Brace for Impac, We’re Goin’ Down!
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.
If I remember correctly, loans with stated income and very good credit were (are?) actually considered prime loans. I have to imagine that income, stated or verifited, has not increased as much as real estate. My bet, more write-downs and bigger craters .
Alt A loan problems will be where the absurdity of the prices will be demonstrated. Most of those loans were to people who had good credit and jobs, but had to stretch to get the loan because prices were so high relative to income. The subprime blow up so far really had to do with giving loans to people who should get them period. Alt A will be all about what happens when incomes do not correlate to home prices. Watch what happens.
“…The subprime blow up so far really had to do with giving loans to people who should get them period.”
Meant to say should NOT get them…
Just watching this accelerate is astounding.
Man… I was born under a bad sign. This whole thing is going to crater the entire economy right through my peak earning years.
I keep seeing all these stealth bailouts from FM poping up. Sounds like Clinton/Obama et al. plan to tinker with this so that subprime will get absorbed by us taxpayers.
What the hell. I just can’t do anything but get out of the way of the trainwreck as best I can.
I want to say we could leave the country but this seems to have spread beyond U.S. borders…
I don’t see much acceleration in terms of decreased costs for housing in the IE. I would say that we have accelerated into a flat market and that is where we find ourselves. Costs in the 600-900 range are down generally about 10% only over the past 6-8 months. Housing prices for both existing and new homes are still insane. There is no getting around that fact at all.
Yeah, okay. Keep telling yourself that Nate. The train is coming and the IE will not be sparred. Not even close.
LAEF2 - All economies create opportunity, you just have to be smart enough to zero in on what the need in those circumstances are. Hopefully no Bush-a-likes in ‘08 and the country will get back on a good footing.
JWM in SD
Nate wasn’t defending the IE. He was merely pointing out his observations of prices up to this point.
Depending on where in the IE you are, he’s right in his observations thus far.
Yeah, I’m not “telling myself” anything, I’m just looking everyweek in the paper at the closed transactions and I don’t see much activity in my price range at all. Maybe one house sells per week between 600-900K in Rancho Cucamonga. Sellers in this price range have it rough right now and yet I’m not seeing much movement. Maybe as summer approaches but if you look at MLS inventories which I have been tracking since December 2006, there are 12 more homes on the market now between 500 and 800K than there were 2 months ago. Twelve. That is a whopping 3.9% increase. So, at least in the RC, as I stated above, we’ve seen a movement of about 100K downward compared to one year ago in the 650 to roughly 850K range and basically no movement at all in the last 60-90 days.
So, I don’t think I’m fantasizing about any train coming or not coming, I’m looking at the data. Now, sales prices do not take into account a lot of concessions that are made in a sale, but concessions usually aren’t a huge % of sales prices.
I have visited ALL the models in the area and if there is any message I can give to sellers is take a look at what the builders are offering. If your existing house is on a small lot or near the freeway, I’m not going to buy it if it is priced the same or more than the new house which has more square footage and a bigger lot, in a better, quieter neightborhood. Many, MANY sellers are just plain out of touch with reality in the RC market.
I think there are a lot of us just waiting to pull the trigger and are itching to get our wives and our kids out of our rentals and into the house we will make memories in. I’m hoping this summer makes some sort of difference so that we can own a home and still be able to take a vacation or two in life…. Right now buying would only decrease quality of life and increase stress. Have heard a couple of people losing their homes talking around the office. I feel bad for them, but hope we soon return to more reasonable housing prices.
the only way prices will fall is if the lending standards revert back to the 20% down + 28% DTI rule. The loose lending created this bubble and the retraction of loose lending has to reverse it.
As long as there is easy money there will be full price offers minimizing declines in home prices. There are still NegAm and IO loans available with weak credit.
Lending standards have already tightened. We’ll never revert to 20% down and 28% DTI rules. There is still too much capital out there. Not to mention there are very few people…VERY FEW…who can qualify that way. Banks will find a way to package deals and still make money. They are in the business of making money and will find a way to do it.
You are right. I started calling around to various lenders to get the process of getting financing started and the first one didn’t even offer a 30 year fixed product. All they talked about was 10 years interest only. The alternative loans are still alive and well. So, you are right, some things in the lending industry are going to have to change for the prices to really come down.. but I think fewer people are going to jump in to stupid loans than in the past few years….
I think that interest only loans will continue. What is very popular now is a 30 year fixed loan with 10 year interest only option. Nate you can always pay more than interest only but of course most don’t. The rate however doesn’t change for a full 10 years. After 10 years the payment does increase because you have to pay the remaining balance over the remaining 20 year term.
I think the general borrower sees these high prices, (Even 300,000 is a lot of money guys) and realized they won’t ever OWN their home. So…why not pay interest only for 10 years. At the end of 10 years it’s highly doubtful that the house will be worth less than they paid for it 10 years earlier.
I have this loan and rather than pay to principle I take the difference in payment and send it my IRA.
I advise my clients to do the same however it takes discipline and it’s sad to say that few people have that discipline.
**I meant to say the rate doesn’t change over the life of the loan (30 years fixed)
Chris,
Your assertion is central to the deflation of the housing bubble, so I appreciate your opinion.
While housing prices simply got way out of control, how hard they fall depends largely on the financing options that are left after this round of standards tightening. I, as an informed consumer, welcome new financial products. Normally, however, lenders have been more cautious in rolling out new products than they have in the recent past.
One of the most important and critical key findings of banks and regulatory groups in the past year have been that loan default rates are much more correlated to the product than the credit scoring (aka FICO). Based on this information, it is the “risk layering” of the products offered that causes the problems, not the borrower as previously suspected. This key is important to know whether this innovative financing remains, and subsequently, whether housing prices remain at more elevated levels than historically.
No matter how you look at it, it was the credit bubble that created the housing bubble, so any threat to the credit bubble is a threat to the housing bubble.
Chuck Ponzi
Nate… I know exactly how you feel but don’t count for prices to fall this summer.. we’re looking at summer 2008.. maybe. It will take forever for the price to decrease. In 2010 / 2011… we will have affordable housing.. until then.. we rent like a bunch of suckers.. lol
Yeah, to get to “affordable housing” we are a looooong way off. But I hope we get closer in 2007.
I am not sure if everyone saw this in the Register but I will be going and doing a post on it on IHB.
http://www.ocforum.org/speakers/?speakername=simon
OC forum is having a luncheon with Scott Simon of PIMCO on “The Subprime Meltdown” “What does it mean for OC?” on Wednesday the 23rd. Scott is the managing director of portfolio management of mortgage and ABS for PIMCO. OC Register blogger Matthew Padilla will be there to do the introduction.
For a comment on this topic see my comment on delinquencies at Padilla’s blog and Impac’s rate. http://blogs.ocregister.com/mo.....her_1.html
the Bean-Neugebauer amendment…
Looked over on doom. Seems like the key pieces needed for a complete economic collapse are being put in place.
Risk management isn’t allowed to consider systemic risk in the mortgage holdings.
Oye vey.