How's your housing market? (2 Viewers)

zander_s · Jun 8, 2007

tommyGunZ said:
From a real estate analyst on another board:

It really is amazing the diversity of opinion as to what is coming and why real estate prices go down. I asked one economist how he would rate the importance of a record number of foreclosures to sell against in California. on a scale of 10 being of utmost importance, he gave a record number of foreclosures a #1...not significant. The front cover of the C.A.R. Realtor magazine has a heading about California Affordability. You won't believe their conclusion. They formed a committee to discuss the problem and decided that California builders are just not building enough affordable homes. It said that in California, we need builders to build 250,000 new homes and apartments. Guys, you may not realize it, but we have a housing shortage! Somebody please tell the builders, because in Riverside County they are paying 8% commission and lowering prices to sell the stuff off. Talk about a disconnect from reality.As far as declining prices, it's already here and it's in nearly every county. The median prices don't reflect what's happening because the lower 25% of our market isn't moving due to all the lenders ceasing their subprime loan activities. The median price will be taking a huge hit by next year. Just so you know, i'm not saying this in defense of any prediction. I get a report that re-appraises the same properties {100s of them all over S. Calif.} every six months. many of these properties have price declines in just the past six months of 2-10%; including O.C. Anyone saying we are still increasing in price as a state isn't being honest. i talked to Leslie Appleton Young last week before she was to address a Realtor group. She made the same comment to me, that the lower priced inventory had just stopped selling and when it resumes the reality of what is occurring will be obvious.

Click to expand...

So are there deals out there on the lower priced inventory? Is there going to be a bunch more lower priced inventory as the people on 'creative financed' loans realize they are screwed at some point??

the rover · Jun 8, 2007

zander_s said:
tommyGunZ said:

From a real estate analyst on another board:

It really is amazing the diversity of opinion as to what is coming and why real estate prices go down. I asked one economist how he would rate the importance of a record number of foreclosures to sell against in California. on a scale of 10 being of utmost importance, he gave a record number of foreclosures a #1...not significant. The front cover of the C.A.R. Realtor magazine has a heading about California Affordability. You won't believe their conclusion. They formed a committee to discuss the problem and decided that California builders are just not building enough affordable homes. It said that in California, we need builders to build 250,000 new homes and apartments. Guys, you may not realize it, but we have a housing shortage! Somebody please tell the builders, because in Riverside County they are paying 8% commission and lowering prices to sell the stuff off. Talk about a disconnect from reality.As far as declining prices, it's already here and it's in nearly every county. The median prices don't reflect what's happening because the lower 25% of our market isn't moving due to all the lenders ceasing their subprime loan activities. The median price will be taking a huge hit by next year. Just so you know, i'm not saying this in defense of any prediction. I get a report that re-appraises the same properties {100s of them all over S. Calif.} every six months. many of these properties have price declines in just the past six months of 2-10%; including O.C. Anyone saying we are still increasing in price as a state isn't being honest. i talked to Leslie Appleton Young last week before she was to address a Realtor group. She made the same comment to me, that the lower priced inventory had just stopped selling and when it resumes the reality of what is occurring will be obvious.

Click to expand...

Click to expand...

So are there deals out there on the lower priced inventory? Is there going to be a bunch more lower priced inventory as the people on 'creative financed' loans realize they are screwed at some point??

tommyGunZ · Jun 8, 2007

the rover said:
TGunz, can you afford a house yet? Since you started this I sold another house and moved again. Made another $80K.

Nicely done rover. :goodposting:

You're in a different market - most people buying in San Diego since I started this thread are underwater right now, not up $80k.

snitwitch · Jun 8, 2007

tommyGunZ said:
However, Robert Campbell, an independent San Diego economist who publishes a newsletter advising people about when to invest in housing, said a strong economy and low interest rates can't eclipse the market's need to return to price levels that more closely reflect the region's income levels. Campbell said he believes the county is in store for a severe price decline, in the neighborhood of 35 percent."This boom took prices twice as high as normal cycles," he said. "People talk about high gas prices. But what is really stalling the economy and could actually bring the economy down is overpriced housing. Affordability, of course, hit the wall. The market is just exhausted."Clearly, said Leamer, the boom market of the recent past was anything but normal."In a normal market, people buy homes as places to live," he said. "In abnormal times, people buy homes as investments."Leamer said he also would not classify the current market as normal, as it is "correcting for the excesses of 2001 through 2006."Economists and real estate analysts are in agreement that a correcting down cycle is under way. They disagree on how long it will last.Lund, the broker, predicts 18 more months, while Appleton-Young's crystal ball says 18 to 24 months.Leamer maintains the cycle will last three more years; Campbell suggests four.Borrowing a baseball analogy, Campbell said, "We've got innings four through nine to go ---- and that's assuming we don't have extra innings."

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PM me when the cycle runs its course, and I'm down there in a heartbeat.

tommyGunZ · Jun 8, 2007

zander_s said:
Is there going to be a bunch more lower priced inventory as the people on 'creative financed' loans realize they are screwed at some point??

Already beginning to happen. Problem is, even with 10-20% drops, homes aren't anywhere near cash flow positive.It's going to be awhile. :goodposting:

tommyGunZ · Jun 8, 2007

snitwitch said:
PM me when the cycle runs its course, and I'm down there in a heartbeat.

I'm not a RE investor or expert, so I wouldn't know. I'm just a renter trying to time my entry into the market.

Maik Jeaunz · Jun 8, 2007

tommyGunZ said:
snitwitch said:

PM me when the cycle runs its course, and I'm down there in a heartbeat.

Click to expand...

I'm not a RE investor or expert, so I wouldn't know. I'm just a renter trying to time my entry into the market.

I'm doing the same thing in LA. I was planning on mid/late 2008, but what I'm reading makes me think prices will continue to slip through 2009, and maybe beyond. I don't need to buy at "rock bottom", just when the affordability threshhold is crossed.the problem with homes in southern Cali becoming affordable over the next few years is that we will see a surge of people all over the country trying to move here and take advantage of it.

John Mamula · Jun 8, 2007

Maik Jeaunz said:
the problem with homes in southern Cali becoming affordable over the next few years is that we will see a surge of people all over the country trying to move here and take advantage of it.

and what effect will that have on prices?

tommyGunZ · Jun 8, 2007

Maik Jeaunz said:
the problem with homes in southern Cali becoming affordable over the next few years is that we will see a surge of people all over the country trying to move here and take advantage of it.

Undoubtedly there will be some, but not enough to affect the market, IMO. Remember, people leave CA and go to other places because you can get so much more for your money outside of SoCal. the rover is a perfect example.Prices would have to drop in half for investors to come back in droves. Unless you're absolutely stealing a home at way, way below market value, there isn't anything close to cash flowing in San Diego right now. It's amazing how detached prices are from rents and incomes.

the rover · Jun 8, 2007

tommyGunZ said:
Maik Jeaunz said:

the problem with homes in southern Cali becoming affordable over the next few years is that we will see a surge of people all over the country trying to move here and take advantage of it.

Click to expand...

Undoubtedly there will be some, but not enough to affect the market, IMO. Remember, people leave CA and go to other places because you can get so much more for your money outside of SoCal. the rover is a perfect example.Prices would have to drop in half for investors to come back in droves. Unless you're absolutely stealing a home at way, way below market value, there isn't anything close to cash flowing in San Diego right now. It's amazing how detached prices are from rents and incomes.

I'm looking at buying back into southern california, just not san diego..yet.

set57hike · Jun 8, 2007

www.thehousingbubbleblog.com

bmetz · Jun 8, 2007

the rover said:
TGunz, can you afford a house yet? Since you started this I sold another house and moved again. Made another $80K.

ZING!!1!

Maik Jeaunz · Jun 8, 2007

bagger said:
Maik Jeaunz said:

the problem with homes in southern Cali becoming affordable over the next few years is that we will see a surge of people all over the country trying to move here and take advantage of it.

Click to expand...

and what effect will that have on prices?

I don't know, I'm just saying we're already overcrowded as it is with more people moving here than leaving...

tommyGunZ · Jun 8, 2007

the rover said:
tommyGunZ said:

Maik Jeaunz said:

the problem with homes in southern Cali becoming affordable over the next few years is that we will see a surge of people all over the country trying to move here and take advantage of it.

Click to expand...

Undoubtedly there will be some, but not enough to affect the market, IMO. Remember, people leave CA and go to other places because you can get so much more for your money outside of SoCal. the rover is a perfect example.Prices would have to drop in half for investors to come back in droves. Unless you're absolutely stealing a home at way, way below market value, there isn't anything close to cash flowing in San Diego right now. It's amazing how detached prices are from rents and incomes.

Click to expand...

I'm looking at buying back into southern california, just not san diego..yet.

why not now?

BassNBrew · Jun 8, 2007

Misfit said:
tommyGunZ said:

snitwitch said:

PM me when the cycle runs its course, and I'm down there in a heartbeat.

Click to expand...

I'm not a RE investor or expert, so I wouldn't know. I'm just a renter trying to time my entry into the market.

Click to expand...

