“Jacking up rates” on prime

Posted on August 7, 2007 by grim

From the Wall Street Journal:

Mortgage Fears
Drive Up Rates
On Jumbo Loans
By JAMES R. HAGERTY
August 7, 2007; Page A1

Turmoil in the U.S. home-mortgage market is starting to pinch even buyers of high-end homes with good credit records, in the latest sign of rising anxiety among lenders and investors.

This surge in rates on so-called jumbo loans is particularly notable because rates on 10-year Treasury bonds have been falling. Normally, mortgage rates move in tandem with Treasurys, but market jitters have caused investors to ditch mortgage securities.

Meanwhile, American Home Mortgage Investment Corp. finally succumbed yesterday to the mortgage-sector chaos that had crippled it in recent weeks and filed for protection from creditors under Chapter 11 of U.S. bankruptcy law. And executives at Fannie Mae, the government-sponsored entity that along with Freddie Mac provides funding for home loans, asked the companies’ government overseer to raise the maximum amount of home mortgages and related securities Fannie can hold in its investment portfolio. The goal would be to boost demand for mortgages in general, proponents of the idea said.
…
Lenders — having already slashed lending to subprime borrowers, as those with weak credit records are known — now are jacking up rates on jumbo mortgages for prime borrowers. These mortgages exceed the $417,000 limit for loans eligible for purchase and guarantee by Fannie and Freddie. They account for about 16% of the total mortgage market, according to Inside Mortgage Finance, a trade publication, and are especially prevalent in California, New Jersey, New York City, Washington, D.C., and other locales with high home costs.

Lenders were charging an average 7.34% for prime 30-year fixed-rate jumbo loans yesterday, according to a survey by financial publisher HSH Associates. That is up from an average of about 7.1% last week and 6.5% in mid-May.

The higher costs for such loans will put further downward pressure on home prices in areas where homes typically bought by middle-class people can easily cost $500,000 to $700,000.
…
The jump in jumbo-mortgage rates is the latest gust in a subprime storm that has sunk two hedge funds run by Bear Stearns Cos., knocked American Home and dozens of other lenders out of business, battered an already weak housing market and fueled weeks of stock-market turmoil. Yesterday, the Dow Jones Industrial Average rebounded 286.87 points, or 2.2%, to 13468.78.

Alarmed by weakness in the housing market and rising foreclosures, investors who buy loans and securities backed by mortgages have fled the market for almost any loan that isn’t guaranteed by Fannie Mae or Freddie Mac, Mr. Duncan and others said. That means lenders must either hold loans, at least temporarily, and face the risk of falling values for them, or seek out borrowers who qualify for loans that can be purchased by Fannie and Freddie.

For other types of loans, Mr. Duncan said, “there is no market.” He said it isn’t clear how long the market will remain disrupted, but said some mortgage bankers fear the current paralysis could last weeks. “We’re getting calls from members [of the lenders’ association] who are quite desperate about their circumstances,” Mr. Duncan said. Large banks have the capacity to retain loans on their books, but many other lenders can only make loans that can be sold quickly.
…
The market disruption came as crushing news for Gary Cecere, a mechanic who lives in Croton-on-Hudson, N.Y. Mr. Cecere said he learned yesterday that Wells Fargo & Co. was no longer willing to complete a planned package of two mortgage loans that would allow him to buy a $410,000 four-bedroom home in Mahopac, N.Y. Hugo Iodice, a branch manager at Manhattan Mortgage Co. who is acting as a loan broker for Mr. Cecere, blamed tighter standards imposed by Wells Fargo on Alt-A loans. A Wells Fargo spokesman had no immediate comment.

“I was getting ready to close [on the home purchase] this week, and they basically pulled the carpet out from under my feet,” said Mr. Cecere. For now, he said, his wife, five children, two cats and a dog are cramped into a two-bedroom temporary apartment, awaiting a move. Mr. Iodice said he is trying to find an alternative loan for the family.

