US Economy

[25psi_Elise_Killer]

http://biz.yahoo.com/ap/070725/mortgage_woes.html?.v=4

Analysts Say Mortgage Woes May Worsen
Wednesday July 25, 7:25 pm ET
By Alex Veiga, AP Business Writer
Lenders' Prime Mortgage Woes Are a Sign of Even Bigger Problems to Come, Analysts Say


LOS ANGELES (AP) -- Here's a scary thought about the latest bad news on housing: A surprising increase in late loan payments and defaults among home owners with good credit is so far coming from traditional woes, like divorces, job losses and unexpected medical bills.
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The next and biggest wave of problem loans could come as monthly payments soar for both prime and subprime borrowers who took out adjustable-rate loans with little or no documentation, or who used so-called piggyback loans on top of their first mortgages to make up for small down payments, analysts said.

These exotic loans were the only way many borrowers -- even those with good incomes and sterling credit histories -- could afford to get into the housing market as home prices soared in the last decade. But now those decisions are looking suspect.

That was one of the messages that sent a jolt through the mortgage industry and the stock market on Tuesday after Countrywide Financial Corp. reported its second-quarter profit shrank by nearly a third as softening home prices led to rising delinquencies and mortgage defaults.

Countrywide, whose shares have lost 11.7 percent of their value in the last two days, laid part of the blame for the uptick in delinquencies on borrowers with good credit who had taken out prime home equity loans.

Analysts said the trend could continue, particularly in areas of the country that have been hardest hit by job losses in general or seen a decline in speculation-driven construction, such as South Florida, parts of California and Las Vegas.

"As housing values weaken broadly and the job market slows in these areas that we're focused on, all borrowers will be touched," said Mark Zandi, chief economist at Moody's Economy.com.

He said subprime borrowers, those with spotty credit records, will likely show the greatest number of defaults. "But even prime, fixed-rate first mortgage borrowers will experience more credit problems," Zandi said.

The problems are expected even though the U.S. unemployment rate is currently at 4.5 percent, still low by historical standards.

More signs of the housing slowdown surfaced Wednesday as the National Association of Realtors reported that sales of existing homes fell by 3.8 percent in June to the slowest pace in more than four years.

In reporting its earnings, Calabasas-based Countrywide, the top U.S. mortgage lender, said it was forced to take impairment charges as it braced for the possibility of more people failing to make their mortgage payments on time.

The company said borrowers becoming unemployed or divorcing were the leading reasons why many borrowers with prime loans were falling behind on payments. And company officials told analysts on a conference call that the uptick in missed payments was not due primarily to borrowers seeing their loans' interest rate reset, triggering higher monthly payments.

Still, the mortgage industry anticipates that it could face a rash of defaults in coming months as many adjustable mortgages originated in 2005 and 2006 during the height of the housing market frenzy begin to reset to higher interest rates.

The loans, initially attractive options for buyers because of their cheaper "teaser" interest rates, can adjust higher after as little as two years. Even a small percentage increase can translate into a payment shock.

"The losses are just beginning," said Christopher Brendler, an analyst with Stifel Nicolaus & Co. Inc.

"Housing is increasingly a problem, prices are likely to go down, and so these loans underwritten in the best of times will now season in the worst of times," he said.

The mortgage industry has already tightened lending standards in response to the jump in defaults by subprime borrowers.

With fewer first-time buyers entering the market, homeowners in the mid-tier of the market, who tend to be among the most creditworthy, prime borrowers, are having a tougher time selling their homes.

"The same problems you saw in the subprime sector that caused the big meltdown in March is now a broader industry problem that's hitting the prime sector," Brendler said

[25psi_Elise_Killer]

Originally Posted by transio

I sold Apple today. My realized gain for the day was $5000.

Not bad for 6 months of ownership... I'm gonna go buy a couple free iPhones now.

Free investing advice: you don't make money by selling stuff when it goes down.

Looks like you sold too early, AAPL is +9% in afterhours trading.

[fishguy]

Originally Posted by transio

I sold Apple today. My realized gain for the day was $5000.

Not bad for 6 months of ownership... I'm gonna go buy a couple free iPhones now.

