patrick.net

Combos were common over a decade ago when we bought our first CA house in Redwood City. People just use them to avoid paying PMI (which has come back on the scene now). Even “stand alone” equity lines of credit are frozen, according to what I heard.

The reports in fact state that several major lenders have seen significantly increasing late payments and subsequently defaults on HELOCs for prime borrowers - I would think that prime borrowers in financial trouble tend to pay their primary mortgage and let the HELOC slide if need be.

With the subprime meltdown, hopefully it will become easier to make restaurant reservations. It is annoying to plan a dinner for weeks later.

"Too bad for her I found her script"

The last act of a desperate person. After years of working the "greed script" they've now perfected the "fear script". The fear that you won't be able to get a loan. Period. So when you pose it to the buyer that way, I guess the house, neighborhood, schools etc. don't matter! Sad.

What if a buyer has already gotten a Jumbo ARM loan without the teaser rate? Will their rate get a reset? I think that is the category that most $200K families are getting into for their primary residence.

skibum,

Would that actually work? Whether it's the lender in the first position or the second (or the third) wouldn't they just file a N.O.D anyway? Is it possible to stay current on their first and blow off the second yet still be able to stay in their home? Or are these somehow un-secured?

Rating Agencies are starting to get their share.

Moody's, S&P Lose Credibility on CPDOs They Rated

@ Randy,

I was quite surprised to learn that some of this toxic waste had found its way into money market funds. Vanguard is a class act generally so I would be real surprised if they have that problem. However, I formally thought Bear Stearns was a class act too. I guess once ACE left it was all down hill!

My income ETFs are getting killed even while NAV increases the share price drops. There is clearly blood in the street. Liquidations are happening regardless of the asset.

Paul,

FWIW some of the income ETF's (at least on the sell side) get knocked b/c retail brokers dump them after the DTC Tracking expires and they jump on board w/ the new "flavor of the month". It doesn't account for all the weakness but it certainly doesn't help.

With a lot of the "dividend capture" trading platforms out there they know they have 30-90 days to get back on board. The difference is... your income ETF's will recover, MBS won't.

Would that actually work? Whether it’s the lender in the first position or the second (or the third) wouldn’t they just file a N.O.D anyway?

Exactly my implication! I think prime FB's are mistakenly taking this tactic. It would seem logical that the primary mortgage "matters more" than the secondary mortgage. But a default is a default.

Randy H Says:
Rumor has it from those in the biz that the credit lockup _very seriously_ has already or is in the process of interrupting residential transactions.

I second this - I have heard independent confirmation that transactions are stalling out because the 'pre-approval' is meaningless unless there is (was) a rate-lock. Since most rate-locks are for only about a week, I think that window is also shut now.

Realtwhores are trying to turn customers towards their in-house mortgage-monkeys, but I don't see how that will help anyway.

Sub-650 FICO is dead.
Piggyback 80/20 is dead.
5% down is dead.
Jumbo is nearly dead unless you have at least 25% down.

Get ready for the fortress to get breached.

SP

Thanks DinOr!

That is what my wife says - we don't have any debt and will not be retiring for about 3 decades; so why worry if they are trading at 13-15% discount to NAV it will come back after awhile.

HIX is one example. I poured over the last prospectus and could not find any positions in CDOs, CMOs etc.. In fact, some of the largest holdings are foreign sovergns. Perhaps I am missing something. If anyone sees what I don't, I would appreciate feedback.

Paul

DinOr,

Actually, despite the lower yield, my CDs, money markets and savings bonds have proven to be the best investments YTD.

I am just an ordinary person with ordinary insight (no MBA from a privileged school).

I predict that the Bay Area will be remembered as ground zero in this economic disaster. This is the place where dot.com money started the housing run up in the late 1990s. And when the money disappeared, Greenspan came to the rescue, offering low-cost mortgages so everyone else could jump in and also own a home.

I predict that we are headed for a change in the quality of lifestyle as we know it.

By the way, the depression meals my father talked about consisted of: Scrambled eggs and baked beans OR a can of tuna...

I was quite surprised to learn that some of this toxic waste had found its way into money market funds.

Help me out Paul, where did you see that? Randy was talking about jumping out of his bond funds, not MMFs.

skibum said:
It would seem logical that the primary mortgage “matters more” than the secondary mortgage. But a default is a default.

I agree with what you are saying (see Countrywide's rise in prime HELOC defaulters). I do, however, think the one saving grace for these folks is that the holder of the second/HELOC is much more likely to do some sort of workout to avoid foreclosure.

Uh-oh, when Randy starts rumor mongering the floodgates open. Well, the rumor I saw on socksite is that TICs in the City are about on par with rentals (taking into account taxes, etc). Well, maybe a ~$100k more, but they are getting close (the implication being that even more desireable housing will carry a higher premium). Now, it could get interesting if the banks that offer fractional TIC loans get cold feet, but otherwise it does suggest some amount of equilibrium. Most likely TIC prices will be affected from above when (if) upmarket conos & homes crash due to (option)ARMageddon.

