February 8, 2010
More Mortgage "Mumbo" Jumbo: Serious Delinquencies Increase
"U.S. prime jumbo mortgages at least 60 days late backing securities reached 9.6 percent in January from 9.2 percent in December, the 32nd straight increase for "serious delinquencies"...[but the] share of borrowers current the previous month and that then turned delinquent fell to 1.2 percent in the month covered by January bond reports, down from 1.3 percent as of December reports, Fitch said. The jumbo sector of the non-agency market was the only one in which so-called roll rates -- or the amount of loans turning delinquent -- rose from a year ago, according to the statement."
∙ Jumbo Mortgage ‘Serious Delinquencies’ Rise to 9.6% [Bloomberg]
First Published: February 8, 2010 1:30 PM
Comments from "Plugged In" Readers
Prime jumbo mortgages.
Isn't that us?
Posted by: diemos at February 8, 2010 5:52 PM
Everyone who bought million dollar-plus homes in SF during the bubble paid cash. And even if they didn't, the banks will just reduce their principal 30% in a loan mod.
Posted by: A.T. at February 8, 2010 6:51 PM
How thoughtful of them. They sure are generous with the taxpayer's money.
Posted by: diemos at February 8, 2010 7:08 PM
Gosh, what a surprise, 10% unemployment and 10% of prime jumbo loans going south.
Not hard to see this coming: HAMP artificially keeps foreclosures off the market, slowing the decline of housing prices, employers can't afford to pay wages that allow people to buy houses so unemployment skyrockets and all the unemployed default. Housing prices fall anyways.
And they fall further than they would have otherwise because of the inefficiencies. How many tens of thousands of people do we have filling out and processing fake HAMP trial mods that will end up in foreclosure? How many people are paying on mortgages that they will ultimately walk away from? The whole thing is an inefficient waste of resources that makes the country poorer and ends up making the problem worse.
When the unemployed get foreclosed and the value of homes drops as a result, people who are employed will find themselves underwater and will default too.
Oh well, people like me will find prices far lower at the bottom as a result, so I'm not complaining.
Posted by: tipster at February 8, 2010 7:14 PM
No loan forgiveness with hamp really, but it's no 2 hard to get a major interest rate reduction.
Posted by: Dr. Who at February 8, 2010 8:03 PM
AT, Diemos, Tipster. Dismissiveness without understanding. Snideness and sardonic repetition. Hyperbole and outright misrepresentation. Guess who's who.
Posted by: anonn at February 9, 2010 8:32 AM
anonn, care to give us any substantive rebuttal to these points? Or are you simply going to leave it at "You're wrong because I say so" once again?
Posted by: A.T. at February 9, 2010 8:55 AM
You give the lie to yourself, son.
"Everyone who bought million dollar-plus homes in SF during the bubble paid cash. And even if they didn't, the banks will just reduce their principal 30% in a loan mod"
You want people to engage with honest dialog after you say something like that? No. No, you really don't.
Funny. You can't even be earnest about your own lack of earnestness.
Posted by: anonn at February 9, 2010 9:19 AM
Didn't think you had anything of substance to say. Yes, for the record, my earlier post was sarcastic. Yours wasn't -- just characteristic naysaying.
SF was plainly heavily reliant on jumbo mortgages -- both prime and otherwise -- during the bubble. Even the best of these are now showing extreme stress. Any guess as to what that says about the less-prime group? This is yet another negative indicator for SF real estate over the next couple of years.
Posted by: A.T. at February 9, 2010 9:27 AM
Even the best of these are now showing extreme stress. Any guess as to what that says about the less-prime group? This is yet another negative indicator for SF real estate over the next couple of years
1. Even the best of these are now showing extreme stress.
Locally? The best jumbo borrowers? Prove that.
2. Any guess as to what that says about the less-prime group?
You have already made your assumption there. "Prime" is not a very good word choice, moving forward. Prime means something specific there. Why would anyone want to debate an assumption based upon an assumption based upon a national statistic, a third assumption? No thanks. A "point" that isn't in my book.
