The Texas-raised “Lonestar J.R.” (Johnny Rutherford) is one of eight drivers to win the prestigious Indianapolis 500 mile race at least three times: in 1974, 1976, and 1980. He was one of the best of his era.
There is another Rutherford involved in a race. This time it is a property on Rutherford Street in Irvine, and the race is to the bottom…
Asking Price: $999,000
Purchase Price: $1,135,000
Purchase Date: 9/28/2005
Address: 9 Rutherford, Irvine, CA 92602
1st Loan $851,250
2nd Mtg. $56,750
Downpayment $227,000
Beds: 3
Baths: 2.5
Sq. Ft.: 2,200
$/Sq. Ft.: $454
Lot Size: –
Year Built: 2003
Stories: 1
Type: Single Family Residence
County: Orange
Neighborhood: Northpark
MLS#: S497994
Status: Active
On Redfin: 26 days
From Redfin, “Desirable single-level in a cul-de-sac location has large kitchen with granite counters and SS appliances and separate breakfast area. House has custom built-ins, crown molding and HW flooring in the living areas. Master suite has a generous bathroom and French doors leading to professionally landscaped garden. Two additional bedrooms (one could be office) complete this lovely home. The private back yard has a large patio cover, BBQ and Malibu lights. The community offers pool, spa and gym.”
.
.
You must admit, this is an eye-popping rollback. If they get their selling price, and they pay a 6% commission, these sellers stand to lose $195,940. I admire that these people have accepted the reality of the market and have decided to get out before this becomes a short sale.
The race to the bottom continues…
Here he comes
Here comes Speed Racer
He’s a demon on wheels
He’s a demon and he’s gonna be chasin’ after someone.
I don’t mean to get off topic here, but it’s starting to look like Countrywide Financial may not survive.
I knew this bubble would ultimately create a rapid change in lending. I wasn’t surprised when New Century and other subprimes disappeared. However, if you were to ask me 3 months ago If I thought this credit squeeze could take out America’s largest mortgage bank, I would have said no way.
It may happen.
—–
Countrywide straight-up lied to me when I purchased a home in Irvine in November 2003. I had agreed to and signed documents regarding the loan I was to receive. We had agreed on a 5/1 IO ARM (I know I know…) at 4.5% with no prepayment penalty for 80% and a HELOC for 10%. I put 10% down in cash. When the day before closing came and I went to their offices in Santa Ana I began to read the documents closely. Carefully perusing the documents, I noticed my interest rate was now 5.0% and my 5/1 ARM had magically transmogrified into a 3/1 without an IO option.
You can only imagine how I felt. I told my “loan counselor” that this was completely unacceptable. He tried to tell me this was in fact the loan I had agreed to. I told him I wanted the loan I agreed to and I would drive to Tustin to get the signed paperwork that indicated the loan I wanted. He said he could get the loan docs drawn up, but it would take several days. I called the seller and they had a back-up offer $20k above what I was offering and their response was, essentially, “Do the deal or go f*** yourself”. My wife is in tears, completely in love with Turtle Rock and thinking we weren’t going to be moving in now. Buying your first home is supposed to be a wonderful experience. Remember this was late 2003… the sellers were in the driver’s seat.
I was turning red with fury, but of course cooler heads prevailed. I told this loan counselor I wanted to speak with his supervisor and I want to right now. Of course now it was 5:30pm and his supervisor was out of the office. I felt they were trying to lower the boom on me, so I said, either get him on the phone or I am out of here, and you can be sure I’ll talk to him and everyone else I can tomorrow. My wife is crying at this point. I talk to the F*in supervisor and I say that “this is absolutely unacceptable and I cannot believe what is going on. Either your firm has displayed colossal incompetence or you’re trying to steal from me.”
I think I spooked his supervisor by saying that. I suppose most people just sign the docs. He told me that he was terribly sorry he inconvenienced me and he would come into the office. He did, and magically produced the original lock document (I had my own copy at my apt in Tustin). Apologizing profusely he told me that he knew I was in a bind, but they physically could not draw up the docs in time. He offered to immediately refinance into our agreed upon loan with no costs on my part. I said fine… I didn’t know what else to do.
To their credit, they did refinance me. I insisted they pay my closing costs to Citibank, and when they resisted, I told them I would tell people about their attempted fraud until I was blue in the face. So, I got transferred into a 5/1 IO ARM at Citibank at 4.875%. I lost a little on the rate to move to Citibank, but I’d be damned if Countrywide would get an f*in penny of my money. BTW I’ve never had any problem dealing with Citibank since.
