New Wave of Alt-A Foreclosures to be Worse than Subprime Wave

[Helen]

Where's your house?

It's about 30 miles West of Portland, OR. I think the gas prices are killing our chances of selling to someone looking to get out of the city. We did the commute for 17 years, it got old after awhile.

We are now renting a townhouse in the city and I love it. I ride my bike to work, it takes 30 minutes each way.

There is quite a price difference between city living and country living. I'm sure we won't be able to buy a place for what we will sell ours for. It may cost us an extra year or so in the j@b market, but we both think it's worth it.

PS - there is suppose to be a spring salmon run on the little stream.

 

[Pete]

Can you imagine how great the world would be if there was no media. There would be no housing or credit crisis, we would have won this war, there would be no 9.5 trillion in debt, everyone would be working (if they wanted), gas would be .50 a gallon, no aids, no hunger......

 

[barbarus]

Can you imagine how great the world would be if there was no media. There would be no housing or credit crisis, we would have won this war, there would be no 9.5 trillion in debt, everyone would be working (if they wanted), gas would be .50 a gallon, no aids, no hunger......

Damn straight Pete. My point exactly.

If we could just find a way to kill the messenger....

 

[Retire Soon]

Can you imagine how great the world would be if there was no media. There would be no housing or credit crisis, we would have won this war, there would be no 9.5 trillion in debt, everyone would be working (if they wanted), gas would be .50 a gallon, no aids, no hunger......

In the absence of media, there would be no democracy as people would be ignorant and uninformed and have inadequate information for decision making and voting. Freedom of speech is what makes our country the best in the world.

 

[Zoocat]

The housing disaster is a global situation/problem. If you can't sell your house it's not necessarily because of the price. Banks are hesitant to make loans, unless the borrower is taking a 20/80 and has excellent credit. Even then it can be difficult in some areas that are experiencing depreciation of their housing stock.

Banks are having difficult selling their loans to investors who have been burned, many of them in Europe, Japan, China. If the banks can't sell the loan they may not want it themselves. So they don't lend.

Ladelfina has some excellent links if you really want to understand what's happening to our economy. Here's another from Businessweek that some of those bloggers cited.
The Next Real Estate Crisis

 

[tryan]

I would expect a vast majority of home owners with good credit will continue to make the payments. Most have other assets/fund which could be used to buy out the loan to refi. Especially if these loans are against the primary residence.

Lenders are also begining to see the "light" and recognize that freezing the rate is in thier best interest. Then there's the feds plan ($300 billion in refi $$).

Point being, people will "do the right thing". Nearly all the misery/sob stories I've read have a divorce/break-up/job-loss/illness associated with them; seems to me these people would have been facing foreclosure with a fixed rate too.

 

[cute fuzzy bunny]

Actually no one has complained about the price, the main problem seems to be the two bedrooms. People want at least three.

Someone is going to want it, the house is on three acres with a beautiful trout stream in the back. I just need to find a trout fisherman with no kids.

Or a couple of empty nesters looking to retire soon.

I do know one trout fisherman trying to disown his kid, but I dont think he's looking for a house.

 

[lets-retire]

Many of the people who have the Alt-A loans are a bit better off and have a better paying job (read more responsible and less likely to just walk away). The "investors" who obtained these loans have for the most part left the Alt-A market.

All people need is OK credit (not excellent), a job paying enough to pay the bills, and the down payment. You don't see back end ratios of greater than about 35% too often anymore. I think the down payment part is keeping many people out of the market. There is still a secondary market for mortgages, even with Fannie, Freddie and Countrywide (Bank of America) they just don't want the high LTV of the late 90's early 2000's and will return the product to the original bank if any documentation is not up to snuff. It is still possible to obtain a mortgage with credit scores in the 500's, although you will pay more in interest, they are still out there.

 

[CitricAcid]

The housing disaster is a global situation/problem. If you can't sell your house it's not necessarily because of the price. Banks are hesitant to make loans, unless the borrower is taking a 20/80 and has excellent credit. Even then it can be difficult in some areas that are experiencing depreciation of their housing stock.

