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Peter P
2007 Feb 9, 8:12am
I wonder how the author (physicist by trade) was able to construct such a believable picture of social structure and ethics of three absolutely different human and non-human civilizations being smashed into each other.
Human behavior is highly unpredictable yet, at the same time, highly predictable.
As long as we've been discussing toxic loans here, I figured we'd pretty much covered nearly every possible minefield with option-ARMs. But then something clicked for me when I was thinking about the "fixed/teaser" lock period on the 10-year option-ARMs, which is the longest "lock" period I've seen for these things so far (emphasis on "so far").
Most option-ARMs sold today allow the FB to choose a 1-2% teaser rate during the "fixed" period, while the rest of the interest just negatively amortizes on the lender’s balance sheets as "imputed income" (bullshit of course, but all perfectly legal accounting). For a 10/1 option-ARM, this could be a pretty looong time. And as far as the lender's concerned, everything's peachy --because a "loss" isn't really a loss until it's booked, right? Not good news for those of us who might wish to see the crash play out quickly, so we can eventually buy at a reasonable price.
However, there appears to be a catch: regardless of whatever pick-a-payment “fixed†period their loan has, once the FB hits the maximum ceiling allowed for negative equity accumulation (typically 115-125% of original loan balance), they MUST begin making “real†full-interest + principal amortizing payments. You can have a 10-year fixed/teaser lock period on your option-ARM, but if you hit that magic maximum LTV number well before your 10 years are up, your loan automatically resets.
Bang --your 10/1 option-ARM just reset to a 5/1 or 3/1 or whatever-ARM at the "real" rate, say, LIBOR + 2% (roughly 7.5% today). In other words, if the borrower always chooses the minimum payment, there's no way s/he can ever reach the theoretical 10-year mark under their super-low "fixed" rate. Game over for FB, right?
Is there a flaw in my reasoning, or am I missing something here?
Sorry, this may only apply to Long Island New York; I keep forgetting who my audience is.
Uh, how does that only apply to Long Island?
A few posts ago, I pointed out that in the future, there will only been execs (Directors, VPs, CxO's) and people working at Walmart, Applebee, etc to serve them.
Globalization can only mean a greater cap between have and have not.
Is there a flaw in my reasoning, or am I missing something here?
I think your are quite correct. I remember reading about this aspect of -ve ammo loan. The plan A is always to refinance again when that limit is hit - because at the time of refinance the house is worth double so you can actually get some equity - without having to pay anything towards principal. This is how you "get in". Plan B was never really needed.
From what I have been told by a loan broker - here in BA - this is how MANY people bought homes in 2005 and 2006. According to the casual discussion, at least half of her clients chose option ARMs and NOT A SINGLE one chose FRM.
"The emperor has no clothes" moment is not far away for BA.
I thought this was a real estate blog.
Foreclosures up 42% in 06 vs 05.
The end is near
@Allah - click on it (the chart is also a link).
Ok, let's sing-along everybody!:
"Head, shoulders, knees and toes, knees and toes
Head, shoulders, knees and toes, knees and toes..."
@Allah - click on it (the chart is also a link).
Yes, I figured that out myself; but thanks :lol:
HARM Says:
> As long as we’ve been discussing toxic loans here,
> I figured we’d pretty much covered nearly every
> possible minefield with option-ARMs.
> there appears to be a catch: regardless of whatever
> pick-a-payment “fixed†period their loan has, once
> the FB hits the maximum ceiling allowed for
> negative equity accumulation
The goal of the REIC is to make as much as possible NOW, so they don’t care if pick-your-payment option-ARM people crash and burn.
Let’s look at two examples:
#1 Responsible Bob makes $50K and wants to buy a $500K home with the $100K he has saved over the years. Responsible Bob demands a fixed rate fully am loan and decided to wait until he can save more money or home prices go down. The Realtor, Mortgage Broker Appraiser and Banker make nothing so they tell him that he will be renting forever and needs to buy now since real estate always goes up.
#2 Crazy Casey has no job but just charged $10K on his credit card to go to a seminar on how to get rich in Real Estate. After learning at the seminar that real estate always goes up he calls a Realtor who finds him a nice $500K home that he buys for $550K (getting $50K cash back) with a no doc stated income pick your payment loan. The Realtor makes $33K on the deal, the Mortgage Broker makes $10K on the deal the Appraiser makes $1K (all in $20 bills) on the deal and the Banker makes $5K up front plus a end of year bonus of $500 since the Bank “earned†10% interest even though Crazy Casey only made one payment since he blew the $50 K on Jamba Juice and more seminars on how to get rich.
