Original source URL: http://blogs.salon.com/0002255/2007/03/13.html Tuesday, March 13, 2007 HOUSING BUST UNDERWAY / FORECLOSURES SOAR / STOCKS CRUMBLE Hold on to your assets ~ The deepest housing decline in 16 years is just beginning and will get worse. Today the Dow Jones index was off 242 Points ( almost 2 % ) Nasdaq indexdown 52 ( almost 2 % ) and S&P index down 28 ( almost 2 % ). Technically, if the Dow breaks below 12,000 ~ it's a freefall where panic selling wlll reinforce the downward momentum. The ripple effect of a collapsing housing market where over a million Americans could lose their homes will touch every segment of our economy and lead to the mother of all recessions ~ despite the actions of the ( PPP ) Paulson Plunge Protection Team. If you haven't downsized yet ~ you best be actively thinking about it because it's not going to be pretty by mid 2007. Here's a Bob Ivry's (Bloomberg) excerpt on the current housing bust, its causes and implications. Allen L Roland http://blogs.salon.com/0002255/2007/03/13.html Foreclosures May Hit 1.5 Million in U.S. Housing Bust By Bob Ivry: http://snipurl.com/1ctrs March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries. The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month. " The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. " Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.'' A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes. Last Housing Slump If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors. This time around, new-home sales have declined 28 percent since September 2005, hitting a low in January, the last month for which data is available. And though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since the start of 2006. Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year. New Century New Century Financial Corp., the second-largest subprime lender, said today it ran out of cash to pay back creditors who are demanding their money now. The Irvine, California-based company has lost 90 percent of its market value this year and stopped making new subprime loans, prompting speculation it will seek bankruptcy protection. New Century already has cut 300 jobs and its 7,000 remaining employees are waiting to see if the company will survive. Fremont General, the Brea, California-based lender that is trying to sell its residential-mortgage unit, was ordered to stop making subprime loans by the U.S. Federal Deposit Insurance Corp. last week. Fremont was marketing and extending loans ``in a way that substantially increased the likelihood of borrower default or other loss to the bank,'' the FDIC said last week. Doug Duncan, chief economist of the Washington-based Mortgage Bankers Association, predicted in January that more than 100 home lenders may fail this year. The subprime crisis ``has taken the fuel out of the real estate market,'' said Edward Leamer, director of the UCLA Anderson Forecast in Los Angeles. ``The market needs new money in order to appreciate, and all of that money is gone for a very long time. The regulators are not going to allow it to happen again.'' Higher Rates Subprime mortgages are given to people who wouldn't qualify for standard home loans and typically have rates at least 2 or 3 percentage points above safer prime loans. The portion of subprime loans that financed new mortgages rose to 20 percent last year from 5 percent in 2001, according to the Mortgage Bankers Association. Subprime loans contributed to a home-ownership rate that reached a record 69.3 percent of U.S. households in the second quarter of 2004, up 5.4 percentage points from the same period in 1991, according to the U.S. Census Bureau. " Probably the gain in home ownership over the last four, five years, is almost entirely due to looser lending standards,'' said James Fielding, a homebuilding credit analyst at Standard & Poor's in New York. Refinancing Option As home prices steadily gained from 2001 to 2006, homeowners who fell behind on mortgage payments could sell their homes and pay off their loans or get better refinancing terms based on the higher value of their property. Now that home values are declining, many borrowers won't be able to refinance because they would have to come up with the difference between their new mortgage and what their home is now worth. Defaults may dump more than 500,000 homes on a housing market already saturated with leftover inventory built during boom times, New York-based bond research firm CreditSights Inc. said in a March 1 report. Mortgage defaults may climb to $225 billion over the next two years, compared with about $40 billion annually in 2005 and 2006, according to debt strategists at Lehman Brothers Holdings Inc. Seven-Year High The portion of subprime loans more than 60 days delinquent or in foreclosure rose to 10 percent as of Dec. 31, from 5.4 percent in May 2005, the highest in seven years, according to data compiled by Friedman Billings Ramsey Group Inc. of Arlington, Virginia. Many of the delinquencies came from loans where borrowers didn't have to provide tax returns or other evidence of income, or where they financed 100 percent or more of the home's value, CreditSights analyst David Hendler wrote in a March 5 report. Other defaults came on adjustable-rate mortgages with artificially low introductory ``teaser'' rates, sometimes with ``option'' payment plans that allowed borrowers to defer interest. Banks ought to be concerned about such loans and are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments, Federal Reserve Governor Susan Bies said last week. " What we're seeing in this narrow segment is the beginning of the wave,'' Bies said. " This is not the end, this is the beginning.'' About 1.5 million U.S. homeowners out of a total of 80 million will lose their homes through foreclosure, University of California-Berkeley economist Ken Rosen said last week. " The subprime borrowers paid too much for their homes, and all of a sudden, they'll see their house value drop by 10 to 15 percent,'' Rosen said. Rest of article at http://snipurl.com/1ctrs Allen L Roland is a practicing psychotherapist, author and lecturer who also shares a daily political and social commentary on his weblog and website allenroland.com He also guest hosts a monthly national radio show TRUTHTALK on Conscious talk radio www.conscioustalk.net Allen Roland¹s weblog: http://blogs.salon.com/0002255/ Website: www.allenroland.com ONLY THE TRUTH IS REVOLUTIONARY -- -------------------------------------------------------- Escaping the Matrix website http://escapingthematrix.org/ cyberjournal website http://cyberjournal.org Community Democracy Framework: http://cyberjournal.org/DemocracyFramework.html subscribe cyberjournal list mailto:•••@••.••• Posting archives http://cyberjournal.org/show_archives/
