by Calculated Risk on 3/15/2007 07:57:00 PM

Recently we've seen two interesting maps: the MBA delinquency map and the BusinessWeek "Map of Misery" showing the percentage of loans with payment options by state.

Here is the BusinessWeek Map of Misery. This map is from BusinessWeek's cover story: Nightmare Mortgages

If we combine the maps, are we looking into the future?

Click on Map for animated GIF combining the two maps.

No wonder Goldman Sachs expressed concern yesterday about "the credit quality of ... prime ARMs with very low initial interest rates ... deteriorating at pace that is similar to that of subprime ARMs."

This map shows what might happen in the near future with delinquency rates.

by Calculated Risk on 3/15/2007 05:14:00 PM

From Bloomberg (hat tip Brian): Toll Calls Spring `A Bust,' Can't Predict Recovery

"When will the market rebound?" [Toll Brothers Inc. Chief Executive Officer Robert Toll] said at a conference in Las Vegas today. "Who knows? The Shadow knows. I have no idea. I would've thought that it would've rebounded by now and I would've been dead wrong, and I was."
...
"You saw no jump in all the other markets and the spring selling season, or the prime selling season, was pretty much a bust on a per community basis," Toll said.

The Wall Street consensus was for a bottom in Q1 2007. That view is "no longer operative". I'll try to call the bottom for New Home sales, a couple of quarters before it happens, but IMO it is still too early to even try.

by Calculated Risk on 3/15/2007 02:33:00 PM

From Reuters: Mortgage malaise may bring recession: Merrill

House prices could tumble 10 percent this year and force the United States into recession if a credit crunch taking shape in the mortgage market gathers steam, Merrill Lynch said in research notes this week.
...
"It is not inconceivable (given what is happening now to mortgage originations) that we end up with something closer to a 10 percent decline in home prices this year," Merrill Lynch said.
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However, if the inflation-fighting Federal Reserve were to keep rates unchanged to contain price growth -- instead of cutting by 1 percentage point in the second half of 2007 as Merrill expects -- then this would put the probability of an outright recession in the second half at "very close to 100 percent."

Wow. And I though I was bearish on housing. My prediction was for a 1% to 3% nationwide price decline in 2007 (as measured by OFHEO).

by Calculated Risk on 3/15/2007 02:23:00 PM

From CNNMoney: Greenspan: Subprime risk may spread

Former Federal Reserve Chairman Alan Greenspan said on Thursday there was a risk that rising defaults in subprime mortgage markets could spill over into other economic sectors.

Speaking to the Futures Industry Association, Greenspan conceded that it was "hard to find any such evidence" about spillover from housing yet. But he added: "You can't take 10 percent out of mortgage originations without some impact."
...
He said that subprime woes were "not a small issue" ...

by Calculated Risk on 3/15/2007 11:08:00 AM

In a research note titled "Mortgage Credit Quality Problems Go Well Beyond Subprime", Goldman Sachs suggests (short excerpt):

According to our (very rough) estimates, the credit quality of so-called “teaser-rate” debt—prime ARMs with very low initial interest rates—is deteriorating at pace that is similar to that of subprime ARMs. Since teaser-rate ARMs typically have a longer reset schedule than subprime ARMs, this suggest that the teaser-rate problem could ultimately well exceed the subprime problem.

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.