This:
World equity markets continued to tumble on Wednesday as fears over the growing crisis in the US subprime mortgage market triggered fresh selling.
After Wall Street tumbled overnight, Asian and European bourses were hit hard as investors headed for the safer investment havens such as government bonds. Credit markets also continued to weaken.
In Asia, the sell-off was broad and deep on investors’ worries that the subprime mortgage problems could hit the US housing market and the broader US economy – a big export market for many of the region’s companies. The Tokyo stock market plunged 2.9 per cent, Singapore by 3.3 per cent, Mumbai dropped 3.3 per cent, Hong Kong by 2.5 per cent and Shanghai by 1.9 per cent.
That was the headline splashed at Drudge, and there is also this story:
Late mortgage payments shot up to a 3 1/2-year high in the final quarter of last year and new foreclosures surged to record levels as borrowers with tarnished credit histories had trouble keeping up with monthly payments.
The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released Tuesday, reported the percentage of payments that were 30 or more days past due for all loans tracked jumped to 4.95 percent in the October-to-December quarter.
That marked a sharp rise from the third-quarter’s delinquency rate of 4.67 percent and was the worst showing since the spring of 2003, when the late-payment rate climbed to 4.97 percent.
I am not going to even pretend that I remotely understand the complexities of the mortgage game, but I do know that Kevin Drum has been warning about a crash of this sort for several years (this is on of his pet issues, along with peak oil). This could be a very serious problem with major implications to the entire economy.
*** Update ***
Some interesting comments:
simple look at a complex subject:
A lot of people obtained financing to buy homes they couldn’t pay off, mostly so they could then resell them and make a quick buck. A lot of lenders borrowed the money to make these loans then turned around and sold the loans to make a quick buck. A lot of institutions bought these loans for both a quick buck and a steady payoff. A lot of individual investors saw all this money flowing and wanted a share of it, so they put their money in as well. All this extra money flowing around made everyone feel good and they bought lots of goodies.
But now…
A lot of the people who couldn’t afford it aren’t paying the bills. The lenders, therefore, can’t repay what they borrowed. Because of this, the easy loans have dried up. Consequently a lot of people who can’t afford this but who were expecting to sell are ALSO not paying the bills, making this vicious circle worse. The institutions aren’t getting their money. Everyone involved is trying to make someone else eat the loss. The individual investors, seeing this circular firing squad, are trying to get THEIR money out as well, which makes things worse. All this disappearing money means people are NOT buying goodies, which hits companies which aren’t part of the circular firing squad.
There are a lot of additional complexities and parties involved – and parsing into subgroups of the parties already mentioned – but that’s the gist.
Some people tried to get money for nothing, and enough people joined that it turned into a game of musical chairs. And the music just stopped.
And:
Aye.
And I work in the industry. The benefit of this meltdown is the first to get hit hard are the lenders who had no standards.
I hope anybody who got suckered into subprime mortgages has a lawyer, and they’re fighting to new payoff terms.
Those who took out subprime to buy houses they thought they were going to flip. So sorry, go fuck yourself.
Have no fear, they are rushing to bail out the people who made this mess in the first place:
U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.
“The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,” Dodd, a Democrat from Connecticut, told reporters in Washington after a speech to the National League of Cities.
Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina. The government needs to provide at-risk homeowners “forbearance or something like that to give them a chance to work through and get a new financial instrument here that they can manage financially better,” Dodd said.
while it sounds like they are bailing out homeowners, this would be a direct stream of cash to the lenders who caused this problem in the first place. Think Airline Industry Bailout multiplied by a factor of 100. As one person noted, this is more of the “privatization of profit, socialization of risk.” Much more here, and here is a great website dedicated to the topic.
Mr Furious
An all-time low savings rate…
Twenty-something straight months of the average American spending more than they earn…
Fuel prices that swing to the tune of 10 to 25 percent in as little as a week…
A mortgage market about to implode…
The economy’s doing great! Quit yer bitchin’ and worryin’, John.
Zifnab
:) Wait for it… wait for it… wait for it… Invest!
As someone with absolutely no skin in the game who’s just now putting money in the bank after college, this actually isn’t bad news for me. :-p
Kirk Spencer
A simple look at a complex subject:
A lot of people obtained financing to buy homes they couldn’t pay off, mostly so they could then resell them and make a quick buck. A lot of lenders borrowed the money to make these loans then turned around and sold the loans to make a quick buck. A lot of institutions bought these loans for both a quick buck and a steady payoff. A lot of individual investors saw all this money flowing and wanted a share of it, so they put their money in as well. All this extra money flowing around made everyone feel good and they bought lots of goodies.
But now…
A lot of the people who couldn’t afford it aren’t paying the bills. The lenders, therefore, can’t repay what they borrowed. Because of this, the easy loans have dried up. Consequently a lot of people who can’t afford this but who were expecting to sell are ALSO not paying the bills, making this vicious circle worse. The institutions aren’t getting their money. Everyone involved is trying to make someone else eat the loss. The individual investors, seeing this circular firing squad, are trying to get THEIR money out as well, which makes things worse. All this disappearing money means people are NOT buying goodies, which hits companies which aren’t part of the circular firing squad.
There are a lot of additional complexities and parties involved – and parsing into subgroups of the parties already mentioned – but that’s the gist.
Some people tried to get money for nothing, and enough people joined that it turned into a game of musical chairs. And the music just stopped.
The Other Steve
Aye.
And I work in the industry. The benefit of this meltdown is the first to get hit hard are the lenders who had no standards.
I hope anybody who got suckered into subprime mortgages has a lawyer, and they’re fighting to new payoff terms.
Those who took out subprime to buy houses they thought they were going to flip. So sorry, go fuck yourself.
fester
Quick Primer on the mortgage market can be found at Calculated Risk.
The basic problem is that during and after 2002, credit standards and credit screening standards dropped dramatically for people to get mortgages.
Products that were previously small niche products such as low/no documentation of income mortgages which were useful for independent contractors went mainstream. Interest only products that once constituted 5 loans in a thousand as they were marketed to high net worth borrowers with good credit as a means of cash flow management went mainstream. Throw in the boom of new hires into the industry who have no freaking clue what they are doing or how to act in any market other than an irrational one, and stupidity resulted.
People were qualifying and receiving loans without proving any ability to repay those loans as they did not have to provide documentation, early payments were low as quite a few loans had short term teaser rates, and the assumption was that if any individual borrower got into trouble with their payments, they could refinance and draw down their newly created equity.
This business model works reasonably well when the prices are going up at several times the rate of inflation per year. It gets into trouble when housing prices and thus equity percentages are increasing at or below the transaction costs to refinance. It stops completely when housing price appreciation goes flat, or actually starts to decline. We are in the flat to slow decline stage right now.
And as another poster noted, there is no significant economy wide individual reserves or surplus capacity for repayment right now due to the combination of flat wages and intermediate term fixed consumption goods inflation [gas, healthcare, taxes etc]
Rome Again
What a great analogy. Thanks for that.
I guess the moral of the story is never trust anyone’s instincts when they tell you that you can make a quick buck?
Walker
If you are interested in this stuff, you should know that the first helicopter drop of money is being organized.
If there are any true conservatives left out there, write your congressmen and urge them to stop this nonsense. This is not a bail-out of homeowners; the damage is too widespread for us to help them. This is a bail-out of lenders — people who got rich by totally ignoring they tradeoff of risk and return, and now do not want to pay for their mistakes.
Privatization of profit, socialization of risk. All this is going to do is make things worse.
Walker
Oh, and a second plug for Calculated Risk. If you read the comments by Tanta on that board you will realize that subprime is just the beginning. Alt-A is next (the only difference between subprime and Alt-A is FICO). Single As will probably go as well as there are a significant number of ARMs there; with the elimination of no-money down loans, prices will drop, and they will not be able to refinance once the ARM resets (there are one trillion dollars in resets for this year alone).
Tulkinghorn
Speaking as a hard-core liberal, the market absolutley has to work out the million or two bad loans. The market created the mess, let the market fix it.
If you help out people who can’t afford their homes, the will lose them anyway in time (we could have a very big recession on its way). The culprits here are the banks and hedge funds who sunk ridiculous dollars into the lending and derivatives markets, and who are now holding largely worthless paper. They need to lose their shirts, and their is no way to help the hapless and fraudulent buyers without relieving the pressure on the banks as well.
Marcus Wellby
Everyone thought they was gonna be rich — RICH!!!
After the internet bubble — the IPO’s will make us all billionaires, there is no end in sight!! You’d think people would learn a lesson.
You can’t throw a couple of grand into a 250K house and think its going to sell for 500K time after time after time. It may have worked the first time, but its not a stable investment strategy.
The lenders are just half of the problem. The other side is greedy fucking morons who thought the price of real estate would go up up up forever.
RandyH
Several months back I was turned on to a finance blog called Bonddad Blog. He has been so far ahead of the curve on this and he explains what’s going on (and what’s coming) so well, breaking down the spin and happy-talk from the mainstream financial news reporting out there. He’s been so far ahead of things that he often doubts himself when things don’t play out as quickly as he had expected, but they ultimately do… Anyway, he’s the guy I listen to now. Check it out.
Tulkinghorn
Another useful blog is Ben Jones’ blog, which I have following for two years. Go back into the archives and you can find common-sense prophecy from two years ago. Then think about the Casey Serins and how they have escalated this so badly since then.
Foreclose ’em all and let the bankruptcy courts sort ’em out.
jg
Is this one of the effects of the ownership society? Or another feature of republican leadership that hates regulation?
Bonddad
I’m flattered for the link. Thanks.
Mr Furious
Ah, not everyone is surpised by what is happening…that’s why they passed the Bankruptcy Abomination in 2005. (link and link)
Musical chairs? The lenders will all have chairs when the music stops.
