September 27, 2006 at 2:16 PM #7621
“Assuming that home prices stay around current levels and interest rates don’t rise sharply, Dr. Cagan figures about one million households eventually will default and lose their homes to foreclosure. That would cause about $110 billion of losses for lenders, he says.”
woodrow and Daniel, the personal insults directed at me in the other thread was a joke!
My interpretation of Cagan was correct. Back in March, he expected 1 million defaults. He has since written a paper (see my Sept 12 06 post) where he explained the higher risk taken on without lender knowledge when people take out a HELOC. The borrower’s risk to the lender increases without the lender’s knowledge. That, and the swell of news coming out about subprime borrowers, has probably led to his statement this week that he expects 1.5 million loans at risk .September 27, 2006 at 2:40 PM #36624woodrowParticipant
Does this warrant a new thread? Why not post it in either of the other 2 threads you've devoted to this issue?
BTW, you're still wrong. No where in the March article you're now citing does Cagan say he "expects" 1.47M defaults, just as he doesn't come to that conclusion in the Sept 12th article.
Finally, "insults" is plural, and thus the corresponding verb should reflect that. It should be "personal insults were a joke", not "personal insults was a joke".September 27, 2006 at 3:04 PM #36627
PS, it’s possible that this earlier article makes the same mistake. Take that as a compliment!
To get to the end of this, I tried to track down something that actually came from Cagan’s mouth or pen and one of the things I found was an October 28, 2005 paper he wrote. I’d say I put little credibility in what Cagan has to say whether he means “at risk” or “expected”.
Are There Foreclosures in Your Future?
In the hot coastal and cyclical areas, foreclosures are now few, and have a small impact on market conditions. Are foreclosures likely to return soon to these markets in large numbers? While there may be local exceptions, on an overall basis the answer is “no” for two reasons.
Therefore, I do not expect foreclosures in significant numbers for years.
If you’re interested
I no longer care what Cagan meant.September 27, 2006 at 3:09 PM #36629woodrowParticipant
FYI – Kelly Bennett over at the voiceofsandiego disagrees with you PS. From her blog in which she singles Cagan's comment:
Nineteen percent of 7.7 million is 1.463 million loans considered "at risk" by Cagan.September 27, 2006 at 5:32 PM #36644
I respect Kelly Bennett, I love the Voice of San Diego. They are very good journalists. I’m not sure if she would have interpreted his comments differently, if she had read his other work, as I have. Yes, I did use the wrong verb in insults, and you misspelled “nowhere”. So what?September 27, 2006 at 5:41 PM #36651(former)FormerSanDieganParticipant
People will default. Whether it’s 1 million, 500 thousand, 1.47 million or 1.49 million, who cares ? They are going UP.
These are currently opinions anyway, whether they are Cagan’s, powaysellers’ or Kelley Bennett’s. Who cares if one or more of them misinterprets someone elses opinion. Opinions are like a$$hole$. Everybody has one.
Let’s watch the actual numbers come in and argue over when they have peaked instead of arguing over semantics on someone’s estimate of anothers’ opinion.September 27, 2006 at 5:50 PM #36652
According to Cagan (at least on February 14, 2006), it doesn’t matter what the numbers are as it won’t have much of an effect anyway. Excerpt:
Entitled “Mortgage Payment Reset: The Rumor and the Reality,” by Christopher Cagan, Ph.D., director of research and analytics at First American Real Estate Solutions, the study utilizes the extensive database and analytical resources of First American RES and its subsidiary LoanPerformance to classify market segments as relatively safe or vulnerable under the pressure of mortgage payment resets. The most vulnerable will be those who do not have substantial equity in their homes, but hold adjustable rate mortgages (ARMs) with low initial rates, often with interest-only and negative-amortization features.
The study concludes, however, that while individual families and firms that are involved with the riskiest loans may suffer, on a national basis the impact of mortgage payment reset and subsequent default will not significantly impact the economy, as it will result in approximately $110 billion in losses, or less than 1 percent of total U.S. mortgage lending annually.
I disagree. Discuss!September 27, 2006 at 6:04 PM #36656
I posted an analysis of Cagan’s paper a few months ago, and pointed out his errors. His biggest mistakes are 1) not understanding that the 2-3% of homeowners who sell set the price for the other 97% – 98% who don’t, and 2) that lenders track LTV, not CLTV, so 100% financing loans which are 80/20, are captured as having 20% equity (80% LTV, but 100% CLTV). If he would correct those two mistakes, his conclusions would be significantly different!
