Tanta writes:
The reason I am 100% certain this is a genuine e-mail from a genuine Account Executive is because it reads like it was written by an intoxicated middle-school student.

It must be asses and elbows at Fremont if they couldn't even get some literate weenie at Corporate to write up an e-mail insert for the AEs to use. Experience tells me that this isn't a good sign.
Tanta | 02.12.07 - 2:53 pm | #

kett82 writes:
Dear CR,

I think your blog is great as always, but is there a source for this?


All those red caps...ouch!

Best regards,
kett82 | 02.12.07 - 2:59 pm | #

Cal writes:
Here is the matrix for the western US, as insane as it seems, it sure looks much tighter than it was just a couple short months ago:

http://www.1800fremont.com/whole...s/ WesternRS.pdf
Cal | Homepage | 02.12.07 - 2:59 pm | #

Calculated Risk writes:
kett82, I can't reveal my source, but I have every reason to believe this is a real email - including the red!

Best Wishes.
Calculated Risk | Homepage | 02.12.07 - 3:08 pm | #

MaxedOutMama writes:
Haha, the chatter is that Accredited just announced to its food chain that it is now Alt-A, prime and bridge. Startling, innovative and purely wonderful new loan programs!!!

Is this going to go down in economic history as the Valentine's Day subprime massacre?
MaxedOutMama | Homepage | 02.12.07 - 3:13 pm | #

kett82 writes:
Wow; I’m with Tanta…what an unholy mess: but, I love the line: “tons of capital and reserves….” And how much would “tons” be exactly?

Regards,
kett82 | 02.12.07 - 3:15 pm | #

Tanta writes:
Roses are Red;
Violets are Blue.
Subprime is heading
Right out the wazoo.
Tanta | 02.12.07 - 3:16 pm | #

MaxedOutMama writes:
Cal - quote from Broker Outpost:
"I had a loan with Fremont and their rates went up last week. It went from 6.0 to 6.75 for a 50 Yr in Idaho Full doc 724 Fico. Loan amount is 301,000 and it is 71% LTV. This is the cleanest file ever and a slam dunk.

At 6.75% the loan doesn't make sense. Who has 50 Yr programs with better rates?"
MaxedOutMama | Homepage | 02.12.07 - 3:19 pm | #

ac writes:
Wow, that loan matrix is fascinating. I've never seen one before. The stated income 100% LTV stuff amazes me if I'm interpreting it correctly.

Do they have a matrix or addendum for domesticated animals I wonder? No need to arbitrarily limit your market.

ac | 02.12.07 - 3:21 pm | #

ac writes:
Ah, here we go:

STATED INCOME 2/28 & 3/27 PAR DOMESTICATED ANIMAL

ac | 02.12.07 - 3:22 pm | #

P. Jackson writes:
Thought Tanta and CR in particular would appreciate this.

http://www.housingwire.com/2007/...me-hits-a-wall/
P. Jackson | Homepage | 02.12.07 - 3:32 pm | #

Brian writes:
According to Bloomberg, the following mortgage related names were among the top 10 worst performing credit default swaps today:

(company) (% change in CDS premium)
Countrywide Home Loans Inc +14%
Radian Group Inc (MI) +14%
WaMu (sub debt) +13%
PMI Group +12%
MGIC +11%

The CDS market is usually ahead of the curve in sniffing out trouble.
Brian | 02.12.07 - 3:36 pm | #

Tanta writes:
Oh thank you, P., that's a scream. I hadn't seen the Stumpf thing. The CEO is always the last to know, right?
Tanta | 02.12.07 - 3:36 pm | #

Nikki writes:
Since you're all so tolerant of newbie questions, I've got the first big red sentence down, but can someone kindly expand upon the second, specifically "AA cutbacks" and what the AA program is? Is that Alt-A?
Nikki | Homepage | 02.12.07 - 3:46 pm | #

tj & the bear writes:
...Full doc 724 Fico. Loan amount is 301,000 and it is 71% LTV.

My, my, my... sounds like Prime to me.
tj & the bear | 02.12.07 - 3:48 pm | #

Nikki writes:
If it is Alt-a, no explanation necessary, btw, unless someone feels like expounding!
Nikki | Homepage | 02.12.07 - 3:53 pm | #

dryfly writes:
Personally I have a hard time believing the email.

Well that is if I hadn't lived through dot-bomb and read some of the e-pink slips my buddies sent me... Fear produces a flood of adrenaline & too much 'poisons' the more cognitive parts of the brain... but it makes it so those fingers can sure fly fast on the keyboard!

Does BrokerUniverse or BrokerOutpost have any good dirt on this... 'Independent Verification' so to speak. I saw MOMs note but no links. It should be pretty much 'common knowledge' by now if accurate...

dryfly | 02.12.07 - 3:54 pm | #

MaxedOutMama writes:
Fremont

Never doubt the integrity of CR, our fearless leader. Actually Broker Outpost had it first.
MaxedOutMama | Homepage | 02.12.07 - 3:56 pm | #

Tanta writes:
Nikki, "AA" is Fremont's term for it's "best" product. See the matrix that Cal linked to above.

I would have explained more but Halo is driving me insane.
Tanta | 02.12.07 - 3:57 pm | #

MaxedOutMama writes:
Hope this isn't a dupe, but stated 100s are supposedly a thing of the Fremont past as well. It's not an orderly retreat and no one really knows what is going to go through at this point. See Tanta's comment above.
MaxedOutMama | Homepage | 02.12.07 - 3:58 pm | #

crispy&cole writes:
dryfly-

its all over BO and BU.
crispy&cole | Homepage | 02.12.07 - 3:59 pm | #

Tanta writes:
dryfly, your Broker Universe confirmation:

http://www.brokeruniverse.com/gr.../? thread=360194
Tanta | 02.12.07 - 3:59 pm | #

MaxedOutMama writes:
Dryfly, the havoc on the Street today explains this. The fear of everyone is that the increased costs of covering subs may mean that they are writing loans that they will sell at a loss and will then have to take back later.
MaxedOutMama | Homepage | 02.12.07 - 4:00 pm | #

Tanta writes:
Sorry MOM for reposting the link you posted so that dryfly could be convinced that CR isn't hallucinating based on the testimony of a bunch of mortgage brokers.

I'm going to have another Percocet.
Tanta | 02.12.07 - 4:02 pm | #

Nikki writes:
Thanks Tanta!
Nikki | Homepage | 02.12.07 - 4:03 pm | #

vader writes:
"Subprime funder Lenders Direct Capital Corp., Lake Forest, Calif., has closed its wholesale division, citing a lack of "investor demand" and the "current state" of the subprime industry. A notice was posted on the lender's website on Feb. 8. An executive who competed against LDCC said that at one point the firm was funding up to $200 million a month. As of MortgageWire's deadline, company chief executive Mike McQuiggan could not be reached for comment. LDCC is just another in what is turning out to be a long line of subprime firms -- many based in California -- that are either shutting down or closing their wholesale platforms."

from http://www.brokeruniverse.com/
vader | 02.12.07 - 4:03 pm | #

Calculated Risk writes:
Cal, thanks for that rate sheet. The problems have clearly moved beyond just subprime.

There is some academic research that shows the leading causes of defaults are 1) little or no equity in the housing and 2) trigger events (divorce, lost jobs, medical issues, etc.). Right now the increase in defaults is clearly because of no equity - and this is leading to tighter standards - and falling prices - and more people with no equity. A vicious cycle.

dryfly, it is real (and is many other places now).

Best to all.
Calculated Risk | Homepage | 02.12.07 - 4:04 pm | #

dryfly writes:
This is so exciting - kinda dotbomb like in a 2001 kinda way.

You suppose Mortgage Brokers got nice chairs? I missed out on the dotbomb liquidation.

dryfly | 02.12.07 - 4:05 pm | #

dryfly writes:
Hey tanta - I never suggested CR was hallucinating - it just smelled like a 'set up' & wondered if there was confirmation.

But I suppose that would assume RE bulls can think (as opposed to just 'BODACIOUSLY charge').

dryfly | 02.12.07 - 4:09 pm | #

dryfly writes:
Hey tanta - I never suggested CR was hallucinating - it just smelled like a 'set up' & wondered if there was confirmation.

But I suppose that would assume RE bulls can think (as opposed to just 'BODACIOUSLY charge').

dryfly | 02.12.07 - 4:09 pm | #

vader writes:
Brings a tear to my eye after so many years.

Still the main event is still a ways off. That's when this spills over into the prime. After all life's little troubles happens to the primes and if RE declines below their equity or jobs stop and we get our recession, then things get real bad.

I'll save the popcorn.
vader | 02.12.07 - 4:11 pm | #

Tanta writes:
OK, guys, Fremont's "AA" product isn't exactly "prime." Not when you can (per the matrix) do a 100% LTV stated income $800,000 loan at a 620 FICO. That would make it "Alt-A," or perhaps "Alt-A Minus."

I assume that the changes that are "coming" per the e-mail will be to tighten up stuff like that.
Tanta | 02.12.07 - 4:18 pm | #

mp writes:
dryfly- "You suppose Mortgage Brokers got nice chairs?"

