Fitch: Massive House-Price Losses in Non-Conforming Areas to Come
Posted on July 25th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
Fitch Ratings, arguably the only rater with their act together other than Egan-Jones, just finished with its ResiLogic enhancements. Its new mortgage loss model will be released today. In it, its new National, State and MSA-level economic and house price forecasting will make their modeling ‘far more predictive and forward-looking.’ That is a nice way to put it.
BIG PROBLEM – This more micro look at the housing market in the 25 MSA’s that in the past have contained the most ‘non-conforming (Jumbo) lending, is coming up with massive house price losses in key areas with San Diego dropping as much as 47% over the next 5-years! San Francisco is looking at an additional 33%.
These are your heavy Alt-A areas. Fitch is getting ahead of the curve this time around. I have been telling you for a few months now that according to my proprietary data while subprime defaults are falling slightly, Alt-A defaults have been soaring in the past four months led by Pay Option ARMs. Prime defaults have also spiked.
Their estimates are dire, but I feel could still be on the conservative side given the absolute lack of non-conforming financing, massive supply, sales not picking up substantially this summer selling season, over 40% of all sales coming from the foreclosure stock, values only falling for about a year and defaults in Alt-A and Prime mortgages substantially picking up steam.
- The MSAs represent the 25 areas that have historically exhibited the most non conforming mortgage lending activity. ‘Some MSAs such as San Diego and San Francisco, CA are expected to experience home price declines by as much as 47% and 33% over the next five years, while home prices in MSAs such as San Antonio, TX are expected to appreciate by 7%, over five years,’ said Somerville. The home price forecasts are imbedded in the state and MSA level risk indicators and will be updated quarterly.
ResiLogic’s new model looks to be robust and takes into consideration many of the things that are top on my list of risks. The systems new capabilities include:
- Introduction of MSA and national macroeconomic risk multipliers;
- Ability to analyze seasoned loans and to take into account loan payment history and house price changes since loan origination;
- Additional penalties for loans originated with stated income or no income/no asset documentation programs;
- Additional penalties for loans originated with second liens;
- Reduced credit for loans with mortgage insurance
This new model will negatively impact Fitch’s loss assumptions and credit enhancement levels for Residential Mortgage Backed Securities. This is mostly your Prime and Alt-A RMBS and not the subprime, meaning if S&P and Moody’s update their systems, round 2 of the mortgage and housing implosion could kick off with Alt-A and Prime leading the way. - Best Mr Mortgage
Fitch will host a webcast next week to discuss its new U.S. RMBS modeling criteria (separate press release will follow). In the coming months, a commercialized version of ResiLogic (ResiLogic 2.0) will be made available by Fitch Solutions.
Contact: Suzanne Mistretta +1-212-908-0639, Wen Hsu +1-212-908-0633 or Huxley Somerville +1-212-908-0381, New York.
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278.
Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, ‘www.fitchratings.com’. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.
Source: http://fitchratings.com/corporate/events/press_releases_detail.cfm?pr_id=427102
July 25th, 2008 11:53 am
Mr. M. if I understand you correctly, and please let me know, anyone currently using Fitch as their rating agency will now have to market their holdings to these new parameters for RMBS???
If this is true then I see why you used the word “massive” in your headline. I also see Fitch getting tossed out on their rearends by many folks using them currently. Unless the others jump on board with this Fitch will be black balled almost instantly. Let’s face it many banks and lenders couldn’t actuallly do this and stay solvent. We all know some are insolvent anyway, but this would surely expose that big time wouldn’t it?
Please respond so I am sure I understand what you are saying… So much is happening right now and so fast that I want to be sure I get this right.
Thanks!
July 25th, 2008 1:36 pm
maybe some one can give me advice-we did not get in over our heads- in fact we can afford our house- we have good credit and should never have been put into this stupid loan- I am not schooled in trickery and had no idea that there were other options- our broker said this was the best he could do we believed him since he goes to church lol. Call me stupid but just send some advice- we are upside down in the house-not as bad as most-so no refi option. we are trying to get aurora loan services aka lehman- to freeze or modify. they don’t do that with customers who are current. I don’t want a bail out because thats gonna cost me in taxes. Just some advice would be good.
July 25th, 2008 2:44 pm
bought at the wrong time,
It seems to me that you answered your own question. They will not talk to you because you are current. If you stop making payments then they have time to talk is what it seems like you are saying. If that is so, then it is up to you to put yourself in the drivers seat. I wonder what would happen if you called back and said that you intended to stop making payments and wanted to make a future appointment at this time so that you could mark that down on your calender…. LOL
If it was me and the worst that was going to happen is I was to lose points on a credit rating, and the lower credit rating got me the deal, then I would go for the deal. I guess everything works backwards in a declining market like this.
I would not be surprised that if you went to a professional they would tell you to come back after you miss a couple payments to bring them to the table. I think that would give them more power when the approach is that if you do not deal with this now, you are going to take another 20% haircut on top of current value.
The reality is though, since the bank is not going to get the property on the market for another 4 months after they give you the notice of default, they are likely to take a 20% haircut off of prices 4 months from now which will be lower still.
Yet another consideration, do you really want to refi now and lock in a value when prices are set to decline even further? We could easily go down another 20-30-40% from here and you will be back in the same boat, underwater on an investment.
July 25th, 2008 2:53 pm
The whole problem with the situation is that the loans are non recourse. The only way to get a handle on the current situation is to pass a law making the loans recourse retroactive, otherwise everyone will just walk and leave it to the taxpayer.
Otherwise, the responsible people get left holding the bag.
