Housing Market Tracker - Subprime and Mortgage Review

by: Judy Weil

Here's our summary of articles and data points on 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

"Interesting presentation. God, I hope you're wrong." – A NY investment firm's chief risk officer said to J. Kyle Bass, a hedge fund manager from Dallas, in August 2006. Bass made a presentation to that CRO's investment firm, drawing a scenario that the housing market would crash Bass offered to set up a hedge fund betting against the housing market. (Seattle PI, Dec. 26th)

Subprime Fallout

  • Credit Crunch Amplifies Housing Downturn (Inman News, Dec. 27th): "Private mortgage insurers PMI Group Inc. (PMI) and MGIC Investment Corp. (NYSE:MTG) have raised or are raising rates for borrowers with lower credit scores and loan-to-value ratios above 95%. Both companies have discontinued mortgage insurance on loans with LTVs above 95% for borrowers with credit scores below 620... MGIC will no longer insure reduced-documentation loans for investment properties or cash-out refinances... Government-sponsored lenders Fannie Mae (FNM) and Freddie Mac (FRE) [announced] new surcharges on most [new] loans... for borrowers with credit scores below 680... Lenders must also be able to provide documentation supporting an assessment that the property is not located in a declining market."

  • Online Resources Survey Shows Credit Concerns Not Limited to Mortgages (Fox Business, Dec. 26th): "Online Resources Corporation (NASDAQ:ORCC), a leading provider of web-based financial services, today released the results of a survey of U.S. households and billers regarding the effect of the current mortgage crisis on bill payment and collection patterns... The survey of more than 1,000 nationally representative U.S. households finds that Americans are increasingly being forced to prioritize among their bills by creating a "delinquency budget" to determine which bills get paid. While the mortgage bill tends to be the one that households are most likely to pay, businesses across other industries are facing a decreasing share of that delinquency budget."

  • Miller Offers Best Way Out Of Mortgage Mess (News Record, Dec. 26th): "In November, the House of Representatives passed a bill to curtail predatory lending that Miller, as well as Reps. Mel Watt and Barney Frank, had sponsored. It would require lenders to provide documentation that applicants can afford the loans they get. It also prohibits prepayment penalties and bans paying bonuses to mortgage brokers for steering people to higher-interest loans when they qualify for ones at lower rates. The bill was modeled after North Carolina law, which is one reason why the subprime crisis hasn’t hit this state as hard as others."

  • Mortgage Woes Hurt H&R Block (News Leader, Dec. 26th): "H&R Block's (NYSE:HRB) plan to sell Option One to Cerberus Capital Management LP, announced in April, fell through by December... HRB said it would shutter most of Option One... The turmoil cost Chairman and CEO Mark Ernst his job... NovaStar Financial Inc. (NFI), also a subprime lender, watched its stock price drop from $105 in January to, at one point, less than $2. Continued losses forced the company to give up its REIT status, incurring large tax payments and leading the NYSE to move to delist NovaStar... Three of NovaStar's top executives will step down early next year: Chairman and CEO Scott Hartman, CFO Gregory Metz and General Counsel Jeff Ayers"

  • Making A Profit On The Crashing Market (Seattle PI, Dec. 26th): "J. Kyle Bass conceived a hedge fund that bet on a crash for residential real estate by trading subprime mortgage securities... Bass and investors like him saw opportunity in a range of new investment tools that banks created to sell subprime securities worldwide. These included mortgage bond derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed hedge funds such as Bass' to bet against particular pools of mortgages. The new subprime derivatives, which amplified the risks of the underlying mortgages, were sold to banks and institutional investors."

  • Indian Mortgage Glass Half-Empty In 2007 (Indian Country, Dec. 26th): "Government numbers released in August [show] the total dollar volume of loans made to Indians and the number of lenders willing to extend credit to Native people fell for 2006, with Indians in danger of being lapped by loans to the much smaller Native Hawaiian contingent... The subprime mortgage crisis shuttered several of the top lenders to Indians, cutting off credit access [although] some of these subprime lenders were accused of predatory lending practices toward Natives. The closure of GreenPoint Mortgage, also shuttered TribalPOINT, an active private-firm mortgage [program which] extended private mortgages to Indians under the HUD-184, Rural Housing Services programs [and] through private mortgages."

