Wednesday, January 23, 2008

"Just a Horrible, Normal Cycle"

Update 01/27/08: Added DataQuick's bar chart of defaults.

Well, by now you are probably all aware that DataQuick has their foreclosure data out for the Golden State. Needless to say, foreclosures for 2007Q4 are way up over 2006Q4. Here's DataQuick's chart of NODs:

Marin NODs are up 122% which is not the lowest for the Bay Area. That must be a mistake because we all know that Marin is immune, everyone here is rich and financially savvy, we are only two hours from skiing, and you can wear your shorts in the winter.

And what's this? The increase in NODs for the Bay Area is greater than that "armpit", SoCal? Anathema! That must be a mistake too.

Here is what the Marin IJ had to say (emphasis mine):

Home foreclosures quadrupled in Marin in 2007, reaching record levels, and will continue to rise this year, it was reported Tuesday.

Last year, a record 133 foreclosures were reported, up from 29 in 2006, according to La Jolla-based DataQuick Information Systems. Last year's total was the highest since DataQuick began tracking foreclosure figures in 1988.

The number of default notices issued - the beginning of the foreclosure process - climbed in 2007 to 632. In 1992, a record 645 notices were issued.

"It shows that Marin is not immune from these larger forces out there,"said DataQuick analyst Andrew LePage... "Marin has grown less than most counties, so it actually means a little more to be back at record levels," LePage said. "Counties like Contra Costa and Riverside have grown tremendously, so you would expect more."
And then:

In Marin, the median price peaked in June at $1.12 million but has dropped to $836,000.

"I think even this county is being affected by the slowdown in the housing industry," said Jim Chapman of First Security Loan in San Rafael. "I'm not sure this isn't just a horrible, normal cycle."
Did the IJ just say that prices are down 25% in Marin? Well, most of that is seasonal I suppose.

And "just a horrible, normal cycle"? You're kidding, right? If you want to see just how horrible and not normal this cycle is, trek on over to Calculated Risk and feast your eyes upon this graphic. That aint normal.

And what are some home "owners" doing in response to the inevitable consequences of this horrible, not-so-normal cycle? Why, they are suing real estate agents of course. (Marin agents, take note.) Not that I think they are suing the right people. But when did Boobus Americanus ever think straight? All that Boobus knows is that he is angry and someone else has got to pay for his stupid financial decision making. That's the American Way after all.

And I found this article somehow relevant. I guess what caught my eye was the line “Many previously considered ‘prime’ customers who took on 80+% LTVs are performing closer to sub-prime loans” Are we getting primed for the Alt-A bomb?
The private mortgage insurance industry is under severe pressure from rising delinquencies and mounting losses. Now questions are swirling about how a potential blow-up in that sector will affect Fannie Mae.

Fannie Mae… operates with the understanding that the insurers will pay it back. If one of these insurers takes a massive hit, then Fannie Mae’s underwriting standards may come under scrutiny, and the firm may be forced into buying fewer high-LTV mortgages in the future.

In a recent research note, CIBC analysts said the ‘highest losses will be driven by LTVs, not FICO scores.’ “Today, as a higher percentage of people own homes and many of them have taken on “too much house” or high LTV loans, things are different,” CIBC analyst Meredith Whitney wrote. “Many previously considered ‘prime’ customers who took on 80+% LTVs are performing closer to sub-prime loans.”
Remember back when people were justifying the housing bubble with "this time it's different", "we're special", "wealth creation technology", "financial dark matter", "fundamentals don't matter", etc? If any of that was true, if it wasn't just a ruse to disguise our own greed, then why are people losing their homes to foreclosure at an accelerating rate, why is the Fed in panic mode with an unprecedented 75 bp cut, why will the GSEs' conforming loan limits be raised to $650k, why is the Federal government going to mail out $600 checks to every tax paying citizen in the United States?

There is nothing normal about this cycle.


Blogger Lisa said...

Marinite, I am so glad you posted about this today! And I love how the Marin IJ didn't calculate that 23% drop in the median, just threw out the figures.

