Yeah, so, here it is... (sorry, no pictures this time.)
A LOT (or for those from Utah County: ALOT) of people have sent me email, usually attaching a web article, axing me if it's true. Before you think that I am some sort of Dear Abby for the innerwebs, these articles all have had something to do with the new press attention on the mortgage industry and what's going on in the economy as a result.
Invariably, my response is, yes, it's all true, and very bad right now.
Articles like these:
Downpayments will soon be the only way to buy a home.
Subprime housing game is OVER.
In the last week, articles like this have proliferated across the web, and in national and local newspapers.
To those who are IN this industry, this is no news at all... This train has been coming down the tracks for about a year now, maybe more. But for others, like people who blindly INVEST money in companies like NOVAstar Financial, New Century, and now Accredited Home Lenders, the news apparently is hitting them broadside.
About 6-8 weeks ago, Novastar just up and WENT AWAY, leaving investors in the company holding empty plastic Walmart bags, instead of bags full of money. Then about 2 weeks ago, New Century announced it had been asked to IMMEDIATELY buy back 900 million in bad loans for THIS QUARTER ALONE. At the same time, they also announced they were under federal investigation, and their stock plummeted more than 50% in one day, because they now need to RESTATE EARNINGS from several previous quarters. When companies say this, they really mean to say, "we lied earlier, and now we can't sleep, so we're going to go back to retell the story - right after all our top execs get done selling their shares." Trading in the stock has been halted, and they also face delisting procedures.
And these are only the publicly traded companies. They're the ones that are supposed to have sufficient market capitalization and the management resources to weather the storm. But in addition to these, I get emails EVERY SINGLE DAY notifying me that one of our lenders is now out of business. Recently those companies include Secured Funding, Fremont Investment and Loan, Ameritrust, Popular Financial, First Capital Mortgage, Irwin Mortgage, Silver State, OwnIt Mortgage, Mortgage Lenders Network, ResMae, Lenders Direct Capital,... these are only the most recent ones.
In a recent earnings conference call with investors, CountryWide's CEO noted that while numbers of lenders going out of business everyday is published to be between 5-20 (per day), the number really is MUCH higher. DR Horton, one of the nation's biggest home builders, says that "2007 is going to suck, every single month of it."
Pretty doom and gloom reporting, huh?
But remember one thing - the currency that market news trades in is always FEAR. These are the stories that are garnering attention, and so editors are asking their writers, why haven't YOU written about this yet, are you asleep at the wheel?" And so that next story gets written. The one that reports that more subprime mortgages are in default now than last quarter, etc.
Is it all bad though? Interesting to note that Warren Buffet recently quadrupled his stake in US Bank, a lending institution, as well as Wells Fargo. Warren Buffet is seen by many as Jesus Christ Himself in financial circles. Also interesting to note that many ratings services like Fitch have upgraded Countrywide's stock for the near term, calling for a $50 share price in the next two years. That stock is currently at $34 and change. There are also rumors that Bank of America has a woody for Countywide, and would like nothing more than to jump its bones with Luther (Loofa) Vandross playing softly in the background.
So this is enough for now... I'll write more on this in the near future, because I think it bears discussion, or at least it's something I find interesting.
And I'll call it here first - I'll bet the FED LOWERS its interest rate tomorrow for the first time in a very long time... and it will send ripples through the economy as a result.