You and I must be joined at the hip. I bought some Steelcase office equipment last week from the liquidation of a mortgage outfit near here. Really nice stuff, some of it still in boxes.

I love creative destruction, as long as it's not me being destroyed. Someone has to clear the streets of economic roadkill.
mp | 02.12.07 - 4:19 pm | #

vader writes:
US multi-national companies are still employing a growing global workforce for the benefit of US consumers through cross-border wage arbitrage and US dollar hegemony, which permits a fiat currency of the world's most indebted nation to retain the privileged status of reserve currency. The adverse effect of this type of globalization on the US economy is becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a credit bubble centered on Housing that thrives on conspicuous consumption and fraudulent accounting.

http://www.rgemonitor.com/blog/ s...16#readcomments
vader | 02.12.07 - 4:20 pm | #

Cal writes:
Actually the rate sheet is dated 2/6/07, I wonder if its actually out of date just a week later (wouldn't surprise me with last weeks blowup)?

On Countrywide wholesale channel, you ask for stand alone seconds and you get the following PDF:

http://www.cwbc.com/PdfFiles/WLD...C% 20Seconds.pdf

But I dont know how long they have been out of that business I havent been following their rate sheets that closely.

Just google "rate sheets" and you can usually see what is going on in the market.
Cal | Homepage | 02.12.07 - 4:23 pm | #

dryfly writes:
OK, guys, Fremont's "AA" product isn't exactly "prime." Not when you can (per the matrix) do a 100% LTV stated income $800,000 loan at a 620 FICO. That would make it "Alt-A," or perhaps "Alt-A Minus."

Ya I was thinking the same thing. Even tj's poke at this:

...Full doc 724 Fico. Loan amount is 301,000 and it is 71% LTV.

No DTI given. Think Idaho, rural, low wages. But now with all the Cali spec money bubbling in... who knows what they got? $300K mortgage at 70% LTV... $420K used to buy you a small ranch not too long ago.

That sucker is 'prime' in the same way a $hit Twinkie tastes like a real twinkie.

dryfly | 02.12.07 - 4:27 pm | #

Robert Coté writes:
Anbody see any resemblance between the following list and lending standards?

Brahman - priest
Kshatriya - ruler, warrior, landowner
Vaishya - merchants
Shudra - artisans, agriculturalists
Harijan - untouchables

Bad news is that everybody has been demoted at least one notch and that's my point. Everyone is still hoping the sub-prime meltdown doesn't infect the general market. I'm here to point out that sub-prime is an arbitrary and changeable category. When most places call everything above a FICO 720 prime there's no real value to making distinctions. I'm still fuming that we 800+ aren't getting anything better than the 600s get. The spread compression is obscene at both ends.
Robert Coté | Homepage | 02.12.07 - 4:29 pm | #

ft lauderdale writes:
Tanta, loved the poem, I can believe the email pretty easily, I do find the "our comepetitors will be doing it soon" comment interesting...

moving from popcorn to raisinettes, less sodium.
ft lauderdale | 02.12.07 - 4:35 pm | #

dryfly writes:
Housing that thrives on conspicuous consumption and fraudulent accounting.

Ya but vader, Dave Chiang is also the same guy over there who constantly rails against the calls for RMB revaluation because it might hurt some poor Chinese peasants.

There ain't no easy out for anyone. It's chicken on a real narrow road... got the deep ditches on either side or the head on - make your choice.

dryfly | 02.12.07 - 4:35 pm | #

dryfly writes:
So Rob't - everyone moves down a notch eh? What happens to the 'untouchables' in this analogy? Reincarnation into 'fast food' maybe?

dryfly | 02.12.07 - 4:38 pm | #

Tanta writes:
I'm still fuming that we 800+ aren't getting anything better than the 600s get.

Yeah, Robert, but you see that that is the sad fact of mortgage lending. A 660 FICO borrower will pay me back. An 850 FICO borrower will also pay me back. I don't get anything better from the 850 customer than paid back. Your FICO is not my yield.

Here's the thing: the actual differences in default probability between a 660 FICO and an 850 FICO, all other things being equal, is very small. From a sheer credit risk-return of principal with contractual interest perspective, you're the same risk in a big enough portfolio.

If we're talking profitability, instead of risk, of course, the 660 FICO will be my pick. Why? Because you 850 people will refi for an eighth, you won't pay points or big fees, and you have no loyalty to me as a lender--you will strictly go for the best deal. That is how you racked up that 850 to begin with. I admire you; I respect you; I might even try to emulate you, personally. But as a lender, frankly, you aren't my fave customer.
Tanta | 02.12.07 - 4:40 pm | #

johnsocal writes:
The email time doesn't make sense. Isn't Fremont Investment & Loan offices located in California (pacific standard time)?

Unless the email time shows a different time zone...I don't get it.

It's currently 1:40pm PST.
johnsocal | 02.12.07 - 4:45 pm | #

mp writes:
Here's Caroline Baum: "Banks That Took Greenspan's Advice Pay The Price"

http://www.bloomberg.com/apps/ ne...id=aMEfUsHA556w

God, I love it when things go right.
mp | 02.12.07 - 4:45 pm | #

Tanta writes:
johnsocal, Fremont, like every other national lender, has Account Executives all over the country.
Tanta | 02.12.07 - 4:47 pm | #

vader writes:
No easy way out to be sure.

The article was more meant to be an example of the complexity or the issue than a moral statement.
vader | 02.12.07 - 4:48 pm | #

Turbo writes:
Financial meltdowns always start somewhere on the periphery, and then take another couple quarters of continuing bad news to cause system wide stress. It takes a lot of clubbing over the head to remove all the bullish sentiment (think Nasdaq 2000), but rapidly tightening credit and record supply will likely make for a poor spring home selling season, which will likely allow this to expand beyond the subprime sector. That being said, credit spreads outside of subprime had a brief hiccup last week, but are right back down near their record lows again today. Like I said, a lot of clubbing over the head...
Turbo | 02.12.07 - 4:49 pm | #

Cal writes:
http://ccbn.10kwizard.com/xml/do...0362& format=PDF

NFI 8-k for loan funding for January, it will be terrible fascinating comparing this one with next months release. I bet we see a huge difference on that last page.
Cal | Homepage | 02.12.07 - 4:53 pm | #

dryfly writes:
The article was more meant to be an example of the complexity or the issue than a moral statement.

I realize - I recognized the comment IMMEDIATELY as DC's work, we've sparred a few times. Kinda like we used to with Java over at UEIT.

I think he is right in many ways, most ways actually... except one major way in that he thinks the unwind isn't going to hurt China too. And that China doesn't need to, should or will revalue the RMB much anytime soon.

I think he's wrong & in a big way. The longer the reval is put off the worse it will hurt both countries. JMHO.

But you are right - he was right on that post.

dryfly | 02.12.07 - 4:55 pm | #

Cal writes:
http://yahoo.reuters.com/news/ar...omktNews& rpc=44

"The report by Moody's Investors Service about "prime" loans came amid mounting concern about "subprime" borrowers, who have weaker credit histories. Investors worry that as home price appreciation slows, people will have more difficulty refinancing adjustable-rate loans as rates reset higher. "

"Moody's said delinquencies of 60 days or more on securitized prime "jumbo" mortgage loans rose to 0.323 percent in November, the highest in 2006."
Cal | Homepage | 02.12.07 - 5:03 pm | #

kett82 writes:
Dear dryfly,

China's overall trade surplus for 2006 was 177.47 billion...how much longer can they go?

http://news.bbc.co.uk/2/hi/busin...ess/ 6353183.stm
kett82 | 02.12.07 - 5:09 pm | #

tj & the bear writes:
That sucker is 'prime' in the same way a $hit Twinkie tastes like a real twinkie.

LOL! I just meant to say that the loan looked nearly bulletproof by recent standards. That's the point, isn't it -- that a lot of sub-prime has been passed off as prime?
tj & the bear | 02.12.07 - 5:10 pm | #

Nikki writes:
I think this post will set a record for comments...
Nikki | 02.12.07 - 5:15 pm | #

dryfly writes:
kett - every time somebody has said China can't grow bigger or faster they have. What people don't understand is just how much of it is due to currency sterilization IN CHINA and the carry trade back here to maintain dollar strength. De facto manipulation on a scale that is as effective as if it were a formal peg.

The Fed isn't holding up the dollar, China is.

Now, when that stops, THEN that trade surplus story gets interesting. Even at low wage rates it doesn't really 'pay' to ship cheap stuff to us.

I've been directly involved with this story for over a decade now - meeting Asians tomorrow to discuss 'mutual' opportunities - everyone knows much of this is unsustainable... yet it marches on.

You have an opinion? I am all ears to anyones guess as to how it ends, when & resultant fall out. I have skin in the game.

dryfly | 02.12.07 - 5:19 pm | #

John Doe writes:
Dryfly said

That sucker is 'prime' in the same way a $hit Twinkie tastes like a real twinkie.

