It's amazing to me to listen to the comments made by alleged professionals in the financial industry and how quickly the press endorses it without any research in to the real issues.To allocate all the blame on sub-prime mortgages, Wall Street Investors and God Forbid mortgage brokers for the rapid rise in foreclosures in the region because of taking additional risks to lend up to 100% on a purchase is ridiculous and ignorant. To ignore the economically depressed reasons and over inflation of the real estate market sounds like an agenda, let alone has no basis for argument.No one wishes to see people lose their home. This would include the investors who took the greatest risk, allowing home buyers to purchase with little or no money down. Do you really think they wish to become property owners? How about the Real Estate Industry who oversold and inflated the values? This has been a five year bubble waiting to burst and they knew it. Of course we won't get any articles about this in the news industry as the Real Estate market is their largest advertiser. To the lenders that quickly blame mortgage companies and state they hurt the community with these loans and foreclosures, I would suggest to think about that when you finance builders with inflated value sub-divisions and certainly look to get first shot at the residential mortgages. The bank community easily targets this to further their argument to eliminate competition with mortgage companies which provide more products and services, let alone takes a share of the lending market. I own one of these mortgage companies and can say that when we do sub-prime mortgages, we go to every effort to try and ensure affordability. I can say that we have seen more success stories than failures because of the opportunity buyers would never have had. The best news is that we give all of our borrowers in these programs steps to take to qualify for conventional mortgages and lower payments significantly in the next 12 to 18 months. These loans are generally designed to be a bridge to better financing options in the future. By the way, we have to disclose all of our fees, including, yield spread premium, yet, they don't.Real Estate always has cycles and the market values always seek adjustments during these times. Are the experts going to tell me that every down cycle we've had is because of sub-prime mortgages? You notice in the Wall street hype about the numerous sub-prime companies that have failed. Are we now going to blame sub-prime lenders for the downturn and forget the Asian market crashes that were the real triggers? Look at the past history of the cycles of Real Estate, than make your opinion. I would still rather invest in Real Estate than Wall Street.In addition, to the ignorant professionals that state mortgage brokers and companies are sub-prime driven, think again, we do conventional and still beat our competition with better rate and terms. I am also a Real Estate broker and consultant and am always ready to learn, especially from geniuses like this. Remember, markets like this mean it's a Buyers market and that means lower prices and more opportunities to first time home buyers who could not afford to buy during the inflated market. I would be glad to debate this with the propagandists. I'm also a Selectman, so be careful, I'm a politician.
I am officially a victim of fraud. Some light fingered bandit has somehow managed to swipe a significant sum of money from my bank account. I feel naked and vulnerable. And wondering how it happened and how to stop it happening again. For a moment questioning whether ethics or pragmatism should win in . But just for a moment.
The Master Liquidity Enhancement Conduit (MLEC) fund has been created by several big US banks with between $75bn and $100bn (depending upon who you believe) to buy up debt from Structured Investment Vehicles (SIV) which in simple terms are mortgage providers. The debt is largely in the form of Residential Mortgage-Backed Securities (RMBS) and Collateralised Debt Obligations (CDOs) - i.e. mortgages. SIVs, which own about $400bn of assets, are investment pools used by banks, but most enthusiastically by Citigroup who originated them in the 1980’s. It is now clear SIVs have been too keen to offer debt to financially dubious property buyers. The MLEC is an attempt by the private sector to mitigate some of the risks associated with bad debt incurred during the US property price bubble. That bubble was inflated by the poor lending strategies of the SIVs and ultimately those that initiated them. The MLEC fund will be accepting only the best risks, leaving the worst in the SIVs, so they will flounder rather than the banks. It is interesting to speculate as to why this cause was not taken up by the IMF, whose role it is to promote international financial stability. Perhaps they do not see it as a big enough problem.
So can this fund help? Well as an attempt to reintroduce confidence to the market and hence stability, to some extent that is going to happen, especially as it has the tacit approval of the US treasury. However, ultimately the problem is rooted in lending money on the basis of economic growth that was not there. Now that position has to unwind and the costs of the overestimate will have to be dissipated. This fund can only act as a buffer, trying to spread and slow the normalisation cost, it still has to happen. So in that sense it is more like an attempt to convert a painful punch into a protracted uncomfortable pressure. The problem has to be handled and it seems that somewhere someone has made the decision that the drawn out normalisation approach is the better option. So as we get used to the inevitable slowdown, the remaining market confidence will be subdued rather than demolished. In that sense it is a better strategy as stability and confidence are perhaps the most essential assets of a reliable economy. Ultimately the costs of this failing will be carried by everyone, the banks will ensure that, rather than just their shareholders.
