It's going to be even HARDER to sell your house...

[edjr 5,618]

Problems loans to home buyers with less than top credit has become a big threat to the markets - and the economy.

By Chris Isidore, CNNMoney.com senior writer

March 5 2007: 4:44 PM EST

 

 

NEW YORK (CNNMoney.com) -- Lending to homeowners and buyers without good credit has suddenly become a very bad business - and possibly a very big problem for the U.S. economy as a whole.

 

The sector is known as subprime mortgages, which pumped $640 billion into the economy through facilitating home purchases and refinancings in 2006, according to trade publication Inside B&C Lending. That's nearly twice the level of this kind of lending seen as recently as 2003.

 

But now, with delinquencies and defaults by borrowers rising, experts in the field see more lenders filing for bankruptcy and a sharp pullback in subprime lending. In addition, banking regulators are proposing tougher lending standards and regulations in the sector. All that sent shares of some major financial firms sharply lower Monday.

 

"Everyone in the subprime sector this year is going to lose money," said Bose George, analyst with Keefe, Bruyette & Woods, a Wall Street firm specializing in banking and finance. "They're getting squeezed on all sides. Going into the year, we were looking for a decline of 15 percent [in subprime lending], but clearly now that is far too low. It's now looking like a 25 to 30 [percent] decline."

 

On Wall Street, the biggest loser Monday was New Century Financial (Charts), the No. 2 subprime lender according to Inside B&C Lending. Its shares plunged nearly 70 percent in midafternoon trading Monday after the company said in a filing late Friday that it was facing a criminal probe of its practices by the Justice Department and that its outside auditor, KPMG, said it now believed there was substantial doubt about New Century's ability to function as a going concern.

 

But other lenders in the sector also got hit. For example, Fremont General Corp. (Charts) lost a third of its value after it announced it would exit the subprime sector because of the demands of regulators and market conditions.

 

While it's the smaller subprime lenders whose shares have taken a beating, many of the nation's biggest financial services firms are also leading subprime lenders.

 

Some economists say that choking off more than $100 billion in home financing will cause problems for real estate and home prices overall by keeping some buyers out of the market and by forcing some current homeowners to sell or face foreclosure.

 

"People who a year ago could have purchased a house with a subprime mortgage aren't going to be able to purchase," said Paul Kasriel, chief economist with Northern Trust in Chicago. "Increased foreclosures will mean more inventory on a market that already has a glut of homes for sale."

 

Kasriel said the additional hit to real estate from the subprime meltdown is likely to mean serious problems for the economy overall.

 

"Housing has played a very large role in this expansion and one of the reasons it's played that role is there has been a change in the mortgage market," he said. "This has been a credit-induced housing boom that lifted other sectors of the economy and it's all in reverse now."

 

One watchdog group, the Center for Responsible Lending, forecast recently that 19 percent of subprime mortgages originated during the past two years will end in foreclosure.

 

"This rate ... exceeds the worst foreclosure experience in the modern mortgage market, which occurred during the 'Oil Patch' disaster of the 1980s," the group said in a report issued in December.

 

The group praised a call from federal regulators Friday for much tougher standards for lenders making subprime loans. But the tougher standards will mean many borrowers will be cut off from financing, according to requests for public comment on the proposal.

 

The proposed new rules come after mortgage financing firm Freddie Mac (Charts) said it would no longer buy subprime loans on the secondary market that have a high likelihood of excessive payment shock and possible foreclosure. Freddie Mac's new guidelines, and the proposed federal rules, would require that a borrower qualify at the highest rate possible under adjustable-rate loans, a move that would leave many not able to qualify.

 

The proposed rules on new standards and the action by Freddie Mac are important since most subprime lenders package their loans into securities to sell in the secondary market in order to get additional funds to make further loans.

 

In the new, tougher financing environment for subprime lenders, ACC Capital Holdings, the closely held owner of Ameriquest, the No. 7 subprime lender, said last week it secured additional working capital from Citigroup (Charts). In return, Citi got an option to buy ACC's wholesale mortgage business as well as its mortgage servicing operations. CitiMortgage is already the nation's No. 4 subprime lender.

 

"This relationship is a result of ACC Capital Holding's thorough review of the current market and the different strategic alternatives currently available to an independent mortgage lender," it said in a statement.

