Monday, January 14, 2008

Burning Down The Car

From the Stockton Record:

Can't make your auto payment? Light your car on fire, and tell the insurance company you were a victim of theft. That's what a local prosecutor says he's seeing more of these days. But instead of chasing down a phantom arsonist, oftentimes he charges the car owner with insurance fraud.

A symptom of the overall economy - a troubled housing market and high gas prices - auto arsons in San Joaquin County have doubled in the past three years, according to the state Department of Insurance.
...
These days, people in financial straits who torch their cars are often caught in the subprime home loan debacle, and on top of that, they have to pay $3 for a gallon of gas, said Daniel Bale, national director for special investigations at Mercury Insurance Group.
From the LA Times:

The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply. Numbers from industry trackers suggest that these borrowers -- most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity -- are starting to create a second tide of defaults for lenders swamped by the meltdown in sub-prime loans made to people with bad credit or overstretched finances.
...
The percentage of option ARMs with payments behind by at least 60 days in California is in double digits in the Inland Empire, San Diego County, Santa Barbara County, Sacramento, Salinas and Modesto, according to data provided to The Times by mortgage researcher First American Loan Performance...In Yuba City, north of Sacramento, 15% of option ARMs made in 2005 were delinquent at the end of October, the Loan Performance tally showed, and in Stockton-Lodi the delinquency rate on option ARMs from both 2005 and 2006 was over 13%.

"It is astonishing how fast the credit deterioration has occurred," said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. "It took me and everybody else by surprise."
From the Central Valley Business Times:
Two of the nation’s five weakest residential real estate markets this year are in the Central Valley, according to Veros Real Estate Solutions, a Santa Ana-based company that sells enterprise risk management and collateral valuation services. Home prices in the Modesto market are predicted to decline 15 percent and the Sacramento/Roseville market is expected to have a 12 percent drop, Veros says.
Another 2008 price prediction from HousingPredictor.com (hat tip Housing Panic):
  • Sacramento, CA: -10.4%

24 comments:

Patient Renter said...

I love how these experts and reporters are shocked, SHOCKED, at what havoc is brought on by things such as option ARMs. Is it just a hidden rule or something, that if you work inside the industry, you're bound to be way behind the curve in recognizing problems with the industry?

smf said...

"It is astonishing how fast the credit deterioration has occurred"

Let me see:

You qualify people according to the initial payment, not the more significant payment that WILL come up later. And you have the gall to express 'shock' at the deterioration?!

It doesn't take much to realize that those with Chevy incomes CANNOT qualify for Mercedes prices. And it was stupid to allow them to purchase the Mercedes and then in bewilderment state 'I cannot believe...'

Diggin Deeper said...

I say, screw em to the wall! If a person can't pay their bills, and the only reasons determined are poor judgement and mismanagement, take any and all forms of credit away from the individual for a minumum of 10 years. Zero credit...all cash for a long period of time.

I'm beginning to think we've bred an entire generation that believes there's no consequences for high debt...there's no pain if you can't pay your bills. Run it up and then torch it if you get behind. Buy what you can't afford and if doesn't work out, walk. No pain, all gain and never a downside to the problem.

Until we put some serious teeth back into civil laws that force people to be responsible for their debts, the rest of those who are will have to carry the entire burden for a growing group of those who aren't.

anon1137 said...

DD- It's not up to society to punish people for not paying their bills. This is a business issue, not a moral issue. The banks took the risk, so they accept the loss. It would be different if taxpayers were on the hook for a bailout, but so far that hasn't happened.

I think what Mr. Miller was trying to say is that it's astonishing because POAs were generally given to borrowers with good credit scores, people who should have understood what they were getting into, and yet they are defaulting relatively early in the process. These are different from subprime borrowers, many of whom were probably defrauded.

It all goes back to that one study that I keep mentioning that showed that the amount of equity was more important in defaults than ability to pay. It's about being so far underwater and realizing that you hugely overpaid for your house. Why throw good money after bad? Why not walk and let the bank or bond holder take the fall and start rebuilding your credit? This seems to be what buyers are doing.

