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-- America's Debt = "We're Screwed!"
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Back to the original argument. Plenty of housing companies have been disappointing lately, same with mortgage finance guys. We have a new Fed chairman who very well could tighten too far. And today, a lot of my argument confirmed by a new WSJ article that talks about late payments rising, particularly in the sub-prime sector. But what do I know.

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Late Payments on Mortgages Rise Studies Find Higher Loan Delinquencies Stemming From 2005's Lending Boom By RUTH SIMON May 18, 2006; Page D1 Soaring housing prices and aggressive mortgage lending have saddled home buyers with ever greater levels of debt, and early signs are now emerging that more people are unable to keep up with their monthly mortgage payments. Recent studies by several Wall Street firms point to rising delinquency rates on home mortgages that were issued last year, a period when lenders were pushing hard to keep business going as interest rates and home prices were rising. The increase in late loan payments comes as more buyers have been forced to stretch financially to afford ever costlier houses in recent years, and many homeowners have increased debt by tapping their home's equity. Analysts say that laxer lending standards on the part of mortgage lenders also resulted in higher debt loads, which some borrowers are now struggling to repay. To be sure, mortgage delinquencies remain low by historical standards. But experts worry the trend could worsen. With the housing market cooling and interest rates rising, "by the end of the year you could see a substantial increase in delinquency rates" for mortgages, says Thomas Lawler, a former Fannie Mae economist and now a private housing consultant. Mortgage delinquencies historically peak around three years after loans are made, which means some of the more aggressive loans made last year might experience their biggest problems in 2008. However, some borrowers with adjustable-rate mortgages could see problems sooner. Others, who took out exotic mortgages such as interest-only loans and option ARMs that hold down monthly payments in their early years, could run into trouble later, when payments reset. Still, there are early signs that even some of these non-traditional mortgage loans are starting to be squeezed by rising interest rates. Recent studies highlight some early warning signs that could affect mortgage borrowers. • Delinquencies are sharply higher for loans that were issued last year, when lenders were aggressively courting business. • One study shows 29% of borrowers who took out mortgages last year have no equity in their homes. • Higher interest rates and a cooling housing market could further push delinquency rates up in coming months, experts fear. Borrowers who took out mortgages in the past two years are likely to be more vulnerable should home prices fall because they could wind up owing more than their home is worth. Twenty-nine percent of borrowers who took out mortgages last year have no equity in their homes or owe more than their house in worth, according to a study completed this year by Christopher L. Cagan, director of research and analytics for First American Real Estate Solutions, a unit of First American Corp. That compares with 10.6% of those who took out loans in 2004. An analysis by Bear Stearns found that delinquencies on loans originated in 2005 were in most cases far higher than on loans issued in previous years at the same point in their life cycle. "The numbers are clearly worse," says Gyan Sinha, a senior managing director at Bear Stearns. The reason: Lenders were "able to generate a lot more volume in the face of rising rates" by loosening lending standards, Mr. Sinha says. "More aggressive lending was clearly taking place," he says. A separate study by Credit Suisse reached similar conclusions. That study looked at borrowers with good credit who were at least 90 days late on their mortgages. Credit Suisse found that borrowers who took out adjustable-rate mortgages in 2005 were three times as likely to be delinquent on their payments after the first year as those who took out ARMs in 2003 and 2004. Payments on ARMs can adjust after as little as a month, or after several years, depending on the terms of the loan. (The study didn't include borrowers with option ARMs.) The higher delinquency rate for ARMs could be a sign that many financially strapped borrowers have turned to these loans to boost affordability, says Satish Mansukhani, head of mortgage strategy at Credit Suisse. The findings are "an early warning signal that merits watching," he says. In a sign that looser lending standards could be taking their toll, Credit Suisse also found that borrowers who were delinquent were more likely to have lower credit scores and to have taken out piggyback mortgages, which combine a mortgage with a home-equity loan or line of credit. It also found that delinquency rates were shooting up in California, where double-digit gains in home prices have made affordability an issue. In another sign that some borrowers who stretched are now feeling pinched, a study by Lehman Brothers of subprime borrowers found that the increase in delinquencies is being driven by home buyers, rather than by people who are refinancing, and by those with little equity in their homes. All three studies by the Wall Street firms looked at mortgages sold to investors who buy mortgage-backed securities and excluded loans purchased by mortgage giants Fannie Mae and Freddie Mac. Overall, roughly 4.7% of residential mortgages were delinquent in the fourth quarter, the Mortgage Bankers Association says. Excluding the effects of Hurricane Katrina, delinquencies were 4.55%. That is up from 4.44% in the third quarter and 4.38% at the end of 2004, it says. Mortgage lending standards tended to be looser in 2004 and 2005 than in the previous three years, according to surveys done by the Federal Reserve Board. One example: Piggyback loans have become more common, enabling borrowers to use as much as 100% debt to finance a home purchase. And with competition for borrowers increasing and profit margins shrinking, the move toward looser standards is continuing. Roughly 10% of mortgage lenders said they had eased credit standards in the three months ended April, according to a Fed survey released this week. Only one of the 53 banks surveyed reported any tightening of standards. "It would be very surprising if people were tightening in a declining market," says Doug Duncan, chief economist of the Mortgage Bankers Association. The Bear Stearns analysis found that, depending on the type of loan, delinquency rates were anywhere from 33% to 208% higher after the first year for most types of mortgages taken out in 2005 compared with those issued in 2004. The highest one-year delinquency rate was for borrowers with poor credit who took out adjustable-rate mortgages with rates that reset in two years; 5.14% of those loans were seriously delinquent after the first year, a 35% increase from a year earlier. The pattern also held true for jumbo loans -- currently mortgages above $417,000 -- and for most mortgages issued to borrowers with good credit who don't fit traditional lending standards, such as those who don't provide full documentation when taking out a loan. The Bear Stearns analysis looked at loans that were considered at least 60 days past due. Borrowers with interest-only loans and option ARMs, popular affordability products, have generally had lower delinquency rates early in the loan's lifecycle than those with other types of mortgages, in part because their initial payments are relatively low. But there are some indications that this is changing. Gail Burks, president of the non-profit Nevada Fair Housing Center, says borrowers are coming into her office who are having trouble making their payments as soon as a year or two after taking out a mortgage. "It's more of the newer, exotic [mortgages] where the payment has changed and they are now pretty much priced out of the loan," she says. A recent analysis prepared for The Wall Street Journal by LoanPerformance, a unit of First American Corp., found that borrowers with jumbo loans who took out interest-only mortgages and option ARMs in 2003 and 2004 are more likely to be 30 or 90 days late on their payments than borrowers with more traditional mortgages. Among borrowers with poor credit, delinquency rates have tended to be lower for those with interest-only mortgages than for those with traditional loans. But that edge is disappearing after about two years for interest-only mortgages taken out in 2003 and after just one year for loans taken out in 2004 and 2005, according to Dominion Bond Rating Service. These mortgages are expected to see greater delinquencies going forward as the housing market cools because "the interest-only borrowers are overleveraged," says DBRS Senior Vice President Quincy Tang.

