Folks, this is REALLY REALLY BAD, Wall Street has finally figured out housing is going BUST

[Herman Munster]

http://www.marketwatch.com/news/story/sp-moodys-signal-growing-subprime/story.aspx?guid=%7BCB3BF07B%2DBCAA%2D4F55%2DAEF5%2DF9C22E5D4570%7D

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399. S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago. See full story.
More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.

[EFerrari]

1. Translate for me please! Is this only for residential or for all real estate?

:scared:

[papau]

14. All real estate markets are local - some are still going up and will continue up - others

like Miami are into price drops and going bad for sellers, others like Boston had a 10% drop and are now rising in some areas and in some price ranges (over a million price and very near city rich areas doing best) - stable prices in other areas and back to 12/05 pricing expected at end of 08.

This is about sub-prime folks - - those that only paid half the interest chargd the first 2 years and let the principle owed increase by the other half of the interest not paid so that the eventual ARM higher interest rate on the higher principal meant they couldn't make the payments and they lost all their equity - and whoever bought the loan as an asset is in trouble.

The result is a slow down in new house construction which will slightly slow the growth in the economy (as measured by the GDP it is a 0.5% likely drop in the growth rate) - plus current home prices mostly will not rise quickly after the recent drop of 3% to 10% -

not a big worry unless your next years pension depended on the house sale price rising and you selling.

The bank's normal year is 600,000 foreclosures - next 18 months there will be foreclosures at an annual rate of 900,000 - which will hold down prices esp. at the middle to low end of the market.

[EFerrari]

18. Thanks! I almost understand that, lol.

:hi:

[ProgressiveEconomist]

36. Rising adjustable rate mortgage foreclosures arent limited to the subprime market

Low-documentation "Alt-A" or "liar loans", popular with amateur speculators, are doubling too.

IMO foreclosures won't stop rising until interest rates peak. And that may take years.

From http://www.marketwatch.com/news/story/adjustable-rate-mortgages-going-sour/story.aspx

"Foreclosure rates for adjustable-rate mortgages, or ARMs, have doubled over the past two years. This is not just the subprime borrowers, those with less than stellar credit. Even prime borrowers who opted for ARMs are in trouble.

The foreclosure rate for subprime ARMs has gone from 5.1% to 10.1% in less than two years. The delinquency rate has soared from 10% to 15.75%. For prime ARM borrowers, the foreclosure rate has doubled from 0.8% to 1.6% in just one year. The delinquency rate for prime ARMs jumped from 1.5% a year ago to 2.4% this year.

Prime ARMs include so-called Alt-A or toxic loans, which exploded in popularity in the past few years because they offer teaser rates, lax lending standards and the temporary option to pay less than required to pay down the loan. The window is closing for ARM borrowers to refinance into fixed-rate loans. Mortgage rates have soared by 58 basis points since the end of the quarter to 6.74%. In the meantime, housing prices are flat or falling in the regions with the largest foreclosure rates.

-- Rex Nutting, Washington bureau chief

[papau]

44. I agree - liar loans are also in trouble but both are included above - current rates below:

Bankrate.com : National mortgage rates OVERNIGHT AVERAGES Rates may contain points.

LOAN TYPE TODAY vs LAST WEEK
30 yr fixed mtg
6.33% plus up to 2 points in all these rates
6.27%
15 yr fixed mtg
6.04%
5.98%
5/1 ARM
5.96%
5.93%
30 yr fixed jumbo mtg
6.55%
6.52%
5/1 jumbo ARM
6.14%
6.13%



CURRENT RATES AT BANK OF AMERICA - 20% DOWN JUMBO - $400,000 LOAN ON $500,000 HOUSE

Type of loan ......rate......points.....APR

30-Year Fixed-Rate 6.750 0.915 6.918


30-Year Fixed-Rate 7.000 -0.021 7.070


30-Year Fixed-Rate 7.375 -1.199 7.446


15-Year Fixed-Rate 6.375 0.870 6.627


15-Year Fixed-Rate 6.625 0.117 6.757


15-Year Fixed-Rate 7.000 -0.732 7.113

[Warpy]

15. It's a speculator's nightmare

affecting mostly houses, especially in areas that were overbuilt to satisfy a flood of fast buck artists into the market. These were typically people who were convinced they'd make a killing on a new property within 3 years, and so they accepted ARM financing and balloon, interest only mortgages.

