July 24, 2007
JustQuotes: Is The Subprime Sickness Spreading?
“Countrywide Financial Corp. reported a 33% drop in second-quarter net income on Tuesday and signaled that problems in the subprime mortgage market have spread to the highest-quality home loans....Countrywide said payments were at least 30 days late at the end of second quarter on 4.56% of prime home-equity loans serviced by the company, up from 1.77% a year earlier....Payments were late on 23.71% of subprime mortgage loans, up from 15.33% at the end of the same period in 2006.” (Subprime problems spread to top-rated mortgages, lender says)
UPDATE (later that afternoon): "Wall Street pulled back sharply Tuesday as investors dealt with disappointing earnings reports and renewed concerns about the mortgage lending market." (Stocks Fall on Earnings; Dow Sinks)
First Published: July 24, 2007 3:30 AM
Comments from "Plugged In" Readers
Here is another log for the fire(sale).
"Defaults on some so-called Alt A mortgages packaged into bonds last year are now outpacing those from subprime loans, according to Citigroup Inc."
Posted by: badlydrawnbear at July 24, 2007 10:43 AM
Bear, how long have you been calling for a meltdown? Sorry, you just kind of remind me of the people who claimed from 1998 on that the stock market was overvalued. Sure, they were eventually sort of right, but they missed out on more than two years of HUGE appreciation. If I start talking about a real estate boom now and we see price increases in 2009, would I have reason to brag?
Posted by: anon at July 24, 2007 12:14 PM
anon 12:14 ... if you want to get into some personal Bubble vs Non Bubble argument may I suggest the craigslist housing forum.
Posted by: badlydrawnbear at July 24, 2007 12:47 PM
Recall the first rule of forecasting: give them a prediction or give them a date but never both.
Posted by: Speculatrix at July 24, 2007 2:13 PM
"...they missed out on more than two years of HUGE appreciation."
And what about those who jumped in around the year 2000 when it was still easy money? Chances are they're only now starting to recover. Assuming, of course, they weren't completely wiped out due to leveraged trading.
Posted by: Anon2 at July 24, 2007 2:39 PM
I've spoken of this before on this site... but the Hedge Fund debacle at Bear Stearns a few weeks ago was the official last nail in the coffin of rapid RE appreciation. As happens often, the most important things in life often go unnoticed by the majority of people.
Simply put, lenders loosened their lending to absurd levels over the last decade or so. Using "alternative" products and "innovative" financing, borrowers were able to borrow higher and higher amounts of money in order to purchase a house. Housing was thus bid up to sky high levels.
Now, research report after research report is showing that subprime, alt-a, and even prime mortgages made since 2006 are the worst performing mortgages. Ever. it is NOT contained to Subprime. Subprime was simply the first to show cracks.
Other research is showing that it is not FICO score that is predictive of foreclosure/early default, but overall indebtedness and Loan-to-Value ratios.
How willing will banks be to lend for housing, when the banks are taking a beating on residential mortgages?
it doesn't take a rocket scientist to see that banks don't like to lose money. If they lose money on lending on mortgages, then they will change their behaviour.
The banks are now in "credit tightening" mode. The problem: all the loans they already foolishly made.
As the lenders tighten lending standards and refuse to rubber stamp all mortgage applications, borrowers will have less $$$ to use for RE purchases (yes, even in SF)
Without crazed borrowers bidding up RE, it is hard to have RE appreciation.
This is not to say that RE appreciation will stop on a dime. On the contrary, it will take some time to work through the system. (years).
however, the days of "easy lending" are over. Typically, after a RE boom with easy lending, we get a RE bust with OVERCOMPENSATION... so I expect lenders to overtighten their lending standards in an effort to stay in business... this will put further pressure on RE.
Posted by: ex SF-er at July 24, 2007 3:45 PM
Hmm ... you must have read this Bloomberg news story about record setting foreclosures in CA.
“California mortgage defaults rose to the highest level in a decade in the second quarter as falling home sales and higher interest rates battered the housing market. Homeowners received 53,943 default notices, more than double the 20,909 filed a year ago, DataQuick said today. Last quarter’s default level was the highest since the fourth quarter of 1996, when 54,045 notices were recorded in California.”
