Real Homes of Genius: Today we Salute you Costa Mesa. False Bottoms in Action. $300,000 Off in 1 Year!
Well that was an interesting day on Wall Street. First we get a notice that holiday sales were lackluster and we are teetering on the verge of recession (if we aren’t already in one). Goldman Sachs is predicting a recession by the end of the year and stocks were heading sharply lower today. Yesterday, stocks shot up toward the end of the day for no apparent reason (PPT) which is becoming a more and more common occurrence and today, stocks went up strongly on rumors that Bank of America was going to take over Countrywide. Of course you will remember that BofA came in and bought $2 billion worth of Countrywide and before the news today, was looking at a loss of $1.4 billion. The stock shot up 50 percent which shows how volatile the market is right now. Why BofA would buy Countrywide especially on the verge of insolvency is beyond me but the major theme here is there is way too many people in the know playing this like a chess game for short term market moves; which means if you are an average Joe trying to make a buck investing you are going to get your you know what handed to you. The fundamentals still show the company as extremely weak. In fact, early today Countrywide’s entire market cap was lower than its REO portfolio! Yesterday, they also reported that foreclosures soared and doubled:
In Wednesday’s monthly operating report, Countrywide said, among the 9 million mortgages for which it processes payments, the foreclosure rate doubled in December, to 1.44 percent from 0.7 percent a year earlier. Defaults rose to 7.2 percent from 4.6 percent over the same time.
Yes, great time to hop into the market. BofA risks inheriting a toxic mortgage portfolio and all the bad press that will be coming out with stories like this one from the NY Times about the company. Either way, even if the deal does go through it won’t do anything to stop the declining housing market.
The market also jumped up since the Fed essentially gave a verbal acknowledgment that they are willing to do anything and everything to keep this inflated credit bubble going without facing the correction which the market is desperately trying to have.
“We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,” Bernanke said in prepared remarks before the Women in Housing and Finance and Exchequer Club in Washington, D.C.â€
In a few words, you can kiss the dollar good bye. Many things are playing out simultaneously. But here in
SACRAMENTO — Facing the worst fiscal crisis of his tenure, Gov. Arnold Schwarzenegger today proposed a $141-billion spending plan that would reduce healthcare programs for the poor, close 48 state parks, release tens of thousands of nonviolent inmates early and make substantial changes in almost every area of the state’s budget.
At the same time, he proposed expanding the state’s debt load by more than $40 billion to finance more construction at public schools, colleges and other major institutions.
Let me get this straight, you are suggesting poor people will continue to go uninsured and even have less healthcare (hard to have less when you don’t have any to start with), close 48 parks (how much political will do they have?), release inmates so they can go out into a job market with no jobs (guess how that will work out), and go further into debt? Sounds like a plan to me! God forbid he mention the word tax but this deficit is way too deep and think about this for a second, they are going to cut more jobs in a market where the private sector is already cutting jobs and thus create a spiral downward.
Real Homes of Genius – OC Style
Before I blow a fuse and do a Chuck Norris roundhouse on this computer (I’m talking about Chuck Norris Texas Ranger and not Chuck Norris the Huckabee spokesman), let us do another Real Home of Genius to bring us back into reality. Today we salute you
I keep hearing these perma-bull housing pundits saying “well
We are now seeing a new phenomenon. Some people bought homes thinking that it was the real bottom and they were getting a great steal, not the bottom of 2006 or 2007 but the current bottom. All false bottoms needn’t apply. This great 3 bedroom 1 bath home spans out over 1,265 square feet. The bank is now the proud owner but you could remedy that with your offer. Someone figured that they would sweep in, probably listened to one of these false bottom prophets, and thought they were getting a great price. Let us look at what transpired here:
10/15/2007: $561,000
11/27/2006: $792,000
02/24/2005: $585,000
Why such a radical market shift in the last year? How about this:
Now that is what you call turning off the spigots. That is why we are seeing this massive blood bath in
“The current loan limit is 417,000 usd, but both companies and many members of Congress have said raising the limit would allow Fannie and Freddie to buy more mortgages, thus pumping money back into the system that can be used to create new home loans.
