Housing Bubble Bursting?

[Randolph Kinney]

http://drhousingbubble.blogspot.com/
Nostradamus in the House. Looking at 4 Potential Scenarios for Southern California Housing.

Looks like a little plagiarism by Mr. Bell.

I like the 3 scenarios. Which one is most likely?

 

[moh malekpour]

Will housing mess drag economy down with it?

http://www.msnbc.msn.com/id/20111573/

As the housing market continues to grind through its worst slump in over a decade, some readers, like M.H. in Columbus, Ohio, are wondering how long it will take before the economy starts to slump along with it. But there are still some buyers out there. Frank in Missouri is getting ready to buy a house and wants to know if shopping for a mortgage is going to hurt his credit score.

If the "housing mess" gets worse and the ripple effect works its way through every aspect of the U.S. and world financial markets, more so than anyone thinks/predicted, could it lead to the collapse of the U.S. economy, possibly thrusting the country into another great depression or worse

depression or worse?
-- M.H. Columbus, Ohio

Anything is possible, including the destruction of Columbus, Ohio, by a huge asteroid. But a lot more things would have to go wrong for the U.S. economy to “collapse” and get stuck in a extended contraction on a scale comparable to the Great Depression.

First off, the immediate cause of the housing slump is the end of an unsustainable boom that was fueled by (in no particular order): easy lending, rampant speculation, fraud and predatory lending. So part of the contraction in housing is from a ridiculously overextended level.

It’s quite possible that a prolonged, deep slump in homes sales and construction could bring a recession, which often is defined as two or more consecutive quarters of negative growth and/or job losses. That’s what happened the last time real estate hit a major slump, though the resulting recession in 1990 was relatively mild as these things go.

 

[Greg Bell]

Looks like a little plagiarism by Mr. Bell.

I like the 3 scenarios. Which one is most likely?

Did not copy the whole article with the author in error , Not an attemp to match Mr. Barnacle
of Boston or Ward Churchill of Co..:blush:

 

[Steve Owen]

Try this, Allison:

http://articles.moneycentral.msn.com/Investing/JubaksJournal/HowFarWillTheCreditCrunchSpread.aspx

If that doesn't work, then go here:

http://moneycentral.msn.com/home.asp

Click on the "news" tab near the top. Then, near the lower left click on Jim Jubak. Right now, it comes right up, but that will probably change when he writes another story. Anyway, you should be able to find it from there.

We've certainly got some of the raw ingredients for a credit crunch right now. To create a credit crunch you need fear. Because they're taking a beating on existing loans, lenders fear that they will book big losses on future loans -- which makes them reluctant to lend. But fear isn't enough. To create a credit crunch you also need uncertainty.

I couldn’t resist the “in the House” pun but it is becoming apparent that people are placing their bets on what is going to happen now that the housing bubble is bursting. It doesn’t seem like there is any debate regarding that we are in fact, living in a bubble. Subprime lenders are realizing once rates went up, people just said screw it and let the mortgage notes role on in without payments. No complicated economic theory behind it, just common sense which seems less common as each day progresses. With the foreclosure process taking anywhere from 3 to 6 months, folks don’t seem too concerned about getting their credit ravaged like Barry Bonds at a Dodger game. I mean why would someone fight vigorously to defend a home that in all likelihood, isn’t worth what they paid for? For honor? The person that gave the mortgage is likely no longer employed and the note is chopped up like sushi in the mortgage backed securities markets. It isn’t like your local WaMu personal banker is going to give you a call and say, “Hey Mike, is everything okay? What is going on?” The personal touch is gone. The more likely scenario is your going to get a legal letter from the lender in your mailbox saying pay up or else. Most people in subprime loans feel screwed so they are simply returning the favor to lenders. I mean what are they losing? Their credit? They are freaking subprime to begin with! Its not like they are feeling an emotional ache in their heart that their 580 credit score will drop to 400. And you wonder why the market is tanking? With $1 trillion in loans resetting this year, 2008 and 2009 we can expect much of the same.

As I said before, I've seen that psychology play out many times. However, this analysis misses something of the macro, which is happening now, and is even more disturbing:

http://www.nytimes.com/2007/08/06/business/06home.html?_r=1&th&emc=th&oref=slogin

Of course, coming from NYT this has a bit of the liberal bent. What about the borrowers caveat emptor responsibility? Still, there is no question that greed and outright fraud have played into the bubble bust in credit markets.

Fifteen years ago, the last time the housing market ran into stiff trouble, government-sponsored enterprises like Fannie Mae did most of the work pooling and selling mortgage securities. These enterprises readily agree to loan modifications.

But not so in the private issues pooled and sold by Wall Street, which has fueled the extraordinary growth in the market.

What the article hints at, but does not really tell you is, not only are securitized investors often unwilling to modify loan terms, but in many cases, they are actually not legally allowed to do so.

 

[moh malekpour]

American Home Files for Bankruptcy After Shutdown

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQZ1eHVviR9Y&refer=home

American Home Mortgage Investment Corp. filed for bankruptcy protection, becoming the second- biggest residential lender in the U.S. to close down this year.

The filing adds to signs that late payments have spread to homeowners with good credit records. American Home sought federal court protection today in Wilmington, Delaware, with assets of more than $20.6 billion and debt of more than $19.3 billion. The company said Aug. 2 it would halt operations and slash its staff.

