Today, Bloomberg carried a story suggesting that the losses experienced from the housing market could be "just the tip of the iceberg". Anyone who has followed the housing bubble blogs will know that this sorry reality has been known for quite some time.
Too many adjustable mortgages, coupled with lax lending standards, and an explosion of property prices; that is hellish brew. It will lead to only one outcome; massive defaults followed by a financial crisis. This is what we see now emerging, with almost daily news stories highlighting banks in trouble and foreclosure rates going through the roof.
June 22 (Bloomberg) -- Losses in the U.S. mortgage market may be the ``tip of the iceberg'' as borrowers fail to keep up with rising payments on billions worth of adjustable-rate loans in coming months, Bank of America Corp. analysts said.
Homeowners with about $515 billion on adjustable-rate home loans will pay more this year, and another $680 billion worth of mortgages will reset next year, analysts led by Robert Lacoursiere wrote in a research note today. More than 70 percent of the total was granted to subprime borrowers, people with the riskiest credit records, they said.
Surging defaults on subprime loans have pushed at least 60 mortgage companies to close or sell operations and forced Bear Stearns Cos. to offer a $3.2 billion bailout for one of two money-losing hedge funds. New foreclosures set a record in the first quarter, with subprime borrowers leading the way, the Mortgage Bankers Association reported.
Bear Stearns, the second-biggest underwriter of mortgage bonds, offered to provide $3.2 billion of financing to rescue one of its hedge funds. Concern about the collapse of the funds, which made bad bets on securities tied to mortgages, sent bonds and stocks of finance companies lower.
Homeowners who can't afford to pay higher interest rates may struggle to sell their properties as home price increases slow, and stricter lending standards will make it harder to refinance, the Bank of America analysts wrote today. Interest payments on about $900 billion of the riskiest subprime home loans are due to increase this year and next, they said.
Countrywide Financial Corp. and IndyMac Bancorp Inc., two of the largest U.S. home lenders, may suffer more than other finance companies because they hold mortgages as well as selling them off to investors, the analysts wrote. The companies may not have set aside enough money to cover losses, said Bank of America, which has a ``sell'' recommendation on both lenders.
The proportion of income that U.S. households with mortgages used for making payments in the first quarter of 2007 was close to or above the previous high in the late 1980s and early 1990s, the analysts said. U.S. mortgage borrowers will continue to find it harder to pay their debts until the end of next year, the analysts said.
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5 comments:
Markus Arelius said...
And when you have news organizations consolidated and privately owned by corporations, you can understand why Americans are receiving conflicting news reports as to the severity of the crisis and what it means for them.
You are correct that this crisis was predicted, but I'm left wondering whether we failed to predict the severity of the consequences. This financial collapse could be a lot worse than anyone considered ever - and could leave the U.S. of America changed forever.
Anonymous said...
and may the pain be felt far and wide ....
and i hope it does change amerika forever - hopefully the screwees wake the funk up and screw the screwers who have had it coming for a very long time ....
a changed amerika would be very beneficial for the planet.
Anonymous said...
whoopsy daisy !!!
http://www.huffingtonpost.com/huff-wires/20070625/economy/
Sales of existing homes fell for a third straight month in May, dropping to the lowest level in four years as the median sales price declined for a record 10th consecutive month.
In a troubling sign for the future, the inventory of unsold homes shot up to the highest level in 15 years, meaning more downward pressure on prices in the months ahead until the inventory glut is reduced.
Anonymous said...
No one wants to buy a home. Whose fault is it?
http://www.salon.com/tech/htww/2007/06/25/existing_home_sales_2/index.html
New figures for existing-home sales show inventory is up and prices are down. The National Association of Realtors blames you.
by Andrew Leonard / how the world works blog @ salon.com
Jun. 25, 2007 | At the end of May, 4.43 million "existing homes" were available for sale in the United States. That's the largest such number ever recorded. At May's existing-home-sales rate, it would take 8.9 months to burn off the excess inventory. That's the highest figure for "months of supply" since 1992, at the tail end of the last big housing downturn.
The immediate import of the numbers is unarguable. The median sales price for existing homes has declined for 10 straight months and will continue to do so. This is good news for buyers still waiting in the wings, but may not be the best tidings for the larger economy.
But what about those would-be buyers, cautiously watching the carnage from the sidelines?
Lawrence Yun, the staff economist for the National Association of Realtors who has replaced our favorite whipping boy, David Lereah, as the Man Who Must Be Quoted in all stories about the real estate market, complained that the housing market was "underperforming" given what he considered the general overall health of the economy.
"Psychological factors," he said, explained buyer reluctance to jump into the market at the present time.
How Yun and his ilk are able to cite "psychological factors" as the reason for anything is an exercise in tautological meaninglessness that continues to baffle. If you're going to blame consumer psychology when the market is headed down, then in all fairness you should blame it when the market is going up. But back in the go-go days, we never heard anyone from the National Association of Realtors say anything along the lines of: "The real estate market overperformed this month, as home buyers, irrationally convinced that home prices would continue to appreciate beyond all rhyme or reason, stepped up their splurging on new and existing homes, rashly confident that they would be able to sell their purchases at a 25 percent markup in just one year."
Psychological factors are always in play, whether a market is going up or down. We've been giving Yun a chance to establish some street cred, but with each whine about buyer psychology, our willingness to give him the benefit of the doubt takes another hit.
Anonymous said...
Long Term Capital was bailed out with Alan Greenspan and Warren Buffets help for 3.5 billion in 1998.
The scope of this incident is far larger but seems to get mere mention. You have to believe this is but a sleeping tiger>