who are getting bailed out and I don’t understand why they should be,” said Bove, a Lutz, Florida-based analyst for Punk Ziegel of New York. Fed Chairman Ben S. Bernanke “should have let the chips fall where they may,” he said.

  154. RentinginNJ says:

    #139 MM You may be right that the Fed will lower, although, I do not think by 100, at least not that much by the Sept meeting.

    It stii in will not save real estate. Ans I have been saying for the last couple of years that we need a goeed refession to clear out all teh excess, I still believe that. The longer a recession is put off the worse it will be when it gets here.

    It will be interesting to watch. This will be Bernanke’s first really tough decision. The market has already priced in a rate cut. If it doesn’t come, look out below. If the Fed goes too far, it loses credibility. This is Ben’s first real opportunity to shed the “helicopter” reputation.

    I can see a small (25 bps) cut with a bias toward further cuts. I think the Fed would like to give the market just enough interest rate morphine to take some of the edge off, but not enough to get the party started again.

    If you want to put a political spin on it, elections are a year away and people have a short memory. If you use up all of your rate cuts today, you will have nothing to offer a year from now when the economy and elections really matter.

  155. CAIBC says:

    just saw this on craigslist! this seller doesnt want to play games?? the language is starting to get a bit harsh!

    extrememly montivated seller offering a 4br 1+ bath home on a dead end street with low taxes. first floor has 2 bedrooms a living room dining room kitchen full bath and ample closest space. second floor has 2 full bedrooms and both 1st and 2nd floor have hardwoods throughout. basement is finished with baseboard heat laudry room and a bathroom. the basement bathroom includes a toilet sink and standup shower however it needs to be totally redone. the basment is a walkout to the backyard where a new free standing 9×12 shed with full electric is. off the dining room is a deck approx 12×12 and the property is 60×125 with taxes of $6500.00. neighborhood is family oriented on a dead end street. i must sell this house but i will not give it away so those who think they can play games need not apply.

  156. dreamtheaterr says:

    Where’s Waldo?

    Latest Bill Gross contribution to Fortune magazine at http://tinyurl.com/3ypy5j

  157. CAIBC says:

    jb, you are going to be there right? just fill us in on what is going down!

  158. make money says:

    Rent,

    things are so bad that .25 is chump change and the street would look at it as a big dissapointment hence look out below.

    As far as a political spin is it takes 6-18 months for the cut to make it’s way into the economy.

  159. Seneca says:

    Any opinions on municipal bond funds right now? Good time to park money in one? If you own, good time to sell?

    It seems that muni fund holders are getting spanked right now and it doesn’t make intuitive sense to me. Is there some correlation between muni bond fund values and sub prime or between munis and residential RE market values that I am missing?

    Can’t tell if there is now an opportunity to buy, or if the bloodshed has just begun.

  160. Eagle says:

    JB, THanks. Is there any way to tell if the house has also been listed for sale during the six years since last sale? (i.e., is this just a flip that flopped, seller trying to bide time, etc)

    THanks

  161. BC Bob says:

    Brokers Believe Worst Is Over and Recommend Buying of Real Bargains

    Wall Street in looking over the wreckage of the week, has come generally to the opinion that high grade investment issues can be bought now, without fear of a drastic decline. There is some difference of opinion
    as to whether not the correction must go further, but everyone realizes that the worst is over, and that there are bargains for those who are willing to buy conservatively and live through the immediate
    irregularity.

    -New York Herald Tribune, October 27, 1929

    Stocks Soar As Bank Aid Ends Fear of Money Panic By W. A. Lyon

    The stock market strode out from under the shadow of a panic in call money that so lately threatened, revived in all its old strength yesterday. Assured that the New York banks were ready with their boundless
    resources to prevent a money crisis, the public and the professional trader set out to repair the damage done to prices on Monday and the major part of Tuesday.
    Stocks in the aggregate, though bucking a 15 per cent rate for loans, enjoyed the greatest advance they have known in a single day in the last two years. Not even the surging bull markets of the memorable year 1928 saw such a day of heavy buying.

    – New York Herald Tribune, March 28, 1929

  162. Everything's 'boken says:

    Due on sale is covered by his ‘promise’ to keep the dp cash available.

  163. CAIBC says:

    Update to my #158 Post!

    found this on craigslist posted on 14 Jul! the price then was 469K…seller was threatening to raise the price after that week…on craigslist now for 449K…i guess threatening a buyer doesnt work anymore!!!!

