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Housing Bubble Bursting?

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IndyMac EMAIL / LETTER

http://theimbreport.com/?p=46

It appears that IndyMac has to retreat from the ALT-A business or anything that cannot be resold in the secondary mortgage market, namely, conforming Fannie Mae and Freddie Mac mortgages. That has cut the volume of loans IndyMac can make, under current credit market conditions.
... as I said on the earnings conference call yesterday…we cannot continue to fund $80 to $100 billion of loans through a $33 billion balance sheet….unless we know we can sell a significant portion of these loans into the secondary market…and right now, other than the GSEs and Ginnie Mae….the private secondary market is not functioning.
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The squeeze is on, only those lenders that have economy of scale and built-in cost advantages will survive.
The reality is I have a lot of confidence in our industry’s mortgage originators (and in particular Indymac’s customers and retail loan officers)….to quickly move as many borrowers as possible to this more full doc, conforming loan environment. I remain hopeful that these very major changes which are clearly negative for our and industry’s loan volumes…will be largely offset for Indymac by the fact that we have fewer players left in the business….we are certainly seeing it play out this way so far this week.
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Just insert 2008 for 1930..Believe it can't happen?..

The Great Depression took place from 1930 to 1939. During this time the prices of stock fell 40%. 9,000 banks went out of business and 9 million savings accounts were wiped out. 86,00 businesses failed, and wages were decreased by an average of 60%. The unemployment rate went from 9% all the way to 25%, about 15 million jobless people.
 
Higher Interest Rates Are On The Way

Parts of secondary mortgage market freeze up for lenders

SAN FRANCISCO (MarketWatch) -- The secondary market that supports a big part of the U.S. mortgage industry has ground to a halt in recent days, a development that could dramatically increase the cost of home loans in expensive regions, experts said on Thursday.

The cost of making non-agency mortgage loans is about 102 cents for every 100 cents of the loan, Chow estimated. But right now mortgage originators can't sell the loans at 103, he noted.

To get selling prices up, loans will have to have much higher interest rates, he added.

"So that will feed through to a very substantial increase in the interest rates that home buyers will pay," Chow explained. "If home buyers are in loans that don't conform with Fannie or Freddie, given present market circumstances, they will have to pay at least 100 basis points more." (A basis point is one hundredth of a percentage point).

That will have a big impact on the housing market in California, Florida and other places where home prices are very high, he said.

"In these areas, if home buyers don't have much money as a down payment, their loans will be too large to conform with Fannie and Freddie's standards," Chow explained. "That means people will pay much higher interest rates."
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No doubt, this will ripple through the housing market and demand will fall with the additional rise in interest rates. Refinancing of a non-conforming loan is going to be prohibitively expensive. Subprime loans that reset are going to default more so.

Credit has been reduced.
 
Job Losses Are Adding Up As Lending Crisis Continues

American Home closing claims nearly 7,000 jobs


The originators of the loans are being forced to buy back loans they had sold in the second mortgage market, creating a negative cycle of events that has grown worse.

Forced repurchases increased the amount of distressed mortgage loans for sale in the market, which dented prices.

That, in turn, caused the big banks that provide crucial financing for mortgage originators to mark down the value of mortgages held as collateral to back their loans, Accredited said.

That triggered margin calls, or demands for more cash or collateral, on many subprime lenders including American Home.
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Some say it is a bubble

Jim Rogers Calls U.S. Housing Market One of History's `Biggest Bubbles'

Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''

The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers.
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I like the Bear Sterns Funds names. They were both "High Quality" funds ho ho ho.
 
Spiffy new laws will stop all the fraud , It will also stop the buying and selling of Homes.This will be national soon..

Mortgage industry's wild ride ends with new laws


A trio of new laws aimed at protecting Minnesotans from reckless mortgage lending go into effect today, demarcating the end of an easy-money era when anyone who could fog up a mirror could get a mortgage.

The new laws make mortgage fraud its own felony punishable by up to two years in prison, restrict adjustable rate mortgages and outlaw stated-income loans - so-called "liars' loans" that came to symbolize the era's lending excesses.

While housing activists cheered the regulatory crackdown, it is expected to knock out a sizable chunk of the mortgage lending business in the Twin Cities, affecting consumers and business alike. Just how much is hard to say since a sagging housing market and tightened lending standards due to the crumbling subprime mortgage market already have cut into business.

"It's going to slow the industry down," said Louis Olsen, president of River City Mortgage and Financial, a mid-sized lender in Eagan that has stopped making stated-income loans. "I think everybody has pretty much succumbed to the fact that everybody has to do business the way we did 10 years ago."
 
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