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The Damage Is Likely Already Been Done

A report from the Post Independent in Colorado. “Fewer homes are being bought, so there’s a softening in the housing market. Since the 2008 Financial Crisis is still very much in living memory, many of us think we hear ominous music, a harbinger of a banking crisis that could trigger a new recession.”

“There are some red flags waving. And the breeze is blowing from the segment of the residential mortgage industry that makes the majority of home loans. Not banks, but mortgage companies. The massive conduits that keep cash flowing to fund home loans through mortgage backed securities, Fannie Mae, Freddie Mac and Ginny Mae, are taking a look at the situation, and they’re getting just a bit nervous.”

“Ginny doesn’t make loans, and doesn’t service them; it simply guarantees payment on the investment. Currently, Ginny Mae has about $2 trillion of loans guaranteed, 61 percent of which are serviced by mortgage companies, which means they collect the payments from borrowers, and then remit the money to retire the MBS and pay interest. What’s causing those red banners to unfurl is that recent studies show that around 33 percent of these mortgage companies are unprofitable.”

“The GSE’s, Fannie, Freddie and Ginny, limit who they do business with, by requiring sufficient capital, and monitoring that capital level regularly, or by simply cutting off a servicer from delivering any more loans. In the latter instance, the damage is likely already been done. These measures are good, but maybe not good enough, especially considering how big a player the mortgage firms are in the real estate lending industry.”

“I once worked for a very small Savings & Loan, in a very small town. The chairman of the board had a favorite saying: ‘You’ll never go broker making a profit.’ Flip the coin over, and, well, you get the idea.”

The Orange County Register in California. “I read with great interest this week a column by Jeff Collins, ‘Home seller’s market cooling,’ in which he reports the year-over-year home sales in December of 2018 declined 20.3%! This is a staggering figure and confirms ‘the bloom is off the rose’ officially in the housing market.”

“Economic uncertainty, a spike in interest rates, and a glut of homes for sale are the culprits. Will a decline in the median home price in SoCal be the hangover that follows? Will the carnage be similar to 2008-2009? I doubt it, but we will have to stay tuned.”

“You may be wondering, why isn’t Allen writing about COMMERCIAL real estate? Bear with me, readers, our commercial world closely mirrors that of our residential counterparts, albeit nine to 18 months later. So with a hurricane of change on the horizon, how should you — an occupant of commercial real estate — prepare for the downturn blowing in our direction?”

“If you want to buy the market is moving in your direction.  It may not appear that way because our vacancy is still historically low, but we are seeing two things that confirm the shift. First, we are witnessing price reductions for offerings that have not sold. In a robust market, the only price reductions you see are for buildings with problems. Now, that is evolving into solid offerings, perhaps overpriced at the outset, and settling into reality.”

“Secondly, fewer buyers are waiting for an open place to land. Those in the market are not afraid to ‘make an offer’ at well below asking price.”

From ABC News. “2MG Asset Management’s Mike Mangan says since the market meltdown scare in December, the four largest central banks have increased the size of their balance sheets by $US428 billion ($603.3 billion) to global liquidity across the last month. That’s a big change to the $US1.2 trillion of liquidity central banks drained out the financial system in the previous nine months.”

“‘It is entirely logical central bankers should panic at the first whiff of market trouble,’ Mr Mangan said.”

“Mr Mangan argues the world is so loaded up with debt — and in particular corporate, bank and government debt — any market correction risks spiralling out of control into global financial crisis-type abyss, or worse. Data compiled by the Institute of International Finance recently showed global debt has swelled to $US250 trillion, which is a bit more than three times the size of total global GDP.”

This Post Has 83 Comments
  1. It’s interesting how a bombshell report comes out and the REIC just ignores it:

    This Is Not A System That Has Ever Been Tested In A Time Of Stress

    January 29, 2019

    “Ginnie has also undertaken its first stress tests of business partners. The exams look at how lenders’ and servicers’ monthly cash-flow obligations would hold up if they reduced loan production and margins while increasing delinquencies. The results are expected shortly.”

    “Ginnie is particularly exposed to nonbank lenders. These firms service 61% of loans in securities issued by Ginnie, up from 34% at the end of 2014. What’s more, Ginnie’s outstanding issuance of mortgage bonds has grown fivefold since the financial crisis to $2 trillion. ‘It’s uncharted territory,’ Ms. Kasper said.”

    http://housingbubble.blog/?p=879

    The first stress tests. In 2019.

