Friday, June 29, 2007

UPDATE...there is MORE bad news coming

I know I haven't posted much lately...hasn't been much to say. Sure, I could analyze the way things are falling out, but a million other people are doing that. I gave my input as to what I thought was going to happen, and for the most part, things are progressing as I said it would.

That said, I have been busy lately starting a new company. When I have been working, I have a little picture-in-picture window on my monitor where I can watch TV. I usually keep it tuned to CNBC as it is 'business' related news. They have been all over the subprime mortgage mess, with lots of attention on Bear Stearns and their hedge fund issues with the subprime market.
Then today they went somewhere new. This is something I have also said: this goes WAY deeper than just subprime mortgages. Alt-A and A-paper loans are next. That was the 'big' story CNBC was just talking about. The huge jump in alt-a loan delinquency, and how soon it was happening.

Here are the ALT-A delinquency numbers from CNBC:

2004 - 0.9%

2005 - 1.59%

2006 - 4.21%

To compare, subprime used to be in the 2-4% range, but is now over 14%. That said, I was talking to a contact who deals with capital markets and they were telling me about some pools of 'recent' alt-a loans where the delinquency rate had 18-20% of the loans 60 days late or more.

Alt-a loans were famous for the low and no-doc loans, stated income, stated assets, etc. Just because these people had 'good credit' doesn't mean they made the money to afford the homes they were buying. These borrowers are probably a bit smarter, and will be able to 'hang-on' a bit longer than the typical subprime borrower, but don't think there isn't going to be double digit delinquencies in the ALT-A markets in the near future.

Investors and speculators made up a large part of the alt-a market. As these 'investments' become huge financial burdens, watch them cut their losses by cutting prices to sell, or just foreclosing. These properties will add even more downward pressure on the market.

Let's not even think about the financial impact all this easy money is going to have on the bond market. Bear Stearns is doing 'corporate' damage control by firing some senior execs who were 'responsible' for their subprime mortgage mess. Lots of hedge funds, mutual funds, and retirement funds have exposure to mortgage backed securities in one form or another.

So watch the ALT-A loans next and look for eventual increasing delinquencies with even A-paper loans.

Now for a quick story.... I was in Las Vegas this past weekend. Ran into a guy I used to know who worked mortgages there. He and his wife were both in the industry. They had 4000+ sqft house, and both were driving nice Cadillac Escalades. I ran into the guy when he got out of the limo to open the door for our party. He said they took a bath on the house when they sold it, and both of the Escalades are now gone. He drives nice limos and she works at one of the local casinos. They are still making 'good' money, but nowhere near enough to afford the lifestyle they were living when the Vegas mortgage market was on fire. $700k houses and $1000 a month car payments need lots of income to maintain.

Well, there you go. I know it has been a while, but I have been busy. Like I have said before...this is going to take YEARS to pan out, so don't worry if I go a little while between posts. I'll be here watching the entire thing, so don't worry about that. Thanks for your patience.

Stay tuned....



Anonymous Anonymous said...

SoCalMtgGuy: Thanks for the post, I had always enjoyed this blog in the past and your Real Estate/appraisal/mortgage loan discussions were insightful for me at the time. I check in here once every few weeks to see if there is anything new.

I started following the HB blogs in the summer of 2005 when people still gave you a blank look if you mentioned 'FB' or Housing Bubble. A lot has changed since then.

I think you are right, there really isn't much new information to report on a daily or weekely basis. It seems that other major HB blogs are just beating a dead horse now. Things are playing out as predicted but it does indeed take a long time, much longer than the HB blogs were predicting in 2005.

Anyway, good luck with your new business and keep posting occasionally.....cheers.

7/01/2007 1:03 PM  
Anonymous Anonymous said...

SoCalMtgGuy: I'm a big fan of people who don't sugar coat anything and your "FB" says it all. I was a "FB" but as one of the smarter Alt-A borrowers you refer to I'm suing my lender. I think it will take way longer for lenders to foreclose on Alt-A borrower, because as you said they are smarter then most. My lender been trying to foreclose since September 2006! My lawsuit in Federal Court is underway and teh lender can't do squat. I'm suing the appraiser, the broker, the lender, and the title settlement company. I had an inflated appraisal(counted non existent SF and the lender, broker and appraiser refused to give me the appraisal until it was demanded for the court), then the broker took a $19,794 YSP which there is no way they can say that is reasonable fee for services( RESPA violation) not to mention misrepresenting the Pay Option Loan and the wrong APR calculation(TILA Violations), and the lender well you know all about the way they try to say they didn't know anything about it( like they were a innocent bystander - then who the F___K paid the YSP?, LOL, then the title settlement company altered the deed after I signed it to hide the fact that they overcharged me $966 in recordation tax. That's just the highlights. Or should I say lowlights of my "FB" experience. I recently spoke at a meeting of the Federal Reserve and it was very amusing to debate the financial types who argued that the whole mess would not affect the stock market or economy as a whole. I warned them that the investment firms would be in trouble holding the MBS. They dissed me. Then just a few weeks later the Bear Stearns fiasco. I thought about calling them all and saying I told you so, but what's the point. They all have their heads so far up their A_ _ they still probably don't get it.

7/13/2007 9:37 AM  
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8/01/2007 3:17 PM  

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