Credit Card Brains

Update: press release added at bottom.

From DataQuick: The number of mortgage default notices (NODs) filed against California homeowners in Q1 2008 increased by 39% over Q4 2007, to the highest level on record.

This graph shows the annual NODs filed in California since 1992. For Q1 2008, a record 113,676 NODs were filed in California, compared to 254,824 total NODs in 2007. This is more than double the 46,670 NODs filed in Q1 2007.

Click on graph for larger image.

For 2008, the number of NODs was estimated at 4 times the Q1 rate. Based on recent experience - with NODs increasing every quarter for the last 3 years - this is probably conservative.

As bad as 2007 was, 2008 will be much much worse.

Not all NODs go to foreclosure, but the percentage has been increasing (well over 50% now).

From DataQuick: Another Jump in California Foreclosure Activity

Lending institutions sent homeowners 113,676 default notices during the January-to-March period. That was up by 39.4 percent from 81,550 the previous quarter, and up 143.1 percent from 46,760 for first-quarter 2007, according to DataQuick Information Systems.

Last quarter’s number of defaults was the highest in DataQuick’s statistics, which go back to 1992.

“The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006 and that’s working its way through the system. The big ‘if’ right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans,” said Marshall Prentice, DataQuick’s president.

Most of the loans that went into default last quarter were originated between August 2005 and October 2006. The median age was 23 months, up from 16 months a year earlier.
…
Last quarter’s default numbers were a record in almost all of the state’s 58 counties. The notable exception being Los Angeles County, which was particularly hard hit by the recession of the early 1990s. During last quarter, the county’s 20,339 defaults represented 94.8 percent of its peak quarter back in Q1 of 1996, which saw 21,444 defaults.
…
Of the homeowners in default, an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes ‘work-outs’ difficult.
emphasis added

Wow, now 2/3 of NODs are going to foreclosure!

Let’s talk jewelry for a minute. A unique shining, shimmering piece can transform a girl. A great necklace can take a look from boring to bravo in seconds. Chandelier earrings, bangle bracelets, diamond studs, fake, real, you name it, I love it… and I probably own it in several styles.

I have a particular weakness for jewelry which started when I was young. As a grade schooler I was enamored by those neon yellow charm necklaces - I even bought a space shuttle charm to wear in honor of the Challenger after it exploded. As a teenager, I spent hours digging in my mom’s private jewelry drawer and in her small silver heart-shaped box filled with earrings when she wasn’t looking. I started buying my own jewelry in high school, and I amassed a ton of cheap plastic things that looked, well, cheap and plastic. But as an adult my taste has become more sophisticated; I’m always in search of the perfect piece to wear to complement my outfits, and now I have my own jewelry drawer filled with little boxes that I can rifle through when no one’s looking.

The problem, of course, is that real jewelry is expensive. A cocktail ring can easily run $50 at Macy’s. A heavy steel cuff? Forget about it. Out of my price league.

So how have I created such a great jewelry collection on a budget? Buying jewelry, I’ve found, is all about creativity and care. I don’t buy those expensive trendy pieces that everyone from J. Crew to Banana is showing at their ever-expanding jewelry counters. True budget aficionados do a little more digging… and end up owning a lot more indispensable pieces that they love.

Here are my tips for creating a budget friendly jewelry collection that your friends will envy:

1) Collect family heirlooms. My most beloved piece of all time came from my great aunt’s jewelry box. It’s a sterling silver cuff that was created in Pennsylvania in the 1960’s and looks like one continuous piece of thick silver twisted around my wrist. I get more compliments on it than anything, and I didn’t pay a dime for it. I actually don’t know how I ended up with the piece, because most of her pricey stuff (and she had a TON of that) was given away or sold after she died. Only her “costume” jewelry remained in a box for Goodwill, which was where I found the silver cuff.

Aside from the obvious benefit of laying claim to free stuff, family jewelry is important to me because it provides a connection to previous generations. The fact that my aunt and I had the same taste, despite the fact that I never really knew her trendy style, is a thought that stays with me. I’m reminded of her every time I wear the bracelet.

2) Search for vintage. I frequent consignment shops and local antique stores for estate jewelry. Sometimes you can get really interesting pieces there, or you can find pieces that are easy to transform. For instance, I bought a really pretty antique silver ring that looks like leaves from a resale shop in a nearby suburb. It was probably $5 because it was missing the main stone. I wore it anyway, and later realized I had the perfect pearl to place in its center. Voila! New vintage jewelry.

