Prime Mortgage Trouble Could Accelerate Bank Failures [Housing Tracker]

Quote Of The Day 

“Wall Street is the villain in the things that happened in the subprime lending crisis” – Republican presidential candidate Senator John McCain. (Bloomberg, July 27^th) 

Banking Subprime 

Housing Bill Relies on Banks To Take Loan Losses. "For struggling U.S. homeowners, the success or failure of the housing rescue bill -- which would let roughly 400,000 owners refinance into affordable, government-backed loans -- depends largely on bankers' willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe. Bankers say they will do it, but it isn't clear how many loans they might be willing to restructure. "I absolutely do believe that there will be more principal reductions," Michael Gross, Bank of America Corp.'s (BAC) managing director for loss mitigation, mortgage, home-equity and insurance services, told a congressional panel Friday." (Wall St. Journal, July 28^th)  

Mortgage Debt Least of Bad Bets as Investing Sinks.“The fastest inflation in 17 years and a fourth straight quarter of U.S. profit declines are turning debt sold by Fannie Mae and Freddie Mac into the favorites of the world's biggest bond investors. Pacific Investment Management Co., T. Rowe Price Group Inc., RiverSource Institutional Advisors and U.S. Bancorp's FAF Advisors, which oversee more than $1 trillion, say the government's decision to stand behind the beleaguered U.S. housing finance companies and their yields compared with Treasuries make the bonds a buy. The Senate approved legislation on July 26 allowing the U.S. to inject capital into Fannie and Freddie.”

Two More Banks Fail. “Federal regulators shut down two national banks Friday… The Federal Deposit Insurance Corp. successfully protected all depositors by selling the accounts to Mutual of Omaha Bank. The Office of the Comptroller of the Currency revoked the charters of First National Bank of Nevada, and First Heritage Bank of California… Both banks were units of Arizona-based First National Bank Holding Co. FNB-Nevada had $3.4 billion in assets and $3.0B of deposits… IndyMac had $32B of assets when it failed earlier this month… The OCC said FNB-Nevada "was undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices." (Wall St. Journal, July 26^th)

Housing Bill Would Help MGIC. “A provision of the housing bill working its way through Congress will be of particular benefit to Milwaukee’s MGIC Investment Corp. (MTG), the nation’s largest mortgage insurance company. MGIC has been hit hard by claims from properties foreclosed because their owners could not keep up payments. A provision of the bill… would encourage lenders to renegotiate loans rather than foreclose. Often, renegotiating a loan is cheaper for a lender than going through foreclosure, MGIC officials note. Renegotiation would be a good thing for MGIC because the company pays off only on a mortgage foreclosure, said Michael Zimmerman, SVP for investor relations.” (Journal Sentinel Online, July 25^th)

WaMu Executives: Subprime Defaults Improving, Other Loans Worse. "Subprime loan delinquencies are down slightly over the last six months, and we believe that this portfolio may be starting to burn out," said John McMurray, WaMu's CRO. WaMu's (WM) CEO Kerry Killinger, however, noted that early delinquencies among prime mortgages - or loans written to more creditworthy borrowers - "are still rising. McMurray: If banks are hoping for a quick rebound to the nation's housing market… it could be awhile. WaMu anticipates home values will finally hit bottom in 2010 before recovering, although the bank expects the rate of home-price decline to begin slowing in 2008.” (Dow Jones via CNN Money, July 22^nd)

SunTrust Banks Inc. Q2 2008 Earnings Call Transcript. “Mark Chancy, CFO: “About our exposure to Fannie Mae (FNM) and Freddie Mac (FRE)… We have no holdings of equity or preferred securities, and only roughly $10 million in senior debt. We do have approximately $10 billion of highly rated mortgage-backed securities issued by Fannie and Freddie which are primarily classified as available for sale… The one item we have included in credit cost this quarter warrants some additional discussion. The recorded $25M expense increased the insurance reserve of our mortgage reinsurance subsidiary, Twin Rivers. Our current expectation is that mortgage defaults will continue at current or perhaps higher levels, and additional reserve increases will be required in the future… Our current view is that the probable range of reserve increases during H2’08 is $25M-$50M quarterly; however, we believe our total exposure over time is less than $200M and the ultimate amount, and timing of recognition is uncertain.” (Seeking Alpha, July 22^nd) 

 

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Comments

[User 233442:]

Why doesn't the media report that the major cause for the subprime foreclosures was his friend and financial adviser Phil Gramm. McCain and all of Congress knew Gramm took money from Enron.