Banks are having difficult selling their loans to investors who have been burned, many of them in Europe, Japan, China. If the banks can't sell the loan they may not want it themselves. So they don't lend.

Ladelfina has some excellent links if you really want to understand what's happening to our economy. Here's another from Businessweek that some of those bloggers cited.
The Next Real Estate Crisis

It depends what you mean by "price" of house though. As has been mentioned many times before, the price to many people only boils down to the bottom line on what they pay each month. This may seem naive to us, but it is the fact of life to many people, and does effect ANYBODY who needs leveraging/financing to purchase a house (ladelfina, for example, is one who didn't require a mortgage). The "price" could always go down to where cash transactions are more frequent, but this would completely cripple the economy.

As you mention, it is a lot harder to get a loan nowadays, for people with good credit, bad credit and no credit. The way that investors and banks will eventually have to settle this so that they can become profitable again is higher rates. So, the inability to get financing cheap or at all DOES turn that $200,000 house price tag from a $959 to a $1064 a month price (30 year $160,000 mortgage comparing 6% to 7%). In other words, the deleveraging has or will come into the end price of the house.

 

[tmm99]

Alt-A ARM and Option ARMs resetting wouldn't be a problem on their own, but the fact that the prices of housing being so low would cause a huge problem when they reset.

The people are told to refinance when the resetting happens, but with no equity in the house (due to price drops with low down payment), refinancing would not be possible for many, and I don't see why they would want to pay the huge jump in the monthly payment.

tmm

 

[Zoocat]

Alt-A ARM and Option ARMs resetting wouldn't be a problem on their own, but the fact that the prices of housing being so low would cause a huge problem when they reset.

The people are told to refinance when the resetting happens, but with no equity in the house (due to price drops with low down payment), refinancing would not be possible for many, and I don't see why they would want to pay the huge jump in the monthly payment.

tmm

This is exactly the problem. Bubble state housing is depreciating at a rapid pace. If you were $200K underwater on your mortgage would you be anxious to pay your new recast option/ARM mortgage payment? Many will not and will walk away. The banks will end up throwing these houses on the auction block and the slide will become even steeper.
Stage Two of the Mortgage Collapse: $500 Billion in Pay Option ARMs Meet the Piper in 2008 with 60 Percent Being in California. » Dr. Housing Bubble Blog

 

[BunsGettingFirm]

No I do understand the problem, but it's just part of the current problem. there's no second, third waves, blah, blah, blah, it's just one big messy problem. Now the sooner media stops the fear-mongering, the better for the public perception. Because I do believe there's tons of money on the side from the first time buyers that could help with this housing mess. Those new buyers are holding out simply because of this type of media coverage. Again there's no second wave, it's just part of the current problem

Where is this huge wave of first-time buyers? In the Gen-Ys, the new immigrants, or what? I hope you're right, but please provide some explanation.

 

[al_bundy]

This is true, but I feel most of the raising of rates was the massive deleveraging that occurred due to the realization of the ACTUAL risk that these mortgage issuers were exposed to. The mortgage rates became much more in line with the actual risk. Are the rates and lending practices back in line with traditional (borrow from CD at 4-5%, from checking at about 1% and mortgage at 6%) banking practices, or is there too much negative equity to have the rates have the risk priced in? It is tough to tell, but the Fed was trying to dampen the downfall with the rate decreases. Perhaps, rates would have increased to 7% without the rate cuts. It is difficult to say how much effect the Fed had, and if it was a solid choice, but I feel most of the increase in rates was the risk being realized by the lenders, and that the Fed would have slightly more control over interest rates now. That is, raising rates I believe would raise rates, if slightly.



Give me a couple years

reason the rates went up is because as the fed was dropping short term rates is devauled the dollar and this caused long term rates to rise due to inflation fears

 

[tmm99]

This is exactly the problem. Bubble state housing is depreciating at a rapid pace. If you were $200K underwater on your mortgage would you be anxious to pay your new recast option/ARM mortgage payment? Many will not and will walk away.

Oldbabe,
Yep, yep, yep. Why not walk away especially if you can without any penalty?
Real Estate Blog - Do Homeowners Still Owe Money After a Foreclosure?