Free investing advice: you don't make money by selling stuff when it goes down.

Thanks for the free investment advice Steve. truth is, I think when I start taking investment advice from strangers on internet car forums that I will end up broke and homeless.
I had a freind who used to tell us all how much he made buying/selling stocks, he was "all flash", and the truth came out when he ended up broke and in huge debt.
Usually the guys who "brag about making lots of cash", are the ones who are full of crap IMO.
Steve, thanks for the free advice, its worth every penny I paid for it.
I will contact you if I have a parking lot to stake out for people doing bad parking jobs though...................

[25psi_Elise_Killer]

Here's advice i give to my friends since my friends always ask about stocks: I don't offer any advice on individual stocks since i value my friendship with them and if something goes bad, I have everything to lose, but nothing to gain. For newbies to investments, i only advise on index funds or index ETF's

[smoseley]

Originally Posted by 25psi_Elise_Killer

Looks like you sold too early, AAPL is +9% in afterhours trading.

Yeah, that sucked... there was a corrected earnings report. Still, can't complain on a gain like that.

[smoseley]

Originally Posted by fishguyAZ

Thanks for the free investment advice Steve. truth is, I think when I start taking investment advice from strangers on internet car forums that I will end up broke and homeless.

I wasn't giving you advice... I was making a sarcastic retort to 25psi, who suggested that everyone lost money on the market yesterday because the market was down 175 points. My response was simply a poke, not investment advice... I was pointing out that even though my portfolio was down at that instant, I actually showed a gain for the day.

Originally Posted by fishguyAZ

I had a freind who used to tell us all how much he made buying/selling stocks, he was "all flash", and the truth came out when he ended up broke and in huge debt.

And because you define reality by single instances, that rule applies to everyone.

Originally Posted by fishguyAZ

Usually the guys who "brag about making lots of cash", are the ones who are full of crap IMO.

You think that disclosing that I sold 100 shares of Apple for a profit is "bragging about making lots of cash"?

Originally Posted by fishguyAZ

Steve, thanks for the free advice, its worth every penny I paid for it.

No worries... I'm sure you'll never use it...

[cstetter]

Originally Posted by serpentor

. people associate homeownership with the american dream, it about to turn into a nightmare for anyone who bought in the last 5 years.

OK, now you sound like one of those Yahoo stock message board posters trying to pump or trash a stock. You over-generalize. ANYONE that bought in the last 5 years? That's BS. Plenty of people bought a few years ago using a 30 year fixed loan with a nice low interest rate. By the time the loan is paid off, they will have built EQUITY - no matter what the final value of the house is - it will be worth something. What will have someone paying rent have to show for it after 30 years? At the same time, they got a tax break on the interest, lowering the effective cost of the loan.

Home ownership is still a wise investment for many (not all). Home speculation is not - note the difference. Just think for the long term. Plenty of people will get hurt - but not ALL like you say.

Enjoy the ride and I hope you pick the right time to buy when you finally do.

[JoshS]

It's this simple. Over the long haul the US will deteriorate into a two caste system. As our dollar declines, as someone stated, we will be able to compete with other countries and global manufacturing will include plants in the US, and the international owners of this plants will get wealthy on the backs of 1000's of minimum wage laborers. Social Security, unemployment, welfare will eventually fade away, gov't will be more corrupt (as if that's possible), the public school system, and other public services will erode, and a new country probably China (or Monaco) will be the next world power. May take a hundred years, but no country is forever and we are THE oldest country in the world under the same constitutional set of rules. The mideast will eventually run out of oil and go back to such great businesses as Mamoud's Previously Owned Camel Sales. Somebody somewhere will press the button, wars will be fought, unspeakable crimes against humanity will continue. Lotus will invent a cup holder that holds a cup. And life and the world will go on.

[cstetter]

Originally Posted by JoshS

. Lotus will invent a cup holder that holds a cup.

