Credit Weakness Spreads from Subprime to Alt A to Jumbo
Today’s WSJ:
“Rising defaults by affluent homeowners are raising the specter of another cloud over banks and investors, which could get stuck with thousands of expensive homes.
About 6.9% of prime “jumbo” loans were at least 90 days delinquent in December, according to LPS Applied Analytics, a mortgage-data research firm. The rate was up sharply from 2.6% a year earlier. In comparison, delinquencies of non-jumbo prime loans that qualify for backing by government agencies climbed to 2.1% from 0.8% in December 2007.
Jumbo mortgages average about $750,000 and can run as high as $5 million or more. More borrowers with such loans are being hit by layoffs that are spreading through practically every sector and pay level of the U.S. economy.”
This is reflective of two things: The abdication of lending standards during the 2002-07 period, and the ongoing economic contraction.
Check out all the jumbo loans going bad in Florida! Much worse than the rest of the nation — what sort of lending standards were going on amongst all of those builder-financed condos along the inter-coastal?
Geez, what junk!
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Source:
Banks and Investors Face ‘Jumbo’ Threat
NICK TIMIRAOS
WSJ, JANUARY 28, 2009
http://online.wsj.com/article/SB123310421416822271.html
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January 28th, 2009 at 7:46 am
And mortgage applications dropped like a stone last week, as the fragile economy responds severely to small changes in interest rates…a 40 per cent drop.
http://www.my-realestate-blog.com/mortgage/mortgage-applications-drop-as-rates-rebound-cnn-money
..the headline from last week….and today’s numbers:
1/28/09 7 am….
http://www.rttnews.com/CorpInfo/EconomicCalendar.aspx
The thought processes by consumers have changed. Everyone is trying to make their dollar stretch..the fed will have real problems getting people to go into debt..
January 28th, 2009 at 7:49 am
who didn’t see this coming? jumbo loan rates are still very high, if you have a loan resetting from some teaser rate to current rates most people are going to have a very hard time to make the payment couple that with a job loss (maybe you area manager at a big bank in one of these homes) then you just can’t pay.
Old news.
January 28th, 2009 at 8:25 am
Looks like waterfront property in Florida may become a reality after all…
January 28th, 2009 at 8:28 am
“what sort of lending standards were going on…”
Always with this question you must consider price. The system of appraising properties based on comps means that appraisals will climb the wall of speculation along with everything else and the result will be people underwater on debt. As far as I know, exactly zero attention has been given to changing or reforming this appraisal method.
January 28th, 2009 at 8:34 am
Little wonder then, as to why State Farm wants out of Florida.
January 28th, 2009 at 8:38 am
News Item: Perjury Charges Being Considered – Madoff Lied To SEC
That’s funny.
January 28th, 2009 at 8:38 am
o.k.
I know this is completely OT but I wanted to join in today in some of the general CNBC bashing that happens here.
Watching Bloomberg this morning, it is as usual, calm, informative, exactly what I want.
I flip to CNBC during the commercial and Joe Kernan is screaming about eating asparagus.
That pretty much says it all.
January 28th, 2009 at 9:11 am
Barry, time to update the Gross National Printing Press output, another trillion of largess for those wild & crazy bankers, 900B of stimulous, a trillion operating deficit, a few hundred billion for Fannie & Freddie.I’m sure glad we don’t have to pay back any of this.
Hyperinflation is the answer. Pay back foreign borrowers with The new American Peso, eliminate COLA for entitlements, higher marginal tax rates for hyperinflated salaries and illusory capital gains. The gummint can even save face selling these bad assets at a “profit” if hyperinflation jacks up all asset values.
Sure hope our foreign lenders don’t demand higher interest rates…
January 28th, 2009 at 9:22 am
Looks like the morning’s euphoria sparked by Liesman’s report is going to make skf a buy as it wears off. Of course, as we observed over 2005-07, foolishness can go on a lot longer than you think.