These iffy mortgages covered relatively few families buying housing in most markets.

BUT, brokerages have been snapping up these subprime lenders at an astonishing rate over the past couple of years. When the subprimes go bust, you're going to see a lot of investment banks, brokerages, hedge funds, and insurance companies hemorrhaging money. Speculators bet on a fast buck in a permanently rising housing market. Subprime lenders bet on a fast buck once the teaser rate period was up. And brokerages bet on a fast buck from buying up the subprime lenders.

The whole financial superstructure is a web, with everything connected to everything else. When a large part of that web is weakened by stupid decisions based on thinking a speculative bubble would never pop, the whole web is weakened.

I have no idea how bad this will get or for how long.

[EFerrari]

19. So, is it right to conclude that financing will become harder to get?

(We're developing a couple of big projects and I'm trying to think ahead here. Typically, my role isn't the money side but it can't hurt to learn something.)

[Warpy]

38. Ordinary lenders won't be any tougher than they always were

so be prepared to document everything just the way you always did before.

I'm talking short term here. I don't know what will happen when they all start to hemorrhage money.

[EFerrari]

39. Thanks, Warpy.

:hi:

[Lochloosa]

57. sfexpat2000, I'm in the construction industry in FL

I don't know about your area, but in conversations with developers here, banks are not loaning money for ANY residential developments. They don't expect this to change for the next two years.

I have seen some large site contractors laying off 30 to 70 percent of their work force. One has layed off ALL of his site workers.

I think it's going to get worse before it gets better.

They tell me that the banks will look at multi-family projects. I guess the banks are betting on people needing apartment/condos since they won't be in the market for homes.

[EFerrari]

66. Yikes.

:scared:

[Olney Blue]

2. This is worrisome, indeed.

[DURHAM D]

3. I have one question -

Will my tax dollars be needed to help bail out some corporation?

[markk]

10. shout it out.. corporate welfare

people here may not be happy with Nader's methods.. but he's right about most policies. Corporate welfare is the biggest drain on our tax dollars and economy out there.

[jpgray]

42. That he's so right on so many things makes his methods more frustrating

:D

But yeah, he's right on in that instance.

[Rosemary2205]

25. Yes

The lenders will toss people out of their homes and then demand the feds bail them out on top of that.

[robinlynne]

29. now that is a good question!

[A HERETIC I AM]

46. No. At least not as it relates to the linked article in the OP

The article deals with the credit downgrading of a series of particular types of bonds.

The first person on this thread that explains what a "tranch" is, how they work, what the significance of downgrading some but not all and why they are relevant in this article gets......oh, i don't know.....and apple. Yeah. A nice shiny apple like this one


This is most certainly not a case of "much ado 'bout nothing" but many on this thread are blowing this WAAAY out of proportion.
If you really want to know what this all means, read the entire article carefully and then go to www.investopedia.com and research the terms you are not clear on. When you do that, you will have more knowledge than 90% of the people who respond to these threads saying the sky is falling.

[Sarah Ibarruri]

4. Every time someone tells me capitalism is great because markets magically keep everything in balance

It makes me want to puke.

[LittleClarkie]

5. Not only is housing going bust, but mortgage loans are defaulting

right, left and center.

[graywarrior]

6. Does this mean the banks will be calling in their loans like they did in the late 80's?

If so, we are fucked.

[Rosemary2205]

26. Every 20 yrs - you can set your watch by it.

[Swamp Rat]

7. How will this affect the homeless?

[proud patriot]

11. That's the first time I've seen that picture Swamp Rat

very fitting

[Swamp Rat]

16. I made it today

Way'at proud patriot! :hi:

This one too:

[proud patriot]

45. I'm hanging in there

:)

[Jed Dilligan]

20. My immediate thought, too.

Brendan O'Flaherty, an economist, believes that homelessness is caused by the decline of the middle class. The lowest quality housing isn't built as such; it depreciates from middle class housing. As the middle class shrinks the bottom of the housing market gets tighter, leaving more people out on the streets.

