Rating Agencies Speed Up MBS Downgrades - Housing Tracker

Quotes of the Day

"I'm absolutely certain.” – Ambac CEO Michael Callen, said on a conference call, predicting confidently that when the credit crisis is over, the company will not have missed a single principal or interest payment. (Guardian UK, Apr. 23rd)

"If there is a big hole in the bottom of the tub, no matter how much hot water you keep adding, you will never have enough hot water.” Fixing the leak requires "an overall package, including monetary policy and public money.” - Yoshimi Watanabe, Japan’s Financial Services Minister. Watanabe used unusually blunt language to urge the American government to take drastic action to stem the subprime crisis afflicting global markets. Watanabe said America should learn from Japan’s mistakes. (CBS News, Apr. 23rd)

"There is a certain portion of the market that the FHA should handle, and it shouldn’t be the lion's share. We don't care what our market share is as long as there are safe alternatives in the private sector for borrowers." - Bill Glavin, special assistant to Federal Housing Commissioner Brian D. Montgomery, who oversees the FHA, expressing the concern of the FHA over its too-great role in the mortgage arena. (Forbes, Apr. 23rd)

Subprime Fallout

Bofa's Lewis Says $4B Countrywide Buy Still A Good Idea. “Beleaguered Bank of America Corp. (BAC) shareholders pleaded Wednesday with the bank's chief executive not to proceed with a $4 billion acquisition of distressed subprime mortgage lender Countrywide Financial Corp. (CFC). Shareholders told CEO Ken Lewis at the Charlotte-based bank's annual meeting that they were concerned about the company's position in a weakened economy and bearing the brunt of a collapsed stock price… Lewis acknowledged the housing crisis wasn't over but said Bank of America paid a fair price for Countrywide and continues to perform deep due-diligence.” (AP, Apr. 24th)

House Panel Approves $15 Billion Housing Bill. “Democrats pushed a $15 billion housing bill through a House committee Wednesday over the objections of Republicans who called it a government bailout. The measure would send federal loans and grants to cities and counties hit hardest by the housing crisis so they could buy and fix up foreclosed properties. It passed the Financial Services Committee 38-26, mostly along party lines. Democrats said it would prevent blight in distressed neighborhoods, but the Bush administration and Republicans view it as a government giveaway for lenders and speculators that could lead to even more foreclosures.” (AP, Apr. 24th)

Ambac Posts Wider-Than-Expected Loss, Shares Off. “Ambac Financial Group Inc. (ABK), a bond insurer that struggled to raise capital last month, posted a surprisingly wide quarterly loss on Wednesday after recording $3.1 billion in charges, and its stock plummeted 43%. The first-quarter loss of $1.66B, which wiped out nearly 40% of Ambac's shareholder equity…Critics of the company believe it will need to raise more capital to keep its top credit ratings... Raising capital with such a low share price -- the stock closed at $3.46 on Wednesday -- would be difficult... Larger rival MBIA Inc. (MBI)… shares [fell] 34%... Ambac’s default [swaps] surged to a record high Wednesday.” (Guardian UK, Apr. 23rd)

Moody’s Downgrades 388 Alt-A RMBS Classes; Warns on 254 Aaa-rated Tranches. “After downgrading 1,923 subprime RMBS classes between Monday and Tuesday of this week — including numerous previously Aaa-rated tranches — the hits to Aaa-rate RMBS just kept coming on Wednesday. Moody’s downgraded another 510 classes from 64 additional subprime deals… and then [downgraded] Alt-A securities — 388 classes downgraded from 75 different Alt-A deals. IndyMac figured prominently into the Alt-A downgrades, with a full 46 of the 75 issues downgraded tied to the former Alt-A powerhouse. Moody’s also warned of pending downgrades to a stunning 254 different Aaa-rated Alt-A tranches, worth well into the hundreds of billions of dollars.” (Housing Wire, Apr. 23rd)

Bondholders "Lucky" to Recover 10% in Defaults. “Bloomberg reports Fitch predicts that recoveries on corporate bonds that default will be far lower than in previous downturns, due to the deterioration in lending standards… The historical average recovery [is] 42 cents on the dollar in a default, [but] owners of a third of high- yield, high-risk bonds rated B+ or lower may get no more than 10 cents. About 22% are likely to get $0.11-$0.30… Moody's anticipates defaults will quadruple to 5.9% in 12 months. That assumes a “mild” recession. High-yield research firm FridsonVision LLC: Judging by the amount of distressed debt, investors expect an 8% default rate.” (Naked Capitalism, Apr. 23rd)

Lenders Remorse. “The FHA has qualms about the expanded size and scope of its role, which traditionally was to help prospective first-time buyers of limited means purchase modest homes… But with credit conditions as tight as a drum and the FHA's recently expanded powers thrust upon the agency as part of the U.S. economic stimulus plan in March, many borrowers -- of various levels of creditworthiness -- would be crazy to go anywhere else [with just 3% down requirements and government guarantees]. The agency, already the largest mortgage insurer in the world, is essentially filling the vacuum left behind by the disappearance of subprime lenders.” (Forbes, Apr. 23rd)

In Subprime Mess, a Bonanza of Billable Hours. “Navigant Consulting study: Nearly as many subprime-related federal lawsuits were filed in Q1’08 (170) as in H2’07 (181)… Those numbers may well understate the total, because they do not include claims filed in state courts. The current pace of lawsuits… means it is almost certain that more cases will be filed in the current financial crisis than resulted from the savings-and-loan collapses of the early 1990s... Nearly half of the cases filed in Q1— 46%— were class action suits on behalf of borrowers... Filings involving contract disputes [usually over] securities backed by assets including mortgage loans, fell in Q1 to just 10% of the total from 22% last year.” (NY Times Deal Book, Apr. 23rd)

Getting Empirical on Subprime Losses. “Tom Brown of Bankstocks.com [assumes] that the ABX index represents subprime bonds more generally… On a bond-by-bond basis [the ABX index] numbers aren't nearly as gruesome as you might think: Of the $600 billion or so of subprime mortgages originated in 2006… $282B have already been repaid, while realized losses have come to just . . . $12B. Brown… comes up with a cumulative loss rate of 12.8%, which is much lower… than the loss rate priced into the ABX. UBS analyzed the credit performance of the ABX bond-by-bond… and comes to a loss estimate of 18%... If Brown is right, the ABX index is… a screaming buy.” (Conde Nast’s Portfolio.com, Apr. 23rd)

No Help For 70% Of Subprime Borrowers. “State Foreclosure Prevention Working Group, a coalition [of] 11 state attorneys general and bank regulators: Seven out of 10 seriously delinquent subprime mortgage borrowers are still not getting the help they need to keep their homes... The coalition drew its statistics from 13 of the 20 major servicer companies, which handle about 58% of all subprime loans. More than 1 million of those loans, or nearly 25% of the total, were delinquent as of Jan. 31. And foreclosure proceedings have begun on 300,000 of them - an 8% increase since October.” (CNN Money, Apr. 22nd)

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

[Lucy]

How are PNC Bank's financials?