Portrait of the Califronia Housing Boom

[LA_Renter]

I just read this on an article on Yahoo and even though it has been discussed to death on this board, I had to post it. This sums up a large portion of the recent California housing boom in nice little nutshell. The unanswered question is “How many families are facing this situation right now in California?”

“Borrowers who took out exotic mortgages also are running into trouble. Felipe Duluna, a landscaper, bought a house in Watsonville, Calif., in 2005. Mr. Duluna used his life savings of $75,000 as a down payment and took out a first and second mortgage to finance the balance of the $729,000 purchase price. Less than two years later, as his interest rate reset higher and his loan balance grew, Mr. Duluna is unable to make even the minimum payment on the option adjustable-rate mortgage he received.

Speaking through a translator because he is fluent only in Spanish, Mr. Duluna says he was told that the loan was something he could afford. Mr. Duluna says he trusted the mortgage broker, who was also the real-estate agent on the sale, and told him repeatedly that he couldn’t spend more than $1,800 a month on mortgage payments. Given Mr. Duluna’s annual income of $27,000, and his family’s combined income of about $72,000, “these folks have no ability to actually afford this loan,” says Mr. Duluna’s attorney Pamela Simmons, with Simmons & Purdy”

Here is the link

http://finance.yahoo.com/real-estate/article/102558/Debating-standards-for-mortgage-lenders

[LA_Renter]

O K, I misspelled California, but you get my point.

[exeunt]

big deal
why do the media, and folks like you, latch on to this marginal titillation? consider that the majority of people do not fall into these freakshow-sideshow categorizations that trolling news media have to constantly “update” us with.

[sdrealtor]

“Mr. Duluna says he trusted the mortgage broker, who was also the real-estate agent on the sale”

That’s a big problem! Never use a loan broker to buy a house…NEVER!

[LA_Renter]

“why do the media, and folks like you, latch on to this marginal titillation?”

I don’t know if you have noticed but subprime is going into a meltdown!!

“The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

At issue are mortgages made to people who fall in the gray area between “prime” (borrowers considered the best credit risks) and “subprime” (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans — which are known in the industry as “Alt-A” mortgages — were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16% of mortgage originations last year and subprime loans an additional 24%.

The catch-all Alt-A category includes many of the innovative products that helped fuel the housing boom, such as mortgages that carry little, if any, documentation of income or assets, and so-called option adjustable-rate mortgages, which give borrowers multiple payment choices but can lead to a rising loan balance. Loans taken by investors buying homes they don’t plan to occupy themselves can also fall into the Alt-A category.
Borrowers who take out Alt-A mortgages are considered less risky than subprime borrowers because of their higher credit scores. But as the housing market cooled and loan volume declined, some lenders lowered their standards for Alt-As. Now a rising number of borrowers who took out these loans are running into trouble.

Data from UBS AG show that the default rate for Alt-A mortgages has doubled in the past 14 months. “The credit deterioration has been almost parallel to what’s been happening in the subprime market,” says UBS mortgage analyst David Liu. The UBS report contrasts with testimony Federal Reserve Board Chairman Ben Bernanke gave to Congress yesterday. “Our assessment is that there’s not much indication that subprime issues have spread into the broader mortgage market,” Mr. Bernanke said.”

Subprime and Alt-A comprise 40% of originations. It sounds to me like there are alot of Mr. Dulana’s out there. That was the purpose of the post, how many?

[exeunt]

yes we all know that…..
}….
subprime lenders and their supply-chain are being squeezed. nothing new there. there are bound to be a plethora of imbecilic loan stories that can be touted as “the expected norm” in the future.
}…
but tell me this, what percent of the total loan base out there, out of ALL the people who have taken out loans over the last 30 years and share their beds with mortgages of all shapes and sizes, what percentage are sub-prime taken out in 2003-2006? tell me about millions of people paying on 30 yr fixed loans with no interest in selling their homes or seeing them as anyhting more than a roof over their heads. perhaps a holistic view of this problem might help to see if the effects of a sub-prime are being magnified or not.
}….

[bob007]

$729,000 for a house in Watsonville – Watsonville is 50 miles away from Silicon Valley. The commute is horrible. The school district sucks.

