Wednesday, February 14, 2007

Credit Crunch at the Bottom

Really it's no surprise, but with the steady incline of mortgage defaults (and the subsequent implosion of mortgage lenders), credit is getting tighter for those with less than stellar ratings. From CNN/Money.

'NEW YORK (CNNMoney.com) -- Just as the struggling real estate market seems to be stabilizing, a fresh problem is brewing far from real estate offices or home construction sites: a jump in defaults by higher-risk borrowers.

News of rising default rates by buyers with less than stellar credit could put a crimp in financing for home purchases - and prices. That's because the rapid growth of new types of mortgages was one of the key factors behind the boom that sent home buying, and prices, to record highs for five straight years through 2005.'

What? Do they mean to say that the skyrocketing prices of the past several years wasn't organic? You mean it was (gasp!) an artificial situation, created by loose underwriting, crooked appraisers, and realtor hype? And WHAT stabilization of the market are they speaking of? The last I checked, there is record inventory and record defaults and a sharp decline in nearly every major market (in Florida, that would be EVERY market).

'Last week, some serious problems cropped up due to rising defaults. HSBC (Charts) announced its bad debt charge last year would be about $1.8 billion higher than expected as problems grew in U.S. mortgage securities it had purchased, particularly loans to borrowers of less than top credit, a sector of the industry known as subprime mortgages.

And lender New Century Financial (Charts), which specializes in subprime loans, announced it would have to restate results for 2006 to account for losses on defaulted loans it would be required to repurchase. That news sent its shares tumbling by more than a third on Thursday, and hit lenders throughout the subprime sector.'

So, what is happening now?

'Beyond whatever problem the rising defaults in the subprime sector might cause to those lenders and their investors, the news was a setback for the struggling real estate market, according to experts in the field.

The problems with subprime loans are likely to lead to problems for many potential home buyers with less than top credit ratings. That's because most lenders don't hang onto their mortgage loans. Instead, they package them with other loans of similar quality and sell them as securities, providing cash to make additional loans.

Some experts estimate that rates for subprime mortgage loans could rise a half to three-quarters of a percentage point because of the higher default rates, and that could top a full percentage point if the default problem gets worse.'

It's about time the banks wised up - qualifying people for loans that far outweigh their ability to repay is bad, bad, business. The question is, how does this affect the overall economy?

43 comments:

ft lauderdale said...

I suspect this is just the tip of the iceberg, I also wonder if the uptick in applications reported this week is due to brokers having to re-apply multiple times because of the sudden changes in loan availability.

Anonymous said...

The further de-stabilization in the housing market,according to the fundamentals, indicates that we have a lot further to go, on the downward trajectory. What we have here is a continued de-stabilization of the housing market.

Missie said...

I know it is a bit off topic, but you know it is bad when FOX News air commericals for the "Home Builders Association of Metro Orlando", targeting Central FL!
http://realopportunitycfl.com/

Just thought I would include this with the "Crunch" news!

CRAZY G said...

Capitan "CRIST"!!!!

WHERE ARE YOU TAKING THE U.S.S. FLORIDA?????

We've just taken a shot across the bow....

STATE FARM INSURANCE COMPANY, is warning us, by telling Mississippi, ""NO MORE INSURANCE""" for you guys.....
+++++++++++++++++++++++++++++++

State Farm to stop writing new policies in Mississippi
Michael Kunzelman
Associated Press
Feb. 15, 2007 12:00 AM

State Farm Insurance Cos. is suspending sales of any new commercial or homeowner policies in Mississippi starting Friday, citing in part a wave of litigation it has faced since Hurricane Katrina, a company official said Wednesday.

Mike Fernandez, vice president of public affairs for State Farm, said Mississippi's "current legal and political environment is simply untenable. We're just not in a position to accept any additional risk in this homeowners' market."

Fernandez said the decision does not affect existing policies but the company is still assessing how many of the current policies in Mississippi will be renewed this year. advertisement




Fernandez said the action was not a direct response to any specific development in the litigation. That litigation has included a recent federal jury's $2.5 million punitive damage award to a couple who sued State Farm for refusing to cover the 2005 hurricane's storm surge damage to their Biloxi home.

U.S. District Judge L.T. Senter Jr. later reduced the award to $1 million, even though Senter said State Farm acted in a "grossly negligent way" by denying the claim filed by policyholders Norman and Genevieve Broussard.

"I view this decision as the inevitable outcome of the increased uncertainty and cost associated with the litigation that has developed post-Katrina," said Robert Hartwig, vice president and chief economist for the Insurance Information Institute in New York, an industry-funded group.

The state's courts and some state officials have created a "virtually impossible working environment for insurers," he said.

Mississippi Insurance Commissioner George Dale said State Farm's decision comes at a time in the recovery process when "it is becoming more vital than ever that policyholders in Mississippi have a viable and affordable insurance market."

