patrick.net

Slightly OT, but we are always saying (and I agree) that all this easy credit has dried up and NINJA/subprime type loans are not out there anymore. So why am I still seeing ads on TV and Yahoo! homepage (among other websites) with promises of "$400,000 for $1299/month" etc?

Just a ruse to poach my info for some house salesman's/mortgage salesman's Rolodex? I tried to fill out a few of the online apps, but they eventually ask for info I don't ever give out over The Internetz--so, mystery not solved.

Any explanations?

jeffolie,

on the topic of money-market funds, any thoughts on these guys: thereserve.com.
Today, they have posted a soothing message on their front page, saying they have no
DIRECT (my emphasis) exposure to ABS or MBS.

If course, that does not mean they have no INDIRECT exposure. Any thoughts?
I'm not picking on this particular fund, just noting that they provide good rates and I have been thinking about using them.

Is it not outright fraud by FEDERAL RESERVE that a 300 point jump in the Dow is normal but a 300 point dip is viewed as a cataclysmic event that requires intervention!

I haven't really changed in my prediction: five to ten more years of stagnation amongst prices in The Fortress. With inflation at 3-4%, it will take about 10 years to get back to the CA long term appreciation rate of 6% (or 3%+inflation).

The one thing that could shorten it up would be a recession, which I am starting to think looks more and more likely in 2009. President Hillary Clinton would like to take her recession early, like most Presidents, and we are likely to get the usual post-War recession. Add to that the risk that China will slow down after the Olympics and it is starting to like a distinct possibility. If there is a recession and accompanying jobs slowdown, I think home prices in SF and silicon valley will drop 10-20%, shortening the whole cycle by five years or so.

Having said that, the Silicon Valley looks stronger than ever. VMWare just priced at $3 over the top of their range, creating 100 newly minted millionaires in Palo Alto. I know at least three people like that this year alone. A real recession would probably slow down tech spending, but it would still not be as bad as 2001 and home prices barely budged then.

I think in the next couple of months we will see continuous liquidity injections by the Fed and international central banks. That will have a calming effect on the stock markets, but ultimately the low-quality derivatives will continue to crumble. The fires at mortgage brokers will soon spread to hedge funds and investment houses like Citi and Lynch. I think it is already smouldering underground like a coal fire, but nothing has yet forced a massive mark-to-market (and perhaps nothing can).

Liquidity injections will be violins on the deck of the Titanic---it will be a calm and orderly rush to the exits until the great ship finally snaps in half. Then we'll see a recession in 2009. It will be a small one and we'll inflate our way out of it, but the dollar will weaken as a consequence. Wall Street balance sheets will erode as offshoring is suddenly less lucrative than it was in 2006... either that or China just outright eats the difference and shares in our mini-recession.

I can only speak about the area I'm in which is somewhat removed from-- and less valuable than the B.A. But the market here is literally going to s***. I am not exaggerating.

My husband and I drove through a nearby golf-course community that's supposed to be very upscale (think a tract-home development full of McMansions). There's this one main street that winds through the neighborhood and there have got to be at least 9 homes for sale-- over half of them bank owned. The poor folks who are trying to sell to avoid foreclosure don't stand a chance. The FB's are trying to sell their 3500sqft albatross at $950k while the 4000sqft bank owned one down the street is up for $700k. Poor schmucks.

And that is literally just the tip of the iceberg. I expect pain. Lots and lots of pain.

Oh, another thing. The banks here are baffling the hell out of me. We are getting a glut of bank owned homes and the banks are just sitting on these things. I do think they are overwhelmed but some of what's going on makes no sense.

For example: my husband's best friend's sister (got that?) is going through a divorce and has to sell the house. They owe $450k on it and had it up for $550k-- no bites. Fairly quickly they lowered to $450k- no bites. One of those "we buy property" came in and offered $350k and the sister was so tired of all the B.S. she put the offer into the bank just to see if they would take it. Since then she got another offer on the house (though I don't know how much). The bank is just sitting on these offers and doing nothing. In fact they're indicating they might force it into foreclosure. WTF?

