Will Subprime Foreclosures Spread?

Retire Soon

Retire Soon

Full time employment: Posting here.
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An article appeared in our hometown newspaper today that was originally published in the Washington Post. The heading was, "Wall Street is Wondering: Will foreclosures Spread?

As of today, here are the states with the highest percentage of subprime loans that are now in foreclosure, according to the Washington Post:

Ohio 11%
Michigan 9.5%
Indiana 9.3%
Iowa 8.9%
Mississippi 7.3 %

Some other states that that were higher than 7%, but the exact percentage was not given were: Kentucky, Minnesota, Wisconsin, and Louisana. The average percentage of subprime loans that are now in foreclosure across the whole U.S. is 4.5%.

Is this only the tip of the iceberg and could this problem eventually worsen the downturn in the housing market and cause a recession?
 
Retire Soon said:
An article appeared in our hometown newspaper today that was originally published in the Washington Post. The heading was, "Wall Street is Wondering: Will foreclosures Spread?

As of today, here are the states with the highest percentage of subprime loans that are now in foreclosure, according to the Washington Post:

Ohio 11%
Michigan 9.5%
Indiana 9.3%
Iowa 8.9%
Mississippi 7.3 %

Some other states that that were higher than 7%, but the exact percentage was not given were: Kentucky, Minnesota, Wisconsin, and Louisana. The average percentage of subprime loans that are now in foreclosure across the whole U.S. is 4.5%.

Is this only the tip of the iceberg and could this problem eventually worsen the downturn in the housing market and cause a recession?
Click to expand...

I don't think so. While a problem, I don't see how one area of the economy could have enough impact to throw the whole thing in a tailspin.

It's not like the S&L crisis threw the whole country in a tailspin...........

However, the FOLKS that are carrying all these notes are looking at some pretty ugly numbers to shareholders when they start taking charge-offs on their loans portfolios............... :eek: :eek:
 
Half of all California mortgages in February 2006 were ARMs. The Jan/Feb foreclosures will start showing up this summer, as people start slipping behind and banks get impatient.
 
I am surprised MA is not listed (>7%).

As far as a "tail spin" ... my guess is it'll take Fannie, Freddy and Sallie to tank to really open the flood gates. Do these guys have any sub-prime exposure??
 
tryan said:
As far as a "tail spin" ... my guess is it'll take Fannie, Freddy and Sallie to tank to really open the flood gates. Do these guys have any sub-prime exposure??
Click to expand...

I think "prime" used to mean conforming to GSE underwriting, so you'd think the answer was no. Times have changed.

great article
 
HaHa said:
Agree, excellent aticle. This guy Tanta has brains. Do you know who he is?
Click to expand...

link

INIGO: Who are you?!

MAN IN BLACK: No one of consequence.

INIGO: I must know.

MAN IN BLACK: Get used to disappointment.
 
The subprime market is bad, bad bad for the economy. If you think it is being overblown think of who believes the economy is in for serious problems : Allan Greenspan and Jim Rodgers, who today came out and said that the subprime will be the biggest disaster to ever hit the US.

GM has already taken in 1 Billion to assist in carrying their subprime loans. The rules of valuation are such that writedowns that should be taken aren't being taken. WHich is one of the sources of the problem on these in the first place. In many cases they are carried at full market value until they default, when time comes to foreclose on the underlying asset the house has fallen in value and creates huge losses, which are not reserved for.

Which is why valuing banks on book value is a very hazardous idea in my opinion.
 
tryan said:
I am surprised MA is not listed (>7%).
Click to expand...

http://www.boston.com/business/pers...3/05/overdue_mortgages_linked_to_risky_loans/

Overdue mortgages linked to risky loans
Foreclosure filings soar from subprime lending
By Kimberly Blanton, Globe Staff | March 5, 2007

An explosion in overdue mortgages tailored to home buyers with less-than-sterling credit has driven foreclosure filings to record highs in Massachusetts.

These mortgages, known as subprime loans, charge higher interest rates to compensate the lender for the risks associated with customers who have low credit scores or large credit card or other debts.

Subprime mortgages were lauded for helping more Americans than ever buy homes during the housing boom earlier in the decade. But four years after their popularity took off, the loans are backfiring. More homeowners are no longer able to afford their payments, which typically rise sharply two years into the loan. In 2006, lenders filed 19,487 foreclosure notices against Massachusetts homeowners, surpassing the record high of 17,000 filings in 1991, during the state's severe recession.
 
justin said:
Do you know who she is? :D
Click to expand...

Yeah, after I read the response to reporters I see that she is a woman. She has mastered an art that I have always aspired to-polite sounding sarcasm. :)

Ha
 
Retire Soon said:
Ohio 11%
Michigan 9.5%
Indiana 9.3%
Iowa 8.9%
Mississippi 7.3 %
Click to expand...

