anoop wrote:
- quote -

I think the paper itself, the entire portfolio of subprime will settle
out a bit better than you imply. The totality of the underlying real
estate is not likely to be worth 40% less that when the loans were
written. There are tranches which, by design, will retain full value,
and those that are worthless. The very convoluted way in which these
securities were created is beyond any discussion here, but my
oversimplification is this: imagine a mortgage is sliced up into 10
notes, the first of which represents the first 10% of the home's value,
and the last, the highest 10%. When a house is foreclosed, and sold for
$70K vs a mortgage of $100K, only the first 7 notes are paid, the last
three are lost. A brief analogy.
Not every last mortgage is going to fail, and not every one that fails
will return zero on the loan
JOE

PeterL wrote:

- quote -

Somewhere I got the impression that China in particular has a major role
to play in this. Last I heard they hold some tremendous amount,
hundreds of billions if not trillions, of U.S. currency.

Also, a recent web commentary I skimmed through mentioned that large
investors may diversify their debt holdings by acquiring both high
qualilty senior bonds and sub-prime bonds. But now they are having
difficulties finding buyers for the latter, so they may have to sell
more of the former than they wish to, if they have to sell at all.

Disclaimer: macro-economics is not a topic of expertise for me.

-Mark Bole

anoop <ghanwani[at]gmail.com> wrote:

- quote -

To the above you have to add closing costs for both the purchase and
sale of the house.

In my case, I'm reasonably certain that I will be moving in two years. I
can rent for those two years for less than it would cost for the
interest and closing costs for a house of equivalent value (never mind
the taxes, insurance, and PMI.)

On Aug 11, 12:59 am, Bucky <uw_badg...[at]email.com> wrote:
- quote -



three words: worldwide credit crunch.

On Aug 11, 3:03 pm, "The Henchman" <dontsellmest...[at]iampoor.netwrote:
- quote -

Real estate is local in terms of "houses are $XYZ in this neighborhood
in this area compared to ..." Most definitely at a micro-level, the
local economy/population/demographics/geography/weather/etc all
combines to produce specific values.

But when you zoom out, credit is the tide that floats all boats. There
are some places like Michigan where the auto industry is so unstable,
the boats have already sunk. But for the most part, easy credit has
increased the relative value of housing compared to previous values
pre-credit-flood. And now the credit tide is ebbing like a reverse
tsunami. I don't want to sound all doomsday-ey but just brief perusals
of housing and mortgage environments nationwide and worldwide leave a
very bad impression. Considering how much the housing boom has propped
up the economy since 2001, having that burst will be a noticeable
negative impact both here and worldwide.

Consider the timeline. When NEW/LEND/etc blew up back in February,
Bernanke was on TV saying "subprime only - it's contained". Now you
have companies like AHM going belly-up and CFC/IndyMac in dire
straights. These are the major alt-prime lenders. The talking heads on
TV are saying with a straight face "it'll stop here -- prime is safe".
Then the big stock dropoff on Thursday came after AIG's released
report of how they're seeing defaults rise significantly on all credit
bands -- subprime, alt-prime and prime. And of course, they
immediately followed up with "but it should not be a cause for concern
because of XYZ and ABC". Do you trust any of these assurances after
they''ve been wrong several times already?

On Aug 11, 6:53 pm, joetaxpayer <joetaxpa...[at]nospam.com> wrote:

- quote -

Not if nobody wants to pay for its maintenance.
Owning becomes a no-brainer only if the cost of mortgage + property
tax + maintenance + HOA dues + Mello Roos is less than
or equal to the cost of renting. We are still far from those
prices, and at least where I live, prices would have to fall
another 40% for that equation to hold true.

Anoop

- quote -

There seems to be three facets of this issue, first, the anomoly in
rates, specifically, the short term rate dropping to record levels, 1%.
Second, the surge in the high end home prices. Of course you can say
that the rates drove the prices higher, as the same dollar bought far
more mortgage at 3% than it did at 9%. Last, the no-doc mortgages,
brokers filling in applications that were signed when still blank.

Underestimating risk was certainly part of both events, at least the
houses have some value, even 70% is better that the dotcom's 10% or less.

JOE

joetaxpayer <joetaxpayer[at]nospam.com> wrote:


- quote -


- quote -

And the fun ain't over. ARM resetting peaks in 1st quarter of 2008 with more
mortgages ($ value) resetting in one month than all this year so far.

What we are seeing is a general repricing of risk, especially in the credit
markets. The spread between Treasuries and junk bonds is lower than it has been
in years. That is a symptom of people chasing yield and ignoring the risk.

Beyond sub prime mortgages, much of the leveraged buy-out boom we have been
seeing is driven by cheap risky debt. I'm told that the broker that handled the
paper for the Chrysler buy-out has been unable to sell it, so they are having to
carry it themselves.

There are strong analogies between this current party and the dot com bust of
2000. Then, the market underestimated the risk of the Internet stocks. Now,
the market underestimated the risk of various debt instruments.

