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Old 25th August 2007, 06:29 AM
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New twist?: Britain’s housing nightmare

Not a comforting thought for IDNers, considering that Brits are the biggest buyers of secondary mkt IDNs.


http://wallstreetexaminer.com/blogs/cutting/?p=32


Britain’s housing nightmare

Many people look to the US subprime housing crisis as proof-positive that the dollar is doomed. That kind of thinking ignores the existence of even deadlier housing bubbles abroad. Such is the case in the United Kingdom.

The New York Times is running a piece on circumstances of Britain’s housing issue.

A private company bought her home, allowing her to avoid foreclosure; then the company rented the house back to Ms. Whittaker and her partner and they did not even have to move.

The catch? The company paid the couple less than the value of their apartment.

Such deals are uncommon in the United States, and mortgage brokers say they discourage them because of the possibility of unscrupulous and dishonest lenders exploiting distressed homeowners.

But desperate times call for desperate measures; and while Americans fear an epidemic of foreclosures, brought on by the subprime mortgage meltdown, Britain is already suffering one.

Foreclosures here are at an eight-year high; lenders have repossessed a record 14,000 properties in 2007, 30 percent more than at the same time last year, according to the Council of Mortgage Lenders. An additional 125,100 households are behind in their mortgage payments.

Private kickback deals? Sounds like a discounted sale-leaseback arrangement. As the drama in the U.S. unfolds, we could see tons of creative deals coming out of the woodworks. One not-so-creative deal includes the idea of a FDR-inspired full-scale housing bailout as advocated by a certain Mr. William Gross.

In some ways, I think Britain’s housing bubble is more de-stabilizing than that of the United States [if that is indeed possible]. For one thing, Britain’s aggregate house price inflation has outpaced that of the United States. Certainly, parts of the United States had housing inflation that rivals that of Britain, but in the aggregate, it is less. Compared to many of our Western friends, the U.S. seems comparably tame:

Source: The Economist



A second issue is the unpopularity of long-term fixed-rate mortgages throughout the Western world outside the United States. If you can believe it, much of Europe works on a variable interest rate mortgage model. The implications are staggering as mortgage payments become more cyclically dependent on you guessed it… inflation and interest rate swings.

Currently, only 5 percent of British home buyers take out fixed-rate mortgages. The norm here is a mortgage with a fixed rate for the first two years, and then a floating rate for the duration of the mortgage.

A final issue want to raise is my own private research suggests that the UK’s money supply is growing faster than that of the United States. This probably explains why Britain’s housing prices have inflated at a faster rate than America. The following observation from the same New York Times article confirms this fact:

British consumers are the most indebted citizens of any Group of Seven nation; and television shows devoted to real estate and debt advice are among the most popular programs in the country.

On a side note, a well-known adviser to the Bank of England was none other than Alan Greenspan; I’ll let you draw your own conclusions. In a bit of poetic justice, now-Prime Minister Gordon Brown is dealing with the fallout created by easy money under then-Chancellor of the Exchequer Gordon Brown.

You know what they say, the higher you rise, the harder you fall.
This was written by Juan Carlos Arroyo Calderon. Posted on Friday, August 24, 2007, at 12:07 pm. Filed under Cutting The Bull. Bookmark the permalink. Follow comments here with the RSS feed. Post a comment or leave a trackback.
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Old 25th August 2007, 07:10 AM
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Re: New twist?: Britain’s housing nightmare

Nice piece of journalism 8)

Does anyone here have any idea what percentage of the market 14,000 homes represents. Let me get my micrometer out!

There are 25M dwellings in Britain. If we take a crude percentage here, those repossessions account for about 0.05%.

