Monday, January 21, 2008

Sacramento Borrowers Maxed Out

From the Sacramento Bee:

In 24 years as president and chief executive officer of Sacramento's Safe Credit Union, Henry Wirz said he's never seen such "widespread credit problems in the Sacramento region."
Q: You've been here since 1984 and seen all the cycles, up and down, good and bad. And this is the worst credit problem you've ever seen in Sacramento?

A: The reason I say that is this is touching not just the people who have traditionally always been a problem, which is people who have lower credit scores. In every crisis, when we first have a downturn, it's the people at the bottom of the economic pyramid who seem to experience the worst outcomes. I think what surprised us was in this downturn we're seeing people who had, at the outset, relatively good credit having negative outcomes.
We've seen a lot of the credit cards and home equity lines get fully utilized as people have drawn them down to support their monthly expenses. I think we're now at the end of that rope. There just isn't any more credit card balance available. There isn't any home equity available, and now people are having to confront the ultimate problem, which is how do I keep my house? How do I keep my mortgage intact?
Q: You say we're at the front end of this credit crisis? How long might this continue?

A: In almost every kind of lending problem it takes 18 to 24 months to work through it. I hope this one is a problem we can work through that quick. I've heard some others say it might not be.
From the Sacramento Bee:
A flood is still going to hit Sacramento – of red ink drowning city budgets. "We have a really bad budget situation that is getting worse daily, and we don't know when it will bottom out," said Russ Fehr, Sacramento's budget director. "(A building moratorium) in Natomas means recovery will get deferred."

The fact is, Sacramento lives on its property taxes, its sales taxes. The housing market crashed, and city services are poised to be cut, city employees will be laid off. And now we're talking about losing the sales taxes from future development in Natomas when a moratorium kicks in this December? That's an emergency of a different kind.


Jacob said...

When everything was going up it fed on itself, more building, more jobs, more taxes, more government spending etc.

Now on the downward spiral it will do the same thing in reverse. Less building, less jobs, less taxes, less spending, which will result in more layoffs and take more money out of the economy.

Eventually we will hit the bottom an then things will grind along for a few years then hopefully start to recover.

The is no magic want to wave and fix this mess. Too many people, businesses, and governments (local, state, fed) spent well beyond their means. People that make $40k a year should not have a $400k house, a hummer, a boat, a BMW, 50in TV, and take trips to hawaii 3 times a year.

The party is over, we need to burn off the excess and get back to reality, no matter how painful that will be.

smf said...

The is no magic want to wave and fix this mess. Too many people, businesses, and governments spent well beyond their means.

There is nothing in the world that can be done to fix this, except to allow the guilty to take their losses. The sooner we get to the bottom, the sooner we can all start again.

This was quite a party, and the hangover is just starting. While some do it, no one can cure a hangover by getting drunk again, which is what some of the solutions call for.

Only time can cure it.

Real said...

I am not too surprised that credit scores are not a good predictor for problem mortgages. If I were a lender, I would be looking for verifiable assets and a job vs. the person’s ability to pay their credit card bill on time for a few years. Credit scores are a joke – I know a lot of people (young professionals) that have $150K+ per year jobs but their credit is a mess. Despite having good jobs and assets, they could not get decent rates/loans vs. turds with high credit score and household income of <$50K. The lazy lenders did it to themselves.

lexi said...

Well, if the "professional's"
were making so much money why
didn't they pay their bills on
time? That's why their credit
is bad... so are they stupid or
overspending? Either way I wouldn't
want to give them a loan either.
Why so bitter calling people turds
that make 50k dollars a year and
pay their bills on time? Lot's of
so called professional's are being
foreclosed on too... for the reason of spending beyond their means. People from all classes
were guilty of this.

sacramentia said...

If you make 150k and your credit is a mess then you are an irresponsible person that doesn't deserve a loan.

Sounds like it is time for your young profession friends to grow up.

smf said...

"If you make 150k and your credit is a mess then you are an irresponsible person that doesn't deserve a loan."

No, it sounds like you are one of the many who got into Real Estate. Didn't some uneducated 25 year old loan brokers made that much per year?

Diggin Deeper said...

Fed steps in and cuts funds rate by .75% this morning. I was couple of days off on this call thinking they were going to cut last Thursday or Friday. With only one week from the next Fed meeting, things are pretty serious or they would have waited until their meeting next week.

With a recession upon us, consumer credit problems will weigh heavy as further dollar debasing keeps stoking the inflation fire. Margins of error are really tight for those that are current but fighting to stay that way. I don't care if you make $250,000 per year. If you mismanage it, you're in the same boat as someone making $40K per year who did the same. Everyone stands in the same grocery line.

