Housing Market Tracker - Lenders Still Not Lending Much

Quotes of the Day

"Once things start going south, people start behaving badly. People try to cover up what they're finding and justifying things in their own minds." - SEC enforcement director Linda Thomsen, who says more fraudulent activities may be uncovered as the subprime crisis plays itself out. The SEC is investigating a broad spectrum of financial players in the subprime arena. (Reuters, Mar. 26th)

“The Fed is trying to drive a car with only slight control of the steering wheel and no control of the gas or the brakes.'' - Clive Granger, the 2003 Nobel laureate in economics and professor emeritus at University of California, San Diego, on the Fed’s efforts, so far unsuccessful, to get banks to start lending, and at lower rates. (Bloomberg, Mar. 27th)

"The key is effective enforcement.” - Federal Reserve Board Governor Randall Kroszner, about how to curb subprime mortgage lending abuses. (Reuters, Mar. 27th)

Subprime Fallout

Banks Fail to Lower Mortgage Rates as Bernanke Cuts Money Costs. “Lenders aren't helping the central bank even after they've been given seven interest rate cuts and a new program designed to jumpstart borrowing. The difference between the 10-year government bond yield and the average U.S. fixed mortgage rate was 2.7 percentage points last month, the widest spread since 1986. Banks are defying Bernanke and hoarding cash after writing down the value of more than $200 billion of mortgage-related securities since July. Federal Deposit Insurance Corp.: The banking industry's earnings fell to a 16-year low of $5.8B in Q4’07, ending six years of record profits.” (Bloomberg, Mar. 27th)

Auction-Rate Crisis Hits Stadiums for Saints, Giants. “The auction-rate bond crisis is raising borrowing costs on more than sewers and hospitals, forcing some states to pay three times higher interest on 65,000- seat sports arenas with moving roofs and 50-foot video displays. Whit Kling, director of Louisiana's bond commission: Debt payments for Louisiana's Superdome… ran the state about $1.8 million last month -- up from roughly $500,000 in January -- after interest rates tripled to 12%. Some private borrowers are paying even more, with rates on bonds sold by owners of the NFL's New York Giants reaching 22% this week, according to a person familiar with the debt.” (Bloomberg, Mar. 27th)

KPMG Engulfed in Subprime Accounting Scandal. “An independent report commissioned by the Justice Department concluded that the "improper and imprudent practices" of now-bankrupt subprime lender New Century Financial were condoned and enabled by the company's independent auditor, KPMG. The accounting firm allowed New Century to change its accounting to report strong profits during the housing boom, when a more conservative treatment would have shown losses. The company lowered its reserves for bad loans that investors were forcing it to buy back, even as the number of bad loans increased. NY Times: This may pave the way for New Century to sue KPMG.” (Blogging Stocks, Mar. 27th)

Schwab Faces Suit Over Subprime Mortgage Bond Funds. “Financial services firm Charles Schwab Corp (SCHW) is being sued over bond funds that plummeted under the weight of securities backed by subprime mortgages. A suit filed in the federal court… of California is seeking class-action status for investors who purchased shares of Schwab YieldPlus Funds Investor Shares (SWYPX.O) and Schwab YieldPlus Fund Select Shares (SWYSX.O) from March 17, 2005, through the day the suit was filed on March 18, 2008… According to the suit, Schwab marketed the bond funds as higher yielding alternatives to money-market funds, offering safety and the ability of investors to quickly access cash.” (Reuters, Mar. 26th)

Long Island: A Third Of State Subprime Foreclosures. “Suffolk and Nassau counties accounted for 33% of subprime loans that were made in 2006 in New York State and that are now in foreclosure, according to a report… by the Empire Justice Center, a nonprofit law firm that advocates for low-income families… The data, from the Federal Reserve Bank of New York, shows Long Island at the top of the mortgage crisis in the state… Long Island's one-third foreclosure rate equates to 12,936 subprime loans… At the same time, Long Island has 30% of all subprime loans scheduled to be reset before October 2009, according to the study of subprime loans given out in 2006.” (Newsday, Mar. 26th)