People need to figure out they dont have to keep up with Jones's

We cleared right at 20 mil last month and were on that same pace this month. Alot of this has to do with local, where I live our housing market is hot while most of the country is going down. Houstons economy is based on the energy industry and $70 a barrel of oil have been good to us and people are throwing crazy money around this city

As long as peoples eyes are larger then their wallets there will defaults and theres a ton of money to made in forclosures.....

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Originally posted by Shakka And with competition for borrowers increasing and profit margins shrinking, the move toward looser standards is continuing.

There ya go....Excellent article Shakka

Bump. In a rare moment of genius, subprime is having an absolute meltdown today (though it's been a long time coming). If you were short New Century Financial, your position would be up 30% on your position today alone. Now throw in the rest of the sector. There were periods of pain, but so far today has been a homerun (unless you were long!) Now if only the rest of the portfolio would behave like it's supposed to. Damn market.

America's Debt = "We're Screwed!"

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Originally posted by Fir3start3r That would be interesting....get on it!! I was up to my eyeballs in a VISA card and government tax payments once. Took almost a year of accelerated payments to get rid of them both (both totaled approx. 12K). It's all over with now but man that sucked large. Now I collect those payments as extra downpayment towards a nice condo in the area My advice, bite the bullet, accelerate the payments on your debts while saving a bit on the side. Consumer debt. is bad mmm'kay?

Wow, thanks for the bump there Shakka.

I was reading my own post only to realize what changes can happen in one year.

Let's see...

- Wife got pregnant at this time and baby is due in 5 days!
- Broke leg in late Aug. only within the last month have I been able to go back to the gym, do a light job and continue with my personal training
- Bought a house! Take possession on May 1st (house was on market a whole 5 days and we got it within 3 days of seeing it after our counter-offer was accepted
- Our 97' Grand AM GE with 400,000 finally bit the dust; coolant intake died; last straw...so now looking for a replacment...

