Housing Bubble Bursting?

[Randolph Kinney]

Moh, very interesting construction of data, analysis and explanation. But, you should know that your analysis and explanation of a hypothetical data set is not going to be accepted as the cause and effect for the current anomaly in median sales prices, here in California.

One can say with all plausibility that any change in median value simply represents a shift in the volume of lower values verses higher values.

A change in median value in of itself does not explain what happened. It does not relate necessarily to supply and demand, for example, although it may be representing a shift in demand for more expensive homes or put the opposite, a lessing demand for cheaper homes.

Basically the tool that NAR and DataQuick has used to characterize markets is broken. When the median price was rising, is was accepted as representing a shift in all price points, increasing. Now that the median price is continuing to rise, it is obvious that the median does not represent a shift in all price points. And therein lies the fault; there is no way to compare history of median prices and its importance or significance.

The reason I laugh at NAR and DataQuick, they publish the "numbers" like median value without further comment. Everyone knows, especially in California, prices are not increasing. Yet you have supposed learned people acting as if the median price increasing means the the real estate market is not in distress.

 

[Randolph Kinney]

CDO Sales Tumbled 46 Percent in March as Subprime Delinquencies Mounted

http://www.bloomberg.com/apps/news?pid=20601009&sid=atHoheq_X8FI&refer=bond

May 7 (Bloomberg) -- Sales of bonds backed by corporate loans and debt, home mortgages or debt on commercial properties dropped 46 percent in April from March as delinquencies mounted on subprime loans, according to Morgan Stanley.


New issues of collateralized debt obligations fell to $39.5 billion from $73.1 billion, New York-based Morgan Stanley analyst Vishwanath Tirupattur said in a May 4 report. Sales of so-called structured finance CDOs, often backed by subprime loans, declined 61 percent to $15.4 billion.


Losses for subprime home loans packaged into asset-backed securities last year are expected to be 6 to 8 percent, up from a forecast of as low as 5.5 percent amid falling home prices and fewer options to refinance, Moody's Investors Service said April 20. CDO issuers in March rushed to sell CDOs backed by subprime mortgages, leaving little backlog for April, Tirupattur said.


Issuance of CDOs of asset-backed securities ``for the rest of the year will slow,'' Tirupattur wrote.


Collateralized debt obligations are pools of loans or mortgages sliced into bonds with different credit ratings and maturities to cater to investors' preferences. Subprime mortgages are made to borrowers with poor credit histories or high debt burdens.

 

[Randolph Kinney]

S&P, Moody's May Lose Subprime Mortgage-Bond Suits

http://www.bloomberg.com/apps/news?pid=20601009&sid=aUcXP4jkQJVA&refer=bond

May 7 (Bloomberg) -- Moody's Investors Service, Standard & Poor's and Fitch Ratings may be successfully sued by investors who lose money on subprime-mortgage bonds and similar securities that the firms have rated, a study released last week said.


With ``structured-finance'' bonds, the New York-based ratings services have moved past offering opinions on risk and essentially taken on underwriting roles, according to the paper by Joshua Rosner, a managing director of Graham Fisher & Co., an investment research firm in New York, and Joseph Mason, an associate finance professor at Drexel University in Philadelphia.


The firms have said in past lawsuits, including ones filed after the collapse of Enron Corp. and the default of Orange County, California, that their credit assessments represent views protected by the First Amendment of the U.S. Constitution. That argument has seldom failed, according to a 2005 paper by Frank Partnoy, a law professor at the University of San Diego.


Compared with corporate or municipal debt, ratings offered on bonds backed by assets leave greater ``reason to question whether'' the firms ``should be viewed as editorializing or advertising,'' Rosner and Mason wrote in a draft of their paper presented May 3 at the Hudson Institute in Washington.

Bond investors will probably suffer about $100 billion in losses from defaults on the more than $10 trillion in U.S. home loans outstanding, Citigroup Inc. analysts led by Rahul Parulekar in New York wrote in a March 9 report. The analysts were gauging the fall-out from a doubling in delinquencies since mid-2005 on subprime and ``Alt A'' mortgages packaged into securities.

Ratings firms last year broke with their past practices to reconsider their initial assessments on the bonds within a year, as early borrower trouble with home loans for consumers with poor credit or certain other attributes representing higher default risks exceeded expectations. S&P cut ratings on a record 253 bonds backed by U.S. mortgages in the first quarter.

 

[hastalavista]

So, investors want to sue the rating services?

And the rating services provide an opinion of the quality of the loans (securities) that the investors are purchasing; does anyone see a similarity between the rating companies and appraisers in terms of the basis of the lawsuits?

 

[Randolph Kinney]

Revelation! Pressure at Mortgage Firm Led To Mass Approval of Bad Loans

http://www.washingtonpost.com/wp-dyn/content/article/2007/05/06/AR2007050601402.html?hpid=topnews

Maggie Hardiman cringed as she heard the salesmen knocking the sides of desks with a baseball bat as they walked through her office. Bang! Bang!

