Bank and Insurer Bonds Still Too Pricey - Housing Tracker

Quote of the Day

“It's been – our policy in this administration is we – shouldn't bail out lenders, laws shouldn't help speculators, the government ought to be helping creditworthy people stay in their homes. And one way we can do that – and Congress is making progress on this – is the reform of Fannie Mae and Freddie Mac. That reform will come with a strong, independent regulator.” – U.S. President George Bush. (Default Servicing News, May 19th)

Chart of the Day

This Bloomberg table shows the $379 billion in asset writedowns and credit losses since the beginning of 2007, including reserves set aside for bad loans, at more than 100 of the world's biggest banks and securities firms. Numbered in billions of dollars.

Subprime Fallout

Air Taxis Fly Into Financial Turbulence. “With fares rising and commercial air service increasingly unreliable for business travelers, Ed Iacobucci figured his plan for an air taxi service would be a no-lose proposition. [But] just as his company, DayJet, had proved that there was a business in using small jets for short-haul, on-demand service and was poised to expand its market, the credit market froze. DayJet was unable to raise $40 million it needed to grow, Mr. Iacobucci said. Expansion plans were postponed and the company laid off 100 of its 260 workers.” (NY Times, May 20th)

FHASecure Refinances 200,000th Mortgage. “U.S. Housing and Urban Development Deputy Secretary Roy A. Bernardi announced the Bush Administration's FHASecure product has helped 200,000 homeowners refinance their mortgages and avoid foreclosure. Since September 2007, FHASecure has enabled struggling families - who are current or past due on their mortgages - to refinance through HUD's Federal Housing Administration… From September 2007-February 2008, FHA insured 100,000 refinanced mortgages. As more homeowners continued to learn about the benefits of FHA's traditional 30-year fixed, prime-rate financing, FHA backed another 100,000 loans in half the time.” (Originator Times, May 19th)

FHA Secure Loan: Government Foreclosure Help Not Turning Out As Expected. “The FHA Secure Loan… was to be made available to homeowners who were having, or had, their variable interest rates adjusted and needed to refinance in order to keep making payments… Though only 3,000 people have been saved from foreclosure, the FHA Secure program has become widely popular, with over 200,000 loans issued to date according to CNNMoney. The program... has turned out to be a great program for people looking to refinance. The average homeowner refinancing with an FHA Secure loan is saving approximately $400/month. Many of the people using the FHA Secure program could continue to make their payments without a problem.” (InvestorCentric Blog, May 19th)

Tim Flynn: UBS's ($37 million) Auction-Rate Securities Man. “Massachusetts: “Many local treasurers bought auction-rate securities. After the market for these securities went into deep-freeze, Massachusetts attorney general Martha Coakley argued that the investments were barred under state laws which require localities to invest cash only in the safest investments. Last week, as part of its settlement with the attorney general, UBS agreed that the investments were illegal, [agreeing to reimburse Massachusetts municipalities for $37 million…] Some local treasurers… seem to have understood the market for auction rate securities well-enough to pull out before the auctions began to fail.” (Dealbreaker, May 19th)

The True Story of a Script, Big Dreams and Vanishing Private Equity. “So many hedge funds and private equity investors wanted to sink money into [Sanjay Sanghoee’s movie] project "Merger" that… in October, he decided against a fund-raising trip to Dubai. “We don’t even need it now,” he said [then. Now] the torrent of private money flowing into Hollywood [has] slowed to a trickle… Investors for “Merger” have either slammed on the brakes or disappeared altogether. A fund in Atlanta weighing a $7.5M investment has cut back by $3M. A $5 billion hedge fund group that was supposed to handle debt financing now has other priorities, namely liquidating 80% of its holdings.” (NY Times, May 19th)

