Housing Bubble Bursting?

[moh malekpour]

Risk Returns, Not Just to the Subprime

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_baum&sid=aTVx46seG_H4

It should come as no surprise that the distress is spreading beyond the subprime market to ``Alt-A'' loans, according to Andy Laperriere, managing director at the ISI Group in Washington.
``The risky characteristics of Alt-A loans are eerily similar to subprime loans and are likely to experience larger- than-expected losses,'' Laperriere writes in a Feb. 26 report to clients.
Alt-A loans (alt is short for alternative) are made to borrowers with a prime credit rating who for some reason don't want to provide full documentation on income or assets. (Alt-A loans are not to be confused with Alt-B, which are made to subprime borrowers who are willing to document their financials.)
Data from First AmericanLoanPerformance, a mortgage research firm in San Francisco, bear out Laperriere's suspicions. The more recent Alt-A adjustable rate mortgages -- those originated in the 12 months through December -- are performing worse than loans of similar age in recent years. .

 

[moh malekpour]

Liar loans': Mortgage woes beyond subprime

http://money.cnn.com/2007/03/19/news/economy/next_subprime/index.htm

Subprime mortgages have been generating a lot of attention, and worry, among investors, economists and regulators, but those loans may be only part of the threat posed to the housing market by risky lending.
Some experts in the field are now concerned about the so-called Alt. A mortgage loan market, which has grown even faster than the market for subprime mortgage loans to borrowers with less than top credit
Alt. A refers to people with better credit scores (A-rated) who borrow with little or no verification of income, or so-called alternative documentation

The biggest Alt. A lender is Pasadena, Calif-based IndyMac Bancorp. Trade publication Inside Mortgage Finance estimates it did $70.2 billion of the loans in 2006, up 48 percent from a year earlier. As the sector grew, its shares shot up nearly 50 percent in a year and hit a record high in April 2006. But with rising concern about the mortgage sector, its shares have plunged 36 percent since the start of 2007.

 

[Randolph Kinney]

Randolph,

I sure would appreciate it if you would NOT cite us with potential problems if you do not have specific facts to back that up- and it seems you are making a generalization.

Generallizations are OK so long as one calls them that- but in reading the article whose link you posted I saw no mention of us. So you are the one who cited Indymac, not the article- and for those who did not bother to read it the assumption that they would make is that the author cited us in it.

Brad, that article was specific to the problems in California and the expected foreclosure of over 450,000 homes with subprime loans. That represents more than 50% of the total subprime loans in California. You say your company has made subprime loans and that represents 3% of the total loans made. Half of Indymac subprime loans should be affected, according to that article even though it does not mention your company's name.

Information published on Countrywide says they have 10% of their loans that are subprime. Therefore one can conclude that they too will have 50% of those loans in foreclosure.

You are a bit thin skinned on the idea that Indymac has any problem loans or that Indymac will be affected to the same degree as the general population of subprime loans.

So, why would I say we do not have this sort of problem?

First, while we certainly do offer option arms, we underwrite them to the fully indexed rate. By doing this we know that the borrower is able (no one can know if they are willing- that where everyone hopes the FICO is a true predictor- and so far it has been)) to service the obligation even after all the resets. We have been doing that a long time and we have no problem selling these loans except when the appraisal is bad.

Brad, loans don't go bad because the appraisal is bad. Loans go bad because the underwriting is bad or the customer has unexpected problems with his income.

FICO is being relied on heavily, more so than in the past, to make a loan. The problem loans are happening because of the lack of proper verification of the documentation and other factors. In the case of subprime, that is now a known disaster, big mistake. Alt-A or not-so-prime loans are having problems too for the same reason subprime loans are having problems.

Next, even the more traditional ARMs as they reset are going to do so over a period of 6-7 years. During that time, for some of them, their financial condition, if it was not perfect (subprime, not Alt-A), may well improve so not all will default of course. Couple that with increasing values that will surely come some time during that period (even if we disagree on the depth and length of overall declines I do not see anyone with a reliable fact based prediction that any housing drop would last that long) and the risk is certainly less. BTW that statment about the 6-7 years is from Chris Cagan of First American/Core Logic- a friend of mine.

I don't believe your friend Chris has any better idea of what is going to happen and when than NAR. Look at the 1990's, anyone predict that for housing? Last longer than 5 years?

So, if we do go into recession (I am guesing not until next year if it happens), then rates will come down- perhaps dramatically. So some (I do not know and will not guess at percentages - but some) will be able to refi at a rate that they can afford. If employment stays strong, it will mitigate some of this. If price go back up within the period, it will depend upon how much and when that will dictate if there are actual losses or how much they will be.

Rates will come down when there is trouble in the economy, like rising unemployment. People cannot refinance now because home prices are flat to falling in value. That is not going to change with a recession; it will be worse.

The facts are coming in Brad. It is telling; it is saying that there are problem loans to a much larger percentage than what has been expected. The builders that have their own mortgage operations are now telling us they have problems. DUH!

 

[Randolph Kinney]

Subprime Mortgage Bonds From 2006 May Be Worst Ever

http://www.bloomberg.com/apps/news?pid=20601009&sid=aA9eiYNs_OBg&refer=bond

March 28 (Bloomberg) -- Subprime mortgage-backed securities from 2006 may be the ``worst-performing in recent history,'' with delinquencies on the underlying debt ``consistently higher'' than in the prior five years, Standard & Poor's said,.


About 13 percent of mortgages made last year to people who have poor or bad credit are delinquent, S&P analysts Michael Stock and Scott Mason said in a report yesterday, with 6.65 percent of the total classified as ``seriously delinquent,'' or more than 90 days late. Losses on bonds backed by the loans will be between 5.25 percent and 7.75 percent, compared with 5.5 percent in 2000, S&P forecasted.

