Posts filed under “Credit”

Brief Foreclosure History & Mortgage Delinquency Maps

A very short history of how we got here:

All of the turmoil in the CDO, hedge fund, and subprime space has come about due to a very simple reason: An inordinate number of recent home buyers have been defaulting on their mortgages.

The why of this is rather simple: These are the folks who historically have not been home owners due to their debt obligations, low income, and/or poor credit. In the past, they were known as renters.

The ultra-low rates that Easy Al put into place when he dropped the Fed Funds to 1% started an entire chain reaction of events: If high rates keep home prices down, well you can guess what ultra-low rates do. Home prices rose due to the lower monthly carrying costs, and we were off to the races..

But the boom begat a feeding frenzy, and corruption soon followed. The appraisers faked values to get loans approved (making a 100% LTV look like a 80%). Mortgage brokers quickly learned how to get nearly anyone approved through no doc/no income check loans, AKA liar loans. A bunch-o-new mortgage products came out — Interest only ARMs, LIBOR based, etc. I am not sure what legitimate purposes these very profitable products served, but we know what they accomplished: They got people into homes THEY COULD NOT AFFORD. 

Hence, when rates ticked up, when prices stopped rising, when people could no longer bootstrap paying their mortgages by taking out more home equity loans, the foreclosure rate began to rise.

When this happens, the RMBS/CDOs that have been sliced and diced and resold by iBanks to funds start to devalue. Since so many of these funds use huge leverage, the problem gets magnified.   

Hence, the recent Bear Stearns and other fund problems.

To put this into a geographic context, here is where the foreclosures are coming from:

2007 Q2 Delinquencies:
click for larger maps


Mortgage Delinquencies
WSJ, July 19, 2007

The Bear Facts: Mortgage Woes Are Apt to Worsen
Barron’s JULY 18, 2007 10:45 a.m. EDT

Category: Credit, Derivatives, Hedge Funds, Real Estate

“Right now things are starting to come unglued”

Category: Credit, Derivatives, Markets, Psychology, Real Estate

Borrowing & Spending

Category: Consumer Spending, Credit, Psychology, Real Estate, Retail

Underwater ARMs ?

Category: Credit, Data Analysis, Real Estate

10 Questions About CDOs

Category: Credit, Derivatives, Hedge Funds, Investing, Psychology

CDO Hedge Funds = Enron ?

Category: Credit, Data Analysis, Derivatives, Finance, Hedge Funds, Markets, Psychology

Read it here first: Borrowing FICO Scores

Category: Credit, Economy, Financial Press, Real Estate

Pressure on Home Prices ?

Category: Credit, Economy, Psychology, Real Estate

Go FICO Yourself: Selling Your Credit Score

Category: Credit, Economy, Real Estate