Will "Principles-Based" Regulation Prevent Another Subprime Crisis? - Housing Tracker

Subprime Fallout

Parsing Paulson. “Treasury Secretary Henry Paulson’s… regulatory overhaul [would] push to move from our current system of regulation (“rules-based”) toward a “principles-based” approach. In a rules-based system, lawmakers and regulators try to prescribe in great detail exactly [how companies must behave.] In principles-based systems… regulators… evaluate companies’ behavior according to broad principles… This approach gives… regulators more leeway in judging whether a company is really acting in the best interests of shareholders and consumers… Bank regulators in Italy, following a principles-based strategy, succeeded in keeping big Italian banks from heavily investing in subprime derivatives, even though such investments wouldn’t have broken any laws.” (The New Yorker, Apr. 28th)

Citi Reports First Quarter Net Loss of $5.1 Billion. “Citigroup Inc.(C) reported a net loss for Q1’08 of $5.1 billion, or $1.02/share, based on 5,086 million shares outstanding. Results include $6.0B in pre-tax write-downs and credit costs on sub-prime related direct exposures. Results also include write-downs of $3.1B (net of underwriting fees) on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5B related to exposure to monoline insurers, write-downs of $1.5B on auction rate securities inventory, and a $3.1B increase in credit costs in global consumer.” (Originator Times, Apr. 21st)

National City to Raise $7 Billion in Capital. “After a Q1 net loss of $171 million, or $0.27/share, National City Corp. (NCC) said its Board plans to raise $7 billion in capital, with a large portion of that capital infusion—approximately $985M—coming from private firm Corsair Capital, LLC. The remaining capital will be raised through investors, including some of National City's existing institutional stockholders. Peter Raskind, chairman, president and CEO: “While we fully recognize that the dividend is an important element of return for our stockholders, the dividend reduction is consistent with our efforts to strengthen our capital position and is prudent given this environment." (Default Servicing News, Apr. 21st)

OFHEO Settles with Former Fannie Mae CEO & Executives. “The Office of Federal Housing Enterprise and Oversight [settled] charges against Fannie Mae's (FNM) former executive management team… for allegedly mismanaging finances, releasing inaccurate financial statements, and continuing to operate with unsound accounting functions… Former CEO Franklin Raines will be paying out $24.7 million: $2M will go to the government, $1.8M will [go] to housing programs [for] distressed borrowers, $15.6M will be paid out in relation to “surrender and relinquishment of claims,” while $5.3M will go to other “benefits lost in association,” CFO J. Timothy Howard and Controller Leanne Spencer will be paying out $6.4M and $275,000, respectively.” (DS News, Apr. 21st)

Freddie Mac Gives $10.5 Million to Foreclosure Prevention Group. “Freddie Mac (FRE) announced $10.5 million in grants to housing counseling organizations to use for their outreach, education and foreclosure prevention efforts to help borrowers. Freddie Mac is one of the nation's largest investors in residential mortgages... The largest share of the funds will be administered through the HOPE NOW Alliance in grants totaling more than $6 million… with the remaining funds earmarked for organizations including Enterprise Community Partners, NeighborWorks America, the Metropolitan Washington Council of Governments and HomeFree USA.” (Originator Times, Apr. 21st)

UBS Chief Sees More Stability for Subprime RMBS. “Bloomberg: UBS AG CEO Marcel Rohner: The market for U.S. subprime RMBS is likely to stabilize before the end of this year. His remarks come as a trickle of subprime paper has begun trading again during the past few weeks... Rohner sees the RMBS market stabilizing within the next 3-6 months, although consumer credit and commercial real estate will not be part of that stabilization… [Still,] subprime mortgage debt moving once again in the secondary markets — still far more a hope than anything resembling reality — won’t directly impact troubled homeowners here in the States.” (Housing Wire, Apr. 21st)

Alliance Data Peddles Its Acquiring Unit As Blackstone Deal Crashes. “The planned buyout of Alliance Data Systems Corp. by private-equity firm The Blackstone Group officially died this past weekend, a death that came as no surprise to the payments industry. But still alive is Alliance’s effort to sell its merchant-acquiring business built around the former BSI Business Services Inc. front-end platform for petroleum retailers.” (Digital Transactions, Apr. 21st)

Alt-A, HELOCs Proving Problematic; Are Prime Jumbos Next? “S&P: Cumulative losses to date on 2007 vintage home-equity lines of credit were 257% higher during March, [vs.] the same time frame for the 2006 vintage… 11.45% of 2006 vintage HELOCs were delinquent at the end of March, with 6.34% of the aggregate pool balance… seriously delinquent… In March, serious delinquencies… rose more than 8% for 2005, 2006 vintage HELOCs [and] above 10% for 2006 Alt-A mortgages… Delinquencies for 2007 Alt-A pools rose 12.2% in March, and serious DQs by…18.9%... Total delinquencies for prime jumbos originated in 2006 rose 15.4% during March, while the 2007 vintage saw [a] 15.5% m/o/m rise… Serious delinquencies rose… 22.6% for the 2006 vintage and 18.8% for the 2007s.” (Housing Wire, Apr. 21st)

Sierra Bancorp Reports Quarterly Earnings. “Sierra Bancorp (BSRR), parent of Bank of the Sierra: Net income for Q1’08 increased 4% to $5 million, compared to $4.8M in Q1’07. Diluted earnings per share increased 9%, rising to $0.51 in Q1’08 from $0.47/share in Q1’07. Half of the increase in diluted EPS is attributable to higher earnings, while the remainder is due to lower average diluted shares outstanding for Q1. Diluted shares were lower because of share repurchases… and because of a significant increase in stock options that were "underwater" at March 31, 2008 and thus excluded from diluted shares. Sierra reported a relatively high loan loss provision in Q1’08.” (Press Release, Apr. 21st)

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.

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.

Comments

[tcornelison]

Paulson's comments scare the Hell out of me. We definiitely do not need political appointees to have the flexibility to change the rules at will.

[sivere]

The problem is the $500+trillion derivatives bubble that may pop at any time. This is all the fault of the Fed and other central banks and their policies of the last 20 years (at least). As the derivative bubble was inflated the central banks stood by, even encouraged it with glee. In fact in the US at least, it is the fault of congress who have the constitutional responsibility to administer and maintain a currency and system of credits. Therefor, we need to

TakBackTheFed.com

We need to do it NOW. Let's not sit around and wait fo the crash, open our wallets, and pay for it (not that what is in our wallets will necassarily be woth much). Let's take action now, and save our nation! Let's do so in consultation with other allied central banks.