Real Estate Crash thread

**LeeLau** · 03-24-2010, 05:27 PM

BofA has a substantial portion of the third tier toxic crap that it bought unhedged and unhedgable. Good luck with that BofA

**Benny Profane** · 03-24-2010, 08:29 PM

Yup, legal maneuvering.

http://online.wsj.com/article/SB1000...te_LEADTopNews

"The bank's move is part of an agreement to settle claims over certain high-risk loans made by Countrywide Financial, which the bank acquired in mid-2008. The Massachusetts Attorney General's office, which was negotiating with the bank, said it was prepared to file suit had the agreement not included principal reductions."

**liv2ski** · 03-24-2010, 08:49 PM

Originally Posted by Benny Profane

Yup, legal maneuvering.

http://online.wsj.com/article/SB1000...te_LEADTopNews

"The bank's move is part of an agreement to settle claims over certain high-risk loans made by Countrywide Financial, which the bank acquired in mid-2008. The Massachusetts Attorney General's office, which was negotiating with the bank, said it was prepared to file suit had the agreement not included principal reductions."

Yep the douches at Countrywide made a bizillion Option ARM (Neg AM) loans. Over the last 4-5 years those will all hit their max 25% neg am potential, so really, forgiving 30% is peanuts. Granted, the fuctards that took the loans out were only paying 1% year 1, but really, what were the geniuses that thought this shit up thinking?
Example, Option ARM taken out in 2005 at a 1% payment rate. 12 mo Libor Index was about 4.25% for that year with a 3.5% margin = 7.75% interest on loan being paid at 1%.

2006 Libor avg= 5.4% + margin = 8.9%. Payment rate 2%

2007 Libor avg = 5.25% + magin = 8.75%. Payment rate is 3%.
Anyways, it is pretty easy to see that the people that took out these loans had massive neg am on their loan balances until mid 2009 when Libor + margin finally was no longer going neg am.

**cramer** · 03-24-2010, 09:05 PM

Originally Posted by Toadman

I would think that once a bank like BofA starts to write down the principal, you might have all hell break loose in the bond markets, and not to mention the good folks at Fannie and Freddie going down the drain with our tax dollars. Feb. housing sales is a bad, bad sign, weather be damned and all.

They are only writing down principal on about 45 thousand loans. And all are ARM.

**Toadman** · 03-25-2010, 10:15 AM

Originally Posted by cramer

They are only writing down principal on about 45 thousand loans. And all are ARM.

Gotcha. And apparently fm what others have stated, it's all about avoiding the legal issues. Interesting that some main stream media were portraying this as a good act by BofA, without detailing the reasoning behind it.

**Missing Sock** · 03-29-2010, 05:35 AM

from WSJ

Mortgage Increases Blunted

By NICK TIMIRAOS

The struggling housing market appears as if it will sustain less damage than expected this year from a spike in the monthly payments on hundreds of thousands of exotic adjustable-rate mortgages.

The number of such loans scheduled to adjust to higher payments this year has shrunk. Lower-than-expected interest rates, coupled with efforts to aggressively modify loans, are likely to mute payment shocks for some borrowers. Many others already have defaulted on their loans even before their payments adjusted upward.

Loan-modification programs, such as this one in California, have helped to limit the number of mortgages whose payments will rise this year.

"The peaks of the reset wave are melting very quickly because the delinquency and foreclosure rates on these are loans are already very high," says Sam Khater, senior economist at First American CoreLogic.

The housing market still faces enormous challenges, and a full recovery is likely to take years. The threat posed by resetting payments, Mr. Khater says, is "a drop in the bucket" compared to problems posed by the sheer volume of borrowers who owe more than their homes are worth, known as being "under water."

Still, for years, housing analysts have worried about the threat of an aftershock from a big spike in mortgage defaults from so-called option adjustable-rate mortgages, which require low minimum payments before resetting to sharply higher levels, and "interest-only" loans, for which no principal payments are due for several years.

Most option-ARM borrowers made minimal payments, so their loan balances grew. That sparked worries about what would happen when those loans "recast" and begin requiring full payments on larger loan balances, usually five years from when they were originated or when the balance reached a designated cap.

