Housing Bubble Bursting?

[Brad Ellis]

Moh,

I already know that you will not believe this but Dough Duncan of the MBA told the last FNC client conference that the sub-prime defaults, despite all the press coverage, is a "non-event". His words not mine and I believe he said a similar thing when testifying before Congress.

Now, I do not know what is true or not, but I do know Doug and he is not prone to making wild assertions, especially in the face of all the data out there already.

Might he have an historical perspective that some others do not?

Brad

 

[hastalavista]

I already know that you will not believe this but Dough Duncan of the MBA told the last FNC client conference that the sub-prime defaults, despite all the press coverage, is a "non-event". His words not mine and I believe he said a similar thing when testifying before Congress.

Brad-

I believe you.

Is his presentation available to the public? I'm interested in seeing his basis for this position? This would be one of the biggest non-events I've ever seen continually covered over the last 2-weeks in the non-editorial sections of the WSJ.

From what I can gather (based on my reading), much of the sub-prime risk has been layed off and diluted to multiple investors through the secondary market. Shiller's assertion in his book, The New Financial Order, regarding risk management is that given a wide enough investment pool, almost any risk can be layed off and easily absorbed.
The current sub-prime scenario may be a test of that hypothesis?

 

[JSmith43]

Hi Bubbleheads! Well, your timing sucks, but I am almost ready to join you (for a year or two). My leading economic indicator is the psychotic control freak legislation that is being proposed in MN, no less, as we speak.

The federal and state chartered banks as well as the credit unions are exempted from the proposed punitive provisions, so I guess that means that political contributions were projected to remain greater from those groups shown mercy than the cutbacks from the groups on the receiving end of the smackdown

I am still studying the proposals and local political climate. It looks like a business opportunity for me, but new land mine fields as well. At least they issued us a map. However, that is kind of like relying on one's interpretation of USPAP to walk through a board inquest in NC

 

[Austin]

It all depends on how you define “non event”. I think I know what this means. It is kind of like health insurance. The government forces insurance companies to sell health insurance to people with high risk life styles and pre existing conditions so when these high risk people get sick and it cost millions to pay their health costs it is a “non event” to the parties involved. “The real event” is reflected in the health insurance premiums that run around $1,200 per month for a two family household and up to $2,000 for a family of five that are low risk clients.
The way this non event plays out in the MB business is that instead of a 5% mortgage rate we end up with a 7% mortgage rate. When you look at it that way it is not such a bad risk given the macro economic leverage of using RE credit manipulation and money policy to stimulate GDP growth. Hopefully they have the political economy under control depending on how you look at it. When you look at it from the point of view of the consumer with 5% of home buyers getting their clock cleaned it takes on another dimension. But that involves personal moral values a subject regulated to the lounge where we have a full bundle of constitutional rights and can discuss it. You must sign-in to the lounge to exercise your rights as an American. There is a reason for that but if you want to hear it we will have to go down in the lounge. That is an example of how the feds have things under control in the political arena. They have things under control in the campaign area too. Anyone notice someone missing in the NBA basett ball game? See how this is all tied together. It is kind of a big brother control apparatus. The system works or else!:new_2gunsfiring_v1:

 

[Terrel L. Shields]

how you define “non event”.

Every person who is foreclosed on, and to every builder in trouble, every Realtor who earned 70% of what they did last year, and every contractor in court trying to collect bills....it's not a "non-event".

The Japanese style is to deflate slowly even if it means stagnating the economy for a decade. The American style is to crush the ones who are too exposed and get it over with...let the wounded die slowly or shoot them even if its only a flesh wound.

 

[Karl]

How Many Out Of Court Settlements Can The Banking Industry Absorb??

 

[Brad Ellis]

Denis,

E-mail me at work and I'll send you his presentation- but it may not be clear at all as he went over many things.

And I am sure aware of the press coverage. But, just because the WSJ or anyone else is covering it does turn facts into lies or lies into facts. And I am merely reporting what he said- I have not analyzed his data but do recall him saying something like the percentage of sub-prime forclosures is not at an historically unusual level (just higher than it has been for a few years since most could get out of their mortgages by selling and still even have some equity in many cases- but do not quote me since I know I do not have this complete).

In another string, Jtrotta notes that this is due to I/O mortgages. I do not believe that is accurate. In the early years of a mortgage the amount of the laon that is amortized down is miniscule- it takes many years before you see any sort of material decline in the mortgage balance.

