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Housing Bubble Bursting?

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Fraud wrapped in a bubble!

Scott County, MN has a builder induced fraud case that appears to involve 60-100 new construction homes. Does anyone know of a similar case? What was the effect on the market??? They have 8 short sales listed for sale and the 60-100 REO properties have yet to be marketed. Any idea of how far the market can drop?? This is a small town of 6,391 (2005).
 
Any idea of how far the market can drop??
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How many houses can be absorbed in one year?...Seems to me that you may have a couple years supply..maybe more.
 
I am thinking with the effect that gas prices are having on the outlying areas prices ($20-$30k reduction on $250,000 home) and the normal "bubble" that it would take 4-5 Yrs for the market in question to absorb all the foreclosures.
 
NAR says time buy real estate - recovery is just around the corner

Burned by Real Estate, Some Just Walk Away

During the height of Las Vegas's real-estate boom two years ago, property investor Rob Rozzen bought 16 homes, hoping that skyrocketing prices would pump up his retirement nest egg.

Now, Mr. Rozzen says he is considering filing for bankruptcy protection. As the housing market slowed, the 40-year-old was unable to sell the homes, and his full-time job as a real-estate agent was no longer able to support mortgage payments totaling $45,000 a month. So one by one, over the past 14 months, Mr. Rozzen has stopped making payments on his investment properties, for which he paid between $226,000 and $390,000, and lenders have foreclosed.

As a result, Mr. Rozzen's credit score plunged from 730 to the high 400s, he says. The Prada clothes, luxurious vacations, and full-time housekeeper and pool cleaner he once enjoyed are things of the past. Still, he says, walking away from his investment properties was his only option.

A growing number of investors like Mr. Rozzen are making the drastic decision to walk away from their properties and ultimately send their homes into foreclosure, lenders and real-estate agents say.
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Comptroller of the Currency says banks knew they were screwing investors

Comptroller Dugan Urges Improved Underwriting Standards on Third Party Loans



Comptroller of the Currency John C. Dugan said today that banks need to strengthen their underwriting standards, particularly on loans sold to third party investors.

“I am here to say that bank underwriting standards for these products, in many cases, moved too far away from what they would have been if the bank had held those loans on its own books,” Mr. Dugan said in a speech to the American Bankers Association’s Annual Convention.

“When a bank makes a loan that it plans to hold, the fundamental standard it uses to underwrite the loan is that most basic of credit standards that I’ve already talked about: the underwriting must be strong enough to create a reasonable expectation that the loan will be repaid,” the Comptroller said. “But when a bank makes a loan that it plans to sell, then the credit evaluation shifts in an important way: the underwriting must be strong enough to create a reasonable expectation that the loan can be sold—or put another way, the bank will underwrite to whatever standard the market will bear.”
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And now lenders wonder why investors have dump them and their loans packaged for the non-government guarantee market. Oh and lets see the performance of those same loans forced to be held in the lender's portfolios. More losses on the way from the likes of Countrywide and IndyMac.
 
“When a bank makes a loan that it plans to hold, the fundamental standard it uses to underwrite the loan is that most basic of credit standards that I’ve already talked about: the underwriting must be strong enough to create a reasonable expectation that the loan will be repaid,” the Comptroller said. “But when a bank makes a loan that it plans to sell, then the credit evaluation shifts in an important way: the underwriting must be strong enough to create a reasonable expectation that the loan can be sold—or put another way, the bank will underwrite to whatever standard the market will bear.”
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m: Well duh!
 
property investor Rob Rozzen bought 16 homes, hoping that skyrocketing prices would pump up his retirement nest egg. Now, Mr. Rozzen says he is considering filing for bankruptcy protection
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Only an idiot would borrow that much without having deep pockets...But then again it did say he was a Realtor. And only an idiot would lend that kind of money to someone who did not have deep pockets and who spent their money on "Prada clothes and expensive vacations". They deserve each other and I hope it bankrupts them both
- Hey, I just bought 3 jackets for $67 total from Cabela's on sale - so much for expensive clothes.

