California - Titanic
Ben Jones @ The Housing Bubble has some lucid comments regarding a titanic problem pointed out in an L.A. Times article. Some key points from the article and my comments follow.
A builder conducted a test to see how many variable rate, pre-approved clients could qualify for a fixed loan. Out of 90, only about 15 of the buyers still qualified. This speaks to subprime underwriting standards and insufficient credit quality in the loans being originated.
25% of the loan officers interviewed said that an increasing number of the home mortgages originated had to be retained in their portfolios, rather than being sold through secondary marketing to the GSE's (FNMA, FHLMC, GNMA, FHA/VA).
The two reasons given: the loans were too big and they were of insufficient credit quality. Is there any surprise here? Refer to 2 paragraphs above. The GSE's are already overexposed with the prime loans they have bought, and they know it.
The percentage of ARM's to fixed rate loans being originated is jaw dropping: Santa Rosa 85%; Oakland 84%; San Diego & Santa Cruz 83%; Los Angeles 74%. And the cou de gra: 66% of the ARM's are interest-only. A statistic for how many loans are 100% LTV (loan to value) would be an interesting codicil.
The buyers using interest sensitive loans are either, very confident in the long term, or stupid or greedy. In The Sharecropper Society. I made the point that today's "owners" are really leasing (buying squatter's rights) with the hopes of getting a profit in the deal. No or low risk, no problem, if the shit hits the fan, there will be a boatload of borrowers with dinged credit.
Given the lethal combination of overleverage, interest rate exposure and poor lending practices, Mortgage insurance companies (PMI, MBIA), finance insurers (MBIA) and those holding subprime MBS (mortgage backed securities) are going to lose big when the default and foreclosure rates go up.
I now believe that rising interest rates are no longer necessary to sink this ship, a minor recession and some additional layoffs will suffice.
Simply put, like the "unsinkable" Titanic, California's overvalued real estate market is an unmitigated disaster just waiting to happen. And I see a lot of icebergs on the horizon, rising oil & interest rates, terrorist attack, financial institution or dollar crisis, to name a few.
Fannie, Freddie and MBIA, Oh My!
PMI & MGIC finally wake up
A builder conducted a test to see how many variable rate, pre-approved clients could qualify for a fixed loan. Out of 90, only about 15 of the buyers still qualified. This speaks to subprime underwriting standards and insufficient credit quality in the loans being originated.
25% of the loan officers interviewed said that an increasing number of the home mortgages originated had to be retained in their portfolios, rather than being sold through secondary marketing to the GSE's (FNMA, FHLMC, GNMA, FHA/VA).
The two reasons given: the loans were too big and they were of insufficient credit quality. Is there any surprise here? Refer to 2 paragraphs above. The GSE's are already overexposed with the prime loans they have bought, and they know it.
The percentage of ARM's to fixed rate loans being originated is jaw dropping: Santa Rosa 85%; Oakland 84%; San Diego & Santa Cruz 83%; Los Angeles 74%. And the cou de gra: 66% of the ARM's are interest-only. A statistic for how many loans are 100% LTV (loan to value) would be an interesting codicil.
The buyers using interest sensitive loans are either, very confident in the long term, or stupid or greedy. In The Sharecropper Society. I made the point that today's "owners" are really leasing (buying squatter's rights) with the hopes of getting a profit in the deal. No or low risk, no problem, if the shit hits the fan, there will be a boatload of borrowers with dinged credit.
Given the lethal combination of overleverage, interest rate exposure and poor lending practices, Mortgage insurance companies (PMI, MBIA), finance insurers (MBIA) and those holding subprime MBS (mortgage backed securities) are going to lose big when the default and foreclosure rates go up.
I now believe that rising interest rates are no longer necessary to sink this ship, a minor recession and some additional layoffs will suffice.
Simply put, like the "unsinkable" Titanic, California's overvalued real estate market is an unmitigated disaster just waiting to happen. And I see a lot of icebergs on the horizon, rising oil & interest rates, terrorist attack, financial institution or dollar crisis, to name a few.
Fannie, Freddie and MBIA, Oh My!
PMI & MGIC finally wake up
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