    4br 1+bath for sale in Oradell NJ. Expanded Cape with 2 br upstairs and 2 downstairs. Living room kitchen and dining room on the first floor along with a full bathroom. The basement is finished with washer/dryer hook-ups and a second bathroom that needs complete renovation. A deck off the back and a shed complete the property. The house is located on a dead end street and the taxes are just over $6200.00. The school system is fantastic. This house is available at this price for ONE WEEK ONLY!!!. At the end of this week I will be listing with a realtor at a higher price. I am VERY MOTIVATED and must sell this property. Realtors ONLY IF YOU HAVE A BUYER!!!

  164. James Bednar says:

    jb, you are going to be there right? just fill us in on what is going down!

    I’ll be at the Property Shark event.

    jb

  165. chicagofinance says:

    Seneca Says:
    August 20th, 2007 at 3:56 pm
    Any opinions on municipal bond funds right now?

    s: bond funds of all types are an utter waste of time, except in instances of low pool of money to invest

  166. Comrade 3b says:

    #167 Caibc: I am pretty sure that house is on Garden Street in Oradell, and it closed in July of 07 at 372K

  167. Seneca says:

    #169 – chifi

    Thanks for the feedback. Do you think a CD is a better place to park a small (less than 100k) amount of cash? What makes munis an utter waste of time? The tax free status seems to have added a few points of return to someone looking for a low risk vehicle vs a CD.

    Disclaimer:

    The information on this site is provided for discussion purposes only. Under no circumstances does this information constitute a recommendation to buy or sell securities, assets, or otherwise.

  168. CAIBC says:

    Comrade 3b…not possible since my # 158 was posted on craigslist Aug 19th…..thats yesterday!

    i emailed for the address…will see where the house is…

    CAIBC

  169. Comrade 3b says:

    #172 I think a flipper bought it, and its turing around and trying to sell it. It is in the njmls, at 449K now, on cul de sac. I think it might be the same house.

  170. CAIBC says:

    Comrade 3b, oh my! i dont believe it!

    you have an njmls number for me?

    thanks!

  171. Jamey says:

    Plankton: At the risk of being ridiculed (and not just for liking Leonia ;), I say give Leonia a look-see. There are ample, reasonably-priced rentals, easy access to express buses, and a bucolic town vibe that is the absolute antithesis of Hoboken (e.g., no bars). Plus, you can be on the other side of the GWB inside of ten minutes, with moderate traffic. If you’re into that sort of thing… (Fifteen minutes by bicycle.)

    You could do a lot worse than to spend your time in the company of symphony musicians, journos, Columbia U. faculty, and other assorted Birkenstock wearers…

  172. make money says:

    heheehe or JB,

    Speaking of property shark is it worth the fees. Someone I go to school with asked me and I wasn’t sure of what to tell them.

    from a homebyers perspective.

  173. Hehehe says:

    I don’t know, I am only signed up for the limited free access.

  174. pesche says:

    Capital one throws in the towel on Greenpoint. Who’s next?

    What large builder will throw in the towel,first?

  175. BC Bob says:

    MCLEAN, Va., Aug 20, 2007 /PRNewswire-FirstCall via COMTEX/ — Capital One Financial Corporation (COF:Capital One Financial Corporation
    COF66.72, -2.03, -3.0%) today announced that it will cease residential mortgage origination operations at its wholesale mortgage banking unit, GreenPoint Mortgage, effective immediately.

    http://www.marketwatch.com/news/story/capital-one-closes-wholesale-mortgage/story.aspx?guid=%7BDEC12FF6%2D9914%2D4896%2D827E%2DEF553CF6BC5D%7D&dist=TQP_Mod_pressN

  176. Hehehe says:

    NEW YORK (Reuters) – SunTrust Banks Inc (STI.N), the seventh-largest U.S. bank, said on Monday it expects to eliminate about 2,400 jobs by the end of next year as part of a plan to save $530 million annually by 2009.

    The job cuts equal about 7 percent of SunTrust’s year-end work force of 33,599 people. Atlanta-based SunTrust expects the cuts to reduce pretax earnings by $45 million this quarter.

    http://news.yahoo.com/s/nm/20070820/bs_nm/suntrust_dc_4;_ylt=AqOlH9Ak0tqDbwNjUiJ98VcE1vAI

  177. Richard says:

    >>Any opinions on municipal bond funds right now?

    i’ve owned NVN for a couple of years now. the price has been fairly steady and right now it’s paying 5% tax free which sure as hell beats the declining MM rates. it’s at its lowest price since 2000 might be worth a looksy.