[LA_Renter]

Thats all fine for those who dont have sub prime loans. But what about the lenders left holding the bag. The lower credit lenders are vanishing and the little that remain will drastically increase lending standards. Not to mention added supply of homes getting foreclosed on coming to market. Demand for houses will drop and prices will follow subtracting equity from all homeowners prime and subprime. recent purchases with low down payments will go to negative equity, and there will be further increases in foreclosures.

[exeunt]

well…………….
if you are so convinced, then i urge you to invest appropiately. i’d buy puts on every subprime lender still standing on one foot. i can guarantee you that whether markets go up or down, the money always gets taken from someone and given away to someone else. i woldnt be surprised at all to learn that hedge funds have been raking it in on the way up and are raking it in by shorting these same MBS’s on their way down…

[LA_Renter]

Shorting is not my game, I tried that in HB’s once and got burned on the swing trades. Money managers hold all the cards in that game, they see little opportunistic shorts coming to the table and they put on a squeeze regardless of the fundamentals of the stock being traded. It’s kind of like watching Shamu’s eating baby seals.

[lendingbubblecontinues]

exeunt-

home prices are set at the margins…I’m sure you know this

the last several years of loose lending standards have enabled people who “should” be apartment-dwellers to purchase the low end of the market, thereby enabling the move-up market to get to dizzying heights. EVERYTHING has been dependent on the 7-11 clerk doing a stated income loan overpaying for a 100K “condo” by 200K. This is the stupid money. Once it dries up (it already has to a large extent) the game is over. Once we return to 5-10% down requirements (heaven forbid 20%) you will see that there is no-one left to buy the low-end stuff and the sales in the middle will all be must-sell and distress-sell situations.

Since the market is set at the margins…this will affect everyone regardless of what type of mortgage they have.

most of us are not here for investment advice…we are just here to chronicle the ongoing fraud perpetrated against Americans. Of course the hedgies have been making money hand over fist…they will continue to do so…does that mean house prices are not severely over the top?

No.

“Report mortgage fraud to the FBI, everytime you see it.”

[PerryChase]

That’s the problem with our society. Everyone is trying to make a buck and upsell, upsell, upsell.

At the post office, I wanted to send a book to a friend in Chicago and I wanted to pay book rate (about $2). Well, the clerk wouldn’t have it, she tried to convince me to go express, buy insurance and package tracking. Her reasoning: a gift should arrive quickly and safely.

What? pay $20 to ship a book that’s worth $20? What a joke!
I’m sick of the salesmen selling me things I don’t need. Most consumers are weak and will buy whatever they are sold.

I feel sorry for the immigrants who don’t speak English getting extorted everyday. One Mexican guy I know got a speeding ticket because a woman thought that he was speeding and called the police on him as they were parking in the shopping center. The officer gave him a ticket on the woman’s word. That was in Klantee. Well, he doesn’t speak English so was not able to fight it in court so he paid $250.

Immigrants are extorted everyday for small things such as check-cashing, calling cards, video-rentals, 7-eleven groceries. Not surprising that this person lost his house on a mortgage he couldn’t afford.

[Anonymous]

I made a bundle buying puts on these subprime lenders. Interesting thing to note is on March 1st, Bear&Stearns upgrade NEW ($16), then two days later the stock tanked:

open high low close volume
5-Mar-07 5.91 7.15 3.94 4.56 59,583,300 4.56
2-Mar-07 15.50 15.75 14.59 14.65 4,137,700 14.65
1-Mar-07 15.16 16.70 14.92 15.85 7,512,300 15.85

As you can see NEW opened at 15.16 and shot up to 16.70 after
Bear Stearns upgrade. Yesterday 3/9, NEW traded at low $3.
The reason NEW did not go to 0 is Bear Stearns provided
$250 million rescue, but this going to fail too.

It showed how much WallStreet is actively involved and manipulated the subprime industry.

By the way, Bear Stearns was just ordered to pay $160 million to fraud victims, in a separate case:

http://www.forbes.com/business/2007/02/15/bear-stearns-hedge-fine-biz-cx_lm_0215bear.html

[Author]

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