“I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained” – Paulson 2007

From Bloomberg:

Housing Animal Spirits to Be Banished by Prime Foreclosures

Homeowners with the best credit are the next big risk for the U.S. housing market.

An increase in mortgage defaults among prime borrowers in 2009 is likely to accelerate this year, slowing the real estate recovery even as Americans become more optimistic about the economy, said Robert Shiller and Karl Case, the economists who created the S&P/Case-Shiller Home Price Index.

“There will be continuing foreclosures, and not just subprime, it will be prime mortgages,” Shiller, a professor at Yale University, said in an interview. “This is creating a huge shadow inventory of homes that are still owned, but they’re going to be on the market in the next year or so.”

The number of prime mortgages overdue by at least 60 days more than doubled in the third quarter from a year earlier to 838,000, according to a Dec. 21 report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Unemployed homeowners struggling to pay their bills will default on their home loans and increase foreclosures, Shiller and Wellesley College’s Case said.

“Unemployment is not respecting income boundaries,” said Case in an interview. “It’s affecting rich people, poor people and middle-income people and they all have mortgages.” The U.S. may begin to see some signs of a housing recovery this year, he said.

“What makes the rising default rates on prime loans so insidious is these are not folks who took out some crazy new type of mortgage,” said Brad Hunter, chief economist at MetroStudy real estate research in West Palm Beach, Florida. “These are people who probably took out what would ordinarily be a responsible mortgage.”

This entry was posted in Housing Bubble, National Real Estate, Risky Lending. Bookmark the permalink.

68 Responses to “I don’t see (subprime mortgage market troubles) imposing a serious problem. I think it’s going to be largely contained” – Paulson 2007

  1. chicagofinance says:


  2. chicagofinance says:

    The headline article raises an interesting point. What we have seen so far in the housing bust is a cleaning out of the completely pointless garbage. If we are seeing the prime stuff start to crap out, then I would actually profile this stuff as the “normal” housing correction. So maybe we are at the inflection point around here were the excess has been wrung out. We can now commence with the standard stuff such as lose you job…go through you savings..now out on your a%% kind of activity.

  3. chicagofinance says:

    were = where

  4. chicagofinance says:

    you = your :(

  5. crossroads says:


    you think the foreclosure process will speed up then?

  6. crossroads says:

    “What makes the rising default rates on prime loans so insidious is these are not folks who took out some crazy new type of mortgage,”

    people with prime mortgages still had the opportunity to borrow much more then they could afford. anyone borrowing over the 3:1 rule will find it hard nevermind up to 7:1

  7. chicagofinance says:

    crossroads says:
    January 4, 2010 at 6:39 pm
    chifi you think the foreclosure process will speed up then?

    No. It’s just that any talk of the housing bust being over cannot be substantiated. There is just way too much common sense logic that suggests…no fcuking way….

  8. make money says:

    skep (148)-

    No. Deflation hurts rich, middle and poor equally.

    Inflation benefits the rich and others who have “first access” to capital, while destroying middle & poor.

    It has nothing to do with rich or poor. Inflation benefits people who saw it coming and did something about it and hurts savers and fools who believe the feds numbers.

    Got Shiny.

  9. chicagofinance says:


    CIA Bomber Linked To Jordan

  10. chi (2)-

    I would submit that 80% of all mortgages originated since 2003 are garbage. I think we’ll also see over 50% default rates on FHA 07-09 vintages.

    “What we have seen so far in the housing bust is a cleaning out of the completely pointless garbage.”

  11. Anon E. Moose says:


    Deflation hurts rich, middle and poor equally.

    Monetary deflation hurts those who have more debt than savings.

    Housing deflation has only helped someone with coin in the bank earmarked for a house purchase. Without considering growth of the war chest in the interim, a 20% downpayment on what cost $500k in 2005 is now 25% because the transaction price is down to $400k (CS latest has the NY metro index -19.5% since peak, per CR). Do I hear another leg down to $300k? War chest is a 33% down payment. Is 300k too optimistic? Will things settle at $340k? The war chest is only 30%. Oh, and each step of the way, the mortgage payment comes down as well. The hypothetical P+I is 25% less buying in 2010 v. 2005 (How’s that for a 25% payment reduction, NY Fed!?!). Going down to $340k or $300k makes the monthly P+I 40% or 50%. That sound like a great prescription for housing stability.

  12. Refuse to answer the census!

  13. Wait ’til Christie gets into office and all the soci@lists go batshit when he goes after their favorite little thingys.

    It will be fun watching the wolverines consume each other. Guaranteed we’ll get a reaming, no matter which pack wins.

