Housing Market Tracker - Subprime In Large and Small Banks

Quote of the Day

“There’s a ‘hooray’ from the stands, but investors don’t realize that the bench has been weakened.” - Meredith Whitney, an analyst at Oppenheimer & Company, on stock market gains since UBS’s massive loss came to “just” $40 billion. (The Trumpet, Apr. 8th)

Subprime Fallout

Home Loan Banks End Talks. “The Federal Home Loan Banks of Dallas and Chicago called off their merger talks amid uncertainty over the value of the Chicago bank's holdings of mortgage securities… The Chicago bank also announced that its president and CEO, Mike Thomas, is stepping down effective Friday… The nation's 12 regional home-loan banks have stepped up their lending to commercial banks and thrifts as other sources of funding have dried up. But the Chicago home-loan bank faces losses that may call into question the adequacy of its capital base, which stood at 4.9% of assets at the end of 2007.” (Wall St. Journal, Apr. 8th)

Morgan Stanley's Mack Wins Investor Vote, Person Says. “John Mack, Morgan Stanley's chairman and CEO, and 10 other directors are set to win re-election to the board today, overcoming criticism of the firm's fourth-quarter loss, said a person with knowledge of the decision. With about 85% of the votes tallied, board members have won support from at least 90% of shareholders, said the person, who declined to be identified because the results won't be public until the company's annual meeting later today. The directors garnered about the same level of support last year, the person said.” (Bloomberg, Apr. 8th)

A.M. Best Says Larger Banks Suffering More from Subprime. “Credit rating organization A.M. Best Co. evaluates the financial services, healthcare and insurance industries. A.M.B. report: Larger banks seem to be suffering more from subprime-related write-downs when compared to other smaller-to-mid sized banks [and] “smaller banks are directly or indirectly facing credit problems with consumer mortgages similar to the largest 200 banks.” Also, there seems to be a regional pattern to the credit crunch, with Texas being a noted exception… A survey of smaller banks ranking under the top 200 institutions showed Midwestern, Central, Southeastern and West Coast states as having the highest concentration of high non-performing asset rates… [Particularly] Alaska, Arizona and Arkansas.” (Default Servicing News, Apr. 7th)

Mortgage Woes Not Felt As Strongly In Upper Valley. New Hampshire: “There are far worse places to be a mortgaged home owner than the Upper Connecticut River Valley. Look at the 2007 mortgage data for the riverside communities from Lebanon north to Woodsville and east to Enfield and Canaan. In stark contrast with the comparable numbers for New England and southern New Hampshire, what you'll see is zeros and a preponderance of single digits in the foreclosure column. "The local bankers we use are very careful with their clients," said Ned Redpath of the Hanover-based Redpath & Co. Realtors.” (Union Leader, Apr. 7th)

WaMu Ditches the Wholesale Mortgage Biz. “Troubled thrift giant Washington Mutual (WM), once one of the biggest players in residential mortgages, will stop making loans through independent mortgage brokers—what the industry calls the "wholesale" side of the business. Instead the company will focus on loans through its 2,200 retail bank branches. Mitch Ohlbaum, CEO of independent mortgage broker Legend Mortgage: WaMu [said] that Apr. 10 will be the last day to submit new loan applications. The wholesale business is considered risky because lenders have to offer very competitive terms to win business over dozens of rivals. Wholesale lenders also rely on independent brokers to accurately provide borrower information.” (Business Week, Apr. 7th)

Paulson Made $3B Last Year. “John Paulson, the Paulson & Co. chief, who correctly predicted the subprime meltdown and bet heavily against mortgages, took in a breathtaking, record-breaking $3 billion last year, according to Trader Monthly magazine. That payout was twice that of 2006’s top earner, John Arnold of hedge fund Centaurus Energy Advisors, who made $1.5B that year. Taking second on the annual Trader 100 was Harbinger Capital Partners’ Phil Falcone, who earned between $1.5B and $2B. Last year’s number two, Renaissance Technologies’ James Simons, dropped into the third spot with $1.5B to $2B in earnings.” (FIN Alternatives, Apr. 7th)

