What nuthin' about the world wide stock exchange "corrections" being traced to Countrywide's troubles? Nobody notice the "drop"?
You mean this that I put in my Economy thread?
8-16-2007 Global markets keep tumbling
LONDON - Global stock markets tumbled again Thursday on persistent worries about U.S. housing loan problems and potential damage to the global economy.
The slides came even as the U.S. Federal Reserve dumped more cash into the U.S. banking system on Wednesday and Thursday, joining other central banks that have tried again and again to shore up investor confidence over the past week.
What the 'marketeers' are not saying is many of these companies, including Countywide, are highly leveraged. HomeBanc (though probably not the best example) had 3.9% net worth on $5.1 billion in assets of which the overwhelming majority is paper.
Now, of course, the collateral on that paper is 100's of 1,000's of homes. It's bad enough that the default rate on sub-prime paper is rising but the default rate on those with above-average credit is rising, too.
On top of that I've seen fairly reputable folks saying in this correction by the end of 2008 housing values may drop as much as 20% in some areas of the United States. Now, I may be a maroon and a dumb a$$, but if I've got a mortgage (which I don't) for $250k on a house that's worth 80% of principle I know what I would do. Walk away.
And I don't know about your state, but in my state you can sign that deed right back over to the financial institution in what is called a *Deed in Lieu of Foreclosure*. The financial institution has a choice. They can take the deed voluntarily or they can initiate foreclosure proceedings on an asset of declining value. Tuff call.
Back to Countrywide. Countrywide reported $462.5 billion in residential originations last year -- more than any other U.S. lender. They hold some of their own paper which is certainly beneficial to cash flow as people have to pay on those mortgages each month.
And they still had to go out and borrow a quick $11.5 billion yesterday.
From the WSJ: Some Countrywide bonds are yielding 3.15 percentage points above yields on Treasury bonds. That is a spread comparable to junk bonds, although Countrywide has investment-grade credit ratings from Standard & Poor's and Moody's Investors Service.
From the WSJ: AAA-rated bonds backed by subprime loans to borrowers with poor credit are deeply out of favor. Such bonds are now trading for 91 cents on the dollar, down from 99 cents a month ago, according to an index that tracks them. Fitch dropped Countrywide's grade to BBB+ this afternoon - still investment grade.
From the WSJ: Mr. Mozilo (the Countrywide boss) is often criticized for his compensation. Last year, his base salary, bonus and equity-incentive pay totaled $42 million, and he realized $72.2 million from exercising stock options. Countrywide has said his pay will drop by as much as 62% this year.
Mr. Mozilo regularly sells stock in the company as part of what he describes as a diversification of his assets.
Heh heh. *diversification of his assets*
AND FINALLY . . . . The Mortgage Bankers Association says subprime amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases in 2006. Financial firms and hedge funds likely own more than $1 trillion in securities backed by subprime mortgages.
In addition to the subprime loans, there are alot of ARMs that have been written in the last year or so. Those 'ballons' are starting to kick in - and will be growing through 2008.
Zooming house payment /// declining house value. Not a good combination.
With food and energy prices zooming it's not a good sign on the inflationary front. The *Marketeers* are screaming for a cut in the Fed funds rate - which typically flames up the economy increasing more inflationary pressure.
Rising inflation / declining real estate values / Fed cutting interest rate = not a good plan
Now, of course, the collateral on that paper is 100's of 1,000's of homes. It's bad enough that the default rate on sub-prime paper is rising but the default rate on those with above-average credit is rising, too.
On top of that I've seen fairly reputable folks saying in this correction by the end of 2008 housing values may drop as much as 20% in some areas of the United States. Now, I may be a maroon and a dumb a$$, but if I've got a mortgage (which I don't) for $250k on a house that's worth 80% of principle I know what I would do. Walk away.
And I don't know about your state, but in my state you can sign that deed right back over to the financial institution in what is called a *Deed in Lieu of Foreclosure*. The financial institution has a choice. They can take the deed voluntarily or they can initiate foreclosure proceedings on an asset of declining value. Tuff call.
Back to Countrywide. Countrywide reported $462.5 billion in residential originations last year -- more than any other U.S. lender. They hold some of their own paper which is certainly beneficial to cash flow as people have to pay on those mortgages each month.
And they still had to go out and borrow a quick $11.5 billion yesterday.