Even borrowers with good credit records who can afford a large down payment are finding rates surprisingly steep if they can’t qualify for a loan that can be sold to Fannie or Freddie. Rates on prime jumbo loans have risen so fast that “nobody in their right mind would pull the trigger” and accept one now, unless they couldn’t delay a home purchase, said Darren Weisberg, president of PFG Mortgage Services Inc., a mortgage broker in Lake Forest, Ill.

Some lenders are pulling the plug on whole categories of loans. Yesterday, National City Corp., a Cleveland banking company, said it has suspended its offerings of home-equity loans or lines of credit made through brokers rather than the bank’s branches. The company cited market conditions.

Posted in National Real Estate, Risky Lending | Comments Off on “Jacking up rates” on prime

“The market is in a panic”

Posted on August 6, 2007 by grim

From the Wall Street Journal:

Housing Market to Weaken Even Further
As Mortgage Industry Takes Cure
By JAMES R. HAGERTY
August 6, 2007; Page A2

After a binge of lax lending in recent years, the U.S. home-mortgage industry is finally taking the cure, swearing off high-risk loans to people with lousy credit records. The bad news is that this medicine is creating a vicious circle that will make the housing market even weaker, at least in the near term.

As regulators and jittery investors force them to adopt more and more conservative lending standards, lenders are cutting more people out of the housing market. In what would strike most people outside the industry as a return to common sense, lenders now are shunning would-be borrowers who can’t make a down payment, prove that they have a reliable income and show a record of reasonably regular bill-paying. They also are turning down refinancing requests from many people trapped by adjustable-rate loans that are proving too expensive after the initial feel-good period of low payments.
…
“This week is going to be a nightmare,” says Melissa Cohn, chief executive of Manhattan Mortgage in New York. Lenders are scaling back so fast that it isn’t clear which loans are available or on what terms, and rates are jumping even on large loans, known as jumbos, for prime borrowers.

These stricter lending standards reduce demand for homes and nudge some people who can’t refinance toward foreclosure. Higher foreclosures add to a glut of homes on the market in most of the country. And, completing the vicious circle, a weaker housing market comes back to bite the lenders by wiping out owners’ equity in their homes and increasing the risk of even more foreclosures down the road.

“The market is in a panic,” says Larry Goldstone, president of Thornburg Mortgage Inc., a lender in Santa Fe, N.M. He says he thinks the mortgage-bond market, which supplies most of the money for home mortgages, will calm down within a few months, but the housing market may need at least another year or two to heal.

Earlier this year, lenders had to cut back on subprime mortgages, those for people with the weakest credit records, because a surge in defaults made investors unwilling to buy so many of those loans. In the past few weeks, stung by losses on mortgage securities at some big funds and clampdowns by rating agencies, investors have grown much more nervous. For good reason: A recent Merrill Lynch report estimates that they face $120 billion to $170 billion of default-related losses on U.S. home mortgages currently outstanding. So investors now are shying away from many more types of mortgages, including those known as Alt-A, a category between prime and subprime.

By late last week, panic among mortgage lenders and investors was starting to feed on itself. One midsize lender, American Home Mortgage Investment Corp., shut down its lending operations after creditors cut off funding; the chief executive of another big lender declared that the mortgage-securities market was “not functioning;” and Countrywide Financial Corp., the nation’s biggest home lender by loan volume, felt compelled to issue a statement Thursday saying it had plenty of cash on hand. Despite that reassurance, Countrywide’s share price dropped 6.6% Friday. Some lenders temporarily stopped taking loan applications Friday because they were unsure about their ability to sell mortgages to investors.
…
Because loan standards are now much tougher, at least 10% to 15% of the people who could have qualified for a home-purchase loan last year can’t do so now, says Jan Hatzius, chief U.S. economist at Goldman Sachs. Meanwhile, many of the people who would still qualify for a loan don’t want to buy a house now because they think prices will fall further. So the housing market is likely to remain weak for at least another couple of years, Mr. Hatzius figures.
…
The U.S. housing boom over the past decade turned about five million renters into homeowners, says William Wheaton, a professor of economics and real estate at the Massachusetts Institute of Technology. But many of the loans that made that possible have proved unsustainable. Dr. Wheaton expects about two-thirds of those people to go back to renting. Eventually, he says, rents will rise, and more people will see owning as a better alternative, helping to revive the housing market, perhaps in 2009 or 2010.