American Home specialized in mortgages for people who fall just short of top credit scores. More than half a dozen competitors have declared bankruptcy this year as defaults spilled over from ``subprime'' borrowers with the worst repayment records to those with more reliable payment histories.

``Their sources of funding have all dried up,'' said Mark Power, a lawyer advising some of the more than 100,000 creditors. ``This case is going to be very similar to New Century.''

 

[Steve Owen]

Maybe we need a new thread

"The Credit Crunch Bubble is Bursting!"

This was a better discussion of it than most articles I have seen.

http://www.inman.com/hstory.aspx?ID=64117

Hah. Another kid who thinks he's been around for a while. Nobody can predict how this crunch will play out, but a brief history of prior ones can help to bracket the outcome.

The history is accurate, as I remember it.

This episode is nothing -- nothing -- compared to October '79, when over one long weekend then-Fed Chairman Paul Volcker announced that the cost of money would float free with demand. Many mortgage bankers never answered their phones again. Mortgage rates went from 10 percent to 11.5 percent over that weekend, and to 13 percent by Christmas. The technical top was 18.1 percent in 1981, but that was statistical artifact: lights-on-but-dead S&Ls priced money just beyond demand.

We finally got pushed out of the restaurant business in 1983. Bought a house in 1984 - something like 13.5 percent on an ARM.

The Fed knew that the entire S&L industry would fail, its 9 percent-paying portfolios under water to 14 percent deposit cost, and let it go for greater good. Unemployment over 10 percent, a two-stage recession lasting three years ... but inflation had to be beaten or everything would be lost.

Don't expect the Fed to do anything this time either. The money that is being lost by investors is a natural happening in the markets. People will still need a place to live. Housing will take care of itself as soon as these other issues have worked themselves out. I'm not making any predictions about how long that will be.

 

[Randolph Kinney]

Steve,

You sound as if you are all but throwing in the sponge on the fight on bubbles and their bursting.

The real problems have not had their day yet. Interest rates by historical comparison are really low. The economy is still growing as of last measure. Unemployment is still historically low. As you have pointed out, distressed markets are a few coastal markets. The majority of real estate values are stable. Never mind what Fannie says about some appraisers checking boxes other than declining.

A new thread may not have the enthusiasm and the following as this one.

 

[Randolph Kinney]

Lending shake out continues

National City Home Equity says it suspends loan approvals

SAN FRANCISCO (MarketWatch) -- National City Corp. said on Monday that its National City Home Equity unit has suspended approvals of addition loans or lines of credit in response to market conditions. "This is one of a number of steps National City has taken in recent weeks to help ensure that originations are in line with existing and anticipated market conditions," the bank said in a statement that was e-mailed to MarketWatch. "We are continuing to closely monitor the market and take the appropriate steps to best navigate market conditions."

 

[Randolph Kinney]

Fannie Mae to the rescue

Fannie Mae Asks for Permission to Buy More Mortgage Assets, Person Says

Aug. 6 (Bloomberg) -- Fannie Mae, the largest source of money for U.S. home loans, asked its regulator for permission to take on more mortgage assets and help ease a crunch in the credit markets, a person with knowledge of the request said.


Fannie Mae officials approached the Office of Federal Housing Enterprise Oversight in the past few days, seeking to have restrictions lifted so it can hold more home-loan assets in its portfolio, said the person, who declined to be named because the discussions were confidential.


Allowing Washington-based Fannie Mae and smaller rival Freddie Mac to buy more loans would help ease a slump in demand for mortgages. Lenders including Wells Fargo & Co. and IndyMac Bancorp Inc. last week cut back on making some loans as other investors recoiled. IndyMac Chief Executive Officer Michael Perry said last week he is asking the companies to help.

 

[Randolph Kinney]

Another lender bites the secondary market bullet

Luminent Mortgage Capital

SAN FRANCISCO, CA., August 6, 2007 — Luminent Mortgage Capital, Inc. (NYSE: LUM) announced today that, since August 3, 2007, the mortgage industry, and the financing methods that the mortgage industry relies upon, have deteriorated significantly and in an unprecedented fashion. Effectively, the secondary market for mortgage loans and mortgage-backed securities has seized-up. As a result, Luminent is simultaneously experiencing a significant increase in margin calls on its highest quality assets and a decrease on the financing advance rates provided by its lenders.
In a Board of Directors meeting today, Luminent’s Board unanimously voted to take the following actions:
• The Board of Directors suspended payment of Luminent’s second quarter cash dividend of 32 cents per share on Luminent’s common stock.

• The Board of Directors extended the maturity of the outstanding commercial paper issued by Luminent Star Funding Trust I, a special purpose subsidiary of Luminent, by 110 days.

• The Board of Directors cancelled Luminent’s second quarter 2007 earnings release conference call, scheduled for Thursday, August 9, 2007, at 10:00 a.m. PDT, to discuss its second quarter of 2007 results of operations.

• The Board of Directors delayed the filing of Luminent’s quarterly report on form 10-Q for the second quarter of 2007. Luminent’s second quarter of 2007 unaudited condensed financial information is attached to this press release. Luminent’s independent registered public accounting firm has not completed a review of the financial information for the three and six months ended June 30, 2007.

• The Board of Directors authorized Luminent’s senior management to inform the New York Stock Exchange of these unfolding events and, as a result, trading was halted in Luminent’s common stock.

The Board of Directors currently is considering the full range of strategic alternatives to enhance Luminent’s liquidity and preserve shareholder value during this period of market volatility.