@skibum

I don't like holding a lot of bond funds anyway, so good riddance I guess. Bond funds are really just derivatives when you look at how they work. You don't think they actually buy and hold bonds do you? lol

I am not trying to slander Vanguard. I still think they are a class act and I keep a great deal of my wealth there, especially whilst sitting out the housing correction. It could easily be that they don't know exactly what their own funds exposures are to MBS because, well, no one knows (at least at a level of detail that passes legal muster). Remember, unlike realtors, people in the investment industry have to back up shit they say and are held accountable for misstatements [I say, singing to DinOR].

I said I *do* trust money markets. They might have subprime exposure but I contend that doesn't matter. Money markets are considered cash for all practical purposes in our banking system. If they are allowed to even falter a tad all hell will break loose. Literally. It will be seen as The Great Depression. The Fed will shut down the banks, everything will stop, and they'll reset the system. And...all cash will be honored even if it's more than the FDIC limit; even if they have to print it up for you; even if they have to prohibit the sale or ownership of gold. Banking failure in the modern economy is not a tolerable option. It would derail society. They'll just go start big wars first.

Well currently I'm approximately 28% in real estate (my house, paid cash), 36% in S&P 500 index funds and ETFs, and 36% in cash (bank CDs and bank MMFs). So I don't feel too bad right now.

Before I unloaded my 1,040 square foot stucco box in SJ, I was about 70% in bubble real estate, 15% in stocks, and 15% in cash equivalents.

So maybe I should have unloaded about half of my S&P stuff a month ago, but I'm still in much better shape than I was two years ago.

Hey SQT, where were those McMansions by a golf course? You aren't talking about Rancho Solano by any chance are you? I have friends there who are thinking about selling......

A fearless prognostication. What do I have to lose....Surfer-X already has castigated my worthless boomer hide.

For FBs that need to move for job related reasons....there will arise a no-money housing swap market. Say X in city A needs to move to city B. A web broker will pair him up with Y in city B who needs to move to city A. The two close together and exchange deeds. Web broker gets some flat rate.

What's wrong with this business model?

Oh, and I have *not* sold any equities. My SEP and wife's 401k are long-term focused with regular balancing. My brokerage account is purposefully between 75% equities (sometimes including options) and 25% cash and 100% equities. I do this on purpose regardless of the market as a self-discipline rule, primarily because I tend to hold way too much in cash.

Right now my stocks are mostly monopoly/market-power techs, telecom and infrastructure with strong cash statements. I don't think traditional "defensive" stocks will work this time round because of the extent and direction of the consumer credit crunch. Wal-mart = bad. Working/middle classes spending a lot less, with even less to come. Upper/Rich classes spending a tad less, maybe spending more if inflation kicks in.

My wife just sent me this listing to look at, in prime Crappertino foothills (near Rancho). We got it from a realtor who knew we were looking over there a few months ago and doesn't know we have since stopped wasting our time.

Address: 10460 Serra St Cupertino CA 95014
4/4, 3800sf, Half acre lot, built in 2002

Sale History: 08/15/2002: $2,299,500
Currently on sale (no bidders) for: $1,795,000

Just for a laugh, I checked out Zillow. Those idiots think it is worth $2,617,761

I think the death of Jumbo's will be felt very keenly by sellers like these.
SP

My prediction? I think the Bay Area will actually crash. Maybe not catastrophically, but inflation plus a mild crash will definately take the luster off of housing. I also think we're going to see wage stagnation as consumer spending drops, corporate spending will drop, and tech profits will drop, leading to inflation based raises and not much more.

I think we'll be 3-5 years grinding through the mess, and by the end housing will be 3.5-5.0 x median income.

I also predict :

My first kid by 2009
My second kid (last) by 2012
A house purchase sometime between the two.

I HOPE :
This mess will let us get some REAL reform, like booting prop 13. But I won't hold my breath.
The Fed keeps walking a tightrope or even *gasp* raises rates to keep the dollar/inflation in at least slightly reasonable shape.

Hey SP, I'll put in a bid for 850k if you promise to put one in for 855! ;)

@SP

We should seriously consider inking a deal to do a phantom-framing strategy. I'll pretend I'm moving down there and bid from out of area, you up here. We'll lead each others' bids at 60% or more off asking.

I think prices in San Diego will drop another 25-40%. They've already dropped 20% from the peak.

I'm glad I sold out in summer 2005!!!

SFBB said:
I think we’ll be 3-5 years grinding through the mess, and by the end housing will be 3.5-5.0 x median income.
For all of California, maybe. If you are talking Bay Area, I would put that in the catastrophic category. The SF MSAD barely dipped below 6.0x during the last downturn and saw 5.0x in the mid-eighties (twenty year moving average is 7.2x). It was estimated to be 11.3x in Q3 of 2005 according to the HSBC study on Randy's site.