I used to get “we want you back” type form letters from the bastards at Countrywide. My wife and I would laugh as we ripped the letters up. As far as I’m concerned Countrywide is a dirty operation. I’m a relatively sophisticated guy, and they tried to steal from me with a straight face. As far as I’m concerned they can go to hell, and their lying counselors too.
I will have a toast with my wife the day they implode.
OMG, 1.135M for 3 bedroom in Northpark?, how ignorant this owner was in 2005.
I have hard time seeing it sold at 2003 price of 662K
Jumbo loan gone wild
“Countrywide said some 90 percent of the loans it originates from now on will be conforming loans or will meet its internal bank criteria.
By adjusting its product mix to originate Fannie and Freddie-approved loans almost exclusively, Countrywide will be cutting out most subprime, alt-A and jumbo loan products.”
I figured that this real estate bubble would burst on its own weight, simply because home were too expensive. My view was that when people realized they couldn’t get rich in a few months, the market would slow and then eventually clapse.
But now, reading about the situation in the mortgage industry…….whooly shmooooly. With Countrywide only funding legitimate loans…..things are going to get much worse than I ever could have expected.
I could easily see a place like this one selling for between $450,000 and $500,000 within the next three years. Who is going to buy this place:
a) Move up from someone that purchased a condo before 1998 and has lots of equity.
b) A first time buyer that can save 50 to 100K.
Well that elimates most of the buyers.
Yiiiiiiikes.
Mmmmm.
I read granite counter tops as granite coffin tops.
Funny, eh?
I guess this will drop to 150-200/sq eventually.
When ever I hear the large back yard and don’t see a lot size I say… no back yard. Another one of those gated communities walled off from the attacks of living dead zombies? Saw those all over Fairfield/Vaccaville all last week in a visit.
Why wall off the area?
If they’re only going to loan at conforming limits, then Countrywide will not be doing much business in Orange County anymore … at least for the next few years. I imagine they’ll do a little business in Laguna Woods.
I just got off the phone with a friend in the business, C Little, and he reports that the sky is indeed falling.
You can either run for the hills, or you can go buy Countrywide Financial Corp (CFC) right now at a major discount, wait a few years and use the gains as a downpayment.
granite coffin tops…. lol, schadenfreude love.
Countrywide just offered a 4 and 1/4 of 12/12/07 paper on a 20% yield to maturity. yup, 20%. Yesterday, the city of Cleveland, OH stopped accepting checks from Countrywide. Countrywide has never bounced a check to the city, but the city said they were “taking the measure out of prudence.”
Exactly my thought. Hellooo – it’s a 3/2, a nice 3/2, but still only a 3/2.
Covered, can you give a little more clarity on what you’re describing please.
Correction–that Countrywide paper is dated 12/29/07, not 12/12/07. I’m not rushing to buy it if anyone cares(neither is anyone else, btw.)
Our mortgage is through Countrywide. On the day of our closing, we noticed that the loan we were signing for was not the loan to which we had agreed. We had a corporate relo, so we raised hell and refused to sign the documents until we were given the papers for the correct loan. They had no idea how this could have happened, of course.
What I would like to know is, if Countrywide does implode, what happens to my mortgage? Can anyone here enlighten me?
TangerineSpeedo
Basically, it’s CFC begging for investor money backed by “some” of their mortgages to try and stave off BK. At least, that’s what’s making the rounds today. If you go over to the Calculated Risk blog IR’s is linked to, I’m sure they are talking about it–or something like it. A lotta bankers much smarter than I hang out there and would love to answer that for you.
Family Guy,
Its all about “fear and greed”. When investers go into fear mode….the sky does in fact fall.
It gets sold. You just pay someone else.
curmudgeon
You’ll be fine. That is an asset that CHL has to sell and it would just go to another bank for service if it hasn’t alreay. I used to work at CHL 4-5 years ago and it was a mess. They would always publicly tell us to use best practice not to mislead people. Then the guys who did mislead or sell loans not in the best interset of the client put up big numbers got rewarded. I was never more than an average LO because I never sold strange arm loans. I tried always to talk people in 30 year fixed loans. Only people for sure going to move in Arms.
I was in the A paper side but if you didn’t refer enough people into the sub prime team a month you got in trouble for that as well. What a joke of a greedy company. I am not surprised that it will bring itself down.