  178. RentinginNJ says:

    Capital One Closes GreenPoint Mortgage Unit, Citing Weak Demand

    By Rick Green

    Aug. 20 (Bloomberg) — Capital One Financial Corp. shut its GreenPoint Mortgage unit today, saying that weak demand from investors who buy residential home loans is making it too hard to turn a profit. About 1,900 jobs will be lost.

    The company, based in McLean, Virginia, said in a statement that it expects a charge of about $860 million, or $2.15 per share, mostly in this year.

    To contact the reporter on this story: Rick Green in New York at

  179. chicagofinance says:

    Seneca Says:
    August 20th, 2007 at 4:16 pm
    #169 – chifi

    Thanks for the feedback. Do you think a CD is a better place to park a small (less than 100k) amount of cash? What makes munis an utter waste of time? The tax free status seems to have added a few points of return to someone looking for a low risk vehicle vs a CD.

    S: I didn’t say munis are a waste of time, I said that “…bond funds of all types are an utter waste of time…” Buy individual bonds and ladder them. It’s much cheaper.

  180. James Bednar says:

    From the WSJ:

    Capital One Shuts Down
    GreenPoint Mortgage Unit
    Plans to Close 31 Locations
    And Eliminate 1,900 Jobs
    By VALERIE BAUERLEIN
    August 20, 2007 4:42 p.m.

    Capital One Financial Corp. plans to shut down its struggling GreenPoint mortgage unit, becoming the latest casualty in the mortgage meltdown.

    Capital One bought GreenPoint in last year’s $13.2 billion purchase of North Fork Bancorp, of Melville, N.Y. North Fork had earlier paid $6.3 billion for GreenPoint Financial Corp., then a large N.Y. savings-and-loan specializing in mortgages.

    The unit specialized in so-called nonconforming loans, which do not meet the standards set by Fannie Mae and Freddie Mac, the government-sponsored providers of mortgage funds. GreenPoint specialized in “jumbo” loans above the $417,000 limit and Alt-A loans to home buyers who do not fully document their income or assets.

    Citing great difficulty selling loans to the secondary market, Capital One officials said the bank will closing GreenPoint’s 31 locations and eliminating 1,900 jobs immediately. The credit-card giant said the subsidiary would not make any more new mortgages but will fund those in the pipeline with locked-in rates.

  181. Lincoln78 says:

    Thanks Jamey (175). I’m not going to ridicule you for your opinion or tastes (unlike others), but what are the “knocks” on Leonia? I’ve been through a few times and think it looks ok.

    Do you have an idea on the commute to Midtown?

    Anyone have opinions on Cranford/Clark/Union as Plankton towns?

    Lincoln

  182. James Bednar says:

    NJDOBI issues cease and desist to First Magnus:

    Mortgage Brokers Alert: First Magnus Financial Corporation

    On August 17, 2007, the New Jersey Department of Banking and Insurance issued legal documents ordering First Magnus Financial Corporation to stop doing business in the state and took the initial step toward revoking the company’s mortgage lender license.

    On August 17, 2007, First Magnus Financial Corporation announced it was unable to fund home loans in its pipeline. All brokers should have been instructed to immediately seek alternative funding sources with which to close any loans previously placed at First Magnus.

    First Magnus is actively pursuing alternative financial contacts for brokers to place their loans. The New Jersey Department of Banking and Insurance is working with industry leaders to facilitate other potential funding sources.

  183. chicagofinance says:

    OT: Keep an eye on this kind of stuff….

    Vanguard Wellesley Income VWINX and Vanguard Equity-Income VEIPX manager John Ryan will leave those funds June 30 as he takes on new duties at the London offices of subadvisor Wellington Management. He will be replaced by W. Michael Reckmeyer III, a Wellington veteran who has been with the firm since 1994, and who worked as an analyst supporting Ryan.

    We’re encouraged that Reckmeyer both has experience with Ryan’s value-oriented, dividend-focused, approach, and that he’ll be running the fund with Ryan over the next year. We expect this successful approach, long used at the two funds, should not change under Reckmeyer’s leadership. Other managers who run big slices of these funds remain. Wellesley Income’s fixed-income portfolio, which comprises more than half of fund assets, is run by Wellington bond veteran Earl McEvoy. Equity-Income’s James Stetler of Vanguard’s Quantitative Equity Group runs nearly 40% of that portfolio. While there’s no question Ryan’s departure will be a loss, Wellington has carried off such transitions well in the past, and should do so again.