Oh, man... I about laughed a twinkie myself when I read that. Sometimes something just tickles my funny bone...

John Doe
John Doe | Homepage | 02.12.07 - 5:22 pm | #

Kirk Spencer writes:
A bit late to the party, but...

My first thought on reading this was, "Wonder if they'll wait till next Monday for a Bank Holiday?
Kirk Spencer | Homepage | 02.12.07 - 5:23 pm | #

vader writes:
I don't know when the end will come, but I have music picked out.


Music for Financial Collapse
vader | 02.12.07 - 5:35 pm | #

kett82 writes:
Dryfly,

Many economists indicate that it (i.e., Chinese trade surplus) can go on for a lot longer.

My opinion is that it will change when the Chinese have a political reason for wanting a change.

So watch what is happening there…but the interesting thing to me is that the U.S. won’t have much say in the matter.

Regards,
kett82 | 02.12.07 - 5:40 pm | #

frank writes:
I am not sure Fremont's e-mail list was very long given they terminated agreements with 8,000 mortgage brokers two weeks ago.

http://yahoo.reuters.com/news/ar...omktNews& rpc=44
frank | 02.12.07 - 5:43 pm | #

dryfly writes:
I agree kett. Hopefully vader will have better music picked out by then - something soothing & not likely to get folks all lined up & agitated like a Leni Riefenstahl documentary.

;)

dryfly | 02.12.07 - 5:45 pm | #

Kirk Spencer writes:
You have an opinion? I am all ears to anyones guess as to how it ends, when & resultant fall out. I have skin in the game.

Last week I'd have told you no earlier than 3Q this year, and I'd have been more comfortable predicting next year. Now...

We have now had two "brown-stained pants" letters from the financial industry. (This and the one from Coastal.) The letters from HSBC and NEW were suggestions that KMB (Kimberly-Clark, maker of Depends) might be a good investment opportunity.

China can sustain its side of the imbalance only as long as we can sustain the consumer side. And even before the tech stock, the MEW was pumping China's side back into the consumer pockets. The China-US balance has been kept by both sides just running faster. This is a stumble. Not a fall, not yet, but certainly an opportunity.

But it is a stumble. Worse, it's a stumble based on the longwinded statement I opened with. Let me use short words and phrases to better show what may be going through their minds.

Fear.

Bank Run.

Bank Closing.

I've studied enough to know that inn the cases of a LOT of bank closings, had the patrons been patient and not desparate to pull their accounts many of the closings might have been avoided. But once that whiff of urine hits the air, all bets are off. The executive that penned the "IMMEDIATELY" email that kicked off this flurry would have served everyone better if he'd have put a "later" clause - "Tomorrow", maybe - in there. As it is...

China's willingness to run faster has been based on the assumption that the US consumer is in tandem - and that the spigots through which the liquidity flowed would stay open. They may decide it's still OK. If so, we're back to next year earliest.

If not, no later than March.
Kirk Spencer | Homepage | 02.12.07 - 5:45 pm | #

MaxedOutMama writes:
Very funny, Vader.
MaxedOutMama | Homepage | 02.12.07 - 5:46 pm | #

AllenM writes:
I vote for Mozart's Requiem- but give it some time- I bet we have at least a year more of tapdancing through the graveyard before real poop impacts the rotating blades.

I note that some sterling silverware my b-i-l needs to sell has been going like hotcakes on fleabay...demand is sky high by the nervous folks.
AllenM | 02.12.07 - 5:46 pm | #

eprobert writes:
Seems like this is great news for Fremont, but really, really bad news for CA 1st-time buyers...

Since fully 40% of FTBs in CA (see CAR PR a few days back)pay absolutely no down payment, doesn't this kind of move effectively put them out of the market?

So 40% of FTB don't get loans. Since FTBs made up about 30% of CA purchases in 06, you've just eliminated about, what, 12% of prospective buyers?

Incidentally, I was a post-grad intern in SF the summer of '01, and this looks, sounds and feels a LOT like the implosion back then.

Instead of checking fuckedcompany every day for news on my friends' employers (and my own though I was so far down the totem pole there was no risk) I find myself checking CR every day for the latest subprime lender to go belly-up.

So what happens to all the mom&pop strip-mall mortgage offices on every intersection in LA?

Will they just disappear, and those shops revert to donut shops or Starbucks?

Unfortunately they don't seem to have a penchant for buying expensive laptops and Aeron chairs.

Definitely interesting times.
eprobert | 02.12.07 - 6:00 pm | #

Tanta writes:
Wagner? Mozart? What a bunch of UberNerds y'all are.

I've had Talking Heads on since about 3:30.

Burning down the house
Tanta | 02.12.07 - 6:17 pm | #

Calculated Risk writes:
Tanta, I lean more towards Steely Dan's Black Friday:

When Black Friday comes
I'll stand down by the door
And catch the grey men when they
Dive from the fourteenth floor
When Black Friday comes
I'll collect everything I'm owed
And before my friends find out
I'll be on the road
When Black Friday falls you know it's got to be
Don't let it fall on me

Best to all.
Calculated Risk | Homepage | 02.12.07 - 6:23 pm | #

REBear writes:
another newbie question ...
What's the effect of 2nd mortgage elimination on MEW?
REBear | 02.12.07 - 6:28 pm | #

--Andrew writes:
dryfly, I just hope that whatever happens in the U.S. trade deficit unwinding, that it is gradual. I think the last thing we need is a protectionistic backlash (on either side) that cuts off trade. I seem to recall that a trade backlash just like that was an aggrevating factor in the Great Depression.

Oh, and what do folks think about the 1812 Overture for a theme? Nicely grandiose and explosive.
--Andrew | 02.12.07 - 6:29 pm | #

vader writes:
Let's remember how things collapsed in the old days, prior to WWII. Unregulated banks failed, sometimes by stupidity, sometimes by greed and sometimes by both.

The depositors and holders of paper were SOL. There were runs on banks, loss of confidence and panics.

Sooo our financial fathers regulated the banks, but money being what it is, escaped to new and unregulated 'banks' they take deposits in and lend money out. Just not called 'banks', 'deposits' or 'loans'. The function is the same.

So while the local bank may not close, 'banks' will.

If so, it 'could' affect the China affect by reducing consumption and by taking more liquidity out of the system than the imbalance of trade with China can adjust for. Some bloggers have alleged that the liquidity provided by China cannot account for all the liquidity in the system. So the effect of the sub prime could be the triggering event.


'Requiem' is for the guy in the casket, not for the guy popping the corn and trying to stay awake while the flames climb higher.
vader | 02.12.07 - 6:30 pm | #

jim a writes:
Re CRs comment:
There is some academic research that shows the leading causes of defaults are 1) little or no equity in the housing and 2) trigger events (divorce, lost jobs, medical issues, etc.).
Traditionaly, both of those had to be true to cause foreclosure. 1.) is equivalent to "can you sell?" and 2.) is equivalent to "can you make the mortgage?" The problem is that with the prevalance of option ARMs, teaser rates, and even regular ARMs at the lowest mortgage rates in a lifetime, there are a high percentage of mortgages that are programmed to self destruct. The FBs don't need any exogenous events (job loss, health problems etc) for them to be unable to make their mortgage payments. Many of them simply could never afford to pay the interest on their mortgages. But people were blinded by the the incredible magic equity machine that lowered defaults to historic lows.
jim a | 02.12.07 - 6:34 pm | #

vader writes:
When you were young and your heart was an open book
You used to say life and let life
(you know you did, you know you did you know you did)
But in this ever changing world in which we live in
Makes you give in and cry
Say live and let die
Live and let die
Live and let die
Live and let die

What does it matter to ya
When you got a job to do
You gotta do it well
You gotta give the other fellow hell

http://www.lyricsfreak.com/p/ pau...e_20105856.html
vader | 02.12.07 - 6:34 pm | #

ReadingNLearning writes:
I think the sad part of all this is that unlike some past boom / bust cycles in which the next boom cycle was inherent in the previous bust -- both through the cleansing / culling-the-herd of the sick and maimed part of the bust that left more fodder for the nimble and quick, but also through the accumlated over-investment in infrastructure, innovation, communication structure, and all hard and soft productivity improvements that were still around to support the new boom cycle. Think the over-hyped Y2K scare and all the over-investment in top-to-bottom IT infrastructure paid for on company credit cards. No doubt that had a little to do with the over-heated tech / internet boom, that and IT people gambling crazily in the market not a little because they were suddenly getting paid outrageous, normally unjustified $$ to anyone who could spell "computer". But after the bust it also was there to fuel the next phase of productivity -- both in equipment and personel. This CarryTrade, RE-lending standards-be-damned MEW and conspicuously-moronic-consumption fueled boom / bust seems destined to lay the groundwork for only one thing -- bigger, fatter landfills. Oh, and more decrepit abandoned slums.
ReadingNLearning | 02.12.07 - 6:34 pm | #

Tanta writes:
EEEEWWWW, Vader, Paul McCartney cooties. Yuck.