That’s easy, it’s still a valid debt, you still need to pay, because the loans are either already owned by someone else that will foreclose on you if you don’t or will be owned by someone else that will foreclose on you if you don’t.
I’m beginning to wonder how aggressive lien holders that buy the distressed mortgages are going to be. I suspect they will be very aggressive in foreclosing and liquidating because unlike the bank or original holders, they’ve already bought the property with a 30-40% discount, which means fast action may allow them to foreclose, liquidate and still make a profit.
Carl: Wow, what a shocking story. Enjoy your toast with your wife!
They borrowed $11.5B. Not sure how long that’ll last. Also not sure how ugly their interest on it must be given they’re on the last step before junk bond rating.
Run, run, run from Countrywide. They can’t possibly make money with the rates they are paying to borrow money. They’re in “raise cash” mode versus “make a profit” mode.
Also, any potential borrower would be a fool to place their hopes on Countrywide. So, you’re 56 days into a 60 day escrow and Countrywide pulls the plug. Now you’re left with a closing in two days and no loan. Finally, if I were a seller, I would insist that my buyer NOT use Countrywide. Imagine if you are the seller and the agent calls and said, “Oh, yeah, that escrow that was on track. It’s gone – the lender pulled back. Sorry about all the commitments you make about moving, but you’re back to square one on a much more difficult market now.”
Who in their right mine, buyer or seller, would use Countrywide? Nobody…..
Well, since this seem to be Countrywide day:
Countrywide Empties Out on Widowmaker
The news trickling out on Countrywide Financial (CFC) is a big deal. Remember, this is the biggest mortgage lender in the country.
* So, how bad is it?
* Think of it like this. It’s late December. Snowing. Aqueduct racetrack. The last race is in four minutes, you’re down $287 and seven beers. But you’re not finished yet. There’s still one race left, the last race, the one they call The Widowmaker. Few losers ever survive The Widowmaker. But there it is, calling to you, asking for one last wager, one final grasp. Ah, but there’s a slight snag, a hitch in your giddyup so to speak. The only paper in your pocket is a losing exacta ticket from the last race that came in backwards. We’re talking the only paper in your pocket. You sold your unlimited subway card after the 5th race, plunged full-bore on a filthy hot dog, a beer and a 9-1 shot that finished next-to-last. You are Countrywide.
* Who are you gonna turn to now?
* If you’re Countrywide you’re gonna tap your entire $11.5 billion bank credit line.
* What does that mean?
* Yesterday, the company attempted to access the short-term credit markets (the equivalent of hitting up your buddies at the track for a little “working capital”) and discovered the vig (what you’re gonna have to pay your buddies to get the money) a little too steep.
* So the company does what any jonesing gambler at the racetrack would do; they strolled over to that ominous-looking window with the telephone and credit card swipe and emptied out.
* As Christopher Wolfe, managing director at Fitch Ratings told Bloomberg, “When a company draws on its bank lines, it just basically gives off the impression that it has run out of options.”
* “Typically these bank lines are there but not really meant to be used.”
* So Fitch Ratings dropped Countrywide to BBB+, its third-lowest investment- grade rating.
* Moody’s Investors Service followed suit and downgraded the senior debt ratings of Countrywide to Baa3, from A3, and the deposits of Countrywide Bank FSB to Baa1, from A2.
* Remember, this is Countrywide.
* This is the guy that usually sits in the clubhouse reserved boxes.
* According to Friedman, Billings Ramsey, Countrywide currently has exposure to $7.6 billion in Asset-Backed Commercial Paper and $5.8 billion unsecured commercial
paper.
* The company is not a huge subprime player; they currently carry $442 million of subprime.
* Yesterday, Merrill Lynch (MER) raised the possibility that Countrywide could conceivably be forced into bankruptcy if these credit crunch conditions linger.
* Meanwhile, Angelo Mozilo, chief executive officer of Countrywide, recently exercised options for 46,000 shares in the company and then sold those shares for $1,306,400, according to Thomson Financial.
* Mozilo owns 1,378,390 shares of company stock (497,297 held directly and 881,097 indirectly).
* Over the last two years, in addition to the current filing, Mozilo has been awarded stock four times totaling 787,694 shares, and has exercised options 270 times totaling 14,553,538 shares and has sold shares 268 times (14,550,928 shares for $536,348,378).
http://www.minyanville.com/articles/CFC-mortgage-moody%27s-bill+poole-mer/index/a/13734
Minyanville – NEWS & VIEWS-Article
Buster – Where else are ya going to go? IndyMac? They are all going down.
