American Home on the Free Range Horse Nugget Manufacturing Pulsar

This year, as borrowers with adjustable-rate mortgages saw their monthly payments rise, more and more of them had trouble coping with the bills.

OK.

The first group affected were borrowers with low credit scores who received subprime loans from companies such as Countrywide Financial.

OhhhhhKeedokee.

Buuuuuuuuut soon, even borrowers with higher credit scores -- American Home's Alt-A borrowers -- started showing signs of strain. *

Ah, yes, the Alt-A's. What are Alt-A's?

Alt-A loans are issued to people with high credit scores, but the loans are considered riskier than prime loans because they require less documentation of income.

doh

One might think a lender would wish to document income rather than just go on the word of the borrower and his/her credit rating agency. Yet apparently it's entirely otherwise: Because some people have high credit scores, they submit less documentation.

...or is it,

Some people have high credit scores because they've lied to credit rating agencies (submitting less, or false, documentation), therefore American Homers assume more risk, and demand less documentation?

...or,

Some people have high credit scores because credit raters are under pressure to rate people upwards regardless, therefore we need no steenkin documentation?

...or,

We lenders will happily believe whatever tumid turds borrowers give us because Alt-A loans will cost them more than Primes, so more money for us?

The gap between the bureaucratic measuring process of credit rating (tracking one's past record of timely debt payments) and the promise of power to maintain that rating (credible guarantee of future income) is the barn door that allows enthusiastic USian Bullshit free range. Borrower, credit-rater, lender are just different parts of the same Intestinal organ. As conditions deteriorate, the energy to squeeze out ever more baroque arabesques of steaming piles has no choice but to rachet:

American Home's business model worked well when the housing market was booming. But when falling home prices led to record-high defaults and delinquencies on Alt-A loans, a company like American Home would feel pressure to continue increasing its loan volumes to maintain its standing with creditors, analysts said...

Kind of like Iraq -- the bigger the disaster, the more resources you need to fund the full faith and credit of your credibility.

"The market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that we have no realistic alternative," said American Home Mortgage's chief executive Michael Strauss.

"The company employee base will be reduced from over 7,000 to approximately 750."

The market volunteered its own credit rating:

*Newsday

Two ways to not build a community

Our neighborhood is changing. A number of homes are undergoing major renovations that will double their sizes, and new homes are being built that are much larger than existing homes in the community. . ..

The building boom began across the street early in the spring. Our neighbor started an addition, doubling the size of his home. Then another home, one of the smallest in our neighborhood -- a tiny two-bedroom, situated on a 100 ft. by 100 ft. lot -- was purchased for $285,000 and quickly razed by a building company. A three story, five-bedroom "castle" is taking its place -- complete with spire. As summer began, our next-door neighbors' contractor began adding a third floor to their home. Up the block, three large five-bedroom homes have sprung up on a lot where neighborhood kids used to play baseball. ($ - sub. req'd)

==

Funny, that's from the Wall St. Journal's fiscal fitness columnist, who lives in New Jersey. We have the 8-bathroom Richerbyalongfuckthanthousistan specials here in Florida as well. But there's more to the sub-prime world of Florida real estate. This evening a neighbor tells me that a house across the street from her has been abandoned. It's a modest three BR with a pool, not a McManse on the Bay. The people who bought it (for $330,000) got a "silent" second mortgage from the former owner. It seems they also got a nice home equity loan once they closed, because they instantly went out and bought a shiteload of Things - electronics, toys, a trampolene.

The Things are still there. The former owner is out his $65,000 second mortgage. The "homeowners" left a couple of months ago, after which the house sat there for a month before the neighbor, overcome by curiosity, found the back door wide open, the nice new Things, the AC running at 73 degrees, the pool a smooth and fecund lime green.

The bank -- whoever that might be -- seems not to know it is the proud owner of the house -- no one has been out to do anything, according to the neighbor. Anyone could walk in, take what they want. The neighbor took me to see the trampolene this evening, then began disassembling it before my eyes.

A fellow we know is thriving in the business of cleaning out foreclosed-upon homes. He's done a number of them around the state, finding shiny new stuff in many. As the banks tend to have no interest in Things, he either gives them away or, more often, trashes them.

Even thieves are not working right now, it seems.