FormerSanDiegan, you are right on! I don’t actually put much credence into Cagan, because he made 2 major errors in an important reseach paper, which ended up misleading many people. Unless you spend hours every day researching this stuff as I do, you wouldn’t know it was complete spin. For the record, I predict our MLS inventory will rise above 50,000 in 3 years, and we will have tens of thousands of foreclosures in San Diego. I expect a banking collapse worse than in the 1990’s. It’s all corroborated in economist John Talbott’s book, Sell Now, a must-read for anyone contemplating whether they should own a house (advice: Sell NOW!).September 27, 2006 at 11:00 PM #36688
Now we’re getting somewhere. I would agree that it doesn’t seem like it will take huge increases in foreclosures to impact resale values.
Why did you choose to “quote” Cagan, especially since you don’t put much creedence in what he has to say? It certainly seemed to cost you and others a bit of grief today.
For me, I’m hoping foreclosures don’t get too bad because I don’t want to see neighborhoods go to hell in a handbasket. Nope, just enough to bring things back to normalcy. I’ve heard of neighborhoods north of San Diego experiencing multiple foreclosures on a single street (could be hearsay, I don’t live there). That can’t be good.September 28, 2006 at 10:51 AM #36707BikeRiderParticipant
I have first hand experience with having a HELOC. How scary it can be and how stupid you feel later. My wife and I were (WERE) living beyond our means. Not by much really. Never to a point where we even thought we were out of control. A few years ago a friend kept telling my wife that we should take out a HELOC. Have it sitting there for emergencies. They had bought their cars with theirs, to write off the interest. Anyway, we did take out one and the rate was really, really low. Like 3% AT THE START. We started using it, little bits at a time. Even paid off some other higher interest fixed rate loans (stupid), and of course the credit cards, thinking that we were saving money and could write off the interest. Ok, so then rates started going up and we had this $30K monster that was growing, staring at use each month. It was really upsetting. For one, I realized that why they heck would we want a HELOC for emergencies? I mean, if you are having trouble, you don’t want more debt. We should have been growing our savings for emergencies. Anyway, we buckled down and got the friggin loan paid off. It was tough. I went to close it and the bank says that I would have to pay a penalty unless I waited another year. So I closed it later. The things are a trap. Now we have things paid off and even with that, even with just utilities and incidental stuff, we struggle to save. I know now that we should have been living off one salary all the time. So, in case one salary was lost, we could keep going without much upset. We always paid our bills on time, but it was sometimes a juggling act. If the upcoming ARMs and HELOCs are all resetting, rates rising, people are going to really struggle. I’m sure most families are blindly going along as we did. Not thinking about the what if’s. Not planning even six months down the road. They will probably be blindsided. Sorry, I ramble.September 28, 2006 at 11:08 AM #36709
BikeRider, thanks for your candid admission. Someone told me today that he got a HELOC, but the interest rate is rising so much, that it is making up more of his payment, and he’s working diligently to pay it off. People will really struggle when their loans reset, and their HELOC payments rise. You are fortunate you got out of the trap.September 28, 2006 at 12:35 PM #36728PerryChaseParticipant
I know some people in bikerider’s situation. Actually, they are much worse off than him because at he “saw the light” and got rid of the HELOC.
Getting a HELOC for emergencies?! Yeah, you should save for emergencies.September 28, 2006 at 3:15 PM #36748DanielParticipant
“woodrow and Daniel, the personal insults directed at me in the other thread was a joke!”
Wow, I didn’t visit this site for a while, and this thing got totally out of control! I feel ostracized like good docteur here. Well, PS, let’s be friends. I regret it if you perceived my little comment as an “insult”. And, believe me, regarding fights, I have neither the energy nor the desire to start one with you. I apologize for the incident and will try to keep in mind your sensibilities next time I post. Peace, OK?September 28, 2006 at 5:48 PM #36774
Thanks, Daniel, that was very generous and sweet of you.September 29, 2006 at 9:23 AM #36821LookoutBelowParticipant
Only time will prove out PowaySeller forecast and predictions. I agree with her.
People have a tendency to be overly optimistic at certain times and this is no different. Its going to be a bloodbath for most of these families finances.
In 2 years or less, PowaySeller will look like an Oracle.
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