SacramentoCrash said...

The "experts" along with all the "mortgage strategists" "account executives" and "sales consultants" had their heads up their collective a$$es during this debacle.

paranoid renter said...

Only a 10.4% predicted drop?

I would have thought it would be more than this year's drop since the ARMs start resetting this year.

Cmyst said...

I often wonder what it would look like if people started living within their means. My guess is that it would be shocking.
Last year I made a little over 100K; this year a little under. I don't buy anything on credit other than my car, which is a '05 Toyota. I pay cash for everything else. Based on comparisons of my furniture, clothes, car and lifestyle in general, I'd place myself in the lower middle class. I wish I could say that I'm saving tons of money, but I can't. I'm just not going into debt, basically.
We all base so much on our perceptions of what is a normal middle class lifestyle, to the point that we attempt to deny reality.

golfer_X said...

Another prediction from the baffoons that prophesized that 2007 would be flat. So far their track record is about as good as the LA Clippers. Down 10.4% or 12% or 15% or what ever. It should be fairly obvious that prices will go down until they align with rents. Once that happens investors will start buying and that will end the price declines. This should be a friggin easy piece of math for these so called economists to calculate.

(Current prices - X) = ( rental prices)

alba said...

How can one blame the average Joe that works as a mortgage broker or loan underwriter. The bulk of their loans were sold off. As loan originators, they couldn't provide enough loans to the secondary markets. So if they sold off loans from folks who couldn't afford them, why did that matter? They made their commissions, sold off the loans, and then get paid to service the loans. Sounds like a win-win business proposition anybody with half a brain would participate in...little to no liability; huge upside.

They were just the middlemen in the scheme. But if they held bad loans, they should suffer.

It wouldn't have happened if they were paid like insurance brokers.

Diggin Deeper said...
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Diggin Deeper said...

"It's not up to society to punish people for not paying their bills. This is a business issue, not a moral issue."

That's right anon...it's a civil issue...and there's basically nothiing that can be done. The trouble here is that we've allowed anyone and everyone to become a victim whether warranted or not. To lay the risk on the back of business is a good argument if you'll accept that interest rates will eventually reflect that risk. Hence, credit card rates push over 20 percent to account for those that were irresponsible in their use. Sooner or later lenders will attach their risk premiums to morgages regardless of what the Fed does. If failure ratios increase so will rates.

Diggin Deeper said...

It looks like the economy is really beginning to falter. Retail sales were in the tank for November and December down 4% plus. Wholesale prices last year were up 6%+ (you could probably add another 3% to that due PPI report manipulation} Citi and Merrill deep in credit problems with thousands of layoffs expected. Other company layoffs being reported (reported today EMI to shed 2000 jobs), almost on a daily basis. Fed at the ready with a half point Fed Funds rate reduction or better.

All bets are off as far as I'm concerned. Real Estate prices will not have a chance to bottom until we claw our way out of a recession. How far they drop is anybody's guess.

The consumers tipped their hand over the holidays and it's pretty clear they're tapped out and will not be able to buy us out of a downturn. But fear not, the govt is looking for your vote and giveaways are one way to do just that.

Gwynster said...

Are those negative numbers in addition to the declines we're already had? If so, -10% to -15% makes sense though still pretty optimistic. My guess is another 17% to 22% from Dec 2006. If they are estimating from the peak, they are huffing glue.

Jacob said...

Well we are already down 25% from peak, and if you check out flippers in trouble it is a lot worse (and those are just asking/begging prices).

Merrill is writing down 15B, Citi is writing down 10B.

Is there are Write-Down-O-Meter anywhere? These numbers are really starting to add up.

I mean a billion here a billion there is no big deal to large companies, but 100 billion here and 100 billion there is going to put a lot of companies out of business.

Consumers are tapped. Have been for years. Few people seem to care what anything costs, just what the payment is. Now people are maxxed out, the house atm is closed, credit is tightening. Defaults are rising which will make credit tighten more and interest rates rise.

