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I think this is just the beginning of the brutal--but absolutely necessary--injection of reality back to America's long-hallucinated real estate market. In the past 10 years, I personally watched lenders making absolutely questionable--no, foolhardy--loans to borrowers who never had any real hope of repaying them. I'm amazed that more of Colorado isn't in the "red zone" shown on the maps in the article--it should be and probably will be before all is said and done. At the risk of sounding heartless about it, maybe if enough borrowers and lenders absolutely get the crap kicked out of them in this mess, it will burn enough of a lasting impression on everybody that this won't happen again for another 50 or 100 years. It's too bad it takes that kind of trauma to make people realize the end consequences of very bad decisions and behavior, but that seems to be the way it is in this country (and probably most countries). We're also going to get the same kind of thumping over this country's energy/transportation policy--or, more correctly, the complete lack thereof. That one will probably be worse than the real estate bubble.
I personally watched lenders making absolutely questionable--no, foolhardy--loans to borrowers who never had any real hope of repaying them. I'm amazed that more of Colorado isn't in the "red zone" shown on the maps in the article--it should be and probably will be before all is said and done. At the risk of sounding heartless about it, maybe if enough borrowers and lenders absolutely get the crap kicked out of them in this mess, it will burn enough of a lasting impression on everybody that this won't happen again for another 50 or 100 years.
I'm with you, and I'd like to see some of the big fish in this scam go to prison. That is not likely, however, and the inevitable victims will be you and me paying for the financial house's and speculator's government (taxpayer) bail-outs. They gamble with other people's money (and lives) and when they bet wrong they get other people to pay the bill. I sincerely hope I'm wrong this time!
In the past 10 years, I personally watched lenders making absolutely questionable--no, foolhardy--loans to borrowers who never had any real hope of repaying them.
I've sort of posted this before both here and on the California/LA boards, but how in the heck did this happen? Certainly these big institutions with all their PhDs and experts could see this coming, right? Just imagine some (non-commissioned, non sales, economically intelligent) director or VP at Countrywide watching people with $50K incomes taking out loans for $400K knowing that their rates will double and they WILL NOT make the payments in a couple of years. He would have to know that would slam his company. Just doesn't make sense.
Second, why did SoCal's housing prices ramp up so much higher (as a percentage) than middle America (Denver, HOU, SEA, etc.)? Are the laws different? Is demand for LA higher because of the free TV/Movie advertising glamorizing California?
The article mentions a Colorado Springs man who had trouble getting a loan for a $113k home because he couldn't come up with 10% down. Ridiculous! He even complains that it was a "headache". He eventually did get the loan, though (for 0 down!), which tells me that lenders still aren't being hard enough on people.
I will consider the mortgage industry "tightened" once lenders are firmly requiring 20% down and doing significantly more underwriting.
people with $50K incomes taking out loans for $400K knowing that their rates will double and they WILL NOT make the payments in a couple of years. He would have to know that would slam his company. Just doesn't make sense.
They didn't care because they already had buyers for the bogus paper lined up, who in turn flogged them to hedge funds, insurance corps, school board pension fund managers etc. They knew they weren't going to lose anything. They people at the end of the scam get burned. This time it looks like you and me, the taxpayers. The engineers of this trillion plus fraud should go to prison for all the lives they have ruined but they won't except in rare cases where they'll fry some out of favor scapegoat for appearances sake.
I've sort of posted this before both here and on the California/LA boards, but how in the heck did this happen? Certainly these big institutions with all their PhDs and experts could see this coming, right? Just imagine some (non-commissioned, non sales, economically intelligent) director or VP at Countrywide watching people with $50K incomes taking out loans for $400K knowing that their rates will double and they WILL NOT make the payments in a couple of years. He would have to know that would slam his company. Just doesn't make sense.
Second, why did SoCal's housing prices ramp up so much higher (as a percentage) than middle America (Denver, HOU, SEA, etc.)? Are the laws different? Is demand for LA higher because of the free TV/Movie advertising glamorizing California?
First, as Bideshi points out, the guys making these loans didn't expect to be holding any of that paper when it went bad. The securitization process--bundling loans into complex securities and reselling them--was done in a poorly regulated environment, and the buyers of those securities had no idea that the brokers and lenders who sold those loans had completely dropped their shields with respect to any accepted standards. Investors expected loans that were made to the tried-and-true underwriting standards, with well-known historical performance characteristics, and instead were getting increasing percentages of subprime slime, Alt-A, and Pay-Option ARM exploding financial ordnance in the securities they were buying. Bad on them for poor due diligence in looking into what underlied the securities...worse still for the lazy asleep-at-the-wheel b**tards at the ratings agencies, and even worse on the brokers who wrote this crapola. But there are no innocents here...nobody in this business should have missed the warning signs...they were everywhere.
As to why was CA worse...my theory is that the hardest hit places in this mania were those places where properties were at least marginally more desirable, and therefore were appreciating the fastest. A positive feedback mechanism is what drove this, and I think that "desirability" factor added to the gain in the feedback loop (engineer geek-speak). The false equity accessed (but not created) during the bubble blow-up was what allowed unqualified borrowers to get in and then get out without crashing and sending a warning signal. It's a classic Ponzi scheme...money flooding in from new participants pays to cash out those leaving until outflows exceed inflows and it collapses under its own weight.
Only a sensible person with an unemotional long view on the housing market would be able to look beyond the mania all around and see that local incomes would not be able to sustain the trend for very long at the rate it was accelerating. That's hard to do when ma and the kids see their peers living in McMansions, driving BMWs, watching 50" plasma TVs, and all the other signs of conspicuous overconsumption all around them.
A couple more signs of the housing market's "bright" future.
I've wondered about how things will settle out as media fatigue sets in even while the news just keeps getting worse and worse.
First article is a recap of a Fitch analysis on Residential Mortgage Backed Securities (RMBS). Subprime (and Alt-A, and Prime, too) have not just gotten worse...the decline is accelerating.
http://tinyurl.com/278r3w (broken link)
Second article is a recap of a UBS analysis that points out why Fannie and Freddie, both under severe capital pressure, still can't be the housing market's white knights. As a dear friend of mine says, "You can rub it, and you can scrub it, but you can't shine sh*t."
Bob from down south, you've got it absolutely right, my friend. And anyone who thinks that the Colorado market hasn't hallucinated just about as badly as California, Nevada, Florida, or Arizona's is in for a rude awakening. While the percentage increase may not have been as spectacular on the way up, the fact is the markets appreciated far faster than people's ability to afford or pay for what they bought over the long term. Worse yet (even more so probably than the economy in, say, California), so much of Colorado's economy is based on building more crap that people can't afford--that is, the construction and real estate development industries--that when this whole she-bang finally really implodes, a big chunk of the Colorado economy will evaporate.
I am continually amused when I read posts from development/construction/real estate people from other states planning to move to Colorado. They are like rats jumping from one sinking ship to one that is about to sink. Just a matter of how soon they wind up in the water. Oh, but people have to have a place to live, they say. Well, not exactly. When things go funky, adult kids will be back living with parents, people will be taking boarders and roommates--extended families under one roof will again be common. This is already starting, folks, and it will accelerate. So much for new housing demand--you can stick a fork in it then.
I think most people on this forum are ignoring this thread because they don't want to hear about what is headed their way. That's about as smart as closing your eyes when you're about to have a car wreck so you won't be a witness.
Last edited by sterlinggirl; 03-22-2008 at 11:53 AM..
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