Chuck Ponzi May 31st, 2007

Jumped Shark, Check

Loosed [sic] all, Check

Murst, Check

All privacy gone, Check

Circus freak’s show is all over finally.  Sounds like plug was pulled out and shredded.  The”real estate investor” that never was an investor, the slow-motion train wreck that reached national media attention for infamy, Casey Serin, the punchline of some pretty funny jokes has finally shown some sense of sensibility.

I am facing foreclosure is no more.

May it die a thousand deaths and may he never again buy another home until the next housing bubble.

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Chuck Ponzi May 29th, 2007

Reading a recent article on Bloomberg about the sorry state of affairs related to new housing, I came across a new gem of wisdom… something it appears still hasn’t happened for the FED or NAR.

This shocking admission was made here:

New home construction in the U.S. may take until 2011 to return to last year’s level, said David Seiders, chief economist for the National Association of Home Builders in Washington.

If that’s not a lead-in to a great story, I don’t know what is.

You may ask yourself, what does this mean? Why should I care, other than that the homebuilding industry is finally admitting to something I already know? And, frankly, how does this affect us?

I think, honestly, based on the recent news coming out of the new home builders association groups, that they have the most realistic approach to engineering a soft-landing for housing.

Basically, the NAR and the Federal Reserve have denied the existence of a housing bubble. Why? Does it serve them when prices are high? Does it serve them when prices are low? Are they indifferent?

I believe that the NAHB has realized that the whole denial thing actually works against their business model… stack ‘em deep & seel ‘em cheap. That lower interest rates are in their best interest. If they can create a public awareness of how bad the business is (even if it’s not as bad as they say), they can create a better business environment.

It reminds me of the recent tack that John Burns of Real Estate Consulting. If you’ve read the report, you’ll remember this line.

The housing market has softened much more than is being reported. We have been advising our retainer clients for more than one year about misleading national sales information, both with the Existing Home Sales and New Home Sales data. We are now going public with our concerns because we are concerned that policy makers are relying on national data to conclude that the housing market correction has not been severe.

What for the NAHB is a veiled attempt at garnering some crumbs from the Federal Reserve’s table of interest rate cuts, John Burns, at least is openly begging for any sort of doggie treat he can get.

And therein lies the problem:

1.  Those who benefit from a weak housing market will likely want to scare people away from housing.

2.  Those who benefit from a strong housing market will likely scare people into housing.

While the NARs members would likely benefit from lower prices in housing, they have to at least for the present time, present a face to their members that now is a good time to renew their membership in their Realtors’ association.

Especially when Realtor Association membership is decreasing in the face of increased number of real estate agents; losing market share (for those not aware, to be a Realtor means you are an agent and pay additional dues to the Realtors association for the rights to call yourself a “Realtor”TM which is supposed to signify something, but noone knows what that is.

The number of real estate sales license-holders in California is continuing to rise despite the downturn in the housing market, but the number of Realtors statewide is falling.

Membership in the California Association of Realtors trade group is declining, meanwhile, with statewide rolls forecast to drop to 185,000 this year from a peak 199,168 in 2006.

With all of this gloom in the air surrounding the housing market (much of it is warranted), we need to make sure we don’t throw the baby out with the bathwater.  Basically, that financial innovation is good, so long as it finds its intended recipient.  And, that good agents can steer their clients into making better housing decisions and actually save them money.  Conversely, a poorly performing agent or poorly suited loan product will likey sink your ship either way.  Buying a home, after all is not a decision that should be rushed by thoughts that it’ll be too late if you take time to consider your options and you’ll be priced out forever.

Bringing this full circle… just how bad is the market?  We’ll likely never know until after the fact.  But, any way that it is, we are a long ways from the bottom when vested interests are just now calling the bottom and it’s likely that John Burns may be more right than we thought.

Let me know interested in seeing specific examples where we are already priced below 2003 pricing in Southern California.  Next stop… bottoming out, or falling more?

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Chuck Ponzi May 24th, 2007

Enjoyed my time off… now it’s time to be back and ready to rumble.

Precious Metals return to Legal Tender

Debt Monetization limits?

Competitive issuance of USD Rates?

Total Collapse of the US Dollar?

Just topics of discussion for Ron Paul in a few minutes on the phone.

