Leak

The fed lets it be known through a "leak" they will NOT be inclined to bail out falling asset prices.

And

WSJ Fedwatcher Greg Ip said in an article published today that Bernanke is trying to break the market's association with market convulsions and rate cuts. Ip said that Bernanke is showing signs of a break with Greenspan by distinguishing between the Fed's two main roles of maintaining financial and economic stability.

We'll see.

Source.

Subprimate Woes Affecting the More Well Evolved

The problems of subprime loans and the "subprimates" who shackled themselves to them are now moving up the food chain. Loans for more than $417,000 are scarce and what is still available is very expensive.

How many buyers and sellers will be affected in Marin? We've already heard of a number of cases so far (for example). Who would have imagined that? But they must be an anomaly or something because we all know how everyone in Marin is filthy rich, right? So Marinites and wannabe Marinites should have no problem whatsoever making the $600,000 down payment (our laughable $1 mill median minus what would be needed to get a loan for something at or below the $417K cutoff) needed to get a loan for about $417K or less. Right? I mean Marin housing is "immune" and a "sure thing" so it's not like that $600K down payment is at risk. Right?

(AP) The subprime mortgage crisis is spreading to a somewhat unexpected place: homes costing more than $500,000.

As lending has rapidly gotten more restrictive for borrowers taking out large loans, sales of expensive homes have fallen sharply around the country during what should be one of the busiest seasons for buyers and sellers...

To some degree the change is due to difficulty getting financing, as borrowers are finding fewer lenders willing or able to fund "jumbo" mortgages, loans for amounts greater than $417,000. Such loans are too big to be guaranteed by government-sponsored housing finance agencies Fannie Mae, Freddie Mac or Ginnie Mae.

The banks that are still making jumbo loans are charging substantially higher rates to compensate for the lack of investor demand. Borrowers who could have gotten rates as low as 6.5 percent in June are now having to pay as much as 9 percent.

But aside from the financial impact of higher rates, in certain high-priced real estate markets, the effect of the suddenly tighter lending environment is more psychological, mortgage bankers and real estate agents say, as buyers and sellers alike don't want to plunge into an uncertain future.

"I think the psychological damage is worse than the financial damage" which is already bad enough, he said. Even for buyers who have plenty of cash or can easily afford higher mortgage rates, the sudden change in the financing environment reduces "the ardor to buy a house unless you have to," he adds.

With numerous buyers and sellers sidelined, the higher cost of big mortgages is bound to put downward pressure on home prices should the lending environment stay tight for a long period of time, said Ellen Bitton, president of Park Avenue Mortgage, a mortgage bank and brokerage...

In and around San Francisco, where the median home price is about $1.1 million, the tougher financing environment has created a "hesitancy and has led to some canceled escrows for buyers around the $1 million range, said Rick Turley, president of the San Francisco and Peninsula Region for Coldwell Banker Residential Brokerage.

"It's Going To Be A Little Worse [in Marin] Than People Think"

Gee, ya think?

This really pisses me off. It looks like the Marin IJ and Marin realtors are reading this blog after all:

The Marin "REIC" is finally starting to admit (two years too late, it seems to me) that Marin's market is not immune and is starting to crack. Of course, you have to read past all the feel-good spin, reporting foreclosure rates during the quiet part of the season, the "we knew it all the time" revisionism, etc.

Anyway... first it was that comment in the SF Chronicle (I've somehow lost the link so if you have it please share it) by the Marin real estate agent who admitted the fallout from the housing bubble had crossed Marin's sacred borders and is hitting Novato and Terra Linda hard, and now it is this. Could it be that the Marin IJ is finally getting a clue? Of course, they still downplay the effects and assuage the fragile egos of anxious Marin sellers, but it is a huge improvement from this time last year (emphasis mine):

In Marin, the national mortgage meltdown has done lots more than just make buyers... anxious - it has cost hundreds of mortgage industry and other housing-related jobs, kept houses on the market longer and boosted the county's foreclosure rate.

The Marin real estate market is weathering the storm, although borrowers and home sellers are feeling the pinch, real estate and lending experts said.

"You're a very small elite market, so you're certainly not representative of the state as a whole," Leslie Appleton-Young, the chief economist for the California Association of Realtors, said of Marin. Still, she said: "No one is immune from what's happening in the marketplace right now. No one."

[Note: Leslie Appleton-Young is now back pedaling vis-à-vis Marin RE.]

At Charlie Christensen's Sausalito brokerage, CWC Financial, some clients are feeling the pressure... "It's very dicey out there - it's unprecedented," he said. "It's going to be tougher for people to qualify for new loans."

"It's touched us a lot," said Lee Aubry, a mortgage consultant with Wells Fargo Bank. "The bottom line is, cheap, easy loans are becoming very quickly a thing of the past. Lenders are basically going to be more conservative," This is going to take years. Now more than ever people will need down payments - they'll need good credit."

