Housing Bubble Bursting?

[moh malekpour]

I am not sure what you mean by "pulse". How do sub prime loans equal rental payments in a given situation irrelevant of borrower's criteria, please explain?


Only had one month rent???? What's that suppose to mean?

I have been living in a 4-bed 2-bath townhome since the last 3 years and paying a rent of $1725 excluding all utilities. The current value of this townhome is around $455,000. In a subprime loan with 100% LTV and the rate being 7% on first and 11% on the second (the best I could get), assuming that this loan is an 80/20 I/O on 5/1 Hybrid ARM, how is it possible to equal or lessen a $1725 rent? Do the math?

Takin pulse is a manual test by doctors or nureses to see if a patient with brain injury or storke is still alive or dead. usually they take the paitient's wrist with thumb and 3 other fingers and feel if the pulse is there or not. If ther is no pulse, the patient is dead. If there is a pulse, the patient is still alive although might be unconscious. You don't have to be a doctor or nurse to take a person's pulse. anyone can do it and most poeple do it on themselves. it is the way of measuring your heart rhythm. You can feel it and look at your watch to see if the rhythm is faster or slower. This has been a joke for sub prime lenders that they would take the perosn's pulse and if the pulse is there, it means that person is still alive and can get the loan. That was the only thing that they needed to have.
It seems that sub prime loans were available for 100% financing with no income verification. besides that, some agents would arragne for financing of closing costs too. in addition, they were offering a teaser rate which was about 2 or 3% rate not 7 or 11%. That was the initial rate. besides, it was an interest only loan which meant you had a ngetive amortization with a baloon payment. That was the way you could easily buy your townhome with your $1725 that you were paying for your rent. Of course ,your payment would be twice as much within 6 months and therafter and that is what they are facing now.
The borrowers either didn't understand what they were getting into or they were hoping their home value will increase within 6 months or a year when their rate would reset so they could either sell or refinance. it didn't happen and spoiled everything.
Aren't you lucky, that you were not tempted to take one of those sub prime teaser rate loans to buy your rented townhome? You could if you wanted but you wouldn't be a long time owner, you possibly would be the ex owner of your townhome by now.

 

[GENTEEL]

Takin pulse is a manual test by doctors or nureses to see if a patient with brain injury or storke is still alive or dead. usually they take the paitient's wrist with thumb and 3 other fingers and feel if the pulse is there or not. If ther is no pulse, the patient is dead. If there is a pulse, the patient is still alive although might be unconscious. You don't have to be a doctor or nurse to take a person's pulse. anyone can do it and most poeple do it on themselves. it is the way of measuring your heart rhythm. You can feel it and look at your watch to see if the rhythm is faster or slower. This has been a joke for sub prime lenders that they would take the perosn's pulse and if the pulse is there, it means that person is still alive and can get the loan. That was the only thing that they needed to have.
It seems that sub prime loans were available for 100% financing with no income verification. besides that, some agents would arragne for financing of closing costs too. in addition, they were offering a teaser rate which was about 2 or 3% rate not 7 or 11%. That was the initial rate. besides, it was an interest only loan which meant you had a ngetive amortization with a baloon payment. That was the way you could easily buy your townhome with your $1725 that you were paying for your rent. Of course ,your payment would be twice as much within 6 months and therafter and that is what they are facing now.
The borrowers either didn't understand what they were getting into or they were hoping their home value will increase within 6 months or a year when their rate would reset so they could either sell or refinance. it didn't happen and spoiled everything.

Thanks Moh for your thoughtful response. I am familiar with the medical aspect of what pulse means but didn’t recognize the mortgage side of it. I do now that you’ve clarified and appreciated.

In the last 7 years at the least, I never came across a teaser rate on a 100% financing (though I may be wrong). I do know however, that World Savings was the first to introduce what is called a “pick-a-payment” to its line of products which soon became the hottest cake in the Real Estate Business, whence Downey, SBMC, First Franklin and others quickly followed suit. But this product with its 1% teaser rate with a 7.5% Cap for five years on an I/O loan required a 10% down and certainly created a heavy NegAm. I believe Downey reduced the equity to 5% but with a 2 or 2.5% teaser rate on this same principle. In any case, you would be absolutely right IF the loans were financed at full 100% on teaser rates, in that, the initial premiums would be closer to or even lower than rental payments on the same housing. But even with a down payment on these specially designed "spooky products", surely the trouble began on both sides of the fence, especially on excited yet uneducated borrowers.

Aren't you lucky, that you were not tempted to take one of those sub prime teaser rate loans to buy your rented townhome? You could if you wanted but you wouldn't be a long time owner, you possibly would be the ex owner of your townhome by now.

Aaaah, that depends whom you're playing with. I could still buy one, remain there forever and make money without a problem if you’re smart.

 

[Greg Bell]

Housing starts were up 9% in Feb.Whew , I thought there might be housing crash.I guess everthing is hunkey dorey now the all the MSNBC talking heads say it is.So go out and buy a new $550K 2 Bedroom Condo , it's a great investment.(So says the talking head lady) P.S One lender will lend you 125% to value.

 

[Brad Ellis]

Moh,

I still do not know where you are going with the rental stuff. If renters are being taken OUT of the market there should be fewer to rent. Look at that as a supply issue- fewer renters. That SHOULD tranlater into more competition for the remaining ones, yet rents are increasing. Something is either wrong or missing in your assumption.

As to the Morgan Stanley guy, I stopped believing ALL the Wall St. guys- analysts, economists, etc. months ago. Here is why:

Wall St. is orchestrating most of this. Of course, the troubles of some of the sub-prime lenders are real- many simply made bad loans. Others followed them and there will be fall out- past what the sub-prime loans cause. Why? It is to the extreme advantage of the street to stop extending credit so as to force many of these firms into or close to bankruptcy.

