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powayseller
ParticipantNice work, akrowne.
ParticipantI’m in dynamic inverse funds, which return twice the inverse. If the market goes down 25%, I’m up 50%. Of course I can lose, too. So I would have made a 60% return in 2000-2001 had I been in the Rydex fund (1500 to 1000 is 30% down, dynamic fund returns twice that). I’d be happy with that.
Sometimes last year’s high flyers can be next year’s duds, so there are no guarantees that the funds you mention will have a similar good year in 07. The Chinese can prop up the dollar even more, as our purchases from China decrease, making the dollar rise and gold fall. Temporarily. Likewise, the stock market could keep rising for many more months. Although the high rate of insider selling and falling Dow Transport stocks are indicating a sell-off should come soon, it could be months away.
ParticipantStan, do you have any examples of how your negotiating method worked, and how you were able to get a seller to accept an offer that was presented in this way?
ParticipantThis program uses your home’s equity to make the mortgage payments. There’s no deferral at all. You’re putting your equity into a trust account, so you have to refinance to set up the trust account, right? Or take a HELOC. Then the trustee makes the monthly mortgage payment out of the trust account.
This is not going to help the people who truly need it, those who cannot afford their payments and have no equity. People with equity can do a cash-out refi or get a HELOC.
This sounds expensive,as the trustee is sure to get paid his fair share.
What is the benefit of this program??
ParticipantGood job there, jg, you beat me with your returns. My plan is to short the stock market for the first half of 2007, and then switch into gold. I’m hoping that in the first 2 quarters, the decline of the market into the recession will exceed the rise of gold associated with a fall in the dollar.
(Did you read the Microsoft and Google have the greatest insider selling of any companies, and insider selling/buying of US companies is 65:1, a record of some kind. Hopefully this market is topped out now.)
Participant“…a large portion of the sub-prime loans are two-year adjustables, says Berson, the Fannie Mae chief economist.”
$2.5 trillion in adjustable loans is coming due over the next 2 years, according to Paul Kasriel, chief economist at Chicago-based Northern Trust. I think nobody really knows how much will come due. How many of the original borrowers refinanced, so that not all 3yr ARMs made in 2004 will come due in 2007.
“Berson offered a typical example of what the industry calls a “2-28,” an ARM in which the interest rate is fixed for the first two years and then adjusts regularly for the next 28 to whatever index the loan calls for. The average yearly cap on this loan is 2.3 percentage points per year.
Roughly speaking, a consumer’s monthly bill could rise from $330 to as much as $1,425 to $1,755.
Fannie Mae expects sub-prime loans to be reset en masse this year with that trend continuing into 2007.
But over at the Mortgage Bankers Association, senior economist Michael Fratantoni is more interested in the five-year adjustables that were issued during the refi craze of 2002-03. That’s a large crop that will sprout in 2007.
“The estimate is that in 2007, more than a trillion dollars worth of hybrids are going to hit their first reset date,” he said.
That one chunk of hybrid loans represents 12 percent of the $8.8 trillion in single-family home loans outstanding nationwide.” – Mish’s Site, from the HeraldTribune
We are reminded in the article that cheap and easy credit is not a given. People think they can always refinance, but when credit cycles contract, that is not the case.
ParticipantI think the most popular ARM in early 2000’s was the 2yr and 3yr ARM; thus the big resets in 2006, more in 2007, and even more in 2008.
Mortgage data is very expensive, so I doubt I’ll be able to afford any of it. Check out this excellent mortgage publication website. Just scroll through the list of articles, :
For just $1797/year, you can subscribe to Inside MBS and ABS and read this article
“Citibank’s Heavy MBS Buy in 3rd Quarter Boosts Thrift Industry’s Mortgage Securities Holdings
Thrift industry MBS investment jumped sharply higher in the third quarter because one of the globe’s largest banking giants parked a huge volume of newly acquired mortgage securities in one of its thrift charters. Citibank (West) FSB, a… [Includes two charts]”“Mortgage Brokers Drive a Sluggish Subprime Market Through 3Q 2006
Mortgage brokers have provided most of the muscle – such as it is – for the subprime market this year, a new snapshot of the business reveals. But brokers are clearly feeling some heat as the year comes to a close because the regulatory spotlight continues…”
to read more, pay Inside B&C Lending, $794/year“OCC: Lenders not Obeying Guide as Expected
Federal regulators are about to get tougher on originators of nontraditional mortgage products for being slow to adopt underwriting practices recommended in federal interagency guidelines issued more than two months ago to protect consumers. Regulators, the Office of…”
to read more, you have to subscribe to Inside Regulatory Strategies for $571/yearFor $50, you can read just one article. How many reporters, other than those backed by Business Week or the Economist, can afford those hefty fees? I bet the U-T isn’t going to let Dean Calbraith spend that kind of money. Would the Voice of San Diego? What is in those articles?
