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Subprime Worries

  • #41
  • Mar 20, 2007 9:22pm Mar 20, 2007 9:22pm
Here is what needs to happen....

1st - you regulate home loans, make all of the IO and exotics dissapear
2nd - you lower the interest rate back to < 5%
3rd - you wait for all of the american home owners to refinance into loans that they can afford long term.
4th - you start using the interest rate to regulate inflation again..

our problem is that we cannot raise the rate without bankrupting our middle class homeowner who took all the equity out of there home to buy an escalade and a boat.

Just a suggestion, do you think the Fed will listen to me ?
http://www.forexfactory.com/images/misc/progress.gif
Keep it simple stoopid....
  • #42
  • Mar 20, 2007 9:51pm Mar 20, 2007 9:51pm
Hey smjones,

could you give me a quick overview of the process for assuming a mortgage. i'm just a young guy - but i too love rental property - and i've been thinking along these lines with all this sub-prime talk lately.

thanks for any time you've got.

Quoting smjones
Merlin, this is what I live for. In the late 70s I bought rental houses when the market was just like this and interest rates were thru the roof. I just went in a assumed mtgs at a discount. I did the same thing in 92. And at the end of last year I sold some.

This was pretty obvious it was going to happen 5 years ago when interest rates were in the basement and the banks needed an ever larger pool of buyers. So then comes the less than prime lenders, backed by Wall Street. You know that is a recipe for disaster. Then Wall street investment banks and the like stop funding and the whole thing collapses like a house made of cards... and that is where we are right now... One of the nation's largest subprime lender is just this side of bankuptcy.

an Interesting related article is here
http://www.npr.org/templates/story/s...toryId=7812252
  • #43
  • Mar 22, 2007 2:19pm Mar 22, 2007 2:19pm
from what i've heard the Fed does not see the subprime meltdown as a threat to the economy as a whole.
  • #44
  • Mar 23, 2007 7:39am Mar 23, 2007 7:39am
Quoting merlin
just saw president of quicken loans on CNBC, he confirmed that subprime is spilling into prime. he said around 15% of borrowers that would have been approved pre-subprime-fiasco are now being denied. ouch!

one of my other businesses aside from trading peoples forex accounts is doing mortgages, so i can say this is hitting home for me. it seems over the last few months especially, the people that refinanced with me in the past are obviously in trouble. the way out of this, for those whose credit qualifies, is by getting a COSI loan. it is based off of the weighted average of checking, savings, and CD's rates, that the lender pays their depositors. Its a very simple loan, however high criteria must be met, no higher than 90% LTV. also decent credit is a must. i suppose a lot of americans wont qualify for it, but they should get it if they can. It will also drop their payment considerably. it is a shame what i am seeing with this stuff lately being in the business, almost 10% of Countrywide's loans foreclosed last year, rediculous number. What did they think was going to happen though? Interest only loans and option arms are bad loans. I have also seen a lot of forebearance situations, where the bank call you up when you're 2-4 months late on your mortgage, like they're helping you, and tell you they will make your mortgage current, because they dont want to take the house (because there is NO DEMAND) --get it-- and then when I run these peoples credit, they are still behind, and they have NO IDEA. it is a very awkward conversation that we have to say the least. well i cant say i read this whole thread since i assumed i knew what was in it, but if i repeated anything that has been said or pointed out i apologize. Go get a COSI loan if you qualify, If you're in america I can help you, and if you r behind on your mortgage and the bank calls like superman and offers forebearance, be wary.
  • #45
  • Mar 23, 2007 1:07pm Mar 23, 2007 1:07pm
"existing home sales unexpectedly rose 3.9% in February to an annual rate of 6.69 mln, up from 6.44 mln in January; economists were forecasting a 2.2% drop".

May be a one time event. It sure ain't the bottom. But if economy holds and we leave the good folks over in Baghdad to iron out their "little" differences, then Real Estate, even with the mortgage problems, might take care of itself. Not!!
  • #46
  • Mar 23, 2007 11:24pm Mar 23, 2007 11:24pm
Perhaps the last existing sales was "better" than expected but it doesn't change anything.
Firstly, the supply have increased to 6,7 month from 6,6 in January.
Secondly, and more important, the median price fell for the 7 consecutive months by 2,3% in February.
Therefore, perhaps the numbers of sales have increased, but by scarifying the price. Moreover, with 2,2 million foreclosures forecast this year, the increase by 3,7% of re-sales of single family home (85% of the housing market) is one of the reason of the February increase.

