Housing Bubble Bursting?

[Randolph Kinney]

IndyMac may be rated junk, will suffer write downs, loss of volume

Moody's may cut IndyMac to junk, affirms WaMu

NEW YORK, Aug 27 (Reuters) - IndyMac Bancorp Inc (IMB.N: Quote, Profile, Research) may be downgraded to junk status by Moody's Investors Service, which said on Monday that difficult mortgage market conditions may hurt profit at the ninth-largest U.S. mortgage lender for a few quarters.

"Investor demand for non-agency product has declined severely over the past month and Moody's expects write-downs on IndyMac's inventory to be large in the third quarter," Moody's Senior Vice President Sean Jones wrote. "These potential write-downs, and the significant drop in residential mortgage loan origination and sales volumes, is likely to weigh on the thrift's profitability for a few quarters."

 

[Steve Owen]

http://www.inman.com/hstory.aspx?ID=64369

"We are encouraged by these sales as they represent the first small sign that the ice is beginning to melt, and some modest liquidity is beginning to return to the private-label mortgage market,"

 

[Randolph Kinney]

http://www.inman.com/hstory.aspx?ID=64369

Steve,

While this article presents the news of selling prime jumbo loans, it does not say anything about the 70% of IndyMac's business, namely ALT-A.

The lack of demand for mortgage-backed securities (MBS) had forced IndyMac to stop offering jumbo loans. On Wednesday, the company announced it had resumed originating prime, single-family residential, full-documentation jumbo loans.

Borrowers with FICO scores of 680 and above and a 25 percent down payment are eligible for a loan of up to $2 million, or up to $1 million with 20 percent equity. A borrower with a FICO score of 700 or better, a 15 percent down payment and mortgage insurance is eligible for a loan of up to $750,000.

That is really a steep requirement for making loans. Here in San Diego county where the median selling price is over $500,000, how many borrowers would qualify or would go for a loan under these requirements? Not many.

I suspect that Moody's is right on.

 

[Randolph Kinney]

Get ready for the other shoe to drop

Record retreat

Values down in 15 of 20 major cities, Case-Shiller finds

WASHINGTON (MarketWatch) -- U.S. home prices fell at a faster rate in the second quarter, down 3.2% compared with the same period in 2006, Standard & Poor's reported Tuesday.

It marked the largest year-over-year decline ever recorded in the 20-year history of the Case-Shiller home price index.

A year ago, home prices were rising at a 7.5% pace nationally.

In an interview with MarketWatch, Shiller noted that the figures were for activity ending in June -- well before the more recent blowup in the mortgage markets.

"We are fast approaching the rate of price decline seen at the end of the 1990-91 recession, and the odds strongly favor blowing past this mark in coming months," wrote Joshua Shapiro, chief economist for MFR Inc. "With supply overhang growing and mortgage financing tougher to obtain, home prices are going to soften considerably further in the quarters ahead."

The last time prices fell so much, it took more than eight years for home prices to return to their peak level.

My bold.

Please note that 5 cities were rising in value. However, as the article notes, we are truly in an era of time that is unprecedented. There is no recession, no rising unemployment or other typical negative influences that give rise to these declines.

I reckon the decline has not bottomed yet and the effects will be long lasting as in years.

 

[hastalavista]

Steve,

While this article presents the news of selling prime jumbo loans, it does not say anything about the 70% of IndyMac's business, namely ALT-A.That is really a steep requirement for making loans. Here in San Diego county where the median selling price is over $500,000, how many borrowers would qualify or would go for a loan under these requirements? Not many.

I suspect that Moody's is right on.

Those could fit into the agency $417k conforming limit.

But, the point is made; this is having a significant impact on housing prices which as we speak which appraisers will have to consider in the current valuations.

I just received the Case-Shiller Index emailed to me:
San Francisco (my market) monthly change from May -.7%, Y-O-Y -4.0%
San Diego (your market, Randolph) change from May -.2%, Y-O-Y -7.3%

 

[moh malekpour]

So, Indymac is going to survive, cut the Alt-A mortgage all together, do only prime loans that can be sold to Fannie and Freddie, do a little Jumbo on the side and reduce its lending activity inorder to play safe and sound.

Countrywide with the support of BoA may survive, cut all sub primes and garbage loans, cut its business to half or third, do just prime loans and may be some safe Jumbo on the site.

Then, who is going to offer loans to those expensive homes in most areas of CA? I think, CA homeowners who enjoyed the housing bubble in last few years are going to have a tough time to face the reality that their home prices may come back to earth.
If they can find a lender who is going to do jumbo, it is going to be at least 1% above the prime rate, may require PMI or 20% down and an excellent credit.

 

[Austin]

Yesterday in the snail mail I received a letter with a "hand written" address to me from Wacovia Mortgage. They are looking for some good honest appraisers to add to their network. It went right into file 513. How long do you think that will last? Good honest appraisers come in below value a lot of times and in these days and times most of the times. They couldn't pay me enough at this state of the game to do a mortgage loan appraisal.
I might be fat and ugly, but I ain't stupid.

 

[hastalavista]

Austin-

Many who work for Wachovia (and, had worked for World Savings) report that they are an upfront and honest lender looking for a credible and reliable value?

I do not do any work for Wachovia, BTW.

I do work for US Bank direct. I've never, ever been pressured to report anything as "was" that "wasn't" including the value. I've certainly been asked for clarification, or "are you sure?"; those are reasonable questions. And when my answers resulted in a negative lending decision (I assume it was negative, based on the question and my answer), it has never affected my volume with them. And, I've talked to about as high in their hierarchy as one could regarding appraisal issues. One was issue was when the new form came out, and created a significant and favorable change in their internal guidelines regarding appraisals, appraisers and the Cost Approach requirement.

Skepticism is healthy, and these times warrant it.
But not all lenders act nefariously.

 

[Karl]

World Bank was awesome!! it will be intresting now with Wachovia in charge. Austin I'd consider pulling that request out & giving thenm a try.

 

[hastalavista]

World Bank was awesome!! it will be intresting now with Wachovia in charge. Austin I'd consider pulling that request out & giving thenm a try.

I thought I read where it was Wachovia's intent to mimic World's appraisal process because it had been so successful? (World was a portfolio lender, and therefore wanted appraisals that protected its best interests; in other words, appraisals that were reliable and credible)

Interesting company (World) located in Oakland, CA, and ran by an interesting partnership: Husband and Wife co-chairpersons. They sold last year; I think they were in the late 70's/early 80's?