It also says something about risk. Buying a house would not have been much risk for him. Flipping it and buying another, might have made a little money and definitely could live in it if it didn't sell. But someone in Real estate who invests borrowed money in RE is taking a worse risk... If their business falters, so does their investment.
Likewise, I saw a farmer lease his farm to an oil company to explore for Fayetteville Shale gas. He then took the lease money and bought stock in the company. The company drilled a dry hole and 4 more then filed for bankruptcy. Their $3 a share stock became 12¢...then zip.
 
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Mozilo great at timing stock sale - Countrywide losses mount

Pension Plan Wants Countrywide CEO Out


The Washington D.C.-based American Federation of State, County and Municipal Employees, which counts 1.4 million members, asked the board to replace Mozilo with two independent directors to the board in a six-page letter sent late Thursday.


The pension plan's letter is the latest critical volley lobbed at the company and Mozilo in recent weeks by shareholders, many of whom are unhappy over the decline in Countrywide's stock price.

The company has been the target of shareholder lawsuits claiming it has misrepresented its financial condition. Mozilo is also being scrutinized by federal securities regulators as they examine his own sales of the company's stock.

Last week, North Carolina's state treasurer asked the Securities and Exchange Commission to investigate Mozilo's stock sales, raising questions about changes made to Mozilo's plan in the months before the company's stock plunged. The plan changes allowed Mozilo to significantly increase his sales of Countrywide shares.

Countrywide shares have lost more than 50 percent since January as the mortgage lender, the nation's largest by volume, has struggled through a severe housing slump and financial woes caused by the spike in home loan defaults and foreclosures.
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The FED will cut rates again this month

What is happening to make the FED nervous about the price of money?

PMI and MGIC, mortgage insurers who avoided the worst of the mortgage party by shrinking their market share -- that's what they said -- announced huge losses.

Citi led a parade of giant banks to the Treasury, trying for official blessing to keep $400 billion in off-balance sheet trash from being forced back on to balance sheets or into disorderly liquidation. Liquidation is not an option.

Bernanke is wondering how much more asset backed paper is off-balance sheet with banks and what is the actual worth and how long will it take to cause bank earnings to replace the losses so that new lending will take place.

The other problem that no one wants to talk about is how much and how many money market mutual funds are holding debt backed by SIV (structured investment vehicle), which will have problems rolling over the loan amounts when they come due.

Many money market mutual funds are holding 10% to 20% of their portfolios in debt issued by SIVs. Funds overseen by Bank of America Corp.'s Columbia Management Group, Credit Suisse Group's Credit Suisse Asset Management, and Federated Investors Inc. recently held big stakes in SIVs, including some of the most troubled names.

SIVs really aren't that complicated. They borrow short (via commercial paper less than 9 months duration so the don't have to file with the SEC) and lend long. Money market funds buy the commercial paper with deposits from their customers.

Why did SIV happen? Bankers hatched the idea of setting up a fund that would issue short term commercial paper and medium term notes to investors, then use the money to buy higher yielding assets, typically longer term ones. The bank would profit by collecting fees for operating the fund. The fund's assets would belong to its investors, so they would stay off the bank's balance sheet. SIVs had an advantage over conduits, a similar structure that was already gaining popularity: They didn't require banks to cover fully the fund's debts if the commercial paper market dried up.

The funds can be off balance sheet because, at least theoretically, the investors (like the money market funds) will take the losses, not the banks. What is complicated (really opaque to the investors) is the quality of the SIVs investments.

Usually the main concern with borrowing short and lending long is interest rate risk. In this case, the problem is more credit risk with poor performing longer term investments, such as subprime asset backed paper. However, lowering the FED funds rate will give banks an expanded profit margin on all lending. The question then becomes how low of a FED funds rate and how long to achieve enough bank earnings to replace the off-balance sheet liabilities?

U.S. Treasury Secretary Henry Paulson had discussed the problems of SIVs, money market funds and banks with officials attending the G7 meeting of central bankers and finance ministers. The plan is for banks to create a special fund that will buy impaired paper and hold it, keeping the value up.

Where does this money come from?

Answer: The FED.
 
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