Weak Home Sales, Tightening Credit Standards = Multiple Mortgage Apps

Earlier today on Real Money’s columnist conversation, Tony Crescenzi noted earlier
that "It would be extraordinarily unusual for the combined figures on
new and existing home sales to continue falling in the face of
increases in mortgage applications."

I have to disagree.

Based on our interviews with our Real Estate clients (commercial
builders, RE brokers) and especially residential Mortgage Brokers,
there appears to be a dramatic rise in multiple applications for both
new purchases, refis, and home equity lines.

As many of the ARM resets come up over the next 18 months, I would
surmise these multiple mortgage apps will increase — especially
amongst the more desperate marginal homeowners.

Meanwhile, we see Defaults on ‘Alt A’ loans surpassing Subprime ones,  according to Citibank:

"Defaults on some so-called Alt A
mortgages packaged into bonds last year are now outpacing those
from subprime loans, according to Citigroup Inc.         

The three-month constant default rate for 2006 Alt A hybrid
adjustable-rate mortgages is 2.3 percent, compared with 2.2
percent for subprime ARMs, New York-based Citigroup analysts led
by Rahul Parulekar wrote in a July 20 report. . . "          

More than $800 billion of subprime mortgage bonds and $700
billion of Alt A bonds are outstanding, with ARM bonds totaling
more than $600 billion and $450 billion, respectively, according
to a March report by Zurich-based Credit Suisse Group."         

And, as we mentioned yesterday, its NOT just Alt A and Subprime, according to Countrywide CEO Angelo Mozila:

"Countrywide Financial, the nation’s largest mortgage lender, said yesterday that more borrowers with good credit were falling behind on their loans and that the housing market might not begin recovering until 2009 because of a decline in house prices that goes beyond anything experienced in decades."

Incidentally, I was on Kudlow with Mr. Mozila about a year ago. Nice guy, he gets credit in my book for being a bluntly candid  speaker. As it turns out, he is also a canny seller of his own stock — a net of $380 million, according to Thomson Financial.

As I said at the time, it was smart they were diversifying away from Housing, but I wouldn’t touch Countrywide Financial (CFC) with a 10 foot pole — and that’s still true today.

UPDATE: July 25, 2007 12:34 pm


"Home resales in the U.S. fell for a fourth straight month in June, a sign housing remained mired in the worst slump in 16 years going into the second half.

Purchases last month declined 3.8 percent to an annual rate of 5.75 million, the slowest pace since November 2002, from a revised 5.98 million in May that was less than initially reported, the National Association of Realtors said today in Washington.

Rising borrowing costs are discouraging buyers, leaving a glut of unsold homes on the market and dimming prospects for a quick recovery in housing. Federal Reserve policy makers last week trimmed their economic growth forecast amid persistent weakness in home building."

When even the NAR start revising forecasts diownward, you know that we are nowhere near that elusive bottom . . .


Defaults on Some `Alt A’ Loans Surpass Subprime Ones
Jody Shenn
Bloomberg, July 24 2007

Top Lender Sees Mortgage Woes for ‘Good’ Risks
NYTimes, July 25, 2007

Home Resales in U.S. Fall 3.8% to 5.75 Million Rate
Joe Richter
Bloomberg, July 25 2007

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What's been said:

Discussions found on the web:
  1. Bob A commented on Jul 25

    Exactly. Aaand I know someone who is in the process of filing the multiple apps right now. Aaaaand they’re not getting what they want because the lender’s are discounting appraisals. Aaaaaaand I am going to be explaining to my friend that it just no longer makes sense for him to be paying $5000 per month in interest for a house that is declining in value that he could be renting for less than $2000/month when he just can’t afford the payments AND the jobs he’s doing finishing new construction are drying up faster than wet paint in the desert.

  2. wally commented on Jul 25

    Yes, canny, isn’t it. What a nice guy!
    A screaming appeal to the Fed to further enhance his livelihood with a rate decrease is quite canny, too.
    I wouldn’t use the word ‘candid’, however.

  3. Homer commented on Jul 25

    Mr. Mozilo has exercised options and sold shares for a profit of nearly $380 million, according to data compiled by Thomson Financial. Starting last fall, Mr. Mozilo significantly increased the number of shares he was selling on a regular basis for profits of more than $130 million.