My boss just wired me some money. Nothing strange about that. It's part of his job. And as usual, the transfer will take three days.
Now, that's more strange, however.
It's the same with most money transfers these days, which are now almost as quick as during the days when you would give the money to a runner on a horse and have him gallop off to the recipient in person. Today, using computers and a supposedly blink-of-an-eye-speed monetary system, transfers between banks in the known Western world commonly takes three days.
Some banks take three days even for transfers within the same bank. None mentioned, none forgotten: they are all sinners one way or another.
Now can anybody explain to me where the money is in the meantime? Held up in some digital roadblock on the Information Superhighway? Having to present its papers at some virtual checkpoint in today's borderless global Internet world?
More interestingly still, exactly how is this possible? I mean, this is supposed to be the age of modern computer technology, where I can send a message to Australia and back in a split second. In fact, this very blog post may very well have spun a few times around the globe before reaching your computer screen. We read every day how investors press a button and ZOOM! goes a batch of dough equivalent to Belgium's national debt into some offshore investor's account (and out from under the feet of some poor company, sending it into bankruptcy, but that's another story).
So how do the banks actually manage to make a money transfer for us common mortals last three days? Do they use computers at all, or have they upgraded to homing doves? Or smoke signals? Digital smoke signals, that is, having some poor bloke do the miserable smoke signals in binary - "one, zero, one, one, zero, one, zero, zero, cough, cough, oh, bother, there's supposed to be a one there, I'll have to start over again".
Or is there some gigantic cash vault somewhere, where they pour all the bread in for a few days in order to have some time for a money-rolling orgy, whith bank managers wallowing in dollars like Scrooge McDuck and back-office clerks pouring fistfuls of euros over their heads?
The prosaic answer is of course that they are sitting on the money for a few days, cashing in interest by the minute, while not having to pay any interest to the rightful owners of the money.
Now that many of the banks with some losses in the US sub-prime area have reported it may be a good time to look back at what has happened and then look forward to what is likely to happen over the next 6 to 12 months.
Current Situation
Looking back, I am glad to be able to say that I have been proven substantially correct. None of the bigger international banks have had any real problems - with most not even having this problem to cause them to drop into losses for the year, even though some have reported losses (after full write-downs) for the quarter.
Northern Rock was the only bank outside the US to suffer real problems and this was a liquidity issue - not a capital one. Inside the US several smaller banking insitiutions have failed, but these have been quite small banks that were heavily involved in the lending.
In Australia, again, none of the banks or larger ADIs have had any real problems and, after a few weeks of liquidity problems, we have largely returned to business as usual.
The ones that have had problems are the non-banks that have relied on wholesale funds to keep their businesses afloat - being a perfect example. Rams, as a business, did not fail, but they have been unable to secure funding to keep it going and had to be, effectively, rescued by one of the banks ().
Really, what this "crisis" has done is what any instability should do - prune out the weaker players and allow the well-managed and run (or just the lucky) to continue. The ones that have failed were the ones with a business model that was too reliant on other players in the market and / or had poor timing on their fund raisings. When there was instability they were the ones sitting there exposed. Again - the strong survive and the weak perish. If a firm cannot go for a few weeks withoutexternal funding then, honestly, why should they be able to survive?
As banking crises go, though, this was a puppy - if a bit of a vicious puppy.
The Medium Term
As the remainder of the US sub-prime stuff reprices over the next 6 to 12 months, though, will it get worse? In short, the answer is no. The bulk of it is still to re-price, but most of the banks that have reported have written down their entire sub-prime holdings, not just the stuff that has repriced already. The reason for this is clear - it is both prudent, and required, for them to do so.
A quick look at IAS 39 and FAS 133 (the relevant accounting standards for most of the banks) says that they have to write their assets down as soon as it looks like they have lost value. In the case of the sub-prime stuff this has already happened. There will be some adjustments to the values over the next few months, but they can be expected to be upward revaluations as the market starts to clear of this stuff. The written down values would be the current worst case - not necessarily their expected outcome.