 

Citi is not the only major financial services firm in the subprime sector. Last Thursday, Countrywide Financial (Charts), one of the nation's largest mortgage lenders, warned that 19 percent of the nonprime loans it collects payments for are delinquent. Its shares slid another 3 percent Monday on concerns about the sector.

 

Other leaders in subprime mortgage lending in the United States are units of some of the nation's biggest financial services firms, including HSBC (Charts), the No. 1 subprime lender, which took a $10.6 billion charge for bad loans, as well as General Electric (Charts), Wells Fargo (Charts) and Washington Mutual (Charts).

 

And some businesses that aren't generally thought of as subprime mortgage lenders, such as H&R Block (Charts) and General Motors (Charts), also have subsidiaries in that business.

 

One cause of GM's delay in reporting fourth-quarter results is the attempt to look at how changes in the real estate loan market affect the value of GMAC, the financing subsidiary that GM sold a 51 percent stake in during the quarter.

 

 

http://money.cnn.com/2007/03/05/news/econo...sion=2007030516

[surferskin 30]

just wait a little longer...it will be the perfect time to buy in a few more years.

[edjr 5,618]

just wait a little longer...it will be the perfect time to buy in a few more years.

 

What's that have to do with someone trying to desperately sell their house?

[RLLD 3,486]

What's that have to do with someone trying to desperately sell their house?

 

Define desperately....

 

Is it trying to gouge some poor sap for 200, 300 or perhaps 400% more than your house is actually worth, or is it simply trying to dump the thing

[edjr 5,618]

Define desperately....

 

Is it trying to gouge some poor sap for 200, 300 or perhaps 400% more than your house is actually worth, or is it simply trying to dump the thing

 

I'm more thinking of people that bought a house 2 years ago with an ARM and now they are desperate to sell their house, or default on their mortgage.

 

People that have had their houses for 4+ years, I'm pretty certain are not desperate to sell their house, not in this market anyway.

 

However, this article proves one thing. Less buyers = less gouging.

[davebg 0]

I'm more thinking of people that bought a house 2 years ago with an ARM and now they are desperate to sell their house, or default on their mortgage.

I have a hard time feeling bad for these people...who knowingly (unless they're dumbasses who made the biggest purchase of their lives w/out doing any research) rolled the dice and got to pay virtually nothing to live in a home they had no business buying in the first place...while I was paying a full mortgage payment every month.

[RLLD 3,486]

I'm more thinking of people that bought a house 2 years ago with an ARM and now they are desperate to sell their house, or default on their mortgage.

 

People that have had their houses for 4+ years, I'm pretty certain are not desperate to sell their house, not in this market anyway.

 

However, this article proves one thing. Less buyers = less gouging.

 

ohhh yess, yeah...those people are focked...

 

I suppose I should feel sorry for them, but I dont. You see, they went ahead and engaged in a horrible loan to overpay for a house, further fueling the market into its inappropriate nature. By their participation in this farce, they get exactly what they deserve from this "righting" action as people like to refer to it.

[Strike 4,042]

Define desperately....

 

Is it trying to gouge some poor sap for 200, 300 or perhaps 400% more than your house is actually worth, or is it simply trying to dump the thing

 

A house is worth exactly as much as someone is willing to pay for it. There is no such thing as gouging.

[cday 0]

I bought a house with a 5-year ARM back in March 2006. I'm not sweating it, and I'm one of the "there is a housing bubble!" people here.

 

The main reason I'm not worried is the interest rates haven't really moved much. Consolidating to a fixed loan would not break me. Now, the people who got the ultra-cheap ARMs back in 2003, yeah, they are the ones behind the 8-ball.

 

I got an ARM mainly because I know I will be out of my house in 5 years, once kids are on the way. No sense to pay a fixed rate for that time if I know I'm going to be in the market for a new house before the ARM period is up.

[davebg 0]

I got an ARM mainly because I know I will be out of my house in 5 years, once kids are on the way. No sense to pay a fixed rate for that time if I know I'm going to be in the market for a new house before the ARM period is up.

As long as you are saving the money that you would normally be paying in a fixed mortgage payment.

