Housing Bubble Bursting?

[murray stroupe]

RE;more ''scary news''& more good RE news

Stanley Johnson is the every man for todays society.How many refi's have we done with the new BMW in the driveway and new Riding mower in the garage.The homedebters are never home and both are working to pay the financing .You meet the homedebter at the door and they are sweating , gotta have 230K to make the deal.Both are in hurry , must get back to work.
Value comes in low , Katy bar the door , we are idiots because the House down the street sold for $240K and their Real Estate Agent Friend said its worth 250K.......
SEE BELOW...SEE WHATS COMING..

Kenneth Heebner, manager of the top-performing real-estate fund over the past decade, said U.S. home prices may plunge as much as 20 percent because of rising defaults on riskier mortgages.

Subprime loans, made to borrowers with a history of missed payments or untested credit, and ``Alt-A'' loans, which require little or no documentation, account for about $2.5 trillion of the $10 trillion in outstanding mortgages, according to Moody's Economy.com. As much as 40 percent of these loans may default, flooding the real estate market, Heebner said.

``It will be the biggest housing-price decline since the Great Depression,'' Heebner, 66, said today in an interview in Boston. Prices may fall by a fifth in some markets, he said.

================
Sounds like he is already right in some RE markets,mr Kenneth is a
skilled[/experienced not infallible] pro.

Investors Business Daily [investors.com] has 2 interesting headlines today [1]''More scary news from housing sector pushes investors into safe heaven of bonds''

[2] ''Waterfront homes seen weathering housing storm''[several appraisers interviewed on this one]

 

[Randolph Kinney]

Wells Fargo Net Rises on Commercial Loans; Bank Takes Subprime Writedown

http://www.bloomberg.com/apps/news?pid=20601009&sid=a0VlUujiwZls&refer=bond

The company reduced the value of subprime loans it holds and increased a provision for early-payment defaults on mortgages that it sold. Those contributed to a $90 million pretax reduction in revenue in the quarter, the bank said. Falling values on mortgage servicing rights contributed another $34 million reduction, the bank said.

The lender moved to tighten underwriting standards on its riskiest home loans, leading to more than 500 job cuts at the home-lending division in the last two months. In a March 7 statement, Wells Fargo said the policy changes affect loans to borrowers with lower credit scores, little money down or sparse documentation of income.


The changes led to a 15 percent drop in the dollar amount of nonprime mortgage applications during the quarter, compared with the prior three months, the company said.

Wells Fargo's net credit losses rose in the quarter to $715 million from $433 million a year earlier. The company blamed some of the increase on higher delinquencies and losses in its auto- loan portfolio, where late payments surged last year after the company combined two separate divisions into one.


Subprime loans are made to borrowers with poor credit ratings or high debt burdens. They typically charge higher interest rates to compensate for the greater risk of default.


Wells Fargo is the only regional bank with more than 10 percent of its loans to subprime borrowers, according to a March 26 report by Banc of America Securities, which estimated 18 percent of the mortgages were made to the riskiest borrowers.


Kovacevich contests such rankings, arguing that a large share of the bank's mortgages are ``co-issued'' with other companies. Wells Fargo makes the loan for another lender, then handles billing and collection of payments for a fee. In those deals, the company bears no risk from having to buy the loans back if the borrower misses payments.


John Stumpf, the company's chief operating officer, said at a conference in Florida in February that almost three-quarters of the subprime mortgages Wells Fargo originated in the first half of last year were co-issues.


``We are not in the chain of ownership'' on those loans, Stumpf said in response to a question about the lender's subprime holdings. Unlike independent subprime lenders such as New Century Financial Corp., which went bankrupt April 2, Stumpf said the bank didn't offer any warranties or make any agreements to buy back mortgages sold to investors if they should go sour.

 

[Randolph Kinney]

SunTrust First-Quarter Profit Falls on Increased Loan Losses and Mortgages

http://www.bloomberg.com/apps/news?pid=20601208&sid=a3S.5Nr4H6W0&refer=finance

April 17 (Bloomberg) -- SunTrust Banks Inc., the seventh- largest U.S. bank by assets, said first-quarter profit fell 1.9 percent as loan losses increased and the company cut back on riskier mortgages.