I believe if some bloggers had access to the data, they could paint a doomsday scenario of epic proportions.
Participantlostkitty, this is my laywoman’s comments on what could prevent a refinance:
1) current value is less than borrower’s home value, due to falling home value and too much equity withdrawn
2) borrower has at least one mortgage late payment, so lenders don’t want to touch him
3) borrower’s income is too low for a loan at today’s 6% rate; he could qualify when Fed funds rate was 1%, 2%, 3%, 4%, but not at today’s Fed funds rate of 5.25%
4) prepayment penalty of $10K or higher; I know several people who cited this as a reason they are delaying refinance; they hope the Fed will lower interest rates next year and by then their prepayment penalty will be expired
5) no money to pay closing costs. Closing fees are 1% or more of the loan amount, and cash-poor people have to put the closing fees into the loan amount. If the home’s value is too low, they cannot fold in the closing costs, so basically, they lack the money to pay for a new loan
6) Once the State of CA follows the other 20 states that have adoped the new lending guidelines, many people will just not qualify for another loan they could afford
7) Borrower lost his job, because he’s in construction, real estate, lending. No job, no loan. Thousands of construction workers are already laid off.
8) Borrower has too much debt, so the debt/income ratio is too high for a new loan. Maybe they took out a HELOC, car loan, and now their expenses are too high.Nonetheless, there are still plenty of people refinancing, as proven by the Mortgage Banker Association Refinance Index.
It’s interesting that Fannie Mae (or Freddie Mac) said that 88% of their refis this year are at a higher interest rate, so people are refinancing into more expensive loans just to get cash out. (The CEO did not say it was to transfer from a lower cost adjustable loan into a more expensive fixed rate loan – he specifically said it indicated cashing out. So he may be referring to conforming loans which refinanced, rather than all loans.)
ParticipantFrom comments in Ben’s Blog
“New Century has made three loans in Lincoln, CA(Sacramento MSA) in the last 8 weeks. All three loans are at $200,000 over market value and all are at 100% of the purchase price. Three loans on one street? How much more is there in this area and throughout California? I believe these were “cash back acquisition” loans, where the buyer put the extra $200,000 in his pocket, or perhaps split the $’s with the sellers.
I have just notified the RMBS rating divisions of Fitch, Moody’s and Standard & Poors, with copies to the COB, CEO, & CFO.”
Steve, Are you saying the lenders have IQs of a turnip? Or are they poor victims of appraisal fraud? Doesn’t the lender have to review the appraisal to ensure it makes sense? Or are they so happy to have a borrower, that all common sense and scrutiny is laid aside?
We’re hearing enough of this now to know that mortgage fraud is occurring with some regularity, and lenders are participating. The participating lenders either know they are acting fraudulently, or they are stupid (lacking the intelligence to discern the loan is over market value). Now, which is more likely: 1)a lender is knowingly allowing a loan above market value to get badly needed sales revenue and prevent going out of business this month and to meet sales goals and to get the commission and avoid having to foreclose on their own homes, or 2)a lender lacks the ability to disccern an obvious lie about of sales price and appraisal.
ParticipantSD Realtor, what do you think of this approach: find 3 houses you like, but don’t fall in love with one particular house. If you take the emotion out of it, you’re more able to walk away from a stubborn seller who won’t meet your price. So if you find 3 houses you really like, make an offer on #1 with a 24 hour expiration. If the offer is accepted, and/or compromises are reached, great. If not, make an offer on house #2 with 24 hour expiration, and so on. If you get caught in a multiple-bidder situation on any of your offers, withdraw. Wouldn’t a buyer get a better deal if he can be a bit more detached? So find 3 houses you love, instead of just one house you love.
I finally get what you’ve been saying all along about all the expired/cancelled/withdrawn. It measures the degree to which sellers are giving up. I think that next year, when the foreclosures keep rising, sellers won’t be able to give up. They’ll either need to sell or end up in foreclosure. I’m now seeing more bankruptcies, foreclosures, and tax liens, in the most prime areas of Poway.