REBear, this particular elimination of seconds (Fremont's) is mostly a purchase-money second problem. Not that free-standing (post-purchase) HELs and HELOCs aren't tightening, I'm sure they are. But as has been noted here, Fremont's kind of move is what will do away with the first-time homebuyers and specu-vestors.
Tanta | 02.12.07 - 6:38 pm | #

jim a writes:
To heck with the disclosure forms, these self-destruct loans should come with a large, glowing-red digital readout showing time to reset, just like bombs in the movies.
jim a | 02.12.07 - 6:41 pm | #

--Andrew writes:
Jeez Tanta, Talking Heads - Burning Down the House. Going modern on us? ;-) The classicals always seemed to have the edge in sheer ominousness for me and have a long standing place in modern geek culture. For example, "Thus spake Zarathustra" worked wonders in "2001: A Space Odessey." However, if we're looking for modern how about Oingo-Boingo's "Dead Man's Party"?

------

I'm all dressed up with nowhere to go
Walkin' with a dead man over my shoulder

Waiting for an invitation to arrive
Goin' to a party where no one's still alive

CHORUS
I was struck by lighting
Walkin' down the street
I was hit by something last night in my sleep
It's a dead man's party
Who could ask for more
Everybody's comin', leave your body at the door
Leave your body and soul at the door . . .
(Don't run away it's only me)

All dressed up with nowhere to go
Walkin' with a dead man
Waitin' for an invitation to arrive
With a dead man . . . Dead Man . . .

Got my best suit and my tie
Shiny silver dollar on either eye
I hear the chauffeur comin' to the door
Says there's room for maybe just one more . . .

CHORUS

Don't run away it's only me
Don't be afraid of what you can't see
Don't run away it's only me . . .
--Andrew | 02.12.07 - 6:42 pm | #

REBear writes:
thanks Tanta!
REBear | 02.12.07 - 6:46 pm | #

crispy&cole writes:
ResMae news? I am getting a $hit load of hits on my blog with a google "ResMae filed BK"

Anyone see anything out there?
crispy&cole | 02.12.07 - 7:01 pm | #

dryfly writes:
All these tunes & no one suggests
Warren Zevon?

Lawyers, Guns and Money Lyrics
Written By Warren Zevon
c. 1978 Zevon Music/BMI

I went home with the waitress
The way I always do
How was I to know
She was with the
Russians, too?

I was gambling in Havana
I took a little risk
Send lawyers, guns and money
Dad, get me out of this hyeah

I'm the innocent bystander
Somehow I got stuck
Between the rock
and a hard place
And I'm down on my luck
Yes I'm down on my luck
Well I'm down on my luck

I'm hiding in Honduras
I'm a desperate man
Send lawyers, guns and money
The shit has hit the fan

dryfly | 02.12.07 - 7:09 pm | #

Calculated Risk writes:
crispy&cole, I thought Credit Suisse was buying ResMae?

Credit Suisse is also in discussions to buy a subprime mortgage originator. The bank said last week it had signed an option agreement for the right to buy ResMae Financial, a subprime mortgage originator and lender.

Maybe that deal just collapsed? I haven't heard anything ...

Best Wishes.
Calculated Risk | Homepage | 02.12.07 - 7:13 pm | #

crispy&cole writes:
I went to Brokers Universe and somone posted that they filed BK.I don't see anything else - so that could be what the hits are from.

The deal was not completed and expired on Friday...
crispy&cole | Homepage | 02.12.07 - 7:17 pm | #

dr strangemoney writes:
BERNANKE: You smell that? Do you smell that? Ink, son. Nothing else in the world smells like that. I love the smell of ink in the morning.
dr strangemoney | Homepage | 02.12.07 - 7:19 pm | #

jim a writes:
Gee dryfly, if we're going with Zevon, I'd suggest Seminole Bingo
I'm a junk bond king
And I'm on the run
Me and a friend of mine
We were headed for the sunshine
I got my hands on the wheel
I got gas in the tank
I got a suitcase full of money
From a Luxembourg bank
We didn't stop 'til we got to Big Cypress
Wandered in to the Legion Hall
The sign outside said "Seminole Bingo"
Fell in love with the ping pong balls
And the SEC is far behind
Down in the swamp with the gators and flamingos
A long way from Liechtenstein
I'm a junk bond king playing Seminole Bingo
And my Wall Street wiles
Don't help me even slightly
'Cause I never have the numbers
And I'm losing nightly
I cashed in the last of my Triple B bonds
Bought a double-wide on the Tamiami Trail
I parked it right outside the reservation
Fifteen minutes from the Collier County Jail
And the SEC is far behind
Down in the swamp with the gators and flamingos
A long way from Liechtenstein
I'm a junk bond king playing Seminole Bingo
Well, the SEC is far behind
Down in the swamp with the gators and flamingos
A long way from Liechtenstein
I'm a junk bond king playing Seminole Bingo

jim a | 02.12.07 - 7:34 pm | #

crispy&cole writes:
Deadline Expires on CS-ResMae Talks, But…

An option agreement that allowed Credit Suisse to conduct due diligence on subprime wholesaler ResMae Mortgage of Brea, Calif., expired Feb. 9, but talks are continuing between the two companies

http://www.nationalmortgagenews.com/
crispy&cole | 02.12.07 - 7:41 pm | #

TGN writes:
CR and all the Regulars

Thank you! I am an old man (depression baby) with a lot of young friends in their mid twenties. You have been my first line of defense in keeping them out of trouble with toxic paper. They owe you! I just had to tell you how much you and your regulars are appreciated.
TGN | 02.12.07 - 7:42 pm | #

Alo writes:
I think revisiting the 80s on this is more suitable - A few verses from Big Audio Dynamite's The Bottom Line:

The horses are on the track

Theres a new dance that`s going around
When the hits start flying you gotta get down
All the young people dance round the square
That old time groove is really nowhere

When you reach the bottom line
The only thing to do is climb
Pick yourself up of the floor
Don`t know what you`re waiting for

A dance to the tune of economic decline
Is when you do the bottom line
Nagging questions always remain
Why did it happen and who was to blame?

When you reach the bottom line
The only thing to do is climb
Pick yourself up of the floor
Don`t know what you`re waiting for

They`ve been doing it down at the zoo
And I can show ya heres what to do
All of the States and over UK
Even the Soviets are swinging away

When you reach the bottom line
The only thing to do is climb
Pick yourself up of the floor
Don`t know what you`re waiting for

The road aheads` clear as a motorway
Give us this day our daily bread and send us on our way
Perchance to dream or take a holiday
Romeo oh Romeo
You gotta have your say

So when you reach the bottom line
The only thing to do is climb
Pick yourself up off the floor
Anything you want is yours
Alo | 02.12.07 - 8:03 pm | #

dr strangemoney writes:
Tringali's property auction to test waters
http://www.heraldtribune.com/app...INESS/ 702120396
John O'Neill, the chief executive of Century Bank in Sarasota, agreed. "If a bank is going to take that kind of a bath, it might just as well sit on the property for a while."

Does Coast Bank even have "a while"?
dr strangemoney | Homepage | 02.12.07 - 8:24 pm | #

Dman writes:
Somebody once said that, "Liquidity is a coward. It will run and hide at the first sign of trouble".

Let see if he was right...
Dman | 02.12.07 - 8:48 pm | #

Brian writes:
As if there was any doubt:

"More than 70 percent of early payment defaults can be linked to a significant misrepresentation on the original loan application, according to a new study released today by BasePoint Analytics.

The study concluded that loans containing egregious misrepresentations were up to five times more likely to default in the first six months than loans that did not; more importantly, the study concluded that predictive models could be deployed early in the loan process to help lenders predict which loans were likely to default within the first six months, enabling the loans to be rejected pre-funding."


http://www.housingwire.com/2007/...inked-to-fraud/
Brian | 02.12.07 - 8:50 pm | #

Producer writes:
"Maybe that deal just collapsed? I haven't heard anything ..."

Resmae apparently filed a Chapter 11 sub section that gives them 21 days of creditor protection to complete the sale. I have not verified this so this is just rumour at this point.
Producer | 02.12.07 - 9:03 pm | #

Robert Coté writes:
Tanta,
Good points explaining the compression of the top of the lending curve. One expanision however, I don't have an 850. That's stupid. I've got tens of thousands floating on credit cards. Some 0%, some 1.2% even a little at an usurious 2.9 freakin' percent! The nice peeps at BoA "mysteriously" didn't get the last payment on time. For whatever reason that was enough to send me from 0% to 23.9%. Yeah right. As if. Happens from time to time, costs me dozens of dollars, the horror. Also costs BofA yet another 800+ customer in their stable. When you are in the business of lending money you do -want- lots of captive clients with 660s and with no options but you -need- a few 800s to fluff your portfolio. Comes the crunch we fluffers are gonna expect to be paid for the endorsement of your book.
Robert Coté | Homepage | 02.12.07 - 9:04 pm | #

Kevin writes:
Merrill Loaded for Bear in Mortgage Market That Humiliated HSBC


Merrill Lynch & Co. Chief Executive Officer Stanley O'Neal was willing to lose $230 million to catch Bear Stearns Cos. and the shakeout is just beginning.