Just a few things...

Well!!! Cheers to Shakka for the update, I had forgotten all about this little rant I had last year.

I have done something that I never thought I would do, a home equity loan.

I think many people get "caught up in the moment" and now all the hard morgage work I had done for the past year is KAPUT! I now have a house that I thought would be a great, safe investment and is now....NOT. There are 6 homes in my neighborhood that have been on the market for several months and show absolutely no signs of selling in the near future. Talk about a source of stress, I'm fine for now but if anything "major" happens, I look to walk away from this house with about $1.00 gain or worse, I could owe $$$.

This is the crap that makes a person lie awake at night.

Congrats. Fir3start3r on your, soon to be, addition (ya know,...they DO know what causes that now!) sorry to hear about the broken leg

Re: America's Debt = "We're Screwed!"

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Originally posted by Fir3start3r Wow, thanks for the bump there Shakka. I was reading my own post only to realize what changes can happen in one year. Let's see... - Wife got pregnant at this time and baby is due in 5 days! - Broke leg in late Aug. only within the last month have I been able to go back to the gym, do a light job and continue with my personal training - Bought a house! Take possession on May 1st (house was on market a whole 5 days and we got it within 3 days of seeing it after our counter-offer was accepted - Our 97' Grand AM GE with 400,000 finally bit the dust; coolant intake died; last straw...so now looking for a replacment... Just a few things...

Congrats! I was wondering how soon until you were due. A good friend of mine just had his first child on Monday, so that helped get us a little bit more ready for the arrival in June. Do you know if you're having a boy or a girl? Furthermore, putting 400K miles on a car is quite an accomplishment! Especially in 10 years!

Re: Re: America's Debt = "We're Screwed!"

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Originally posted by Shakka Congrats! I was wondering how soon until you were due. A good friend of mine just had his first child on Monday, so that helped get us a little bit more ready for the arrival in June. Do you know if you're having a boy or a girl? Furthermore, putting 400K miles on a car is quite an accomplishment! Especially in 10 years!

Thanks man
It's going to be a girl. Name? Maddac.

To be fair, that was 400,000 Km, not miles but still...

Re: Re: Re: America's Debt = "We're Screwed!"

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Originally posted by Fir3start3r Thanks man It's going to be a girl. Name? Maddac. To be fair, that was 400,000 Km, not miles but still...

That's great! We're having a girl too (and of all the people I know having babies right now, it seems like 99% of them are having boys).

and 200K miles is still a lot. I forget that Americans don't use that whole metric system thing.

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Originally posted by zookeeper Well!!! Cheers to Shakka for the update, I had forgotten all about this little rant I had last year. I have done something that I never thought I would do, a home equity loan. I think many people get "caught up in the moment" and now all the hard morgage work I had done for the past year is KAPUT! I now have a house that I thought would be a great, safe investment and is now....NOT. There are 6 homes in my neighborhood that have been on the market for several months and show absolutely no signs of selling in the near future. Talk about a source of stress, I'm fine for now but if anything "major" happens, I look to walk away from this house with about $1.00 gain or worse, I could owe $$$. This is the crap that makes a person lie awake at night.

Tell me about it. We moved into a new house a couple of years ago. A couple of houses have sold on our street since, but more recently there have been 2 homes for sale since last summer that still haven't sold. It's a bit concerning. We plan on staying in this neighborhood for another 3 years max. I think things should calm down by then, but I can only hope that prices hold up and we can get out at breakeven or a small profit.

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Originally posted by Shakka Tell me about it. We moved into a new house a couple of years ago. A couple of houses have sold on our street since, but more recently there have been 2 homes for sale since last summer that still haven't sold. It's a bit concerning. We plan on staying in this neighborhood for another 3 years max. I think things should calm down by then, but I can only hope that prices hold up and we can get out at breakeven or a small profit.

come on man you are suppose to be professionals.

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Originally posted by metalgearsolid come on man you are suppose to be professionals.

Professional whats?

yeah man, good post

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Originally posted by Shakka I can only hope that prices hold up and we can get out at breakeven or a small profit.

I think that many people, with children, may get themselves "overmorgaged" (such as myself) to enable their kids to go a better school or have a neighborhood that you don't mind walking alone in. It seems to be a trade off, sacrificing YOUR financial future to give your kids a good childhood (...and then they throw you in a nursing home)

I'm nervous that the older practice of selling the "big" house, when you retire, and making enough profit to live the good life, may be over...at least in upstate New York.

