U.S. Banks Halt New Mortgage Lending 29 comments
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While U.S. banks have essentially ceased making new mortgage loans to Americans, there has been a dramatic increase in talking about lending.
On June 26th, Bloomberg was the propagandist which allowed JP Morgan (JPM) and Citigroup (C) to boast that they were “expanding jumbo loans”. Of course, JP Morgan is “expanding” its own jumbo-loans from a current total of zero.
The reality is that U.S. banks issued $348 billion in jumbo loans in 2007. However, by the 4th quarter of 2008, that lending had declined to only $11 billion – working out to nearly a 90% decline in “jumbo”lending. Things have only gotten worse this year.
In the first quarter of this year, U.S. GSE's (i.e. Fannie Mae (FNM) and Freddie Mac (FRE) ) accounted for 98% of all residential loans, according to a Reuters article. Wall Street, which mooched over $10 TRILLION in handouts, loans and guarantees, claimed that it “needed” all these handouts specifically so it could rescue the U.S. economy with new lending. The reality is that this has been all talk and no action.
Even in the Bloomberg propaganda piece, neither Citigroup or JP Morgan would commit to a target for their jumbo loans – either in terms of a number of units or a dollar-total. Thus, there was essentially no news in this piece of fluff – at all – merely a Wall Street mouthpiece providing JP Morgan (JPM) and Citigroup (C) with free advertising.
Meanwhile, both the sub-prime and “alt-A” loan market have virtually disappeared in the U.S. In 2005 and 2006, there were over $1 TRILLION in “alt-A” and sub-prime loans issued in each of those years. Last year only $64 billion was issued, a drop-off of well over 90%.
However, that doesn't mean that defaults in sub-prime and “alt-A” mortgages are declining, in fact the exact opposite is true. As of today, only 11% of adjustable-rate “alt-A” loans had reset, with the vast majority of those resets occurring over the next two years.
The truth is that the U.S. financial crime syndicate appears to be quite content to allow foreclosures to continue to mount, while it secretly accumulates millions of pieces of properties for next-to-nothing. Thus, the game-plan is to pretend to lend to Americans – in order to delay any meaningful assistance, and maximize the number of Americans who lose their homes.
With Wall Street “sitting on” millions of homes, and with more than 20 million empty homes across the U.S., there is a stockpile of inventory which guarantees depressed prices for many years to come. In the same Reuters article, a chilling statistic was released. The average (total) equity which Americans have in their homes dropped to 8%. This includes the 1/3 of Americans who completely own their homes, meaning that all U.S. mortgage-holders had an average of less-than-zero home equity.
This doesn't bother the Obama regime, which has essentially done NOTHING to keep Americans in their homes, while it pays them to vacate their homes.
With the only direction for U.S. home prices being lower, U.S. baby-boomers are now retiring, and their retirements are grossly-underfunded. Their only option to attempt to maintain their standard of living is to dump real estate – which represents 75% of their total assets.
Yet, all indications are that no one in the U.S. system has learned anything. Fannie Mae recently raised the number of mortgages it was willing to insure for a single buyer from four to ten units. Encouraging more reckless speculation is seen as a “solution” for the collapse in this sector.
However, this isn't good enough for the Obama regime, which wants Fannie and Freddie to “relax” their standards even further. Meanwhile, Citigroup just announced it was suspending its mortgage securitization unit because it had never stopped packaging fraudulent mortgages.
When we combine the largest glut of unsold homes in human history with an entire generation of Americans who are now about to start dumping real estate, this would seem to guarantee a depressed market for decades to come.
Thus, the reason why Wall Street doesn't want to lend any money to Americans for their homes is obvious: they expect most of the new buyers of today to be the foreclosure victims of tomorrow.
Disclosure: I hold no position in Fannie Mae, Freddie Mac, JP Morgan, or Citigroup.
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i can tell you from personal experience that investors are walking around today with cash and are preying like vultures. they are not resorting to mortgages. there is little anyone can do to make money right now with cash except to purchase a rental property at a price which gives them a good rate of almost guaranteed return.
