# Mortgage Meltdown - Four Corners



## BradK (17 September 2007)

Mortgage Meltdown
Reporter: Paul Barry
Broadcast: 17/09/2007
"When the US sneezes the rest of the world gets the cold."

Last month an unfamiliar expression appeared in the Australia media. A "subprime mortgage crisis" was unfolding in the United States. Homeowners across America were defaulting on loan payments and economists warned of major financial fallout occurring anywhere from Paris to Beijing to Melbourne. But why should a foreclosure in Cleveland affect a hedge fund in Sydney?

As Four Corners reports, Australia, along with the rest of the world, is at risk of a virulent economic virus thanks to financial globalisation where everything is interconnected through a sophisticated form of pass the parcel. And even more alarmingly, no-one knows just how bad it might get.

"A perfect storm."
Reporter Paul Barry explains how the subprime market was created through a unique set of circumstances beginning with the fallout from September 11. The program charts the rise of easy credit to the point where mortgage brokers were running out of customers. Enter the subprime loan, the loan you could get when, as one real estate agent tells Four Corners, the only criterion was to see if the client was breathing.

The program reveals how predatory lenders were unregulated and often unscrupulous, targeting people they knew couldn’t pay. The broker would make the loan, take a fat commission, and pass on the responsibility as quickly as possible. One lawyer tells the program: "It’s American capitalism at its worst."

"The last one out of Cleveland please turn off the lights."
A 'market correction' is a nice economic expression that goes nowhere near capturing the heartbreaking human cost of this financial disaster. This year and the next more than two million American families will lose their homes. Four Corners visited Cleveland, Ohio, where the streets are lined with empty houses, dead gardens and demolition notices pinned to the front doors. One in 20 homes are now in foreclosure. Paul Barry talks with home owners facing eviction and the lawyers trying to save them.

"The crisis is just beginning."
US economists are warning that the worst may still be to come. They are even talking about the "R" word: recession. And one leading financial expert warns if the US slips into recession: "I don’t think anybody anywhere in the world is going to be immune. It’s a question of degree rather than whether they’re affected."

Paul Barry and the implications of the "Mortgage Meltdown" on Four Corners at 8.30 pm Monday 17 September on ABC TV.


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## numbercruncher (17 September 2007)

Good Watch 


ARMageddon unfolds 


Notice the last two words Paul Barry said straight after pondering the graphs demonstrating that long term price growth averages 1pc p/a ?


" Sell Sell "


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## Garpal Gumnut (17 September 2007)

I've just been watching 4corners.

Its all old information recycled. It adds little new to what we don't already know.

Garpal


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## numbercruncher (17 September 2007)

Hello Garpal,


The sheeple dont do the same research/Inquirys/Googling that you do, would of been 100s of thousands who watched that and learnt something.


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## explod (17 September 2007)

numbercruncher said:


> Hello Garpal,
> 
> 
> The sheeple dont do the same research/Inquirys/Googling that you do, would of been 100s of thousands who watched that and learnt something.




Will be interesting to see if the melt down prices in the medium to outer burbs of Melbourne continue.   In the last few weeks some properties going 20% above reserve


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## numbercruncher (17 September 2007)

Wow, lucky for some hey. What suburbs been getting 20pc jump?


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## Boyou (17 September 2007)

Hey numbercruncher,
Didn't watch  Four Corners tonight because I think I am already aware of what's coming at us. 
By "us" I mean the whole of US..as an inclusive society.I sense from your post.... re sheeple that you don't include yourself in the mix!..that you are exclusive.

Must say I find that sort of exclusivity very disappointing..


From the Bard... Hamlet.

"There are more things in heaven and earth, Horatio, Than are dreamt of in your philosophy."

Perhaps you should get out more.

Cheers Ya'll


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## numbercruncher (17 September 2007)

Hiya Boyou,


Even though it sounds it I dont mean that in a derogatory way. I have a dry sense of humor and i realise some people find it crass at times. But i stop short at apolgising for having this personality 

The sheeple are the unfortunate masses who get there dose of brainwashing from the television, the blind optimism from Auction shows and realestate institute announcements that prices are up up up 20pc this weekend and so forth.

