Monday, September 17, 2007

Common Cents

Now, I thought this (in the IJ no less) just doesn't happen in Marin because we are all so financially savvy and wealthy:
Marc Savoy, a San Francisco mortgage consultant and real estate attorney who also is a former resident of Mill Valley, says for the past five years, the 5-year, interest-only loan was the most popular loan written. In other words, for the past five years, the most popular financing vehicle for property purchase in the North Bay was a loan that remained stable at a low interest rate for the first few years - typically three or five - and on which no principal was paid. At the end of the three or five years, however, the loan is "recast" to include payments that reflect (a) some of the as-yet-unpaid principal, and (b) today's higher interest rates.

When loans are recast, people find their monthly payments are suddenly much higher. These folks cannot refinance because the credit markets have tightened to a stranglehold, and they can't sell because there are few buyers who can obtain the nonconforming loan (or who have the whopping down payment) that's needed for most properties in Marin.
Cry me a friggin' river already. No one forced them to take out a suicide loan for their Marin POSs.

But no worries. If you can't sell your Marin POS now that your rates are resetting and you're still asking bubblicious pricing that, deep down inside, you just know is your God-given entitlement by virtue of being so damn special, then Christopher Thornberg has the answer for you:
Many home sellers, bogged down in a housing downturn, are now doing the only thing they can to sell, dropping prices. Only this time, the sagging market often means taking a loss if the home was bought in 2005 or 2006. Christopher Thornberg, the former UCLA Anderson Forecast economist who predicted the 'housing bubble' since 2002, said that sellers' only hope is to "price to sell."

"You want to get out of the market," he said. "There’s no point in holding out if you want to get out before the next three years."
'Lower the price'?! Now who would have ever thought of that? What a novel concept!

But I guess someone better explain said concept to this sorry Mill Valley seller as their POS still hasn't sold and has been on the market for nearly two years (despite what the misleading DOM says... 131 days). You have got to wonder how long the listing agent is willing to spend money on advertising this pig before they force the seller to admit that their flip flopped long ago and they ought to just face the fact and drop the price to where it needs to be to sell.

On second thought, I think the seller of the above mentioned POS serves as a valuable warning to our community -- "don't let this be you".


Blogger Lisa said...

I wonder if we'll see the time when most people will wish the bubble had never happened. A combination of traditional standards AND historically low interest rates over the last few years would have placed people in homes they could actually afford, with a nice low interest rate, and money to burn probably.

Instead, we have a nation of debt zombies who bought "more house" because rates were so low and then proceeded to "liberate their equity."

Owning a home can be a wonderful thing, and it can be a safety net when you need one, but not if you've stretched to buy it and certainly not with suicide financing.

Sep 18, 2007, 9:11:00 AM  
Blogger sf jack said...

Hey - the IJ finally gets religion!

And people thought I was joking when I began calling this place the "Alt-A Bay Area".

I wish Chris Thornberg gave an interview every single day.

Sep 18, 2007, 11:35:00 AM  
Blogger Holland said...

Marin Heat Index is 0.33 today. Will the rate cut help the RE industry? We shall see.

Sep 18, 2007, 3:11:00 PM  
Blogger Lisa said...

Wow, I'm out for a few hours and come home to a huge day for stocks and a .50 cut.

I think it's CYA at this point. The Fed doesn't control long term rates and oil is above $81. Ouch.

But I think the reaction will be much worse when folks figure out that BB's rate cuts won't save the housing market....Japan cut their rates to ZERO and their RE market was still in the crapper for a decade.

Sep 18, 2007, 4:37:00 PM  
Blogger Matthew said...

Very disheartening day overall.. In addition to the cut in the discount rate, lawmakers also passed an amendment to the FHA bill offered by Barney Frank (Mass) that would raise the FHA's loan limit from its current $417,000 to as much as $729,750. What?????

Not sure where to go from here frankly. I'm considering giving up all this BS and shutting this whole debate off and reclaiming my sanity elsewhere. That's a tempting and refreshing thought, believe me.

On Congress.. Good move fellas, pass out bigger shovels to the American consumer. Looks like you've got the core of the problem ID'd and the brilliant fix in place. Super job.. Leslie A-Young, of course, was beside herself and is already writing the next CAR propaganda campaign after she changes her panties.

Frankly, this could do it for me in so far as giving a shit about anything financial except what is inside home and accounts. It's simply amazing... BUT, I (STILL) don't think this will do much to the RE market except prolong it's demise. Hell, even a lame Congress can't pass a law that decouples wages from rents or prices. Unless of course we move to socialized housing, which is not too far out of the realm of possibilities in my mind.