That's because Merrill is determined to capture a dominant share of trading in bonds backed by home loans, the fastest- growing debt market since 1995 and this year's most troubled. O'Neal's enthusiasm for mortgages to potentially delinquent borrowers coincides with the highest default rate in more than six years, a record contraction in demand for so-called subprime loans and descending bond prices.

http://www.bloomberg.com/apps/ne...qgzo& refer=home

No guts no glory, or catching the falling knife.
Kevin | 02.12.07 - 9:07 pm | #

Idaho_Spud writes:
I vote for "Crazy Train" by Ozzy Osbourne ;)
Idaho_Spud | 02.12.07 - 9:14 pm | #

Brian writes:
Cracks appear in the NYC residential market. Brokers have been peddling the story that NYC would escape real estate problems because supply was so constrained here.

http://www.crainsny.com/

"Foreclosure filings soar in boroughs...filings tabulated by Profiles Publications show that 100 homes in both Brooklyn & Queens are entering the foreclosure process each week - double the numbers of a year ago...'the last time I saw it this bad was in the early 1990s' says Jessica Davis"

Meanwhile, the seeds of the next real estate debacle are being sown in the commercial market.

-Also from Crains

"'The people making deals in this market aren't dotting every i or crossing every t,' says Scott Latham an executive director at Cushman & Wakefield...concern is growing within the industry that in the race to submit winning bids, too many potential buyers are conducting only cursory due diligence. In addition, many successful bidders are paying far more interest on their mortgages than they are generating in income from their buildings...'The only way these deals work is if there is sustained rent growth, if that doesn't happen, there will be issues.' says Robert Verrone, MD at Wachovia

Here's the best part - this is what passes for risk management at Wachovia:

"To protect itself, Wachovia requires that borrowers put several months worth of mortgage payments in escrow"

As if that is going to make any difference if cap rates go from 3-4% where they are now to something north of the cost of capital, about 6% now. It will take a while to unravel, but the credit mistakes are being made in real time.
Brian | 02.12.07 - 9:25 pm | #

Max writes:
I'm as big an Oingo Boing fan as the next guy, but this whole thing reminds me of a song by Midnight Oil:

Feeding Frenzy

Well I am as old as the hills
And young as the day
And nobody sees things
In quite the same way
Computers and shovels
Churches and brothels
Maniquins and skeletons
Cities and dustbowls

Here we go, here we go again
Hear the clamour of the feeding pen
New day, new way
All my friends can say, they say

We got cyclone fences
In a cybernetic orchard
Miracle drugs, yeah
We gotta discount bulk purchase
Sacred in a forest
Fast food in the kiosk
Cardboard dinners
And the saints and the sinners

I don't wanna run and hide
I've seen it all from either side
Truth and fiction must collide some day

God knows
God knows
God knows
It's been fun

A sweet sensation
The oldest temptation
Now throughout the ages
We've been all turning all those pages
Now each generation
Gotta choose a new location
Gotta reach out
Gotta sync up
Gotta buid out
Gotta get up
To a stronger foundation
I say, I say it again
Max | Homepage | 02.12.07 - 9:25 pm | #

dr strangemoney writes:
Brian: The interesting part of that story is thinking about the contrast between the effectiveness of what BasePoint is doing with their fraud analytics compared to any solution "engineered" by regulators. +1 Market, -1 Government. Market plays aggressive. Maybe too aggressive to avoid a major catastrophe? I wonder how much "government sponsored" has retarded evolution in this market? Everything else evolved to handle larger scale throughput while a big part of it is still riding on nothing but an amorphous promise. Glad I'm not responsible for this system (although I guess I'll end up paying for it). It appears to have some major weak points.
dr strangemoney | Homepage | 02.12.07 - 9:38 pm | #

mort_fin writes:
You guys all have the wrong musical era

To the tune of "Brother can you spare a dime"

They used to tell me I was buying a dream
And so I followed the mob.
When there was earth to plow or guns to bear,
I was always there, right on the job.
They used to tell me I was buying a dream
With peace and glory ahead --
Why should I be standing in line, just waiting for bread?

Once I bought a condo, before it was done,
Builder raced against time.
Once I bought a condo, it'll never be done --
Brother, you know I bought it subprime

Once I bought a tower, up to the sun,
brick and rivet and lime.
Once I bought a tower, back then it was fun --
Brother, you know I bought it subprime
mort_fin | 02.12.07 - 9:45 pm | #

Gumby writes:
Life in the Fastlane

Eagles

"doctor says he's comin'"

"but you've gotta pay in cash"
Gumby | 02.12.07 - 10:06 pm | #

winjr writes:
"more importantly, the study concluded that predictive models could be deployed early in the loan process to help lenders predict which loans were likely to default within the first six months, enabling the loans to be rejected pre-funding."

I have a better idea. Have Jack Bauer interrogate every prospective mortgagor.

"WHERE IS YOUR W-2?!?! If you don't tell me what I want to know, pension funds will DIE!!"
winjr | 02.12.07 - 10:21 pm | #

ac writes:
This has been a interesting week.

So let me make a point I know I've made before, but I think is becoming more relevant.

Recessions are not about looming economic problems, because those can be dealt with.

Recessions are about looming economic problems that everybody ceremoniously ignores... until it's no longer possible.

Before they called them "recessions" or "depressions", they called them "panics".

I think the latter term captures the essence of the phenomenon.

Recessions really aren't about economic problems. Recessions are about economic problems that everybody ignores until it's too late.

ac | 02.12.07 - 10:34 pm | #

frank writes:
I have alway favored Jackson Browne and I think he couldn't have foreseen this any better...

"Say a prayer for the Pretender"
frank | 02.12.07 - 10:35 pm | #

Calculated Risk writes:
ac, I'm interested in hearing Bernanke's testimony this week. I know he will say the economy is strong and inflation is still a concern. But I'm mostly interested in his comments regarding housing.

If he claims that the "housing problems are mostly behind us" and that "mortgage problems are isolated to subprime", well, then I'll be very concerned. That will sound like an economic problem being ignored until it is too late.

Best Wishes.
Calculated Risk | Homepage | 02.12.07 - 10:38 pm | #

MaxedOutMama writes:
Hotel California!!!! You can check in, but you can't check out.

Admit it, that's appropos. AND I'M the hundredth commenter!
MaxedOutMama | Homepage | 02.12.07 - 11:01 pm | #

MaxedOutMama writes:
ac - recessions are also about economic problems that no one can properly quantify. Once the unknown problem can't be ignored, an efficient adjustment is impossible so you get an overcorrection.
MaxedOutMama | Homepage | 02.12.07 - 11:03 pm | #

ac writes:
ac, I'm interested in hearing Bernanke's testimony this week. I know he will say the economy is strong and inflation is still a concern. But I'm mostly interested in his comments regarding housing.

I think Bernanke is a really sharp guy. I think he knows exactly what's going on. But I think the political environment he's beholden to greatly limits his actions and public statments.

It seems that the Fed put a great deal of effort in trying to understand Japan's mistakes when confronting a(n) (arguably) similar situation. Maybe the Fed is starting to understand why these circumstances are so difficult to deal with.

And longer term I think he can rely on Greenspan as a scapegoat for any serious economic problems.

Personally, I hope he takes a hardline stance on the mortgage industry: "we'll provide liquidity, but not capital".

Maybe I'm too fiscally conservative, but I look at Japan right now and feel that they're the only sober "post-crash" economy out there (forget their staggering national debt and demographic problems for the moment).

Maybe I'm naieve, but I want to live in a nation where people take on debt because they know it will result in productivity gains that more than compensate for the interest, and pay a premium for equities that embody unprecedented work ethics and innovation.

*SIGH* We can all still dream, can't we?

ac | 02.12.07 - 11:03 pm | #

MaxedOutMama writes:
Yikes. ABX HE
MaxedOutMama | Homepage | 02.12.07 - 11:13 pm | #

Kirk Spencer writes:
I should note that I was being a bit hyperbolic in my fear-bank closings post. On the other hand, we're entering the realm of politics, and in politics perceptions matter.

I suspect the real question is how much of the general public notices the near-panic among the financial institutions. Most folk don't read or watch the financial news, which is both good and bad. For the good, they're not going to be seeing all the shifting sand. For the bad, it means they're not able to differentiate between safe and dangerous sand -- it's shifting means it's bad, period.

If USA Today (as an example) runs a couple of articles phrased wrong, we'll see the panic. Phrased wrong? Simplify for the public, "Of the top ten sub-prime lenders, over half are closing their doors or announcing massive and unexpected losses." Don't forget that sensationalism sells. Add another article about Coastal - and maybe mention that Merril Lynch keeps having its name tied to these surprisingly bad loan problems, and you get a lot of people wondering about THEIR bank.