“Most of the loans that went into default in the second quarter were originated between July 2005 and August 2006. Loan originations peaked in August 2005. ‘We’re going through a lot of that activity,’ DataQuick analyst John Karevoll said in an interview. ‘There’s more to come.’”
“The number of defaults resulting in foreclosures is the highest since DataQuick began keeping records. The previous high was in early 1994, when about 30 percent of defaults resulted in foreclosures, Karevoll said.”
“Only 55 percent of homeowners are able to avoid foreclosure because a greater number now have multiple loans on their properties.”
“In the past, when a homeowner had just one mortgage, the lender would often allow the borrower to sell the home for less than the amount owed on it and take the loss, known as a short sale, Karevoll said.”
“‘They can’t do it that way anymore because the primary lender can’t tell the secondary lender, ‘We’ll take all of the sales price here and you get nothing,’ Karevoll said.”
Posted by: badlydrawnbear at July 24, 2007 3:58 PM
Bear - you forgot to mention that NODs in San Francisco were up 102% from last year. Up 219% in Contra Costa, 148% in Alameda, 141% in Santa Clara, and 165% for the Bay Area overall.
Posted by: Dude at July 24, 2007 4:14 PM
Anybody know the actual number of NODs in San Francisco instead of percentages? Up 100% could just mean that there are 10 problems compared to last year's 5. Percentages make great news blurbs though.
Maybe it is time to start sending mortgage applications to Bank of China or Japan?
[Editor’s Note: Of course you could try searching SocketSite for "notice of default" or "foreclosure notice." Or simply head on over to: Bay Area “Notices Of Default” Heading North? (So To Speak).]
Posted by: Jamie at July 24, 2007 9:44 PM
Anyone notice that the stock market is hitting all time highs and that sharp pull backs still have the market well into the 13k territory. I'm sorry but I dont see the sky falling on stocks or real estate in SF anytime soon. Sometimes I wish it would but dont see it happening.
Posted by: stocks skidding to a halt? at July 24, 2007 10:05 PM
If you wish to correlate stock prices and the housing market might I suggest you look at the stock prices of home builders, lenders, and suppliers (such as Home Depot) all of which have taken significant hits this year.
Possibly even more telling, is the fact that many of these companies have stopped providing guidance to analysts due to the rapid deterioration of the housing market nationally.
Posted by: badlydrawnbear at July 25, 2007 6:36 AM
"If you wish to correlate stock prices and the housing market might I suggest you look at the stock prices of home builders, lenders, and suppliers (such as Home Depot) all of which have taken significant hits this year."
If you consider 70% down from their highs in late 2005 a significant hit, I agree. LOL
Posted by: Anonymous at July 25, 2007 8:57 AM
"Anyone notice that the stock market is hitting all time highs and that sharp pull backs still have the market well into the 13k territory."
Yeah, the stock market is hitting all time highs - but only in terms of an increasingly worthless USD. Compared to most other currencies (Euro, British Pound, etc.) even at 13k, Down is still 40-50% down to 2000. Wait what'll happen to mortgage rates when foreign investors finally pull the plug on the USD.
Posted by: Anonymous at July 25, 2007 9:01 AM
Hey "stocks skidding to a halt?" - what a difference a day makes...anyone else check the headlines on Yahoo! Finance?
Posted by: Dude at July 26, 2007 1:23 PM
Thanks to these banks, we had shacks selling for $700K, and now they are selling for $650K....the intrinsic value was really more like $200K to $300K...Look at the remodeled Funston units above asking for $1.1M! You have someone above you or below you!!
RE is all relative, but still when you look at the true value (land/space/location) the only thing most places in SF has going for it is location (in that the Bay Area blessed with nice weather and SF is relatively in the center of it).
How about that shack that was such a deal for $399K or was it $499K that slipped and fell off its foundation? Just craziness. $499K can buy a lot of medicine for sick kids in other parts of the world. But I digress.
Well, good for all the people who made money in the last few years. Hope they are recycling that money back into the US economy!!and not stuffed away somewhere in an offshore acct.
Posted by: starburst at July 26, 2007 9:14 PM