Posted in Housing Bubble, National Real Estate, Risky Lending | 310 Comments

Weekend Open Discussion

Posted on August 3, 2007 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 544 Comments

“We don’t think the banks will be that forgiving this time around”

Posted on August 2, 2007 by grim

From the Wall Street Journal:

Lenders Tighten Standards,
Pare Loans in Face of Debt
By MICHAEL CORKERY, RANDALL SMITH and KATE KELLY
August 2, 2007; Page C1

Banks and securities firms are trimming loans, especially to companies tied to the mortgage market. But it is a balancing act: Cutting back too far could make matters worse by accelerating corporate bankruptcies and causing more turmoil in financial markets.

Banks facing the prospect of taking on billions of dollars in buyout-related debt are starting to trim lending to companies that need to refinance loans or restructure their balance sheets.

As banks rein in riskier lending, companies could find themselves unable to refinance loans coming due or to overhaul their businesses. Some companies may be forced to seek bankruptcy protection, a development that would exacerbate bond-market turbulence.
…
If banks get skittish, Mr. Snider said they could reduce the size of the credit lines, as they did with Beazer, or require the credit lines to be secured. Most of them are unsecured. Analysts are watching what happens when two other big home builders, Los Angeles-based KB Home and Standard Pacific Corp., of Irvine, Calif., approach their banks to renegotiate their credit lines in the coming weeks.

Banks also are stiffening lending standards and becoming more aggressive in issuing margin calls, or requests for additional cash or collateral, from borrowers.

These moves are affecting a variety of clients, according to market participants. Hedge funds that clear trades and borrow money from prime-brokerage units of Wall Street firms are encountering stricter terms, they said, as are those in “repo,” or repurchase agreements, short-term loans from banks that often are used to finance bond investments.

Posted in National Real Estate, Risky Lending | 278 Comments

“[W]here are the losses?”

Posted on August 2, 2007 by grim

From the Wall Street Journal:

Subprime Detectives Search
In Dark for Next Victim
Wall Street Can Bury
Mistakes in Fine Print
By DAVID REILLY and KAREN RICHARDSON
August 2, 2007; Page C1

Shoot first. That is what investors have been doing to financial stocks lately.

And they have some good reasons. The crisis in the subprime-mortgage market, for instance, has led to the collapse of several hedge funds, including some run by Bear Stearns Cos. At the same time, stalled corporate-bond deals and the collapse of hedge-fund Sowood Capital Management show cracks widening fast in the credit markets.

But investors in banks and brokerage houses also have been spooked by what they can’t see. Namely, potential losses that many fear have been hidden in the books of financial firms, or stuffed in off-balance-sheet vehicles.

That has made it difficult for investors to gauge exactly who has lost money on subprime wagers and how much has gone up in smoke.

The uncertainty has hit stocks of financial houses that so far have said they don’t have any major subprime problems. Deutsche Bank AG was one of yesterday’s casualties. The German bank reported upbeat profit and said it wasn’t exposed to the subprime crisis, but investors drove its stock down more than 2% on the Frankfurt stock exchange. Merrill Lynch & Co. has fallen about 22% since the start of the year, Citigroup Inc. is off 16% since January, and Lehman Brothers Holdings Inc. is down about 22%.

The mystery of “where are the losses?” has confounded hedge funds searching for opportunities to bet against banks whose day of reckoning has yet to come.

“We’ve been looking for financials that show losses from these securities on their books, and they’ve been very difficult to find,”‘ says Keith Long, president of Otter Creek Management, a hedge fund in Palm Beach, Fla., with $150 million in assets. “It’s very opaque.”

Investors have long complained about the lack of transparency when it comes to huge financial firms, whose balance sheets are so big that they can easily mask multimillion-dollar gains or losses. Analysts and investors currently cite several potential factors that could help hide subprime wounds.