I am in the bay area, and just bit the bullet on a new townhouse. We're buying in the first phase of the development for $429k, and we talked the builder down by $25k. It's making me nervous, but also it is exciting to finally own my own home. Interest rates are low, and you are in a good spot as far as negotiations go. Sure, it may keep going down, but bottom line is that people want to live in california, so as long as you don't get in the market at a high point, you won't lose your shirt.

What can you rent this type of place for?

tommyGunZ · Jun 8, 2007

Misfit said:
tommyGunZ said:

snitwitch said:

PM me when the cycle runs its course, and I'm down there in a heartbeat.

Click to expand...

I'm not a RE investor or expert, so I wouldn't know. I'm just a renter trying to time my entry into the market.

Click to expand...

I am in the bay area, and just bit the bullet on a new townhouse. We're buying in the first phase of the development for $429k, and we talked the builder down by $25k. It's making me nervous, but also it is exciting to finally own my own home. Interest rates are low, and you are in a good spot as far as negotiations go. Sure, it may keep going down, but bottom line is that people want to live in california, so as long as you don't get in the market at a high point, you won't lose your shirt.

Where in the Bay Area is that? Sacramento?

BassNBrew · Jun 8, 2007

Misfit said:
BassNBrew said:

Misfit said:

tommyGunZ said:

snitwitch said:

PM me when the cycle runs its course, and I'm down there in a heartbeat.

Click to expand...

I'm not a RE investor or expert, so I wouldn't know. I'm just a renter trying to time my entry into the market.

Click to expand...

I am in the bay area, and just bit the bullet on a new townhouse. We're buying in the first phase of the development for $429k, and we talked the builder down by $25k. It's making me nervous, but also it is exciting to finally own my own home. Interest rates are low, and you are in a good spot as far as negotiations go. Sure, it may keep going down, but bottom line is that people want to live in california, so as long as you don't get in the market at a high point, you won't lose your shirt.

Click to expand...

What can you rent this type of place for?

Click to expand...

$1500+ per month I would guess. Currently pay $1350 and the new place is bigger, has a garage, and is much nicer

Ouch.

Taxguy · Jun 8, 2007

SF East Bay here, going to put my house on the market next week. Listing it at 699k, 3 bd, 2.5 bath, 1720 sq ft, built in 1989. I think during the peak I could have sold for 735k?? without doing much. Sucks to lose out on the additinal appreciation, but the house I'm moving to definately dropped by way more. We'll see how it goes. Homes in my area priced correctly seem to be selling in about a month. Wish me luck!

Redwes25 · Jun 8, 2007

Looks like the economy is heating backup and is weathering the storm caused by the housing market. I have said this before that there won't be an absolute crash of housing unless the economy goes under. At least in my area - in and around NYC the real estate market is picking back up. Figure this will happen in most areas except for the most overpriced.

WASHINGTON (Reuters) - The U.S. labor market is holding steady, businesses are rebuilding inventories and the consumer is still spending, all signs pointing to stronger economic growth in the latter part of this year.

Fewer U.S. workers signed up for unemployment aid last week, according to the Labor Department. The number of U.S. workers filing initial claims for jobless benefits slipped by 1,000 to 309,000, the department said on Thursday.

Related newsConfidence Sinks to 10-Month LowMasterCard Says It Wins InjunctionInvestors Start Paying Attention to OilStocks Jump As Bond Yields RetreatDell to sell notebook PCs at U.S. Sam's Club stores

Other data showed wholesalers boosted inventories in April, and retail chain stores saw moderate sales gains in May.

"We're not quite out of the woods yet, but the numbers are pretty consistent in showing that we're on track for an improved second half," said Kurt Karl, chief economist at Swiss Re in New York.

For several weeks now the number of workers seeking an initial week of jobless aid has held steady around 300,000, a level economists say indicates a stable labor market.

"Jobless claims continue to hold at relatively low levels, which we judge to be consistent with solid job creation," economists at Bear Stearns wrote in a research note after the release of the latest data on Thursday.

The report added to the evidence of labor-market health presented by a government report on employment last week that showed an increase of 157,000 jobs in May and a steady unemployment rate of 4.5 percent.

A separate report from the Commerce Department on Thursday showed inventories at U.S. wholesalers rose 0.3 percent in April as stocks of nondurable goods saw the biggest percentage increase in five months.

After working hard to whittle down bloated inventories, economists said U.S. businesses now appeared to be restocking. A report last week from the Institute for Supply Management showed factory activity picked up last month as a result.

RETAIL SALES WARM, BUT NOT HOT

Financial markets showed little reaction to the data on Thursday as they focused on the U.S. Treasury bond market, where prices plunged, leading to the biggest one-day spike in yields in about three years.

The dollar gained support from the rising market interest rates, but the specter of higher borrowing costs hurt stocks, which fell for a third straight day. The Dow Jones industrial average closed down 199 points, or nearly 1.5 percent.

A slew of strong data has led to a reassessment of the prospects for interest-rate cuts from the Federal Reserve. A growing minority of Wall Street firms think the central bank's next move may be a rate hike at some point down the road.

Many economists had expected a slumping housing market and rising gasoline prices to dampen consumer spending and cut into economic growth. But, so far, consumers appear to be holding steady.

U.S. retail chains on Thursday reported moderate May sales increases as warmer weather fueled demand for seasonal items, like gardening and other outdoor goods, helping retailers rebound from a dismal April.

But several specialty apparel chains posted disappointing results, due in part to weak sales of women's clothes and increased competition from department stores trying to lure fashionable shoppers.

Among retailers reporting May sales at stores open at least a year, 57 percent exceeded Wall Street expectations while 41 percent fell short, according to research firm Retail Metrics. The performance was better than the firm's long-term average.

Toting up the results, the International Council of Shopping Centers said chain store sales rose 2.5 percent from a year earlier.

Wal-Mart Stores Inc. , the world's largest retailer, said sales at stores open at least a year rose 1.1 percent in May, excluding fuel sales. Including fuel, sales rose 1.3 percent as weakness in apparel and home goods was offset by strength in lawn and garden goods, live plants and groceries.

The report on inventories showed wholesalers were having a hard time keeping pace with a pickup in their sales in April.

The inventories-to-sales ratio, a measure of how quickly stocks would be depleted at the current sales pace, fell for the fourth straight month, dropping to 1.12 months from 1.13 months in March.

"The decline in the wholesale inventory-sales ratio to a record low level supports our view that inventory levels are inadequate and inventory accumulation going forward is likely to support growth," economists at Bear Stearns wrote.

(Additional reporting by Nancy Waitz in Washington and Martinne Geller in New York)

Copyright 2007 Reuters

http://news.moneycentral.msn.com/provider/...&ID=7013405

tommyGunZ · Jun 9, 2007

proninja said:
the rover said:

TGunz, can you afford a house yet? Since you started this I sold another house and moved again. Made another $80K.

Click to expand...

gunz, I wish you the best, I really do, but I don't think you're ever going to see the drop you want. If you buy something now, in 10 years you'll be up. If you wait for prices to drop and they instead go up, are you just going to rent forever, and stubbornly wait for homes to drop to what you think they should be valued at?

B/c rover made 80k in a market 1200 miles away? My market is down significantly since I started this thread - I'd be sick and unable to sleep if I'd purchased a 400k-500k home in San Diego in late '05. Has Seattle not slowed down at all? I thought I read that sales were down and inventory was up in your area?

Jeff Pasquino · Jun 9, 2007

Not sure how I missed this thread.... but ok.....

Is this a predominantly CA-based thread?

If so, I can understand the gloom and doom.

There are rules that never change in Real Estate. The first one is that all RE is local.

Markets are not the same everywhere. I only read the last page of this, and I see someone netted $80K somewhere, but in CA no one can make a living off of real estate.

Another says he just saw "how to make $ in foreclusures" ads for the first time. REALLY???? I thought this was spread across the country by now.

I've been in this "game" since 98, so I've seen some ebb and flow. Not as much as others, but I've seen it.

Here in the Mid-Atlantic (Maryland / DC), there's a number of markets. Baltimore, Frederick, Hagerstown, DC, PG County, Montgomery county - they're all different. Schools, proximity to work, taxes, etc. etc. An hour drive can mean $100K or more to your house value and/or your bang for your buck.

In Baltimore you can get decent housing - SINGLE FAMILY, not just rowhomes / townhouses - for under $200K. In less than an hour's drive, you can't buy a mailbox for $500K. Drive further and it gets cheaper again (away from DC / Baltimore).

Sorry to go on about my market, but I want to point out that the crash of the subprime lenders wasn't a surpirse to many. We saw it coming. People will buy more than they can afford if you let them. Credit card companies build big buildings and rich coffers and profits on that simple concept.

There is a solution - and only the smarter sellers will figure it out (and investors will win some too). You have to sell your house creatively.

Every RE guru was teaching "no money down" and "creative financing" to buy RE. As a non-guru (or at least I don't think I am) who has taught creative real estate classes, you can also SELL creatively.

This happened often in the 80s when interest rates sucked. 11-13% for a mortgage - yeah - ouch.