Re: Re: Re: Re: America's Debt = "We're Screwed!"

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Originally posted by Shakka all the people I know having babies right now, it seems like 99% of them are having boys

..got two girls, much easier than boys IMO


.....for now

Re: Re: Re: Re: Re: America's Debt = "We're Screwed!"

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Originally posted by zookeeper ..got two girls, much easier than boys IMO .....for now

Right--until the first boy comes over to take her out on a date, and then having to pay for a wedding. Other than that I'm really looking forward to it. At least my dog is a boy, which helps balance out the hormones in the house.

Congradulations Shakka and Firestarter on your first child .

Here is the stuff that really makes me nervous about being overmorgaged, and if I have to dump the house in a hurry, I'd better keep it in top sellable condition.

Have you seen this?...



http://www.businessweek.com/the_thr...g_inventor.html


Better not have a house that is "funny looking"

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Originally posted by zookeeper Here is the stuff that really makes me nervous about being overmorgaged, and if I have to dump the house in a hurry, I'd better keep it in top sellable condition. Have you seen this?... http://www.businessweek.com/the_thr...g_inventor.html Better not have a house that is "funny looking"

Yup. Exacerbated by so many people that jumped into the housing bubble as investors and speculators. When you don't live in the house, the dynamic works completely differently.

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Originally posted by Shakka Yup. Exacerbated by so many people that jumped into the housing bubble as investors and speculators. When you don't live in the house, the dynamic works completely differently.

Thankfully we aren't as screwed up here in Canada and the outlook isn't as bleak mainly due to the fact that we don't have this 'Interest Only Mortgage' which is doing a lot of damage down there.
Those people that really couldn't afford their mortgage now REALLY can't afford it when interest rates rise and they're stuck paying on a principal they've never paid anything on.
They're essentially renting their own house from the bank if that makes any sense.

In fact, they're predicting that it's only going to flatten out up here with a weak rise...

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Originally posted by Fir3start3r Thankfully we aren't as screwed up here in Canada and the outlook isn't as bleak mainly due to the fact that we don't have this 'Interest Only Mortgage' which is doing a lot of damage down there. Those people that really couldn't afford their mortgage now REALLY can't afford it when interest rates rise and they're stuck paying on a principal they've never paid anything on. They're essentially renting their own house from the bank if that makes any sense. In fact, they're predicting that it's only going to flatten out up here with a weak rise...

Even worse is the negative amoritzation/option ARM loans. You want the definition of scary--there it is. People get seduced into the idea that their payments will be so much lower that they become blind to the huge risks. Even worse is that products like this only encourage people to continue buying more house than they can possibly afford, backed up by the belief that housing prices can only go up up and away. Where are you now Juzfugen??

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what you call mania is the samething that happened in the 90's with the tech boom. Every decade there is a flourishing industry that get heavily invested in - tech, oil, realestate, and money. Heres a little hint for ya real estate ALWAYS appreciates.

Ouch.

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Originally posted by Shakka Where are you now Juzfugen??

Living in a cardboard box, outside the local Starbucks, leaching off the WiFi, watching old Tony Robbins videos on YouTube.

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Originally posted by Shakka Even worse is the negative amoritzation/option ARM loans. You want the definition of scary--there it is. People get seduced into the idea that their payments will be so much lower that they become blind to the huge risks. Even worse is that products like this only encourage people to continue buying more house than they can possibly afford, backed up by the belief that housing prices can only go up up and away. Where are you now Juzfugen?? Ouch.

Happily I bought in an up and coming area of Toronto (some would say the last affordable region for 1st time buyers) so I'm not too worried about loosing out.
But yes, as stable as real estate is for the most part, it doesn't always go up; be wary of the neighborhood and future plans for sure...

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Originally posted by Fir3start3r Happily I bought in an up and coming area of Toronto (some would say the last affordable region for 1st time buyers) so I'm not too worried about loosing out. But yes, as stable as real estate is for the most part, it doesn't always go up; be wary of the neighborhood and future plans for sure...

I read a stat somewhere not too long ago that said for every one foreclosed house in a given neighborhood, the appraised value of every single other house on the block suffers by something like 1-2%.

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Originally posted by Shakka I read a stat somewhere not too long ago that said for every one foreclosed house in a given neighborhood, the appraised value of every single other house on the block suffers by something like 1-2%.

Wow.
That may not sound like a lot but thats $3000-$6000 on a $300,000 home...

yea, I can do math sometimes too...

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