Tuesday, July 10, 2007

A Whole New Meaning to Exotic Mortgage

Its Exotic!


  1. Hey everyone, remember lance's little fairy tale about "average rowhouses" in his area going from $1 million to $2 million in 12 months?

    They must have dropped again... because according to MRIS only 2 houses priced over 900k have sold in Lance's zip in the last two months.
    (with 21 sitting on the market... )

  2. This is analogous to posting an ad for Burger King and then ranting about the national problem with obesity.

  3. Maybe this is what they mean when they say that wealthy foreigners are buying property here in Boston.

  4. They have those ads on weather.com and they also say "No SSN required" on the bottom of the ad. Niiiice.

  5. I guess so exotic that you'd have to be an alien to qualify...an illegal alien that is.

  6. slimballs still pushing toxic waste.
    bubble just burst harder and farther

  7. Maybe this belongs elsewhere on the forum, but it is important information and needs to be read by all.

    Nightly Business Report 7/10/07
    Lead story,

    Standard & Poors is preparing to cut the ratings on $12 BILLION sub-prime mortgage securities.
    They are putting many more sub prime securities (612 of them) on a negative credit watch and could begin downgrading them later this week.

    Moody’s cut ratings for nearly 400 Mortgage backed securities valued at $5 Billion and is considering a similar move for another 32 securities.

    Lower ratings could cut off a major source of funding for the housing market

    From David Wyss, Chief Economist of Standard & Poors, from his own spoken words on hte program NBR,
    “Housing market is not turning around in a hurry, we didn‘t really expect it to, HOME PRICES STILL HAVE A WAYS TO DROP, and we’re already seeing substantially higher default rates of these securities than we had anticipated.

    We knew the housing sector was under-performing we knew that when we rated these securities. What surprised us is that even given the poor performance of the housing sector the default rates are running higher than we would have expected given the FICO scores here, given the loan to value ratios of those mortgages.”

    612 mortgage securities are on S&P’s credit watch list some will be downgraded, How many you may ask?

    Mr. Wyss stated a great majority would be downgraded, his personal guess, 90%

    Mr. Wyss continues “Let’s keep this in perspective , we’re looking at $12 Billion dollars, that sounds like a lot of money, heck it is a lot of money for most of us, it’s only 2% of the sub-prime securities we rated during that period and it is one one hundredth of 1% of the US mortgage markets.”

    This is an attempt to soothe the markets and investors, but please consider the following story, though not housing related, derivatives and hedge funds go hand in hand.


    The $300 Trillion Time Bomb by Jesse Eisinger
    May 2007 Issue

    Excerpts form the story:

    Gen Re got into derivatives dealing in 1990 and became tied to global financial markets in ways it found difficult to predict. When Buffett bought the company in 1998, he quickly decided he wanted out.
    At Buffett’s behest, Brandon embarked on a task that lost Berkshire and Gen Re a cool $409 million before taxes.
    ….Roughly 98 percent of its deals were fine.
    That suggests that when there are problems in a derivatives portfolio, they will be harder to discover, because of their rarity.

    ….The General Re unit started out with more than 23,000 trades worth just under $1 trillion.
    The losses from excising those trades accounted for about half of Gen Re’s total loss.
    But even that overstates the story.
    In ditching the portfolio, Gen Re ended up making a modest amount on most contracts.

    It was a mere 500 trades that accounted for more than $200 million of the losses.

    Only a few bad bets that cost Berkshire Hathaway big money, and that was when the market was calm and steady..

    Also comes this news,


    Mortgage resets: Record bill coming due

    Billions in subprime ARMs will be subject to higher payments.

    "In October alone more than $50 billion in ARMs will reset," according to Mark Zandi, chief economist and co-founder of Moody's Economy.com. That's a record, according to Zandi.

    I said October 2007 would be the breaking point for housing.
    Happy Holloween.

  8. I remember lance trying to "explain" to us all how new computer models have made conventional ideas about risk obsolete...

    so much for the computers huh lance?

    (of course... lance also thought lenders always qualified potential borrowers based on the highest possible payment following an adjustment... I guess they didn't have time to get into economics in his computer techniciation certification classes...)

    S&P finally says subprime is mostly junk
    Commentary: New methodology is death knell for the troubled industry
    By MarketWatch
    Last Update: 12:51 PM ET Jul 10, 2007

    WASHINGTON (MarketWatch) -- Standard & Poor's just drove a huge harpoon into the heart of the mortgage credit bubble, and it's going to take a long time to clean up the mess once the beast finally dies.

    S&P, one of the three main credit-rating agencies that served as enablers of the subprime-mortgage boom, announced Tuesday that it would lower its ratings on 612 bonds, a small portion of the mortgage-backed securities it had given its seal of approval to. See full story.