  4. a guy called john commented on Jul 25

    < Off-topic >

    Hey Barry,
    Looks like this is why your site went down yesterday:

    A drunk employee kills all of the websites you care about

    Someone came in shitfaced drunk, got angry, went berserk, and fucked up a lot of stuff. There’s an outage on 40 or so racks at minimum.

    I thought it was another massive spike on the sell-off.

    < /offtopic>

  5. Bubbles commented on Jul 25

    Regarding Mozilo, I think he’s candid in a dishonest way.

    Here is a quote from Bronzilo himself:

    “As I try to walk through what happened there and could a lot of this have been foreseen … nobody saw this coming,”

    Then there is this video on TheStreet.com:


    If you believe what Mozilo told Cramer you would have thought CFC was a great buy.

    As you correctly pointed out he’s dumped roughly $380 MILLION in stock over the past year. This is NOT what you would expect someone to do who either did not see it coming or thinks his company is a great investment.

    Did this guy invent the Liar Loan?

    Full disclosure: Happily short CFC!

  6. Stuart commented on Jul 25

    “When even the NAR start revising forecasts diownward, you know that we are nowhere near that elusive bottom”

    but how can this be? Paulson said the bottom was in!

    Even these figures were a joke. No way inventory fell, especially due to Condos… With so many regional reports showing major price declines to claim that prices actually ROSE…the NAR is a lost leader organization with or without David Lareah.

  7. spongetoddsquarepants commented on Jul 25

    The housing glut of 2007-2009 will be worse than the fiber glut of 2001-2002.

  8. Fred commented on Jul 25

    Mr. SquarePants…VSNL bought Tyco’s undersea cable business for $130mill. It cost Tyco ~ $3 Bill to build it.

    You might want to check your forcasts.

  9. michael schumacher commented on Jul 25

    You just validated his argument…..

    Thanks for Playing….


  10. michael schumacher commented on Jul 25

    BTW the one thing (big thing) missing from the analysis from Creszenzi is factoring the ratio of refi.s to purchases because he is assuming that an increase in apps. means that purchases are up and not just because of re-fi in said area.

    how hard is it to check a fact?? apparently hard for that guy


  11. TexasHippie commented on Jul 25

    SpongeTodd – I think the housing slowdown is far more visible and will have longer-lasting effects than the fiber glut. Its impact will be more widely felt, but will also be less extreme than the fiber/telecom plunge. Are you comparing the two based on overall value being erased?

    MS, you are suggesting that house prices will drop to just 4% of their current values, which seems ludicrous. I do think SpongeTodd has an interesting point (which I’m trying to clarify with the above), but it’s certainly not the one you’re trying to make.

  12. Michael C. commented on Jul 25

    Tony Crescenzi does good work. He addresses some arguments in the article as well which BR didn’t mention:

    “Some are questioning whether mortgage applications might be overstating sales activity. This camp argues that today’s applications index won’t translate into the same amount of activity as a similar reading would have in months past, arguing that fewer applicants are actually getting approved.

    While that may be true, this has arguably been the case since the fourth quarter of last year, when mortgage lenders began to tighten credit. The tightening accelerated earlier in the year, so today’s data on mortgage applications provide a fairly good apples-to-apples comparison, although some discounting of the recent strength is rational for a bit longer. ”

    MS – Tony is one of the good guys. He gives good hard data and never takes a hard line in either direction. He tells it like it is. If an assumption needs to be made, he merely makes the most likely one, not the one that suits his argument.

  13. michael schumacher commented on Jul 25

    I’m not suggesting that….you are. This is not a literal apples to apples comparison. But Fred took it that way and forgot to realize that people will always look to profit from an inflated market. Just like the example HE provided…….

    Without even realizing it he’s validated the argument while not even understanding it to begin with.


  14. spongetoddsquarepants commented on Jul 25

    I am just make the comparison between the boom and bust cycles in the economy. Both liquidity and greed driven. Will CFC, DSL, CORS, LEN, BZH, TOL etc… be like LVLT JDSU LU NT….likely…

  15. michael schumacher commented on Jul 25


    He still does’nt factor in the ratio….
    He is making a big assumption without it.

    He may be a “good guy” but his analysis lacks a key reference point.


  16. Fred commented on Jul 25

    We’re entering a fiber shortage, fyi.

  17. Michael C. commented on Jul 25

    MS – Tony differentiates between refi and purchase applications in many past posts. So I’ve no doubt he knows the difference. The multiple apps is the big unknown here.

