patrick.net

DinOR, thanks for refreshing that angle of human behavior. I think you've connected the atitude of not being honorable when the transaction doesn't perform with the, 'let's stick it to this guy, it's someone elses money anyway' atitude quite nicely.

More news updates on Ms Parul Vora:
===============================
Unemployment Rate Rises After 80,000 Jobs Cut
http://www.nytimes.com/2008/04/04/business/04cnd-econ.html?em&ex=1207540800&en=c1de4fb13c4ec4bd&ei=5087%0A

Until recently, Parul Vora, 28, was earning a six-figure salary as part of an elite research team at Yahoo. Ms. Vora, who has a master’s degree from the Massachusetts Institute of Technology, lost her job in early February.

“I had never been laid off and never imagined being laid off,” Ms. Vora said. “I was sad personally and professionally.”

But Ms. Vora has better prospects than most. She said she has already been wooed by several potential employers.

“There are a lot of jobs out there, but I’m pretty picky,” Ms. Vora said. “My biggest worry is finding a new job I like.”
===============================

More news updates on Ms Parul Vora:
===============================
80,000 Jobs Lost; Democrats Urge New Aid Package
http://www.nytimes.com/2008/04/05/business/05econ.html

Parul Vora, 28, who holds a master’s degree from the Massachusetts Institute of Technology, thought she was immune to unemployment — until Yahoo laid her off recently as a researcher in San Francisco earning in the low six figures.

“To me, the layoff was an introduction to the dark side of corporate life,” Ms. Vora said. “It was a reminder that at the end of the day, you are doing breakthrough research for a company that is making decisions about your life, and you have no control over those decisions.”
===============================

Peter P Says:
April 8th, 2008 at 4:25 pm
"American consumers will simply move overseas."

And? I think it speaks better of our society to have rich Americans going around the world sharing the wealth rather than turning the working class into peasant refugees going to former third world countries to beg for a job.

dogbert345,

what about refinancing? I read somewhere before that refinancing will cause the borrower to lose the anti-deficiency status because the lender always attach a fine-print on the contract calling for the borrower's consent to give up his right of anti-deficiency. Is that true?

~attitude,

sorry

There may be fine print, but it is by statute that a refi isn't purchase money.

I'd expect the fine print to be more of a disclaimer that the person is giving up that anti-deficiency status.

Parul Vora, 28, who holds a master’s degree from the Massachusetts Institute of Technology, thought she was immune to unemployment — until Yahoo laid her off recently as a researcher in San Francisco earning in the low six figures.

A master's degree? Immune to unemployment? :lol:

The only people immune to unemployment are those who create their own employment. And still, they are not immune to business losses.

Looks like the Uk is trailing the US by about 1 year. Wow, the wheels are coming off that London housing bus. Spain as well. Portugal.
The problem with housing bubbles everywhere is that it creates a world-wide consumer led recession. With fewer consumers to 'pick up the slack' this means a real loss of markets and thus a real contraction in business. China can only buy its own exports with massive inflation.
I am going back to my statement that the IMF, who has tripled their previous estimate, is still off by at factor of at least two. $2 trillion loss with a average world leverage rate of over 10%. $20 trillion in monetary deflation. You go Ben, push on that string for a while.
Using Krugman's estimates I would say Start of recession was Jan 2008 (mybe as early as October 2007 after last econmic revision) it will last 3 years with the worst part of it at Jan 2009. It will likely blunt after that as the president starts pushing for more and more New Deal works projects.
Housing prices will decline past 2010, but the bulk of the losses will be realized by winter 2010. By bulk I mean to say 10% in 2008, 10% in 2009 (we had 10% in 2007, so 30% total in 3 years) with up to 5% in 2010.
In theory we are speeding towards price correction in nominal dollars with Fed inflation, but unless wages move with inflation expectations, homes would still remain unaffordable as ioncomes fail to inflate.
I guess I am just back to reafirming my good 'ol 70s rewind. Hello 1973-1975.

OO Says:
OT: There’s another $600K tax money going to the drain. This Olympic torch thingy is ... going to pass through SF tomorrow

I agree - it would have been wiser for Gavin Newsom to have banned the genocide-torch from entering SF altogether. :-)

Peter P Says:
Is that your wishful thinking? :) Which planet are you from? Last to be cut are people with the best political skills. Good engineers are expensive on paper and they are the first to go.

