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Thread: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

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    Default Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    The second link basically points to lots of housing coming on the market as the result of distressed sales / foreclosures, which should provide some nice bargains. However, the first link basically points out that there probably won't be any 'subprime' credit available to take advantage of those nice bargain home prices !

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    oops, here goes another 'subprime' home loan lender down the tubes ...



    (snip)"Dear Valued Customers,

    Based upon market conditions and limited product availability, we are ceasing wholesale operations. We have stopped accepting new applications, and will have until the 12th of January to fund out the pipeline. We appreciate your patience as we undergo this transition.

    Thank you for your support"(snip)

    ... in other words, this wholesale 'buyer' of subprime mortgages written by retail mortgage brokers has decided to join the growing list of lenders that won't put any more money into this market sector. As pointed out in the previous post, funding sources for 'subprime' home loans are rapidly drying up as the 'subprime' loan default rate continues to rise. Thus the 'tin foil hat' crowd is speculating that in 6-12 months 0% down 'subprime' mortgage financing will be virtually impossible to find at any 'price', and 20% down 'subprime' mortgage financing will carry a very unattractive interest rate.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    I grit my teeth everytime I see the Quicken Loans commercial come on TV.

    Some way, some how, the moronothon will continue.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    ^^^ no it won't, once foreign investors start requiring interest rates on 'subprime' US mortgage bonds that are commeasurate with the actual default risk - this will simply 'price out' would-be 'subprime' borrowers even when their own moron logic fails to tell them that ARM's, zero down loans, 'sweetheart' introductory deals etc are a really bad idea given the future uncertainties in the US economy. Arguably, the drying up of 'cheap' foreign investor money is as much of a contributing factor to the failure of US 'subprime' mortgage lenders as the new 'buyback' regulations on defaulted mortgage loans.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    I think that the financial difficulties of FMF Capital say a lot about the industry, and how it is run.

    FMF was set up (essentially) as an income trust on the TSX, even though its business is in the U.S. It IPO'd at $10. It's now worth less than 25 CENTS/unit (not sure why it hasn't totally gone under, even).

    There was an investor class-action suit again many of the parties involved, recently settled. Seems to have been a near-scam, almost.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    ^^^ well, to oversimplify, a whole bunch of fly-by-night 'subprime' mortgage lenders set up shop using a business model that they could write 'trick' mortgages for Americans who couldn't qualify for a mortgage through a mainstream lender ( that required such terrible things as proof of income, 10-20% positive equity via down payment, mortgage payment limits at 33% of the borrower's after-tax income etc.). Their source of funding was primarily foreign investors looking for fat returns denominated in a 'safe' currency i.e. the US dollar of the past. Their source of risk management was the ability to write the new mortgage and resell it 'unconditionally' to a Gov't Sponsored Entity, to pension funds, or to other greedy private investors interested in high yield mortgage paper. However, lately the 'unconditional' sales have been called into question where subprime lenders have been forced to buy back mortgages from the GSE's, pension funds etc. when the mortgage went into default within the first year of the loan. These forced buybacks have depleted the cash reserves of the 'subprime' mortgage lenders - cash which now cannot be replaced due to common knowledge of the true risks associated with 'subprime' mortgage defaults scaring off formerly willing investors. As more and more 'subprime' mortgages go into default, more and more 'subprime' lenders will find themselves unable to cough up the cash necessary to 'buy back' their bad loans - resulting in rising bankruptcy filings for the 'subprime' mortgage lenders right along with the 'subprime' mortgage borrowers.

    Like you I have little sympathy for the 'subprime' mortgage lenders. However, I am concerned that the 'subprime' market sector as a whole is going to wind up suffering now and forever as a result of this fiasco. In other words, young people trying to buy their first house are now going to be faced with very limited availability of mortgage money at reasonable interest rates unless they have a multi-year income and tax history, employment with a 'stable' company, plus a 20% down payment saved up to qualify them for a mortgage loan with a mainstream lender. Thus self-employed people are going to wind up having a difficult time obtaining mortgage financing no matter what their individual financial situation may be ... as they will be expected to pay higher than necessary interest rates in order to partially cover the lender's bankruptcy losses generated by other self-employed / 'subprime' borrowers going belly-up.

    This situation re borrowers who are self-employed will be analogous to all male drivers under age 25 being expected to pay higher than necessary auto insurance premiums to cover the cost of accidents caused by other male drivers under 25 - and will probably become 'institutionalized' in exactly the same manner.