I believed you until that sentence but now I know that you're just full of it

[slaughtr]

Originally Posted by JoshS

It's this simple. Over the long haul the US will deteriorate into a two caste system. As our dollar declines, as someone stated, we will be able to compete with other countries and global manufacturing will include plants in the US, and the international owners of this plants will get wealthy on the backs of 1000's of minimum wage laborers. Social Security, unemployment, welfare will eventually fade away, gov't will be more corrupt (as if that's possible), the public school system, and other public services will erode, and a new country probably China (or Monaco) will be the next world power. May take a hundred years, but no country is forever and we are THE oldest country in the world under the same constitutional set of rules. The mideast will eventually run out of oil and go back to such great businesses as Mamoud's Previously Owned Camel Sales. Somebody somewhere will press the button, wars will be fought, unspeakable crimes against humanity will continue. Lotus will invent a cup holder that holds a cup. And life and the world will go on.

I can't wait for all this. Maybe, if America collapses, I'll be able to afford a house in Santa Barbara.

[fishguy]

Originally Posted by transio

I wasn't giving you advice... I was making a sarcastic retort to 25psi, who suggested that everyone lost money on the market yesterday because the market was down 175 points. My response was simply a poke, not investment advice... I was pointing out that even though my portfolio was down at that instant, I actually showed a gain for the day.


And because you define reality by single instances, that rule applies to everyone.


You think that disclosing that I sold 100 shares of Apple for a profit is "bragging about making lots of cash"?


No worries... I'm sure you'll never use it...

So does this mean you are available for (bad parking job) parking lot stake-outs still?
The thing I like about you Steve is that you can dish it out, and take it as well. You(and people like you) make this place fun (for me). I look forward to a well thought out reply, and being flamed.

[Allan Gibbs]

Originally Posted by slaughtr

I can't wait for all this. Maybe, if America collapses, I'll be able to afford a house in Santa Barbara.

Santa Barbara will probably be under water by then. All this talk of gloom and doom is depressing. We need to be optimistic. Just like the people who survived the Black Death use to say, "If you can survive the Black Death, you can survive anything."

[IamBatman]

Originally Posted by cstetter

OK, now you sound like one of those Yahoo stock message board posters trying to pump or trash a stock. You over-generalize. ANYONE that bought in the last 5 years? That's BS. Plenty of people bought a few years ago using a 30 year fixed loan with a nice low interest rate. By the time the loan is paid off, they will have built EQUITY - no matter what the final value of the house is - it will be worth something. What will have someone paying rent have to show for it after 30 years? At the same time, they got a tax break on the interest, lowering the effective cost of the loan.

Home ownership is still a wise investment for many (not all). Home speculation is not - note the difference. Just think for the long term. Plenty of people will get hurt - but not ALL like you say.

Enjoy the ride and I hope you pick the right time to buy when you finally do.

I don't read yahoo message boards but I get what you are saying. My statement was not directed toward you so don't get upset.
If you bought in the last 5yrs in the Bay Area with a traditional mortgage,you put down 20%, and planning to stay there for 5-10 years you are probably going to be ok, You are in the minority. Hopefully the price you paid for your house less then 4x then your income too, traditionally its 3x, but Bay Area is has a premium.
You also won't be making much money on it for a while, which is fine because houses are not investments, they are places to live.
We will see how things turn out for the Bay Area, but people predict a 35% price decline over the next 5 years will put it back in line with fundamentals (income, population/supply, etc)... or it can stagnate at the same price for 20 years and let inflation catch up..

[Stephen]

All I know is that the state of the economy is entirely controlled by the President. Whether it is good or bad, it is all the President's fault.

[25psi_Elise_Killer]

Well, after today's mess, you might have to hold off on retirement for a couple more years.

[IamBatman]

Originally Posted by cstetter

That's BS. Plenty of people bought a few years ago using a 30 year fixed loan with a nice low interest rate. By the time the loan is paid off, they will have built EQUITY - no matter what the final value of the house is - it will be worth something. What will have someone paying rent have to show for it after 30 years? At the same time, they got a tax break on the interest, lowering the effective cost of the loan.

tax deductions: they are not freebies, you are still paying interest. What is the annual property tax of a 850k house in San Jose? I did a calculation of Rent vs Buy, and renting wins out for my projections on housing price in the future, yours may be different.

While I am renting and not putting equity in a house, I'm able to put a significant amount of money (1/3+ of my take home) away into investments. So its not like I will end up with nothing. It is very conceivable (and its happening in areas like Tracy and Stockton) that people will end up with NEGATIVE EQUITY in their house.