January 28th, 2009 at 9:25 am
Futures are pretty strong this morning. In re: S&P March Futures, I’ve got several layers of resistance 863 – 868.25 (cash is trading 3-4 pts over futures). If we can clear 868.25 on the futures, then we can move to 874 or 885 which are other levels of key resistance. So, it’s been a good little run, but I think time is running out for bulls.
I’m short SP Futures and would take the uncomfortable ride to 885.
Good Luck all.
January 28th, 2009 at 9:45 am
Morning Andy, my view still differs. think they’d like to see January end flat, and we continue to climb thru Feb. It’ll be a bumpy ride though. March would be the next turning point. Every day adds a new factor to consider so i may adjust my view as is my prerogative : )
January 28th, 2009 at 9:49 am
Going skiing again today. Chinese New Year makes my “day job” pretty slow this week. Good luck everyone.
Here’s a little tidbit that didn’t brighten my spirits – in Minny we’re headed for just the fourth time since 1891 (yes, 117 years ago) that the temps didn’t break 32 in the month of January. Not good times here in the North Pole but I press on!
January 28th, 2009 at 9:51 am
Feel a little guilty that I somehow got “lucky” and bought a small amount of WFC in the 15′s a few days ago. Oh well. Better to be luck than good. Feel like I need to take a shower jumping on that train though.
January 28th, 2009 at 10:02 am
Jumbo Loan defaults starting to affect the Westside of Los Angeles. Pacific Palisades has a high percentage of $2,000,000+ homes on the market now, with very few selling. One that did sell, took a beating:
5Br + 4.5 Ba, 5697 sq ft,YB 1995
Listed for $3,599,000 on 8/8/08
Sold for $2,200,000 on 12/11/08
Previous Sale:
Sold for $3,320,000 on 7/10/07
Westside is starting to take some big hits now.
http://www.westsideremeltdown.blogspot.com
http://www.santamonicameltdownthe90402.blogspot.com
January 28th, 2009 at 10:09 am
I get the feeling that alot of todays tape in the SPX will be dictated by what happens after crude inventories come out… I dont see us trading above your resistance levels on SPX without both financials and energy moving together, AT. You have a good shot at being right on fading this.
I-Man is scoping out longs in USO and UNG, waiting, waiting, waiting… channeling Axl Rose in “Patience” (without the leather pants.)
On DGP, I want it on a successful test of the breakout at 17.75 – 18, and I want to short it on a failure back to the bottom of the channel.
Sure were alot of buyers in coal, steel, and rails yesterday and it looks as if that will continue.
January 28th, 2009 at 10:09 am
karen. it’s ok to be bullish…a good technician can always make two opposite cases, however once case usually is “more probable” than another…
Use 844-848 (futures) as your pivot zone….In the bullish case that level “should” hold…
January 28th, 2009 at 10:13 am
good newsletter in the bpcafe by Jim Welsh… i disagree with him on gold, of course.
January 28th, 2009 at 10:26 am
Selling my BAC and WFC, keeping some of my JPM.
January 28th, 2009 at 10:38 am
You can see the layoffs and real estate crunch finally hitting inside the loop in Houston. Inside SW quadrant is generally most desirable. Can’t call it urban, but the everything’s relatively close together with a lot of nice neigborhoods and prices to match.
Lots of for sale signs popping up and also for rent signs on pretty nice houses. Don’t know if they are still owned by individuals or are early repos. Even saw one offering owner financing and one saying price reduced. Nothing like it 6 months ago.
Was browsing rentals and saw a 3bed/2bath townhouse for $1850/mo in nice neighborhood. Sunday paper for sale showed an identical unit nearby asking $445k for sale. So it’s not sinking in with everyone.
January 28th, 2009 at 11:36 am
@Mike in Nola –
you’re not in La? i always took Nola to mean New Orleans. i spent my youth in Baton Rouge.
got friends who live in Bellaire. the # of houses on the market is pretty impressive. appears lots of energy/oil peeps are hurting. every street has signs up, usually several.
mom lives in the Heights and new housing there is still going. $850K+ monster going in next door to her and a $700K+ across the street is being finished. both homes are already sold.
we’re still seeing a lot of movement in housing out in Sugar Land/Missouri City, but i expect this to begin to dry up.