Option ARMs may be among the most likely to benefit from the White House plan, announced on Friday, to force banks to consider writing down loan balances when modifying mortgages. Until now, the administration's Home Affordable Modification Program, or HAMP, has focused on lowering monthly payments by reducing interest rates and extending loan terms to 40 years.

A separate program could benefit borrowers who are current on their loans but under water by allowing investors to refinance those borrowers into loans backed by the Federal Housing Administration. Investors are most likely to refinance the riskiest loans that qualify.

The majority of option ARMs are set to recast over the next two years. But the volume of outstanding loans has fallen sharply because many borrowers, prior to facing higher payments, received modifications, refinanced or defaulted. Option ARM volume peaked at 1.05 million active loans in March 2006. At the end of last year, there were 580,000 loans outstanding, according to First American CoreLogic.

Fitch Ratings estimates that nearly half of all option ARMs that were bundled and sold as securities were 60 days or more delinquent at the end of December, even though just 5% of option ARMs had faced recasts. Fitch estimates that another 7% have been modified.

"The default process has already hit something resembling a peak," says Christopher Thornberg, an economist at Beacon Economics. "How much higher can it actually go?"
[RESET]

The threat of defaults, to be sure, is not going away. It is likely to weigh for years on high-cost housing markets in California and other states that saw an explosion in option ARMs and interest-only loans during the housing bubble.

Today, more than three in four option ARMs are under water, according to Fitch Ratings, and one-third have a combined loan-to-value ratio of over 150%.

Another 500,000 interest-only loans will begin resetting in the next two years. Many have fixed rates and require interest payments only for a five- or seven-year period, then move to adjustable rates and require full principal and interest payments.

But because interest-rate benchmarks are currently so low, interest-only borrowers who face resets this year could see minimal payment increases or even decreases.

Nevertheless, interest-only loans are likely to stress markets for years because so many borrowers are under water and because payments will go up once interest rates begin climbing.

Martha Shickley and her husband, who own a four-bedroom home north of Los Angeles, decided to stop paying their interest-only mortgage last August because they figured they wouldn't be able to afford their payments next year, when their loan will reset. "We're paying expensive rent here on a home that might already be under water and certainly will be soon," says Ms. Shickley.

Ms. Shickley says she has heard nothing from her lender, J.P. Morgan Chase & Co., which acquired the loan when it acquired assets from failed lender Washington Mutual Inc. "They haven't even sent us the default notice," she says. J.P. Morgan declined to comment.

For now, she and her husband are living rent free, using the savings to pay off debts. They have applied to their bank for a loan modification, and they hope to pull off a short sale, where the bank will allow the home to be sold for less than they owe. "We're ready to move on with our lives," she says.

Markets increasingly are discounting the likelihood of a default wave from option ARMs because banks with big portfolios have aggressively tried to refinance or modify them.

Wells Fargo & Co., which inherited $120 billion in option ARMs when it bought Wachovia Corp. in 2008, says it expects just 528 loans to recast with big payment jumps over the next two years. Wells says it modified loans for some 52,600 borrowers last year that included $2.6 billion in principal write-downs. Most of those borrowers were put into loans that have five- or seven-year interest-only periods.

That won't completely fix borrowers' problems because they will face yet another reset, but it does buy them time. Late last year, banking regulators began telling banks that they shouldn't give borrowers interest-only mortgage modifications in most circumstances.

"There is no relaxing, really," says Brenda English, a homeowner in Reseda, Calif., who had her option ARM modified into a loan with three-year interest-only payments at 4.25%. Her modified payments are around $25 less than what she paid before, but she says she's worried about what happens in three years. "It's just throwing it up in the air and hopefully the market will be better," she says.

Write to Nick Timiraos at nick.timiraos@wsj.com

**khakis** · 03-29-2010, 02:53 PM

I don't get all the articles I keep reading where the author tries to act like the ARM reset issue and the underwater issue are independent of each other.

ARMs resetting wouldn't be a problem if the owner wasn't underwater...they'd just refi (like their broker told them the would be able to)

**Benny Profane** · 03-29-2010, 05:29 PM

"For now, she and her husband are living rent free, using the savings to pay off debts."

