Where will Real Estate Bottom?

[william the wie]

The liar loan industry was caused by government demanding banks make loans to people who could not pay.

The securitization of those was an accessory after the fact.

And those securitized mortgages had the full faith and credit of the US government.

It wasn't an accessory after the fact. Banks simply make 10 times as much profit by issuing mortgages and refis and rolling them over asap as they do via traditional banking.

The entire mortgage securitization industry serves the banks first and foremost.

Not any more. There is purportedly a 9 year supply backlog of housing foreclosures in the pipeline now with as much as 80% of them are likely to end up on the courthouse steps either from back taxes or violation of local ordinances in regards to abandoned/foreclosed houses. That in turn will lead to lawsuits by affected tranche holders. And wait there's more! The 2006 vintage 5 year option ARMs will be decanted in 2011. These classic originated to be foreclosed mortgages feature negative equity. Yes, friends of banks this is perhaps the year in which all hell will break loose and you can find out what too big to fail really means.

 

[loosecannon]

OK, Willie, but banks are, or were until just last week rushing to refi mortgages at near 4% simply so they could profit on a brand new mortgage that they originated.

 

[loosecannon]

exactly. Find a lender who isn't institutionally geared toward promoting a continual escalation of loan origination regardless of the credit worthiness of the borrower.

The liar loan/subprime mortgage surge was driven by commercial banks not government pressure to increase home ownership. It was and is a systemic function of the commercial banking industry, not a politically ramrodded event.

What did banks, at the time of the boom, feel they had to gain from liar loans?

if they issued them and sold them they made "bank" on any loan.

A bank borrows $1 million from the Fed, that grants them the right to keep $19 million in mortgages active on their books, but if they roll those mortgages over thru the securitization mills they might be able to issue and sell those loans 3-4 times/year. Meaning they could have issued and earned some spread on up to $76 million in loans in one year using just $1 million as reserves. And they only borrowed those reserves, it wasn't their money.

That's some business model if you can keep it going.

And it makes no difference if it is a liar loan, a subprime or a refi. It only matters if you could securitize it and pass it off.

 

[boedicca]

No, they weren't rushing to refi. They have enormous backlogs that are taking months to work through as homeowners were rushing to refi to take advantage of the low rates.

 

[Truthmatters]

The very people who made money on this entire mess is who the republicans were fighting for a tax cut for.

 

[loosecannon]

No, they weren't rushing to refi. They have enormous backlogs that are taking months to work through as homeowners were rushing to refi to take advantage of the low rates.

which is why banks are wasting their money sending advertising to customers encouraging them to refi......

 

[GWV5903]

Stated Income Loans where originally 20% to 35% DP products that required good credit, not zero down 2/28 ARMs for 560+ FICO's....

The market changed in '96 when Clinton opened up the vault to let everyone breathing into home ownership, his accomplice was Franklin Raines....

Sub Prime Stated where suicide loans for the industry as a whole, everyone new it, but DC was the only one who could change it and all they did was point the finger at each other....

 

[Truthmatters]

Nope.

It did not change in the way you suggest in 1996

 

[B. Kidd]

Not sure when and where the bottom is. Perusing blogs written by most experts the last two years concerning this topic, their bottom predictions came and went and they've been wrong to date. Even Warren Buffet at one time predicted our housing woes would be behind us by 2011. So much for oracles.
Sometime back William, we discussed the 5 year option ARMS with a peak 'decantation' (your word) occurring in Sept. 2011.

 

[Truthmatters]

How did we deal with this type of mess in the past?

Is there anything to be learned by the US history?

 

[GWV5903]

Nope.

It did not change in the way you suggest in 1996

Really, link?

 

[Truthmatters]

you made the claim you provide the link

 

[B. Kidd]

Three things we ignored from the Great Depression in the runup to the current crisis were: over-speculation with borrowed money/dubious securities/and too many conflicts of interest on the part of insiders.
What is scary is there is a premise that financial markets will act rationally in this crisis.

 

[GWV5903]

you made the claim you provide the link

Oh it's not a claim, just simple facts....

"In 1994, Nehemiah Corporation of America ("Nehemiah") was established with a $5,000 loan from a Baptist church in Sacramento, California for the purpose of promoting homeownership and economic development for underserved populations and communities. Its first project supported the building of affordable senior housing for its congregation.

In 1997, Nehemiah designed and introduced the first privately funded down payment assistance program in the US, The Nehemiah Program. This program offered down payment assistance for low- to moderate-income families who had sufficient credit and income to qualify for a conventional loan but needed funds for a down payment.