 

[moh malekpour]

We Are Not A Subprime Lender!

http://www.financialsense.com/fsu/editorials/dawson/2007/0321.html

On March 15, IndyMac released a rather lengthy press release claiming that it had been inappropriately categorized by many media sources as a subprime lender. IndyMac stated that it is primarily a prime/Alt-A mortgage lender with minimal exposure to subprime. With the subprime lenders in melt-down mode, it is quite understandable why IndyMac would want to differentiate itself. However, in doing so it brought more attention to itself and was featured in an article by CNN Money called 'Liar loans'

Lenders use the term Alt-A (Alternative-documentation) to categorize or differentiate between borrowers. Applicants for this type of loan often lack proof of income from traditional employment. Investors and self-employed borrowers are good candidates. Commissioned employees with inconsistent income also fall into this group. IndyMac is the king-pin of Alt-A loans. Trade publication Inside Mortgage Finance estimates it did $70.2 billion Alt-A loans in 2006, up 48 percent from a year earlier. This was nearly 80% of the company’s mortgage originations last year.
Alt-A loans are also known as “Stated Income” or “Liar Loans” since income is taken as fact. No further documentation is required. As long the automated property appraisal software is functioning, approval is only a few keystrokes away. These loans are tremendously profitable, since the underwriting costs are much lower and the rates are higher than a standard 30 year fixed mortgage.
IndyMac pointed-out in its press release that subprime mortgages generally include loans where the borrower’s FICO score is 620 or below and that their customer’s average score was 701 in 2006. This is an interesting data point, but a person’s FICO score is hardly the root cause of the escalating subprime defaults. The problem lies in the type of loans that have been originated.
Creative loans using teaser rates, negative amortization and interest-only are causing the chaos. Here is an example. An option ARM allows a borrower to pay full principle and interest, interest only or less than full interest based on a teaser rate. If a person elects to pay less than full interest the remainder of the interest is put back into the principle. This is called negative amortization. A person would choose this option, because it could cut their monthly payment in half versus a fully amortized product. However, like all good things - it must end at some point. Most of these loans typically reset interest rates in 1 or 2 years. What’s worse is when the negative amortization reaches its limit, usually 110% of the original loan, not only does the interest rate reset, but both principal and interest must be paid going forward. This could double or triple the monthly payment.
Resetting of such loans is causing the subprime sector to explode. Guess what? Alt-A is dominated by these loans as well. Regardless of a person’s FICO score, a doubling or tripling of their mortgage is going to cause a problem. The higher FICO person may be able to buy a little more time, but the end result will be the same.

 

[hastalavista]

Guys-

I am not a moderator, and have nothing but respect for those who take on that responsibility, and I am asking this strictly on my own.
But, is it necessary to single-out the company that one of the posters we know for a fact is employed by?

I find this thread and discussion fascinating, and do not contribute to it much because I typically don't have anything meaningful to add to what's already being posted. This forum is a free-for-all, which is a good thing (Lord knows I've been lambasted in some of them!). If I worked for New Century, I would be hesitant to talk about New Century since I'm not a company spokesman. Likewise, if I worked for Indymac, I'd be hesitant to talk about specifics unless I was a spokesman and authorized to do so.
Posting a news or comment article that references a specific company is 100% acceptable and adds to the discussion. And opining about a specific company (be it Indymac or any other) is acceptable and consistent with the spirit of this forum.
Again, using myself as an example, if I worked for New Century, and New Century is in the news, I would expect it to be posted in this thread. But I wouldn't be in a position to address the specifics of New Century, and my inability to address those specifics shouldn't be held up as losing a debating point or two. And I certainly wouldn't be able to address a question if asked specifically, unless I was authorized to do so (which, let's face it, I wouldn't be!).
Wayne just changed the screen name policy because some forumites were worried that a name search on Google would link them to a specific post and perhaps then be taken out of context (or, in context but to the regret of the poster). Most of the participants in this thread use their actual names. I think we all have to be cognizant of that fact when we engage in the livelier discussions.

Just my opinion.
(and, if anyone wants to tell me to mind my own business, be my guest! )

 

[Dee Dee]

What Denis said!

 

[JSmith43]

I was going to make the same point, Dennis, but I got distracted by Barry Dayton's post in the latest seller concession diatribe

Let's not put Brad in a corner, since his participation adds balance and range to the discussion. I don't add much range, or balance, hence, only a cameo now and then

 

[Randolph Kinney]

I was going to make the same point, Dennis, but I got distracted by Barry Dayton's post in the latest seller concession diatribe

Let's not put Brad in a corner, since his participation adds balance and range to the discussion. I don't add much range, or balance, hence, only a cameo now and then

Okay Roger and Denis. Anything to lessen the nature of feeling personally attacked.

Brad is okay in my book even if I don't agree with him.

 

[moh malekpour]

Massive Layoffs' Coming

http://www.bloomberg.com/apps/news?pid=20601103&sid=alOjASNOLKcQ&refer=us

There are going to be massive layoffs and maybe something worse than that,'' Ellis said. ``You wonder what impact it's going to have on other companies as well.''
Cracks in the mortgage market began to appear last year. U.S. subprime borrowers fell behind on their payments at the highest rate in four years during the fourth quarter, according to data compiled by the Washington-based Mortgage Bankers Association.
The Center for Responsible Lending in Durham, North Carolina, expects the foreclosure rate for subprime loans to exceed 22 percent in California metropolitan areas including Irvine, Merced, Bakersfield, Vallejo-Fairfield, Fresno, Stockton, Santa Ana, Anaheim and Riverside.