Market crash: are we there yet ?

[hellosailor]

sailhog-
Dunno. There was no reason for the market to reach 13,000 OR to crash at all, so who is to say what comes next?
A batch of greedy corporate bastards intentionally overfinanced houses, knowing that they could then make even more money by foreclosing on them and reselling them. This was INTENTIONAL GREED, not just sloppy math. I suspect they simply had no idea how successful they would be--and no thought as to what the consequences would be.
Kinda like the theory that Roosevelt wanted to turn a blind eye and let Pearl Harbor get attacked, knowing it would justify the war that the US wasn't interested in participating in--and again, simply having no idea just how devastating an attack might be. (Who'd believe all the local warnings could be ignored, the timing so perfect, yadayada.)

I guess it all depends on who arranges bailouts how well & "turns the herd" from the stampede mentality. What I can't understand is why the gummint is bailing out all the finance companies who intentionally oversold unqualified mortgages--instead of refinancing low-rate notes to all the folks who are losing their homes. Something creative like, "OK, This is the SallyNoForeClosureBalloonNote Program, we're gonna refi your note at 6% but when and if you sell the house, we're gonna take back half of your capital gains on it."

And, looking into legislation that in some way limits the size or qualifications or repercussions possible from predatory lending in the future. Maybe starting with something simple like "High risk mortgage notes shall not be resold, rebundled, or otherwise integrated into any other type of investment or security but must be kept as designated high risk mortgage instruments."

This nonsense that finance houses didn't know the bundles they were buyign contained junk mortgages is simply a load of bilgewater.

[Rickm505]

Well, since I'm one of those "greedy corporate bastards" who was lending all that money to what I guess you feel are "unworthy" people, I thought I'd correct your assumptions.

First, if we are forced to foreclose on a loan these days, we lose our shirts... and our pants.... and our undies... as we can't sell the home for anywhere near what we need.

Second, Mortgages are turned into MBS. The bonds are then rated by one of three New York rating firms. It is these firms who determine if the bonds are AAA or D- (over simplification). Based on those ratings, investors determine whether or not to buy them. AAA is as secure as a United states Treasury Note, and for some reason, many of these Mortgage Backed Securities acheived the same rating. Moody, S&P, and Fitch are now all tap dancing as to how this happened... and are changing their internal procedures.

Third --Mortgage Bankers sold laons based on what the secondary market would buy. Wall Street determined these guidelines. We were lending exactly what they were buying.

There's much... much more to say here, but I've run out of time

[SanderO]

I take a cynical approach to some the the "invisible" forces in the market.

The value of a house of a painting is obviously not the sum total of the materials that go to make it. The intangible value is added in and often ascribed to demand. If many people are chasing few things, they demand raises the market price.

Aside from the homeless, we live in an environment where there is more or less adequate housing... and paintings. But we have created the "need" for bigger and better and so forth so people are encourage to move "up".

To keep the housing market hot, you need to make funds available for people to move up and so the mortgage industry is there. The nasty bit cam when the rela estate prices were marching up at absurd amounts that people found themselves with "equity" which they could use for cash purposes. So the home equity lenders popped in. As long as the values were on the rise the ponzi scheme worked.

Then the bankers started getting more people into home ownership by offering all sorts of crazy loans which allowed people who could not afford to... acquire a deed to a house. Believing that the trajectory was up up up, even these naive people believed that the market would be their savior and create enough equity for them to beat the bank.

The lenders were tickled pink because many make money just on fees and sell the notes to someone else who sells them to someone else and each one up the chain takes their cut, discounting the value because the loans on the face were so lucrative. But the borrowers couldn't meet the terms., the revenues began to dry up, the properties went into foreclosure and this tanked the bloated real estate market. The equity that the market created disappeared and the home equity borrowers were now saddled with another loan and no way to get out.

The problem is... among many... that there is no relationship to the value of real estate to its true underlying value and when you tinker with the value by messing with supply and demand through loan practices even the emperor with no clothes crowed sees lots of skin. All these suckers taking fees could care less.

I suspect this was all a scheme created by the believers in supply side economics who think that value can be created by demand with no exceptions. Housing is a basic need so all Americans were in play and the vast numbers at the bottom of the food chain were rip for the picking, despite their limited financial resources. And let's not forget all the speculators who were flipping property and driving the price up to their own benefit. And every transaction there was the fee suckers.. closing fees, real estate brokers.. all making out for providing very little value or service.

Capitalism as practiced in the financial sector is largely a ponzi scheme. These suckers produce so little for what they take off the top. Look at the guys in hedge funs... making billions for betting. hahahaha Now that's productive work.

And don't forget that banks are allowed by law to lend 10x the amount they have on deposit. Right there you have a prescription for disaster.

Don't listen to me... I know nothing.

jef
sv shiva

[BADG]

There is no one sector or group of people to blame for this. What happened in the RE market defies all logic...just like it did in the late 80's. EVERYBODY was all too eager to jump in head first and go along for the ride AGAIN. Do we ever learn from our prior mistakes? People over extended themselves and then spent like they were high rollers. Now that the mortgage avenue for doing so is gone the credit card industry will get their turn.

