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Wednesday, December 12, 2007

Mortgage Meltdown — More than a sub-prime problem

Interesting 'insiders' take on the mortgage meltdown. And California is surely a Mortgage Wonderland.

Herb Greenburg / Marketblog / MarketWatch.com:
Straight Talk on the Mortgage Mess from an Insider [see comments] -- Even before this mortgage mess started, one person who kept emailing me over and over saying that this is going to get real bad. He kept saying this was beyond sub-prime, beyond low FICO scores, beyond Alt-A and beyond the imagination of most pundits, politicians and the press. When I asked him why somebody from inside the industry would be so emphatically sounding the siren, he said, “Someobody’s got to warn people.”

Since then, I’ve kept up an active dialog with Mark Hanson, a 20-year veteran of the mortgage industry, who has spent most of his career in the wholesale and correspondent residential arena [...]

His current thoughts, which I urge you to read:

... Since 2003, when lending first started becoming extremely lax, a small percentage of the loans were true sub-prime fixed or arms. But sub-prime is what is being focused upon to draw attention away from the fact the lenders and Wall Street banks made all loans too easy to attain for everyone. [...]

Sub-prime aren’t the only kind of loans imploding. [...]

One can argue that many sub-prime first mortgages on their own were not a problem for the borrowers but the added burden of the second put on the property many times after-the-fact was too much for the borrower. [...]

But we have learned over the past year that credit scores are not a good predictor of future ability to repay. This is because over the past five years you could refi your way into a great score. [...]

Second mortgages to 100% of the homes value with no income or asset documentation were among the best sellers at CITI, Wells, WAMU, Chase, National City and Countrywide. [...]

Some of the most affluent areas in California contain the most Option ARMs due to the ability to buy a $1 million home with payments of a few thousand dollars per month.

These loans put the borrower in the grave the day they signed their loan docs especially without major appreciation. [...]

So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes. [...]
Latino homeowners are on the chopping block.

Jondi Gumz / The Santa Cruz Sentinel:
No solutions for borrowers who are 'upside down' -- A city planning commissioner contends few homeowners will benefit from current state or federal efforts to prevent foreclosures.

Emilio Martinez, a private investigator who has worked with hundreds of Latino homeowners in Santa Cruz, Monterey and San Benito counties, said he's reviewed 300 Watsonville homes in foreclosure from the past three months and found 78 percent owed more than they paid for their homes. He said he has seen a common pattern among borrowers.

"They're upside down," he said. "They're paying $4,000-$5,000 a month, and they're paying interest only. The value of the home is less than what they owe. There's no way they can salvage that loan." [...]
Ben Jones / The Housing Bubble blog:
It Seems Like Sort Of A Fiasco In California [see comments]
Chuck Smiar: Housing Bear Threat-O-MeterRich Toscano / VoiceOfSanDiego.org /
A Nerd's Eye View blog:
In for a Surprise -- North County realtor and regular Nerd's Eye View quotee Chuck Smiar is back with some words of wisdom in a recent North County Times article:
"There's buyers out there, but they're just not buying. They're sitting on the fence, waiting for (prices) to drop more. They're going to see it drop and then they'll wait for it to drop some more," said Chuck Smiar, a Prudential Realtor in Escondido. "They all think it's going to go to zero, and they're going to be in for a surprise."
[...] I've created a graph of San Diego home prices overlaid with the timing of Chuck's forecasts. All things equal, his track record so far would tend to indicate that if anyone is "in for a surprise," it's Chuck himself.
Federal Reserve: Home equity falls in 3Q -- The amount of equity homeowners hold in their homes slipped in the third quarter to the lowest level on record, just above 50 percent, according to a report from the Federal Reserve Thursday.

In its quarterly U.S. Flow of Funds Accounts, the central bank reported that homeowners' percentage of equity dipped to 50.4 percent from 51.1 percent from the previous quarter. On average, housing is Americans' single largest asset.

Economists expect this figure, equal to the percentage of a home's market value minus mortgage-related debt, to tumble even further as falling home prices eat into equity. It could easily drop below 50 percent by the end of next year, some experts say, marking the first time homeowners will owe more than they own since the Fed started recording the data in 1945. [...]
Mortgage problems spread to United Kingdom

Emma Simon / Telegraph [UK]:
Mortgage firms hit as repossession fears grow -- The mortgage industry has turned the dream of owning your own home into a nightmare for many low income borrowers, according to a damning new report published today by Citizens Advice.

The report lays the blame squarely at the door of the mortgage industry. But it also said that regulators and Government should do more to protect vulnerable borrowers.

It claimed a combination "dubious advice from brokers, irresponsible lending decisions and aggressive arrears management by sub-prime lenders" are driving the current increase in mortgage arrears, court actions and repossessions.

The report adds that the Government has failed to put adequate safety nets in place, particularly in relation to so-called "second-charge" mortgages.

These are additional loans that are secured against a property - often as a result of debt consolidation. [...]
icWales: Homeowners struggle with mortgages
Australia too could go bust. The U.S. sneezes the whole world catches a cold.

Bill Bonner / The Daily Reckoning:
Debt, High Asset Prices Could Lead to Economic Bust in Australia
-- ...This place is not that different from the United States and Britain,” says our man on the scene, Dan Denning. “It’s really the same story. Lots of debt. High asset prices. People who’ve bought houses they really can’t afford, counting on price increases to save them. So far, they’ve done well…very well. Australia hasn’t had a recession in 16 years.

“All the Anglo-Saxon economies are similar – in that they all depend on consumer spending and have a lot of debt. But Australia – and Canada, too – have a great advantage. Especially Australia, because it’s so close to Asia. This is where the Chinese buy their raw materials. It’s a resource economy, not simply a consumer economy. Australians have gotten rich as prices of raw materials have gone up, especially out in Western Australia. And as long as the Chinese keep ordering resources, prices are probably going to keep going up…and the Australians are going to keep making money. But that’s the big question. If US consumers stop buying, the Chinese aren’t going to need so many raw materials.” [...]

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