What happened was people couldn't GIVE houses away, but some had to sell. The solution? Sellers held back second mortgages or sold creatively - like a lease / option or rent to own (There's many more, but that's an example).

When people start to figure this out, more people will be able to buy as they can get the 75-80% first mortgage, but they can't buy with 20-25% down (as most new home buyers can't).

After this starts happening, watch all the sellers learn about this and then they'll even create a new market for their secondary mortgages.

Redwes25 · Jun 9, 2007

Jeff Pasquino said:
Not sure how I missed this thread.... but ok.....Is this a predominantly CA-based thread?If so, I can understand the gloom and doom.There are rules that never change in Real Estate. The first one is that all RE is local. Markets are not the same everywhere. I only read the last page of this, and I see someone netted $80K somewhere, but in CA no one can make a living off of real estate.Another says he just saw "how to make $ in foreclusures" ads for the first time. REALLY???? I thought this was spread across the country by now.I've been in this "game" since 98, so I've seen some ebb and flow. Not as much as others, but I've seen it.Here in the Mid-Atlantic (Maryland / DC), there's a number of markets. Baltimore, Frederick, Hagerstown, DC, PG County, Montgomery county - they're all different. Schools, proximity to work, taxes, etc. etc. An hour drive can mean $100K or more to your house value and/or your bang for your buck.In Baltimore you can get decent housing - SINGLE FAMILY, not just rowhomes / townhouses - for under $200K. In less than an hour's drive, you can't buy a mailbox for $500K. Drive further and it gets cheaper again (away from DC / Baltimore).Sorry to go on about my market, but I want to point out that the crash of the subprime lenders wasn't a surpirse to many. We saw it coming. People will buy more than they can afford if you let them. Credit card companies build big buildings and rich coffers and profits on that simple concept.There is a solution - and only the smarter sellers will figure it out (and investors will win some too). You have to sell your house creatively.Every RE guru was teaching "no money down" and "creative financing" to buy RE. As a non-guru (or at least I don't think I am) who has taught creative real estate classes, you can also SELL creatively. This happened often in the 80s when interest rates sucked. 11-13% for a mortgage - yeah - ouch.What happened was people couldn't GIVE houses away, but some had to sell. The solution? Sellers held back second mortgages or sold creatively - like a lease / option or rent to own (There's many more, but that's an example).When people start to figure this out, more people will be able to buy as they can get the 75-80% first mortgage, but they can't buy with 20-25% down (as most new home buyers can't).After this starts happening, watch all the sellers learn about this and then they'll even create a new market for their secondary mortgages.

throughout but especially about real estate being local. I think a lot of doom and gloom in this thread is because it is a TGunz thread and he is concerned about his local market, which sounds brutal. However, living in NYC you realize that real estate prices can be sustained at prices that are totally out of reach of the majority of new home buyers. Unless you are willing to move into the distant suburbs. I am looking to buy in Brooklyn and it drives me crazy Condo's appear so overpriced (2 bedrooms in good neighborhoods going for 750K) but people can stretch there finances to get in. I am not talking subprime but people that have high incomes that put small amounts down. You also have the Wall street banker crowd that is just swimming in money. On the other hand you have Coops which always require a minimum of 20% down, which is incredibly tough to put together when even those start at 600k in good neighborhoods. I don't even want to talk about Brownstones and their prices. Seeing this makes me believe that so called affordability discussions don't capture reality and that prices can be sustained at pretty high levels. I have also lived in DC and you see the same issues though that market has settled.I think at these prices it can make sense to rent because you can live in the neighborhoods you want and save significant amounts of cash that you can earn income on. However, you need to be willing to save which many people don't/can't do.

the rover · Jun 9, 2007

tommyGunZ said:
proninja said:

the rover said:

TGunz, can you afford a house yet? Since you started this I sold another house and moved again. Made another $80K.

Click to expand...

gunz, I wish you the best, I really do, but I don't think you're ever going to see the drop you want. If you buy something now, in 10 years you'll be up. If you wait for prices to drop and they instead go up, are you just going to rent forever, and stubbornly wait for homes to drop to what you think they should be valued at?

Click to expand...

B/c rover made 80k in a market 1200 miles away? My market is down significantly since I started this thread - I'd be sick and unable to sleep if I'd purchased a 400k-500k home in San Diego in late '05. Has Seattle not slowed down at all? I thought I read that sales were down and inventory was up in your area?

Less reading and more action. My in-laws bought in '04 and sold in '06, and made a 30% profit in San Diego. They downsized and bought a condo, also in San Diego, about a year ago. It's appreciated about 10% based on sales in the same condominium, which is a pretty reliable indicator. 'Ninja and I are both in industries that are fairly dialed in to the Seattle real estate market for different reasons. I'm not as concerned with prices as I am demand. As long as the demand is there, the appreciation will be fine. And there's plenty of demand.There's money to be made in this market, right now, whether you're in San Diego or Seattle. Where you aren't going to make anything is sitting on your hands waiting for houses to become more affordable. Interest rates are still incredibly low. By the time your prices come down (if ever), you'll be looking at higher interest rates, and you'll still be priced out of the same house.

tommyGunZ · Jun 9, 2007

the rover said:
tommyGunZ said:

proninja said:

the rover said:

TGunz, can you afford a house yet? Since you started this I sold another house and moved again. Made another $80K.

Click to expand...

gunz, I wish you the best, I really do, but I don't think you're ever going to see the drop you want. If you buy something now, in 10 years you'll be up. If you wait for prices to drop and they instead go up, are you just going to rent forever, and stubbornly wait for homes to drop to what you think they should be valued at?

Click to expand...

B/c rover made 80k in a market 1200 miles away? My market is down significantly since I started this thread - I'd be sick and unable to sleep if I'd purchased a 400k-500k home in San Diego in late '05. Has Seattle not slowed down at all? I thought I read that sales were down and inventory was up in your area?

Click to expand...

Less reading and more action. My in-laws bought in '04 and sold in '06, and made a 30% profit in San Diego. They downsized and bought a condo, also in San Diego, about a year ago. It's appreciated about 10% based on sales in the same condominium, which is a pretty reliable indicator. 'Ninja and I are both in industries that are fairly dialed in to the Seattle real estate market for different reasons. I'm not as concerned with prices as I am demand. As long as the demand is there, the appreciation will be fine. And there's plenty of demand.

There's money to be made in this market, right now, whether you're in San Diego or Seattle. Where you aren't going to make anything is sitting on your hands waiting for houses to become more affordable. Interest rates are still incredibly low. By the time your prices come down (if ever), you'll be looking at higher interest rates, and you'll still be priced out of the same house.

My action is not buying. Make no mistake bro, I'm not "priced out". I'm choosing to be patient and position myself for what I've determined is going to be a better market entry point in the future.I'm not a RE investor, I'm just looking for the right time to jump into my primary residence. The fact that you, ninja, and your in-laws did well in the hot '04-'06 markets is great, but that isn't the reality of the market in San Diego right now.

tommyGunZ · Jun 9, 2007

proninja said:
the rover said:

Less reading and more action.

Click to expand...

There's money to be made in this market, right now, whether you're in San Diego or Seattle.

Click to expand...

Tommy, there's two types of people. People who look at an opportunity and think "how can I make this work" then take the necessary steps and risk in order to make it work. Then, there are the people who sit back and take pot shots at the people who actually do things, and complain that the stars aren't aligned in their favor.

Let's take CAHE as an example. Ham does things. He gets off his ###, takes chances, and swings for the fences. He looks at business as "how can I make this work." Ham, to this day catches a lot of hell for the fact that CAHE didn't work. People give him crap, poke fun at him, and seem to actually enjoy the fact that CAHE failed. My guess is a lot of these people are employed in $50k/year jobs, don't know how they're going to retire themselves, and are living the "american dream" with a few car loans and credit cards. But hey, they didn't lose $120k on CAHE. They don't have $120k to lose.

So, what's Ham do? He gets off the mat, goes back to the drawing board, and immediately starts working on something else - because he realizes that a failure is simply one step closer to success, and a lot of good lessons learned for the next time. What do the people making fun of him do? Nothing. The same thing they've always done. Who do you think is going to be more successful long term?

You and I are roughly the same age. You've got more education, are going into a profession that, on average, outearns mine by probably double. You've probably made more money in 2005 and 2006 than I did my first two years in the mortgage business. And, to top it all off, you probably read more about the health of the real estate market than I do.

I remember in 2003 when I bought my first home. We were coming off great years for real estate appreciation. I was making $38k a year, starting a brand new job, and my wife didn't work. My dad, whom I respect greatly, told me that buying a home was probably not a good idea. People on the board were screaming "bubble!" and that it was crazy for a 23 year old kid who'd never held a job for more than six months to buy a house. I remember you, specifically, back in 2003, screaming bubble, and that you were going to wait for the market to correct. My theory was this, and this is exactly what I told my dad. "I'm 23. If I go bankrupt, I've got plenty of time to recover."