Corporate executives and fund managers may still be relying on inflated values for mortgage-related securities. The widespread use of off-balance-sheet vehicles by banks and other financial institutions may also enable them to shift losses elsewhere. And a menu of choices offered to companies by accounting rules allows management to decide whether to recognize certain losses or push bad news into the future.

Some coming accounting-rule changes may help investors get a clearer picture. But those likely won’t offer help for another year. In the meantime, markets are going to have to keep guessing about where losses are and how bad they could be.
…
Another way companies and banks might hide losses on securities backed by risky mortgages is to classify them for accounting purposes as being “held to maturity.” This effectively precludes a company or bank from selling the security, but also means that it doesn’t have to mark the security to market on its books.

Instead, the security stays on the books at its historical cost. Investors won’t know if companies tried this maneuver until they file annual results for 2007, in which case they would have to disclose the amount of securities classified this way during the year, Prof. Ketz says.

Posted in National Real Estate, Risky Lending | Comments Off on “[W]here are the losses?”

“The market is pretty much terrified at this point”

Posted on August 1, 2007 by grim

From the Wall Street Journal:

Wall Street, Bear Stearns Hit Again
By Investors Fleeing Mortgage Sector
By KATE KELLY, LIAM PLEVEN and JAMES R. HAGERTY
August 1, 2007; Page A1

The nation’s weak housing sector sent another shudder through Wall Street, with insurers and lenders taking further hits and Bear Stearns Cos. shutting off withdrawals from a mortgage-investment fund.

The stock market, which had been up sharply early yesterday, reversed course abruptly amid renewed concerns about loans and securities derived from home mortgages. The Dow Jones Industrial Average, which had been up more than 140 points, closed down 146.32 points, or 1.1% from a day earlier, at 13211.99 — a swing of nearly 300 points, or more than 2%. U.S. Treasury bonds rallied as investors sought the stability of government-backed bonds.
…
The nervousness was fed by rumors of troubles at hedge funds that are invested heavily in mortgage securities. Bear Stearns, its reputation already dented after two of its hedge funds that bet heavily on securities connected to risky home loans blew up in June, has prevented investors from taking their money from another fund that put about $850 million into mortgage investments.

In recent weeks, as the housing market continued to weaken and trading firms began to price many mortgage investments at discounted levels, Bear executives realized their Asset-Backed Securities Fund was facing a rough July, said people familiar with their thinking.

Unlike Bear’s other two funds, these people said, the asset-backed fund borrowed no capital and had practically no exposure to subprime mortgages, as home loans extended to people with weak credit are known. But a combination of markdowns on a broad range of mortgages and a series of refund requests could force the fund out of business eventually, according to one person familiar with the situation.

A spokesman for the firm disputes that, however. “There are no plans to shut down the fund,” said Russell Sherman, a Bear spokesman. “We believe the fund portfolio is well positioned to wait out the market uncertainty. And we believe by suspending redemptions, we can ensure the best long-term results for our investors. We don’t believe it’s prudent or in the interest of our investors to sell assets in this current market environment.”

Traders said yesterday’s stock-market selloff was ignited by a warning from American Home Mortgage that pressure to repay its creditors may cause it to liquidate its assets. Its shares subsequently plunged 89% to $1.13. Several Wall Street firms have loaned money to American Home, the 10th-largest U.S. home-mortgage lender in this year’s first half, according to Inside Mortgage Finance, a trade publication.

The Melville, N.Y., company said turbulent mortgage-market conditions forced it to mark down the value of its portfolio of home loans and loan-backed bonds. Some financial backers want their money back, and the company said it needs to hold on to cash in case the credit environment worsens.

The insurance sector was also singed as two large mortgage insurers saw their share prices drop sharply after announcing that their stakes in a firm that invests in subprime mortgages had been “materially impaired.” What spooked investors in MGIC Investment Corp. and Radian Group Inc. was the firms’ holdings in Credit-Based Asset Servicing and Securitization LLC. As of June 30, each insurer had more than $465 million of equity in C-BASS, which invests in mortgages and related securities.
…
“The market [for mortgage securities] is pretty much terrified at this point,” said David Castillo, senior managing director at Further Lane Securities, a dealer based in New York. “It’s starting to sink in that this is a broad-based issue that’s not going to go away any time soon.”

