SEC Upbraids and Downgrades Ratings Agencies [Housing Tracker]

Quote of the Day 

“No one wants to be number 266.” - Jim Reichbach, a Vice Chairman and leader of Deloitte’s banking and securities team, speaking at a recent Mortgage Bankers Association conference. Reichbach was referring to the popular “Implode-o-Meter” website that tracks lenders that are struggling or have closed in the housing slump. Implode-o-Meter’s list of companies that have gone belly up stood at 265 as of Monday. (NY Times, July 8^th)

“It could be structured by cows and we would rate it.” – A quote from a rating agency analyst that features in a report by the SEC on the failures of ratings agencies to maintain their ratings standards. The same analyst noted that she had only been able to measure “half” of a deal’s risk before providing a rating. (NY Times, July 9^th)  

Subprime Fallout 

Study Finds Flawed Practices at Ratings Firms. “SEC report: Major ratings firms, including Fitch, Moody’s and S&P, flouted conflict of interest guidelines and considered their own profits when rating securities, among other suspect practices. The report represented a definitive dent in the aura of objectivity that has been cultivated for decades by ratings firms… Investors, public and private alike, often gamble billions of dollars on securities the agencies deem reliable… The S.E.C. found that the agencies had become overwhelmed by an increase in the volume and sophistication of the securities they were asked to review. Analysts, faced with less time to perform due diligence… began to cut corners.”  (NY Times, July 9^th) 

Mortgage Lender Faces Rush to Withdraw.  “On Tuesday, IndyMac (IMB), one of the nation’s largest independent mortgage lenders, faced what amounted to a run on the bank. As depositors rushed to withdraw money, IndyMac’s share price, already in a free fall, spiraled even lower, to $0.44. In two years, more than $3 billion of shareholder value has been wiped out… On Tuesday, it sold most of its retail mortgage branches to Prospect Mortgage of Northbrook, Ill. The price was not disclosed. Now, the only parts of IndyMac that are still functioning are its reverse mortgage business and payment collection operations.”  (NY Times, July 9^th) 

Start-Up Banks: 'Hog-Wild' to Humble.  “Bradenton's latest crop of start-up banks has been hammered [in the housing bust].. At First Priority Bank, which opened in 2003, nonperforming assets have swelled to 16% of total assets, according to analysts. Coast Financial Holdings Inc., staggered by bad loans to out-of-state investors who hoped to flip homes, nearly failed before being sold to First Banks Inc. of St. Louis last year… More than 630 banks were launched from 2003-2007, according to SNL Financial LC, a Charlottesville, Va., research firm, raising more than $8.9 billion in capital.”  (Wall St. Journal, July 8^th) 

Fannie and Freddie: Let’s Call The Whole Thing Off.  “I fully expect… that FNM and FRE shares will end up virtually worthless in the coming few months… Given that these entities, with a current combined equity market value of about $25 billion, are supporting a book of mortgages of about $1.5 trillion and over $4T of guarantees… it follows that they will have to raise substantial amounts of equity to rebuild their capital bases, perhaps as much as $50B each... Who would be willing and able to invest such large amounts at this stage?... The answer is no one - except the US tax payer… The government should just look at an outright nationalization.”   (Charlie Bottle in Seeking Alpha, July 8^th)

 

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

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