Well, heard on the radio that new loans 30-year fixed that Countrywide recently initiated, they were not able to sell the mortgage backed scrurities as investors demanded 12.5% APR, WOW!!
Radio also said that Countrywide will stop making jumbo loans, there goes all these expensive homes in OC. Wait and watch the free fall. Countrywide is closer to being BK.
http://blogs.wsj.com/deals/2007/08/16/countrywide-bonds-offer-juicy-yield-for-the-hearty/
Quote:
“The vultures are circling Countrywide.
Bonds of the nation’s largest home-mortgage lender are selling about as well as heaters in a desert early this morning. Some of the bonds that come due in the next 12 months were trading at prices that offered hearty investors a 25% to 35% yield, one junk bond manager told us.
Countrywide stock, meanwhile, is down 15% at $18.20 after the company said before the market opened today that it would draw down on an $11.5 billion back up credit facility as the markets for all types of risky loans spiral downward. That brings the stock’s plunge since Jan. 3 to 58%.
Bond yields that juicy usually are reserved for companies at serious risk of going belly up. Countrywide, meanwhile, still has investment-grade ratings, even after at least two rating providers — Moody’s and Fitch — downgraded it today”
—-that is not a misprint in the first paragraph: An offer of 25-35% yields, and I believe takers are still pretty tough to come by. Good night sweet Countrywide, and flights of angels sing thee to thy rest.
A little off topic here, but I was wondering. What is going to happen to all those sub prime folks who’s mortgages are resetting to unaffordable numbers now that they are no longer eligible for any refi products? And now that lenders are charging 1.75 additional points on jumbo loans what class of borrowers are still purchasing?
Their rate will float to their index plus margin. It’s how an ARM works. Currently, Libor and Fed Funds run about 5.25% Margin is usually 2.5-3.0%.
So, they are basically going to reset to 7.75%. If they had a 2/28ARM with an original loan balance of $500K and a rate of 5.5% and they reset, they’ll basically jump from a payment of $2800 a month to $3600 a month. If they had a lower intro-rate, they still adjust to $3600 dollars, they just have a bigger jump.
Most loans have a cap on how much the loan can adjust in an period or calendar year and a max over the term of the loan. Many also cap the period adjustment but allow the max adjustment on the first adjustment.
Buster, let’s say a potential borrower places their hopes on Countrywide by signing a rate lock agreement and paying a refundable deposit of 1.5% of the loan amount. In that case, I don’t think Countrywide can pull the plug, due to the agreement (assuming they don’t file for bankruptcy). Am I wrong? Anyone know the answer to this?
Margins are usually alot higher than that for subprime loans. 5 -6 points over Libor. 2.25 -3.00 usually for prime loans. So alot of these people rates will hit double digits.
Ham –
How long did it take for American Home Mortgage to go from “we’re funding loans” to “our lines of credit got cut” to “Chapter 11?” Three days?
Countrywide pulled in every bit of cash on every line of credit. Why? Might it be they will be out of covenants and the lines would be pulled? If so, how is Countrywide any different than AHM? Except that they now have a bit more cash and can survive a few days longer.
Anybody expect them to last 60 days?
I bet it still takes another 3-6 months before we see any real price downturn. That’s quite a bit sooner than what I thought a year ago.
The entire market is getting murdered right now… I’d better sell before I lose the entire $80k I still have for a down payment. God I hate holding cash. God I hate Greenspan. I want to flip off a box full of kittens.
Re: Rate resets. I don’t know many people who are frugal enough to absorb a 35% hike in their mortgage payment. These people are usually the type to spend every last dime, every single month.
If CFC does go bankrupt, and people buy mortgages on the super cheap, you can be damn sure they’ll forclose and liquidate for whatever price they can get.
Too bad you can’t buy your own mortgage from them, for like $0.50 on the $1.
Hi, Irvinerenter,
Your analysis is absolutely right, especialy “the anatomy of credit bubble”. How serious is the problem of CFC, will it go bankrupt? Thanks.
Tried something like this, its not as easy as it sounds. There are ALOT of sharks with money just waiting to pounce (if they haven’t already).
What really is disturbing is that ALL the regular workers will get killed off. The upper and maybe some of the middle management will get cashed out and leave with ALOT of money. The rest get shafted. That’s what really is disturbing. Rich getting richer off the poorer.
good luck
-bix
holy crapola! … but it makes me think that they have a hidden/early buyout clause. Use your money and then dump and post date the sale, that way they give you only a modest yeild.
good luck
-bix
A friend of mine used to be an accountant at Countrywide at their HQ in Calabasas up until 2005 when I hooked her up with new job that she was much happier with.