Remember that most of them do not have the resources to buy back the bad loans or even to make provisions for bad loans like HSBC and Countrywide did. So the Wall St. investors have nothing to lose and much to gain. They gain the option to buy up these firms, most infrastructure intact right dowen to marketing staff, underwriters, reviewers, etc. for pennies on the dollar.

Think it will not happen? It is already happpening. Impac buys ResMae. Private investors buy GMAC. Argent (forget Ameriquest for now since it was nearly belly up already after the lawsuit) is and was quite profitable and did not have any sort of unusual level of bad loans- just the normal sub-prime stuff. So what happens? Citi first extends them credit and gets an option to buy them in addition to the normal credit income. Now they tighten the purse strings and Argent has no choice but to lay off 75% or more of their staff to operate on a skeleton basis.

Citi is also interested in Option One whose set asides, despite all the hype, are rather modest at just over $100M.

Drive the stock down and buy up the firm on the cheap or even just the assets after forcing bankruptcy.

And it is not yet over! The next target are Alt-A lenders like us, Wells and Countrywide. Watch for the hype here. They are saying that Alt-A is just liek sub-prime, BUT we must keep in mind two things:

First, not all prime loans are full doc. That is right- any number are being done, and have been done, on limited doc and thru otehr programs.

Second, Alt-A has a performance history that is not far off prime loans. About 2.5% of prime loans default, abut 5% of Atl-A and 17% of sub-prime!

So how can they use the Alt-A lending to force down prices? Simple- call it sub-prime. And they are getting away with it. Tow articles just yesterday but they NEVER actually mention how the loans perform.

This is lies and subterfuge. Normal business I know, but being clearly and obviously orchestrated by the street.

My question and concern is that few are standing up and calling them on it. Instead we sit around and wring our hands over the "bubble". Only there is no bubble- a correction but no bursting at all. THEY KNOW this and that is why they are doing what they are doing. Force stock prices down and buy them up all the while knowing that when the dust settles the stock they buy up and the companies they snap up will return to much higher values creating enormous profits.

Want to make some money? Buy up the stock they are buying- the major banks that operate in the mortgage market- Wells, Countrywide and even us.

Brad

 

[Greg Bell]

Uh Oh..Housing starts stats are plus or minus 10%.Talk about cooking the books.You need Catsup to digest these numbers..

 

[Randolph Kinney]

Newcastle to buy $1.7 bln subprime portfolio

http://www.marketwatch.com/news/story/fortress-managed-reit-steps-subprime-mortgage/story.aspx?guid=%7BD88FBE61%2DEC50%2D43CA%2DA439%2D83BF9B858778%7D

Newcastle is buying $1.7 billion of subprime loans for pennies on the dollar with financing under repurchase agreement.

This is the old buy low at distressed prices and sell high to investors. But there is risk that more of the loans will default and the demand for subprime loans may continue to weaken.

It is risky business.

SAN FRANCISCO (MarketWatch) -- Newcastle Investment Corp., a real estate investment trust managed by hedge fund giant Fortress Investment Group, is stepping into the subprime mortgage market as others are fleeing a credit crunch.

"Constrained liquidity and the re-pricing of credit risk in the subprime mortgage market have created a unique opportunity for us to purchase a portfolio of loans at an attractive price," Kenneth Riis, Newcastle's chief executive, said in a statement.

The acquisition will initially be financed under a repurchase agreement. Longer term, Newcastle said it plans to sell the loans on again in a securitization. After that, the company said it will have roughly $75 million of capital invested in the portfolio.

The loans have some protection against borrowers defaulting early, Newcastle noted.

 

[Randolph Kinney]

More Lenders Restrict Credit, Taking Up Where Fed Policy Makers Left Off

http://www.bloomberg.com/apps/news?pid=20601109&sid=aMpRiWhm_DkY&refer=exclusive

March 20 (Bloomberg) -- Banks are picking up the baton from the Federal Reserve, restricting access to credit months after Chairman Ben S. Bernanke stopped raising interest rates.


Fed officials may discuss the tightening in mortgage lending and its impact on the economy, already slowed by a housing recession, at their two-day meeting that starts today. Countrywide Financial Corp., the biggest U.S. mortgage provider, last week stopped taking applications for no-money-down loans from risky borrowers without proof of income.

``The market is definitely tightening standards, and to the degree the market controls the flow of capital, the Fed does not have to,'' said Carl Tannenbaum, chief economist at ABN Amro Holding NV's LaSalle Bank in Chicago. Officials have kept their tightening bias at the past five meetings, meaning any policy shift is likely to be a rate increase.

 

[Dee Dee]

http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20070319

Let the politics begin!

 

[Randolph Kinney]

Vacation Homes in Spain Poised for Bust; Banks Tighten Credit on Magnates

http://www.bloomberg.com/apps/news?pid=20601109&sid=aCk.OYMSRtDA&refer=exclusive

March 20 (Bloomberg) -- Vacation home prices in Spain, a leading indicator of Europe's property market, may face a slump that's worse than the real estate decline in the U.S., based on the loan terms banks are imposing on developers.

 

[Randolph Kinney]

http://www.investors.com/editorial/IBDArticles.asp?artsec=16&issue=20070319

Let the politics begin!

A very good find, Dee Dee. I really like graphics because a picture is worth a thousand words.

"As this crisis worsens, mortgage tsunamis will ravage working-class neighborhoods across this country," said John Taylor, NCRC president.


Taylor's ideas for FHA intervention and "a national rescue fund" may be well received on Capitol Hill. Senate Banking Committee Chairman Christopher Dodd, D-Conn. said Monday he asked executives at five big subprime lenders to testify at a Thursday hearing, along with financial regulators.