NYT: Crisis Looms in Market for Mortgages

[FreeStateDemocrat]

By GRETCHEN MORGENSON
Published: March 11, 2007
On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending. (contd)

http://www.nytimes.com/2007/03/11/business/11mortgage.html?_r=1&hp&oref=slogin

[Joe Bacon]

1. I hope there is a special place in hell reserved for this scum!

My dad kept asking me for money. Every time he would call every week he said he needed money to pay doctor bills and he didn't have it.

When he died, I found out Wells Fargo put him in mortgage and credit card debt over $250,000. He had 3 mortgages on our home which totaled TRIPLE the house value. And he had balances on 15 credit cards! Wells Fargo just kept lending him more and more money, and when he died, they served papers on me expecting me to pay the bills. They wound up legally stealing our house.

The hatred I have for these thieves is indescribable. Hell is too good for them. I hope their legal loansharking collapses and drags them down.

[VTMechEngr]

8. How can they take your house for you father's bills?

You would not be responsible for them.

[Joe Bacon]

10. Dad's name was on the deed and mine wasn't.

Even if my name was on the deed, Pennsylvania law would still require the selling of the house to satisfy his debts.

[happyslug]

23. No, if you were a joint owner and your father debts were NOT secured by the House

The home would have been yours by operation of law and his creditors would have to go after his sole assets (Provided the Deed was in both your names with the right of Survivorship). When a person owes property with another the ownership is either a "Tenancy in Common" or "Joint Tenancy". Joint Tenancy is NOT presumed in the law and you must show that is how the jointly owned property is owned. The difference is the issue of the "Right of Survivorship" i.e. who gets the property at the death of one of the co-owners? In "Tenancy in Common" the property the share of the property owned by the deceased person goes to his or her heirs. In "Joint Tenancy" the property at the death of one co-owners goes to the other co-owner.

Pennsylvania law presumes when you have two or more unmarried people on a Deed that is "Tenancy in Common" and the property can be sold for the debt of one of the Co-Owners (With the other Co-Owners get their share of the proceeds from the sale). On the other hand if the Deed says "To Father and Son with right of Survivorship" it is a Joint Tenancy.

Thus your Father would have been better off putting your name on the Deed with the right of Survivorship. He should have continued to paid the debts for over a year (To avoid having someone call the transfer a "Fraudulent Conveyance", which is a term of Art in the Legal field saying he paid off one of his creditors to favor another. Transactions between relatives are presume "Fraudulent" if they were done within a year of filing Bankruptcy or some other action against your father. On the other hand once one year has passed, then the law presumes the transaction was a fair transaction (Please note, the one year test is from the Bankruptcy Code, Pennsylvania Law is a little more vague as to time limits).

Thus after a year or so after your name was on the deed, it would have been valid (Unless one of his creditors actually sued in in that year then an issue of Fraudulent Conveyance would have come up). No my advice in this type of Situation is NEVER have any real property or Automobile in just in your name. Put someone's else's name on the property with the key word "Right of Survivorship" (Through make sure it is someone your trust).

Married couple has an advantage here in Pennsylvania. THe law presumes when a couple have their name on a deed it is "Entireties Property" and as such can NOT be sold for the debt of one Spouse. In some other states Entireties Property does NOT exist (West Virginia for One) but given Joint Property is so similar to Entireties property not much of a Difference in most situations.

All of this is moot in your case for your father owned his house in his name alone (Or with his wife who pre-deceased him, her death made it his property as the Survivor). At hi death his Creditors had first call on his assets after Funeral expenses.

[BeyondGeography]

2. Look out below

The article states that this disaster will be much bigger than Enron. As lenders go belly-up, it will be impossible for overleveraged people who bought at the top of the market with high-priced money to borrow more. This will force more homes onto an already overloaded housing market, which could cause prices to crash. Underlying this is the refusal of Wall St. to recognize the problem and dowgrade the quality of debt that is out there, leading to reports such as those referenced at the top of this article.

A fitting way to end the Bush years.

[Trajan]

26. The last Bush years ended with a Real Estate Crash .....

It actually began under Reagan, but extended throughout most of Bush I ....

I have no idea of the macroeconomics, but the end result was the same : LESS Income, MORE empties on the market ... lower demand and greater supply .... It is obvious what is going to happen ....

The great cycle continues ....

[hatrack]

3. Sounds like Condaleeza Rice went into a new line of business . . .

"No one could have predicted that mortgage brokers and bankers who never performed due diligence like, say, checking whether or not borrowers would be able to make their mortgage payments were going to get burned by bad loans."

