Subprime Is Worse Than A Hurricane [Housing Tracker]

Link of the Day

An entertaining article in the Washington Post about how subprime has spawned a new lexicon. (Washington Post, May 30th)

Subprime Fallout

A Thing of Beauty. “Ever since the credit crisis began last summer, inquiries about art-backed loans have risen four- or five-fold, says Andy Augenblick, who founded Emigrant Bank Art Finance (formerly known as Fine Art Capital) in 2005... As banks have tightened their lending standards and stopped automatically renewing clients' unsecured lines of credit, "more people whose wealth is derived from financial industries are borrowing funds," says Augenblick. Among them are high-net-worth investors seeking to backstop a margin account, or pay taxes with funds other than their devalued auction-rate bonds… Augenblick’s business has doubled each year since inception.” (Barron’s, June 2nd)

Wachovia Ousts Thompson on Writedowns, Share Plunge. Wachovia Corp. (WB) ousted Kennedy Thompson as CEO of the fourth-largest U.S. bank after the board blamed him for losses that cost the lender more than half its market value in the past year. The stock fell as much as 4.5%. Chairman Lanty Smith was appointed interim CEO, Wachovia cited “a series of previously disclosed disappointments and setbacks” for the change… Ben Jenkins, vice chairman and president of Wachovia's largest subsidiary, its general banking unit, will become COO, reporting to Smith. No other senior Wachovia managers are leaving, the bank said.” (Bloomberg, June 2nd)

Washington Mutual’s Killinger Steps Down as Chairman. “Washington Mutual Inc. (WM), the biggest U.S. savings and loan, said CDO Kerry Killinger will step down as chairman after shares dropped 80% in the past year and the company reported $3 billion of losses during the past two quarters. Killinger will be replaced by Stephen Frank, an independent director who previously ran Southern California Edison, the Seattle-based lender said today. Washington Mutual shareholders voted in April to remove Killinger as chairman after the company cut its dividend twice and said it may lose as much as $19B through 2012 on home loans.” (Bloomberg, June 2nd)

GE Money In Stamford Expanding Its Borders. “The possible sale of General Electric’s (GE) credit card business, operated out of GE Money, which employs 165 people in Stamford, has led some industry observers to question whether the corporate giant is looking to remain in the financial services sector in the current economic slowdown… GE Money officials dispute that speculation. More than 70% of GE Money's business comes from overseas, while the U.S. economy has struggled… Last year, the division sold its Burbank, Calif.-based WMC Properties, marking GE Money's exit from the subprime mortgage market.” (Stamford Advocate, June 1st)

First Integrity Bank NA Of Staples, MN Fails, Fourth In 2008. “First Integrity Bank NA of Staples, MN., was closed by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation was named receiver. The closure marks the fourth U.S. bank failure of 2008. All deposit accounts have been transferred to First International Bank and Trust of Watford City, N.D. and depositors of First Integrity will automatically become depositors of the assuming bank. In addition, First International will purchase about $35.8 million of First Integrity's assets for a total premium of $2.03M, said the FDIC. The FDIC will retain about $18.9M in assets for disposition later.” (MarketWatch, May 30th)

Bonds Insuring Next Hurricane Hugo Beat Subprime. “The only good thing about hurricanes and earthquakes is the bonds that compensate for property losses caused by such disasters. As investors fled credit markets contaminated last year by unpaid subprime mortgages, demand increased for catastrophe bonds, whose yields can top 15% as long as disaster doesn't strike. The market tripled during the past three years to more than $13 billion, and bond buyers still want more as this year's hurricane season begins June 1… Swiss Re: Bonds insuring the next Hurricane Hugo, Witch wildfires or Kobe earthquake returned an average of 11% annually since the start of 2005.” (Bloomberg, May 30th)

DBRS Cuts $15.4 Bln Mostly Subprime RMBS. “Credit agency DBRS cut the ratings on $15.4 billion of residential mortgage-backed securities on Friday, citing the significant increase in serious delinquencies relative to available credit support for the securities. DBRS cut the ratings on 562 classes from 144 RMBS transactions that were backed by first-lien mortgages, while downgrading another 68 RMBS classes backed by second-lien collateral… DBRS said 90% of the downgrades were to first-lien subprime mortgages, while the balance of cuts comprised second-lien subprime loans and Alt-A mortgages. DBRS said its cuts to the 68 second-lien RMBS classes was also triggered by the rapid deterioration in credit enhancement amid increasing loan delinquencies and losses.” (Reuters, May 30th)

Subprime Finds New Victim as Muni Defaults Triple: Joe Mysak. “The amount of municipal bonds that have defaulted this year [$736 million] is already more than triple what it was for all of 2007… Distressed Debt Securities” newsletter: During all of 2007, only $226M in municipal bonds defaulted… The record year… was 1991, when almost $5 billion went bust… In the corporate-bond market, $36.6B blew up in 2006, and almost $24B in 2007… Of the 30 bond issues that have defaulted so far this year, more than half are from issuers in two of the states that [are suffering heavily] the housing bust: Ten in Florida and seven in California.” (Bloomberg commentary, May 30th)

Bad Omens for Banks? “KeyCorp, which holds $97 billion in assets, says the year's net loan charge-offs—a measure of how much bad debt the bank may have to write off—could almost double previous predictions for 2008. The bank expected charge-offs of 0.65% to 0.9% of total loans just three weeks ago, but now says they could be in the range of 1%-1.3%. The main culprit is the bank's portfolio of loans to residential homebuilders, KeyCorp said in a SEC filing. Losses have also increased on education loans and home-improvement loans.” (BusinessWeek, May 29th)

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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Comments

[REBEL:]

I just read where developers in Fort Wort are selling new homes at STARTING BIDS AT 60% DISCOUNTS from 'normal' prices. Maybe that will soothe the savage 'subprime beast', eh?

2008 Jun 03 03:46 PM

[IAS360 Hous...:]

IAS360 House Price Index Provides First Monthly View of Housing Price Trends Based on Neighborhood Level Data.

Integrated Asset Services (IAS), a leader in default management and residential collateral valuation, just launched its monthly-reported IAS360 House Price Index www.iasreo.com/ias360....

The new Index represents the industry’s first clear representation of U.S. housing market trends at a county level. IAS360 House Price Index is a comprehensive housing index tracking monthly change in the median sales price of detached single-family residences in more than 15,000 “neighborhoods” across the U.S. This data is then rolled up to report on the changes in 360 counties, nine census divisions, four regions, and the nation overall. The timeliness of the data, which is based on all arms-length transactions occurring in underlying neighborhoods, makes the IAS360 the leading indicator for housing price trends in the U.S. April Index: www.iasreo.com/ias3600...

2008 Jun 03 07:18 PM

[AFFIL:]

I loved the Washington Post article - perfect pick for "Link of the Day"

FYI for those interested in subprime news, Americans for Fairness in Lending hosts a "Lending in the News" RSS Feed. The feed is updated two to three times a week with local and national news stories related to subprime lending, other types of predatory lending, and legislative issues. It's a great place to complement your general market news with more information about the reform movement!

Check it out:
www.affil.org/media2/l...

2008 Jun 05 09:35 AM