Then, 18 months later, I was going into a career with no base salary, wife had a job at this point in time, and I wanted to take a line of credit, use that to put down on a larger home, and rent the smaller one out. I'd just turned 25, and my dad, again, advised me against it. It was too risky. My wife didn't want to do it, she was adamant about it, and told me "this better work, I'm having nothing to do with it." The condo had already apppreciated pretty well, she wanted to get out and not take the risk. I took the risk, and sold it six months later for $50k more than I could have sold it for then. You were still here on the board crying bubble, as were many here locally as well. That was about two and a half years ago. Well, I'm about to sell the house I bought for a $150k gain. I've already cashed out of the condo on which I did pretty well, I'm in my third house which has done very well, and I'm looking to my next investment now. Keep in mind that you've probably out-earned me in terms of income.

It's not about San Diego vs. Seattle. It's simply an attitude. There are opportunities in every market. Does Warren Buffett stop investing during stock market downturns? Does he stop investing when the market's at its peak? Of course not. You say "there's record foreclosures, I can't buy a house now!" I see record foreclosures, and I start going to the foreclosure auctions.

My old karate instructor used to teach a women's self defense class. It was titled "Do Something." He didn't teach fighting technique, or really anything during the class. He essentially said to go for the eyes, the nuts, whatever - just start ####### swinging, and make life hell for the attacker as much as you can. It's an attitude.

Do something. Anything. Fail - it's ok. An individual incidence of failure does not a failure make. I don't care that the market has turned down in the last year. I don't care that you're in San Diego and I'm in Seattle. There are opportunities in San Diego right now, I guarantee it. Don't tell me about how you can't afford it, you don't have enough money down, how your neighbor is upside down $80k, or how inventory is high, or how mortgage/rent ratios are too high, or how the market is still overpriced, or how some article preaches doom and gloom, or any of the other excuses you make.

Find a way to make it work. If it doesn't work, take what you learned and go find something else and make it work. Action cures fear.

Good luck.

I am doing something. I'm reading, analyzing, and informing myself daily of my local market. "Action" isn't a one-way street. If I avoid a severe correction, my "action" of not pouring 400k into an asset that I buy 18 months later for 300k becomes a pretty successful "action".It's understandable that you and rover are so bullish on RE given your profits when the market was on fire, but that's not the reality anymore, if you look at the data. For every story about rover's in laws, there are 10 people who bought in '05 and '06 who are underwater or are losing their homes. It's not my hunch, or my opinion anymore, it's happening. RE isn't some magical golden asset that defies market principles in the long run.

I don't bust on Ham - but you're crazy if you think CAHE was a smart move in hindsight. While his willingness to take bold steps is commendable, to insinuate that a $120k loss was a smart move fiscally is ridiculous. Ham would be far better off if he had done more analyzing and decided against "action".

"Action" and risk have been extremely profitable in the RE game the past 5 years. Again, I'm glad you and rover were able to profit from the run-up, you're both good peoples. But I believe that time is over - lower risk/patience is currently the best strategy for someone like me. :lmao:

tommyGunZ · Jun 9, 2007

proninja said:
:XI'm trying to help here. I really am.

It's all good bro. I like reading opinions that challenge my outlook, it makes me think about my position. It may not seem that way, but contrary opinions cause me to do more research, and look harder at the data. RE is an interesting topic. This is a great debate, and it's fun to see everyone weigh in and follow the market to see what actually occurs. This thread would be boring w/o you, bagger, rover, and other RE bulls. :thumbup:

tommyGunZ · Jun 9, 2007

proninja said:
tommyGunZ said:

proninja said:

I'm trying to help here. I really am.

Click to expand...

It's all good bro. I like reading opinions that challenge my outlook, it makes me think about my position. It may not seem that way, but contrary opinions cause me to do more research, and look harder at the data. RE is an interesting topic. This is a great debate, and it's fun to see everyone weigh in and follow the market to see what actually occurs. This thread would be boring w/o you, bagger, rover, and other RE bulls.

Click to expand...

Do you not get that my last post had absolutely nothing to do with buying real estate in San Diego?

No doubt - I'm taking the bar in Feb. That's my action. :X

tommyGunZ · Jun 9, 2007

proninja said:
tommyGunZ said:

proninja said:

tommyGunZ said:

proninja said:

I'm trying to help here. I really am.

Click to expand...

It's all good bro. I like reading opinions that challenge my outlook, it makes me think about my position. It may not seem that way, but contrary opinions cause me to do more research, and look harder at the data. RE is an interesting topic. This is a great debate, and it's fun to see everyone weigh in and follow the market to see what actually occurs. This thread would be boring w/o you, bagger, rover, and other RE bulls.

Click to expand...

Do you not get that my last post had absolutely nothing to do with buying real estate in San Diego?

Click to expand...

No doubt - I'm taking the bar in Feb. That's my action. :X

Click to expand...

February '05, '06, or '07?

roadkill1292 · Jun 10, 2007

May in Baltimore -- median price down, number of sales down, inventory expected to nearly double as we hit peak selling season.

As Jeff Pasquino noted, however, this area has a lot of variances within relatively short distances.

The Z Machine · Jun 10, 2007

tommyGunZ said:
No doubt - I'm taking the bar in Feb. That's my action.

Again? Which time will this be?just joshin bro.

The Man With No Name · Jun 13, 2007

I have seen this thread, but haven't been in it until now, and haven't read very much of it. My area is among the cheapest to live in the country. How much would this house/property go for in your area?

tommyGunZ · Jun 13, 2007

The Z Machine said:
tommyGunZ said:

No doubt - I'm taking the bar in Feb. That's my action.

Click to expand...

Again? Which time will this be?just joshin bro.

numero quattro

tommyGunZ · Jun 13, 2007

The Man With No Name said:
I have seen this thread, but haven't been in it until now, and haven't read very much of it. My area is among the cheapest to live in the country. How much would this house/property go for in your area?

Depends on exactly where in San Diego that would be. In my zip code, with 3 acres, proabably ~4-5 million?

Fiddles · Jun 13, 2007

I'm drunk and feel like braggin. We sold our house in 8 days here in atlanta. Buying has been a diff experience though with the appraisal coming in 40 k less than closing. Had the mack daddy reknown appraisers come in on the sellers dime and they were only 1k less. Lookin good right now. Should ne signing tom morn. :mellow:

John Mamula · Jun 13, 2007

Fiddles said:
I'm drunk and feel like braggin. We sold our house in 8 days here in atlanta. Buying has been a diff experience though with the appraisal coming in 40 k less than closing. Had the mack daddy reknown appraisers come in on the sellers dime and they were only 1k less. Lookin good right now. Should ne signing tom morn.

if you price your home right, there is no issue selling it.the demand is there for homes still, but there is a supply side issue. contributing to this is unrealistic gains that sellers thought they should get and there is a gap between sellers and buyers in the free market so price does not come down, but time goes on.my buddy sold his home in a day. he worked in r/e with me so knew what was realistic.

tommyGunZ · Jun 13, 2007

Fiddles said:
I'm drunk and feel like braggin. We sold our house in 8 days here in atlanta.

Nice work. :mellow:

Buying has been a diff experience though with the appraisal coming in 40 k less than closing. Had the mack daddy reknown appraisers come in on the sellers dime and they were only 1k less. Lookin good right now. Should ne signing tom morn.

I don't follow. So the home you're buying came in 40k below the agreed upon purchase price?

tommyGunZ · Jun 13, 2007

bagger said:
Fiddles said:

I'm drunk and feel like braggin. We sold our house in 8 days here in atlanta. Buying has been a diff experience though with the appraisal coming in 40 k less than closing. Had the mack daddy reknown appraisers come in on the sellers dime and they were only 1k less. Lookin good right now. Should ne signing tom morn.

Click to expand...

if you price your home right, there is no issue selling it.my buddy sold his home in a day. he worked in r/e with me so knew what was realistic.

the demand is there for homes still, but there is a supply side issue. contributing to this is unrealistic gains that sellers thought they should get and there is a gap between sellers and buyers in the free market so price does not come down, but time goes on.

Huh?

John Mamula · Jun 13, 2007

tommyGunZ said:
bagger said:

Fiddles said:

I'm drunk and feel like braggin. We sold our house in 8 days here in atlanta. Buying has been a diff experience though with the appraisal coming in 40 k less than closing. Had the mack daddy reknown appraisers come in on the sellers dime and they were only 1k less. Lookin good right now. Should ne signing tom morn.

Click to expand...

if you price your home right, there is no issue selling it.my buddy sold his home in a day. he worked in r/e with me so knew what was realistic.

Click to expand...

the demand is there for homes still, but there is a supply side issue. contributing to this is unrealistic gains that sellers thought they should get and there is a gap between sellers and buyers in the free market so price does not come down, but time goes on.

Click to expand...

Huh?

seller wants to sell home at $500k. buyer wants to buy it at $450k.stalemate. seller doesn't lower price but inventory and time on market increase. this issue in resales then trickles into effecting the new home market.

tommyGunZ · Jun 13, 2007

bagger said:
tommyGunZ said:

bagger said:

Fiddles said:

I'm drunk and feel like braggin. We sold our house in 8 days here in atlanta. Buying has been a diff experience though with the appraisal coming in 40 k less than closing. Had the mack daddy reknown appraisers come in on the sellers dime and they were only 1k less. Lookin good right now. Should ne signing tom morn.