The classic signs of stagflation are showing up. Rising soft commodities, high oil prices, high material prices, slow or negative real growth, paper asset deflation...if we get a reasonable dose, this will hammer those that are just able to make their nut each month.

Not too many more arrows left in the quiver for the govt. or the Federal Reserve to use. Maybe this time we'll be allowed to wash away all the trash that's built up along the way.

Stay nimble during these next few weeks. Cash is still king!

Gwynster said...


I admit I didn't seel the foreign markets selling off like they did. Once that happened on Monday, our futures took the hit and then Fed had to cut so it looks like they are doing something.

jmf said...

Interesting point in the Fed rate cut this morning for this blog - In the Fed's comments this morning, they cited worse than expected housing data on the horizon.

Diggin Deeper said...

jmf...Maybe they've already seen the existing home sales data that's supposed to be reported later this week...ya think???

As I heard someone say early this morning about Fed action, "They're pushing on a string". Might help mortgage rates in the short run. Get all the cheap money you can before they come to their senses. Fed Funds rate is now below the rate of inflation...doesn't bode well for real profits or growth.

Gold barely moved this morning....

Gwynster said...

DD, couldn't agree more

Gwynster said...

wow just wow

Couple faced money strains
As Placer jail keeps close watch on woman suspected of drowning baby, records detail financial woes.

"Kristina and Nicholas Fuelling have suffered two home foreclosures – and at least one of those houses had a subprime mortgage, court records show. Various creditors took Nicholas Fuelling to court in 2006-07, and the state issued a tax lien against him for nearly $54,000.

Johnson, Kristina Fuelling's defense attorney, said Monday that he wouldn't "address any financial issues at this time."

According to court records, Nicholas Fuelling purchased a home on Pampas Way in Fair Oaks for $255,000 in 2003. In October 2004, he refinanced the home with a subprime lender for $349,411, as well as taking out a loan for $35,000.

In May 2005, during the real estate boom, Fuelling borrowed an additional $115,000 against the Pampas Way home. That same month, he purchased a second home – a condominium in Roseville for $390,000.

A bank foreclosed on the Cortina Circle condo in October 2006. Another bank foreclosed on the Pampas Way house the next month, court records show.

Records also show that Fuelling's company, which tests for mold and other hazards in homes and businesses, has been the subject of dozens of complaints to the Better Business Bureau in the past three years. He is listed as president of Res-Com Environmental Inc., which also operates under other names: RC Services, RC Inc. and Rescom Environmental.

The Fuellings moved to a rental home on Stillwater Court some months ago, neighbors said. The home is on a small cul-de-sac of upscale homes, in a walled community."

smf said...

"...Rising soft commodities, high oil prices, high material prices..."

I am of the opinion that this bubble was an asset bubble, not just housing. We already know that some prices are coming down and others are sure to follow. We forget that in an oil based economy, the rise in the price of oil causes the rise of other commodities as well.

There was also an article I saw that explained how the rest of the world keeps their economies afloat by selling to the US. Hence, if the US does not buy as much, the rest of the world will show problems as well.

jmf said...

SF Chronicle article on foreclosure data:

Real said...

Well, if the "professional's" were making so much money why didn't they pay their bills on time? That's why their credit is bad... so are they stupid or overspending? Either way I wouldn't want to give them a loan either.

Lexi – your line of thinking is exactly why the mortgage industry is tanking now. I will give you 3 examples of friends that had/have poor credit.

Subject #1
Doctor – came from a wealthy family which paid for him to go to medical school in Grenada. As such, he had zero student loans and no credit history when returned to California to practice medicine. He made ~$120K base salary as a GP and banks about $200K with overtime. Had a cell phone identity theft occur when he moved to Sacramento (someone took out a phone in their name from Sprint). They reported it but it took over 1 year to finally get straightened out.

Subject #2
Finance Manager at a large corporation making ~$130K/year (wife is now stay at home). He had a trip to the emergency room and insurance billed him with a co-pay ($600) vs. a flat $20 emergency visit fee. He refused to pay and the hospital turned the claim over to collections on him vs. the insurance company.

Subject #3
Lawyer – married her husband while attending law school and divorced after 2 years, she had no credit in her name.

All three had high salaries (in stable industries) and a lot of assets. Each put over 20% down because the wanted to avoid jumbo loans (when it was ~$330K limit). Despite this, they could not qualify for the rate some $50K/year turd got because they paid their visa, Victoria secret, and master card bill on time since they were in high school. I have no friends that work in real estate and none of my friends is facing foreclosure. The lazy loan officers relying on FICO alone are getting what they deserve.

alba said...