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Old 25th August 2007, 07:34 AM
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Re: New twist?: Britain’s housing nightmare

RD, I am sure that you know tons about economics but I am also sure that if the same percentages were written up about the usa situation it would have been posted here by you already :p

It's a small figure but the possible fall in housing value isnt and wouldnt that create a nice cascade effect with a smaller market?
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Old 25th August 2007, 07:43 AM
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Re: New twist?: Britain’s housing nightmare

It is all down to affordability. Affordability in the UK is stretched. At the top end there is a huge drop off in the percentage of Americans buying in London. They just cannot afford it. Similarly at the lower levels a lot of people are just being frozen out because it is beyond their reach. In the buy to let area margins are low in relation to the risk. Having said that, a down turn on the scale that is being suffered in the US needs some kind of a trigger. The UK economy for the moment is comfortable. Interest rates appear to be peaking, unemployment is low especially considering the large numbers of foreign workers we have accommodated. Government debt is reasonably well managed and our balance of payments is not disastrous. Our currency appears to be solid. I think it fair to say that the huge increases in house prices are behind us, but I don't think they are going to crash.
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Old 25th August 2007, 07:51 AM
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Re: New twist?: Britain’s housing nightmare

Nothing we don't know of, bubbles are the norm today, but this sale-leaseback arrangement is really something new and controversial. Sounds like a legalized scam.
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Old 25th August 2007, 08:07 AM
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Re: New twist?: Britain’s housing nightmare

Not really. I considered this myself once.

You either own or you rent. If you cannot afford to own, then traditionally you would have to go through a huge upheaval to move home. This mechanism allows you to do the financial adjustment without disruption.

Generally, these schemes do offer you less for your house, but there is no monopoly in the market, although like IDN market it is a bit thin.

Your buyer is a buy to let investor. These guys rarely pay as much for property as home owners. If you are skint, it is always a Catch 22. This is just another not particularly attractive option.
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Old 25th August 2007, 08:08 AM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by Rubber Duck
It is all down to affordability. Affordability in the UK is stretched. At the top end there is a huge drop off in the percentage of Americans buying in London. They just cannot afford it. Similarly at the lower levels a lot of people are just being frozen out because it is beyond their reach. In the buy to let area margins are low in relation to the risk. Having said that, a down turn on the scale that is being suffered in the US needs some kind of a trigger. The UK economy for the moment is comfortable. Interest rates appear to be peaking, unemployment is low especially considering the large numbers of foreign workers we have accommodated. Government debt is reasonably well managed and our balance of payments is not disastrous. Our currency appears to be solid. I think it fair to say that the huge increases in house prices are behind us, but I don't think they are going to crash.

That's quite true. I think we're now witnessing the WMD equivalent of economic figures and ratings. From last year until now, we keep seeing:

1. Soft landing.
2. Inflation reducing.
3. New home sales increased.
4. Home recession bottoming.
5. AAA ratings.
6. Investment Grade bonds.

But, the mortgage companies are going bust one after another faster than dominoes fall. The fundamentals don't match the forecasts and statistics.

Yes, psychology is a power thing, the media can be powerful, believing is seeing, but it can only delay the inevitable. And once reality sinks in, people know everything is a bluff, hysteria sets in, and everything is dumped. Feeding more bluff (like what is being done right now), is only a temporary measure.

And who suffers the most in the end? It won't be China, won't be Europe, it will be ordinary Americans, the average wage earners. The smart money in wallstreet and washington would have hedged their bets.

Last edited by touchring; 25th August 2007 at 08:19 AM..
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Old 25th August 2007, 08:25 AM
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Re: New twist?: Britain’s housing nightmare

It all comes down to Central Bank Regulation.

In the UK things are pretty tightly regulated on the whole, although it would appear that Northern Rock is in trouble. I am always sceptical when a Bank comes from nowhere. I actually once had a mortgage with them and we got some shares when they converted from Building Society to Bank. I dumped them straight off!


Quote:
Originally Posted by touchring
That's quite true. I think we're now witnessing the WMD equivalent of economic figures and ratings. From last year until now, we keep seeing:

1. Soft landing.
2. Inflation reducing.
3. New home sales increased.
4. Home recession bottoming.
5. AAA ratings.
6. Investment Grade bonds.