I bet she’s even more happy to be gone now that this mess is unfolding!
“When the day before closing came and I went to their offices in Santa Ana I began to read the documents closely. Carefully perusing the documents, I noticed my interest rate was now 5.0% and my 5/1 ARM had magically transmogrified into a 3/1 without an IO option. ”
I can’t beliieve that people have to put up with such BS. What an industry.
IMB is a FSB….can borrower from the FED as well as other banks.
Countrywide isn’t funding the loan with their own money. They never were. They were funding the loans with the credit lines they had with Credit Suisse, and other investors. Countrywide is the largest REIT in the world, but still A REIT.
It doesn’t matter how big you are, if your funding gets pulled…you are screwed. They had to borrower the 11+ Billion and max out their credit lines just to fund their operations. So how are they going to fund their operations next month?
Countrywide funds all their loans off of credit lines, they always have. The are the largest REIT int he universe, but still a REIT. As soon as their lines are pulled/maxed out, they can’t continue to originate loans. It’s scary how big this company got, when they didn’t really do anything.
They don’t produce any tangible goods, or services. They only provide financing. When that financing is eliminated, how can they still exist? They can’t. And since they are not a Federally chartered bank, the FED can’t bail them out. Only private equity firms can, and they aren’t biting.
They do own or used to Countrywide Bank with was Fed Chartered I think its still around. But I read this as they are pretty much screwed.
Not only is it a 3/2, but it’s also not a custom home. Northpark is nice and all, like you’ve said, but let’s be serious here…they paid over a mil for this? And can you believe the owner before who had it from 2003-2005 (two years) made off with $473,000 in profit before selling costs? Unbelievable.
Check out the Looming Risk chart in the right sidebar
One Family’s Journey Into a Subprime Trap
http://online.wsj.com/article/SB118722072707499017.html?mod=hpp_us_pageone
LOL, Cramer just said the new name for Countrywide….is Countywide.
Countrywide is what’s called in the mortgage industry the “servicer” of your loan while other, likely multiple, entities own the paper/debt. Your loan would simply move to another servicer.
Wow, just about everything lendingmaestro wrote is wrong.
Mortgage brokers say Countrywide bankruptcy would be ‘devastating’
http://mortgage.freedomblogging.com/2007/08/16/mortgage-brokers-say-countrywide-bankruptcy-would-be-devastating/
SoCal home sales now 54% below peak
http://latimesblogs.latimes.com/laland/2007/08/socal-home-sale.html
Southern California home sales continued to slump in July, falling 27% from year-ago levels, and are now running 54% below peak levels reached in July 2003, DataQuick reported today. Some industry experts have warned that August sales may be even weaker, given the widening credit squeeze that has spread to non-subprime mortgages.
The only area of sales growth: foreclosed houses, which now make up 8.3% of the Southern California home sale market, up from 7.7% in June and just 2.0% last July, DataQuick reports
Ok Mr. Trickle, can you enlighten me of what the true situation is?
Well, for one thing, Countrywide is not a REIT.
“It’s scary how big this company got, when they didn’t really do anything.” They loan people money to buy homes. They service home loans. They also operate a bank. Plenty of other large institutions are in the business of borrowing and lending money (Citigroup and JP Morgan are two examples). Are those companies also “scary” because they got really big?
“They don’t produce any tangible goods, or services.” Umm, lending money is a service. Lots of companies don’t produce tangible goods. Like Google. Or the bank you work for. Or any accounting or law firm. Big deal. In a global economy, manufacturing (i.e., production of goods) is outsourced to the cheapest cost producers (China, Mexico, etc.).
“And since they are not a Federally chartered bank, the FED can’t bail them out.” Actually Countrywide Bank is a federally chartered bank. The parent company is shifting most of its mortgage origination to Countrywide Bank to take advantage of the capital structure and not be so reliant on the secondary mortgage market.
“Only private equity firms can [bail Countrywide out], and they aren’t biting.” This statement is just plain retarded. Citigroup could buy Countrywide for cash. Wells Fargo could buy Countrywide. So could Bank of America, JP Morgan, Wachovia, US Bank, etc. Private equity firms aren’t buying anything right now, for the same reason that mortgages aren’t being sold in the secondary market — the credit market is, at the moment, a huge clusterf&ck.