Click to expand...

if you price your home right, there is no issue selling it.my buddy sold his home in a day. he worked in r/e with me so knew what was realistic.

Click to expand...

the demand is there for homes still, but there is a supply side issue. contributing to this is unrealistic gains that sellers thought they should get and there is a gap between sellers and buyers in the free market so price does not come down, but time goes on.

Click to expand...

Huh?

Click to expand...

seller wants to sell home at $500k. buyer wants to buy it at $450k.stalemate. seller doesn't lower price but inventory and time on market increase. this issue in resales then trickles into effecting the new home market.

gotcha.

tommyGunZ · Jul 11, 2007

Well folks, this is one of the big, BIG hammers that those of us on the sideline have been waiting on.

:goodposting:

S&P may downgrade $12 bln of subprime securities

Rival rating agency Moody's cuts 399 mortgage-backed securities

By Alistair Barr, MarketWatch

Last Update: 7:09 PM ET Jul 10, 2007

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399.

S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago.

More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.

S&P changes

Credit ratings on 612 classes of residential mortgage-backed securities backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded.

That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted.

The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.)

"It's had an impact on investor psychology," SCM's Chow said. "Even though investors should have known this was coming, the actual visibility of it has changed attitudes."

Shares of investment banks Lehman Brothers fell more than 3.5% on Tuesday.

The ABX indexes, which track derivatives linked to subprime RMBS, also declined. An ABX index linked to BBB- rated tranches of RMBS issued during the second half of 2006 closed at 58.58, down from 61.20 on Monday. ABX indexes linked to AAA and AA rated RMBS also fell.

S&P's changes mean subprime borrowers could end up paying higher interest rates on home loans, Chow added.

S&P said it was taking action because losses on the mortgages underlying these securities have risen more than expected and now exceed anything that happened before.

Losses will probably increase as the U.S. housing market especially parts financed with subprime loans continues to decline before it improves, S&P said. Property values will decline 8% on average between 2006 and 2008 and that will exacerbate losses on subprime RMBS, the agency explained.

The resetting of adjustable-rate subprime mortgages and the end of low teaser rates on fixed-rate home loans will also increase subprime RMBS losses, S&P added. Tighter underwriting standards imposed by lenders will leave fewer refinancing options for stretched borrowers, the agency also said.

"The ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term," the agency said. "Also, many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets."

Moody's changes

Moody's said it downgraded 399 residential mortgage-backed securities because of higher-than-expected delinquencies on the underlying home loans. The rating agency also said it put 32 other RMBS under review for possible downgrades for the same reason.

The RMBS were sold in 2006 and are backed mainly by first lien adjustable- and fixed-rate subprime mortgage loans, Moody's added.

The moves affect $5.2 billion of securities. That represents 6.8% of the securities rated by Moody's last year that were backed by subprime first-lien home loans, the agency noted.

New data show that delinquencies and foreclosures continue to accumulate, S&P reported. Total aggregate losses on all subprime RMBS transactions since the final quarter of 2005 have reached 29 basis points, versus seven basis points in 2000. (A basis point is one hundredth of a percentage point).

S&P used 2000 as a comparison because, until now, that was the worse year for subprime losses in the past decade.

Alleged misrepresentations on credit reports were up significantly in 2006 and overall mortgage fraud has exceeded previous highs, S&P also reported.

The agency said borrower and loan data it used to rate RMBS may not have been accurate. That means important factors it analyzed to judge the risk of these securities such as borrowers' credit scores, loan-to-value levels and ownership status are proving less helpful in predicting performance, it explained.

S&P methodology changed

Given these problems, S&P said it's changing the way it analyzes and rates subprime RMBS. The agency said it will also apply much of this new methodology to subprime RMBS sold in 2007 (as well as the 2006 vintage) and future transactions.

When a part of a subprime RMBS is downgraded, the next highest-rated tranche will have to have a bigger cushion against losses (known as credit enhancement) to avoid being downgraded too, S&P said. In the past, higher-rated tranches weren't cut if they had the same level of credit enhancement as they had when they were first sold, the agency noted.

Assumptions on severity (how big losses will be when a property goes into foreclosure) have been ratcheted up to 40% from 33%, reflecting the current experience of businesses that service such loans, S&P said.

S&P's expectation for defaults on 30-year hybrid adjustable-rate mortgages with two-year initial teaser rates will jump by roughly 21%.

S&P said it will also step up its monitoring of how well subprime mortgage originators spot and limit fraud. That will include reviews of management experience and capabilities, use of mortgage brokers and other sales channels and underwriting guidelines, the agency explained.

Higher interest rates

S&P's changes will affect subprime RMBS that have already been rated and also securities that have yet to be rated, SCM's Chow explained.

The rating agency's new methodology may dent the pricing of future subprime RMBS and that could feed through to higher interest rates on subprime home loans, he explained.

Right now, roughly 75% of subprime RMBS transactions are rated AAA, while another 10% are rated AA and another 8% are rated single A. A further 7% are rated BBB or lower. The reason it is divided this way is that the lower-rated tranches provide credit support to the higher-rated parts, Chow said.

Under S&P's new system, it might be that only 70% of bonds can be AAA-rated and maybe 10% are AA, 10% are A and 10% are BBB or lower, Chow hypothesized.

"We don't know," he added. "We will get an idea relatively soon, but the full impact of this won't be known for a few months."

The final impact could be that subprime borrowers pay higher interest rates, he said.

When subprime bonds are divided up, the AAA parts sell at a higher price. When you can create fewer higher-rated bonds and have to issue more lower-rated bonds, the overall price has to be reduced. So the proceeds of these bonds will be lower.

That means subprime mortgage originators get less for the loans, which, in turn means the interest rate that prospective subprime home owners have to pay will likely go up, Chow explained.

LHUCKS · Jul 11, 2007

Prices holding in AZ, and inventory is shrinking.

What happened to that crash TGunz?

tommyGunZ · Jul 11, 2007

LHUCKS said:
Prices holding in AZ, and inventory is shrinking.

Metro Phoenix Inventory Tracking (2007)

01/01: 48,213

01/31: 51,913

02/28: 53,598

03/31: 57,615

04/30: 59,616

05/31: 60,800

06/30: 61,876

07/10: 60,950

Wow LHUCKS, you're pretty informed politically so I assumed you read the newspaper. From the Arizona Republic last week:

Troubled homeowners are finding a new way to sell

'Short sale' an option to avoid foreclosure

Catherine Reagor

The Arizona Republic

Jul. 6, 2007 12:00 AM

A growing number of homeowners behind on their mortgage and facing foreclosure are finding a way to sell despite the glut of Valley homes for sale.

They are turning to "short sales," which are similar to regular home sales except a deal is worked out in which the lender accepts what the house is appraised for or what it will currently sell for instead of what is owed on it.

So a homeowner would sell the house to a buyer willing to pay the current market value of the home, and the lender takes a loss on the rest.

advertisement

Short sales are the latest trend for metro Phoenix's slowing real estate market, and housing advocates are advising struggling homeowners to contact their lender about a sale before falling into foreclosure.

As foreclosures rise, lenders are more motivated to do the sales because they at least get most of what they are owed.

Homeowners don't get any equity from the sale, but they also don't get a nasty foreclosure mark on their credit record. And although lenders lose out on money they're owed, a short sale lets them avoid a costly foreclosure on the home.

"Short sales are the buzz in the market now," said Tom Ruff of Information Market, a research data firm based in Glendale. "With foreclosures climbing and homes prices falling, short sales are bound to climb."

There is no way to track the exact number of short sales closing in the Valley because they show up on public records as a regular sale between a buyer and a seller. But real estate market watchers say they are seeing an uptick.

For the Valley's housing market, a short sale means one less foreclosure at a time when the number of people defaulting on their mortgages has tripled from a year ago.

It also is one fewer hit to Valley neighborhoods, where foreclosures are pulling down housing values.

Short sales lower an area's "comps," or comparable sales prices, too, but not as badly.

For some homeowners, they are the best option.

A brother and sister from California recently approached Phoenix real estate agent Brett Barry about their house here in the Valley. The pair paid $597,000 for the investment home in Tatum Ranch at the height of the housing market in 2005. Now, they can no longer afford to keep it. And with a record number of Valley homes for sale, their chances of selling the home for what they paid are slim.

"I ran the numbers, and the house won't sell for more than $495,000 now," said Barry, of Realty Executives. "They didn't put any money into it. They have an interest-only loan. They could only rent it for about $1,800 and month, but their payment is $3,500."

He told them they could do one of two things: Work out a short sale or call the lender and hand over their keys.

LHUCKS · Jul 11, 2007

tommyGunZ said:
LHUCKS said:

Prices holding in AZ, and inventory is shrinking.

Click to expand...

Metro Phoenix Inventory Tracking (2007)

01/01: 48,213

01/31: 51,913

02/28: 53,598

03/31: 57,615

04/30: 59,616

05/31: 60,800

06/30: 61,876

07/10: 60,950

Click to expand...