"CIBC analysts said the ‘highest losses will be driven by LTVs, not FICO scores.’ “Today, as a higher percentage of people own homes and many of them have taken on “too much house” or high LTV loans, things are different.”

I'm not sure I completely agree with this. If you have a low LTV, yes, you could probably afford to sell for less or refinance, since you have an equity cushion.

But the high LTV loans in and of themselves are not the only problem. It was a combination of high LTV plus buying at insane multiples of household income. That's a death trap.

I bought my first house with only 10% down, but I bought at 3x annual gross income. Managed to get through the dot com recession (barely) and was able to hang on to my house, because I had bought within a reasonable multiple of my income and I had savings....again because my mortgage wasn't eating up half of my take-home pay.

I think the Fed cut yesterday was total desperation. It says to me that AltA and Prime debt bombs can't be far behind. The whole house of cards is looking like 2008 is the year of the big tumble.

Jan 23, 2008, 9:34:00 PM  
Blogger Matthew said...

As always, GRRRREAT stuff Marinite. Thanks...

Yes, that NOD graph screams "we've hit bottom".. yea, right..

I will give the NAR and Wall Street thugs credit however, they've got every body from the Secretary of Treasury (who knows he's full of sh__) to the CNBC talking heads (who are likely clueless) all talking about subprime and ONLY subprime.

Imagine the horror in the markets if the actual truth were told about ALT-A's and some prime mortgage holder's finincial situation..

They'll run the market up a bit, cut rates some more and leak a bit more bad news about these other holders who bought during the bubble and who are hanging on by a thread. Of course, we'll be numb from the last freefall and won't react quite the same way as all the RE investors will have swung their loose change into equities by then looking for the next bubble.

All this will do is prolong the downturn.

Marin immune ? I don't think so. I bet more people stretched to buy in Marin during the boom than most places because of it's general appeal and high housing costs to begin with. As soon as neighbors become more tolerant of others admitting they don't have the bacon to hang on, all those stretched FBs around here will let go too. Peer pressure, shame and ego are much deeper around these parts than most, so I suspect there is a lot of CC debt being amassed and borrowing from family and relatives going on around here to hold on for that next massive run up.. but how I ask ?

Jan 23, 2008, 9:48:00 PM  
Blogger Unknown said...

The slope of that NOD curve from 2005 – 2007 is very telling… a “normal cycle correction”.. Yea, right.. nything but..

That graph provides a good snapshot of the power of leverage (in reverse) when home price to wage multiples are waaaaaay out of whack..

Now, multiply the # of NODs on that graph agains the value of the mortgages being filed against vs historic NOD values and the losses shocking the credit markets would be even more telling..

Jan 23, 2008, 10:09:00 PM  
Blogger marine_explorer said...

Oh look at that...the Bay Area NODs are neck-to-neck with the "armpit" central valley. So once you get past local attitude and appearances, perhaps there's not much of a difference, after all?

Jan 24, 2008, 11:18:00 AM  
Blogger bob said...

I'm at a total loss for words over everything that just happened today: There's going to be a 'stimulus' plan that involves a tax rebate. The maximums for 'higher priced areas' was raised to 700k. The Fed is promising another cut next week. The Dow is up on the news. Investors are buying financials.

So... it looks and smells almost exactly like what the government and the Fed did the last time the economy threatened to go to hell in a handbasket: cut now, Pay later. In this case- simply putting off what needs to happen that much longer.

Personally, I hope these plans fail. This country needs a correction. People who make a decent living and save their income need a reason to see why their careful financial prowess is worthwhile. We can't keep on driving the American consumer into further and further debt. The idea that a house is something that must be bought no matter what the cost or financial damage needs to eradicated from the American mindset. If we are to become a country where overpriced housing bubbles and their subsequent collapses is rewarded with bailouts, government intervention, and 'help', then we will simply become like Europe and become ever-stratified for the absolute benefit of nobody except for those at the very top.

I'm disgusted.

Jan 24, 2008, 2:14:00 PM  
Blogger Holland said...

George Soros expects "the dollar to be usurped as the top currency".