Darrell
Uncharacteristically good comments here. The problem with the subprime mortgage blowing up is that big lenders are cracking down on loan qualification standards or pulling out of the business altogether, triggering a real shortage of liquidity. Income verification and loan qualification got really lax in the loan qualifications thanks in large part to the idiocy of Alan Greenspan
So now we have a witch’s brew of rising default rates, dropping home values, and fewer people who can qualify for mortage loans thanks to the more stringent lending requirements. Illegal immigrants, for example, could previously get loans and that market will virtually disappear. People will be required to put more money down which many cannot afford. More houses on the market with fewer people qualified to buy. If things get really bad, no doubt the Fed will cut rates (which would be a good thing IMO), but it may be too late. If the Fed bails out the lenders and/or borrowers, that would be a bad thing. The govt. cannot be in the business of bailing out consumers and businesses who made bad deals at the expense of taxpayers.
The real debate is whether or not the subprime crisis will be contained, or domino to really hurt the economy. As long as employment rates stay low with rising wages as we have now, it’s a decent bet that it’ll be contained as most people will not walk away from their mortgages when they can afford the payment. But if the employment situation changes, Katy bar the door.
fwiffo
Seriously though, who didn’t see this coming? Obviously, a lot of people, but they’re all idiots. People were still jumping feet first into this mire only a year or two ago, when it was already obvious there was a problem. I had “friends” telling me every day that I should stop renting and buy a house (nevermind that every piece of property was overvalued by at least a factor of two), because they were such “great investments” and that they had “made so much money” on the property they had bought on a super-sweet “creative” mortgage. Look how much it’s appreciated on paper!
This is pretty much the worst idea ever. And I’m saying that as someone who has Dodd placed as my second choice for president, not to mention I’m generally a huge, bleeding-heart, hippie-face, liberal Democrat.
Pb
Yep, I’ve been a Bonddad fan for a while too–and yes, he saw it coming. Personally I’d rather see Congress look into legislating some saner standards for loans and reporting to consumers, because there are some crazy and dangerous financial instruments being hawked out there, and I’d bet that 95%+ of the honest homebuyers out there have no idea how sneaky they are. And if Congress has to bail anyone out, then please just give it to the people who really need it (and trade their ridiculous mortgages in for something saner), not to the over-leveraged property flippers who already own another house (or three).
Darrell
btw, I read that subprime loans represented 36% of all mortgage loans made in 2006, and that doesn’t count the sharp rise in “liar loans” with undocumented income based on the word of the borrower. Hey, if housing is going to continue to rise, why check unnecessary details like ability to pay? Like KirkS said above, it was like an extreme version of musical chairs, and the music stopped.
spoosmith
Holy Crap!!!! Darrell, that was actually a good thoughtful post that I agree with. Alan Greenspan kept interest rates artificially low for years, and now the market is going to correct itself.
Any bets on how long it’s going to take Bush to say that the only way to handle this problem is through more tax cuts?
Anyone?
jg
Well giving the rich their money back will ‘lift all boats’ and allow poor people to make the housing payments they were suckered into.
Darrell
Tax cuts won’t solve this problem, but those people were not “suckered” into making loans either. They made the loans with eyes wide open, in many cases lying about their income, and it’s their responsibility to pay their own damns bills instead of shoving it off to Joe Taxpayer.
Walker
Only if wages go up. When you have the median house in parts of California at over $500k, while median household income of a homeowner is closer to $80k, you are going to need Argentinian hyperinflation for them to make those payments at the fully fledged payment rate (as opposed to the interest-only, teaser rates).
These people are screwed. I feel for them, but trying to help them is like trying to save a drowning victim that is going to take you down with them.
Kirk Spencer
Darrell, you’ve got a misconception in your last paragraph [of first post – I’m slow getting this finished]. It’s common enough that I want to address it.
An unfortunately large proportion of the properties are not going to be sticky.
In most historical cases, homes are one of the few places where people will continue to stay underwater – fighting to keep the property despite being desperately short of what’s needed to pay for it. While a lot of complex reasons are given, they all branch off a simple concept: it is their HOME.
In the current circumstance, however, a lot of the “homes” sold were second houses or other investment properties. The census says at least 20% of homes purchased in each of 2005 and 2006 were such (vs historical norm of about 10%). Some industry watchers cite evidence that indicates the real number is closer to 40%.
This means that anywhere from 10 to 30 percent of homes purchased in the last two years are potential walkaways. Loans which the lenders (and those who lend to and depend upon them) will not receive repayment. Oh, yes, they get the properties – which have to be maintained and for which taxes and insurance must be paid. Expenses, not incomes.
And all that sudden expense instead of income spills over into a LOT of business accounts and eventually peoples’ wallets.
A recession is not due to people losing their jobs. A recession is due to people not buying enough stuff. If nobody’s buying, the sellers can’t afford to build and store and sell.
Darrell
I don’t disagree with much that you’ve written, except that you are making an assumption that a LOT of people will be walking away from homes, when default rates as of now do not support that assertion. I’m not saying that it’s not going to happen, it is possible. I’m just saying that there is no need to make amateur predictions with so many unknowns. There is a real case to be made that the subprime problem will be contained.
If unemployment stays low and wages continue to rise, people will continue spend money, if not in housing, other areas. Job creation is starting to slow, however, and that is a red flag.
jg
Bullshit. Tons of low wage earners who don’t understand interest, who only wanted a low payment on a home were tricked into buying a loan that would cripple them financially. These are people who think lottery tickets are an investment. They were preyed on.
This isn’t a partisan issue. Rich republicans weren’t preying on poor democrats but lenders were using relaxed lending rules to get loans to people who should never have qualified for a massive loan.
Darrell
This is what I find most loathesome about the liberal mindset – the complete inability to hold people responsible for decisions that they make. It’s not that they made an irresponsible decision in many cases lying about income and must now pay the consequences like anyone else.. no, they were “tricked” and “preyed upon” and Joe Taxpayer must bail them out. Unbelievable.
Kirk Spencer
Darrell,
There are more than a few cases under investigation and prosecution where the borrower apparently did turn in the paperwork for an income, and the lending agent used a liar’s loan anyway because the income wasn’t enough. You’ve got sheep amongst the goats, and slaughtering them all is… very libertarian. In fact, it might be necessary. But doing so by claiming they’re all goats is a lie. And building on lies is how we got here in the first place.
Mr Furious
I read something about that as well, Kirk. Lenders will be left holding a lot of properties, as you say, but those “expenses” are write-offs and/or “costs of business” for them.
Bailing them out for that is a mistake. And bailing out the homeowners is a mistake as well—and I am a Dodd fan as well.
If there is a federal solution for this, it is tweaking that shitty Bankruptcy Reform Act (aka Bank Ass-Covering/Consumer Ass-Pounding Act) to level the field of victims somewhat.
Nice work in this thread, Darrell. I mean that.
Darrell
Fair enough. Hold both sides accountable then. I’m sick of the attitude though of execusing any side of having been “tricked” or “preyed upon”. Bad decisions were made and now it’s time to pay the consequences just like everyone else.
Kirk Spencer
Darrell, what default rates are you looking at? Me, I’m looking at the highest FHA default rates ever since that program began. I’m looking at default rates in some non-FHA areas that are over, others at, and others near the highest rates in the past 20 years. I’m looking at over 1% foreclosures (Datatrak) of “owner-occupied housing” in 2006 in some stage of foreclosure – the highest rate since Datatrak began its records (in the early 1990s).
Let me rephrase this. If we weren’t looking at high and near-record defaults, would New Century be under the knife?
Kirk Spencer
Just a point of fact for rumination. Bailouts have worked in the past. While a lot of people will point to the S&L mess, I’ll point to something more relevant.
The HOLC, created in 1933 to help homeowners overcome foreclosures (and, incidentally, help the banks and lenders remain solvent).
We’re not breaking new ground here.
Mr Furious
Exactly. It is too simple to say that these borrowers were knowledgably gaming the system too. The lenders were often predatory, and only became moreso when the legislation that protects them was enacted. While they DID sign on the dotted line, all the risk now lies with the homeowner, and that is not fair. And I am sure that in the VAST majority of these transactions, the lender is the more knowledgable party.
The are baths deserved all around in this scenario, passing it all down to the final consumer is unfair.
If you loan money to somebody who you know cannot pay you back in the long run, who’s fault is that really? While I don’t think homeowners should be bailed out, the lenders are the ones who really deserve the hit here.
Darrell
Permit me to backpeddle a little from that position. Although the borrower and lender are ultimately both responsible for their decision, as KirkS pointed out, not everyone is innocent. No question in many cases mortgage brokers encouraged borrowers to lie so they could get commission. Borrowers knew what they were doing but it was an incestuous relationship, as they wanted a house and mortgage brokers wanted to do whatever in order to make their commission.
Darrell
Here
Kirk, 2.5% “deliquent”, not defaulted is not a crisis.
Because New Century, like Accredited, American Home Mortgage, IndyMac and a handful of others specialized ONLY in subprime lending. That’s why. I would have thought you would know that
fester
The scary thing is that there is a strong possibility that the default rates, the deliquintcey rates and the troubled loan rates as borrowers are unable to refinance into better products due to a combination of less than anticipated equity AND stricter credit standards which we are seeing today and have been seeing for the past couple of months could just be the tip of the wave. The $1 trillion dollars in ARM resets that are due this year are from loans that were made in the spring, and summer of 2004 and 2005 as that is when houses are sold, not in December, January and February. The subprime loans that are in trouble are on the whole not the loans that have resetted off of their teaser rates yet. Combine the payment shock of the first reset loan, AND the return of $3.00/gallon gas by August, and things could get really scary.
dreggas
Oh boy, this is a favorite of mine having worked in the business as a software developer on a LOS (Loan Origination System).
There are more factors here than just Subprime lending, as mentioned another big one is ALT-A and ALT-B lending. There’s also HELOC’s (Home Equity Line Of Credit) and home equity loans as well as the ARMs.
First Subprime: This market is for those with crappy credit. They are high risk loans that in general are adjustable and easy to qualify for. Now I don’t know much more than that because the company I worked for didn’t do much in regards to subprime and even liquidated their subprime operation.