July 25th, 2008 3:02 pm
Thanks- I keep thinking just ride it out, we are fine with finances- but my rate changes every 6 months, this last change in june was great it dropped but now the rates are creeping up and since aurora is so shady they may bump higher than we wanna pay. This just sucks I love my house but so tempted to get one that is even better for less and let aurora eats this one. That however is not the right thing to do. So i end paying them and then i end up paying for everyone else? crap. Not so sure poor credit will work either that will just kill everything else. I just don’t think I should have to take the hit.
July 25th, 2008 3:23 pm
Well Congress is going to make you take an additional hit with future taxes anyway. This is the way I look at it. You signed an agreement on a non recourse loan. If you do not make the payment, the bank takes the property as agreed when you signed the loan. You have to tell the bank that they need to keep their end of the bargain…
A non recourse loan is like a lifetime satisfaction guarantee. The greatest danger I see is that they are going to wise up and pass Federal retroactive recourse to stick people and stop the walk aways. Otherwise there is basically no bottom. This could come as an emergency order at any time.
This will not fix the problem of loan defaults but will put the decline at a more manageable rate and return power to the banks.
July 25th, 2008 3:39 pm
“A non recourse loan is like a lifetime satisfaction guarantee. The greatest danger I see is that they are going to wise up and pass Federal retroactive recourse to stick people and stop the walk aways. Otherwise there is basically no bottom. This could come as an emergency order at any time.”
BertDilbert: I thought of this possibility previously. Do you have any reason to believe this sort of action is forthcoming, or are you (like me) just thinking of what possible actions may occur down the road?
Anybody else have any thoughts on this?
July 25th, 2008 3:52 pm
Bought at the wrong time
Been there done that. Same situation except we’re in a 30 yr fixed. I had the President’s office at Countrywide straight up say no deal unless I’m behind. So now I’m 4 months behind, and they say no deal because we CAN pay.
We’ll we’re 200K neg equity, and I’ll be paying for everyone else’s bailout for the rest of my life. Its all a joke, you have to become a self preservationist at some point. With the money you save on payments while it takes them 2 years to foreclose, you’ll be able to buy another place for cash when you leave at the rate values are dropping.
July 25th, 2008 4:10 pm
We also bought at the wrong time. Jumbo, 30-yr fixed, 20% cash down. Now underwater and continuing to sink like a stone.
As Wok says, we’ll be paying for everybody else’s bailout no matter what we do with our own mortgage. We can afford to pay it. Haven’t been late with a single payment, on this or any other house, ever. At some point, though, we’re gonna have to make a decision: be the only idiots left still paying $6K/mo on a depreciating “asset” which will not be above water for YEARS, all the while shouldering the tax burden for all the others who decided to walk, OR finally walk away ourselves.
It would be just our luck that after finally making the decision to “walk”, our non-recourse becomes recourse, as suggested above by BertDilbert.Arg.
July 25th, 2008 4:10 pm
Wok A. Weigh
See, that is what I am talking about. In theory the banks only option on a non recourse loan is that they take the property back.
So they are either waiting to take the loss later or waiting for legislation to retroactively change the terms of your existing loan…
As you readily admit, there is no reason to pay at the current time, just tell the bank to jump in a lake. This is where I see Congress moving in to put a stop to this situation.
July 25th, 2008 4:21 pm
You should not walk away from a loan you can afford, just b/c you’re underwater. You agreed to a price, you should stick with it. If you have an adjustable rate mortgage, you knew that also.
When you buy a new car, you’re upside down as soon as you drive off the lot.
July 25th, 2008 4:22 pm
wow- thats crazy- see I would be like you- I can pay and I have to prove I cant even if I default- what do you do, hide your money? I think they want you to default then the have a chance of bail out money- My 2nd is a heloc with wells fargo I guess they get nothing huh? I knew some folks who were the top brokers at countrywide they were all cheaters so sorry you got with them- They are now all at AIG so careful if you get insurance
July 25th, 2008 5:04 pm
bought at the wrong time
Look, if you guys have too much money, just tell the bank you joined the Temple of BertDilbert and your new religious conversion has created a financial hardship. Send checks to PO Box 777… Otherwise seek professional guidance. I don’t think Green Credit can help unless you are behind and the bank has no reason to deal if you are current.
But you guys see the problem here and that is everyone is going to stop paying if they know they are going to be better off by doing so. Yea you will always have those that will pay as agreed no matter what but it is going to be pretty tough watching everybody line up at the taxpayer trough of debt reduction. As for the second, is that a non recourse loan? Seems like I heard somebody say different at some point.
July 25th, 2008 5:10 pm
I dunno- I am no expert and not even a novice at these things. Thats why I am here to begin with-the experts in swindilization took advantage. You’re right woc, just walk and let them eat this. Do you know of anyone who has aurora? any info at all- Thanks for repling BTW That crazy eternal person takes over all the blogs with church stuff.
July 25th, 2008 5:37 pm
this report is so ugly and it was mostly blown off today.
July 25th, 2008 6:00 pm
America has really showed it’s ASS these past 11 months.
Wall St. Shillsteins run domestic ploicy.
D.C. Shillsteins run foreign policy.
This is not you father’s America.
July 25th, 2008 6:42 pm
I’m a trader for many years. The market never ceases to amaze me. I don’t believe in the PPT. But I’ve never seen a market that was more manipulated than this past week.
The financials had the most robust rally in history. And is there any ANY doubt that it was due to the emergency SEC short-selling rule? Puh-leeeze. Short positions fell by 85% in this financial rally.
Just when you think this Fed and government is out of bullets…they just make more!?!
I wish Ron Paul had a shot at the presidency. I would give my left nut for that to happen. Heck, I would give both nuts, I’m already a family man.
July 25th, 2008 6:57 pm
Yeah, yeah, what are your “proprietary” data sources? An analyst report you happened to get your hands on? Some publicly available data from a data provider or real property data? Give us a break!