But, the mortgage companies are going bust one after another faster than dominoes fall. The fundamentals don't match the forecasts and statistics.

Yes, psychology is a power thing, the media can be powerful, believing is seeing, but it can only delay the inevitable. And once reality sinks in, people know everything is a bluff, hysteria sets in, and everything is dumped. Feeding more bluff (like what is being done right now), is only a temporary measure.

And who suffers the most in the end? It won't be China, won't be Europe, it will be ordinary Americans, the average wage earners. The smart money in wallstreet and washington would have hedged their bets.
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Old 25th August 2007, 07:59 PM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by Rubber Duck
It all comes down to Central Bank Regulation.

In the UK things are pretty tightly regulated on the whole, although it would appear that Northern Rock is in trouble. I am always sceptical when a Bank comes from nowhere. I actually once had a mortgage with them and we got some shares when they converted from Building Society to Bank. I dumped them straight off!

Even the best regulation will not save a falling market.

The singapore government came in with property market cooling measures, imposed a max. 80% loan limit and additional 3% sales tax 1 year before the Asian financial crisis.

But that didn't prevent home prices from falling up to 40%. Prices fell not because of foreclosures, but because by the time a financial recession hits, banks were only willing to finance only 50%. Yes, to buy a home, you have to take out half cash.

WTF, half cash? In the West, the market will grind to a halt if people have to take out half cash to buy a home, especially in a time when stocks and funds just lost 50% their value, and companies everywhere are retrenching off people. You need all the cash you got on hand.

Last edited by touchring; 25th August 2007 at 08:07 PM..
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Old 25th August 2007, 09:05 PM
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Re: New twist?: Britain’s housing nightmare

The idea is try to stop things getting in a mess in the first place, not turning up after a Road Traffic Accident with a packet of sticking plasters!

Quote:
Originally Posted by touchring
Even the best regulation will not save a falling market.

The singapore government came in with property market cooling measures, imposed a max. 80% loan limit and additional 3% sales tax 1 year before the Asian financial crisis.

But that didn't prevent home prices from falling up to 40%. Prices fell not because of foreclosures, but because by the time a financial recession hits, banks were only willing to finance only 50%. Yes, to buy a home, you have to take out half cash.

WTF, half cash? In the West, the market will grind to a halt if people have to take out half cash to buy a home, especially in a time when stocks and funds just lost 50% their value, and companies everywhere are retrenching off people. You need all the cash you got on hand.
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Old 26th August 2007, 05:57 PM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by Rubber Duck
The idea is try to stop things getting in a mess in the first place, not turning up after a Road Traffic Accident with a packet of sticking plasters!


I think the whole world is now watching how the market in the UK will move from this point (Bloomberg reports that subprime is supposedly worst in the UK - http://www.bloomberg.com/apps/news?p...iQ&refer=home), and whether mortgages are also collateralized, causing "credit crunch".
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Old 26th August 2007, 06:48 PM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by touchring
I think the whole world is now watching how the market in the UK will move from this point (Bloomberg reports that subprime is supposedly worst in the UK - http://www.bloomberg.com/apps/news?p...iQ&refer=home), and whether mortgages are also collateralized, causing "credit crunch".
Bloomberg ought to focus on trying to figure out what is happening in their own backyard, and try to fathom the impact of the perception that Wall Street has pulled a scam on most of the World's banking system.

The US is very dependent on borrowing huge amounts of money from the people they have been ripping off. To stave off domestic recession they need to drop rates, but effectively the whole of the US is in the process of getting a bad credit rating, and with dollar uncertainty, the only way that the borrowing requirement can possibly be met is to offer hesitant and distrusting investors a much better return. I cannot tell what the answers are, but I can at least recognise the problem!