    ~
    Last edited by Melonie; 01-08-2007 at 05:25 PM.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Perhaps all this easy money is what has made houses so non-affordable to first time buyers. Such irony.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    I'm not going to comment - those above say it all ... but this is such bad news. If this trend continues as it likely will, these things are often self-fulfilling, the US economy is finally heading towards the deep doo-doo we have been worrying about for several years.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Perhaps all this easy money is what has made houses so non-affordable to first time buyers. Such irony.
    Undeniably true ! However, this same phenomenon i.e. the market price of housing rising to levels that are 1.5x - 2x their 'true value' because of strong demand from easy money would-be buyers who were willing to 'overpay' can be reversed just as easily when those would-be buyers can no longer find that easy money financing. This of course could have tragic consequences for a whole bunch of homeowners who are currently sitting on ARM's, Home Equity loans, even low down payment conventional mortgages, when the amount of dollars they 'owe' on the home exceeds the amount of dollars a forced sale of that home will bring at auction. Obviously it will also have tragic consequences to people employed in the homebuilding industry, because new homes can't be sold at all if they can't be financed - and they can't be sold at a profit if there is a glut of other similar homes going up on the auction block month after month for whatever price the 'market' will bear !

    Also, this very same easy money financing has arguably been the only real 'engine' driving America's consumption based economy. From cars to plasma TV's to credit cards, the same sort of delinquency rates now hitting the 'subprime' mortgage lenders will also be hitting the backers of 'trick' auto loans, the 'no interest payments for a year' retailers etc. Ultimately, once the belly-up loan losses start mounting in these areas as well, investors / manufacturers / retailers will have to stop making easy money funds available to finance more such sales. Like the homebuilding industry it's not possible to sell new cars and new plasma TV's if the would-be buyers can't obtain or afford financing, and it's even more difficult to sell new products when late model used products are starting to appear on the auction block at deep discounts as the result of repo's / bankruptcies.

    The above scenario is usually described as a 'deflationary depression' - with the 'deflation' stemming from falling ability of buyers to afford purchases / obrtain financing, as well as from falling prices which are the result of the lowered demand for new purchases plus a glut of forced sales -->

    ~
    Last edited by Melonie; 01-09-2007 at 04:32 AM.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Sub prime will not go away, but the good ones are certainly tightening their underwriting guidelines to appease the secondary market. Gone are 80/20 loans to borrowers with less than 600 FICO's

    With the higher rates, tighter guidelines and depressed real estate market, now is the ideal time to BUY rental properties!

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    With the higher rates, tighter guidelines and depressed real estate market, now is the ideal time to BUY rental properties!
    In theory I'm in complete agreement. All of those soon to be bankrupt subprime borrowers are going to need apartments once their houses are foreclosed on !

    In practice, however, some additional complications arise. Buying an apartment building for example requires a 30 year mortgage commitment, cash flow balanced against likely rent revenues, property taxes, insurance premiums etc. All it takes is a new law which 'caps' rent prices to unrealistically low levels in order to 'help the poor' at the expense of 'greedy' landlords (and there's certainly ample precedent for this sort of legislation) and the apartment building owner is stuck with a losing deal ! I also highly doubt that local property taxes or insurance premiums are going to decline.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    thats why you must buy low and rent hight. Now is a great time because of all of the forclosures and short sales-you can pick up properties for pennies on the dollars.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    ^^^ agreed, providing that you can actually close at a price which pretty much guarantees a hefty positive cash flow vs today's local rental cost market (which could potentially wind up being 'capped' at this level for decades to come)

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    There is a lot of problems with buying low these days (in some markets) because they simply aren't low enough to be paid for with rent that can be charged.

    In some places fully 80% of the population is priced out of buying a home! (The link is somewhere out there.) If they can't buy it they sure as heck can't rent it unless the landlord wants to loose money on it.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    What I would add to this topic has already been said.


    I just have to say, scorpio, can you PLEASE PLEASE PLEASE lose that signature pic??? It really creeps me out to the point I have to cover that part of my screen and/or not read your posts. I can't look at it.

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Wait, what? *0% of the people cant afford to buy or rent? Are 80% now homeless? When buy numbers are down, renters are up.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    When buy numbers are down, renters are up.
    actually, according to the Commerce Dep't, the rental vacancy rate have risen notably over the last year and had reached a level of 9.9% in 3rd quarter of 2006. The vacancy rate has NOT actually fallen as you claim.

