Friday, April 15, 2005

Big Losses For Housing Sector

I figured the institutions had drawn a line under the price of Fannie's stock at 55, but somebody sneaked it down 3.3%, at 54.21. MBIA has a proxy firm calling for heads to roll. See how some losses change things?

The home builders have really broken down. Negative numbers again; Toll 3.4%, Pulte 3.7%, KB Home over 4%, Ryland 2.3%, DR Horton almost 3%.


At 4:24 PM, Anonymous Anonymous said...

You ain't seen nothing yet, Ben.

The bond market is getting really scared of the GM situation and GM is set to announce earnings next week. Everyone is afraid of what GMAC really holds.

The bond market is also afraid of the Fannie Mae situation. The yield spread isn't enough. MBSs are a time bomb waiting to explode. Nobody is talking about it, nobody wants to rock the boat, but there are some huge ghosts that this market must deal with in the near future.

What you see today will be a blip compared to what is to come. I'll bet we see FNM drop 10% or more a day several times in the near future. And the US dollar and interest rates are going to get kicked around too when it happens.

The analysts are all scratching their heads as to why the DOW dropped 200 points today. ITS THE CONSUMER, STUPID ! He's out of money. He spent it all on his house and now he is worried it might depreciate. He's up to his eyeballs in debt. He can't afford to put fuel in his SUV. He can't afford the taxes on his condo. His rental house isn't occupied.

Today was the start of something much bigger. The cleansing of the US economy.

At 4:39 PM, Blogger Ben Jones said...

(The cleansing of the US economy)

All the mal-investments will have to be purged. Do you remember the Resolution Trust Corp. that Uncle Sam set up to hold all those S&L houses? There was a time when, in dollar terms, it was the biggest corporation in the world. Bigger than Exxon.

I walked my dog today and there are empty houses everywhere. And they are building all over Arizona.

At 4:53 PM, Blogger John Law said...

someday they may knock down homes and farm those fields!
well, not in Arizona.

my marketocracy short portfolio cleaned up today.

At 5:02 PM, Anonymous BKlawyer said...

. . . . . San Diego update on the abandonment of houses purchased with 80/20 loans. I told you that last week I had a client returning 2 houses she bought with 0 down and 80%/20% loans. She didn't care because she had no money into the houses. A client just walked out of my office who is walking away from 3 homes he purchased in the last year with no money down and 80/20 loans. That's 5 houses back on the market in the last 7 days where the mortgages exceed the fair market value. the trickle before the flood??

At 5:09 PM, Anonymous Anonymous said...


Could you tell how long these people kept the houses. or when did they buy these houses?

At 5:19 PM, Anonymous BKlawyer said...

All purchased within the last 1-2 years. Houses purchased on speculation that they could rent them out until the market made the expected appreciation. Problem is that the mtg. brokers failed to to explain negative amortization, debt to income ratios and rising short term interest rates on HELOC loans which are tied to SHORT term (rising) rates not long term.

At 5:37 PM, Blogger John Law said...

what a crime this all is.

At 5:50 PM, Blogger Little Silvered said...


You can use

I usually only check it at night though.

At 7:11 PM, Anonymous BoyInTheBubble said...

Well, at the very least, these houses go up for public auction, thus increasing the supply, and the bankrupt folks can't get a mtg for 7 years... right?

At 7:16 PM, Blogger Ben Jones said...

Thanks BKLawyer

At 9:26 PM, Anonymous Anonymous said...


Thanks for the "one action" rule. Googling it led me to this, which I found very interesting:

This was written in 2000, back when things were only fun-crazy and not scary-crazy. In particular, I was interested to read how multiple mortgages are handled. HELCO obviously falls into this category; I assume that "piggy back" mortgages do also? Given how many people are getting loans beyond purchase-price loans, it seems to amateur little me that we're going to see a big spike in judicial foreclosure; what are your thoughts?

At 10:49 PM, Anonymous BKlawyer said...

In the 4000+- bankruptcies I've filed I've only seen 1 judicial foreclosure. Judicial foreclosure means filing a lawsuit to foreclose which means at least 1 year of litigation. The normal (non-judicial)foreclosure time period in Cal. is a 90 day notice of default followed by a 20 day notice of intent to sell, then the foreclosure sale. Owners can sign a note in lieu of foreclosure which can speed things up.
Don't confuse what is happening on the owner side with what the lenders have to do. The owners will walk away. The lenders will have to do what the law requires. The marketplace will not afford either side any latitude.

