Housing Market Tracker - Subprime Outlook

Quote of the Day

"They're probably so stunned their stock is going up rather than down that they have no idea what else to do." – Felix Salmon, commenting on a press release from the NYSE indicating that they contacted Countrywide Financial to request a statement as to why there was such extraordinary activity in Countrywide shares Thursday. CFC shares rose 43% today, after losing 38% over the two previous days. (Seeking Alpha, Jan. 10th)

Subprime Fallout

U.S. Stocks Rise, Led by Financials; Countrywide, JPMorgan Gain "Countrywide Financial (CFC) climbed the most in at least 25 years after the WSJ reported Bank of America is in advanced talks to acquire the biggest U.S. mortgage company... Countrywide fell 39% this week before today, hurt by rising foreclosures and speculation it faces a funding shortage. Almost $100 billion in losses tied to subprime mortgages sent bank shares down 21% last year, prompting the Fed to cut its benchmark lending rate three times since September. Countrywide gained $2.18, or 43%, to $7.30 in NYSE trading. WSJ: A deal between Countrywide and Bank of America could occur "very soon." (Bloomberg, Jan. 10th)

Subprime Crisis Leads to Green Opportunities "Banks and financial institutions are currently under fire for many of their predatory lending practices over the past few years, but are still taking giant steps towards a greener society. In... a very difficult lending landscape, one area which will actually show growth is the Energy Efficient Mortgage, which is used either to fund new green developments or retrofit existing buildings. What this means is that more developers will be on the lookout to create green projects because that's where the funding will be. So, in essence, our current debacle in the real estate industry may actually bring about green development even faster." (Metro Green + Business, Jan. 10th)

Capital One Cuts 2007 Earnings Forecast "Capital One Financial Corp., a credit card issuer that continues to expand into retail banking, [said] it expects to report fourth-quarter profit of $0.60/share and full-year earnings of about $3.97/share, below its prior forecast of "about $5/share." Capital One said it is taking a $1.9 billion provision for loan losses in Q4, including about $1.3B in charge-offs. The company said it is also adding about $650 million to its charge-off allowance because of recent delinquencies in its consumer lending businesses and "continued deterioration" of approximately $700M of home equity lines of credit originated by its GreenPoint Mortgage unit, which shut down in August." (Associated Press, Jan. 10th)

Countrywide Rushes Out December Numbers "As rumors of an impending bankruptcy continued to hammer the company's stock, Countrywide Financial Corp. published statistics on December loan production a few days earlier than expected. The report... showed better-than-forecast loan fundings of $23.5 billion but a continuing rise in delinquencies and foreclosures in Countrywide's $1.5 trillion servicing portfolio." (Inman News, Jan. 9th)

Loan Servicers Advancing Interest, Paying Taxes and Insurance "LA Times: Delinquent loans create huge liquidity problems for loan servicers like Countrywide because the servicer becomes a middleman between the borrowers and the people who bought their loans. When the borrower misses payments, as a record number of Countrywide's borrowers are doing now, these contracts require that the company advance those missed payments to investors until it's clear that the amounts won't be recovered. With Countrywide having a $1.5-trillion servicing portfolio, that puts tremendous strain on its cash flow." (Calculated Risk, Jan. 9th)

Freddie Mac's Strength Rating May Be Cut by Moody's "Freddie Mac's (FRE) financial strength rating could be cut by Moody's Investors Service because losses at the second-largest provider of money for U.S. home loans may be bigger than previously forecast... Freddie's assets shrank by $30.9 billion in the three months ended Nov. 30 to $701.4B as the government- chartered company sold a record amount of assets in September-October to remain in compliance with capital requirements. FRE increased its debt last month by 4%, the most in three-and-a-half years, to $30B outstanding... Freddie Mac's financial strength is rated A-, the second- highest on Moody's scale." (Bloomberg, Jan. 10th)

Fannie Mae Reimburses Servicers for HOPE Referrals "As part of its ongoing commitment to support borrowers facing potential foreclosure, Fannie Mae (FNM) will reimburse its servicing partners when they refer homeowners who are behind in their mortgage payments to the HOPE Hotline for counseling." (Originator Times, Jan. 9th)

Home Loan Apps Jump 32% "Mortgage Bankers Association: Mortgage application volume during the first week of January posted the sharpest rise in four years as borrowers jumped at falling interest rates... The group's market composite index, a measure of home loan application volume, jumped 32.2% on a seasonally adjusted basis between Christmas week and the first week of 2008. The last time the index rose this sharply in a one-week period was in January 2004 with a 30.4% gain... The index that tracks refinancings posted the strongest growth, rising 53.9% last week on a seasonally adjusted basis from the week before. The index tracking purchase loans grew 14.7% during the period." (Inman News, Jan. 9th)

MBIA Cuts Dividend, to Raise $1 Billion After Losses "MBIA Inc. (MBI), the giant bond insurer hobbled by the collapse of the subprime market, will cut its dividend 62% and raise $1 billion in a sale of notes to boost capital and preserve its AAA credit rating. MBI has declined 81% on the NYSE in the past 12 months and fell another 14% today after it reported a fourth-quarter expense of $737 million. Fitch Ratings said the plan to save $80 million by reducing the dividend and the bond sale may be enough to stave off a downgrade after giving the company until the end of the month to raise money." (Bloomberg, Jan. 9th)