:eyes:

[EST]

4. We told 'em and told 'em and told 'em.

And now, this:
"“I guess we are a bit surprised at how fast this has unraveled,” said Tom Zimmerman, head of asset-backed securities research at UBS, in a recent conference call with investors."

When corruption and greed inevitably intrude on human transaction, collapse is not long in coming.
Typically, this collectively republican sponsored venture was doomed from the start, as a false market, a convoluted ponzi scheme, built on bilking the newly hopeful helpless and all to come due after the public had again been milked to support the greedy, moneyed few.
Although it it probable that my own home, paid for years ago, will lose some market value, I have no intention of selling, no pressure to move and am deeply saddened that poverty will enfold so much more of the country, even than now.

It seems somehow appropriate that vindication, from a such huge mouthpiece, should come on the day when so many are attending a meeting ostensibly to honor a man who would not find himself in agreement with policies of those attendees.

[JPZenger]

20. Anyone who invested in a predatory lender deserves to lose their $

I hope everyone who invested in a predatory lending company loses their dollars. As one analyst said, a bunch of 23 year old mortgage brokers gave huge mortgages to people who shouldn't have gotten a used car loan.

I blame the Federal regulators for not doing something to stop these excesses and to not stop the many mortgages that DID NOT REQUIRE ANY PROOF OF INCOME!

Now, there will be a clampdown on mortgage writing to people with bad credit. This will have an awful side effect - the people who are buried under a predatory mortgage will have a very tough time qualifying for a new mortgage with less horrible terms. If the Feds are smart, they will institute careful standards for new mortgages, but loosen up the standards for refinancing of existing mortgage debt.

I would also like to see a Federal regulation that requires that all mortgages allow early payments without any penalty. That would be one way people can get out from these vicious mortgages. As I understand it, many predatory mortgages make it expensive to make an early payment of the balance.

[pokercat999]

24. "I guess we were a bit surprised at how fast this has

unraveled".......what? Did he expect it to unravel slowly so UBS could get out from under all the bad loans they had written? I guess the whole world turns just for you and UBS Mr. Tom (dumbass) Zimmerman.

[eridani]

27. For people in our situation, lower property values are a good thing

Higher values benefit only people intending to sell. If you are planning on staying put, lower values mean lower taxes.

[EST]

28. You make good sense.

Of course, the insanity of the housing market is not unique, as it is merely an more visible marker for the whole disastrous economy, brought to you by republicans, champions of what GHWB referred to, in his primary battle against Raygun as, "Voodoo economics."

[Rydz777]

5. McMansions

The land just outside our city limits in the last few years has been dotted with McMansions, large homes that could easily accommodate the large families of a century ago. My wife and I have wondered who is buying these things and how. Now we know the how.

[Rydz777]

6. McMansions

The land just outside our city limits in the last few years has been dotted with McMansions, large homes that could easily accommodate the large families of a century ago. My wife and I have wondered who is buying these things and how. Now we know the how.

[Broadslidin]

7. '0' Down; 50 Year payment plans; 'Liar Loans' & sprinkle with a lil Fraud...!

Has anyone noticed,
the growing number of empty homes 'For Sale'
or
lost to county government due to unpaid property taxes
in their neighborhoods....??

Instead of boarding up homes in this Oakland County, Michigan
(Northern neighbor of Detroit)
Empty homes are cleverly disguised as being lived in.

Window drapes kept always open.
A few pieces of furniture in the living room.
Timed lighting.
The glow of an unwatched television in an upstairs room.
The non-use of the lawn "For Sale" sign.

Like the article suggests,
Is the 'fast buck' mortgage investment securities biz
just beginning to unravel?

[fed-up]

9. these unscrupulous loans drove up property taxes, drove out seniors and gave unearned

income to state coffers, painting a rosier picture for the economy than was justified.

While these loan sharks raked in the money, many seniors in states without regulation on property tax increases were forced out of their homes due to rapid, unaffordable increases in property taxes. Luckily CA has Prop 13.

I just spoke to someone that thinks Schwarzenegger is great because CA is rolling in the money. I explained that the increase in funds was due in part to homes selling for double what they did 5 years ago which more than doubled property taxes people were paying-sometimes increases of property taxes paid to the state were 40 fold if the house was sold due to an aging parent dying (house originally cost $20K, sold for $800K).

