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America's Debt = "We're Screwed!" (pg. 7)
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| Fir3start3r |
| quote: | 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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| Shakka |
| quote: | 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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| Fir3start3r |
| quote: | 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...:p |
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| Shakka |
| quote: | Originally posted by Fir3start3r
Wow.
That may not sound like a lot but thats $3000-$6000 on a $300,000 home...
yea, I can do math sometimes too...:p |
Exactly. Now take that $300,000 home that someone just moved into 2 years ago on shaky credit...He may have gotten that home on a low-doc/no-doc loan (known in the industry as "liar loans"). Furthermore that house may have been appraised at a frothy level given the bubble. Now you have a rate reset on that ARM loan you could never afford to begin with, you have essentially no equity so when the guy tries to unload the house it is extremely difficult to do at a profit or even break-even. Suddenly forced with the decision to sell at a loss, the homeowner would rather simply hand the bank the keys and leave. Now you have a very simple recipe for foreclosure. Now the rest of the neighborhood gets to suffer. It sounds like a fairly unique situation, however it is happening with greater frequency these days. |
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| zookeeper |
| quote: | Originally posted by Shakka
the homeowner would rather simply hand the bank the keys and leave. . |
Ahhh, but thanks to President Bush, in his first term, signed legislation that made it harder to do just that. |
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| Shakka |
*bump*
Can you say implosion? Equity holders will be left with jack . Any takers for who's next to go?
Thanks for your money, suckaz!
| quote: | New Century, Biggest Subprime Casualty, Goes Bankrupt
By Bradley Keoun and Steven Church
April 2 (Bloomberg) -- New Century Financial Corp., overwhelmed by rising defaults from borrowers with poor credit records, became the largest subprime mortgage lender ever to fail as it filed for bankruptcy today.
New Century plans to sell most of its assets within 45 days, said the Chapter 11 filing in federal court in Wilmington, Delaware. About 3,200 people, more than half the workforce at the Irvine, California-based company, will be fired. New Century said it already agreed to sell its mortgage billing and collections unit to Carrington Capital Management LLC for $139 million.
The company rode the U.S. housing boom to become the largest independent mortgage lender to subprime borrowers, only to collapse as interest rates rose and home prices fell. New Century's market value soared to more than $3.5 billion in December 2004, and last year it made about $60 billion in loans. Like rival firms, the company lowered its lending standards to keep business flowing after demand slumped.
``They're clearly going to be the poster child for bad practices in the mortgage industry,'' said Matthew Howlett, an analyst at Fox-Pitt Kelton in New York. ``When all is said and done, the management team will be to blame.''
The court filing protects the company's assets from creditors. They include many of the Wall Street firms that financed its mortgage loans, such as Morgan Stanley, Goldman Sachs Group Inc. and Credit Suisse Group.
Shares Fall
The company's shares fell 14.5 cents, or 14 percent, to 91.5 cents at 3:59 p.m. New York time in over-the-counter trading. They've fallen 97 percent this year.
Late payments on U.S. subprime mortgages reached a four-year high in last year's final quarter, the Mortgage Bankers Association reported. At least 30 home lenders halted operations or sought buyers in the past 12 months, including four that went bankrupt since last November, according to Bloomberg data.
New Century ranked second only to London-based HSBC Holdings Plc last year in total U.S. subprime mortgages granted. HSBC said last week it's planning to slash subprime lending operations.
The California company said in a statement it obtained $150 million in financing from CIT Group Inc. and Royal Bank of Scotland Group Plc's Greenwich Capital unit. Lazard Ltd., New Century's investment banker, has been shopping the remaining businesses to potential buyers. The loan agreement requires the bankruptcy court to approve procedures for selling New Century's assets by April 10.
New Century also agreed to sell Greenwich a portfolio of loans and interests in mortgage-backed securities for $50 million.
Quick Sales
Quick asset sales may be the only means of ``maximizing returns for stakeholders,'' Holly Etlin, a managing director from AlixPartners LLP, New Century's financial adviser, said in an affidavit filed with the bankruptcy court.
In addition to the billing and collections unit, New Century's largest assets include its lending platform. That business consists of a network of 57,000 independent mortgage brokers who locate borrowers and the employee loan officers who handle applications and approvals.
The platform also includes computer software and equipment used to analyze applications, as well as 262 retail branches and 34 regional operations centers in 20 states.
``They have an enormous platform, so it wouldn't be a surprise me to see someone come in and take this over,'' Fox-Pitt Kelton's Howlett said. ``You could realize value down the road when market conditions improve.''
Help Wanted
The job cuts aim to ``better align the company's cost structure with the current operating environment and to properly size these businesses in preparation for possible sale,'' New Century said in the statement. The company employed about 7,200 people at the end of 2005.
For the lending platform to attract an offer, New Century will need to keep as many of the loan officers as possible, said Ron Greenspan, a financial adviser to the creditors of three other subprime mortgage lenders that filed for Chapter 11.
``The value is absolutely contingent on them being able to maintain the key employees,'' said Greenspan, senior managing director in FTI Consulting's Los Angeles office.
New Century said in court papers it created a bonus plan that may pay 1,300 employees in the lending unit $7.34 million to stick with the company, and asked permission to pay $15 million owed to workers for regular wages by April 6.
``It is essential that the human beings who are maintaining these businesses for sale have the resources to keep them operating,'' the company said in court papers.