What is troubling are the neg am products designed to allow the lmortgage balance to increase. It can happen with I/Os if that specific market goes south but normally these are not problematical. Nor are, for that matter, even option arms if underwritten correctly (like we do- you must qualify at the fully indexed rate and ours pervform better than otehr adjustable products). But, 80/20 loans are turning out to be a real problem for everyone.

And the entire industy is taking a hit over this- hype or not. The Wall St. sharks are smelling blood in the water so all our stocks go down. I think for the most part that they are shying away from some products (the 20's), improperly underwritten option arms and then using that to drive down the cost of the other products to make more money. That is what they ought to do- I am not upset over one business sector using circumstances to their advantage. It is to be expected.

Ayway send me an e-mail at the office and I'll forward it along. To others, no- please- I am not going to distribute this widely- but Denis and I do business together. Maybe he will post his analysis of the charts after he analyzes them.

Brad

 

[Randolph Kinney]

Home Prices Decline in Majority Of Cities Across the U.S.

http://www.realestatejournal.com/buysell/markettrends/20070216-hagerty.html

On a national basis, the median home price during the fourth quarter was $219,300, down 2.7% from a year earlier.

 

[moh malekpour]

Moh,

I already know that you will not believe this but Dough Duncan of the MBA told the last FNC client conference that the sub-prime defaults, despite all the press coverage, is a "non-event". His words not mine and I believe he said a similar thing when testifying before Congress.

Now, I do not know what is true or not, but I do know Doug and he is not prone to making wild assertions, especially in the face of all the data out there already.

Might he have an historical perspective that some others do not?

Brad

Brad,

I know that you try to be optimistic and see the glass half full but please be realistic. Do you really buy what Duncan said to Senate committee and do you think the committee is going to believe it? He said to Senate Committee that the real reasons for homeowner defaults are unanticipated economic difficulties such as job loss. , which means that those sub-primes with negative amortizations are not the reasons for defaults but the reasons are job loss. This is a very wild asserting from someone like Duncan who is in the business. Weren’t you who used to say earlier that the economy was good and unemployment was low, therefore people were still buying homes so there should not be a housing bubble? Aren’t you the firm believer of Bernanke who just testified that the economy is good and employment is moderate? Haven’t you heard that unemployment rate is about 5%? Do you know of any recession in last 3 years that could cause unemployment except those areas that lost their jobs to outsourcing but those outsourcing didn’t happen just now. They were there and lenders should have known about it before lending money to them? Is Sacramento, the capital of the golden state, in recession? Why every 1 out of 5 existing homes in Sacramento is short sale according to USA Today? Is this because people are losing their jobs or they got bad loans?
Now, you call the sub-prime loans a “non-event” because Duncan is denying that sub-prime loans are not the cause of defaults but the cause is job loss
I think the sub-primes are the reasons for defaults and for foreclosures and they are going to be “big-event” that will affect the economy and the housing market.
You think he has an historical prospective that some do not. He is comparing the sub-prime market in 2002 with recent sub-prime market when it got out of control and its volume increased more than twice. He didn’t say that big banks and brokerage firms doubled the amount of residential loans that they issued from $568 million in 2003 to $1.1 trillion last year and he didn’t say that about 30% of loans that issued in 2005 and 2006 were sub-prime loans and he didn’t say that according to FDIC, hybrid mortgage was made up three quarters of all sub-prime loans in 2004 and 2005.
Now if 30% of all loans that were issued are sub-primes and three quarters of those sub-primes are hybrid and adjustable with negative amortizations and amount of loans has been more than $1 trillion per year, we are going to have about $1 trillion bad sub prime loans that were issued in last 3 years and are going to default.
Is $1 trillion amount of mortgage default a non-event in your opinion?

 

[moh malekpour]

In Sacramento About one of every five existing homes on the market is a "short sale."

http://www.usatoday.com/money/economy/housing/2007-02-19-close-sacramento_x.htm

I hope we have some appraisers on this forum from N California to verify this report. Sacremanto is the Capital of the Golden State, CA

Here's an alarming fact about Sacramento's housing market: About one of every five existing homes on the market is a "short sale." That means the home is worth less than the value of the mortgage, and the lender is willing to accept less than full repayment of the loan to avoid foreclosure, says Tracey Saizan, president of the Sacramento Association of Realtors