Housing Market Tracker - Goldman Wants Subprime but Still Sees Trouble

Quote of the Day

"I'm going to be all over them." – Treasury Secretary Henry Paulson, announcing what he will do if data to be released this week doesn't show an increasing number of homeowners being saved from foreclosure by the Hope Now Alliance of mortgage lenders, servicers and other related firms that Paulson helped create. (Reuters, Feb. 6th)

Subprime Fallout

New Century, Lawyers Face Claims They Lied in 5-Year-Old Suit. "U.S. Bankruptcy Court Judge Kevin Carey in Wilmington, Delaware, yesterday said he would allow Positive Software Solutions Inc. to try to revive a five-year old copyright lawsuit worth $580 million against bankrupt subprime lender New Century Financial Corp. before U.S. Texas District Judge David C. Godbey. In October, Godbey said... New Century's lawyers deceived him... Bankruptcy court examiner Michael Missal claimed... last month that the company misled him during an investigation requested by Carey into New Century's use of escrowed funds." (Bloomberg, Feb. 7th)

MBIA to Sell $750 Million of Stock to Avert Downgrade. "MBIA Inc., the world's biggest bond insurer, plans to sell $750 million of stock in an effort to bolster capital and retain its AAA credit rating. MBIA, (MBI) said the private-equity firm Warburg Pincus will make up any shortfall in the sale by buying convertible participating stock. Warburg Pincus has already purchased about $500M of MBIA shares. Bond insurers led by MBIA and Ambac Assurance Corp. in New York need to bolster capital to avert downgrades that would cast doubt on the quality of $2.4 trillion of securities the industry guarantees." (Bloomberg, Feb. 7th)

The CEO That Got Mortgages Right. "Annaly Capital Management (NLY) managed to sidestep the mortgage mess in which big banks and brokerages... found themselves. Farrell credited his company's 30 years in mortgages for the strategic insight... Annaly enjoys the confidence of holding only Fannie Mae's and Freddie Mac's government-backed paper. And since Farrell isn't struggling to raise cash just to stay afloat, his company can take advantage of what he described as "very powerful" fundamentals to re-enter the market while competitors can't." (CNBC, Feb. 7th)

Deutsche Bank Net Falls; Subprime Writedowns Avoided. "Deutsche Bank AG, Germany's biggest bank, posted a smaller than estimated decline in fourth-quarter profit after avoiding the collapse of the U.S. subprime mortgage market that left competitors with record losses. Net income fell 48% to €953 million ($1.39 billion), or €1.93/share, from €1.84B, or €3.56, a year earlier." (Bloomberg, Feb. 7th)

Chart Fun With the S&P Case-Shiller Home Price Index. "Good news for the banking industry! Credit cards are making a strong comeback now that home prices are declining and home equity ATMs are being shut down all across the country... Just last week, Countrywide Financial (CFC) sent out over 100,000 letters to homeowners telling them that, due to changing market conditions (i.e., plunging home prices), they could no longer "tap" as much (or, in many cases, any) home equity. Credit card usage, the primary component in revolving debt, is soaring again." (Tim Iacono in Seeking Alpha, Feb. 6th)

U.S. MBA's Mortgage Applications Index Rose 3% Last Week. "The Mortgage Bankers Association's mortgage applications index in the U.S. increased for a fifth consecutive week, led by a rebound in purchases. [The number of] applications to buy a home or refinance a loan rose 3% last week to 1086.6, the highest since March 2004. The group's purchase index jumped 12% and the refinancing gauge fell from a four- year high... Tougher lending rules may be prompting borrowers to file multiple applications to ensure financing, economists said. Still, the decline in mortgage borrowing costs as the Federal Reserve has lowered rates may be making homes more affordable for some buyers." (Bloomberg, Feb. 6th)

Goldman CFO Sees Less Risk In Commercial Mortgages. "Goldman Sachs Group Inc (GS) CFO David Viniar remains bearish with regard to "subprime" residential mortgages extended to people with poor credit. Goldman's negative view on the sector served it well last year, as the firm generated billions of gains by betting subprime securities would fall. Despite more than $100 billion of write-downs by banks and brokerages last year... Viniar said he is not convinced that market prices have fallen to appropriate levels." (Reuters, Feb. 6th)