      1. May 25, 2018

        “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

        “Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

        http://thehousingbubbleblog.com/?p=10443

        1. ‘a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone’

          Where are all the posters who insisted, “capitalism bad, gubernment must keep evil bankers from preying on the poor and vulnerable!”

          1. Angelo Christian was acting as a pass-through for government cheese. That’s hardly capitalism. No, it was Mel Watt who preyed on the poor, by getting them “into” houses they should never have gotten into. It’s not predatory lending in the traditional sense, but the outcome is the same.

          2. “No, it was Mel Watt who preyed on the poor, by getting them “into” houses they should never have gotten into. It’s not predatory lending in the traditional sense, but the outcome is the same.”

            Everything is a gimmick which pretends to “help” the situation by treating the symptom rather than addressing the problem. It’s like prescribing painkillers for festering wound rather than clearing up the infection. It doesn’t work.

            Nobody, and I mean NOBODY, in Congress is willing to do the right thing. Both parties are bought and paid for by the special interests who draft ALL legislation through their attorneys. Congress doesn’t even read it.

            I have ZERO hope for this country. None. After they blew this second bubble and engaged in all of these shenanigans it became painfully clear. We are doomed.

        2. All the subprime deniers claiming that ‘this time is different’ are going to see it clearly through the lens of the rear view mirror.

    1. Gubermint$ failure bye de$ign, enable$ $elf.intere$ted Corpooration$

      4 thee pièce de rési$tance:

      “There isn’t any $ingle agency respon$ible for directly over$eeing such nonbank entitie$.”

      “Uh Oh!”

      tra la la BOOM de A! … tra la la BOOM de A!

  2. “I read with great interest this week a column by Jeff Collins, ‘Home seller’s market cooling,’ in which he reports the year-over-year home sales in December of 2018 declined 20.3%! This is a staggering figure and confirms ‘the bloom is off the rose’ officially in the housing market.”

    “Economic uncertainty, a spike in interest rates, and a glut of homes for sale are the culprits.”

    A glut. In Orange County. Isn’t the shortage a distant memory?

    Remember the report in the same paper quoting a loan officer saying “everybody is hurting”? So while the REIC is busy every day trying to get the public to stick their neck in the noose, behind the scenes they are preparing for the storm. Distressed debt firms setting up all over the place. I recently posted an article about guys running the foreclosure auction game in Texas.

  3. people are noticing the trend of better off folks renting.

    https://www.barrons.com/articles/the-depressing-reason-rich-people-are-the-fastest-growing-segment-of-renters-51549814400?mod=bol-social-fb&fbclid=IwAR18QlAaqNJpBFoQMqL_HdDF4rPZhz7xStfLmRG9BTNxLLb5UCs9yEu9ykI

    Some affluent people simply don’t want to buy. “There has been a change in the attitude toward home-owning after the financial crisis, particularly amongst higher income households,” says Tendayi Kapfidze, the chief economist at LendingTree, who adds that their interest in buying a home has “declined consistently since 2013.”

    1. The MarketWatch report on this misstated that high prices were “forcing” the wealthy to rent. Such is not the case. This is the smart money choosing to buy, rather than purchase real estate and lock in a future loss.

      1. PS I heard anecdotes about this happening before the 2007-2009 collapse as well — such as in Manhattan, where highly paid financial consultants were cashing out of owner-occupied housing to rent during the coming correction, while cab drivers and hair dressers were amassing highly-leveraged real estate investment empires.

    2. Right about the time when peak foreign investors swooped in… smart play in their side as the renter demand and renter qualifications also increased. I’ll give them foreign investors that!

        1. Well, thankfully China’s party leadership put up their own “wall” to try to stop the capital outflow! What I hear from RE folks working in LA/OC parts of SoCal is consistently that the Chinese money has dried up.

          1. Here in OC last spring a large number of attendees that I saw at open houses were Asian families. This spring not many in sight.

        2. The only “wall” was greed. Americans should consider themselves lucky that the Chinese were only buying airboxes in the sky to chase the appreciation. What if the same amount of money had been invested in cheap but solid houses on 3-4 acre rural lots with good soil and water? Add in a half-million visa overstays, and you’ve got yourself an invasion.

          1. “Americans should consider themselves lucky that the Chinese were only buying airboxes in the sky to chase the appreciation.”

            You apparently haven’t met my Chinese national neighbors.