I'm totally surprised by this list. I was expecting to see, Cali, Mass, NJ, Florida to be at the top of the list. What gives?
 
wab said:
I think "prime" used to mean conforming to GSE underwriting, so you'd think the answer was no. Times have changed.

great article
Click to expand...

Wab
Thanks. Part of the reason this board is so interesting is that collectively we have many area of expertise and many different sources of information.
I don't know that I am particularly concerned that there will be loss (we are, after all, capitalists and risk is inherent in the system--it leads to self correction), but it is interesting to see how this market developed.
Tio z
 
I think it will. Because job market may cool down fast. In fact, it is cooling down now.

Here is the story: currently my wife drives to work and she hates NJ traffic. So she is thinking about to work in the city. After she mentioned this to her recruiter, that guy sent her positon descriptions every week. It was around Jan. Now finally she hammered out her resume. Two weeks passed, she didnot get an interview yet. One of my friends at Morgan Stanley said his dept stopped recruiting and laied off 5% work force.
 
Sam said:
I'm totally surprised by this list. I was expecting to see, Cali, Mass, NJ, Florida to be at the top of the list. What gives?
Click to expand...

Those coastal states have high concentrations of subprime mortgages, but they also have solid economies and most people are still hanging onto some housing cap gains. Give it time.
 
it's not like subprime people only buy from other subprime people. a lot of good credit people stretched themselves from 2004 to the present and will have to sell or see their mortgage payments jump to unaffordable levels.

the only people saying it won't spread are those who have an interest in seeing the value of the mortgage debt stay up until they can get rid of it. just like the dot bombs a few years ago
 
The people who purchased my house for 513,000 last summer in NJ took out a 387,000 dollar first mortgage and a 41,000 second.

Lets see, 2,300 dollars a month on the first mortgage at 6.25%

Then another 250 dollars a month on their second so we are at 2,550 a month P&I

Now their real estate taxes on the place will be 2.50 a 100, so they will be assessed at something like 450K so another 1,000 dollars a month.

Total 3,550 dollars a month JUST TO LIVE IN A HOUSE!

Wow, How do people sleep with that kind of debt. They made average money.About 105,000 a year combined.

I think that is tight.
 
Wabberator: good chart for ya

HOUST_Max_630_378.png
 
tryan said: "I am surprised MA is not listed (>7%)."

MA was in the group that had a subprime foreclosure rate of between 4-6%. States in the Gulf Region and in the industrial heartland, where the automakers are, were among the hardest hit.

These states were in the 1 to 3% category were: WA, OR, CA, AK, HI, MT, ID, NV, UT, AZ WY, NM, MT, FL, and VA. Washington DC was also in this category. All other states had 4% or higher rates.

The Mortgage Bankers Association said foreclosures on all homes have reached the highest level in nearly four decades.
 
Running_Man said:
The subprime market is bad, bad bad for the economy. If you think it is being overblown think of who believes the economy is in for serious problems : Allan Greenspan and Jim Rodgers, who today came out and said that the subprime will be the biggest disaster to ever hit the US.
Click to expand...

That's an awfully serious thing to say. Could it really be the biggest disaster to ever hit the U.S.? It seems like a lot of what Greenspan says lately, has to be taken with a huge grain of salt.
 
It seems like a lot of what Greenspan says lately, has to be taken with a huge grain of salt.
Click to expand...
... the media has clearly misrepresented what Greenspan has had to say lately. The media reports he thinks a recession is likely, what he said was that it is possible, but that one was not being predicted. The media reports he thinks the subprime problem will spill-over, what he said was that there was no indication that it would.

The media is absolutely illiterate in things financial/economic.
 
One just needs to look at the media misreporting on the savings rate/401k-ira from last month for a good example of that...
 
Total 3,550 dollars a month JUST TO LIVE IN A HOUSE!
Click to expand...

... and to think they could rent a similar house for much less ... with no downside risk.
 
If you want the bearish view, let me introduce you to an economist:

Nouriel Roubini

it will be the worst housing recession in the last five decades

The economy will experience a hard landing, at best in the form of a growth recession (growth in the 0%-1%) for most of 2007 or, more likely, an actual recession starting in Q2. Greenspan thinks a recession by Q4 has a 30% probability; the Fed’s yield curve model prices a 54% probability of a recession in 2007.

the Fed will try but will not be able to rescue the economy.
 
Q- How many times can you be wrong about a future event and still be credible?
A - if you are an economist, stockbroker, or market guru, an unlimited amount of times.

Barnum was right, a sucker IS born every minute.

IF you ask me, this is all just more financial porn. Stick with your AA and enjoy your life :) :)
 
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