ALT-A/ALT-B: Here’s the liar loan as someone else mentioned. Basically here’s how it works. There’s no pre-verification of income or assets, the lender allows the borrower to go ahead and declare whatever they want to get the loan amount they want. So let’s say I want a $400,000 loan, to get that I have to make 250k a year (again these are random and not based on reality) so I go in and say I make the 250k and get the 400k loan. Because interest rates are down my payments are low for the time being. but when interest rates go up my payments start to rise and suddenly the interest on that 400k loan is a lot higher not to mention the fact that I only make 70k a year. ALT-A was originally intended only for those with prime credit since their credit rating was their collateral and guarantee so to speak that they could make the payments. Now along comes ALT-B which is nothing more than ALT-A for people with worse credit, same operating principle so picture my scenario above being a 400k loan, saying you make 250k when you only make 70k and oh, btw you are notoriously late on credit payments so you have crappy credit.
ARMs/Interest Only: These are perhaps the most dangerous type of mortgages one can get into. Mainly because Interest Rates do not stay low forever, anyone who has even a vague idea of what happens to interest rates knows this, but these are the types of mortgages a lot of people qualify for. Once the refi boom ended and interest rates weren’t going any lower companies introduced Option ARMs and Interest Only loans as a means to continue making a profit. The result is I go in and get an ARM while interest rates are around 3.5%, well as soon as interest rates go up, and the ARM resets, I am paying even more, and more likely more than I can afford, a month in mortgage payments. So let’s say I get into a home with a 1400 a month payment with an ARM initially. 6 months later (and these things adjust in increments usually of 3-6-12 months) my ARM resets and interest rates are up let’s say 1 point. Now I am paying 4.5% interest and my mortgage payment goes up to around 1800 (just a guess here, the numbers might not be exactly right). Well before I could afford the 1400 but now there’s no way I can afford 1800. I go into Default. Interest only is similar. Let’s say I am paying only interest for the first year at a fixed rate and that payment is lower than what I would pay with principle and interest combined. This is assuming that down the line my wages/salary will increase to the point that I can afford the flip into interest + principle when it happens. However wages have been pretty stagnant and again, once it becomes P + I I cannot make my payment.
HELOC/Home Equity Loans: While the market was hot and supply was not as high as demand housing prices and thereby equity increased. Here in So-Cal it was to the point where a home that was 350k a few years ago was now 700k. Prices literally doubled that fast. Well that’s a lot of Equity and people began borrowing against that equity. Now that the market is stagnant and equity isn’t rising they are struggling to pay off those loans and lines of credit especially with higher interest rates. People who bought homes hoping the equity would increase then took out these Equity Loans and lines of credit and now the equity is dropping off as the prices drop as well.
As for Darrell’s statement regarding Illegals getting loans, even foreign nationals can qualify for loans. There is no requirement in most cases for them to have legal residence in the U.S. or be a citizen in order to get a loan.
There is an even worse trickle down effect. As defaults increase the value and stability of mortgage backed securities will also take a hit. This will affect pension plans the most since a lot of investing was done in large bulk loans and securities backed by mortgages to increase the value of these funds.
In short, hold on kiddies it’s gonna be a bumpy ride. Just glad I moved on when I did but I warned almost everyone I knew, like I said I programmed some of these features like the ARMs into systems and could easily see what would happen when they reset.
Teak111
A vote for bonddad as well. And I will check out the others, thanks for the recommendations. The real question is, what should we do to weather this storm? Payoff all CC debt. Move ajustable HELoC into fixed loans? Sell the boat. Bonddad and others, would love to see some posting of these questions. BTW, part of actions of congress to bail out lenders is to reassure foreign markets that the US bonds they hold are still in good shape.
jg
I never said people didn’t lie or go into these things willingly. I know that happened. But I’m not talking about those cases, you’re the one focusing on those cases and ignoring any other situation.
I get doznes of low interest solicitations a week. they all advertise the law rate and way down at teh bottom in 1 point font is the explanation how they arrive at that low rate. Would you say that a majority of our population is savvy about interest?
dreggas
Actually Darrell the companies rely on people not understanding half of what they are being told. It’s why there is the bold “LOW RATES” and under that the fine print. Having worked in the industry most of these lenders design their products to increase profit and tuck away large sums to play CYA with if they lose since they are also taking a gamble. Granted if anyone were to become informed on the subject then they would know just how risky these types of loans and mortgages are. However most are of the mind that their best investment is a new home and they should get one at all costs (which a home is a good investment most of the time) however they get suckered on the big print while ignoring the fine print.
These companies aren’t innocent, they knew full well what they were doing. It’s biting them in the ass too because they didn’t see what was around the bend and got carried away in their own hubris.
Darrell
You get so many inquiries on the low interest rate loans because your company hides the details in tiny print, not because people don’t ‘understand’ interest rates. When they investigate further, it is spelled out for them what interest rates they are looking at, right?
dreggas
The smart ones did refi into fixed before their ARMs reset but a lot couldn’t. With regards to HELOC’s there is not refying into a fixed loan. You are basically getting a line of credit based on the equity in your home. If the equity goes down so does your line of credit and if you have spent past what the equity is now you are in deep doo-doo it’s like going over your credit limit but your limit is always adjustable, now you have negative equity and need to pay it off.
Darrell
Agreed. And superb earlier post on the different loan types and categories. Those companies who made their money on the risky subprime lending practices are taking a bloodbath. I would not be surprised to see every single major mortgage lending company which specialized in subprime to collapse. Except for maybe Countrywide.
What’s unknown is whether or not the Alt-A and Alt-B market will be dragged down with it. With current strong employment numbers and low interest rates, there’s not a crisis yet. Key word being “yet”. Very dicey situation though.
Fledermaus
Oh Jebus Christ. Bailing out the sub-primes won’t save a single home from foreclosure. They will just pocket the money and foreclose anyway and use the free cash to pad earnings.
The problem with foreclosure now is that vacancies are at a 10 year high. Meaning that there are already a bunch of unsold and vacant homes on the market now. Thus it is entirely likely that the foreclosure sale will not bring enough money to cover the cost of loan, or conversely, sell for less than they normally should.
Homeowners also likely remain on the hook for the difference if the sale price does not cover the amount outstanding. And of course each foreclosure sale drives prices overall down further for all homes. Thus I expect to see a race to the courthouse as lenders try to foreclose as fact as possible to get the most from the foreclosure sale.
It has the makings of a perfect storm, but the bright point are those who are not in trouble – they will see there home value fall but that will recover eventually.
Rome Again
Why is it the duty of regular people to educate themselves on interest rates and such, while also holding jobs, caring for children, keeping the kitchen shelves stocked, the bills paid, the cars in working order, the spouse non-complaining, the in-laws happy, the county tax collector satisfied… and the only responsibility of the business is “to make money”.
Gee, Darrell, thanks for reminding me why I can’t stand your corporations-can-do-no-wrong mindset. Whatever happened to “truth in lending“?
So long as the information is there somewhere, it doesn’t matter if it’s in 1 point text, that’s the normal way lenders do business these days. Yet, the big selling point is there in 75 point text and Darrell sees nothing wrong with this practice. Lenders aren’t hiding anything, obviously… (right, tell me another one). Yet, Darrell doesn’t consider regular people to be preyed upon at all. How quaint.
Rome Again
While not all companies had the forethought to do proper risk assessment, many companies DID know what they were getting into and the cost to do this business was already factored in. You’re crazy.
Kirk Spencer
Darrell,
I think you’re focusing on the wrong problem and that’s influencing your decision. Let me see if I can’t persuade you to look a bit differently.
Could the applicants force the lenders to give them loans?
If the lenders had maintained the requirement of verifying income through producing W2s and/or several consecutive months of bank statements, would the applicants have received the loans?
Let’s kick it to a not so over-the-top analogy. A high-schooler works in an ice cream shop. Some fellow students come in and want ice cream. They’re friends with the worker, and wheedle because they only have enough money for one cone but want some for everyone. The worker dishes out cones for the group, and takes the payment for one cone. Now it turns out the owner buys the ice cream buckets as they’re used – to stretch this analogy enough to fit. It’s time for pay or return and subsequent restock. Obviously, the owner’s a little bit short. Who should he punish – the students who got the ice cream, or the worker who dished it?
Now add one more stretch to make it an almost perfect fit. The owner gave permission to do this if the students promised (verbally) to “pay the next day”.
Should the students be punished for the stupidity of the worker and the owner?
Rome Again
Yet, homebuilders are still punching out new models and developments… thus proving that the old adage that if you build it they will will come may not be so true after all.
Business must go on, right Darrell? It’s not a problem if there are far too many vacant homes on the market, so long as the builders get to build their new homes?
jg
What the fuck are you talking about? My company hides details in fine print? WTF? Did you even read my comment. I get solicitations at home you idiot. And when people investigat further they find information they don’t understand, probably because they sat in math class saying ‘why do I need to learn this, I’m not planning to be a mathemticion when I grow up’.
Rome Again
Well, yes, obviously, because the owner is a Republican who is in the business of making money. ::tongue in cheek::
Rome Again
Yup! But, according to Darrell, it’s the buyer’s fault.
jg
He always does. He always focuses his anger on the people who willingly abused a service even when they are the smallest group involved. Its the fault of the people who lied about their income not the system which allows people to lie about their income so they can get a loan they can’t afford. He’s defending the money lenders. How very christian of him. Jesus would be proud.
dreggas
Countrywide does a lot of business with those same companies so it will be a blood bath for them as well although they may fare better if they put away enough in other assets to continue doing business. It depends on the diversity of operations. If all company A did was subprime then yes they are hosed.
It will and is. Like I said it’s a near certainty given that these loans are being dilluted with loans that don’t qualify for ALT-A but are being given under ALT-A anyway. ALT-A will be the next one to take a hit over this.
Walker
Before everyone piles on Darrell, I want to say something I though I would never say.
Everyone, lighten up on Darrell.
He is not crapping on this thread. Yes, he has made a few brash statements, but he as ceded ground in this thread when people made argument rationally. This appears to be a topic that we can have rational conversations without a flameware.
Let us take a moment to calm down and turn this into a really good thread.
Darrell
Kirk, I haven’t made any “decision”. I simply pointed out, with citation, that we aren’t close to being in crisis default rate territory. I am fully aware that real estate is a potential achilles heel to the market. I’m just saying that there are other positive factors in play such low unemployment rates, low (and dropping) interest rates, rising wages and solid overall corporate earnings. I’m more than willing to admit that I don’t know what will happen next with regards to our economy.