The REIC makes a ton of money every time a Crazy Casey buys a home and the sooner he defaults and the home is foreclosed on the sooner they can do it again and make even more money…
Here is the question I have been pondering about NEW (and LEND, FMT etc). Is there still time to make money ?
There has been tremendous bottom fishing going on for these stocks. All are in free fall. There will be a sucker rally. When that happens, it might be a good time to buy a put.
There was always enough time to make money on downward path WCOM and likes. It's risky, but if these MAY be going the way of BK. It will be pure speculation as not even the company know what's it asset - liability situation is.
*Please, this is anything but investment advice.
Check out this story about a new century borrower who isn't even behind on payments getting harassed by the company. New century seems to be getting pretty stressed out!
FAB
The goal of the REIC is to make as much as possible NOW, so they don’t care if pick-your-payment option-ARM people crash and burn.
Oh the wonders of MBS, CDO etc ! The real creditors are so far removed from the whole mess that their mathematical models don't show what we can decide in 1 nanosec in real life. Don't give a loan of 1M to someone who makes 50K per year. How many super computers do you need to figure that out ?
I hope so - but I think many in the BA may be able to hang on for a while by hollowing out the rest of their life.
Yes, I agree. I do not envision any of my friends needing to foreclose their home. I certainly hope they don't have to. These are eburbed's favorite people ;-) They will stop buying everything but groceries, they will stop their $15 Netflix service, they will sell their minivan and buy an older car - anything, but lose their home. And this is the worst case scenario. Most would feel some pinch - but that's it.
The market is just stalled here in "real BA". Across the bridges, the prices are down YOY. So sooner or later, people who do not fit the above description - and eburbed, be assured there are, just not as many as other parts of the country - will need to refinance and won't be able to because credit is not as easily available, house value has gone down and you know the drill.
Isn't 2008 the real year when the reset hits en masse ?
Netflix has plans as low as $4.99 now. It looks like they are really hurting for business!
Here is an interesting story of a soon to be FB as told by a realtor.
He also has this post:
http://nyhouses4sale.typepad.com/ny_houses_4_sale/2007/02/baby_steps_buyi.html
Interesting article this morning about young buyers. The article claims that the Gen Y are not afraid to buy. But not just buying with the "typical" 20% down, they are financing the entire purchase. The younger generation has done a total 180 turn from what I remember my grandparents telling me "If you can't pay cash, then don't buy it". My generation (mid-late 30's) are more of the "some debt is ok" mentality.
While I was reading this article I could not help but think about my own kids. How are they going to come up with a substantial down payment when they are ready to buy a home? How will my niece and nephew who are late teens, early 20's ever be able to buy a home? HOW?
Within the past five years, I have seen the down payment percentages go down, the purchase prices go up and the salaries remain the same. So what does this mean for the future? I know alot of people will see doom and gloom. But, I am not one of those doom and gloom types of gals.
I see that the young buyers today are doing something that our parents NEVER thought of. MY parents and grandparents bought a home and lived it in for life! One home maybe two - that was it. TODAY - the gen Y's are buying and using it as a first home, building equity and turning around to resell for a bigger home. Yes, that might mean more financing, but in order for them to get to the stage of the "dream home" they are starting out small.
So, the financing is critical for them.
Translation: It's only going to go up. Someone should reply with the tent cities and honda speech.
Yeah but that is 1 DVD at a time limit 2 per month, I just get the new releases from ON-DEMAND when I feel like it
Yeah but that is 1 DVD at a time limit 2 per month, I just get the new releases from ON-DEMAND when I feel like it
Wow! You mean there are people that watch more than 2 movies a month?
I enjoy the 3 at a time for about $20. I turn them around pretty fast, so I watch at least 12 movies a month for this price. Netflix is certainly slower than it was at the begining. The term they use is throttling. After they lost the class action law suit they had to disclose that they intentionaly slow down the turn around for the accounts that turn over too many movies. Years ago I would drop off the movie at the main post office on my way to work and the next movie would be at my house the next day! That does not happen anymore but I still like the depth of the Netflix library so I don't see myself cancelling anytime soon,
Wow! You mean there are people that watch more than 2 movies a month?
