To all those recent bottom callers in Housing or Financials, here is yet another data point that reveals these two sectors are actually getting worse, not improving. (Why does it seem that so many posts begin that way?)
Here’s an excerpt from an article in tomorrow’s WSJ, titled "Mortgage Delinquencies Accelerated During 2007":
"Mortgages issued in the first half of 2007 are going bad at a pace that far outstrips the 2006 vintage, suggesting that the blow to the financial system from U.S. housing woes will be deeper than many people earlier estimated.
An analysis prepared for The Wall Street Journal by the Federal Deposit Insurance Corp. shows that 0.91% of prime mortgages from 2007 were seriously delinquent after 12 months, meaning they were in foreclosure or at least 90 days past due. The equivalent figure after 12 months was just 0.33% for 2006 prime mortgages.
Evidence that lax lending standards were leading to higher mortgage delinquencies first emerged in late 2006. The first major casualty of the subprime credit crisis, New Century Financial Corp., imploded in early 2007. Yet the data from the FDIC and others suggest that lenders didn’t substantially tighten standards until at least July or August 2007, when credit jitters hit Wall Street and financial stocks began to swoon.
The FDIC’s analysis was based on mortgage data provided by LoanPerformance, a unit of FirstAmerican CoreLogic Inc. LoanPerformance says it tracks more than 95% of mortgages that were bundled into securities by financial institutions, not including those securitized by government-sponsored mortgage giants Fannie Mae and Freddie Mac.
Data on other classes of mortgages suggest the same trend. Freddie Mac reported Wednesday that 1.38% of the 2007-vintage loans it purchased were seriously delinquent after 18 months compared with 0.38% of 2006 loans at the same point in their life. Freddie Mac generally purchases loans made to creditworthy borrowers….
Economists and industry officials say several factors may account for the dismal performance of the class of 2007. Home prices were falling sharply in much of the country by 2007, meaning many borrowers in that year who took out loans for nearly the full price of the home now owe more than the homes are worth. That makes it difficult for them to sell their home or refinance if they lose their job or experience another setback."
When this entire mess is over, there are going to be a long list of people — former bankers, fund managers, mortgage originators, and FNM/FRE execs — who are going to need to learn, for professional reasons, the phrase, "Would you like fries with that, Sir?"
And, we are really just getting rolling with this — closer to the beginning than the end.
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Source:
Mortgage Delinquencies Accelerated During 2007
Financial System Taking Harder Hit Than Seen Earlier
RUTH SIMON
WSJ, August 7, 2008
http://online.wsj.com/article/SB121805947661818327.html
“Would (you) like fries with that, Sir?”
Au contraire mon ami, that’s what the little people learn to say, the “…former bankers, fund managers, mortgage originators, and FNM/FRE execs” hang out on their yachts complaining about the high cost of maintenance and the need for larger returns on their multi-million dollar bonuses; they will demand redress from their congresspersons of course.
“Home prices were falling sharply in much of the country by 2007, meaning many borrowers in that year who took out loans for nearly the full price of the home now owe more than the homes are worth.”
Now wait just a damned minute — there’s a huge assumption incorporated in that sentence.
With a 20% down payment, even the recent sharp fall in house prices would not put borrowers in most cities into negative equity.
“Taking out loans for nearly the full price of the home” means that goofball, gonzo underwriting standards were being applied. The banks and lenders responsible for that reckless judgment deserve to lose.
People don’t learn from history, though. From 1989 to 1993, southern California suffered a devastating housing bear market. But ten years later, that didn’t stop lenders from financing the next nothing-down, beanstalk-to-the-sky housing Bubble.
Economic history, bruthuh — remember the past, or be doomed to repeat it.
I must agree with the other posters. Not funny Barry. The white collar crooks/execs bailed with their humongous severence packages months ago. We are left to clean up the stables and many little people got scammed and burned. Mozillo should be flipping burgers but his lawyers will make sure he is able to work on his tan instead…not funny at all…you want a joke with that? I don’t have one.
From my own personal experience trying to buy a home in the Sunshine State- I did not notice anything different in lending standards until the second week of August of 2007. I actually had an offer on a REO during this time last August, funny thing is that Wells Fargo declined my “lowball insulting” offer at the urging of the listing realtor; what a shame the home sold in December 2007 for 22.5% less than my offer . . . while I believe that we aren’t out of the woods yet as far as delinquincies, though there wasn’t the same number of home sales in ’07 as in ’06.
If I’ve learned one thing, it’s don’t consume anything these shit heads touch.
To serve fries takes an attitude of focus on customer service and value delivery. One would have to wonder whether the skills are morphable. In the meantime AIG just announced a huge writeoff (supwise, supwise,…), auto loan originations are down, new home cancellations are down…on and on. The grasp of how far this has to go seems to be de minimus – with the possible exception of folks like Whitney.
Here’s the real rub – all we’re talking about here so far is real estate and it’s continuing ripples. NOW what about the rest of the consumer, commercial and real estate loans which haven’t begun to tank but are headed that way rapidly. If you’d to see some framing around that try this little chart-mad post: http://tinyurl.com/5k2er2
Don’t look now, but 2008 ain’t starting out so hot either:
http://www.housingwire.com/2008/07/18/mgic-loses-979-million-in-q2-early-trouble-in-2008-vintage/
even Luskin says we might be entering a recession. but won’t the europeans come and buy our housing… riiiiiight…
Even Kudlow seems like he is about to ketchup with how serious things are……..
maynardGkeynes: Agh, but remember the LEVERAGE! If they’re levered up even just a little bit, and the delinquency/default rates are, oh 3-4x what their model called for… then you’re at 22c.