    1. ‘The next inflection point will be the elections for the European Parliament in May 2019. Unfortunately, anti-European forces will enjoy a competitive advantage in the balloting’

      1. Unfortunately, anti-European forces will enjoy a competitive advantage in the balloting’

        When globalism rigs the game to enrich the already super-wealthy at the expense of everyone else, those so-called “anti-European forces” (read: screwed-over proles fed up with malgovernance by the globalist stooges in the EU and ECB) might indeed outnumber the tools who vote for the Oligopoly’s captured Establishment parties.

  4. Two Large Chinese Borrowers Miss Bond Payments, Sources Say

    ‘China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, hasn’t returned money to bondholders that it had pledged to repay on Feb. 1, according to people familiar with the matter. And Wintime Energy Co., which defaulted last year, didn’t honor part of a restructured debt repayment plan last week, separate people said.’

    https://finance.yahoo.com/news/two-large-chinese-borrowers-miss-073109320.html

    1. Nothing to see here, folks, just move along. I’m sure these are one-off, isolated cases that by no means signal a building systemic crisis in China’s debt and credit bubble. China’s Keynesian central planners, all-wise and all-omniscient like their Fed and ECB counterparts, have matters well in hand, I can assure you.

      1. I don’t know about a systemic crisis. That sounds like George Bush. Is it really a big deal if money that was created out of thin air goes poof? If Chinese corporations that wasted billions on plots of land in LA and Manhattan actually have to book losses? It’s not going to change the scenery at my house.

        February 8, 2017

        “New York City is still the No. 1 destination for foreign capital in the world, according to this year’s AFIRE rankings, but it is no longer an environment in which foreign money — particularly from China — will buy anything in the market at any price. This year, China has clamped down on outbound foreign investment, and firms caught flouting the new laws will be punished harshly, China First Capital CEO Peter Fuhrman said. While most New Yorkers in commercial real estate are aware of the capital slowdown, Fuhrman said they are probably not taking it seriously enough.”

        “‘I have the perception that the full weight and severity of these capital controls hadn’t been fully felt here,’ Fuhrman said. ‘It’d be fair to say that the Chinese central government dropped a financial bomb on its businesses.’”

        “One of the Chinese government’s chief concerns when instituting the investment restrictions, Fuhrman said, is over outbound investors getting fleeced while paying record-breaking prices. ‘A concern of Chinese regulators is their investors have been really bad buyers,’ Fuhrman said. ‘This can sadly be seen more and more in the larger real estate deals they have done. What they are extremely concerned about is just about every acquisition the Chinese have made, is they have overpaid severely and foolishly, and that has spurred a loss of a lot of Chinese sovereign wealth.’”

        http://thehousingbubbleblog.com/?p=9989

        1. “I don’t know about a systemic crisis. That sounds like George Bush. Is it really a big deal if money that was created out of thin air goes poof? If Chinese corporations that wasted billions on plots of land in LA and Manhattan actually have to book losses? It’s not going to change the scenery at my house.”

          People fail to understand that nothing accelerates the economy and creates jobs like falling prices to dramatically lower and more affordable levels.

        2. It’s not possible to print wealth. So if money is created, it’ll show up in inflation or go poof chasing yield. In a globalized system, the race to the bottom has smothered inflation. So we see this yield chasing creating overcapacity and overproduction. Hint: that’s deflationary. You can see it in food, shacks, office buildings, retail, oil, everything.

          1. ” … creating overcapacity and overproduction.”

            American $ugar grower$ & dairy farmer$ blame Canada & Mexico.

          2. “It’s not possible to print wealth.”

            But it is possible to print and distribute money in the form of loans that are used to drive up prices of assets which is perceived – PERCEIVED – as being the creation of wealth. This process works well when applied to a sufficiently dumbed-down population of idiots.

            “So if money is created, it’ll show up in inflation or go poof chasing yield.”

            True dat. It shows up as inflation at first- hence the creation of “wealth” due to the rising prices of assets – then, after this nonsense has run its course, reality of the situation begins to set in and prices (and thus wealth) begins to decline and what is left is a lot of debt and a lot of underwater debt slaves.

            “In a globalized system, the race to the bottom has smothered inflation.”

            Yep. Strong evidence that gross stupidity is not confined to just the U.S.

          3. global debt has swelled to $US250 trillion

            And not a penny of wealth created. Wealth gets redistributed though.

          4. So long as the Fed keeps expanding its Quantitative Easing program, home equity balances should keep increasing.

        3. I don’t know about a systemic crisis. That sounds like George Bush. Is it really a big deal if money that was created out of thin air goes poof?

