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Liar Loans Making a Comeback? (say it ain't so!)
Consumer Credit Declines Sharply in May (unexpectedly!)
30 Year Rates at Record Low (fox and grapes - many borrowers don't qualify)
Friday, July 9, 2010
Northern Virginia Bits Bucket 7/9/2010
Posted by Harriet at 6:00 AM
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27 comments:
If the low-doc loans are at 60% LTV and lower, I don't see a problem with restarting that line of lending. And these sounded "low-doc" not "no-doc".
Did you see this one:
NY Times borrowers with $1m+ are more likely to be in default than those with smaller mortgages. 1 in 7 versus 1 in 12.
That's a switch. But it may be a CA phenomenon.
Harriet-
Was the consumer credit number actually unexpected. I didn't see what the expectations were, but it definitely looked inline with recent monthly numbers according to the Feds release consumer credit
My best guess is we see consumer credit decline as a percent of GDP for another 5+ years.
All-
It looks like inventory may be coming on the market again. after only getting 10-15 redfin properties a day for the last 5 weeks I have started to get 3-4 times as many. Although total inventory started falling at the start of this month I guess a lot of people must also be delisting their properties
Cara-
I agree about the low-doc loans. I also don't think they will be much of a problem if the banks are actually willing to hold them. The banks only originated such terrible loans, because they knew they could sell them immediately. My guess is you are correct it is a CA phenomenon or something related to that. $1m+ dollar houses really only exist in a handful of locations.
"With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.
“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.” "
That statement seems like a non sequitur to me. What the statistic tells me is that at least some of the people with these big loans may have counted on income from stocks, bonds, etc., to help pay the mortgage and other living expenses. Now not only do they not have it, they have also lost a significant amount of stock market investment value. If some have also lost jobs or their businesses soured, they just don't have the money to live there anymore. They tried to stay as long as they could, but just as a person who made $80K but now makes half that can no longer afford a $300K mortgage, these folks can't afford theirs. You just multiple the figures, but the principle is the same.
There may also be strategic defaults. I am just saying I wouldn't conclude that's what all of these are, especially if it's true as one of the agents said, that sellers are "in denial."
Cara-
There may also be a timing effect that a far greater percentage of $1MM+ mortgages came from bubble times. Seeing that all housing prices went up clearly more houses were valued at more than a $1MM so I imagine there are a higher percentage of $1MM+ mortgages from this time frame. So it would be interesting to see if a $1MM+ house bought in 06 is also more likely to be in foreclosure than a cheaper house that was bought in 06.
hb,
RE: inventory
Interesting that things have picked up around you. 3-4 times as many listings??? That's a heck of a lot. How big of a swath are you signed up for that you got 10-15 listings in the first place??
Anywhoo, I wouldn't read anything into the mini-dip at the start of July in the inventory charts (yet). If you look at 2006,2007 and 2008 they not only had a saw-tooth weekly pattern, but also a saw-tooth monthly pattern regardless of whether the overall trend was down or up in inventory. It's only 2009 and early 2010 that inventory was less short-term volatile.
Cara-
I am looking at a pretty big area (Most of Vienna, Oakton, Dunn Loring, Falls Church), although I think the biggest factor is that I am looking at a huge range of prices ~250-650ish. Originally we were leaning towards getting a condo/TH for 5ish years thus the lower prices. We are now pretty sure we want a house we will stay in a longer time thus the higher price range.
hb,
Remind me, when did you plan on looking in earnest again?
I definitely think the timing may be a large part of the explanation for the disparity in $1m+ delinquencies, given there were just more homes sold over that price point during the peak than anytime before or after.
Housebuyer,
I put in the "unexpectedly" based on this article from DailyFinance:
"Americans' use of credit unexpectedly plunged by $9.1 billion in May, a 4.5% annualized rate, the U.S. Federal Reserve announced Thursday. Equally significant, April's consumer credit statistic was revised to a large $14.86 billion decrease, a substantial change from the previously-released $1.0 billion credit increase.
Analysts surveyed by Bloomberg survey expected consumer credit to fall by $2.0 billion in May. Consumer credit fell $5.2 billion in March".
Harriet-
Thanks. Personally I think the size of the reductions in credit will be volatile, but we will see debt reductions for a long time.
Cara-
We just renewed our lease for another year, so at earliest we will start looking seriously next summer. Although we are in no rush, we don't plan on having kids for a while so there is no need for the space and we are saving about 60-70% of our take home pay so we may just wait another couple years and get a really nice home and be able to pay for most of it with cash.
Seeing that we are in no rush to buy, I am mostly on this blog still because I find it and the people on it interesting and understanding the economy/housing is relevant for my job so it has some great sources of information :)
hb,
Thanks, I couldn't remember if you were still considering looking this summer. I do think you've landed on the best plan. Delayed gratification is the best kind, especially when it will get you what you really want not an interim solution. And you really should be able to get something good and pay for most of it in cash in a year or two with your situation.
