Watch
In this age of fast moving information, some catchy phrases get very quickly regurgitated by clueless journalists. First it was Goldilocks and now it is the scary monster called "Credit Crunch".
Problem is, I don't see it. I don't doubt that it is happening at the intitutional level where financial institutions are afraid of lending money to each other.
But at the individual borrower level, things seem fine. Now "fine" is a relative word. Things are definitely not fine if you consider recent past as any benchmark. But recent past is simply not a good benchmark.
It should be hard for borrowers to get loans without proving their incomes. It should be hard for borrowers to get loans 10 times their incomes for an asset that is likely to depreciate. It should be hard to to get a negative amortization, 100% loan.
If that is what is happening, then it is simply a return to normal lending standards. This is not credit crunch. This is what it should have always been and I hope this what it will be for a long long time.
When a double income, 800 FICO family finds it impossible to get a loan without 30% down payment - I will call it credit crunch. That may happen very soon, or may take a while.
What do you say ?
StuckInBA
Follow
Befriend
6 comments
"I smile when people say that the worst is now behind us."
Me too. How many times have we heard this anyway?
Follow
Befriend
8 threads
1,513 comments
Punchbowl :
I am not sure if the proposed Fed rules do anything more than the market is already trying to do. That's my point. Banning no-doc loan is hardly credit crunch. That's just what most of us would consider 'normal'. Or may be 'normalcy' is the new crunch.
Fortress will not fall because of this alone. Make down payment mandatory to even 20% and then we will talk. Let 30yr FRM go over 7.5 and you will see visible dents. I honestly want the FRM to go over 8%. Then even the Fortress will fall.
Follow
Befriend
1,135 comments
Vernon Smith, a professor of law and economics at George Mason University, has an editorial in the WSJ today titled, "The Clinton Housing Bubble". The gist of the article is that the cut in capital gains taxes for real estate during the Clinton administration contributed to the housing bubble. While I think that is true I think the more important factor was the extremely low interest rates of the Greenspan Fed.
The joint housing and mortgage-market crisis once again reminds us that all financial implosions stem from the same cause: borrowing short and lending long without enough equity to weather periodic storms in the gap between.
But this bubble was different. Besides being fueled by housing purchases and repackaged loans, each with inadequate equity -- doubling down with other people's money -- at the end of the capital-gains rainbow was the right to take up to $500,000 of profit, tax free.
Mr. Smith, like the rest of the George Mason Economics department, is very free market friendly:
Consequently we have the "independent" Fed being driven by market forces to accommodate the long-evident and glaringly least-defensible features of the housing/mortgage markets. Moreover, the moment the Fed abandoned its stance against inflation, the dollar, gold, oil and commodity prices signaled inflation, and now two months later consumer prices have confirmed the signal.
More daring than the action to exempt real estate from the capital gains tax -- and in lasting service to the poor -- would have been actions allowing capital gains on all assets to go tax free, provided that the capital was reinvested -- i.e., not consumed, and yes, good citizens, housing counts as consumption.
Unlike the latest housing bubble, the stock market "excesses" of the 1990s financed thousands of new ventures, some of which found innovative ways to manage the proliferation of new technologies. The result: astonishing, long-term increases in productivity still evident in the most recent quarter.
Think for a moment what would happen to the stock market if capital gains taxes were eliminated. It's a nice thought isn't it?
=================
Vernon L. Smith, Nobel Prize winner in Economics, 2002, is currently Professor of Economics and Law at George Mason University, a research scholar in the Interdisciplinary Center for Economic Science, and a Fellow of the Mercatus Center all in Arlington, VA. He received his bachelor's degree in Electrical Engineering from Cal Tech, and his Ph.D. in Economics from Harvard. He has authored or co-authored over 200 articles and books on capital theory, finance, natural resource economics and experimental economics.
Follow
Befriend
93 comments
The "crunch" primarily refers to the phenomenon of banks not trusting each other. In other words, unwilling to allow lending based on shaky, hard-to-value, or illiquid collateral (e.g. CDO/MBS alphabet soup).
Liquidity is just a proxy term for confidence in the counter-party ability to pay up at some point down the road. Lack of said confidence makes it hard (i.e. more expensive) to get deals done.
That extra cost of borrowing among financial institutions eventually gets passed on to you and me. Fannie just added a 0.25% surcharge on top of loans they process for all FICO levels, which is but one recent example at the "local" level.
The reversion to the mean that you refer to (i.e. lending standards enforcement) is a different animal. That's just the Fed waking up and closing the barn door, which will create more confidence in collateral going forward but won't do anything to fix the toxic crap we're stuck with today.
Follow
Befriend
3 threads
1,170 comments
It should be hard for borrowers to get loans without proving their incomes. It should be hard for borrowers to get loans 10 times their incomes for an asset that is likely to depreciate. It should be hard to to get a negative amortization, 100% loan.