          I have zero doubt that China’s gargantuan debt and credit bubble implodes, and tens of millions of Chinese bag holders are stamping their little feet and shouting slogans against the corrupt Communist Party officials who they blame for facilitating their own greed and recklessness, China’s leaders will respond by embarking on some military adventurism against Taiwan and/or in the South China Sea. At that point, we’ll have a systemic crisis all right, if not WWIII.

          1. Remember how the Chinese government purposefully stampeded the public into a stock bubble? “Save the A shares!” And a bond bubble and commodities. Not to mention shacks and airboxes.I’m not worried about their military. They just built their first aircraft carrier.

        4. ” … is they have overpaid severely and foolishly, and that has spurred a lo$$ of a lot of Chinese $overeign wealth. ”

          An overpriced American propertie$ acqui$ition, might bee safer than a $tuffed Chinese National $avings acct, … in.the.long.term!

    2. “… hasn’t returned money to bondholder$ that it had pledged to repay … ”

      What time zone do the “Principal$” local ca$h withdrawal$ take place?

  5. Over the past couple days, HBB was discussing gov workers showing up at food banks because of the shutdown. This morning, the Washington Post posted another “shutdown” sob story.

    https://www.washingtonpost.com/national/devastated-by-one-shutdown-dreading-the-next/2019/02/10/5ec2afcc-2b06-11e9-b011-d8500644dc98_story.html?utm_term=.835947b59a23

    Of course WaPo wants to pin this all on Trump. But elements of the story are not credible, and this lady’s problems began long before Trump.

    1. “borrowing from one credit card to pay down another, spending exactly what she earned to cover essentials…”

      Actually she’d been spending more than she earned for quite some time.

    2. Or perhaps, just speculating here, a majority of US voters pinned the shutdown on Trump because he said live, on national television, “I am proud to shut down the government for border security, Chuck. … I will take the mantle. I will be the one to shut it down. I’m not going to blame you for it.”

      Wait, what does this have to do with housing?

      1. The owner of the blog brought up the topic himself a couple days ago. I just wanted to follow up. And this news story is not about pinning the shutdown on Trump. This story is about pinning this lady’s financial woes on Trump’s shutdown. This lady was in financial trouble for years before Trump even announced his candidacy.

        1. “This lady was in financial trouble for years before Trump even announced his candidacy.”

          Why are there always kids in these stories? And no mention of the father who is likely in prison or possibly unknown. The MSM always seems to omit salient details.

          1. There was a story about how the “Economic Recovery” missed some parts of the country. They did a story on a lady in Kentucky. She was pregnant and said she was going to have to take unpaid time off – like she did with her previous FIVE children…. No amount of “Economic Recovery” is going to fix that…. Dad(s) / Father(s) – no mention of him or them…

  6. Let’s take a bet on who will be the first IndyMac this time. The “Push Button, Get Mortgage” and “I’m Jay Farner with Quicken Loans” commercials seem to have strangely vanished from the airwaves recently.

    1. LoanDepot hit with VA mortgage restrictions
      Mortgage Professional America-Jan 31, 2019
      Mortgage lender loanDepot has been barred from including VA loans in some Ginnie Mawe-backed mortgage securities. Ginnie Mae announced that it has …
      Story image for loandepot ginnie mae from American Banker
      American Banker
      Ginnie sanctions lender over VA loan prepayments
      Scotsman Guide News-Jan 31, 2019
      Ginnie Mae announced on Thursday that it has taken action against loanDepot on grounds that its prepayment speeds on Veterans Affairs (VA) loans did not …

      Ginnie Mae hits loanDepot with VA mortgage restrictions
      HousingWire-Jan 31, 2019
      Beginning February 1, loanDepot will be restricted from including its Department of Veterans Affairs single-family loans in the Ginnie Mae guarantee pools.

      New American Funding is right up there too, IMO.

    1. ” … if anyone told Xi, but bubble$ need MORE credit to keep expanding”

      Zee his focu$ is to get 1,345,000,000 “we.need$.food” citizens to gaze @ their belly button$ & work on Infra$tructure project$ … (doesn’t need to a$k his people’s Congress for approval$ either)

  7. Other central banks may be adding more to their balance sheets, but the US Fed once again continued QT on autopilot in January, dropping off 30+ billion.

