Tuesday, August 19, 2008

Major Bank to Fail? Secondary market almost Stopped.

BBC has a scoop

The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned.

US banks are very dependent upon foreign loans. Without the return of our trade deficit via loans, we're a poor nation.

Despite hopes that the US economy had turned the corner, Mr Rogoff claimed it was "not out of the woods".

"I would even go further to say 'the worst is to come'," he said.

Without easy credit, our economy will contract. The Alt-A resets do not really get going until the spring. If you thought Subprime caused a credit crisis, wait for the Alt-A crisis (which is concentrated in 'high end' areas).

I found this chart from Deutsche Bank over at Patrick.net:

If that chart doesn't convince you that any property requiring a jumbo mortgage are ready to drop in price... Notice that all the data is normalized onto a annual basis! So every bar is comparable to every other bar. Notice that Alt-A stopped?!? Liar loans drove up the nice areas artificially.

Are you a good enough credit risk for the bank to hold the loan? Do realize, banks can only do about 10% of the mortgages they were doing without the flood of funds from the secondary market!

And you wonder why the Europeans believe our banks are in trouble and the worst is still ahead. (It is... 18 months of pain starting soon.)

I'm going to be a broken record: "We have not yet entered the tightest credit markets of this downturn." We're close. Within 90 days. I've blogged for a long time (two years?) about the mortgage rules during the 'darkest days of this downturn.' That doesn't start before next summer. Yes... summer 2009.

Its going to be a dark and cold Fall and Winter. While there is a chance of one last bear rally... I'm becoming less sure it will happen.

Less than 90 days until the start of the great squish down. Jim the Realtor came up with that term to describe how high end real estate was overbuilt more than other tiers during the bubble. The high end will push everything else down.

Got Popcorn?


The Anonymous said...

"wait for the Alt-A crisis (which is concentrated in 'high end' areas)."

Should be concentrated in some high end areas. For example, high end, hard hit Loudoun county had 2-3 times as many Alt-A loans as high end hardly hit Arlington.

Back when we were able to see county by county information, the new york fed indicated that there were about 900 Alt-A loans left to reset (or recast) in Arlington - about 1% of the housing stock. Doesnt seem like much of a "tsunami" as some people like to tout it.

wannabuy said...

The anon,

Its not just individual blocks or neighborhoods. Without the upgrade market, Arlington will fall. Mock it all you want; its going to be a kick ass Tsunami. Don't forget Tsunamis are never just one wave.

You didn't comment on the mortgage secondary market shutting down. That and a major bank failure are the main points of this post.

"When everyone wants out, no one wants in." That is the traditional end of an investment mania; no debate that real estate was a mania. That's 2009.

Got Popcorn?

The Anonymous said...

Neil - Arlington isnt really the upgrade market - its really more the first time buyer market than anything - just FYI.

I didnt comment on the secondary market shutting down because as I said, credit doesnt seem to be much of a problem for these areas. I agree with you -- it SHOULD be, but so far its not.

The credit crunch hit EVERYWHERE, all at the same time. Some markets imploded, some shrugged, why? I dont know but because of this, I have to believe credit isnt really a big problem.

I dont mean to mock. My point about ALT A is that its hugely variable. You say its going to be a kick ass tsunami - OK - but Consider:

In some areas of CA 9% of all households have adjustable ALT A mortgages. Here locally, in high end Loudoun its 5.5% in high end Arlington its 1.4%.

Of these three in which areas is it going to experience a kick ass Tusnami and which one will experience a rogue wave? I think the answer is pretty obvious. Thats all im trying to point out.

The Anonymous said...

Consider too about the so called Alt A tsunami -- so far about 35-40% of those loans have already reset. Thats a pretty big number as far as I am concerned. I think we see the extent of the devastation too -- heres what the first 35-40% has done:

Alt A heavy Loudoun County median prices are down 21% YOY.

High end and presumably ALT A heavy Orange County med prices is down 28% YOY

High end and ALT A light Arlington County med prices are down 6% YOY

So, this is what the first 35-40% has done. Will the remaining 60-65% be that different?

By the way, the latest Wells Fargo affordability index is out - I know you like to blog on that some times.

wannabuy said...

I'm about to blog the Wells Fargo, inventory, foreclosures in one big article!

Got Popcorn?