Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Saturday, February 10, 2007

We're Just at the Start of this Thing

"There's more trouble in the mortgage lending market — and that could mean problems for higher-risk borrowers who want to refinance their home loans."

"The shakeout in the sub-prime industry began last year as housing prices leveled off and interest rates rose, curbing demand for loans. At first, some companies loosened lending standards to keep loan volume high, a tactic that has produced a wave of early loan defaults."

"New Century is the second-largest sub-prime mortgage originator after San Francisco-based Wells Fargo, with HSBC just behind in the No. 3 slot. The Irvine company said late Wednesday that it had greatly underestimated the losses it would record as a result of loan buyers forcing it to repurchase mortgages that had quickly fallen into default."

"It said it would record a loss of undetermined size for the fourth quarter, rather than the $1.08-per-share earnings Wall Street was expecting. New Century also said it would revise downward its financial results for the first nine months of last year.""As much as $800 billion of adjustable-rate mortgages will reset to higher payments this year, and 1 of 11 home loans is both adjustable and sub-prime, according to the Mortgage Bankers Assn."

'"There could be a good chunk of borrowers with nowhere to go to get loans," said Gast, who follows the industry for the Center for Financial Research and Analysis, a Rockville, Md., forensic accounting and due diligence firm with mutual funds, hedge funds and insurers as clients."It means a lot of people are going to lose their homes."'

"Shares of U.S. mortgage lenders plunged after New Century Financial Corp. and HSBC Holdings Plc said losses from bad home loans are piling up faster than they expected."

"Both New Century and HSBC blamed rising defaults on so- called subprime loans they made to borrowers who had little credit history or heavy debt loads. Defaults on subprime loans increased nationwide last year as competition and a slower housing market prompted lenders to lower their standards and give mortgages to borrowers who couldn't make their monthly payments."

'``It's kind of a watershed moment where the magnitude of the problems really is starting to come to the surface,'' said Brian Horey, general partner at Aurelian Partners LP in New York, which has sold short shares of New Century. ``If you could fog a mirror, you could get a loan.'''

"Among subprime loans, delinquencies of more than 90 days plus foreclosures and seized properties are at their highest level in at least six years, according to a Friedman Billings Ramsey Group report."

'``That is the one area across all businesses in all firms that is actually in a bit of trouble now,'' David Viniar, chief financial officer of New York-based Goldman Sachs Group Inc., said today about subprime lending. ``That market's going to get worse before it gets better.'''

'``There's a lot of camouflaging going on in credit quality,'' said analyst David Hendler at CreditSights Inc. in an interview late last month. ``We're getting the sense in this shop that this is more than normal deterioration, that it speaks to deeper difficulties.'''

"Cooling demand for the mortgages spurred lenders including Wachovia Corp. and KeyCorp to shut or sell home-loan units in the past year. National City Corp. sold its First Franklin mortgage unit to get some of the riskiest loans off its books."

"Washington Mutual CEO Kerry Killinger blamed worse-than- expected erosion in credit quality among subprime loans for a $122 million fourth-quarter loss at the Seattle-based company. At IndyMac, CEO Michael Perry told shareholders Jan. 16 the Pasadena, California-based lender missed its own profit forecast as defaults increased."

"Chris Hagedorn, a money manager at Fifth Third Asset Management in Cincinnati. Hagedorn, whose company oversees $21 billion, wonders why bankers aren't more pessimistic. ``I got the sense that they're saying we're just at the start of this thing,'' he said on Feb. 5."

"Federal Reserve Governor Susan Bies said last month regulators are particularly worried about lenders that added layers of risk by combining low down payments with low documentation, or with interest-only loans that allow borrowers to skip payments and add the sum to the total amount of the loan."

"The Fed added a special set of queries on bad loans to its regular quarterly survey of senior loan officers. The Feb. 5 report found half expect credit quality on non-traditional mortgages, such adjustable-rate and interest-only loans, to get worse in 2007."


At 2/10/2007 04:56:00 PM , Anonymous tom stone said...

This is just the beginning,and i can actually feel the $ leave the market....I predicted a serious credit squeeze by september,and it looks like it might be here by june or july now.I am not talking about subprime,but Jumbo $.i expect fannie and freddie to continue loaning $ with all the foresight and competence they are known for.

At 2/11/2007 07:42:00 AM , Anonymous tom stone said...

I'm not seeing much in the way of comment about deteriorating credit quality.even if someone has a 720 plus credit score when they get their loan...a steady job...they don't lie about their is a fixed rate loan...they do not buy a new bedroom set or plasma tv...BUT they qualified at a 50% debt to income ratio (i have seen 56% DTI,5% down ,680 score,stated)and they used the average down payment of 2% they are in big trouble as soon as they have to buy new tires for their lexus.gonna be a lot more people with bad credit saying"but,but,they told me i could just refi!" and of course they can,bring $ to the table and the rate will be 15%.

At 2/11/2007 08:56:00 AM , Blogger Lisa said...

"Federal Reserve Governor Susan Bies said last month regulators are particularly worried about lenders that added layers of risk by combining low down payments with low documentation, or with interest-only loans"

Everyone I know who bought in the last couple of years is in one of these loans. No one makes enough $ to actually qualify for one of these houses under traditional financing. And they all think they will either sell or re-fi before the loan resets.

I am so happy to be renting, sold in 2004. I will buy again once I will no longer be "competing" with people armed with no downpayment, credit card debt and pre-approval for an IO loan.

At 2/11/2007 03:37:00 PM , Anonymous tom stone said...

lisa,i do not think you will have long to wait.i expect the competition to go away well before prices reach an acceptable level.the problems with MBS are so large,and are surfacing so quickly that i expect the overreaction to begin soon.I am quite serious when i say i expect a jumbo loan crunch early this summer.that the creditworthiness ratings for MBS are totally out of sync with reality is becoming mainstream news,and this will have a substantial effect on the investors who have been buying them.many are legally bound to perform due diligence,and act "prudently"...if they continue buying these securities once it is common knowledge how risky they really are,they open themselves to lawsuits.of course if they took those duties seriously,and had dones minimal due diligence,they would have stopped buying this crap at least two years ago.


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