Any normal economy will money being pumped in at the rate the Fed has been pumping should have exploded into life. The fact that it hasn't just shows to what degree the American economy has been hollowed out with abundant cheap credit and an over-valued dollar.
When it comes to Retail and Real Estate, who gives a damn? What matters is that the environment is created such that investors invest so that Americans can go back to the work. The only problem is most have them have simply forgotten what it is to labour to make things that can be sold on World markets. Why would anyone want to build factories in the USA? At the moment, they would have to re-introduce feudalism before many would be interested in trying to retrain and motivate workers. Prolonged high levels of unemployment and real deprevation, however, are great motivators.
I would rather see a sudden crash in real estate pricing rather than a continuation of this Chinese water torture for several more years.
Maybe the best solution is for the banks to auction off all of their forclosed properties in one month.
The price drops would be staggering, but the buyers would be stronger hands.
When real estate hits bottom the recovery will begin.
Wealth is not created by capital appreciation of homes - wealth is merely transferred when one party buys it from the other. We are attempting to fuel a new housing bubble with depressed interest rates and obscene tax credits for home buyers. These policies are trying to steer investment capital into a good (home) that doesn't produce anything and has no intrinsic value unless it is being used to live in.
IF our government feels the need to micromanage capital flows, they might as well direct it to new industry and entrepreneurs. There will certainly be a lot of malinvestment and disincentives, but at least a sustainable business that creates wealth might pop up here or there.
this brings to mind the statement of allison on the market wire 2 weeks or 10 days back. he said bb&t did not need or want tarp funds but were forced to take them to spread the damage. he also commented that thet were ready and willing to make loans but the regulaters were making it near impossible.
this makes me think that part of the bankster/federal reserve/rogue government oligarch serving apparatus are simply destroying the few decent solvent banks who have used sound conservative practices while making it very difficult for responsible solvent citizens to purchase property and using fannie and freddie to make more bad loans to the irresponsible. this seems like a formula for the planned destruction of america.
independent strong little banks cannot be left unmolested if we are to enter the new age of fascist serfdom.
Whether it's a refinance, pruchase, loan modification or foreclosure, they have an insurmountable wall in front of each. Florida's Miami dade has 28,000 foreclosures on the dockets with many borrowers not even being contacted. This is a total meltdown being orchestrated by the folks who now have the cash and as we all know, those who hold th ecash hold the keys to all.
Thanks for the above article. It reinforces my feeling about the United States of America as we approach its birthday. This country is SHOT; it is rapidly CIRCLING THE DRAIN!
Too bad our leaders don't have the same objective! We are TOAST! Better get Rosetta Stone language list. Try Chinese, Russian, or at least Spanish!!!!!!!!
Banks are not only not lending money for mortgages, they continue to raise interest rates to usurious levels for PAYING customers AND they are still yanking commercial credit based on borrower's financials, not if they are making payments.
In other words, we are being punished from the banks for the SAME exact reason that the banks (and GM/Chrysler, insurance companies, etc) have received taxpayer cash.
Congress votes in Cap & Trade and continues to ignore the fact the banks created the mess, changed the rules AFTER they initiated the credit and now the banks are destroying everything in the country to save themselves.
We are in deep crap and the banks are the opposing army. Instead of letting them fail and saving the rest of us, the government is forcing the banks to sacrifice every American industry for themselves.
And in two years we will still be wondering why things are so bleak.
There are aleady too many houses available. Plus with the increasing unemployment and the resulting lower wages, who can afford them, even at the lower prices?
And why would banks want to hold on to them? What have they got to gain?
The housing bubble will probably not occur again for a long time. Real estate is dead. Don't try to revitalize it.