  184. scribe says:

    from marketwatch:

    SEC charges Sentinel Management with fraud

    By Robert Schroeder, MarketWatch
    Last Update: 4:40 PM ET Aug 20, 2007

    WASHINGTON (MarketWatch) — The Securities and Exchange Commission filed fraud charges against Sentinel Management Group, a $1.5 billion firm that oversaw cash for other investors, the agency said in a court filing Monday.

    Sentinel filed for bankruptcy on Friday, becoming the latest casualty of the global credit squeeze.

    In a filing with the U.S. District Court for the Northern District of Illinois, the SEC said Sentinel “defrauded its clients by improperly commingling, misappropriating and leveraging their securities without their knowledge,” in violation of U.S. securities law.

    Those clients were placed at risk of “serious and irreparable loss,” the SEC said, by actions like the transfer by Sentinel of at least $460 million in securities from client investment accounts to Sentinel’s proprietary “house” account. End of Story

  185. xiaolu says:

    All gurus,

    We are thinking about to move to the area near to my work (warren, watchung , Berkeley Heights, Basking Ridge..). Currently, we own a nice colonia house in Edison. We are willing to pay 100,000 — 200,000 more for the new house since it’s a more expensive area. What would you suggest I should do? Should I put my house to the market now or I should wait for next spring after market picks up a little bitter? One thing I am sure is that we definitely won’t buy the new house before we sell the current one.

    Any suggestion is welcome.

    Thanks

  186. Bloodbath in Winter 2007 says:

    Holy cow those are some massive job cuts. Damn. If i read that correctly, that’s about 4,000 jobs that will be eliminated from two companies.

    Makes me want to stay at mine instead of risking leaving and being the last man hired.

    FWIW, Leonia has a better school district than mighty Cliffside Park. And it’s not even close.
    http://www.njmonthly.com/topschools/hslist3.lasso?-MaxRecords=50&-SkipRecords=50&-SortField=rank&-SortOrder=ascending&county=&high_school=

  187. twice shy says:

    Lincoln78,

    Cranford is about 45-50 minutes into NY Penn via NJT Raritan Valley Line. You change trains in NWK, about 10 minutes between trains. Usually you stay on the same track and it’s no big deal unless you’re lugging a suitcase.

    Cranford also has a new parking garage where I believe space is available for about $600/yr. It’s right at the train station. It’s a decent town, not as pretentious as some of the more affluent neighbors to the west. Should have a good variety of rental stock, both townhomes, condos and SFHs as well as apartments. Worth checking out for sure if you’re considering a move. It’s not exciting, but a solid, family-oriented town.

  188. James Bednar says:

    What would you suggest I should do? Should I put my house to the market now or I should wait for next spring after market picks up a little bitter? One thing I am sure is that we definitely won’t buy the new house before we sell the current one.

    Realize that the market forces that impact your sale will most likely impact your purchase just the same, positive or negative. The conservative position, given that you’ve already decided to move (and of course the new loan isn’t a stretch), is to just move. Trying to wait for a “better market” doesn’t necessarily buy you anything. While you might have an easier time selling, you’ll likely find higher prices when you try to buy. Likewise in a down market, while you’ll get a lower price for your existing home, you’ll probably be able to negotiate a lower price on the new home.

    Given that there is no cost for you to put your home on the market, you might as well try it, you might just find a buyer.

    I’m guessing you don’t have kids?

    jb

  189. James Bednar says:

    And of course, don’t buy before you sell.

    jb

  190. James Bednar says:

    Ouch.. From MarketWatch:

    ‘Calamity’ comment contributed to lack of confidence: Conrad

    St. Louis Fed’s Poole should quit, Sen. Conrad says

  191. Seneca says:

    #185 Lincoln,

    On Cranford/Clark/Union… none of these towns are midtown commute friendly. Cranford and Union will get you to Newark Penn direct but then you have to switch trains. Not so bad if you are heading downtown via PATH but not ideal if you have to wait for a train to NY Penn. Clark doesn’t even have a rail option to Newark let alone NY Penn. Bus is also a decent option from Cranford and Union to Port Authority in just under an hour, Clark will take well over an hour.

    Cranford and Union have real centers of town, Clark does not. Cranford thinks its Westfield. Clark thinks its as good as Westfield since its right next door. Union is like Clark without the attitude problem.

  192. James Bednar says:

    From Bloomberg:

    Capital One Closes GreenPoint Mortgage, Idling 1,900

    Capital One Financial Corp. shut its GreenPoint Mortgage unit today, saying that weak demand from investors who buy residential home loans made it too hard to turn a profit. About 1,900 jobs will be lost.

