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Tan-Man pleads for more government "help" to ease lending (while still under SEC Investigation)
invite response
2007 Oct 30, 10:15am 18,649 views 130 comments
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@SFWoman,
Family "values" indeed! They ran that story at 5:00am on the NW Cable News and... I thought.. this COULDN'T wait until after everyone's had their coffee?!
The Bend Bubble Blog is accusing those of us on the PDX blog of being pansies! They're circulating a rumor that a local (and rather high profile) builder is going to declare BK! I had tried to warn that Aaron Krowne (Mortgage Implode-O-Meter) had gotten into considerable legal difficulties for announcing a MB firm was D.O.A. They later claimed that his pre-mature announcement lead to lenders cutting off their warehouse lines of credit leading to their ultimate (and inevitable) demise!
How hard would it be for a builder to make the same claim? Bend is (according to a local MB) a disaster area! However he feels the impact to the community will be minimal. For the most part the growing, out of control inventory was to a large extent, simply REIC players flipping homes, lots etc. to one another. That's a relief!
Wow, Bernanke cut 25bps and I feel almost "content" about it (vs. another 50 pt-cut). I guess my expectations of the Fed have gotten so low that even a modest bad move looks like good news now.
Arny movement on 30 year mortgages rates? Presumably the ceiling for a qualified buyer (20%down, traditional debt to income ratio, owner occupied) using a savings & loan (whose business is to lend to community memebers to buy homes, not seek the highest returns possible in investing) would be something like Fed Funds rate plus 2.5%?
Specuvestors would have to go to Wall Street and their rate, given foreign averision to American debt, would now (finally) be higher?
Peter P
2007 Oct 31, 5:23am
Ten-year Note rates are up. Fed rate cuts will not help mortgage rates, only banksters.
@skibum,
I hear ya', and I HAVE been on the fence about Chris. However in this crazy, upside down world (as HARM rightly notes) it looks like the fear this time is that a correction in housing prices will lead to a recession, NOT vice versa?
The economy was never all THAT good to begin with, or certainly not "good" enough to drive home prices where they've been.
It's like going to "intervention" where alcohol, cocaine and strippers are provided in abundance (think Henry T. Nichols the 3rd type helpings). Then, after the abuser goes into cardiac arrest he's hauled off to the ER and we declare the "intervention" a success! (It's hard to abuse when a nurse has to come by once an hour to check your monitor).
DinOR:
In many ways, the limit on conforming loans is a ruse. Does it really matter what the limit is -- $1mm, $2mm, hell, $10mm -- if it's coupled with a traditional 28/36 DTI ratio, verifiable income, and a 20% (even 10%) downpayment? $1mm at 6% on a fixed 30 yr is about $6000 P&I plus another (at least) $1k for taxes. So that would require a verifiable of $25k per month -- $300k per year. Only about 1.5% of families make over $250k per year; virtually all of them own houses.
Unless the conforming limit is coupled with a replication of the underwriting standards of 2006, a change isn't going to do a thing -- except make Fannie/Freddie a convenient scapegoat as prices decline (e.g. "Well, if the government had raised the limits, then people could get mortgages").
Peter P,
I think we may see 2 markets emerge. 30 year rates have gone with the bond markets for years now since that was the cheaper rate. However, if Wall Street refuses real estate as collateral, then the mom and pop savings and loans that do NOT sell their loans may be offering the most attractive rates. It may be hard to tell though since they are not now, nor will be, the bulk of the market given their restrictions: owner occupied, 20% down, DTI ration of 35% or less.
Dunno, it will be very netersting to see how that micro-market plays itself out.
Anyone know what the traditional spread on Fed Funds to 30 year rate is for small savnings and loans that wanna cover for their low risk and low profit portfolio? Assuming these small banks can go get money from the Fed at 4.5% they should be able to pass that on to borrowers at 6.5%? 7%? At some point it would seem that would have to be able to beat a fear driven Wall Street/foreign investor in terms of an attractive rate to a borrower.