Posted in Housing Bubble, National Real Estate, Risky Lending | 254 Comments

“I wish there were more”

Posted on August 1, 2007 by grim

From the AP:

Towns predict tax hikes, service cuts after aid cut

New Jersey municipalities predicted property taxes would increase and local services would be cut after the state announced today it was doling out less special state aid to towns suffering fiscal woes.

The state Department of Community Affairs said it would provide $17.7 million this fiscal year in extraordinary aid to towns that contended they’ll have to cut essential services unless they substantially increase their property tax rates. The state provided about $26 million last year.

“Clearly, the $9 million cut will negatively impact municipal services, property tax rates or both in many municipalities,” said William Dressel, the New Jersey League of Municipalities executive director.

New Jersey already has the nation’s highest property taxes, at $6,330 per homeowner, or twice the national average. Property taxes to pay for most county, municipal and school operations in New Jersey.

Gov. Jon S. Corzine said he understands towns are struggling, but the state has limited resources.

“I wish there were more,” Corzine said. “There are huge demands with regard to the needs of some of our less economically well-off cities. There are special situations that show up on a regular basis, but again we’re resource constrained.”

Dressel called the cut in special aid and a recently announced increase in public worker pension obligations by local government a “double whammy.”

The state on July 20 told local governments they will owe more than $1 billion for public worker pensions this fiscal year, up from $650 million last year.

Posted in New Jersey Real Estate, Property Taxes | 4 Comments

“[F]oreclosure activity shows no sign of slowing down”

Posted on August 1, 2007 by grim

From the Philly Inquirer:

Mortgage foreclosure targets 58% higher in first half of ’07 than ’06

The number of U.S. homes facing foreclosure surged 58 percent in the first half of the year from the same period in 2006, a private data firm said yesterday.
The report from RealtyTrac Inc. of Irvine, Calif., reflected continuing problems in the housing and mortgage industries.

Pennsylvania ran counter to the national trend, with foreclosures falling 1 percent in the first half of this year to 12,869. But New Jersey’s foreclosures rose 26 percent to 13,417, according to RealtyTrac.

In all, some sort of foreclosure activity was reported for 573,397 properties across the nation in the first half of this year, including receiving notices of default, auction-sale notices, or being repossessed by lenders, RealtyTrac Inc. said.

Not only was the number higher than for the first half of last year, it also was 32 percent higher than the total for the last half of 2006.

From RealtyTrac:

RealtyTrac U.S. Foreclosure Market Report(TM): Foreclosure Activity Up Over 55 Percent in First Half of 2007

RealtyTrac(R) … today released its Midyear 2007 U.S. Foreclosure Market Report, which shows a total of 925,986 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 573,397 properties nationwide during the first six months of the year, up more than 30 percent from the previous six-month period and up more than 55 percent from the first six months of 2006. The report also shows a foreclosure rate of one foreclosure filing for every 134 U.S. households for the first half of the year.
…
“Despite a slight drop in June, foreclosure activity shows no sign of slowing down,” noted James J. Saccacio, chief executive officer of RealtyTrac. “Based on the rate of foreclosure activity in the first half of 2007, we could easily surpass 2 million foreclosure filings by the end of the year, which would represent a year-over-year increase of over 65 percent.”

Posted in Housing Bubble, National Real Estate, Risky Lending | 2 Comments

“This problem is getting worse. It’s not getting better.”

Posted on August 1, 2007 by grim

From Bloomberg:

Subprime Defaults Blamed for Corporate America Earning Setbacks

Railroads, chemical producers and insurance companies are blaming the worst U.S. housing slump in 16 years for their earnings woes.

Burlington Northern Santa Fe Corp., the second-biggest U.S. railroad, said lower shipments of housing products and lumber reduced second-quarter earnings. DuPont Co., the third-largest chemical maker, said slumping demand for kitchen and bathroom countertops was partly responsible for its profit drop. Genworth Financial Inc., the former insurance unit of General Electric Co., said earnings will be at the “lower end” of its forecast this year as mortgage-insurance claims increase.