I don’t get your point. I’ve already commented that the increase in “liar loans” is a problem. I’m just saying that looking at current overall deliquency and loan default rate taking everything in consideration, there is no “crisis” yet. Not even close. That’s all.
dreggas
Darrell,
Why there is the old addages about the Devil being in the Details and the one about buyer beware a lot of people are getting swindled by these mortgage companies in many ways. They can educate themselves but most do not because it can be quite intimidating, further buried in mountains of paperwork is a lot of fine print that most don’t see let alone understand.
Since I worked in the industry I am probably an exception to the rule with regard to knowing just how these things work. Joe Schmoe off the street looking to get into a home while interest rates are low and while prices are still manageable (but rising) is not going to know all this and some onus does fall on the lender to be up front about things.
It’s one of the reasons that the Mortgage industry is so heavily regulated, because a lot of these companies aren’t up front and only with the threat of prosecution are they. It’s similar to why chase and others got hauled before congress this/last week. They were not being upfront with their customers.
So while I do agree it is up to Joe Schmoe to do some research they can’t do it all unless they basically go to school to do so. It’s why there are courses lasting months to even get a job as an underwriter or loan officer etc. There’s more to it even than what I went into. I could see that and all I was doing was writing the software to make it possible to do the job. There are a ton of factors and calculations involved.
jg
ding ding. You just said the ‘r’ word. This whole issue will boil down to that.
Darrell
You’re in a better position to judge than I, but let me play devil’s advocate here. In order to qualify as Alt-A, you have to have a pretty decent FICO score (FICO above 717), right? Are companies cheating on that FICO standard in how they classify loans?
Alt-A loans, from what I’ve read, amount to about 20% of the overall mortgage market. Right now, this segment has a default rate of about 3%, troubling, but not anywhere near crisis (worse default rates for this group as recently as 2000).
So why specifically do think the Alt-A loans are so destined to crash and burn?
Kirk Spencer
ok, you don’t get my point. Let me try again.
You start with the defaulting owners, and then expand to the lenders who enabled them.
I think the fault lies with the lenders who looked the other way.
As to the crisis – no, it’s here. We passed the cusp a while back – arguments as to when apply, but certainly no later than last week. The only questions are how steep and how far the slide goes. Darrell, private domestic investment (one of the four components of GDP) was negative last quarter, almost entirely due to the housing market. But early indicators are that this is the quarter we see zero (or lower) GDP growth because housing’s gotten worse.
Unemployment is at best a less-than-15-day leading indicator, and it works best as a confirmation.
jg
As they do with global warming, delay, delay, delay. The crisis will happen to another administration if we ignore it long enough.
Randolph Fritz
Krugman, excerpted, on the macro picture. (From an article behind the NYT paywall.) In that article he coins the phrase “irrational complacency”; that sounds about right.
Darrell
There’s a two-fer: Simultaneously remove all responsibility from borrowers while proclaiming a “crisis” without providing a shred of evidence to substantiate such a characterization… nor a definition for what constitutes a ‘crisis’
Because frankly, between those claims, and your clueless comment about New Century, you’re starting to sound like a crackpot, rather than someone who actually knows what they are talking about.
Kirk Spencer
Darrell, let’s start with your “clincher”.
New Century was de-listed from the NYSE. It’s generally expected to be going into bankruptcy. The company (as company, and various officials of the company) has been issued subpoenas from California and Federal criminal investigation agencies, and from the SEC.
“Under the knife” is an understatement.
As for the crisis, I gave support with PDI. Up till now you’d been responding with reason. The sudden ad hominem attack instead of counter-evidence is both frustrating and saddening.
Saddening for a very simple reason which you might not believe: I’d rather be wrong on this.
Darrell
Perhaps you missed my comment that I believed EVERY SINGLE subprime mortgage lender will be toast, save possibly Countrywide. What are you talking about with “clincher”? This is a prime example of what I mean when I say you are starting to act like a crackpot
Mortgage default rates overall aren’t anywhere near crisis levels, not even close.. so it would be nice if you would substantiate such “crisis” characterizations, which thus far you have been unable or unwilling to do.
Simple question: Explain why you say were are in a “crisis”?
Darrell
Look, I’m just looking to interject a little perspective here. I see the “housing crash pulls down entire economy case”. It is a plausible scenario. But I don’t think it’s likely with current economic conditions in play to offset such a scenario.
I guess what I’m having a problem with is those predicting “certain crisis”. It may happen. I’ve already stated why I don’t think that scenario is likely. It would be nice if those predicting a crisis with such certainty would justify their predictions.
dreggas
They relaxed ALT-A standards and as a result there is dillution and a new class even called ALT-B. The whole idea of the No Income/Stated Assets loan which has actually been a large chunk of the lending being done is that you don’t HAVE to prove you make what you say you make and there is not pre-verification of assets. Further you can still have a super high credit score and not have much in the way of income. Suppose I have a 717 credit score, I have it because I pay my bills on time, have little real debt and only have 1 credit card (again hypothetically) but I only make 50k a year. I go in and say I make more (inflating my income) than I do and qualify for the ALT-A loan based on my credit score. So I get my loan and my payments are within affordable range, the problem, there was no verification that I made what I said I made. Now a lender isn’t going to care too much because they are taking a risk based off my credit score and saving money with regard to having to perform Due Dilligence investigating whether I make what I say I make (Due Dilligence is such a big business a lot of companies outsource it to India where it can be done round the clock so to speak). So rates are low and I am making my payments but rates go up and because I don’t have a fixed rate I am suddenly paying far more than I can afford I am, 9 times out of 10, going to default, especially if my wages/salary are not rising to match what the payment increases are.
Now enter ALT-B. ALT-B is the same as ALT-A in principle accept it is given to people with lower credit scores again allowing them a No Income/Stated Asset loan just as it does with ALT-A.
It’s the worst since 2000 but the numbers are trending upwards meaning that the defaults will increase even more on these loans as the bottom falls out on subprime lending because these products (ALT-A and ALT-B) were also heavily pushed by the subprime lenders. The company I worked for got into the sub-prime business after already being in the ALT-A and ALT-B business, they made a lot of money on the ALT-A’s and ALT-B’s and then got into subprime as well, well the reality was they were lending with ALT-A and ALT-B products to those targeted by Subprime so the two became intertwined and this can be said for a lot of these companies.
With how intertwined the ALT-A and subprime loans have become each is pretty firmly tied to the other and while the subprime’s are going (and expectedly so) first the ALT-A’s will follow since a lot of lines were blurred between the two.
Lenders got into this game to make a quick profit, it’s why ARM’s followed the refi boom, because they knew a good thing wouldn’t last and yes, they knew people would get into an ARM because they could afford to and risk that they may not down the road. The smart companies kept their products diverse and saved for this situation. However it’s happening so rapidly that some of the big ones like New Century are completely toasted as a result.
Darrell
If those types of lending practices are widespread throughout the lending industry, that would definitely spell trouble.
I’ve read that most of the defaults in subprime are in loans to people originating in 2006 when housing prices started to crack.
Did those lending practices you mention begin earlier than 2006? When did they become widespread in your experience?
Krista
Having worked for a bank and for one of the big credit bureaus, I’ve seen credit reports that would curl your hair. I think that part of the fault is to rest with the lenders, for not just allowing, but in many cases, encouraging people to borrow up to the absolute limit of their means. The other part of the blame rests with ourselves. How many people do you know who are mortgaged up to the eyeballs, to the point where one unexpected expense could throw everything into a tailspin? Realtors are having trouble selling homes that are under 2,500 square feet, and indeed, when looking at house plan magazines, anything under that size is considered “small”.
We’re continually being encouraged to upgrade, upgrade, upgrade our spending, but salaries have not increased by the same factor. I make three times what my mom made at my age. The average house price is ten times what she paid for her first house. We’re not just being encouraged to keep up with the Joneses, we’re being encouraged to keep up with the Jolie-Pitts. And so many of us are buying into it, thinking that if we don’t have the big house, the new car, the latest iPod and a pair of Manolos on our feet, we’re failures. We’ve allowed ourselves to be manipulated into living way beyond our means, and into aspiring for lifestyles that aren’t even reasonable, and lenders have been all too happy to help us do that.
dreggas
A lot of the economy over the past few years has been based on the housing market though. I’ve watched companies go from 100 employee’s and a single office to over 1000 employees nationwide and multiple offices all to get a piece of this market.
These same companies are now finding they are cash strapped since their defaults are rising and they can’t pay back their lenders. The end result will be layoffs of large numbers of employees and/or going out of business period. Couple that with one of the largest contributors to economic growth over the past few years being housing construction and it’s a recipe for disaster. Supply is overtaking demand as interest rates rise which is why the price of housing is going to start to first flatten then drop. During the hay-day of the housing boom their were new developments going up weekly especially in places like California. Well now a lot of those homes sit unoccupied and the ones that are occupied are close to be unoccupied due to being repossessed.
The number of Defaults increasing and for some cases doubling within a couple months for many companies, especially those not only doing subprime but ALT-A and B is what is triggering crisis mode.
grumpy realist
Well, anyone who had an eye on the financial news would have been writing off New Century for some time. They’ve been scrambling around trying to get loans to keep themselves afloat for several months now.
(I’m looking at this whole fiasco with the sardonic eye of someone who lived in Japan though a lot of their real estate bubble and the bubble popping.)
And there was a lot of dumb money that flowed into the housing market in the US egged on by books like “Rich Man, Poor Man.”
Tulip bulbs, anyone?
Darrell
Homebuilders have been putting on the brakes in new construction for the last 3 or 4 quarters now, and that slowdown hasn’t had much of an impact on overall national employment yet, although I understand how it could hurt.
Commercial construction seems to be good, Telecom is on fire, as is healthcare, energy, and international markets are strong for our products. Those factors and others seem to offset the housing slump.. so far.