Wow LHUCKS, you're pretty informed politically so I assumed you read the newspaper.

That's weird, I just saw something totally different about three weeks ago that showed inventory shrinking...also, these inventory numbers seem higher.Where did you get those numbers?

tommyGunZ · Jul 11, 2007

LHUCKS said:
tommyGunZ said:

LHUCKS said:

Prices holding in AZ, and inventory is shrinking.

Click to expand...

Metro Phoenix Inventory Tracking (2007)

01/01: 48,213

01/31: 51,913

02/28: 53,598

03/31: 57,615

04/30: 59,616

05/31: 60,800

06/30: 61,876

07/10: 60,950

Click to expand...

Wow LHUCKS, you're pretty informed politically so I assumed you read the newspaper.

Click to expand...

That's weird, I just saw the something totally different about three weeks ago that showed inventory shrinking...also, these inventory numbers seem higher.

These numbers include "greater Phoenix" which I think includes all of Maricopa County, so other reports of smaller areas may differ. Overall point is that short sales increasing, foreclosures tripling, etc. means not good for RE prices.

stbugs · Jul 11, 2007

tommyGunZ said:
Well folks, this is one of the big, BIG hammers that those of us on the sideline have been waiting on.

S&P may downgrade $12 bln of subprime securities

Rival rating agency Moody's cuts 399 mortgage-backed securities

By Alistair Barr, MarketWatch

Last Update: 7:09 PM ET Jul 10, 2007

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399.

S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago.

More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.

S&P changes

Credit ratings on 612 classes of residential mortgage-backed securities backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded.

That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted.

The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.)

"It's had an impact on investor psychology," SCM's Chow said. "Even though investors should have known this was coming, the actual visibility of it has changed attitudes."

Shares of investment banks Lehman Brothers fell more than 3.5% on Tuesday.

The ABX indexes, which track derivatives linked to subprime RMBS, also declined. An ABX index linked to BBB- rated tranches of RMBS issued during the second half of 2006 closed at 58.58, down from 61.20 on Monday. ABX indexes linked to AAA and AA rated RMBS also fell.

S&P's changes mean subprime borrowers could end up paying higher interest rates on home loans, Chow added.

S&P said it was taking action because losses on the mortgages underlying these securities have risen more than expected and now exceed anything that happened before.

Losses will probably increase as the U.S. housing market especially parts financed with subprime loans continues to decline before it improves, S&P said. Property values will decline 8% on average between 2006 and 2008 and that will exacerbate losses on subprime RMBS, the agency explained.

The resetting of adjustable-rate subprime mortgages and the end of low teaser rates on fixed-rate home loans will also increase subprime RMBS losses, S&P added. Tighter underwriting standards imposed by lenders will leave fewer refinancing options for stretched borrowers, the agency also said.

"The ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term," the agency said. "Also, many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets."

Moody's changes

Moody's said it downgraded 399 residential mortgage-backed securities because of higher-than-expected delinquencies on the underlying home loans. The rating agency also said it put 32 other RMBS under review for possible downgrades for the same reason.

The RMBS were sold in 2006 and are backed mainly by first lien adjustable- and fixed-rate subprime mortgage loans, Moody's added.

The moves affect $5.2 billion of securities. That represents 6.8% of the securities rated by Moody's last year that were backed by subprime first-lien home loans, the agency noted.

New data show that delinquencies and foreclosures continue to accumulate, S&P reported. Total aggregate losses on all subprime RMBS transactions since the final quarter of 2005 have reached 29 basis points, versus seven basis points in 2000. (A basis point is one hundredth of a percentage point).

S&P used 2000 as a comparison because, until now, that was the worse year for subprime losses in the past decade.

Alleged misrepresentations on credit reports were up significantly in 2006 and overall mortgage fraud has exceeded previous highs, S&P also reported.

The agency said borrower and loan data it used to rate RMBS may not have been accurate. That means important factors it analyzed to judge the risk of these securities such as borrowers' credit scores, loan-to-value levels and ownership status are proving less helpful in predicting performance, it explained.

S&P methodology changed

Given these problems, S&P said it's changing the way it analyzes and rates subprime RMBS. The agency said it will also apply much of this new methodology to subprime RMBS sold in 2007 (as well as the 2006 vintage) and future transactions.

When a part of a subprime RMBS is downgraded, the next highest-rated tranche will have to have a bigger cushion against losses (known as credit enhancement) to avoid being downgraded too, S&P said. In the past, higher-rated tranches weren't cut if they had the same level of credit enhancement as they had when they were first sold, the agency noted.

Assumptions on severity (how big losses will be when a property goes into foreclosure) have been ratcheted up to 40% from 33%, reflecting the current experience of businesses that service such loans, S&P said.

S&P's expectation for defaults on 30-year hybrid adjustable-rate mortgages with two-year initial teaser rates will jump by roughly 21%.

S&P said it will also step up its monitoring of how well subprime mortgage originators spot and limit fraud. That will include reviews of management experience and capabilities, use of mortgage brokers and other sales channels and underwriting guidelines, the agency explained.

Higher interest rates

S&P's changes will affect subprime RMBS that have already been rated and also securities that have yet to be rated, SCM's Chow explained.

The rating agency's new methodology may dent the pricing of future subprime RMBS and that could feed through to higher interest rates on subprime home loans, he explained.

Right now, roughly 75% of subprime RMBS transactions are rated AAA, while another 10% are rated AA and another 8% are rated single A. A further 7% are rated BBB or lower. The reason it is divided this way is that the lower-rated tranches provide credit support to the higher-rated parts, Chow said.

Under S&P's new system, it might be that only 70% of bonds can be AAA-rated and maybe 10% are AA, 10% are A and 10% are BBB or lower, Chow hypothesized.

"We don't know," he added. "We will get an idea relatively soon, but the full impact of this won't be known for a few months."

The final impact could be that subprime borrowers pay higher interest rates, he said.

When subprime bonds are divided up, the AAA parts sell at a higher price. When you can create fewer higher-rated bonds and have to issue more lower-rated bonds, the overall price has to be reduced. So the proceeds of these bonds will be lower.

That means subprime mortgage originators get less for the loans, which, in turn means the interest rate that prospective subprime home owners have to pay will likely go up, Chow explained.

Click to expand...

Why is this a BIG, BIG hammer?Aren't "new" subprime loans hard to come by already? This to me seems like a downgrading of securities that are already on the market, i.e. the loans already exist. Not sure how this takes any more buyers out of the market than there are today. I just don't see any way to link future home sales to this security downgrade.

Again, I can see how this would make borrowing tougher, but it seems to me that that has already happened with all the subprime lender fallout.

Chadstroma · Jul 11, 2007

tommyGunZ said:
Well folks, this is one of the big, BIG hammers that those of us on the sideline have been waiting on.

S&P may downgrade $12 bln of subprime securities

Rival rating agency Moody's cuts 399 mortgage-backed securities

By Alistair Barr, MarketWatch

Last Update: 7:09 PM ET Jul 10, 2007

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399.

S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago.

More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.

S&P changes

Credit ratings on 612 classes of residential mortgage-backed securities backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded.

That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted.

The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.)

"It's had an impact on investor psychology," SCM's Chow said. "Even though investors should have known this was coming, the actual visibility of it has changed attitudes."

Shares of investment banks Lehman Brothers fell more than 3.5% on Tuesday.

The ABX indexes, which track derivatives linked to subprime RMBS, also declined. An ABX index linked to BBB- rated tranches of RMBS issued during the second half of 2006 closed at 58.58, down from 61.20 on Monday. ABX indexes linked to AAA and AA rated RMBS also fell.

S&P's changes mean subprime borrowers could end up paying higher interest rates on home loans, Chow added.

S&P said it was taking action because losses on the mortgages underlying these securities have risen more than expected and now exceed anything that happened before.

Losses will probably increase as the U.S. housing market especially parts financed with subprime loans continues to decline before it improves, S&P said. Property values will decline 8% on average between 2006 and 2008 and that will exacerbate losses on subprime RMBS, the agency explained.

The resetting of adjustable-rate subprime mortgages and the end of low teaser rates on fixed-rate home loans will also increase subprime RMBS losses, S&P added. Tighter underwriting standards imposed by lenders will leave fewer refinancing options for stretched borrowers, the agency also said.

"The ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term," the agency said. "Also, many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets."

Moody's changes

Moody's said it downgraded 399 residential mortgage-backed securities because of higher-than-expected delinquencies on the underlying home loans. The rating agency also said it put 32 other RMBS under review for possible downgrades for the same reason.

The RMBS were sold in 2006 and are backed mainly by first lien adjustable- and fixed-rate subprime mortgage loans, Moody's added.

The moves affect $5.2 billion of securities. That represents 6.8% of the securities rated by Moody's last year that were backed by subprime first-lien home loans, the agency noted.

New data show that delinquencies and foreclosures continue to accumulate, S&P reported. Total aggregate losses on all subprime RMBS transactions since the final quarter of 2005 have reached 29 basis points, versus seven basis points in 2000. (A basis point is one hundredth of a percentage point).

S&P used 2000 as a comparison because, until now, that was the worse year for subprime losses in the past decade.