Houses are selling, he [Nick Cooper, a founding agent with Vision Real Estate in Corte Madera] said, especially at the higher end of the market. Proper pricing is key... [in other words, lower the price and keep lowering it until it sells...or don't sell at all.]

Hoping to help buyers caught in the crunch, some skittish sellers are putting up money, hoping to bridge the financial divide to close the deal. It's not something you see often in Marin, agents said. "We haven't seen seller financing in 10 years," said Kathy Schlegel of Lucas Valley Properties.

"It was so unrealistic to have the money so easily available," said Bill McKeon, a broker associate at Pacific Union Real Estate in Greenbrae. "That's what everyone's talking about. It was very common to have zero-down purchases a lot based on stated income, and that was bound to end. I think what's catching everyone by surprise is how abruptly it ended."

"We're kind of on an island here," he [Christensen] said of Marin. "It may not be as bad as it is in some other places, but I think it's going to be a little worse than people think unless the Fed steps in and takes some radical steps." "I think people need to take a deep breath and let this thing settle out," he [Christensen] said. "There's a correction occurring. Some people are going to lose their homes, some in Marin.

Unrestrained arrogance and hubris will get you every time.

And I really despise it when a news paper prints stuff like "Is it going to be biblical proportions? I don't think so [said Christensen]." Pose an absurd question as legitimate and then answer it. The answer is equally absurd. Correct me if I am wrong, but this is a false dichotomy and a form of argumentation you see all the time being spewed by those with a vested interest; it is common practice in the real estate industry during times like these. No, it won't be of "biblical proportions". Nothing ever is. Even the Great Depression was not of "biblical proportions". But it does not mean it won't be very, very painful for many people.

But yes, of course, the collapse starts in the weakest markets and works its way inward, towards the employment centers as has been said many times on this and other blogs. We, and markets like ours, will fall over but not until others have failed first. It just takes a little longer is all.

And it seems BusinessWeek is finally getting it in gear too. I especially like this quote regarding "toxic" loans (now, according to them, pretty much anything other than traditional fixed-rate loans with at least 20% down):

"The consumer has to be an idiot to take on those loans"...But since there were plenty of "idiots" out there, and legions of lenders eager to serve them,... hedge fund managers eagerly devoured the securities confected by investment banks from batches of dubious home loans."

And be sure to check out the "History of Hubris" where it starts off with:

As with the current subprime saga, past upheavals in the financial markets typically have been preceded by talk of new paradigms, perfect models, and fail-safe strategies — a "this time it's different" attitude. Here's a look at the egos and excess that ruled in recent boom periods and the inevitable fallout."

Ah yes, the sweet smell of revisionism and "we knew it all along"-ism.

Oh, and in that IJ article, where the real estate agent suggests that everything is going to go to hell in Marin and elsewhere unless the Fed steps in to fix things,... I'm sorry, but the Fed is ultimately powerless (homework assignment: go read Mish's blog or the CalculatedRisk blog, search around, and learn why). But for now, BusinessWeek comes through again:

By cutting the largely symbolic discount rate on Aug. 17, the Federal Reserve hoped to calm nerves and return borrowing conditions to normal. Instead, conditions got worse. Terrified to hold anything but ultrasafe securities, investors stopped buying IOUs from corporations and poured their money into Treasuries. A reliable measure of panic—the difference in yields between safe and less-safe securities—widened to the biggest gap in more than 10 years. Five days later, markets remained severely impaired.

Why didn't Chairman Bernanke's script play as well as many hoped, at least in the early going? Simply put, the Federal Reserve did not—and cannot—fix the problem at the root of the market crisis.

Lenders know there are billions of dollars of weak assets out there, such as securities backed by foolish or fraudulent mortgages.

What they don't know is who holds those weak assets. So when borrowers come to them offering suspect securities as collateral for a loan, the safest thing to say is no. When everyone says no at once, the result is a credit crunch that, if unabated, could cause a recession.

And I fully agree with this reporter's words (hat tip goes to the Ben Jones blog for the link); let the greedy fools burn:

I know people are going to hate me for saying this, but I’m not sorry that foreclosures nearly doubled last month and are increasing every day.

I’m not sorry that real-estate prices are creeping down by the glut of desperate for sale signs all over Southern California.

I’m not sorry that all those developers building lofts downtown and in Hollywood and North Hollywood with no parking might have to eat their investment when they find they can’t get half a mil for the 400-square-foot corner of a former sweatshop.

I’m not sorry that people who kept taking the "free" home-equity money from the banks beyond all reason are now finding out how not free that money was.

I’m certainly not sorry that the huckster mortgage companies and banks that thought it was a good idea to make subprime loans to people with bad credit ratings are now taking a bath. I only wish it involved some sort of public humiliation involving glue, sand and glittery body paint.