I noticed you never posted my request for you to provide EVIDENCE for your AltA and Subprime outstandings.
July 25th, 2008 7:06 pm
So, people have to spend up all their savings, stop paying,killing their credit ..then and only then, the banks will CONSIDER working with you?? What a joke.
This does NOT sound like a good option. In fact, I don’t see any way out off this if you are underwater, and can’t afford your payments.
Maybe bring back indentured service?
I have a feeling that the middle class just got annialated.
Welcome to the Lower class!
July 25th, 2008 7:10 pm
LOL..Wait! I think indentured Servitude is already here!!
“An indentured servant is a form of debt bondage worker. The laborer is under contract of an employer for some period of time, usually three to seven years, in exchange for their transportation, food, drink, clothing, lodging and other necessities. (but nothing for many today)
Unlike a slave, an indentured servant was required to work only for a limited term specified in a signed contract.
A major problem with the system of indentured servitude was that in many cases, an indentured servant would become indebted to their employer, who would forgive the debt in exchange for an extension to the period of their indenture, which could thereby continue indefinitely.”
July 26th, 2008 12:26 am
You guys need to man up to your commitments.
July 26th, 2008 12:43 am
These blog comments illustrate the ultimate problem in the mortgage crisis – in the hardest-hit markets there is no incentive for those who can afford the payments to continue make them, especially in those markets with a ton of jumbo or non-conforming loans that goosed up prices to levels that are not affordable or sustainable.
I put myself in the position of a guy in CA with a payment on a $600k house now worth $400k – you can either pay the $6,000 a month and continue to lose value or stop payments, get foreclosed, and save $30-70k while the bank stumbles around to taking back the home. Sure, your credit will get hit but the “penalty” for getting foreclosed is relatively minor compared to the savings for stiffing the banks on the payment.
It is created a bizarro mortgage world where the debtor can play a game of chicken with the lender as to who wants to keep their obligations the least – either the debtor to keep making payments or the bank to foreclose and have to take the loss.
Whether it was loose underwriting, bad appraisals, too little money down, absurd government subsidized policies and programs, there is no doubt that the manufactured home finance industry will go down as the greatest financial disaster in US history since the Depression.
And worse yet, our government now doubles down on the death spiral with insane bailout packages that will ultimately only help the banks – people may stay in homes but unless they help everyone, the home values are not coming back anytime soon.
July 26th, 2008 1:07 am
It’s most probably because the Wall Street banks want the situation to get worse so that they can get what they want, want to guess what that is….BAILOUT!
July 26th, 2008 1:19 am
OK Time to cool down a little bit. Mr Mortgage , with due respect (big), you have made a mistake with your posting.
The Fitch house prices assumptions (for they are that given that no proven model of house prices exists…….belive me I am an economist) are for declines in REAL TERMS and over five years.
So if inflation is 3% pa you can knock at least 15% points off those numbers to see their assumptions for actual price declines.
Otherwise it is still frightening for some areas (but not others). Many of the worried people in this string should go to http://piggington.com/ were they will find mich more fine grained advice for S. Cal.
July 26th, 2008 3:18 am
G Cox
I call “idiot” when I see it. You state that Fitch’s numbers are for “REAL TERMS”. Then you state that they need to be inflation adjusted. Don’t you understand that “REAL TERMS” is inflation adjusted? Don’t you also know that an economist would be very familiar with that? Oh, you claim to be one. I also call “liar” when I see it too.
I just to turn it around, I am going to throw a semi quote here.
“with due respect (little), you have made a mistake with your posting.”
Not that I am expecting a Mea Culpa here, the best part about this forum is after committing suicide, you can come back with a new ID.
July 26th, 2008 6:23 am
BertDilbert,
You are rather rude. Is that necessary?
Mr Mortgage has made a mistake in the posting. He is not God and can make mistakes now and again. By the way, I am an economist and that is my real name.
The posting states this
‘massive house price losses in key areas with San Diego dropping as much as 47%’.
No where does he say that these are in real terms ,: ie after inflation adjustment. Not stating that the 47% is in real terms is a mistake and is accidentally misleading. I posted for that reason and to indicate what the rate of actual price decrease being assumed was under the Fitch figure . the price adjstment is to get to the “actual” price deflation assumed
Inflation adjustment increases the % change number when we are talking of declines in nominal prices (just as it decreases the number when adjusting percentage increases).
So if you take the 47% and want to see that in terms of actual house price changes (ie no inflation adjustment), such as his ‘massive price losses’ it is a loss 47% MINUS the assumed general inflation rate over five years. Thus, assuming the CPI rises by 15% and that is Fitch’s assumption, you end up with a decline assumed of 32%; still big but not 47% .
Personally, I don’t think that housing discussion benefits from the use of real house prices, unless there is specific analytical reason. Nominal house price change is most useful since most people are concerned about how that stacks up against nominal mortgage rates and the nominal value of the mortgage. I do not know why Fitch would use real house prices changes unless it is to give the impression that they are super careful now (after they and their ratings agency pals caused about half a trillion losses round the world and catalysed a serious slowdown) by exaggerating the headline percentage change figure quoted. Having given that a second thought, I think that is the only reason they are quoting real changes! And this will confuse many people. No doubt people in SD are going around today saying that a rating agency has said “prices” will fall 47%
July 26th, 2008 10:50 am
g cox- that sounds like the explaination my brokere gave me for my loan- didn’t get it then, don’t get it now. I live in San Diego and houses that went for 600K are being sold for less than 400k. They should have never been sold for that much in the first place- shady appraisers and greedy realtors pushed the prices too high.
July 26th, 2008 12:53 pm
G Cox
The fact remains that you stated that Fitch’s prices were for “REAL TERMS” and then stated that they needed to be adjusted for inflation! Perhaps even now you do not know the absolute absurdity of what you said.