ParticipantSo Ownit sold their loans to Merrill Lynch, Countrywide, and others? Am I understanding this correctly? Why would Countrywide, a loan originator, buy other companies’ loans?
Do you know why the lenders are so slow to reduce the listings prices of their REOs? A Poway house on Twin Peaks Road has been bank-owned, according to the sign on the lawn and foreclosure.com, since August 2006. Why doesn’t the lender just lower the price enough to sell the house? When the house finally sells at a loss, who writes it off on the books – the lender or the MBS purchaser, and/or the pension fund/fixed income fund which owns it?
On a related note, how many people on this forum are sure that their pension funds and parents’ fixed income funds are safe from the demise of the MBS market?
ParticipantThe lender makes the loan because he’s more interested in the short term profit than the long term profit. Investors are to blame – we all want high profits today, an easy life today, rather than sacrificing today for a better life tomorrow. (Another example is the entitlement program, which officially has made the US into a bankrupt country, because it is impossible to meet the promised obligations, so they will either print money like mad or default on the promises – bankruptcy.) So the lender makes the loan just to have another loan on the books, sells it to the MBS buyer (your Aunt Margie’s pension fund, the police officers’ pension fund, the San Diego County pension fund).
So if we want to chase this all the way to the source, it is the high returns desired by pension funds, is it not, that allows this to go on? SD County is an example: in their quest to eke out the highest returns for the least amount of money put into the fund, they take on unethical amounts of risk by investing in hedge funds, MBS, and all kinds of stuff. Do we even know what they are invested in? That would be an interesting topic.
Fixed income funds hold MBS too. Check out the prospectus of any fixed income fund, and you’ll likely find MBS (mortgage backed securities).
Ultimately, the investors are to blame for having given up the risk premium.
The government should be protecting the public from this kind of stuff, but they failed.
If the lender sells the loan off anyway, they don’t care if the loan performs. CA needs to hurry and implement the new lending guidelines. So far, only 20 states have done so.
lostkitty – I’ve been encouraged to have a section on my website for fraud. I can certainly include examples of fraud like this, but there is the risk of being sued by the people I’m discussing. So I’m not sure of the best way to handle it.
ParticipantHousing busts are worse because more people are affected. That is the point I made above, including the data on recessions and the amount of higher consumer spending due to housing price increases vs stock price increases.
US residential mortgages total $ 10 trillion. 20% of that is adjusting next year, according to moody’s.com. I quoted 25%, because the percentage is much higher in San Diego, probably on the order of 40% or higher.
” The Saturday WSJ reports that “More than $2 trillion of U.S. mortgage debt, or about a quarter of all mortgage loans outstanding, comes up for interest-rate resets in 2006 and 2007, estimates Moody’s Economy.com, a research firm in West Chester, Pa. Let’s repeat that number: Over the next 20 months, more than two trillion dollars worth of adjustable rate mortgages will reset at higher interest rates. ”
March 2006, The Big Picture
http://bigpicture.typepad.com/comments/2006/03/coming_soon_mor.htmlParticipantHusing busts are worse than stock market busts. First, almost 70% of Americans own a home, whereas mainly the middle class and rich own stocks. So the effect of a housing bust is spread among more people.
Second,the outsized impact and multiplier effect on wealth that housing has, is much bigger than the stock market. “According to the study authors (Christopher Carroll, Misuzu Otsuka and Jirka Slacalek), an increase in housing wealth of $100 will boost spending by $9. A similar increase in stock market wealth “only” creates $4 more spending.” Reverse that for the way down.
Third, the impact of MEW is HUGE. Since rates hit their lows in 2003, MEW has been responsible for more than 75% of GDP growth.
Fourth, housing start downturns lead to recessions. Every time housing starts decline more than 25%, a recession follows. Can the same be said of the stock market? I don’t know.
Fifth, 25% of all mortgages are resetting to higher interest rates next year and millions of people will lose their homes in foreclosure and become renters (or tenants with Mom and Dad).
I disagree that homeowners can cut back on expenses to avoid a 50% jump in payments. At 35% or higher debt ratios, how can you cut back enough to afford a 50% payment increase? And forget that 2nd job – it’s recession time.
I do think that people are desperate to be homeowners, so they try hard to keep their home, but they won’t be able to.
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