patrick.net

You are being disingenuous, HARM. :)

I was going to post this in prev thread. But it's kind of on the topic.

HARM, a certain mortgage company is getting in trouble due to "debt forgiveness".

http://tinyurl.com/2u2ks2

This is a crucial line from the news report.

American Home also indicated that it continues to be affected by the high cost of delinquencies, especially on Alt-A mortgages, and that it's been forced to repurchase some of these loans.

@Jon,

I had an even better experience today when lunching with several of my co-workers. The topic of real estate came up, and for once I was not casually dismissed as the lone gloom-'n-doom pariah, In fact, I wasn't even the first one to bring up a bubble horror story --another guy beat me too it! Not a single REIC perma-bull in the crowd.

Word is finally getting around on the street. The psychology is finally changing. Game. Set. Match.

Jon,

Agreed. Anytime a lender comes to you offering "help", run the other way as fast as you can. Unfortunately, outside of the homeowners on this blog and other like-minded people, I bet you could count the number of Kalifornia homedebtors who have NOT already refinanced in the past 6 years on one hand.

When boatloads of FBs finally realize that they converted their no-recourse mortgage into a full recourse loan and they cannot qualify for the new Chapter 7 "means testing", it will get very interesting.

I bet you could count the number of Kalifornia homedebtors who have NOT already refinanced in the past 6 years on one hand.

In all fairness, they were giving away money in 2003. I doubt I will ever see those 30yr. fixed rates again in my life time.
The sad part about "refi-ing" your bills away is instead of going bankrupt and keeping the house, your home gets foreclosed instead. Hey, at least that interest was deductible for a couple of years while the inevitable was prolonged.

I mentioned my background in RE, my thoughts on the current state, and showed her the shiller graph - pointed out the two previous bubbles and how they were minor compared to this one. I think I gave her something to think about.

Jon,

You are truly evil!

:twisted:

Keep in mind, many many FBs are no longer able to refi due to (a) tighter lending standars, and (b) stagnant and/or depreciating home values. Unless they can still find corrupt appraisers out there, if they have no equity and wish to refi, they won't even be able to cover the transaction costs - one thing we forget about the refi process. The MBs need to make their cash somehow - it's just that during boom times, the FB didn't give a rat's a$$ about the fees involved in a refi since they were still getting a hefty chunk of "liberated equity."

Her very worst case scenario is to assume she can continue to run up debt with a back-of-the-mind belief that she can HELOC, refi or sell out of her situation.

Well, that goes for her and several million other Californians, too.

I've always kind of wondered, when people "liberate" their equity, what do they do with all that money? I can see college for the kids or medical expenses. But the rest of it... the Rolex, the cruises, the his-and-her Lexus duo, the grainite countertops... is anyone really happier for having those things?

I'm not really being sarcastic. I'm curious if anyone here has done that, and if it was really emotionally worth it.

I own a small piece of AHM, so this is kind of bad news, but not unexpected. There is no way that they could stay at a dividend payout of 17%. Even with the reduction, they are at 10%, which is very good, but they are still a risky play, I know that. I have a stop loss set at just above where I picked them up at that is likely to get hit Monday. We shall see.

The Fed does not care about the middle class. The more I have been thinking about the last decade the more I realize that the whole goal of the financial system is to make the rich (the holders of capital) as rich as possible, without getting the poor so riled up that they start breaking things. This is the point of things like the inflation targets: they help keep the poor from starving or ending up homeless, but they almost guarantee asset inflation will outpace incomes. The middle class are the ones that get screwed the worst here, especially that part of the middle class that does not invest.

Jon,

The P/E since 1880 is 11, but more like 16 since 1932. I think the latter valuation makes more sense, since the market is worth more now, with better regulation and more transparency in disclosure, reducing risk to investors. This is certainly open for debate.

Also, you have to realize that low bond rates make securities "worth" more, by lowering the risk free rate of return, it makes other investments more valuable. If we are actually entering a prolonged period of low real interest rates, like some forcast, stocks should go up. Inflation, especially stagflation, would kill the stock market, but bail out the FBs.

At some point the boomers will start spending their hoard that is currently invested in the stock market. Also, a bunch of retirement and pension funds are going to be in the same boat, so I figure that will have to push the stock market down. I have seen different theories on this though, so who really knows? The market could get "bailed out" by foreign investors. If China keeps spitting out excess capital, it is going to have to go somewhere.

Except that most of the largest banks are public companies. Thus any wealth creation goes to their shareholders. And of course the purpose of banks is to make money--isn't that the point of all businesses?

Suggested new copy for this ad:

Remember last year when the mean old mortgage company called and said all that mean stuff about paying your bills on time? And remember how we saved your ass back then with that sweet HELOC injection? You remember: the new debt that you've been using for the last year just to keep servicing your old debt, right? We'll, we're back! And we're here to help you keep your sweet, sweet independence. By leveraging yourself just a little more, we might be able to keep this game going another six months! (By then the housing market might be hot-hot-hot again and you could unload the place on some new sucker! Fingers crossed!)

I think the financial industry exists to make money, and it doesn't care what the poor think. They have no money to contribute. The government is the entity that cares about riots and chaos. Hence it regulates the financial industry. If the huddled masses start reaching for pitchforks, the government will clamp down on the big banks. But it will also protect those banks from angry mobs.

In fairness, the Federal Reserve's mandate is not to worry about the middle class. Their job is to promote stability in banking (i.e. prevent panics). Indirectly, we all benefit from stability, if they achieve this. I think this criticism is more appropriately leveled at capitalism rather than the Fed specifically...

In short Jon. from your points 1-10 in short demand that was fabled to keep growing from foreigners, raising wages, etc at the end does not exist. ITS NOT THERE.. the market is showing that .. Oh Joy Joy Joy...

PA Renter - Spot on...

Sure, the primary business of any company is to make money, but I am one of those nutty liberals who think that companies have responsibilities to other stakeholders, like their employees and the members of the communities in which they live, as well. If Maxxam's fastest and best way to make money is to clearcut a whole forest and then fire their staff, runing an ecosystem and a community in the process, I think they need to be reigned in somehow. I am not really sure the best way to do this is.

And yes, I own shares in all the big banks. I understand how things work and I want to have a comfortable retirement. But the truth is, my little tiny share is really nothing. The top 1% own something like half the stock market and their share just keeps growing. I think the Fed deliberately injects enough liquidity into the system to keep the money supply growing and causing asset inflation. But I agree, they are not really the primary culprits, the whole game is rigged right now to guarantee that all the benefits of globalization roll up to the top 1%. I don't think is the fault of "capitalism" per se, but our current implementation of it.

Maybe a new Democratic president and Congress can do something about it, but perhaps I am being too optimistic here.