Its just a downward death spiral. And there is nothing the government could do even if they were competant and uncorrupt.

In a couple years when the price is right to buy, you may not even want to, if thing deterioate too much.

Diggin Deeper said...

Correction...retail sales down .4%not 4%+...as if that's going to change anything at this point...

Any bets the Fed will reduce rates before their Jan. 30th meeting? I'm kind of leaning towards the end of the week...

smf said...

"...flippers in trouble..."

Aren't some flippers now being called 'sellers in trouble' since the house has been with them longer than 2 years?

Was looking at a house in Gold River, being sold for $749K. House was bought in 2004 for $800K. Seems high even for 2004, but it looks like cashback was used to improve and furnish the house.

I see some expensive houses for sale where it appears that the owners are trying desperately to save their credit.

When these people give up, which should be later this year, real blood will finally run...

Jacob said...

I think when the people that make enough money to pay their mortgage, have great credit, realise that the house they bought for 500k is only worth 250k and decide to take the BK and give the home back the the bank, then the banks are in real trouble.

Gwynster said...

Indymac just closed 4 offices, about 1100 were just given boxes and told to clean their desks.

Diggin Deeper said...

BofA to layoff 650. If the Feds will let them buy Countrywide there's no telling how many will be on the street looking for jobs. 4000 to leave CitiBank in the first wave. All told Citi to drop about 21,000 so far. EMI loses 2000. 3-4000 layoffs coming at Sprint Nextel. And we're just at the front of the 4th qtr earnings season.

smf said...

"I think when the people that make enough money to pay their mortgage..."

And why wouldn't they do that? That's a tough call. $250K is easily your children's education, cars, vacations, etc.

That could be a tough pill to swallow, but $250K is lost equity is not easily paid back.

We have been in our house almost 5 years with a 30 year loan. In that time period we have paid down the debt only...

...$20K...

With $250K we would pay off our house completely.

I wouldn't doubt that some would see the sense of doing so.

Patient Renter said...

"If the Feds will let them buy Countrywide there's no telling how many will be on the street looking for jobs."

I don't know who from the Federal govt. would stop the deal. No doubt the Federal Reserve (not part of the govt.) pressured BoA into the deal so they obviously could care less about layoffs.

Ironically, the whole purpose of forcing a buyout like this rather than letting Countrywide go under is to avoid a domino effect of layoffs.

Patient Renter said...

Eh, I guess I should restate - the whole purpose of a buyout like Countrywide is to prevent a domino effect of losses stemming from drops in confidence. Layoffs are just a side effect that the Fed probably couldn't care less about.

Diggin Deeper said...

I think it has to do with BofA being the country's largest bank. It can only hold a certain top line percentage of all money assets in the entire banking system. Something in the neighborhood of 7-8%, I beieve. Someone in the banking business might be able to help further here.

While it keeps the Feds from having to step in there are certain rules they must comply with.

watchingthebubble said...

Somehow, with the title, "Burning Down the Car," I was expecting a link to a YouTube video with some group of homeowners lip synching to the Talking Heads' "Burning Down The House" . . . .

Anyone who thinks we're not headed toward a recession is shorting stocks AND huffing glue.

Cmyst, I think you and I live about the same. My husband and I make very good money, but we don't live a fancy lifestyle. We're still trying to pay down debt -- student loans and the like. We don't have fancy furniture (Wally World and Ikea, anyone?). We haven't vacationed since our honeymoon almost five years ago. And with the coming recession, we're hunkering down financially -- spending less on unimportant things such as movies (talk about a rip!) and looking at how we can reduce our expenses and increase our savings. Although we're not destitute, we're "Living La Vida Broke-A" so that we don't eventually find ourselves destitute. If it isn't necessary or isn't cheap, it isn't purchased.

And when we go to Costco to buy gas and see the long lines of SUVs and minivans there, we wonder, "How the hell can the average family afford to gas up those vehicles on top of everything else?"

I'm very curious to see how this all plays out. I think it's going to be very, very painful for most Americans, with no end in sight.

Fasten your seatbelts. It's going to be a bumpy ride.