I was a teenager in the 70s, so I'm barely old enough to remember the S&L mess -- from the view point of an ignorant consumer confronted with a "your money may not be as safe as you think" message. It caused my family to decide we'd better pull money from our S&L account before it was "too late". Just in case, of course - we left the minimum plus a bit in there to keep it open. We even got most of that out when it was all said and done. (if you can't see the irony in there, look again.)

I don't think we're at the tipping point yet. On the other hand, I'm beginning to think the reason we're not is that the weight on the wrong side of the balance just hasn't been exposed. And if that's the case, the question is really whether everybody involved has enough smoke and mirrors in stock to confuse the public.
Kirk Spencer | Homepage | 02.12.07 - 11:22 pm | #

producer writes:
"I've had Talking Heads on since about 3:30.

Burning down the house"

Newfound respect, rock on Tanta,
producer | 02.12.07 - 11:25 pm | #

Geoff writes:
the best part of waking up, is in no way Foldgers in your cup.
Geoff | 02.12.07 - 11:28 pm | #

Geoff writes:
btw, that chart is scary MOM. Perhaps it was just a coincidence today that I looked over on the MUNI and some fool was reading "The Tipping Point"
Geoff | 02.12.07 - 11:29 pm | #

MaxedOutMama writes:
Or maybe it was no coincidence at all, Geoff.

The weakness has reached all the way through to the top tranches now. I heard that some dealers sat down in the middle of the fray today.

Regarding Kirk's point on public perception, heck, there are plenty of articles still being written about the stabilizing housing market. The average person has no clue right now.
MaxedOutMama | Homepage | 02.12.07 - 11:43 pm | #

arbogast writes:
Please excuse the bad language, but wtf is ABX HE?

I can see it's a basket of mortgage-backed securities maturing in 2046, but who in the name of [BLANK] owns this stuff?

For example, does TIAA own it?
arbogast | 02.12.07 - 11:45 pm | #

arbogast writes:
There is exactly one reason why Bernanke and his troops jawbone about inflation all the time:

the dollar

And the worst part is that it's not working very well any more.
arbogast | 02.12.07 - 11:48 pm | #

arbogast writes:
And don't think Japan, think Argentina.

Recall that no matter who's currency Argentina's debt was in, the country went belly-up when its currency went worthless.

The dollar is just under about the most intolerable pressure imaginable right now.

And a run on the dollar wouldn't be pretty.
arbogast | 02.12.07 - 11:50 pm | #

MaxedOutMama writes:
Of course, when the average person finds out there could be consequences.:
NBC 10 News has confirmed that four people are dead and one person is in critical condition after a shooting on the grounds of the old Philadelphia Naval Shipyard.
...
The preliminary information that we're getting is … there was a board meeting. This male, who we believe is the shooter, was actually inside this meeting…
...
Police believe it was an investment firm.
MaxedOutMama | Homepage | 02.12.07 - 11:51 pm | #

AJH writes:
Rather than lyrics, I'll suggest poetry. It's a bit creepy, and I hope too extreme, but it does capture my unease about the current situations.

Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.
Surely some revelation is at hand;
Surely the Second Coming is at hand.
The Second Coming! Hardly are those words out
When a vast image out of "Spiritus Mundi"
Troubles my sight: somewhere in sands of the desert
A shape with lion body and the head of a man,
A gaze blank and pitiless as the sun,
Is moving its slow thighs, while all about it
Reel shadows of the indignant desert birds.
The darkness drops again; but now I know
That twenty centuries of stony sleep
Were vexed to nightmare by a rocking cradle,
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?

-- William Butler Yeats, "The Second Coming"
AJH | 02.13.07 - 12:01 am | #

Mozo Maz writes:
Yes. Poetry. How about Haiku?

Subprime hired so many
Trumpeting the new era
Now the waves of pink slips
Mozo Maz | 02.13.07 - 12:40 am | #

dryfly writes:
This has been a interesting week.

And its only MONDAY!

dryfly | 02.13.07 - 12:42 am | #

vicjim writes:
On a more boring topic just looked at a lot of the GS Housing conference on video. Key points:

1. Housing prices more important than employment for defaults.

2. Oversupply could be higher than it seems. If tighter financing reduces home ownership rate by 1% it is worth 1 million units.

3 Pricing of forwards on Case-Shiller imply they are looking at 6% total price drops in the next 3 years.
vicjim | 02.13.07 - 1:15 am | #

tj & the bear writes:
On the other hand, I'm beginning to think the reason we're not is that the weight on the wrong side of the balance just hasn't been exposed.

You got it. DC & Wall Street are pushing Goldilocks because they know psychology is everything. The minute J6P knows the truth it's game over.
tj & the bear | 02.13.07 - 1:17 am | #

Calculated Risk writes:
vicjim, I mentioned this earlier, but research shows the top factor correlated with defaults is the amount of equity (actually lack of equity) in the home, not LTV, FICO score, unemployment or other factors.

So when GS says "Housing prices more important than employment for defaults" this really means as equity disappears, defaults rise - even if employment is solid. Since so many people used 100%+ financing over the last few years, and prices will most likely fall in '07, equity will go negative and defaults will soar (something we are already seeing).

This will put more downward pressure on housing prices - and lead to more defaults - and then more pressure on prices - and more defaults - a vicious cycle in the housing market.

Best Wishes.
Calculated Risk | Homepage | 02.13.07 - 1:47 am | #

rubyfan writes:
Regarding those ABX-HE thingys and those scary graphs that are going almost vertically down... I'm no expert, but as I understand it those are mortgage backed securities and they're kind of like bonds (am I right?) and generally you wouldn't expect the principal value of them to go down so steeply. Basically, it means that the markets are losing confidence in these things. Initially it was just the lower rated ones (BBB) but now it seems to be spreading upwards to the higher rated ones (A, AA, AAA) and that's really what seems to be scaring a lot of folks.

My Song suggestion "Murder in the Bighouse" by Chagall Guevara:

When did you last look up in the sky?
really look at the sky and wonder?
used to be you could see forever
now there's cracks in the canvas we're under

This is the sound of the rooftop coming down
this ain't a murder mystery
this is the sound of the four walls falling in
this is the stench of recent history

This house is crumbling
this property's condemned
this house is crumbling
who'll say the last amen?

All of us Neros fanning ourselves
damp with the sweat of regret
just killing time with our eyes to the skies
waiting on science our savior
rubyfan | 02.13.07 - 2:11 am | #

Jokko writes:
Bear Stearns had a conference call today that -- quite shockingly! -- concluded that the two month 10+% drop in ABX-HE-BBB- 06 was completely irrational and that for the really saavy investor, now is a really great time to buy in (more!) on a bargain.
Jokko | 02.13.07 - 2:20 am | #

Jim writes:
Gads, CR. 1:47 AM and still posting? This story must be bigger than I realize.
Jim | Homepage | 02.13.07 - 2:25 am | #

yogurt writes:
Since FTBs made up about 30% of CA purchases in 06, you've just eliminated about, what, 12% of prospective buyers?

And pretty well 100% of net buyers. Think about it.
yogurt | Homepage | 02.13.07 - 2:44 am | #

DeAnna writes:
As a lurker here, you are scaring the #&*@ off me, but I think you have the wrong genre:

"Soylent Green is people!"
DeAnna | 02.13.07 - 2:52 am | #

Cal writes:
http://www.iian.ibeam.com/events.../gold006/21502/

Goldman Sachs Housing conference, insanely interesting.

Listen to the Chief Economist, not just because he hass a funny accent and says "bugbear" a lot. The charts he shows are just really great. To summarize, the worst of the rate of change for new housing is behind us, the worst of the resale market stuff is ahead of us, and the worst of the RE related employment dropoff (shown in a suspiciously CR looking chart) is ahead of us.

The most interesting, to me, was the one charting Price/Income ratio versus inverted mortgage rates to give a percentage of overvalue. So many times something is left out of the equation, I thought that chart had it all. Here is a link to it:

http://img125.imageshack.us/ img1...08056181oc7.gif

I briefly listened to the ABX index stuff, I definitely need to go back and digest it some more as the guy was relating the drop in the ABX index with a % drop in Home Price Appreciation (HPA).

And the 3 mortgage finance guys are just infuriating, don't drink anything while listening to those guys, because whatever you are drinking will end up on the monitor.

I'm off to listen to the "Trends in Credit Quality" part, that should be good.


6 hours of housing goodness!
Cal | 02.13.07 - 3:00 am | #

Incognitus writes:
Bear in mind that those BBB- tiers stand a good chance of being worth 0 (zero). It's not like BBB- bonds where even if they default they got some kind of recovery.

The way CDOs are structured, the difference between a BBB- being worth 100% and being worth 0 is the difference between, like, a default rate of 5% and a default rate of 7%.
Incognitus | Homepage | 02.13.07 - 6:24 am | #

Vader writes:
Favorite quote of the day

In general, whilst equity is the riskiest investment, the mezzanine tranches are generally the least attractive risk adjusted investment.
Wiki CDO

But I have a question, granted the BBBs and such will not get returns on their investment, what about recovery from any foreclosures?
Vader | 02.13.07 - 6:46 am | #

realist writes:
Resmae files Chapter 11;

http://home.businesswire.com/por...571& newsLang=en
realist | 02.13.07 - 6:52 am | #

Incognitus writes:
"But I have a question, granted the BBBs and such will not get returns on their investment, what about recovery from any foreclosures?"

