Last week:
Luminent Mortgage reaffirms Q2 dividend of $0.32 (8.07)
The company announced that its Q2 dividend of $0.32 payable on 8-Aug is secure and will not be canceled.
This morning:
LUM Luminent Mortgage suspends payment of Q2 cash dividend of $0.32….
Houston, we have a problem.
Update: More here.
People worry about all sorts of things. What is sub-prime? It’s mortgage lending to credit impaired borrowers. Some of the loan structures are hazardous to the borrowers, e.g., when rates rapidly adjust in the short term.
There may be several reasons to worry. 1) One worries for the unfortunate souls who may lose their houses. 2) One worries for sub-prime lenders who may go out of business. 3) One worries for purchasers of sub-prime debt, e.g., hedge funds, who use leverage to purchase sub-prime debt and then find the purchased debt underwater, i.e., of less value as collateral than the amounts borrowed to purchase the debt. 4) One worries for house prices in a housing market that was fueled by a credit expansion that included a substantial component of sub-prime lending. 5) One worries that GDP may decline, i.e., recession may be in prospect, as consumer confidence wanes along with declining house prices.
But there’s always something to worry about in the economy about so I’m just not particularly worried. Also, declining sub-prime creates extraordinary buying opportunities for investors. Not retail investors, mind you, but the same hedge funds that are losing money on the way down.
The “more here” article provides an alarming, but utterly meaningless comparison. Unfortunately it is the same one often used by media folks who are too ignorant or lazy to do research.
The comparison of a “75th percentile home” (or a median home) has a huge flaw. Simply put, it does not compare apples to apples. We have no idea whether the 75th% (or median) home in one year is comparable to the later home, making any comparison useless (but great for headlines).
Some years ago our local paper did a comparison on median prices over a 10-year span, finding an increase of X%. However, in one of the rare instances of a reporter actually doing some proper research on the subject, the writer noted that the median SIZE of a home had gone from @1300′ (3 BR) to >2000′ (4 BR). So it is impossible to tell from comparing median (or 75th%) what portion of the change was due to inflation and what part was due to the increase in size, quality, etc.
Simple comparison of median can NEVER, by itself, tell anything about overall price movement. The continued, deliberate misuse of this type of comparison by the media for sensational headlines is shameful.
Thanks, Bill Matz. My lower-middle class childhood home would be downright “poor” in today’s market.
Similarly, when we moved to the relatively expensive Raleigh market eight years ago, we bought a clearly upper-middle but no more home (3400 sq. ft.), one we thought we could pay off and retire in (we can close off the upstairs bedrooms). Comfortable financially, we tour the newer subdivisions in North Raleigh wondering who on earth is buying these enormous mansions all around us, which make our house look puny. Many of them have small children’s toys in the driveways. Answer: People who have no intention of ever paying off their mortgages. They buy the maximum square footage they can, with some of these highly questionable mortgage instruments, in the belief that if something goes wrong they can just sell. Maybe, and maybe not. It’s unwise, and these younger folks may come to regret their excessive materialism.
I am getting a little weary of all the whining and crying from the housing sector. These guys enjoyed a bull market bonanza for years and stuffed their pockets with glee. Did it ever occur to any of them to diversify or put something aside for a rainy day? Well, guess what? It’s raining. It always does, sooner or later. Now all of us have to suffer along with them, as their losses and lack of foresight impacts just about everyone.