I’m not even sorry that people will lose their homes and be forced to give up the Hummer they bought with a home-equity loan, and move into a one-bedroom apartment in Panorama City or, worse, in with the in-laws in Porter Ranch.

I tell people I am sorry, but I’m really not. I am, in fact, gleeful. And I’m not the only one.

Most everyone who is not employed by a mortgage company or is not a real-estate agent or is not trying to sell a house or can't pay the mortgage anymore feels the same. We are secretly dancing little happy jigs because it seems that the insanity is about to, finally, end and the snake-oil hucksters will fold up their tents, take their sleazy subprime offers and slink out of town.

Then maybe life can slowly come back to normal, and regular people with regular incomes can buy regular houses again without agreeing to loans so abusive they ought to be handed out of the back of gangster bars. We don't even care that it means our own property values will drop, if it means we might avoid another block of luxury lofts.

It’s a relief, too, because we all knew this was coming. Even people like me with math anxiety could work out that at some point the hot real-estate market, built in part on risky loan deals, was someday going to reach critical mass and start to crumble.

Well, here we are, and it’s beautiful. And that’s why I must implore all the well-meaning politicians proposing bailout measures to just go away and work on curing cancer, or something that will actually help humanity, not enable it to continue on its financially irresponsible path.

In the words of one esteemed reader "Somewhere, a crocodile has shed a tear."

Just Making It Up As We Go

This is what makes America great...her ability to make up new rules whenever the old rules become inconvenient. God bless America and may all the loser/armpit nations of the world follow our great and glorious lead.

In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.

The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.

This unusual move by the Fed shows that the largest Wall Street firms are continuing to have problems funding operations during the current market difficulties, according to banking industry skeptics. The Fed's move appears to support the view that even the biggest brokerages have been caught off guard by the credit crunch and don't have financing to deal with the resulting dislocation in the markets. The opposing, less negative view is that the Fed has taken this step merely to increase the speed with which the funds recently borrowed at the Fed's discount window can flow through to the bond markets, where the mortgage mess has caused a drying up of liquidity.

Bonuses on Wall Street Threatened by Credit Crunch

Aug. 22 (Bloomberg) -- The credit-market freeze that's paralyzing leveraged buyouts, mergers and myriad computer-driven trading strategies may cut Wall Street bonuses for the first time in five years.

"There's a lot of pessimism out there,'' said Gary Goldstein, chief executive officer of executive-search firm Whitney Group in New York. "Looking at the world today as we see it and the impact the crunch is likely to have, it looks like bonus pools will decline.''

Bonuses, the financial industry's annual rite of compensation typically calculated as a multiple of salary, probably will decline as much as 5 percent from 2006, according to Options Group, the New York-based firm that has tracked pay and hiring trends for more than a decade. While the payouts often far exceeded the average of $220,650 at the biggest U.S. securities firms last year and increased as much as 20 percent from 2005, the subprime-mortgage collapse already has drained the punch bowl.

Hardest hit will be employees who create and sell securities backed by mortgages or pools of debt, Options Group said. One out of every three people in those roles may lose their jobs unless business picks up by the end of the year, the firm estimates.

Bonuses may fall as much as 40 percent.

Source.

One Reader's Analysis and Predictions

Someone sent me the following by email. Thanks and I think you are spot-on:

According to wikipedia (http://tinyurl.com/yb4835), income in Marin is like so:

• Per Capita Income: $44,962
• Personal Per Capita Income: $67,682
• Median Household Income: $71,306

The median price of a house in Marin County in July, 2003 was about $650,000. You have pointed out before on you excellent blog that 2003 was probably teh normal cycle peak in the housing market. But then Greenspan came along and (directly or indirectly) inflated housing by inflating credit. As a result, in 2007, as proclaimed with ill-considered glee in the IJ, the median house price was a tad over $1 million. How was a rise in prices of $350K to $400K over four short years possible? It wasn't because Marin is any more special today than it was four years ago that's for sure. It was possible only because of so-called "affordability" products aka "toxic" mortgages - 0% down, low teaser rates that reset later, interst only, neg. am., etc, etc, etc. that were given not just to subprime people with low credit ratings, but, as we are learning now, to people with good and even stellar credit. You've shown that recently about 80% of borrowers in Marin make use of these "affordability" products to some extent.

We are now finally and at long last returning to more traditional lending practices where borrowers are expected to make 20-30% down payments. If in addition to that lenders return to the traditional rule that teh amount you borrow should not be more than 3-4 times your income, then there is no way the $350,000 to $400K increase in Marin's house prices can be sustained.

Based on tradional standards, a household bringing in the median household income would only be allowed to borrow about 3.5 x $71,306 = $249,571. That implies a median house price of about $311,964 (assuming 20% down). Not $1 mill.