‘Secretary Paulson, the mortgage bankers and others have called for raising the loan limit,’ he said. ‘I agree, and Fannie Mae is ready to take action.â€
More like they have their bibs on ready to eat delicious rancid mortgage crap. More genius ideas are also mentioned in the article:
“This will require innovative high quality products that replace the sloppy credit that has been — appropriately — withdrawn from the market,’ Mudd said.
As one example, he said that some financial institutions have developed a 40-year mortgage aimed at reducing payments and keeping them steady over the life of the loan.â€
Why not create a 90 year mortgage and call it what it is, renting! There is a general concept in the debt markets that a debt securitized by an asset should not go beyond the life of the asset. For example, a home typically will give you 30 years of usability (and beyond of course). A car would give you 5 years before the underlying asset either needs to be replaced or isn’t worth much. That is why 7 year car loans do not make sense and 50 year home loans do not make sense.
Being an election year, expect the unexpected but the bottom line is the housing market is done for many years.
Today we salute you
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16 Responses to “Real Homes of Genius: Today we Salute you Costa Mesa. False Bottoms in Action. $300,000 Off in 1 Year!”
Come on westside, I wanna see a 50 percent drop in the next 12 months!
The WGA strike can’t be helping the housing market, there’s $1.5B (so far) that’s not going into mortgage payments anytime soon. My 34 year old neighbor pulls (excuse me, pulled) in about $260K writing for a so-so show, drives a Porsche and has a $1.1M house (no down payment, of course.) Whoops.
“That is why … 50 year home loans do not make sense.”
They make as much sense as 30 year, or even 15 year loans. How many loans actually reach maturity? Most are terminated early by sale or refinance. I believe 7 years used to be the norm. You’ve got to seperate the home from the loan.
If interest rates go low enough, hell, I’ll take a 100 year loan.
@TakeFive
My guess is that the 7 year average used to be a 10 year and before that was a 15 year, etc. etc…
I know my grandparents bought 1 home, paid for it once and lived there until they passed on.
If you can’t sell, you can’t buy and I would bet that the “7 year average” will be increasing very soon.
Amazing amount of carnage going on the US. I live in Vancouver Canada, and I think we’re the last surviving north american bubble market – we’ve reached the point where it takes 73% of the average pre-tax income to pay for the average house and the 40 year mortgage introduced 2 years ago is now the most common. Not only that, in Canada you can’t write off mortgage interest and you can only lock in an interest rate for a maximum of 10 years.. I suspect we’re in for some carnage up here as well.
http://vancouvercondo.info
Steve wrote:
“I know my grandparents bought 1 home, paid for it once and lived there until they passed on.”
You’re talking 2 generations ago. In twenty years, I’ve bought 3 homes, sold two of them, & refi’d twice. And I’m just an average working guy – not an investor.
I refi’d out of a 30 year fixed on my current property after 10 years into a new 30 year fixed during the period of historically low rates. Will I refi again? Hope not, but who knows what the future holds.
Again, seperate the loan from the property. They may be married, but they are not conjoined twins.
It think the BofA move was a bad one for almost everyone (one exception though)
1) For BofA, they just can’t know what they’re getting. Seems the same as buying a used car in the dark without a flashlight. Sure you can pop the hood, but what’s under it? I would have waited for the daylight. They’re probably throwing good money after a bad $2B.
2) Bad for troubled borrowers. For those that could actually benefit from a loan modification, there will likely be more chaos in both organizations. Especially at CFC where employees may be more concerned about getting a pink slip than actually evaluating potential loan modifications.
3) Bad for BofA and CFC employees. Some are going to get downsized no doubt.
Exception
4) Senior management at CFC will receive big buy out packages for their incredible leadership into this prestigious merger. (I think I just puked a bit in my mouth)
I think this will be a good move for BofA. No doubt CW has plenty of solid loans, and BofA will probably get pretty favorable treatment from the feds for not letting this thing drop in their lap.
