Monday, March 05, 2007

'You're Going to See More and More of That'

From the Sacramento Bee:

Growing consumer defaults have claimed the first home loan lender in the Sacramento area with the closing of Folsom-based Central Pacific Mortgage. The firm shut its doors last week and dismissed an unknown number of employees, the state Department of Corporations confirmed. "We know that it's closed and the next step in the process may be that they voluntarily surrender their license," DOC spokesman Andrew Roth said.

The firm's demise comes amid growing trouble for the nation's mortgage lenders as rising numbers of borrowers default on their home loans. It also involves an influential local personality on the nation's mortgage lending scene and a 2004 appointee of Gov. Arnold Schwarzenegger...The Governor's Office said [John] Courson [CPM's president and CEO] remained an appointee as of Friday and declined comment about whether the company's woes would affect Courson's appointment.
...
"I'll bet that's not the first one (closure) you'll see, or the last," added Jeff Tarbell, president of Sacramento-based ATM Mortgage Corp. "You're going to see more and more of that."
...
The Folsom firm's troubles play out amid a deepening crackdown on home loan lending after years of easy terms that helped fuel the nation's housing boom. Last week, mortgage giant Freddie Mac announced it would no longer buy loans from lenders unless the borrower can afford the full interest rate. An increasing number of borrowers nationally are defaulting on loans with initial low interest rates that later reset to higher rates and higher monthly payments.

As the housing boom has turned into a slump, several mortgage companies have closed in recent months after secondary market investors forced them to repurchase troubled home loans. More still have seen their stock prices tumble as wary investors lose confidence in segments of the mortgage industry.

25 comments:

Diggin Deeper said...

Things sure have gotten interesting over the last week. Fremont is imploding and many believe is a bellweather company for the subprime market. Carry trade undwinding all over the world causing a buzz about risk and moving liquidity to top billing. Dollar continues its downward slide. Complacency is out the window and taking the stock market with it. Key data coming this week on jobs. Layoffs are starting to emerge at auto companies, home builders, and banks. Not to mention the poor real estate agent whose easy money left nearly two years ago. Sometime, maybe soon, there will be a great buying opportunity, but patience will be the key. Powder dry, eyes open, checkbook ready.

Perfect Storm said...

More “fun” for the Prime Mortgage companies: (Bloomberg)
Lehman Cuts Prime Mortgage Lenders on Spillover From Subprime
Lehman Brothers Holdings Inc. reduced its investment rating on U.S. mortgage companies including Countrywide Financial Corp. because a surge in loan defaults is showing evidence of spreading beyond the riskiest credits and the Federal Reserve hasn’t cut borrowing rates.

Lehman analyst Bruce Harting cut his recommendation for the so-called prime lenders to “neutral'’ from “positive,'’ and dropped Countrywide, the biggest U.S. mortgage lender, to “equal weight'’ from “overweight.'’

Cmyst said...

My work takes me into the community on a daily basis, from working class to wealthy homes. Today, 2 out of 3 of those homes had a real estate tale of woe, unsolicited by myself, offered due to the need of the reporters to explain why family members were unable to be more supportive:
1) Adult child's mortgage reset, child unable to pay it, was fortunate to find someone to rent but not for full mortgage payment amount, so child and grandchildren has moved back into parent's home to be able to pay that part of mortgage that rent doesn't cover.
Child attempted to refinance prior to moving out of house, but was unable to do so. (IMO, child is very fortunate to have a parent with a large home and the ability to help.)
2) Different situation. Client concerned about the economy, and puzzled as to why pundits and politicians keep saying it is good. Client states that a family member who normally could assist her is unable to do so, as she is a Realtor who hasn't sold a home in over a year.
On the way out on Sunday, I saw two very large SUVs parked just above Hwy 50 on an access road just off El Dorado Hills Blvd exit, with handwritten "for sale" signs on them. I've seen cars for sale at the side of the road in lots of places for the last year, but not in EDH.
Radio was playing an ad for some Serrano development, and what an "opportunity" it was to buy for less there now.

chuck said...

Walk thru "La Borgata" in El Dorado Hills, there WAS a shoe store, expensive earth type stuff across from Masque,

the also WAS an expensive Vogue/Elle type of Women's Clothing store next to Masque...

"La Borgata" was never full but now the place is a deserted wasteland...place catered to those new to EDH who were living off the phoney baloney house loans and then bought the black Escalade on borrowed cash...

and they claimed people were moving out of Palo Alto to live in El Dorado Hills? what a load of BS and Hooey....maybe out of some slum in Fremont or Hayward...

The entire stucco slag heap and endless badly designed carpet of asphalt, The Living Urban in Sacramento Sprawl Krapola....KAPUT!

Good riddance....

Patient Renter said...

"I saw two very large SUVs parked just above Hwy 50 on an access road just off El Dorado Hills Blvd exit, with handwritten "for sale" signs on them."

I saw those same vehicles there yesterday on my way home from a visit off Bass Lake road. This is the road that wraps around the back of Serrano and has been ever increasingly encroached upon by a sea of new houses being built in Serrano. We were astounded to see that now the houses are built almost right up to the road. It looks like they should have the remaining empty space on the back hillside built out within a few months.

Who the hell is buying these things?!?

Diggin Deeper said...

It will be interesting to see what the Federal Reserve does to support the real estate market and the subprime, Alt-A default issue. One would think that a rate cut would be for certain somewhere down the road. A cut would drive the dollar further down and inflation could be the byproduct. If they raise rates, deflation becomes an issue and the mortgage industries problems magnify. It really looks like the federal reserve can't win this one. IMHO I believe they will do both. Initially lower rates and then kneejerk toward higher rates as inflation becomes a national concern. Warren Buffet said in his shareholder letter that a hard landing was very possible. We're certainly not going to hear this from the press. I guess Goldilocks can't decide which porridge bowl to eat from. Either one has consequences and the real estate market feels the punch no matter which way rates go.

drwende said...

