It's begun...

[Rascal]

Sub-prime lender New Century Financial files for bankruptcy, Reuters reports

[Spider]

alot of good hard working people that got way over their means , are in alot of trouble .........

[Spider]

you take the average hard working American doing what he can to provide a good life for his family , offer him deals like the sub prime loans .........Should be criminal

[Bronco_Beerslug]

It's begun...Actually, we are about midstream now. It started last year.

[Rascal]

eh...the fall didn't start last year, although it did slow down.

But that doesn't matter, because it's obvious now to all.

[Bronco_Beerslug]

eh...the fall didn't start last year, although it did slow down.What fall? The housing market crumble started last year with subprime leading the way. I watch this stuff 5-6 days a week. I also posted this a couple times last year in various threads.

[TheDave]

Within the industry most of us are still trying to figure our how New Century stuck around as long as they did.

[W*GS]

The trouble with the housing market
Mar 22nd 2007
From The Economist print edition

After the great global housing binge, the hangover is kicking in. Especially in America

http://www.economist.com/images/20070324/1207LD1.jpg
James Fryer

June is National Homeownership Month in America. National Foreclosure Month would be more apt. Some corners of the mortgage market—notably “subprime” loans aimed at those with poor credit records—have a nasty case of dry rot. One subprime borrower in eight is behind with the payments. As the introductory “teaser” rates on more loans expire and monthly payments outrun the means of more borrowers, hundreds of thousands of Americans are set to be thrown onto the street.

Only a few weeks ago you could find voices claiming that the worst was over for America's sagging housing market. That is harder now. Although it is too soon to be truly gloomy about the broader economy, any structural surveyor would spot tightening credit and a glut of housing supply. The foundations are not much better: falling house prices are no good for consumer spending, which has been propping the economy up (see article).

Other countries may also be looking nervously at America. And about time. An American recession would scarcely be welcome—even if for the moment Asian and European economies seem to be doing nicely on their own account. However, the true cause for concern is that just as America's housing boom was part of a synchronised global binge on cheap money, its bust may be part of a global story too.

After a long, long night on the tiles
Listen around the world and you can hear echoes of America's difficulties—even if prices have not yet started to tumble. Start with subprime borrowers. In America these people are, not surprisingly, poorer (and less likely to be white) than those who can obtain mortgages at lower, usually fixed rates. They tended to join the great housing-market party late, when prices were already sky-high. Many appear to have been encouraged to take out loans by brokers more bothered about their fees than their clients' ability to repay their debts. And the lenders who advanced the money—dozens of which have had to shut up shop—underestimated the rate of default. Generously, you could ascribe this to the relative youth of the subprime market. Less generously, you might point to the effect of “securitisation” on lenders' incentives: knowing that loans could be lumped together and sold, and then chopped, repackaged and sold again, made for slack judgment.

To Britons, much of this will sound alarmingly familiar. “Self-certification” mortgages (translation for Americans: “undocumented” or “liar” loans) and interest-only loans have become more common as borrowers, especially young ones hoping to buy their first home or neophyte landlords who think that a string of properties will be their pensions, stretch their budgets (see article). In Spain lenders are courting the country's army of young immigrants, who often have short or patchy credit histories—and often, it seems, work on building sites themselves.

The other American theme is that homebuyers and lenders are reaping the consequences of loose monetary policy. When the Federal Reserve cut interest rates after the tech bubble burst, it inflated another, in housing. In Europe you can see a similar story. The single currency has brought the euro area's star performers, Spain and Ireland, unsuitably low interest rates—and house-price increases of 180% and 250% respectively in the past decade. Now both look too dependent on housing. In Spain, where the rate of house-price inflation has eased—eased—to 9% or so, housing investment now accounts for 7.5% of GDP. Were this ratio to fall to, say, 6%, still above the average for the rest of the euro area, job losses in building could cut employment growth by a percentage point a year.

Ireland looks rockier still. Housebuilding accounts directly for a staggering 15% of national income and 12% of employment. Whereas prices have soared, rents have stagnated in recent years and, at 4%, rental yields in Dublin do not cover even the cost of borrowing. Now prices are flattening too. According to Morgan Kelly, of University College, Dublin, to return the ratio of prices to rents to where it was around 2000, real prices will need to fall by 40-60% in the next eight or nine years.

What next?
Americans and others may be tempted to take heart from apparent soft landings in Britain and Australia. That would be a mistake. Admittedly Britain's housing market has had a second wind since a surprise interest-rate cut in 2005. But the effects of rate increases since may not have come through yet. And Australian prices have undergone huge regional variations. Buy-to-let investors in Sydney flats, who saw prices drop, may think their landing rather bumpy.

Inevitably, Americans will ask what policymakers can do. It is too late to unwind monetary policy of a few years ago; cutting rates now risks compounding the error. The Fed's main worry is inflation—and rightly so. Given the slackness of lending standards, especially in the subprime market, there is an argument for tighter oversight of non-bank mortgage companies, and at the federal rather than state level. It is tempting to blame securitisation for much of the mess. But the technique has been a boon, by and large, making credit markets of all sorts more liquid. And despite the arrears and foreclosures, subprime lending has been part of what Alan Greenspan once called a democratisation of credit. More Americans are able to borrow and buy houses. Most manage.

