After the shake-down, the shake out begins....
March 20 (Bloomberg) -- Sacramento may eliminate up to 600 jobs in the city's first staff reductions in half a century, and the police and fire departments in the California capital may have their budgets cut by 20 percent. The culprit is the collapse of the U.S. housing market.
California, the birthplace of the subprime mortgage industry, is paying the highest price of any state as the housing meltdown persists. Its gross domestic product will drop 1.5 percent in the first half of 2008, the most in the U.S., analysts at Lexington, Massachusetts-based Global Insight Inc. estimate.
The state had the most foreclosure filings in the U.S. last year and the biggest fourth-quarter decline in prices, according to RealtyTrac Inc., an Irvine, California-based seller of data on defaults, and the Office of Federal Housing Enterprise Oversight in Washington.
Nowhere is safe....
NAPA, Calif. - For many residents of this, one of the most storied valleys in the world, life is still a bowl of grapes. But beyond the picturesque vineyards and stonewalled estates, times are shaky, the future unclear.
Tourists sipping their way up the 30-mile valley from the city of Napa to Calistoga may never see this other Napa Valley. But this celebrated wine country is proof that there are few places in the nation left unsmacked by the housing crisis. Beautiful Napa is experiencing foreclosures, plunging housing prices, unheard of drops in home sales and the nervous sense of foreboding that has spread across the country like a flu.
If 2007 was the year of subprime, 2008 will be the year of credit card defaults. The banks are loaded with unsecured debt, and the US consumer is overloaded. Defaults are rising, and things will get much worse, particularly if the economy slips into recession.
SAN FRANCISCO - Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.
An Associated Press analysis of financial data from the country’s largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.
Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy.
“Debt eventually leaks into other areas, whether it starts with the mortgage and goes to the credit card or vice versa,” said Cliff Tan, a visiting scholar at Stanford University and an expert on credit risk. “We’re starting to see leaks now.”
The value of credit card accounts at least 30 days late jumped 26 percent to $17.3 billion in October from a year earlier at 17 large credit card trusts examined by the AP. That represented more than 4 percent of the total outstanding principal balances owed to the trusts on credit cards that were issued by banks such as Bank of America and Capital One and for retailers like Home Depot and Wal-Mart.
At the same time, defaults — when lenders essentially give up hope of ever being repaid and write off the debt — rose 18 percent to almost $961 million in October, according to filings made by the trusts with the Securities and Exchange Commission.
Serious delinquencies also are up sharply: Some of the nation’s biggest lenders — including Advanta, GE Money Bank and HSBC — reported increases of 50 percent or more in the value of accounts that were at least 90 days delinquent when compared with the same period a year ago.
The AP analyzed data representing about 325 million individual accounts held in trusts that were created by credit card issuers in order to sell the debt to investors — similar to how many banks packaged and sold subprime mortgage loans. Together, they represent about 45 percent of the $920 billion the Federal Reserve counts as credit card debt owed by Americans.
Until recently, credit card default rates had been running close to record lows, providing one of the few profit growth areas for the nation’s banks, which continue to flood Americans’ mailboxes with billions of letters monthly offering easy sign-ups for new plastic.
Even after the recent spike in bad loans, the credit card business is still quite lucrative, thanks to interest rates that can run as high as 36 percent, plus late fees and other penalties.
But what is coming into sharper focus from the detailed monthly SEC filings from the trusts is a snapshot of the worrisome state of Americans’ ability to juggle growing and expensive credit card debt.
The trend carried into November. As of Friday, all of the trusts that filed reports for the month show increases in both delinquencies and defaults over November 2006, and many show sequential increases from October.
Discover accounts 30 days or more delinquent jumped 25,716 from November 2006 and had increased 6,000 between October and November this year. Many economists expect delinquencies and defaults to rise further after the holiday shopping season.
Mark Zandi, chief economist and co-founder of Moody’s Economy.com Inc., cited mounting mortgage problems that began after this summer’s subprime financial shock as one of the culprits, as well as a weakening job market in the Midwest, South and parts of the West, where real-estate markets have been particularly hard hit.
“Credit card quality will continue to erode throughout next year,” Zandi said.
Filing for bankruptcy is no longer a solution for many Americans because of a 2005 change to federal law that made it harder to walk away from debt. Those with above-average incomes are barred from declaring Chapter 7 — where debts can be wiped out entirely — except under special circumstances and must instead file a repayment plan under the more restrictive Chapter 13.
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The great thing about following the housing market is that however bad the news might be today, you know it will be worse tomorrow. The crap just keeps pouring on. Nothing can stop it.
Today, D.R. Horton - the second-largest U.S. homebuilder - supplied the misery. According to Bloomberg, the company will report a third-quarter loss after orders tanked 40 percent. Moreover, the company conceded that there is absolutely no sign of a housing rebound.
Orders dropped in every region, with the biggest declines in California, where the number of net sales orders fell 53 percent in California. The situation was also bad in the northeast, where orders tumbled 42 percent. More worrying for their long term viability, the average price for its houses slid 12 percent to $233,672.
With D.R. Horton the bad numbers just kept-a-coming. During the third quarter, the company accepted just 8,559 home orders, compared with 14,316 in the year earlier. The cancellation rate was a staggering 38 percent. The value of houses ordered took a hammering, plunging 47 percent to $2 billion.