[cstetter]

Originally Posted by serpentor

tax deductions: they are not freebies, you are still paying interest. What is the annual property tax of a 850k house in San Jose? I did a calculation of Rent vs Buy, and renting wins out for my projections on housing price in the future, yours may be different.

While I am renting and not putting equity in a house, I'm able to put a significant amount of money (1/3+ of my take home) away into investments. So its not like I will end up with nothing. It is very conceivable (and its happening in areas like Tracy and Stockton) that people will end up with NEGATIVE EQUITY in their house.

What I own or not own doesn't really matter here. Just making the point that there is too much generalization. Who says that the hypothetical people in my scenario don't ALSO put away 1/3 of their income? One doesn't preclude the other. If they bought a house to fit their budget (and not their dreams), they should be able to still have savings. A lot of people didn't do that - their problem. Many people were smart and responsible - they will be OK.

Property tax is about 1.25% or so in the Bay Area. Sure hurts. However, rents in the Bay Area aren't cheap either - I am blown away by what some of my friends are getting for their crummy houses - WAY more than a decent mortgage payment+property tax.

Owning a house is the right thing for many. Take Germany for example - no tax exemption on mortgage interest, essentially flat real estate market for 10+ years, yet it is still the right thing to own a house for many people because they build equity.

BTW, I am not angry at all - did I come across like that in my original post?

Cheers,

[cstetter]

Originally Posted by 25psi_Elise_Killer

Well, after today's mess, you might have to hold off on retirement for a couple more years.

Not if he shorted

(I didn't )

[IamBatman]

Originally Posted by cstetter

What I own or not own doesn't really matter here. Just making the point that there is too much generalization. Who says that the hypothetical people in my scenario don't ALSO put away 1/3 of their income? One doesn't preclude the other. If they bought a house to fit their budget (and not their dreams), they should be able to still have savings. A lot of people didn't do that - their problem. Many people were smart and responsible - they will be OK.

Property tax is about 1.25% or so in the Bay Area. Sure hurts. However, rents in the Bay Area aren't cheap either - I am blown away by what some of my friends are getting for their crummy houses - WAY more than a decent mortgage payment+property tax.

Owning a house is the right thing for many. Take Germany for example - no tax exemption on mortgage interest, essentially flat real estate market for 10+ years, yet it is still the right thing to own a house for many people because they build equity.

BTW, I am not angry at all - did I come across like that in my original post?

Cheers,

if you are angry or not doesn't matter, the reason of my post is not to piss people off, get people down, or tell people they made mistakes.
My post is to start a dialog on why I feel the US economy is going to go down because of the real estate bubble, get others opinion, and maybe have someone prove me wrong (which would be great). I think I've provided a convincing argument with some pretty charts to back up my reasoning.
So please do not focus on one single general statement I made and dwell on it.

anyway, back to your post:
Do you really think people that purchased a house in the Bay Area in the last 5 years can afford to put ANY money away while making mortgage payments?
people tend to buy the MOST house they can afford (many bought houses that they can't really afford) and the national savings rate is negative. Maybe a few highly paid Google engineers, management, and lawyers can afford to do that, but they are not the norm. in 2006, 40% of the people in the Bay Area took out mortgages that are interest only/neg am, if they can't afford to take out a regular mortgage, how are they going to save anything?

[fishguy]

[quote=cstetter]OK, now you sound like one of those Yahoo stock message board posters trying to pump or trash a stock. You over-generalize. ANYONE that bought in the last 5 years? That's BS. Plenty of people bought a few years ago using a 30 year fixed loan with a nice low interest rate. By the time the loan is paid off, they will have built EQUITY - no matter what the final value of the house is - it will be worth something. What will have someone paying rent have to show for it after 30 years? At the same time, they got a tax break on the interest, lowering the effective cost of the loan.
QUOTE]
Bingo!!!!!
renters have zippo(zero) to show for after years of renting, and they get no tax break for PAYING SOMEONE ELSES MORTGAGE, and have accumulated no equity. You need to live somewhere, why not make that somewhere be an investment.