He made the following comments during his speech on the fringes of the World Economic Forum summit in Davos, Switzerland recnetly:

1)a recession in both the United States and Britain "will be very difficult to avoid.
2)the dollar's status as the world's reserve currency was drawing to an end, thanks in part to the financial crisis on Wall Street.
3)the plight of US households, who are facing major slumps in nationwide house prices for the first time in living memory, was increasing the distaste among international investors for the greenback.
4)the crisis facing the world's financial markets is the worst in 60 years, likely to cause a major realignment in the world economy, as emerging nations such as China and India gain more clout.
5)Alan Greenspan mishandled the economy by keeping interest rates too low too long and also ignoring dangers in the housing market.

Jan 24, 2008, 3:46:00 PM  
Blogger Lisa said...

"The maximums for 'higher priced areas' was raised to 700k. The Fed is promising another cut next week. The Dow is up on the news. Investors are buying financials."

More lambs to the slaughter, that's all it is. Raising the GSE limits may seem like a rescue, but it's not. GSE standards for mortgages are strict, precisely because they are guaranteed by the government. Down payments, income documentation and income to debt ratios are all required. What this means is that now EVERYONE who wants to buy up to $700K will have to be able to prove they can actually afford that house and make a down payment. Banks won't touch jumbo loans that don't meet conforming standards, as there's no reason to take the risk with a loan they can't pass off to the GSE.

If anything, it just shrinks the buyer pool that much more. But the MSM and J6P are thinking that Congress just rode to the rescue.

This whole week smacks of desperation. Keep telling yourself it's an election year, and the politicians have to be seen as doing everything in their power. But it won't be enough to stop the trainwreck. They cannot re-inflate the bubble.

Jan 24, 2008, 5:29:00 PM  
Blogger Matthew said...

Some very interesting ponits noted after my last post.. well said Bob.. I'm totally disgusted too..

As a country, we can't be told "no" or "not now"... like a bloody 8 year old.. lets write everyone a check and pass the bill to our kids because we can't live with our decisions and negligence..

Jan 24, 2008, 6:07:00 PM  
Blogger brazos605 said...

I don't think it will make much difference. It will only make would-be sellers think that they will be able to get their dream price. The prices were driven by low standards, and there just aren't that many people who will be able to meet the income to debt ratio required and have the necessary down payment.

My prediction is that there will be an increase in listings, primarily those sellers who took their homes off the market expecting to sell them when things returned "to normal." When most don't get a flood of offers or their dream price, prices will begin really dropping, especially toward the end of next summer.

Jan 24, 2008, 7:56:00 PM  
Blogger Marinite said...


I too am at a loss for words and utterly ashamed and disgusted by America today. I am not at all surprised by bailouts, proposed raising of conforming loan limits, panic interest rate drops, etc. We knew this would happen and we know it won't make much of a difference. They buy themselves a tiny amount of time; the real payoff for them is election year politics; when things finally collapse they can look back and say "look, we tried, we did our best"; and the wealthy minority have a little more time to get safe.

What's worse is that Joe Blow American has no clue what is happening.

Keep in mind that such colossally desperate moves on the part of the Fed and politicos just goes to show how screwed we are as a nation and how monstrously distorted the financial system, asset prices, etc are. It is odd how politicians think that by making things worse they are making them better; the cure for the problem is more of what caused the problem.

We are entering interesting times. Be defensive.

And if you are so inclined, call, fax, write to your representatives. Share your outrage with them.

Jan 24, 2008, 9:18:00 PM  
Blogger marine_explorer said...

Right, it's as if they can keep the credit binge going a little longer, maybe the general public won't think there's a problem? Keep spending America--the economy depends on you. Sigh...what an utterly bankrupt notion of a "sound economy".

I had a finance consultant who warned me of this meltdown back in '98. Now that's foresight, although it was noise in the ears of the local "entrepreneurs" overleveraging those utterly pointless ventures.

I really doubt America is going to face the truth until there's nowhere left to hide.

Jan 25, 2008, 10:59:00 AM  

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