3) Make your own, or find someone to do it for you. A friend of mine’s mom used to create jewelry from pictures. So if you saw a beaded necklace you liked, she made a replica for you that only cost the price of the stones. There are bead shops that specialize in this sort of thing, like Bead in Hand in Oak Park, Ill. I have a bunch of beads and stones at home that will someday be made into masterpieces when I have time… I just haven’t had the chance to do it yet. It’s a project for a rainy day.

4) Buy wholesale, and buy local. When I was in Albuquerque, I bought a bunch of turquoise jewelry (earrings, necklace and bracelet) wholesale from a turquoise store. It was ridiculously cheap. I don’t know what other kind of gem wholesale stores there are, but that was like finding an oasis in the desert for me. I highly recommend. The other key point her is to buy local. I get lots of cool pieces from open air markets and arts festivals when I travel - the pieces are cheap and they serve as souvenirs. Plus, they always allow me to share a great travel story whenever I wear them.

5) Buy trends cheap. Let’s say a few years ago you wanted some big colorful plastic or wooden beads. Where would you go? If you said H&M, you’d be right. If you said any place that would charge you more than $10, you’d be wrong. It makes no sense to spend money on items you’ll only wear for one season. I don’t do it often, but when I’m buying trends I shop mostly at Target, H&M and Old Navy. Anything more isn’t worth it!

6) Ask for moderately priced gifts. My final point is sort of a cheat. I’m usually all about purchasing my own stuff and not depending on anyone to support my lifestyle, but I have found that asking for moderately-priced jewelry from my parents and boyfriend for my birthday or Christmas typically results in some cool stuff (they ALWAYS ask me to do a list anyway). I love having those items as a special bond between the giver and receiver - made even sweeter when the giver purchases something that perfectly shows he/she gets your style. And I’m not talking gold and diamonds here, any little sparkly thing usually does the trick.

Plus, saving your impulses throughout the year by window shopping to select your next gift suggestion might actually prevent you from making any crazy unaffordable decisions.

I could go on about jewelry but I’d risk sounding super obsessive and TOTALLY boring the males (done and done, I bet). Nah, they’re off making their brackets today anyway… this one was for the girls.

On Friday I posted a video of an interview of Professor Roubini on Canadian TV. It is well worth watching.

On Saturday, I posted a few comments on why I thought Professor Roubini might be a little too pessimistic. I gave three reasons: 1) I believe starts of single family homes built for sale has finally fallen below the current level of new home sales (note: I’ll have more on the housing starts vs. new home sales issue soon.) 2) I think we may be a little further along in the write down process than Roubini, and 3) I felt Roubini might be overestimating the number of homeowners that “walk away’.

Clearly we agree on more points than we disagree, and I hold Professor Roubini in the highest regard (for those that don’t know, Roubini is very well respected among his peers).

Today Roubini wrote: The worst is ahead of us rather than behind us in terms of the housing recession and its economic and financial implications. Here is an excerpt on the write downs:

[M]y most recent estimates have been that credit losses on mortgages could be as high as $1 trillion and total credit losses for the financial system could be as high as $1.7 including all the other losses (commercial real estate loans, credit cards, auto loans, student loans, leveraged loans, industrial and commercial loans, corporate bonds, muni bonds, losses on credit default swaps). How many of these losses are borne by banks (I meant both commercial and investment banks in my use of the term “banks”) depends on the allocation of these impaired assets among banks and non-banks.

The argument for a trillion dollar of losses on mortgages alone is based on the following three parameters (two of which an undisputed while a third is more subject to uncertainty. First, let’s conservatively assume that home prices fall about 20% rather than 30% so that only 16 million households are underwater; this assumption is not very controversial as most now would agree that a cumulative fall in home prices of 20% is a floor, not a ceiling to such price deflation. Second, lets assume – as Goldman Sachs does – that a foreclosed unit causes a loss of 50 cents on a dollar of mortgage for the lender as, in addition to the fall in the home price one has to add the large legal and other foreclosure costs including loss of rent on empty properties, risk of the property being vandalized and cost of maintaining an empty property before resale. Third, lets assume – and this is more controversial – that 50% percent of households who are underwater eventually walk away or are foreclosed. Then, since the average US mortgage is $250k total losses from borrowers walking away from their homes are $1 trillion. Goldman Sachs agrees with me on two parameters (20% fall in home prices and 50% loss on a mortgages) but more conservatively assumes that only 20-25% of underwater home owners will walk away. In this case mortgage losses would be “only” $500 billion. But home prices may likely fall more than 20% and with a 30% fall in home prices 21 million households (40% of the 51 million with a mortgage) would be underwater. So, there is certainly uncertainty on how many underwater households will walk away but given the recent evidence of subprime but also near prime and prime borrowers walking away even before they are foreclosed one can be pessimistic on this.