"State Farm's decision is a stark reminder that the issues brought about by Hurricane Katrina affect not only the coast, but policyholders all across the state," Dale said in a statement.

"It is my hope that by continuing to work with State Farm, they will at some time in the future reverse the decision," Dale said.

Bob Trippel, State Farm senior vice president, said that the company would reassess the situation "when there's more certainty" in the state's business climate.

jayz said...

What'dz everyone expect? The mortgage train ride is coming to an end - 'bout time people actually get what they can afford.

As for Mississippi - sounds like Florida, without the overpriced houses.

Sumo Joe said...

It is time to go back to the days of mud hut communal living.

When the storms came and the huts were destroyed, the group would have to work together to fix it.

Those unable to work as a team were fed to the alligators.

CRAZY G said...

JO....I like my idea better....

Card board boxes and shipping crates.....
digging gets your hands dirty, and the cardbord/shipping crates, they'll just ship to your construction site...

"""MUCH EASIER""", and more time for 'MILLER HIGHLIFE""

CRAZY G said...

""THE CRIST"" should save the 'flippers' from total damnation, and distruction, and in so doing, save the homebuilding indusry, and the State Of Florida....

""CRAZY'S"" crazy plan, is very simple.....

Governor Crist, should have the legislature, pass a law, on the ""RIGHT OF RECISION"""

Any 'flipper' who has bought a house in the last 2-3 years, that they cannot sell, ""should"" have the right to sell it back >>>>""TO THE STATE OF FLORIDA""<<<

In a stroke of a pen, and genius, we'd solve the housing problem, just like that....
ALL, the empty houses would be off the market, and the homeless who couldn't afford the houses before could rent them from the state at a discount....

PROBLEM SOLVED....on to the next.

crazy g said...

Remember the ROAD RUNNER cartoons, with WILEY E COYOTE.....

He runs of the end of a cliff, or something.....""HE LOOKS DOWN""

>>>>Then there's that LLOOOONG pause, before he starts his desent.....

Well!!! That's where Crazy thinks we are right NOW!!!!!

>>>>THE LONG PAUSE<<<<<

People can't believe what just happened!!!!

Holy Chit!!! Prices went up 273% in Palm Beach County in 3 years....
Prices ran up the hill and off the end of the cliff......

Only this time, a seat bealt, or crash helmet, ain't going to do you any good.....

Because "IF" the falling housing prices don't get you, then ""THE ECONOMY WILL""....
Like Bruce Springsteen used to sing: The jobs are going, and they ain't coming back....[for a longtime]

zippo said...

First, the free tax giveaway (aka, "Save Our Homes")

Now, the free insurance giveaway (aka, "Charlie Crist Insurance Reform")

Next, round 2 of the free tax giveaway ("Charlie Crist Save Our Homes Portabilty Amendment")

1 + 2 + 3 = Certain Financial Meltdown in FLA

I think I want to move to an underground bunker in West Virginia.

CRAZY G said...

CRAZY is laughing his ass off and CANNOT believe it!!!!!

Somebody stole his idea, from the Florida Paradise-Lost blog....

Right here several months ago, I posted that I thought what the home building industry needed were cheaper priced houses, and further thought that the only way to do it was MAIL-ORDER from the Chinese!!!!!

WELL!!! GUESS WHAT!!!!

HERE YOU GO....READ THIS AND WEEP!!!
================================

http://www.latimes.com/business/la-fi-chinahome17feb17,1,3759762.story?coll=la-headlines-business

GLOBAL CAPITAL
Homes for export; assembly required
A Chinese builder hopes to move his prefab, energy-efficient product into the U.S. market.
By Evelyn Iritani
Times Staff Writer

February 17, 2007

BEIJING — In a dusty field on the outskirts of China's capital, Fan Zhi has built the American dream. The two-bedroom cottage comes with a front porch. The rocking chair is not included.

By capturing the attention of Americans weary of high heating bills and soaring construction costs, Fan hopes to turn this prefab home into the McBungalow of the home-building world. He says his energy-efficient product, which can be assembled in less than three hours, can withstand hurricane-strength winds and Southern California wildfires.

Fan shouldn't have to go overseas to seek his fortune. Burdened with some of the world's most polluted cities and a skyrocketing bill for imported fuel, the Chinese government has launched a multibillion-dollar energy-conservation campaign that includes tough restrictions for new construction.

But last week, Qiu Baoxing, the vice minister of construction, acknowledged that the government's efforts were failing because local officials weren't enforcing the laws. A survey by the Construction Ministry found that only 53% of new buildings were in compliance with the new energy-efficiency regulations, according to the local media.

Qiu ordered developers to reduce energy consumption for heating, lighting and air conditioning in all new buildings by 50% or they would risk losing their business licenses.

