Housing Peak: Subprime Lender Cutting Jobs

 ON NOVEMBER 17, Subprime lender Ameriquest Mortgage announced that it was cutting 1,500 jobs:

“The corporate parent of Orange-based Ameriquest Mortgage today said it would lay off 10% of its workforce — about 1,500 employees — as the long-running housing boom and demand for home loans cools off.

“ACC Capital Holdings, which also owns AMC Mortgage Services and Argent Mortgage, would not identify where it would cut jobs or provide other details about the layoffs…

“Earlier this year, Ameriquest, which makes higher-cost subprime loans for borrowers with credit problems, lack of steady income, or other issues, agreed to pay $325 million as part of a settlement with a large coalition of states over its mortgage lending practices.

“Among other things, the company has been accused of bait-and-switch tactics that inflate costs to borrowers — a complaint leveled at other subprime lenders in recent years.”

Ramsey Su on Silicon Investor offered these thoughts:

“Ameriquest is either No. 2 or No. 1 in the subprime world. Since it is private, we don’t know their numbers. That is their advantage. In theory, they can cut profit margin to zero to squeeze competitors out of the business.

“I heard a couple of loan packages were sold recently at very unfavorable prices. Since I have no way of verifying that information, I can’t give it much weight.

“What I know for sure, from talking to two title companies today, is that San Diego and So. Cal orders are down, both in closings and openings. Unfortunately, neither would give me exact numbers, though they both sound worried. Last week, a title rep told me his business was down 25%.

“Through the middle of November, the San Diego MLS reported just over 1,000 sales and 1,400 openings. This is a slightly slower pace than October closings of 2,562, and certainly behind November ’04 3,133 closings. Days on market now is up to 60. Total number of listings is stubbornly staying just below 16,000. At current pace, this is now about a seven months supply.”

Housing Peak: Fewer Mortgage Applications

In other mortgage-related news:

“Applications Dip

“The Market Composite Index, an overall measure of mortgage applications, fell from 661.3 to 657.6 on a seasonally adjusted basis during the week ended Nov. 11, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey. On an unadjusted basis, applications decreased 12.1% on the week and were down 13.7% from the level recorded a year earlier. The Purchase Index rose from 465.7 to 477.9 on a seasonally adjusted basis, while the Refinance Index declined from 1,798.8 to 1,702.4. The four-week moving average for the Purchase Index fell from 468.4 to 461.9, and the comparable average for the Refinance Index fell from 1,918.5 to 1,820.2. Refinancings represented 40.4% of total applications, down from 41.7% the previous week, while adjustable-rate mortgages accounted for 32.9%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased from 6.31% to 6.33%, and points (including the origination fee) decreased from 1.37 to 1.26 for loans with 80% loan-to-value ratios, the MBA reported…

“Exec Warns of End to RE Boom

“Eighty-five percent of borrowers in Southern California have taken out adjustable-rate mortgages to have lower mortgage payments now and spend money on dining out and shopping, but the boom can’t last, according to a roundtable participant at the Western Regional Mortgage Brokers Conference in Las Vegas. Americans are spending like never before and not saving, said Peter Schiff, president of Euro Pacific Capital, a global investment strategies company, during a broker roundtable on surviving the real estate bust. ‘People are borrowing to take vacations and remodel their kitchens,’ said Mr. Schiff. ‘Borrowers don’t have to prove income anymore or have a job to qualify for a loan. All the risk belongs to lenders. And we are on the way to a collapse if the federal government creates higher inflation.’ Mr. Schiff said the longer it takes for the bubble to burst, the worse the recovery will be. ‘The boom is like a heroin high — it feels great,’ he said. ‘But in order to get healthy, there is withdrawal, and that is not pleasant. The body has to purge itself of the artificial credit-induced boom similar to the ’90s.’

