Housing Market Tracker - S&P Lowers the Boom on Monolines

Subprime Fallout

What’s Next for Banks? “Douglas Berlon, Gallup's global practice leader for financial services: Banks with less than $100 million in deposits weren't doing a lot "creative" lending [but] were probably not as diligent about credit [standards] because delinquency rates had gone so low. In Q4’07, the 50 largest U.S. banks [too] $31 billion in charges related to asset write-down [and] restructuring out of their profit... But collectively lost only $3B… Overall, these banks were able to sustain their losses… There are currently about 8,600 banks and savings institutions in the U.S.; in 2000, there were 10,000… Eight years from now, there will be about 7,200.” (Gallup News, Apr. 10th)

President Bush Wants Lenders To Waive Tenth Of Unpaid Sum On 100,000 Home Loans. “The Bush Administration asked about 2,000 mortgage lenders to waive up to 10% of the unpaid amount on 100,000 home loans… The US Government… argues that this would make it easier for the borrowers to repay the loans and so benefit the lenders by reducing the risk of a default. Its target group is borrowers who have made some late payments in the past year but have solid credit ratings. Furthermore, the Government is promising to guarantee any loan that a lender agrees to write down through the Federal Housing Administration.” (UK Times Online, Apr. 10th)

Bad Times Are Good for Debt Collectors. “A few debt collection agencies are publicly traded, including Portfolio Recovery Associates (PRAA) and IDT (IDT)… Heartland Value fund (HRTVX) recently added Navigant Consulting (NCI) and Asset Acceptance Capital (AACC) to its holdings, as they are companies it believes should see increased business as a direct result of the subprime fallout. Navigant Consulting provides dispute, investigative, financial, and regulatory services to the legal community… Asset Acceptance, another subprime beneficiary, buys and then collects defaulted and charged-off loans… Insiders own more than half of the company and Asset Acceptance's managers and directors have increased their stake through open-market purchases.” (BusinessWeek, Apr. 10th)

HSBC Shocks Mortgage Rivals With Offer To Match Old Rate - But Fee Could Hit £5,000. UK: “HSBC [has] promised to "match", for a two-year period, existing fixed-rate mortgages as low as 4.54%, [but] accompanying arrangement fees could be as high as £5,000… Rival lenders have been dropping their most competitive products amid funding concerns and a rapidly cooling housing market… Alliance & Leicester was preparing to increase rates on its most popular mortgages for the second time this week… Council of Mortgage Lenders: About 100,000 two-year fixes were taken out in May 2006 and so will be up for remortgaging next month, [altogether] about £15bn of fixed-rate mortgages due for refinancing next month.” (Guardian, Apr. 10th)

S&P Lowers Ratings on 4 Mortgage Insurers; Conference Call Today. “Standard & Poor's Ratings Services announced that it has lowered its counterparty credit rating on four U.S. Mortgage insurers as follows: MGIC Investment Corp. (MTG) to 'BBB' from 'A-' and its counterparty credit and financial strength ratings on… subsidiaries to 'A' from 'AA-'… Old Republic International Corp. (ORI) to 'A' from 'A+' and its counterparty credit and financial strength ratings on… subsidiaries to 'AA-' from 'AA'… PMI Group Inc. (PMI) to 'BBB+' from 'A' and its counterparty credit and financial strength ratings on… U.S. and Europe subsidiaries to 'A+' from 'AA'… Radian Group Inc. (RDN) to 'BBB' from 'A-' and its counterparty credit and financial strength ratings on… subsidiaries to 'A' from 'AA-'.” (Insurance Journal, Apr. 9th)

Ex-Subprime Brokers Help Troubled Homeowners. “Lenders would offer Ex-broker Amber Barbosa 1%-2% of the price of the loan as a kickback if she persuaded her client to take a higher interest rate. That was legal and commonplace… Negative-amortization or "pick-a-payment" loans offered low payment options to begin with but… as interest rates reset, often at much higher levels, homeowners faced larger payments… “The lender offered an incentive of 3% to the broker if they put [a client] into that particular loan," Barbosa says. On a $500,000 home in California, brokers could make $15,000-$20,000 or more in kickbacks on every single one of these risky loans.” (NPR.org, Apr. 9th)

Mortgage Application Volume Rises. “Mortgage Bankers Association's weekly application survey: Mortgage application volume rose 5.4% during the week ending April 4. The index rose to 725.6 from 688.3 the previous week. Refinance volume increased 3.4% during the week, while purchase volume jumped 8.1%. Refinance applications accounted for 52.2% of total applications, down from 53.4% during the previous week… The average rate for traditional, 30-year fixed-rate mortgages rose to 5.78% during the week ending April 4, from 5.75% the previous week. The average rate for 15-year fixed-rate mortgages… increased to 5.39% from 5.27%. The average rate for one-year adjustable-rate mortgages increased to 7.06% from 7%.” (Forbes, Apr. 9th)

Fitch: Limited Subprime Exposure for U.S. Property/Casualty Insurers. “Fitch analyzed full-year 2007 GAAP financial results for publicly traded U.S. property/casualty insurers in an effort to quantify exposure to and credit quality of mortgage-backed securities with subprime and Alt-A collateral; exposure to and underlying credit quality of municipal bonds insured by financial guarantors; and the likely surge in claims under directors' and officers' liability and errors and omissions business lines due to subprime mortgage-related issues. The discoveries found manageable impact on stockholders' equity from write-downs, realized and unrealized losses from residential mortgage-backed securities, asset-backed securities, and collateralized debt obligations… Subprime exposure has been very limited [but] Fitch does expect poor collateral performance in subprime-related investments to continue in 2008, and has growing concerns in the Alt-A sector.” (Press Release, Apr. 9th)

Study: Brokers Overcharged Clients. “A Center for Responsible Lending study just released… blames mortgage brokers for overcharging borrowers with poor credit. More often than not, brokers placed borrowers with weak credit in loans with significantly higher interest rates than lender-originated mortgages… By tacking on additional percentage points to subprime borrowers' loans, mortgage brokers got rewarded in bonuses from lenders called "yield-spread premiums" that often totaled several thousand dollars and added thousands of dollars in payments to the borrower during the life of the loan.” (Bradenton Herald, Apr. 9th)

Subprime Mortgages: Rescue Lite. “The [Senate Foreclosure Prevention] bill would send $4 billion in grants to states to let them buy and fix up vacant houses. Depending on how it's used, this could be a double-edged sword. There's no doubt that a lot of vacant, foreclosed houses damage a community. But banks and mortgage service firms have much experience in selling off foreclosed property; local governments don't. It's not clear that buying the banks out of their foreclosure problems will leave communities better off.” (St. Louis Today, Apr. 7th)

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