SP sfbb and Randy,
I'll join in on the bidding! If you guys start a "bidding war" anchored around 750K or so, I'll come in with a "rescue" bid at 800K!

@EBGuy,

I believe it was on CNBC this morning about a money market fund in Europe which halted redemptions. I may have been mistaken, it is very early for me when I arrive at work and watch this stuff!

@Paul

In Germany (maybe France too) a money fund halted redemptions. It was temporary and was the primary motivator for the ECB action. When some were calling the ECB and later Fed liquidity injections overreactions I think they were misreading how important it is to keep cash liquid. Basically, even if a money market fund strayed into some subprime -- even if by accident -- the central banks will do everything they have to do to prevent any failure of that fund. Otherwise psychology will turn to outright panic because people will perceive "their bank deposits" as "disappearing". Even if that's what happened, the central banks won't let it. They can't. Better we eat 20 years of inflation than eat government-dispensed bean soup we have to wait in line for on Tuesdays.

Randy,

Are Treasury Money Market funds safer than money market funds? The yield is a little bit lower, I think in a taxable account for a Californian it's a wash.

@sybrib

I'm not the expert on the performance trade off. DinOR's the guy to ask that, or one of our many resident experts. I think theoretically a Treasury of any type is safer. Really, a Treasury is as safe as you can get worldwide in terms of failure. But you pay for that in inflation, which HARM has detailed quite well.

My entire proposition is simply that "normal" money-market funds are practically as safe as Treasuries because the effect of allowing money-markets to fail is largely the same as defaulting on Treasuries.

Seriously, what else rational can you do if you believe the subprime taint infects everything down to money-funds and cash-equivalents? Request (often) hundreds of thousands in $100s and buy a big safe-deposit vault at your local bank? IMO, that's as useless as buying gold. Even if you have it, you can't use it if you're right and it all comes down.

Hey SQT, where were those McMansions by a golf course? You aren’t talking about Rancho Solano by any chance are you? I have friends there who are thinking about selling……

They are on a golf course but at Morgan Creek not Rancho Solano. The thing is there are at least 5 golf courses in Roseville (where I live) alone. There are a bunch in Rocklin and Lincoln as well. There really isn't any prestige to living on one when there are so many and Morgan Creek is suffering big. I saw an ad today on Craigslist that said they had dropped the asking price on one bank owned home by $150k. Ouch.

Randy,

Fidelity and VG have these "Treasury Money Market" that they categorize as a money market fund, not a bond fund. I used to know the difference, but it's been a long time since I thought about these things (it was during the time of Lincoln Savings and all that). I think the main difference was the duration of the holdings.

Anyway, if you think it is a good time to stampede out of the non-FDIC-insured money market funds, well in concept at least the Treasury Money Market might be a way to go. I'm gonna read up on it this weekend. Maybe Dinor will have some suggestion in the meanwhile.

What is TIC?

TIC = Tenancy In Common, or Tenants In Common.

Sort of a co-op arrangement. Wiki it.

SP

TIC = tenancy in common. My info comes from a good friend who is in a TIC.

Tenants-in-common have part ownership (a share) in a single building. These are generally buildings not zoned as condominiums, but they have physically separate units, each owned by one of the tenants-in-common. They all basically sign up and agree to the part-ownership structure. The upside is that these units are cheaper than condos. The downside is that the tenants basically all share the finances and hence mortgage for the entire building, so you need to have faith in your co-tenants. You can buy/sell your share separately, but it's more difficult than selling/buying a condo. Many try to buy into TIC's with the goal of converting the building into condos. This is pretty common in SF, and there are tried and true channels to doing this.

oops - SP already posted an answer. Much more terse!

Thanks for the answers above.

Oh sh*t, Yen just breached 117, yen carry trade unwinding plus subprime blowup, it is not going to be pretty tomorrow. When it rains, it pours.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/08/15/MORTGAGE.TMP&tsp=1

the mortgage crunch bites even the rich.

http://tinyurl.com/yo9rvq

I was a little off-

Here's the money fund with problems.

sybrib,

Up until a few days ago, I (like most of us here) spent very little time worrying about the portfolio composition that makes up a mmkt. If your account is at a brokerage, they're actually insured through SIPC (Securities Investor Protection Corporation) not FDIC. All brokers pay into a SIPC assesment out of every paycheck. It's not much, so we don't mind. Can SIPC "cover" everyone in the event of a wide spread mmkt. default? I doubt that. Since the majority of holdings should be "repo's" (re-purchase agreements) short term commercial paper, LOC's (letters of credit) etc. they would likely only have to cover the MBS portion of the portfolio.

From a pure marketing perspective "some" firms have treated their mmkt as an advertising tool or "lost leader" so they can boast a higher yld. than their competitors. I'm not worried, we've always had the cr@ppiest yld. on the street! And all these years I thought the toughest part of managing a mmkt fund was making sure you locked the doors when you left at night?