3.Yet another negative indicator for SF over the next few years.
Your conclusion. Based upon a series of assumptions. All this while earlier you said "Everyone who bought million dollar-plus homes in SF during the bubble paid cash" -- as if to mock the idea that SF buyers put significant money down. So you're starting off wrongheaded and making assumption after assumption. Calling your points valid.
Yeah. Not good. Not apt. Not anything. And none of you guys would know the bottom if you were pearl divers.
Posted by: anonn at February 9, 2010 9:46 AM
As I expected. More "You're wrong just because I say so" with a complete lack of substance.
Posted by: A.T. at February 9, 2010 10:58 AM
Wow, diemos is so informative. All of this bubble stuff is going to be paid by taxpayers. None of it will be absorbed by would be owners or banks: absolute zero. Taxpayers had absolutely no control over this, except maybe for that for republic governed by representative democracy thing. After all, voting is really hard. Why even bother?
The reality is all completely the opposite: that would be owners and banks are all getting burned mightily, the government is only throwing enough on the fire to prevent it from going out completely, we are all collectively responsible for allowing this to happen in the first place, and if you can only think of yourself as a "taxpayer" then you have major identity issues and should be spending less time on Socketsite and more time with a shrink.
Posted by: Mole Man at February 9, 2010 11:22 AM
"that would be owners and banks are all getting burned mightily"
Really not sure where you're getting this, Mole Man. The banksters are certainly not getting burned because of the free money (free loan from the fed, buy Treasuries), and the owners are able to walk away. Furthermore, even if what you said were true, the banksters and the would owners are the two parties who signed the bad contracts and certainly deserve to get burned.
But you're right that we should vote the bums out of office for bailing out the banksters.
Posted by: sfrenegade at February 9, 2010 12:51 PM
As I expected. More "You're wrong just because I say so" with a complete lack of substance."
What was substantive about anything you have said?
You were sarcastic with a flame intent. You tried to call that something. Then you admitted it wasn't. Then you posted some opinions, which I specifically challenged because you asked me to. I asked you to prove your assertions, and you can't. Now you're back to your little pet card. As usual. In about three threads you'll be on about "straw men" or some other netboy post-Postman crap.
Posted by: anonn at February 9, 2010 2:16 PM
Informative posts take time and effort. Once upon a time the SS commentariat was worth that investment but sadly those days are past. Now I just amuse myself with occasional snark while I wait for the avanlanche to reach the bottom of the hill. But in this case I'll make an exception for old times sake.
Credit is virtual money. It gets loaned into existence and then ceases to exist when the loan is paid back. That's what makes credit fueled bubbles so insidious. During the upswing free money pops into existence and falls from the sky onto all sorts of undeserving individuals. Long time homeowners, realtors, mortgage brokers, granite installers, granite quarry workers, contractors, and as all that free money works its way into the economy just about everyone else to one degree or another. As people see the profits being made they abandon worthwhile activities to pursue activities that can only be profitable while the free money is flowing.
But as credit creation inevitably turns to credit destruction every dollar that fell out of the sky into someone's lap has to be paid back by someone else and destroyed. The pain felt by any particular individual is rarely correlated with the pleasure that was felt during the upswing. The pain falls onto all sorts of people. People who bought at the top with their own money. People who invested in bubble related businesses that are now non-viable. People who loaned money that will now not get paid back. People who worked in industries that required a steady flow of bubble money to be viable. As the flow of credit ceases you get a general economic collapse.
The pain of the collapse is the price of the pleasure we experienced during the upswing. The only way to avoid it is to forgo the pleasure of the boom. The only way to do that is to put limits on credit creation.
In the end the people who are on the hook for repaying those loans don't have the wherewithal to do it. So as soon as they've been squeezed for all the blood they have any excess debts will get offloaded to the taxpayer. Because the government is the only entity with a magic printing press that can make all those debts go away.