It seems to me there are only three likely outcomes:

1. House prices come down to levels sustainable based on incomes,
2. Incomes rise to justify current house prices (if the Marin median house price stagnates, that implies the Marin household median income will rise from its current $71,306 to about $230,000 per year),
3. The market's freeze up except at the higher end.

I think #3 is pretty much where the market is now in Marin and why the county statistics show the county median house price still rising. The truth is that the majority of the Marin market is barely moving if at all and there are a few steep discounts now. I think #2 is incraedibly unlikely given the job market and outsourcing and globalization and the like which is not likely to change any time soon. #1 is the most likely and certainly the most desirable outcome in terms of long-term economic and societal health.

Keep up the good work.

And keep up sending in the insightful emails.

'Suzanne Researched This' Act Deux

I love it. The second act of the "Suzanne Researched This" family melodrama. Nice catch Tim.

Tax Payers Against a Wall Street and Mortgage Bailout

Please consider this online petition against bailouts entitled "Tax Payers Against a Wall Street and Mortgage Bailout". All you have to do is "sign" and click a button.

Marin's GreenPoint Mortgage Closes Its Doors

Another one bites the dust:

Citing market volatility and tight liquidity, the parent company of GreenPoint Mortgage shut down the Novato-based lender Monday and announced plans to cut 1,900 jobs, including 430 in the Novato area.

GreenPoint itself had a round of layoffs in April, cutting nine employees in Novato and 61 elsewhere in the company.

The layoffs at Greenpoint mark the latest round of bad news for Marin's mortgage finance sector. In recent months layoffs were announced at several other finance houses, including Pro30 Funding in Novato, which laid off 40 employees, and Paul Financial LLC, which laid off 25 in San Rafael.

The Novato headquarters… is both a regional branch office and home to national support staff in human resources, information technology, training, accounting, marketing and legal services.

GreenPoint specializes in no-documentation and Alt-A mortgage loans for borrowers with slightly better credit than subprime borrowers.

Ben Bernanke: You Must Resign

I dugg it.

We all talk a lot of shit in our lives -- pretending to be who we wish we could be. We make up stories about things we've done or said which are nothing more than retellings of personal events as we wish they had been; retellings that portray us the way we wish we had behaved; all with the goal of winning the favor of our friends, lovers, parents, bosses, idols. For the more healthily adjusted among us we tend to do this for personal gain (a job, money, admiration, sex). But the truly screwed among us are those who are so depraved, so lacking in self-esteem, as to actually believe their stories.

But there always comes a time in a person's life (and if they are fortunate, many times) when he is forced to face the lie. It is during times of crisis, duress, and moral strain that a person's true nature is revealed to all.

Last week Ben Bernanke played his cards and showed the world that his nickname, "Helicopter Ben", is, in my opinion, likely a deserved one. I say "likely" only because it was the Fed-to-bank discount rate that he lowered and time will only tell whether Ben extends that to the Fed funds rate.

How long can America survive the moral hazard that is today's Fed? Perhaps you have a personal or professional stake in seeing to it that people continue to live on ever-increasing burdens of debt while their incomes languish. Or perhaps you "got in" before the madness overcame America, and you've now hunkered down and closed the hatch of your private bomb shelter, and everyone else can be damned. Perhaps you feel that it is all okay as long as you believe that you can keep your own head above water. But what if one day you can't? What if our out of whack system overtakes you too? Would you want to be met with your own indifference?

If you take one moment to step away from our culture of selfishness and think about others, about your children and grandchildren, or, if you are single, the possibility that you might one day want to have children, do you still think the path we are on as a nation leads to the sort of world that you want your kids to play and live in? Or maybe you think you are immune and you will be able to shelter your progeny.

Now is the time to cut the crap -- stop making excuses, stop thinking about just ourselves, look at the big picture, and be honest with ourselves.

Americans have become debt junkies on such an unprecedented scale that even with the slightest of interruptions to their debt fix they scream bloody murder. And all through it the Fed has been their all too willing dealer. How much continuing self-inflicted economic harm must we endure before we as a society admit that the 9-11 terrorists won and succeeded in hurting us, and that the actions of the Fed since then have been nothing more than a form of self-medicated economic forgetfulness on a massive scale?

Now is the time for strength in leadership. We need a Paul Volcker, not a continually spineless Fed, not a Greenspan clone. Ben, let the free-markets work; let them heal themselves. Hillary and others, forget the bailouts; they are not the answer. Short-term pain breeds long-term gain.

Anyway, that's what I think, for all it's worth. Use this forum to share your thoughts if you want or vent.

Ron Paul's Statement on the Housing Bubble

Here is presidential-hopeful Ron Paul explaining that the Fed's intervention in the economy is ultimately responsible for the housing bubble, not capitalism, not supply-and-demand, and not (directly anyway) lenders.

