Anticipating the Spring Bounce

[TJ_98370]

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Anyone anticipating a "bounce" in the real estate market this spring should maybe reconsider ----


Tightened credit in the primary mortgage market:



Feb. 4 (Bloomberg) -- The Federal Reserve said it became tougher for U.S. companies and consumers to get loans in the past three months, particularly to buy real estate.

Most lenders anticipate more delinquencies and losses this year,......

......It's definitely a broader-based tightening than we've seen before,'' said Edward McKelvey, senior U.S. economist at Goldman Sachs Group Inc. in New York. ``The economy is weakening and weakening in a pretty substantial way.''

About 80 percent of banks raised standards on commercial- property loans, a record, while a majority tightened terms on prime home mortgages.

Bernanke warned in a Jan. 10 speech that there was ``considerable evidence that banks have become more restrictive in their lending to firms and households.''......

.....``Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,'' the Federal Open Market Committee said in its Jan. 30 statement.....

......Banks are making it tougher to get financing after $146 billion in asset writedowns and credit losses since the beginning of 2007 damaged their balance sheets.

Surging defaults on subprime mortgages caused losses to ripple through the finance industry, and banks and securities firms are now searching for as much as $84 billion of capital to shore up their finances......

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Stalled sales of CDO's in the secondary mortgage market:



Feb. 5 (Bloomberg) -- Buying and selling of collateralized debt obligations based on mortgage bonds, high-yield loans or preferred shares has ground to a near-halt, traders said at the securitization industry's largest conference.

``We're definitely in a period of very low liquidity at the moment, which has actually been dropping precipitously in the last few weeks,'' Ross Heller, an executive director at JPMorgan Securities Inc., said yesterday ....

.....Demand for new CDOs has stalled, with just one created in the U.S. so far this year, according to JPMorgan. The creation of CDOs dipped about 10 percent last year to $494.7 billion, according to the company. The figures include only issuance for which investor money was collected upfront......
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[rose-colored-coolaid]

Personally, I don't give a RA what the lenders are doing. I know that condos co-located with the MSFT cafeteria will be selling strongly this spring.

[TJ_98370]

RCC, you do have that Realtor jive thing down!!!

[deejayoh]

RCC gets to the truthiness of the matter

[kpom]

[jillayne]

I give a rat's ass about the banks.

It seems to me that the banks have painted themselves into a corner.

In order for the residential mortgage backed securites market to open up again, investors want reassurance.

In order for reassurance to come, banks need to FURTHER tighten underwriting guidelines beyond where they are now. From my perspective, the tightening we're seeing today is just making up for the schlock that was sold at the top of the market and doesn't consider further declines in property values.

The problem with tightening up UW guidelines further, is that this pulls more people out of the home buying/refinancing party which has a negative effect on a bank's profit margins in more ways than one.

If the insurance monolines fold and CDOs keep getting write-downs from the ratings agencies, the RMBS market is toast. Along with it, several hundred thousand mortgage brokers. The banks will then only keep the cream of the crop mortgage brokers whose loans have extremely low defaults and whose business practices are exceptional.

[Alan]

Jillayne,

Do you have any estimate of how many people will need to be eliminated from the buyer pool to get to the underwriting standard you think is necessary? Out of 100 credit applicants who would have received a loan in Summer 2006, how many of those should be denied under tomorrow's underwriting guideline?

[sniglet]

It's not so much that lenders need to cut even more borrowers off from all financing, rather it's that the amounts that many borrowers can legitimately qualify will be lower.

I suspect that when all the credit tightening is well and finished we could see about 30% of 2006 borrowers completely shut out from borrowing (i.e. they wouldn't qualify under any circumstances) and about 40% of 2006 borrowers qualify only for substantially smaller sums that they could have gotten.

Only about 30% of 2006 borrowers would find that there were no changes in either their ability to qualify, or the size of loans they could get.