A report I've read shows that rates of homelessness are higher where property values are higher. Both these theses are intuitively correct. I'm not enough of an economist to evaluate them, though, nor to assess the impact of a burst housing bubble on renters, the homeless, welfare dependents, etc.

[jtrockville]

33. I spoke to an economist last week and asked about this.

In a nutshell, he said that it wouldn't cause a sharp rise in homelessness. Sure these folks will lose their home in foreclosure, but in most cases they'll become renters. What will happen though, is property values will decline and it will wreak havoc on communities.

[Jed Dilligan]

35. I'm not concerned here with the homeowners losing their homes,

I'm concerned with people like myself who have never even dreamed of owning a home, and sometimes find themselves without a rental even. Couldn't it only work to reduce our homelessness if the price of property dropped?

[jtrockville]

41. I guess it could have that effect.

The banks are going to be the biggest losers on this one. Perhaps they should have been more cautious.

[InkAddict]

51. Well, there's plenty of homes and apartments available,

across the country. Move -- You'll find the greatest availability where there are no decent jobs and not much happening.

[Jed Dilligan]

52. So what's your point?

I don't want to move--I pretty much loathe the rest of the country, culturally and climatically. If I leave CA it will be to leave the US.

[InkAddict]

54. Too bad on that.

Outsourcing is such a good idea though. :sarcasm:

[atommom]

60. The look on that woman's face is priceless. nt

[liberal N proud]

8. It is going to get much worse before it levels off

I heard last week from some talking head analyst that the foreclosure bubble would be next year

They let anyone who wanted to live in a mc mansion have the money then those people maxed out all their credit cards and wham-mo, your payment just doubled. Too many people were let into the market that were not ready to move into the market all in an lame attempt to keep the economy going.

[Jed Dilligan]

9. Is there any way this could possibly mean

we might end up with housing being affordable again?

:hide:

[papau]

17. nope - housing being affordable again requires mid 6 fiqure income n/t

n/t

[edhopper]

64. Or

a decline in prices of 30% to 60%. Back to the norm of housing costing 3x to 4x median income. As it has for over 150 years in this country. It's called "return to the mean" and it always happens after a bubble. There are now over 5 million homes for sale in this country. A historic high. Either wages will catch up to home prices (fat chance) or prices will fall.
BTW the historic increase in home prices is 2% to 3% not 3% to 10%.

[papau]

65. historic increase follows wage increase except for homes of the rich n/t

n/t

[edhopper]

67. And yet

we have just experienced the biggest housing bubble in US history at a time with the slowest wage growth in the post-war period.

[papau]

68. The month;y payment determines the price that can be asked - and low interest

rates - artificially low so as to prop up Bush and allow a claim that "tax cuts for the rich work" via the modest growth we have seen from the monetary policy - those low interest rates produce monthly payments that allow for more expensive home purchases.

[InkAddict]

55. Dollar eroding.

Affordable housing any time soon - LOL.

[dysfunctional press]

63. not in socal.

supply & demand.

there's more people that insist on living in california, than there is available/affordable housing.

and then there's the whole looming water and fuel shortages thing...

[rucky]

12. People with low income/ high debt won't be able to get a mortgage.

Or pay really really high rates.

the real problem wasn't so much with granting mortgages to high-risk borrowers, I mean, folks who could swing rent every month should be able to own a home. The problem is the way in which subprime lenders misrepresented their loans.

How many people know about negative amortization on an interest-only loan. Do you know when your ARM's going to float? Brokers were calling people with fixed FHA loans and convincing them to refinance. Totally predatory to capitalize off of people's lack of understanding of financial matters. The people handling these loans are the only "experts" regular folks have about this stuff, and they're being misleading.

It's probably that same lack of understanding that got their credit rating low enough to have to enter the subprime market.

[Rosemary2205]

24. Low income and high debt SHOULDN'T get a mortgage.

cost of home ownership is more than a mortgage payment. People with high levels of unsecured debt SHOULD be required to shed that debt before qualifying for a home loan. For their own protection.

And the feds or the state should be publishing a booklet with the ins and outs of mortgage products and the benefits and pitfalls of each -- lenders should be required to give the booklets out to every prospective borrower a minimum of 7 days before any mortgage loan can be applied for.

