Bob Toll "Yesterday’s subprime is today’s FHA. It’s a definite train wreck"

Tyler Durden's picture

Bob Toll, speaking at the 7th annual UBS building and building products conference, and who has been selling TOL stock over the past several years like it is going out of style, had identified the next subprime crisis. Not surprisingly, it is contained within the very fabric of the US backstopped array alphabet soup institutions.

“Yesterday’s subprime is today’s FHA,” Toll, whose
Horsham, Pennsylvania-based company is the largest builder of
luxury homes in the U.S., said today at a New York conference
for builders sponsored by UBS AG. “It’s a definite train wreck
and the flag will go up in the next couple of months: Bail us
out. Give us more money.

As a reminder, Fannie Mae's former credit officer Edward Pinto recently said that the FHA is $54 billion underwater. The FHA said 456,000 of its loans, or 8.2
percent, were in default as of September. That was up from 5.6
percent in September 2008.

As Zero Hedge has long claimed, the only difference from the 2007 subprime implosion and today is that then the companies at fault were allowed to go bankrupt. Now, the US government itself is the most irresponsible subprime lender in existence. Whether the US can go bankrupt is more of a philosophical than practical question. Although if you follow the price of gold, you may get a sense that the tide is finally turning on even this most sacred of assumptions.

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BorisTheBlade's picture

Important difference between the US and Argentina is the reserve status of the dollar. While the implications for the people inside the country might be similar, the consequences for the whole world are very much different - the US is leaving after itself a much bigger financial hole. I'm not even sure if a situation like that occured in recent history. So, looking at Argentina's experience only helps to introduce yourself to the idea of inflation and how it might look like in reality.

SayTabserb's picture

That's beautifully poetic, BtheB. It reads sort of like the descriptions of black hole experience after someone slips over the event horizon.

BorisTheBlade's picture

Well, even Mona Lisa is falling apart and as far as the economy or the financial system are concerned - they will not last for as much as Mona Lisa did.

Divided States of America's picture

I guess TOLL just managed to sell his last share from his own portfolio. Good timing on his part.

Anonymous's picture

Argentina had its debt in US Dollars. USG debt is not in yuan or yen or euro; it is in US dollars. Big difference.

ShankyS's picture

We are going into a deep deep depression. Train wreck may not describe it for what it will be.

ghostfaceinvestah's picture

It is going to be bizarre, it will be the Greatest Depression ever, but nominal prices will skyrocket.  See my post on Argentina above.

snorkeler's picture

You mean the greatest depression ever until the next one right?

They will try to get all of us with this one (combined with the Baxter induced pandemic/plague) 

But there will still be a number of us left. Right now just trying to trim the herd down to make the size more managable for current military capabilities.


Anonymous's picture

That philosophy needs a catchy name, so it can be studied in our big universities!

TomJoad's picture

How about "Post-Millennialism?"

Anonymous's picture


ghostfaceinvestah's picture

the san francisco Fed said the same thing about the FHA recently.


The subprime market had shrunk to virtually zero percent in the first quarter of 2008 after triggering the housing collapse following defaults by borrowers.

Subprime borrowers, usually lacking good credit histories, find it nearly impossible to obtain mortgage loans from mainstream lenders.

Since the January-March period last year, "increased FHA (Federal Housing Administration) lending... has revived this segment of the market," Krainer said.

"After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20 percent, the same share as when subprime securitization peaked in 2006," he said.

Cognitive Dissonance's picture

I'm sorry but if it wasn't said at least 100 times in one day on CNBC, it ain't news, it didn't happen nor will it every happen.

CNBC is the TV of record for the business world. Period. End of discussion.


ghostfaceinvestah's picture

right, right, right, my apologies, those are NOT suprime even though they have high ltvs and low FICOs.

Cognitive Dissonance's picture

Correct, just ignore that large fast moving object barreling down the tracks straight at you and concentrate on one thing. Green shoots and printing presses. No inflation and repaired balance sheets for everyone. 

Focus on the prize and through the wonder of magical thinking and hoping so hard the muscle strain causes you to soil your pants, it will happen. When you're pushing soooo hard on the hope "dope" button you're changing your skivvies twice a day, you know you're moving in the right direction.

Ignore that man behind the curtain, I'm the Wizard of OZ. 


tomdub_1024's picture

That made me spew water on my monitor! VERY NICE! (Note to self, never again take a drink when reading CD's posts)...:)

Anonymous's picture

Did you know that Obama has custom-made boxers?
On the front: HOPE
On the back: CHANGE

PS...They were an inaugration present from _____?______

reading's picture

Honestly, now that Larry Kudlow is spitting out the KoolAid I am failing to see where the hell CNBS is going to take this train now...I mean really if Larry can see the problem then it has to be damn obvious. I guess they still have Joe Kernan OD-ing on the KoolAid -- trust me if you missed his long-winded discussion on Erectile Dysfunction this morning it was a defining moment for CNBS and GE in general.

In general, while I believe this will blow up with epic proportion I am quite certain there will be no one left to participate at that point.  Probably explained while it took nearly a generation to recoup from the final depression lows in the DOW -- the first rebound was easy, the second no one was left.