An oh, that 22c was really 5.47c (as the 21.7c-ish was 75% financed against the sold collateral).
Cn
would you like fries with that? all these crooks already walked off with the cream and while they can’t skim any more they’ve gotten a healthy dose while the rest of us dimwits who were either suckered or stood by doing our diversification strategy of saving for a rainy day and investing in our 401k’s get fleeced.
“Would you like fries with that, Sir?”
Barry,
I apologize for piling on, but I will be very pleasantly surprised if this is the case.
This crisis is not just economic. It is also social. I would be far more sanguine that the various bailouts are truly necessary to avoid disaster if I thought that those making these decisions were working for the good of all of us or at least the good of the free market system, rather than working to keep in place the particular variant that gives them their power (and which was the source of the mess in the first place).
I am guessing that you know all this and were expressing a wish more than an actual prediction.
PS: If things do become worse and we need to take even more drastic action, it is going to be a major obstacle that the current economic elite is about as trustworthy as the loans and securities they have so damaged our economy with.
When this entire mess is over, there are going to be a long list of people — former bankers, fund managers, mortgage originators, and FNM/FRE execs — who are going to need to learn, for professional reasons, the phrase, “Would you like fries with that, Sir?”
—
I wish that were the case, but it is not. Thanks to many factors, including the Sitting President and His Party and Supporters in the Media Et Cetera, the rule of law is a quaint, outmoded joke to be knowingly snickered at while declining the proffer of a scone. As many have noted here, the United States is fast becoming a kleptocracy. I recommend reading any of the hefty tomes on Mobutu Sese Seko for a glimpse of our future. The analogy is not perfect, but there are significant structural similarities.
As many reports today point to the high cost of heating oil here in the Northeast, methinks you are spot on with your assessment that the foreclosure mess is only beginning.
We are nowhere near ‘bottom’ unless you’re delusional, like all of those investors who piled into ‘consumer discretionary’ during yesterday’s rally…
Not only are the market going to tank, but I don’t hold out a great deal of hope for the continuation of civil order either.
Douglas Watts
It looks like the party in power is about to change. Do you think that will make things better?
There is plenty of stupidity, and plenty of kleptocrats, in both parties. The situation we find ourselves in has been developing over many, many years. Trying to turn this into a political issue flies in the face of that.
Ditto, whosonfirst. It ain’t the politics, at least not in the sense that one party would do or have done any better than another.
I’ve seen the enemy, and it is us. We are fat, lazy and stupid. Perhaps in the coming calamities, we can again learn to be lean, energetic and smart, and demand as much from our leaders, political and otherwise. But I won’t hold my breath.
There is a political dimension of it, well expressed on this site many times.
Barry,
Of course 2007 had more delinquincies in the first 12 months, that was when the economy first started to crack.
Maybe you can get the Bespoke guys to do a vintage analysis while holding macro economic conditions constant? Now, THAT would be interesting.
In 2005/6, it was much easier to get more credit to stay ahead of the game. Plus, the economy was better. Maybe underwriting standards deteriorated, but that isn’t the only reason for the increase in delinquincies.
Thanks,
Brian
It’s going to be entertaining to watch the financials today without all those shorts buying to cover….
It is a sobering article, here is another one from the Center for Economic Policy & Research, that confirmed the impact of the housing crisis on our financial fortunes and it paints a pretty bleak picture. The report, titled The Impact of the Housing Crash on Family Wealth.
More details at http://www.savingtoinvest.com/2008/08/housing-crisis-and-wealth-decimation.html
I hate to say it, but this would have been a great job for mister you-can-leave-your-socks-on himself. I am no fan of lawyers, but in the grand scheme of things you have three choices, the pig-men get away with it, the little people revenge themselves with confiscatory tax rates, or the government knocks on your door and says disgorge or go to jail and then disgorge.
Clearly the tool of choice would be RICO, a law so vague that once you prove criminality then merely working for the organization puts you in jeopardy.
Hmm, let’s see your company repackaged loans with obvious lies in the documentation? And you sold them across state lines? I think you’re eligible.
Does BHO have the stones? Nah. But a state AG might. And if this tips us into disaster, there are going to be a lot of angry people, who’s to say they won’t sweep John Edwards into office in 2012?
Nice call on AIG, BR.
Once again your own comments contradict your conclusions. How can we be closer to the beginning than the end if the first half of 2007 was the end of the period of lax lending standards? If lending standards tightened up beginning in July 2007 (and home prices are rising), then we’d be much closer to the end.
Recent loans (2007 vintage especially) have gotten a whole lot riskier with high LTV’s and low FICO scores. Click ‘Jake’ to see details.
Here’s another snippet of insight for the bottom-pickers: a suvey on Zillow that shows 40% of homeowners believe their house has actually gone up in value in the last year… Until the reality sets in, we’re nowhere near a bottom in housing (and ergo, in the financial sector). You can also get a good laugh from some of the comments reacting to this post (specifically the ones coming from realtors):
http://blogs.wsj.com/economics/2008/08/06/housing-market-deals-with-reality-gap/
The bankers will only be saying “Would you like fries with that, Sir?” when making fun of the former homeowners they have impoverished.
As for the former financial gurus, though, I expect them to make their move through the revolving doors of the elite system. Some will go consult with government pension funds that they helped raid, some will run for office on their record of fiscal responsibility, some will simply be appointed to other government/corporate jobs.
I think the more pertinent phrase is going to be:
“I’m sorry Mr. Senator, but I do not recall.”