[Matsubara]

30. I agree people with high debt should square it away before taking on a mortgage...

...but there should be homes available in American cities that would be affordable for regular working people, even if it means government subsidies.

The whole reason for the subprime crisis is that so many people have been priced out of the market, so you get people with a $40K income buying a $400K house BECAUSE IT IS THE CHEAPEST THING ON THE MARKET.


A person with that kind of income shouldn't be getting anything costing over $120K, but in many cities, $120K barely gets you a run-down one-room condo, if that.


I feel bad for all the people who overstretched to try to get their first home and now can't make their payments.

But I'm glad as hell that the speculators are taking a bath. They were a big reason for the price insanity, as well as the sleazy mortgage outfits.

[rucky]

56. They do give a booklet for FHA loans but not subprime.

As for "should not" get a mortgage: Each case is different. Credit scores don't tell the whole story - and credit in general is biased against low-income and the younger set who haven't established good credit yet. That's why subprime was invented. Debt problems are not always a result of being a deadbeat - medical issues and divorce are the primary causes, they're just not as much fun to talk about, but should they be shut out of the housing market?

Many of these foreclosures could have been prevented if the borrowers were educated about mortgages. Booklet or not, it is the loan officer's responsibility to explain it.

[Warren DeMontague]

13. OH NOOOOOOOOO!!!!!!!!!!!!!!!!

This place wouldn't feel nearly as familiar if we didn't have at least 3-4 of these threads a week.



Although the imminent-this-time-really-for-certain-Iran-War-this-next-full-moon ones were more fun.

[tom_paine]

27. Ha hah ha. But the truth of the matter is things are trending downwardly

in almost all areas.

Economically, socially, our station in the world, our right and freedoms as citizens, the strength of the Constitution and the system of checks and balances, and so much more.

Having been the occasional "they sky is falling tomorrow" kind of guy I try to keep my mind on what is to my mind among the truest f axioms, which is that people "speed up" but societies, even ones that are radically transforming (as America is moving towards becoming an Imperial BushPutinist State), slow things down. They stick their hands out, metaphorically speaking, and slow the slide.

I am coming to see this is human nature, and that truly radically swift movements or changes are very rare.

Also I am trying to be patient before I declare the System of Check and Balances dead, even though I have done so many times here at DU, but that was rhetoric pointing out would could happen, and it still could, not prophesy.

But in times like these, with everything going to shit (yes, it can be turned around, but the damage is enormous and things like the environment cannot even be turned around for years and years even if we act now) you can;t blasme people for seeing it coming.

99 times out 100, they will be wrong. The 100th time they'll be right, really they were just seeing it coming and jumping with a startle everytime what was going to happen, just a matter of when, didn; happen that time.

But it WILL happen.

People are jumpy and swimming in an ocean of both information and disinformation to a magnitude of 10X what existed just 20 years before. The media have failed in their traditional job as watchdog, and so we are further unsure becuase anything could be true when you don't have a strong vigorous press in which everyone is fairly confident that some degree (even if it isn't all of it) of wrongdoing by the powerful will come out.

Not so, anymore, and people are further made jumpy as well as willing to believe more outrageous stuff. Knowing full well that there is a potential in the Bush Imperium that level of evil might be true (not likely, but more likely than should EVER be possible in our country) because they could be JUST THAT BAD.

Sorry, dude. Didn't mean to rain all over your joke.

[Warren DeMontague]

37. Oh, I'll be the first to admit that many things are massively fucked up.

in fact, I think things are genuinely, obviously bad enough that I question what the appeal is of making predictions for just how much worse it is imminently going to get.

It's sort of like that old joke about laughing at the Preacher's threats of going to hell. "I already live in New York"

[xmas74]

43. The Iran threads annoy me

but the housing ones there might be something to.

I've noticed more homes up for auction recently and a ton more for sale. They aren't the small ranches or the older bungalows that I grew up seeing the lower middle class purchase. The houses up for sale right now are the newer construction, large (and in some case McMansion-type) houses that were marketed towards the middle middle trying to join the upper middle and the upper middle trying to emulate the wealthy.