Indymac Says Fannie, Freddie Changes Will Hamper Growth "Alt-A lender IndyMac Bancorp Inc. (IMB) reported a significant increase in delinquencies among prime, first-lien loans in November, and said new policies being implemented by mortgage repurchasers Fannie Mae and Freddie Mac could limit future growth. IndyMac said that about 75% of its $4 billion in November loan production was eligible for sale to the government-sponsored enterprises...The GSEs have increased surcharges for borrowers with credit scores below 680 sometimes classified as "alt-A," and will require down payments of at least 5% on all loans in "declining markets." Although subprime loans make up only 2.8% of IndyMac's servicing portfolio, more than one in four such loans -- 26.9% -- were delinquent by 30 days or more in November. That's up from 24.4% in October." (Inman News, Jan. 9th)

KB Home F4Q07 (Qtr End 11/30/07) Earnings Call Transcript "Jeffrey T. Mezger, CEO KB Homes on KBH's FQ4'07 conference call: "I’ve seen a lot of media coverage or analyst coverage talking about the first-time buyers’ inability to get a mortgage. It’s absolutely not true. FHA, VA Financing, or in the price points that are slightly above that conventional conforming, there’s ample liquidity out there. They just have to have a 3%, 4% down payment on FHA loans and they go... We’ve quickly moved to a different mortgage product that is qualifying the buyer." Domenico Cecere, KBH CFO: "And by the way, in our backlog now, one out of every three buyers are government loan." (Seeking Alpha, Jan. 8th)

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Comments

[H2O:]

COMMERCIAL LIEN: What happens to the countrywide buy-out - If a COMMERCIAL LIEN is placed on countrywide - for violating the fair-lending laws - and faking apprasial ????

2008 Jan 10 06:14 PM

[H2O:]

Question does it matter who own's Countrywide ???

after all the forclosure's will be the same - same-ole 50% of market value on housing !!!

Seem's a little stupid to rush out and buy - when nobody knows actual value of countrywide - does it not ???

that is unless bac think's it can charge illegal fee's and drive up housing better then countrywide did - better fake apprasials???

Think before you buy !!!

2008 Jan 10 07:56 PM

[H2O:]

Okay let's put it in simple terms for the IDIOT'S - Lets say I have a car for sale - that car needs mojo work done and I want 10,000 dollars for it - and it will cost 20,000 dollars - to get it fixed-up - but nobody wants it so i cover it up and sell it to a fellow car sales person - same-ole same-ole car - but they push it as a better car - the only thing diff about the car - is who is selling it ....

Now what IDIOT will ruch-out and buy that car ????

......

2008 Jan 10 08:04 PM

[H2O:]

New Wine into Old Wineskins

Okay let's put it in simple terms for the IDIOT'S - Lets say I have a car for sale - that car needs mojo work done and I want 10,000 dollars for it - and it will cost 20,000 dollars - to get it fixed-up - but nobody wants it so i cover it up and sell it to a fellow car sales person - same-ole same-ole car - but they push it as a better car - the only thing diff about the car - is who is selling it ....

Now what IDIOT will rush-out and buy that car ????

And no one puts new wine into old wineskins; otherwise the new wine will burst the skins and will be spilled, and the skins will be destroyed. But new wine must be put into fresh wineskins. And no one after drinking old wine desires new wine, but says, “The old is good.”

......

2008 Jan 10 09:01 PM

[Victhom:]

Mike Perry CEO of IndyMac intend to buy for $1.5M of shares in January....

Shareholder’s Email:

Mike,

It’s been some time since we’ve had a chance to meet and talk. I’m a shareholder once again … While I realize that the decline in IMB’s stock price has been painful to you in many ways (not just financially) I think there can be no stronger message about the viability of IMB as an institution than significant insider buying at these depressed levels. If management can’t step up at these levels, then imagine what a “leap of faith” it must be for outsiders to purchase the stock at these levels. Thanks for taking the time to read my email in what must be an incredibly hectic time for you. Best of luck.

Mike Perry’s Response:

I completely agree with the point of your note. I think you know I bought $1 million of our stock earlier this year at $29. In addition, we have had a lot of other managers and some directors purchase this year, too.

Also, management and the board have lost more personally this year than anyone else by far…as most of us have not sold any stock or options in 2006 or 2007 (no sales from the CEO, President and CFO during this time). As a result, most of us are not in a personal financial position to purchase shares…even though we would like to.

With that said, management and certain key employees (about 130 employees total) have over $40 million in the deferred compensation plan, and the company has arranged to be able to “open this plan up” and for individuals to be able to use these funds to purchase IMB stock….and several of us, including myself, plan to do this (personally, I am planning to invest more than $1.5 million).

Unfortunately, our window for insiders to trade IMB stock is currently closed.

I would expect that the window will reopen once we release 4th quarter earnings in late January, and I would expect to see myself and other insiders purchase in a material way (for management) at that time. I hope that makes sense.

mike

2008 Jan 11 06:25 PM