    But the bigger news is that S&P isn't going along with the charade anymore. S&P said it would change its methodology for rating hundreds of billions of dollars in residential-mortgage-backed securities. And it would review its ratings on hundreds of billions of dollars in the more complex collateralized debt obligations based on those subprime loans.

    A lot of debt will be downgraded to junk status. A lot of that debt will have to be sold at fire-sale prices. A lot of pension funds and hedge funds that once thrived on the high returns they could get from investing in subprime junk will now lose a lot of money.

    S&P's announcement is a death warrant for the subprime industry. No longer will mortgage brokers be able to help buyers lie their way into a home. Fewer stressed homeowners will be able to refinance their mortgage, thus extending and exacerbating the housing bust.

    "We do not foresee the poor performance abating," S&P said.
    Prices will fall, and foreclosures will rise. More mortgage fraud will be uncovered as the tide goes out.

    And hedge funds will have to find another way to beat the market -- if they survive this blow, that is.


  10. House prices just took another dip.


  11. From today's WSJ OnLine:

    Realtors Pare Back Forecast Again,
    But Project Rebound Next Year
    July 11, 2007 12:42 p.m.

    WASHINGTON -- The National Association of Realtors continued to pare back its forecast for existing U.S. home sales in 2007, while projecting a modest rebound for the struggling housing market in 2008.

    In its latest forecast for the real estate market, NAR on Wednesday projected that existing home sales will fall 5.6% this year to 6.11 million, compared with its previous forecast of a 4.6% decline.

    New-home sales are also expected to be soft this year. The NAR said new home sales are likely to fall 17.7% to 865,000, compared with the prior forecast of a 18.2% drop.

    Lawrence Yun, NAR's senior economist, said a good buyer's market had developed, amid falling prices and swelling housing inventories.

    And with homebuilders' profits being squeezed by the slowdown, the resulting drop in new home construction may help reduce the backlog of unsold homes. "With profit margins coming under pressure, homebuilders will limit new construction well into 2008," Mr. Yun said in a statement.

    "This should help the overall inventory level to move steadily into a more balanced state," he added. With that in mind, NAR remains sanguine about the housing market in 2008, projecting existing home sales will rise 4.2%, to 6.37 million.

    New home sales are expected to increase at a much more modest pace, with NAR forecasting a 1.4% rise to 878,000 in 2008. "Markets that sharply reduce new construction in 2007 will generally experience respectable price increases in 2008," Mr. Yun said.

    The national median existing-home price is forecast to slip 1.4% to $218,800 this year, and then rise 1.8% in 2008. The median new-home price is expected to fall 2.6% this year to $240,100, and then rise 2.2% next year.

    I think this is Yun calling the bottom of the market somtime in '08. NAR position a month ago was things will rebound in the fall of '07. What changed? The media said some bad things about the housing market? BS. Fundamentals are the same, and there is no indication, other than tooth-fairy-ass-hope, that things are going to turn around in 2008.

  12. http://money.cnn.com/2007/07/11/real_estate/housing_forecast/index.htm?source=yahoo_quote

  13. "House prices just took another dip.

    http://www.housingtracker.net/askingprices/DC/Washington-Arlington-Alexandria/ "

    maybe you can afford one now. nah, probably not.

  14. Why the stock market is going through the roof, the same basic reason why housing boomed over the past few years. Increased ability to leverage (though not as great as the infinity (no money down) in housing) has permitted more borrwing to buy stocks. Do you smell 1929?

    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining
    portfolio margining

  15. Things will turn around in 2008,
    F'd buyers will turn around and sue anybody and everybody that had anything to do with this mess in 2008.

  16. caveat emptor wants to know "what has changed" that would influence NAR and Yun to revise their forcasts.

    Interesting. You address the same question to David J. His timelines have certainly been revised as many times.


  17. Residences (real estate) was among items purchased. I guess now the Federal Govt will be auctioning off.


  18. Car 54 (david j.), where are you?

  19. Wash Post: Montgomery County Maryland Foreclosures


  20. well, this blog pretty much sucks at this point. It is always disappointing when you have someone with enough energy to start something but without enough follow-through to make it work.

    We are lucky to get one real update a week. (and no, reposting advertisments and "bubblesphere roundups" doesn't count)

    Why don't you find someone else to take on part of the workload if you don't have the time or inclination anymore david?

  21. David,

    Before you stop updating this blog altogether ... Can you please give us an update as to when we should be expecting a recession and resulting fire sale prices on homes?


  22. Bubble Meter Blog
    May 26, 2005 - July 10, 2007

    PS. In that first post David predicts the bubble will burst within 12 months (i.e, by May 2006. The first BH poster corrects him to say that it'll happen sooner than that ... in October 2005. And who'd have thought that some 26 months later we are still waiting for these bargain-basement sale prices on other people's homes ...

