Wednesday, February 11, 2009

Mortgage Meltdown:The Next GIANT Wave

The foreclosures on the market now are from loans that began to go bad over a year ago. This is largely before the recession began. Now, think logically about the current financial situation of layoffs at Intel, Boeing, Starbucks, Macy's, Wal-Mart etc. The unemployment rate has almost doubled nationally in a year. These are not just folks making your morning drip or checking you out at Macy's. These were the $50k+ variety that drive the housing market. As of Dec 08, 9% of jumbo loans were at least 60 days late. I think this number can only go up over the next two years. The resets will start in full force this year and next. This is the latest chart from Credit Suisse:

If this all makes you sick to your stomach, I highly recommend a pint of:

Tuesday, February 10, 2009

Better With Time

Of course it is bleak and things will continue to look awful throughout the economy for many years. The impact is very real. I receive weekly updates on a small food bank I support in Los Angeles and the numbers of people seeking a warm meal have increased 300-400% over last year. But, I would argue that humanity has overcome unbelievable odds and WON! During the black plague in Europe half the population died within a 50 year period. info here. Stay strong, fight and we will overcome our current financial crisis. Afterall, it is a human problem that we can fix. The mountain is tall and the struggle will be great but we can reach the top again. Never give up. Things will get better with time.

Saturday, February 7, 2009

Underwater Homeowners: You Have Company

Tough couple of weeks in the world of jumbo loans as prospects expect excellent rates in the 5-6% range but find out they don't qualify because they don't have the required equity anymore in their homes. We have seen this consistently now throughout the country. About half the people we talk to don't have the 20% equity to qualify for the best rates or worse they don't have any equity at all because they bought between 04-06 or they used their home as an ATM. Recent stats from Data Quick and Fannie Mae believe that 20% of home owners are currently underwater(home is worth less than the mortgage(s)).

Values appear to be rewinding across the country to 02-03. Of course they are not alone with the massive deflation of real estate prices:

Few deals better exemplify the excesses of the commercial real estate boom than
the dismemberment of the Equity Office empire, and fewer still better underscore
their bitter consequences.

Buyers purchased buildings at what, in retrospect, were vastly inflated prices. Lenders provided lavish, even excessive, financing based on unrealistic expectations of rising rents. And now that values are tumbling, vacancy rates are rising and credit has become impossibly tight, many on both sides are struggling against default, foreclosure or bankruptcy.

The impact could ripple beyond the companies that bought Equity Office buildings and the investment banks that financed them. If the owners cannot make their loan
payments, it could create a financial crisis for the pension funds, hedge funds
and insurance companies that hold securities based on Equity Office

The list of Equity Office buyers reads like a Who’s Who in American real estate. In Stamford, Conn., RFR Properties, a partnership headed by Michael Fuchs and Aby Rosen, who owns Manhattan landmarks like Lever House and the Seagram Building, spent $850 million to buy seven Equity Office buildings that analysts say are now worth less than their mortgages.

In Los Angeles, the founder of Maguire Properties, one of the largest commercial
landlords in Southern California, was forced to step down last year as the
company struggled with crushing debt from buying 24 Equity Office buildings.
And in New York, the real estate mogul Harry B. Macklowe lost seven Equity Office towers he bought from Blackstone, along with much of his empire, after he was unable to refinance the $7 billion in short-term, high-interest debt he used to buy them.

“Those who bought from Blackstone have not fared well at all,” said Michael Knott, a real estate analyst at Green Street Advisors. “Blackstone was a huge winner at the time, although the value of what they still hold has fallen probably 20 percent.”

From: NY Times