From 1997-2008, the Nehemiah Program helped over 325,000 families achieve homeownership and delivered gift funds of over $1.5 billion to households that would otherwise have not been able to afford a down payment on a new home. As part of the Nehemiah Program, homebuyers also received valuable education courses that included financial management skills, budgeting, and credit management principles. While privately funded down payment programs are no longer available due to legislation passed in October of 2008, the economic and social benefits of The Nehemiah Program remain visible in our communities."

About Us | NEHEMIAH - Corporation of America

Nehemiah was the first, several others followed...

The IRS ended this tool in September of 2008....

"In the years before the crisis, the behavior of lenders changed dramatically. Lenders offered more and more loans to higher-risk borrowers,[75] including undocumented immigrants.[76] Subprime mortgages amounted to $35 billion (5% of total originations) in 1994,[77] 9% in 1996,[78] $160 billion (13%) in 1999,[77] and $600 billion (20%) in 2006.[78][79][80] A study by the Federal Reserve found that the average difference between subprime and prime mortgage interest rates (the "subprime markup") declined significantly between 2001 and 2007. The combination of declining risk premia and credit standards is common to boom and bust credit cycles.[81]"

Subprime mortgage crisis - Wikipedia, the free encyclopedia

 

[Douger]

the full faith and credit of the US government.

That's about like having a crack whore named Shameeka guard a bucket of KFC while you go to a football game.

 

[Truthmatters]

Stated Income Loans where originally 20% to 35% DP products that required good credit, not zero down 2/28 ARMs for 560+ FICO's....

The market changed in '96 when Clinton opened up the vault to let everyone breathing into home ownership, his accomplice was Franklin Raines....

Sub Prime Stated where suicide loans for the industry as a whole, everyone new it, but DC was the only one who could change it and all they did was point the finger at each other....

The sub prime mess was NOT started with this law fool.

The date you state started NO subprime rush as claimed.

They BECAME profitable to the industry only when they could sell them off on unsuspecting buyers.

That happened with the gramm leach bliely act of 1999

 

[GWV5903]

Stated Income Loans where originally 20% to 35% DP products that required good credit, not zero down 2/28 ARMs for 560+ FICO's....

The market changed in '96 when Clinton opened up the vault to let everyone breathing into home ownership, his accomplice was Franklin Raines....

Sub Prime Stated where suicide loans for the industry as a whole, everyone new it, but DC was the only one who could change it and all they did was point the finger at each other....

The sub prime mess was NOT started with this law fool.

The date you state started NO subprime rush as claimed.

They BECAME profitable to the industry only when they could sell them off on unsuspecting buyers.

That happened with the gramm leach bliely act of 1999

TM you're pathetic, something you share with Maxine Waters, you must be proud....

 

[B. Kidd]

the full faith and credit of the US government.

That's about like having a crack whore named Shameeka guard a bucket of KFC while you go to a football game.

A classic 'Douger-ism'!

 

[william the wie]

Not sure when and where the bottom is. Perusing blogs written by most experts the last two years concerning this topic, their bottom predictions came and went and they've been wrong to date. Even Warren Buffet at one time predicted our housing woes would be behind us by 2011. So much for oracles.
Sometime back William, we discussed the 5 year option ARMS with a peak 'decantation' (your word) occurring in Sept. 2011.

Those suckers are going to coincide with what is historically the worst month for the stock market and what is shaping up to be a bond bear of epic proportions. While it won't be the end of the world as we know it it is likely to be worse the meltdown. The feedback I am getting from all of my S&P threads and news sources goes something like this:

Real estate will continue to deteriorate through the first half of the year.

QE II will give enough liquidity to get to the sovereign default wave and smart banks will finance out with long bonds during the flight to safety to the US.

A short lived liquidation in the summer will get rid of most of the foreclosure inventory with local exceptions.

Then September comes the hot money leaves and the option ARM defaults peak.

It ain't written in stone but it does make sense. Sounds like about 5 of the 20 major banks will be taken over or go bye-bye.

 

[william the wie]

How did we deal with this type of mess in the past?

Is there anything to be learned by the US history?

Don't run for office until the bleeding from a downturn stops. Obama has not done badly in what he as president controls nor that well either but he will be fired for what is coming. I am far from certain that whoever takes power in 2013 will be able to do any better but US age related spending should improve after 2014.