  • Weekly Guru Bargains Highlights: Ambac Financial Group Inc. (Guru Focus, Dec. 26th): "Analysts predict that Bond insurer Ambac Financial Group, Inc. (ABK) is currently undervalued... Legislation to freeze ARM mortgages [is] good news for bond insurers... Insider buys were made between $25.25-$41.85 as of November: Chairman, President and CEO, Director Robert J. Genader and Senior Managing Director Kathleen A. Mcdonough bought 10,000 shares each, Executive VP John W. Uhlein bought 7,500 shares, Director Thomas C. Theobald bought 4,000 shares, Director Michael A. Callen bought 3,000 shares, Senior Managing Director David W. Wallis bought 2,500 shares, Director Henry D. G. Wallace bought 2,250, and Senior Managing Director Thomas J. Gandolfo bought 1,000 shares."

  • Zacks Lowers MGIC Shares To 'Sell' (Milwaukee Journal Sentinel, Dec. 26th): "Zacks Equity Research: The rating on shares of MGIC Investment Corp. (MTG) has been lowered to "sell" from "hold". The mortgage insurance company... expects to post losses through the end of 2008... Q3's $372.5 million loss... "came in substantially below our expectations," Zacks analyst Eric Rothmann wrote... MGIC's "performance trends continue to be negatively impacted by issues within the residential mortgage markets, and expect higher delinquency rates and additional losses from foreclosed loans over the near-term... We are expecting expenses from losses incurred to be substantially elevated over the next year." The company has also cut its quarterly dividend by 90% to $0.02.5/share. Rothmann believes the dividend "remains vulnerable."

Mortgage Lenders

  • Wells Fargo Yields to AG Regs (Boston Herald, Dec. 27th): "Wells Fargo (NYSE:WFC) is refusing to reimburse mortgage brokers across Massachusetts... via a controversial payment system that’s been harshly criticized by Attorney General Martha Coakley. WFC, one of the top mortgage lenders in Massachusetts, told brokers...last week that... it will no longer do business with brokers who use a “yield spread premium” to pay themselves... Traditionally, those seeking mortgages are charged flat upfront point fees to process mortgages [which] many lower-income customers can’t afford... So many brokers... use “ysp” that allow those fees to be paid via higher interest rates spread out over the course of a mortgage loan."

  • Most U.S. Stocks Decline on Retail Sales, Home Price Concern (Bloomberg, Dec. 26th): "MBIA, the world's biggest bond insurer, gained $1.84, or 9.2%, to $21.96. Davis Selected Advisers LP, a money manager which also plans to take a $1.2 billion stake in Merrill Lynch & Co., said today in a filing with the SEC that it increased its stake in MBIA to 5.1%.Bear Stearns added $0.49 to $89.29. Billionaire investor Joseph Lewis said he raised his stake in Bear Stearns for the second time this month after the fifth-biggest U.S. securities firm's stock fell 11% in December. Lewis now holds 9.6% of the company, according to a regulatory filing Wednesday."

  • Spaces And Places: Home Builders' Solution For State's Housing Slump (San Jose Mercury News, Dec. 25th): "Joseph Perkins, head of the Northern California Home Builders Association... says he will work in 2008 to raise the so-called "conforming" loan limit from $417,000 to $600,000. That refers to loans eligible to be purchased by either Fannie Mae or Freddie Mac. Perkins: "Housing generates $273 billion in economic output in this state. Our governor has declared a fiscal emergency due to diminished tax receipts because of the housing downturn. It makes sense to jump-start housing again by creating some incentives." Building Industry Association: New-home construction in November sank almost 50% from 2006 to 3,200 houses, and more than 20% from October."

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