Chris_Sanders

It is just used as an economic indicator. Don't shoot the messenger.

__________________
Immortal

Russ Smith

There was an article in my Sunday paper on the front page about this family that was at a flea market in San Jose and approached by a mortgage broker who convinced the guy that he could buy a home. The guy was a construction worker married with 2 kids, single income of 56K. Within weeks he owned a nearly 600K home in San Jose thanks to a "sweet" loan.

2 years later he's facing exactly what you're describing. The lucky thing for him is it turns out the broker forged information on his loan application without his knowledge so that he'd qualify for the loan. He took the company to court, won, and they agreed to pay off the mortgage and let him out of the deal. I suspect it still hurts his credit score but at least he's out from under it, his wife was quoted as saying when you have to decide do I feed my kids, or pay my mortgage, something isn't right.

__________________
"This space available"

conraddobler

He's lucky that the mortgage company had the money to do that, right now I doubt that would be the case most of the time.

There's fraud rampant in the system with things like that but even the loans that did qualify, qualified on some iffy guidelines, they qualified on the teaser rate not the real rate that was comming down the pipe.

The tip of iceberg has been seen so far, a lot of this was fixed on the fly by refinancing these people when values were rising it was easier to accomplilsh but as values dropped a bit then the guidelines tightened up the escape avenues all closed, now there is no where to run and no where to hide.

It's a bit like the Titanic hitting an iceberg to continue the analogy, brief almost unoticed event that in effect could sink the ship. I'm not smart enough to know for sure but I personally don't see how a market like this is going to absord all this fallout without a major amount of pain, I mean foreclosures put more houses on the market, that's not what's needed right now.

That dosen't even factor the financial implications of our major investment firms, Goldman Sachs, Bear Stearns, Merill Lynch, all of them are major players in this, losing a ton of cash on this effectively sucking cash out of other areas that need capital.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

wallyburger

Lenders to halt New Century financing

By Tim McLaughlin 55 minutes ago

NEW YORK (Reuters) - New Century Financial Corp., the largest independent U.S. subprime mortgage lender, said on Monday its lenders plan to halt financing, pushing the company closer to bankruptcy.


After the market opened, the New York Stock Exchange delayed trading in the company's shares, citing a pending news announcement. New Century shares already had plunged 48 percent before regular trading on the NYSE, dropping to $1.66.

New Century shares could be suspended by the NYSE, a person familiar with the situation said. The NYSE declined to comment.

New Century of Irvine, California, said it could be forced to repurchase about $8.4 billion in loans, if lenders accelerated all of its obligations. Key lenders include Morgan Stanley (NYSE:MS - news), Citigroup (NYSE:C - news) and Bank of America (NYSE:BAC - news)

New Century shares, down 89 percent this month, have been hammered by a barrage of negative announcements, including that it would stop making new loans and was the target of a criminal investigation.

Over the past several weeks, subprime shares have been battered over a rising tide of late payments by borrowers. That trend continued on Monday, lopping 13.6 percent off Fremont General Corp.'s (NYSE:FMT - news) stock and 9 percent off NovaStar Financial (NYSE:NFI - news) shares.

Robert Froehlich, chief investment strategist at DWS Scudder, said a crimp in subprime lending could hurt U.S. housing demand.

"Because of the virtual collapse of mortgage lending standards over the past couple of years in the U.S., rapid growth in sub-prime lending has accounted for much of the incremental home purchase demand in recent years," Froehlich said. "Removing this segment will soften already slowing demand."

New Century's struggles are part of a wider meltdown among lenders to less credit-worthy homebuyers, which has seen the sector struggle amid soaring default rates.

"The company and it subsidiaries do not have sufficient liquidity to satisfy their outstanding repurchase obligations under existing financial arrangements," New Century said in a regulatory filing.

New Century also said there's no guarantee that it will get adequate financing to meet its obligations. If the company isn't able to satisfy repurchase obligations, lenders could liquidate related mortgage loans.

New Century would be on the hook for any difference between the liquidation amount and the contractual amount of the loans.

"The company and its subsidiaries may not have sufficient resources to satisfy any such deficiency," New Century said.

That might set the stage for a bankruptcy filing, if a white knight financing deal doesn't materialize.

New Century said that it had received two letters from Bank of America, each dated Thursday, saying that certain New Century subsidiaries had failed to satisfy margin calls, among other issues. Citigroup and Barclays Bank Plc provided similar notices, New Century said.

Investment bank Morgan Stanley, which last week agreed to lend $265 million to New Century, could force the subprime lender to repurchase up to $2.5 billion in loans, according to the filing.

New Century now has less than $60 million in cash on hand, which also puts it in violation of many of its loan covenants.

Also on Monday, analysts at investment bank UBS downgraded their rating on New Century's shares to "reduce," Marketwatch reported.

__________________
In politics, nothing happens by accident. If it happens, you can bet it was planned that way.

Franklin D. Roosevelt

"Those who can make you believe absurdities can make you commit atrocities."
--Voltaire

conraddobler

There are more comming, it's a classic industry death spiral and it's rather complicated to explain but it's all interconnected and the only ones that will survive will probably not be using Wall Street as their major source of funding.

This isn't a new phenom, it's happened before, what's new is the sheer size of the market this go around, before it was a very small niche and it had almost no effect on the market as a whole, back at 3-5% market share it was a blip, at 25% it's an elephant sitting on your sofa.

I listed major Wall street players in my post above off the top of my head, the funny thing is the story you posted listed two more.