Of course the other thing that these half-wits ought to take into consideration is that house prices in the UK are still firm, so even if borrowers default the banks are not out of pocket.

http://news.bbc.co.uk/1/hi/business/6943797.stm

OK, I am not sure the situation in the UK will go on indefinitely. London Prices are almost certainly much higher than anywhere in the States. That does not necessarily mean there is bubble. It could all just be down to supply and demand.
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Old 26th August 2007, 11:13 PM
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Re: New twist?: Britain’s housing nightmare

Quote:
Bloomberg ought to focus on trying to figure out what is happening in their own backyard...
Sage advice for many occassions...
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Old 26th August 2007, 11:45 PM
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Re: New twist?: Britain’s housing nightmare

The strength of the housing market has surprised many experts this year. Rightmove, a property website, said last week that prices are on average a healthy 12.8% higher than a year ago. The housing market in London and the southeast has seen particularly strong growth. Knight Frank reports that the value of prime London properties – those valued at more than £1m – is up by 36%.

However, Fionnuala Earley, Nationwide’s chief economist, warns that longer-term turmoil on the money markets could send mortgage rates higher, denting housebuyer confidence. She thinks growth will head back to 6% by the end of the year as the financial crisis hits home.

She said: “If the situation persists, lenders who are dependent on wholesale markets for funding and those with the riskiest books will be forced to pass on higher costs, making it harder for people to get loans. We expect house-price inflation to be no higher than wage inflation next year, so we are talking about low, single digits.”

http://business.timesonline.co.uk/to...cle2326721.ece

London obviously isn't Florida!
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Old 27th August 2007, 03:53 AM
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Re: New twist?: Britain’s housing nightmare

I don't believe that London can escape the efforts of a credit bubble burst.

When a credit bubble bursts, credit destruction sets in, the strongest fundamentals will not prevent watershed. Even billionaires can go bust let alone subprime people.

1998 Hong Kong is a good example of what will happen to a financial based economy when a credit bubble bursts. In some cases, the effects can linger on even many years after the bubble has burst. i.e. India has more billionaires than Japan.

Of cos, the severity of the effects will depend on the fundamentals.

Last edited by touchring; 27th August 2007 at 04:05 AM..
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Old 29th August 2007, 05:58 AM
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Re: New twist?: Britain’s housing nightmare

it's happening in China, too, but much more serious! average monthly 7% increase in housing price, imagine that.
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Old 29th August 2007, 07:13 AM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by pspdropship
it's happening in China, too, but much more serious! average monthly 7% increase in housing price, imagine that.
It is only serious if it is unsustainable.

OK, China is not going up by those kind of numbers indefinitely, but there is little evidence that prices will actually go down.
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Old 29th August 2007, 07:17 AM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by Rubber Duck
Bloomberg ought to focus on trying to figure out what is happening in their own backyard, and try to fathom the impact of the perception that Wall Street has pulled a scam on most of the World's banking system.

The US is very dependent on borrowing huge amounts of money from the people they have been ripping off.
You know what they say in the US: "It's only a crime if you get caught!". Last time around, some of these guys actually did get caught and are serving prison sentences now... Still, there will always be somebody to come and take their places - the temptation is just too great.

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Old 29th August 2007, 09:14 AM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by pspdropship
it's happening in China, too, but much more serious! average monthly 7% increase in housing price, imagine that.

Paul Merton in China Weird French Hotel
http://youtube.com/watch?v=VSodGbarlCc


It's ok, it's not the whole of china. China has 1.5 billion people, at least 300 million homes. I doubt even more than 1% is affected by this monthly 7% increase in housing price.

They can play the condo casino, and even if it bursts and the value goes down 95% after that, so what?

It's mostly the corrupted officials and wealthy city dwellers that lose the money. And if country money is lost, maybe add in a few dozens officials gets shot. Life goes on after that.

After the bust, go to the countryside towns, and you won't notice a diffenence! And maybe their life will start improving when money flows into schools and basic infrastructure, rather than building luxury condos that no people stay in them! And maybe some of the golf courses can be converted to farms since they are now of no use. :o

Every developing country goes through the multiple bust cycles before finally growing up. Boom-bust-boom-bust. Didn't South korea went through a very severe bust late 90s, and look where they stand today?

