Housing Market Tracker - Killer HELOCs

Quote of the Day

"Leaning on outside mortgage brokers for home-equity business was "one of the biggest mistakes we've made." -Charles Scharf, head of J.P. Morgan's retail business. Morgan says home equity loans [HELOC's] generated by outside mortgage brokers have performed worse than those generated by J.P. Morgan. (Barry Ritholtz in Seeking Alpha, Mar. 12th)

Subprime Fallout

Latest Bank Headache: Home Equity Loans. "While banks can foreclose on a first-lien mortgage, lenders often have little recourse when trying to collect a delinquent home-equity loan, especially if another bank holds the primary mortgage... When another bank holds the mortgage and the mortgage payments are current, the home-equity lender is effectively powerless to collect the debt... Many borrowers understand that pecking order, concluding there are few repercussions if they stop making payments on their home-equity loan... Delinquent home-equity loans are rising fast, representing 12.5% of all delinquent loans in Q4 at Bank of America Corp. (BAC). SNL Financial: That was up from 9.4% in Q1'07." (Barry Ritholtz in Seeking Alpha, Mar. 12th)

High Finance Backfires on Alabama County. "Jefferson County is teetering on the brink of bankruptcy after a series of exotic bond deals that bankers concocted went wrong. The interest on its debts, rather than shrinking as the bankers had promised, has ballooned... Officials from Birmingham, the county seat, are trying to persuade Wall Street creditors to soften the terms of the deals. If they fail, the county could sink into in one of the biggest public bankruptcies in American history... During the last few years, Jefferson County entered into a series of complex transactions, called swaps, worth a staggering $5.4 billion." (NY Times, Mar. 12th)

Please, China, Sell Your Treasury Notes! "It's probably too much to hope that the U.S. government itself might start embarking on a massive carry trade, issuing two-year notes at 1.5% and investing the proceeds in agency debt. But some of the trillions of dollars currently being held by foreign central banks could definitely come in handy right now. They're sitting on nice capital gains on their Treasury holdings, thanks to the current flight to liquidity. It would be great if they started dumping those Treasuries and buying the bonds of Fannie (FNM) and Freddie (FRE) instead, at least for the time being." (Felix Salmon in Seeking Alpha, Mar. 11th)

Financials: Expecting One Big Failure, But Which One? "I think the idea of buying a big American bank that survives with a 6-7% yield now will look brilliant in three or four years, but... what about the next 20% and/or the next 6-9 months? You could find the right bank that is fundamentally untouched by any of this and it still could drop 30% from here just in sympathy... For now there is a lot about this crisis that is nowhere close to having been quantified. We should expect a big failure and, no, I don't think New Century or Thornburg are anywhere near big enough to count as big." (Roger Nusbaum in Seeking Alpha, Mar. 11th)

Fitch Lowers Ratings Of Banks With Home-Equity Exposure. "Citing deteriorating performance of home-equity loans, Fitch Ratings has lowered the debt ratings of some big name banks including Washington Mutual (WM), Wells Fargo (WFC), National City (NCC), Providian Financial and First Horizon (FHN), while warning it may take similar action toward Bank of America (BAC), Citigroup (C), Fifth Third Bancorp (FITB) and SunTrust (STI)... In markets such as California and Florida where home prices are falling, loss severities on many loans are hitting 100%, and it's often cheaper for banks to charge-off the entire amount... Fitch downgraded Washington Mutual's long-term issuer default rating from "A-" to "BBB," in part because of the bank's heavy exposure to California. (Inman News, Mar. 11th)

Truth Stranger than Fiction: MBIA Wants an End to Ratings. "Ratings agency Fitch said it will continue to rate MBIA Inc.'s (MBI)) subsidiaries without charge, despite the bond insurer's request that it stop...On Friday, MBIA [also] asked Fitch... to return or destroy data MBIA had provided to Fitch... Fitch CEO Stephen Joynt said the agency plans to keep rating the bond insurer and questioned the company's reasons for trying to end their relationship. "It seems disingenuous at best to assert... that you 'intend to work with Fitch to perform the analysis needed to rate MBIA's debt securities,' while privately demanding return of the portfolio information and materials that you freely provided... for many years." (Trader Mark in Seeking Alpha, Mar. 10th)

Mortgage Insurer MGIC Risks Tripping Its Loan Covenant. "MGIC Investment (MTG), is now on the verge of tripping a major covenant... Mortgage Insurance Companies of America: Defaults on privately insured mortgages rose 31% in January from the year-earlier level. The rising default rate and the resulting increase in claims from lenders mean pressure is mounting on the $226 billion industry. Another major mortgage insurer, PMI Group, delayed filing its 10-K and reported a fourth-quarter loss of $236 million. A third, the Radian Group, posted a $618M loss for Q4... MGIC posted a fourth-quarter loss of $1.47 billion in February, although it still has enough cash for day-to-day business." (Financial Week, Mar. 10th)

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Comments

[helplessobserver]

Judy,
Good posts, keep up the good work.
observer

[JPaul]

HELOC borrowers in default of their loan terms, when the first is held by another lender, may be in for a rude awakening. If the first lien is sold to the HELOC lender the borrower cannot stall the foreclosure. The second loan now has the same lender as the first lien. Lenders are few and borrowers are many and banks tend to work together to help themselfs. I would not bet the farm that a second HELOC loan in default cannot be forclosed.

[JPappas]

I am a mortgage broker and I show people how to prepay their first mortgage of in half the time or less without extra money out of their pocket. The HELOC balance is paid down at a reasonable balance and all this is done without changing the homeowners lifestyle. Sound to good to be true? It's not and anyone can do it on their own but there is also a program that can guide them that is very good. I show my customers both and let them decide if they can be diciplined enough. visit my we-site u1stfinancial.net/smc and like I said I can show you how you can do it on your own.