It goes like this: once losses start eating into the BBB- tier, a small increase in loss wipes out the entire tier.

Foreclosures, etc, just go into calculating the loss. Recovery from them is relevant to the BBB- tier only if you're eating into it already. But these tiers are slim, which means that the difference between getting back all principal and getting back nothing is very small.

It's weird that such a thing would be rated BBB-.
Incognitus | Homepage | 02.13.07 - 6:56 am | #

Tanta writes:
So I got up this morning and, in honor of CR, fished out the old Steely Dan CD. For some reason I don't listen to Steely Dan often enough. In any case, it just goes to prove that in certain market environments, nearly anything is relevant. There I am, reading Incognitus's dry take on those brilliantly-structured CDOs, while the voice in the background is singing:

Your everlasting summer
You can see it fading fast
So you grab a piece of something
That you think is gonna last
You wouldn't know a diamond
If you held it in your hand
The things you think are precious
I can't understand

As for all those BODACIOUS structured security math wizards who have been telling us they're a genuis since they were seventeen . . . are you reelin' in the years?

producer, if you're impressed by my hopelessly "seasoned," extremely oddly "distributed" taste in music--one day it's Bizet, the next day it's the Beach Boys--then, my dear, you are . . . unique.
Tanta | 02.13.07 - 8:15 am | #

Alo writes:
"GEEKS!" shouted significant other yesterday when I explained we were posting song lyrics portending economy on CR. This outburst from someone who knows from cylons and stargates ... be flattered. Thanks for a very informative thread, with soundtrack.
Alo | 02.13.07 - 8:16 am | #

arbogast writes:
Bizet, ah, Bizet...

Bizet is my hero.

One good thing could come out of what's going on right now. Isn't it just a trifle harder to spend a ton of money on bombs when the financial markets are collapsing? I sure hope so.
arbogast | 02.13.07 - 8:18 am | #

Lama writes:
CR,
You listed as one of the two top reasons for default "trigger events (divorce, lost jobs, medical issues, etc.)"
Do you think it's reasonable to now view mortgage payment or rate resets as trigger events?
Lama | 02.13.07 - 8:24 am | #

Tanta writes:
Lord, mort_fin, that was good. I almost lost your half-pennyworth of bread in all our intolerable deal of sack.

I would to God thou and I knew where a commodity of good names were to be bought.

I Henry IV is almost as good a source of wisdom as Steely Dan . . .
Tanta | 02.13.07 - 8:51 am | #

arbogast writes:
The euro is making a very big up move today before the US markets open.
arbogast | 02.13.07 - 9:02 am | #

Nikki writes:
Do tightening standards mean we'll likely see mortgage apps trending upwards as people have to apply multiple times?
Nikki | Homepage | 02.13.07 - 9:19 am | #

Brian writes:
Here's the ResMae news:

"Feb. 13 (Bloomberg) -- ResMae Mortgage Corp., a U.S. home
lender to people with bad credit, said it filed for bankruptcy
protection and agreed to sell some of its assets to Switzerland's
Credit Suisse Group.
ResMae Chief Executive Officer Ed Resendez said in a
statement today that the company's offices will remain ``open as
usual'' during the sale process. Credit Suisse will provide a
credit line and operating funds enabling Brea, California-based
ResMae to stay in business, he said.
``Our customers should see no disruption in our service and
delivery commitments,'' he said. ResMae is closely held. Credit
Suisse, based in Zurich, is Switzerland's second-biggest bank.
The asset sale to Credit Suisse is subject to bankruptcy
court approval, ResMae said in the statement. Terms weren't
disclosed.
ResMae is owned in part by a joint venture of Thomas H. Lee
Partners LP, the Boston-based buyout firm, and Putnam
Investments."
Brian | 02.13.07 - 9:29 am | #

Tanta writes:
Do you think it's reasonable to now view mortgage payment or rate resets as trigger events?

Hey! I'll butt in and answer a question I wasn't asked . . .

Lama, to call an ARM reset a "trigger event" is, at some level, to concede too much ground to those who have been granting credit like utter bozos over the last few years. You know an ARM is going to reset, that's why it's an ARM. You know, with perfect certainty, that it will reset up if the start rate is discounted and the current index is 1.00 and the margin is 2.50 and the first adjustment cap is 2.00 and so on. I mean, this isn't like trying to predict recession or something hard like that. Nor is it like the probability of any given borrower losing his job, getting left by his wife, or coming down with Parkinson's disease. But, since those things--bad things in general--can happen to people, when you underwrite a mortgage loan you don't throw in extra "unexpected circumstances" like mystery ARM adjustments that nobody could see coming.

Ditto for housing values. At a certain point, you can see it coming by reading those appraisals. The borrower generally can't, but we used to consider it our responsibility to set the poor things straight with our more informed perspective.

So, yes, ARM resets are sending a bunch of loans into default. But if we are to learn anything useful from this debacle, we will insist that those are features, not bugs.
Tanta | 02.13.07 - 10:02 am | #

Alan Greenspend writes:
What a FUN thread! But I do get sad thinking about the aftermath for the chronically unfortunate. My lyric contribution, 1983 X "The New World"

"honest to goodness the bars werent open this morning they must have been voting for a new president of something do you have a quarter?" i said yes because i did honest to goodness the tears have been falling all over the countrys face it was better before before they voted for whats his name this is suppose to be the new world flint ford auto mobil alabama windshield wiper buffalo new york gary indiana don't forget the motor city baltimore and d.c. now all we need is don't forget the motor city this was suppose to be the new world all we need is money just give us what you can spare twenty or thirty pounds of potatoes or twenty of thirty beers a turkey on thanks giving like alms for the poor all we need are the necessities and more it was better before they voted for what his name this is suppose to be the new world don't forget the motor city this was suppose to be the new world"
Alan Greenspend | Homepage | 02.13.07 - 10:18 am | #

Tanta writes:
So Credit Suisse is the next entrant into the "good clean company going to go in and clean up a subprime operation" school of hard knocks. And people who decide they will make a fortune snapping up some rat-infested row house, slapping on a few coats of paint, and flipping it to a real "investor" are considered, at least at this point in the wind-down, a mite bit naive.

They will never, ever, learn. This has been going on for many, many, years. Lenders are attracted to subprime not because they have some Mother Theresa complex about helping the poor, self-justifications to the side. They see "big fees" and "fat margins" and "captive consumers." The business is sufficiently slimy, even in the best of times, that it tends to attract more slugs than salts-of-the-earth.

Then, periodically, it blows up, subprime companies become a "real bargain," and those Mother Theresas at outfits like CSFB who are, of course, in it for big fees, fat margins, and captive consumers, are going to go in there and "clean house."

I just got done listening to some birdbrain "professor" on Bloomberg TV nattering on about how subprime companies are a great value play right now. So please forgive me. I promise to go back to rock 'n roll.
Tanta | 02.13.07 - 10:29 am | #

Lama writes:
Thanks Tanta. You're the best. Got time for another question?
I have a friend who redevelops RE in Boston. He just sold a two family for $520k that would have sold a year ago for $550. My friend did all the necessary things to sell it as two separate units. The buyer sold both units one day after he purchased it for $100k profit each unit.
This sounds like some kind of fraud. The part I don't get is; who is willing to be the final purchaser? Are the scam artists using others' identities?
Lama | 02.13.07 - 10:31 am | #

michaelcampion writes:
WOW!!! this was quite a run, love you all...
michaelcampion | 02.13.07 - 10:42 am | #

GOBIG writes:
The email is legit. Check out this week’s matrix. It specifically says that they do not offer "piggyback loans" (when last week they did. Also, their rates jumped considerably compared to last week. See http://www.1800fremont.com/whole...s/ WesternRS.pdf

THANKS CR!!!!!
GOBIG | 02.13.07 - 10:43 am | #

REBear writes:
GOBIG,
Do you remember seeing so many blue boxes before?
REBear | 02.13.07 - 10:59 am | #

GOBIG writes:
Same number of blue boxes as last week. Financing went up almost 1/2% on almost everything. We'll see what changes happen next week.
GOBIG | 02.13.07 - 11:04 am | #

MaxedOutMama writes:
Nikki, regarding your question on mortgage apps, I don't know. Most people do pre-quals before actually submitting the application so they might not go through with it if they get a qualification at a lower value, etc. Also, there is some sampling bias, so the roars and laments emanating from various threads on broker forums about "no doable loans any more" may not show up in the official app stats.