2008 Jul 28 02:05 AM

[ArnoldCountry:]

To this comment I say: "I absolutely do believe that there will be more principal reductions," Michael Gross, Bank of America

B.S. They will do it here and there so they can so they did it but truth is, they cannot afford the losses. If 50% of the loans made since 2005 have lost 20% of their value (more than that is likely) and then they right that off in a refiance, these guys will collapse. More important, unless they are a portfolio lender, the secondary market with its complex traunches used for the securities will never buy into that kind of loss in which some investors will be 100% under water by the thought. More important, people forget the disparate impact of helping a few by writing down their loan balances and then the rest who were not so fortunate. The lawsuits are coming over these kinds of issues.

2008 Jul 28 10:22 AM

[John Pseudonym:]

If you want to understand the root cause of this mess, investigate the repeal of the Glass Act which was written by Phil Gramm and eagerly signed by Bill Clinton.

Then you will see how this all got started and how the Bush administration took the corruption of the Clinton administration into the stratosphere.

2008 Jul 28 10:25 AM

[Jay Z:]

The various state legislatures should consider enacting emergency legislation titled "The Housing Relief Lottery Act". The idea is to allow the banks to put any or all of their foreclosed inventory of houses into a state run lottery. The lottery act would only be in force for a specific time period. The state lottery would sell tickets online for each listed property, plus an additional fee for costs and a reasonable profit. The profit would be remitted to the state treasury to assist with the current budgets.

The state lottery web site would contain pictures and all vital information concerning each property including a current assessment. A limited number of tickets would be raffled off in denominations of $1 to $10 depending on the size of the lottery. As an example, if the outstanding mortgage balance plus fees and profit totals $150,000, then 150,000 tickets at $1 would be available before the house is raffled off. If it was $300,000, a 150,000 tickets at $2 each would be sold, and so forth. People from all over the country can participate.

The benefits to each of the state's, banking and building industry is numerous:
1. The banking system improves their capital position and available funds for new loans.
2. No new mortgage debt is created.
3. People who don't have the necessary down payment or qualifications to own a home may win.
4. The building industry benefits by having a smaller inventory of available homes for sale.

If successful, this can prove to be a model to be used throughout the country and in other countries as well to relieve the burdensome overhang of foreclosed homes.

2008 Jul 28 01:42 PM

[mkttrdr:]

Our inner city homes and stock markets will get much worse. As a real estate shortsalexpert, I can tell you WAMU is going to fail or get bought out. WE/I deal with these idiots daily-they don't have a clue on how to get a bad foreclosing loan off the books-accept the short sale offers! Bail out your money now or lose out. Get ready to buy in as Merrill Lynch's failure or bankrupcy should call a bottom to both the Real estate and stock markets in America. This will be late 2009. Enjoy the bounces, and be a trader.

2008 Jul 28 06:18 PM

[Kunst:]

“Wall Street is the villain in the things that happened in the subprime lending crisis” – Republican presidential candidate Senator John McCain. (Bloomberg, July 27th)

Now isn't that interesting. I thought we had a financial regulatory system in this country that prevented excesses like liar loans and unlimited securitization/leverag... Oh, that's right, Republicans don't like regulation. The free market is always better. Like the wild west was better without sheriffs.

2008 Jul 28 11:56 PM

[nyka:]

Arnold Country..."so they can so they did it"???????Edit your copy before submitting it. Word omissions detract from the credibility of your message, spoken or written.

2008 Jul 30 06:04 PM