Housing Bubble Bursting?

[Randolph Kinney]

New bankruptcy law no protection from foreclosure

http://www.signonsandiego.com/news/business/20070411-1035-foreclosures-bankruptcy.html

NEW YORK (Dow Jones/AP) – More financially stretched borrowers are realizing even declaring bankruptcy can't save their homes from foreclosure.

According to a study released in March by Credit Suisse Group , more subprime borrowers are turning to bankruptcy court to stave off foreclosure, as softening housing prices make it harder for them to sell their homes to repay debts.

At the same time, the study shows, the number of borrowers who are actually able to bring current their mortgage payments through bankruptcy is declining, and more filers are ultimately turning their homes over to the lenders. The finding means investors in high-yielding mortgage-backed securities should expect higher losses on the underlying collateral.


At least part of the blame, says the report, lies with the bankruptcy law passed in October 2005. The law raised the bar for people to qualify for Chapter 7 “fresh start” bankruptcy proceedings. Chapter 7 can enable individual filers to wipe away debts such as credit-card and medical bills so they can continue to make their mortgage payments. With access limited, more subprime borrowers are forced into Chapter 13, where some can't maintain their payment schedules for more than a couple of months.

Meanwhile, the Credit Suisse study and some consumer lawyers also note that borrowers headed to bankruptcy today pose bigger credit risks than those in the past, as many of them bought houses during the boom with little or no money down. As a result, investors using historical data to predict losses on current bonds may be surprised.


“The roll-rate pattern has changed dramatically,” Credit Suisse's Guo said, “and therefore, investors are more likely to over-predict the cure rate and under-predict the loss.”

Richard Feinsilver, who practices bankruptcy law in Kings County, Queens County, Nassau County and Suffolk County, N.Y., said even some high-income borrowers can't keep up with their repayment plans because of their heavy debt burdens.


“We're beginning to see more high-income, high-debt individuals who purchased homes on the shoe string are finding Chapter 13 beyond their reach,” he said.

 

[Randolph Kinney]

The Economic Contagion from Real Estate Woes

1.Reduced sales of homes, building materials, and furniture have reduced tax revenues for state coffers.

2.The mortgage mess came to the surface in subprime loans has spread to Alt-A. This increases the rate of foreclosures. Foreclosures are also rising because some homeowners are in arrears on paying property taxes. To make monthly mortgage payments artificially low some banks told home buyers to pay property taxes separately, not through escrow. This tax bill has increased hitting many by surprise.

3.Home equity extraction is no longer a driver for consumer spending.

4.In many parts of the country there's a growing list of abandoned real estate projects, which will eventually show up as REO on banks' balance sheets. Many entries on "Other real estate owned" are at loan value, not appraised value.


While we worry about cleaning up the subprime mortgage mess, what happens to the construction and development loans on the books of our nation's banks? To review, the banks have lent $565 billion to homebuilders and developers, mostly to build new single-family homes and condos. Projects are approximately 60% funded. This equates to another 2.5 to 3.0 million in hidden inventories of additional new homes. If builders stop these projects, balance sheets of the nation's banks deteriorate, as loans past due and Noncurrent increases, as does the REO, other real estate owned. These are the seeds of recession and the bear market for stocks.

 

[Randolph Kinney]

Real Estate Slump Hurting Banks

 

[Randolph Kinney]

NovaStar puts itself up for sale

http://www.marketwatch.com/News/Story/Story.aspx?guid={2569DC3A-31C7-48DA-B15A-D83D4B31AFB1}&siteid=mktw&dist=nbk

SAN FRANCISCO (MarketWatch) -- NovaStar Financial said late Wednesday that it's considering selling itself, becoming the latest subprime mortgage specialist to propose relinquishing its independence.

The crisis has already led to bankruptcy filings by New Century Financial and other lenders in the sector. Other specialists, such as Accredited Home Lenders and Fieldstone , have already put themselves up for sale, leading analysts to forecast few independent players, if any, by the time the crisis subsides.

 

[Randolph Kinney]

Emergency funds proposed for subprime crisis

http://www.marketwatch.com/news/story/emergency-funds-proposed-subprime-crisis/story.aspx?guid=%7BBD993ECB%2DC722%2D4616%2DBCE9%2D386ED004DD7D%7D

Lawmakers seek 'hundreds of millions of dollars' to head off foreclosures

WASHINGTON (MarketWatch) -- The federal government should increase aid to nonprofit groups, strengthen rules on mortgage origination, create an antipredatory-lending law banning unfair and deceptive practices and take other steps to tackle the crisis in subprime-mortgage lending, a congressional study said Wednesday.


A report issued by the Joint Economic Committee said that foreclosures in the subprime sector are expected to rise this year and next year, as nearly 2 million hybrid adjustable-rate mortgages, or ARMs, reset in the weakened housing market.


What was once the American dream of homeownership, according to Joint Economic Committee Chairman Charles Schumer, D-N.Y., has "now become the un-American nightmare."