Now let’s go to an economist website and look up “REAL TERMS”
Real terms
A measure of the value of MONEY that removes the effect of INFLATION. Contrast with NOMINAL VALUE.
http://www.economist.com/research/Economics/alphabetic.cfm?TERM=REGULATION#realterms
In my view, an economist, which you claim to be, would be very familiar with the terms and state nominal and real terms and not screw up. While you were quick to point out a second time Mr. Mortgage’s alleged error, you never addressed yours. I thought I would return the favor.
July 26th, 2008 1:20 pm
Kiss and make up you little ho’s.
Bert and Cox: I could have made a mistake. I have always assumed that when the raters make forecasts such as this they factor in inflation. We all know, however, that inflation is ‘tame’ and should remain ‘well contained’ so does it even really matter.
To most Joe 6-packs out there, I am not sure any of it matters. If they bought a home for $100 in Jan 07 and 2 years later it is worth $75, their home price has fallen 25%. Nobody sits around with their families and factor in inflation when making real estate decisions.
A 2-3% per year inflation rate maybe offset by a 2-3% income pay increase but a 25, 35, 45% fall in your home price is all the same. Once you get past a point of easily curing the negative equity deficiency it does not matter.
So, even if I am wrong, the fact is this Fitch report is crushing inflation adjusted or not.
July 26th, 2008 2:06 pm
“They should have never been sold for that much in the first place- shady appraisers and greedy realtors pushed the prices too high.”
ROFLMAO
Really? Why didn’t you include at least two more culprits- “greedy buyers” and “stupid buyers” ?
July 26th, 2008 2:49 pm
Stu: Most RBMS issues require two rating agencies. Typically they must be within two “degrees” (scroes) of each other. Anything more than this and they will average the two ratings. Firing the rating agency does not sit well with the SEC or Congress these days, so I doubt it is an option. Escpecially since Fitch has been way ahead on the ratings accuracy charts.
BertDilbert: This has been suggested before. Non-recourse loans are contractual. Passing laws to make them retroactively recourse would likely violate the commerce clause of the Consititution.
July 26th, 2008 3:31 pm
Oh really Arnold-
not everyone who was buying was greedy- stupid maybe and I think they will tell you that- the market at the time was leading the lambs to slaughter because the average person isn’t real estate savvy. Most don’t want the bail out, some can even afford their houses- the fact is the corrupt mortgage industry (not all), knew they were putting people into houses they couldn’t afford and into loans they would default on. Realtors trying to get people to bid 10k more than the asking and the drive by appraisers (they didn’t even put that much into it)knew they were artificially inflating the market. People just wanted a home, I was lied to by my broker, appraiser, realtor and home inspector- too late for me-I can pay my mortgage just want to get out of this stupid adjustable. You are probably well versed in the industry so we all seem like idiots- The problem is the bail out is a joke- I don’t want anyone to pay for my mistake- I just want my bank to work with me, defaults not an option- Then I have to some how prove I can’t pay- what kind of sense does that make?
July 26th, 2008 5:28 pm
People like “bought at wrong time” make me want to VOMIT. Its everyone’s fault but theirs.
The greedy appraiser found 3 houses just like the one you bought that sold for the same price adjusted for room size, amenities etc. They didnt force the value up, the 3 people who bought within 6 months of your purchase did. You thought it was a deal at the time or you wouldnt have bought it.
Lehman cant get “greedy” and change your loan terms. They were locked in at the time of the signing. They cant manipulate the index, it had to be a published index that no one bank can control.
The greedy realtor didnt force you to over pay for the home. They didnt come to your house and drag you out and make you buy the house, you went to them. The loan officer didn’t “put” you in the loan, you could have asked for a 30 year fixed. In fact you proved he did his job correctly. You can still afford the payments AND the payments actually went down. Now you want the greedy lender to eat YOUR mistake and lower the amount you owe them, yet you have no good reason for doing it OTHER than YOU made a mistake.
If it wasnt for all you people who want go back on your promises (to pay), we wouldnt be in this mess. Maybe if we went back to debtor prisons instead of just letting people off the hook and putting a black mark on their credit, we could stop this unraveling of the entire financial system. Just one more example of the greed and irresponsibleness of the average person who wants to blame everyone but themselves and have someone else bail them out. It makes me want to vomit.
July 26th, 2008 6:15 pm
LO in Cali
You seem to place the burden of the problem on the
home buyer. Let’s call them sheep. As you know,
sheep require shephards. If the sheep were allowed to
get bound up in the briar patch and now threaten the
existence of the shepherds, was it the fault of the
shephards or the fault of the sheep?
The shepherds cheered and supported the deeper
and deeper the sheep wandered. Now the shepards
cry, blaming the sheep? If the shephards are truly conceerned for their long term well being, they understand the importance of the long term health of the sheep.
July 26th, 2008 6:25 pm
ok LO hold the door-
I said I can pay for my house-I have no expectations for lowering what I owe or even my payment- I just want to lock it. I alrady said several times that I made the mistake- I should have went to mortgage school so I would better understand my loan, I would know what questions to ask.
I didn’t over pay for my home,(thats why I can afford to pay it) in fact I bid under the stated price and got it- my realtor wasn’t happy about that. I only asked to get a locked rate- so go back and read it again once you get your head out of the toilet.
“We wouldn’t be in this mess if the lenders/brokers didn’t give loans to people who didn’t qualify”. The market wouldn’t have been flooded with every joe on the streets. We wouldn’t see pricing sky rocket and wouldn’t be in this mess. So Why would they do that- oh because they got paid to. Isn’t it up to the industry to say “You don’t qualify” That should make you vomit.