The CPI ran a computer analysis of every high-interest loan reported by the industry to the U.S. government from 2005 through 2007, a period that marks the peak and collapse of the subprime market. From this pool of 7.2 million loans, CPI investigators identified the top subprime lenders. They labeled them as the “Subprime 25” that were responsible for nearly a trillion dollars of subprime lending, or 72 percent of all reported high interest loans The “Subprime 25”, which are mostly no longer in business, were largely non-bank retail lenders that needed outside financing to make their subprime loans. The Center’s study found that at least 21 of these “Subprime 25” lenders were either owned outright by the biggest banks or former investment houses, or had their subprime lending hugely financed by those banks, either directly or through lines of credit. In other words, the largest American and European banks made the bubble in subprime lending possible by financing it on the front end, so they could reap the huge rewards from securitizing and selling mortgage-backed securities on the back end.
According to the CPI investigation, the mega-banks not only invested in subprime lending institutions, but they were the enablers, bankrollers, and instigators driving high-interest lending, and they did so because it was so lucrative and unregulated. Worse, in many instances these are the same financial institutions the government is now bailing out with tax revenues. The report will also give the readers an insight into the purchasing of a president, and a clue why Bush Jr. and Obama have rushed to bail out the financial giants.
Now the banks kept the bailout money that was meant to lend back to America. Our Politicians are supporting this criminal activity, and getting millions in contributions from it all. Wake up!
I could afford a couple of houses. Will not buy them though. Too much red tape.
Source? And link?
Thanks
I am a Real Estate investor of 25 years. I am perfect in every way on paper (800+ FICO, plenty of documentable income, a lot of liquid cash in the bank, and a very strong net worth). On a good day I am lucky to get 65% LTV (non Fannie, Freddie, FHA) on a non owner occupied property. (banks really don't like these as they are perceived to be risky)
I used to have personal relationships with 9 different banks. Because they knew me, they were able to lend to me on reasonable terms. Now, out of the 9 that I have done business with for over 20 years, there are only two that will work with me. (or at least quote terms that are not laughable) That's how bad things really are.
Wells Fargo out the blue took away a large credit line recently. Their reason? "For my protection as a customer" You have got to be kidding me!
I called them and got the run around. They informed me I could re apply! Again, mind you I am perfect in every way and have never ever been late on a payment to anybody EVER IN MY LIFE!
Then the same crap just happened with Inter Bank. They took away a substantial line of credit from me for no reason. Got the same run around from them!
So against my better judgement I have maxed out my additional credit lines with the big banks-Chase, Bank of America, US Bank before they take them away as well (I will say right now they are cheap-they are all indexed with prime). I have not done this with the smaller local lenders that know me however. I have been assured by the president in both cases, they would NEVER pull a stunt like that on me-but I'm not holding my breath.
This why the economy is in the tank!
On Jun 30 11:07 AM David Cay Johnston wrote:
> You cite no source for your data on the jumbo loans.
>
> Source? And link?
>
> Thanks
5142152, I'm sorry to disillusion you, but I'm Canadian. However, EVERYONE is affected by this B.S. either directly or indirectly.
Also, I can see much of what is going on in the U.S. leaking into our own system in Canada - especially the propaganda and market-manipulation.
This doesn't exactly tell the whole story regarding the loosening of this guideline. Just three years ago. a "speculator" could buy investment property with only a 5% down payment, and didn't have to prove their income on tax returns (stated income / liar's loans). Today, lenders require 25% down and everything must be fully documented. This is substantially different. Someone that proves their income and puts 25% down on a property is in a much better position to be a real estate investor than someone with almost no interest in the property and a lack of income to support it.
Not only is it much more difficult to come up with 25% down, but when the investor finally does, the property will most likely provide positive cash flow due to the smaller balance on the loan. I don't believe the policy of financing up to 10 units instead of 4 is reckless at all in light of the major tightening of the other requirements. The likelyhood that defaults will occur on fully income documented sales of investment property with 25% down payments is rather low.
