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Housing Bubble Bursting?

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At least the mortgage companies can't call your mortgage...

Mortgages During the Great Depression

During the time of the Great Depression, the rules were different and lenders could call a mortgage loan due if they wanted to, and they did. Back then, lenders could demand full repayment of a loan at any time.
When the stock market crashed on Oct. 29, 1929, millions of people who had bought stock on margin (that is, with money borrowed from their brokerage) received margin calls. To cover the margin calls, many of these people went to their banks to withdraw cash.

With this run on the banks, it wasn't long before many banks ran out of cash and resorted to calling mortgage loans due from homeowners in good standing with a history of on-time payments. Because of the stock market crash and high unemployment, demand for homes was low and home prices fell. Homeowners couldn't easily sell their homes to pay off their entire mortgage balances, and many homeowners lost their homes to foreclosure.
 
Even prime borrowers went after subprime loans

The United States of Subprime

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.
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See the interactive graphic link for data: http://online.wsj.com/public/resources/documents/retro-SUBPRIME07.html
 
Countrywide - how low can it go?

Countrywide lending slides, cuts nearly 5,000 jobs


NEW YORK, Oct 11 (Reuters) - Countrywide Financial Corp funded 44.3 percent fewer mortgage loans in September as it eliminated nearly 5,000 jobs to cope with lower lending volume and increasing delinquencies and defaults, the company said on Thursday.

Fundings of adjustable-rate mortgages slid 76 percent, while nonprime loan fundings, including subprime, tumbled 92 percent.

Countrywide is eliminating as many as 12,000 jobs, or 20 percent of its work force.
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California slides into recession

California Retail Sales and Use Taxes


Based on sales tax revenue, it now appears that the California economy is in recession.

The graph shows the September retail sales tax collections (and fiscal year through Sept) since 1998. The large decline in 2001 was related to the '01 recession, the tech bust, and 9/11.

Here are the numbers:

California Retail Sales and Use Taxes
Sept 2007: $2,038,416,000
Sept 2006: $2,201,717,000

September sales tax revenue was off 7% compared with last year.
 
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Something from the WSJ..

http://online.wsj.com/article/SB119205925519455321.html?mod=googlenews_wsj

The United States of Subprime - Data Show Bad Loans Permeate the Nation; Pain Could Last Years

As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.
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San Diego county REO - should anyone worry?

Foreclosure Wave

30% of sales are REO, 10% of sales are short sales

Banks seized 14 times as many San Diego County homes last month as they did in September of last year, leaving home values vulnerable, lenders flooded with properties and government officials scurrying to help.

The number of homes to make it all the way through the foreclosure process to become bank-owned properties in San Diego County soared to 866 homes, a 43 percent increase from August's 602, according to numbers released Wednesday by RealtyTrac, a nationwide foreclosure tracker. And last month's number shows a 14-fold jump compared to September 2006, when just 62 homes were repossessed, or became real-estate-owned (REOs).

Ramsey Su is a retired REO broker who worked in the local market during the 1980s and 1990s who tracks the market extensively. Having attended both of the major home auctions in San Diego this year held by Orange County-based Real Estate Disposition Corporation, Su estimated those auctioned homes have sold for about 30 percent less than the price the company listed as the homes' previous values.

During Su's career, an intake of 800-some REOs in a month was unheard of.

No local real estate data firms could provide data Wednesday for what proportion of current sales were REOs, homes sold after being repossessed by banks. But Su estimated that REOs comprise a little more than 30 percent of the county's total sales, while short sales comprise another 10 percent or so.

For August, based on DataQuick Information System's tally of 2,457 sales of resale houses and condos in the county, those estimates would translate to about 740 REOs sold in August and about 245 short sales.
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Randolph Kinney said:
Up to 70 Percent of Defaults Linked to Misrepresentation in Mortgage Applications
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Yes but how many people actually understand the mortgage process? Who do you think was advising borrowers that they could overstate their income, the mortgage brokers! If you think about it why were so many loans in the sub prime market done as no doc, stated income loans? You can read stories about bus drivers claiming $100,000 or more a year in income and you're telling me that it wouldn't raise a red flag when the underwriter reviewed this application? The lenders knew exactly what was going on and the LO's were competing to see who could submit and get the most loans approved regardless of the quality of the borrower. If 70% of the loans were misrepresented what does that say about the so called "checks and balances" of the underwriting system??
 
sunnycal said:
Yes but how many people actually understand the mortgage process? Who do you think was advising borrowers that they could overstate their income, the mortgage brokers! If you think about it why were so many loans in the sub prime market done as no doc, stated income loans? You can read stories about bus drivers claiming $100,000 or more a year in income and you're telling me that it wouldn't raise a red flag when the underwriter reviewed this application? The lenders knew exactly what was going on and the LO's were competing to see who could submit and get the most loans approved regardless of the quality of the borrower. If 70% of the loans were misrepresented what does that say about the so called "checks and balances" of the underwriting system??
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Sunny,

Reading all the complaints about appraisers over valuing and committing fraud, I got the impression it was the appraiser that was causing the majority of the problems.

No doubt the checks and balances are broken in the lending process.
 
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