This may be a reason that states were not active in clamping down on these fixed-adjustable loans. Heck if more houses sold and the property taxes were reset at current value that just meant more money for the state. They didn't give a damn about the now 3 MILLION homes (nationwide) in the process of foreclosure.

I hope all those loan companies go belly up!

[Gormy Cuss]

16. It's amazing how many people here in CA don't understand that.

My county always calls it "unexpected revenue," as if no one noticed the houses changing hands at rates that double the tax value overnight. Unexpected, my eye. There are problems caused by Prop. 13 but the notion that everyone is sitting on million dollar houses with $20,000 assessed value isn't one of them. The place where that is more likely to be true is in commercial real estate, where resale deals can be structured to keep the lower basis.

[krispos42]

11. Let'em fail

How many 'second chances' do companies need? They are deliberately taking on high-risk loans, blinded by the dollar signs. And now they want emergency money to stay solvent?

Screw'em. let them be bought up by Citibank or something like that, and put the incompetent managers at New Century out to pasture.

[reprobate]

12. Wonder how global this fall will be?

I've heard rumors of a global recession going around for a while.

Not being a financial guru, but a bit of a pessimist, it occurs to me that this could be the beginning of it.

Anyone have opinions?

[stormymonday]

13. Whose ultimately holding the bag on this one ?

If mortgage defaults soar and the housing market sinks repossessing properties may not be sufficient to recover the loans. Much of the debt has been recycled by the brokerages such as Bear Stearns through the bond market and as credit default swaps. These securities may in turn have been used as collateral for further borrowings. The set up looks perfect for a cascade of debt defaults. This could turn very nasty very quickly, and the sums involved are staggering. Goldman Sachs alone is reckoned to have $171.6 billion in bonds outstanding according to Bloomberg

http://www.bloomberg.com/apps/news?pid=20601103&sid=a0j4oiYE3Bfw&refer=us

On edit - Reading the New York Times again it seems the situation is more precarious than I thought. Some of the institutions holding these mortgage securities such as Pension Funds and Life Assurance Companies will be forced by law to stop buying them if they cease to be deemed investment grade. This could well cause the whole market to collapse.

[Neshanic]

14. A new "Resolution Trust" just like Pa Bush. Everyone pays!

Instead of Phoenix office towers going for bargain basement prices, it will be houses, and LOTS of them.

Look for consortiums to buy large blocks of homes and rent them out, after they have been sold at fire sale prices.

[DavidMS]

15. Not to mention a couple of lucky new home owners.

I just bought my first place at a good price because the market finally cracked. Also got a good rate on a sane mortgage (something I know I can pay down).

This is an opportunity for buyers who have cash and can take on a 30 year mortgage. It still hurts for everyone who bought into the Ponsi scheme.

[lyonn]

22. Yup, the lenders take a dive and the taxpayers pick up the tab

As I recall that is what happened during Reagan/bush savings and loan fiasco. Those that had cash made out like bandits since everything was selling dirt cheap. Brother bush did well when Silverado S&L crashed. At least he didn't do time for the millions lost and the Feds covered for those lousy notes.

[AngryAmish]

29. Who ultimately holds the bag - mostly institutional investors

The way the vast majority of mortgages are sold is this way. A lender gets money together and makes a bunch of mortgages. Then the mortgages are bundled together and sold as a security - a bond that delivers a set rate of return. (Remember when Clinton said the bond market was important to keep happy - this is one of the markets he was talking about). This (supposedly) spreads the risk out and there is a steady and almost rate of return -- if those selling the bonds and writing the loans are honest. So institutional investors (pension funds, foreign governments and hedge funds) invest n these things because of course nothing is safer than people paying their mortgages, right? Wrong -- because people got greedy and forgot the last time there was a mortgage crisis - the S & L crisis.
(I just read your on edit but I already typed this damn thing so you are going to have to read it, even if you know the answer! Cheers!)

Anyway, I have a hard time feeling sorry for those who made the bad investments. There will not be a hard landing with a collapse of house prices for a number of reasons. First, real estate prices are "sticky" in an economic sense. People do not readily drop their prices for psychological reasons and the fact that there is some utility to living in a place even if you are overpaying on the mortgage. Lenders try not to repossess so they will work with debtors. Second, only a few places in the country have real estate bubbles - Boston, San Fran and Florida come to mind. There the prices will fall for a lot of reasons.

I am looking to buy in the next three to nine months. For purely selfish reasons I hope prices go down because we have good credit and jobs immune to the business cycle.