It will be interesting to see how much effect housing will have on an otherwise mostly robust economy.
dreggas
Those lending practices have been going on and picked up steam into 2006. The market was ripe for it and since there was a boom standards were relaxed. These loans are doubling in defaults as we speak. To quote a reuters market report:
These loans were targetted, as the article says, to those who didn’t qualify for an FHA loan but had credit only a little better than subprime customers and were most often borderline. In other words their credit might have been all of 1 point above what qualified for sub-prime. So they lent to these people on the edge and as a result the edge has moved to where those on the edge are now falling off.
I would say, and like I said I am just a software geek who writes programs to do the work, that these types of products have always been around, but as more and more people started getting dinged credit wise the number of these loans increased, again because they made too much to qualify for FHA and their credit was at the high end of what qualified for subprime.
These types of practices picked up steam due to the above and because people had to, at one point, mortgage their souls to get into a house. I watched one tiny half block sized group of homes go in with prices starting in the 700k range, they were two story and no property and there was maybe 5 feet between each, hell they weren’t even in the best part of town. Well those prices rocketed up to over 900k each within a month. That’s how overinflated pricing became.
Picture the housing market like a form of stock market and you can see just how much of a cluster fuck this is going to be. You buy (read invest) into a house that was 400k, overnight it’s worth 600k and you get a HELOC, to start helping pay off the mortgage, next thing you know the market falls, the equity goes down and you are up shit creek without a paddle in a barbed wire canoe and face the prospect of selling your left nut or defaulting on your mortgage.
dreggas
Home construction has been falling now that the demand is falling, however there are large amounts of homes that are sitting empty because the builders were throwing them up faster than they were selling. Supply overtook demand for housing (not to mention over inflated prices and property values) and the end result has been the deflation of property prices and values. Since the homebuilders are large companies which do one thing…build homes…they are started to stop building when they weren’t making money on the homes they were putting up.
So now once prices start coming down the house of cards that was built is going to fall as well. Just look at this article from reuters. Living in So-Cal I can tell you there are a shit load of developments and planned communities that have gone up over the past 6 years and that many are still waiting for buyers.
Couple that with the astronomical prices for homes in So-Cal and you can see how hard this will hit.
Darrell
Prices in certain areas have always been sky-high and probably always will be.. NYC, San Francisco area, parts of Southern Cal.
Despite all the factors you’ve mentioned, home prices in CA still rose by 4.6% last year after a 21% rise the year before.
I tend to agree with you that the overheated areas in CA will likely take a minimum of a dip in prices. The question is whether it’s a “dip” or a “crash” in prices.
dreggas
A couple more things to consider. A lot of the big companies and even small ones buy and sell the loans they originate or those originated by others. So even if a company is lending through a program unaffected as yet that doesn’t mean they haven’t purched loans that are in those programs such as sub prime or ALT-A.
You have to look at the mortgage industry as a sort of stock market in its own right.
Further the lending industries have trickle down business with servicing companies, sub-servicing companies, insurance agents, title agents and such so they are all intertwined and this can and does hit other areas, not to mention the mortgage backed securities and funds that are tied in with this.
dreggas
Agreed.
The prices may not be rising like they were but they were already over inflated. Couple that with the fact that the price increases are slowing because of over saturation with regards to homes being constructed but not purchased and people not buying new homes because of current prices.
Whether it is a dip or a crash remains to be seen. Overall though the pricing is starting to drop and homes that used to go for 700k (starting) I have seen starting to go for far less because they want to make money back on their investment. There’s a new development locally that a couple years ago would have had prices starting in the 700’s but now it’s starting in the 400k range.
Darrell
Those bundled mortgages which are then resold are called CDO’s.. Collateralized Debt Obligations, and a lot of institutional buyers of CDO’s are realizing they have more risk exposure than previously thought.
So far, I think the damage will be contained because of strong employement and decent wage growth.. as long as those factors hold steady. But if sleazy loan origination is as widespread as dreggas suggests, well, with that wildcard we could have a helluva housing crash.
dreggas
here’s a decent Q&A on the whole mess:
Click here
Darrell
Instinctively, I agree with that. My problem is that back when I lived in the SF bay area in the mid to late 90’s, I remember thinking housing prices were “over inflated” at that time, and they continued to skyrocket through the roof big time. I remember a buddy of mine who bought an older very average looking house house in Los Gatos for $500,000 in 1999. It’s probably worth triple that now.
That personal example is why I try and remain skeptical of claims of housing prices being “over inflated”
dreggas
A lot of companies staked a lot of money on these bulk loan packages. They’d buy them in lots and make money off the interest and such, they were a big business but now with defaults on the rise these packages are starting to be of negative value since they rely the borrower to pay them when they buy the loan.
Well I wouldn’t say sleazy or any sleazier than usual (let’s face it they call them loan sharks for a reason) with housing prices rising, and equity increasing the lending standards were adjusted to take advantage of what the market was doing and lenders were willing to take more risks as the Q&A says. What to watch is the trickle down effect this will have and whether or not it’s a trickle or a flood. If equity starts bottoming out (and owning a home is a measure of wealth) then people will spend less like the Q&A says. This is a system entirely built on acquiring debt. You are in debt for the loan and mortgage and in turn wind up in debt when you go for one of those HELOC’s or Equity loans.
The Q&A answers a lot of this as good as or better than I could.
Kirk Spencer
OK, sure, I think I see what you’re saying. Let me start with a pedantic note: crisis is a range. At the top is “Ouch, that’s going to leave a mark”. At the bottom it’s “He’s dead, Jim.” The situation’s a crisis, but it’s closer to the top than the bottom. Appropriate action can prevent it getting worse.
On housing’s state of crisis. I can actually make this simple. Almost every lender has had to restate earnings downward this quarter – and their forecasts were already down from previous quarters. Likewise, every national home builder has had to revise downward. At the same time, foreclosures are up in fast-track states (states which only allow 90 days for lenders and borrowers to come to accommodation regarding late payments) to levels not seen in a couple of generations. Mortgage loans are declining in number nationwide (though the total dollars are presently going up). Finally, and what moves this mild to moderate, you’ve got more than one of the major businesses facing “extraordinary financial sanctions” — bankruptcies, SEC control, that sort of thing. (To me, the biggest signal of these is the number of institutions that have had to request a delay in filing their quarterly SEC statements.) The housing industry is in a period of significant pain.
Now, here’s the danger they’ve got to overcome in the upcoming months to prevent it becoming a severe crisis – overly large inventories. They’re building from three sources: new construction (though new starts are finally decreasing, the ones in progress need to be finished); so-called owner-occupied homes entering the market (especially the ‘vacant’ ones); and foreclosures (which in fast-track states such as Georgia are climbing fiercely, though in slow-states like Florida they’re just climbing). At the same time, the ability of buyers to get loans are decreasing. Inventory costs money and excessive inventory costs excessive money. And any retailer will tell you that if you can’t return it and you can’t throw it away eventually you have to give it away to cut your losses.
Now the reason this is such a problem is that it isn’t a housing crisis. It’s a financial industry crisis.
Let me repeat that. It’s a financial industry crisis. Remove the housing blinders and take a look at the industrial giants that are having to restate earnings. They include these familiar names:
Merrill Lynch.
Citigroup.
GMAC.
Wachovia.
These companies – this INDUSTRY – has to overcome the fact they’ve lent money to builders who might not be able to pay them back because the homes aren’t selling AND to buyers who can’t pay them back because the intermediary agents — and they themselves — acted as though housing would always go up. They’re going to wind up with a crapload of property from both directions, every single brick of which will cost them maintenance and taxes and insurance. They’ll sell it at a loss, and hope they hit the sweet spot so it’s “only a flesh wound.”
It has hit the economy. Residential housing — as represented in the PDI component of GDP — reduced last quarter’s GDP by a full percent all by itself. The monthly numbers of this quarter so far are worse than any month of last quarter, and March is looking worse. At the same time (arguably related) retail is sluggish instead of moderate, and last quarter’s miracle of oil prices are up 20% instead of down 50%.
That’s why it’s a crisis. It’s having a negative impact on the economy already. And because of what it is — financial industry, not housing — it’s a sector with far broader impact than commonly acknowledged.
dreggas
See I would agree with that but once things are re-evaluated the real value will come down. the value of a house can only appreciate on its own to a certain extent, if you do nothing with it then the appreciation of it is truly artificial with respect to the fact that beyond your initial investment you didn’t do anything to the place to justify that appreciation. A lot of people will buy a dump, fix it up, and flip it and get a higher price, not necessarily because of a boom but because of the work they did. The price is justified, now take your friends house. Let’s say he buys it at 500k and doesn’t improve the property or home. Now his home will appreciate steadily as more people move into the area and supply goes down. But let’s say 20 mins from Los Gatos a new housing project goes in that has 100+ units being thrown up. Suddenly there’s more supply and people don’t mind the 20 minute commute so that should limit the appreciation based on supply/demand and further if those units remain unsold then prices start to fall not only there but elsewhere to include where your friend lived.
trust me when you talk about So-Cal housing prices they are over-inflated just like most of the boobs in So-Cal (and I don’t mean the people). My inlaws place was worth 350k at the start of the decade and is now worth double, not because the house looks any different or because anything was done to it but because of artificial appreciation of value.
Darrell
Ok, that’s a data point. But it needs to be squared with data like this
Keep in mind that CA has a far higher percentge of subprime loans than any other part of the country, which should make it more vulnerable to price declines, yet home prices are hanging tough, increasing year-over-year.
Kirk Spencer
Darrell, you keep mentioning rising wages and low unemployment. as though I’ve not been long-winded enough…
Wages only recently began climbing in the last five months, and they only matched official inflation (which is less than the rate at which housing has been going up). Estimates from some economy watchers are that this quarter wages will again underperform inflation, just as they’d done most of the past five years.