 

Otherwise, I don't see how you will move to that new home in 5 yrs when the kids are coming. I mean, since you have an ARM loan you are not paying any principle and since you bought in March 2006, after prices had already skyrocketed, you can't expect to make much profit when you go to sell. So, where's the down payment on the new, presumably bigger house going to come from?

 

I mean, I bought almost 5 yrs ago and got a great rate on a fixed mortgage. When the time comes to buy a bigger house it will cost me much more than I paid for my current place, but I'll make a few hundred thousand on the principle I've paid and the market increases since I bought (which in my area have slowed, but not really retreated all that much.) There's my down payment on the new, bigger place.

[RLLD 3,486]

A house is worth exactly as much as someone is willing to pay for it. There is no such thing as gouging.

 

Yes, this is the popular concept taught in our institutions and we all know it is deeply ingrained in our economic system, and thus fram that pespective you are correct.

 

However, the houses in the market today are not worth the prices being paid, as many are now coming to realize. We can argue the point ad nauseum, the fact remains, housing prices are not reflective of value at this time, and I am quite happy to see the forclosures increase as they have.

 

We can agree to disagree.

[Mungwater 588]

As long as you are saving the money that you would normally be paying in a fixed mortgage payment.

 

Otherwise, I don't see how you will move to that new home in 5 yrs when the kids are coming. I mean, since you have an ARM loan you are not paying any principle and since you bought in March 2006, after prices had already skyrocketed, you can't expect to make much profit when you go to sell. So, where's the down payment on the new, presumably bigger house going to come from?

 

I mean, I bought almost 5 yrs ago and got a great rate on a fixed mortgage. When the time comes to buy a bigger house it will cost me much more than I paid for my current place, but I'll make a few hundred thousand on the principle I've paid and the market increases since I bought (which in my area have slowed, but not really retreated all that much.) There's my down payment on the new, bigger place.

 

 

I've always been told that the M in ARM stands for Moron, and your post really sums it up nicely.

[surferskin 30]

A house is worth exactly as much as someone is willing to pay for it. There is no such thing as gouging.

 

i seem to remember a thread where RLLD was arguing that people should only sell there's for what they paid for it.

[Strike 4,042]

As long as you are saving the money that you would normally be paying in a fixed mortgage payment.

 

Otherwise, I don't see how you will move to that new home in 5 yrs when the kids are coming. I mean, since you have an ARM loan you are not paying any principle and since you bought in March 2006, after prices had already skyrocketed, you can't expect to make much profit when you go to sell. So, where's the down payment on the new, presumably bigger house going to come from?

 

I mean, I bought almost 5 yrs ago and got a great rate on a fixed mortgage. When the time comes to buy a bigger house it will cost me much more than I paid for my current place, but I'll make a few hundred thousand on the principle I've paid and the market increases since I bought (which in my area have slowed, but not really retreated all that much.) There's my down payment on the new, bigger place.

 

Dave,

I think you're getting ARM confused with interest only loans.

[parrot 789]

Dave,

I think you're getting ARM confused with interest only loans.

[Rusty Syringes 478]

All these goofball mortgage deals they've come up with lately are going to destroy the housing market and send a whole lot of people into a deep pit of poverty.

 

People as a whole are extremely dumb with their money, running up their debt without giving it much thought.

[5ToedSloth 0]

Dave,

I think you're getting ARM confused with interest only loans.

I pay off plenty of principal with my ARM. IN fact, I believe I pay MORE down on my loan with my ARM than I did with my previous fixed.

[RLLD 3,486]

 

i seem to remember a thread where RLLD was arguing that people should only sell there's for what they paid for it.

 

Which never transpired....

[edjr 5,618]

All these goofball mortgage deals they've come up with lately are going to destroy the housing market and send a whole lot of people into a deep pit of poverty.

 

People as a whole are extremely dumb with their money, running up their debt without giving it much thought.

 

it already has destroyed the market.

 

as this article specifies, mortgage lenders are giving out loans to people without even proving they can afford it. I remember years ago you had to show paystubs and stuff, christ you can call someone and get approved over the phone without showing them anything. Not only that, but the lenders are giving way to much money, not paying attention to other debt people have.

