Wednesday, February 07, 2007

Subprime Meltdown Summary and a few new rumors!

From Jason Sardi at Active Rain has an Excellent Summary of the current Subprime meltdown and a few new rumors. Some of these have been previously reported here, however, there are a few new ones:

Many of you understand by now - this ain't your father's mortgage business any longer!! And if you have not been able to realize the incredible shift in this market, then you probably never will. In case you have been asleep at the wheel... here are some news tid-bits

E-loan announced it will close their subprime wholesale division

ResMAE listed for sale

Wachovia Corp.'s consolidation of its wholesale operations will result in layoffs

Fieldstone announced that it's closing 5 west coast branches including its Arizona operations.

Mortgage Lender Network (MLN) "stopped funding residential loans"
on 12/29 (they didn't actually say they were closing).

HMIC closed its doors on Dec 20.

As part of a $100 million cost reduction strategy, Sovereign Bancorp exited the wholesale mortgage market.

Own it Mortgage - closed its doors

Sebring Mortgage closed its doors

Axis Mortgage closed its doors

Oak Street Mortgage closed its doors

Right Away Mortgage closed its doors

Secured Funding closed its doors

Loans 123 - Not taking any more business

Aegis Funding (sub-prime) closed its doors (Aegis Wholesale (Conforming and Alt-A) and Home Equity are still open)

Option One - Up for Sale

Meritage Sold to Lime Financial

Mandalay - Closed its doors

Southstar - AE's leaving (a good source stating company cannot meet payroll obligations)

Accredited - OC Regional office production at its lowest levels, rumors they may close by 1st qtr.

Washington Mutual - Multiple Layoffs

Saxon - Layoffs

RFC - Layoffs

Decision One closed 6 regional centers.

Argent consolidated and let 1,000 people go.Currently for Sale

Ameriquest laid off 3,800 and shut 229 retail branches after announcing a $325 million settlement with state's attorneys general for overcharging borrowers.

Bank of American Mortgage laid off 225 locally.

Fieldstone Mortgage closed their Las Vegas branch.

Acoustic Home Loans closed its doors due to a sudden increase in repurchases.

WAMU exited their correspondent business


Anonymous said...

Hey I'm new to this blog and have a question for you guru's. Here's my situation: I have a 1500sq. ft. Lennar home in the SW ,bought 2 years ago for 230,000 new. I recently got married and my wife's parents gave us 85,000 as a gift. Between this money and the fact that we now are a "dual" income family it gives us some options to move up. We would really like to eventually get into something alittle bigger and nicer in the Shilo Estates area or Silver Oak area were thinking but I can't get over the prices out there. We could afford it but geez man it's Bakersfield!LOL!. Do you think we should just wait a few years, hang out, save more money and see what the market does? When do you think we should make a move to upgrade?? Any thought's would be greatly appreciated. Thanks!


Anonymous said...

No, I think you should buy at the top of the bubble, right now.

Then when your house loses a couple hundred thousand over the next few years you have a great story to tell your grandchildren.

Anonymous said...

So much for being serious you smart ass......

Anonymous said...

"and a few new rumors"

Any idea which ones are rumors?

the guru said...

I think jim just saw his 85k go "POOF" easy come easy go.

Anonymous said...

Jim, my question is - do your in-laws have any more daughters?

Anonymous said...

LOL. You guys are awfully mean to anon #1. Give him a break. It sounds like he's a little new to the idea of real estate cycles. So for our newbie to the real estate world, here are the two rules of real estate:

Rule #1 Real estate doesn't always go up.

Rule #2 See rule #1

Bakersfield Bubble said...

Jim -

I don't think anyone can time the top or bottom of the market.

Everyone with half a brain knew what was going on in 2004 and 2005 would not continue forever - Unless of course you asked your local realtor, builder, mtg broker or newspaper reporter.

That said - when will we see the bottom. If you ask the REIC they have now called at least 10 bottoms and all have been wrong. No one knows how bad things will get in real esate, if at all.

I have been following the credit cycle as this is one of the keys for seeing what will happen going forward. All indications are that credit is now tightening. Also, keep an eye on the NOD's numbers they are growing significantly.

With all that - If you can afford the house payment and you can negotiate a decent price and plan on living their for more than a couple of years then I am not against buying a house. I own myself and those are also nice areas you are looking at.

However, if you are planning on flipping it or are going to use a toxic mortgage as the only way to get into the home, then you are asking for trouble.

There are many other factors to consider as well - are you fully funding your 401k or other deferred compensation plan? Do you have kids and will your wife stay at home or work less. Etc...

Housing Wizard said...

The lenders that gave the easy money are getting out of the business. That means that they know that real estate is not going to go up for a long time .

The sub-prime lenders cannot survive if real estate is not going up and the sole premise of their loan-making was that appreciation would protect their risk (plus they passed off their risk to secondary market investors)

Without the sub-prime lenders making stupid loans the demand pool goes down and inventory goes up.It will takes years in most areas to absorb the excess inventory/listings .

If you don't want to catch a falling knife than don't buy now .It might take a long time for the market to correct (2-7 years ),in my opinion .

Housing Wizard

Bakersfield Bubble said...

Let me add one thing to my repsonse.

Would I sell my current home and buy another home in Bakersfield today - No way!

That is just my opinion - I could be wrong!

Anonymous said...


Take this time to study real estate, and trends.

Most agree that prices are hight right now and there is likley to be some declines. Study up so you can make a more informed decision.