Average Houseprices running at 8x + average wages in a rising interest rate enviroment is dangerous is what the TV set should be telling people instead of fueling a crack up boom.

Cheers.


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## Kimosabi (17 September 2007)

*I SMELL FEAR!!!!!!!!*​ 

*SELL, SELL, SELL!!!!!!!!!*​


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## numbercruncher (17 September 2007)




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## Kimosabi (17 September 2007)




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## Kimosabi (17 September 2007)

*Reserve Bank Muppets with the Sub-Prime Bomb*


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## Kathmandu (18 September 2007)

numbercruncher said:


> Hello Garpal,
> 
> 
> The sheeple dont do the same research/Inquirys/Googling that you do, would of been 100s of thousands who watched that and learnt something.




Ha, I'd doubt Average Joe FHB/speculator would watch 4 corners, but I certainly take your point.

Dave


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## Kathmandu (18 September 2007)

Kimosabi said:


> I SMELL FEAR!!!!!!!​
> 
> SELL, SELL, SELL!!!!!!!!​




So your prophecy from 5 years ago may finally have some merit eh.

Well done.

As one who paid no attention to the last 5 years worth of scare mongering I am more than happy to have the property I have at very low LVR.

Dave


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## Kimosabi (18 September 2007)

Kathmandu said:


> So your prophecy from 5 years ago may finally have some merit eh.
> 
> Well done.
> 
> ...




I'm not sure where you got five years from, I've only been predicting the property market to crash and burn in the last six months and that was only after hours and hours of research and developing an undestanding of how the whole ponzi scheme is set up.

Time for a dose of reality boys and girls, the party is over...


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## Kathmandu (18 September 2007)

numbercruncher said:


> Hiya Boyou,
> 
> 
> Even though it sounds it I dont mean that in a derogatory way. I have a dry sense of humor and i realise some people find it crass at times. But i stop short at apolgising for having this personality
> ...




As long as you are aware to a lesser extent that the same (advertising shares up 20%, jump in, any idiot can make a killing) happens with shares.

Are the big increases sustainable in shares, has it maybe looked too good to be true.

Just be aware that IF it all goes pearshaped, those with shares will not be insulated either.

Of course those that are'nt in margin call territory have little to worry about, and of course they don't have margin calls on property.

Dave


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## Kathmandu (18 September 2007)

Kimosabi said:


> Time for a dose of reality boys and girls, the party is over...




Possibly for some, not all.

But certainly no need to gloat over it and rub peoples nose in it either.

If the party is over, I wonder where all the renters will live?

Dave


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## explod (18 September 2007)

Kathmandu said:


> Possibly for some, not all.
> 
> But certainly no need to gloat over it and rub peoples nose in it either.
> 
> ...




Remember "the  Jolley Swagmen"  my Grandfather said they were the homeless and out of work who walked the roads looking for handouts and work just to feed themselves during the great depressions.   Apparently there was one after the gold rush in the late 1800's and they appeared also in the thirties.  Most of them were able to join the army then for the 2nd world war.

This is a very rough general remembrance.  Perhaps someone with an accurate knowldge of history can elaborate.

Anyway it looks like it is heading that way in Detroit


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## KIWIKARLOS (18 September 2007)

Australia will not be effected as bad as other countries. Our housing sector is in extreme shortage atm we have very low inventory and still resonable demand. Even if we see demand dry up the prices won't go down because there aren't lots of excess property to be palmed off.

Also Australia economy relies heabily on mineral and food resources all of which are "real" commdoties not this paper money stuff that floats endlessly around the US. What i mean is we don't have a large portion of our economy based in investment banking. Our assets (Iron, uranium, wheat, lamb, coal, gas) will all still be needed and whilst population swells around the globe they will become more profitable.


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## Happy (18 September 2007)

> From ABC, 18 Sep. 07
> 
> MORTGAGE STRESS EXPECTED TO SURGE
> 
> ...





Pity that so much heartbreak has to happen.