Why do you hate minorities and poor people? Why do you want to oppress them and prevent them from getting on the ladder to becoming independently well off?
That's the position that the Acorn group used to take. Now they seem to have decided that that was a bad idea....
Follow
Befriend (4)
117 threads
17,655 comments
Premium
Let 30yr FRM go over 7.5 and you will see visible dents.
Huh? I do not know of a single person buying with 30yr FRM.
Follow
Befriend
93 comments
I bought with a 30yr FRM, but you don't know me...
Follow
Befriend (4)
117 threads
17,655 comments
Premium
Peter … when I buy, I promise you it will be with a 30 yr FRM with 20% down.
Or better yet, a 15yr FRM. :)
Add Icon
0 comments
3:13PM -what PeterPee said.
However, the credit co's HAVE to have figured out I'm utterly insolvent by now, a few accounts have gone to collections, and yet I'm still getting offers of credit. Sure, I tried calling on one, and it got as far as the part where I said I don't have a cellular phone because I "don't believe in them", and went nowhere, but I keep getting all these offers.
I interpret this as sheer desperation. They are desperate to get money moving, any way they can. I'm spending/consuming 1/10th of what I was, no kidding. Not everyone will cut down this far, but they'll cut down all they can.
Follow
Befriend (1)
119 threads
4,785 comments
HARM's website
Fake "credit crunch" = 6.5% FRM for people with so-so credit, and media "victims" like the Oropezas and Daniel Sadek being unable to serially cash-out refi their various "investment" properties in perpetuity.
Real "credit crunch" = SIBA's only-lend-to 800+ FICOs with 30% down only + full-doc + only-lend-to career bankers/doctors/lawyers/producers/politicians + giving DNA/blood samples at close + first-born as collateral + short seller being forced to eat any squirrels found on property + buyer gets free "recreational" access to short seller's wife + Joshua tree lodged firmly in short seller's (now broke) ass as he is escorted off the property by local sheriff.
Follow
Befriend (1)
119 threads
4,785 comments
HARM's website
Or better yet, a 15yr FRM.
Or, even better-er: cash.
Follow
Befriend (4)
117 threads
17,655 comments
Premium
Really real credit crunch = no financing at all
Follow
Befriend (1)
119 threads
4,785 comments
HARM's website
See new thread graphic for a well balanced, bear-ific meal.
Follow
Befriend (4)
117 threads
17,655 comments
Premium
HARM, where can I find this brand of cereal?
I want the free helicopter for Christmas!
Follow
Befriend (1)
119 threads
4,785 comments
HARM's website
A: Any participating Un-Safeway or State'er-income Brothers.
Follow
Befriend
4 threads
1,056 comments
Boise, ID
Huh? I do not know of a single person buying with 30yr FRM.
I did when I bought my place in San Jose in 1981. Re-fi'ed to another 30yr FRM but paid it off in 2004. PAID IT OFF. Now there's a concept that needs to be revived.
Follow
Befriend
4 threads
1,056 comments
Boise, ID
Cash is nothing more than another word for a fixed-rate zero-percent mortgage. :)
Follow
Befriend (4)
117 threads
17,655 comments
Premium
I did when I bought my place in San Jose in 1981.
But you are not *buying* right now. ;)
I thought paying a house off is like stuffing money into a mattress... :roll:
Follow
Befriend (1)
119 threads
4,785 comments
HARM's website
Paying your house off??? Very "unsophisticated"!
Follow
Befriend (2)
33 threads
3,458 comments
YSP = Yield Spread Premium
Follow
Befriend (2)
33 threads
3,458 comments
Uh, that's not a picture of me, up there. GC, what is that guy good for?
Follow
Befriend
4 threads
1,056 comments
Boise, ID
I never took money out via HEW to buy toys. So when I sold that place in May 2006 (check and you will see I sold at "the peak" :) ) I was able to buy a nice new place in Boise and have about ONE MILLION DOLLARS left over. If I can't live on the return on that amount I should be taken out and shot.
Not all boomers lived an extravagant lifestyle. I'm a millionaire but shop for grocery bargains and change the oil in my vehicles.
Follow
Befriend (1)
119 threads
4,785 comments
HARM's website
Not all boomers lived an extravagant lifestyle.
Congratulations, DennisN! As a Patrick.net regular and prudent investor-saver of the Boomer generation, you qualify for Un-Boomer (tm) status. You join the august ranks of likeable and popular Un-Boomers such as DinOR, FAB, OO, LILLL, and many, many more!
Follow
Befriend (4)
117 threads
17,655 comments
Premium
If I can’t live on the return on that amount I should be taken out and shot.
Watch out for inflation though.