Not wishful thinking at all, I have seen it myself. The top "producers" in sales and R&D are retained longer than the fluffers are. The people with the best political skills are not last to be cut, they are usually 'never to be cut'...

NYT: "Economy has become a drag on Silicon Valley"

http://www.nytimes.com/2008/04/09/technology/09silicon.html?_r=1&ref=business&oref=slogin

Ski,

Kinda confirms what we have been saying here. Do we have an estimate of the magnitude of start-ups as employers? Or how much money they splash ino secondary labor markets, like (external) marketing, finance, commercial real-estate, etc?

dogbert345 Says:

>ANTI-DEFICIENCY RULES (CALIFORNIA ONLY)
> FOR THOSE INTERESTED
> I am not a lawyer, but I am a law student and I’ve taken
> a course in real estate finance, which is more than can be
> said for most lawyers.

I’m not a lawyer either but I’ve taken a lot of real estate finance classes over the last 27 years since I got my CA real estate license (as a freshman in college) and as one of the few guys in business school with an undergraduate business degree I spent a lot of time teaching finance (and accounting) to the kids with undergraduate degrees in engineering (and romance languages)…

> (4) If a second lien-holder (i.e., a home equity loan lender)
> is “sold out” by the foreclosure of the senior lien (i.e., first
> mortgage lender) then the second lien-holder need not
> foreclose before seeking a deficiency. i.e., the second lien-
> holder can proceed directly against the property owner for
> a deficiency.

Other than the little $200K loan I got on my Burlingame home in 1996 I have never been personally involved with residential lending, but in the mid 90’s I was involved with bidding on billions of bad commercial loans and spend a lot of time talking with the guys bidding on the billions of bad home loans. I can’t say that it NEVER happened, but I have NEVER heard of anyone (with a loan secured by real estate) in California (in the past 20 years) ever actually collecting on a deficiency judgment (99.9% don’t even try to get them and just take the property back).

Then OO Says:

> dogbert345,

> what about refinancing? I read somewhere before that refinancing
> will cause the borrower to lose the anti-deficiency status because
> the lender always attach a fine-print on the contract calling for the
> borrower’s consent to give up his right of anti-deficiency. Is that true?

If you refinance you lose the “anti-deficiency status” but 99.9% of lenders will not bother with a (very expensive) judicial foreclosure since 99.999% of borrowers that destroy their credit letting a home go in to foreclosure don’t have the money to pay a judgment…

I had told about a friend's brother who was upside down on around 10+ properties. Now he seems to be using his brother (my friend) to work on some distressed properties. My friend doesn't know all the details but has put his name on some property and got some cash out for his brother to fund new investments in distressed properties. With so much of leeway in appraising properties, I believe there could be lot of fraud on the way down just like fraud on the way up.

dogbert and FAB : Thanks for the information.

but I have NEVER heard of anyone (with a loan secured by real estate) in California (in the past 20 years) ever actually collecting on a deficiency judgment (99.9% don’t even try to get them and just take the property back).

Perhaps because of the One Action Rule? Even without formal anti-deficiency protection in some mortgages, lenders are incentivized to seek foreclosure instead of litigation.

I am not an expert.

Also keep in mind, that it is only in the last couple of years that there has been a real deficit between mortgage balances and home values (in general). Don't think for a moment that people who walk from a loan that is a recourse loan are going to not get a deficiency judgement against them. Especially given that many of the stories we are reading here are people who are choosing to walk away because of the drop in value, not because of insolvency. Many of the cases are actually high earners.

Malcolm,
Yep. I think the just-walk-away crowd better not include those that think they can laugh over the loss of their 0-down spec property. They are in for a rude, rude awakening. Not only becasue it is worth it for the bank to go for the deficiency (since $1m properties may well sell for $500k) but becasue there is likely $500k in assets for the person who loses the judgement.
I think this world is very different from the one FAB remembers, if only becasue people who went upside down back then, also went under.

Okay, I must be wrong.
Now the IMF is saying the same thing I have been saying. That other nation's Central Banks better lower rates. But the IMF is awlays wrong, so I must be wrong.

Thanks Duke, it is a subtle difference that I thought worth mentioning. To YouWalkAway's credit, on their site they do try to screen their leads for eligibility on their home page.

I'm reasonably sure that the judgement can be discharged in a bankruptcy anyway which might also explain why insolvent borrowers weren't pursued relentlessly. Like you said, the numbers are way bigger this time.