Given the financial stress in the country today, Congress should be lowering the FHA limits and Fannie Mae / Freddy Mac limits not raising them for heaven's sake. I'm sure this counter agrument was discussed (too??) (maybe??) but making a bold move like that to pinch home prices and flip off Wall Street wouldn't garner votes because the average joe would have no clue about the long term implicaton of such a move.

Screw the RE and Wall Street machines and all their lobbyists.

To hell with the Democrats too. I'm voting for Ron Paul..

Sep 18, 2007, 5:04:00 PM  
Blogger marinite2 said...

Yeah, if BB can so easily abandon the dollar then what's to stop increasing the conforming loan limit to keep the party going and tempt yet more people to go even further into debt? The utter lack of foresight is truly astounding.

Sep 18, 2007, 5:34:00 PM  
Blogger marinite2 said...

Also, it seems to me that if too low of interest rates for too long is at least part of what got us into this mess, how can lowering interest rates possibly be the cure?

Patient: "Doc, I got shot in the head and I am bleeding to death. Can you save me?"

Doctor: "Well, the cure is simple enough. I just have to shoot you in the head again."

Sep 18, 2007, 5:42:00 PM  
Blogger Lisa said...

Today was a desperate attempt to prop up current prices. So is the babble about raising the limit on conforming loans to $700K+.

Whatever -);

For the current FB's, anyone who is underwater will still have difficulty re-financing or selling. Especially if they're subprime or leveraged to the gills. Investors won't touch that shit anymore.

For new buyers, loan standards are getting tighter by the month. And even if they do raise the conforming loan to $700K+, how many new buyers will actually QUALIFY for the FHA standards??

Matthew, I'm with you. Pretty depressed today. But feel better... it was crazy easy money that inflated the bubble, and that isn't coming back.

No one wants to tell the middle class that they're debt zombies for a big fat nothing. So, we'll have our little rate cuts and our bailout talk and raising the FHA limits, so the gov't can CYA. Will it keep the market from crashing? Will anything?? I really don't think so. If the lenders are really unable to sell off our mortgage junk, then the game really is up, my friends.

Sep 18, 2007, 6:26:00 PM  
Blogger Unknown said...

Has anyone noticed that long-term interest rates went up after the announcement? I think the long-term interest rates are more relevant to the RE industry than the short-term.

BB sacrificed the dollars, and long-term bonds just to satisfy some Wall Street addicts. It is a very irresponsible and shameful act. In the end, RE and economy won't be saved at all. Look what AG has been saying.

Sep 18, 2007, 7:30:00 PM  
Blogger Lisa said...

When housing tanks, BB can say that he did what he could....lowered rates & opened the discount window. That way, his hands are clean.

What happened today will not make any difference to the housing market. And when the stock market figures that one out, look out. Recession here we come.

Sep 18, 2007, 7:46:00 PM  
Blogger Lisa said...

Housing Bubble Casualty (Another F***** Borrower) linked on Marinite's homepage has a new post up this evening on why today's rate cut won't do jack shit to save the housing market.


Sep 18, 2007, 8:30:00 PM  
Blogger Unknown said...

Just read an interview with a famous Japanese economist. Let me try to translate this interview as follows:

He said that it took Japan to cut interest rates from 8% to 0% in more than 10 years. The rate cuts did not help the Japanese economy at all. Instead, Japanese economy went into recession in those years. What we saw is just the tip of iceberg. He thinks in the next 12 to 18 months, there will be reset of mortgage rates in the US and that would drag down the US economy even further into recession. At that time the subprime problems would not just hurt the US but also the global economy.

Sep 18, 2007, 10:42:00 PM  
Blogger mountainwatcher said...

Where is mrlmv?

I'd like to hear his take on this.

Sep 19, 2007, 1:05:00 AM  
Blogger Marinite said...

Where is mrlmv?

Me too.

But FWIW - the interest rates reduction is not a big deal to housing as too few people will be able to take advantage of them. What might make a difference is if BB continues cutting. But would really make a difference, at least here in CA, is if the conforming loan limit is raised. If that happens, I close up shop in utter disgust.

What I want to know is a) is BB just a tool of Wall Street and Congress or b) does BB know something we don't and is scared shisterless.

Sep 19, 2007, 1:27:00 AM  
Blogger Matthew said...