“NetBank Reports Mortgage-Related Loss

“NetBank Inc., an Atlanta-based online bank, has reported a mortgage-related net loss of $1.4 million (3 cents per share) for the third quarter, compared with net income of $4 million (9 cents per share) a year earlier. NetBank said the results include a pretax provision of $3.5 million related to a group of conforming mortgages with an outstanding balance of $13 million. ‘The company believes certain misrepresentations may have been made by one or more of the parties involved during the loan application process,’ NetBank said. Mortgage production totaled $3.8 billion in the third quarter, a rise of 9% from that of the second quarter, the company reported. The performance of servicing assets went from a loss of $2.3 million in the second quarter to pretax income of $130,000 in the third quarter ‘as higher rates and improving valuations for mortgage servicing rights led to prior impairment expense recovery,’ NetBank said.”

The anecdotal evidence that housing has peaked keeps piling up as evidenced by rising inventories, falling refis, lowered prices, a warning from Toll Brothers, and now layoffs in the subprime lending market.

Housing Peak: The Experts Speak

Let’s look at what some experts are saying:

* “‘I think we are seeing a peak in housing,’ said David Wyss, chief economist at Standard & Poor’s in New York. ‘There is anecdotal evidence that houses are staying on the market a little longer and prices seem to be leveling off.'”

* “Richard DeKaser, chief economist for mortgage banker National City, has been reluctant to call the top, but thinks it has finally passed.

“‘We’re coming down the other side of the mountain,’ said DeKaser…

“‘Supplies of new homes are way up, to nearly 500,000 units, from 350,000 a few months ago. That’s an all-time high for new homes.’ said DeKaser.”

* “‘Alan Greenspan knows now that he has single-handedly created a massive housing bubble that’s global in scope. Chances are he’ll do everything he can to help his replacement, Ben Bernanke, fight the aftermath.’ said Danielle DiMartino of DallasNews.”

* “‘The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession,’ warned a July report by the Center for Economic and Policy Research.”

* “‘The demographic story behind the housing market boom, as we always thought, was a giant hoax,’ wrote Merrill Lynch & Co.’s David Rosenberg, in a recent report…’At no time in the past three decades has the gap between household formation and housing starts been as wide as it has been over the past 12-24 months,’ Rosenberg wrote. ‘We’ve become accustomed to hearing about how housing is in a new paradigm, that the fundamentals are sound, so on, and so forth. But please, just don’t tell me that the sector has managed to divorce itself from supply and demand realities.'”

* “‘House prices are at the mountain top,’ said Mark Zandi, chief economist at Economy.com. ‘All roads lead down. It’s just a question of how steeply.”

The more the evidence piles up the sillier the denials get. Here are several denials to consider:

* “‘The air is starting to come out of the national housing balloon, but Phoenix has a good job market and strong in-migration, so it won’t experience a bubble bursting,’ [chief economist for the National Association of REALTORS David] Lereah said.”

*”‘Home values have doubled in the past four years and almost all, if not all, of those gains are here to stay,’ said Marshall Prentice, DataQuick president.”

* Lenders are being “fairly conservative,” so the likelihood of a crash is unlikely. That pearl of wisdom was from Lew Feldman, a real estate and public finance partner at the law firm of Pillsbury Winthrop Shaw Pittman LLP in Los Angeles. Lenders are being “fairly conservative”?! Yeah, right. And by the way, my cat just got offered credit: http://globaleconomicanalysis.blogspot.com/2005/11/what-card-does-your-pet-carry.html.

“Money Penny” on Strategic Investment replied to the above story with:

“My golden retriever has been gone now for over five years, but he often receives credit offers from American Express and Discover. We never went through with it.

“We did however get cards for Olive Oyl and Popeye. We filled out an Am Ex
application to get some piece of junk at a PGA tournament in Naples. The cards came with Olive Oyl and Popeye on the card. We never used them. An opportunity wasted.”

Anyone can get a loan these days, even cats and dogs, it seems. What’s in your cat’s wallet?

Regards,
Mike Shedlock ~ “Mish”
November 28, 2005