Delay, delay, delay. The Fed staved off another bad day, but we are in recession, and earnings season is still among us. Look for more bad news each coming day. Its now on the forefront and acknowledged by all govt agencies; we've hit a hard downswing.

We are an oil-based economy, but the Fed caused this downturn trying to find an answer for consumer spending; the largest element of GDP.

I have a neighbor that owns a recyling business. He's been rolling in cash. Sold and bought his homes at the top of the market; bought a truck, car, boat. He's still trying to figure out what to do with his cash. The bulk of his business comes from copper. While the housing industry (leftovers, theft) may not be the supplier anymore, there is still significant demand for copper. China's economy is key. They need more iron-ore and copper than can be mined, from all parts of the world (BHP, Rio Tinto, CVRD, Phelps Dodge). These base minerals are mostly tied to need in China, as is oil, to a great extent.

And of course, precious metals are needed to combat the weak dollar.

Oil, however, does seem to play a huge role in the valuation of the USD. Those oil dudes have a ton of cash invested in the US. If their investment gets devalued by the lowering of the dollar, then they just raise the price of oil...and so on.

Agreed, there seems to not be a de-coupling of foreign economies. I blame that on worldwide financial markets. They all seem to have a piece of your neighbor's bad loan.

I guess we watch AMBAC and MBI, mortgage insurers, to see if they fold up, or get bailed out.

Diggin Deeper said...

"We forget that in an oil based economy, the rise in the price of oil causes the rise of other commodities as well."

I'll agree to a point. We are a dollar based economy. Since oil and other commodities are in short supply, it takes more and more dollars to buy them. Hard assets are only responding to a dollar that's weak and getting weaker.

If OPEC or any other oil source can pump more oil faster than we can print money, I'd go with you compeltely on that comment. Watch and see if the world can increase production to drive the price of oil down (or better yet watch them stall and make excuses for not increasing production). I doubt the world will ever produce at the levels of two to three years ago. And if by some chance we do, it will be produced at very high prices. And that will be before it ever hits the gas tank.

Follow the progression of price increases of oil since 1998. Then overlay the dollar's decrease since that time. If the dollar held its value since that time, oil would be selling at $30-40 barrel.

It's all about the dollar. Screw oil, gold, interest rates, and any other promise we've been given. How the dollar goes we go.

smf said...

"Since oil and other commodities are in short supply"

My understanding has been from some articles that oil production has been fully able to keep up with increasing demand. Hasn't there been two large fields found in Mexico and Brazil lately?

The situation with oil is similar to that of housing. You can buy a contract for oil with very little down, 4% as I read.

Speculators have invaded the oil market and driven the price up, much as what occurred with housing. Remember that not long ago builders had a hard time keeping up with demand?

The oil market has been driven by the same forces.

sacramentia said...

real - life's not fair:

#1) borrow from rich family, or pay phone bill and then fight.
#2) that's an expensive lesson, should have paid 600 and then fought.
#3) see grow-up comment, I expect more from a lawyer.

And you're just an ass for calling people turds based on income. I'm going to go out on a limb and call you a turd based on your logic :)

Diggin Deeper said...


"My understanding has been from some articles that oil production has been fully able to keep up with increasing demand."

Hmmmm...maybe there's another side to the story.

Mexico has lost 40% of it oil production over the last 5 years. They will go from being a net exporter (major supplier to the US) to a net importer in two years. Add a new oil field and you're still net negative on overall production for that country.

While everything seems to be "bubblicious", some markets may look the part but have some serious fundamentals that suggest otherwise.

Real said...

1) borrow from rich family, or pay phone bill and then fight.

You don't get the same interest deductions, etc when you borrow from family (at least not without getting audited).

#2) that's an expensive lesson, should have paid 600 and then fought.

Well, if you don't have any principles that is the easy way to make the problem go away. But for those that believe in right and wrong, paying money that the insurance company rightfully owes is painful.

Basically, all of these people bought homes and none are facing foreclosure - which is the opposite of what was predicted by their credit score. The reason is simple - paying a $15/month visa card bill is entirely different from paying a $2000 mortgage payment. The lazy lenders are finding that out now as those with assets and good jobs are just fine while the ~$50K/year turd with a formerly 750 FICO is being foreclosed on because their teaser rate went away. And yes, if you fit the $50K description from above, you are indeed a turd.

HappyinSF said...
This comment has been removed by the author.
lexi said...


The lawyer should of known to have
started building credit in her
own name...

The person who got charged 600 dollars for emergency visit probably took an ambulance which
was not covered. However if they
felt so strongly in their beliefs
then they made the choice to forego
their high credit rating.

As far as the person who's credit
was hurt by fraud that's a shame.

Too much credit was given... sounds like your friends escaped
a falling knife so they and you
should be happy not bitter.