When I wail about the homeowner bailouts I keep expecting someone to call me on it. It's just snarky BS of course. The real person getting bailed out is me and all the other people who have "wealth" that depends on those loans getting paid back.
As for the suffering of "the banks". There is no such thing as "the banks" as a monolithic entity. "The banks" is a grouping of three distinct entities; shareholders, management and depositors. The shareholders have suffered but not as much as if the bailouts hadn't happened and the stock had gone to zero. The depositors haven't suffered at all unless they were foolish enough not to take advantage of FDIC insurance, one of the best "heads I win, tails you lose" programs available to the general public. Management has made out like the bandits they are, deciding that it has to pay itself massive bonuses to retain itself.
Why is management doing great while the shareholders suffer? There is ownership and there is control. When everybody owns something nobody does and control defaults to management. Management then uses that control to insure that it is enriched. If the shareholders band together to throw the bums out then they still have to replace them with a new set of bums. Like the who sang, "Meet the new boss, same as the old boss."
Democracy suffers from the same flaw. Yes, I get to choose and I do, religiously, but only between the options that management provides. Corporations and their money have neutered any real control I might exercise.
Yes, yes, I know. I should "get out there and get involved" but I'm afraid I, like most people, are busy earning a living and living my life and don't have the time or energy to compete with corporate paid full time lobbyists. Nor the funds to hire my own while I'm trying to save up to buy an overpriced house and fund a retirement.
Posted by: diemos at February 9, 2010 3:18 PM
Thanks for taking the time diemos. I always enjoy your analysis and refer back to your classic e-slave post once and a while. That was brilliant.
Here's something that occurred to me lately and I'm sure that it has already been expressed here but in financial mumbo jumbo jargon that is alien to me. It seems as if the creation of credit sets off a positive feedback loop (in the control theory sense) in the economy.
credit is created which ->
causes prices to bid up which ->
inflates the value of assets which ->
can be used for collateral ->
to create more credit ->
... and so forth.
until of course the market realizes that asset values are just a mirage. Like any system containing a positive feedback loop, the system ultimately shakes itself to pieces.
Then things come crumbling down.
Posted by: The Milkshake of Despair at February 9, 2010 4:25 PM
^^ Locally referred to as "The Lembi System"
Posted by: OneEyedMan at February 9, 2010 4:42 PM
"undeserving individuals= Long time homeowners, realtors, mortgage brokers, granite installers, granite quarry workers, contractors"
Bite Me, dood. Yeah it's the quarry workers and granite installers who really screwed everything up. They caused the dot com bubble too, and I believe the tulip craze.
Posted by: sparky-b at February 9, 2010 4:52 PM
I wouldn't refer to those way back in the housing "improvement" chain as undeserving myself. I think that diemos' point is that instead of providing a product to an end user who cannot afford the home, the same worker could be producing something else more healthy for the economy.
For example instead of an Indian quarry worker cutting stone for American counter tops he could be improving water capture and irrigation systems in his local community. Short term profit vs. long term sustainability.
This quarry worker is not undeserving, but his efforts have been misdirected.
Posted by: The Milkshake of Despair at February 9, 2010 5:08 PM
I was in 2 houses today without a kitchen or a bathroom. There doesn't need to be a bubble caused by this, but somebody has to make some countertops before anybody lives there.
Posted by: sparky-b at February 9, 2010 5:23 PM
Diemos - thanks for the time and effort of the post. Makes me nostalgic for the SS of not-so-long-ago. I relished the good, meaty posts and learned a lot.
Now I'm afraid I come on less frequently and quickly scan for key words like "sardonic", "whatever" and "no it won't", "you're wrong" and "shut up". Then I just move on. Frankly, I get enough of that quality of argument at home with my kids. (Although now that they are 9 and 11 we've pretty much outgrown that level of argument.)
And I know that I am to blame too - I rarely have the time nor intellectual wherewithal to contribute in a meaningful way. So mostly I lurk.
Thanks again for reminding me why SS is still in my bookmarks....
