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Jim Cramer of CNBC predicts 50% of all loans made last year will go bust.

Posted - 08/02/2007 : 4:47 PM

Jim Cramer's of CNBC's "Mad Money" says the following....

"I think that 50% of ALL loans made in 2006 are going to go bust. Not (just) prime, not (just) subprime ... 50% ... it makes too much sense to walk away from your home. Walking away from your home that you bought in 2006 is the smartest economic desicion that you might make. That is not a dangerous thing. I would rather have you keep your car and keep your credit cards and lose your house, if your equity is down 20%. Because you can't build equity in your home if your home is declining. Now no one wants to hear that you should walk away from your house, I'm saying economically that people who are walking from their houses with a piggyback loan and a mortgage are making sense. I'm saying they are not being yahoo's, that they are making sense. If you have a home equity loan on top of an Alt A, I'm telling you to walk away."

You can see the interiew here...

http://www.cnbc.com/id/15840232/video/448686929

I apologize but you have to register with CNBC if you are interested in seeing the video and I couldn't find it elsewhere.

Cramer also predicts, in this clip, that IndyMac may go bust. This is incredibly scary stuff for our industry.

The ALT-A lending products are being dramatically eliminated. These are the credit scores under 700, the interest only loans, and the lower income documentation loans. Those that are keeping them have raised their rates. I quoted a 100% stated income loan today with a rate of 7.375% on the first 80% and he has 720 credit scores and 10 months reserves in the bank. The rate on the 2nd was 10.125%. Its not cheap.

Make sure you meet with your preferred lender in the next week to go over lending changes and how they affect your clients ability to buy new homes. You will want to make sure he can do FHA and understands products like MyCommunity and the other offerings of Fannie Mae. The future of your business may rely on it.

Posted by Aaron Gordon, Home Loan Consultant, Las Vegas, NV on 08/02/2007 08:37 PM

Comments (13)

lending guidelines, jim cramer, foreclosure, short sale, bad loans

13 Comments on Jim Cramer of CNBC predicts 50% of all loans made last year will go bust.

AUG

2007

True a lot of Lenders are going to be cooked alive for their bad business decisions, but their nothing to indicate the claims made by a business reporter are close to being true. Are we going to see a rush back to standard lending practices, yes but it is a reflexive move designed to reassure the investors that Lenders, good lenders I should say got the message long age.

Paul---you are right. But it's scary to hear the name IndyMac and bust in the same sentence regardless of the source. And I think Cramer is being very honest in his advice for people upside down in their homes. He is saying what many of them are thinking, which is to walk away.

Standard lending is coming back but what does that mean to the real estate market? Less potential qualified buyers and prices need to come way down in many cities to meet them.

AAron -- It is irresponsible reporting such as this that causes the demise of great companies like AHM. His comment that 50% of all loans will go bad is totally idle speculation and certainly is not true. Hell why didn't he just say "It is all Bush's fault" Aloha

Bruce---I do agree he is a madman and his numbers are way off.

However, he brings up an interesting perspective on the mindset of the consumer. And his mentioning of IndyMac is pretty scary. If banks like IndyMac can't make it work, who can?

I am an optimist however. I started with primarily traditional conventional and government loan products and I am not afraid to go back.

By the way, he blamed Greenspan in the video clip, not Bush. :)

Hi Aaron-- YIKES My buddies at AHM tell me they are being bought out by Indy Mac (west of the Mississippi) Lord if Indy Mac goes bust where are we? Aloha

Bruce---I think that would actually be good news. Maybe consolidation can save them.

AUG

2007

Makes me wonder on what basis he is even mentioning Indy Mac? Where in the world does he pull a figure out like 50% of all loans will go bust, and then not back it up with any sort of anything. We can all have opinions, but its sure nice to here someone who knows how to back it with some sort of facts or trend in the numbers.

There is certainly something to be said about the little more conservative lending practices here in Canada.

Although we experienced a bit of a real estate meltdown in the late 70's and again in '89 / '90 all is well right now. We continue to experience steady growth in a relatively stable rate market still lending at historically low interest rates with only minor increases predicted for the balance of the year.

I am sure a great deal of what we hear in the news is based on reasonable fact but I agree with Jared that to arbitraily pull a number out of the hat of 50% without any basis or fact is a little irresponsible and I hope that type of "hype" does not cross over the border and cause undue stress here in Canada.

Best of luck to all concerned.

By the way the auto hyperlink to Brokeroutpost.com, very aggravating considering the sign in splash screen requests a username and password without the reader having any idea that they have been brought to an outside website.

At first glance I thought I had either a virus or spyware considering it took about 6 clicks to cancel out the sign in screen. You should give the A/R reader at least a heads up that you are promoting an outside website.

Dave---thanks for the heads up on the link. That was a mistake. I saw the link originally there and copy and pasted it not realizing it would direct you there. I have corrected it for everyone else.

I am unfamiliar with how financing works in Canada but hopefully you will stay insulated from the hype, frenzy and fear of the lending markets here.

AUG

2007

I truly think that media hype is driving the housing market straight to the bottomless pits

What is happening in California with a 2 bedroom house that cost 500k + may not be happening in an area that the same 2 bedroom home would get 59k for or the home in Florida that would get 1.5 mil+ and somewhere else only bring 650k .

these are examples only no real home was harmed in this fictitious example

Margaret-- You bring up a very good point. Although I dont think the media hype alone is driving the market down, I do believe it has some influence.

I do agree with you however that all is not that bad everywhere. I have done loans for a few real estate agents and builders in Washington state, Idaho, Utah and Texas and the ones I speak with all report that things are going pretty good there.

Its the states that had the insane appreciation where things are the worse like Nevada, Colorado, California, Arizona, Florida, etc.

APR

2008

Well, you get garbage mortgages when you deal with garbage mortgage brokers/consultants.

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