Perhaps interesting to some:

there's a bit of a debate going in the 'sphere after a berkeley economist some of you may know (deLong), suggested prices will fall but not revert to mean (nationally) because "they're not making anymore land" and "the foreigners will save us" (I'm paraphrasing slightly). He is in disagreement with Ritzhold from BigP and that little known Princeton economist who writes for the NYT. The latter swatted deLong's "argument" aside with a mention of rents not rising.

I only bring it up to point out that if one lives in the Bay Area, one is not immune from the real-estate disease, even if one is an economist with a small amount of name recognition.

Of course there are worse examples of economists who to this day claim there is no housing bubble, but still.....

I have some latest news also to report.
The current bailout plans floating around Congress include tax credits to buy foreclosed properties.

Why doesn't the government understand that if they are auctioned absolutely all of them will sell. I'm really disenfranchised by this attempt to pick one class over another. I know they don't want lowered values dragging neighborhoods down, but the readers here have a right to an unmanipulated market when they go to buy.

Even though I believe housing is a commodity, I agree with Randy and some economists who do point out that markets are different, and that they are not perfectly interchangeable. There are some prime areas that will be saved by foreigners who want some incredible ocean view, or where the fundamental valuation is who can afford to pay the most. In other areas like the typical lower middle class places, prices will fall to below the normal baseline.

It really boils down to how much USD is going to be devalued. Purchasing power wise, housing value will be in for a very very rude awakening for decades.

If the powers decide to do whatever it takes to save the housing value (so the only way out is to devalue USD), housing value may very well be even nominally. The only difference is, our pay (if we can keep our jobs) may go up 3X, 5X simply for the compensation of loss of purchasing power.

It depends on whether they can find an efficient way to sprinkle the "free money" to public. If an average wage slave is suddenly making $300K US peso, then $1M US peso home is probably the right price for that wage slave.

Today, it seems the short-lived USD bottom has ended. We are in for a new round of GOING DOWN. The "historical" oil price didn't go up that much in Euro, gold terms. Most of the "historical gain" in oil price is due to USD depreciation.

duke says:
Yep. I think the just-walk-away crowd better not include those that think they can laugh over the loss of their 0-down spec property. They are in for a rude, rude awakening. Not only becasue it is worth it for the bank to go for the deficiency (since $1m properties may well sell for $500k) but becasue there is likely $500k in assets for the person who loses the judgement.
I think this world is very different from the one FAB remembers, if only becasue people who went upside down back then, also went under.

I agree, but it really depends on %age of people who actually are capable of paying Vs Incapable. If there are more people incapable of repaying, they may be throwing away more money after bad. Does banks have enough details of borrowers to quickly screen and decide to go after him?

I wrote:

> I have NEVER heard of anyone (with a loan secured
> by real estate) in California (in the past 20 years) ever
> actually collecting on a deficiency judgment (99.9% don’t
> even try to get them and just take the property back).

Then Peter P Says:

> Perhaps because of the One Action Rule? Even without
> formal anti-deficiency protection in some mortgages,
> lenders are incentivized to seek foreclosure instead of litigation.

To clarify I have never heard of HOME loan lender getting money in a judicial foreclosure (I do know of a small number of commercial lenders that got some money after a long judicial foreclosure). The single action rule is a big reason for this since a judicial foreclosure can take years and the legal costs will be huge (while the lender has a non performing loan on their books)…

I am guessing the proces would look like this.
1. You laugh and walk away. Goodbye 0 down spec home in Sacramento that you bought at $800k.
2. Bank sells the houe for $500k and they have a judgement against you for $300k since this was a second home.
3. Bank uses legal proceedings to find that you own a first home and have $300k equity.
4. Banks goes after that equity.
5. I think at this point all the specualtors that came late to the party are cooked as I think the Bank can insist on cash or that you sell your prime residence.
6. Then all silliness breaks loose as everyone thinks they can try the Patterson couples Plan D of bankruptcy.
Now, how agresive will the banks really be? Well, if we have 20 million homes with negative equity and a ton of them are non-recourse, I would say the banks would be pretty motivated to get the cash where they can (the non-non-recourse ones). However, the best solution to avoid clogging the courts with 2 million law-suites (guessing that 10% of all home purchases in trouble were spec) the banks, the fed, and congess run around trying to prop up prices. We get a weird case of hurting retirees with inflation, hurting first time buyers with artificially high prices, and hurting current owners who are glued to homes that are unsellable. I suppose in general we get this stuck population with a morass of an economy.
Hmm. It does look like Japan.
Hate Greenspan all you want, but when he created the RTF we fixed the pS&L roblem, and fast. That would easily be the best thing we could do in our current situation - in my estimation.