[surferskin 30]

Which never transpired....

http://www.fftodayforums.com/forum/index.p...=237370&hl=

[TimmySmith 2,782]

Bad housing market = great rental market. All those who do not own better expect to pony a little more in rent. It's a tip that poor people are the first to lose in every market.

[parrot 789]

it already has destroyed the market.

 

as this article specifies, mortgage lenders are giving out loans to people without even proving they can afford it. I remember years ago you had to show paystubs and stuff, christ you can call someone and get approved over the phone without showing them anything. Not only that, but the lenders are giving way to much money, not paying attention to other debt people have.

It's also what helped create "the market".

[Strike 4,042]

I pay off plenty of principal with my ARM. IN fact, I believe I pay MORE down on my loan with my ARM than I did with my previous fixed.

 

Why are you replying to me?

[Peens 0]

Times must be tough, my next door neighbor has the exact same house as mine:

 

2500 sq feet (2 car garage with storm shelter and attic)

4 bedrooms

2 full baths

 

and they are selling it for 184,000 i believe. I saw it on realtor.com, its only a year or two years old.

[RLLD 3,486]

http://www.fftodayforums.com/forum/index.p...=237370&hl=

 

Perhaps you can now point out where in that thread i stated that people who only sell it for what they owe...

[dirty dug 0]

Times must be tough, my next door neighbor has the exact same house as mine:

 

2500 sq feet (2 car garage with storm shelter and attic)

4 bedrooms

2 full baths

 

and they are selling it for 184,000 i believe. I saw it on realtor.com, its only a year or two years old.

 

You can't even buy a 600 sq ft studio here in Arlington County, VA for that.

 

[edjr 5,618]

Times must be tough, my next door neighbor has the exact same house as mine:

 

2500 sq feet (2 car garage with storm shelter and attic)

4 bedrooms

2 full baths

 

and they are selling it for 184,000 i believe. I saw it on realtor.com, its only a year or two years old.

 

 

Where do you live? I wish I could find something 2,500 for 184,000 I would buy it today.

 

2,500 where I live is at least double that.

[RLLD 3,486]

You can't even buy a 600 sq ft studio here in Arlington County, VA for that.

 

 

True.

 

Here is a fun fact. A house recently sold a few blocks away for $899K, it is similar is size and materials to that which I am currently building for $350K. The difference being that I was able to shop plans around to several builders, finally finding an honest one who was willing to accept at 30-40% margin instead of hundreds.....

 

Builders are just as guilty in all this....

[davebg 0]

Dave,

I think you're getting ARM confused with interest only loans.

Yes, you are correct. My bad.

[Peens 0]

Where do you live? I wish I could find something 2,500 for 184,000 I would buy it today.

 

2,500 where I live is at least double that.

 

Moore, Ok. Georgeous house imo. They are selling it for a bigger house with more land which is why they might be selling it for cheap.

[Strike 4,042]

Where do you live? I wish I could find something 2,500 for 184,000 I would buy it today.

 

2,500 where I live is at least double that.

 

Move to Los Angeles and you'll pay triple. It's all relative.

[dirty dug 0]

Move to Los Angeles and you'll pay triple. It's all relative.

 

I would say closer to 4X.

[edjr 5,618]

Move to Los Angeles and you'll pay triple. It's all relative.

 

 

Why would I do that when I'm 30 minutes from Boston where it would be 3 or 4x as well

 

I understand houses cost different amounts in different areas, doesn't mean I can't whine a little about it.

[cday 0]

As long as you are saving the money that you would normally be paying in a fixed mortgage payment.

 

Otherwise, I don't see how you will move to that new home in 5 yrs when the kids are coming. I mean, since you have an ARM loan you are not paying any principle and since you bought in March 2006, after prices had already skyrocketed, you can't expect to make much profit when you go to sell. So, where's the down payment on the new, presumably bigger house going to come from?

 

I mean, I bought almost 5 yrs ago and got a great rate on a fixed mortgage. When the time comes to buy a bigger house it will cost me much more than I paid for my current place, but I'll make a few hundred thousand on the principle I've paid and the market increases since I bought (which in my area have slowed, but not really retreated all that much.) There's my down payment on the new, bigger place.