It should dawn on you now how serious this is for them to eat their own like New Century which is a source of incredible income to them, that means they are in survival mode and means the situation is horrible.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

Russ Smith

Conrad, not to hijack the thread but what do you see as the long term fallout from this? Housing prices collapse, fall slightly etc? Regional or national event etc.

Seems like these loans were pretty common nationally so I can't see it being regional just that in certain areas (like California) there were probably a lot more of them being done than in others?

__________________
"This space available"

conraddobler

It's national for the most part, sure some areas it may be less of a problem but I'm not familar with all the dynamics that could change levels of pain other than right around the Missouri area.

Honestly if it works it's way into the economy as a whole it will cause pain all over the board, lower house prices, lower stock market prices, all IMO and in some opinions I've read that all have counter arguements to them.

I'd suggest reading what articles you can find on this, most have lengthy what ifs with probablities attached to them that you can take for what it's worth, those in this industry, like those at the investment firms involved you can pretty much discount, they're in protection mode, I'd pay close attention to the source and make sure it's not got some iron in the fire it's protecting.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

conraddobler

http://biz.yahoo.com/ap/070312/wall_street.html?.v=22

Here's a link to Yahoo talking about it, so far Wall Street is kind of yawning at it, however everyone there knew about New Century Friday.

I'm guessing it's going to take a while to sink in just what it means and so traders aren't really sure yet IMO.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

conraddobler

http://www.thenation.com/doc/20070319/howl



The Subprime Mortgage Blues
Nicholas von Hoffman



PRINT ARTICLE TAKE ACTION
EMAIL ARTICLE SUBSCRIBE NOW
BLETTERS (0)


Anybody who knew anything shook their heads while the politicians and the bankers and home builders boasted. The boast was that almost three-quarters of American households were homeowners.

Anybody who knew anything knew the reason was all you had to do to get a mortgage was to show the loan officer that your body was warm. Can't afford a down payment? Don't worry about it. You've got an abominable credit rating? So who's looking? You don't have a dime in the bank? We don't ask embarrassing questions. We just hand out loans.

This is what they call the subprime mortgage market, where in the last few years 6 million bad risks have gotten the financing they needed to buy a house. No banker in his right mind would make such a mortgage, but for the last few years the sane bankers have been hiding under their desks or have left for the grocery business.





As long as housing prices were jumping higher almost by the hour, the subprime mortgage holders pretty much managed their monthly payments, although there are stories out there in real estate land of people missing their first payment on a no-down-payment mortgage. People who ran into trouble could refinance the house and cover their payments that way, something that ceased to be possible when house prices went flat and began to move downward.

Other subprimers ran into trouble when the period of the introductory teaser interest rates expired and their monthly payments jumped by hundreds of dollars, which they did not have. Official figures do not exist, but it appears that somewhere between 15 and 20 percent of subprime mortgages are behind in their payments. That works out to a lot of people, a lot of families and a lot of money.

Between subprime mortgages and prime mortgages, which are those with the lowest interest rates and the best terms, there is an intermediate category of loans. These are known as Alt-A loans. Alt-A borrowers may have good credit ratings but may have bought a second house to flip as a speculation. They also are facing increases in their monthly payments and as a result a still small but rising number of these people have fallen into arrears on their payments.

The situation is complicated by the suspicion of a significant amount of fraud in the feverish real estate market of the last few years. The fraud would have taken the form of overvaluation in property appraisals, leading to owners borrowing more money than the property is worth. If it is true, it would not be the first time.

If hundreds of thousands or even millions of buyers welsh on their mortgages, what happens? The sensible next step is to modify the terms of the mortgage with the mortgage holder. To the extent that some banks hold the mortgages they make, that can be done, but most institutions that originate mortgages sell them to others, who bundle them and convert them into bonds. Who owns the bonds? Who knows? It could be pension funds, universities, hedge funds, a Chinese bank. They are all over the place and, to make matters more confusing, they are not all the same.

Some bonds must be repurchased by their issuers if things go south; others have some kind of rainy-day fund to cover defaults of the underlying mortgages. Some of these bonds are made up of only the best, most reliable mortgages; some are a mix.

The long and short of it is that we are in uncharted territory. The setup today is unlike the arrangements at the time of the last real estate flop twenty-five years ago. From homeowner to investor, we do not know who is going to be injured or how badly. Maybe a lot of people take a small hit and everybody wiggles out of this mess. Or maybe it gets messier and we have to face some people being tossed out of their homes.

And just think, it was only a few years ago that those smart men and women they released from the think tanks to lecture us were explaining that the days of uncertainty and worry were all in the past.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

justAndy

whoa - my debt to income ratio is .34 - that's as much as is considered "safe" according to some.

__________________
"Seachicken - it's what's for dinner" - me (until the 'Hawks sweep the Cards)
Check out Dephinger on our MySpace page.

AzCards21

That's pretty darn good. Keep it that way and soon you'll be one of "them".

justAndy

I'm going to knock it back to under .30.
Who is "them"??
The bankrupt?

__________________
"Seachicken - it's what's for dinner" - me (until the 'Hawks sweep the Cards)
Check out Dephinger on our MySpace page.

AzCards21

My standard reply, still seems good.

AzCards21

The "them" are those who did not over extend themselves and slide right through a down turn in the economy. Some of those "them" are the bastards that will take advantage of this down turn and buy foreclosures just in time to make a killing when things pick back up.

justAndy

I don't have that kind of muscle - at least I am doing things to truly build financial - as well as market equity.

__________________
"Seachicken - it's what's for dinner" - me (until the 'Hawks sweep the Cards)
Check out Dephinger on our MySpace page.