  14. Safeashouses says:

    I love that paulson quote. I think he was either extremely incompetent or a lying motherlover.

  15. chicagofinance says:

    Moose: If you can immunize yourself from the direct impact of real estate tax and income tax in this interim period, then you can be in position to really clean up. Notice I say direct…..serious collateral damage is on the way…..

  16. Pat says:


    “…could take another year or even longer for financial firms to trust consumers enough to return to normal levels for auto lending..”


  17. chicagofinance says:

    Q to the Board: Anyone with links to BIIB care to comment on why the CEO just stepped down?

  18. Veto That says:

    “I think we’ll also see over 50% default rates on FHA 07-09 vintages.”

    Clotpoll, this is worse than the armed militias taking over the gas station scenario.

  19. Kettle1 says:

    Veto 19

    maybe, but it’s not nearly as much fun

  20. veto (19)

    A gas station in the hands of the right armed militia could be a good thing.

    Nothing good will be happening in the world of mortgages for quite some time.

  21. The Argentine outcome could be a best-case scenario for how this all ends.

  22. Kettle1 says:


    got any good recipes for census takers?

  23. Kettle1 says:

    Clot 22.

    Too late for that will be worse for a short time, Promptly followed by a major war

  24. vodka (23)-

    Dunno. Call that guy in Kentucky who bagged him one.

  25. jamil says:

    chi: “CIA Bomber Linked To Jordan”


  26. safeashouses says:

    You guys need to lighten up. Maybe reenact a John story or something.

  27. Kettle1 says:


    if I lightened up any more I might just float away. I have recently taken to heart the idea that standing on the tracks is bound to you run over. Don’t fight the chaos, embrace it.

  28. njescapee says:

    Newark airport lockdown occurred 2 hours after officials learned of security breach


  29. Stu says:


    I completely agree with your 07-09 FHA vintage implosion theory. Where you are obviously confused is in thinking that Christie will behave differently than any of his predecessors. Remember, he promised 25% cuts across the board. I’ll donate $1000 to his campaign if he succeeds in cutting a single job!

    On the homefront, check out our mayor Fraud’s new plan to change the world starting with Montclair.

    Want to expand your restaurant? Better put in some bike lockers. Planning an extension of 10% or more to your 3-family dwelling? Now you need to reserve 36 square feet of space for bicycle storage.


    January 5, 2010
    BE IT ORDAINED by the Council of the Township of Montclair, in the
    County of Essex, that Chapter 347 of the Township Code (the “Zoning
    Ordinance”) be and is hereby amended and supplemented to include the
    §347-101.1 Bicycle parking and storage.
    A. Findings. It is the intent of this Ordinance to reduce traffic congestion and
    air and noise pollution, and to promote the health and welfare of the
    residents of the Township, by encouraging the use of bicycles through the
    establishment of requirements for off-street parking of bicycles in
    conjunction with the use of land. The number of bicycle parking and
    storage spaces required herein varies according to the type, location, and
    intensity of development in the different zoning districts.
    B. Bicycle Parking Facilities Required.
    1. Bicycle parking facilities shall be required for any new principal
    structure (excluding one-family and two-family residential structures),
    addition or enlargement of an existing principal structure in excess of
    10% of the usable floor area, or for any change in the use of an
    existing structure, in accordance with the following schedule of uses,
    with fractional requirements for bike parking over .5 to be rounded up
    2. Each bicycle parking space shall be no less than 6-feet long by 2-feet
    wide (6’X2′).
    3. Classification of Facilities
    1. “Class 1 bicycle facility” means a locker, an individually locked
    enclosure (inside or outside a building) or a supervised area
    within a building providing protection for each bicycle therein
    from theft, vandalism and weather.
    2. “Class 2 bicycle facility” means a stand or other device
    constructed so as to enable the user to secure by locking the
    frame and one wheel of each bicycle parked therein. Racks
    must be easily usable with both U-locks and cable locks. Racks should support the bikes in a stable upright position so that a
    bike, if bumped, will not fall or roll down. Racks that support a
    bike primarily by a wheel, such as standard ‘wire racks’ are
    damaging to wheels and thus are not acceptable.
    Use Required Bicycle Parking Facilities
    Number of Spaces Class
    Residential Uses
    One Family No Requirement n/a
    Two Family No Requirement n/a
    Multi Family (3 or more units) 1 per unit Class 1
    Rooming Houses 1 per 5 units Class 1
    Commercial and Office Uses
    Office 2 + 15% of Auto Requirement 80% Class 2; 20% Class 1
    Banks 2 + 15% of Auto Requirement 80% Class 2; 20% Class 1
    Restaurants 2 + 15% of Auto Requirement 90% Class 2; 10% Class 1
    Retail (all) 2 + 15% of Auto Requirement 90% Class 2; 10% Class 1
    Nonprofit Institutional Uses 2 + 15% of Auto Requirement 80% Class 2; 20% Class 1
    Commercial Recreation Facilities 35% of Auto Requirement 90% Class 2; 10% Class 1
    Educational Play Centers 35% of Auto Requirement 90% Class 2; 10% Class 1
    Community Facilities
    Parking Lots or Garages 35% of Auto Parking 80% Class 1; 20% Class 2
    Hospitals No Requirement n/a
    Churches No Requirement n/a
    Schools 1 per 10 students Class 2
    Municipal 2 + 15% of Auto Requirement 90% Class 2; 10% Class 1
    All No Requirement n/a

