Tuesday Open Thread
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3 comments:
I found yesterday's local NPR show "Weekday", dealing with the real-estate market, interesting.
http://www.kuow.org/mp3high/m3u/WeekdayA/WeekdayA20060925.m3u
The "experts" seemed to agree that there has been a bubble in many parts of the country, and they noted the unprecedented explosion in exotic loans. However, I was surprised by how clueless some of these pundits seemed to be about some subjects. They seemed to think that the lenders making these exotic loans were good at managing risks, and were unlikely to wind up in trouble themselves. It didn't occur to anyone to point out that many of these mortgages are being spun off into secondary markets where many of the investors are pretty clueless as to the real risk of what they are buying.
We are in completely uncharted territory here: many of the investors (e.g. hedge funds, pension funds, central banks) buying mortgage ABSes are newcomers to this space and have no real understanding of these assets. The banks will lend to ANYONE because there are suckers willing to take the mortgage off their hands. The demand for these dodgy mortgage securities is tremendous because investors are struggling to find ANYTHING that yields more than treasuries, causing risk premiums to almost vanish on even junk rated assets.
This is what struck me about the experts on the Weekday program: very few people seem to understand how deep this problem of run-away credit goes, and how ominous the implications are for the whole economy.
By the way, I was also annoyed at how the Weekday guests all felt the Seattle market was safe even though they agreed the rest of the country was in trouble. I wish someone would have cited statistics about the percentage of sales in the Puget Sound that are of the exotic loan variety, that would have put things in perspective.
S Crow nailed it on the head, when he pointed out that the Weekday program made it seem like re-financing was some panacea for people in trouble.
I also fell over when I heard them talk about how these exotic mortgages made sense in markets where there was lots of appreciation potential like Seattle. I just couldn't believe that these same folks were excoriating the abuse of these dodgy mortgages throughout the country, yet felt they were perfectly fine for Washington.
We must be very special here.
S Crow,
The statistics you mention for mortgages in your own office are fascinating. Do you know if there are similar aggregate numbers for the Puget Sound area? I have seen numbers talking about the percentage of sub-prime loans that were "exotic" for our area, but I haven't seen data showing the total numbers of loans that were no money down, 100% interest, etc.
It would be VERY interesting to see this data for our region, and how it has trended over time.
By the way, how have the statistics changed in the last few years in your own office? What percentage of loans were no money down, or 100% interest, in 1997 or 2002?
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