As to unemployment, I’m again going to point out that it’s a coincidental indicator – changing within a couple of weeks of the ‘start’ of the recession. Most — but NOT ALL — of the leading indicators of recession say yes. The fact it’s not all is what gives me hope. All that said, the ‘unemployment’ number I keep watching is employed as a percent of population. It worsened with the 2001 recession, and its recovery was extremely sluggish. It’s not been dropping steeply over the past six months, but it has been declining. I worry, in this case, that the fact it’s started so “low” means the indicative steep change won’t be visible. That’ll mean a lot of people will waste a lot of time arguing whether a fix is even needed instead of just fixing the situation.
dreggas
And picture this, for this market to be sustainable the population would have to increase exponentially, the amount of needed to build on would have to be unlimited (just to handle new construction) and everyone would need to be in the process of buying or selling a home, add to that the fact that wages would have to rise so people could continue to pay and you can see that somewhere something has to give and it so happens that things are “giving” all over. Like Kirk said this isn’t so much about housing it’s about the financial industry that facilitates access to housing.
dreggas
Housing prices are holding steady, yes, but people’s ability to pay is not especially with rising interest rates. Further the averages are misleading since an average is just that, it doesn’t say well in X market (ie X county) housing prices dropped while in Y market they increased, it’s merely an average. Of course prices are remaining steady simply because people can barely afford them where they are at and because interest rates are going up. When prices will begin to drop is when the foreclosures start happening.
Darrell
You stated twice in the same paragraph that interest rates are going up, yet they have been declining, and the Fed is poised to cut rates further if they smell real trouble. Why do you think interest rates are rising? Are you referring to rates for subprime?
Kirk Spencer
OK, I see your counter. Since I’ve seen it before the solution’s quick
Median price is up 5%. Total units sold are down 17% over the same period. If you work the math:
Assume last year 100 houses were sold at $100,000. (yes, I know it said median not mean. bear with me a moment) That’s $10,000,000 total sales for the industry. This year the median/mean/individual price increased by 5%, but we only sold 83 houses. That’s $8,715,000 total sales. Was this year an improvement on last year or not?
Add to this. Assume you have 4 realtors. They sold 10, 20, 30, and 40 homes respectively. The 17 homes less sold were equally distributed between the four with the “extra” shortage going to your worst seller. This year your realtors sold 5, 16, 26, and 36 houses. That’s a loss of almost 50% of income to one of your realtors, and he’s probably seeking alternate income. Was this a better year than last year in any of their eyes?
By the way. Median price went up 5%, while inflation (CPI) was a nominal 3.5%.
With the numbers in mind, does the Southland article really make it seem like things are doing well?
dreggas
Yes I am talking beyond federal rates as dictated by the likes of Greenspan. There are those rates but there are also the rates as dictated elsewhere. Here’s another good take on it from the Motley Fool.
I don’t have all the answers (and won’t pretend I do) so please read some of these links. All I can say is I have been saying the sky is gonna fall since the beginning of ’05 and it’s starting to, it’s one of the reasons that, while I could have bought a home in the market as it was I didn’t bother knowing that the wall was coming.
Here’s the link:
Motley Fool
Companies have different interest rates tied to federal rates and even the fed rate has risen (but is now holding steady). Even the fed rates have been kept artificially low as was pointed out elsewhere. I am no analyst on this so don’t take my word as being the word of god, I can only say this is what I have seen happening.
Darrell
The point of the article was that things aren’t that bad. A 17% decline off record high sales numbers is not a disaster. If it continues to get worse, well that’s different. Point being is that with all your negative data points, the reality is that the housing market in one of the most vulnerable areas in the US is looking resiliant.
Tim F.
A point this important deserves to be made more clearly – do you mean mean wages or median wages? In fact it would interest me to see an inflation-adjusted chart of each.
Darrell
Accoring to Yahoo Finance, average 30 year loan rate is 5.68%, which is a drop from a months back and still very low by historical standards. And that rate will drop further if the Fed comes in to the rescue.
But yes, there are supply and demand factors involved, not just Fed rate cuts as you said, which come into play. More importantly, liquidity is being cut back with more stringent requirements being enforced in order to obtain a loan.
Darrell
I honestly don’t know. I’ve read that we’ve had the strongest wage growth in 5 years as of late with record low unemployment. But I don’t know if that’s based on mean or median wage numbers
Kirk Spencer
An addendum, found at the end of this LAT article .
Median price and number of homes sold in L.A. County
Sale prices Year-over-year
Feb. ’06 Feb. ’07 Change
Resale houses $524,000 $550,000 +5.0%
Resale condos $410,000 $432,000 +5.4%
New homes $433,500 $528,500 +21.9%
All combined $490,000 $528,000 +7.8%
Number of sales Year-over-year
Feb. ’06 Feb. ’07 Change
Resale houses $4,860 $4,392 -9.6%
Resale condos $1,215 $1,125 -7.4%
New homes $1,014 $783 -22.8%
All combined $7,089 $6,300 -11.1%
dreggas
let’s use this as an example to show how it affects joe schmoe.
let’s say I get a 1 year ARM at the average of 5.29% with an APR of 7.48%, my loan is 485000.
Now unlike a fixed mortgage the ARM will reset every year in this case and it always resets upwards, meaning if interest rates fall I will have to refi at the end of the year.
So before I get off track let’s do the math here:
$485000 (principle)
* .529 (Interest rate)
—————–
$256,565.00 (interest in dollars and cents)
So
$485,000.00 (principle)
+ $256,565.00 (Inerest)
—————–
$741,565.00 (total I have to repay)
let’s say I make 12 monthly payments and it’s going to be for 30 years (ARMs are calculated on a yearly basis but obviously you can’t pay off that kind of money in a year).
741,565.00 (total) / 360 (payments) = $2059.90
So for the first year my payment is $2059.90, let’s say this is manageable (it’s not for me but let’s say it is).
Now at the beginning of next year my rate resets to the APR of 7.48%.
so
$485,000.00 (principle)
– 24,718.80 (what I have paid)
——————————
$460,281.20 (what I still owe)
$460,281.20 (what I owe)
* .748 (New Interest Rate)
———————–
$344,290.34 (Interest in dollars and cents)
$485,000.00 (principle)
$344,290.34 (Interest)
———————–
$804,571.54 (total to be paid)
Now divide by 29 years of 12 monthly payments, or 348 payments left.
847,780.00 / 348 = 2311.98 per month
so my payment has jumped a couple hundred as soon as that ARM resets, and this is assuming the interest is reset only on what you still owe not on the total of the loan itself.
In most cases people aren’t going to get a home they can’t afford, that is they aren’t going to pay more than they would pay to rent a place and will only go for it if they can make the payment and still have breathing room but in most cases even an extra 200 a month is hard to cough up to make a house payment.
I could be off in my calculations here like I said but added into other costs of living, maintenance, electricity, gass and such 200 a month is not chump change.
dreggas
Fixed rate mortgages are one thing, Arms (as I detailed above although the formatting sucks) are another story. Most people aren’t doing fixed, they did ARMs which are cheaper in the short term but long term cost more.
Tim F.
Well, since I asked the question I probably ought to go find out. If I do I’ll post a link in the thread.
A brief parable to explain why I brought it up. Imagine a bar full of more or less average folks. The mean and median wages should come out roughly the same. One day Bill Gates walks into the bar, at which moment the guy who uses the mean to measure things jumps up and shouts, “we’re rich!”
In a roundabout manner, I meant to get at the point that economic growth comes mostly from consumption rather than wealth. Growth in the middle income brackets translates almost entirely into consumption, because most of the income goes to inflexible costs like bills, food, travel etc. Top bracket income gains generally translate into wealth. To be sure an even-wealthier wealthy person will consume more, but the per-dollar efficiency of income-to-consumption is far lower.
dreggas
it’s most likely based on the one that gives the best “fuzzy feeling” this is why I look at wage reports and those numbers and shake my head. here’s an example.
Let’s say I make 60000 a year at one job. I then change jobs (upwards of course) and now make 70000 a year. Not a bad jump, or so it would seem.
However there are several factors at work here that dictate how much my income actually increased.
– Insurance (pre tax but I still pay for it)
– Taxes (the above jump means I pay more in taxes being in a new tax bracket)
Now those are expenses before I see my paycheck, let’s talk after.
Monthly expenses.
– Rent
– Utilities (electricity, water etc).
– Creature Comforts (ie internet and tv though they may as well be utilities now).
Weekly/daily
– Groceries
– Gas
Add in all of those and my real income increase doesn’t look as good as it did in the first numbers (ie a 10k increase). Now the gov’t is going to go by the 10k increase and say hey, income is up. But leaving out every factor of what people buy and what other expenses they have doesn’t reflect the real increase, which in , many cases isn’t a lot.
dreggas
Oh and what Tim said as well, if I am a CEO and get a huge pay increase that drives the end result meaning that wages will seem to be up even if for the majority there was stagnation.
I can personally say I have never seen a pay increase per year beyond 4% and that BARELY covers cost of living, that 4% being the max increase one could get based on performance and no one gets perfect performance so estimate that increase down to at minimum 2.5% and 3.5% max.
Kirk Spencer
One last addendum. Both Darrell’s and my respective articles reference this from dataquick. The lead sentence/paragraph is:
And a critical (to me) paragraph that’s buried in the middle is:
grumpy realist
What no one yet knows is whether all the risk estimate scores used out there (bond ratings, FICA scores, etc.) have any relation to reality or not. Organizations try to be as objective as possible, but it’s hard to keep a dour and skeptical eye when you’re surrounded by exuberence.
Add to that the amount of risk-dicing, slicing, combining, etc. that one can do with financial engineering and we’re sitting here looking out at a situation where No One Really Knows What Is Going On.
What I’m worried about is that the securitization of risk, coupled with what’s been out there in the market and cross-holdings means that people and companies almost certainly have stuff in their portfolios that is much riskier than they think it is. Add any leveraging into the mess–which is nothing unexpected–and we could be seeing a lot of meltdown, especially if there’s a LTCM situation out there that no one knows about….yet.
Tim F.
Ask and ye shall receive!
Among other points in a post that everybody should just go over and read:
Pretty much what I guessed. The people who would go out and spend their income growth haven’t had any income growth.
dreggas
Ding Ding Ding.
believe me I’d love to have income growth leaving me with real disposable income.