This uncertainty is why Tanta and I have been begging for better data on how many homeowners are actually resorting to ruthless default. Tanta wrote a great primer for the media: Let’s Talk about Walking Away (hint to the media!!!)

I certainly agree Roubini’s scenario is possible. Last December, I wrote:

If every upside down homeowner resorted to “jingle mail” (mailing the keys to the lender), the losses for the lenders could be staggering. Assuming a 15% total price decline, and a 50% average loss per mortgage, the losses for lenders and investors would be about $1 trillion. Assuming a 30% price decline, the losses would be over $2 trillion.

Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion.

Although possible, I felt this was somewhat the worst case.

On recourse loans and ‘walking away’, Roubini argues:

I have for a while argued that in the US mortgages are de-facto, if not always de-jure, non recourse. Indeed, even in states where mortgages (or refinanced ones) are de jure recourse loans these mortgages become de facto non-recourse as the legal cost for lenders to pursue such legal action against jingle mail borrowers can be massive.

Tanta commented on this, and generally agreed with Roubini:

Back in my day working for a servicer, we never went after a borrower unless we thought the borrower defrauded us, willfully junked the property, or something like that. If it was just a nasty RE downturn, it rarely even made economic sense to do judicial FCs just to get a judgment the borrower was unlikely to able to pay. You could save so much time and money doing a non-judicial FC (if the state allowed it) that it was worth skipping the deficiency.

But notice the “willfully junked the property” phrase - aren’t these the homeowners that we are talking about when we say someone will “walk away”? Aren’t these the solvent homeowners who can make the payment, but decide not to simply because they are underwater? This is one of the great uncertainties, or as I wrote last year:

One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes.

This is a critical issue, and hopefully someone will provide some research on the number of homeowners actually walking away.

Professor Nouriel Roubini was interviewed by Steve Paikin, the anchor of The Agenda, a public affairs program on Canadian TV (three parts, about 25 minutes total).

Part 1:


Part 2:


Part 3:

From The Arizona Republic: More homeowners mailing keys to lenders instead of payments

Joan Shaffer is turning in the keys of the north Phoenix Tatum Ranch home she bought with her daughter in late 2005. They put nothing down on the home, took out a loan that let them pay less than they owed each month and now their loan is $200,000 more than the house is worth.

“We paid $585,000. It was the peak of the market, but no one told us,” said Shaffer, a real-estate agent from Colorado. “We would probably have to spend the next 20 years trying to get right on the mortgage. That’s crazy.”

It’s amusing that she is a real estate agent. Still the article has no hard figures:

The mortgage industry is struggling to estimate how many homes are going into foreclosure because of people who don’t want to pay, rather than because of people who can’t afford to pay.

Industry estimates and anecdotes suggest the figure is climbing …

What industry estimates?

Peter Viles at the LA Times has put together a collection of foreclosure listings in LA.

Viles features one house on his blog L.A. Land: The foreclosure ‘discount’: 45% in Glassel Park. Check it out! Here is another:


Source: LA Times.

FORECLOSED: GLENDALE

3732 Mayfield Ave., Glendale 91214

Agent’s description: Bank-owned. Sold for $640,000 in 2007. Beautiful remodeled house on zero traffic tree lined street. Raised foundation, refinished hardwood floors, newer roof … private yard.

• Sales history (from PropertyShark.com): Sold for $640,000 in February 2007.

• Current listing price: $449,900

• Discount from sales price: 29.7%

Note that the discount is to the asking price for the REO.

Here is the listing at Realtor.com. This is a 2 Bed, 1 Bath, 1,054 Sq. Ft. house, on a 5,000 sq ft. lot built in 1951.

What the heck were people thinking in Feb 2007? $640K? Ouch.

I gather that some new visitors are discovering the site, or maybe just some old friends are bellying up to the bar again. Regardless, welcome! It’s an absolute pleasure to have you here.

Let me recommend a few ways to catch up on what’s been going on with me.

1. Look up in the upper left-hand corner. See that search button? That will shift through all 300+ posts that I’ve accumulated here during the past four years (FOUR YEARS! Ridiculous, I know). I recommend searching for a random word or topic and seeing what comes up. (Like bridesmaid or ocean or friends or cat.) It’s a really fun way to explore the craziness that’s been my life since I started the blog.
   
2. I started tagging my posts into categories, which you can find on the left if you scroll down the page (ok, really far down). I haven’t been able to do all the posts, but there are a lot of good topics to reflect on.
3. I’ve also kept every single post on the archive, so if you want to follow my journey chronologically, start at the oldest post and work your way up.
   

