[powayseller]

everbank is one of the riskiest banks in the country, and have an E- rating with Weiss ratings (I paid $14.95 for the report)

I will check out the other one; thanks.

[powayseller]

The last time we had a national housing downturn and recession was in the early 90’s, right? We ended up with bank and savings collapses, lots of foreclosures, high unemployment.

What did the gov’t do in the 90’s to mitigate this? How will any government intervention have better results than the one in the 90’s, when our problems this time are so much worse and our deficit so much higher?

[powayseller]

I also have come to believe that nobody can beat the S&P500 over a longer period of time, so that’s why I was asking about Chris’ previous returns over the last few years. He may be having a good streak now, or maybe he is one of those superior traders, like Bill Miller. We don’t know, as he didn’t provide his long-term results.

In all fairness, I am admitting that I’m a horrible stock picker, so I just try to meet the general stock market performance. Like jg, I was fooled by the Wall Street marketing machine, which does *not* teach us to be in cash or gold or real estate. So I missed out on investing in real estate and gold. I am done listening to the Wall Street propaganda machine. They only recommend products on which they earn commissions, and they don’t make money when you put your money in CDs or buy rental property or gold. They also don’t make money teaching you how to market time, so instead they have you “dollar cost average”, the biggest fraud perpetrated on the public. This just teaches us to consider the source. Wall Street’s recommendations on investing is like Lereah’s recommendations on real estate. Come on, can you really believe them?

Chris, I hope you stick around. You have a lot to offer, and so what if we ask you about your returns? Ask me about mine. I missed the real estate and gold bull markets. I’ll readily admit it. Now I’ve learned from that and hopefully am better for it. I’ve also learned there are no barriers to entry into internet forums, so anybody can come here, say whatever crap they want and hide behind a fake name. Ultimately we all show our true intelligence and character in our responses, and you showed your good character by your very good response.

[powayseller]

I think much bigger too.

NODs have a certain “normal” rate based on difficulties that arise in a person’s life. Bankruptcy, illness, medical problem, job loss, etc. leads to foreclosure. In the last few years, the normal amount of NODs was reduced because it was so super easy to just sell your house at the first whiff of problem with the mortgage.

NODs rise above their “normal” rate during periods of high unemployment. Therefore, the 3500 NODs/quarter level should be reached again if we have the same number of homes and the same level of unemployment as we did in the 90’s.

I’d need to go back through my unemployment projections from a prior post and compare it to unemployment in the 90’s to give an accurate forecast. For now, let’s assume unemployment is the same, so that would result in the same number of NODs.

Now let’s add the foreclosures from the people facing payment shock who cannot refinance. 68% of San Diego’s purchase and refi loans were ARMs, for a total of 306,000 loans *(see calcs below); let’s assume half cannot refinance and will foreclose, an assumption I think is conservative. That is 154,000 NODs in 2007 – 2010. If we spread that out over 3 years, that is 12,833 NODs/quarter, which is almost 4x the peak of the prior downturn.

If we assume that 95% of the payment shock loans will default, a figure that I personally think is more realistic, then we would have (306K/12) 25,500 loans in default every quarter from 2007 – 2010. If they are not evenly spaced, we could end up with 40,000 defaults in one quarter alone. Remember, that scenario assumes that half of all ARM loans have been refinanced. If that cannot occur, the defaults are higher still. If more than 10% of homeowners got ARMs, the figure is still higher. Is it crazy to suggset 95,000 NODs at the peak NOD quarter in 2010, the year that I think will be the worst?

* payment shock calcs
From very gross estimates, 306,000 San Diego loans are subject to payment shock.
(68% of 40,000 homes sold = 27,200 loans in 2004 and 2005 are ARMs; let’s assume 10% of homeowners refinanced in each of those years: 10% of 1.1 mill homeowners = 110K; 68% got ARMs = 74,800; 27.2K purchase + 74.8K refi = 102K total in each year; in 2 years = 204K loans subject to payment shock; add 102K for 2006 and 2001-2003, giving 306K loans)

[powayseller]

NODs are interesting. We’ve had unusually low levels of NODs. Are we going to hit the 3,500 level again, or will be double that?

[powayseller]

What about $1.5 mil “superior properties”?

[powayseller]

The CNN anchor smirked at his comment and quickly added, “That’s just like putting more debt on a credit card” and the segment ended. Nothaft was just pushing the Freddie Mac agenda.

[powayseller]

link

[powayseller]

Low vacancy rate did not make rentals go up, because the rental market was led by the lower income people. Median income is $60K or similar in SD, so the people earning under $60K drove the rental market, keeping rents low, and the people earning over $100K and getting stock options drove the home buying market. Then everyone else had to get crazy loans to compete with the stock=options +$110K buyers. So far this makes sense, but we’d need to know if enough “stock option and +$110K buyers” existed to move the market.

[powayseller]

woodrow, I agree with you that “risk” implies a possibility, and not a certainty of occuring. Risk means a chance of it happening. I think Cagan misused the word in the story. So I took it in context: “masses of foreclosures leading to recession” cannot occur if only a “risk” exists of 19% of 7.7 million homes leading to foreclosure. Even if the entire 19% leads to foreclosure, namely 1.5 million, I don’t know if that would be enough foreclosures to cause a recession. How could we have “masses of foreclosures leading to recession” if 1.5 million loans only have a slight chance of defaulting? It just doesn’t make sense to me, still. Perhaps you can explain that, and then I’m happy to change my mind.

In the meantime, maybe Cagan can clear up for us exactly what he meant? That would settle it once and for all.

[powayseller]

Perry, you’ve been right about this. Even people in the industry call the stated income loan a “liar’s loan”, and a recent survey by an unnamed lender found that many of their loans had income overstated by about 60%. I can’t remember how many loans were fraudulent. I’ve also read that the brokers usually put in the false numbers, just to get that $10K commission check. They were very motivated to close the deal.

[powayseller]

FSD, you mean SF of 20 implies gross return of 5, right? Isn’t return the inverse of the SF? It makes sense that you would want SF of 8 – 13 (giving you 7.6% – 12.5% return). I don’t know where that came from. Maybe the landlords can explain. I guess you have to add the maintenance costs and property taxes too, and the cost of vacancy. What SF do you use for your rental property? I have never bought rental property, so this is all new to me.

[powayseller]

This thread was about using logic to debate, and not criticizing the person. I am disappointed that some people prefer to criticize the person instead of using logic. I did a poor job of getting my message across.

Ultimately, our response says everything about our intelligence and character.

[powayseller]

sdcellar, I’m sorry, I didn’t get your comment about the inventory. I’m not agreeing with gym guy, but just raising his point as a question for discussion, since there could be some element of truth to it. I agree that if $110K incomes fueled the price increase, then the max should be 3.5 x 110K = $ 385K. But we know the median went much higher. So the housing prices went high based on funny money loans, not on fundamentals of wages.

[powayseller]

But that IS his point. People without money bought homes because they had to stretch further to pay the higher prices created by the “demand that has money”, i.e. the tech workers. There are enough tech workers earning over $110K that could pay more for housing, running up the prices for everybody else. There are over 1100 tech companies in San Diego; I have the Excel file. Maybe sduuude will come over here and help me open it, LOL! So these people could pay the higher prices. Low vancies, demand created by people who could pay more prices, and voila, prices go up. That means the other people had to stretch so much more to compete for a home. His theory does have some credibility.

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