But it certainly, definitely means that pending sales and contingent sales contracts will close at lower rates than last year. Contracts are signed before financing almost always, so there will be a big crimp in conversions. Another aspect of the credit tightening that accounts for more dropping out of escrow is a much tighter scrutiny of appraisals. All of these developments, as Tanta can testify, are merely a return to more standard lending practices.
MaxedOutMama | Homepage | 02.13.07 - 11:08 am | #

GOBIG writes:
It's just outside 2nds that they are mostly elimating. 2nds lose when homes go to aution.
GOBIG | 02.13.07 - 11:09 am | #

Tanta writes:
Lama, it is indeed some sort of fraud. Even if the final purchaser is paying cash, and therefore has no lender to notice the problem, few non-criminal-money-laundering cash buyers will buy without an appraisal, and at the least you have a fraudulent appraisal here.

Could be what we call a "straw buyer," could be a money-launderer, could be the original buyer's shell company's shell company playing "move the asset," could be, I suppose, some poor naive slob who thinks that the time and money involved in "de-duplexing" into two separate parcels of real property is worth $100,000 a pop and failed to notice that the property passed through an extra set of hands first. But since the seller of the property knows it's not worth that, and the seller of the property is required to disclose all relevant facts about the property prior to signing the sales contract--the fact that the "seller" did not own the property at the time the contract was executed is a relevant fact--it's fraud even if the final buyer is just a nitwit.
Tanta | 02.13.07 - 11:29 am | #

Gayla writes:
No doubt (in my humble opinion) that's a real email. What I don't get is why the reality of the housing industry is not common knowledge? You don't exactly read about bank closings in USA Today? I've got a brainwashed husband that thinks it is a fabulous time to buy a house...all the 'experts' say so!!! For the record, I'm listening to Sheryl Crow, Everyday is a Winding Road...
Gayla | 02.13.07 - 11:31 am | #

MaxedOutMama writes:
Another whack for Coast bank - The Tringali/Husani implosion:
Now a group of Tringali's banks, which includes Bank of America and Bradenton's Coast Bank, are forcing Tringali to hold a public sale on Feb. 15 at the Sarasota Bradenton International Convention Center.
...
Anson predicts that Tringali's 253-acre spread in East Manatee will fetch no more than $1.5 million, or $6,000 per acre.
...
For the bank to recoup its losses, Anson believes the property will have to be sold for $19,525 per acre.
MaxedOutMama | Homepage | 02.13.07 - 11:32 am | #

cccactii writes:
Continuing to enjoy the commentary and after enduring too many puts going to put heaven, suddenly I have some serious winners in sub-prime. I own puts on some bigger banks for crash protection but I have a small position in Ambac (ABK). I am of the opinion that this outfit has some very serious risk, and the stock, much like the sub prime stocks a short time ago, has no risk priced into it. What do you all think of Ambacs position in this mess. My thesis is that public pensions and bonds are at much greater risk than current pricing. I have Jan paper and am only concerned that I am once again too early. Timing matters in this case. Thanks.
cccactii | 02.13.07 - 11:40 am | #

Tanta writes:
OK, MOM, you're going to have to 'splain this one to me, because I have apparently gone so far down the road of the funny windings that I no longer grasp fairly simple concepts.

"This auction is probably a trial balloon for them -- a way to begin negotiating prices and determining whether there are home builders or developers out there who are willing to take the risk."

A troubled bank. Is going to force a borrower. Into a. Public. Auction. When the public. Price. Is disastrous. The bank. Will withdraw. So that it. And the rest. Of. The. World. Knows. How. F***ed. It. Is.

And this is, um, smart because why?

I was smoking with the boys upstairs
When I heard about the whole affair
I said oh no
William and Mary won't do
Tanta | 02.13.07 - 11:56 am | #

tj & the bear writes:
Tanta,

Yes, ARM adjustments are expected, however the FBs thought rising equity would bail them out. They had no expectation of losing "their" house when the adjustment did come. [The idiot lenders knew they could not afford the adjusted rate but did not give a damn, of course.] So, would that not qualify as a triggerring event as Lama suggested?
tj & the bear | 02.13.07 - 11:56 am | #

Lama writes:
My friend called his lawyer as soon as he learned of the re-sale. He just bought it, renovated, got the variance to convert the units and sold them together. His lawyer said my friend had no reason for concern as he wasn't involved.
I cannot figure out who would actually be the final "straw" buyer. Wouldn't that person be in some trouble at some point? Are they using identity theft?
Lama | 02.13.07 - 11:59 am | #

Lama writes:
Tanta,
You're not going to start billing us for all this info, are you?
Lama | 02.13.07 - 12:00 pm | #

Brian writes:
WSJ picks up on the Fremont email:

"General Corp. (FMT), a sizable subprime mortgage lender, has stopped
providing "piggyback" second mortgages that are frequently used by financially
stretched borrowers seeking to finance 100% of a home's price, according to
emails received this week by mortgage brokers.
Officials of Fremont, based in Santa Monica, Calif., couldn't immediately be
reached for comment."

I heard from a guy on an MBS desk this morning that seconds are being quoted as low as 6 cents on the dollar. It's a stampede out of this paper.
Brian | 02.13.07 - 12:01 pm | #

Tanta writes:
I am billing you, Lama. You have to keep laughing at my jokes and keep my mind off a certain other problem I have. As long as you do that, I'm ahead.
Tanta | 02.13.07 - 12:09 pm | #

Tanta writes:
tj, it's probably just a semantics thing. When I hear people discuss "triggering events," I generally take that to mean some event extrinsic to the transaction, outside of the reasonable probabilities that could have been calculated for the loan when it was made. Nobody that I know of does blood tests on borrowers to see if they're developing deadly diseases. That, in other words, is what the insurers call "an act of God."

It makes exactly jack difference what the borrowers thought. Until the day I let you underwrite your own loan, the estimates of what is likely to happen that matter are mine.

Yes, of course the appropriate response is that these "Alt" lenders let the borrowers underwrite their own loans. Predictable results. But that's my point: it was, indeed, predictable. The fact that the lenders were smoking their own dope is immaterial.
Tanta | 02.13.07 - 12:15 pm | #

Lama writes:
I make apheresis donations whenever I can (not bad for a conservative).
The laughs come naturally.
Lama | 02.13.07 - 12:17 pm | #

Tanta writes:
I hope the next time I need a transfusion I get yours. I can see me waking up in the recovery room, suddenly fluent in French and able to calculate PV without an HP, and seeing the surgeon having to sit down before he faints . . .
Tanta | 02.13.07 - 12:25 pm | #

Lama writes:
And think of how sarcastic you'd be.
I just hope I don't drag down the IQ too much.
Lama | 02.13.07 - 12:27 pm | #

dc1000 writes:
i just got back from a building community committee meeting in dc. what i saw was shocking. we received a presentation from the dc economic chamber blahblah or something or other where they told us on power point after power point about all the development projects coming in DC proper between now and 2020.

basically there are plans to build another downtown dc's worth of office space, plus another silver spring, plus another rosslyn - all inside DC.

something like 59 million sqft.

then another 75k housing units.

all marketed to the hip condo buyer of course.

myself and (ironically enough) a serious old timer were sitting there laughing to ourselves that this all is a giant train wreck happening in slow motion.

no one seems to grasp what's driving all this crap.

and yet there are billions and billions and billions and billions and billions of supposedly 'smart' money pouring into these spec projects.

spec!

the new stadium is 50% complete and the office and retail buildings being built around it have no tenants. none!

it'll be a good time to design and build but a helluva a time do own and lease.

could be a great time to start a retail business in 5-7 years when you can get retail space for 10/ft instead of the 75/ft they are charging now.

amazing
dc1000 | 02.13.07 - 12:33 pm | #

MaxedOutMama writes:
Brian wrote:
"I heard from a guy on an MBS desk this morning that seconds are being quoted as low as 6 cents on the dollar. It's a stampede out of this paper."

Yeah - but wasn't this inevitable once the extent of HSBC's problems became public? Their seconds were their big problem. Short sales or foreclosure + sloppy appraisal review + seconds = losses over 50%, and in some parts of CA & FL, they are running around 90%.

Now there are a lot of banks with seconds in the form of HELOCs, and I expect life to get quite interesting there. The "purchase money HELOC" is a recent vintage item which I think will not age well under the circs.
MaxedOutMama | Homepage | 02.13.07 - 12:35 pm | #

Tanta writes:
Somebody didn't get the .06 on the dollar memo:

I have a client who is buying a luxury townhome in Wisconsin. His is buying it straight from the builder with no realtor involved for $260,000. He is buying it 100% on an 80/20. After closing we need a lender who would allow him to use the appraised value of $340,000 to pull a HELOC to 95 or 100% of that value. He is stated and has a 760mid score. Please let me know if you have any ideas or lenders that you know of that would allow this. Thanks!

http://www.brokeruniverse.com/gr.../? thread=360468
Tanta | 02.13.07 - 1:33 pm | #

HZ writes:
Tanta,
Agree that subprime REITs are just a way for the street to farm out the risk and reap the fee income. What do you think of subprime depositary institutions like Fremont?
HZ | 02.13.07 - 1:44 pm | #

AllenM writes:
Okay guys, 6 cents is not cheap enough! I bid 10 mills- got it!
Oh wait, just shuffled most of my retirement cash to Japan- bye bye dollar. Stoopid tips never