Tuesday, July 17, 2007

"Caught Off-Guard"

From Dow Jones (hat tip HBB):

Wells Fargo & Co. (WFC) said second-quarter profits rose 9%, boosted by continued loan and deposit growth, but some of its big regional-banking peers struggled...The one major blemish was a rise in losses on home-equity loans. Wells Fargo attributed the trend to depressed home prices in some markets, especially the Midwest and California's Central Valley. Wells executives acknowledged they were caught off-guard by the severity of the losses, which they predicted would continue through the rest of the year. They said they are tightening their underwriting standards and putting a greater emphasis on loan collections.
From The Union:
The number of defaulted properties in Nevada County has doubled in the past year, according to figures from the county recorder’s office. Since January lenders have issued 253 notices of default in the county. That’s up from last year, when lenders issued 124 notices during the same time period, according to recorded documents.

In the county, 282 homes are in some phase of foreclosure, bank ownership or sale, according to RealtyTrac, an online marketplace at www.realtytrac.com for foreclosure properties.
...
Placer County has 3,086 homes in some phase of foreclosure, bank ownership or sale, and Yuba County has 567 such listings, according to RealtyTrac.
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The troubled property owners are not exclusively first-time buyers or young families. In some cases, owners of upscale homes “got in over their heads” and had to foreclose on their property, according to Realtor Cheryl Rellstab.
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Foreclosure notices in The Union classifieds have grown by four times and 18-20 notices a month are not uncommon this summer, compared with five notices last year. Most of the foreclosure properties come after two to three years of ownership.
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Interest-only loans are tools to get some buyers into a home and have been used effectively by a number of people, [John] Taber [a commercial and residential loan officer with Delta Home Loans] said. Those who neglected to do their homework before they invested are the ones hurting now, Taber said. “If you take a chain saw out and don’t know how to use it, you’ll be without a hand,” Taber said.
From the Chico Enterprise Record:
A recently released national housing report says there's nearly a 47 percent chance that Butte County housing prices will decline over the next two years.
...
While price appreciation may be good for those interested in turning real estate profits, it doesn't make for a good environment for homeownership, said PMI spokeswoman Stephanie Corns. She noted other indicators say Butte County is struggling with housing affordability. "Income hasn't kept up with home prices," said Corns, making it difficult for many people to get into the market.
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Chico Association of Realtors President Kym Campbell said the Chico market has experienced price drops, but believes that trend has slowed. Campbell noted that as prices drop, sales activity has revved up. She sees prices remaining stable over the next few months rather than rising.
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Campbell acknowledged the swings the market has taken in Chico, saying properties have stayed on the market longer, and that sellers have switched agents, thinking it would make a difference.

They've also dropped prices in order to create interest in their properties. Realtor Bill Campbell — Kym Campbell's husband — mentioned a house that had been listed at more than $1 million, but the seller dropped that to $975,000.

"We have seen some major price reductions. Not that the houses aren't worth the money. The market just won't bear it," he said.

12 comments:

Brian said...
This comment has been removed by the author.
rocklin renter said...

"Chico Association of Realtors President Kym Campbell said the Chico market has experienced price drops, but believes that trend has slowed. Campbell noted that as prices drop, sales activity has revved up. She sees prices remaining stable over the next few months rather than rising."

AHAHAHHAHAHAHAHAHA ROFL

Man the kool-aid must be great in Chico!

Diggin Deeper said...

"Income hasn't kept up with home prices," said Corns, making it difficult for many people to get into the market."


Well said Corns, how about giving us an idea of how the logic works when trying to sell to people who can't afford to pay the sticker price?

""We have seen some major price reductions. Not that the houses aren't worth the money. The market just won't bear it," he said."

What do you mean, 'not that the houses aren't worth the money'? You put them up for over $1 Mil and they don't sell, and you drop your price to $975K (now that's getting pretty aggressive) and they don't sell, are they still a $Million property? It's no wonder these agents are having a tough time selling homes. They can't figure out what these homes are really worth in the first place.

Perfect Storm said...

OT - Bear Stearns reports subprime hedge funds worth about 10 cents on the dollar. After hours has BS down about 3%.

Gwynster said...

Thanks! I heard that they were going to report after the bell but i was stuck in a dentist's chair. Tomorrow's ABX returns should be fun to watch too.

You may be able to make a drinking game out of it. Down another 1%, take another shot >; )

Sittin' Out This One said...
This comment has been removed by the author.
Sittin' Out This One said...

Wells Fargo earnings will drop soon. They are eating some big loans. They were a preferred lender for JTS in a few of the JTS subdivisions. So far, that has cost the bank about 20 foreclosures in Sacramento. If they eat 30% of the loan amounts, that will be about $3,600,000.

Somebody's head may be rolling out the door of the Wells Fargo mortgage office. It is hard for anyone making $75,000 a year to make that up to the bank! Maybe the loan officer could work for 48 years for free! What a joke.

patrick said...

They said they are tightening their underwriting standards and putting a greater emphasis on loan collections.

omigawd, surely they're not going to make me sell the ski boat?!?!?!?!? The horrors....

geriatric nightmare said...

"Not that the houses aren't worth the money. The market just won't bear it," he said."

Isn't one of the fundamental principals of a free market economy that a product is only worth what the market can bear?

Diggin Deeper said...

This Bear Stearns thing is just the tip of the berg. I'm going to short the Financial Index long term and see what happens. CDO's are really lethal when packaged into some of these hedge funds. Hedge funds are usually double leveraged to begin with. They get further exponentially leveraged when all this exotic paper is layered in. If the price of the exotic crap remains constant or rises, everything's ok. But, if it dips just 2% the whole house of cards comes down and all equity used to purchase these funds is at risk. For $20,000 one can buy $1 Mil of risk. A swing of 2% on this inverted pyramid seems like a no brainer for alot of these investments.

The Bear Stearns funds lost over $600 Million in 30 days and are worthless today. I don't know if a monkey on speed could lose that much money that fast.

This bear is just starting to show its fangs and my bet is that there will be a major fallout in the financials very soon.

Diggin Deeper said...

Those interested in playing this Bear Stearns debacle, should check out exchange traded funds, particularily the ProShare funds. There are some interesting ways and possible opportunities out there to beat these idiots at their own game.

Sippn said...

I'm so comforted that Wells was surprized by the losses.... I call that a sell indicator.