Housing Market Tracker - Subprime Sinks Prime Mortgage Market

Quotes of the Day

"It feels like we have a ways to go. We haven't reached the seventh-inning stretch." - Wachovia CRO Don Truslow, who was "unsure" whether the U.S. downturn was in the third, fourth or fifth inning. (Reuters, Mar. 12th)

"There is no dilutive capital raise planned." - Freddie Mac CFO Anthony S. Piszel, using trader jargon to make the point that while Freddie Mac wants to help solve the mortgage crisis, its shareholders come first. (Washington Post, Mar. 13th)

Subprime Fallout

The Next Shoe To Drop In Housing. "The credit crunch has finally hit the traditional mortgage market. Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae (FNM) and Freddie Mac (FRE), which have been critical in keeping the real estate market from completely falling apart... As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates. The national average rate on a 30-year fixed-rate mortgage was 5.96% on Thursday, up from about 5.90% a week earlier, according to Bankrate.com. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from 5.03% a week ago." (CNN Money, Mar. 13th)

Chief Says Freddie Won't Raise Capital. "Freddie Mac, the giant mortgage-funding company, [said] it won't compromise the interests of its shareholders to increase its capacity to help the troubled housing market by buying or guaranteeing mortgages... Freddie: While Freddie Mac may be government chartered, it is also a public company. It is perennially torn by competing demands, such as keeping mortgage markets healthy, promoting homeownership for low-income families and generating profit for its shareholders. At an investor/analyst briefing... CEO Richard F. Syron cited management's fiduciary responsibilities in suggesting that Freddie will put shareholders first and resist pressure to raise more capital." (Washington Post, Mar. 13th)

Monoline Death Watch: Moody's to Grade Munis on Same Scale as Corporates. "After Barney Frank threatened to intervene and end the disparity between corporate and municipal bond ratings... Moody's said Wednesday that it will start rating municipalities on the same scale as corporations and countries, a move that may reduce demand for bond insurance... The ratings disparity gave the monoline insurers a free lunch, since in many cases they were paid fees to insure muni bond issuers who properly should have been AAA or at least AA. Now that this rigged game is over, the bond insurers will have to assume real risk when they write guarantees." (Naked Capitalism, Mar. 13th)

Carlyle Expects Banks to Seize Assets. "Carlyle Capital Corp. said Wednesday it expects its creditors to seize all of the fund's remaining assets after unsuccessful negotiations to prevent its liquidation... Last week, Carlyle miss[ed] margin calls from banks on its $21.7 billion portfolio of residential-mortgage-backed bonds... More than $5B of Carlyle's securities have already been sold, but [it] tried to... prevent the liquidation of the remaining $16B... A year ago, the fund leveraged its $670 million equity 32 times to finance a $21.7B portfolio of AAA-rated residential mortgage-backed securities... borrow[ing] money from [many] banks and firms, including Bank of America Corp. (BAC), Citigroup (C) and Merrill Lynch (MER)." (AP via Rapid City Journal, Mar. 13th)

JPMorgan Chase: Max 65% CLTV in Nevada. "Tom Kelly, a spokesman for JPMorgan Chase & Co. said within the past eight months, Chase has focused on combined loan-to-value ratio [CLTV], documentation and credit scores to improve loan quality, and raised minimum requirements for each. Chase also no longer offers 100% CLTV loans anywhere, with restrictions as tight as a maximum 65% CLTV in Nevada because of rising delinquencies. Hmmm. Why not just sell the loans to Freddie and Fannie? Both are still accepting higher CLTV loans." (Calculated Risk, Mar. 12th)

S&P Cuts CIFG, Moody's, S&P confirm Ambac's AAA. "WSJ: S&P lowered its ratings four notches to A+ on CIFG Guaranty, CIFG Europe and CIFG Assurance North America Inc. Less than a month ago, S&P had affirmed CIFG's AAA rating with a negative outlook. S&P said the company's "scaled-back underwriting activity, turnover of senior staff and recent other rating downgrades ... will impinge on CIFG's ability to carry out its business plans and broaden its market acceptance." MarketWatch: Moody's affirmed Ambac Assurance Corp.'s (ABK) Aaa rating, while S&P took Ambac Assurance's AAA off CreditWatch Negative. Still, Fitch stuck with its AA rating and Moody's noted that it has a negative outlook on Ambac's bond insurance units." (Calculated Risk, Mar. 12th)

Wachovia Says Housing Downturn Nowhere Near Over. "CRO Don Truslow: Wachovia Corp (WB), which offers adjustable-rate mortgages that let borrowers decide how much to pay each month, believes the U.S. housing downturn is far from over. Wachovia, the fourth-largest U.S. bank, on February 28 said it expected first-half loan losses to exceed 0.75% of loans on an annualized basis in 2008, higher than it had forecast two weeks earlier. CEO Ken Thompson also admitted in a letter to shareholders to "poor" timing in his $24.2 billion purchase in October 2006 of Golden West Financial Corp, a California mortgage lender." (Reuters, Mar. 12th)

Spreads Tighter On Fed Plan, Freddie Launches. "Yield premiums on U.S. mortgage and agency debt are snapping sharply tighter on Tuesday after the Federal Reserve and other central banks announced a plan to... allow dealers to use U.S. agency debentures and agency mortgage debt, including private label mortgage securities, as collateral on the new facility. The new lending facility, for up to $200 billion of Treasury securities to primary dealers, allows the use of collateral, including federal agency debt, federal agency MBS and non-agency triple-A-rated private label residential MBS... Most U.S. agency debentures are as much as 12 basis points narrower. " (Reuters, Mar. 11th)

Indymac Says It May Miss Forecast On Asset Declines. "SEC filing: IndyMac Bancorp Inc. (IMB), the second- largest independent U.S. mortgage lender, said first-quarter results may be worse than its Feb. 12 forecast because of the declining value of securities linked to home loans. CEO Michael Perry said [then] that IMB, which posted its first annual loss in its 23-year history in 2007, had a "good shot" at reporting a profit in H2'08. None of the company's AAA non-agency mortgage-backed securities -- assets backed by home loans ineligible for purchase by Fannie Mae or Freddie Mac -- have been downgraded and the bank has the funding to maintain these." (Bloomberg via LA Times, Mar. 11th)

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Comments

[AmesTiedeman]

Wait until 2009. Then you will see California housing literally go down the toilet.