Headlines...

NEW -> Contingent Buyer Assistance Program
graphix,





I think it is working now.





I don't know about you, but I have never seen a credit crunch come on so quickly. Reminds me of those ABX charts that were all over the net last month. I think a lot of people are putting their heads in the sand thinking "this is all the worse it is going to get." I have never seen one make only a minor correction. I watched the one in the late 80's in commercial lending when they went from 100% cash out financing based on a buyer proforma (which means totally exaggerated) to 30% down and independent market studies. As you know, the collapse of that bubble lead to the S&L crisis and a government bailout.





I don't know how much credit will tighten, but I suspect we will get back to 20% down and conventional loans. The exotic products will still be out there, but the interest rates will be so high as to make them unusable. Did you see the post at OC Fliptrack where he was comparing the rate sheets? The exotic product interest rates jumped dramatically. These will likely go even higher because the defaults rates will increase even more. Once the true risk is priced in to these products, they will be very expensive. You might as well buy your house on a credit card.
 
For something a little closer to home:





<strong><a href="http://tinyurl.com/2ldl9m">Loan turmoil closes doors for buyers</a></strong>





"Sharon Lewis is facing a 50% hike in the payment on her adjustable-rate mortgage next month.





This week, she discovered she can't qualify for a new loan with payments that she could afford.





And although she's willing to sell the West Hills home she's owned for two years, she has been told it won't fetch what she paid for it. "I have to laugh to keep from bawling," the 30-something Lewis said.





Her situation is becoming increasingly common across the country amid the implosion of the business of sub-prime mortgages — loans for people with less-than-perfect credit or no credit histories.





Many would-be home buyers, and homeowners who want to refinance, are finding that virtually overnight their status has changed: They no longer are eligible for the kind of easy-credit loans that helped millions of people join the ranks of property owners during the housing boom."








How many times will this story play out over the next several years?
 
<a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/03/10/AR2007031000071.html">Not a Great Foundation for Optimism</a>




Washington Post





<p> Sunday, March 11, 2007; Page F02</p>

<p> </p>



<p>Will the meltdown in the market for subprime mortgages spread to other forms of housing finance and trigger a housing credit crunch that will further depress sales and prices?</p>

<p>The official line from the industry, and the Federal Reserve, is that while this is a serious problem, it involves a small portion of the housing market, with no signs of spreading.</p>

But others aren't so sure.

<p>These are, after all, the same people who denied there was ever a housing bubble, then denied there was a housing bust and, more recently, declared that the housing downturn had bottomed out.</p>

<p>Nor do the numbers fully support their optimism. While subprime mortgages -- mortgages made to people with low credit scores -- account for only 13 percent of outstanding mortgages, they make up 20 percent of the mortgages issued in the past several years. Other categories of mortgages that are almost as risky account for at least 20 percent more, and their default rates have also doubled.</p>

<p>Moreover, many of the recent "innovations" in subprime mortgages were also used by borrowers with good credit histories. These include interest-only mortgages that require no principal payment for 10 years; opt-out mortgages that let borrowers skip monthly payments; and piggyback loans that don't require any money down.</p>

<p>By some estimates, nearly 40 percent of all recent mortgage loans have involved some form of this "risk-layering." One survey found that 29 percent of all new mortgages involved no deposit, while the average down payment by first-time buyers was a mere 2 percent.</p>

<p>Things probably would have worked out just fine for most of those borrowers if interest rates had remained steady and home prices kept rising. But they didn't, and now the impact is rippling through financial markets.</p>

<p>So far, nearly three dozen mortgage lenders have been sold under duress, closed up shop or filed for bankruptcy. <a target="" href="http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=NEW&nav=el">New Century Financial</a>, whose 7,200 employees last year generated nearly $60 billion in new loans, last week stopped making loans after its major lenders cut off its credit.</p>

<p>It is as yet unclear how much big banks and hedge funds have lost in this process, but the sums could be large. Already <a target="" href="http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=GM&nav=el">General Motors</a> has warned it may have to take a charge of almost $1 billion to cover bad mortgage loans at its mortgage subsidiary, while <a target="" href="http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=HBC&nav=el">HSBC</a> said its bad-debt costs rose 36 percent, to $10 billon.</p>

<p>It's also not clear what may happen to the housing market as a result of all this financial turmoil. <a target="" href="http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=GS&nav=el">Goldman Sachs</a> estimated that as a result of new, tighter lending standards in the subprime market alone, demand for new homes will fall by 200,000 units this year, 20 percent of last year's volume. And CreditSights, a bond research firm, estimates that as many as 500,000 units could come onto the market as borrowers default and their homes are dumped back on the market.</p>
 
<p>Good stuff irvinerenter. I love how Fed member Susan Bies said "This is just the beginning." Too bad the rest of the Fed members think it won't spread. According to Lansner's article OC is in line with the national average at 18% of the mortgages are subprime and 1 in 5 bought in 2006 were subprime.</p>

<p><a href="http://www.ocregister.com/ocregister/money/article_1614808.php">http://www.ocregister.com/ocregister/money/article_1614808.php</a> </p>

<p>I would say a good guess at the REOs 70% that I have seen are subprime and I think I am being conservative. </p>
 
Is this the precursor to bankruptcy and a large number of local layoffs?