Posted by: West Side Story at February 9, 2010 5:27 PM
sparky - what I mean are upgrades to perfectly functional homes that are not necessarily needed and more importantly not necessarily affordable.
Personally I don't need all of the latest bling that gets layered onto homes in the SF market : stainless appliances, cool looking but impractical bathrooms, facade modernizations, etc. But I found that it was nearly impossible to acquire a house without paying for that bling. Even fixers were being bid up because developers know they can be given a refresh and sold for a greater profit. So the bling factor was baked into the price of fixers too.
I don't think this is the developer's fault. They're just simply providing a product to a willing market. The problem was the willing market who had boucoup unearned bux for which to buy the latest. I am not willing to play that game of walking the brink of insolvency just because there were others willing to do so (and bid against me).
Don't get me wrong, this stuff is cool to own. But people have lived long and happy lives without owning two brand new Excursions parked in a 3 car garage equipped 4500 sq.ft. house purchased with an entry level wage at age 23. I mean, at least wait for 33 :-)
The credit market (choose your own culprits) created this mess. It diverted effort away from productive sustainable economy to one that was fun while it lasted, but has no happy ending.
Posted by: The Milkshake of Despair at February 9, 2010 5:41 PM
Would it be too much to request a haiku?
Posted by: OneEyedMan at February 9, 2010 5:44 PM
De nada MoD. Yes, control theory formed the basis for my understanding of market dynamics and the positive feedback loop is even worse than you lay out.
Loans are supposed to be paid back out of income with the collateral as a fall back in case of unexpected events. When credit expands it spins up the economy creating income for people to allow them to borrow. During the credit contraction many people lose that income and the ability to pay back the loans.
All you had to do back in 2006 was look at this plot and see that credit creation was funding 8% of consumer spending to know that the 2nd Great Depression (or at least the worst recession in 80 years) was right around the corner.
Posted by: diemos at February 9, 2010 5:56 PM
Yeah. Diemos was a real standup guy in this one, wasn't he. One post with thought behind it out of 60 tossed off socketspeak a-snides. Pardon me for not applauding.
Posted by: anonn at February 9, 2010 6:01 PM
Anonn, by contrast, offers zero substance ever. Just says some variation of "Wrong, you're an idiot because I say so" over and over. I've generally just skipped over his drivel for the last 6 months or so.
Posted by: anon at February 9, 2010 6:36 PM
"Bite Me, dood."
Let's do a Gedanken experiment. Let's consider a hypothetical long time owner "Estelle". Estelle sold her home at the top of the market for $2M. What would she have received for it in the abscence of all this credit creation? Who knows? Let's assume $1M.
The difference in those two amounts is an undeserved windfall that was loaned into existence out of nowhere. So what's the problem? My dear friend anonee would say that Estelle took the risks and played the market right and earned that $2M.
However someone is eventually on the hook to generate $1M worth of value to make good on the money that was loaned into existence. To a greater and lesser degree that person is all of us. When you add up the benefit to Estelle minus the cost to all of us her windfall was a net loss to society. That's why it's a bad thing.
And what's insidious about bubbles is that all the fun comes up front and then the bill comes due when its too late to do anything about it but suffer.
So now an amount of money equivalent to the windfall that accrued to people during the run up has to go "poof!" from someone. The government has no power to stop this, they can only change who gets to feel the pain.
Let the bonds fail. In which case it's the middle classes' savings and retirement funds that will go "poof!".
Print up X trillion dollars and pay off everyones loans. In which case it's the value of the dollars that people are holding that go "poof!" as inflation wipes that value out.
Extend and pretend. Print just enough to prop up the system and keep people paying while the economy spends a decade or two at subpar performance and the loans slowly get written off. Stretching the "poof!" out for a decade or two so that people don't notice it.
You already know which one we've chosen.