[Strelnikov_]

17. Nausea Rules

Jim Kunstler
Nausea Rules
March 12, 2007

http://jameshowardkunstler.typepad.com/clusterfuck_nation/

. . .

A tsunami of nausea seems to be sweeping across the media now in recognition that the Potemkin edifice of mortgage finance is imploding like a discarded Las Vegas casino. What it comes down to is that several species of newly-engineered financial Frankenproducts have been based on loans for houses that will never be paid back. Not just a few loans. Massive numbers. These, in turn, have been bundled, swapped around, and leveraged into other plays which now depend, for instance, on x-number of unemployed car dealers and underpaid busboys ponying up the "vig" for some piece-of-crap collateral that will soon be a third its previously appraised value. It will be easier for the car dealers and busboys to walk away from these deals then it will be for the smoothies who used all this bundled bullshit to hedge credit default swaps and play the yen-to-Euro carry trade game to wiggle out of their positions. And the unwinding of all this fraud will almost certainly leave the nation economically spavined.

The amazing thing is how standards and norms for lending collapsed as completely as they did the past five years. One day you had bankers who retained a notion that lending per se required some prudent evaluation of the borrower's character and of the thing or enterprise borrowed for -- and the next day these protocols vanished. Once again I challenge the punctilious physicists out there by asserting that this astounding transformation is the product of entropy. Basically, you get a given system -- e.g. the US economy -- over-stoked on cheap energy (and even at $3 a gallon gasoline is cheap), and the system will throw off gobs of entropy. The more profligate the energy consumption, the more entropy results. It then expresses itself in various kinds of disorder, meaning anything from the immersive ugliness of the American built-up landscape to the behavior of people formerly attuned to such governing principles as moral hazard to retain the functional legitimacy of their livelihoods.

It is really a sort of systemic disease, generating poisons that seep into the far corners of the organism affected, in this case the USA. It will be manifest in the personal ruin of individual families, the collapse of institutions, the rising crime rate, and the rapid physical decay of things built too carelessly to be worth caring for.

I went around some neighboring towns here in upstate New York to look at the real estate yesterday. I was impressed by how uniformly crummy everything was -- and not only because it is nearly spring and layers of old dog shit are being revealed in the melting snowbanks. In the old houses priced above $300-K, the rotting sills and delaminating surfaces are plain to see. Of course, the buildings are worth something, but my guess is less than a third of the asking price by any realistic valuation. But at least these things were made of materials generally found in nature. The new houses were all glue and vinyl, and of course they were mostly built in places dissociated from any town itself, meaning the hapless owners will have to own multiple cars to live there and make multiple trips per day -- not a good prospect for the years ahead.

. . .

[northofdenali]

18. It's not just this type of company pulling this crap -

Key Bank gave my in-laws a loan to buy a new motorhome in 1999. He was 79, she was 78 and it was a 10 YEAR NOTE AT $652/MONTH.

When she died, my FIL really could no longer afford it. He hadn't been in the MH since 2001; he died on March 3. There is still $23,000 left on the note. The bank would not let them get credit life insurance or recommend a term-life policy (they probably couldn't have gotten one, anyway, at their ages). The bank sold the note to some whacko service company in 2004 - and you cannot get a human on the phone AT ALL.

Guess we'll have to sell the house he left us to pay for the fucking thing.

Thanks, Repukes. I hate every one of you for what you did to my in-laws and are now doing to me and my husband. :nuke:

[roamer65]

19. Helicopter Ben will be flying soon!

Dropping bales of cash to everyone.

[redqueen]

21. Balloon? What balloon?

These evil a-holes make me sick.

[tomreedtoon]

25. Good. We'll ALL be in cardboard boxes soon.

And all the people who kept saying "Anyone can afford a house, even you," will be forced to live in the cruddiest cardboard boxes on the lot.

It will take a drastic step like having to move out of a $200,000 house to find a $2.00 refrigerator box to make Americans realize how wrong they were to believe in Bush and Republicans and Wal-Mart.

[One_Life_To_Give]

30. They will Socialize the losses

Just watch for the "Government Sponsored Bailout" to come.

This is a no win scenario for us. Let people who fell victim to predatory lenders get thrown into the streets when they can't pay their mortgages. Or rush in with federal dollars to take over the loans. Reminds me of the whole S&L Bailout bit. They have already privatized the profits from underwriting/originating loans that shouldn't have been made. Now all they need to do is socialize all the consequences of their actions.