  18. TexasHippie commented on Jul 25

    MS, you may good points from time to time. But your atavistic reaction to old grudges is quite transparent and wholly inappropriate. I’m convinced you are incapable of making a well-reasoned argument in this emotional state. Let’s see if you’re smart enough to know how to prove me wrong.

  19. michael schumacher commented on Jul 25


    I’m calling it as I see it. Any article that references the mort. apps rise and does’nt factor that key point becomes an opinion and not fact. He should know better….

    All I’m saying..


  20. michael schumacher commented on Jul 25

    If I was interested in proving you wrong then I would….however I don’t care what you or Fred thinks. If all you see is my supposed reaction then you need to open up and see the whole picture, something that is not very popular as of late. I’ve asked Fred to clarify, explain and expand his position…..so what if it’s not in the “correct manner” that you are trying to uphold….being a smart-ass comes natural to Fred…his last few posts prove it.

    Either ignore it or get thicker skin…..


  21. RonBurgundy commented on Jul 25

    Barry said: “Incidentally, I was on Kudlow with Mr. Mozila about a year ago. Nice guy, he gets credit in my book for being a bluntly candid speaker”

    I say: Mozila isn’t a NICE guy. He is a corrupt mobster guinea goombah who should be thrown in jail.

  22. rex commented on Jul 25

    MS: Do you know that the mortgage bankers’ index tracks refinances and purchases separately? I thought not.
    And did you know that Crescenzi specifically referred to purchase applications in his commentary? I thought not.
    Here’s the very first sentence of Crescenzi’s commentary: “Mortgage applications for home purchases fell 5% in the latest week but remained above the 1-year average for a fourteenth straight week, according to new data released earlier today by the Mortgage Bankers Association.”
    In his commentary, Crescenzi addresses the theory that the increase is entirely due to multiple applications, some of which are denied. According to Tony, the mortgage bankers say: “There will not be a significant number” of multiple applications in their count.
    Now that doesn’t prove anything except that Crescenzi has thought this through and you haven’t.

  23. michael schumacher commented on Jul 25


    “It would be extraordinarily unusual for the combined figures on new and existing home sales to continue falling in the face of increases in mortgage applications.””

    What does that say????

    Does’nt break it down…now does it??

    Thanks for playing……..


  24. Bob A commented on Jul 25

    “According to Tony, the mortgage bankers say: “the mortgage bankers say” ”

    Now you are really making me laugh.

    If there is ANY group of people on earth more dishonest than the realtors it is mortgage bankers.

  25. Sven commented on Jul 25

    Fiber is dead. The only reason the US has been so slow to adopt 3G wireless is because all our brilliant telecoms are trying make their money back off of outdated tech…like fiber. Livin’ in the past…

  26. VJ commented on Jul 25

    In Los Angles county, home foreclosures are up 799.3% from same period last year. In all of Southern California, home foreclosures are up 725%.

    Holy Crapoly.

  27. jules commented on Jul 26

    Sven – so the billions Verizon is spending on FTTH is toilet paper? 3G is crap.

    Get with the program.

  28. stckpkr7000 commented on Jul 26

    Tony C. is a moron and complete idiot…..He’s been spinning the housing numbers for years now. I don’t trust the guy and I think he always talks his position…..How can someone be so wrong for so long? He actually gets paid for his worthless dribble? Seriously……pathetic!

  29. kharris commented on Jul 26

    There may be a further factor distorting the MBA applications data. As I understand it, the MBA data covered about half of mortgage lending at its peak. That is a respectable sample, but (again, as I understand it) the MBA survey included mostly older, more conventional lenders. the 100+ subprime lending shops that have gone out of business were under-represented in the sample. When they stop taking applications, that is under-represented in the data. In addition, some potential borrowers who would have borrowed from firms now bankrupt now have to make application to more traditional lenders, which swells the applications tally in a misleading way.

    So, if my understanding is correct, we have the impact from multiple applications, undercounting of applications back in the golden age of crappy lending, and counting of applications by firms still in the business that really represent a shift of the application from unrepresented to represented lenders. If the process of killing off subprime lenders is progressive, then the distortion of the MBA data would also be progressive.

    And, yes, Tony is smarter than the average CNBC guy. He may have gotten this one wrong, though.

  30. halbhh commented on Jul 29

    Great comment kharris. Hope you’ll be liberal in commenting.

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