Herb Greenberg Blog...really scary

NEW -> Contingent Buyer Assistance Program
optimusprime_IHB

optimusprime_IHB

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So it's all nice and dandy that the government is trying to save the subprime knuckleheads...regardless, it's just a prolonged bleed instead of letting every drop dead..anyways..this is a great read and very very scary...





So when will the Government bale out the Prime Alt-A borrowers ?!?!? It's a really good piece worth reading all the way through.





<a href="http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/"></a>

<a title="Permanent Link to Straight Talk on the Mortgage Mess from an Insider" rel="bookmark" href="http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/">Straight Talk on the Mortgage Mess from an Insider</a>

>12:11:23 PM December 6th, 2007 <a title="Permanent Link to Straight Talk on the Mortgage Mess from an Insider" rel="bookmark" href="http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/">Permalink</a> | <a href="http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/#commentslanding">Comments (276)</a>

<p>Even before this mortgage mess started, one person who kept emailing me over and over saying that this is going to get <em>real</em> bad. He kept saying this was beyond sub-prime, beyond low FICO scores, beyond Alt-A and beyond the imagination of most pundits, politicians and the press. When I asked him why somebody from inside the industry would be so emphatically sounding the siren, he said, “Someobody’s got to warn people.”</p>

<p>Since then, I’ve kept up an active dialog with <strong>Mark Hanson</strong>, a 20-year veteran of the mortgage industry, who has spent most of his career in the wholesale and correspondent residential arena — primarily on the West Coast. He lives in the Bay Area. So far he has been pretty much on target as the situation has unfolded. I should point out that, based on his knowledge of the industry, he has been short a number of mortgage-related stocks.</p>

<p>.....</p>




<p><em>One final thought. How can any of this get repaired unless home values stabilize? And how will that happen? In Northern California, a household income of $90,000 per year could legitimately pay the minimum monthly payment on an Option ARM on a million home for the past several years. Most Option ARMs allowed zero to 5% down. Therefore, given the average income of the Bay Area, most families could buy that million dollar home. A home seller had a vast pool of available buyers. </em></p>

<p><em>Now, with all the exotic programs gone, a household income of $175,000 is needed to buy that same home, which is about 10% of the Bay Area households. And, inventories are up 500%. <strong>So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes.</strong> To get housing moving again in Northern California, either all the exotic programs must come back, everyone must get a 100% raise or home prices have to fall 50%. None, except the last sound remotely possible.</em></p>

<p><em>What I am telling you is not speculation. I sold BILLIONs of these very loans over the past five years. I saw the borrowers we considered ‘prime’. I always wondered ‘what WILL happen when these things adjust is values don’t go up 10% per year’.</em></p>

<p> </p>
 
<p>I like to use a lot of words when a few will do. Here's a few.</p>

<p>That nails it. Dead Center.</p>

<p>Tighten those seat belts, this is gonna be (un)fun.</p>
 
This should become boilerplate....



Now, with all the exotic programs gone, a household income of _______ ($) is needed to buy that same home, which is about 10% of the ______ (city) area households. And, inventories are up 500%. So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes. To get housing moving again in _______ (state), either all the exotic programs must come back, everyone must get a 100% raise or home prices have to fall 50%. None, except the last sound remotely possible.
 
<p>"Hi, my name is Mark Hanson. I made a fortune selling loans to people which I knew were unreasonable and then shorted the mortgage companies to make even more money! And know I'm going to talk about it!"</p>

<p>Where would our country be without these productive citizens?</p>
 
<p>Hymm... all I got out of that article is that if you don't have at least 10-20% equity in your home, you're pretty much doomed - unless you have a really good income.</p>

<p>But don't the majority of homeowners has more than 20% equity? For instance, for all the homeowners who bought before 2000, they probably owe (on average) at most 300K. Right now, their property should still be worth (on average) at least 600K. So most homeowners should have at least 50% equity in their home.</p>

<p>So once again, it's only the new owners with little or no equity who will have the biggest problems.</p>
 
<p>Hs_teacher</p>

<p>You apparently missed the second half of the article. People with equity took out second and third loans to prop up consumer lending. We should have had corrections after 1997 Asian Crisis and another after the tech bubble bursted. Neither happened because of the Fed giving out free money and consumers spending like wildfire. In essence, there are three bubbles waiting to burst . </p>

<p> </p>
 
<p>"In its latest quarterly "flow of funds" statistical report, the Federal Reserve calculated that U.S. homeowners' equity accounts totaled $10.9 trillion by mid-2007. That was the net difference between total home mortgage debt ($10.1 trillion) and the total market value of home real estate (about $21 trillion)."</p>

<p>I know plenty of people who have taken equity out of their house. But there are plenty of people who haven't. From the info above, you can see that homeowners, as a whole, have roughly 50% in equity in their home.</p>

<p>I seriously think that the real estate meltdown only affect renters wanting to buy and new (and some old) homeowners with very little equity.</p>

<p>Don't get me wrong, I still think it's definitely a problem.</p>
 
HS_Teacher



Please keep in mind that many homeowners, IMHO, in California are expecting their home to provide them with some sort of retirement piggy bank. If home prices decrease substantially their retirement plans could be altered or delayed.



The negative impact on decreases in housing prices effects all aspects of a local economy and the only benificiary of decreases are those who are sitting on the sideline trying to find a buy-in-point.
 
its not a given that most homeowners have even 10-20% equity. in a random front lawn chitchat with one of my parents neighbors recently, i was surprised to hear him mention a mortgage. he lives in the house with his grandparents who have been there since the late 60s. no doubt they borrowed against the house over the years. nevermind the difference in real dollars, its still crazy to imagine paying off several hundred thousand on something that originally cost a tenth of that.
 
<a href="http://calculatedrisk.blogspot.com/2007/12/fed-existing-household-real-estate.html" linkindex="277" set="yes">Fed: Existing Household Real Estate Assets Decline $67 Billion in Q3</a>







Household equity is at historic lows at 50%, and 33% of households own thier home outright, so the remaining 17% of equity is distributed among the other 66% of households.





<em>"Also note that this percent equity includes all homeowners. Based on the methodology in this <a href="http://calculatedrisk.blogspot.com/2007/11/how-much-cash-is-left-in-home-atm.html" linkindex="281">post</a>, aggregate percent equity for <strong>households with a mortgage</strong> has fallen to 33% from 36% at the end of 2006."</em>





I think it is pretty safe to say right now that all of the 100% financing deals from 2004 onward are underwater and have zero equity. Anyone who bought prior to 2004 and took out money in a refi is also probably underwater, <em>and this is before the real wave of foreclosures and resets drive prices much lower.</em>
 
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