Houston metro-area is going to be hit, we’re just a little behind b/c of the crazy oil prices from the summer.
oh for $4/gal gas to return….
–bcd
January 28th, 2009 at 11:38 am
They’re talking on CNBC right now about giving money to people who will spend it. I guess that’s why the market is up.
Did we already forget Monday’s job cut announcements? Did we already forgot credit card companies jacking rates up like crazy? (There was one posted here just yesterday going to prime+23.99% capped at 29.99%).
People aren’t going to spend it, they’re going to pay off debt. They’re addressing an old model that’s long since gone, not everyone has changed, but enough have had a sharp enough wake up call that the old boom days are never coming back. We need slow, steady and affordable growth and recovery after we reach a natural bottom, not this never ending stimulus crap.
This seems too much like giving Madoff 20bn to invest at the 11th hour just before he came clean – he can keep the scheme going for longer but delay the pain, but when it comes it will be that much bigger.
January 28th, 2009 at 12:11 pm
“People aren’t going to spend it, they’re going to pay off debt.”
Exactly, DP. The more the government works to preserve the existing structures and ‘management teams’ the less they will have fixed the problems and the longer people will stay away. Your investments and 401k got burned and now your future taxes are being committed to pay the guys who burned them – not very confidence-building, is it? So… sit out the next hand.
In this unwinding, the US government has been quite consistent in working against the best interests of itself and of its citizens and in favor of an elite group.
January 28th, 2009 at 1:36 pm
Bruce in Tn Says:
January 28th, 2009 at 7:46 am
And mortgage applications dropped like a stone last week, as the fragile economy responds severely to small changes in interest rates…a 40 per cent drop.
Reply:
But Bruce, how could the wizards of paper oz* not be able to put those damn rates where the hell ever they please?
Alas, whither the rates, this attempt at re-flation will end as badly, or worse, as the previous episode (2001-2005) of illusory value creation in the residential real estate market. The misallocation of capital will be more severe this time, though. Now all the banks are hiring mortgage loan processors for temp assignments to get through the crunch, which will likely not last through spring. Those folks could have better used the time to reconfigure their lives doing something else. This cat is dead, even if the wizards still have enough magic to make it bounce now and again.
*As many of you doubtless know, “oz” is the abbreviation for ounce, which is the standard means of measuring the price of gold and silver. In the book (not movie) “Wizard of Oz”, Dorothy wore silver slippers, walking on a street of gold. At the time the book was written, there was a huge and ongoing dispute about which metal should be the base currency for the US. Farmers and small businessmen, mainly debtors, wanted silver, because it would be inflationary, thereby making their debts more manageable. Wall Street bankers wanted gold. Dorothy was symbolically trouncing the bankers in favor of the farmers with her stroll down a gold road in silver slippers.
January 28th, 2009 at 2:09 pm
ben22 @ 8:03 a.m.
“I want to buy SRS but I am having a difficult time finding an entry point right now.”
Found your entry point yet today? or is it sub-50?
General question for the crowd: just how much bad RE paper would Ben & Tim have to soak up to sink SRS’ prospects for a significant bounce as RE unwinds in 2009?
January 28th, 2009 at 2:41 pm
General question for the crowd: just how much bad RE paper would Ben & Tim have to soak up to sink SRS’ prospects for a significant bounce as RE unwinds in 2009?
Reply:
Long-term, it doesn’t matter how much crap they buy, nor how low they push mortgage rates, because nothing will change the underlying problem with real estate–there’s too much of it. Inflation-induced temporary demand illusions do not change reality; they can, at best, only temporarily mask and postpone it.
January 28th, 2009 at 4:16 pm
Florida is slam full of dishonest fraudsters. If Florida’s 16.5% delinquency rate could be stripped of fraudulent transactions, I would imagine the delinquency rate of legitimate “organic” transactions would be much closer to the national average.
March 10th, 2009 at 5:13 pm
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