" 'You cut my [expletive] deal!' " she recalls one man yelling at her. " 'You can't do that.' " Bang! The bat whacked the top of her desk. As an appraiser for a company called New Century Financial, Hardiman was supposed to weed out bad mortgage applications. Most of the mortgage applications Hardiman reviewed had problems, she said.

But "you didn't want to turn away a loan because all hell would break loose," she recounted in interviews. When she did, her bosses often overruled her and found another appraiser to sign off on it.


Hardiman's account is one of several from former employees of New Century that shed fresh light on an unfolding disaster in the mortgage industry, one that could cost as many as 2 million American families their homes and threatens to spill over into the broader economy.

New Century has become the premier example of a group of companies that grew rapidly during the housing boom, selling working-class Americans with questionable credit huge numbers of "subprime" loans with "teaser" rates that typically rose after the first two years. This business transformed the once-tiny New Century into a lending powerhouse that was held up as a model of the mortgage industry's success.


But now, with home values falling and adjustable loan rates rising, record numbers of homeowners are failing to make their payments. And a detailed inquiry into the situation at New Century and other subprime lenders suggests that in the feeding frenzy for housing loans, basic quality controls were ignored in the mortgage business, while the big Wall Street investment banks that backed these firms looked the other way.


New Century, which filed for bankruptcy protection last month, has admitted that it underreported the number of bad loans it made in its financial reports for the first three quarters of 2006. Hardiman and other former employees of New Century interviewed said there was intense pressure from bosses to approve loans, even those with obviously inflated housing appraisals or exaggerated homeowner incomes.


"The stress in that place was ungodly. It was like selling your soul," said Hardiman, who worked for New Century in 2004 and 2005. "There was instant notification to everyone as soon as you rejected a loan. And you dreaded doing it because you paid for it. Two guys would come with a bat, and they were all [ticked] off because you cut their deals."


New Century officials would not publicly respond to the ex-employees' allegations. A senior executive, who spoke on condition of anonymity because of state and federal investigations into the company, acknowledged that the atmosphere in some branches might have been intense at times. But he said the firm had safeguards to make sure workers did not feel pressure to approve questionable loans.


Hearing what Hardiman went through, he said, was "upsetting" and "not representative of our offices."


"In an organization with this size . . . I'm not naive to think that [such behavior] didn't happen," the executive said. "But I find it highly implausible over the last 10 years that something systemic was going on and somehow it was disguised. . . . There were pressures, especially in a declining market, and those pressures became more robust. But we turned up our controls and our vigilance at the very same time."

There is more to this article but what it is saying that most all mortgage operations in 2006 in other companies did the same thing: Big pressure to fund the loan and look the other way. And it is showing in the statistics now with record defaults and foreclosures.

 

[Randolph Kinney]

U.S. April Foreclosure Filings More Than Double, Foreclosures.com Reports

http://www.bloomberg.com/apps/news?pid=20601206&sid=a9FHNW7kPEus&refer=realestate

May 7 (Bloomberg) -- U.S. homeowners entered the foreclosure process in April at more than double the rate of a year ago as tightening credit made it more difficult to refinance and a swelling supply of unsold homes made it tough to sell.


The number of homeowners in all three phases of foreclosure rose last month over the same period a year ago, according to Sacramento-based Foreclosures.com, which gathers data from county courthouses nationwide.

Those receiving their first notice of foreclosure from a bank climbed 127 percent, those with homes going up for sale by auction jumped 164 percent and those whose homes were repossessed by banks went up 40 percent.


Eight of 10 subprime loans, given to borrowers with bad or limited credit histories, adjust over time to higher interest rates and many homeowners can no longer afford their mortgages. With existing home sales at a four-year low, it's more difficult to sell because there are so many homes on the market.


``The housing boom was a house of cards,'' said Alexis McGee, president of Foreclosures.com. ``A lot of people who are living beyond their means and borrowing from Peter to pay Paul find that it's starting to catch up with them. We're seeing the effects of aggressive lending and minimal standards for underwriting.''

The March 2007 numbers compared with a year earlier were similar to the increases of April 2007 over April 2006. First filings increased 126 percent in March 2007 compared with March 2006, notices of auction climbed 121 percent and the number of bank repossessions grew 51 percent, Foreclosures.com said.


Purchases of existing homes dropped in March to an annual rate of 6.12 million, from 6.68 million in February, the biggest decline since January 1989, said the Washington-based National Association of Realtors. Sales fell 11.3 percent compared with a year earlier.


According to Zurich-based Credit Suisse, 82 percent of subprime mortgages have an adjustable rate provision, meaning that payments start with low or ``teaser'' rates and adjust to a higher rate after a set number of years.