Profit at the bank's mortgage unit fell to $7.5 million from $77.6 million a year ago. Revenue at the unit fell 37 percent to $169.2 million, with $42.9 million of the reduction coming from the accounting change.


Regional banks are reporting lower earnings after a five- year boom in home sales ended, reducing demand for mortgages and the fees lenders earn. A rise in defaults and delinquencies on subprime mortgages to borrowers with poor credit also cut demand from investors for Alt-A loans extended to borrowers with better credit who don't meet standards for conventional loans.


SunTrust said its nonperforming loans rose to 0.57 percent of total loans, up from 0.25 percent a year earlier, in part because of deteriorating credit quality in the Alt-A loan portfolio. Net charge-offs rose to $62.9 million from $22.3 million.

 

[Randolph Kinney]

M&T Profit Falls on Lower-Than-Expected Mortgage Bids

http://www.bloomberg.com/apps/news?pid=20601203&sid=afRjV9IWdQEM&refer=insurance

April 17 (Bloomberg) -- M&T Bank Corp., the New York lender partly owned by Warren Buffett's Berkshire Hathaway Inc., said first-quarter profit fell 13 percent as it wrote down the value of mortgage loans and defaults rose.


Profits at M&T and other U.S. regional banks are declining with the end of a five-year boom in home sales, reducing demand for mortgages. M&T had forecast that first-quarter earnings would fall as delinquencies spread from homeowners with the riskiest mortgages to borrowers with better repayment records who hold so- called Alt-A loans.


An increase in defaults and delinquencies on lower-rated ``subprime'' mortgages also has hurt demand from investors for Alt-A loans. Short for Alternative A, the loans are granted to borrowers with good credit histories who don't meet standards for conventional mortgages.

 

[Randolph Kinney]

With Foreclosures Up, REOs Now Starting to Flood Market

http://www.housingwire.com/2007/04/16/with-foreclosures-up-reos-now-starting-to-flood-market/

More than a quarter-million pre-foreclosures and notices of pending foreclosure auctions were filed nationwide in the first quarter of the year, according to data released today by ForeclosureS.com, a real estate advisory service. 253,803 notices of foreclosure were filed in the first quarter of 2007, up 22.5 percent from the 207,128 filings in the fourth quarter of 2006.


As large as those numbers are, they don’t include tens of thousands more now-vacant properties that actually were lost to foreclosure during that same period. Those REO, or bank-owned real estate filings, totaled 110,791 in the first quarter alone — one of the largest influxes of REO recorded in a single quarter in recent history.

“Homeowners who can’t afford their monthly payments, rather than simply refinance their way out of trouble as many have grown accustomed to, will now have to sell their homes quickly, or risk losing their home to foreclosure,” McGee said. “That means in the coming months we can expect to see many more pre-foreclosure filings, more auctions, and more REOs.”

Nationwide, auction filings alone for the first quarter were up almost 50 percent from the previous quarter–102,930 vs. 69,802 for fourth-quarter 2006. Pre-foreclosure numbers climbed, too—168,837 in first-quarter 2007 vs. 138,799 in fourth-quarter 2006. Total March foreclosure filings in all three categories—pre-foreclosures, auctions, REOS—also were up substantially over February numbers–70,350 pre-foreclosure filings in March, up 39 percent over the 50,496 in February; 45,512 auction filings, up 52 percent over the 29,867 in February, and 45,561 REOs in March, up 50 percent over the 30,337 in February.


California led the nation in pre-foreclosure filings (49,016 year to date) and auctions (25,023 year to date); both numbers are up substantially from the same time last year, 139% and 277% respectively. Texas had the most REO or bank-owned real estate filings with 14,101 year to date, up from 11,226 a year ago. On a per capita basis, Ohio led in REO filings with 2.5 per 1,000 households (11,027 filings year to date) with Tennessee a close second—2.2 per 1,000 (5,022 filings). Colorado led in pre-foreclosure filings with 5.9 per 1,000 households (9,711 filings) with Florida a very close second with 5.8 foreclosures per 1,000 households (36,598 filings).

