Noodles, Subprime and LTV Ratios - Housing Tracker

Politically Incorrect Quote of the Day

“[It’s like] being a noodle salesman in Nagasaki when they dropped the A-bomb - not a lot of noodles left, and not a lot of people either.” - Blackstone CEO Steve Schwarzman, talking about the plight of subprime lenders.” (Reuters, May 8th)

Quote of the Day

“Some of those cases are still ongoing.”- Jeff Nielsen, managing director at Navigant Consulting, referring to litigation from the savings and loan crisis in the 1990s. Nielsen warns that the “wave of litigation” from the current subprime crisis will eclipse that of the S&L crisis. (NY Times, May 8th)

Subprime Fallout

Subprime in Sheep’s Clothing. "Terry Francisco, VP at Bank of America: “What the whole industry is seeing is a higher correlation between higher loan-to-value ratio and the likelihood of default. In previous cycles, the correlation had been between FICO scores and default.” That is a ticking time bomb as U.S. home prices weaken in the wake of the subprime loan crisis because it means that relatively affluent borrowers might not stick around once their equity turns negative, potentially beginning a vicious circle of home abandonments that push down prices and encourage new defaults.” (Forbes, May 8th)

Wave of Lawsuits Over Losses Could Hit a Wall. “Shareholders in big financial firms have accused UBS, Merrill Lynch, MBIA and Morgan Stanley, among others, of trying to hide their home loan problems, which later led to declines in their stock prices. Institutional investors have sued investment firms… saying that they were misled into buying risky securities that later fell sharply in value. And there are more possible defendants, like the rating agencies that were supposed to evaluate these mortgage securities and the accounting firms that audited these companies. Navigant Consulting found that 170 lawsuits — 44 of which were securities suits — had been filed because of subprime mortgage losses in Q1’08, up from 89 in Q4’07.” (NY Times, May 8th)

Bullish Run For Agency MBS Continues. “Continuing a run that led excess returns of MBS over Treasuries to post their best month in over 10 years during April, U.S. mortgage-backed securities continued to tighten against Treasuries on Wednesday — despite news of a large loss by Fannie Mae (FNM). The trend is likely to mean better mortgage rates for conforming borrowers.” (Housing Wire, May 8th)

Moody’s Key Exec Walks the Plank. “Someone had to pay for the fact that Moody's (MCO) is being blamed for not doing a better job predicting the mortgage securities crisis… As usual, it is not the CEO who is leaving. Moody's is dumping its president, a sign that the company is contrite, sees the error of its ways, and wants to do better. Wall Street Journal: Brian Clarkson's departure "effective by July, marks the highest-profile casualty to date in the controversy over the complicity of credit-rating firms in the subprime meltdown." (Blogging Stocks, May 8th)

U.S. MBA's Mortgage Applications Index Rose 15.6% Last Week. “The Mortgage Bankers Association's index of applications to purchase a home or refinance a loan rose 15.6% to 655.4, from 567 the prior week… the lowest level this year. Refinancing increased 19.3% and the purchase index rose 12.1%. Mortgage rates have started to fall, reflecting Federal Reserve policy makers' efforts to bring down borrowing costs... Stricter lending rules may also be prompting borrowers to file multiple applications to try to qualify for a loan… The average rate on a 15-year fixed mortgage fell to 5.49% from 5.53%. The rate on a one-year adjustable- rate mortgage declined to 6.77% from 6.86%.” (Bloomberg, May 7th)

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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