He’s looking more and more like the best qualified candidate in ‘08.

What do you think?

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Chuck Ponzi May 11th, 2007

Remember the good ‘ol days when Subprime was “contained” and we were all just lauging at all of those people with bad credit who were going to lose their homes while we with good credit were sipping Mint Juleps and smoking cigars? Those were the days, right?

How fast a month passes. Impac just created a massive earnings crater.

Impac Mortgage is an Alt-A lender.

If you’re not sure what that means… it’s basically people with good credit, but can’t qualify for traditional loans due to “unreported income” (aka wink, wink, nod, nod)

While the reality could conceivably not be as bad as it now seems, their book losses this quarter were $112M. Which, by most peoples’ standards, is a lot of money (except rich people who own homes in SoCal) However, much of that loss is a book write-downs. The big question is, does it get better from here on out for them, or worse? Does the future hold more, or less write downs?

It is important to remember that in the heyday (just months ago), bubble bloggers everywhere stated that loan loss reserves were incredibly low. Making up for the difference is going to be painful for current shareholders.

• Bubble , Credit Bubble
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Chuck Ponzi May 11th, 2007

It seems that consumers have been takign a few months off.

Bad Weather, unseasonably good weather, or just the housing slump.

Either way, consumers are pretty much maxed out, as Market Watch tells us. None of this is surprising in light of the ongoing credit contraction and reduction of MEWs going on in the credit markets.

I highly recommend a good read of Barry Ritholtz’s take on “Retail Sales = Hard Landing?”

One of the early casualties of the downturn is Tweeter Home Entertainment who yesterday announced a possible bankruptcy filing and whose stock has dropped from over $8 to currently trading at $.35 over the past year. I surmise we haven’t seen the last of retail pain in this recession.

• Credit Bubble , Debt
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Chuck Ponzi May 8th, 2007

As lawmakers are considering reform, it appears that they are at least considering our concerns about unintended consequences… how lending reform often makes it harder to borrow, not easier in the future.  Attempts at helping borrowers most often hurts them.  It’s the Chuck Ponzi Law of Unintended Consequences.

MSNBC reports:

Congress is looking at potential reforms to risky home lending practices, although a House subcommittee hearing on Tuesday suggests lawmakers are still sorting out the complex workings of the mortgage market and wondering whether reforms will be necessary or helpful.

With the number of foreclosures nationally jumping 47 percent in March from a year ago, lawmakers are weighing whether new lending rules are needed or whether the market is already in the process of self-correcting. The task of crafting reforms is made more complicated by the long list of players involved in mortgage transactions.

“There is a very complicated web of contributors to this issue that makes it very difficult and unwieldy to unwind,” said Rep. Melvin Watt, D-N.C., at Tuesday’s hearing of the House Subcommittee on Financial Institutions and Consumer Credit.

Watt and other committee members said Congress needs to avoid unintended consequences of trying to fix the housing market.

“It’s kind of like the Pillsbury dough boy,” Watt said. “If you push in one place, it juts out somewhere else.”

In Economics, we refer to this as the law of “there’s no such thing as a free lunch”

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Chuck Ponzi May 8th, 2007

Just another cheery story about insane lending practices over the past 3 years.  Reuters gives us the dish:

On September 15, 2004, the clock was ticking on Lelon DeWitt’s life and his subprime loan.

When the transmission repairman underwent open-heart surgery, he told his mortgage broker he didn’t want a housing loan that was in the works.

“I didn’t know if I was going to be dead or alive,” DeWitt later recounted.

But the mortgage broker, Troy Musick of Wholesale Mortgage Co., was so eager to clinch the deal, he followed the couple into the hospital, said DeWitt’s wife, Ruth DeWitt.

As a surgeon cracked Mr. DeWitt’s chest open for a quadruple heart bypass, the broker approached her in the waiting room of Elkhart General Hospital in Elkhart, Indiana.

“It’s now or never,” she remembers him saying.

Afraid of losing out on the chance to buy a home, she left the hospital and signed the loan documents. Lelon DeWitt survived the surgery, but not the $143,400 loan from Irvine, California-based Argent Mortgage.

