Housing Market Tracker - Subprime Borrowers Look Elsewhere

Quote of the Day

"These kind of things are like a Facebook for money." – IOU Central CEO and founder Phil Marleau, on the new 'alternative banking' websites that have sprung up for subprime borrowers who have been shut out of the mainstream banking system. (Toronto Star, Feb. 13th)

Subprime Fallout

Web Gives Banks New Competition. "The subprime mortgage crisis is prompting Americans to seek out 'alternative loans.' [The] peer-to-peer lending or social lending websites allow users to bypass banks to access personal loans from other individuals that range between $1,000-$25,000. Proponents say the loans are legally binding contracts with "competitive" interest rates... A borrower posts a loan request outlining the sum being sought, credit score data and the maximum interest rate he or she is willing to pay. Lenders then bid on the requests and can choose to fund parts of various loans to "diversify" risk... The loans, however, are "unsecured."(Toronto Star, Feb. 13th)

Lenders to Offer Reprieves To Delinquent Borrowers. "The Bush administration and six large mortgage lenders unveiled a plan yesterday to offer some homeowners facing foreclosure [and] who are 90 or more days late on payments 30-day reprieves to work out alternatives... Delinquent borrowers have always had the option of calling their lender for help in advance of a foreclosure. But the foreclosure process typically continued during those talks. Under this plan, there would be a 30-day freeze in the process... The new program, called Project Lifeline, is not limited to subprime mortgages... It also includes foreclosures triggered by home-equity loans, prime loans and second liens." (Washington Post, Feb. 13th)

Earlier Subprime Rescue Falters. "Initial figures suggest much-touted earlier efforts [to help struggling homeowner/borrowers] have done little to help. A plan brokered in December by the Treasury Department called for the mortgage industry to freeze interest rates or expedite refinancing for potentially hundreds of thousands of subprime borrowers, so long as they were current on their payments. In a companion move, the administration announced a toll-free number for homeowners, but the hotline has provided counseling to just 36,000 borrowers in the past two months, and representatives have suggested loan workouts for fewer than 10,000 of them -- a small fraction of borrowers in need." (Wall St. Journal, Feb. 13th)

U.S. States' Credit Rating Outlook Turns Negative, Moody's Says. "Moody's Investors Service: U.S. states' credit ratings may be lowered this year as slumping housing and the weakened economy constrain tax revenue. The rating company changed its credit outlook on states to negative from stable as sales, corporate and income taxes fall below forecasts. States will likely borrow more to fund programs... A downgrade can boost taxpayer borrowing costs as investors demand a higher return for increased risk. Half of U.S. states, including New York, New Jersey and California, are projecting budget deficits next fiscal year... Research group Center on Budget and Policy Priorities: Florida, Arizona and Nevada have been particularly hard hit." (Bloomberg, Feb. 13th)

PMI Tightens Underwriting Guidelines. "SEC filing: "[On March 1st) PMI Group Inc. (PMI) will no longer insure mortgage loans with loan-to-value ratios above 97%... PMI: Twenty-one percent of PMI's new loans underwritten in Q4 had loan-to-value ratios or more than 97%. In 77 distressed markets around the country, including [most of] California, PMI will now require a loan-to-value ratio above 90% before it insures a loan... PMI's research: Borrowers who put [just] 3% down... fare better paying off [a house] loan than those that put down no cash. For limited documentation of income loans, PMI will now require a loan-to-value ratio of 85%." (East Bay Business Times, Feb. 12th)

S&P Equity Research Upgrades MGIC Investment to Sell. "S&P Equity Research upgrades MGIC Investment (MTG) from Strong Sell to Sell. S&P analyst, S. Plesser: "MTG's shares have declined about 35% year-to-date and are priced more in line with other mortgage insurers on a book-value basis, now at 0.3X book value vs. peers 0.2X book value... Nationwide home price [declines] will continue to weigh on MTG's shares as the company has insured the riskier spectrum of borrowers. Although defaults and the severity of claims [should] increase significantly in '08, recent interest rate cuts should help somewhat. We are raising our target price $2 to $11, roughly 0.2X current book value." (Street Insider, Feb. 12th)

IndyMac Posts $509.1 Million Loss as Slump Deepens. "IndyMac Bancorp Inc. (IMB), the second- biggest independent U.S. mortgage company, posted a record fourth-quarter [and first ever annual] loss and suspended its dividend "indefinitely'' as the housing slump entered its third year. IndyMac [reported] a net loss of $509.1 million, or $6.43/share, compared with a profit of $72.2M, or $0.97, in Q4'06. [Analysts] expected a loss of $1.57. CEO Michael Perry: IndyMac will return to profitability by tightening lending standards, curtailing new home construction and lot financing and ending most home-equity loans. IndyMac has lost 80% of its market value in the past 12 months." (Bloomberg, Feb. 12th)

Buffett Offers to Assume Muni Liabilities of Insurers. "Billionaire investor Warren Buffett said he offered to assume responsibility for $800 billion of municipal bonds guaranteed by MBIA (MBI), Ambac Financial Group (ABK) and FGIC Corp. (FGIC). Buffett's Berkshire Hathaway Inc. would put up $5 billion as part of the plan that would exclude subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett [said.] Buffett is attempting to take advantage of the distress among bond insurers by picking off the profitable municipal guaranty business and leaving MBIA, Ambac and FGIC with debt that has caused more than $5 billion in losses." (Bloomberg, Feb. 12th)

Shareholder Backlash Emerges on Subprime Mess. "Angry about the subprime-mortgage meltdown, activist shareholders are mounting resolutions and vote campaigns ahead of annual-meeting season that target issues such as risk assessment and succession planning... Say[ing] directors didn't adequately monitor executives as risks mounted, businesses unraveled and share prices plunged. They are asking company directors to reveal more operational details so that investors can better assess the potential for future blowups... The Laborers' International Union of North America... pension funds has... submitted shareholder proposals seeking more disclosure about CEO succession/[risk] planning at five companies: Toll Brothers (TOL), Merrill Lynch (MER), Bank of America (BAC), Verizon Communications Inc. and Meritage Homes (MTH)." (Wall St. Journal, Feb. 11th)

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