Subprime lending crisis and you - Page 10

conraddobler · March 18th, 2007, 01:50 PM

http://housingdoom.com/

The front page article is about Arizona, apparently you guys have the 2nd highest percentage of subprime loans in the nation..

That's really really a bad thing to be ranked that high in.

Divide Et Impera · March 18th, 2007, 01:56 PM

Quote:

Originally Posted by conraddobler

http://housingdoom.com/

The front page article is about Arizona, apparently you guys have the 2nd highest percentage of subprime loans in the nation..

That's really really a bad thing to be ranked that high in.

Yikes. What is the typical default rate on a subprime loan? Statistically, what percentage of subprime lendees will foreclose? I didn't know that AZ had 1/6 subprime loans!

BTW - You say "you guys". Where are you located?

conraddobler · March 18th, 2007, 07:31 PM

Quote:

Originally Posted by Divide Et Impera

Yikes. What is the typical default rate on a subprime loan? Statistically, what percentage of subprime lendees will foreclose? I didn't know that AZ had 1/6 subprime loans!

BTW - You say "you guys". Where are you located?

I live in Kansas City.

About 13% of subprime loans are in default now.

Divide Et Impera · March 19th, 2007, 10:20 AM

This is what I meant about MI and some other select states:

http://news.yahoo.com/s/nm/usa_subprime_detroit_dc

Quote:

Houses cheaper than cars in Detroit

By Kevin Krolicki
1 hour, 28 minutes ago

DETROIT (Reuters) - With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.

It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.

The rising cost of mortgage financing for Detroit borrowers with weak credit has added to the downdraft from a slumping local economy to send home values plunging faster than many investors anticipated a few months ago.

At a weekend sale of about 300 Detroit-area houses by Texas-based auction firm Hudson & Marshall, the mood was marked more by fear than greed.

"These people are investors and they know the difficulty of finding financing. They know the difficulty of finding good tenants. They're cautious," said realtor Stanley Wegrzynowicz, who attended the auction.

HOW LOW IS LOW?

The city, which has lost more than half its population in the past 30 years and struggled with rising crime, failing schools and other social problems, largely missed out on the housing boom that swept much of the country in recent years.

Prices have gained less than 2 percent per year in the five years since 2001, when the auto industry entered a renewed slump.

Steve Izairi, 32, who re-financed his own house in suburban Dearborn and sold his restaurant to begin buying rental properties in Detroit two years, was concerned that houses he thought were bargains at $70,000 two years ago were now selling for just $35,000.

At least 16 Detroit houses up for sale on Sunday sold for $30,000 or less.

A boarded-up bungalow on the city's west side brought $1,300. A four-bedroom house near the original Motown recording studio sold for $7,000.

"You can't buy a used car for that," said Izairi. "It's a gamble, and you have to wonder how low it's going to get."

Detroit, where unemployment runs near 14 percent and a third of the population lives in poverty, leads the nation in new foreclosure filings, according to tracking service RealtyTrac.

With large swaths of the city now abandoned, banks are reclaiming and reselling Detroit homes from buyers who can no longer afford payments at seven times the national rate.

Michigan was the only state to see home prices fall in 2006. The national average price rose almost 6 percent but prices slipped 0.4 percent here, according to a federal study.

The state's jobless rate of 7.1 percent in January was also the second highest in the nation, behind only Mississippi.

HOW MUCH CAN YOU BUY FOR $1 MILLION?

Mayor Kwame Kilpatrick was greeted with applause when he announced last week that two condominiums in the city's revitalizing downtown sold for over $1 million each.

But investors, including some from out of state, proved far more cautious at Sunday's auction.

In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit's boom days with an ornate stone entrance fetched just $135,000.

Dave Webb, principal at Hudson & Marshall, said Michigan had become a "heavy volume" market for his auction firm in recent years, although bigger-money deals were waiting in California, a market he said was ready for the first such auctions of repossessed property in years.

"These people that are buying have got to look at holding on for five to seven years," he said. "The key is holding power."

Even with the steep discounts on Detroit-area properties, some buyers handed over their deposits with a wince.

"I'm not sure it's congratulations," said Kirk Neal, a 55-year-old auto body shop worker who bought a ranch in the suburb of Oak Park for $34,000. "My wife is going to kill me."

Realtor Ron Walraven had a three-bedroom house in the suburb of Bloomfield Hills that had listed for $525,000 sell for just $130,000 at the auction.