But capitalism is not to blame for the housing bubble, the Federal Reserve is. Specifically, Fed intervention in the economy-- through the manipulation of interest rates and the creation of money-- caused the artificial boom in mortgage lending.

The Fed has roughly tripled the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed literally created demand by making the cost of borrowing money artificially cheap. When credit is cheap, individuals tend to borrow too much and spend recklessly.

This is not to say that all banks, lenders, and Wall Street firms are blameless. Many of them are politically connected, and benefited directly from the Fed’s easy money policies. And some lenders did make fraudulent or unethical loans. But every cent they loaned was first created by the Fed.

The Federal Reserve provides the mother’s milk for the booms and busts wrongly associated with a mythical “business cycle.” ...Unless and until we get the Federal Reserve out of the business of creating money at will and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Alan Greenspan and Ben Bernanke.

Nothing new here. But I have been glad that at least one potential candidate hasn't been afraid to deal with the truth and say it like it is. Of course, that probably means he won't win; but he has my vote anyway.

CEPR "We Told You So" Article

Check out this PDF report from the Center for Economic and Policy Research entitled Midsummer Meltdown: Prospects for the Stock and Housing Markets (hat tip to the Housing Panic blog for the link).

And do you remember this CEPR: Housing Bubble Fact Sheet? You should as I have been linking to it over in the right-hand margin of this blog since 2005. It is worth comparing it to the present article.

Anyway, I'll just cut to the chase and reprint the conclusion of the current report:

Like Japan in the eighties, the United States has experienced a stock and real estate bubble developing side by side. While the bubbles in Japan collapsed simultaneously at the end of the decades, the collapse of the U.S. stock bubble likely helped to feed the growth in the housing bubble. Its continued expansion over the last seven years has led to accumulation of more than $8 trillion of housing bubble wealth.

However, bubbles always create the conditions for their unraveling. In the case of the housing bubble, the main condition is an enormous oversupply of housing which has led to record inventories of unsold homes and record high vacancy rates in both rental and ownership units. This oversupply is already leading to falling prices in many areas. These price declines are likely to lead to a downward spiral as more and more homeowners find themselves with negative equity, which will lead millions to default. At the same time, the growing wave of bad mortgages will lead to a further tightening of credit that will choke off demand, putting even more downward pressure on prices.

The housing bubble was recognizable, as some economists did warn of the potential problem several years ago based on an analysis of the fundamentals in the housing market. However, as was the case with the stock bubble, those who focused their analysis on fundamentals were largely ignored in the media and in policy circles. Instead, many of the most visible voices were explicit bulls on the housing market, and often people with a vested interest in sustaining the bubble. The economy and the country are likely to pay a very large price for this policy failure.

Those vested interests will get you every time. So when do we get to go medieval on their arses?

Crazy-talk at the Chronicle

I can't believe the following quote was actually printed in today's SF Chronicle regarding the Bay Area housing markets. It must be a mistake as it just makes way too much sense:

‘How does demand come back? When prices come down,’ said G.U. Krueger, chief economist with IHP Capital, said the deflated new home market is simply one more indication that the market had run amok and is now returning to some equilibrium. ‘Prices went way ahead of themselves relative to the incomes of the consumer, and price increases could only be maintained with exotic financing.’

"Price increases could only be maintained with exotic financing." No. Really?

Restoration Hardware Layoffs

Restoration Hardware's Marin headquarters office is laying off 100 employees because Marin is immune and special:

Home improvement retailer Restoration Hardware Inc. will cut 100 jobs at its Corte Madera headquarters...

The company blamed "challenging market conditions" for the layoffs, citing the decline in the national housing sector.

A company spokeswoman in San Diego would not elaborate on a press release announcing a "reorganization" at its headquarters, adding only that layoffs were confined to Marin and that "some" employees have already cleared out their desks.

In the reception area of the headquarters, a sign indicating the company philosophy notes that "At Restoration Hardware we believe deeply that people are our greatest asset."

Tightening Lending Standards Squeeze the Rich, Even in Marin

Thanks to reader "Lisa" for the heads-up on this SF Chronicle article:

Mortgage woes have moved upstream, landing even in tony neighborhoods.

The credit crunch now is hitting home buyers from all walks of life, not just subprime borrowers with poor credit. That in turn could mean fewer buyers - and lower prices.

For instance, a multimillion-dollar deal in Larkspur went belly-up last week when the lender yanked the financing at the last minute.

"Everything was perking along smoothly. All contingencies were removed," said Bill Hogan, a Realtor with Coldwell Banker in Greenbrae, who sold the four-bedroom home for $2.45 million and expected to close the deal later this month.

On Thursday, the couple buying the house learned that their lender was rescinding their loan because they were making only a 10 percent down payment.

Only 10% down? In Marin?