Normally, I would insert some pithy analysis of what went wrong, and how it was really the borrowers’ greed that caused their own downfall, but I’ll refrain.  It’s bad enough that people are losing their home.  To point out that they probably never should have had one in the first place is just salt on the wound.

The story includes some of the most insightful commentary by some of the biggest names in the lending industry, but basically it’s the story of how subprime (and all lending for that matter) lost their compass and began giving money to everyone and anyone that could fog a mirror.  No questions asked.  That’s the cause of the housing bubble.  Throw away all of our fancy charts and graphs about job growth, employment, and migration patterns.  The alpha and omega is lending.

And so I say, good riddance, bad loans.  We hardly knew thee.

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Chuck Ponzi May 3rd, 2007

OK, the jokes can now officially begin.

New Century is now Old Century and some such garbage.

New Century announced that 2000. Yes, 2000 employees will be severed tomorrow (no, not their limbs, just their jobs).

From Forbes:

Financially strapped subprime mortgage lender New Century Financial Corp., failed to receive any bids for its mortgage loan origination business, forcing it to shut down the unit and lay off around 2,000 employees, the company told employees Thursday.

The Irvine-based company, which has been preparing to sell off its assets under Chapter 11 bankruptcy protection since last month, notified employees during a conference call that they would be laid off effective Friday.

Speaking on the call, New Century President and Chief Executive Brad A. Morrice said despite a number of potential buyers for its wholesale and consumer-direct operations, “none of those potential deals have come to pass.”

Just who those original “suitors” were remains a mystery to the outsiders. I remember clearly the day that it was announced that 6 companies had thrown their hats into the ring. I guess there was a realization that little to no value remained in that portion of the business. Of course, not all is lost, the servicing arm has already lined up buyers.

It’s good to take a look back at how hopeful that really was. Irrational Exuberance?

Interestingly, last night, my wife made me watch American Idol. One of the departing contestants (I don’t know or remember who) sang the Bon Jovi hit “Blaze of Glory”.

Therefore, I dedicate this video to New Century:

No I aint looking for forgiveness
But before I’m six foot deep
Lord, I got to ask a favor
And I’ll hope you’ll understand
cause Ive lived life to the fullest
Let the boy die like a man
Staring down the bullet
Let me make my final stand

• Credit Bubble , Debt , Mean Reversion , SubPrime
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Chuck Ponzi May 2nd, 2007

Ever since one of our favorite local housing economist, Chris Thornberg, left the UCLA Anderson Forecast, we have been left wanting for substance, critical thinking, and hard data from the remaining group that we used to get from Chris. No such luck.

In its place, we have a sunny disposition, mixed with happy-talk and crossed fingers. San Diego, in the throes of its worst real-estate slump in history, does not need happy talk. A discussion of return to fundamentals mixed with a healthy sense of actions needed to return to some semblance of attractiveness for citizens are required when you median price is falling at record levels.

All of this present-day bloodbath doesn’t stop the group from trying to turn up roses from the whole affair.

Consider first of all, the title of the article: Housing Rebound Forecast, yet risks lurk.

San Diego County’s housing market will continue to be flat for at least another year, and it could get worse before it gets better if spiking foreclosures dump a large number of properties on the market, an UCLA economist said Tuesday.

In the middle of 2008, however, the market is expected to rebound, said economist Ryan Ratcliff, who specializes in regional forecasts for the closely followed UCLA Anderson Forecast.

“I think you’ll start seeing light at the end of the tunnel next year,” Ratcliff said.

Consider that for a moment.

First off… the region’s market is far from FLAT. Flat means that volumes and/or prices are not on a downward tear. (They both are). Mix in the recent subprime meltdown and general tightening of credit, and you’ve got to be a zombie (or some other form of walking dead) to not see the future is at best grim for real estate. Prices won’t be in line with fundamentals without at least another 25% drop, and volume (a primary short-term predictor of prices) is still dropping like a lead balloon.

The best that the economists at UCLA can offer is that it “might” bottom out at the end of next year. That’s a sad state of affairs for a bottom-caller. The scenario that is portrayed (increasing foreclosures and defaults) is a foregone conclusion. With the bulk of ARM resets and Pay Option recasts ahead of us, we’re likely to see much, much more downward pressure.

Sorry for these bottom callers, this canary is dead.

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