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DiveUrge
ParticipantI saw this one and it struck me as odd that there’s still flipper optimism. Making $500K in 2 years by screwing someone into a life of debt isn’t something that would help me sleep well at night…
“London said he paid about $500,000 for the unit in 2003. He originally asked $1.2 million for the unit and has had to drop the price.
“But even if I were to reduce my price to $1 million, that still would be doubling my money,” London said.”
What if London had to drop it to $400K? I hope it happens…
ParticipantOf course it was. The institutions went belly up and the loans got re-valued based on current appraisals (most done without any inspections, simply comps). It had to get sold and if the loan happened to be way way upside down it had to get reset. The borrower has the opportunity to settle the entire outstanding loan amount. This is in the fine print in your loan documentation where the lender has the right to call in the loan.
ParticipantHere’s another clunker, ECC Capital, a REIT. Not paying its dividend this qtr and getting crushed. Around $7 this past July now down to $1.30. Losing 31% today.
This could get ugly in a hurry…
ParticipantSanDiegoBanker, You said,
“The only thing I remind people is that if you don’t have to sell in a bad market, competing with the sale of bank REO, massive inventories on the MLS, etc., you can say your property is worth anything you want based on any amenity of dubious merit, because you’ll only be called on it when you actually have to compete with the market by trying to sell in competition with it.”
For many, this is true. But, as I recall, for the lending institutions that failed, there were a lot of loans, way upside down, that had perfectly happy borrowers making their full payments on time that had their loans called in full. Money got very tight and so perfectly good borrowers lost their homes simply because the market crashed and they could not afford the new terms. No one is truly safe unless they have equity greater than the post-crash appraised value.
Of course you still have divorces, people forced to move, sickness, job losses that all force a sale.
Global liquidity is something that couldmitigate a complete wipe-out. I don’t have a handle on how this will play out and it may provide a cushion?
ParticipantThe quasi govt entities are difficult to read. They are publicly traded on the NYSE, so their shares are at risk – public exposure to any downturn.
They package and re-sell “some” of their loans (based on limits/regulation that may in the future further restrict their ultimate exposure) which are then re-packaged in MBS shuffling the securities around the globe and to other publicly traded financial institutions. More public exposure but much of it international? This may be a scary prospect as liquidity will be a concern as international interests elect to stay out or worse, pull out.
Somehow the USG may get involved to clear the deck as they did during the RTC debacle?
A lot of scrutiny right now in Fanny&Freddy. I intend to investigate to try and figure out this financial labyrinth, if it’s even possible…
ParticipantThe Anderson UCLA Forecast for CA real estate doesn’t dismiss this outcome. With 50% increase over the past couple of years who is actually at risk in a 50% decline? Those that purchased recently and those that took a bunch of $$$$ back against equity. Hardly a crisis for someone that has been in the game for 4 years without jerking $$$$$$ out!
If the 50% decline occurs over the next couple of years and inflation ticks up to say 6% that alone accounts for ~15% of the nominal 50%.
Statistical analysis has been done that calls a 50% decline a mere correction based on the bubble’s magnitude and speed at which it ballooned…
ParticipantNo, not in their interest… UNTIL THEY ARE “FORCED” TO CLEAR THEIR UNDERPERFORMING LOANS – LIABILITIES. And that happens. Not too long ago the RTC EVENT and regulators were “encouraging” lending institutions to clean up their financials which led to a rash of properties released at fire-sale prices. A lot of people went broke and some got very very rich.
That was then. Now we have what could easily be described as a far more dire lending situation where net debt has skyrocketed. Rapid close to 50% price declines are easily achievable.
ParticipantComps matter A LOT when lenders are making 100% financing offers.
Soft landing or crash landing both end up with no air under them – On the ground. It’s coming and in some areas a lot sooner than you might expect…
ParticipantImpossible to say. Depends on the level of inventory and the rate at which it climbs. Take a look at Phoenix numbers – ALARMING RATE OF INVENTORY INCREASES!
http://www.azcentral.com/community/chandler/articles/0223evhomes0223Z6.html
All it takes is a single seller in a big hurry to swing the comps into negative territory…
Participantpoway, In case you’re interested, the MBS losses are already filtering in – Friedman, Billings, Ramsey Group reported a Q4 loss which they blame on their MBS losses. Brace yourself for a rash in ’06…
ParticipantWe’ve experienced excess liquidity for years and I would contend inflation. Just because the government’s inflation index doesn’t show a large number doesn’t mean inflation doesn’t exist. Pick another measure!
Commodity prices have skyrocketed. Asset prices (RE) have skyrocketed. Energy, the ultimate tax, has shot up. Food prices are much much higher. The dollar is sort of weak…
It’s only a matter of time before all the evidence mounts up and shows up in the government’s index. I favor the inflation side of the arguement. I hesitate to buy gold however as it’s already very high. I may be moving some $$$$$$$ into gold stocks though rather than cash. Long dated maturity notes are the last place I would put any $$$$… perhaps TIPS?
February 23, 2006 at 7:51 AM in reply to: Home Owners: Too Big To Fail (What are your thoughts?) #23472ParticipantOf course! But what is truly frightening about this affair is how those that are in the business of supposedly knowing better read this stuff Check this!
http://www.usatoday.com/money/perfi/housing/2006-01-17-real-estate-usat_x.htm
The PMI Chief Risk Officer interprets these ZERO-DOWN loans as tranferring risk to borrowers?? Remarkable!!! A $ZERO-DOWN LOAN by definition carries ZERO RISK TO THE BORROWER!!! How tough is this to figure out?
Even a modest price decline will guarantee that the sub-prime borrowers will simply toss their keys. They have no history of responsible credit behavior and no other recourse anyhow. This has happened before only against a backdrop of moderate appreciation without the overhang of widespread use of this creative financing that lowered the barrier to entry to those that are in no position to weather a downturn.
Uncharted territory.
ParticipantAll I want to know, given the expectation that the pain will be devastating & widespread, is what sort of investment is likely to feel the pain last — The last to get crushed. It might also be nice to have a plan for how to actually profit on the decline.
The problem is, this is all uncharted economic territory so seeing what worked last time isn’t likely to work now. The bubble makes all previous bubble look tame and the globalization of finance essentially means the spreading of pain could be almost intantaneous.
ParticipantSomehow the material I tried to post was removed. Here you go!
“In a number of areas, particularly on the coasts, they have a high risk of price declines in the next two years,” says Mark Milner, chief risk officer of PMI.
“These non-traditional loans transfer risk to the borrower,” Milner says.”
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