    The shutdown will trigger charges of about $860 million, or $2.15 per share, mostly during this year, Capital One said in a statement today, and the bank cut its 2007 earnings forecast to $5 a share from $7.15. Capital One, based in McLean, Virginia, bought GreenPoint’s parent, North Fork Bancorp, less than a year ago for $13.2 billion.

    “The market disruption is too great to continue with GreenPoint’s originate-and-sell business model,” Capital One Chief Executive Officer Richard Fairbank told workers in a memo. He said he had hoped GreenPoint would be “a growth platform,” adding, “I made the decision to wind down the business with a heavy heart.”

    GreenPoint focused on “Alt-A mortgages,” an alternative for people with good credit records whose needs don’t fit the standards for prime mortgages. The so-called wholesale unit provided loans through mortgage brokers.

  193. James Bednar says:

    I’ll throw a vote in for the Clifton area.

    You’ve got the express bus in from Allwood, and the train from the Clifton Station. Secaucus junction will get you to midtown, or go through to Hoboken for the path & ferry.

    jb

  194. Jamey says:

    Plankton: Early rush hour buses (pre-7:30) get you to PABT inside 45 minutes. Add 15 min/half hour to that for rush hour, given favorable traffic patterns. You can take the 182 bus to GWB bus terminal. That ride takes approx 15 min, but you’ll need to transfer to other transit for the ride down to civilization. But for those who work north of 72d St, it’s a quite viable option.

    Ride home can take anywhere between 40 min 1 1/2 hour because, you know, NJ Transit simply cannot be expected to contend with rain…

    As many hereabouts know, I bike to and from my midtown office–40 min, door-to-door, irrespective of traffic. No charge.

    I like Leonia. I know its schools haven’t graduated the lead in “Annie,” like those of Great Neck, LI. And it’s certainly not as luxe as Cliffside Park(e) [rolls eyes]. But for those similarly inclined as I, I think that The Athens of New Jersey [town motto] offers a community-based quality of life unmatched in Bergen Co–for what THAT’s worth. Grab a coffee at Dunkin, set a spell in Wood Park — out behind the most utilized library in the US, according to the NYT — on a balmy Spring or Fall Saturday to get an idea of what I mean. Sometimes it’s hard to belive that NYC is over the hill, just a mile up the road.

  195. Jamey says:

    JB: Take 197 out of moderation.

  196. James Bednar says:

    And, if you live near the Montclair side of town, you’ve got those stations just a few miles in the other direction.

    Not to mention the ability to drive in, if need be, relatively easily.

    jb

  197. Mortgage Observer says:

    It appears to me that the Financial Services companies are in a complete state of panic right now.

    With 3 month t-bills trading at 3.00% someone is very very scared.

    This situation is beyond the scope of the Fed at this point.

    To me the executive branch needs to take some sort of action to say that they are going to come in to support the Real Estate Market. If they don’t this panic will continue.

    The thing that is amazing to me is that we haven’t even started to see the actual losses yet on foreclesd properties. I would assume from the way that the financial companies are reacting the losses are going to be huge.

    My question is are they overreacting or is their panic creating their own downfall?

  198. skep-tic says:

    MO–

    What possible kind of action could the executive take?

    Please note that markets work in both directions. I did not hear anyone clamoring for the gov’t to redistribute the “excess profits” owners of RE were reaping during the past 5-10 yrs.

  199. SG says:

    http://www.usnews.com/usnews/opinion/articles/070819/27edit.htm?s_cid=et-0820

    THE U S NEWS & WORLD REPORT / August 27, 2007

    A Crisis of Confidence

    By Mortimer B. Zuckerman

    No one knows the true value of all that residential real estate at the base of the pyramid in which mortgages back up the collateral debt obligations (CDOs) that in turn back up the short-term loans that many banks and hedge funds have made to finance these CDOs. … Many pension funds, insurance companies, hedge funds, and … banks hold swaps and subprime derivatives but have not yet reported their losses, or at least not all of their losses, making it difficult to understand how big their exposure is. … The central banks have seen the threat. The European Central Bank has put up $212 billion “to assure orderly conditions in the euro money market.” … The Federal Reserve Board may not wish to create the moral hazard of solving problems for investors who made bad decisions. Investors have to pay for their mistakes–yet the Fed cannot allow the crunch to get so severe that it imperils the nation’s entire credit system.