Alleged misrepresentations on credit reports were up significantly in 2006 and overall mortgage fraud has exceeded previous highs, S&P also reported.

The agency said borrower and loan data it used to rate RMBS may not have been accurate. That means important factors it analyzed to judge the risk of these securities such as borrowers' credit scores, loan-to-value levels and ownership status are proving less helpful in predicting performance, it explained.

S&P methodology changed

Given these problems, S&P said it's changing the way it analyzes and rates subprime RMBS. The agency said it will also apply much of this new methodology to subprime RMBS sold in 2007 (as well as the 2006 vintage) and future transactions.

When a part of a subprime RMBS is downgraded, the next highest-rated tranche will have to have a bigger cushion against losses (known as credit enhancement) to avoid being downgraded too, S&P said. In the past, higher-rated tranches weren't cut if they had the same level of credit enhancement as they had when they were first sold, the agency noted.

Assumptions on severity (how big losses will be when a property goes into foreclosure) have been ratcheted up to 40% from 33%, reflecting the current experience of businesses that service such loans, S&P said.

S&P's expectation for defaults on 30-year hybrid adjustable-rate mortgages with two-year initial teaser rates will jump by roughly 21%.

S&P said it will also step up its monitoring of how well subprime mortgage originators spot and limit fraud. That will include reviews of management experience and capabilities, use of mortgage brokers and other sales channels and underwriting guidelines, the agency explained.

Higher interest rates

S&P's changes will affect subprime RMBS that have already been rated and also securities that have yet to be rated, SCM's Chow explained.

The rating agency's new methodology may dent the pricing of future subprime RMBS and that could feed through to higher interest rates on subprime home loans, he explained.

Right now, roughly 75% of subprime RMBS transactions are rated AAA, while another 10% are rated AA and another 8% are rated single A. A further 7% are rated BBB or lower. The reason it is divided this way is that the lower-rated tranches provide credit support to the higher-rated parts, Chow said.

Under S&P's new system, it might be that only 70% of bonds can be AAA-rated and maybe 10% are AA, 10% are A and 10% are BBB or lower, Chow hypothesized.

"We don't know," he added. "We will get an idea relatively soon, but the full impact of this won't be known for a few months."

The final impact could be that subprime borrowers pay higher interest rates, he said.

When subprime bonds are divided up, the AAA parts sell at a higher price. When you can create fewer higher-rated bonds and have to issue more lower-rated bonds, the overall price has to be reduced. So the proceeds of these bonds will be lower.

That means subprime mortgage originators get less for the loans, which, in turn means the interest rate that prospective subprime home owners have to pay will likely go up, Chow explained.

Click to expand...

There was also news of high demand for mortgages even with the higher rates and some expectations that most large banks will beat Wall St estimates. I went back to find the links and struck out on that. My point is that the market continues to be fairly resilient. Most areas in the U.S. have cooled off or even experiancing a decline but hardly a bubble bursting.

TommyGilmore · Jul 25, 2007

San Diego home foreclosures rise 551% in first half of 2007

"It still is not a major factor in the real estate market," says one analyst. :thumbup:

tommyGunZ · Jul 25, 2007

Here's a graph showing the rise of foreclosures (NODs and NOTs) from 1990 on in San Diego, which shows that the current explosion is making the California RE bust of the early 90s quite tame by comparison.

Next, take a look at this ARM reset schedule, which estimates the number of loans set to reset over the next 5-6 years. As you can see, we haven't even hit the peak in resets, and for ~ the next 12 months we're going to see extremely high levels of resets before they begin to recede in late '08, early '09. That means foreclosures and defaults should continue to accelerate for another year.

When banks have 10x as much REO inventory on hand in 6 months as they have now, I'm guessing they will be ready to start dumping them at significant discounts. Those dumps become the new comps.

tommyGunZ · Jul 25, 2007

stbugs said:
tommyGunZ said:

Well folks, this is one of the big, BIG hammers that those of us on the sideline have been waiting on.

S&P may downgrade $12 bln of subprime securities

Rival rating agency Moody's cuts 399 mortgage-backed securities

By Alistair Barr, MarketWatch

Last Update: 7:09 PM ET Jul 10, 2007

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399.

S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago.

More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.

S&P changes

Credit ratings on 612 classes of residential mortgage-backed securities backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded.

That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted.

The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.)

"It's had an impact on investor psychology," SCM's Chow said. "Even though investors should have known this was coming, the actual visibility of it has changed attitudes."

Shares of investment banks Lehman Brothers fell more than 3.5% on Tuesday.

The ABX indexes, which track derivatives linked to subprime RMBS, also declined. An ABX index linked to BBB- rated tranches of RMBS issued during the second half of 2006 closed at 58.58, down from 61.20 on Monday. ABX indexes linked to AAA and AA rated RMBS also fell.

S&P's changes mean subprime borrowers could end up paying higher interest rates on home loans, Chow added.

S&P said it was taking action because losses on the mortgages underlying these securities have risen more than expected and now exceed anything that happened before.

Losses will probably increase as the U.S. housing market especially parts financed with subprime loans continues to decline before it improves, S&P said. Property values will decline 8% on average between 2006 and 2008 and that will exacerbate losses on subprime RMBS, the agency explained.

The resetting of adjustable-rate subprime mortgages and the end of low teaser rates on fixed-rate home loans will also increase subprime RMBS losses, S&P added. Tighter underwriting standards imposed by lenders will leave fewer refinancing options for stretched borrowers, the agency also said.

"The ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term," the agency said. "Also, many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets."

Moody's changes

Moody's said it downgraded 399 residential mortgage-backed securities because of higher-than-expected delinquencies on the underlying home loans. The rating agency also said it put 32 other RMBS under review for possible downgrades for the same reason.

The RMBS were sold in 2006 and are backed mainly by first lien adjustable- and fixed-rate subprime mortgage loans, Moody's added.

The moves affect $5.2 billion of securities. That represents 6.8% of the securities rated by Moody's last year that were backed by subprime first-lien home loans, the agency noted.

New data show that delinquencies and foreclosures continue to accumulate, S&P reported. Total aggregate losses on all subprime RMBS transactions since the final quarter of 2005 have reached 29 basis points, versus seven basis points in 2000. (A basis point is one hundredth of a percentage point).

S&P used 2000 as a comparison because, until now, that was the worse year for subprime losses in the past decade.

Alleged misrepresentations on credit reports were up significantly in 2006 and overall mortgage fraud has exceeded previous highs, S&P also reported.

The agency said borrower and loan data it used to rate RMBS may not have been accurate. That means important factors it analyzed to judge the risk of these securities such as borrowers' credit scores, loan-to-value levels and ownership status are proving less helpful in predicting performance, it explained.

S&P methodology changed

Given these problems, S&P said it's changing the way it analyzes and rates subprime RMBS. The agency said it will also apply much of this new methodology to subprime RMBS sold in 2007 (as well as the 2006 vintage) and future transactions.

When a part of a subprime RMBS is downgraded, the next highest-rated tranche will have to have a bigger cushion against losses (known as credit enhancement) to avoid being downgraded too, S&P said. In the past, higher-rated tranches weren't cut if they had the same level of credit enhancement as they had when they were first sold, the agency noted.

Assumptions on severity (how big losses will be when a property goes into foreclosure) have been ratcheted up to 40% from 33%, reflecting the current experience of businesses that service such loans, S&P said.

S&P's expectation for defaults on 30-year hybrid adjustable-rate mortgages with two-year initial teaser rates will jump by roughly 21%.

S&P said it will also step up its monitoring of how well subprime mortgage originators spot and limit fraud. That will include reviews of management experience and capabilities, use of mortgage brokers and other sales channels and underwriting guidelines, the agency explained.

Higher interest rates

S&P's changes will affect subprime RMBS that have already been rated and also securities that have yet to be rated, SCM's Chow explained.

The rating agency's new methodology may dent the pricing of future subprime RMBS and that could feed through to higher interest rates on subprime home loans, he explained.

Right now, roughly 75% of subprime RMBS transactions are rated AAA, while another 10% are rated AA and another 8% are rated single A. A further 7% are rated BBB or lower. The reason it is divided this way is that the lower-rated tranches provide credit support to the higher-rated parts, Chow said.

Under S&P's new system, it might be that only 70% of bonds can be AAA-rated and maybe 10% are AA, 10% are A and 10% are BBB or lower, Chow hypothesized.

"We don't know," he added. "We will get an idea relatively soon, but the full impact of this won't be known for a few months."

The final impact could be that subprime borrowers pay higher interest rates, he said.

When subprime bonds are divided up, the AAA parts sell at a higher price. When you can create fewer higher-rated bonds and have to issue more lower-rated bonds, the overall price has to be reduced. So the proceeds of these bonds will be lower.

That means subprime mortgage originators get less for the loans, which, in turn means the interest rate that prospective subprime home owners have to pay will likely go up, Chow explained.

Click to expand...

Click to expand...

