Housing Bubble Bursting?

[Randolph Kinney]

Randolph,

"No Brad, lowering interest rates will not help immediately. House prices have declined sufficiently enough where lower interest rates will not save a borrower from a reset. Credit availability has been reduced. If the FICO score is not high enough or if the home value is not high enough or if the loan program that makes the deal work is not available, those people are caught."

First, I asked Moh- I already knew your answer.

Second- where did the house prices decline? You have about as much of a chance of being wrong as being right on that.

Third- how many people are caught- I'll accept percentages.

Brad

Your second: According to NAR, the median house price has been declining nationwide as represented by their 4 regions since August of 2006 month over month. If you look at the last statistics released by NAR, January 2007 US median sold house price came in at $210,600. Compare that to the 2005 year median of $219,600. Compare that to July 2006 peak median sales price of $230,200. No matter how I look at this data Brad, enough house prices across the US are below the peak median of 2006 and below the 2005 year median to represent a declining house price market, nationwide. See the link for the confirming data at NAR: http://www.realtor.org/Research.nsf/files/EHSreport.XLS/$FILE/EHSreport.XLS

Your third: I claim as many people are caught as you claim that will be helped by declining interest rates for refinancing ARMs that are due to reset in the foreseeable future. Short term rates are mostly influenced by FED policy and they have not blinked yet for lowering the FED Funds rate.

According to the MBA, hybrid ARMs that will readjust for the first time will jump to approximately $1.5 trillion by the end of 2007. Forecasts call for $600 billion to $700 billion of those loans to be refinanced into new loans, including fixed-rate mortgages. There have been estimates that as much as 20% of subprime mortgages will default. Countrywide has already reported that 1 in 5 of its subprime loans had 60 days or more nonpayments at the end of 2006.

Here is a bit of history for you to judge the magnitude of the problem:

 

[JSmith43]

A little marketing tip: That graph illustrating 10 years of sub-prime is stretched top to bottom, which makes the slope look more impressive than if the graph were square with the 10 year horizontal axis not scrunched to about 1/2 the size of the vertical axis, like it is in the post above.

It still makes a point, but I think it is amusing how communications devices such as graphs can be tweaked to favor a particular point of view.

Randolph, did you photo shop that graph?

I'm sure you took it as is. Just pulling a chain.

 

[Randolph Kinney]

A little marketing tip: That graph illustrating 10 years of sub-prime is stretched top to bottom, which makes the slope look more impressive than if the graph were square with the 10 year horizontal axis not scrunched to about 1/2 the size of the vertical axis, like it is in the post above.

It still makes a point, but I think it is amusing how communications devices such as graphs can be tweaked to favor a particular point of view.

Randolph, did you photo shop that graph?

I'm sure you took it as is. Just pulling a chain.

Roger, I am impressed that you believe I have the talent to manipulate a graphic image to distort it the way I want it. However, what is really important on the graph which is very readable, 2004 had about $500 billion, 2005 had about $650 billion of subprime loans (ARMs, piggybacks, etc.). 2006 was a record year for subprime loans, much higher than $650 billion. So, out of the $1.5 trillion that are resetting this year, lets just assume only half of the subprime were ARMs, that's about $700 billion subprime that are going to reset this year.

I have people calling me to work with their lender because they are resetting in the next 30 days and they can't refi their way out. It is short sale time! :new_all_coholic:

 

[hastalavista]

Here's an excerpt from an article regrading Countrywide:

Although Calabasas, Calif.-based Countrywide's 30-day deliquencies for subprime have risen to nearly 19% from a range of 12% to 14%, Sieracki pointed out that the subprime business represents only 9% of its loans.
More than 80% of Countrywide's subprime loans are rated A-minus or better, the executive said.

(my bold)

What is better than "A-minus" in terms of residential home loans? I thought "A" was the answer. So, do we have A-rated sub-prime loans, or is there some kind of "A-minus-plus" loan. Or, has things gotten so sophisticated that there is a Fitch-like rating for sub-prime loans like "AAA-" ?

Or, is it something simple that I just misunderstood or don't understand?

 

[Scott Kibler]

Here's an excerpt from an article regrading Countrywide:
(my bold)

What is better than "A-minus" in terms of residential home loans? I thought "A" was the answer. So, do we have A-rated sub-prime loans, or is there some kind of "A-minus-plus" loan. Or, has things gotten so sophisticated that there is a Fitch-like rating for sub-prime loans like "AAA-" ?

Or, is it something simple that I just misunderstood or don't understand?

Here ya go Denis.

https://www.cwbc.com/PdfFiles/BC%20UW%20Matrix.pdf

 

[Alison Swain]

Spoke to a title company rep today who said the moods in the MBs' offices are pretty gloomy.

 

[Couch Potato]

Spoke to a title company rep today who said the moods in the MBs' offices are pretty gloomy.

I made the rounds today and did not interrupt work at any office. I did cause a pause in a couple games of solitaire and some online shopping.

 

[JSmith43]

Here ya go Denis.

https://www.cwbc.com/PdfFiles/BC%20UW%20Matrix.pdf

Scott, I rarely do B/C stuff, but when I chased down your link, which was to a pdf product matrix, it looks like custom CW terminology to me. 1 Day out of Ch 7 OK????? That isn't the A- I know.

The first time I heard the term A- was within the sentence "you may get LP decision approval if you re-run it with A- pricing allowed"...not an exact quote. I believe it was in early 2002.

What was happening then was risk based pricing was introduced to A paper.
Basically, anything with a 680+ credit scores, 2 years employment and ratios under 50% would approve, for an owner occupied SFR rate/term refinance or purchase. For those approvals, pricing would be typical A pricing.

However, if you had a 610 middle FICO purchase, 80/15/5, it probably would not approve without a risk premium attached to the pricing. The customer would still need to meet typical A paper UW. For instance, if there was a Ch 7 BR within 2 years, no way, no how would there be an approval. At least 4 years without Ch 7, if the BR was due to financial mismanagement, plus the borrower would have had to have rebuilt credit and score 680+ middle FICO.

Since then, the various investors have played with the risk based concept and add price improvements for high FICO, even the state & county the loan is originated may get a bump (or a deduction). Lots of little adjusters. But when pricing really sours, and they throw out significant UW rules, then you know you are in B/C territory.

Sorry for being long winded. I thought painting an abbreviated picture of what I believe to be the original A- paper concept.

Edit: I found a link to the Freddie Mac based A(-) concept http://www.freddiemac.com/sell/factsheets/pdf/aminus.pdf

 

[hastalavista]

Thanks, Scott & Roger-

I'm still a bit confused.

I went :Eyecrazy: looking at CW's "Matrix". I saw where "A-" was and then I saw "premier" (which looked like "A"). What I didn't see was part of the 80% that still is sub-prime, but better than "A-".
(Could that be what the grayed-out boxes with N/A mean? N/A= Not 'A', but better than 'A-' ).

Mabye it's like Big-Foot, the Loch Ness Monster, or Entrepreneurial Profit in the Cost Approach: Often talked about, seldom seen?

 

[Scott Kibler]

A, B, C, A-, Premier, whatever, all mean different things to different companies. The media talks about such ratings as if they are carved in stone, or at least analogous to bond ratings.

According to the CW matrix, you can be 1 day out of bankruptcy with a rolling 30 day on your mortgage, a 500 FICO and get an 80% loan under the A- program. 90% if you're a 540 FICO.

Think that is what people imagine when they hear "A-"?