'Nothing Special About Treasuries Anymore' - Housing Market Tracker

Quotes of the Day

"There's an opportunity for us in Washington to make some changes to policy so that problems like this no longer occur." - Donald Marron, of the White House Council of Economic Advisers, speaking about subprime mortgages. (Reuters, Apr. 14th)

"I don't think we can prevent the kinds of waves of optimism and pessimism that pass over the market. There will be future events. Our role as regulators is to try to make the system more resilient." - Federal Reserve Vice Chairman Donald Kohn, on the subprime-induced credit crisis. (Bloomberg, Apr. 13th)

Subprime Fallout

Wachovia’s Surprise Loss, Financial Ills, Reignite Subprime Mortgage Fears. “Wachovia Corp. (WB), the fourth-largest U.S. bank… posted a surprise first-quarter loss, announced a dividend cut and revealed plans to raise $7 billion in capital. CEO G. Kennedy "Ken" Thompson: The "precipitous decline in housing market conditions and unprecedented changes in consumer behavior" damaged the bank’s results… The bank reported a net loss available to common shareholders of $393 million, or $0.20/share, compared with a year-earlier profit of $2.3B, or $1.20/share. Excluding "one-timers," the loss was $270M, or $0.14/share [vs. analysts expectations of] a profit of $0.48/share on revenue of $8.37B.” (Money Morning, Apr. 15th)

Lending Practices: Latinos Find Few Low-Risk Loans. “Colorado Civil Rights Division: If you're a Hispanic in Boulder County, it's 3.4 times more likely -- compared with whites -- that when you try to get a loan you'll end up with a high-risk, high-cost, subprime loan. That makes Boulder County the second-hardest place in the country for Hispanics to get a good deal on a loan, behind Cambridge, Mass… In Colorado, even Hispanics making more than $100,000 a year are twice as likely than whites making the same amount to be saddled with a subprime loan.” (Daily Camera, Apr. 15th)

Prime Time for Subprime Plan. “Private lawsuits have been proliferating. During 2007, at least 278 cases were filed in federal courts, including borrower class actions, securities class actions and commercial contract disputes. Borrower class actions -- the largest category of cases -- were filed against mortgage brokers, mortgage companies and commercial banks, alleging inadequate disclosures in the mortgage origination process, some form of discriminatory lending or involving option ARMs. Federal securities class actions have been filed against securities brokers, dealers, commercial banks, mortgage bankers, underwriters, accounting firms and officers and directors.” (Law.com, Apr. 15th)

Nothing Special With Treasuries as Fed Has Mortgages. “Bond traders are finding there is nothing special about Treasuries anymore, now that the Fed accepts substitutes for government securities as collateral -- having concluded it wasn't enough to reduce the benchmark interest rate for overnight bank loans six times since September. As recently as March 21, Treasuries were in such demand that traders were willing to lend cash at rates 2 percentage points less than the Fed's target for overnight loans if they could obtain the securities as collateral. Now, the gap is back in line with the 0.06 percentage point average in the 10 years prior to August, when subprime mortgage losses spread.” (Bloomberg, Apr. 14th)

Subprime Disaster Hits Insurance Chiefs' Pockets. “American International Group (AIG) cut last year's cash bonus of its chief executive, Martin Sullivan, by 42% as the world's largest insurer reported its biggest quarterly loss in 89 years. Ambac Financial Group (ABK) denied Robert Genader any bonus, slashed his cash compensation by 71% and then replaced him as CEO in January. The reduction was the most of any insurer in the Standard & Poor's 500 Insurance Index. Regulatory filings: Boards are holding chief executives accountable for $US38 billion of subprime losses by slicing their salaries and bonuses by an average 20%.” (Sydney Morning Herald, Apr. 14th)

Old Favorites, New Picks Make For A "Hideous" Quarter For Mutual Fund. “Bill Miller's Legg Mason Value Trust posted the biggest first-quarter drop since opening 26 years ago… The $12.2 billion fund fell 20%… Bear Stearns, which accounted for 1.2% of fund assets, has plunged 88%… Miller put about 21% of assets in financial and housing-related stocks as of Dec. 31, [with] 19% of assets in financial stocks such as Bear Stearns (BSC), Citigroup (C) and Merrill Lynch (MER) as of December, up from about 15% a year earlier.” (Bloomberg via Asbury Park Press, Apr. 13th)

Groups Press for WaMu Board Ouster. “Activist shareholders' attempts to unseat several Washington Mutual Inc. (WM) board members will come to a vote Tuesday when the thrift… holds its annual meeting and reports what are expected to be abysmal first-quarter results. Ousting directors charged with managing WaMu's exposure to risky mortgages won't restore the $28 billion or so in shareholder value that has evaporated between the end of 2006 and [today]. But groups representing government and union pension funds say some board members should be held accountable for not acting to protect the company [or] for doling out fat bonuses to executives while shareholders lost money.” (AP, Apr. 13th)

You Thought You Had an Equity Line. “Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure. In the last 30 days, lenders have sent several hundred thousand letters advising borrowers that their home equity lines of credit are frozen, estimated Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on home loans.” (NY Times, Apr. 13th)

1st Metropolitan Mortgage Turns to FHA Originations. “North Carolina: 1st Metropolitan Mortgage expects to increase its FHA production “eleven fold” by next year. And, when comparing March 2006 to March 2008, the brokerage says FHA originations made up a greater portion of its origination volume, jumping from 3% of all originations in 2006 to 33% of originations this year.” (Default Servicing News, Apr. 11th)

Fitch Downgrades Certain First American Ratings. “Fitch Ratings has made the decision to downgrade certain ratings for The First American Corp. (FAF)… Fitch says First American's issuer default rating has been slashed from a 'BBB+' rating to 'BBB,' and its senior unsecured debt has been cut from 'BBB' to 'BBB-'. In addition, Fitch reduced the company's senior unsecured debt to 'BBB-' from its initial rating of 'BBB'. First American Capital Trust also saw the rating on its trust preferred securities cut from 'BBB-' to 'BB+'. The insurer's financial strength rating for the First American Insurance Companies also was reduced to 'A-' from 'A'.” (Default Servicing News, Apr. 11th)

No-Down-Payment Mortgages Gone for Good? “While Fannie Mae and Freddie Mac still have products that allow borrowers to finance 100% of their home purchase (albeit at a higher cost), recently the major private mortgage insurance companies have backed off from insuring these loans, said Bruce Brown, a certified mortgage planning specialist with First Security Mortgage Co., in Kansas City, Mo. Mortgage Guaranty Insurance Corp. (MTG), for example, changed its guidelines last week to exclude coverage of 100% mortgages. At a minimum, borrowers need a 3% down payment and a credit score of at least 680 to be eligible for coverage. In selected markets… a 5% down payment is the minimum required.” (MarketWatch via Yahoo! Finance, Apr. 11th)

Dear Readers: Read anything you liked on this subject and didn't see it here? Why not post a link or a quote from the article in our comments section. Share the wealth! - Ed.

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