Goldman Eager To Buy Into Battered Mortgage Market. "CFO David Viniar: Goldman Sachs Group is eager to get into the battered mortgage market... Wall Street's biggest firm by market value [largely] sidestepped the subprime mortgage mess. Viniar: "There will be purchasing of distressed assets and, at the right price, we will be buyers worldwide. We have the capacity to service them and the ability to analyze these assets from the perspective of who is underwriting them and where they're located, so we will be there." Viniar said that while the firm regarded mortgages to be an important business, at 7% of total fixed- income, currency and commodities revenue, it made up the smallest segment of that business." (CNN Money, Feb. 6th)

Charter Mortgage Sees Applications Jump 81 Percent. "Charter Mortgage, the state's top mortgage lender, says the number of New Mexico mortgage applications it received in January was up 81% from December. Charter took applications for 708 mortgages from across the state in January, up from 391 applications in December, 2007. Applications were up 19% from January 2007, when Charter received applications for 595 mortgages statewide. Charter Executive VP of Mortgage Lending, Lyle Greenberg, said the financial services company expects to approve the vast majority of the applications it has received." (New Mexico Business Weekly, Feb. 6th)

Mortgage Costs Still Up, Even After Fed Slashes Rates. "Bankrate.com: Even after the Fed slashed short-term interest rates, the average overnight rate for a 30-year fixed-rate home loan [is] currently 5.47%, up more than 20 basis points from January's two-year low of 5.25%. The cost of a 15-year fixed mortgage stands at nearly 4.95%, up more than 15 basis points from January's two-year low of 4.79%. One basis point equals one one-hundredth of a percent. Market observers: Increasing foreclosures, the rising cost of insuring mortgage-backed securities, and even the Federal Reserve Bank's own rate cuts are giving many mortgage-bond investors pause, pushing home-loan rates higher [due to increased risk.]" (CNN Money, Feb. 6th)

First BanCorp Reports Earnings for the Year and Quarter Ended December 31, 2007. "First BanCorp (FBP) reported net income for 2007, of $68.1 million, or $0.32/diluted share, compared with $84.6M or $0.53/diluted share for 2006... The Corporation's return on average assets [ROA] and return on average common equity [ROE] for 2007 were 0.40% and 3.59%, respectively, compared with 0.44% and 6.85%, respectively, for 2006. Loans receivable increased 5% to $11.8 billion at December 31, 2007 compared to $11.3B in 2006... The increase in the balance of non-performing loans when compared to the balance [in] 2006 was mainly attributable to the increase in non-performing residential real estate loan portfolio which increased by approximately $94.2M." (Fox Business, Feb. 6th)

Ex-Suntrust Worker Challenges Firing. "A former SunTrust Bank (STI) mortgage loan coordinator contends in a lawsuit that he was fired after alerting superiors to mortgage fraud occuring at the bank. Some SunTrust loan officers fudged borrowers' incomes and approved multiple loans on investment properties that were actually reported as second homes, ensuring borrowers not only qualified for loans but got them at lower interest rates, said Alan Archambault, a five-year bank employee who was fired late last year. Archambault sued SunTrust claiming his firing violated Florida's Whistle Blower Act, which bars companies from taking retaliatory action against employees for objecting to illegal conduct." (Miami Herald, Feb. 6th)

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Comments

[User 124892:]

Its not the sub prime its the CDO's there lies the problem.

2008 Feb 07 12:54 PM

[Victhom:]

And this from wall street journal

Rescue Plans Won't Prevent Downgrades
By Karen Richardson, Liam Pleven and Carrick Mollenkamp
Word Count: 931 | Companies Featured in This Article: MBIA, Financial Guaranty Insurance, Credit Agricole, UBS, Citigroup, Barclays, Security Capital Assurance
Rescue plans are starting to take shape for struggling bond insurers, but they aren't likely to prevent further ratings downgrades for many of the companies.

At least one such company isn't waiting around. In an effort to raise capital, MBIA Inc. yesterday said it would issue $750 million of common stock, a bigger offering than the $500 million issue it had initially planned.

The company also said it will revise its fourth-quarter loss of $2.3 billion, cutting it by $65 million. MBIA also added $100 million to its loss reserve, bringing the total special addition to $200 million

2008 Feb 07 03:01 PM