While I’m leaps and bounds ahead of where I started, I still have a lot to learn. And you all have so much to teach me! So from the bottom of my heart, thanks for joining me and supporting me for all these years. I’ll keep posting if you’ll keep reading. You guys are my inspiration.

PS– I would like to give a special shout out to all my new friends in Toluca, IL… I’ll see you on Labor Day for the Bocce Tournament! And another to my 22 readers in Belgium. I don’t know how on earth you found me but I hope to one day come visit!

Financial literacy has been a hot topic around my financial blogging friends lately. In fact, it’s so en vogue right now that Federal Reserve Chairman Ben Bernake even made an announcement that the average American needs to do more at an early age to “navigate an increasingly complex financial marketplace.” People, that’s you.

So this Friday, use your lunch break to do something about it and better your financial situation. Since we all know how big I am on small steps, I’m challenging you to do one of three tiny little things today.

Here are your options for the first ever “Budgeting Babe’s Fabulous Financial Challenge.”

1) (Easiest) Learn one new fact about personal finance today and share it with someone else. This may mean running over to Borders to pick up “Personal Finance For Dummies,” or it may mean browsing one of your favorite blogs or news sites and spending a few minutes reading up on how to better your financial situation. Whatever you find out, make sure you share it with someone else today.

2. (Not hard!) Increase your retirement contribution by one percent. If you have an online account, do it now. I swear you won’t even notice it. I make an effort to increase my contribution by one percentage point a few times per year. I started out contributing three percent, and now I’m up to nine percent. Do it today, I dare you

3. (For those with savings accounts): Move $25 from your checking into your savings account (more if you’d like) today. Just for absolutely no reason. It’s not a significant amount and most of you won’t miss it. If you’re banking online, it shouldn’t take you more than a few minutes. You’ll feel good about it, and it may start you making random contributions more often, which is a good habit to have.

So there, I’ve thrown down the financial gauntlet on this lovely, sunny Friday afternoon. What are you going to do about it? Shy away? Say, “Oh, that’s a nice idea but it’s not for me?” Tsk, tsk. Suck it up today and do something to lift yourself up and those around you. You’ll be glad you did.

…

…

… OK, now that you’ve done something cool and savvy, report back to us on what you did. I can’t wait to hear!

Financial literacy has been a hot topic around my financial blogging friends lately. In fact, it’s so en vogue right now that Federal Reserve Chairman Ben Bernake even made an announcement that the average American needs to do more at an early age to “navigate an increasingly complex financial marketplace.” People, that’s you.

So this Friday, use your lunch break to do something about it and better your financial situation. Since we all know how big I am on small steps, I’m challenging you to do one of three tiny little things today.

Here are your options for the first ever “Budgeting Babe’s Fabulous Financial Challenge.”

1) (Easiest) Learn one new fact about personal finance today and share it with someone else. This may mean running over to Borders to pick up “Personal Finance For Dummies,” or it may mean browsing one of your favorite blogs or news sites and spending a few minutes reading up on how to better your financial situation. Whatever you find out, make sure you share it with someone else today.

2. (Not hard!) Increase your retirement contribution by one percent. If you have an online account, do it now. I swear you won’t even notice it. I make an effort to increase my contribution by one percentage point a few times per year. I started out contributing three percent, and now I’m up to nine percent. Do it today, I dare you

3. (For those with savings accounts): Move $25 from your checking into your savings account (more if you’d like) today. Just for absolutely no reason. It’s not a significant amount and most of you won’t miss it. If you’re banking online, it shouldn’t take you more than a few minutes. You’ll feel good about it, and it may start you making random contributions more often, which is a good habit to have.

So there, I’ve thrown down the financial gauntlet on this lovely, sunny Friday afternoon. What are you going to do about it? Shy away? Say, “Oh, that’s a nice idea but it’s not for me?” Tsk, tsk. Suck it up today and do something to lift yourself up and those around you. You’ll be glad you did.

…

…

… OK, now that you’ve done something cool and savvy, report back to us on what you did. I can’t wait to hear!

From the WSJ: Merrill Lynch Swings to a Loss, Plans to Cut Another 4,000 Jobs

Merrill Lynch & Co. posted … $6.6 billion in write-downs related to mortgages, complex securities called collateralized debt obligations, and loans made to junk-rated companies. Merrill wrote down another $3.1 billion in mortgage-related securities held at its U.S. banks…

Merrill CEO John Thain, speaking on a conference call with analysts, said the period was “as difficult a quarter as I’ve seen in my 30 years on Wall Street” and said the next half-year will continue to be difficult.

Merrill makes another visit to the confessional.