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## Judd (18 September 2007)

explod said:


> Remember "the  Jolley Swagmen"  my Grandfather said they were the homeless and out of work who walked the roads looking for handouts and work just to feed themselves during the great depressions.   Apparently there was one after the gold rush in the late 1800's and they appeared also in the thirties.  Most of them were able to join the army then for the 2nd world war.
> 
> This is a very rough general remembrance.  Perhaps someone with an accurate knowldge of history can elaborate.
> 
> Anyway it looks like it is heading that way in Detroit




Yeah.  Remember my mother telling me that my great-grandfather worked on the Great Ocean Road with pick and shovel in the 1930s.  It really was "Work for the Dole" back then.  If I recall my history books correctly, I understand that TB, also known then as consumption (what a word in today's context!), was also rife in those days.  Quite a few died from it.

If you can get hold of it, grab a copy of the book "The Land Boomers"  which was written about the mid-1960s.  Great read about what happened in Melbourne especially with property speculation in the 1880s during the lead up to, and during, that depression.  It is always possible that history may repeat or mirror.


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## Judd (18 September 2007)

Judd said:


> Yeah.  Remember my mother telling me that my grandfather worked on the Great Ocean Road with pick and shovel in the 1930s.  It really was "Work for the Dole" back then.  If I recall my history books correctly, I understand that TB, also known then as consumption (what a word in today's context!), was also rife in those days.  Quite a few died from it.
> 
> If you can get hold of it, grab a copy of the book "The Land Boomers"  which was written about the mid-1960s.  Great read about what happened in Melbourne especially with property speculation in the 1880s during the lead up to, and during, that depression.  It is always possible that history may repeat or mirror.




The 20 minutes have expired.  In view of that, for "grandfather" please substitute "great-grandfather." {Done-Mod}


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## Kathmandu (18 September 2007)

Happy said:


> Pity that so much heartbreak has to happen.




Where are they though, I havent seen any evidence of whole suburbs boarded up an vandalised like in the 4 corners program.

Dave


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## Mofra (18 September 2007)

Kathmandu said:


> Where are they though, I havent seen any evidence of whole suburbs boarded up an vandalised like in the 4 corners program.
> 
> Dave




Different market, different products, indirect effects to be felt here rather than direct ARM resets flooding the local market with stock.

Might help to compare vacancy rates & construction activity in the past 3-4 years, in the context of market division of prime to subprime here & in the US for a little balance to the argument.


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## numbercruncher (18 September 2007)

> NEW YORK (CNNMoney.com) -- Late summer brought no relief from soaring foreclosures. The number of homes in some stage of default jumped 36 percent month-over-month in August, according to a regular monthly survey.




http://money.cnn.com/2007/09/17/real_estate/August_foreclosures_way_up/index.htm


Pretty much as expected i guess, will get worse month after month, something along the lines of snowballing effect


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## Happy (19 September 2007)

> Quote from ABC, Posted Fri Aug 10, 2007 7:49am AEST
> 
> 
> HOME LENDING PRACTICES UNDER PARLIAMENTARY SCRUTINY
> ...





In another report, which I cannot find, it said that foreclosures jumped up more than 90% 

We are definitely not in the worst of it, but looks that it is coming.


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## Kathmandu (19 September 2007)

Happy said:


> In another report, which I cannot find, it said that foreclosures jumped up more than 90%
> We are definitely not in the worst of it, but looks that it is coming.




Is that a lot?

This article says that "About 12,000 of the 5.5 million loans in Australia were in arrears by at least 90 days in March this year"

http://www.news.com.au/business/story/0,23636,22437730-462,00.html

Isnt that 0.002%

so plus 90% would be 0.0038% of loans 90 days and over

Does'nt sound like much

Dave


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## Happy (19 September 2007)

It is amazing that 12,000 struggling and heartbroken individuals or families are mere 0.002%


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## numbercruncher (19 September 2007)

Thats just drizzle , wait for the rain 



> Stress levels among Australian mortgage borrowers are on the rise and potentially some 113,000 households, or 1.6 percent of the market, could be forced to sell their homes, according to an industry report released on Tuesday.
> 
> Housing affordability has worsened as the pace of house price growth has outstripped increases in disposable income, said the report by *Fujitsu Consulting and JP Morgan*
> 
> About *85.2* percent of Australia's A$850 billion ($708 billion) mortgages are held at variable rate loans, making them vulnerable to rising interest rates.




http://www.smh.com.au/articles/2007/09/18/1189881493611.html

Maybe the RBA will slash rates and give us a nice does of super Inflation as well?