"Once we've seen the last person leave Michigan, then I think we'll be able to say we've seen the bottom," he said.

Yikes!

Gizmo Williams · March 19th, 2007, 10:23 AM

Quote:

Originally Posted by Divide Et Impera

Secured or not, lenders are not in the business of acquiring and selling homes. The "magic number" SHOULD be 680, or so. LTV does matter, but honestly it should only matter in terms of getting a better rate with a lower LTV compared to the higher LTV. I still think a natural, sustainable lending market would rest at 680. LTV does not determine the likelihood of a borrower paying on the loan that is made. FICO score determines that. So, in that respect, I fully disagree with you....

Yea....but you are comparing apples to oranges when you are talking secured vs. unsecured lending. I agree that 680 is in the ballpark for the cutoff for unsecured. However, secured is a different ballgame since it is secured by an asset.

For margin lending...a FICO score is not even necessary since nobody loans to 100% value and the loan is tied to assets that can be easily liquidated as soon as the value drops past a certain threshold. Same for Mortgages.....the asset is not nearly as liquid as equities, though. The 680 cutoff you are talking about would cripple the housing market since you would basically kill the demand side of the equation by excluding a huge portion of the population from even entering the market.

While the LTV does not determine the propensity of the borrower to pay...it is the most important piece of the mortgage lending decision. It does give the loan holder options if they should get in financial trouble. They can sell the house, pay off the debt and become renters....as long as they are not underwater on the loan and the housing market is still functioning.

Divide Et Impera · March 19th, 2007, 10:27 AM

I agree with you in theory, but not in practice. What I don't understand is why the big lenders don't have 'Property Management' divisions as part of their business. That, I believe, would rectify a lot....

AzCards21 · March 19th, 2007, 10:33 AM

Quote:

Originally Posted by Gizmo Williams

The Fair Issaac (FICO) scores max is 850. The minimum is like 450. There is a competing score that is coming out that has a different scale...I think up to 900, but not very many lenders use it currently. The scores are just a translation to a scale for a person's odds of going 90+ days past due on a loan.

Interesting, thanks. I'm more puzzled than before. lol

jefftheshark · March 19th, 2007, 10:53 AM

Quote:

Originally Posted by Divide Et Impera

I agree with you in theory, but not in practice. What I don't understand is why the big lenders don't have 'Property Management' divisions as part of their business. That, I believe, would rectify a lot....

Because there is no money to be made in "Property Management". It's better to sell the houses off to the vultures, and take a one time write off, than it is to lose a little bit of money every month for forever.

The Shark

swd1974 · March 19th, 2007, 11:57 AM

So when are house prices going down? Here in PA they are more expensive than ever.

conraddobler · March 19th, 2007, 02:57 PM

If anyone actually knew that we probably wouldn't waste our time on this board.

I'm guessing the answer is soon?

Who knows might totally isolated for some goofy reason.

Divide Et Impera · March 22nd, 2007, 03:32 PM

http://www.boston.com/business/artic...p1=MEWell_Pos3

Quote:

US housing, mortgage woes contagion feared

By Joanne Morrison, Reuters | March 22, 2007

WASHINGTON --For months as the U.S. housing market unraveled, the Bush administration, the Federal Reserve, and most economists maintained the decline did not risk hitting the economy at large, but economists are growing increasingly concerned the broad economy may take a hit.

An abrupt exodus of more than two dozen so-called subprime lenders from the market has heightened fears other lenders may soon start choking off credit to businesses and consumers.

Economists, and the Bush administration, agree falling house prices and rising defaults by borrowers with poor credit in the subprime mortgage market may mean slower U.S. economic growth this year.

"We know that the housing market will have an impact on GDP over the next six months," Edward Lazear, chairman of the White House Council of Economic Advisers, said this week.

When asked how subprime mortgage market troubles would weigh on the economy, Lazear said the banking sector was still strong, but delinquencies are high and lenders, even outside of the subprime market, have begun to tighten up credit.

"It's clearly going to increase the cost of capital and on the margin its going to be less conducive of capital spending," said Richard DeKaser, chief economist at National City Corp. in Cleveland.

According to the Mortgage Bankers Association's most recent data, the proportion of mortgages in the initial stages of foreclosure during the fourth quarter of last year hit its highest in the 37-year history of the association's survey.