July 26th, 2008 7:00 pm
They did qualify. Yes there were relaxed standards but it is still up to the buyer to decide what he can afford or not afford. I ain’t your mama. You are an adult. You make your own decisions. Im sure you wouldnt want someone to tell you what to do. We constantly preach how our way in America with freedom of choice is the best way, yet when we make mistakes we want someone else to take the blame. Buyers may have made stupid decisions but they are not sheep. They are people with brains and the right to choose and hopefully the good sense to make good decisions. You want someone to make your decisions for you, move to Russia.
July 26th, 2008 7:04 pm
“You seem to place the burden of the problem on the
home buyer. Let’s call them sheep. As you know,
sheep require shephards. If the sheep were allowed to
get bound up in the briar patch and now threaten the
existence of the shepherds, was it the fault of the
shephards or the fault of the sheep?”
When I did something stupid as a kid and told my mother “Everybody else was doing it” she used to say “If everybody else jumped off a building, would you do that too?”
July 26th, 2008 7:23 pm
LO in Cali
Yes but it really doesn’t matter anymore. Most of
the sheep are going to jump off the side of the
building and since our legs are shackled together
through taxpayer bailout, the decision as to whether
or not you jump off the building has somewhat been decided for you. You can call someone stupid, but
guess what, he’s taking you with him so we all may
as well decide to get along.
Peace
July 26th, 2008 7:28 pm
opps, dilbert slipped one in on me before I could ask
“you signed papers obligating you to pay back HALF A MILLION DOLLARS and didnt understand the terms?”
July 26th, 2008 7:58 pm
Lets be realistic here- you all use “you signed the papers didn’t you” again I never said I was well versed in the mortgage industry-I didn’t realize I needed to police the industry, I didn’t know they were going to shake me down- I trusted them and I obviously shouldn’t have-and by you LO saying they qualified you probably put some of them thru. They didn’t qualify, no one qualifies for 700K when they make 50K there is no way, unless you say you actually make more where were those documents?
and no one knew, that everyone was doing it, so we would not be jumping with anyone- hearded is the correct term- lets be honest the industry should have known what these loans would do- so why have these loans?
I realize people like you lo hate people like me- but I don’t qualify for the bailout- I just have to, like yo,u pay for it.
July 26th, 2008 8:50 pm
lo: “you signed papers obligating you to pay back HALF A MILLION DOLLARS and didnt understand the terms?”
that is hilarious- what normal person understands the papers? those are really for the industry- no one understands all that mortgage lingo- again I was stupid- but just because you can rip someone off doesn’t mean you should
July 26th, 2008 9:16 pm
LO in Cali, I have never owned a home.
bought at the wrong time
I think that the part of the problem is that the
government went along with the program that everyone
should be able to own a home, that it was the
American dream. The government saw tax dollars and a
thriving economy and the public saw ATM machines and
the banks, brokers and realtors said life was good.
Apparently in the process a key element was overlooked
called “after math”.
We can say that toxic loans were the problem and from
looking at the banks going under, they aparently
engaged in a gross miscalculation. Let’s not forget
that even Greenspan issued a green light for
adjustables. Stated income? Whose clever idea was
that? What I saw was a lot of greed on the way up and that people were lying right and left was no secret.
July 26th, 2008 10:22 pm
Agreed to that-
I was just wondering if there any good news out there ? we are already in this is there any way out?
LO: really this is how it goes “when I asked my mom if I could jump off the bridge, she said no” she didn’t say go ahead cause I will make a huge commission not only from the fees I charge but from the kick back I get from the lender called YSB- we didn’t just jump we asked and they said “sure” suckers. you see your mom has your best interest brokers (not all) had thier best interest.
July 27th, 2008 8:26 am
Well the good news is that these bastards cannot securitize the sun light for the moment. Enjoy the sun. It’s still free and the bastards from the FED can’t borrow or print money on it.
Inflation ad infinitum is coming. Buy yourself a little bit of metallic sun when Bush, that crook and moron, signs the law. A little bit of physical gold will brighten up your days like the beautiful summer sun.
July 27th, 2008 11:18 am
ok you are all the professionals- the bill is passed so help me out here:
Why the dates 2005-5007?
Doesn’t it seem like there are a ton of loop holes that can be taken advantage of?
It says something like you can’t have any other leins- so how does a person get rid of the second?
BTW- I don’t qualify, so don’t hate on me.
July 27th, 2008 3:20 pm
LO and others,
You’re missing the point of so much of this. Yes, this may have begun with irresponsible lenders giving money to irresponsible buyers who had no business buying a home they could never afford. But the problem has grown much bigger than that. The mold has spread to the ENTIRE housing market, the ENTIRE credit market, the ENTIRE economy – and not just here in the US. This is no longer an issue of the McDonalds worker who never should have had his granite countertops in the first place. This is a problem for EVERYONE, even the PRIME borrowers, who bought homes they can afford.
We bought our home at the peak of the market. No problem. We didn’t mind paying $1+million for a home worth $1+million. We put 20% down, CASH. That’s alot of money, BTW, at least for us. It’s real money, which we earned and saved. We paid for repairs and upgrades, again with REAL money, that we earned and saved. Hundreds of thousands of dollars. All GONE now. Probably forever.
We aren’t flippers. We weren’t expecting ridiculous increases, but we did expect the house to maintain its value, or at the very least remain within a reasonable range of its original purchase price.
Only guess what? Because of the mess going on all around us (4 foreclosures in our tiny neighborhood alone), we’ve been dragged down with everyone else. Our house is worth a fraction of what it was, and it is continuing to sink.