So, even the rich in Marin are finding it hard to get a loan. So what's the problem? I mean, I thought everyone here is rich and they don't care how much they have to pay to have a house in Marin and "I want it now and the hell with how it affects everyone else". So making a $200K+ down payment should be a piece of cake for them. What's the problem?

The [Larkspur] incident underscores how the mortgage crisis could undermine real estate prices.

Gee, ya think?

...Wall Street started to spurn jumbo mortgages - those above $417,000 - even for borrowers with sterling financial profiles. Those loans have become scarcer, harder to qualify for and more expensive.

In the Bay Area, high home prices dictate that most [about 80% in Marin] mortgages are jumbos.

"If people are having trouble getting jumbo loans, it will put downward pressure on the high end of the market," said Michael Carney, a finance and real estate professor at California Polytechnic State University Pomona. "People know it will be tougher to get loans. A lot of potential buyers will wait."

While jumbo loans should become more affordable eventually, that doesn't mean the days of easy lending will return. Lenders now are adamant that borrowers meet increasingly stringent guidelines for their credit history, earnings and assets.

Ah, and now, below, finally the MSM for our area is telling it like it is and for which I discussed and provided data long ago -- that the medians have been going up recently not because house prices have been going up but because only the pricier houses in the nicest areas have been selling. Prices across the board can all drop but if the mix of houses that do sell changes in the direction of the pricier houses, then county sales price medians can go up (and unfortunately instill a false sense of security [not to mention pride and arrogance]):

The one bright spot for Bay Area real estate in the past year has been upper-end sales. The median price of homes has risen in many counties. That's not because prices rose but because a larger percentage of sales was for more expensive homes.

The lending situation (as opposed to the price situation) may or may not be short-term. If it is short-term it will be so only for the upper end of the market. The lower half of Marin's market (say, roughly $1.2 mln and below) can look forward to a protracted bearish environment. Those selling small POSs in Marin might as well walk away unless your anticipated profit margin minus the insurance/maintenance/tax/interest/advertising/staging costs over a long period of time is still positive.

"Sellers always lag behind the reality," said Mary Dresser, a Realtor with Prudential California Realty in Montclair. "They're never willing to respond to the current market conditions in a short-term fashion. They need to see something go on for months before they finally get it."

* * *

Interestingly, over the last week I've received a series of emails from one Marin real estate agent which have been sounding more and more desperate. The subject of the emails (I can't post them because I still don't have permission to reproduce them here) are about the tightening lending standards and contain suggestions on how to improve your chances of securing a loan for the amounts typical for a Marin purchase. Among other things, these points in the latest email jump out at me:

• To get the best rates, your FICO score should be 720 or higher.
• Lenders are looking for 25-30% down, and 6 - 12 months in reserves, if you are not doing a fully documented loan.
• Be prepared to have your tax returns, W-2s, paystubs and the like available in the event the lender requires them.
• You might want to check on http://www.salary.com/ to see what they say the average person doing your job makes -- lenders are.

If All You Have Is a Hammer...

Something to Think About

According to the SF Chronicle today, a potential buyer offers $417,000 for a Bay Area house (accepted by the seller for a loss) but in the end the buyer cannot get funding because:

‘[The bank] wouldn't do stated-income loans above 90 percent anymore,’ Williams says. ‘If he provided full documentation for his income, he wouldn't qualify for the loan because he doesn't make enough money,’ Williams says.

$417K is a conforming loan! The wannabe buyer had a FICO score greater than 750 and was pre-qualified for a $450K loan, but wanted to put 0% down and did not want to verify his income.

Think about it.

Another Marin RE Genius Gets in Touch with His Inner Idiot

Consider this San Anselmo house's sales description:

***prime seminary value,lowest cost 'new remodel' in town!*** seller says let's make a deal. He will help do what he can, negotiate short sale subject to lender approval. Completely rebuilt in 05',this classic craftsman style brown shingle is aet well off the street with ross valley vws in an oak studded setting.Winding stairs lead to the front door. Vaulted ceilings,open floor plan & all new granite kitchen and tile baths make this a bargain.

Here's the info:

It sounds like a Marin social climber's wet dream come true. So what's the problem with it? I have no idea. Maybe it's just over priced? Waaaay over priced?

In 2005 this house was offered at $849K but sold at $765K. A year later it was flipped back on to the market and some "genius" came along and figured it would be a good idea to offer 63% above the asking price (he must have drunk deeply from the cup of RE koolaid) and so paid $1.25 mln for what the sellers a year earlier paid $765K. Now the house has been on the market for 100 days (at least, if you can believe that DOM) and is a "short sale".

Smooth move genius.

This is an $850K house and that's why it is not selling. But in today's market with a lack of funding...? You tell me.

We're #2

According to the WSJ:

Turmoil in the U.S. home-mortgage market is starting to pinch even buyers of high-end homes with good credit records, in the latest sign of rising anxiety among lenders and investors.