The "victims" who purchased homes they could not afford are not blameless. A responsible adult knows whether they can afford a home and how much home they can afford. They also know that spending a homes equity as if it were income is not a wise choice. So while the mortgage industry has been a little out of control in many ways in recent years, the bottom line is we are all responsible for our purchasing decisions. You know that with an adjustable mortgage...the rate is going to go up! You know that when it does...you can't afford the payment! If one considered that rates have been for years, and continue to be, at historic lows for conventional, fixed rate financing then WHY WOULD ONE EVER TAKE AN ADJUSTABLE "TEASER" RATE? To get the BIGGER and BETTER house that you can't afford. And now the equity is gone *poof* and people are stuck. It's foolish and just because somebody is selling it doesn't mean its good for you and that you have to buy it!!!! We reap what we sow!

For at least 2 years now there have been numerous warning in the media and from government officials warning consumers that they are going to get killed when their ARM expires and the rate goes up. Anybody still stuck in an ARM today is there at their own poor planning and decisions. MOST, not all but most of those being foreclosed are "victims" of their own doing. Govenment bailout should not be applied without qualification or cost to those being bailed out. I do agree that the bailout should occur at the consumer level and not at the lender level though.

As far as the mortgage lending industry is concerned, there is little oversight on the "street" level. How can it be that mortgage lenders can be qualified for a license to lend in all 50 states? RE is a local market - EVERYWHERE!!! How is it possible that ANYBODY and EVERYBODY with so little as a pulse can sell mortgages w/out qualification under the umbrella of that brokers license. EVERY other aspect of a real estate purchase is licensed with continuing education requirements on an individual level. Realtors, appraisers, closing attorneys, home inspectors, pest control, home improvemnt contractors ALL MUST BE LICENSED INDIVIDUALLY. Mortgage brokers have ZERO initial compliance or continuing education requirements as long as they work under a lender license. How is this possible?

I'm just getting started but I do have to get to work so I'll stop now. Thanks for the bandwidth.

As a parting shot, one of my favorite quotes from Mark Knopfler of Dire Straits, "When you point your finger cuz your plans fell through, you got three more fingers pointing back at you."

[ReverendMike]

Very nicely put BADG. It amazes me that people are 'surprised' that the housing market is cooling off a bit (and what that means to their equity, or lack thereof). 'unprecedented growth' was supposed to be sustainable?

[hellosailor]

Rick-
"First, if we are forced to foreclose on a loan these days, we lose our shirts... " If you feel that you're a greedy corporate etcetera, please bear in mind I did not call you that personally. You, in your firm, may lose your shirt on a foreclosure.
But many firms--the ones tagged as "predatory lenders"--intentionally structured terms that would CAUSE foreclosures, and they welcomed taking over the house and selling it. Presumably into a rising market, where they couldn't lose a thing.
It's easy for you to say that you made loans this or that way, or conducted business in certain ways, because that's what the markets supported or demanded. So? There's a great market for livers, lungs, and kidneys, does that mean I should go overseas soliciting them? Arguably yes, it prevents people from dying--even if the trade is illegal.
If you are "in the business" there have been plenty of warnings that this could and might happen, and it was an easy and obvious question to ask "How are these people going to pay these notes?". If you chose to ignore it, that was a bad business decision. We all make them--but in this case, oink oink, an entire industry was making them wholesale.
If you chose to make bucks in risky speculation, that was your choice. You've probably made more than I have. Now, comes the downside to taking all that risk. I don't feel any sympathy for those in the business, who knew the risks and took them. I feel some--but not much--sympathy for the rubes who bought into "MAKE MONEY IN FLIPPING REAL ESTATE!" seminars, and way overextending themselves on mortgages. And a bit more, for all the folks who were conned out of their life savings--because they were just too dumb to understand either the risks, or that there was no gummint out there obligated to protect them from predatory practices. Being an innocent victim, doesn't mean someone with no obligation failed to protect you.

"Oooh, look, it's raining! Why isn't there anyone handing out umbrellas? And opening them over me?!"

Nah, doesn't work for me. I only see one set of villains here: Speculators. Whether they were lending, buying, selling, flipping...all the same.

[SanderO]

Oh... and don't forget about all the money the players made BEFORE this bubble burst. Perhaps they have been socking it away for 8 or 10 years and now they ring up some loses... Sympathy... naaa

Most of those uber rich have sheltered at least part of their ill gotten wealth offshore.

jef
sv shiva

[sailaway21]

jef,
As a supply-sider myself I would be greatly interested in your explanation of how value is created by anything other than demand.

There is no such thing as "inherent value" in economic terms. In philosophic or moral beliefs there is such a concept, but we're talking economics. If you are a castaway on a desert island, a glass of fresh water may well be worth the five hundred pounds of gold you are sitting on. And, uh, that would be 'demand".

BADG,
Good post-spot on the money.

[sailhog]

BADG has it figured out. We recently bought a house, but didn't want to sell our house in Colorado. This meant we didn't have a lot for a down payment. I looked into every mortgage scenario possible, including the new negative amitorization loans. The payment was LESS THAN HALF what it would be with a standard 30 year fixed mortgage, and meant we would be able to buy a HUGE place near the beach. Very tempting. The mortgage officer explained that, yes, the payment would later "go up." She wouldn't offer much more than that. But you could smell it over the phone, even if you don't have a clue about finance. She was a ******** artist, and she was trying her best to sell us something that could easily destroy us financially. Standard 30 year mortgages were for "stupid people." But that's what we ended up getting. In the end we decided to buy a small place (but at the highest point of the island -- 21' above sea level) that needs lots of work. This weekend I'm gutting another bathroom and laying tile...

[bestfriend]

Originally Posted by sailhog

This weekend I'm gutting another bathroom and laying tile...

.....with peace of mind. Good choice hog.