“The subprime slime is oozing,” said Gary Shilling, president of A. Gary Shilling & Co. in Springfield, New Jersey, who correctly predicted the recession in 2001. “As home equity evaporates, that takes out the foundation of strong consumer spending growth, which has been the mainstay of the economy.”

U.S. profit growth has been cut by more than two-thirds because of the housing slowdown, according to David Rosenberg, chief North America economist at Merrill Lynch & Co. Earnings growth is running at 6 percent and would be 19 percent, he said. Business is suffering as home sales plunge more than economists estimate and foreclosure filings in the U.S. jumped 58 percent to 573,397 in the first half, according to RealtyTrac Inc.

“Companies that make anything that goes into a home, all the wiring, plumbing, anything related to coatings and fixtures, will certainly be suffering,” said Gene Pisasale, who helps manage $25 billion, including DuPont shares, at PNC Wealth Management in Baltimore.
…
The fallout may be even broader, as dwindling property values erode shoppers’ savings. Sales at 53 retail chains rose 2.3 percent from a year earlier from February to June, down from 3.9 percent growth a year ago, according to the International Council of Shopping Centers in New York.

Federal Reserve policymakers have said housing is the biggest risk to the six-year economic expansion. The link with the property market is inextricable as housing and related industries account for almost 25 percent of gross domestic product, according to the Joint Center for Housing Studies at Harvard University in Cambridge, Massachusetts.

“Clearly it’s having an impact,” said Nicolas Retsinas, director of the Harvard center, referring to housing. “How much of an impact, at this point, is easier to understate than overstate.”
…
About a third of job creation and almost half of consumer spending since the 2001 recession stems from housing, according to Shilling, who expects an economic contraction by the end of the year.

Posted in Housing Bubble, National Real Estate, Risky Lending | 1 Comment

“Credit derivatives…finally being tested…are performing poorly.”

Posted on July 31, 2007 by grim

From the Financial Times:

Subprime woes hit credit markets

The cost of insurance against credit defaults hit record levels on both sides of the Atlantic on Monday amid concerns that some investors were being forced to sell assets to cover losses on subprime mortgages.

Investors rushed to buy contracts that would protect them against corporate credit defaults after it emerged that more European institutions had suffered losses following the crisis in the US subprime mortgage market.

IKB, a German lender specialising in providing credit to smaller companies, and Commerzbank, the country’s second-biggest bank, both warned they would be hit by losses from risky US home loans to borrowers with poor credit histories.

In spite of the heightened risk aversion in credit derivatives markets US stocks rose. The S&P 500 was up 1.2 per cent in late trade, after a sharp tumble on credit market concerns last week. The safe haven of government bonds also gave up some of last week’s gains with the yield on the 10-year bond 5 basis points higher at 4.81 per cent.
…
Analysts warned that the financial markets could stay jittery in coming days, since the credit turmoil could force more financial institutions to offload troubled assets.

“At a minimum, credit travails are apt to create a higher volatility environment across all asset classes for much of this year,” said Alan Ruskin, global strategist at RBS Greenwich Capital. “Credit derivatives liquidity and risk management characteristics are finally being tested in a crisis and are performing poorly.”

The speed of the swing in the credit derivatives markets has shocked many investors, particularly since it has not come amid a sharp deterioration in the macroeconomic background. Some traders consequently blame price swings on hedge funds that may have been rejigging their portfolios before the end of the month.

However, there are also mounting concerns that some investors are being forced into liquidations because prime brokers are trimming credit lines to groups with heavy exposure to subprime mortgages.

Posted in Economics, National Real Estate, Risky Lending | 226 Comments

“It’s perfect deniability”

Posted on July 31, 2007 by grim

From the Boston Globe:

Tangle of loans feeds foreclosure crisis

Each month, Stephen and Kim Martinelli sent their mortgage payment to Chase Home Finance, and when they fell behind, it was Chase that launched foreclosure proceedings, with an auction of their Lawrence home scheduled for later this week.