If you want to buy a good deal in a year or two read a couple books on buying forclosures...theres about to be a lot of them in Bakes...

Anonymous said...

Hey Bakersfield Bubble and others, thanks for your input so far! Let me clarify a few things regarding my situation as it seems some of you misunderstood me. As I said, I bought the house 2 years ago and used an 80/20 to purchase it. After a year I refinanced to a 30yr. fixed and dumped the second. As of right now I believe similar houses in my area have sold for around 290,000 to 310,000. So I do have alittle equity cushion as of right now. We just recieved that money (85,000) from her parents (my wife)awhile back. Let me also say that I am by no means "stretched out" when it comes to this house. My payment is well within my budget and I also contribute 12,000 or more a year to my 401k etc.. The worst case senerio for me guys is that if the market tanks and my house did drop below what I owe on it (230,000 est.) then I just stay put....big deal, I still need a place to live..

Obviously like you guys said, nobody can "time" the market or else we'd all be rich, but Bakersfield Bubble and some of you others seem to have done your homework as far as this bubble and market so that why I was asking you guys weather or not I should hold out and wait... The bottomline is that I want to eventually upgrade into a better area so should I wait to do so?


Anonymous said...

How do you guys feel about I've been watching a few homes in the areas I like (shilo estatres, silver oak, etc...) and it seems that as of the last 6 or 7 months they are starting to fall some 50,000-60,000K already. I'm thinking if I wait a few years.....and then sold my house......even if I broke even money or owed alittle(because my house would go down too) I could buy a house that is 500,000 now for what?? 400,000? 375,000? that would be nice : ) I would feel sorry for those who paid top dollar today for one.....

Anonymous said...

Although I am an analyst for one of the few remaining LEADING subprime lenders, I must disclaim that I don't have a whole lot of industry experience. That being said, I appreciate the thoughts of the "housing wizard". I think he has a great handle on the root of the problem. He is right about the naive reliance on the upswing of the market. The only firms that can survive are those who saw it coming a while back, and have laid the foundation to climb up the credit spectrum into Alt-A and prime loans. Secondary market investors have lost their appetite for these "toxic mortgages" (80/20s, interest only, and 100% financing on poor credit), and they have done so for a good reason... because it is stupid and incredibly risky to live beyond your means. In good times, it is incredibly profitable to milk off the poor who live beyond their means, but for residential mortgages, there's too much at stake now. The fact that the vast majority of the public use these "easy money" loans to live beyond their means is human (American) nature. Those loans default. Those who understand the risks and use these loans to their advantage are the minority, but they typically benefit. Anonymous 1 sounds like he used 80/20 financing to his advantage, and has moved on from there. You're on the right track. Flipping and foreclosure hunting should now be left to the pros. If this hasn't been your business for > 2 years (assuming you're still good at it), don't bother. If you're only dealing with your primary residence, then you're relatively safe. The buyer's market has begun, but if you're also a seller who is buying up, you must handle the risks of selling. There's no easy answer because buying and selling at the same time is a double-edged sword. So, Anonymous 1, there's no easy answer. There is no magic time to buy & sell. You need to know the property value trends in the neighborhoods you're dealing in, and take your best educated guess. As far as Zillow goes, in 3 words... "Don't trust it", it is free for a reason. Sufficient 401k/Roth IRA and further investment is the foundation for financial well-being. If you can figure that out, you can figure out the rest. If you have as much money as Anonymous 1, you can leverage more by proper investing in high-return mutual funds than you can by buying and selling your primary residence "at the right time".

Anonymous said...

I just moved out of a house in Shilo as the owner decided to sell, at least try to. I like the area and have been following it for some time and the comps are way down. The house we were renting was 2034ft and sold in 10/05 for 445k/219 per ft. The initial listing on 10/06 was at 535k, it's now listed at 469k, and he’s already lost. Anyways, this house was one of the most expensive (per foot) purchased in Shilo during the hype. Now the comps are as low as 158 a foot and an average of about 185 or so. Oh yeah, that house we were renting, they owe 400k. Even if they find a sucker to buy it at 200 a foot, the sales price comes to 408k. With realtor fees and other costs they're sunk...and that 45 k they put down, gone. This guy could easily lose 100k in less than 2 years….

TheFunSucker said...

Zillow is a great place to find accurate sales info and most importantly, comps. Don't let these realtors/lenders/appraisers sway you from using it as a very necessary and accurate resource. Now you can do your own research and don't have to rely on the lying realtwhores. As they can and will, skew the #s to their advantage. As far as the Zestimates are concerned, I agree, don’t trust it, as Zillow can’t keep up with the crashing market! LOL! But, really, look at the recent comps and price accordingly.

Darth Toll said...

"But, really, look at the recent comps and price accordingly."

And I would just add that you should look at recent comps and price a little (5%) under what you are seeing. Overpricing your house is an easy mistake for people to make in a declining market because people have gotten so conditioned to rising markets that they usually just take whatever the last price they heard of in the neighborhood and add a few % to it.

Even pricing your house the same as recent comps will make it overpriced as housing goes down. Difficult for people to accept but this is the reality. The last thing you want to do is come in high and have your house sit around for months on end as you chase the market lower with several little reductions. Better to get out in front a little bit, take a small haircut now and get the thing sold quickly before your haircut gets worse.

I can't count how many stories I've heard of stubborn sellers that didn't want to "give it away" and eventually, after many many months of sitting on the market, they end up taking an offer that was lower than an offer that came in early in the process. Stupid, but happens all the time.

Anonymous said...