by Calculated Risk on 3/15/2007 11:01:00 AM

From USA Today: Workers find it tough to relocate

The offer was too good to turn down. Just after selling his home and moving to a new place, Joe Cashen landed a marketing job with Nissan North America. The catch? He would have to sell his newly purchased home and move his wife and two young daughters from Los Angeles to Nashville.

Two years ago, amid the feverish housing market, such a relocation would have been simple.

But the real estate slowdown means there's no such thing as an easy move anymore: Slumping prices have put a sudden chill on employees' ability to relocate for a job and employers' ability to get new hires to move. Cashen's house languished on the market for more than three months, and he was eventually forced to take a $90,000 loss.

I mentioned a similar story yesterday. Escrow to sellers: "Bring money to closing".

by Calculated Risk on 3/14/2007 10:53:00 PM

Wells Fargo has confused investors by including co-issue loans in their subprime loan production.

According to most sources, Wells Fargo was the #1 originator in 2006 with $83 Billion in subprime loans.

But that included co-issue loans. Going forward Wells Fargo will only report the subprime loans it originates.

From MarketWatch: Top 10 subprime originators lean to left coast

... San Francisco-based Wells Fargo [reported] $7.4 billion in subprime mortgages [in Q4 2006]. That [appears to be] a steep drop from the third quarter when the banking company was the biggest subprime originator by far, with $23 billion in loans ...

The drop reflects a change to the way Wells Fargo reports its subprime mortgage originations to the trade press.

Prior to the fourth quarter, the banking company included co-issue loans, or mortgages for which it had bought the servicing rights while an investor such as an investment bank purchased the underlying loans.

"Including co-issues in our nonprime loan production was confusing investors and others," said Wells Fargo spokesman Jay Lawrence. As of the fourth-quarter, the company started to report only the subprime mortgages it originated, he said.

by Calculated Risk on 3/14/2007 05:32:00 PM

From Fleckenstein on Alt-A:

My friend in subprime updated me last night, as follows: "The Alt a space has deteriorated very quickly, but not yet public. $40 billion in subprime still waiting to find a home. No loans will be bought at attractive prices until May production as it will be underwritten to new guidelines. The triple bbb's are a mess. The hedge funds that bought it are all in trouble. ... warehouse guys and Alt a guys are now next. Alt a guys may be worse as less insurance on those loans to protect them. The loan sizes are bigger as well."

by Calculated Risk on 3/14/2007 04:41:00 PM

From DataQuick: Southland home sales slowest in a decade; new price peak Southern California's housing market sent out more mixed signals last month:

Sales fell to a decade low while prices inched up to a new record, a real estate information service reported.

A total of 17,680 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in February. That was down 2.5 percent from 18,128 in January, and down 19.8 percent from 22,046 in February last year, according to DataQuick Information Systems.

Last month's sales were the lowest for any February since 1997, when 15,772 homes sold. Since 1988 February sales have averaged 18,631. A decline in transactions from January to February is not unusual.

The median price paid for a Southern California home was a record $495,000 last month, up 2.1 percent from $485,000 in January and up 5.3 percent from $470,000 in February last year. The previous record was $490,000, reached in both June and December of last year.

by Calculated Risk on 3/14/2007 03:22:00 PM

From Reuters (hat tip James): Top investor sees U.S. property crash

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," [Jim] Rogers said.

"When markets turn from bubble to reality, a lot of people get burned."
...
"This is the end of the liquidity party," said Rogers.

by Calculated Risk on 3/14/2007 12:59:00 PM

I spoke with one of the top agents in San Diego last night. The housing market there is "tough". Short sales and REOs are becoming more common.

My friend told me one story of some clients that had recently moved out of state and needed to sell their condo. The clients had purchased the condo two years ago, and were able to sell for not too much less than their purchase price. Unfortunately the loan amount owed was more than the sale price.

Since the seller had a good income, solid credit, and was making the payments, the bank wouldn't agree to a short sale. So it really hurt when the escrow company (for real estate transactions in California, the money is handled by an escrow company) called and said "Bring money to the closing". The seller had to write a check for $20K.

That was two months ago. Since then no more units have sold in that complex, and some sellers are now listing comparable units for another $20K less than her client's sale price. Today her clients would have to bring $40K or more to closing, if they were lucky enough to find a buyer.

by Calculated Risk on 3/14/2007 09:50:00 AM

A couple of overlooked subprime stories (hat tip Jeff):

From Reuters: H&R Block delays filing quarterly report

H&R Block Inc. ... said on Tuesday that it expects to delay filing its quarterly results with regulators after turmoil in the subprime mortgage market forced it to write down assets at its Option One Mortgage Corp. unit.

The write-down will affect cash flows, the balance sheet and reported earnings, and the company expects to file the results by March 19.

H&R Block said in a regulatory filing it had to write down $29 million of assets, before taxes, at its Option One unit.

From Reuters: GMAC to get $1 bln from GM, cites subprime pressure

General Motors Corp. will inject $1 billion into GMAC, its former finance arm said on Tuesday, a capital infusion needed to complete the sale of the automaker's majority stake in the face of escalating defaults in the U.S. mortgage market.

GMAC, which reported results on Tuesday, said that even after the equity injection from GM, "continuing pressures in the U.S. mortgage sector" would weigh on its future earnings.

Under terms of its sale to a group led by Cerberus Capital Management, GM had guaranteed a minimum book value of $14.4 billion when the sale closed at the end of November.

However, a recalculation of GMAC's book value revealed a shortfall caused by the mortgage losses that GM is now trying to address with the $1 billion cash injection this quarter.

by Calculated Risk on 3/14/2007 09:19:00 AM

Note: With the rapid changes in the mortgage industry, this survey might be misleading. See my comments last month on MBA Purchase Applications.

The Mortgage Bankers Association (MBA) reports: Applications Increase in Latest MBA Survey

The Market Composite Index, a measure of mortgage loan application volume, was 690.5, an increase of 2.8 percent on a seasonally adjusted basis from 671.6 one week earlier. On an unadjusted basis, the Index increased 3.2 percent compared with the previous week and was up 19.1 percent compared with the same week one year earlier.

The Refinance Index increased 3.5 percent to 2312.2 from 2234.2 the previous week and the seasonally adjusted Purchase Index increased 2.2 percent to 414.3 from 405.3 one week earlier.

Mortgage rates were mixed:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.03 percent from 6.04 percent ...

The average contract interest rate for one-year ARMs increased to 5.86 from 5.79 percent ...

Click on graph for larger image.

This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is up 0.9 percent to 400.6 from 397.2 for the Purchase Index.

The refinance share of mortgage activity increased to 46.2 percent of total applications from 46.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 21.9 from 21.4 percent of total applications from the previous week.

by Calculated Risk on 3/14/2007 02:27:00 AM

From Dave Altig at Macroblog: Foreclosures And Delinquencies: Its All In The ARMs

Professor Altig presents a series of graphs based on the MBA delinquency and foreclosure data.

The problems are not just in subprime. Right now the Midwest is having the most problems, but the coasts will probably see a significant increase in prime delinquencies and foreclosures in 2007.

by Calculated Risk on 3/14/2007 12:47:00 AM

Click on graph for larger image in new window.



Not all chain reactions start with a first time buyer using a subprime loan, but the loss of a large number of subprime buyers will impact the entire chain.