Also, the report released last Tuesday doesn’t paint a better picture since the increase of the Housing Starts just represent a catch-up with the Building Permits, which continue to decrease.
Furthermore, the vision of the professional on the market has fall last month. Builders are struggling to recover after more than a year of slumping sales. They face a surge in default on sub prime mortgages with the rate of delinquencies among sub-prime borrowers was at a four-years high in the fourth quarter.

To sum up, the real estate market is far from getting better or even stabilizing. Anyway, until the price doesn’t pick up, the situation of the mortgage market won’t get better, and with the inventory still at this level, it won’t happen soon. If people have to sell their house at a lower price than before to cover their credit, it only means that the situation is getting worst, not better.
  • #47
  • Mar 24, 2007 4:39pm Mar 24, 2007 4:39pm
Well price dropping is just the thing that is needed to get sales moving. Do you think the reverse would work?

Most of the people who will lose their homes (sub-prime) should have never gotten approved of in the first place.

But I do realise that the bottom will not be anytime soon. I just don't think it is as far off as most believe.
  • #48
  • Mar 26, 2007 3:54am Mar 26, 2007 3:54am
The fear was that the market could dry out. That may not come true. Prices fall as a reaction of excess supply as usually. Prices should fall back to the equilibrium. As for the moment, worst fears may not come true. Fed's policy change will eventually lead to an ease in interest rates that could lead to relieve for Sub A borrowers.

BUT one month number is worth not more than we have seen the market move.

Let's look at the numbers today. After that well have all the housing numbers and can make a comprehensive analysis.

/Juao
  • #49
  • Aug 1, 2007 6:34am Aug 1, 2007 6:34am
hehe, now is happening what you spoke 4 months earlier )
good job
"Abandon all hope, you who enter here" La Divina Commedia, Dante Alighieri
  • #50
  • Edited 11:37am Aug 1, 2007 6:39am | Edited 11:37am
Quoting merlin
this subprime is going to have huge effects. i have been all over this one in the past week. i talked a lot about this at least a year ago...if i could find the thread you would think i was a genius. what is happening is that the people who bought homes who shouldnt have been doing so (cause their credit sucks) start to have their interest rates rise, coupled with the fact that their house is going down in value, this creates a bad situation for the banks. they now have collateral that is not even worth the value of the loan, and the owner cant pay the interest anymore.

anway, this is going to crush the housing market (if money is more expensive, less home buyers, less demand), and we all know the housing market plays a big role in the economy. what happens to all these guys building high rise condos around me?
Since you said that Merlin, it's becoming a reality now...
My FA said the same thing a month ago and moved all his clients' portfolios to money market funds as of July 15. I thought, he was joking at the time, but now I'm not so sure..
  • #51
  • Aug 5, 2007 11:08am Aug 5, 2007 11:08am
reading my posts in this thread is like reading Nostradamus kidding!!

as one of my posts indicates, i was shorting dollar rallies for the past 4 months... but it seems like the panic is hitting a peak here, im starting to feel that the reversal is upon us. though im not ready to exit completely, i wont be selling any more rallies
Relax and be happy.
  • #52
  • Aug 5, 2007 11:25pm Aug 5, 2007 11:25pm
Quoting raczekfx
Since you said that Merlin, it's becoming a reality now...
My FA said the same thing a month ago and moved all his clients' portfolios to money market funds as of July 15. I thought, he was joking at the time, but now I'm not so sure..
The guy looks like a genius after the close of the stock market on August 3rd. Right now aside from treasuries and money market funds the best place to put your money is on right side of several of the moves we are seeing in the Forex market especially buying the EUR/USD and buying the Yen against major currencies. For right now the Yen carry trade is off the table for a lot of Forex market participants.
  • #53
  • Aug 6, 2007 4:59am Aug 6, 2007 4:59am
I know first hand that lenders aren't able to sell their Full Documentaion AAA rated A-paper portfolios.
There is also an article on this at Marketwatch.com that is written on this subject. http://www.marketwatch.com/News/Stor...C120A34C615%7D

It will be interesting to see what happens. I watched my positions change dramaticly in the last hour and half in the New York Session. Just to bounce back when the market opened and now start to collapse again before NY gets underway.

It's been enough for me to evaluate the short term and how I trade risk and how I will hold my positions at least until this market completly breaks down.