Only about 1.5% of families make over $250k per year; virtually all of them own houses.
Though in the BA, it's quite a bit greater than 1.5%...
Y'all see that thing way off in the distance?
I'm not sure what it is, but it could be a liquidity trap.
Ed S.
That is such an excellent point. And... I imagine someone with a respectable FICO, decent income and a down payment big enough to make their monthly payments tolerable this is all pretty moot.
You're right, for the most part it won't change a thing. Still, it's pretty amazing what these loan salesman won't do to keep "the game" afloat for just a little while longer? Or rather what they "think" will kept afloat a little longer.
eburbed,
"Only about 1.5% of families make over $250k per year; virtually all of them own houses.
Though in the BA, it’s quite a bit greater than 1.5%…"
Actually this chart doesn't even show 250k+.
It's from 2006 and it shows that those who are at the 200k range here in the BA are at 7.5% or so. So while that's considerably more than 1.5% in the rest of the USA it's still not enough to sustain prices.
1985:
20% down, on deposit for at least year, proof of origin
28ish% TOTAL DTI
On the job for at least 2 years
Excellent credit
3 months mortgage left on deposit after the transaction
2006:
Pulse
How did this happen again, Mr. looks like he ate 10 bunches of carrots?
And here's another interesting article about Silly Valley's income levels and affordability:
Peter P
2007 Oct 31, 7:26am
Anyone know what the traditional spread on Fed Funds to 30 year rate is for small savnings and loans that wanna cover for their low risk and low profit portfolio?
There are too many other variables involved, e.g. inflation expectations, shape of yield-curve, etc.
Peter P
2007 Oct 31, 7:28am
It’s from 2006 and it shows that those who are at the 200k range here in the BA are at 7.5% or so. So while that’s considerably more than 1.5% in the rest of the USA it’s still not enough to sustain prices.
In Japan, the majority of families make much more than 250K Yen a year.
USD is heading towards that direction anyway.
OT, but I just won "most creative" Halloween costume at work. I went as "Mr. Subprime".
"2006
Pulse"
When I got my first home loan in the late 80's the process took about 3 months. Additionally they wanted to see that your assets had "aged". You couldn't just borrow 5K from a buddy just long enough for it to show up on an account statement. They wanted to several months worth.
2006? Like going up to the drive-thru.
@Peter P,
I will have to email you or upload to another site. Patrick shut off the upload tool a few months ago due to spam/security issues.
Some of our predictions are coming true at a frightening pace. The Canadian $ is at 1.065 and Aus$ is over 0.93.
I joked a month ago that US$ will soon have parity with Aus $, then Yuan, then Indian Rupee and finally Yen. This is crazy. When has a major developed nation saw its currency plummet so fast ?
My FXA holding has performed better than GOOG. I am not sure if I should be happy about it.
Peter P
2007 Oct 31, 7:55am
I will have to email you or upload to another site. Patrick shut off the upload tool a few months ago due to spam/security issues.
Sure. You have my e-mail address. Thanks HARM!
Love to see it. :)
When has a major developed nation saw its currency plummet so fast ?
Wiener Germany.
Peter P
2007 Oct 31, 8:16am
I believe you meant Weimar Germany…
Yes. Sorry. I love wieners too. Mustard. No ketchup.
Actually, "Wiener" is kind of appropriate given our central bank's actions.
The more I see that picture on top, the more I can't help but hear in my head, things like, "Whyz don't youz guyz give me my way soz I can dooz some more loan shaakin'".
Admittedly, I pulled the 1.5% as a national average; incomes are much higher in the Bay Area than in most other places in the US. And house prices are much, much higher. A 1000 sq ft 2br 1ba "starter" house for $600k?
My point is that an increase in the conforming limit is nothing more than a political attack point rather than a realistic response to THE key problem: a typical family cannot afford a typical family house in many areas of the US based on mortgage standards of the last 60 years. The pain that many families are feeling today (or will tomorrow) is in learning that they can't afford the house they're in (and that maybe those mean, old bankers with 40 years of lending experience did know something).