  200. SG says:

    http://www.nytimes.com/2007/08/19/business/19credit.html?_r=1&ref=business&oref=slogin

    THE NEW YORK TIMES / August 19, 2007

    How Missed Signs Contributed to a Mortgage Meltdown

    By NELSON D. SCHWARTZ and VIKAS BAJAJ

    “All of the old-timers knew that subprime mortgages were what we called neutron loans — they killed the people and left the houses,” said Louis S. Barnes, 58, a partner at Boulder West, a mortgage banking firm in Lafayette, Colo. “The deals made in 2005 and 2006 were going to run into trouble because the credit pendulum at the time was stuck at easy.” … … The blame game is already beginning. The spotlight will focus first on rating agencies like Moody’s and Standard & Poor’s, because the mortgage-backed bonds that plunged in value in recent weeks were highly rated by these agencies until they downgraded billions worth of them in July. … Along with chief executives like Mr. Mozilo (Angelo R. Mozilo, the chief executive of Countrywide), central bankers (such as, Ben S. Bernanke, the chairman of the Federal Reserve), also apparently failed to anticipate the threat posed by subprime debt. … Federal regulators did eventually tighten lending standards on June 29, but by then the meltdown on Wall Street was already in progress. ( Locking the stable doors after the horse has been stolen? …. Dami) … Subprime market is much bigger than in the past (1987, 1993, 1998), totaling $600 billion last year, up from $120 billion in 2001, according to Inside Mortgage Finance, a trade journal. … Although … the short-term turmoil in the stock and bond markets will subside by the fall, … the added financial strain on homebuyers increases the odds of a recession in 2008 or 2009. That, in turn, makes it more likely that the Federal Reserve will announce a cut in its benchmark rate when it next meets on Sept. 18 … …

  201. Mortgage Observer says:

    # 203
    What possible kind of action could the executive take?

    1. President Bush could first start by admitting there is a problem in the Real estate sector.

    2. He could fire the Treasury Secratary who has been blabing to the world for the past 8 months that the problem is limited to sub prime.

    3. He could propose relaxing some of the requirements on FHA loans and increase loan limits. This would help some of the lower income borroers refinace high rate ARM’s

    4. He could amend some of the recently enacted bankruptcy laws to make it easier for individuals to file bankruptcy and rework debts.

    5. Loosen lending restriction placed on FNMA and Freddie Mac so they can purchase some additional loan produsts.

    6. Ban prepayment penalties on mortgages enabling individuals. This would enable some borrowers to refinance quicker.

    7. Propose federal supervison on Hedge funds and private equity firms.

    I think the key is for the executive branch to be honest with the people.

  202. ThrilledRenter says:

    #206 – I consider myself a nice person, but I really don’t want my tax dollars bailing out people who made poor financial decisions. Should we bail out people who buy too many lottery tickets too?

    There is an alternative to home ownership for those without enough money: it’s called renting. No shame in renting.

  203. Clotpoll says:

    x (190)-

    Put your house on the market now. It will take at least until Spring to sell (unless you plan on being a smart seller and pricing it to market, in which case you could wait until maybe Nov or Dec to put it on).

    The plus for you- either way- is that you’ll be coming into an area where the market will be largely collapsed, so you’ll get the benefit of that falling market in your trade-up.

  204. Clotpoll says:

    MO (206)-

    One more suggestion for the “executive”:

    Imprison you without writ.

  205. scribe says:

    MO,

    One of the problems – if the bank agrees to a short sale, the IRS sees the differential as a “gift” to the seller subject to tax.

    I think something is kicking around in Congress to change that part of the tax code – not sure.

    But relieving sellers of that potential tax liability would help to expedite short sales.

  206. njpatient says:

    #206
    What a load of garbage.
    You reap what you sow.

  207. t c m says:

    #206 MO –

    I also think that Pres. Bush should give all of us renters who chose not to take risky mortgages between $50,000 – $250,000 as a grant (depending on cost of living in the area you live) so that we can make a large down payment and keep our mortgages below $417,000 in order to get a good rate.

  208. Jamey says:

    The words “Bush” and “action” just kinda look funny together.

    And you think honesty from THIS admin would be key NOW? Don;t get your hopes up: America has been waiting 6 1/2 years for it.

  209. njpatient says:

    #212
    Exactly.

  210. BLB says:

    Please note that markets work in both directions. I did not hear anyone clamoring for the gov’t to redistribute the “excess profits” owners of RE were reaping during the past 5-10 yrs.

    So true.

    During boom times: “Gimmee gimmee gimmee mine mine mine!”

    Now: “Whaaaaaaaaa….the government needs to bail me out.”