The Martinellis, squeezed by the cost of caring for a disabled son and carrying an adjustable-rate mortgage that boosted their monthly payments by $900 over the past year, pleaded with Chase for a break: for a new payment plan, a lower, more affordable rate, or a delay in the foreclosure, due to hardship.

Chase’s answer: “No.”

What the Martinellis did not know was that Chase was not calling the shots. Chase merely services the loan, acting as bill collector and administrator.

The mortgage was held by an unknown investor, whom Chase declined to identify and who refused to modify the terms of the Martinellis’ loan.

They are among thousands of delinquent borrowers caught in the maze of modern mortgage financing as they desperately try to save their homes. Unlike in the last real estate bust, when local banks and credit unions wrote nearly 80 percent of mortgages in Massachusetts, most home loans issued today pass through a nationwide chain of brokers, lenders, service companies, Wall Street firms, and investors. That makes tracing ownership difficult, if not impossible.

In a rising real estate market, the system worked well, spreading loan risks among various players and expanding credit and homeownership.

But as foreclosures mount, the system is proving ill-suited to respond, analysts said. The reason: Spreading risk muddled responsibility.

“It’s perfect deniability,” said Patricia McCoy, a University of Connecticut law professor who specializes in financial services. “When there’s a problem, each person in line says, ‘Don’t talk to me, talk to the other person.’ “

Posted in National Real Estate, Risky Lending | 2 Comments

Will it stay or will it go?

Posted on July 31, 2007 by grim

From NJ.com:

Corzine says rebates will continue next year

As the first of $2.2 billion in property tax rebate checks moved through a sorter at the Treasury Department’s plant in West Trenton today, Gov. Jon Corzine said he would deliver the same type of relief next year and the year after. But he stopped short of guaranteeing it.

“We intend to stay with the program we put in place,” Corzine said. “I’m not writing a guarantee, like a no-new-taxes pledge, (but) I’d make a high-probability bet we’ll be back here next year.”

Critics of the program, mainly Republicans, have argued that while the rebate checks will be welcomed by taxpayers this year, the program cannot be sustained in coming years because it is funded with increased sales tax collections drawn over two years.

‘It will be very difficult to achieve (in future years),” Senate Minority Leader Leonard Lance (R-Hunterdon) said. “The public, before it votes for every seat in the Legislature in November, should realize the constraints under which we operate.”

Corzine insisted he and the Legislature will find the funds again next year for tax relief of some sort.

“This was a consistent pledge I made in my gubernatorial campaign,” he said. “I’m committed to it. The public deserves it.”

Corzine insisted there was nothing political about the checks or the timing of their delivery: “This has nothing to do with the election calendar,” he said.

Posted in New Jersey Real Estate, Property Taxes | 3 Comments

“Perceptions are what create value”

Posted on July 30, 2007 by grim

From the Record:

Will the value of Paramus homes drop?

Tainted soil found at West Brook Middle School months ago has some Paramus homeowners concerned that their property values will drop.

So far, there’s no hard evidence that prices in the neighborhood around West Brook have dipped in response to the pesticide contamination. But those who predict a downswing feel sure that the school district’s tarnished reputation for covering up the contamination can mean only one thing for property owners.

“When people hear stories like that, let’s face it, they’re concerned,” said Gary Siramarco, whose twin daughters attend West Brook. “It’s going to affect property values.”

The public first learned of tainted soil at West Brook in May, about four months after environmental consultant Melick-Tully and Associates alerted school officials to pesticides in the soil at levels 39 times state safety guidelines.
…
Richard Curran, an independent real estate appraiser, said concerns over property values there are by no means unjustified.

“Perceptions are what create value,” he said. “Is that going to hurt it? Most likely.”

As a real estate appraiser, Curran’s job is to value property based on past sales, not on speculation. He said he does not have recent sales figures on homes in the neighborhood around West Brook, and thus could not make any definitive judgments on property values there.

“We can only compare to the past, not project to the future,” he said. “There’s no way to really tell until someone tries to [sell].”

Paramus Councilman Richard LaBarbiera said he was unaware of any impact on property values. “I don’t know how anybody could draw such a conclusion after such a short period of time,” he said.

He still doesn’t think it will affect people’s perceptions of the town.