Posted by: diemos at February 9, 2010 7:02 PM
Locally referred to as "The Lembi System"FWIW, The Lembis are not getting out of their mess scott free like, say, TS is. In his column (or is it a blog post?) today, Andrew S. Ross in The Chron reports that:
four Lembi companies, owning a combined 16 properties, filed for bankruptcy in federal court in San Francisco. The four entities listed in the Chapter 11 filing are Citi Properties, which owned most of the buildings, Trophy Properties, Sutter Associates and Hermann Street.He's got a link to the bankruptcy filing, made available via netdockets, at the end of the post.
Posted by: Brahma (incensed renter) at February 9, 2010 7:30 PM
"fun comes up front", like all the fun in the quarry, or carrying granite slabs up tight stairways. Good times.
Posted by: sparky-b at February 9, 2010 7:57 PM
My dear friend sparky-b. Builder par excellance. Decent, honest, hard-working, competent creator of value in home renovations. Prince among men (even if you are related to what's his name).
Do you not agree that those were the good old days? At least better than these days?
Posted by: diemos at February 9, 2010 8:13 PM
For cryin out loud sparky, why so cranky today ? Few people doubt that construction is hard work. Even the behind the desk part is hard.
At least there was work. Three out of three of my construction biz friend are now out of work. All three were employed long before the boom started.
The overbuild is now overstock. My buds who have never been without work in their lives are now pondering their future. It is a grueling mean twist to their lives and it didn't have turn out this way. As much as I wish that there are more new starts around the corner, my gut feeling is that the inventory and economy has a lot more sorting out to do before jobs pick up again.
Working in an up economy is hard. Working in an up economy is fun.
Unless you're retired, waiting for work is just plain depressing.
Posted by: The Milkshake of Despair at February 9, 2010 8:25 PM
Hurts everyone? I personally know several tech workers for whom life and work have not changed much if at all, but they were able to get six figures of profit by selling their homes and now have that money socked away generating modest interest. Another different kind of example is Angelo Mozilo who came away from the bubble bust with a vast amount of money. Almost everyone has some friends or family or casual contacts that have been hurt by the bubble and the damage is spread broadly, but not that broadly.
As far as bankers doing just fine, on The Mortgage Lender Implode-O-Meter it is possible to see records of 380 large lenders, some quite large indeed, which have been reduced to a smear by the bubble explosion. This is the reality. Sure, some in finance just hopped to different institutions, but many people who were involved in perpetrating this scam have had to get real jobs.
Bailout money makes people angry is the main thing. Why not just admit anger? Is it really helpful to pretend that the 380 big lenders that failed are still with us?
Posted by: Mole Man at February 9, 2010 8:46 PM
"My dear friend anonee would say that Estelle took the risks and played the market right and earned that $2M."
"During the upswing free money pops into existence and falls from the sky onto all sorts of undeserving individuals. Long time homeowners, realtors, mortgage brokers, granite installers, granite quarry workers, contractors, and as all that free money works its way into the economy just about everyone else to one degree or another. As people see the profits being made they abandon worthwhile activities to pursue activities that can only be profitable while the free money is flowing."
the velocity of money helped everyone involved in the economy. some more 'deserving' than others perhaps, but that is a red herring.
i think you should come out of your closet and profess your true love; karl marx and his henchmen. i agree that the bailouts are bs but i don't believe that successfully exploiting the latest bubble (be it tech stocks or granite countertops...)is the fault of the player.
don't hate estelle for her success-don't pity the (erstwhile) employee for his lack of foresight.
Posted by: anonee at February 9, 2010 9:38 PM
I concur. My company still hires. I still see people switching jobs without any downtime. This crisis is very unevenly distributed. I also see bubble toppers hurting every time they write the checks.
Talking about your cash-out tech pals: they're getting minute interest and are actually cheated a couple of percentage points by the banksters. The reason they give us 1% or less is the govt gives them free money. They don't have to be efficient or generous: they are subsidized by us. Let these cash rich smart people eat cake.
Teach them a lesson and move your money to a local healthy FDIC insured bank. Remember to stay under the limits.
When the milking of the govt will be stopped, they'll come back running with good incentives. Maybe...
Another way for us to pay for the excesses is salary deflation or stagnation. Less people producing the same output, or people producing more output for the same money. I see it in tech as well even though we're hiring.