Anonymous's picture

They will just reclassify them as "prime", and current prime will become "super prime". Problem solved, no more subprime issues everyone, no need to worry!

Missing_Link's picture

Eventually they will morph into "Metroid Prime."

Where's a bounty hunter when you need one?

Anonymous's picture

"After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20 percent, the same share as when subprime securitization peaked in 2006," he said.

Pavlov was wrong; some animals cannot be taught.

buzzsaw99's picture

Bob "I sold at the top and got a gubbermint bailout too" Toll badmouthing the FHA's loose lending? This is too rich.

reading's picture

Maybe Angelo, "busy working on my tan while basking in the spoils of the greatest ponzi ever" will weigh in next...

Commander Cody's picture

Why is it that we, as a nation, consider it an imperative to provide loans to people who cannot afford to pay them back?  1) Consumer spending must be maintained at all costs. 2) It is what the American Dream is all about. 3) Money is cheap, and debt is good and makes us wealthy.

A Man without Qualities's picture

The Chinese must be asking themselves the very same question...

Anonymous's picture

Because it increases dependency on government.

aswipe's picture

You can thank Barney Frank and friends for that version of the American Dream....may I suggest a pot plant in every bedroom.

Screwball's picture

Only one?  But I'm good with one.

snorkeler's picture

At least one that they know about. Stash the rest.

CO AG has "pronounced" that medical marijuana is "personal property" therefore taxable.

Green Sharts's picture

In this case, I think it is an attempt to put a floor under housing prices and prevent a collapse of the banking system.

Anonymous's picture

Probably. But it only works if you export most of your jobs, and bring in cheap foreign labor for everything else.

Well, nearly everything. Politicians and Finance related jobs have to be exempt, obviously. Foreigners might screw things up and cause the Greatest Depression ever.

Anonymous's picture

The FHA has taken over all the bad s**t in the real estate arena and then added a bunch more on top, and this will be a disaster. I agree. Rather than news, however, I would argue this has been a given for months now.

Anonymous's picture

As a realtor, most of the FHA buyers I saw this year had good credit. BUT nearly all of these buyers were State/County/City employees who assumed their jobs are secure from the downturn. They are likely wrong and will default on these new 2009 FHA loans. Most of these FHA loans were essentially zero down...3% downpayment less 3% credit for closing costs from the the seller. Nothing much has changed.

Anonymous's picture

Check Toll's option exercises and share flips in September - millions of shares dumped - typical Toll and now he's whining about needing more bailouts - he musta got that line from Ara Hovnanian, his twin whiner and flipper.

lsbumblebee's picture

He must be mistaken. Cramer called a bottom to the housing market back in June.

faustian bargain's picture

what is this "bottom" of which you speak...? ;-)

lsbumblebee's picture

I don't know. I'm still trying to finish "Getting Back to Even". He should've put more pictures in it.

Jeff Lebowski's picture

Uh..  Hello.  You're not reading it right.

Try again with this:

snorkeler's picture

Ahh yes, the amazing Cramer. Once again at least a year ahead of the actual event.

Anonymous's picture

Maybe the person who bought the Pontiac Silverdome for $583,000 took out a 3.5% down FHA loan and is living there?

Anonymous's picture

kudos, I hope they bring back the Detroit Safari soccer team and the GMC Safari Van mascot.

snorkeler's picture

FHA still doing 95% with decent credit score and downpayment borrowed from somewhere.

These are not prudent in a high unemployment/falling values market. 

TumblingDice's picture

Synthetic economy is the only thing allowing this sytem to survive. Of course it will continue. Until it doesn't.

Ned Zeppelin's picture

There is some confusion here.  The FHA problem will be solved by the magical printing presses.  Simple as that. Any other thinking is erroneous. $54 billion? Are you kidding me? That is lunch money compared to what we have dumped into this hole (and Goldman's pockets, for that matter). There will be no common sense solution, such as simply tightening up on mortgage credit.  Now, once that problem is solved, what we are really concerned about is the side effects of the cure.  And those look to be centered on currency debasement, which is a headache, but eminently manageable, all the way to Argentinian Syndrome.  However, Argentina did not have several phalanxes of the Special Magical Global Reserve Currency Printing Presses that print Andrew Jackson ID cards all night and all day.  I think these printing presses can run a lot longer than we might imagine.

The presses will turn off only when the bond market says so.  The GSE MBSs will continue to be purchased by the Fed, no matter what their credit scores, into March.  So look for continued dollars pouring into assets. 

Anonymous's picture

Perhaps only a few get it. This economic downturn was planned many years ago. When a country goes to paper notes it is planning to reduce the wealth of the people. Obama wants the money devalued to nothing so that everyone can enjoy being equal. One world currency will be introduced and we can enjoy being just like the third world countries with lower standard of living somewhat like Russia. Wages will be much lower so that we will not be better than the very poor countries. Spread the wealth to those who will not work and the government can count on the poor people voting for them every time. People dependent on government will give up their freedoms without even a shot being fired. Its time to call it like it is and begin to wake up before its too late. Rebellions are caused by oppressive goverments.