We’re in a high tax bracket. We shoulder the tax burden for many others who pay little or no taxes. Our taxes help pay for tax credits/breaks for others which we are not allowed to claim for ourselves, such as child tax credits, tuition credits, etc. Our taxes pay for other homeowners’ real estate tax deductions, but the AMT backs out the deduction for the real estate taxes we pay for our own home. Etc. And now, we will be shouldering the tax burden for the Housing Bailout just passed. We didn’t want it, but we’re gonna pay for it. We’ll help to pay for refi/modifications for other homeowners, and help to bail out banks and Fannie and Freddie, but we ourselves are screwed.
We’ve made responsible financial decisions our entire adult lives. We save. Live within our means. Pay our credit card balance every month. Pay cash for our cars. Donate time, money, and goods to charity and to our community and the local schools (no deductions for that either, BTW – the AMT takes it away). We took out a fixed-rate mortgage, instead of yielding to the temptation of the temporarily low payments which came with the adjustable-rate mtgs. We made ONE mistake: bought a house in CA at the peak of the housing bubble. And now our entire financial future is threatened. And there are MANY, MANY others just like us out there.
It’s tempting to walk away from this mortgage. We can buy a nicer home for half the price, up on the hill right behind us, and our real estate tax burden will also be cut in half. For even less, we can rent (which would be my choice right now). In time, we can rebuild our savings, regain financial stability, and maybe “retirement” will actually be in our future plans again.
So paying off the mortgage and “honoring your obligations” is the “right” thing to do? For who? The bank? They have our 20%, plus the P&I we’ve been paying for almost three years, plus the house. We have nothing – actually, we have LESS THAN nothing. For the other homeowners? They’re all walking, and each time they do, our home loses even more value. For the taxpayers? I AM the taxpayer, and either way, I’m paying for it. This is not a “moral” issue, and there are NO winners in this mess.We’re still paying the mortgage, but if the time comes where we decide to walk, I won’t feel the least bit bad about it.
YOU want to vomit? Let me tell you, I’m the one who wants to vomit.
July 27th, 2008 4:26 pm
A Black Hole has no conscience. Once it’s been created, it knows only 1 thing: EAT! It doesn’t care whether you’ve been naughty or nice. In American military circles, you (and millions of others like you) are known as ‘collateral damage’. This is the (sometimes) harsh world of reality. Could you have prevented this from happening to you? (losing a fortune and wonderful lifestyle through no fault of your own). Of course! “Freedom’s just another word for nothing left to lose”.
This reminds me of the story of Lazarus, who was enjoying the warmth and security of the bosom of Abraham. His brothers (in Hell) were looking up at him and envying his heavenly bliss. They said to him: “Lazarus, can you just reach down and wet our lips with some water because it’s darned hot down here and we’re dying of thirst?! (loosely paraphrased).
The answer they got was: “Your brother was poor and penniless while on Earth – while you were living life in the lap of luxury.”
LESSON: You’ve been collecting the wrong trinkets. You should be collecting things that have eternal value. Loss of earthly trinkets (especially ‘undeserved’ loss) represents a rare (but becoming a lot more common lately) opportunity to learn some eternally useful lessons. How do I know? I’ve learned them!
When life gives you earthly lemons (or so it seems), make some heavenly lemonade!
This message may be ensconced in frivolity – but it’s deadly serious!
July 27th, 2008 4:36 pm
Remember, oh brother, “Can you spare a dime?” Count your blessings.
July 27th, 2008 5:09 pm
My blessings are many, and I don’t need to be reminded to count them.
Blessings are not the subject of my post, nor am I in the mood for a Sunday School lesson.
July 27th, 2008 5:54 pm
My point is that many REAL people are facing REAL financial pain, in some cases financial devastation. In many cases this may be the fault of the individual, in other cases it may be due to circumstances beyond any person’s individual control. However, at this point in the game, “blame” really doesn’t matter anymore. Many people are finding themselves in a position where they are forced to consider options and make decisions that they normally wouldn’t. Finger-pointing, Bible lessons, and sanctimonious speeches and lectures about “morals” “obligations” “responsibility” really don’t help when faced with the reality of what IS. And what IS, is an economic meltdown the likes of which most people alive today have not yet experienced, and which we have only just begun to see the effects of.
July 27th, 2008 6:08 pm
I wouldn’t worry too much about legislation that will retroactively turn non-recourse loans into recourse loans. Not going to happen. Could you imagine the rush to exits if such legislation was proposed? You can safely put any thoughts of this out your minds.
As to “bought at the wrong time”, yours is a tale that will continue to be told many times over as this massive devaluation continues. In the end, it all comes down to credit rating for sale – how much is your credit rating worth to you? Sounds like you have an ARM, which right now is working to your advantage but that won’t last forever. You may see a low index for another year or so, but eventually your loan index will rise and up go your payments. By that time, you could be another $100K underwater. Rising payments and evaporating value? Bad combo. Particularly in light of the fact that you could probably rent a comparable place for much less outlay per month – am I right?
You need to crunch some numbers. If your HELOC was taken out to purchase the home, it is non-recourse. If your home value has dropped to the point where the HELOC is essentially unsecured, I would consider playing chicken with them. If you stop payments, that will get their attention. They won’t foreclose if there is no equity for their loan, so they have two options – negotiate or just let the loan sit indefinitely as non-performing. Personally, I would negotiate a pennies on the dollar payoff and rid yourself of the loan and the payment, and you have just considerably pared down your loss. You may need to go into default on your 1st mortgage to close the deal, as in that circumstance the HELOC is facing a complete wipeout. Big incentive to take something, anything.