    Homeowner vacancy rate has also risen notably over the last year and had reached a level of 2.5% in 3rd quarter 2006



    To answer your question as to where people who vacated their apartment or house are now living i.e. why the homeless population hasn't skyrocketed, the answer lies in many parts. Many young people gave up their apartments and moved back in with mommy and daddy. Similarly, distressed homeowners have moved in with other family members. Two people who formerly rented separate apartments are now roommates in a single apartment. In other words, more people are now living together under the same roofs in an effort to save money !

    In fairness, the vacancy rate numbers also include newly constructed apartments / houses that never have been occupied ... and many still aren't several months after completion. Also, an additional number of vacant apartments / houses are the result of 'flipper' speculation i.e. the apartment building or house was purchased with no intention of actual residence or actual renting out on the part of the current owner (who expected a quick 'flip' to a new owner at a profit) - but due to interest rate increases, loss of equity due to general property value declines etc. they are 'stuck' either taking a loss on their speculation or holding it indefinitely.

    there's some pertinent stats and discussion at

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    OMG scorpio, you really changed the sig. Thanks that is MUCH cuter !!!

    Quote Originally Posted by pheno View Post
    When you lead a nontraditional life don't try to measure it with traditional milestones.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    and the hits just keep on coming .... delinquency rate on ARM's has now exceeded 2 percent, with no end in sight.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Mel, the Average lending delinquency has always been 2-4%

    Bridgette, anything for you

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    confusion re prime ARMS vs SubPrime ARMS

    (snip)"All adjustable rate (ARM) as well as fixed rate (FRM) loans had higher delinquency rates compared to the second quarter of 2006. The delinquency rate for prime ARMs increased 36 basis points (from 2.70 percent to 3.06) and the rate for prime FRM loans increased ten basis points (from 2.00 to 2.10 percent). The delinquency rate for the subprime FRM loans increased 35 basis points (9.23 percent to 9.56 percent), whereas the rate for subprime ARMs increased 98 basis points (12.24 percent to 13.22 percent)."(snip)

    from

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Yea, well, whatever.

    The big point I think is that money is being yanked out from potential home buyers and that means less demand which means less price or longer sales cycles.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    ^^^ or more precisely that potential home buyers are no longer able to qualify for mortgage credit under tightening lending standards, that mortgage lending standards are tightening because the 'hot money' behind those mortgage lenders is now running for the hills in light of a rash of impending mortgage lender bankruptcies, and perhaps most important of all because would-be home buyers are already up to their collective a$$es in other debt and/or losing their lucrative union jobs in favor of free market jobs with realistic paychecks ...

    the 'white flag' is now waving ...



    (snip)"December showed further evidence that the nations housing market is experiencing continued weakness.

    Construction spending was again down significantly declining 12.52% as compared to December 2005.

    Single family construction spending was down a more dramatic 22.0% reflecting the significant drop off in demand for new construction homes as well as home rehabilitation."(snip)

    Stats also came out yesterday ( )showing that in one of the worst housing bubble areas i.e. Detroit that foreclosures now number 4.9% of all residential homes. Add in the number of homes that have already been put onto the local Detroit real estate market, are not selling, and will likely join the foreclosure list in the very near future, and you're looking at a scenario of one in every 10 houses being subject to a forced sale in 2007. At the same time, you're looking at continuing layoffs in the auto industry and support industries giving 'middle class' people absolutely no reason to want to own a home in the Detroit area. It will be curious to see how low Detroit real estate prices will fall, as well as how many of the mortgage lenders who are holding the paper on these foreclosures fall as well !

    I would also add that three additional subprime mortgage lenders went up in smoke recently, bringing the list of belly-ups occurring in the last 3 months up to 20 !

    ~
    Last edited by Melonie; 02-10-2007 at 07:00 AM.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    Detroit, Indy, and parts of Ohio are off limits to many mortgage lenders now. They will not fund loans due to high default rates there.

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    Default Re: Subprime Lenders Collapsing Faster than Cheaply Built Houses !

    ^^^ which therefore means that even if a potential home buyer wanted to purchase one of the huge number of foreclosed / distressed homes in Detroit or other cities that have been 'red-lined', they would have a ton of difficulty getting mortgage financing under favorable terms ? Wouldn't this just depress local real estate prices even further ?

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