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SFGuy

The problem with the current attempt to tighten mortgage lending regulations is one of enforcement. The Fed can only exert control directly over banks and institutions that make use of the Federal Reserve System; FDIC, etc. Many of the smaller lenders (and I think a couple of pretty big ones) are pure lenders and independent of the FRS.

The participating institutions, which includes most of the big buys and retail banks, make a very good argument against this type of lending regulation. They argue that imposing tightened lending standards will *increase* risk for the whole system, themselves included. That's because the are believed to employ less sophisticated risk management techniques, including lower effective lending standards. But they still sell their loans into the secondary markets. The ricochet comes back around to hurt the big banks more than the small lenders. So they argue that either:

a) Congress needs to pass comprehensive regs that apply to all mortgage lenders, not just FRS ones, or

b) There should be no regulation by gov't and the market should sort 'em out.

It's not a bad argument, even if it's obviously self-serving to the big banks. Our current government's bias makes it highly unlikely that they'd allow lopsided regs to go through which damage (in terms of both revenue and risk) the very largest corporate constituents.

And absolutely nothing until '07, guaranteed because of the tight election. And, even then, probably only if the changes in Congress the pundits keep gurgling about actually happens. (And even then it could just all die in gridlock. There'd be no chance of overriding veto on this type of legislation).

This is quite interesting too.

@allah, I saw that article, too. What it doesn't seem to account for is that the 4BR 2.5BA home in Palo Alto is an Eichler that hasn't been upgraded since the Nixon administration, while the same in TX or some other not-so-bubbly place is likely a new home in a development, albeit likely a crappily put together home. The strict comparison of like-sized homes is interesting, though.

@SF Guy,

The more exotic loans get written, the harder the crash, IMO. I just don't understand what idiots, in this day and age with even the MSM on the anti-NAALVP bandwagon, are still using these products.

Allah,

I'm not too sure about some of the new construction techniques at all. I spoke with a const. guy and he said with the new "wafer board" if it's exposed to the slightest leak it begins to "wick" up the moisture until the entire 4' X 8' sheet is rotted out!

Also when you drive past new const. you see all of these pre-fab trusses/joists and eaves laying out in the weather. They don't look all that sturdy to begin with being "stapled" together and bundled in a warped pile. I'm not one of those "don't build 'em like they used to" kind of guys but the whole process looks shaky.

With older homes more of it CAN be salvaged. Our old porch, later became the garage! The wife and I looked at a home built in 1958 just yesterday and make no mistake, it's got problems! But nothing that couldn't be worked through, also the taxes were much lower than new homes of similar sq. footage.

CB,

That's more or less what we noticed as well. About 80-100K to bring the mechanical systems, wiring, plumbing and windows up to snuff. If I was retired it would be a great "project". I'm not so it ain't.

Very true…..These loans will soon disappear once Wall Street realizes that they are a very bad investment;they are starting to realize this now.

These loans will disappear only after the blame game when people *demand* regulations to prevent it from happening again.

The blame game will not start for a while. Prices have to drop significantly *first*.

Robert C,

"picking their last musical chair" LOL!

I'm starting to wonder if the gates on the gated communities aren't designed to keep people in!

If UN sells the HQ as condos, the proceeds can probably help more people than they already have all these years.

SP,

I was at a few home sites over the weekend and noticed they have gone past that and are now using "flex" tubing w/crimp connectors. The manufactured home builders have done this for years and now it looks like it's becoming the standard for site built homes as well.

It's kind of neat really. You just "eyeball" what you think you'll need, snip, clamp, crimp and move on. You remember the old galvanized pipe right? When you shut off the water the whole run of pipe would rattle? PVC and this flex stuff can't rust! With hard water in old homes we'd run it until the pipe only yielded a trickle and then you'd have to replace the whole pipe even though it looked fine from the outside.

Very true…..These loans will soon disappear once Wall Street realizes that they are a very bad investment;they are starting to realize this now.

I hope this happens, I really do. However, I am not so sure it will. If there has been one genuine "new paradigm" to emerge from this monster of a bubble, it's the rise of mortgage-backed securities.