Cara-
Is looks like calculated risk agrees with us liar loans
Calculated risk correctly points to the difference between liar loan and low-no doc loans. Liar loans allowed people to claim income and assets they don't have. The loans that are being issued today effectively don't care about the income. They are based on the collateral and liquid assets. If the hedge fund manager does not make any money next year he can dip into his $10MM of assets. If he doesn't want to do that the bank will foreclose sell his house at a firesale price and still get more than the 20% they put into the house.
but wasn't that how things started before the big mess, that it was a sensible option for the right customers, only to see it made its way to the non-worthy borrowers for some quick $$$? are we to trust the banks don't make the same mistake?
hb,
yes but CR says it better. :)
Cara-
Agreed they are better at crafting the story :)
MM-
These loans have always been available. If you put down enough money the loan becomes much safer than someone who put very little down even if they can verify their income.
I know property guys have been really going well with sell your self but what about buying. Using an agent seems to be the only option and then that becomes a problem since they won't show private sales.
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Ace said
From the sounds of things, the school is located in an area where zoning rules prohibit moderate density housing, keeping enrollments and tax revenues down.
Yes, my understanding is there is superlow density in Clifton. Many homes have 4-6 acre lots. Contrast that with the 0.2-0.5 acres most areas have (and then those areas usually have TH and condos/apts with even more density.)
The Towns of Vienna and Herndon impose an additional town property tax above the Fairfax County rate. Clifton does not. If Clifton ES is important enough they could impose a town tax for that and other purposes.
Of course, that can be a mixed bag since many buyers are tempted to buy outside of the town limits of Vienna or Herndon to avoid that additional tax.
Regarding the NYT article...isn't this what some of us predicted (and VA_Investor denied) would happen? That the foreclosures among the wealthier and higher home valued would come later than the lower end?
TBW-
Yes many of us thought this would happen and that prices of the upper level housing might underperform going forward. I could be wrong, but I think VA agreed that the "its moving up" made a lot more sense than the "its moving in" argument.
To add another NYT article...
I have to wonder if we are going to see a plug in the normal system as many younger millennials get their careers started later, go up the job ladder later, build up their savings later.
Anecdotally, I feel like the youngest posters on this blog seem to be early millennials and we don't seem to be getting a new batch of younger people posting here.
HB
a hedge fund managers 10MM in assets may be his chunk of the fund.
those are heavily leveraged,a small movement may wipe him out instantly.
the real deal is the cash he put down.
"If Clifton ES is important enough they could impose a town tax for that and other purposes. "
What I found the most depressing was the talk of trying to have the school declared historic so they could get "federal" (other peoples') money to pay for it...
"Some Clifton neighbors are seeking a historic designation for the 1950s-era building, which would make it eligible for federal and state grants to offset rehabilitation costs."
Honestly, a 1950's elementary school? What is historic about that? There are likely a few dozen in northern VA alone.
Part of the problem with our country today is how willing people are to try to vote themselves something someone else will have to pay for. It may be another state, it may be another "class" or it may just be another generation, but whichever it is everyone seems to want something and they all seem to think someone else should pay for it.
Clifton is hardly a hard-luck area. If keeping their elementary school is really such a priority I am sure they can work something out... (preferably something that doesn't involve abusing historical designations)
"Anecdotally, I feel like the youngest posters on this blog seem to be early millennials and we don't seem to be getting a new batch of younger people posting here."
The bubble just isn't as big a deal to young people graduating today as it was to those graduating a few years ago.
Back when I graduated in 2004 the economy appeared strong and people were generally pretty optimistic, but housing was just insane and a lot of people ended up looking for answers on this and similar blogs.
Since then the housing bubble has burst and the economy has tanked. Housing may still be too high, but it is a heck of a lot more reasonable than it was at the height of the bubble. Meanwhile simply finding a job is challenging for many.
I think the class of 2010 is more likely to find itself looking at economic/employment blogs than housing bubble blogs.
Leroy,
good find.
I thought I heard in passing on NPR the other night that the overall plan is for them to build them a new ES... So I really don't understand the basis of their objection... But I could be wrong about that, anybody know?
It is one of the smallest elementary schools in Fairfax. It is far more cost-efficient to have large elementary schools (although I think most parents, teachers & students prefer a small neighborhood school). The new school would be farther away, a typical size for Fairfax, and would probably include the hoi polloi from Centreville..
If you look at the elementary boundaries, it is amazing how big the Clifton zone is with so few students...it really is remarkable how few people live in that part of the county (due to zoning of course).
tiredbubblewatcher said...
Anecdotally, I feel like the youngest posters on this blog seem to be early millennials
TBW,
Your article depresses me just a little bit since as of a couple months ago I no longer qualify in its definition of a "millenial." I guess the bright side is I graduated early enough that at least I have a good, secure job and enough experience on my resume to get another if necessary.
I think you are right though about the gap in "millenial" buyer timelines. The combination of baby boomer retirement extra supply with a dip in qualified first time buyers to drive the move up markets may limit housing appreciation in the years to come.
pat-
Seein that his hedge fund survived 07-09, my guess is that he uses a lot less leverage than you think. The media makes hedges fund look like super risk takers, although if you look at most hedge funds moves they were a lot less volatile than the market over the last several years. So I think the chance of him losing his liquid cash is probably less than you would think.
I do agree the more important part is that if you put 80% down it is very unlikely the house will fall enough that the bank can't just sell it immediately and get all of their money back.
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