 

pretty much, going into savings/stock market. chances are I'll be moving into a bigger house, but further out -- so i'm likely to get into a similarly priced house.

 

my assessment in the past year jumped 40%. the area and market down here is still climbing, not due to a healthy job market, but retirees flooding into the area and inflating values. combine that with the development that is coming, and i'm pretty sure it's going to work out ok.

[Peens 0]

Times must be tough, my next door neighbor has the exact same house as mine:

 

2500 sq feet (2 car garage with storm shelter and attic)

4 bedrooms

2 full baths

 

and they are selling it for 184,000 i believe. I saw it on realtor.com, its only a year or two years old.

 

http://www.realtor.com/FindHome/HomeListin...mp;lnksrc=00002

 

I hope my new neighbors dont suck

[Strike 4,042]

I would say closer to 4X.

 

I'd agree. 3x just popped out at me but after further thought 4x is probably more accurate.

[davebg 0]

pretty much, going into savings/stock market. chances are I'll be moving into a bigger house, but further out -- so i'm likely to get into a similarly priced house.

 

my assessment in the past year jumped 40%. the area and market down here is still climbing, not due to a healthy job market, but retirees flooding into the area and inflating values. combine that with the development that is coming, and i'm pretty sure it's going to work out ok.

I still don't see how it's going to work out for you.

 

You say that property values in your area have increased, so that will account for the profit you will make when you sell, since you likely haven't paid off too much of the principle on the loan due to the relatively short stay.

 

When you go to move into a larger house, how can you think that it will be similarly priced to the one you are in now? Unless you are considering a move to a different area, I just don't see it. If property values have risen for your current home, then wouldn't they have risen for your future home?

 

I paid about $415k almost five years ago. If I wanted to sell today I could get around $675-$725k. A larger home that is of similar quality in the same basic area will cost no less than $1million. Thankfully, I'll have made a decent profit off of the first home to use as a down payment on the new home, although, even if I put down everything as a down payment, I would still have to take out a larger mortgage that would pretty much double my current monthly payments.

 

However, the point is that it's extremely rare that a person is able to take advantage of the market on both ends. If you get more for the house you are selling (b/c of the market in your area) then you will have to pay more when you buy (if you stay in the same market/area.)

[Franknbeans 46]

pretty much, going into savings/stock market. chances are I'll be moving into a bigger house, but further out -- so i'm likely to get into a similarly priced house.

 

my assessment in the past year jumped 40%. the area and market down here is still climbing, not due to a healthy job market, but retirees flooding into the area and inflating values. combine that with the development that is coming, and i'm pretty sure it's going to work out ok.

and then there's your fantasy winnings

[edjr 5,618]

and then there's your fantasy winnings

Don't forget online poker winnings too!

[cday 0]

I still don't see how it's going to work out for you.

 

You say that property values in your area have increased, so that will account for the profit you will make when you sell, since you likely haven't paid off too much of the principle on the loan due to the relatively short stay.

 

When you go to move into a larger house, how can you think that it will be similarly priced to the one you are in now? Unless you are considering a move to a different area, I just don't see it. If property values have risen for your current home, then wouldn't they have risen for your future home?

 

I paid about $415k almost five years ago. If I wanted to sell today I could get around $675-$725k. A larger home that is of similar quality in the same basic area will cost no less than $1million. Thankfully, I'll have made a decent profit off of the first home to use as a down payment on the new home, although, even if I put down everything as a down payment, I would still have to take out a larger mortgage that would pretty much double my current monthly payments.

 

However, the point is that it's extremely rare that a person is able to take advantage of the market on both ends. If you get more for the house you are selling (b/c of the market in your area) then you will have to pay more when you buy (if you stay in the same market/area.)

 

i paid 230k. in neighboring counties, houses are significantly cheaper. a larger house should be around what my house currently costs.

 

considering i'm in a developing rural county, odds are my value will keep increasing, barring some sort of incredible economy crash. other neighboring counties with less development will likely be affected less. worst case, if they are affected equally, i am making a near-lateral move (minus additonal expense for more gas, wear + tear on vehicle).

 

i'll have to re-run the math, but i don't think i am paying a significant amount principle less on my ARM than i would a 30 year fixed. remember, this is NOT an I/O ARM or hybrid or anything wacky like that.