Isn't that totally nonsensical? According to what I've heard on the news it costs $80k when a house goes into foreclosure-- the fees being picked up by the bank and the city. And after the house goes through the foreclosure process the house will still probably sell way low what the outstanding loan amount was anyway. So what's the point? Why would the bank do something that is likely to cost them more money in the long run? I would think it would make more sense to take an offer now and just get it off the books.

But I guess common sense left this market a long time ago.

Once foreclosures really start to hit en masse the cost for the banks to process them will rise, at least for a while. (a) The system will be increasingly overloaded, so the time to process will increase and the cost of processors will rise; (b) law firms will start to capitalize on all the FBs by hawking their "foreclosure assistance" services. For example, a foreclosure can sometimes be seriously slowed down -- often by a year or two -- by strategically filing for bankruptcy. I expect there to be a spike in bankruptcy filings which are intended merely as stalling tactics on foreclosure hearings. The FBs will think they can withdraw their petition for bankruptcy once prices go back up and they can sell their home and get out of it all.

In other words, don't think the stickiness is over yet. We're likely to see some more stair-steps on the way down. Goddamnit.

The foreclosure/fire sale situation SQT reports is disconcerting, but evidence the bears here got it right. I can't figure out if the situation is as bad in Oz, I don't get the impression of streets full of for sale signs, and supposedly the % of subprime-type loans is much lower. Apart from carry trade issues, I don't know what will happen here in the next 12-24 months.

One recent article on my blogspot points to the difficulties developers have selling new stock on the outer fringes, for isolation reasons, and that new house sales have dipped very low in recent years. So much for 'supply/demand - release more land' arguments...

The Opposition leader has proposed putting $500M into subsidised rentals if he gets elected, but that to me is just the tip of the iceberg of a solution, and not a very good one overall, but they don't want to upset the voters who want their house values to continue climbing, or mum and dad investors who need an assured pool of desperate tenants, etc.

BTW, take note, if you're visiting Oz, the correct response to being apprehended by a police officer on being pulled over or similar is "getawoollydogupya, officer", which is a friendly greeting indicating willingness to co-operate. Not many visitors are aware of this...

"my husband's best friend's sister"

O...k? I don't want to start out on the wrong foot (but it sounds like ANOTHER "MEW-based" relationship) has bit the dust? Not to trivialize the human cost but where's Binky McBling when you need her!?

I suggest "DirtyScottsdale" for an insider's view of MEW run amok. It's a truly disgusting display of fake wealth (and a ton of other fake stuff). FWIW Ben Jones ran a piece amply exhibiting that financial institutions are no more savvy than the avg. FB. Seems an agent in Murrieta, CA that specializes in REO's advised the bank to sell and sell NOW at below CMV only to be ignored as the bank chased the market down. If it helps you out at all... these guys will starve too.

I can show you examples right here in Mill Valley of stubborn banks begrudgingly chasing the market down. There's one Deutsche Bank owned property that's been on the market for nearly 2 years: for a couple months as the FB's desperately prayed for a miracle at over $2mm, then bank-owned since. Last I looked it's down to $1.6 and change (and should easily be below $1.5 just based on comps on the same street).

Not surprising. I don't think the banks have needed a sophisticated system for dealing with foreclosures (for at least a decade). They've relied upon the real-estate brokers, flippers and RE investors to clear their inventory quickly at a reasonable price. As that system has broken down it will take them a while to develop in-house expertise on how to sell houses aggressively and minimize their losses. Remember, the people working for the bank selling the foreclosures are normal folks who probably own houses themselves and probably don't want to believe this is a major bubble pop.

>> FWIW Ben Jones ran a piece amply exhibiting that financial institutions are no more savvy than the avg.

Ben talks about 5% of subprime borrowers in foreclosure. I’m sure he ran out of room in his column to give us an update on all that inventory already foreclosed and sitting on the banks’ balance sheets -- green pools included. See for example

http://www.countrywide.com/purchase/f_reo.asp .

I don’t think Ben has been paying much attention to all the trouble in Alt-A land or even Countrywide’s statement that its prime loan delinquencies were 4.6% up from 1.8% a year earlier (must be statistically insignificant to an *cough* economist).