“I trust that Paramus will remain a very desirable community in the years to come,” he said.
…
But the fears remain. Michael Evangel is concerned that property values throughout Paramus will be adversely affected.
…
“We need to bring back the town’s reputation,” she said. “Everybody’s fearful property values will plummet.”

Posted in New Jersey Real Estate | 236 Comments

Not all boroughs bucking the trend

Posted on July 30, 2007 by grim

From the New York Daily News:

City’s not quite home free

When it comes to the one-two punch of risky mortgages gone bad and a housing slump, New York has largely bucked the national trend.

But there are troubling signs city homeowners are increasingly feeling the same pain afflicting much of the country.

Foreclosure filings this spring, while actually down in much of the city, jumped 92% in Queens. Foreclosure filings also rose substantially in Manhattan in the second quarter, although the actual number totaled just 255.

“From where I sit, foreclosures are a tremendous problem,” said Carol Finegan, a foreclosure prevention counselor at nonprofit Brooklyn Housing & Family Services.

RealtyTrac, an online real estate database, reported 6,083 foreclosure filings citywide during the second quarter, including default notices issued after two or three consecutive missed mortgage payments, as well as property-auction notices. The figure was up 4% over the second quarter of 2006.

Some experts argued that the number of foreclosure filings represent a miniscule number of the city’s 3.2 million households. And filings actually dropped 15% in the Bronx, 19% in Brooklyn and 51% in Staten Island. But in Queens, the number of filings spiked to 2,555.

Like foreclosure figures, sales figures vary from borough to borough. Nationally, prices are down and the numbers of houses for sale are up.

Posted in National Real Estate, Risky Lending | 4 Comments

Contained?

Posted on July 30, 2007 by grim

From Bloomberg:

Five Signs That Subprime Infection Is Worsening: Mark Gilbert

The collapse in subprime mortgages doesn’t pose “any threat to the overall economy,” U.S. Treasury Secretary Henry Paulson said last week. He would, wouldn’t he? He’s hardly going to advocate we all stock up on tinned food and bottled water in our basements.

The tremors from the subprime debacle are vibrating throughout the interconnected web of modern global financial markets. Derivatives, corporate debt, loans and bank stocks are all getting trashed. Here are five reasons to expect the turmoil to worsen.

Don’t Bet on Helicopter Ben . . .

A week ago, traders in the futures and options markets were pricing the chances of December interest-rate cuts from the U.S. Federal Reserve at about 21 percent. Prices now suggest a 47 percent chance that Fed Chairman Ben Bernanke will sanction lower borrowing costs to rescue the mortgage market, based on July 26 closing levels.

The rapid turnaround in interest-rate expectations shows the financial community is far from convinced that the wider economy is immune from the woes afflicting particular pockets of the bond and credit markets.

Is Helicopter Ben, as he was dubbed early in his monetary- policy career, really going to fly over the global financial markets and shower investors with dollar bills in the form of cheaper money? Even a hint that the Fed might be planning a rescue would be a signal that the outlook is bleaker than officials have admitted so far.
…
That hasn’t prevented the iTraxx Crossover index, a barometer of creditworthiness for 50 European companies, from surging to as high as 440 basis points last week, up from about 260 basis points two weeks ago and a low for the year of 170 in February. The higher the index, the less confident investors are about the outlook for corporate bonds.

Once fear grips a leveraged market, the so-called credit fundamentals aren’t worth the paper you print your spreadsheets on. The yield on the benchmark 10-year U.S. Treasury note has declined to about 4.8 percent from as high as 5.3 percent seven weeks ago, as investors seek the warm, comforting embrace of the U.S. debt market.

“While the fundamentals, such as global growth and corporate balance sheets, are at their best for arguably decades, the technicals are as bad as we’ve ever known them and arguably the worst in the era of leveraged finance,” Jim Reid, a London- based credit strategist at Deutsche Bank AG, said in a research note last week. “Never has so much money been thrown at and been levered up in credit and never has there been such a liquid derivatives market to hedge risk.”

Posted in Housing Bubble, National Real Estate, Risky Lending | 4 Comments