Fair Finance Watch: Subprime Racial Disparities Grew Worse in 2007 at JPMorgan Chase, Bank of America, Citigroup, WaMu, Other Large Banks and Countrywide. “Fair Finance Watch: JPMorgan Chase (JPM) in 2007 confined African Americans to higher-cost loans above [the] rate spread 2.44 times more frequently than whites. Chase's disparity to Latinos was 1.60. The percentage of Chase's loans which were over the rate spread actually went up from 2006 (19.28%) to 2007 (20.96)… Bank of America (BAC) in 2007 confined African Americans to higher-cost loans 1.88 times more frequently than whites, and denied the applications of Latinos 1.62 times more frequently than whites… Countrywide Financial (CFC)… confined African Americans to higher-cost loans 1.95 times more frequently than whites, and denied the applications of Latinos 1.53 times more frequently than whites.” (Trading Markets, Apr. 7th)

Fitch: Asset-Backed Commercial Paper Pulling Back from Residential Mortgages. “Fitch Ratings: Traditional U.S. asset backed commercial paper programs significantly reduced exposures to collateralized debt obligations and residential mortgage collateral throughout 2007 and into Q1’08. Fitch found overall exposures to CDOs and residential mortgage collateral contracting at a much faster pace than the overall ABCP market since the start of 2007, and non-mortgage consumer assets — along with corporate exposures — growing substantially… Total residential mortgage exposure declined 59% on a dollar basis to $9.4 billion since the end of 2006. Over the same period, CDO exposures across Fitch’s rated U.S. multiseller and securities-backed universe fell 24% to $13.9B.” (Housing Wire, Apr. 7th)

Closer Look At The ARMs Reset Problem. “The Fed vaporized much of the ARM reset problem in 2008-2009 by slashing interest rates… Assuming rates stay low, those in 3-1 ARMs originated in 2006 are likely to see significant resets lower. [But] I see... problems [in] Alt-A and Pay Option ARMS [by 2010-2011 … [One] pool originated in May 2007, and was 92.6% rated AAA… Recently, the pool [showed a] 25.3% 60 day delinquent or worse, 13.35% in foreclosure, and 4.44% Real Estate-Owned… Only 11.27% of the pool had full doc… Negative amortization is compounded by falling home prices… Good luck on lenders getting all their money back on those loans.” (Michael Shedlock in Seeking Alpha, Apr. 4th)

Zillow Aims to Disrupt Lending Market With Its Mortgage Marketplace. “Zillow, the site where you can find pricing estimates and other info about houses around the U.S., aims to disrupt the online lending market with the launch of its Mortgage Marketplace. The marketplace is a free service that hooks lenders up with borrowers… Borrowers submit just the essentials - what type of loan they need, where they’re located, their estimated property value, their credit history, etc - without divulging any contact info. Then certified lenders make offers that can be compared side-by-side. It’s up to the borrower to reach out and contact those lenders, not the other way around.” (Mark Hendrickson in Seeking Alpha, Apr. 4th)

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Comments

[AmesTiedeman]

WM cuts its dividend. I bet you BAC is next..

[deefree]

Last 2 Fed Reserve CMBS for Treasuries indicate rising demand to dump paper for cash--at higher interest rates

Release Date: April 8, 2008
For release at 10:00 a.m. EDT

On April 7, 2008, the Federal Reserve conducted an auction of $50 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 2.820 percent

Total propositions submitted: $91.569 billion
Total propositions accepted: $50.000 billion
Bid/cover ratio: 1.83

Number of bidders: 79

Bids at the stop-out rate were prorated at 67.70% and resulting awards were rounded to the nearest $10,000 (except that all awards below $10,000 are rounded up to $10,000).

The awarded loans will settle on April 10, 2008, and will mature on May 8, 2008. The stop-out rate shown above will apply to all awarded loans.

Release Date: March 25, 2008
For release at 10:00 a.m. EDT

On March 24, 2008, the Federal Reserve conducted an auction of $50 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 2.615 percent

Total propositions submitted: $88.869 billion
Total propositions accepted: $50.000 billion
Bid/cover ratio: 1.78

Number of bidders: 88

Bids at the stop-out rate were prorated at 98.87% and resulting awards were rounded to the nearest $10,000 (except that all awards below $10,000 are rounded up to $10,000).

The awarded loans will settle on March 27, 2008, and will mature on April 24, 2008. The stop-out rate shown above will apply to all awarded loans.