  211. Mortgage Observer says:

    #212

    I didn’t propose tax credits for first time home buyers but it might not be such a bad idea. He certainly could propose some tax incentives to help stimulate real estate activity.

    I believe the president gave everyone a tax credit after 9/11. This crisis is similar in the impact it is going to have on the economy.

    Why couldn’t he propose some tax incentives to help stimulate real estate activity now.

    The executive branch can most help the lower end of the real estate market.

    If you stabilize prices on the lower end it will help the move up buyer who may be now having a tough time selling.

    Some of the things I mentioned may help without having the Fed lower rates.

    If the Fed lowers rates we will once again see lower rates on investments.

    I find it hard to believe people are looking forward to 2.00% CD rates again.

  212. scribe says:

    MO,

    You said:

    I believe the president gave everyone a tax credit after 9/11.

    That was prior to 9/11 – a re-distribution of part of the budget surplus from the Clinton administration.

    Then when 9/11 happened, it became clear it hadn’t been such a good idea, not when money was needed for defense and national security.

    The amounts were small. I think I got $75 or $125 – something like that.

  213. BLB says:

    “The government is basically parents for adults.”

    – Jerry Seinfeld

  214. Orion says:

    Question:

    Can someone explain to me the significance of what’s going on with Treasury bills?
    Thanks.

  215. njpatient says:

    “This crisis is similar in the impact it is going to have on the economy.

    Why couldn’t he propose some tax incentives to help stimulate real estate activity now.”

    This crisis exists because real estate activity was “stimulated”. More of the same will delay and, more importantly, exacerbate the inevitable.

    Better a recession today than a depression tomorrow.

  216. chicagofinance says:

    James Bednar Says:
    August 20th, 2007 at 5:50 pm
    I’ll throw a vote in for the Clifton area. jb

    There are two parts of Clifton. One area is a cesspool, and the rest is the remnants of the dredging of that cesspool.

  217. stu says:

    I lived in Clifton for a number of years as well. It’s a true blue collar town and an excellent place to live. The train line runs well through there (unlike Montclair and the RVL) and the bus is always a decent back up. Taxes are (relatively) low and Corrado’s will keep your grocery bills down. Excellent ethnic food of all varieties are available if you head towards Paterson or Passaic as well. If the schools were better, I would buy there.
    Cranford has flooding issues but outside of the flood zone is also a great place to live.

  218. stu says:

    http://www.thestreet.com/_htmlatb/markets/activetraderupdate/10375250.html

    Back in 1990-1992 and 2001-2003, the Fed lowered interest rates 100 basis points, secure in the belief that it had thwarted a recession. Both times, the Fed was wrong: A recession commenced, and a bear market in equities followed. For example, the DJIA soared nearly 3% with the surprise January 2001 interest rate cut. Three months later, the markets made new lows and ultimately fell 20% from the highs.

    Seven years ago, the economy was soaring with real gains of about 4%, productivity was unprecedented, technology was in the midst of a renaissance, and the consumer was in fine shape. The LTCM issue was fairly contained; it was an isolated liquidity crisis in a hedge fund that was forced by the misuse of leverage and the insolvency of a relatively small economy, Russia.

    The result was a 75-basis-point reduction in the fed funds rates, which restored calm in the financial markets in a matter of weeks.

    Things are far different today.

  219. James Bednar says:

    There are two parts of Clifton. One area is a cesspool, and the rest is the remnants of the dredging of that cesspool.

    Two outta’ three ain’t bad..

  220. Bloodbath in Winter 2007 says:

    # t c m Says:
    August 20th, 2007 at 7:15 pm

    #206 MO –

    I also think that Pres. Bush should give all of us renters who chose not to take risky mortgages between $50,000 – $250,000 as a grant (depending on cost of living in the area you live) so that we can make a large down payment and keep our mortgages below $417,000 in order to get a good rate.

    Now you’re talkin!

    As for the guy who complained about 2.0 rates … i suggest you look into ING direct. 4.5% and being liquid works for me.

    Clifton … yes, schools aren’t great at all (and overcrowded). They’re ranked lower than Cliffside Park, and that’s saying something.

  221. BC Bob says:

    “Can someone explain to me the significance of what’s going on with Treasury bills?”

    Orion [219],

    It’s a T-bill bubble.

    If I wasn’t paying attention and someone told me about the move into T-bills today, I would figure that the Dow was down approx 2,500 points. It’s a massive flight.

    http://www.bloomberg.com/apps/news?pid=20601087&sid=a675gM7_ZzL0&refer=home

  222. Orion says:

    BC Bob (#226),

    Thanks for that analogy. It’s much more clearer to me now.