Can anyone shed some light for me - I get the general impression now that the problem with the ARMS is that it's not the interest rates going up so much when they reset, BUT that the sheeple have to start paying more that just the interest back - has anyone else come to this conclusion?

The interest rate going up is the largest factor, but some ARMS started out with interest only payments. When the payment adjusts to the normal amortization, then principal is factored in addition to the new higher interest payment. I think that is what you are asking about.

So yes, the payment can increase by more than the increase in interest.

I agree with OO where he talks about devaluation of the dollar and its effect on prices. Further, I agree that the value of a dollar is being manipulated by those powers at be as a defense mechanism to preserve house prices.

There are of course limitations as to how low the dollar can be forced down before another special interest group gains enough momentum which is why I see no reason to believe prices won't continue to accelerate downwards.

Malcolm says: I agree that the value of a dollar is being manipulated by those powers at be as a defense mechanism to preserve house prices.

Does anyone here agree that such manipulation is potentially a good thing? If house prices were allowed to freefall to their "correct" levels, that shock could trigger a scenario very similar to the S&L crisis. There seemed to be much celebration in the blogosphere that Bear Stearns bit the dust, but in fact JP Morgan got a sweet deal. The taxpayers take the risk and JPM takes any gain. That did not particularly help my position as a saver and bubble sitter. It also doesn't really help me if a huge demographic of homeowners gets into trouble, because as the consumer economy slows down, Congress will start taxing the hell out of my earnings. They've already started handing out the candy. Not to mention the double tax of inflation. In the long run, Congress will tax the middle class to subsidize middle class homeowners and families, which will put a crushing burden on young single middle class saver/renters like myself.

Though we talked about the upcoming train wreck for years, it seems that only a handful like OO and Peter P made a lot of money speculating in gold and commodities. I don't see any kind of grand-slam money opportunity for my dry powder in the next 6-18 months... in fact, I see that I'll get eroded by inflation in a bear market while my present earnings are stripped away and redistributed to the "more deserving" homeowner family demographic.

Brand, thanks for saving me the typing. That's almost exactly the point of view that you quoted.
I did well last year in gold and by shorting the builders. I'm completely out of both games.

The Roots of America’s Financial Crisis
by Jeffrey D. Sachs

CAMBRIDGE – The US Federal Reserve’s desperate attempts to keep America’s economy from sinking are remarkable for at least two reasons. First, until just a few months ago, the conventional wisdom was that the US would avoid recession. Now recession looks certain. Second, the Fed’s actions do not seem to be effective. Although interest rates have been slashed and the Fed has lavished liquidity on cash-strapped banks, the crisis is deepening.

To a large extent, the US crisis was actually made by the Fed, helped by the wishful thinking of the Bush administration. One main culprit was none other than Alan Greenspan, who left the current Fed Chairman, Ben Bernanke, with a terrible situation. But Bernanke was a Fed governor in the Greenspan years, and he, too, failed to diagnose correctly the growing problems with its policies.

Today’s financial crisis has its immediate roots in 2001, amid the end of the Internet boom and the shock of the September 11 terrorist attacks. It was at that point that the Fed turned on the monetary spigots to try to combat an economic slowdown.
...
What was distinctive this time was that the new borrowing was concentrated in housing. It is generally true that lower interest rates spur home buying, but this time, as is now well known, commercial and investment banks created new financial mechanisms to expand housing credit to borrowers with little creditworthiness. The Fed declined to regulate these dubious practices. Virtually anyone could borrow to buy a house, with little or even no down payment, and with interest charges pushed years into the future.
...
What was stunning was how the Fed, under Greenspan’s leadership, stood by as the credit boom gathered steam, barreling toward a subsequent crash. There were a few naysayers, but not many in the financial sector itself. Banks were too busy collecting fees on new loans, and paying their managers outlandish bonuses.

I can't say I made lots of money in my "speculation", I only preserved my purchasing power of my savings.

