Subprime Crescendo Rising Again For Financials [Housing Tracker]

Subprime Fallout

Rating Firms Seem Near Legal Deal on Reforms. “Sources: Three large credit rating firms are close to announcing a broad deal with New York Attorney General Andrew M. Cuomo to reform some of their core business practices, [like] changing how they charge fees for ratings to make it harder for investment banks to play the firms against one another to obtain a better rating… Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — would also aid Cuomo’s broader investigation into how Wall Street packaged mortgages into securities, in exchange for immunity from prosecution. And the rating agencies will establish new standards for how investment banks review mortgage loans.” (NY Times, June 4th)

Cleveland Law Firm Adds Subprime Task Force. “Cleveland, Ohio-based law firm Ulmer & Berne, LLP, which is known for representing publicly and privately-held companies and financial institutions, announced the formation of an internal Subprime Task Force this week. The new unit, which is made up of attorneys with expertise in subprime-related cases, regulations and transactions, will offer services related to banking and commercial litigation, financial services regulatory law, internal corporate investigations and complex litigation.” (Default Servicing News, June 3rd)

Mass. AG Sues H&R Block And Option One Subprime Lending Unit. “Massachusetts Attorney General Martha Coakley on Tuesday accused defunct subprime lender Option One Mortgage Corp. of using deceptive and discriminatory lending practices while under the ownership of H&R Block (HRB). The No. 1 U.S. tax preparer H&R Block and Option One [allegedly] used unfair and deceptive practices conduct to sell risky mortgages… H&R Block pulled the plug on Option One after a deal to sell the mortgage lender to Cerberus Capital Management LP fell apart in December. Coakley also alleges that HRB and Option One discriminated against black and Latino borrowers in Massachusetts by charging them higher fees than similarly situated white borrowers.” (Los Angeles Business, June 3rd)

After Mortgages, Construction Crisis May Be Building. “Research company Foresight Analytics: Another real-estate specter looms. Wachovia (WB) has been the country's second-largest maker of construction loans after Bank of America Corp. (BAC), with $23.9 billion of debt outstanding to developers of single-family homes, condominiums, office buildings, stores and other commercial projects at the end of Q1. At the end of Q1, delinquencies stood at 7.7%-- already above the industry average of 7.2%. Those bad loans are expected to mount. About $12B of Wachovia's construction loans are linked to residential projects, such as single-family-home and condo developments. Some funded the acquisition of land that has greatly declined in value.” (Wall St. Journal, June 3rd)

Lehman Denies Fed Window Borrowing. “The Fed worked mightily to get rid of the stigma attached to banks going to its discount window. But for its newly minted investment banking fund window, the stigma perseveres. Lehman Brothers's treasurer… denied speculation that it accessed the Fed's borrowing window, and this denial seems to have lifted the financial sector a bit. That’s stigma in action. Lehman says the last time it went to a Fed facility was April 16. It claims its cash on hand rose $40 billion in Q1.” (Dealbreaker.com, June 3rd)

Lehman May Raise $3-4 Billion Capital –WSJ. “WSJ: Lehman Brothers Holdings Inc (LEH) may raise $3-4 billion in fresh capital, suggesting the investment bank will post its first quarterly loss since going public. New capital may be raised by issuing common shares, diluting existing shareholders, and would probably be announced in conjunction with its quarterly results due the week of June 16. Lehman's market value is about $18.7B, based on Monday's closing stock price of $33.83, Reuters data shows.” (Forbes, June 3rd)

LI Homeowners Find Home Equity Lines Cut By Lenders. “Banks and other lenders, wary after the subprime collapse, have been suspending home equity lines of credit in part because communities have seen significant declines in home prices and homeowners’ debts have exceeded their homes’ property values. Suspending the credit lines also gives lenders more liquidity and frees up potential capital to be used on less risky borrowers… First American CoreLogic: The percentage of HELOCs with late payments of 60 days or more has grown from .31% in March 2004, when the housing market was hot, to 1.74% in March.” (Newsday, June 3rd)

Morgan Stanley, Merrill, Lehman Ratings Cut by S&P. “S&P: Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. declined in New York trading after Standard & Poor's lowered credit ratings for the investment banks, saying they may have to book more writedowns on devalued assets. Morgan Stanley, the second-biggest U.S. securities firm by market value, was cut one level to A+ from AA-.Merrill Lynch, the third-biggest, was also cut one level to A from A+, as was Lehman Brothers, the fourth-biggest. Goldman Sachs Group Inc., the largest of the group, was affirmed at AA-. The outlook on all four New York-based companies remains negative, S&P said.” (Bloomberg, June 2nd)

Fitch Flags More Alt-A Trouble. “Fitch Ratings has revised its rating methodology for the troubled U.S. Alt-A RMBS asset class, replacing its pipeline default analysis… to better align loss expectations with collateral risk and market conditions… Playing out much like subprime: Average 60+ day delinquencies on 2006 fixed-rate mortgage loans have reached 7.7% for Fitch-rated Alt-A deals (versus 10.2% for the market as a whole), while 60+ day late-pays on adjustable-rate mortgages (ARMs) for Fitch-rated transactions stand at 11.2% (compared to the whole market rate of 16.8%). Fitch: “The speed and level at which Alt-A delinquencies were rising relative to historical trends was the primary impetus for the criteria change.” (FT Alphaville, June 2nd)

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Comments

[nukldrager]

Let the construction company's "write down" some of their debt.

[theinvestingspeculator]

The markets have a lot of problems. One is housing, another is the credit crisis. High oil is killing consumers. George Soros thinks it is a bubble. I write about it @ theinvestingspeculator...