Quotes of the Day
“This is the fourth attempt to revive the market and boost investor sentiment this year. Each time the stock market embarked on a rally averaging 6 weeks and seeing the S&P 500 advance 8% before sputtering and heading back to new lows.” - Merrill Lynch & Co. economist David Rosenberg. (Housing Wire, Sept. 8)
“Some may worry that Treasury has taken on so much taxpayer burden they don’t have any remaining capacity more to take on the burdens of Lehman.” - Fox-Pitt Kelton analyst David Trone, on the prevailing market sentiment that Lehman, whose stock price more than halved since Tuesday, would not likely be bailed out by the government as Bear Stearns was. (NY Times, Sept. 9)
Subprime Fallout
Fed May Expand Funding Aid to Banks in a `Mother of Year-Ends'. “The Federal Reserve may have to increase the cash it provides to banks and brokers, already a record, to help them balance their books at the end of the year. Six bank failures in the past two months and rising concern about Lehman Brothers Holdings Inc.'s (LEH) capital levels pushed lenders' borrowing costs to near a four-month high yesterday. They may climb further as companies rush for cash to settle trades and buttress their balance sheets at year-end… One option is for banks and brokers to increase the loans they take out directly with the Fed.” (Bloomberg, Sept. 11)
Lehman Puts New Value on Subprime. “Lehman CFO says its alt-a mortgage assets marked down to $0.39 per $1 par. Lehman CFO says subprime mortgage assets marked down to $0.34 per $1 par vs $0.55 in Q2 [-39%]. Lehman CFO says asset backed CDOs marked down to $0.29 per $1 par vs $0.35 in Q2. What this means is that Lehman (LEH) has put a new, lower value on the assets everyone is worried about on its books… If stock and bond investors feel that this is a fair value, we may see some stability in the shares. [But] remember that last year, hedge-fund giant Citadel bought E*Trade’s collateralized debt obligation portfolio for 27 cents on the dollar.” (Fox Business, Sept. 10)
Federal Mortgage Success Stories. “Smaller Maes and Macs — have come through the credit crisis largely unscathed. Some... are even prospering. The Federal Agricultural Mortgage Corporation, or Farmer Mac… shares have soared 153% this year, and its profit is up… Farmer Mac buys mortgages on farmland from agricultural lenders and then sells instruments backed by those loans. The company is thriving because the price of crops — and farmland — has been rising. The Government National Mortgage Association, or Ginnie Mae… provides guarantees on mortgage-backed securities backed by federally insured or guaranteed loans. Earlier this year, Ginnie Mae’s sales of new government-guaranteed debt soared to the highest point since 2003, as the market for other mortgage-linked debt collapsed.” (NY Times, Sept. 9)
Federal Bailout Gives Hope To Those Facing Foreclosure. “With the government takeover of Fannie Mae and Freddie Mac, U.S. taxpayers now essentially own the bulk of the nation's mortgage market… Mark Zandi, chief economist of Moody's Economy.com: "Instead of nationalizing an industry like the S&L industry, we've effectively nationalized the mortgage market." (Denver Channel, Sept. 8)
Street Set to Fill Hole in Mortgage Market. “The federal takeover of two mortgage giants could eventually be a boon for Wall Street, by jump-starting a faster rebound in mortgage securities issues, and by gradually diminishing Wall Street's two largest competitors in the $6 trillion market for packaging and reselling mortgage-backed bonds… The two companies [must cut] mortgage assets on their books by 10% annually beginning in 2010. As the two agencies pull back from the market, that should open up an opportunity for Wall Street banks to securitize more home mortgages. Among the most-active players in this arena are Credit Suisse Group (CS), Deutsche Bank AG (DB) and Lehman Brothers Holdings Inc..” (WSJ, Sept. 8)
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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