From the WSJ: Some Countrywide bonds are yielding 3.15 percentage points above yields on Treasury bonds. That is a spread comparable to junk bonds, although Countrywide has investment-grade credit ratings from Standard & Poor's and Moody's Investors Service.
From the WSJ: AAA-rated bonds backed by subprime loans to borrowers with poor credit are deeply out of favor. Such bonds are now trading for 91 cents on the dollar, down from 99 cents a month ago, according to an index that tracks them. Fitch dropped Countrywide's grade to BBB+ this afternoon - still investment grade.
From the WSJ: Mr. Mozilo (the Countrywide boss) is often criticized for his compensation. Last year, his base salary, bonus and equity-incentive pay totaled $42 million, and he realized $72.2 million from exercising stock options. Countrywide has said his pay will drop by as much as 62% this year.
Mr. Mozilo regularly sells stock in the company as part of what he describes as a diversification of his assets.
Heh heh. *diversification of his assets*
AND FINALLY . . . . The Mortgage Bankers Association says subprime amounted to about 20 percent of the nation's mortgage lending and about 17 percent of home purchases in 2006. Financial firms and hedge funds likely own more than $1 trillion in securities backed by subprime mortgages.
In addition to the subprime loans, there are alot of ARMs that have been written in the last year or so. Those 'ballons' are starting to kick in - and will be growing through 2008.
Zooming house payment /// declining house value. Not a good combination.
With food and energy prices zooming it's not a good sign on the inflationary front. The *Marketeers* are screaming for a cut in the Fed funds rate - which typically flames up the economy increasing more inflationary pressure.
Rising inflation / declining real estate values / Fed cutting interest rate = not a good plan
I wouldn't call a home that's worth 80% of principle on a $250k loan worthless - but it ain't good.
edit: brain fart
Yet another crisis brought to you by the grand ol' party. When they changed the bankruptcy laws, it made if far more difficult for Joe SixPack to file. Suddenly, it's easy to get a SubPrime loan, "come on in, Mr. and Mrs. John Q. Public, sign right here. Oh, here's a high limit credit card to go with this loan that is out of your reach financially. Don't bother with trying that whole bankruptcy protection"
Thanks George. 522 Days.
Thanks George. 522 Days.
Well, I am a home owner and I wouldn't walk out on my loan and screw up my credit just because my house value is currently down. It doesn't impact me cause I pay the same mortgage whether my house value is up or down, and just because the value is down right now, it doesn't mean it won't go up in the future.
The mortgage company owns my loan, and my house is just collateral. As long as most people has the same mentality as mine, those loans owned by the mortgage company still provides the same cash flow to the mortgage company and should have the same value as it was few month ago no matter what the market does.
I'm not picking on you - honestly - but you said:
They don't 'have a solid asset' as you put it. In the case of our example they have 80 cents on a dollars worth of paper.
No banker in their right mind would loan them money on that. And what you intimated in your first post - borrowing money on borrowed money - is not the way to run a business.
These guys are getting margin calls on portfolios of declining value. They can't make the 'calls'. They have to borrow more money - at junk rates if the value of your portfolio is anticipated to continue falling.
And if the value of your house tanking does not bother you - good luck, bro.
rpanic
Golden Member
- Dec 1, 2006
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Some people are going to make a lot of money off this I bet they get forced to sale their loans for 10 to 50 cents on the dollar. While some owner is still going to be paying the regular amount on there loan.
There were so many hot chicks at Simi Countrywide that for a while Planned Parenthood had a big sign on the street at the exit of their complex.
There were so many hot chicks at Simi Countrywide that for a while Planned Parenthood had a big sign on the street at the exit of their complex.
Lots of companies have been downgraded by so-called Stock brokerages. Like Cisco??? and maybe Charter Communications. Often this is linked to someone at the top stealing funds or just filing false reports with the feds. It does not mean that the company is going belly up.
I disagree with that point. A homebuying contract is not readable by the layperson. I just finished with mine, I close 3 weeks from tomorrow. You should be required to have a lawyer representing you while you sign that contract. Closing would then take 3 months.
Your example don't make sense. Mortgage company don't own the house, they own the loan the home owner took out to buy the house. the house is the collateral. So the declining house value doesn't impact the mortgage company, unless people starting to default on their loans. And like I said, most home owners would not default unless they took out ARM because they are paying the same regardless of what the property value is.
