Housing Bubble Bursting?

[Greg Bell]

In the 1920s, nearly simultaneous speculative booms affected real estate (most famously in Florida, but also elsewhere in the US), art prices, emerging markets and stocks. As now, central banks were unsure as to whether they were looking at inflation (because of the rise of so many asset prices) or deflation in the prices of some basic goods.

Like today, some of the particularly frothy bubbles burst slightly earlier. Florida real estate began to tank in 1925 (and 2006).

The paralysis of monetary policy when all the speculative booms collapsed at the same time led to massive destruction of wealth in the Great Depression. While individual bubbles bursting may produce an agreeable popping sound, the cumulation of burst bubbles is a massive explosion.

 

[Randolph Kinney]

Even forbearance and restructuring of loans is not working

http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-06-04T171624Z_01_N04326748_RTRIDST_0_TEXT-FITCH-RELEASE-ON-U-S-RMBS-SERVICERS.XML

Increasing numbers of stressed mortgage loan borrowers are turning to RMBS servicers for assistance in helping them keep their homes or assisting them with the sale of the property when they cannot afford to keep it. Fitch Ratings discusses the various loss mitigation strategies currently being utilized and their effects in a new report.

A recent survey conducted by Fitch indicated that subprime servicers have historically used payment plans to resolve defaults in approximately 50% to 75% of the cases.

However, the survey showed that the effectiveness of repayment and forbearance plans is decreasing. In addition, payment plans are not expected to work for some borrowers facing ARM resets, because they will not be able to afford the new monthly payment. Conversely, short sales and deeds-in-lieu (which reduce foreclosure and eviction costs and timelines) are being used more frequently.

Though foreclosure liquidation is seen as the least beneficial strategy, it may be the only recourse in some instances as the servicer is responsible to RMBS investors to minimize losses.

Loan modifications are steadily becoming more prevalent as a viable alternative to foreclosure. However, they can directly affect an RMBS pool's cash flow and potentially result in rating downgrades if not used in a controlled manner and reported properly.

Based on projections from servicers Fitch believes that over the next 12-18 months, modifications could be used on as many as 5%-10% of the loans, based on the original outstanding balance of the deal, and could be the only viable loss mitigation strategy for as much as 40%-50% of the loans in default or determined to be a reasonably foreseeable default scenario.

 

[Steve Owen]

BofA recently polled real estate agents in several markets. I managed to get a copy... pretty interesting stuff.

Sorry... I cannot upload it... it exceeds the Forum's limit by more than four times (seemed like a pretty small pdf to me, at least compared to those guys saying they are sending commercial assignments that way).

 

[Brad Ellis]

Steve,

Sounds interesting.

Any chance you could e-mail it to me- brad.ellis @ imb.com (remove the spaces)

Brad


(Brad, I edited your email address to keep the spammer spiders from picking it up and overloading you. Pam)

 

[Pamela Crowley (Florida)]

Steve, please email a copy of that to me too.

PamC @ MortgageFraudWatchList.org (remove the spaces)

 

[Steve Owen]

Okay, done.

Keep in mind that it is a survey of the opinions of agents... there is also some other interesting info there, however, including historical stuff.

I thought that this was one of the most interesting things. It's kind of hard to read, but the first column is percentage of agents who experienced tighter lending standards and the second column was percentage of those seeing tighter appraisals. Guess who will get the blame when the bottom really falls out?

75% of Agents in the Top 20 Markets Saw Tighter Lending Standards in March, and 54% Noted Tighter Appraisals
Top 20 Markets Lending Appraisals