This has become so pervasive, that some think this is why retail sales came in with a strong report today and last week. It's a smart move - pay off the credit cards, scope out the rentals, and then just walk away. America, what a fucking country.

edit: Speaking of walking away - if anyone is contemplating this, beware of bankers with ulterior motives: http://seekingalpha.com/article/1961...-mortgage-plan

**skiballs** · 03-29-2010, 05:35 PM

another 20% down looks like the bottom
I can buy and rent out with positive cash flow
solid cash position and perfect credit can yield solid lifetime income
maybe

**mock vomit** · 03-29-2010, 10:20 PM

Anyone in a field that can tell me if a big melt down in Commercial will cross over into Residential? And how?

TARP watchdog: Commercial real estate mortgages sinking quickly

By Stephen C. Webster
Monday, March 29th, 2010 -- 10:21 pm

By the end of 2010, half of all commercial real estate mortgages in the United States could be "underwater," according to the government's Troubled Asset Relief Program watchdog.

Translation: Americans' financial woes are far from over.

The commercial real estate bubble will grow so large that it will become a "serious problem" that will take at least three years to address, Elizabeth Warren, who chairs the congressional oversight pannel on TARP, told CNBC on Monday.

Nearly 3,000 "mid-sized" banks have what she called "dangerous concentrations" of sinking commercial mortgages: a situation that could result in roughly half the commercial property in the U.S. becoming worth more as debt than as real estate.

"The problem here is not fundamental. It is circumstantial, and it's deadly. These owners can't ride out the recession because their loans are due and they're short, or worse, upside-down," noted Greg Rand, writing for Entrepreneur.

"There is no implicit guarantee anymore," Warren said. "I don't care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out."

She added that the U.S. is going to lose money on the TARP program, but not as much as first thought thanks to the for-profit sale of the government's stake in Citigroup.

Her remarks fall on the same day that Treasury Secretary Timothy Geithner cautioned that commercial real estate would be a "problem" in coming years that the government should be able to handle.

"Geithner also said the Treasury Department's announcement that it will begin selling the stake it owns in Citigroup Inc., which could net about $7.5 billion to the government, shows 'how far we've come' in exiting from the financial bailout program," the Associated Press reported.

The TARP's Congressional Oversight Panel said U.S. banks stand to lose over $300 billion on risky commercial lending.

**cramer** · 04-02-2010, 11:06 AM

I got an email from zillow today. Its the first email i've recieved from them that my house actually went UP in value since i bought the place. (dec 08). Is it a sign? Nope. But its better than getting the email saying your place dropped 1000 in the last 30 days.

Is there a better site out there than zillow for getting your homes value? Although, our appraisers do use it. It does have last sold prices, etc so i guess its ok for comparables.

**Benny Profane** · 04-02-2010, 12:02 PM

Last sold, or public records, is all you can depend on. Look at Zillow sometime at already sold - they're dumb enough to put that figure right next to their zestimate, or whatever it's called. duh. Don't quite match a lot.

SF is doing real well. California is a fucking strange, neurotic place when you look at it from the perspective of this real estate thing. Still doesn't make any sense at all when people making even 100,000 a year are paying down 600,000 mortgages. That has to correct, sooner or later.

Meanwhile, further south, we have a whole new phenomenon - the "gated ghetto": http://blogs.wsj.com/developments/20...-gated-ghetto/

**Toadman** · 04-02-2010, 02:13 PM

Originally Posted by cramer

I got an email from zillow today. Its the first email i've recieved from them that my house actually went UP in value since i bought the place. (dec 08). Is it a sign? Nope. But its better than getting the email saying your place dropped 1000 in the last 30 days.

Is there a better site out there than zillow for getting your homes value? Although, our appraisers do use it. It does have last sold prices, etc so i guess its ok for comparables.

I think Zillow is a bit out of touch. I look at my 'hood on Zillow, and then look at the House For Sale signs as I walk my dog, and sure enough after a few months, they come down on the price. And yep, a month later they knock another few thousand off the price. Eventually the home either sells for $15k-$25k less than the original price, or doesn't sell, and you see a house for rent sign repalce the house for sale sign. This is the East side of Seattle area.

**liv2ski** · 04-02-2010, 07:29 PM

The good news that I have noticed in the last 30 days is Radian (a mortgage Insurance Co) is now doing 95% ltv PMI in CA again on a SFR. This is a very positive step as all PMI companies have been at 90% ltv or less for the last 2 years in CA on conventional loans under $417k.
Another spot of good news is Wells Fargo is now doing Jumbo loans to $2M above 65% ltv.
Now we need either FHA to allow spot loans on non approved condo projects or the PMI companies to insure over 85% ltv on condos, to help that very depressed segment of housing.