<a href="http://news.moneycentral.msn.com/ticker/article.aspx?Feed=AP&Date=20070312&ID=6598820&Symbol=NEW">New Century Creditors Cut Funding</a>

<p>NEW YORK (AP) - New Century Financial Corp. said Monday all of its lenders have cut funding or announced their intent to halt financing after the subprime mortgage lender failed to make payments, pushing the company further toward bankruptcy.</p>

<p>"The company and its subsidiaries do not have sufficient liquidity to satisfy their outstanding repurchase obligations under the company's existing financing arrangements," New Century said in a filing with the Securities and Exchange Commission.</p>

<script src="http://news.moneycentral.msn.com/relevance/js.asp" type="text/javascript"></script>

<xml src="http://news.moneycentral.msn.com/relevance/relatednews.axd?articleid=6598820" id="RAData"></xml>

<p>New Century, which lends money to prospective home buyers who have poor credit histories, uses short-term borrowings to finance mortgage loan originations and purchases. The company said there is no guarantee it will receive additional financing.</p>

<p>"If the company and its subsidiaries are not able to satisfy their repurchase obligations, one or more of the company's lenders may seek to liquidate the mortgage loans or other assets," New Century said.</p>

<p>The company received letters from Wall Street lenders including Bank of America, Goldman Sachs, Morgan Stanley and Citigroup, among others, alleging events of default.</p>

<p>Last Thursday, New Century said it stopped accepting all new loan applications because it was short on financing. The company faces a slew of investor lawsuits and an investigation by the U.S. Attorney's Office for the Central District of California.</p>

<p>Its stock has been hammered by investors in recent weeks, falling from around $30 a month ago, to close Friday at $3.21 on the New York Stock Exchange. Shares plummeted $1.29, or 40.2 percent, to $1.92, in pre-market trading before trading was halted.</p>
 
<p>IrvineRenter - A dear friend of mine works for NEW in the IS group - I guess he is loosing his job.</p>

<p>I wonder who is the main culprit for this mess. There got to be one. I do not believe the borrow is. I know several people who are loan officers - the Prime ones are kind of so so. The Subprime ones are filthy rich. I was told subprime is where the money is. The subprime LOs are not saying a word about the mess.</p>
 
IrvineMom,





That is too bad about your friend. Before this is all over, everyone in Orange County will be touched either directly or indirectly by the bust.<em>





I wonder who is the main culprit for this mess.</em>





It may take years to figure that one out. None of this would have occurred if Wall Street was not buying the paper. The circumstances and conditions leading to that will be difficult to elucidate.





<em>The Subprime ones are filthy rich. I was told subprime is where the money is. </em>





Doesn't this remind you of the dot.com bubble? Twenty somethings getting billions of Wall Street dollars to create websites with no revenue and no real business plan. Looks pretty similar to me.





<em>The subprime LOs are not saying a word about the mess.</em>





Look for the perma-bulls to fall conspicuously quiet as well.
 
It's the Foreclosures, Stupid!





<a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwzaBwuNaII&refer=home">Foreclosures May Hit 1.5 Million in U.S. Housing Bust</a>





This is a great article. It does such a great job making the bearish case, it could have been pulled from a bubble blog.
 
Add another great article for the day. <a href="http://www.thestreet.com/_tscfoc/newsanalysis/investing/10343814.html">http://www.thestreet.com/_tscfoc/newsanalysis/investing/10343814.html</a> Seven pages of what we already believe and slamming Cramer can it get any better?
 
<a href="http://www.latimes.com/business/la-ed-subprime12mar12,0,7738999.story?coll=la-home-business">Sub-primes prime the housing slump</a>




The LA Times is also reporting on this mess. Notice they now acknowledge this was a bubble.








Easy money fueled the housing boom, but it may also prolong the slump.

March 12, 2007




CALIFORNIA'S HOUSING bubble and housing slump share a root cause: easy money. And the particular category of easy money that sustained the bubble for so long — so-called sub-prime mortgages, which are designed for borrowers with weak credit and little cash on hand — may also prolong the slump.