Comforting Subprime Data May Be Deceptive-Barclays. “For months, investors and analysts have tracked so-called remittance reports, which are released on the 25th of every month and provide a snapshot of subprime loan performance over the last 30 days. The March reports detail the February collection period. The reports show a decrease in the rate of 30-day and 60-day delinquencies, according to Barclays Capital. After adjusting for seasonality, however, the data show a slight rise in the rate of delinquencies, the bank said: "March remits (loan performance reports) appear to show a comforting moderation in delinquencies. Unfortunately, we believe surface appearances are deceiving." (Reuters, Mar. 26th)

OFHEO Changes Course, Will Not Lower Traditional Conforming Limits. “The Office of Federal Housing Enterprise Oversight won’t lower traditional conforming limits as housing prices decline — a change in policy from earlier proposals that would have seen the GSE lending limit drop under certain conditions... OFHEO said its final guidance included provisions that keep the traditional conforming loan limit at $417,000 during 2009 and subsequent years. However, the traditional conforming loan limit will not increase… until cumulative increases in house prices have exceeded cumulative decreases since the $417,000 limit was first established. The guidance… does not affect the recently instituted “jumbo conforming” loan program enacted by Congress earlier this year through the end of 2008.” (Housing Wire, Mar. 26th)

Frank FHA Plan Won't Help Many Subprime Loans-UBS. “UBS Securities: Proposed legislation… by Barney Frank, chairman of the House of Representatives Financial Services Committee, would permit the Federal Housing Administration to offer $300 billion more in new guarantees to refinance distressed mortgages that banks and mortgage holders have agreed to write down. But terms that borrowers must meet, such as caps on loan size and debt-to-income levels, limit the scope of the plan, UBS says. About $73B in subprime mortgages would benefit from the program based on the UBS analysis on loans contained in securities. Including loans not in securities, the total rises to $104B, or about 463,000 loans.” (Reuters, Mar. 26th)

Fitch Cuts FGIC, Subsidiary Ratings. “Fitch Ratings on Wednesday cut the debt ratings of FGIC Corp. and its subsidiaries… The move affects bond-insurance subsidiaries Financial Guaranty Insurance Company's and FGIC UK's insurer financial strength ratings, which were cut to 'BBB' from 'AA,' and remain investment grade. FGIC Corp.'s long-term issuer rating was also lowered, to 'BB' from 'A,' pushing the rating into 'junk' status. 'The downgrade on FGIC is based on Fitch's updated assessment of the company's capital position, FGIC's updated business plan, consideration of various qualitative ratings factors and an update on Fitch's current views of U.S. subprime-related risks… The outlook for the company remains negative.’” (Forbes, Mar. 26th)

FGIC Headed for Takeover by State? “FGIC Corp., the ailing bond insurer partly owned by private equity giant Blackstone Group, said Wednesday that it may be taken over by New York state insurance authorities because it faces potentially massive losses. Unless the Manhattan-based insurer can satisfy regulators with a plan to reduce its exposure to hundreds of millions in losses from guaranteeing subprime mortgage-related securities, the firm said Wednesday that it might have to stop writing new policies and that its operations might be seized by the New York state Department of Insurance. Rob Haines, analyst at CreditSights: “FGIC needs anywhere from $1.5B-$2 billion.” (Crain’s NY Business, Mar. 26th)

What Credit Line Drawdowns Really Mean. “Sprint (S) and Porsche are among a new wave of companies drawing on their credit lines. The move may force banks to raise an additional $40 billion in cash to protect their balance sheets. Why is this a sign credit problems are not yet over? Frequently this is only done as a last resort... No one expects the company to actually use the line of credit. [Also, at] the same time banks are raising cash to protect… and reduce their balance sheets… these companies are essentially forcing banks to expand them by drawing on their credit lines and taking out a new loan.” (Minyanville, Mar. 24th)

FHLB to Buy More Mortgage-Backed Securities. “Federal Home Loan Banks were freed to increase their purchase of mortgage-backed bonds by about $150 billion as part of a government effort to pump money back into the market, according to Bloomberg. Just last week Fannie Mae (FNM) and Freddie Mac (FRE) were cleared to buy at least $200 billion of mortgage securities. Well, $350B should help, right? Keep in mind that there are about $4.5 trillion of mortgage securities backed by Fannie, Freddie and Ginnie Mae outstanding.” (Minyanville, Mar. 24th)

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Comments

[NextelAccessories]

Sprint is not in financial stress, this article is very misleading.