I agree with everyone's comments on interest rates etc not being a big deal and long term rates (10 yr T Bills specifically) being what really matters, BUT (this is a big BUT to me), it's the message and the emotion of this whole thing that really bothers me.

As I've said several times in the past and which has proven to be absolutely true (no question) given all the foreclosures and heartache across this country right now, the RE machine preys off of the average, uninformed Joe Six Pack and all his fears and emotions..

After yesterday, the average Joe Six Pack knows the Fed raised rates. He has never heard of LIBOR or probably the 10 year T Bill or any other of a dozen or so terms and numbers used by the lending industry on any given day. He knows what he hears and reads... if he reads..

The RE machine understands this completely, which is why he's an easy mark for them on selling their "buy now before you are priced out forever" BS that always follows when rates are being tightened... or "better buy now before rates start going up again and you can't afford this home anymore"... more BS.. very predictable and very sad..

All the focus is on the monthly payment and not the home price.. Of course, that's part of the RE machine's plan given how commissions are calc'd etc. Lenders and holders of CDOs and MBSs, of course, want more and more homeowners in hock up to their eyeballs. More money for them as well and over 30 years mind you.

Oh yes, that was called serfdom by the way (see def below). Tell me being tied to a $700K POS is not a form of serfdom? Sure as hell is, just with fewer rules and less promises of protection from the true land owner (Wall Street and Hedge Funds).

"Serfdom is the socio-economic status of peasants under feudalism, and specifically relates to Manorialism. It was a condition of bondage or modified slavery seen primarily during the Middle Ages in Europe. Serfdom was the enforced labour of serfs on the fields of landowners, in return for protection and the right to work on their leased fields".

I'm busy with work and kids, which is why I'm up at this witching hour, but I plan to write Hillary on this one. I believe I owe her at least a shot at keeping my vote. American politics and fiscal / monetary policies are a joke and getting more ridiculous all the time.

Rant off, but all my view...

Sep 19, 2007, 3:44:00 AM  
Blogger Matthew said...

correction.. the Fed "lowered" rates which is what J6P knows..

Just watch the messages out of NAR and CAR when rates are moving in either direction.. I'll bet my annual salary on what they will say..

Sep 19, 2007, 3:51:00 AM  
Blogger Matthew said...

Very good post on the Another F....Borrower site.. SoCal Mortgage Guy is a sharp cookie and knows what he speaks.. Sadly, he's a very small minority along with us folks who read and understand these blogs..

I'm simply amazed that what gets passed off as "helping the little guy" is really nothing more than pandering to Wall Street.

That singular issue by the way, cuts to the heart of my vote in this Presidential election... integrity..

I cannot and will not vote for any candidate that does one thing and sells one message to the public (like voting for increasing the FHA limit to "help the little guy"), but really understands the implications of that action in the broader sense, which is to bail out the Wall Street thugs and keep the debt markets growing.

I absolutely won't do it, even if I think that candidate is otherwise the best choice (Hillary in my case).. That (lack of integrity perpetrated by greed especially) is a candidate and possibly a party changing occurrence to me..

Sep 19, 2007, 4:08:00 AM  
Blogger Lisa said...

10 Year T-Bill, which tracks fixed mortgages, is jumping like a bunny today. Closed at 4.47% yesterday and now stands at 4.56%. That's a 2% increase since yesterday's cut. So, for all those politicians who want to "modify" FB's into fixed rate mortgages, good luck with that. They'll never be able to afford it, not if they took out their financing when the Fed Funds rate was 1% or 2%.

FHA standards are pretty strict, so even if they raise the limit, not everyone will qualify. It's not "easy money" / no doc with FHA. I'm not worried about it.

J6P may see this as his salvation, especially here in the Bay Area, but it won't help matters. And when Main Street finally wraps their head around that one, watch out below.

Just keep reminding yourselves that low rates alone were not the was non-existent lending standards that fueled this mess....and now that investors no longer want our mortgage junk, those days of wink, wink mortgages are gone for good.

Sep 19, 2007, 8:56:00 AM  
Blogger marine_explorer said...

Regarding the rate cut, I'm reminded of that quote:

"If the only tool you have is a hammer, you tend to see every problem as a nail"

So if BB continues with rate cuts, as some predict, isn't this a redux of AG's "fix" of the tech meltdown? And we all know where that led--BB can't plead ignorance this time. I find this behavior very disheartening. From my perspective, it seems the fed cares more about short-term market response than sound economic health. But, maybe this is simply an act of desperation? How can this possibly fix the weaknesses in the mortgage industry?

Sep 19, 2007, 10:22:00 AM  

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