Why would BofA purchase a company which will be posting historic losses in 2008-2011. It just doesn’t make sense to me.
So you guys dont think now is the right time to buy ? because there are homes in my neighborhood (N. Fontana) that are selling for 200,000 less than than what they sold for in 2005, and i am thinking about investing in a nice short sale . . .
I’m curious, what are your thoughts with the BofA move? There is a lot of talk, theories, and speculation being bounced around. Assuming this deal goes without a hitch and the details are still muddy, this will mean a lot of job losses in the state because of the consolidation.
I will come out with the weekly short sale report later in the day and post a link here in the comment section.
Sub-Prime is all illegal aliens, for the most part. How come no one but Michael Savage is talking about this? Case in point – an illegal alien JANITOR in the SF Bay Area wanted to buy a home for $585k!
Just letting you know we make over $100k and we can’t buy anything that expensive. Anyways, this was all in the sfgate.com, she was threatening to SUE the mortgage company because they told her no, and she said it was discrimination. WTF???
We need to send these people HOME. In the 80’s Americans were doing janitorial work in SF, as well as were working in restaurant kitchens doing the dishes! Why don’t we go back to hiring AMERICANS?
I’m waiting for price per square foot in Santa Monica to drop to around $200 per sq. ft. Right now it’s over 800. which is insane. Who would want to live in a 700 sq ft apt. in a rundown building for 500K. Check out Redfin and enter 400K limit over the Westside. There is nothing there. I’m sure they think the location will hold the value up, but seriously, I used to pay 650. a month to live in those places.
Hi Doc. This is more along the lines of discussion of the previous article – We know you have mentioned Countrywide and WaMu, but what other local/regional banks do you see as most suceptible to this lending debacle? I can figure out Downey and First Federal – any others? Thanks.
It is that dreaded price correction that is inevitable. Incomes, conventional lending guidelines, & price will drive market fundamentals. All sectors of the economy now are affected by the credit crunch. Definitely, the finance, bond & equity markets are all bursting. Case in point – an REO seller on an escrow doc read: Deutsche Bank National Trust Co, as Trustee for Morgan Stanley ABS Capital I Inc Trust 2006-WMC2, undersigned by Wells Fargo. How many other finance institutions wasn’t mentioned? Risks were definitely spread far & wide.
Mrs E.,
You must be confusing sub-prime with no-doc. Since when does illegal aliens obtain SSN? With no SSN how can you get a credit rating? Without a credit rating how can you be determined sub-prime?
Your ignorance is so obvious that there is no need to give any more creditability to your claims. I despice those people who point fingers at others where only misguided intension lies. Who are you trying to fool? Only the illegals are jumping to capitalize on the liar loans? Only the illegals go in lines to buy Xmas sale items? If there is a giveaway then everybody in need will be in line for it, FBs, crooks, people who are desperate, etc.
Yeah, WTF.
Dr HB,
I think you mean a 50 year loan does not make sense for the lender, not the buyer. At 5-6%, DannyBoy is absolutely correct, because there is nowhere else you can borrow at that rate. You are effectively renting while retaining the potential appreciation.
Of course, you need to be able to afford the rent in the first place (like paying twice the actual rate the rent will go for).
As for the lender, that just means they have no cushion if interest rates rise, they will bleed and there is no way out. The Fed is keeping this wonderland alive, we all know for what cost – destroying the dollar, and hiding inflation as if there is none.
Well I know that (I shop at Costco consistently) for the past 5 years milk has inflated 60%, egg 50%, groceries in general 30%. Gasoline 50%. What is not inflated? Chinese made goods, yeah and we are buying American and saying no to the Chinese. We are also demanding that they raise their prices and stop buying our treasuries (aka Hillary).
Very smart people in America. We are going to make toys and clothes ourselves again, then sell our resources and intellectual goods cheaper to the world (everybody is raising their prices to us). That will sure raise our living standard.
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