In situations like this banks (and other listed firms) are increasingly obeying the maxim that ou get the bad news out early, and, if anything, make it look worse that it is. The reason for this is that the market hates downside surprises, but likes upside ones. Getting the bad news out early and big is better than a situation where you just gradually dribble out the bad news.
A single, big, poor number is much better than a few smaller ones.
Banks will take a good look at their counterparties and see if they need to re-visit their lending policies, but the worst of this one can now be expected to be over.
On to the next "crisis". A Chinese revolution anyone?
Those borrowers who get into arrears by missing may find that doing so may set them back by "more than they think", according to the publication of new statistics.
In research carried out by , those who get into arrears by not meeting a loan lender's monthly demand for a mortgage payment or having a cheque returned could well be hit with "punitive charges", which in turn may see them develop greater difficulties with managing other areas of their finances, for example secured loans and credit cards.
The firm pointed out that those who find a cheque or direct debit payment has "bounced back" will automatically be charged 20 pounds from , while consumers with GMAC-RFC are hit with a 50 pound fee, should they miss a mortgage payment. The research also revealed customers are charged 35 pounds every time they receive a letter or a phone call about going into arrears.
Meanwhile, GMAC-RFC and Halifax are reported to charge consumers 100 pounds for counselling on how to manage their debts, but with and not offering such a service at all, the price comparison website claimed that the "most vulnerable section of the borrowing community" could find problems in managing their finances increasing even more.
Louise Cuming, head of mortgages at , said: "While I would not condone missing a repayment, often financial hardship is caused by circumstances outside the control of the borrower, such as a relationship split. It is fair to say those in the unfortunate situation of going into arrears can expect to face some highly punitive and unjust charges."
She added: "Interest rates are rising and it's impacting homeowners - recent data from the points towards an increase in properties taken into possession. People struggling to make their repayments who might be heading into this territory are particularly vulnerable and it is important lenders meet their 'treating customers fairly' requirement."
Ms Cuming reported that the fact some loan providers are charging for counselling on debt matters is "the biggest outrage" as such advice can be found for free, while some lenders who "appear quick to agree the mortgage are not so quick to help when their customer is most in need". As a result, she claimed that financial firms need to be more sympathetic when lending money as if they "automatically burden customers with more fees and more debt no one wins". The representative also suggested that some consumers may not even be aware that they are being charged for going into arrears.
However, those Britons who have found that they have developed insurmountable arrears and as a result of damaging their financial history are struggling to access low-rate borrowing may wish to opt for a bad credit loan. Earlier this year, Maya Imberg from Datamonitor suggested that the industry is set for growth due to "difficult" economic conditions and the country's increasing debt burden. She added that more borrowers will fall into the "sub-prime population" as they fall behind in making repayments as property price rises have seen Britons become more willing to borrow money.
Mark Dawson writes for the the Loan Arrangers where you can apply online for , you can also online, applications welcome.
I am getting more and more scared of this housing slump. Don't get me wrong, I am in my place to stay and have not entertained any thoughts of moving to a more appropriate living space since this all started this summer and I will be in my current condo until it is most likely paid off. In fact I am trying to get to the point where I can double my payments to save a boat load of mortgage interest by paying it off early.
This mortgage blog that says they havehas news and articles about the housing bust and has a tough love view of the market. They say it is good that people are loosing homes that are not in a position to pay them off or make payments and that this is a natural adjustment process in the economy. I don't agree with that.
I think that the Realtors and banks should have to deal with the penalty of not making as much money now that they pushed the boundaries so far and offering fixed rate refinancing to people who can't afford these balloon payments is a good thing for the economy and helps them learn their lesson, because they created this problem. You cant plaster every surface with ads and run TV commercials 24/7 on every home makeover show there is and say it's the consumer's fault.
The Realtors, banking, finance and housing guys pushed too hard and got people to sign on to bad lending deals that are impossible for anyone to pay. And they thought they would get away with it? That it's ok? They should be responsible for cleaning up the mess. It's their problem.
Next Thursday, November 1st is Todos los Santos, or Tosantos in Andaluz (i.e. All Saints' Day) and a national bank holiday all over Spain. It being a Thursday, chances are it will also be a puente (bridge). Schools will be closed from Thursday to Sunday, and probably many of the smaller shops. Banks are open on Friday, however.
This is the day on which the cemeteries are crowded with visitors, presumably in the hope that one's ever-resting relatives have become saints. In any case, the last few weeks have been used to tidy up the nichos ('shelves'?) where they rest.