    1. Powell’$ gonna $tay PUT @ $3.5+ Trillion$ … no penaltie$ invovled, all talk, no bite … (think he like$ the meatloaf he was $erved @ The White.hou$e!)

        1. FED$ $elf.interested Nature is gonna bee steady ’till April $howers bring forth ro$y May flower$ … That’$ me theorie$ & eye’m $tickin’ … with her!:

          Bowman noted that there were no community bank failure$ in 2018.

          “Our job now is to en$ure that community bank$ continue to remain $trong,” Bowman said.

          “We…want banker$ to actively manage concentration$ of credit ri$k, and be mindful that strong lending activity can $train liquidity,” she added.

          During a question-and-answer session, Bowman said both the economy and Fed interest-rate policy are “in a good place.”

          “I voted for our current policy. Inflation is close to the Fed’s 2% target and I am comfortable with the current stance,” Bowman said.

          Fed’$ Bowman talks up community bank re$ilience as she notes pre$$ures from commercial real e$tate, agriculture

          MarketWatch | today Feb 11th 2019

        2. Be$ides, their hand$ is tied:

          U.$. Debt $ales Hit Record$ Again, Feeding Deficit Critici$
          Liz Capo McCormick and Saleha Mohsin
          Bloomberg| January 30, 201

          Debt sales have already surpassed levels last seen when the country was digging out of its worst economic crisis since the Great Depression. Combined with needing to fund the shortfall, the Treasury has been selling more debt as a result of the Federal Reserve’s strategy to slowly let government debt roll off its balance sheet.

          Initial tax receipts call into question the Trump administration’s projection that extra economic growth would generate enough revenue to offset its tax cuts. Corporate income taxes paid to the U.S. Treasury fell to $205 billion in the fiscal year ended Sept. 30 — a 31 percent drop from the prior year. A decrease of that magnitude is unusual during a period of economic growth.

          The department reiterated that a suspension period for the nation’s statutory debt limit ends March 1, though so-called extraordinary accounting measures can continue to finance the government temporarily. In the statement, the Treasury said it’s too early to provide a precise forecast for how long those will last.

    1. So where are the seniors supposed to go — quadruple their monthly expenses in an assisted living facility? Or are they all supposed to die?

      If they sell their home, don’t they have to purchase another one? How does that address any sort of “shortage”?

      Why don’t the millenials buy into the glut of luxury housing? Are seniors now expected to wipe themselves out financially so that younger people can have affordable homes? Why don’t the builders do something about that?

      Oh wait, they’re too preoccupied with grabbing all of that Fed welfare and building mansions for the 1% with it.

      “Shortage” my ass.

  8. Redpilled Redhead
    February 11, 2019 at 9:05 am
    FWIW, the IRS has a 5% overpayment and underpayment penalty rate.
    ===
    Are you saying if I overpay my income tax buy $100k in Jan i get 5% return on those extra funds? Guaranteed?

  9. ” The only “wall” was greed. Americans should consider themselves lucky that the Chinese were only buying airboxes in the sky to chase the appreciation. What if the same amount of money had been invested in cheap but solid houses on 3-4 acre rural lots with good soil and water? Add in a half-million visa overstays, and you’ve got yourself an invasion.”

    In my neck of the woods, Ann Arbor Michigan, they are buying tons of single-family homes, either to live in themselves or to give to their kids while they attend UofM. I don’t really get exactly how they are staying for so long and in such numbers–do they give out visas for investments in such numbers? There have also been numerous attempts to buy up big tracts of land nearby where it’s cheaper and build whole little towns in the rural areas. I haven’t gotten wind of actual farming, but there is huge interest in getting the kids into the public schools and then into the good state schools like UM . They are NOT doing the Chinese government proud in their buying savvy! They bid up prices bigtime especially in the areas of town where Chinese infrastructure (shops, already-existing homeowners, the Engineering campus of UM and the science-y public schools). They’ve helped bid up prices even in nearby “poor” town Ypsilanti, and there was a scandal about that city’s officials taking money to go to China from developers who wanted to buy the struggling downtown and make it a Chinese outpost/literal Chinatown. We’ve always been diverse and also had a large Chinese population but now it’s becoming far LESS diverse–it’s ALL Chinese in many areas now and way more expensive, added on top of college-town rental bubble, wannabe new-tech-hub bubble, and Coastal-retiree-using-equity-cash bubble. It’s gross, and my husband is desperate to buy, which all the local realtors are happy to hear! I’m desperately trying to keep us renting til this ends, but there’s so little end in sight….

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