Housing Market Tracker - Subprime Review

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Includes: JPM, MTG, PMIR, RDN
by: Judy Weil

Here's our summary of articles and data points on the subprime crisis and the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can have this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Quote of the Day

"The full effect of the U.S. subprime crisis is finally washing on the shores of Continental Europe." - Analyst Catherine Stagg-Macey commented on Swiss Re's unexpected nearly $1 billion in losses over insurance of one clients mortgage securities portfolio losses. (Housing Bubble Blog, Nov. 19th)

Subprime Fallout

  • Freddie Tanks on Earnings Miss, Possible Q4 Dividend Cut (Steven Towns in Seeking Alpha, Nov. 20th): "Freddie Mac reported a more than doubling of Q3 losses to $2.03 billion ($3.29/share) and warned it may cut its dividend by 50%. Analysts were expecting a loss of $0.22/share, on average. Freddie cited a higher provision for credit losses ($1.2B) and losses on mark-to-market items ($3.6B). The company reported a Q3 loss of $715M ($1.17/share) last year... Freddie said the fair value of net assets attributable to common stockholders fell by around $8.1B in Q3, vs. a $300M increase last year... Freddie said it has "engaged Goldman Sachs and Lehman Brothers... to help it consider very near term capital raising alternatives."

  • Big Banks Give Thanks (NJ Report, Nov. 19th): "The financial debacle is helping the mortgage-lending division of JPMorgan Chase & Co. and other large bank lenders gain market share. Chase Home Lending increased third-quarter originations by 35% to $39.2 billion, compared with the year-earlier period. Tom Kelly, a senior vice president at Chase, cites the subprime meltdown, which has caused the demise of more than 100 mortgage companies, for this year’s growth spurt... Trade publication Inside Mortgage Finance: Chase’s U.S. market share of residential mortgages and home-equity loans climbed to 9% from 5.7% over the past year, the largest increase of any of the top 10 lenders."

  • ABX and CMBX Indices: Starting Down Again? (Calculated Risk, Nov. 19th): "This chart is the ABX-HE-AAA- 07-2. I know some people that took profits on the ABX last week... They are still short the ABX (and CMBX), and expect further declines. Meanwhile the CMBX indices are setting new records. Note: Up is down for the CMBX indices. The CMBX is quoted as spreads, whereas ABX is quoted as bond prices. When the spreads increase - chart going up - the bond prices are going down. The second graph is the CMBX-NA-BB-3 close today. The ABX indices collapsed in February, and then again in July. This is the third collapse this year."

  • Coleman: Speed Up Help On Housing (Minnesota Star Tribune, Nov. 19th): "Minnesota Mortgage Association President Tim Bendel said his industry has taken a hit. Brokerage license applications came up for regular review at the end of last month, Bendel said, and early indications are the number of licenses dropped from 4,000 to about 1,400."

  • Marshall & Ilsley Reveals $282M Exposure to Troubled Lender (Eli Hoffmann in Seeking Alpha, Nov. 19th): "Marshall & Ilsley (NYSE:MI) bank said Monday it has a $282 million exposure to troubled residential mortgage lender Franklin Credit Management Corp. (NASDAQ:FCMC). Last week Franklin announced it would delay its Q3 earnings report until after it reviewed and assessed the reserves for its portfolio of acquired loans, especially second-lien mortgages, due to the rapidly deteriorating real estate and mortgage origination credit market and resulting industry-wide increase in delinquencies involving mortgages originated in the years 2005 and 2006. MI said it did not expect any potential losses on the mortgages to be material to the $8B company's financial results."

  • Subprime Loss Is Swiss Re's... Loss (Forbes, Nov. 19th): "Reinsurance giant Swiss Re announced Monday that in the month of October a single client it had been insuring had seen its investment portfolio drop in value, and Swiss Re would have to pick up the $878 million bill... The fall in the value of the portfolio came about because of "unprecedented and severe ratings downgrades undertaken by the rating agencies in October," Swiss Re said. The reinsurer was liable because its Credit Solutions unit had written two credit default swaps for the unnamed client in 2006 and 2007 on its investments, which included mortgage-backed securities."

  • ULI Author Says Housing Will Recover, But Tighter Controls Are Needed (Builder Online, Nov. 19th): "Urban Land Institute author Anthony Downs: While subprime foreclosures may exceed 20% in 2008, what's generally not reported in the consumer press is that more than 75% of subprime homeowners are not defaulting and are enjoying homeownership... Downs expects the housing and mortgage markets to recover, because the sheer number of lenders needing to write deals to make money will slowly bring the market back. "There's a huge amount of capital competing to go someplace," he said. Downs said the era of cheap money can continue, but it has to be coupled with lenders exercising stricter underwriting standards."

  • 'Piggyback' Downpayment Loans Are Drying Up (The Morning Call, Nov. 18th): "The common practice of homebuyers with shaky credit taking out second mortgages for downpayments is ending because there's no investor demand for securities backed by such loans. Inside Mortgage Finance found 83% of lenders and brokers said there was no market in September for second mortgages... Typically, homebuyers who couldn't come up with 20% of the purchase price for a cash downpayment were required to buy mortgage insurance from companies like PMI Group Inc., Radian Group Inc. and MGIC Investment Corp. to protect lenders from default... Many lenders and investors discovered that if a borrower defaults, the holder of the second mortgage typically gets nothing, even after a foreclosure sale."

Tracking the Housing Market and Homebuilder Stocks

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