billddrummer

On Short-Sellers and Dishonest Executives

Excellent article, and it points to a comment I posted some time back about CC: If you had gone short in November 2007, you'd have made a bundle. The company was trading at $11/share then, and it's now at about $2.10.

What Conference Calls Tell Us About Mortgage Trends [Housing Tracker]

Hi Judy,

Excellent reporting, thank you.

The quote of the day is telling, and speaks to the new paradigm in mortgage lending: Good credit, down payment, reserves and ability to pay have superceded the quest to 'stretch the envelope' and make deals work regardless of the outcome.

The CDO market for conforming mortgages will eventually come back to the volumes we saw in 2006. The main difference now is that new originations have much better underwriting standards than old ones, which will help both firm up the secondary market (because it will be easier to validate repayment streams) and reduce defaults (because of the more thorough underwriting process).

This is a welcome change to the industry. And just because there will be people shut out of home ownership isn't a bad thing. As we've all seen, the folks who couldn't afford homes are now losing them.

An Involuntary Transaction: Why BAC + CFC May Never Close

Interesting and compelling analysis.

BAC made their bid just when CFC was being denied access to its warehouse lines for loan fundings. In a sense, the impending wholesale cancellation of funding vehicles thrust the two together in a shotgun marriage--not unlike JPMorgan and BearStearns. With the memories of that weekend receding into the distance, and the very real possiblity that counterparty risk with CFC could run into many hundreds of millions of dollars (CFC issued MBSs on newly funded mortgages, and was a net seller of them in the secondary market, one reason their profits were so high in 2002-2005), that the prospect of further litigation costs without the bank division as a backstop would drive the net value below $0.

The only piece of the company with any post-breakup value seems to be the servicing division, but it's been burdened with additional costs arising from beefing up the loss mitigation units in a futile attempt to 'help distressed homeowners.' So the go-forward value of that division has been impaired as well.

An interesting series of events. It will be fun to see who is left standing, and who's left holding the worthless assets.

FHA: Who Says The Subprime Party's Over? - Housing Tracker

The difference in payment between a 30 and 40 year mortgage is miniscule. On a $200,000 5.75% mortgage the payment savings is $101/month. As rates go up, the savings go down, because the interest cost becomes a larger percentage of the total payment. It's the equivalent of a Starbucks latte per day.

12 Observations on Residential Housing

Bio,

I saw the same chart, and it reminded me of an expression that Milton Friedman said: "All aberrations revert to the mean." That's not a direct quote, but a paraphrase. In short, the aberrant runup in housing prices over the past 4 years is now reverting to the mean: A stable growth rate about 1% higher than inflation. Since inflation was averaging less than 2% annually over the past 4 years, but housing prices were rising at 10-40%, depending on where you measured it, to correct to the mean would call for housing prices to fall anywhere from 4%-35%, also depending on where you measure it.

That's happening right now nationwide.

As prices revert to their mean, further dislocations in the housing markets should be expected. But once this takes place, the next step is working off the excess inventory piled up while more houses were getting built than could be purchased.

Look for housing's 'recovery' in 2012.