And If Subprime Ends Up Not So Bad? [Housing Tracker]

Includes: BAC, BRK.A, CFC, DRL, LEH, WBS
by: Judy Weil

Subprime Fallout

Countrywide's Pressures Mount. “Three states [have] filed separate legal actions against Countrywide Financial Corp. (CFC). The actions, by the attorneys general of California and Illinois, and the Washington State Department of Financial Institutions, came on the same day that Countrywide shareholders voted to approve the sale of the company to Bank of America Corp. (NYSE:BAC). The all-stock transaction was valued at $4 billion when BofA agreed to buy Countrywide in January. But BofA shares have since slipped, and the value has fallen to about $2.8 billion. The transaction is scheduled to close on July 1.”  (Wall St. Journal, June 26th)

May Subprime Data Likely to Show Continued Improvement.  “We’ve argued  for months that the leading indicators of changes in subprime mortgage credit quality are showing signs of improvement… If said improvement continues, many estimates of cumulative subprime losses… will prove to be much too high… Loan servicer reports for April and May both showed improvement… a sign that something more than just seasonality is going on… A credit surveillance company that regularly monitors a huge portion—like, 40%—of outstanding subprime mortgage loans that have been securitized: Clayton Holdings Inc  data shows that the early-year improvement has continued well past the point it can be chalked up just to seasonality.”  (Tom Brown in Seeking Alpha, June 25th)

Buffett Sees Opportunities In Subprime Business.  “Warren Buffett, CEO of Berkshire Hathaway (NYSE:BRK.A), sees some opportunities for investing in the subprime mortgage business. Buffett said Berkshire Hathaway had already made some subprime investments through its Clayton Homes manufactured housing unit. “We have bought some subprime paper in the open market, as people have wanted to sell portfolios.” Other investments are possible, he said. Buffett started up a municipal bond insurer earlier this year. He said that unit might indirectly invest in some distressed areas, including subprime. "Some of that may be a factor in what we are doing in bond insurance.”  (Reuters UK, June 25th)

Home Buying Heats Up South Of The Border.  “Lehman Brothers Resort Home Lending (LEH) [is] offering U.S. consumers mortgage packages this year in Mexico and Costa Rica, beginning July 1. The company plans to offer borrowers in Canada and the UK similar loan programs in Mexico and Costa Rica by the end of the year. The programs, featuring one-, three-, five- and 10-year adjustable-rate mortgages amortized over 30 years, also will be available in the next year to U.S. borrowers who wish purchase in the Bahamas. The company also is targeting the second-home market in Canada, the United Kingdom, Panama and the Dominican Republic.”  (Inman News, June 25th)

Illinois to Sue Countrywide.  “The Illinois attorney general is suing Countrywide Financial, the troubled mortgage lender, and Angelo R. Mozilo, its chief executive, contending that the company and its executives defrauded borrowers in the state by selling them costly and defective loans that quickly went into foreclosure.”  (NY Times, June 25th)

Who Is On The Market Police’s Radar?  “The FBI’s probe of the subprime mortgage industry could uncover fraud involving Wall Street investment banks, private equity firms or hedge funds, the head of the bureau said… So far… only one company [was] caught in the dragnet, Doral Financial Corp. (NYSE:DRL) Its former treasurer was recently indicted for investment fraud… A senior law enforcement official told me that hedge funds now sit at the top of the hit list of federal investigations into the subprime crisis, including at the Department of Justice and the Federal Bureau of Investigation. Expect more announcements of hedge fund indictments in coming days, sources say.”  (EMAC Blogs in Fox Business, June 24th)

8 Reasons You Should Not Expect an Inheritance.  National Reverse Mortgage Lenders Association: Borrowers have taken out roughly 450,000 [reverse mortgages] since 1990. But the pace is picking up. Lenders, including mainstream operations like Bank of America and Wells Fargo, wrote more than 100,000 of them for the first time in the year ended Sept. 30, 2007. Meanwhile, the association says, retirees are increasingly using mortgages as a financial tool — and not simply as a last resort to pay for health care emergencies and the like… Growth [in reverse mortgages] certainly raises the likelihood that large portions of family homesteads in America will end up belonging to banks, not heirs.”  (NY Times, June 21st)

Worst May Be Over After Webster Cuts 240 Jobs.  Webster Financial Corp. (NYSE:WBS) said Tuesday that it will cut 240 positions over the next year… The bank has been dogged for months by losses from home loans made outside of New England. The parent [corporation] of Webster Bank said the job cuts and business efficiencies are expected to save $40 million. New business initiatives should add $10M in revenues within the next two years. Webster stock has lost more than 50% of its value in the past year as the extent of rising defaults on home equity and other residential loans made outside of New England were revealed in H2’07.”  (Hartford Courant, June 25th)


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