Subprime is a big story, Alt-A is a bigger story. A lot of this stuff is refi's to bailout stretched homeowners, what if they can't refi? It really nearer the beginning than the end of this cycle. Government is already talking bailout, but a "few billion" as Dodd suggests won't come close to touching this issue.

Basically, you either have sound underwriting and solid fundamentals when you give a loan (a loan MEANT to be paid back) or you don't. And if you don't you don't solve the issue by throwing good money after bad. You get back to the basics, Documentation, solid DTI, make sure the consumer has a bit of skin in the game and mortgage insurance to protect the downside. Simple changes like that would simply destroy a market like California where the market is out of whack with the fundamentals. The quicker lending returns to sanity the quicker the housing market can bottom and begin a recovery. But I just dont see the lenders dropping the lenient programs without a fight so this will be a protracted mess of foreclosures, lawsuits, and David Lereah calling a bottom with every new months disapointing number.

One of the most interesting charts was in the OC Register regarding subprimes market share:

http://www.ocregister.com/ocregister/money/housing/article_1615833.php

And the alta-a low documentation numbers are staggering.

Realtors and mortgage pros better be getting their customers to work on their credit and start saving. Liquidity will soon be prized (well, actually required).

Read the calculated risk blog for Ivy Zellmans report, Ivy has been right early and often and way ahead of the curve she was saying things in late '05 that people are just starting to think about today. She has the pedigree of being correct. There are several conferences coming up for new home builders, I look forward to hearing them dodge questions on this issue because they don't want to talk about the severity. But watching the lenders and reading what they are saying about the secondary markets appetite for bad paper is far more instructive.

Tim- For the upper end, I think the refi will affect them more than the purchase (personal opinion). *IF* this does go into ALT-A where stated gets restricted to high FICO for refi, every level will be affected. The secondary market will geniunely be concerned about reasonably being paid back by the borrower and not just if the house sells or rapidly appreciates (well, they will be concerned about that at current pricing, the appropriate price for risk seems to be much higher than is currently in the market).

Randal said-"Someone WILL begin marketing loans that will "smooth out some of the risk.  If you think you have seen the end to Hybrid Arms, Interest only loans and stated Income, no Doc, etc. etc. etc. you ignore history. "

I disagree, for the following reason. This products were only seen as viable because the products themselves created a hot market masking the true fault of the products. They are fundamentally flawed as underwritten and priced (too loosely given out at too low of price). You would need a product that "saves" the current undocumented homeowners at very low pricing, these are people who cant handle any sort of amortization, some can't even afford IO. With the new Federal regulation being passed ("Guidance on nontraditional mortgage"-FDIC) and another on the way. The federal government is going to regulate the heck out of the industry to ensure that documentation and ability to pay are paramount in underwriting guidelines.

I think what you could see is a smart "win-win" type subprime product that reprices itself based on the borrowers FICO score and repayment profile (allowing a IO and amortizing option, the more amortization they take the less risk and lower pricing later) during the history of the loan. Just remember you heard it here first ;-). But this product, and no product, will help those who are in fundamentally over their heads based on the loans they are in. The only thing that will save them (imho) is forebearance by the current note holders or being able to sell.

Matt- We share the same interest, do you know a realtor like you in So. Cal.?

Hi Matt and everyone:

matt - Your posts always provide good information.  But, after just read about your "housing bubble" post written last July, it got me thinking:

Will the affects of this meltdown also regional, much like the upward / downward trend of the housing market?  For a particular hot market like Bellevue, WA, where you reside, you know that the market has been going strong for the last few years, and probably still has room to go up.  Will a hot regional market like this be badly affected by the meltdown?  Will a hot market's price at least stabilize, if not going down?

Thanks :)

The subprime meltdown has led hundreds of companies to change their investment strategies, while multiple lawsuits are threatening the industry causing what are sure to be sweeping changes to the regulatory landscape. Therefore, events like www.iqpc.com/us/subprimemortgage  are very informational and provide business professionals with the solutions to arising problems as a result of the Subprime crisis.

It is so interesting going back to read these posts from the past.  

We are now in a situation where we have approximately 21% of all buyers effectively out of the market.  21% is the number of Alt-A and Subprime borrowers who will no longer be able to get a loan.  http://www.irvinehousingblog.com/blog/comments/why-the-sub-prime-meltdown-is-a-problem/

With 12 months of housing inventory for sale and 21% of the demand gone we're actually looking at 15 months of inventory.  Add to that the decline in the value of existing homes http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_082653.pdf and you can see we have a serious problem.  The decline in home values is a long way from over.  We'll need to work through that inventory but who is going to buy the inventory when they can't get a loan.

To add fuel to the fire, the ARMs, Hybrid ARMs etc. that were written during the boom won't finish adjusting until 2012.  We still have a long way to go before we've seen the end of the massive quantities foreclosures.

But wait, the bad news continues.  We are now looking at a situation where everyone who purchased a home in the last 2 years, and put less than 20% down, owes more than their home is worth.  What is the incentive for those people to hang onto those homes?  Have you heard of 'jingle-mail' that's when you send the keys back to the lender in the mail.

There was an excellent article in the WSJ today with quotes from all the democrats - Barney Frank, Chris Dodd, Maxine Waters etc etc etc defending Fan & Fred saying there isn't a problem, they've hit their goals.  The regulators are saying this isn't a question of goals it is a question of leverage - 100 to 1.  Alan Greenspan weighed in and warned of impending doom and it all fell on deaf ears.  It has recently been revealed that the staunchest defenders of Fan & Fred got huge political contributions from Fan & fred.  It's time for an independent investigation into the link between the $ and the defenders of Fan & Fred.  Even after Raines and the gang cooked the books for bonuses and got caught they simply ignored the many signs of trouble.