Florida Shuns MBIA and Ambac Insurance, Lowering Costs - Housing Tracker

Quote of the Day

“Markets appear to be gaining confidence and the availability of credit has improved modestly.” - Clay Lowery, the Treasury's assistant secretary for international affairs. Lowery credited the Fed's interest-rate cuts and a government economic stimulus package in helping ease financial market turmoil and support for consumer spending.” (Bloomberg, May 26th)

Subprime Fallout

Florida’s Citizens Plans Up To $2B Sale. “Florida’s Citizens Property Insurance Corp. this week expects to hold a two-day pricing of $1.5B-$2 billion of fixed-rate, tax-exempt revenue bonds in what will be the state’s largest-ever issuance of such debt… Citizens’ CFO Sharon Binnun: Only $350 million of the par amount sold is expected to be insured by triple-A rated Financial Security Assurance Inc. and that is expected to reduce the cost of the financing. Citizens’ is reviewing bids from Ambac AssuranceCorp. (ABK) And MBIA Insurance Corp. (MBI)… The tax-exempt bonds will replace some of the $4.75B of taxable auction-rate securities the agency was forced to buy back during that market’s meltdown.” (Bond Buyer, May 27th)

SEC Probes Credit Rating Agencies. “Reuters: The US SEC is looking into the workings of the three main credit rating agencies, prompted by their handling of the subprime crisis and a report of computer errors at Moody’s. Erik Sirri, director of the SEC’s trading and markets division, said the regulator had written to Moody’s, S&P and Fitch asking for information on aspects of their methodology. SEC Chairman Christopher Cox earlier told Reuters that his regulatory body had started an inquiry into Moody’s, whose shares have plummeted over the last week on concerns it may have made ratings errors.” (FT Alphaville, May 27th)

FGIC Cdos Clobber Q1 Earnings. “FGIC Corp., the parent of bond insurer Financial Guaranty Insurance Co., said Friday it swung to a Q1 loss… due to a sharp rise in its loss reserves to cover its book of collateralized debt obligations. FGIC lost $33.4 million during Q1’08. It earned $68.5M during Q1’07… FGIC set aside $279.2M to cover losses on its CDOs written in 2005, 2006 and 2007. The company said the reserves do not necessarily reflect the actual losses that will occur, and any real losses would take place over a period of years. Net premiums written fell to $30.5M during Q1, from $84.9M during Q1’07.” (Crain’s NY, May 23rd)

Sy Jacobs' Picks for a Continuing Credit Crisis - Barron's. “Sy Jacobs, founder of JAM Asset Management, foresaw the housing slump and subprime macro fallout. He now tells Barron’s that investors erroneously assumed Bear Stearns was a market bottom. More pain is ahead for the economy and financials in particular. Increasing defaults in banks’ core business of construction loans will cause many to disappear. Survivors, however, will gain back lending market share that they lost to “the Countrywide Financials.” Wells Fargo (WFC) - despite top-rated management and shareholder Warren Buffett’s stardust. Home equity loans [HELOCs] are 16% of Wells’ portfolio. When mortgages default, those lenders may recoup something. HELOC lenders will not.” (Seeking Alpha, May 25th)

Aggressive Lending Targeted Minorities. Florida: “Subprime lenders targeted Manatee County blacks, Hispanics and minority neighborhoods during the housing boom with high-cost loans... Nearly half of all home loans taken out by Manatee blacks from 2004-2006 were subprime, while for whites it was one in five, according to data that lenders supplied under the federal Home Mortgage Disclosure Act. Hispanics also were more than twice as likely as non-Hispanics to get subprime loans… Committee for Responsible Lending: Those subprime figures mirror the nation, in which 52% of black loans, 41% of Hispanic loans and 22% of white, non-Hispanic loans were subprime.” (Trading Markets, May 25th)

Jumbo Conforming Rates Come Down To Earth. “Fannie Mae and Freddie Mac execs to the House Financial Services Committee: Jumbo conforming loans eligible for purchase by Fannie (FNM) and Freddie (FRE) are now available at nearly the same interest rate as conventional, conforming loans… But the credit crunch is keeping rates elevated on jumbo loans Fannie and Freddie can't buy, and the government-chartered companies could lose their ability to buy mortgages above the $417,000 conforming loan limit at the end of the year if Congress doesn't act.” (Inman News, May 23rd)

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Comments

[lindlou:]

Just one question--if I make a loan to someone who would not qualify for any type of traditional loan in the first place and has no intention of paying on it once it resets, and then I package this loan, label it AAA and pass it on to some other institution who really is being "unfairly targeted" here? Make that two questions, I guess---If I am this individual that gets a loan I really do not deserve and then I skip out on this loan once it resets, how can you call this a "high cost loan"? The loan was most likely very low cost while they were actually paying on it, in exchange for somewhere to live that was alot cheaper than rent by comparison. When it became high cost they walked away. The only people that I can see that are being "unfairly targeted" are the american taxpayers who will pay for this mess for many years to come!

2008 May 27 06:52 PM