Personally, I don’t think Countrywide will bite the dust. I think the Merrill analyst overreacted when he raised that possibility, and the frightened market participants went with it, much like the internet analysts overreacted when they called for pets.com and etoys to triple, quadruple, etc. Countrywide can shore up a lot of capital by simply not writing any more loans that can’t be sold on the secondary market (anything other than Fannie/Freddie compliant conventional mortgages) and relying on servicing and banking revenue to carry them through the next few months. Of course, I could be wrong…
I didn’t say that no one could bail them out/buy them. Nobody is nor will they until CFC is on the verge of bankruptcy. If they do file BK, they’ll be selling the servicing rights for their loans for pennies on the dollar.
Lending money is technically a service, but not in your standard tangible method. i.e. transportation, industrial services, etc..
Countrywide is not even in the same realm as JPM Chase, or Citi. Those companies underwrite all types of securities. Country only services loans and funds them with other people’s money. CFC is indeed a REIT like IMB. As much as both Co’s want you to believe they are banks. The deposit generating retail bank division is dwarfed by the mortgage portfolio. Have you ever seen a countrywide check? They are in the process of closing all there branches. They tried to brek into the retail bank, but failed. They still offer online savings and cd’s
Off topic but relevent to overall situation:
Disturbing insights from CA. In speaking to client’s and prospects throughout the week a great many “investors” have 10-15 homes on I/O or neg-ams and are scrabling for financing that has disappeared. They want new financing but who lends on a money losing deal? This inventory will hit the market in a few months. Lots of SFR’s in Los Angeles and Riverside especially.
http://thegreatloanblog.blogspot.com/
U.S. Economy: Housing Starts Slump to 10-Year Low (Update2)
http://www.bloomberg.com/apps/news?pid=20601103&sid=axYF5n0LEuMo&refer=us
Sue, you seem to have a wealth of knowledge. When are you going to start your own blog?
Humor: Your House As Seen By…
Check out the link and select Next
http://www.cnbc.com/id/20298696
You must read this if you think Countrywide lent to just anyone.
My credit score is close to 800, planned to put 20% down and as had to apply a loan with Countrywide to qualify for builder’s special incentive. Countrywide rejected our loan because we own other properties.
They called me about the denial and also sent me a certified letter. Since I already know it was a denial, I decided not to waste my time to pick up from postal office. (or Fedex)
Countrywide flagged my file, as “fraudlent address” since I did not pick up the express mail they sent. Even though I have owned that property where they mailed the letter to since 1993. They also denied another application from us, again with 20% down, credit score 780 or something.
We were told that we probably cannot get another loan from Countrywide again. This was in 2006, so we decided to use other lenders who apprecaite people with money and good credit.
Judging from the way they select their customers, I guess I am not too surprise they are in trouble.
LM,
It’s not very often that I disagree with regular quality commenters like yourself but CW is not a REIT. CW is a holding company that owns other companies like Countrywide Bank FSB. There would be no benefit for CW to be a REIT. CW bank is structured as a federal thrift. REITs have special accounting rules, can’t use Fed reserve to borrow, must maintain profitability and they must pay a dividend. Impac is a REIT and bound by these rules but not CW.
While they use credit lines to fund loans they also use bonds and commercial paper. Credit lines are expensive because they usually go by the 3 month LIBOR plus a margin of around 3%. The bonds are much cheaper at around 5.3% as long as they maintain AAA ratings. This is the problem right now because the ratings dropped and that means the rates will adjust to 11% or more. It makes no sense for them to hold onto loans collecting 7.5% interest when you have to pay 3.5% to hold them and they could survive easily if the ratings didn’t drop because they would be earning 2.2%. That is why they thought that they could weather the storm but both Moodys and S&P killed that by dropping their bonds and commercial paper ratings from AAA to BBB one step above junk. While Maverick CT above thinks they can survive I think time will tell and if they didn’t have the $11.5 bil in committed loans we would be chalking another one up at the ml-implode site.
http://thehousingbubbleblog.com/?p=3267#comments
Search for the “News on the OC luxury home construction front” post
http://thegreatloanblog.blogspot.com/
Jumbo Mortgage Market Meltdown Freezes Luxury Housing.
Thanks USC-Guy and everyone else for your help.
They also have to start paying principal too, right? So even if the rate didn’t change, the payment would. Rate change AND principal repayment is going to be hard if they didn’t plan correctly.
No, I don’t want her to go anywhere !