-- Doug

<wyu[at]talisys.com> wrote in message
news:1186861149.318165.215500[at]z24g2000prh.googlegroups.com...
- quote -

Any evidence to suggest it's overvalued worldwide? Real estate always has
been a very localized market in my understanding.

And what about housing markets for years that were undervalued?? Another
point: There is a global shortage of urban and suburban housing worldwide
now and the condition will only get worse with over half the world's
population living in cities.

The city beside me where I wanted to live in grew by 35 000 in 5 years
(that's double it's 2001 city size) and the city I work in has tripled in
size in 1991 census. The rural area I left in has been pretty stagnant (3
hours drive from here) since the early 1990's.

I always thought real estate was a local condition, that's all.

On Aug 11, 12:59 am, Bucky <uw_badg...[at]email.com> wrote:
- quote -

It's a symptom that housing overvalued worldwide and the effects of a
correction will be major. Although people go on the news and say "it's
contained to subprime", in private they're busy covering their own
behinds. E.g. CEO of Countrywide selling shares a day before
announcing the mortgage market is the worse they've ever seen.

Bucky wrote:
- quote -

The system was able to handle the 'normal' default rates until recently.
A normal default, to me, is one occurring in a real estate market where
values are increasing each year (amount doesn't matter, it's positive)
and when a buyer defaults, the bank is able to recoup say 80-90% of the
money owed. A 10% loss on 5% of loans offers manageable numbers.*
Now, in more recent times, we had a cycle where short rates dropped to
1%, and a standard ARM, was offered at under 4% (this is not the teaser,
this was the real rate). Now, with the 1 year t-bill at 5% or so, the
rate has adjusted to near 8%. A $250K mortgage payment would jump from
$1200 to $1800 over this 2 year period.
Next, add the fact that the homes were over valued and these weren't
$250K loans but twice - three times that. Then to top it off, the
initial payment in my example wasn't really $1200, but an interest only
teaser rate of 3% offering a payment of $625.

This all created a cycle where nothing was normal. A large number of
mortgages were offered as ARMs that were time bombs, financially, all of
which would create a potential problem of some sort. This wasn't just
new homes, there was refinancing as well. Stories of people moving from
a 30 year fixed at 5% to an ARM which was destined to go to 8%, to pull
cash out to do God knows what, just broke my heart.

The sheer magnitude of the amount of paper involved is the answer to
your question. If this were isolated regionally, or to a small number of
lenders, it would have less impact. As Nouriel Roubini's article (what a
gem, I didn't realize he maintained a blog) states, half the mortgages
originated in 2005-2006 were of the nature I described.

JOE
www.blog.joetaxpayer.com

*this is for illustrative purposes only, I haven't researched 'normal'
default rates.

"Bucky" <uw_badgers[at]email.com> wrote in message
news:1186819100.059551.243520[at]i38g2000prf.googlegroups.com...
- quote -

I'm in Canada and I heard our central bank pumped billions of dollars into
the banking system the other day. Now all Canadian banks have US exposure,
and if it's not in the personal lending side like mortgages then it'll also
be in the brokerage side as well. I dunno if the Canadian central bank
pumped all this money to help us Canadians out or to help out the USA which
is still considered our largest trading partner

Canada's housing market is still in boom mode. New, Resale, and
recreational housing prices increases are slower than they were but they are
still increasing to record highs. Real estate agents are camping out to be
the first in line in some developments here in Toronto and our province is
in the weakest position in Canada. Some cities in Canada had prices
increase 30% last quarter. At the same time our national wages increased
above national inflation the last 3 years

So again why did Canada's central bank pump billions into a money system
because of a problem that has nothing to do with us? This problem shows no
signs are coming here. Unfenced border and all.

My guess is there is no credit left in he USA and private equity firms can't
make payments so American brokerages and Banks must go to foreign sources
for immediate cash. American Brokerages and smaller banks are prolly not
able to sell the debt and are stuck with it on balance sheets. Bigger
banks have good cash flows so they can hide it a bit easier. Brokerages
can't hid it as well and funds have to be frozen. When funds are frozen,
cash is not so liquid.

I looked at two private equity deals that mean alot to me: Home depot's
sale of HD supply and here in Ontario the Teachers Pension plan to buy Bell
Canada Phone company. The HD supply deal might be breaking down and the
private group want a lower sale price. Home Depot can get stuck with HD
Supply if the price goes to low.

In both cases the private buyers are having trouble finding the money they
promised. I bet if you look at other private equity deals the case will be
true. If the subprime and maybe Alt-A markets collapse tying up vast sums
of money and of coarse the profits that were supposed to be made (and
reinvested into other loans), maybe that's how it affects global money
supply.

On Aug 11, 12:59 am, Bucky <uw_badg...[at]email.com> wrote:
- quote -

Subprime is just one of the things causing these problems.
There are a number of other issues that aren't being explicitly
called out. There's a bit of a domino effect and the financial
markets are worried that things are beginning to unravel.
http://www.rgemonitor.com/blog/roubini/209779/

Anoop

Obviously, the borrowers are affected by having their homes
foreclosed, and the lenders are affected by having their loans
defaulted. But why is this such a global crisis?