**cramer** · 04-02-2010, 08:21 PM

SF is doing real well. California is a fucking strange, neurotic place when you look at it from the perspective of this real estate thing.

well where else you going to have the weather, the beach, the big city, the mountains, casino's and people with no college degrees making 70K+ a year? Theres a reason people want to live here and are willing to pay to live here.

As for the 100K folks paying 600K mortgages. Those days are over. They've all walked. Those 600K mortgages are now 250-300K mortgages that 1st time buyers and investors pounced on the last year or 2. As for SanFrancisco, ya, its retarded how much places are out there. How the fuck anyone affords a place in the city is beyond me. I want to know what they do for a living?

**liv2ski** · 04-04-2010, 11:01 AM

Originally Posted by cramer

How the fuck anyone affords a place in the city is beyond me. I want to know what they do for a living?

Here you go Cramer. Google/Search is your friend

http://swz.salary.com/salarywizard/l...narrow_50.html

**Spats** · 04-04-2010, 06:49 PM

Originally Posted by liv2ski

Now we need either FHA to allow spot loans on non approved condo projects or the PMI companies to insure over 85% ltv on condos, to help that very depressed segment of housing.

Why is it good to "help" housing stay unaffordable?

Why is it good to make sure that the only way to have a roof over your head is to be in debt slavery for 30 years, or rent from someone else willing to do so?

All cheap credit does is make housing more expensive. This penalizes savings and rewards debt -- making us a nation of debtors enslaved to the predictable earnings stream of working for The Man.

You can't take risks, start new businesses, live independently, or take risks at all when you're tethered to hundreds of thousands of dollars in debt. And that is exactly what the banks, the big corporations, and the government want: a compliant and scared nation, yoked to their housing and consumer debt, forced to work longer and longer hours for whatever pay they deign to offer.

Mort gage = "death pledge." With debt, you are a serf in all but name.

**liv2ski** · 04-04-2010, 07:39 PM

Originally Posted by Spats

making us a nation of debtors enslaved to the predictable earnings stream of working for The Man.

You can't take risks, start new businesses, live independently, or take risks at all when you're tethered to hundreds of thousands of dollars in debt. And that is exactly what the banks, the big corporations, and the government want: a compliant and scared nation, yoked to their housing and consumer debt, forced to work longer and longer hours for whatever pay they deign to offer.

Mort gage = "death pledge." With debt, you are a serf in all but name.

Spats, I normally like your takes, but this one is a little to paranoid. I would encourage young people to invest in their future and yes owning a home, free and clear, as soon as possible is a part of that investment in your future.

My previous point on condos, is due to lack of low down financing, that portion of the housing market is getting slammed, as first time buyers can not buy in most projects due to much higher down payment requirements. With values in many areas at 10 year lows, I think it is a shame most first time home buyers can't take advantage of the deals out there.

**Kevo** · 04-04-2010, 07:44 PM

Originally Posted by Spats

Why is it good to "help" housing stay unaffordable?

Why is it good to make sure that the only way to have a roof over your head is to be in debt slavery for 30 years, or rent from someone else willing to do so?

All cheap credit does is make housing more expensive. This penalizes savings and rewards debt -- making us a nation of debtors enslaved to the predictable earnings stream of working for The Man.

You can't take risks, start new businesses, live independently, or take risks at all when you're tethered to hundreds of thousands of dollars in debt. And that is exactly what the banks, the big corporations, and the government want: a compliant and scared nation, yoked to their housing and consumer debt, forced to work longer and longer hours for whatever pay they deign to offer.

Mort gage = "death pledge." With debt, you are a serf in all but name.

You know...I think you are kinda right.

Go to college. Why? To get a job.

Oh wait...because so many special interest groups wanted everyone to to college...an undergrad degree today is valued somewhere around a 9th grade education 25 years ago.

So...go to college again and get a masters.

Cool, you are in debt another $60-$150k than you were before.

Now get that job we told you about. Btw, it doesn't pay what it used to. Oh, and you'll be working way more than you though.

Buy a house, live the American dream!