Atlanta, GA 74.2 53.2
Austin, TX 66.7 31.6
Charlotte, NC 71.1 56.4
Chicago, IL 70.8 52.5
Dallas, TX 88.7 40.4
Denver, CO 68.8 63.6
Fort Myers, FL 59.3 55.6
Houston, TX 84.6 55.3
Jacksonville, FL 58.3 52.0
Las Vegas, NV 91.2 65.6
Los Angeles, CA 82.7 59.4
Miami, FL 83.6 63.6
Minneapolis, MN 61.8 56.1
New York-Northern NJ 66.7 52.7
Orlando, FL 69.2 56.8
Phoenix, AZ 84.4 62.6
Inland Empire, CA 96.4 59.6
Seattle, WA 76.8 43.4
Tampa, FL 80.4 54.0
Washington, DC 64.8 49.1
TOTAL 75.0 54.2

 

[moh malekpour]

On many mortgages, reckoning day coming

http://www.signonsandiego.com/news/business/calbreath/20070603-9999-1b3dean.html

 

[Evincere]

A significant source of money for consumption over the past 5 years has come from the appreciation in home prices. With that appreciation stalling in many areas, the ATM's are out of money. Spending will now have to find a place to fall back on. Credit cards are the obvious first choice as was evidenced by the 9+% annualized growth in consumer credit in March. Watch this trend closely. After the credit cards are maxed, where is the money going to come from? I'm going to leave that question open, but expect to see a plethora of new finance 'instruments' in the coming months. Anything to keep that 70% portion of the GDP intact. Maybe soon we'll see Portfolio Equity Loans where investors can borrow against the value of their 401/IRA's. We are limited only by the creativity of the bankers in this regard and they seldom fail to amaze us.

3)Ber-Hanky cannot afford a prolonged contraction of credit.

More little piggies backing the market....

Credit Card 'Piggybacking' Worries Lending Industry

Monday, June 04, 2007
The pitch to those who are essentially renting their credit history for pay is seductive: You don't need to worry about users of this service receiving duplicate copies of your credit cards, account numbers or any of your personal information. It's essentially free money, they are told.
Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards with strong payment histories. Kinney, whose FICO score is above 800 on the scale of 300 to 850, quit his job working at a Farmers Insurance agency and uses the ICB income to tide him over until he starts his own insurance agency.
Lenders are worried, however, that they're taking on greater default risks by unknowingly offering lower interest rates than they otherwise would to applicants who artificially boost their credit scores. Their trade group has complained to the Federal Trade Commission and is talking with the credit reporting bureaus in case the practice becomes more widespread.
http://www.foxnews.com/story/0,2933,277874,00.html

 

[murray stroupe]

RE;1933 was a very good year in the market

The stock market crash of 1929 launched the Great Depression. The Depression was the time from October 1929 to the mid 1930’s. Former millionaire businessmen were reduced to selling apples and pencils on street corners. One third of Americans were below the poverty line in the Great Depression.

The Dow Jones finally surpassed its 1929 high, a full 26 years later in 1955.

=============================
Gregg
Agree 1929 punched holes in buy/hold forever theory.Some thing else good came of that era, oil started selling by the quart

 

[Randolph Kinney]

Drop in U.S. Home Sales, Prices Likely to Accelerate

http://www.bloomberg.com/apps/news?pid=20601103&sid=az6U3XR1enLU&refer=us

June 6 (Bloomberg) -- U.S. home sales and price declines in 2007 are going to be steeper than earlier forecast, contributing to slower economic growth, the National Association of Realtors said.


Sales of previously owned homes probably will tumble 4.6 percent to 6.18 million and the U.S. median home price likely will fall 1.3 percent to $219,100, the Chicago-based trade group said in a report today. A month ago, the association said it expected 2007 home sales to decline 2.9 percent and home prices to slide 1 percent in the first price drop on record.


A 14-year high in the number of homes for sale in April is sapping consumer confidence in the housing market during a time of year that traditionally is the strongest for real estate, said Lawrence Yun, an economist for the trade group. A ``sluggish'' spring selling season will help to shave more than a percentage point off U.S. economic growth in 2007, he said.


``People are looking, but they're not buying,'' Yun said in an interview. Real estate agents report ``an increase in traffic at open houses, but people are taking their time because inventory is so plentiful.''

NAR is continuing its party line of looking backwards and the data is not matching their forecast. Gee, there's a first.