 

[Randolph Kinney]

U.S. Home Prices to Fall 3.3 Percent on Bad Lending, Says Economist Rosen

http://www.bloomberg.com/apps/news?pid=20601206&sid=aBHdJ0qOFF_0&refer=realestate

May 7 (Bloomberg) -- The median price of U.S. homes will drop 3.3 percent this year, a decline almost five times that predicted by the National Association of Realtors, a University of California at Berkeley economist said.


Tighter lending practices and a glut of unsold homes will force down prices by 1.9 percent next year and reduce the number of sales, said Kenneth Rosen, chairman of Berkeley's Fisher Center for Real Estate and Urban Economics.


The five-year U.S. housing boom ended last year after interest rates rose and supply outstripped demand in many markets as speculators canceled orders and first time home buyers failed to find affordable financing.


``There are 3.75 million existing unsold homes,'' Rosen said at a real estate conference in San Francisco. ``That is a huge inventory. It's twice what we've seen before.''


The Chicago-based realtors trade group said last month that median home prices will decline 0.7 percent this year to $220,300, after predicting a 1.2 percent gain one month earlier. The median home price rose 44.5 percent from 2000 to 2005 to $219,600, the realtors association said.


The revised estimate reflects ``rising sales in low-cost markets such as Texas and South Florida and falling sales in high-cost markets such as California, combined with the subprime impact,'' said spokesman Walter Molony. A new estimate will be released tomorrow, he said.


Rosen predicted that U.S. homebuilder stocks will decline by 50 percent from their prices last year, as demand stalls and the companies try to sell excess inventory and write down the cost of land and options to buy land that they will not use.


The Standard & Poor's Supercomposite Homebuilding Index has fallen 15 percent since January and 23 percent in the past 12 months.

Rosen said the subprime loan crisis was fueled by borrowers who exaggerated their income and lenders who gave mortgages to buyers they knew were lying on loan applications.


``Bad lending practices are coming home to roost,'' Rosen said. ``Fraud was widespread by the consumer and the originator.''


Rosen, who also runs Berkeley-based Rosen Consulting Group and a hedge fund called Rosen Real Estate Securities, said he expects late payments by subprime borrowers to climb 25 percent this year and foreclosures to rise 12 percent.


Late payments on subprime mortgages drove up U.S. foreclosure filings in the first quarter by 35 percent over the same period last year, according to Irvine, California-based research company RealtyTrac Inc.


``We are in the eye of the storm,'' Rosen said. ``The second wave of delinquencies will hit in the next 18 months.''


Wall Street firms bought an estimated $1.2 trillion in subprime loans, packaged them into securities and sold them to investors, Rosen said.
``Wall Street bought this garbage and put it in our pension funds, endowments and off shore,'' he said.

 

[hastalavista]

Alliance Bancorp

I don't know if anyone else has picked this up yet, but on the Mortgage Broker's Outpost, there is a running thread that Alliance Bancorp has suspended funding of any loans since last week (5/1 or so).

The latest posts (apparently from an Alliance employee or someone in the know) is that the final word will be handed down tomorrow if they remain open or not.

 

[Randolph Kinney]

NAR's departing economist now sees recession

http://www.chicagotribune.com/business/chi-0705050112may06,0,848236.story?coll=chi-business-hed

On his way out the door, the housing industry's self-described "cheerleader" is making one last economic forecast -- a sober one at that.

"We're in a real estate recession," said David Lereah, chief economist for the National Association of Realtors, who surprised many this week when he announced he would leave the Chicago-based trade group on May 19.

"I'm projecting the first [nationwide] price drop since the Great Depression," he said. "We're going to have negative home prices in 2007."

His comments seemed uncharacteristic for Lereah, whose mostly blue-sky forecasts have long been criticized for stoking the fire as home sales bubbled to stunning -- and unsustainable, even by his own account -- levels. He had been the public face for the Realtors since the housing boom began in 2001.

"The media regularly turns to him for real estate quotes," said David Jackson, who created the hypercritical David Lereah Watch blog because he believed the economist was churning the housing market. "Lereah tells half-truths and manipulates facts and figures. He cannot be trusted, as he is a paid shill."

Most critics are less incendiary, though frankly uncomplimentary.

They often cite as Exhibit A his 2005 book, "Are You Missing the Real Estate Boom?" subtitled "Why home values and other real estate investments will climb through the end of the decade."

"He promotes housing," said Washington economist Dean Baker, an outspoken housing-market bear. "Certainly, people who were making decisions to move, they either heard David directly or from someone who heard from David that home prices will never fall, don't worry, the market will stay strong. So they paid too much for a house."

In characteristic cheerleader style he demurred when asked whether he ever felt pressure from within NAR to skew forecasts in a positive direction.

"You'll have to talk to me about that in two or three weeks," Lereah said. "I work for NAR now."

 

[Greg Bell]

The housing crash and REIC fraud will be the biggest domestic issue of the 2008 campaign. Look for hearings, politician posturing, bailouts, regulation, investigations, arrests and frog-marches. The biggest bubble in human history also produced the most financial corruption ever seen. New Century is just the tip of the iceberg. And the stench is worldwide.