I wish he had the space in his column to explain how good it is for the economy to have people who are paying on time watch their home equity declining on two fronts: price declines and negative amortization.

Ben Stein is a "paid disinformant"

"-green pools included"

How thoughtful... Vegas must be lousy with them. PermaRenter, as "Fast and Furious" as Ben types his little fingers to the bone, there's just too much for any one of us to cover. While at a party on Saturday night I found myself at the center of some now very unwanted attention as the resident CBA (Certified Bubble Analyst (TM))

Frankly, as the contagion spreads, it's simply overwhelming. Speaking of which Erin Burnett's blouse looks like EBGuy's Momma Cass at "Monterey Pop". Or as mom used to say, "an explosion at a paint factory". What up gurl?

To the person who predicted the Iceland Krona is in for a fall.

How right you are! The Krona has lost almost 5% against the USD in the last month. If this keeps up, puffin might be within reach!

Check out the "Change in FICO Scoring System" article off the home page. Then check out the incredibly STUPID posts at www.STOPFICO08.com.

Seems dim-witted lenders are FINALLY getting wise to the "piggy back/AU's" (authorized users) pumping up their flailing FICO scores by HUNDREDS of points. After Semptember, say bye-bye! September (how fitting). I had no idea those with high FICO's were getting paid major $$$'s for letting family members and complete strangers show themselves as AU's!

Can this entire system possibly be "gamed" any further? What's worse than someone with a high FICO "casually" bringing it up in conversation? When they lend it out and further weaken the financial system by bracing up credit scores for those that couldn't get a pack of gum with a $200 down payment!

DinOR

I'm not sure what "MEW-based" means....

I know the woman who's story I was telling though. There's a lot going on there and the last thing she needs is the bank prolonging the problem. But the banks seems like they have their collective heads up their a**es. I agree with Randy, they don't seem to have a decent system for dealing with foreclosures. The house across the street from us has been vacant for months and the bank doesn't seem to be in any hurry to do anything. They are going to lose so much more money this way. It seems like a colossally stupid way to do business.

@SQT,

*astrid did a hysterical "USA Today" parody of a fictitious, just out of college couple living WAY... beyond their means. As long as they were able commit serial re-fi's (and take cash out) their "MEW-based relationship" was just fine!

When last we visited a now single "Binky McBling" she was waiting tables at TGIFriday's "and not looking NEARLY as 'hot' as she did back in school". The Onion got nothin' on this girl!

My warning about Money Market funds and ABCP (asset based commercial paper) was just in time.

Sentinel Management Seeks to Freeze Redemptions (Update1)

By Jenny Strasburg and Katherine Burton

Aug. 14 (Bloomberg) -- Sentinel Management Group Inc., a Northbrook, Illinois-based money manager, has asked regulators for permission to halt investor withdrawals.

The firm contacted the Commodity Futures Trading Commission for approval to halt redemptions ``until we can honor them in an orderly fashion,'' according to an Aug. 13 letter to clients.

The firm managed $1.6 billion as of last month, according to a filing with the U.S. Securities and Exchange Commission. Sentinel's investments include short-term commercial paper, investment-grade bonds and Treasury notes, according to its Web site.

``Investor fear has overtaken reason and has induced a period in which most securities have simply ceased to trade,'' according to the client letter, which does not specify which funds are affected. ``We are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.''

Eric Bloom, the firm's president and chief executive officer, didn't immediately return a call seeking comment. An assistant who declined to be named said the CFTC hasn't granted the firm's request yet.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a6W7XECOfjPg&refer=home

www.sentgroup.com

Oddly it's "under construction" which could be a coincidence... I suppose...?

Brand Says:
I think in the next couple of months we will see continuous liquidity injections by the Fed

I am dog-sitting this morning for a cow-orker who had to go to a meeting in another building, and I just took the canine out for a bio break. As I watched it relieve itself on a tree trunk, the first thing that came to my mind was "Ah, look, a liquidity injection."

SP

SQT said:
Why would the bank do something that is likely to cost them more money in the long run? I would think it would make more sense to take an offer now and just get it off the books.