  30. safeashouses says:

    #30 Stu

    You and gator need to get the hell out of that town.

  31. All "H-Train" Hype says:

    AP sources: Bomber at CIA base was a double agent:


    They did not even search the guy as he enter the base.

  32. NJGator says:

    Safe – I can’t wait to tell our tenants “Sorry you have to trek off to the laundromat. We wanted to give you washer dryer hookups, but Mayor Fried thought you needed a bike locker instead.”

  33. sas says:

    “Got Shiny”

    got food?


  34. sas says:

    “Bomber at CIA base was a double agent”



  35. sas says:

    “Maybe reenact a John story or something.”

    and have womens dressed up as men buy me drinks…and then think I”m the cat’s meow because of it?? ha, no way Jose…

    I’ll stick to real estate bubbles and consequences of a fall out any day.


  36. Pat says:

    SAS disses John. Yum.

  37. sas says:

    “SAS disses John. Yum.”

    no hard feelings. Just giving John boy a little beleaguer.


  38. Sean says:

    The CIA agents killed were apparently part of the Predator/Reaper Drone program.

    “In separate interviews, representatives of two Taliban factions have claimed that the mission’s target was the drone program. “We attacked this base because the team there was organizing drone strikes,” a commander allied with the Afghan Taliban told the Wall Street Journal.”


  39. NJGator says:

    Cities where homes have lost the most value
    Far-flung suburbs particularly hurt by glut of new housing built during boom

    The Reno, Nev., market peaked in the first quarter of 2006 with the average home costing $339,331. In the third quarter of 2009 it had dropped to $211,724.

    Merced, Calif., is a quiet, residential city an easy drive from Yosemite National Park and Pacific Coast beaches. It’s also a perfect case study for the aftermath of the housing crisis.

    Homes at the median level in Merced have lost 62 percent of their value from the second quarter of 2006, when they peaked at $336,743, the biggest drop anywhere in the country, according to data provided to Forbes by Local Market Monitor, a Cary, N.C.-based real estate research firm. Earlier, home building and buying grew exponentially in Merced, but the metro now suffers from a whopping 16.4 percent unemployment rate, according to the Bureau of Labor Statistics, reflecting a drop-off in building industry jobs and a grim housing market.

    Providence, R.I., where values sank the most in the Northeast; Detroit, the hardest-hit market in the Midwest; and Port St. Lucie, Fla., the biggest loser of value in the South, have also suffered from their local market’s slide.
    Story continues below ↓advertisement | your ad here

    It’s not news that Las Vegas, where value has dropped 48 percent, Miami (down 38 percent), and Orlando (down 31 percent) saw a burst of homebuilding fueled by bad loans and rampant house flipping between the years of 2002 and 2006, and that those building bubbles subsequently collapsed. But it’s the exurban cities just outside of easy commuting distance from the most desirable West Coast and Sunbelt metros where home values have taken the biggest pounding.


  40. chicago tan-talizer says:

    From WSJ Blog on deep water oil drilling in tomorrow’s paper….

    “Big Oil never wanted to be here, in 4,300 feet of water far out in the Gulf of Mexico, drilling through nearly five miles of rock.

    It is an expensive way to look for oil. Chevron Corp. is paying nearly $500,000 a day to the owner of the Clear Leader, one of the world’s newest and most powerful drilling rigs. The new well off the coast of Louisiana will connect to a huge platform floating nearby, which cost Chevron $650 million to build. The first phase of this oil-exploration project took more than 10 years and cost $2.7 billion — with no guarantee it would pay off.”

    Obama to Emanual:
    Rahm, the really needs to be taxed, I know they are going to generate hydrogen dioxide that we can tax, but we need to get to the money the way Hitlary was planning in her campaign.

    Mein Höchster Führer;
    I will look into it after I finish off the seniors with healthcare, I mean finish health care for seniors.

    With All Due Obedience:

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