Liquidation
Harvey Miller, a partner at the Weil, Gotshal & Manges law firm in New York, said New Century likely will be liquidated.
``Finance companies just do not do well in Chapter 11,'' he said, adding that at New Century, ``there isn't much to reorganize around.''
Ownit Mortgage Solutions Inc. of Agoura Hills, California; Mortgage Lenders Network USA Inc. of Middletown, Connecticut; ResMae Mortgage Corp. of Brea, California; and People's Choice Financial Corp. of Irvine are among rival companies that filed for bankruptcy.
The Wall Street firms that backed New Century probably will have limited losses, Miller said, because their loans were secured by the company's loans and other assets.
``The major institutional holders have said they're over- collateralized,'' he said. Stockholders and junior creditors may be wiped out, he said.
Criminal Probe
U.S. prosecutors opened a criminal probe of accounting errors and trading in securities at New Century, the company said March 2 in a filing with the U.S. Securities and Exchange Commission. Since then, more than a dozen states have told the company to halt operations, citing complaints from borrowers that their loans weren't being funded.
Subprime mortgages are made to people with blemished credit records or heavy debts. The loans typically charge 2 to 3 percentage points more than those to people with less-risky credit profiles, and often carry adjustable interest rates that can cause payments to jump in later years.
Securities firms and banks financed New Century and other mortgage lenders to create a steady flow of mortgages they could package into bonds. With delinquent home loans rising nationwide, those firms have cut back credit to mortgage lenders.
The Wall Street firms that provided about $17.4 billion in credit lines to New Century after March 2 demanded that the company post $150 million in cash as additional collateral. The company had to halt new loans after it failed to make the payment and couldn't persuade the Wall Street firms to keep the credit lines open.
A Survivor
New Century was founded in 1995 by a trio of former managers at Option One Mortgage -- now a unit of H&R Block Inc. -- including current Chief Executive Officer Brad Morrice. In the late 1990s the company survived an industry shakeout that led to the bankruptcies of bigger rivals including United Cos.
Since then its growth had surpassed that of all other subprime underwriters. In the past two years, New Century underwrote about $120 billion of loans, or more than half the total since its inception. Subprime loans accounted for 86 percent of all New Century loans last year, the company said in today's court filings.
Morrice, 50, praised the subprime mortgage industry in New Century's statement today and said he was proud of the company's legacy. Since inception, employees have made about 1.4 million loans totaling more than $225 billion, the statement said.
``These loans have helped millions of Americans, many who might not otherwise have been able to access credit or to realize the benefits of home ownership,'' Morrice said in the statement.
Lower Standards
New Century may have compounded its losses by lowering underwriting standards to keep business flowing in 2005 and 2006 as interest rates rose and home sales slumped.
``As a management team, they were just probably a little too focused on pleasing the market with growth, introducing more and more new products and hiring more people when in reality they should have been tightening,'' Howlett said.
``They were trying to correct themselves toward the end,'' he said, ``but it was just too late.''
The case is New Century TRS Holdings Inc., 07-10416, U.S. Bankruptcy Court, Wilmington, Delaware. |
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| Fir3start3r |
| quote: | Originally posted by Shakka
*bump*
Can you say implosion? Equity holders will be left with jack . Any takers for who's next to go?
Thanks for your money, suckaz! |
Meanwhile, Toronto's real estate industry is still red hot; 5% over the sales this time last year for the month of March... |
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| Lilith |
| quote: | Originally posted by Shakka
*bump*
Can you say implosion? Equity holders will be left with jack . Any takers for who's next to go?
Thanks for your money, suckaz! |
Yeah I wrote about the subprime loan industry being a bit of a wagging tail for worse things to come a little while ago.
Having one of the lenders fall on their ass though... ooooh man, that's really, really not good!!! :eek: |
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| zookeeper |
***MOVIE RELEASE***
I'm not sure if you are going to get this new independent flick in Canada, titled: In Debt We Trust.
...a indie flick about American spending habits and the big financial problems on the horizon.
I must check this out! |
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| Fir3start3r |
| quote: | Originally posted by zookeeper
***MOVIE RELEASE***
I'm not sure if you are going to get this new independent flick in Canada, titled: In Debt We Trust.
...a indie flick about American spending habits and the big financial problems on the horizon.
I must check this out! |
While facts are the facts, I don't agree completely in where the blame lies.
Judging from the trailer it's the a typical, "Corporations are evil, and we're just the innocent consumers getting screwed" ploy.
What is missing is a total lack of fiscal responsibility. A society of throw away this and that, fast money and no sense of the future past their noses.
Why wait for that car / dress / bling and earn it when you can get it NOW!
I believe the biggest disease out there is the "Keeping up with the Joneses" attitude and those that feel the need to impress everyone.
Yes the credit companies themselves need something to keep them in check, I don't disagree with that at all.
Some are just hi-way robbers at best, but lets not forget that people have the freedom to take control of their own finances and most choose not to. :sadgreen: |
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| zookeeper |
I haven't seen the trailer, just heard about the film, not sure exactly what it's all about.
If you see it please give me a review:) |
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| zookeeper |
| quote: | Originally posted by Fir3start3r
but lets not forget that people have the freedom to take control of their own finances and most choose not to. :sadgreen: |
Kinda' like smokers, or drug addicts:clown:
I beleive that a credit card can be just as damaging as a crack pipe, if not more so:clown: |
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