Maybe they repackaged the loan and no longer have it on _their_ books any more... Maybe they stand to make more fees by 'servicing' a non-performing loan and more fees for processing the foreclosure after a few months... Maybe there is a loan buy-back clause that kicks in when they sell-short...

I don't know for sure, but there is a lot of scope for divergence of interests between the bank and the bagholder, which may explain the bank's behavior.

SP

As I watched it relieve itself on a tree trunk, the first thing that came to my mind was “Ah, look, a liquidity injection.”

:)

You mean the dog dared to soil the ******plex?

SP

Yeah, I actually talked to the original lender on a foreclosure in our area. He has no idea who holds the paper on the house now and it's just sitting.........

Alright.. who wants to predict DOW back in the 12K's ??

Amidst all this talk of a credit crunch, I got some unsolicited email from my mortgage holder offering me a huge home equity loan at a 7% fixed rate. I can't imagine why I might want to do that, but it was amusing nonetheless.

So I don't think there is really so much of a credit crunch, as a crunch of well qualified borrowers.

Phil Says:
Alright.. who wants to predict DOW back in the 12K’s ??

pffft, I already called for Dow 10K a week or two ago. :-)

"in the 12Ks" is a gimme - the dow (13027) is sitting just about 28 points away from that right now.

SP

skibum Says:
You mean the dog dared to soil the ******plex?

Uh... it is biodegradable. Strictly speaking, it was a tree along the creek next door.

Anyways, I thought it was a pretty good metaphor for liquidity injection.

SP

Eventhough my ira is down a "chunk" I'm still enjoying this market.

I can just hear the hedge fund billionaire's conversations...."I was looking at a 172 foot yacht but with this market I'm thinking about the 146 footer instead." "Tell me about it, we've removed the entire fourth floor from our beach home plans."

(sumbitches)

SP,

I had some similar thoughts about Bernanke giving us all a liquidity injection up our collective behind, but I didn't want to (at the time) to get too grotesque.

146 is a good size for entry-level billionaires. That would be around 45 meter.

In the good old days, it would have been considered a megayacht. Now, shipyards have series-built (almost like assembly line) boats at this size.

There are multiple yachts in the 500-foot range (larger than a small cruise ship) being built as we speak.

Are you sure those people you overheard were actual billionaires, not mega-millionaires?

The Sentinel MMF story is not what it seems at first blush. CR and Tanta have a bit to say, and then details come out in comments (amid an unusual amount of noise):

http://calculatedrisk.blogspot.com/2007/08/sentinel-management-asks-to-halt.html

Jimbo,

I've maintained that for some time now. Exactly, that's why they're going to folks in your credit grade to see can they scare up some business? SAFE business!

Not that you're considering it but I think if you w-e-r-e to follow through with their offer you'd get very frustrated. See, they've all forgotten how this whole process is supposed to work? As in you'll be coaching them through it every step of the way. When I was asked for an appraisal (again) 2 days before the close and re-faxed my '05 return for like the 3rd time I was not having any fun.

need coffee.

http://calculatedrisk.blogspot.com/2007/08/sentinel-management-group-asks-to-halt.html

BTW, goober, are you in Florida?

@Peter P

Naw; just across the border in ga.....

need coffee.

Bloomberg keeps updating their story and I recommend it over trying to wade through CR at this point as it has everything you need to know (at least, from my POV). This is Jeff's original link that has been updated four times.

I seem to have lost the ability to use the a href tag proerly (the mind is going). Here is the link for the Sentinel story at Bloomberg.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6W7XECOfjPg&refer=home

“in the 12Ks” is a gimme - the dow (13027) is sitting just about 28 points away from that right now.

The Dow under 13000 will be a significant psychological milestone, as will falling negative for the year (12,400 or so?)

I moved all my bond funds today into cash because Vanguard was unable to tell me (or unwilling to tell me) in specific terms the amount that was either directly exposed or indirectly through "bond return matching derivatives" to subprime & friends.

I'm not concerned about money markets or CDs because of all the reasons people usually state, and more importantly because if those are allowed to fail -- even a tiny bit -- then all bets are off anyway. Money markets failing = perceived total banking failure = emergency Federal measures = anything you thought you did to hedge or protect is rendered irrelevant anyway.