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## numbercruncher (19 September 2007)

Happy said:


> It is amazing that 12,000 struggling and heartbroken individuals or families are mere 0.002%




Drop two 0s


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## Kathmandu (19 September 2007)

numbercruncher said:


> Drop two 0s




120 sounds a bit light on 

Dave


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## Kathmandu (19 September 2007)

You'll have the Numbers somewhere NC, what was the Sepo's % compared to Oz

"Stress levels among Australian mortgage borrowers are on the rise and potentially some 113,000 households, or* 1.6 *percent of the market, could be forced to sell their homes, according to an industry report released on Tuesday."



It could also be worth bearing in mind that high defaults in the US is because over there you can hand in the keys and walk awy from debt in a lot of instances.

In OZ, we have to "man up" to the debt, so people will hold on if at all possible


Dave


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## numbercruncher (19 September 2007)

Heya Davo,





> The percentage of loans in the foreclosure process was *1.40 *percent of all loans outstanding at the end of the second quarter, an increase of 12 basis points from the first quarter of 2007 and 41 basis points from one year ago.




http://www.finfacts.com/irelandbusinessnews/publish/article_1011076.shtml


So we have seen the carnage already unleashed in the US at 1.4pc of all loans in foreclosure(The delinquency rate is 5.12 alot higher than ours) - this will probably rise month on month for like 2 years according to spread of Subprime resets(still to see effect of the Interest rate slashing).

So you maybe could imagine or theorise a similar level of carnage here if the forementioned 1.6pc of loans went to forced selling.

Spooked selling seems to spur on more spooked selling if history is anything to go by, time will tell I guess


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## Kathmandu (19 September 2007)

numbercruncher said:


> So you maybe could imagine or theorise a similar level of carnage here if the forementioned 1.6pc of loans went to forced selling.




Although I doubt we'll see those numbers because of what I said previously here


It could also be worth bearing in mind that high defaults in the US is because over there you can hand in the keys and walk awy from debt in a lot of instances.

In OZ, we have to "man up" to the debt, so people will hold on if at all possible

Dave


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## numbercruncher (19 September 2007)

Heya Dave,

I believe the rule in the US is something along the lines of if you foreclose/bankrupt the difference between the selling price and amount owed is forgiven but this difference is then classed as taxable income and a debt is incurred with the us treasury.

In Australia you can bankrupt and be a discharged bankrupt ex amount of years later, there is cases of serial bankruptors (word?) in Australia, basically people just taking the piss out of the system.

I see what your saying though that most people would avoid at all costs to save face, but for some i guess a time comes that you have no option.


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## Kathmandu (20 September 2007)

A quick google came up with this gem

http://www.financialsense.com/fsu/editorials/merk/2007/0905.html


Walking away from a mortgage means that you send the lender the keys of your home. The lender will then foreclose on your property, trying to auction it off to the highest bidder. *Typically, the lender will not go after the personal assets of the homeowners. *Once a homeowner has decided to walk away from a property, a lender will expect him or her to dismantle anything of value, including the kitchen sink and bath tub. Lenders may also foreclose on homeowners that have fallen behind payments, but don’t want to leave their home.


Plenty more articles like that

Dave


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## numbercruncher (20 September 2007)

Ahh well pointed out seems in US they dont pursue your personal assets, I think in Oz they take everything of a certain value threshold ?


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## Kathmandu (20 September 2007)

numbercruncher said:


> Ahh well pointed out seems in US they dont pursue your personal assets, I think in Oz they take everything of a certain value threshold ?




I think in OZ you touch your toes while they search for assets.

This is part of the reason that I feel Oz wont take as big a hit.  

That combined with the vast majority of loans having at least 20% deposit's and no ARMS (Resetting Mortgages)

Don't get me wrong, there will be pain and lost equity in areas, I just don't feel it will be as bad as some believe.

Dave


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