Unsuprisingly, shareholders of D.R. Horton took fright and sold off the stock. This morning, the stock fell 58 cents, or 2.9 percent. Since the beginning of the year, the stock has dropped 25 percent. I wonder how bad the numbers will be next quarter?
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....they first make mad.
If there is one market that should not be hiring anyone at the moment, then it is the mortgage market. However, as some firms are firing, some are hiring. Wells Fargo and Countrywide are offering jobs. Why? Because they think they can clean up as other weaker firms go under.
Perhaps someone should gently call their human resource departments and ask them to take a look at the housing sector.
(MSNBC) Subprime mortgage lending's deep freeze has sent a chill over the rest of the mortgage industry as layoffs spread to those who lend to the more creditworthy. But even as smaller players shed staff, the industry's largest players such as Wells Fargo and Countrywide Financial are stepping up their hiring as they seek to grab marketshare amid the carnage.
Wells has two dozen mortgage-related openings in the Bay Area alone. And Countrywide said it will hire 2,000 sales people this year as part of a plan to open 100 branches around the country.
But others are quietly cutting staff to cope with the slowdown as fewer mortgages are made due to tighter lending standards and fewer home sales and refinancings.
GreenPoint Mortgage, a unit of Richmond, Va.-based Capital One, laid off 70 employees, including nine at the company's Novato headquarters. About 20 percent of GreenPoint's 2,800 employees works in Marin County. The company makes so-called "Alt A" mortgages, which go to borrowers that fall between prime and subprime. A big part of GreenPoint's business is making jumbo loans, those that exceed Freddie Mac and Fannie Mae's loan limit of $417,000. Coastal California is a big market for jumbo mortgages.
Another broker hard hit by the downturn is Lending Tree, which funnels loan applications to lenders across the nation. The Charlotte, N.C., company said this month it will lay off 440 workers, or 20 percent of its staff.
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Where did all this housing inventory come from? Just 18 short months ago, realtors were blathering on about the lack of supply pushing up housing prices. Today, housing inventory is exploding. Local MLS listings are bursting, and realtors are finding it difficult to keep up with the daily intake of listings from desperate sellers.
According to ZipRealty, in April housing inventory increased by 7 percent in the nation's 18 largest metropolitan areas. Moreover, in some cities, inventory increases reached double digits; San Francisco, up 19 percent; Washington, 17 percent; Orange County, Calif., 15 percent; and Seattle, up 14 percent.
With Lereah gone, the NAR are gradually coming to terms with the new housing reality. It lowered its forecast, predicting that sales of previously occupied homes will total 6.29 million, down 2.9% from 2006.
Despite these shocking increases in inventory, prices have for the most part remained flat or have only fallen slightly. However, in the face of growing signs of market saturation, denial is no longer an option for home sellers. Without radical and desperate price reductions, inventory is going to remain high for a long time to come.
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It was long speculated that California would be the epicentre of the housing crash. So far, it hasn't disappointed. California was the nation's leader in exotic, strange, and default prone mortgage products. Now, in one Californian city after another, the local press are reporting an explosion in defaults and foreclosures.
San Diego is one such city.......
In the fourth quarter of 2006, San Diego County experienced a 169 percent increase in homes receiving notices of loan default from a year ago. Default notices the first step in the foreclosure process - were up to 3,150 from 1,173 for the like quarter 2005, according to DataQuick Information Systems, which compiles home property data.
Throughout California, there were 37,273 default notices - notifying homeowners 90 days behind on payments sent from October to December 2006, marking the most foreclosure activity since the third quarter of 1998, when the number of default notices hit 38,053.
The study, released in January, states that foreclosures tend to occur a year or two after the loan is made. Most of the loans currently entering default originated between January 2005 and February 2006. After the first year or two, many home buyers who took out adjustable rate mortgages and other "inventive loans" experienced the "reset" of their payments; when a buyer's introductory interest rate shifts, and monthly payments increase.
Its getting real ugly in Sacramento. Median home values crashed 7.4 percent during the first quarter from a year ago. For all the gory details, check out that great blog Sacramento Landing.
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Southern California is a foreclosure disaster zone. During the first three months of this year, there were 5,977 foreclosed homes; up from 711 in the same period last year, according to research firm DataQuick Information Systems.
Foreclosures are a growth industry in California. Statewide, repossessions increased 68 percent compared to the end of last year. The foreclosure rate is now twice as high as the same period last year. There is now one foreclosure filing for every 152 households. Nationwide, first-quarter foreclosure rates were up 35 percent compared to the same quarter last year.
It wasn't so long ago that the lack of foreclosures was a sign that the market was in fine shape. Only a year or so ago, foreclosure rates in the state were at all time lows. The logic was simple; if there are no foreclosures, then people could obviously afford their exotic interest-only mortgages. However, foreclosures will always be low when the market is rising. If a homeowner runs into any repayment trouble, he or she can sell the house at a profit and return to renting. With the sudden downturn, this goes into reverse. Foreclosure is the only way out of a toxic loan.
Only a year or so ago, interest only loans fired up the Californian property bubble. Now, those same loans have started to push up the foreclosure rate. There are a lot more mortgages in California that could go bad. Foreclosures are the future in California.
Hey! You've won a ride back to the top
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