I'm actually quite bearish on real estate in many parts of the country, but certain areas have less exposure to toxic financing and speculation and are therefore well-placed for future positive returns. Whenever I see an article on real estate, it often talks about "the U.S." as if real estate in the U.S. is one, singular market. Just ask people in Naples, FL vs Kansas City, MO how their properties have fared, and you will get two very different answers.
However, over the LONGER term, ALL segments of the market are affected. If you can sell your home in Texas, and buy the SAME home in California for HALF the price, then over the longer-term, Texans will be DUMPING real estate in their market and BUYING in California.
Granted this isn't always possible for people needing to find a JOB in the new market. However, for (retiring) U.S. baby-boomers, the ONLY way they can finance their retirements is to down-size (or "down-price") their homes.
Thus, there will be an exodus of U.S. seniors from markets which have held up (relatively) well, and an in-flux into totally devastated markets. This mechanism will even-out prices across the U.S. (to the down-side) - as seniors dump TRILLIONS in real estate.
On Jun 30 12:23 PM dirtyharry wrote:
> "Fannie Mae recently raised the number of mortgages it was willing
> to insure for a single buyer from four to ten units. Encouraging
> more reckless speculation is seen as a “solution” for the collapse
> in this sector."
>
> This doesn't exactly tell the whole story regarding the loosening
> of this guideline. Just three years ago. a "speculator" could buy
> investment property with only a 5% down payment, and didn't have
> to prove their income on tax returns (stated income / liar's loans).
> Today, lenders require 25% down and everything must be fully documented.
> This is substantially different. Someone that proves their income
> and puts 25% down on a property is in a much better position to be
> a real estate investor than someone with almost no interest in the
> property and a lack of income to support it.
>
> Not only is it much more difficult to come up with 25% down, but
> when the investor finally does, the property will most likely provide
> positive cash flow due to the smaller balance on the loan. I don't
> believe the policy of financing up to 10 units instead of 4 is reckless
> at all in light of the major tightening of the other requirements.
> The likelyhood that defaults will occur on fully income documented
> sales of investment property with 25% down payments is rather low.
>
>
> I'm actually quite bearish on real estate in many parts of the country,
> but certain areas have less exposure to toxic financing and speculation
> and are therefore well-placed for future positive returns. Whenever
> I see an article on real estate, it often talks about "the U.S."
> as if real estate in the U.S. is one, singular market. Just ask
> people in Naples, FL vs Kansas City, MO how their properties have
> fared, and you will get two very different answers.
On Jun 30 11:18 AM 20dollar wrote:
> True, if it is not Fannie, Freddie or FHA, banks are extremely conservative
> with their lending.
>
> I am a Real Estate investor of 25 years. I am perfect in every way
> on paper (800+ FICO, plenty of documentable income, a lot of liquid
> cash in the bank, and a very strong net worth). On a good day I am
> lucky to get 65% LTV (non Fannie, Freddie, FHA) on a non owner occupied
> property. (banks really don't like these as they are perceived to
> be risky)
>
> I used to have personal relationships with 9 different banks. Because
> they knew me, they were able to lend to me on reasonable terms. Now,
> out of the 9 that I have done business with for over 20 years, there
> are only two that will work with me. (or at least quote terms that
> are not laughable) That's how bad things really are.
>
> Wells Fargo out the blue took away a large credit line recently.
> Their reason? "For my protection as a customer" You have got to be
> kidding me!
>
> I called them and got the run around. They informed me I could re
> apply! Again, mind you I am perfect in every way and have never ever
> been late on a payment to anybody EVER IN MY LIFE!
>
> Then the same crap just happened with Inter Bank. They took away
> a substantial line of credit from me for no reason. Got the same
> run around from them!
>
> So against my better judgement I have maxed out my additional credit
> lines with the big banks-Chase, Bank of America, US Bank before they
> take them away as well (I will say right now they are cheap-they
> are all indexed with prime). I have not done this with the smaller
> local lenders that know me however. I have been assured by the president
> in both cases, they would NEVER pull a stunt like that on me-but
> I'm not holding my breath.
>
> This why the economy is in the tank!