why such Huge Losses if the Loans are COLLATERIZED?

[jficquette]

Quote from Trader5287:

What I recall was that affordability suffered due to rates but it was NOTHING like our current troubles. The reason is that the other side of the affordability equation - loan amount and purchase prices never soared like this bubble. Plus you had to have equity - none of this 100% financing, non-bank lending, and risk transfer existed. Your hometown bank had skin in the game.

People didn't have these huge household balance sheets back then with big assets but also big liabilities. And couples where the wife worked were doing fine - now it seems they both have to work of necessity to stay even.

So, it was way more manageable. I had 60-80K mortgages on properties in the range you mention above - 850/mo payments as an example. People have car and boat loans at those levels now.

Back then as you know unemployment was very high and rates had been high for sometime to stem inflation. The housing bust back then was just part of the natural ebb and flow of housing exacerbated by unnaturally high rates and unemployment.

Back then as you recall the Mortgage companies actually called and checked work references, required tax returns and W-2's AND a letter from your employer that you were doing a good job and that you were not in danger of losing it. They also called and reverified your employment on the day of closing to make sure you were still working.

The US Home Houston market was really hurt because all this coincided with the oil bust in Houston in the early, mid 80's. In Houston we had ENTIRE subdivisions with every house boarded up.

John

 

[Landis82]

Quote from chewbacca:

cramer says 14 million took out mortgages in the past 3 years and 7 million was at teaser adjustable rates.

now 7 million over 3 years is not a lot and its spread out all over the country. and keep in mind rates are no longer going up and still historically low.

You are wrong.

When you watch your $3300 a month mortgage go up to $5,000 per month on the "reset" rate at 10% . . rates are not still at historical lows, as you claim above. Moreover, very few people have any real EQUITY in their homes under this kind of scenario.

Add to that the fact that many people also took out Home Equity lines of credit when they saw their home appreciated in price . . . and you've got problems.

Most home prices have dropped 20% in the last year or so here in the San Francisco Bay Area and are nowhere near their original appraised value. Housing prices went on a 5-year tear here in the SF Bay Area with the median price of $628,000 in 2006 vs the median price of $365,00 back in 2001.

Let's face it . . . Banks are not in the business of buying and selling residential real estate.

And just try and sell your house when others on your same street are doing the same thing to get out from underneath that 10% re-set rate that jhas increased their monthly mortgage payment from $3300 to $5,000!

Here's a chart on the DEFAULT rate in the Bay Area . . .

http://www.socketsite.com/archives/2007/07/san_francisco_notices_of_default_are_way_up_sort_of.html

 

[Landis82]

Quote from chewbacca:

so what if the borrower defaults - the loan is collaterized and home prices have barely budged off the highs....yes the lender may have to take a 20% hit on the foreclosure, but the default rate is low anyway. subprime is like 2% of the market. and I doubt default rates on morgates is greater than 3%.

Again, not true at all.

Nearly 2/3rds of the mortgages in the San Francisco Bay Area over the last couple of years were "no-interest".

 

[piezoe]

Quote from originalskunk:

Ummmm. Greenspan retired on 31 Jan 2006. They ceased reporting M3 on March 23, 2006.

http://www.federalreserve.gov/releases/h6/discm3.htm

If you need somebody to blame then Helicopter Ben is your man.

It is my duty to come to Trendy's defense here. I am sure you are aware that economies of major nations do not turn on a dime. It is Greenspan's Fed that expanded the money supply dramatically in 2003, just before an election, can you imagine that? And it is very much the liquidity-housing-building-mortgage lending-bubble that Greenspan's, Not Bernanke's, policies spawned that is causing current economic problems and the market to plunge. Bernanke, if he proves to be a genius, might even be able to help us get out of this mess.

 

[scriabinop23]

Quote from Landis82:

Again, not true at all.

Nearly 2/3rds of the mortgages in the San Francisco Bay Area over the last couple of years were "no-interest".

What does that matter? Everyone there works at google and apple -- why sell your stock when you don't have to?

 

[Trendytrader]

Thanks for the support Piezoe.

As for poor old Ben he has just inherited the mess and has the job of cleaning it up.

The risk to the economy now is potentially stagflation. Fast decrease in GDP due to liquidity crunch, but increasing costs driven by BRIC demand.

 

[Landis82]

Quote from scriabinop23:

What does that matter? Everyone there works at google and apple -- why sell your stock when you don't have to?

Google employs 10,674 people.
Apple employs 17,787.

The San Francisco Bay Area is home to 7.2 million people . . . Nice try!

 

[scriabinop23]

Quote from Landis82:

Google employs 10,674 people.
Apple employs 17,787.

The San Francisco Bay Area is home to 7.2 million people . . . Nice try!

hahah.


but 4 homes to each google employee... 2 for aapl...

do the math..

thats at least 70k homes.

hahahah

 

[SteveD]

I think it is absolutely silly for the "Bay Area" to be used as a proxy for the housing market in the US


Largest concentration of "greater fools" in North America....so smart they are dumb...

One shows an enormous amount of profound ignorance to discuss that area in relationship to housing across the rest of the country....


SteveD

 

[murray t turtle]

Quote from chewbacca:

so what if the borrower defaults - the loan is collaterized and home prices have barely budged off the highs....yes the lender may have to take a 20% hit on the foreclosure, but the default rate is low anyway. subprime is like 2% of the market. and I doubt default rates on morgates is greater than 3%.

trying to make sense of this situation.

==============
Cb;
Sounds like you got the fundamentals about right;
local prices of real estate maybe much different ,
between Detroit & sunbelt states.



And for sure Wall street RE differs much from main street RE or rural route RE.