The crisis is particularly acute in Midwestern states like Illinois and Ohio, and states in the South and West like California, Colorado, Florida and Georgia, the report indicated.


Joined at a Capitol Hill press conference with Sens. Robert Menendez, D-N.J., and Sherrod Brown, D-Ohio, Schumer said that he and others would be proposing that "hundreds of millions of dollars" in federal money be funneled to community-based groups to help borrowers head off foreclosures.

In addition to funding nonprofit groups, the report says, regulations about mortgage origination should be beefed up at the federal level. Federal standards could include licensing for individual brokers and lenders and minimum education and experience standards.

 

[Mr Rex]

So has it burst yet? The graphs don't have any pictures of balloons.

 

[Randolph Kinney]

Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley

http://www.bloomberg.com/apps/news?pid=20601109&sid=avI34G5JBAjQ&refer=exclusive

April 11 (Bloomberg) -- When Buck Meyer thinks about the $300,000 he lost after he bought a subprime mortgage lender's bonds, he doesn't hesitate to denounce financial titans Bear Stearns Cos., Credit Suisse Group, JPMorgan Chase & Co. and Morgan Stanley.


Like the thousands of people who snapped up American Business Financial Services Inc.'s notes yielding 10 times the going rate on Treasury bills, Meyer had no idea that the company was on the verge of bankruptcy. He wondered how something so celebrated as ``a kitchen-table startup'' by the Philadelphia Business Journal and so lucrative that it paid $50 million in fees to the four firms for its burgeoning credit, could default on his money.


``At what point did it become a Wall Street Ponzi scheme?'' said the 52-year-old Meyer, who almost wiped out the nest egg he received from selling his home in Doylestown, Pennsylvania, six years ago.


Whether Wall Street's best and brightest were reckless in their pursuit of profits and somehow responsible for the consequences will be decided in a Philadelphia court. That's where the four top brands of finance are accused of creating an ``illusion'' that American Business was a safe investment, according to a lawsuit filed on behalf of Meyer and more than 20,000 other individuals who held about $600 million of the company's bonds when it went bankrupt in 2005.


``The market needs to do a better job of policing than it has to date,'' said David Hendler, head of the group that analyzes the debt of financial services companies at CreditSights Inc. in New York.

``There is the potential for a lot more of these cases to be filed as the subprime lenders continue to fail,'' said Charles Tatelbaum, a Florida lawyer who has represented creditors in some of the U.S.'s largest bankruptcy cases, such as Enron Corp., WorldCom Inc., Continental Airlines and TWA Corp. ``I'd expect to see companies like Bear Stearns and JPMorgan running for cover by negotiating quick settlements.''

 

[Randolph Kinney]

So has it burst yet? The graphs don't have any pictures of balloons.

No, not yet. The investors are only beginning to sue Wall Street for selling them these subprime mortgage bonds that are no good now.

You should see more of a tidal wave going forward. Once banks start to announce impaired balance sheet assets with less than reserved or marked to market values, the tsunami wave will be coming. :new_all_coholic:

After that, NAR will announce that maybe a bubble is beginning to leak ever so slightly. That should tell us when the bubble actually did burst.

 

[Randolph Kinney]

California Foreclosure Auctions Rise, Homes Fail to Lure Bids

http://www.bloomberg.com/apps/news?pid=20601206&sid=aKfJBrqiZr.Q&refer=realestate

April 11 (Bloomberg) -- More than 5,000 California houses and condominiums were offered for sale at foreclosure auctions in March, more than triple the number last September.


Ninety percent of the properties failed to attract bids, a sign that falling prices are keeping real estate investors on the sidelines, according to data compiled by Foreclosure Radar, a new company that tracks such auctions.


The U.S. housing slump, coming on the heels of a surge of lending to borrowers with poor credit histories, is spurring repossessions by lenders as homeowners struggle with mortgage payments. Most of March's foreclosure sales came from loans made in 2005 and 2006 and anecdotal analysis suggests the majority were loans that were made with no down payment, the company said.


``Foreclosures sold at auction now account for 15 percent of all home sales in California and continue to rise,'' Sean O'Toole, Foreclosure Radar's chief executive officer and founder, said in an interview. ``Folks with 100 percent financing and subprime credit are choosing to walk away rather than make payments on a house that's now 10 percent under water.''

The 5,316 properties being auctioned last month had outstanding loan balances totaling $1.99 billion, up from 1,459 properties with loan balances of $512 million in September, the first month Foreclosure Radar compiled statewide data.


Only 520 properties found third-party buyers in March, with 4,796 going back to lenders. The properties that reverted had loan balances of $1.82 billion, Discovery Bay, California-based Foreclosure Radar said.

 

[Mr Rex]

You really think the Realtors will ever admit a slowing much less a bubble bursting? I swear I believe they could pay Greenspan to deny the problems, they certainly have the cash, and Greeny might need a little retirement supplement.:new_smile-l: His replacement sure does speak wid forked tung.