So what has happened to all the affordable housing that used to be for the lower middle class in my area? It's been turned into rental housing at a higher price than what is affordable.

I don't know since I'm no expert. Just from observation it looks like there are way too many houses on the market and they are staying on the market.

[Warren DeMontague]

48. Oh, there's no doubt about that.

The folks who bought "investment" properties in the past year or two thinking they were going to get stellar returns are bummin'.

I'm not saying there's not a real issue here; for sure there is.

[xmas74]

59. but I know what you mean.

Iran and housing are both the Chicken Little of GD sometimes.

[tjwash]

50. It's the same crap we went through in the 80's with the S&L bailouts, and junk bonders.

I knew a lot of people that got hit hard on those as well. It's that lure of "no money...no problem" that sucks people into it.Caveat Emptor is always a good rule to follow when dealing with bankers, whether they are mortgage brokers, or "investment analysts".

[xmas74]

61. I remember the S&L crap in the 80's.

I'm just worried about the home loans this time around. I have too many friends who finally saw their chance to purchase a home and did so, most of them owing large amount of debt already. (Namely 10s of thousands in student loans.)

[AntiFascist]

53. Speaking of Iran threads....

Lou Dobbs just reported that there are now 3 aircraft carriers in the Persian Gulf. The unfortunate truth is that we may have to fight for the oil to keep our economy afloat. The mortgage problems are a result of short-sightedness on all sides, and a diverging economy (with the "oil class" getting richer) that makes it harder for the middle class to keep up.

[xmas74]

62. I stated in another post

the Iran threads (and the housing threads) are the Chicken Little of GD. You never know which ones to believe.

(But I'd heard about the carriers recently.)

[tjwash]

49. ...

:rofl: :spray: :rofl:

Fuckin' A.

My wife is in other room and just ask me what the hell I'm laughing at.

[Ezlivin]

58. Well the proletariats are stirred up by what the accountants are saying

Perhaps you saw the "60 Minutes" segment on the comptroller general of the United States and how he is going around the country basically saying "The sky is falling"?

If not, take a read through this.

Honestly, most of us wouldn't be aware of these financial problems if it weren't for others pointing them out.

Me? I'm good at finding problems in XHTML, CSS, PHP, SQL and Javascript. And I can fix 'em. But the economy? No way.

[sendero]

21. Recipe for disaster...

... 1) demand based on speculation of higher prices

coupled with

2) easy money, the ability to speculate with other people's money.

That is what caused the stock market crash of 1929 and that is what caused the current situation.

While it is true that the speculation and abuses were not happening everywhere, the resultant depression is housing prices is going to affect everyone IMHO, because it's going to lead to a severe economic recession.

[Dogmudgeon]

22. Not just housing -- the Dollar is sinking, too

When the Boy-King was installed, it cost 88 cents to buy one shiny new Euro.

Today, it cost a buck thirty-seven.

When I want to buy books or CDs from Europe, they cost almost twice as much as they cost me before the coup.

Fortunately, I don't buy many books or CDs from Europe. Imagine if I did business there.

--p!

[robinlynne]

32. same thing in relation to Brasil! not doubled, but worth much less.

[sicksicksick_N_tired]

23. They can always hit the slot machines.

:shrug:

[dweller]

28. "This will impact everyone along the food chain,"

... said Andy Chow .

man, i can't make this up ...
dp

[yodermon]

31. ok, so which stocks should I short? n/t

[CK_John]

47. Everything except oil related and rickshaw manufacturing. n/t

[madrchsod]

34. the only guys who are going to ride out the fall

is those who bought insurance to cover their losses.everyone else is not going to be so lucky.

[TexasLawyer]

40. "The dollar is a basket case,"

The dollar is at record lows against the euro, and there are a lot of fears about the underlying strength of the housing market, trade deficit, rampant deficit spending, etc... Thought this was a good quote:

http://www.forbes.com/feeds/ap/2007/07/10/ap3899218.html

"The dollar is a basket case," said Peter Schiff, president of Euro Pacific Capital Inc. "We are going to pay the piper for years of having the underlying fundamentals of our economy disintegrate beneath our feet."

Given the state of the U.S. economy, he said, the dollar could continue to fall in the coming years against the euro to $2.50 or even $3.