  23. If you're a buyer, you sadly realize that to get the home you want -- at both the price and interest rate you want -- will be nearly impossible. If you're lucky, you'll get two out of three. So, if you're waiting to see what other buyers are going to do, you'll soon find that once buyers move collectively, they will either drive prices down or drive them up. If prices are down, but likely to recover, do you really want to compete with other buyers on the way back up?

    In other words, the price of feeling more comfortable about buying is inevitably paying higher prices and having less to choose from.

    So here are some surefire ways to tell that it's really time to buy:

    You found the home you really want.

    It's affordable.

    You can get a reasonable loan.

    It will serve you and your family for years to come.

    You're not looking for perfection. No home is perfect.

    You've given up trying to beat the market.

    You're comfortable with your compromises, whether it's location, size, price, features, or condition.

    You're confident the home you chose is desirable enough that you will be able to sell it in any market.

  24. I'm so glad someone FINALLY blogged this ridiculous ad! I was wondering to myself, who the hell CREATED this ad and how does this attract people who need mortgages? It weirds me out, not attracts me!

  25. lance is going out of his way to badmouth David on other blogs. How lame:

    "Lance said...
    model marker,

    you have a point. most bh's already have their minds made up and they are just looking to comiserate with like minded folks. i guess i like the idea that someday the honest ones among them will say "Jez, Lance was right. I wish I'd listened to him. I wouldn't be renting a room in a trailer for so much more a month than if I'd just bought a house before prices rose even further and made it impossible for me to ever buy my own place. So much for David J and his pre-pubescent predictions."."

    This is one of his posts over at nova bubble fallout.

  26. And more trolling comments from lance over at nova bubble fallout.

    "Lance said...

    Sometimes it's what's not said that counts the most. David J. from the Bubble Meter blog has "thrown in the towel". He's moved on ... getting ready to settle down and (I'd assume) realizing that sometimes it's not the investment potential that drives a "buy or don't buy" decision but rather a "I need a home" decision. I wish him well in his up coming nupitals. I just wish he'd be frank with the Bubble Heads that look to him for advice and admit he was really really wrong about there being a bubble. He's move on ...he needs to let them move on. THAT is a lot fairer than just walking away from the train crash you've just helped cause.

    7/23/07 7:21 PM

    Lance said...
    And just to be clear ... By train crash I mean those individuals who have put their lives on hold for 2 or more years based on "180 degree WRONG" predictions and advice given by David J. Lost opportunities and time ..... All because the greedy cheerleaders convinced them they could really get "something for nothing". I'm not saying David J cheerleaded with bad intentions. He really believed it. But now that he himself knows better, he should admit such to his sheeple.

    7/23/07 7:26 PM"

  27. Did the same thing happen to David as happened to Jerry over at Florida Paradise Lost Blog? No Posts over there since March. Did they off David too?


  28. Right now Larry Yun is praying for space aliens to come down from the shies and start buying houses.

  29. I was just looking at the page view stats and it looks like the "bubble meter" viewership buble has burst.

  30. "And more trolling comments from lance over at nova bubble fallout."

    And let's not forget Lance's out and out lying at Nova Bubble fallout, claiming I was banned from this blog.

  31. Lance said...
    “And just to be clear ... By train crash I mean those individuals who have put their lives on hold for 2 or more years based on "180 degree WRONG" predictions and advice given by David J. Lost opportunities and time ..... All because the greedy cheerleaders convinced them they could really get "something for nothing". I'm not saying David J cheerleaded with bad intentions. He really believed it. But now that he himself knows better, he should admit such to his sheeple.

    7/23/07 7:26 PM"

    Yea, “Lance”, just look at what we missed out on:

    Foreclosure filings skyrocket
    Filings jump 58% in first half of the year and could surpass 2 million this year as the housing market weakens, according to a report.
    July 31 2007: 10:38 AM EDT

    NEW YORK (Reuters) -- U.S. home foreclosure filings rose 58 percent in the first six months of the year and could surpass 2 million this year as the housing market continues to deteriorate, a report said.

    Foreclosure filings in the first half spiked from the same period last year to 925,986 as many overstretched borrowers have been caught between rising interest rates and falling home prices. The Federal Reserve has cited the faltering housing market as the biggest risk to economic growth.

    The foreclosure filings were also up more than 30 percent from the previous six-month period, at a rate of one filing for every 134 U.S. households, said RealtyTrac, an online marketplace for foreclosure properties.


  32. Haha, I love those little dancing characters, they are hilarious!

    C Hamberger
    Elizabethtown Kentucky Real Estate