Darrell
Tim, can you cite from a source a little less partisan? Jesus can you tune out of parisan hack mode for once? The “income share” which you’re so giddy about doesn’t tell us diddly. Let me spell it out – For example, if someone’s income went from $50k/yr in 2006 to $150k/yr in 2007, but everyone else’s income jumped up by 500%, even though income share for the person jumping from $50k to $150k was phenomenal, that would still indicate that most everyone is doing better and his income “share” would be reduced.. The person making $150k would still be doing incredibly much better for himself overall. But you’re partisan cherry picked metric wouldn’t reflect that reality
Darrell
Tim chose that metric and that source because he’s really not interested in contributing to the discussion as much as he’s here to try and score partisan points, facts be damned.
dreggas
Darrell,
Without instigating an arguement where there has been really good discussion, tim’s post, even if it is from a “partisan source” is still pretty much on the money.
Using your example, let’s say 99% of people saw an income increase of 4% in 06 while 1% saw an increase of 14%. When the numbers are crunched it is going to show an increase, yes. But the larger increase (the 14%) is going to prop up those who saw a 4% increase and the average rate of income growth is going to look a lot higher than it really is.
See what I mean?
It’s like grades in school, your average in a class is the sum of your individual test/homework/quiz scores divided by the total. So if you are barely making a passing grade but get a 100 on 3 tests it will bring your average up making you look better grade-wise overall.
The same is being applied to actual increases. The person(s) getting that 14% bring up the average of everyone else so it LOOKS like things are going well but when you dig into the numbers and start splitting them out there’s a big difference and that 4% doesn’t look so big anymore.
For example let’s say you get a 4% increase (assuming you get the full amount of your payraise) on 70000 a year. That would be an increase yearly of $2800. Divided by the average of 26 pay periods (assuming a bi-weekly pay schedule) that is a 107.69 increase per paycheck in pay (gross not net).
Now let’s say you make what a CEO makes which we’ll say, for the sake of arguement, is 2 million. the CEO gets a 14% increase so that is a 280,000 a year increase. Now divide that by the 26 pay periods. and that is an increase of $10769.23 PER PAY PERIOD.
Now who is doing better under that scenario? Sure both got pay increases but which one is going to be able to spend more and thus contribute to the economy via disposable income? Sure the guy who got 4% might be able to go out and pick up a few DVD’s but that’s assuming his cost of living still allows him to have that 107 dollars to spend and he doesn’t have to put that out for some emergency (which tends to cost more) or he isn’t spending more in gas etc.
This is why these nice fancy numbers coming out every few months or every year aren’t really indicative of what is happening on the ground.
Tim F.
…because Tim asked about the difference between mean and median wages. When you said that you did not know whether you were talking about the mean or the median Tim did his best to answer the question. What do you know, practically the minute he started looking Drum put up a post on the topic. How convenient.
Partisan politics is really beside the point here, except insofar as Drum and his own source want to make it so. The point is that you, Darrell, use income growth as a primary datum to suggest that we are doing well without recognizing an extremely important qualifier. My quick search suggests that the income statistic leans towards meaningless. Do you think I’m wrong? Super. Brilliant people can be wrong. Drooling idiots are sometimes right. Your ad hominem criticisms of my source mean nothing.
If you think that my conclusion is wrong then demonstrate it. The question is one of the easiest ones that we have had in any thread at BJ. If econ was my strong suit, which it obviously is not, I would know the answer off hand. Is the median income increasing, or only the mean? I stand ready and eager to be proven totally wrong.
Tim F.
BTW, in imy llustration of the general pointlessness of using an ad hominem argument to disqualify a source any implications about myself and others were only subconsciously intended. Some days (generally before 8 am) I feel very much like a drooling idiot.
Darrell
Tim, percentage income “share” does not tell us anything about real wage growth or whether real wages or shrinking after inflation. Not a thing.
Darrell
I have found the mortgage product “cure” for California’s real estate woes.
Note that this financial instrument is so ‘innovative’ that it’s “patent pending”. This sort of thing encapsulates the problems in the mortgage lending market.
Darrell
Ok, fair enough. I guess I felt ‘sandbagged’ in that I thought that regarding that particular topic Tim had asked about real wage growth. I understand well why median and mean are important in reviewing that number. Similarly, I understand why percentage income share is pretty much meaningless indicator of “on the ground” wage growth. Govt. #’s are constantly being revised, etc. And although I haven’t spent a lot of time researching it, it’s kind of incredible that after 4 or 5 minutes of googling and searching my fav financial sites, it’s not easy to find a chart with inflation adjusted mean and median wages.
I’ve read that wages over the past year or so have outpaced inflation even with the energy price spike, but since I can’t find the source, I can’t tell if it was mean wage, median, our any other details, so it looks like I don’t have much either.
dreggas
that sounds intriguing, of course the devil may be in the details as well. I’d have to see the fine print (things like is this for real or is interest still being added over that 12 months). I’d also be curious to see how they deal with things when equity growth doesn’t accumulate enough to cover the payments etc.
Not saying it’s not a pretty interesting idea, just would want to see how the company does on it.
dreggas
It’s never going to be easy because overall most of these numbers don’t take into account the mitigating factors. They tend to ignore them in favor of fluff numbers that make things look good overall in the “big picture” but fail to grasp that the effects of the “big picture” aren’t helping most people. Another reason why I scoff at most studies unless they dig into the minutiae.
They may have outpaced inflation but that doesn’t necessarily mean much in the overall outlook. Inflation could be real low (say 3%) and wage increases could outpace it (using the 4%) I mentioned, but that’s still only $107 for most people (saying for the sake of argument everyone makes 70k a year). If inflation rose 3% and wages rose 4% that’s only a 1% differential.
It’s all too easy, and done all too often (not saying by you in particular) to say numbers are wrong based on the source (ie Drum) but they are pretty accurate. If growth was the official “numbers” say it was we’d all be doing a helluva lot better off and I would be willing to bet the subprime markets wouldn’t be in near the trouble they are because of it.
Darrell
I guess I was too sarcastic. I thought that mortgage product, to paraphrase K.Spencer, encapsulates the idea of “I will gladly pay you later for hamburger today” when the debt is piling up in the meantime. The ultimate reality denial mortgage product.
But who knows? maybe my first impression was wrong.
Darrell
Point taken on the source. But when I saw the double-duo of both 1)liberal non-financial expertise website and b) dishonest misuse (IMO) of the income percentage share metric to try and make a political point.. same tired rich get richer whine
I tuned out. In this case, I think the income percentage metric is nonsense when trying to understand wage growth, especially in a market when pretty much all boats were rising.
One other income data point you don’t mention is savings. It’s nearly impossible to find anyone say 27 or older who doesn’t have a decent amount of savings, whether 401k, IRA, stock and bonds or whatever. Savings generate wealth and income and are an important data point in measuring income growth. It’s not all about inflation adjusted wages. It’s total growth. So any metric that doesn’t take savings growth into account, is also missing the “on the ground” reality
John Cole
I have learned more today in this thread than I have in all of the previous threads from the past six months.
d-man
I’ve been a lurker here for a while. I’ve seen the battles between Darrell and most of the other crew here. There have been times where I’ve seen both sides get over reactive (maybe just by habit – justified habit even :) ).
Anyway – I just wanted to chime in that this thread is a great example excellent communication. There have been a few flare ups, but then the fires were put out by all.
Good show everyone. A lot was learned. I hope this can continue on more political sensitive threads.
[maybe not]
demimondian
Actually, the data are even worse than Tim points out. Transportation is an essential cost of working in the United States, and the increase in gasoline prices since 2004 has created a huge reduction in free income throughout the nation.
Now, here’s the kicker: transportation costs do not scale linearly with income; in fact, they’re relatively constant across income levels. In some cases, in fact, they tail up as income falls; poorer Americans tend to have to drive more than somewhat wealthier Americans. The same people who are hit with the distance tax also tend to have less desirable credit portfolios — that is, they’re the ones taking out sub-A mortgages. They’ve seen a huge increase in their transportation costs, which has effectively reduced their incomes, while, simultaneously, they are seeing bumps in their mortgage payments.
Guess what? They default. I’m not going to argue that they shouldn’t have to deal with some consequences, but I think that claiming they could have foreseen the effects of Iraq on gasoline prices is stretching the truth.
Darrell
First of all Tim didn’t “point out” much of anything, given that the metric he cited was pretty much meaningless. Second, you shouldn’t be so quick to talk about things you have such little understanding of. Transportation stocks his all time highs end of January. Lately these stocks have been a bit weak, but off all-time highs. Still huge parabolic gains from a couple years ago.
Darrell
this is the type of pathetically ignorant commentary that drags down an othewise decent thread. Best not to comment on a subject that you’re that clueless on.
HyperIon
When I lend somebody money, I take a risk. I may mitigate the risk by asking for collateral but still I have to face the fact that I cannot get blood from a turnip. Qualifying for a loan used to be in part verifying non-turnip status: making sure that income to pay the mortgage and the collateral are adequate.
When I borrow money, I take a risk. If I am unable to re-pay the loan, I may lose my collateral and my credit rating goes into the toilet. I try to understand the details when I borrow money. If I can’t understand, then I am uncomfortable signing for the loan. And I don’t loan money because I don’t have enough. ;=) (See income/outgo comments below.)
When lenders or borrowers gloss over the details, there is only one reason–they hope they are getting a deal. It’s hard for me to have much sympathy for these folks, be they borrowers or lenders, when it turns out that “there is no free lunch” and “if it sounds too good to be true, it probably is”. well, duh.
but the underlying problem is as Krista said:
when folks say they can’t live on their income, i always wonder when they will finally realize that they need to consider living in a smaller house, driving an older car, sending their kids to public school, taking more modest vacations, etc.
many seem not to understand that when outgo exceeds income, probably outgo needs to decrease. we americans are not just addicted to oil, we are addicted to the high life.
years ago one had to decide which things were essential and then live without the others or devise a plan to increase income. many now appreciate the difficulty in getting the income to increase but still refuse to limit outgo. evidently they think that is why credit cards were invented.
Darrell
One of my best friends used to work for a finance company, and when the people in deliquency would tell him that “you can’t get blood out of a turnip” he would tell them “ma’m I didn’t make a loan to a turnip” I used to give him a lot of crap over that. Apoligies for the personal rejoinder, but I can’t tell you how spot on you are with your “turnip” qualifier status. That should be the qualifier for every lender. I hope you’ve taken advantage of the fact that you’ve arrived at this reality before others.
demimondian
This is an instance of the pot calling the mirror black.