The economic consequences may yet be large; so may the political ones. Most of the gains from America's recent economic success have been scooped by those at the top of the pile—not least in the financial industry. Now many lower down face unpayable debts and the loss of their homes.

Populist politicians may well make much of the contrast between a second house in the Hamptons and no house at all. Instead, they should stop making a fetish of homeownership. That people are free to borrow to buy their own home, should they wish, is fine. That politicians should encourage homeownership for its own sake is not. That they foster it with tax breaks, as they do in America, is daft.

Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.

[defenseman]

Actually, we are about midstream now. It started last year.

I'll agree with that..dman

[Dudeskey]

Within the industry most of us are still trying to figure our how New Century stuck around as long as they did.

Creative accounting a la Enron, Adelphia, Qwest, etc...

[defenseman]

Creative accounting a la Enron, Adelphia, Qwest, etc...

most likely. Some freaking crooks out there running some pretty big corps. makes it bad for all of us..dman

[Rohirrim]

All I know is, there are a lot of houses for sale in my neighborhood, and they ain't sellin'.

[ak1971]

Creative accounting a la Enron, Adelphia, Qwest, etc...

The Dave is right, (we are all amazed that they were around so long) and its not just creative accounting...just a lot of bad loans. US Bank had to prop them up in 99

[defenseman]

The Dave is right, (we are all amazed that they were around so long) and its not just creative accounting...just a lot of bad loans. US Bank had to prop them up in 99

Send the f''kers to jail, that will clear the heads for a while..dman

[Rascal]

All I know is, there are a lot of houses for sale in my neighborhood, and they ain't sellin'.

Three in my subdivision that are foreclosures, and several others that are for sell that aren't selling.

[Garcia Bronco]

Prices need to come back down....most everything is over valued

[cutthemdown]

you take the average hard working American doing what he can to provide a good life for his family , offer him deals like the sub prime loans .........Should be criminal

Why? People have to make their own decisions. We can't legislate good business sense can we?

[defenseman]

Why? People have to make their own decisions. We can't legislate good business sense can we?

Nope. I will tell ya though, some of the deals I've seen on foreclosure are making alot of business sense though. I'm waiting for a very sweet one and grabbing it, that is for damn sure..dman

[RaiderH8r]

Why? People have to make their own decisions. We can't legislate good business sense can we?

Won't stop some folks from trying.

[Bronco_Beerslug]

Why? People have to make their own decisions. We can't legislate good business sense can we?
No, lets continue to let shady lenders give people undeserving loans without employment checks, etc..., it's good for the economy.

[ak1971]

No, lets continue to let shady lenders give people undeserving loans without employment checks, etc..., it's good for the economy.

Its all the lenders fault right? People need to take some of the fault themselves. I love reading story after story about someone losing thier home, when they never say that they willingly signed, or they have refi'd 6-7 times in the past 3 years, and all they wanted was that fat cash out check, payment be damned.

[Bronco_Beerslug]

Its all the lenders fault right? People need to take some of the fault themselves. I love reading story after story about someone losing thier home, when they never say that they willingly signed, or they have refi'd 6-7 times in the past 3 years, and all they wanted was that fat cash out check, payment be damned.No It's those lender's fault who gave these loans to people who wouldn't or didn't qualify. It's those lender's fault who knew what they were doing wasn't right but did it anyway.
Many lenders use subprime appropriately.

[Spider]

Why? People have to make their own decisions. We can't legislate good business sense can we?

thats the truth , if we could Haliburton , Cheney , Bush would be in the soup lines or prision ........

[ak1971]

No It's those lender's fault who gave these loans to people who wouldn't or didn't qualify. It's those lender's fault who knew what they were doing wasn't right but did it anyway.
Many lenders use subprime appropriately.

ok Ill give you that..I just hate the broad brush which it is painted with.

A lot of borrowers have used subprime for what it should be used for, as a band aid. This is why they offer 2-3 year Fixed ARMs. People have the loan for a couple years, clean up whatever credit mess they were in, and move on to a conforming loan again. The problem is that most consumers wont listen, and as the saying goes 'once an subprime borrower, always a subprime borrower'

[TheDave]

Sorry folks but this is a 50/50 deal. Yes some of these lenders were nothing more than predators. On the other hand people need to exercise fiscal responsibility. This is not a cut and dry issue. There is a lot of grey area. Unfortunately a lot of companies are going under, a lot of people have and will lose their jobs, and a lot of people will lose their homes... Sad deal all around

[Rascal]

Sorry folks but this is a 50/50 deal. Yes some of these lenders were nothing more than predators. On the other hand people need to exercise fiscal responsibility. This is not a cut and dry issue. There is a lot of grey area. Unfortunately a lot of companies are going under, a lot of people have and will lose their jobs, and a lot of people will lose their homes... Sad deal all around

Yeap.

And the government is big enough as it is, no need to give another responsibility for it when it can't do what it's suppose to do already.

The companies that gave out bad loans will pay the price as well.