 

[JSmith43]

Kovacevich contests such rankings, arguing that a large share of the bank's mortgages are ``co-issued'' with other companies. Wells Fargo makes the loan for another lender, then handles billing and collection of payments for a fee. In those deals, the company bears no risk from having to buy the loans back if the borrower misses payments.

WF has a large servicing capacity and has bought up servicing rights in the past. All these superficial analyses must really **** off the bean counters in internal accounting

 

[Randolph Kinney]

WF has a large servicing capacity and has bought up servicing rights in the past. All these superficial analyses must really **** off the bean counters in internal accounting

Roger, if a lender has the servicing rights to a given loan, it values the dollars generated from that servicing right on the balance sheet. Now when the loan itself becomes impaired, although the lender with servicing rights only does not have any liability for the loan balance, it still has to service (keep book) on the loan. No money coming in, money going out to keep the book equals an operating loss.

When the property is finally disposed, REO, the value of the servicing right has to be written off to zero on the balance sheet and shown as an operating loss.

Yeah, it is an accounting nightmare and it sure makes the operating income statement look very strange when you back it out to the top line, the revenue line.:new_all_coholic:

 

[JSmith43]

Now when the loan itself becomes impaired, although the lender with servicing rights only does not have any liability for the loan balance, it still has to service (keep book) on the loan. No money coming in, money going out to keep the book equals an operating loss.

Actually, I believe that the servicing rights flow from (for example) Fannie/Freddie as a fee (something like 1/4% to 3/8%) of the mortgage amount on an annual basis. It is likely that they have to do more to earn the servicing fee for non-performing loans, but, as far as I know, they still earn the fee.
SRP (service release premium) is essentially the value placed on the servicing rights by an investor. It may also vary per loan product, but, generally is valued at 1.25%-1.8% of the loan amount.

For those that are unfamiliar with servicing rights, WF or any investor that sells loans on the secondary market may choose to retain servicing rights or sell them separately. WF generally keeps the servicing rights.

Just for kicks, I checked an 80/20 scenario with two competing investors & one calculated the SRP at 1.45% and the other at 1.75%. The one with the higher calculation is known to prefer to retain servicing rights, just like WF

Personally, I believe their servicing is a class act compared to much of the competition. It is a specialty, somewhat distinctive of originating, bundling and selling loans. They like to cross market the heck out of other banking products to their base.

 

[Randolph Kinney]

Actually, I believe that the servicing rights flow from (for example) Fannie/Freddie as a fee (something like 1/4% to 3/8%) of the mortgage amount on an annual basis. It is likely that they have to do more to earn the servicing fee for non-performing loans, but, as far as I know, they still earn the fee.
SRP (service release premium) is essentially the value placed on the servicing rights by an investor. It may also vary per loan product, but, generally is valued at 1.25%-1.8% of the loan amount.

For those that are unfamiliar with servicing rights, WF or any investor that sells loans on the secondary market may choose to retain servicing rights or sell them separately. WF generally keeps the servicing rights.

Just for kicks, I checked an 80/20 scenario with two competing investors & one calculated the SRP at 1.45% and the other at 1.75%. The one with the higher calculation is known to prefer to retain servicing rights, just like WF

Personally, I believe their servicing is a class act compared to much of the competition. It is a specialty, somewhat distinctive of originating, bundling and selling loans. They like to cross market the heck out of other banking products to their base.

Thanks Roger, I did not know that a loan that is not paying the monthly payments can still generate income for the owner of the servicing rights.

Who pays the servicing fee to the owner of the servicing right if it is not coming out of the monthly payment?

 

[Randolph Kinney]

C.A.R. Publishes Its Foreclosure Data For 4Q 2006

Attached is the graphic for the number of foreclosures for San Diego county for fourth quarter 2006.

Also is the graphic of median days on market for fourth quarter 2006.

Both are signaling levels that are approaching the worst recorded history. The median DOM is "cooked" because it is common place that Realtors cancel or withdraw a listing and re-list under a new listing number.