Why is this a BIG, BIG hammer?Aren't "new" subprime loans hard to come by already? This to me seems like a downgrading of securities that are already on the market, i.e. the loans already exist. Not sure how this takes any more buyers out of the market than there are today. I just don't see any way to link future home sales to this security downgrade.

Again, I can see how this would make borrowing tougher, but it seems to me that that has already happened with all the subprime lender fallout.

Monday, Wells Fargo joined Countrywide Financial Corp., Washington Mutual Inc., Merrill Lynch & Co.’s First Franklin and H&R Block Inc.’s Option One Mortgage in stopping the 2/28 subprime ARMs, which accounted for 65% of Wells' 2006 subprime market. LinkThis is what I meant by a hammer dropping. The credit downgrades forced these huge lenders to pull some of their most popular loans. Before the downgrades, these loans were still being offered, despite the credit crunch.

This takes a percentage of buyers out of an already struggling market. That doesn't bode well for housing in the near future.

jonessed · Jul 25, 2007

tommyGunZ said:
stbugs said:

tommyGunZ said:

Well folks, this is one of the big, BIG hammers that those of us on the sideline have been waiting on.

S&P may downgrade $12 bln of subprime securities

Rival rating agency Moody's cuts 399 mortgage-backed securities

By Alistair Barr, MarketWatch

Last Update: 7:09 PM ET Jul 10, 2007

SAN FRANCISCO (MarketWatch) -- Wall Street's two largest rating agencies signaled on Tuesday that problems in the subprime mortgage market aren't going away and will probably get worse as rising delinquencies weigh on U.S. house prices.

Standard & Poor's said it may downgrade $12 billion of subprime residential mortgage-backed securities (RMBS), while rival Moody's Investors Service downgraded 399.

S&P also said it's changing the way it evaluates those securities, partly because of unprecedented levels of misrepresentation and fraud, combined with potentially shoddy initial loan data. The new approach will be applied to new deals and could affect the ratings of other residential mortgage-backed securities, such as those issued this year, the agency noted.

"This will impact everyone along the food chain," said Andy Chow, portfolio manager at SCM Advisors LLC, a $14 billion San Francisco-based investment firm specializing in fixed-income and structured-finance markets.

The announcements were a dramatic sign that subprime mortgage woes aren't going away and could prolong a downturn in the housing market. If that happens, U.S. economic growth could be hit harder and for longer than expected. Indeed, Home Depot said on Tuesday that a weakening U.S. housing market was affecting earnings more than anticipated just two months ago.

More specifically, moves by S&P and Moody's on Tuesday could mean that investors with exposure to these securities, and other derivatives linked to them, could face losses. S&P's new approach could also affect subprime mortgage originators and increase interest rates on subprime home loans.

S&P changes

Credit ratings on 612 classes of residential mortgage-backed securities backed by U.S. subprime collateral have been put on CreditWatch with negative implications, S&P said. Beginning in the next few days, the agency said most of these classes will be downgraded.

That covers about $12.078 billion in rated securities, or 2.13% of the $565.3 billion in U.S. RMBS rated by S&P between the fourth quarter of 2005 and the fourth quarter of 2006, the agency noted.

The agency said it's also reviewing ratings of Collateralized Debt Obligations (CDOs) that invested in the RMBS that could be downgraded. (CDOs are a bit like mutual funds that hold asset-backed securities. Many CDOs bought subprime RMBS, helping to fuel the housing boom earlier this decade.)

"It's had an impact on investor psychology," SCM's Chow said. "Even though investors should have known this was coming, the actual visibility of it has changed attitudes."

Shares of investment banks Lehman Brothers fell more than 3.5% on Tuesday.

The ABX indexes, which track derivatives linked to subprime RMBS, also declined. An ABX index linked to BBB- rated tranches of RMBS issued during the second half of 2006 closed at 58.58, down from 61.20 on Monday. ABX indexes linked to AAA and AA rated RMBS also fell.

S&P's changes mean subprime borrowers could end up paying higher interest rates on home loans, Chow added.

S&P said it was taking action because losses on the mortgages underlying these securities have risen more than expected and now exceed anything that happened before.

Losses will probably increase as the U.S. housing market especially parts financed with subprime loans continues to decline before it improves, S&P said. Property values will decline 8% on average between 2006 and 2008 and that will exacerbate losses on subprime RMBS, the agency explained.

The resetting of adjustable-rate subprime mortgages and the end of low teaser rates on fixed-rate home loans will also increase subprime RMBS losses, S&P added. Tighter underwriting standards imposed by lenders will leave fewer refinancing options for stretched borrowers, the agency also said.

"The ongoing weakness in both national and regional property markets will exacerbate losses with little prospect for improvement in the near term," the agency said. "Also, many of these transactions will likely encounter additional credit stress from upcoming interest rate and payment resets."

Moody's changes

Moody's said it downgraded 399 residential mortgage-backed securities because of higher-than-expected delinquencies on the underlying home loans. The rating agency also said it put 32 other RMBS under review for possible downgrades for the same reason.

The RMBS were sold in 2006 and are backed mainly by first lien adjustable- and fixed-rate subprime mortgage loans, Moody's added.

The moves affect $5.2 billion of securities. That represents 6.8% of the securities rated by Moody's last year that were backed by subprime first-lien home loans, the agency noted.

New data show that delinquencies and foreclosures continue to accumulate, S&P reported. Total aggregate losses on all subprime RMBS transactions since the final quarter of 2005 have reached 29 basis points, versus seven basis points in 2000. (A basis point is one hundredth of a percentage point).

S&P used 2000 as a comparison because, until now, that was the worse year for subprime losses in the past decade.

Alleged misrepresentations on credit reports were up significantly in 2006 and overall mortgage fraud has exceeded previous highs, S&P also reported.

The agency said borrower and loan data it used to rate RMBS may not have been accurate. That means important factors it analyzed to judge the risk of these securities such as borrowers' credit scores, loan-to-value levels and ownership status are proving less helpful in predicting performance, it explained.

S&P methodology changed

Given these problems, S&P said it's changing the way it analyzes and rates subprime RMBS. The agency said it will also apply much of this new methodology to subprime RMBS sold in 2007 (as well as the 2006 vintage) and future transactions.

When a part of a subprime RMBS is downgraded, the next highest-rated tranche will have to have a bigger cushion against losses (known as credit enhancement) to avoid being downgraded too, S&P said. In the past, higher-rated tranches weren't cut if they had the same level of credit enhancement as they had when they were first sold, the agency noted.

Assumptions on severity (how big losses will be when a property goes into foreclosure) have been ratcheted up to 40% from 33%, reflecting the current experience of businesses that service such loans, S&P said.

S&P's expectation for defaults on 30-year hybrid adjustable-rate mortgages with two-year initial teaser rates will jump by roughly 21%.

S&P said it will also step up its monitoring of how well subprime mortgage originators spot and limit fraud. That will include reviews of management experience and capabilities, use of mortgage brokers and other sales channels and underwriting guidelines, the agency explained.

Higher interest rates

S&P's changes will affect subprime RMBS that have already been rated and also securities that have yet to be rated, SCM's Chow explained.

The rating agency's new methodology may dent the pricing of future subprime RMBS and that could feed through to higher interest rates on subprime home loans, he explained.

Right now, roughly 75% of subprime RMBS transactions are rated AAA, while another 10% are rated AA and another 8% are rated single A. A further 7% are rated BBB or lower. The reason it is divided this way is that the lower-rated tranches provide credit support to the higher-rated parts, Chow said.

Under S&P's new system, it might be that only 70% of bonds can be AAA-rated and maybe 10% are AA, 10% are A and 10% are BBB or lower, Chow hypothesized.

"We don't know," he added. "We will get an idea relatively soon, but the full impact of this won't be known for a few months."

The final impact could be that subprime borrowers pay higher interest rates, he said.

When subprime bonds are divided up, the AAA parts sell at a higher price. When you can create fewer higher-rated bonds and have to issue more lower-rated bonds, the overall price has to be reduced. So the proceeds of these bonds will be lower.

That means subprime mortgage originators get less for the loans, which, in turn means the interest rate that prospective subprime home owners have to pay will likely go up, Chow explained.

Click to expand...

Click to expand...

Why is this a BIG, BIG hammer?Aren't "new" subprime loans hard to come by already? This to me seems like a downgrading of securities that are already on the market, i.e. the loans already exist. Not sure how this takes any more buyers out of the market than there are today. I just don't see any way to link future home sales to this security downgrade.

Again, I can see how this would make borrowing tougher, but it seems to me that that has already happened with all the subprime lender fallout.

Click to expand...

Monday, Wells Fargo joined Countrywide Financial Corp., Washington Mutual Inc., Merrill Lynch & Co.’s First Franklin and H&R Block Inc.’s Option One Mortgage in stopping the 2/28 subprime ARMs, which accounted for 65% of Wells' 2006 subprime market. LinkThis is what I meant by a hammer dropping. The credit downgrades forced these huge lenders to pull some of their most popular loans. Before the downgrades, these loans were still being offered, despite the credit crunch.

This takes a percentage of buyers out of an already struggling market. That doesn't bode well for housing in the near future.

Wells Fargo doesn't do many subprime loans. They aren't a big player in that market.

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