Sweet, you got the house...well, you want to keep you fucking job? Come in on saturday...it is mandatory if you want to work here. Nope, no raise for you- where else are you going to go? You have a mortgage, 2 kids, and hundreds of thousands of dollars in student loans to deal with. Put up with your stupid fucking bullshit job- you have no other options.

Fuck this fucking bullshit system. Fuck it!

(I have no mortgage and my job is ok, but I think that more and more people are living the above nightmare)

I think it is time that people started measuring their status quo by the quality of their lives. I think the quality of life in the US has gone down drastically in the past several decades...

**liv2ski** · 04-05-2010, 09:45 AM

Kevo and Spats, I appreciate that if a person wants to have a higher level of personal freedom, not owning a house makes more sense, as home ownership ties you to a spot more than being a tenant does.
Renting at any given time is also about 30% cheaper than buying and paying the PITI. However. while mortgage payments stay the same and eventually go away (at least if your not a dipshat always tapping your equity), rents over the same 20-30 years will typically increase quit a bit.
I look at home ownership as a forced savings plan. You buy today for X, stay put and pay that fucker off as fast as you can. Sure, rent would have been initially cheaper, but I doubt many renters put that extra 30% initial savings into savings. No, renting is more of a party mode, "I got the freedom", so renters historical end up with substantially lower net worth after 20-30 years.
Nothing is for sure and much of what I am reading is talking about further deflation of home values. So buy today? Maybe not. But in the next few years we are either going down the tubes or it will be time to buy for a long term hold.
I am definitely making plans to help my kids buy homes in the next 3-5 years.
Just my 2 cents.

**meatdrink9** · 04-05-2010, 10:08 AM

I too generally buy into Spats and Kevo's view of what's going on, but that doesn't mean you can't beat the system at it's own game. I have the freedom I have because I put my name on the mortgage... lots of them.

**Toadman** · 04-07-2010, 02:06 PM

I guess after the cameras and bus leave, you still have to pay the mortgage....

'Extreme Makeover: Home Edition' has always strived along with our volunteer builders to create not only 'extreme' homes, but homes that work for the owners for years to come," the spokesperson said. "As always, we are striving to build greener, more affordable and environmentally responsible homes, and redoubling those efforts for years to come."

The long-running, tear-jerking show boasts a tried-and-true formula: Producers track down families who have undergone extreme hardship and send a team of designers to give their homes expensive and lavish makeovers.

Over the course of seven seasons, the redo's have become increasingly opulent, with amenities like swimming pools, home theaters, carousels, and bowling alleys popping up on a regular basis. Problem is, these extravagances usually come with significantly higher utility bills and mortgages, which many homeowners are struggling to pay.

The first home to officially foreclose belonged to Idaho resident Eric Hebert, who was featured on the show after he adopted his deceased sister's 11-year-old twins. Herbert admits to having taken out too large a loan on the home under the assumption that he'd be receiving a larger income than he was able to secure.

"A lot of people think when you get the house you get the mortgage," "Extreme Makeover" contestant Brian Wofford told San Diego's 10News. "Well, you don't." Wofford, a widowed father of eight, has been fighting to modify his home loan for two years after his mortgage adjusted to an unmanageable rate.

In addition to the Heberts and the Woffords, as many as four other families are in foreclosure territory. The Harpers of Georgia were given a 5,300-square-foot castle-like house five years ago, but the failure of their construction business forced them to put their home up as collateral. They've filed for bankruptcy and are facing imminent foreclosure. The Okvaths of Arizona and the Byers of Oregon are also in deep financial trouble and may be forced to give up their digs.

**skier666** · 04-07-2010, 02:28 PM

Interesting house, and also shows how high-end real estate is managing er...falling in the storm...

Party Of Five House (2311 Broadway) Sells For Six Point Five Five

2311 Broadway

Originally listed for $7,280,000 last October, but then relisted at $6,700,000 already "in escrow" last month, the sale of San Francisco’s "Party of Five" house at 2311 Broadway has closed escrow with a reported contract price of $6,550,000.

Purchased for $5,400,000 in October 1999 for average annual appreciation of 1.9 percent over the past ten years. And with the relisting, official industry stats will reflect a sale at 2 percent under asking (versus 10 percent under its original original list) and 34 days on the market (versus five months) for this most recent sale.