The pain spreads to big investment houses, plus investors start to desert mortgage companies that never did much subprime, as a badly sliding housing market is likely to affect more than just subprime loans.

article

Perfect Storm said...

I think it is time for a lot of investors to take a real hard look at any funds invested in trust deeds with hard money lenders.

If your smart you will take a real hard look at where you money is sitting in the form of real estate in some jacked up area of town. This market is going down fast.

Diggin Deeper said...

drwende

Agree. Any major that loaded up on the subprime collateralized mortgage obligations will be at risk. Shearson comes to mind as they have quite a portfolio of "funny money" notes. Not to mention the sentiment of the retail buyers who'll start running for the hills by selling their Fannie and Freddie funds. One doesn't have to scream fire, the audience just has to smell the smoke. I'm not too certain this country could withstand another S&L type debacle without having the public pay a huge part of the debt.

Diggin Deeper said...

Correction...that should have been Lehman not Shearson.

Perfect Storm said...

New is down 71%. How low will it go, why it is not at zero nobody knows.

Cheers to the death of subprime.

Alt A is next.

drwende said...

Interestingly, investors are less worried about NEW's bonds than its stocks. article

Stocks don't go to zero -- they fall below the exchange's share price threshold, then trade over the counter (unregulated). You're going to get some price-propping action from:

1) Investors covering their short positions in NEW, with cries of glee.

2) Investors who think it'll be acquired (usually raises share price) rather than bankrupt (existing shareholders get hurt).

3) Investors whose faith in the housing market is so great that they're buying more stock, on the theory of "dollar cost averaging" (or they have limit orders set to do this automatically and haven't been minding the store).

One of the few big-name fund managers who did well on Black Tuesday last week had shorted an entire housing-related index.

Diggin Deeper said...

No wonder the precious metals are tanking and not performing in a "flight to quality" fashion. When a margin call gets filled, investors have to pony up. Maybe that's why those SUV's are sitting for sale on the road up in EDH. NEW's bondholders are buying up their debt and averaging down. Now that's what I call cajones and they really do deserve what's coming. Soon enough the weak hands will give in, the speculative money will will be washed off the table, and the depressed hard asset base (precious metals)will be ready for its next leg up. Too bad the die hard real estate investor gets burned during the process just like the tech investor did. My broker called me and wanted me to join him in buying Toll Brothers 4 months ago. I asked him if we were buying puts and he was shocked. Said all his company analysts were predicting an upturn by 1st quarter '07. Lucky I hardly ever listen to his recos.

Gwynster said...

"One of the few big-name fund managers who did well on Black Tuesday last week had shorted an entire housing-related index."

I did very well last week >; )

drwende said...

I'm not sure metals are going to benefit from a "flight to quality" -- so much of the anticipated demand was either housing industry or China. But I haven't done my homework on gold yet.

I can't decide if it's funny or time-wasting to read my Wall Street Journal in the morning, lately -- by the time I get to the second section, all of its explanations of the economy have been proven wrong by the morning's events. I suppose the solution is to get up earlier.

Diggin Deeper said...

Just an opinion, but I don't know if traditional sources like the WSJ are just archaic or not connecting the dots. Nor would I trust David Lereah and the NAR for an update on the housing market. Their track record is fraught with storyline BS. There are some excellent european economists who give a "from afar" look at the US in general and, for the most part, their views aren't too complimentary. Of course, they too, have agendas, but at least they present economic principals that are pragmatic. There are also great money managers abroad (and here in the US) who appear to be on the side of the investor (no, not your broker). Above all, it's probably wise to look at broader themes and to try and understand how this real estate market got so far ahead of itself, what can be expected in its reversal, and when is good time to re-enter.

Perfect Storm said...

From Bakersfield Bubble

Effective Monday, March 05, 2007 the subprime wholesale division of Ameritrust Mortgage Company is no longer in operation. Due to market conditions, our warehouse provider, Washington Mutual, ceased funding for subprime loans

Subprime is bleeding from the heart.

Cheers to the death of subprime

Max said...

How many more of these are we going to see:

I need to sell fast because I have a mortgage payment due...

Anybody up for some Craigslist trolling?

"Wanted: Cadillac Escalade or Hummer H2-H3. 2003+, low miles. $20,000 cash. No scams!!"

drwende said...

Here's a story for you -- shelf of real estate books for sale.

chuck said...

please, no more,
no more, John Bellushi would be proud...

after "Living Urban in Sacramento",

I can't take anymore!

You walk up to the bar at Masque and ask for a Bourbon and Branch, and tell the barkeep to "leave the bottle"...and then you turn slowly in both directions and ask, "well, let's have it, who's got a house for sale?"

Max said...

Here's a story for you -- shelf of real estate books for sale.

Hah! I saw that too. How about the bit about the Horoscope books?

Perfect Storm said...
This comment has been removed by a blog administrator.
drwende said...

The horoscope books were probably more useful than the "get rich in real estate books." At least astrology and other forms of pop-occultism admit the possibility that things can go badly wrong.

sf jack said...

diggin deeper reported:

"My broker called me and wanted me to join him in buying Toll Brothers 4 months ago. I asked him if we were buying puts and he was shocked. Said all his company analysts were predicting an upturn by 1st quarter '07. Lucky I hardly ever listen to his recos."

*********

LOL!

Hilarious.

"Uh... thanks. But no thanks!"

Lander said...

Let's tone down the "men&ladies-of-the-night-who-sell-real-estate" language. Thanks.