Soaring Foreclosure Numbers Mean More Prey for Vulture Funds. “Banks amassing foreclosed properties need help moving them off their books. That’s where vulture funds assist, says Mark Goldman, a lecturer at San Diego State University and residential mortgage broker with San Diego-based Windsor Capital Mortgage Corp. “(They) have to get that liquidity, which has been a problem in this market. So, many lenders are doing fire sales on their portfolios of mortgages,” said Goldman, whose firm is not considered a vulture fund but has funded more than $20 billion in loans... Hedge funds buying up “distressed credit” such as default mortgages attracted $8B in Q1’08, according to Hedge Fund Research Inc.” (San Diego Business Journal, May 19th)

ARMs Are Most Affected By Mortgage Crisis. “Borrowers with adjustable rate mortgages right now are most susceptible. Further, most difficulties are among the fraction of borrowers with "subprime" mortgages. These are loans that carry significant risks that they will not be repaid. About 6 million of 45.4 million mortgages were rated subprime late in 2007. Not all geographic areas are greatly affected. The Mortgage Bankers Association reported that California, Florida, Nevada and Arizona held more than one-third of the country's subprime adjustable rate loans in Q2’07.” (Post Bulletin, May 19th)

TowerGroup Report: Asset Managers Will Feel Subprime Pinch. “Research and advisory firm TowerGroup: Asset managers will eventually lose money because of the subprime crisis… The impending fallout will occur when investors move their assets to less risky investment structures, a process that, in itself, will hurt asset managers in the form of lost fees… Investment managers will [also] have to confront: greater scrutiny from clients, consultants and the investing public relative to issues like performance, management of risk, counterparty exposure, etc.; possible new government regulation; pressure to better value nontraditional securities... like collateralized debt obligations and credit-default swaps; revised thinking about the use of and exposure to various types of derivatives.” (Default Servicing News, May 19th)

Mortgage Lenders See Opportunity Beyond The Border. “A few [lenders] are spending more efforts to finance Americans who choose to purchase primary residences and second homes south of the border. Lehman Brothers Resort Home Lending will [be] offering mortgage packages this year in Mexico, Costa Rica, the Bahamas, the Dominican Republic, Panama, Canada and the United Kingdom [and] plans to enter markets in Canada, the United Kingdom, Panama and the Dominican Republic in September… GMAC pulled out of Mexico late last summer when the U.S. mortgage market meltdown began to influence international partner companies. Lehman Brothers purchased some of GMAC's Mexico back-office operation late last year.” (Herald Net, May 18th)

Banks Finding It Tough To Shake Off Subprime Hangover. “Bonds of banks and insurers have been crushed as their subprime losses increased still may not be cheap enough to buy. The conventional wisdom last year was that companies like Citigroup and Merrill Lynch, both under new leadership, would use Q4’07 as a so-called "kitchen sink" quarter, to report their worst write-downs and losses, and move on. That did not happen. Earnings results from banks, along with the bond insurers MBIA and AIG, show the situation is worsening and may stretch beyond Q2 or longer. As a result, investors are mostly avoiding their bonds and stocks for now.” (Int’l Herald Tribune, May 18th)

Fannie, Freddie Called Weak in Capital Base. “James Lockhart, director of the Office of Federal Housing Enterprise Oversight: Fannie Mae (FNM) and Freddie Mac (FRE) "could pose significant risk to taxpayers as well as to financial institutions and other investors.” Fannie and Freddie each have "core" capital equaling less than 2% of the mortgages they own or guarantee. Fannie's core capital as of March 31 was about $43 billion, and the company has since then raised about $6.5B more through sales of common and preferred shares, bringing the total to around $50B. Research firm Federal Financial Analytics: If Fannie were a bank, regulators would require it to hold $135B of capital to be considered "well-capitalized.” (Wall St. Journal, May 17th)

Fannie Mae Announces Single National Down Payment Policy; Replaces Policy Regarding Markets Where Home Prices Are Declining. “Fannie Mae today announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97% loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 95% loan-to-value ratios for loans underwritten outside of DU, in all geographic locations in the U.S.. The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining.” (Big Builder Online, May 16th)

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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