And why should I worry about my house value tanking? It's still worth more than when I purchased it 10 years ago, my mortgage payment is much less than what I'd pay for rent, and my interest payment is still tax deductible. In other word, my home ownership is still the better financial decision compare to renting a place. And also like any long term investment, why should I worry about temporary pricing at a particular moment?
Corn
Diamond Member
- Nov 12, 1999
- 6,389
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Originally posted by: WHAMPOM
Originally posted by: Skoorb
My mortgage is through them. If htey go belly up, is the note terminated? I know the answer is no
They will sell your mortgage to a new holder and raise your payment rate.
You obviously are too ignorant to be discussing this topic. The terms of the note don't change when the mortgage is sold.
Corn
Diamond Member
- Nov 12, 1999
- 6,389
- 29
- 91
Yes, I believe you would be a maroon and a dumbass to "walk away" (read: allow a foreclosure on your credit record) from a house, especially if you had no trouble making the payment, simply because of a negative equity position. Especially if you have a family or any designs of retiring at a reasonable age. Try getting an affordable (especially in today's market) mortgage on a home with a prior foreclosure for say, oh, the next 10 years...... Perhaps you like living in trailers and apartments, or paying more to rent a house than it costs to own one. I guarantee that "walking away" from a negative equity position today via foreclosure will cost you a hell of a lot more over the next decade than the temporary negative equity in the home at the time.
Diff'rent strokes I 'spose.
The lender is more responsible. They are the ones gambling the person taking out the loan is the host. The banks made a bad bet now they should just take their losses and fold.
It matters to the bank if your underwater on your house or not because even if you intend to pay back your loan you may lose your job, die, do meth, ect. It makes a low interest mortgage have basically the same risk as credit card debt that has an interest rate that is 2-3 times higher.
The fact that the value of your house increased over the last 10 years has little to do with if buying a house today is a good investment. A house isn't like anyother long term investment because of how much leverage you use and unless your buying a house a week you are unable to do dollar cost averaging. The end effect is a small change in initial price will have massive impacts on net worth 30 years down the road.
You are wrong, my friend. I tried to explain it to you to no avail. I hope you will take some time to learn about coomercial paper, financial institutions and especially 'margin calls'. Work hard and pay down your mortgage as quickly as you can. I wish you well.
Fer shure . . .
Hey . . . . in no way am I recommending anyone do this but in three cases during my life (none of which involved me) I've seen real estate prices crater and folks circumstantially in such a negative position where they would have been foolish not to do it.
If I were liviv' on the edge today with a recent (last couple years) ARM that was gettin' ready to balloon and I was upside down way over my head - you bet I'd do it in a heartbeat. And I got a really big problem with a financial institution that would not voluntarily accept my deed in lieu of foreclosure.
Now before yah figure out what type of bum I am I made it a goal early in my life to make as little money for financial institutions as I possibly could in my life. When I've had to borrow money I've worked my a$$ off and paid it down at a rate 200-400% faster than I was obligated to do so. I have no debt, miniscule accrued liabilities (not even 2% of my net worth) and don't believe in credit cards (though I've got one with a $1,200 limit
). I save my money. If I need a new vehicle I save the money to buy it Do yah take cash ??? - lolI feel lucky and blessed. I've worked very hard not to pay banks tens of thousands of dollars of interest and believe it or not most of them appreciate it. I'm a great risk! They want me to take their money.
So . . . get out of debt as fast as you can, tear up you credit cards, don't buy into the 'consumer nation' (lol) and ride around in a sweet 5yo cruiser from the local police auction!
rpanic
Golden Member
- Dec 1, 2006
- 1,896
- 7
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If you are upside down by more than 20% or got a missed up ARM walk. And if you are in any of the harder hit places like California you are probably going to be going even more upside down, even up to 50% when the smoke clears. Just rent and horde money, in a few years there will be a lot of good deals.
Your might be able to piggyback onto someone else?s credit for a fee. But beware they are rewriting the way the FICO score is calculated for 2008 and this could affect some people that even have good credit now.
http://efinancedirectory.com/a...y.html?ref=patrick.net
Your might be able to piggyback onto someone else?s credit for a fee. But beware they are rewriting the way the FICO score is calculated for 2008 and this could affect some people that even have good credit now.
http://efinancedirectory.com/a...y.html?ref=patrick.net
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