This surge in rates on so-called jumbo loans [marinite: mortgages that exceed the $417,000 limit for loans eligible for purchase and guaranteed by the GSEs Fannie and Freddie] is particularly notable because rates on 10-year Treasury bonds have been falling. Normally, mortgage rates move in tandem with Treasurys, but market jitters have caused investors to ditch mortgage securities.

"Buyers of high-end homes with good credit records"? Gee, that sounds a lot like Marin. So how exposed are we? According to the Mercury News, a lot -- over 78% (hat tip to the comment section of the Sonoma Housing Bubble Blog):

Percent of Bay Area counties' home purchase loans considered jumbo loans - over $417,000 - from January to June 2007.

Jumbo Loans by County

Alameda 56.8
Contra Costa 54
Marin 78.4
Napa 51.2
Santa Clara 72.7
San Francisco 77.2
San Mateo 78.8
Solano 29.8
Sonoma 39.3
Bay Area 61.9

We're #2!

But even #4 is starting to feel the love:

Even affluent, good-credit-risk Palo Altans are feeling spinoff effects of the national and international collapse of the subprime mortgage market. Local experts said today that even the financially fortunate are not immune and that the subprime collapse may even affect the venture-capital market and hence start-up businesses.

Marinites and wannabe Marinites can still get their jumbo fix at 7.5-8% but not for long. As "tom stone" said over on the Sonoma Blog:

Prime jumbo's are still available at 7.5%-8% with 20% down and good credit,but after August 15th,all bets are off.why 8/15? that is when the next window opens for hedge fund redemptions.one day long.then you wait 45 days to get your $ because they will need to sell some of those lovely rmbs to raise the $ to pay you.However there is NO MARKET for Alt-A right now.NONE.subprime AAA rated tranches will still sell if discounted 30% or so.Fitch reported this week that they were now going to consider debt to income ratios and dig deep down to the state level when measuring the risk of mbs... just think about being the defense lawyer for these guys "our risk model did not have enough fields to include DTI"...the deathblow was delivered by GW when he announced the markets were working and that real estate was assured of a soft landing.

When The Powers That Be trot out their sock puppet, the great "decider", George W. Bush, to make his prediction of a "soft landing", you know it's all over (does anyone even use the term "soft landing" anymore? Isn't it a little passé?).

Save the Implode-O-Meter

When the Mortgage Lender Implode-O-Meter first hit the blogosphere I didn't post about it. Instead, I just listed it over in the right-hand margin of this blog. I figured since this blog was winding down and most every other housing blog posted on it, that anyone who cared already knew about it. Even during its time of crisis I am only now blogging it.

The fact is that the Implode-O-Meter provides an extremely valuable service which is needed now more than ever and one that I am guilty of having taken for granted. Many blogs, whether administered by experts, insiders, or just regular folks, are the epitome of free speech, hold policy makers and opinion spinsters accountable, chronicle and tally events (even if imperfectly) as they happen and with a degree of honesty, openness, and natural authenticity that is sorely lacking in today's main stream media.

For a few weeks now the Implode-O-Meter has indicated on their site that they are being served with what they describe as a "frivolous lawsuit". I don't doubt it -- the truth hurts and will continue to hurt a lot of people. They are asking for donations to pay the extensive legal fees which they cannot afford and which will eventually shut them down unless we support them.

Please visit their site, decide for yourself, and if you are so inclined, donate what you can spare.

Theirs is not the first blog to be so threatened. And unfortunately, it probably won't be the last either. But imagine what it would be like if vested interests with their vast resources, acting like the music industry over the last few years, started waging war against bloggers by running up their legal bills to the point where they have to fold. We'd be stuck with just the main stream media, the mouthpiece of a privileged few.

I'm not addressing Marin residents. You are all too cheap, despite your "vast wealth", to fork over even a minuscule $0.0025 sales tax to fund a transit system that would have eased our traffic congestion and reduced air pollution. But for the rest of you, please consider a donation.

Pawned

It's not about Marin housing per se, but still...if it's true...

China threatens the US with the economic version of the "nuclear option":

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

So, will someone please remind me again of just how badly China really needs us?

Mill Valley's Redwood Trust, Inc. Stock Getting Crushed

But it's all ok because the Marin IJ says "they're different". What a relief.

The Blame Game Begins and Buyers are Front and Center

So I'm back from vacation. What did I miss? Oh, more sad stories about housing-crazed dolts losing their Bay Area POSs to foreclosure.