  223. Richard says:

    >>Cranford thinks its Westfield

    not true at all. westfield is pricey and has way more ‘tude than cranford. i know a few who moved out of westfield for just that reason. others like the mix of more affordable housing with a decent mix of professionals and blue collar occupations with an ok commute to the city. i recommend the place.

    >>Clark thinks its as good as Westfield since its right next door.

    even taking a cursory glance at the housing stock that boast has no merit. schools aren’t bad. aside from being nowhere near the train i’d say it’s the next best thing to cranford.

  224. Orion says:

    Re: Asbury condos auction

    I don’t know how much the original condos sold for in the last six months. But let’s say some sold for asking at $199K. If the auction condos sell between $125-150K, do the buyers at $199K have any recourse for a refund of the difference? Or, just take the loss?
    Just wondering.

  225. Clotpoll says:

    Orion (229)-

    Recourse? Perhaps they could harvest the developer’s liver and sell it on the balck market in China.

  226. Clotpoll says:

    Orion (229)-

    Recourse? Perhaps they could harvest the developer’s liver and sell it on the black market in China.

  227. RentinginNJ says:

    do the buyers at $199K have any recourse for a refund of the difference?
    Or, just take the loss?

    Your SOL.
    No recourse. Just take the loss.

  228. syncmaster says:

    That prozac/ritalin prescription was hilarious!

    That said, it’s ironic how he whines about the media not paying attention to him. Pay attention to what, exactly? That site is funny, not informative.

  229. dreamtheaterr says:

    I think the ‘anger’ phase is setting in for folks to waste their time with Photoshop…. denial was flushed down the toilet a few days back.

  230. lostinny says:

    So that’s what he’s been doing since he was banned? He really needs a life.

  231. Clotpoll says:

    (240)-

    A very important milestone here:

    Grim has a “hater” site. Sort of like a reverse Casey Serin.

    I think Duck’s about a month away from burning down his house.

  232. lisoosh says:

    Duck was banned? I though he just wandered off.

  233. Richard says:

    wow a hate jb site. that’s just too funny. the boy is definitely a couple of fries short of a happy meal.

  234. James Bednar says:

    wow a hate jb site.

    It’s a rite of passage as a blogger, a badge of honor.

    jb

  235. chicagofinance says:

    what am I missing? link?

  236. xiaolu says:

    Dear Jb and CLotpoll,

    Thank you so much for taking time to answer my question.

    I am more confindent now. I guess I will start to put my house on market next month.

    I do have daught who will go to third grade in fall. She told me she won’t move already. That’s why I decide to move sooner. The older she is, the more diffcult for her to leave her friends. I will rent first in the same area as we are now before we find the new house.

  237. Seneca says:

    Richard #228

    >>westfield is pricey and has way
    >>more ‘tude than cranford.

    I agree. Westfield is pricier and has more snob appeal. I am just saying that prices in Cranford are also pricey and there does exist some ‘attitude’ that is warranted. I actually think Cranford is a very nice place to live, provided you don’t get flooded. Cranford is a poor man’s Westfield, if you will. Only, you still need to drop 500k+ for a better-than-mediocre home.

    The residents of Clark use their proximity to Westfield as a selling point. It is as if Clark is just East Westfield. Not sure what you mean by “a cursory glance at the housing stock [shows] that boast has no merit” regarding Clark thinking its just as good as Westfield.

    Westfield has a better resume than Clark. (I am complimenting Westfield here, so, take the compliment.) Better downtown, better commuting options for NYC, better schools, “prettier”, more diverse ethnically and religiously. Sure, there will always be those who say they hate “downtowns”, hate diversity, and think the schools are overrated.

    Have you driven past Clark’s Johnson High School in the past two years? Have you ever seen so many trailers in your life? The place has been in a state of (dis)repair for a long time. The school’s are in fact, fine, but they don’t have the prestige of a Westfield or Millburn. If you judge by % of students heading to Ivy’s, you will see that. Again, if you think it is meaningless how many students get into Harvard and are more focused on how many get football scholarships, then Clark is for you. (generalization of the population but since I learned on this blog that working women caused the real estate bubble, I am less inclined to apologize for gross generalizations or points that have no merit.)

    Is it the next best thing to Cranford? Could be. Rumors abound that L’Oreal is leaving Clark in the next 5 years. Who knows what happens to the town’s tax base if that happens.

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