Last edited by touchring; 29th August 2007 at 09:44 AM..
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Old 29th August 2007, 09:50 AM
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Re: New twist?: Britain’s housing nightmare

Quote:
Originally Posted by jacksonm
You know what they say in the US: "It's only a crime if you get caught!". Last time around, some of these guys actually did get caught and are serving prison sentences now... Still, there will always be somebody to come and take their places - the temptation is just too great.

.

Hangzhou in China is recommended for hiding place.

http://www.newsday.com/business/ny-b...,1995673.story

Ex-American Home Mortgage manager going to prison

BY DANIEL WAGNER | daniel.wagner@newsday.com
5:56 PM EDT, August 28, 2007

A former American Home Mortgage branch manager in Alaska who had fled overseas to escape arrest was sentenced Monday to serve more than two years in prison.

The former manager, Kourosh Partow, was also ordered to pay a $50,000 fine and $190,000 in restitution for wire fraud after he falsified documentation to secure "stated income" mortgage loans from Melville-based American Home and Countrywide Financial.

But in a document submitted before the sentencing, his lawyer argued that the highly troubled companies -- American Home now in bankruptcy and Countrywide facing large financial pressures -- had competitive cultures that encouraged "a blind eye mentality."

Judge H. Russel Holland heard the case at U.S. District Court in Anchorage.

Partow was fired from Countrywide in June 2006 after FBI scrutiny of his loans provoked an internal audit. American Home immediately hired him to be a loan officer and branch manager of its Anchorage office, court records show.

After federal authorities executed a search warrant on his American Home office in Oct. 2006, Partow withdrew the equity from his house and sent it oversees, then fled to France and Iran.

But he returned to the United States and on April 20, he pleaded guilty to two counts of wire fraud, one at each bank, in exchange for other charges being dropped.

In the American Home case, Partow, 41, of Chugiak, helped a client refinance his home in 2006. Despite the client having provided accurate information about his income, Partow listed the income as $20,000 per month -- "an amount that significantly overstated \[the client's\] true income," according to Partow's plea agreement.

In the Countrywide case, he admitted to knowingly overstating an applicant's income to qualify the client for a loan in April 2004.

Stated income mortgages, a type Alt-A loan, allow loan officers to list borrowers' incomes on mortgage applications but do not require documentary verification of those figures.

By misstating applicants' financial statuses, Partow enabled them to qualify for loans they might not otherwise have gotten.

The indictment against Partow listed 14 loans or fraudulent applications and charged him with eight counts of wire fraud related to $2.2 million in American Home loans and a $156,000 loan from Countrywide.

In addition to overstating borrowers' incomes, it was alleged that Partow engaged in a scheme to generate paperwork showing falsely that borrowers had made 20-percent down payments on their properties by engaging in "an unwritten side agreement to have the seller repay the borrower the alleged down payment amount."

Such tactics often involve the complicity of an appraiser who overstates the value of the property, mortgage experts said.

A document written by Partow's lawyer said he was compensated "most importantly" by commissions based on branch profitability, and that he "had authority ... to accept loans otherwise not strictly complying with the loan criteria.

The document said he was one of "a fair number" of employees hired by American Home after Countrywide fired them in connection with the FBI probe.

"In order to stay competitive, and increase sales, the companies also encouraged what could be characterized as manipulation," it reads.

An attached Nov. 2006 email purportedly from American Home's senior vice president for product and sales support in the Western Region, reads, "At AHM we pride ourslves on having a loan for virtually any borrowers, regardless of whether or not they have the ability to verify their Income, Assets or Employment history."

Another purported company email, from Oct. 2006, instructs loan officers to "play around with the loan all they want ... as long as it has NOT been released to processing."

There were no court papers available indicating that American Home took any action against Partow. An American Home spokesman would not comment on the case.

A Countrywide spokesman offered a statement released before the sentencing, saying that Countrywide was a victim of Partow's operation and had cooperated with federal officials during the prosecution.
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