[johnthebear]

You asked for comments... please help me understand how mark-to-market will affect the REITs in the IYR index?

Thanks

[H2O]

Manidestos - How to destory American and World 101

HIllary - In her 2003 memoir, Living History, Clinton wrote, "Creating a free trade zone in North America — the largest free trade zone in the world — would expand U.S. exports, create jobs and ensure that our economy was reaping the benefits, not the burdens, of globalization. Although unpopular with labor unions, expanding trade opportunities was an important administration goal."

Freelance
May 07, 2003
Lindsey K. Robinson

The Bush administration seems unwilling to see the white elephant in its White House living room. Turning a blind eye on the upcoming Kyoto Protocol and continuing unilateral compromises in the Doha Free Trade agreement, Bush and Co. won't admit that the true culprit to environment degradation, as well as the regression in America's standard of living, loss in manufacturing jobs, growing national debt, and record trade deficits is due to international free trade. "Competitive protectionism is a proven idea with a lot of success. Free trade is historically a relatively new idea with a lot of failure," said Dr. Ravi Batra , international economist, in his book, The Myth of Free Trade. "Free trade has done to the us what Hitler and imperial Japan could not do during the war," he said. Wasteful investment from intra industry trade and raw materials trade are crippling world economies in many ways. Batra claims together they represent 90 percent of global commerce, yet have no rational economic justification behind them. Since world trade has soared faster than economic activity, trade is a bigger polluter than industrialization-in spite of fuel efficiency. Trade in energy intensity industries reaches far above that of GNP of America and most nations, and continues to rise. Being green doesn't sell as pollution taxes on domestic trans nationals would further put them at a disadvantage in global markets and governments don't want to inhibit world trade, corporate profits and growth.

Destroying the world's resources unnecessarily, free trade increases pollution, and creates higher energy prices, while risking higher global rates of economic contagion (Asian Contagion, Russia and Argentina debt default), and international vulnerability to economic shocks like the OPEC crisis of 1973 or 1979. "By far international trade comes out as the worst villain in the destruction of the environment....Yet about 60 percent of international trade today is of the intra industry variety-another 30% in raw materials...The cost of transporting trade worldwide equals most countries GNPs...(indeed,) air freight fuel consumption almost tripled in just two decades from 1970-1990, emitting millions of tons of nitrogen oxides," said Batra.

[Judy Weil,SA Editor]

Dear John the Bear,

I'd be happy to try and answer your question, only I'm not sure what you're referring to by 'mark-to-market'. Marking what to market? Commercial-backed paper? Commercial assets? Residential assets. Let me know so I can help.

-Judy

[H2O]

By Hillary Clinton Own Terms - Why Follow a CRAZY-LIAR????

Hillary Keeps asking why follow somebody and to leave them - if they say something crazy.

Then why in the world is anybody following a LIAR – Namely named Hillary Rodem Clinton???

Delusional - lied about Bosnia
Lied about Nafta support
Lied about support for out-sourcing
Just keep on naming them.

So Hillary asks – Why did Obama follow Rev Right after – a few times of out-spoken anger Nothing less then Falwell and Roberts – at least it didn’t call for nuking the US state dept like Roberts did.

And Hillarys Cult family – But back to Hillary – by her own terms – why are people following a delusional LIAR????

What you reap – so shall you sow ……….

[johnthebear]

Dear Judy: I asked about how should office buildings, shopping centers etc. that make up the REITs portfolio must be handled under the GAAP accounting rules. When interest rates rise (comparable to junk bond yields) they form a component of the capitalization rate. The net operating income may not have changed (yet) due to rising vacancy rate and slowing of the growth of lease rates, but the higher cap rates divided into the income mean that property values decline. The best property may have a cap rate of 5% prior, but now might only get a 8% cap rate. This means say that 1000/.05 = 20,000 property value vs 1,000/.08= 12,500 property value, which means a 37.5% drop in property value. So when you mark to market with the higher cap rate, there is huge discount.

So, I am wondering what the rules are that apply to REITs? How often are properties appraised? Will this apply to the first quarter earnings report later this month. Also, will they also be required to mark down all the CMBS they hold to market and if so, how will this be done?

So, I would appreciate your help. Thanks

John