At 11:11 PM, Anonymous Anonymous said...

When the builders stocks fall you know that the cycle is ending. The stock market always knows first. The next thing we'll be reading about is mass layoffs in the residential RE sectors. Construction workers first, then mortgage brokers. RE agents are paid on commission so they will just fade away. My guess is this summer the trend will be in full force.

At 11:16 PM, Blogger Ben Jones said...

(My guess is this summer the trend will be in full force)

It looks like your right, anon.

At 12:39 AM, Anonymous Don said...

Ben Jones said:

My guess is this summer the trend will be in full force

Yes, it most certainly will. The YoY price comparisons are going to start looking bad, like the YoY sales figures are looking now, that will hit the headlines and the floodgates will open.

To give people an idea of what happens in a real rout, here's an example that happened to me:

I was a part owner of a startup looking for more office space, our agent showed us a small office building we would be able to rent some space in. The building was about 90% vacant and I could practically hear the RE agent salivating since we liked the space (it was an old telco building and we were a tech co). I asked him how much to just buy the building. He was really surprised that we were interested and got back to us the next day. Its last appraisal was 750k but the seller would give us a break due to the vacancy and asked 250k. We countered at 100k (including commision) and put the entire purchase price up in cash as a refundable deposit. Keep in mind that this building was not some rusting heap, it was state of the art space fully cat 5 wired with a fiber drop in the machine room that went straight to the new telco HQ.

The owners took the offer that day, for an offer that was 12.5 cents on the dollar vs the appraisal after commision

Stick that in your pipe and smoke it RE bulls.

At 12:50 AM, Blogger mspenelope said...

WOW...Great story Don..
Congratulations and
thanks for sharing.
Can you tell us what state this was in?

At 12:58 AM, Anonymous Don said...

It was in Manitoba, Canada.

Generally not a place people think is cool to live, but you play the hand you're dealt.

At 3:04 AM, Anonymous Anonymous said...

can anyone confirm that the new bankruptcy bill specifically targeted the one-action rule and prohibition on deficiency judgements in purchase-price foreclosures?

I know in california, at least, if you find yourself upside down on your mortgage you can simply "walk away" from the loan and your mortgage holder can't even so much as screw with your credit report.

all they can do is take the house. the house is the ENTIRETY of their judicial rememdy.

(if you took out a second mortgage for some cash, then apparently those rules dont apply)

What I am wondering is this- in california EVERYONE is going to walk away from their home loans pretty soon. And we all know that Wells Fargo has originated about 90% of those loans, since Freddie and Fannie are unable to operate in California due to the average home price being above what their charter allows for a maximum loan value.

Would shorting Wells Fargo be a good way to profit from the upcoming collapse?

At 3:38 AM, Anonymous Anonymous said...

check out this article in the motley fool from april 8th.

"There are two things that homebuilder stock investors need to know. The first is that if or when the sector does crash, it will crash hard. The second is that that time isn't coming anytime soon."

At 7:59 AM, Anonymous Anonymous said...

the guy who wrote it could claim right atleast 50%!


At 8:08 AM, Blogger John Law said...

it may take a long time for the homeowner to know what the fall in homebuilders means. remember, these bubble go longer than expected.

At 8:11 AM, Anonymous Anonymous said...

That's actually a fairly balanced article despite the bizarre opening statement. All I could say is that most of the home builder stocks all have pretty much the same profile in their stock charts (straight up since '03 and relatively flat and much cheaper prior to that.) I believe they'll go back to being cheap and flat very soon, and the market apparently agrees. Discalimer: short on TOL and KBH.

At 7:05 PM, Anonymous Anonymous said...

I am probably the only Realtor in the Los Angeles area that agrees, we are headed for big trouble and I am looking forward to it.

I have spent the last year establishing relationships with REO departments of many lenders. REO is the department that handles and disposes of foreclosed properties. The purpose of my relationship with them is to list their REO properties.

I have discovered that a few of the large lenders are already preparing for the rise in foreclosures and some have told me that they are already starting to see problems in certain areas (San Francisco area was mentioned in particular).

I think this downturn will make the downturn of the early 1990's look like a walk in the park.

People don't get it, history shows that real estate and business markets are cyclical. There were corrections in the 1960's, 1970's, 1980's, 1990's and it is way overdue for the 2000's. All the signs are there, but they are blinded by their greed.


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