The increase in the conforming limit is a back-door way to try to get Fannie/Freddie to take the never-to-be-paid back mortgages off of CWC's books.
Step One is to get the limits raised; then when that's done and folks can't meet the income/DTI guidelines comes Step Two: have Congress pressure Fannie/Freddie to "modify" the guidelines. And voila, CWC's bad paper is Fannie/Freddie bad paper.
Step Three is to have CWC (or its successor organization) then complain loudly about unfair government competition. And we're back to where we started.
thenuttyneutron
2007 Oct 31, 9:28am
@ Duke
I agree that we will see a major collapse due to housing. My only question is how long do you think it will take? I am 27 years old and have about $10,000 in savings in one of those internet banks for downpayment purposes. I am getting nervous about my money being there. I have no idea how long it will take the FDIC to repay my money back if Emmigrantdirect decides to fold. I have watched the interest rate of my account drop ever since Sep18,2007. I don't want to be catching a falling knife. The industry I work in requires me to be somewhat mobil. I would like to start a family in a place I can call my own, but I can't afford any mistakes.
Please anyone, post theories or projections for the next 6-9 months. Will we see a major bank/company go bankrupt? I am eyeing CFC as the front runner to a collapse. They took 11 billion dollars out on their lines of credit!
"maybe those mean, old bakers with 40 years of lending experience did know something"
You know Ed I was just making that very point on our local PDX blog.
The example I gave was say for instance getting an SBA loan. Yeah. Balance sheets, annual reports, time cards etc. etc. Mind you THIS for a well established business on a loan of maybe... 250K! Yet we'll lend out 750K to berry pickers for a house in Gilroy, CA no questions asked!
Just think of it, had the SBA been doling out cash-ola like that!?
http://www.siliconvalley.com/thevalley/ci_7200727?nclick_check=1
A new study on the cost of living in the Bay Area and the rest of California says that a family of four in Santa Clara County and the other nine greater Bay Area counties now needs an annual income of $77,069 - nearly quadruple the federal poverty threshold of $20,444 for a family that size - to afford housing and other basic needs.
[snip]
By comparison, a family of four with two working parents needs to earn $74,044 in Los Angeles County, and $70,648 in San Diego, to afford basic needs. Those estimates do not include any savings for retirement or a child's college education, nor items such as high-speed Internet or cable television.
Does anyone know what the numbers are for places outside of CA? Like NYC, DC, or BOS?
HARM Says:
I guess my expectations of the Fed have gotten so low that even a modest bad move looks like good news now.
Exactly. It is as if Bernanke is a mentally retarded child, who everyone cheers when he manages to sing Jingle Bells without screwing it up.
"Wow - 25 point cut! Gooood job! What a trooper!!"
SP
HARM Says:
I will have to email you or upload to another site.
If you upload to a public site (flickr, picasa), let us know. I would like to check out what the costume looked like...
One guy at the halloween party at work was in a Casey Serin costume - but then he always looks like that, so I am not sure if that counts :-)
SP
Beware of Big Boomer!
That's all I've got to say.
Those "in the know" know what I mean.
Don't trust 'em as far as you can throw them.
OK, you have been warned. I did my duty.
Good luck soldier!
I am thinking about putting the ARM reset chart on my front door and writing BOO! on it. Dipped my toe in GLD today before the Fed did their dirty work. Oh the humanity....
HARM :
If you can describe the costume that would be fine too. Or if you want to email me the photo - you should have my email address from the posts - that will work as well.
Thanks.
from www.jsmineset.com
"Dan Duval’s Commentary
Listed below are a few price comparisons I put together between the USA and Canada this morning on some basic consumer goods. Prices are MSRP directly from the respective US and Canadian retail sites for the given companies.
Think it is more likely to see the Canadian prices drop or the US prices go up? This may be a good barometer for the real inflation coming in the US.