Fan, the founder of Beijing Taikong Panel Industry Corp., isn't optimistic that the government will win this battle. He estimated that it would be at least five to 10 years before there was a large market in China for his product, which costs about 20% more than those using traditional building materials. Since launching his home division last year, he has sold only a couple dozen units.

"Look at all those homes," he said, pointing to a skyline filled with high-rise buildings and construction cranes. "If you moved them to the United States or Britain, none of them would meet energy-efficiency standards."

That's why Fan is looking to America, where rising energy costs and growing environmental awareness have spurred interest in eco-friendly architecture. Employment costs also are high, increasing the attractiveness of prefabricated homes, which can be built quickly using minimal labor.

"Our major aim is to build a few world-class brands, just like BMW or Mercedes-Benz," said Fan, who has been playing host to a steady stream of foreign visitors since the state-run China Daily published an article about his company several weeks ago.

During a recent visit by a delegation from Mississippi and Florida, a crew of nine blue-jacketed workers at Fan's factory built a 680-square-foot home in less than three hours. A giant crane was used to swing the steel-framed panels into place, which were then bolted onto a concrete foundation. That home, sold for $31,500 to a Chinese buyer, will be dismantled and rebuilt in another part of Beijing.

Fan faces huge hurdles, including securing foreign government approvals for his unusual product. In the U.S., for example, homes must adhere to dozens of federal, state and local building codes.

Fan's homes are produced using a patented technology that layers foam cement and fiberglass netting to create a strong but relatively lightweight material.

Fan started out in commercial construction in 1993, but shrinking profit prompted him to move into home building last year. Residential real estate prices in China are exploding in spite of the government's efforts to slow the market by raising property taxes, placing restrictions on foreign home buyers and other measures. The average price of a single-family home in the capital last year topped $600,000, according to Beijing news reports.

Fan's finished homes aren't the cheapest on the market, selling for $37 to $49 a square foot in China, excluding land. He estimates that the price will double in the United States after taking into account shipping and some assembly costs.

But he pointed out that his building material offers substantial energy savings: A 7-inch-thick panel provides the same insulating capabilities as a 6-foot-thick brick wall. At an agricultural trade show in Beijing last summer, he built a zero-energy demonstration home using solar and wind power

CRAZY G said...

Crazy thinks, that Realtors have 'stark fear' and are ""TERRIFIED"" of their impending ""DOOM""....

Realty, going to auction!!!!

Read what's happening in Daytona Beach area....
===============================

Bang the gavel slowly

Property auctions: Quick sale on the cheap or successful marketing ploy?

By MELISSA GRIGGS
Staff Writer
Sylvestri Investments' auction of 25 condos at Ocean Walk in New Smyrna Beach last weekend was either a desperate move or the bold setting of a new trend, but it has drawn criticism from some Realtors concerned about the area's sagging condo market.

"I'm getting calls from Realtors. They are saying the market is really bad and you are going to show how bad it is," said William R. Bone, president of the Alabama-based National Auction Group Inc., which handled the auction for Sylvestri.

"They are afraid the condos will sell real cheap and hurt everybody," Bone said before the auction on Feb. 10. "Everybody's property values are at stake here. But something's gotta happen. Things will move at some price."

On the other hand, some developers are watching Sylvestri's experience, Bone said. "They are telling me, 'Gosh, if you can do this, I've got others to sell.' "

It didn't take an auction to expose how bad the condo market is; the numbers speak for themselves. In December, sales of existing condos in the Volusia-Flagler market plummeted 83 percent from December 2005, according to the Florida Association of Realtors. The year-end figures showed a 55 percent drop from 2005 to 2006.

Local Realtors continue to sound upbeat, stressing the drop in sales is simply a painful correction of the once-booming housing market

CRAZY G said...

Some of Crazy's 'ass-backward' logic for you, "IF" we may!!!!

"IF", you in fact have a job, and are working, we can easily determine then, that ""YOU CAN NOT AFFORD A HOUSE""....
Because house prices are higher than people with jobs can afford????

SSSOOO!!! In order to buy a house...you have to quit your job, and take out a loan application,
and certify all the money that you would "LIKE" to make, and your ablity to make the house payments....

WITH THAT, they can swing into action.....Once you're approved you'll have them eating out of your hand like candy....
You can get yourself into a nice house, with negative amortization, and live the dream, for a couple of months anyway.....
Best to arrange the moving truck right away, so if you gotta get outta town fast, you've got the moving company on speed-dial.....

CRAZY G said...

This is NOT my blog....

THIS JERRY'S, AND I DO NOT FEEL I AM DOING HIM JUSTICE HERE, BY POSTING ALL MY STUFF!!!

I'm sure he'll find his way much better without my postings....simple as that!!

Anonymous said...

Hey Crazy i like your postings =/. I read em all the time!

Anonymous said...

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