However, inflation is a beast that once set loose, will be extremely hard to contain. The powers must walk a very tight slope between devaluing the dollar and managing the inflation, particularly the expectation of inflation. The expectation of inflation, once entrenched, will feed on itself and fortify the inflationary pressure even further as people start to hoard unnecessarily. Countries suffer on deflation, but collapse on uncontrollable inflation.

It is obvious for a debtor nation like ours that inflation is the easier way out. But we must not let it get out of control. Growing up, I have seen empty shelves before in a fairly rich society due to inflationary fear, and empty shelves in developing countries where people kill each other to get hold of the last bag of rice. I am not sure if we will ever get to that stage, but if the general public starts hoarding daily necessities at home (and we have plenty of space in this country for such a practice), it usually doesn't end well.

So printing money to support the home price for a slow diffusion of the housing bomb is ok. Just don't print too much, well once you start printing it is hard to stop. It doesn't matter in the end, we the peons (or worker bees) will always foot the bill be it deflation or inflation.

Are we really printing money? I don't think that's the only mechanism to shaft savers and the younger middle class. In fact, creating new money probably isn't even the worst mechanism. I think we (meaning my demographic) will take it in the shorts as the Fed accepts MBS packages of bad loans as collateral in exchange for their U.S. Treasuries, and then turns around and gets that money from taxpayers. The government doesn't necessarily have to print the money to cover that gap... it can increase capital gains taxes, raise income tax and implement other measures that transfer cash from specific demographics to either the Fed or to other demographics.

The demographic that might benefit the most is the uber-elite that started this mess. And while that might seem to be a "necessary evil", I am starting to have my doubts about a system that hands out big bonuses in the same years when economic bellwethers smoulder into charcoal.

Uncle Sam could also cover the gap by spending less. I'm thinking that's got a tiny probability of happening, since in times of crisis everyone in trouble expects the government to play mommy. And the best person to take money from is---you guessed it---someone who isn't in trouble! Yet... :o

Peter P made a lot of money speculating in gold and commodities

LOL! I wish! :lol:

The trader is the weakest link.

Brand / Malcom / OO :

We often overload the word "inflation". So let me differentiate and say this. We are seeing deflation of asset (stocks, housing) values in nominal currency values and seeing inflation of prices for most daily necessities (commodities).

The inflation of prices in commodities like oil, wheat and rice are NOT benefiting the homedebtors. They are hurting everyone. So it's not correct to say that savers are screwed. Their cash is losing purchasing power, but they have more cash than loanowners ! So who is actually worse off ?

Inflation in asset prices helps the asset holder. Especially if the asset is financed with a fixed rate. Even more if the income is also rising with inflation and the newly earned cash receives higher short term interest. Absolutely none of this is true. We are seeing deflation in asset value AND the debtors (for the most part) have not financed their debts with fixed rate AND the incomes are not rising at all AND short term interest rates are super low.

There is a lot of myth in the bubble blogging community as well. Savers are getting screwed BUT the debtors are getting royally f*cked. Inflation in commodity prices is NOT going to save them and deflation in their only asset is going to kill them.

Your dry powder is already more valuable than what it was an year ago as measured in terms of real estate and will continue to be more valuable as the deflation picks up the speed. Yes, you will spend an additional $300 on gas and groceries per month, but you will have saved a magnitude more in your house purchase.

Please don't get me wrong. I am not arguing in favor of current situation. I am just trying to put a correct perspective - inflation in asset prices will help loanowners NOT inflation in commodity prices. These are VERY VERY different things. And I do not see inflation in asset prices for a long long time. That's the silver lining to us as savers.

Stuck,

I am not talking about now. I am talking about what is to come.

If you listen to BB, Paulson, Summers and some Fed governors, it is very obvious that they will do anything to prevent the housing price from coming down because the repercussions will mean a total collapse of financial system as we know it.

The first stage is monetary inflation, which we are in right now. At this stage, money will chase hard assets - mainly basic necessities. As things get worse, fiscal stimulus will take over ($1600 is a chump change compared to what will come). The first stage sets the tone of initial inflation, while the second stage seals it. The end goal is to cause an overall inflation in the economy so that people's pay will catch up to meet the housing price, not the other way around. Fiscal stimulus is particularly attractive for the US because we are about the only country that can issue (theoretically) unlimited amount of debt in our own currency, which means we can contain inflation far longer than other countries.

I am not saying that they will definitely be successful, but this is the direction they are heading. If they are successful, be prepared for persistent double digit inflation that will take some drastic events to halt.