End result: trying to catch up on China and India, which what the whole boom/bust is doing eventually. Too much debt quickly followed by withdrawal: harder work for less money looks like a good thing. This is not by design, just a twisted way the economy has found to get us to a new balance with the quickly emerging world.
That is, if the Great Chinese Bubble doesn't go poof on us!
Posted by: wow at February 9, 2010 9:43 PM
Anonn, by contrast, offers zero substance ever. Just says some variation of "Wrong, you're an idiot because I say so" over and over. I've generally just skipped over his drivel for the last 6 months or so
Did ya, "anon"? Bully for you.
Posted by: anonn at February 9, 2010 9:57 PM
"I personally know several tech workers for whom life and work have not changed much if at all,"
Add me to the list. Life is good. We have more work than we know what to do with. But a few anecdotes doesn't change the fact that the nation as a whole is hurting.
"Almost everyone has some friends or family or casual contacts that have been hurt by the bubble and the damage is spread broadly, but not that broadly."
It's not just the obvious effects and losses. There's also a general background of suppressed economic activity that's harder to point to but has to be counted as an after effect of the bubble.
"Why not just admit anger?"
Like I said above, I'm the one who is getting bailed out. The only thing that would make me happier is if the bubble hadn't happened and I didn't need to get bailed out.
"it is possible to see records of 380 large lenders,"
Well ... most of them were mortgage brokers not banks but let's not get lost in technicalities.
"karl marx and his henchmen."
What calumny. I'm firmly behind Capitalism and Free Markets. It's fractional reserve banking and an out of control financial system creating money out of nowhere that I'm against.
"i don't believe that successfully exploiting the latest bubble is the fault of the player."
True. If the people in charge of the financial system had been doing their job it would have been a moot point. There wouldn't have been a bubble to exploit.
Posted by: diemos at February 9, 2010 10:31 PM
"if the people in charge of the financial system had been doing their job"
the invisible hand is in charge despite what the clowns in government do. we are still free to exploit the imbalances created by fractional reserve banking and you would be wise to do so if you really value those chits of paper you've spent so much time saving.
Posted by: anonee at February 9, 2010 10:48 PM
MoD and diemos,
I wasn't cranky or crying for half the people in that original list, I was just pointing out that the employees of granite installers and quarrymen really should not be singled out. There are plenty of people who just worked through the bubble and didn't get anything other than a tiny pay check.
Posted by: sparky-b at February 10, 2010 8:28 AM
A tiny paycheck is better than no paycheck at all. Most manual work has been globalized already. People wih no college degree in our country are fighting for the last jobs left they can do. The construction boom was a fluke and was fueled by debt. Many had the illusion that manufacturing (of homes) was back. Now we have oversupply and these manual skills jobs are less abundant. Heck, even Cisco has a "globalisation center" in Bangalore, then how can regular folks even think they won't be affected by the rebalancing in global labor market?
Posted by: wow at February 10, 2010 9:01 AM
The mass manufacturing of homes wasn't a SF problem. Some towers were built and that was part of the boom, but not enough to change the pricing dynamic substantially. In the mean time houses are getting beat down by time, wear and weather. The construction industry won't go away so if you are a skilled non-college educated hard worker you will continue to find work around here.
I won't be creating a Bangalore globilisation trim carpentry center.
Posted by: sparky-b at February 10, 2010 9:13 AM
I didn't say they'd go away. Just that they'd be less aundant.
Quite a bit of work in SF wouldn't have been economically viable without equity extraction / flipping prospects that were partly fueled by the debt bubble. SF would have seen less new contruction as a consequence. There'd still be healthy activity, but not the craze that we saw.
At the same time, some of these condo buildings wouldn't have been considered with priceu financing and lower sale price prospects. Think Cubix or One Ecker, for instance. I am sure the big boys are still making a buck, but projects like Cubix probably wouldn't have been started had the general environment been less complacent.
Posted by: wow at February 10, 2010 9:50 AM