You can find the article here.

The September 10th, 2007 issue of Time has an article by Justin Fox about they types of companies who should issue mortgage loans. His argument is that banks and thrifts are best suited to the mortgage business and therefore should be rewarded for their aversion to risk.

You can find the article here.

Since Friday customers have removed $4 billion. That was when Northern Rock revealed it had asked the central bank for emergency funds.

It also raises questions in Britain about how the potential US submprime problem was so underrated.

Its a good read about how some financial institutions are vulnerable due to their reliance on the wholesale mortgage market for funding.

The National Association of Realtors (NAR) revised its homes sales forecast for the ninth time this year. The ninth time. They now predict an 8.6% drop in existing home sales and a 24% decline in new home sales. Hmmm.

In other news, Moody’s has now said that the housing decline might not bottom until 2009, and homebuilding giant Beazer homes has asked a court to hold off creditors.

We’ll probably here more stories like this in the months to follow.

We’ve always wondered who’s buying these houses. They usually sell for $600,000+, which would seem to make them on the pricier side. Now, more than ever, we wonder who the builders THINK will be buying these homes. Not only are there less buyers, but these homes all require jumbo loans - those over $417,000 (unless you have $183,000+ in down-payment).

Jumbo loans are now much harder to get and are more expensive. They’re not guaranteed by the GSOs such as Fannie Mae, they command a higher interest rate, and according to an article by Bloomberg yesterday, the August rates for jumbo loans were at their highest level since December of 2001.

So now you have rising house inventories, harder to get loans, and fewer people able to afford those loans. Many buyers went with interest only when rates were under 5% to keep the payments low, but most lenders are no longer doing interest only loans, and rates are increasing. And, therefore, so are payments.

And still the builders continue to build - after all, that’s why they’re called builders. They wouldn’t be building them if nbody wanted to buy them would they? So they must know who’s going to buy the houses, or they wouldn’t be building them. Just like mortgage companies wouldn’t lend money to those they knew wouldn’t be able to afford the payments when the interest rates increased.

Countrywide Financial is cutting 12,000 jobs, eliminating up to 20 percent of its work force. In a letter to employees, CEO Angelo Mozilo said that “This current cycle is certainly the most severe in the contemporary history of our industry”.

According to the San Diego Union Tribune, Countrywide added more than 6,900 employees from January to July of this year. Does that mean that they had no idea that the housing situation could not continue? Or was the attitude to make as much as you can before it falls apart. Makes you wonder.

Anyway, here in San Diego, we know that housing prices are falling, ’cause we see it every day. More houses are for sale that are more affordable. Not only that, but houses are staying on the market for much longer than they used to, and there seems to be far more houses for sale.

It will be interesting to see what the next few months hold for housing in San Diego.

So, less than a quarter of the households in California had the minimum income to purchase a home priced at $504,080.

I guess that’s good news. 1 in 4 can buy an expensive, entry level home.

Wonder who’s buying the rest of them.

Another interesting site, and the one from which we found RealEstateabc.com, is PricedInGold.com, which shows you how much gold you could get for certain items, including oil, platinum, gas and housing. Check out the chart on housing. Housing is down about 16% since 2002, and nowhere near its low. These charts are good to look at, because if you just look at the value of your house in dollars, it may have gone up, but if your currency has gone way down, you could have lost money. With this chart, you can see how its really doing.

Another article in the Union Tribune mentions that home prices in the US fell at the steepest rate since Standard & Poors began its housing index in 1987. San Diego ranked 3rd on the list with a 7.3% decline for the second quarter. The S&P press release can be found here (pdf).

Countrywide Financial, the biggest US mortgage lender, sold $2 Billion in stock to Bank of America to help its financial situation…Read story.

Late loan payments reose to their highest level in 17 years, according to the Federal Deposit Insurance Corp…Read story.

Most of us don’t have MBA’s, or business degrees, but we all know that if we have a product to sell and nobody to buy it, well that’s not a very sustainable business model. Likewise, if you’re giving mortgages to people with rates that will adjust and increase their payments to a point where they can no longer afford to make those payments, you’re losing a customer. Lose too many customers and you no longer have any. Maybe they thought, okay, but you wouldn’t have had that customer in the first place, so at least you got something. Yeah, except you now have a house that someone defaulted on.

Suddenly these lenders seem to be caught off guard because nobody wants to buy their mortgages. But wait, you say, what do you mean “buy their mortgages”? Don’t banks and lenders make money by giving loans and collecting the interest on those loans? They do, but they also make money by selling those loans.

One such lender who is now feeling the pinch is Accredited Home Lenders, based in San Diego. Their stock has dropped from nearly $60 in early 2006 to near $6 now. An article in the August 23rd San Diego Union Tribune quotes a stock analyst as saying that they can’t sell any more loans.

To understand the whole mortgage mess, you have to be much smarter than your humble editor. But one of the reasons so many bad loans were made to people who would not be able to make the payments long term was that lenders were giving loans to anyone who would take one. They would then sell it to someone else, making quick money on the loan in the short term while passing the long term risk on to someone else.

So now that defaults are on the rise, nobody wants to buy these mortgages, and these companies have no income. But what about the interest on the mortgages? Well, there isn’t any if people aren’t paying their loans.

Accredited is eliminating 180 of its 400 jobs at is San Diego headquarters. Not good for those being layed off. But the question begs to be asked - did all these lenders feel they could keep writing risky loans and selling them off to others for ever? Won’t the buyers eventually say enough, we don’t want any more of these bad loans?

Seems that’s what’s happening. Accredited has stated they have stopped making new loans. Which is interesting, because as a lender, you make loans and collect interest on those loans. Oh wait…if they’re bad loans, you can’t collect. Oh yeah.

In any case, didn’t anybody see this coming? While I don’t buy the excuses from those who thought they could take out a $500,000 mortgage and only have to pay $2000 a month in mortgage payments, and who were surprised when that payment went up as the ARM adjusted, I do understand that many of them didn’t realize what they were getting into (but they should have). But the banks and lenders knew better. They knew these loans were risky. And they continued to make them, with everyone along the line getting a piece of the pie.

We can’t really feel sorry for these companies. They knew (or very well should have) that it couldn’t go on for ever. And if they were totally caught of guard, they should never have been allowed to be in the business of making loans and selling them off.

There will probably be more of these companies feeling the pinch. What can you say? They knew what they were doing.