It’s certainly arguable that anyone who is paying substantially more to own then rent, and is also significantly underwater already, is making a poor financial decision by staying put. If I was $200K upside down (and growing, mind you…) and forking out a G or two a month premium over renting a comparable, I would at least be looking to negotiate my way out of a non-recourse 2nd and possibly walking away completely. This market is going down and will be down for years. With a $5K house payment, I could bank about $45K cash before the foreclosure forced me out (approx. 9 months). Maybe even more. And then rent a comparable for what – $2K/month less – for another 3 years. That’s another $72K, for a total of $117K. Plus return on investment – even conservatively you’re probably looking at $130K. So I’ve wrecked my credit but in exchange I have wiped out $200-300K of negative equity and I have $130K cash – so a total net worth increase of $330-430K in about 4 years. Holy s$%^. And guess what – in the 4 years after the foreclosure I would make every other payment on time and have my credit substantially re-built – it would be the only blemish and by then the stigma of foreclosure will have been greatly reduced.
There are now and will continue to be huge, huge losses. Huge. You can either take it on the chin, get your chicklets knocked down your throat, or you can step aside. You can spend 24/7 debating morality plays, or you can crunch the numbers and make the right business play.
July 27th, 2008 7:18 pm
oh brother
That is some darn good posting. Like you say, we are all basically chained together now and it doesn’t matter who did what, smart or dumb, rich or poor, we are all going over the cliff together.
As a bystander to this entire mess, I saw what was going on and everybody else saw what was going on and nobody did anything.
I am most concerned about the economic implications. Not that people lost their life savings, that the banks blew up, that our taxes are going to be higher, the dollar is going to get toasted, but rather what is going to happen on the jobs front from this shakeout. We are in for one heck of a transition back to manufacturing our own stuff again.
July 27th, 2008 8:47 pm
Bought at Wrong Time. I am one of those paid up no credit csrd debt people. I agree it’s wrong to stiff the bank. But they nade all the rules, not you, The gov is going to stiff every little guy to bail out the big guys. At this moment the best thing for this country is for all the little guys to save themselves.
July 27th, 2008 9:04 pm
dacounselor
Excellent post, hang out more often.
Even though you hit the numbers right on and it makes perfect sense, I am afraid that there are going to be too many proud people that take the high road on this and decide to pay as agreed on the loan.
That high road is going to be tough to swallow when you see all your neighbors who walked that are now living a higher lifestyle than you, while you are still stretching dollars to pay.
When you signed your loan, you certainly did not agree to bail everybody else out and I am afraid that those that do hang on are going to breed some very bitter, angry people.
The best way to look at this is that you signed a non recourse loan to begin with. While your loan may have been responsible, it was the banks that made all those other irresponsible loans that crashed your value. Therefore, let the banks that damaged your value take the hit. You might actually be able to sue a bank for crashing your value and get recovery but the banks are not going to be around to prove this is so!
u
July 27th, 2008 10:24 pm
OMG – finally some info Thanks Bert and to DA- I am not that upside down well compared to most. I didn’t buy a 750K row house just a 475k 70’s house. I know many who actually put more than 20% down and are further upside down than me- under bid the one smart thing I did.
But wouldn’t buying another and letting this one go be smarter? Really you guys are such a huge soure of info- I feel bad for brother- that sucks there were a lot of high end areas that shuld rebound but there were a lot of areas in SD that were perpetrating the high end and will never be the same- can I just say eastlake- otay ranch- etc. Hope you didn’t buy there. I have no idea where in my doc’s recoures or non recourse might be.
how ironic that bert saw it coming but i bet the banks will claim ignorance.
July 27th, 2008 10:37 pm
btw- my second is is wells fargo, Are you saying deal with them?
July 27th, 2008 10:52 pm
oh yeah my questions again can anyone answer:
ok you are all the professionals- the bill is passed so help me out here:
Why the dates 2005-5007?
Doesn’t it seem like there are a ton of loop holes that can be taken advantage of?
It says something like you can’t have any other leins- so how does a person get rid of the second?
BTW- I don’t qualify, so don’t hate on me.
July 28th, 2008 1:05 am
Oh Brother, your post partially covers a scenario that I mentioned in a post on July 25th – even the “good” folks who can afford the payments and purchases have no real incentive to stick out as they are so far underwater that continuing to pay on the loan is almost like good money after bad, assuming that you can rent for less than the mortgage payment.
The government is basically creating a disincentive to actually pay off your obligations for the smart ones who figure it out.
July 28th, 2008 1:10 am
dacounselor – your advice, while going against most of what I believe in how folks should live up to their obligations, is absolutely 100% the right advice in the current situation.
Those are the types of scenarios that I don’t think the banks and lenders are going to be able to wiggle their way out of and those are the catastrophic situations that they have to hope the Federal government finds a way to pick up the tab because once the “prime” or good borrowers who are underwater figure out or learn how to play the game, the entire death spiral will accelerate
July 28th, 2008 7:14 am
[...] Fitch: Massive House-Price Losses in Non-Conforming Areas to Come – …. BIG PROBLEM – This more micro look at the housing market in the 25 MSA’s that in the past have contained the most ‘non-conforming (Jumbo) lending, is coming up with massive house price losses in key areas with San Diego dropping as much as 47% over the next 5-years! San Francisco is looking at an additional 33%. These are your heavy Alt-A areas. … – MR Mortage [...]
July 28th, 2008 10:21 am
BertDilbert,
Yes, this is a mess beyond description. I don’t even know what to call it, as there is no prior event which closely enough matches the current situation. There are certainly similarities and correlations to be drawn, but I believe this is an entirely new animal.
dacounselor: Thanks for providing REAL knowledge and advice (as opposed to lectures and blame) to those who have asked for help.
bought at the wrong time: I hope you have found some of the info you are looking for. In regards to the bill – yes, there are tons of loopholes, and yes they will be taken advantage of. It will help SOME homeowners, many of whom really shouldn’t be in their houses in the first place, with or without a new modified mortgage. Expect to see many of those who have been “helped” default later down the road – especially as home values continue to slide, WHICH THEY WILL. However, helping homeowners is NOT the primary purpose of this bill. First and foremost, the purpose of this bill is to PROTECT FANNIE and FREDDIE. Remember, the bill languished for months until the Fannie/Freddie mess came about. Only then did the legislators get off their tails and do something.