Follow
Befriend
4 threads
1,056 comments
Boise, ID
Well yes inflation bothers me. I think the FED should bump up the fed-funds rate to around 8-9% to "flush out" the speculators/unworthy types. Why doesn't the FED realize these guys are screwed already and that it would be better in the long run to "finish them off" ASAP?
Bullfighters know that the "moment of truth" comes when the bullfighter thrusts his sword into the bull's heart. Why shouldn't the government do the same to FB's?
Follow
Befriend (4)
117 threads
17,655 comments
Premium
I think the FED should...
But how should we react if they don't?
Follow
Befriend
4 threads
1,056 comments
Boise, ID
But how should we react if they don’t?
That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government...
Follow
Befriend (4)
117 threads
17,655 comments
Premium
DennisN, I was talking about investments...
Follow
Befriend
2 threads
34 comments
Don Harrold: Master of Men
http://www.youtube.com/watch?v=xMTyBCjVWJM
Not a plug for this guy. Just like what he had to say on this one.
Add Icon
0 comments
The place, Teh place, from which I type, was paid for on a liar loan,. 3X payments and paid off.
now the area is larning, yes, larning, that prices have to be predicated on min. wage.
Teh pity, yes Teh pity, is that it's not good for growing crawdads on, however, I have much hope for sparrows, which are a delicacy in Europe and crawdads abound locally.
People will look back upon the 1930s as a time of leisure and mint juleps..........
Follow
Befriend
8 threads
1,513 comments
If you are waiting for the DQ report for Santa Clara, you may want to chew on this in the meanwhile.
http://rereport.com/scc/
Every single indicator is negative. Except the median of course !
- Inventory is reaching all time high since 1999 spring, and it's still winter.
- Days of inventory going to moon
- The first chart of price v/s sales - note the red line, going to the bottom on the bay
- And people on an average paying less than asking price !
Is this Bay Area ?
Add Icon
0 comments
the number of homeless people and beggars in Santa Clara is a wake-up call.
To properly sense the situation you need to become homeless or nearly so yourself.
Become so, then report back. It's only a matter of time.
Follow
Befriend
2,842 comments
Carlsbad, CA
Malcolm's website
HARM Says:
December 18th, 2007 at 5:11 pm
" you qualify for Un-Boomer ™ status. You join the august ranks of likeable and popular Un-Boomers such as DinOR, FAB, OO, LILLL, and many, many more!"
It should go without saying but all of the boomer jabs that I make are directed to the stereotypical grotesque boomers and not to fellow readers here. I do however encourage un-boomers here to pass on what they pick up from the different generations in the hope that they may influence their peers to behave in a manner that is not as repulsive as their normal actions, and also not an embarrassment to the United States when they travel overseas.
Follow
Befriend
2,842 comments
Carlsbad, CA
Malcolm's website
Since boomers were the counter culture maybe enlighted boomers should be called counter-boomers.
Follow
Befriend (2)
33 threads
3,458 comments
What law gives the Fed the authority to regulate the finer points of mortgage lending and contracts?
Follow
Befriend (4)
117 threads
17,655 comments
Premium
What law gives the Fed the authority to regulate the finer points of mortgage lending and contracts?
What law prohibits the Fed from regulating the finer points of mortgage lending and contracts?
Follow
Befriend (2)
33 threads
3,458 comments
Huh?
Follow
Befriend
1 threads
3,248 comments
dunno about Fed, but Paulson is definitely working in his WS pals' favor. Which means, not a chance in hell for tightening credit, how else are WS bankers going to make easy millions if credit is tight?
Did you guys see the following chart? Shocking
http://www.financialsense.com/fsu/editorials/kirby/2007/1213.html
Follow
Befriend (4)
117 threads
17,655 comments
Premium
The Fed does not have to tighten credit. Free Market *always* tightens credit itself in the contraction phrase of an asset bubble.
Follow
Befriend
25 threads
1,690 comments
SQT15's website
Maybe it depends on where you live. Out here the realtors® and mortgage brokers are hurting. They made us jump through every hoop in the book to buy. But we have 800 credit and no credit card debt and did 30yr fixed so all-in-all it was very smooth.
But I hear the brokers are absolutely starving. The guy who sold us our house (nice guy-- I wouldn't wish anything bad on him) is going through a divorce and is going to hand his house back to the bank. He can't afford the house and the divorce because the market is so bad no money is coming in.
Our mortgage broker basically reiterated it for us when she told us that no loans are going through right now that aren't spotless. In fact, the loan package we went with won't be offered any more by the end of the year since the banks are getting really edgy. I've seen tons of houses in my neighborhood fall through escrow in the last few months. In fact, it's more unusual if a sale sticks.
I do think that the Sac metro area is ahead of the BA in terms of where we are in the crash. Our declines have been markedly faster and steeper so I think we seeing the crunch first.