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Monday, October 16, 2006

RE: Orange County, CA

Pretty much all you need to know about Orange County, CA and real estate is this statistic:
Payment-option loans, which were rarely used before 2003, have become popular amid high home prices.

They accounted for 23.6 percent of all home loans for purchases in the county in the first seven months of this year and 37.9 percent of refinancings, according to First American LoanPerformance.
If you are wondering why this is happening in an environment in which "Hensling and other brokers say homeowners are growing concerned about the loans' risks", see this prior post. Many homeowners in OC are tapped out and buying time anyway they can. Needless to say, this is not going to end well in a declining market, and what I hear is that some of the restaurants, etc, are already suffering. This one post & comments at Calculated Risk will give you more insight into the credit situation than all the Fed speeches of the next two years.

In the meantime, Casey Serin borrowed $3,000 from a friend and promptly put down $1,000 of it on a wonderfully good deal on a fixer-upper. Because hey, when you have gotten underwater by 4 or 5 hundred thousand dollars flipping houses bought with fraudulent loans, the only thing to do is flip one more using someone else's money.

There is very little difference between what he is doing and what some of the lenders writing these loans are doing, btw. To get money to spend, Casey had to borrow and get cash back. To get money to spend, the lenders have to write and sell, because they get cash back. The drive is to show a good balance sheet, and to keep up current profits you've got to write. You've got to write until the money runs out, and run out it will. It will run out when you can't sell them any more at a profit, which is what put Ameriquest out of business.

The homebuilders have to sell, because they all have high debt serviicing costs. And to sell, they'll sell at whatever loans they can write under. You think builders aren't writing neg-am? They sure are. In a few cases, they are offering to make your payments for the first year....

You don't want to know about commercial, indeed you don't. A great deal of commercial lending is tied into residential RE. Think about it. What do people borrow money for nowadays? It takes very little money to start up most small businesses. The ones who need big credit lines are retail stores, contractors, landscapers, etc.

The American consumer is drowning in debt. FOR is the ratio of all required debt payments, plus car leases, home insurance and home taxes. As of the second quarter of 2006, homeowner's FOR had reached record levels of 18.06, while renters' FOR stood at 25.18. If you look back to 2001, renters' FOR was over 31 at its height. What has happened is that renters who were drowning in debt financed those debts into home debt with longer repayment terms.

This wouldn't be so bad, except that many of these loans were written so that they had low loan payments at initiation with the trade-off being significantly higher payments later. These hapless debtors could keep refinancing away from the future as long as they were operating in an environment with rapidly appreciating home values. This appreciation has ended over most of the country.

To sum it up, for the last five years the entire US consumer finance system operated so as to defer debt repayments to the future. The first wrench was thrown in those debt deferral gears when the Fed released new guidelines requiring higher minimum repayments for credit card debt last year, which was promptly followed by even more debt rolled into home loans.

Now cometh the future. It bears a great resemblance to Hillary Clinton's most unfortunate bust, which is suitable for Halloween decor.

PS: "Busty Hillary" wouldn't be able to attend visiting hours at this jail, either.

Morning Mama; The picture of Hillary at the end of another great Blog about Real Estate. Ouch. That put me off my breakfast, and it will be another 4 to 6 hours before the sex drive returns...perhaps that bust could be a new form of birth control.
Better get used to the Bust of Divine Hillary, aka the Abomination of Desolation.

After 2008, we'll all be bending the knee and burning the pinch of incense before it.
CF - I pride myself on having improved your productivity today. You might want to save down the link for future use, especially if the retro trend continues and miniskirts come back.

Anon - I don't think so. You give Americans too little credit. I think it's Giuliani, but whoever it will turn out to be, it will not be the Hillary.
Mama; A trader with no sex drive is LESS productive. Go with me on this one.
CF, you are feeding a thousand feminist outcries of anguish with that. Trust me on this one.
Mama. Understood.

Miniskirts would be nice.
What's really scary about that bust is that the sculptor has made Hillary Clinton look like Jimmy Carter. And the actual Hillary bears no physical resemblance that I can see to Carter, so we can't attribute it to faithfulness of likeness.

Is that sculptor trying to tell us something?
Jaed - very possible. But I think that the general public had already gotten the message.

Of course, the odds are that the sculptor feels that a comparison to Jimmy Carter would be a plus, which aptly demonstrates the sharp divide between the chittering class and the US population. Jimmy never met a dictator he didn't like, and the general population of the US never liked a dictator! Jimmy's the man on record as feeling that the American Revolution was unnecessary and extremist.
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