Generally, sub-prime mortgages carry higher fees and interest rates than prime loans. Often they feature adjustable rates and other options that keep payments low in the first few years of the loan. They make it easier for buyers to break into expensive markets such as Southern California; since 2003, 15% to 25% of the mortgages originated in California have been sub-prime.





But these loans have a dark side: The size of their payments can increase, sometimes steeply. When home prices are on the rise and credit is easily available, such spikes aren't as problematic; if the payments are too much, a homeowner can always refinance or sell (at a profit).





Or at least a homeowner could during the bubble. In a downturn, those options evaporate — and many borrowers default.





In the fourth quarter of 2006, default notices rose to almost 40,000 — their highest level in eight years. The pain could spread if rising defaults beget stricter lending practices and demand for housing slips, driving prices still lower.





Whether the sub-prime mess will initiate such a downward spiral — or infect the real estate market more broadly — remains to be seen.





Freddie Mac, which owns about $184 billion in bonds backed by sub-prime mortgages, recently announced that it was raising qualification requirements for the loans in which it invests. And five federal financial regulatory agencies have urged lenders to better explain the risks of adjustable-rate loans.





Economists from industry groups say the sub-prime crisis doesn't necessarily spell doom. Another view is that the housing market was in need of a correction and that a tightening of credit is just what the broker ordered. Either way, wobbles from large sub-prime lenders — which include Irvine-based New Century Financial Corp. and Santa Monica-based Fremont General Corp. — could put a damper on the local economy.
 
I know so many wholesale mortgage account excutives looking for jobs right now. The good ones (the minority) will find jobs but the bad ones (the majority fraudsters) will be out of luck. I think maybe being an ex-mortgage guy I should do a topic on this. Have you checked out quiggle me? His stories of BNC are spot on and he is holding some info back too. Also have you seen the dicussions on <a href="http://www.ripoffreport.com/reports/ripoff208052.htm">http://www.ripoffreport.com/reports/ripoff208052.htm</a> for quick loan funding?
 
Today the sh*t storm is really pooring down. LEND is down $7.50 a share because they received a $190 million margin call. They are scrambling for liquidity and are essentially in crisis mode. OC has record new home inventory, foreclosures are at the highest in years and dataquick median numbers show price decreases. Countrywide's CEO Angelo Mozilo said that it is going to get worse before it gets better. He is worried that it will affect the rest of the economy. I always knew that this would happen but I didn't think it would be happening so fast.
 
Accredited skidded $7.43, or 65.2 percent, to $3.97, its lowest close ever. New Century, now listed on the Pink Sheets, fell 81.5 cents, or 49.1 percent, to 84.5 cents.
 
<p><a href="http://news.yahoo.com/s/nm/20070314/bs_nm/subprime_california_dc;_ylt=Ah.C2KBOAp1vIj_duiF2iDrMWM0F">http://news.yahoo.com/s/nm/20070314/bs_nm/subprime_california_dc;_ylt=Ah.C2KBOAp1vIj_duiF2iDrMWM0F</a></p>

<p>A nice little tribute to New Century and how it could effect other parts of the economy in OC.</p>

<p>I did a quick check on county records for the amount of NOD's filed so far this month and it is on a rapid increase. I really wish they were set up so I could search the trustees sales. </p>

<p> </p>
 
<p>I know many read the patrick.net news but when it comes from the Economist and everyone should take a look at it.</p>

<p><a href="http://www.economist.com/blogs/freeexchange/2007/03/yes_they_can_go_down_too.cfm">http://www.economist.com/blogs/freeexchange/2007/03/yes_they_can_go_down_too.cfm</a></p>
 
Oh and by the way these same CDOs are what bankrupted OC in 96. Thanks Merrill Lynch. So why is OC doing business with them again?
 
<p>Now I add another patrick.net find to add to the CDO problem.</p>







<a href="http://www.marketwatch.com/news/story/subprime-mortgage-shakeout-cdos-may/story.aspx?guid=%7b620D90CA-3A9E-4A21-9591-E772D59E5CF3%7d&ref=patrick.net&print=true&dist=printTop">http://www.marketwatch.com/news/story/subprime-mortgage-shakeout-cdos-may/story.aspx?guid=%7b620D90CA-3A9E-4A21-9591-E772D59E5CF3%7d&ref=patrick.net&print=true&dist=printTop</a>






 
Dudes....don't worry about the subprimes.....Senator Dodd is coming to save the day. Yes, your government is going to ensure that those poor subprime borrowers can keep their homes....Only in America! The people pay taxes so the Senators can spend it to bail out the financially irresponsible.... Why would anyone act responsible in America?.... I've got to send an email to Senator Dodd about that new Lamborgini I want but I can not afford.... and there is that cute little 4 mil fixer on the coast that I will need subsidized..... and that vacation in the Bahamas I can't afford... and there is that......
 
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