Housing Market Tracker - Subprime Victims or Volunteers

Quote Of The Day

“Every citizen has a dog in this hunt,” said John Taylor, president of the National Community Reinvestment Coalition, a community advocacy group that has developed its own mortgage buyout plan. “The cost of spending our way out of a recession is something that everybody would have to bear for a very long time.” (NY Times, Feb. 23rd)

U.S. Subprime

Rules, Rates Keep Housing In Deep Freeze. "In December, Fannie Mae (FNM) began demanding bigger down payments from borrowers in housing markets where prices were declining... Last week Freddie Mac (FRE) [again] raised the fees it charges when it buys riskier loans from mortgage lenders... Lenders will have to pay a small fee for mortgages that cover more than 80% of a home's value. Freddie Mac: The fee would turn a 6% mortgage rate into roughly a 6.05% rate... Freddie Mac says it wants to be compensated for the risk of taking on a mortgage [otherwise] it could be forced to take on more capital, reducing the amount of money available to finance new home purchases." (Wall St. Journal, Feb. 25th)

Where Do Mortgage Funds Go? "Freddie Mac's policy changed [last week] on splits of mortgage insurance premiums between lenders and insurers... "Captive reinsurance"... has put $4B-$5 billion worth of consumers' mortgage insurance dollars onto lenders' books in recent years, by [some] estimates. A captive reinsurance arrangement allows a lender to receive significant pieces of the premiums paid by borrowers who cannot afford to make a down payment of 20% or more... The funds... are treated by lenders as income... The arrangement [also] puts the lender into the position of a back-up guarantor should delinquencies and foreclosures on low-down payment loans bring a flood of claims beyond specified limits." (San Francisco Chronicle, Feb. 24th)

Wamu Cut To 'Sell' At Goldman, Sachs. "Fannie Mae, Freddie Mac and Washington Mutual Inc. were cut to "sell" from "neutral" by Goldman, Sachs & Co. analysts, who cited potential credit losses for the mortgage lenders stemming from a "severe" housing market. Goldman analysts... also reduced their share-price estimates by 33% to $27 for Fannie Mae, 19% to $22 for Freddie Mac and 20% to $12 for Washington Mutual (WM), they wrote in a report dated Sunday." (Seattle Post Intelligencer, Feb. 24th)

Stimulus Plan Aids Buyers of High-Priced Homes. "In some of the higher-priced regions of the country that have been hit hardest by the flagging real estate market... the temporary change in the loan limits could make a big difference... For a high-priced home... a monthly payment on a jumbo 30-year loan of $729,000 at 7% would be $4,850. Monthly payments on a conforming loan of the same amount, at 6%, would be $4,371, a $479 difference... In a state like California, or in the Northeast and Northwest, where home prices far exceed the national median of about $206,000, jumbo loans are a significant portion of the mortgage market." (NY Times, Feb. 23rd)

A ‘Moral Hazard’ for a Housing Bailout: Sorting the Victims From Those Who Volunteered. "Over the last two decades... banks lobbied ferociously to get the government out of its business... [Now,] Bank of America (BAC) warns that up to $739 billion in mortgages are at “moderate to high risk” of defaulting over the next five years and that millions of families could lose their homes. To prevent that, BAC suggested creating a Federal Homeowner Preservation Corporation that would buy up billions of dollars in troubled mortgages at a deep discount, forgive debt above the current market value of the homes and use federal loan guarantees to refinance the borrowers at lower rates... If the market declines even more... taxpayers could be stuck with hundreds of billions of dollars in defaulted loans." (NY Times, Feb. 23rd)

Citigroup Bails Out Internal Hedge Fund: Report. "Wall St. Journal: Citigroup (C) is bailing out an internal hedge fund group that ran into trouble from bad bets on the credit markets... citing a regulatory report filed by the company. Citigroup is providing a $500 million credit line to its struggling Falcon Strategies funds, which tumbled 30% last year." (MarketWatch, Feb. 22nd)

A Billion-Dollar Cure For MGIC's Ills? "Milwaukee's MGIC Investment Corp. (MTG), the wounded gold standard of mortgage insurers, is expected to seek as much as $1 billion in new capital to ensure its own long-term viability... To help raise capital -- which analysts say could come through a public or private stock offering, public debt or private equity investors -- MGIC has hired a financial adviser." (Milwaukee Business Journal, Feb. 22nd)

PMI Shuffles Management. "The PMI Group Inc. (PMI) [has] promoted Arthur Slepian to EVP, chief enterprise risk officer. He replaces Joanne Berkowitz, who took on the new role of EVP for risk management and operations at PMI Mortgage Insurance Co., the group's U.S. mortgage insurance arm and the largest division of the company. Berkowitz will oversee credit risk management and portfolio management for the U.S. mortgage insurance portfolio. Slepian... will be responsible for enterprise risk management for the whole group, including the U.S. mortgage insurance division, international subsidiaries and the company's strategic investments. He will also manage Sarbanes-Oxley compliance and internal audit functions." (East Bay Business Times, Feb. 22nd)

Mortgage Insurer PMI's Prospects Held Hostage To FGIC's Woes. "Bond insurer Financial Guaranty Insurance Corp.'s request to regulators last week to split its profitable municipal bond business from its subprime credit default swap business threatens to create new problems for its already troubled part-owner. PMI Group, the U.S.'s largest mortgage insurer and FGIC's largest shareholder with a 42% stake... said Wednesday that it will be unable to report its consolidated fourth-quarter financial results on schedule because of "delays" in obtaining FGIC's results. PMI said that financial results for its own mortgage insurance business were ready, but declined to say when it might be in a position to release the numbers." (CNN Money, Feb. 22nd)