Canon SD870 8.0mp Digital Camera - $168.58CAD (33.7%) Difference
-Canada Price (BestBuy.ca) $499.99CAD
-US Price (BestBuy.com) $349.99USD ($331.41CAD)
2008 Honda CBR600rr Motorcycle - $3413.13CAD (27.3%) Difference
-Canada Price (MSRP) $12,499CAD
-US Price (MSRP) $9599.99US ($9086.86CAD)
2008 Ford F150 King Ranch 4x4 - $9889.52CAD (21.3%) Difference
-Canada Price (MSRP - Discounts) $46,249CAD
-US Price (MSRP - Discounts) $38,420US ($36,359.48CAD)
Ikea Hemnes Bed Frame - $83.68CAD (26%) Difference
-Canada Price (Ikea.ca) $319.99CAD
-US Price (Ikea.com) $249.99USD ($236.31CAD)"
Back on topic-
I think the only pay these snake oil salesmen should get is the snake oil! Tan Man, your stock options vest into sub prime CDOs - enjoy! Same with with the Merril situation and so on.
I just looked at the back of a book of Neruda poetry I just got from Amazon. The prices are:
$24.95 American
$36.95 Canadian
What year's foreign exchange are these book publishers using? The book is a new edition, so it was quite recently printed, and the prices on the back are on a sticker anyway. You'd think the Canadians would request that publishers more accurately price the books.
Response to "thenuttyneutron":
"I have no idea how long it will take the FDIC to repay my money back if Emmigrantdirect decides to fold."
Highly unlikely that Emigrant Bank will fold. Very stable bank, been around for over 100 years in New York City.
"I have watched the interest rate of my account drop ever since Sep18,2007."
Just about every financial institution has cut their savings rates in the past month. Any time the Federal Funds Rate is cut, virtually all financial institutions follow suit.
"Will we see a major bank/company go bankrupt?"
It has already happened. Netbank.com went belly up in September and their deposits were taken over by ING Direct.
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LA Daily News: Foreclosures, housing slump hurting California economy
And what else, pray tell, SHOULD the government have done to "ease lending" that is has not already done (which itself is the single biggest reason why houses here are so damned expensive)? The government (incl. Fed) thus far has:
1. Dropped short rates to 1% and held them there nearly 3 years.
2. Cut 50 bps when it should have been RAISING them to combat inflation/defend the USD.
3. Provided every conceivable preferential tax incentive known to mankind to inflate housing prices, including raising the capital gains "homestead' exemption to $250/500K, virtually waiving the old primary residency rule (replacing it with "any 2 will do"), generously expanding the 1031 exchange to RE, etc., etc.
4. Growing the GSEs to absorb 50% of the national mortgage market and (until recently) hiking the conforming price limit every year, regardless of how working class incomes were doing.
5. Deliberate non-enforcement of mortgage fraud laws, ignoring blatant cash-back financing scams, phantom/shill bidders, lending to illegal aliens, identity theft, allowing the NAR to run a virtual information monopoly (MLS) etc., etc.
6. No application of fiduciary rules/SOX to mortgage brokers, lax-to-nonexistent regulation of the RE industry vs. securities.
No non-rich person in L.A. can buy a house because (a) the prices are too damn high, and (b) the NINJA-ARM easy money spigot just got turned off. $417K should be PLENTY of money to buy a run-of-the-mill middle-class house *anywhere* in the U.S., given current incomes. Putting taxpayers on the hook for even MORE bad loans will not make them more "affordable", but create an even bigger moral hazard, reward the reckless & stupid, punish the responsible & prudent, prolong the inevitable bust, and make the aftermath even worse than it already is.
I guess Tan-Man had to throw in a couple of truthful statements just to confuse people, though his dates are off --it should be "late 1990s through 2006". Meanwhile, the man best known for that unique orange glow may be getting measured for an orange jump suit.
Discuss, enjoy...
HARM
#housing