:-)
justme :
The Jan stats do not show what happened in Jan. I think Jan wasn't as bad for some areas - at least Cupertino, because I know there were bidding wars and I know the people who bought.
I think it's normal. I wrote about this in last thread. People who have been waiting for a long time, can be scared about the spring bounce and there is still enough funny money available.
Catching a falling knife is not unusual pattern. Look, even that NEW which has a big chance of being BK has 20M share purchased today - just because it was 50% lower than Wed.
As has been said many times, without these there won't be lower comps.
theotherside:
“Whatever shocks are ahead,†says del Missier, “the markets are better positioned to deal with them than they’ve ever been.â€
Wow. :-) It's ironic that this is posted today. This article is a gem of "cluelessness". It talks about cheap money without mentioning anything about the currency manipulation and uncontrolled credit expansion. If anyone is interested in an easy primer, please check out the current post on Mish's blog for a hilarious take on this.
I will include additional quotes, far more interesting than you included.
And derivatives let financial institutions and traders manage their risks with mind-blowing precision.
...
What's more, many are depending on instruments that are highly leveraged, numbingly complex, and untested by a market downturn. Then again, derivatives might cushion the blow when the reckoning comes.
Derivatives are going to save the world. Yeah, right !
Bummer, I'm Data?!!##!@
I don't like personality tests though, their choices never encompass my entire personality.
That's why I hate Crazy Casey so much, he spouts his Riggs result (probably something he took in middle school) as though it makes out his entire destiny.
StuckinBA - doesn't say much
http://news.yahoo.com/s/nm/20070210/bs_nm/markets_usa_stocks_dc;_ylt=AoX9ZVKu0lm5k7XyHx1frM2573QA
Peter P
2007 Feb 10, 1:08am
Bummer, I’m Data?!!##!@
My wife used to think I was Data. Then I became Harry Potter. :(
Soon I will be Barney.
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Please help the REIC and banksters! (for those unfamiliar with the term, please refer to the Housing Bubble Glossary).
They need our help. Signs their beloved mega-global housing/credit bubble is beginning to falter are now everywhere and unmistakable. No matter how low toxic-mortgage lenders lower "standards", it appears that they've exhausted their supply of typical FBs (innumerate 'tards and Marshall Reddick-worshipping specuvestors) and now they're even running short on falling-knife-catchers.
Sure, they're counting on a taxpayer-funded federal bailout of banks/lenders and GSEs --after all isn't that what taxpayers are for? They don't call it "Privatize profits, Socialize Risk" for nothing, do they? That's a gimme. Problem is, even with suckers like YOU footing the bill for some f***ing idiots' mistakes, there's still no way to avoid some pain for the industry players. Some toxic lenders have already gone out of business, while others are restating incomes/losses and teetering on the edge of insolvency --and this is only the beginning! Plus, lots of newly minted Realthwhores, fly-by-night mortgage brokers and hit-the-number appraisers are now facing unemployment.
This just will not do! Pain and negative consequences are for thrifty, responsible suckers like you --not the REIC!! Oh, the humanity... what to do, what to do?
Wait --I've got it!:
The biggest problem right now with maintaining that permanently high plateau is that rents cannot easily be inflated with debt, the way housing prices can. There is no such thing as a fraudulent cash-out refis, HELOCs or neg-ams for renters --they must pay their rent with real earned income and/or savings (yes, some people out there still have savings --can you believe it?!). Since renters must pay rent using real money vs. monopoly bubblebucks, there's no way to ignite crazy bidding wars on rentals. And global wage arbitrage is keeping wages firmly in check --no inflation happening there (crooked CEOs excepted, of course). Sadly, there's currently no way to funnel huge amounts of Fed/MBS/Chinese liquidity into the hands of renters, so they can bid rents to the sky.
And herein lies the solution: the REIC must create new debt vehicles for RENTERS!
Your assignment: How can the REIC and banksters create enormous new debt vehicles for renters, capable of inflating rents as high as house prices, thereby cancelling the rent-vs.-buy imbalance --without having to resort to any of that pesky wage inflation?
Discuss, enjoy...
HARM
#housing