Another good source for news from a different angle is financialsense.com

PH
  • #54
  • Aug 6, 2007 8:30am Aug 6, 2007 8:30am
pip_hunter;
My impression is that particularly in the US money is leaving risky/offshore investments, probably to cover losses elsewhere. So you have lots of profit taking going on in things from carry-trades to Shanghai ADR's, and a corresponding drop in US yields (money going into the MMA). At the same time you have more conservative funds that haven't tied their money up in inanities like the CDO's or cleared out of the more volatile investments once they got too hot who are beginning to test the waters in those risky trades that are showing strength, although its too early for them to jump in with both feet. The net result is interesting times....Personally I'm waiting for a bottom in the China ADR's (providing the underlyings don't tank), and I have small long trades in on EUR/USD. and am waiting for a possible long on GBP/USD....Basically it's a good time to be in cash, and wait for opportunities.
  • #55
  • Aug 6, 2007 9:45am Aug 6, 2007 9:45am
well my usd/mxn short from mid march worked out ok, subprime or no where do we go from here ... i dont think ill hold the dollar longer than intraday til year end, and thats tentative at best. the rate cut/no rate cut scenario from the fed is a lose/lose situation imo
  • #56
  • Aug 7, 2007 1:11am Aug 7, 2007 1:11am
I really like this blog and it has nice piccie so I posty

http://bigpicture.typepad.com/photos...graphic550.gif
Trust price. Know yourself.
  • #57
  • Aug 7, 2007 1:45am Aug 7, 2007 1:45am
Quoting SeekingLight
I really like this blog and it has nice piccie so I posty
Nice graphic. Interesting that what is going on now is that all three "potential problems" listed across the bottom are no longer potential, they're real.
  • #58
  • Aug 10, 2007 5:13pm Aug 10, 2007 5:13pm
Quoting merlin
Also at work is the psychological effect that the subprime defaults will have on ALL lenders...real or not, this panic will make all loan classes harder to obtain, which reduces demand for homes because no one can get money. Diate talked about this very issue in an earlier post. Decreasing demand, increasing supply....thats the recipe for sliding prices everywhere in the home sector.

i liken this situation to a market reversal. if everyone is long the market, and we have hard spike down, all the longs get panicked and start to exit, making the selloff much more dramatic than it would have been. we saw this type of scenario with oil earlier this year.

Ah damn. I was about to post "say, didn't you write the same thing about oil last year" after the first paragraph, then read the last paragraph and went DOH!

But see, I remember you and your posts in the oil thread well

Narafa was also along I believe...and Iso, was it? Someone moddy like that.. =)
Trust price. Know yourself.
  • #59
  • Aug 10, 2007 5:29pm Aug 10, 2007 5:29pm
Merlins comments on the current sub-prime issue is accurate. The bubble has officially burst. Look for steeper declines in housing prices. Sub-prime lenders sold millions of ARMs 2 and 3 years ago and now all those loans are up for reset. Monthly mortgage payments for those who are in an ARM will literally increase by a minimum of 15 to 20% overnight now that the initial fixed period on their loan has expired. These buyers won't be able to sell their porperties because they are in an "upside-down" loan (the balance on the loan is higher than the current appraised value of the property).

Even if they sell they will still be left with a balance on the loan that will have to be repaid somehow. They won't even be able to rent because now their rental cost is added to the monthly mortgage payment balance which will bring their overall cost of housing higher than it was before they sold. (As a side note, these buyers will find it will be much more difficult to declare bankruptcy due to more stringent fed regs..... they're headed for a classic catch 22).

The New Century mortgage scare was big news but many smaller lenders had gone out of business even before we had a hint of NC's problems. Look for more of this to happen in the coming year.

What this all means is that we are solidly fixed in a buyer's market. Rates are still very low, prices are declining. For the person who was wondering about the developers currently building new homes and condos, they're basically screwed.... but that's good news for you if you intend to buy. Housing projects currently being constructed are priced out based on the higher cost of materials from 2 years ago and beyond. But in order to move their inventory these developers will be forced to reduce their prices. People who may have reserved a unit may be willing to forfit their deposits and elect to buy from another developer offering distressed prices.

I'm looking at continued decline in housing prices well into next year. Best time to buy in my opinion may be in '08, just before elections. The Fed has a tendency of holding rates until after a major election (November '08). Though home prices may continue to dive well into the beginning of '09, I have little confidence that rates will hold after the elections.
  • #60
  • Aug 12, 2007 9:00am Aug 12, 2007 9:00am
so the consensus here are......

1) bad news are going to keep on coming for the long term ?

2) wall street expected to continue drop (maybe gradually) ?

3) carry trades will be hit for long term ?
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