That median and mean incomes don’t covary? Sorry, that’s not a meaningless indicator at all. And don’t expect to be able to intimidate me, puppy — I’ve argued with smart people in the past. You aren’t one of them.
Oooh! Parabolic gains! Somebody’s spent too much time reading -horoscopes- technical analyst claims.
Transportation stocks have nothing whatsoever to do with transportation prices. I talked aobut transportation costs for consumers, and you responded by talking about the cost of buying an airline. Can you see how stupid that response is?
ThymeZone
Note to self: Obviously, nobody reads the comments around here. Must try harder! Be more like Darrell!
RSA
Not a direct answer, but probably informative. Scroll down to see the two graphs in the section “Household income over time”.
Darrell
Ah yes, a “huge” reduction in free income.. whatever demiasshole means by that. He’ll never define it, or justify it, because he’s a dishonest as hell leftist simpleton.
ThymeZone
Aw shut up you useless fuck.
Darrell
Eat shit you wrinkled old gassbag. You’re not doing anyone any favors by continuing you life.
vetiver
The following questions were prompted by this (really terrific) thread, and because what I understand about finance could be contained in a gnat’s brassiere with room for my knowledge of economics, please feel free to refer me to some essential texts and/or sites.
Alt-A and Alt-B lending: Who issued this engraved invitation to fraud? I’m trying hard to imagine a legitimate reason why any law-abiding income-earner would be entirely unable to provide documentation for said income. Freelancer? 1099s. Mom & pop business? This is why double-entry book-keeping was invented, right?
Okay, go ahead and explain how I’ve just delegitimized an entire swathe of the American economy, and personally insulted each and every one of those hard-working members of the future-focused paperless society, and thus violated the Moonbat’s Creed.
Darrell, thank you very much and very sincerely for your thoughtful comments in this thread; they’ve been a pleasure to read, and the following questions have been certified as 100% snark-free.
Wha? Your personal example seems to be pretty much an illustration of over-inflated, bubble economics. Are you implying that all property should be expected to triple in value over eight years? Please explain.
Sorry — gotta ask for a cite here, as well as a definition of “decent amount.” We hit negative saving rates last year, which would seem to indicate an aversion to thrift. But I’m open to persuasion.
grumpy realist
*sigh*….well, the comity was nice while it lasted. ‘night, all.
Darrell
Well, first, you might try and explain why Alt-A and Alt-B are defacto “fraud” as you allege. I suspect you’ll just slink away rather than reply substantively.
RSA
It depends on whom one chooses to count:
Darrell
thanks RSA, you’ve really “added” the discussion here.
Darrell
Exactly as I predicted. A lot of scumbags here talking sh*t they can never hope to substantite.
Hey, if you’re one of those, welcome to the Democratic Party! You’ve found a home.
ThymeZone
Shut the fuck up, Darrell. You are in no position to lecture anybody about anything. Go away, go bother some other people who don’t know what a complete piece of shit you are.
Darrell
You lowlife scum never can reply when someone challenges your bullshit. You’re frauds and phonies, like the rest of your lowlife leftist brethern. Hey scumbags, eat shit
RSA
I merely point out stupidity when I see it. Check out my link above on what median wages have done over the past several years if you want to try contributing something more substantive at this point in the thread.
Darrell
Listen up you wrinkled piece of shit, you are one or two psi away from another massive stroke and heart attack. As usual you add zero to the conversation. Do us all a favor and end it all soon.. OKay?
Darrell
Uh, shit for brains, you have no “link” in your post above. I hope this information helps.
demimondian
Alt-A’s makes a vast amount of sense for a very limited clientele. Consider the case of someone whose income is highly variable — say, a pop musician. A successful musician may well have years when he or she earns next to nothing, followed by years when he or she earns hundreds of thousands of dollars. By standard lending metrics, there’s no way for someone like that to qualify for a loan, because income qualification typically looks for a steady income, not a large income. (This is a success of the market, by the way, not a failure. Mortgage instruments are aimed at their predominant consumers, middle class persons with stable employment.)
Alt-A’s serve people who can pay off a loan *despite* not having the steady income to show that the payments won’t exceed 40% of their pretax income. They should only be used for well-known customers with adequate, but uneven, income patterns. Used in the fashion, they make sense; used to push the merry-go-round around, they don’t.
ThymeZone
You and the gerbil you have up your ass?
demimondian
Darrell, I think you’re having cognitive issues.
This post certainly does have a link in it, here:
Darrell
Hey, I’m as much a fan as the next guy to unsubstantiated bullshit.. but care to back up, even in the least, your allegation, that Alt-A’s don’t present a steady income equal to 40% or more required for their mortgage payments? I’m virtually certain that you cannot present such data, as you are proven liar and a fraud demi. You’ll slink away, but you will NEVER answer substantively. It’s your character rot.
Darrell
Touche.. scumbag
demimondian
Surely, O! polite one. Try here. Look at the bottom of the “NIQ” instrument description.
demimondian
By the way, Darrell, are you genuinely trying to infuriate me, or are you just looking for an “argument for fun”? You don’t matter enough to me — sorry — to have a hope at the former, but if you want the latter, I’m certainly willing to provide. Just try not to drive everyone else off; this has been a fun thread, and I’d just as soon not see it spoiled.
Darrell
I went there and did not see it. If you’re not total fraud demi, point me to where I need to look
demimondian
Whether or not I’m a total fraud, the reference is to the print in the lower right-hand corner of the page (when in landscape, yadda yadda yadda), which reads
If there’s no statement of EIA on the 1003, there’s no possibility of verification of the standard 40% threshold.
(FWIW, there are other instruments that avoid the 40% threshold. I’ve bought houses with them. I haven’t always come out ahead, but, overall, I certainly have.)
Darrell
anyway, this thread used to be decent. “dreggas” is a wealth of ‘on the ground’ info., and K. Spencer, although I quibble with some of his conclusions, has a lot of good thoughts on the RE market.
The official analysts almost certainly cannot match what ‘dreggas’ and others in the “trenches” can tell you
ThymeZone
Congrats you guys, you are now being rated by the biggest piece of shit that ever walked these pages.
Props! Thanks Darrell, I’m sure they really appreciate this.
Hyperion
*sigh* another thread darrelled.
demimondian
Phooey, TZ. Darrell’s a jerk, yes, but are you genuinely claiming that dreggas and Kirk didn’t do a first rate job up above? Hell, I could say most of the same things about bonddad; does that invalidate his work?
Guilt by association is a particularly nasty form of _ad hominem_, and that’s what you’re using here.
Shabbazz
http://www.cagle.com/working/070313/davies.gif
ThymeZone
Are you posting drunk again, dude?
I didn’t claim any such asinine thing. I pointed out that Darrell, the biggest asshole ever to walk these boards, is now rating other people here.
READ THE POST for crissakes. What the fuck is wrong with you?
Is this another one of your phony “let’s pretend to argue” episodes?
“Darrell is a jerk?” He’s a fucking sociopath. Slight difference.
demimondian
Yes, you are. If you wanted to criticize Darrell, then criticize Darrell. In saying
you criticize them. You don’t comment on Darrell accusing me of whatever form of mental instability is this week’s jackalope, yet that is certainly an instance of rating people.
If you want to pound on Darrell, pound on Darrell. Don’t pound on third parties who’ve done nothing wrong.
Scruffy McSnufflepuss
This is one thread where I’d leave Darrell alone. He was doing an excellent job, for a while there. It was a very informative thread.
mclaren
My favorite mortgage instrument is called a NINJA loan: No Income, No Job, no Assets. Seriously.
The so-called American “economy” has been running on fumes since 1991. First, the internet bubble…next the housing bubble…and what now? Wait, we’re sure to come up with another giant Ponzi scheme to stave off the collapse of American manufacturing and white-collar work courtesy of outsourcing and corporate financial gymnastics… Let me see — of course! The terorism-infotainment bubble! That’s it! That’s how we’ve convince the rubes this hollow shell misnamed Schumpeterian creative destruction in “the most dynamic economy in the world” is actually worth a farthing, instead of being a conniving morass of CEO scammers and Wall Street con artists and $3000-suited three card monte specialists.
Scruffy McSnufflepuss
The global bailout bubble. Everyone else, send us money or we won’t be able to buy your exports anymore! China, we’ll be repudiating those bonds if you don’t shell out, BTW.
dreggas
I would beg to differ on the 401k part. While most companies do offer 401k’s many people can’t afford to even contribute a little since they are living paycheck to paycheck. Take for example someone making 60k a year, most of their money will be sunk into rent (or a mortgage) and other bills before even being able to think about retirement savings. I am 28 and only just enrolled in a 401k with the new company I work with even though I could have started when I was 20 and working for another company. Why? I was living paycheck to paycheck and after taxes, insurance, etc. I was taking home just enough to live on and pay my bills. Even though it is taken out pre-tax it’s still money you can’t touch and when you do (say in an emergency) you watch a large chunk go to taxes anyway.
The 401k bit also assumes the company offers it and how long the company makes you wait before contributing. They are great and I am glad I got enrolled in mine but it’s only because I am just now able to start putting money in and not be living on Hamburger helper and hot dogs etc.
Krista
Dave_Violence
Folks, folks, folks…
Scarey = people losing their jobs for any reason.
Not scarey = people who are losing “their” houses because they just didn’t get it. Don’t buy it if you can’t afford it. NO matter how anyone puts it, if ya sign on the dotted line, you’d better be educated. For God’s sake, I saved for THREE YEARS to by my place – that’s three years to put together a 20% down paymen for what I figured an apartment would be selling for three years from when I started.. 20%?! Yeah, because I did the research, the homework, everything. I considered what I made, how much I could afford and NEVER looked at an ARM at all. Fixed rate, that’s it.
And if other’s aren’t as “smart” as I am, FUCK YOU. It’s your own damned fault, not mine.
Fledermaus
Compassionate Conserativism, RIP