The MBS/CMO revolution is a very real tectonic shift in the way mortgages are financed and the way mortgage risk is being transferred from banks/lenders to individual investors & taxpayers. We must remember that MBS/CMOs are what have made issuing NAAVLPs and I/Os profitable, even with tiny risk premiums, because of that oh-so-critical risk-transferrence. Even the most toxic option-ARM is profitable to the originating lender --in fact, the fees & points (profits) are far HIGHER than they are on originating traditional 15/30-year FRMs or amortizing ARMs.

The new MBS/CMO risk transfer model has been working SO well for lenders that I fear only a complete economic meltdown (resulting from it) would deter banks from voluntarily continuing its use in the future. And, as Randy has pointed out, the current anti-regulation/pro-banking bias in government is so strong, involuntary regulations (with real enforcement) are pretty much out of the question --for now.

I think our best hope where these toxic loans are concerned is that MBS investors eventually begin to recognize that the underlying risk has been severly underpriced and demand greater premiums (which should result in higher mortgage interest rates, which in turn would deter widespread use of toxic loans). Of course, this will require FB defaults on a massive scale, something we could expect to see beginning next year, and continuing in waves for several more years.

Very true…..These loans will soon disappear once Wall Street realizes that they are a very bad investment;they are starting to realize this now.

This is like saying:

Bad people will soon disappear once other people realize that they are very bad people.

Do not underestimate human stupidity. Do not overestimate human will.

Allah,

A g r e e d....... One of the other things that I noticed was that instead of using these "engineered beams" (which is just wafer board capped by a run of "C" channel) they used FULL dimensional lumber for the main floor joists! Heavy duty stuff too! 6" X 6"? I'm not sure why but apparently there had been some problems with the wafer board beams. In years past they used 2" X 10" @ 16" OC so this looked like a whole new sub-floor system!

Great Chart on:

http://www.oftwominds.com/blog.html

It shows the "false bottom" (where the dead cats bounce)..

Have you heard of vigilantism?

What is that?

FAB,

"The Plateau of Denial" too funny! Charles does have his moments.

RE: New vs. old homes, we've lived in both. The old homes seem to be hit or miss. There's probably a tendency towards better construction because the better built homes are the ones that don't fall apart, and in general, tend to stick around longer w/o being torn down. But I've been in plenty of homes in the Boston area that are on their last legs. 18th century farmhouses where everything is sagging, sort of like an 80 year-old woman. Our brownstone in the city was built on pilings above landfill. The pilings require a high water level to prevent rotting, and because of the Big Dig and other construction (the T in particular), that water level has been receding. I remember a story about a guy who woke up one day in his Beacon Hill brownstone and couldn't open the front door. Turns out the house sank and shifted a fair amount overnight because of rotting pilings. On the other hand, the masses of ranches, plywood boxes, stucco boxes in the BA slapped together during the 50's and 60's are certainly not very well built. And McMansions, well those are another story. I doubt those are built to last more than 20 or 30 years. It'll be interesting to see what people do with those a few years down the road. I'd like to see an episode of "This Old House" 20 years from now about rehabbing someone's McAlbatross.

Currently, I'm all for well-designed prefab, or if I have enough resources, new design with a good architect.

newsfreak,

I wouldn't mind so much taking on an older home needing "a little" work but that's the problem! There really is no such thing as "a little" work. Once you start digging into things you find, Oh...... they never finished this, completed that and so on. It's not long before you've lost sight of what you were supposed to correct. Now what?

Since I work at home I worry what clients might think if you tell them Oh, don't worry just step on the floor beams! Any remodel looks like the product of a disorganized mind. It just doesn't speak well of you no matter how "sanitized" you go about it.

new thread: New Paradigm? The Rise of Mortgage-Backed Securities

That chart fits exactly with my sticky model. Call it denial, psychology, irrationality, or stickiness. It's all the same thing. Uneven movements downwards.

Thanks everyone for your comments on this thread. Not one post had to be moderated or deleted, although CR tested our patience. This thread will now be closed.

HARM and allah,
RE: MBS's, you guys suggest one resolution is increased compensation for the increasing risk of these products. A more catastrophic yet plausible outcome seems to be the collapse of more than a few hedge funds, or even old-school mutual funds and other investment vehicles due to massive mortgage defaults leading to massive loss in MBS valuations. Possible?