My co-worker's sister did just that... In her case, I don't know if she waited until her house was in foreclosure or was only in default, since she could actually buy another house (at the current rate which is much lower) and move in before her original house was taken. It is evidently legal to do this, although I do not consider this ethical.

tmm

 

[CitricAcid]

reason the rates went up is because as the fed was dropping short term rates is devauled the dollar and this caused long term rates to rise due to inflation fears

Not completely sure that is the entire reason. The opposite should be true as well, raising the rates should lower the rates, at what point does the mortgage rate go below the fed funds rate? The long-term mortgage rates do move independent of the fed, but it is largely based on the availability of capital and credit, one of the main sources of how available it is being the fed's OMO. So, as credit crunched rates would have to go up to reflect true risk in loaning money. Also, inflation fears do trouble some lenders to the value of their loan out going down over time. This could be explained as being factored into the risk, however.

 

[al_bundy]

30 year mortgage rates are based on the 10 year t-bill plus a premium. the 10 year has gone from 3.7% or so to the low 4%'s in the last year, but the trend is up since 2005

 

[FIRE'd@51]

30 year mortgage rates are based on the 10 year t-bill plus a premium. the 10 year has gone from 3.7% or so to the low 4%'s in the last year, but the trend is up since 2005

I think you mean 10 year T-Note, as there has never been such a thing as a 10-year T-bill.

 

[al_bundy]

Where is this huge wave of first-time buyers? In the Gen-Ys, the new immigrants, or what? I hope you're right, but please provide some explanation.

people do want to buy homes, but no one wants to pay more than 30% of gross income. 2005 some markets especially in california the median house was 10 times income

 

[Retire Soon]

50% of Fannie Mae's Losses were Alt-A Mortgages

Many of the people who have the Alt-A loans are a bit better off and have a better paying job (read more responsible and less likely to just walk away). The "investors" who obtained these loans have for the most part left the Alt-A market.

50% of Fannie Mae's losses in the second quarter of 2008 were from Alt-A mortgage loans, while only 11% of Fannie's mortgages were ALT-A as of June 30.


Free Preview - WSJ.com

Ladelfina pointed us to an interesting link in a post on this thread that shows that a much higher percentage of these Alt-A loans are non-owner occupied. With so many of these loans being rentals, it should come as as no surprise that Alt-A's currently account for half of FNMA's recent losses.

Calculated Risk: Alt-A: The New Home of Subprime?

 

[al_bundy]

FNMA requires you to disclose if you are buying as an investor, but back in 2003-2005 i used to read mortgage brokers would tell people to just lie on the application because no one would ever find out

 

[lets-retire]

Retire Soon--I think I might have confused what has happened compared to what is happening in the mortgage market.

al--There has been rather strict guidelines for the issuance of mortgages with banks. Enforcement of the regulations would/could have prevented much of the mess we are currently in. The DW denied many loans during the height of the craze because it was obvious the borrower was not being honest on the application. Much of the problem is a result of the borrowers not reading the information provided, lying, or allowing the originator to fudge paperwork designed to protect the borrower.

 

[barbarus]

At the risk of repetition, if you want to really know what is happening in the housing market and the economy in general, frequently visit


The Housing Bubble Blog


You're not going to like it.

 

[lets-retire]

Thanks, but instead of going to a blog, which is nothing more than an opinion, I think I'll pay attention to a bit more reliable information.

 

[ladelfina]

lets-retire, why don't you take a look at the blog content before making pronouncements? This particular blog is basically zero opinion: it is a compendium of excerpts from current published housing-related news articles, often with plenty of stats. (I'd have to say it is the most opinion-free blog I have ever encountered! If you want opinions you'll find plenty in the comments, though.)

I'm not sure where you think you will get more 'reliable information'.. maybe you could share that with us?

It's not a particularly easy format to read through, though, and I prefer Calculated Risk on housing-- a little more focused and less repetitive.

 

[lets-retire]

I did look at it. It looks like sound bite news to me. Almost anybody can find a quote to support thier opinion, even take it out of context.