In addition, commercial banks have tightened their lending standards. According to the Federal Reserve's most recent Senior Loan Officers Survey released last month, which covered lending business at the end of last year, domestic banks reported tightening standards on all residential mortgages, the highest net fraction seen since the early 1990s.

"The extent of the tightening of credit conditions for borrowers has yet to be fully clarified, and bears continual monitoring," Citigroup economist Steven Wieting wrote in a report this week.

About 45 percent of bank loan officers in the Fed survey said they expect a deterioration in the quality of the loans they make, ranging from loans for business investment to commercial real estate loans.

THE BALL IN THE COURT OF BUSINESSES

"The ball is in the court of businesses. If the corporate sector feels that this will lead to a consumer (spending) slowdown, then they will pull back on investing," predicts Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University.

Dhawan is among a growing group of economists who say the Fed should start lowering interest rates soon to buffer the economy.

"That risk is definitely there," he said of the possibility that stress in the subprime mortgage market would spread. "The Fed needs to now start cutting rates in late spring and early summer."

The central bank on Wednesday held rates steady, but in its statement softened its bias in favor of further rate increases, leading U.S bond yields to fall and stocks to rise.

"Recent indicators have been mixed and the adjustment in the housing sector is ongoing," the Fed's policy-setting committee said.

Earlier this week, the chief investment officer at the biggest U.S. pension fund said subprime mortgage lending, sounded an alarm.

The subprime sector "is an important weakness in the economy and it is likely that there will be a measured impact in other sectors," said Russell Read of CalPERS, which invests about $232 billion for California state workers. "There is likely to be some contagion."

Falling home prices and higher mortgage payments also pose a constraint on the currently tight U.S. labor market, according to John Challenger of the Chicago-based employment outplacement firm Challenger Gray and Christmas.

"Employers have been in a position of needing to find people, but they may find the candidate unwilling or unable to sell a home," he said, warning that without the ability to relocate for a job, consumers may be forced to cut spending.

"The economy needs labor flexibility, these mortgages lock people into a very particular spot," Challenger warned.

jefftheshark · March 22nd, 2007, 04:16 PM

Quote:

Originally Posted by Divide Et Impera

Dhawan is among a growing group of economists who say the Fed should start lowering interest rates soon to buffer the economy.

"That risk is definitely there," he said of the possibility that stress in the subprime mortgage market would spread. "The Fed needs to now start cutting rates in late spring and early summer."

This is the agenda driving this issue. You saw yesterday what even a small hint in the Fed lowering interest rates can do to the equities market.

Nothing like stirring up a little panic, to make a couple of billion $'s in one day.

The Shark

82CardsGrad · March 23rd, 2007, 09:00 PM

The market is "crashing"... Oh my...

Existing Home Sales Rise in February by Largest Amount Since 2004

Friday, March 23, 2007

WASHINGTON — Sales of existing homes unexpectedly rose in February by the largest amount in nearly three years, but analysts expressed fears that the recovery for the battered housing industry will be slowed by spreading troubles in mortgage lending.
The National Association of Realtors reported Friday that sales of existing homes rose by 3.9 percent last month, pushed higher by a sharp increase in sales activity in the Northeast. It was the biggest increase since a similar increase in March 2004.
The price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006. It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago.

Linderbee · March 23rd, 2007, 09:06 PM

Quote:

Originally Posted by 82CardsGrad

The market is "crashing"... Oh my...

Existing Home Sales Rise in February by Largest Amount Since 2004

Friday, March 23, 2007

WASHINGTON — Sales of existing homes unexpectedly rose in February by the largest amount in nearly three years, but analysts expressed fears that the recovery for the battered housing industry will be slowed by spreading troubles in mortgage lending.
The National Association of Realtors reported Friday that sales of existing homes rose by 3.9 percent last month, pushed higher by a sharp increase in sales activity in the Northeast. It was the biggest increase since a similar increase in March 2004.
The price of a median home sold last month dropped to $212,800, down by 1.3 percent from the same month in 2006. It marked a record seven straight months that the median home prime has fallen compared to the same period a year ago.

Homes may be selling, but the prices are dropping.

82CardsGrad · March 23rd, 2007, 09:07 PM

Quote:

Originally Posted by Linderbee

Homes may be selling, but the prices are dropping.

No arguement... but I believe a 1.3% drop year over year is hardly something to get worked up about...