July 28th, 2008 11:15 am
thanks bro- but can you answer
It says something like you can’t have any other leins- so how does a person get rid of the second?
Yes I know it was only to help the banks- I just can’t see how it will help those who shouldn’t have gotten a loan in the first place- those with stated (ebay) income(that was truly genius).
The FHA won’t allow for that. Are they going to devalue the property then wipe out the seconds and then issue a loan for the lower amount?
(sorry if i don’t use mortgage lingo)
If thats the case then i should walk – thats crap-and brings down the values even further. who is going to appraise these homes?
July 28th, 2008 12:07 pm
bought – I’m not so sure that buying another home now and then letting your current home go is the best play. If you believe, as I do, that we have several more years of devaluation ahead of us, then you will be well upside down again on your new purchase. I think the play right now is to rent at a steep discount to owning and horde money for a purchase down the road.
The potential problem with not going the “buy and bail” route is that your wrecked credit may restrict your options to buy again down the road. However, there are several factors that you will likely have in your favor – first, if you have a ton of cash to bring to the table your credit rating becomes less important. Money talks. In addition, you can rebuild credit fairly quickly these days. Furthermore, I think foreclosures/short sales are going to be more accepted blemishes moving forward. But you really need to sit down and crunch numbers on this – the numbers will tell the story.
As for looking in your loan docs to determine recourse v. non-recourse, there is no need to do so if both loans were taken out to purchase the home. If you took out that HELOC as the 20% of and 80/20 100% financing deal, it’s non-recourse by law. Period.
Bert brings up a great point about people who should probably get a game of chicken going with their lender but won’t, mostly playing the morality card against themselves and/or avoiding the stigma of a foreclosure. It is a public record, after all. There will be those who just stay put and take the bloody pummeling right in the face. That’s their choice. I think as we go forward and things get worse that the calculators are going to start coming out and the numbers are going to tell most people what to do. The numbers just do not lie. Most every man has his price and if someone can erase hundreds of thousands of dollars of negative net worth and immediately begin stashing large quantities of cash due to a much lower monthly outlay, they are going to have a tough time refraining from doing so. Bert is right that some will stay the course and take a vicious and unecessary bloody beating in the name of morality or obligation. So be it. Others are going to let go, move on and begin building wealth and security for themselves and their families.
July 28th, 2008 8:53 pm
Brother,
We bought our first home early in 2006 in S. California. What city or area are you in? I’m in N. County and my home value has taken a LOSS of 4% so far and that is good news (very good news thus far). However, who knows what will happen 3 – 5 years from now. We purchased at $630K with a 7/1 ARM and HELOC 2nd. We have great credit and this is an A paper loan. Our debt to equity is just under 30% and our income is approaching $200K per year. We can afford this home. Am I upset about the dropping home values in the surrounding neighboorhoods? Sure, because that is what sets the market. But, we aren’t selling anytime soon. This house is not an ‘investment’ in the traditional sense, but an investment in life, family and the pursuit of a home 3 miles from the beach. Now, if our neighboorhood value drops to to 20 – 30% sure it would be a hard pill to swallow. My fingers are crossed that the value holds, but how many hits can one take before crumbling into a pile of stucco and wood. What do I do? Lock in a 15/30 traditional mortgage? Wait until 2013 to refi? Go into foreclosure on purpose and bank roll $200K in 2 – 3 yrs and look for a distressed buyer selling their home closer to the beach or on the beach?
They say, buy a modest home in the best neighboorhood you can afford and so far our neighboorhood is holding up. Make no mistake about it, if our values slide….i will be slinging %&*#! all over this forum =P
July 28th, 2008 11:55 pm
Here’s Chas. Hugh Smith’s view of reality:
http://tinyurl.com/ygsa6j
Depressing graphs and charts. Like me, he’s an optimist. Forget his last paragraph – NOTHING can be done to prevent the planned Outcome.
July 29th, 2008 10:10 am
PS ‘The Empire of Debt’
July 29th, 2008 3:48 pm
“FOR OH BROTHER”,
We’re in Silicon Valley, South County. We’ve lost 30%, not counting improvements. Despite 20% down, our mortgage is under water. Foreclosures are increasing. Inventory is up. For the forseeable future, the local market has nowhere to go but down.
As for you… there are much more knowledgeable people out there than I. I don’t pretend to know everything, and I certainly can not predict the future. Otherwise, I wouldn’t be in this situation.
I am not in a position where I MUST make a decision. Therefore I will watch and wait. In time, the picture will become more clear.
July 30th, 2008 4:38 am
Oh Brother,
I hope a story book ending comes your way. I used to live in Silicon Valley when the cherry trees dominated the open fields – South County near IBM/Cottle Rd. I moved in 2004 for a business opportunity in S. Cal and so far all has worked out. Believe it or not, the market here was at the time 20% – 30% less than Silicon Valley when we bought. If you are able to move from the SI Valley, I would recommend N. County. There is a home that is 3400 sq feet, custom built, ranch style in a 4.3 acre lot in Olivenhein. 4 bedrooms and 3 baths. This area is similar to Los Gatos, Saratoga and parts of Santa Barbara. List price is $730K. A few things I don’t miss are: Sirens, Graffiti, Crime, traffic. Sure we have the 5 here, but it really is not that bad if you learn the ‘routes’.
July 30th, 2008 3:16 pm
[...] especially in CA where according to DataQuick the median price is off 32% since last summer. Fitch echoed similar sentiment last [...]
August 18th, 2008 8:14 am
[...] Fitch: Massive House-Price Losses in Non-Conforming Areas to Come [...]