This sad sap (Jeff Hahn) is leaving the Bay Area for Los Angeles because he is on the brink of losing his house to foreclosure. I'm sorry, but if you pay a stupid price for a house, believe all that realtor/agent crap about 'housing always goes up', 'it's never a better time to buy', 'we're immune/special', listen to what your self-proclaimed-RE-genius friends/family say, etc. you deserve to lose your house as far as I am concerned. Just because someone is willing to lend you the money for a ludicrously priced house doesn't mean it is actually a good idea to pay that insane price. No sympathy from me. Sorry all you Jeff Hahns of the world, but you and people like you are the problem. If it weren't for dopes falling for the RE industry's self-serving hype and paying stupid prices for houses, this housing bubble would never have left the runway. The buck starts with the buyer.

To many people in the affluent Bay Area, losing a home to foreclosure sounds like a Depression-era relic or a Rust Belt phenomenon. But in recent months, the Bay Area has proven to be home to numerous victims of the subprime loan debacle.

Just like elsewhere in the country, people here with tarnished credit or limited funds bought houses that proved to be beyond their means.

Jeff Hahn bought the house, a nicely laid-out decade-old four-bedroom Colonial in a neighborhood of classic two-story homes, three years ago for $495,000. Later that year, he met Vanessa, they fell in love and started a family.

'When I first bought the house, everything was too good to be true,’ Jeff recalled. ‘No money down, instantly gaining $10,000 in equity. Written in very small print was that the loan will adjust in two years. Everybody I talked to said it would only be a (minimal) increase.’

Instead his two loans, initially totaling $2,200 a month, hit $3,700 last September. Several loans fell through for various technicalities. By the time a new loan finally came through in March, not only had the subprime mess caused banks to tighten their lending standards, but the home’s value had dipped.

Jeff had borrowed against the home’s equity to pay off some bills…start his business (and) to cover closing costs for the new $570,000 loan. The 40-year fixed-rate loan, at an interest rate of 10.5 percent, carries monthly payments of $5,000.

Why did Hahn accept a loan with higher monthly payments? ‘I was using credit cards to subsidize the payments’ on the existing mortgage, he said. ‘I was about to miss a payment. My lender said, ‘Take the loan, because it will save your credit, that’s the first issue. Then you can sell the house.’

The Hahns have not made any payments on the loan since it was funded in March. ‘Honestly, I gave up once (monthly payments) hit $5,000,’ Jeff Hahn said.

The Hahns put their house on the market, only to discover that real estate prices were spiraling downward in their area. Their house, which had been appraised for $630,000 in January, was now worth less. They started out listing it at $575,000, and now have dropped the price to $555,000.

So far, the Hahns haven’t received any offers. ‘My neighbor is selling his house for $505,000,’ Hahn said. ‘My Realtor wants me to drop my price another 100 grand.’

Jeff Hahn said he is bitter about his experience with home ownership.

Sorry Jeff, but like the lottery, housing prices of late have been nothing more than a graduated tax on stupidity.

Here's an article that puts the blame squarely on the shoulders of all the stupid buyers out there (emphasis mine):

Wells Fargo Bank has become the latest of the big name banks to join the ranks of born-again mortgage lenders, folks who’ve seen the light, embraced the truth and vowed to go forth and sin no more.

The sin, of course, is the wink and a nod lending that put people in homes who should have stayed in apartments or who put people in too much home for the income of the family.

Mortgage lenders have to take on the sober banker image of an earlier time. And borrowers have got to stop believing that just because they want something, they deserve it. Oh, and they might actually read the fine print.

An interest-only loan, more than 40 percent of the new paper being written in this county at one point, really means you’re only renting the money, not buying the house. Take one of those loans today and it means you’re really stupid.

And BusinessWeek hits the nail on the head (unfortunately, only in the last paragraph -- sigh):

But don't expect the lenders to castigate homeowners for taking on too much risk. "It's tremendously un-PC to say this, but this entire circle of blame starts with individual borrowers who wanted more for less, wanted it big, and wanted it now," says Mason. "They got greedy."

Well, there it is, bloggers like me who aren't afraid to place the blame where it belongs are "un-PC". Yeah, well:

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

-- Arthur Schopenhauer (German philosopher [1788 - 1860])

And since I am on the subject of quotes, how about some of my favorite investment quotes (not that I think houses should be treated as investments (far from it), but I know I am in the minority on this point) the truth of which we are being reminded more and more each passing day:

"Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang."

-- John Kenneth Galbraith

"The scariest phrase in investing? 'It’s different this time'. Scarier still is when people start acting on that conceit."

-- Justin Lahart

"You can lose a lot of money by selling too late. So can you make a lot by selling too early. A simple investment formula, based on effluents and body fluids: Be a seller when money is coming out the wazoo; be a buyer when blood is running in the street."

-- The Daily Reckoning

"To make money, you have to be greedy when everyone else is fearful and fearful when everyone else is greedy."

-- Warren Buffett

"When everyone thinks the same thing, no one is thinking."

-- Old traders' adage

"What you see depends on what you have seen."

-- Bill Bonner