Quote of the Day
"Increasing Fannie's limit is like going on a spending spree with your credit cards because you know you are going to file for bankruptcy in a few months." – Op-Ed piece, San Francisco Chronicle.
Credit Cards Are Playing Harder to Get. "Big card issuers such as Citigroup Inc. are requiring higher credit scores before issuing new cards, particularly in states that have been hit hard by the housing downturn, including California, Arizona and Florida. Some lenders, including Bank of America Corp., are offering lower initial credit lines...Capital One Financial [is] limiting credit-line increases or reducing credit lines for existing customers if they see signs that they are suddenly applying for more credit or are having trouble paying down their balances. And many card issuers are raising late fees... to offset higher risk... Credit-card approval rates have dropped to 32% of applicants from 40% a year ago."
Banks Impose Severe Lending Standards. "A Federal Reserve survey found that homeowners with good credit scores seeking conventional 30-year loans are encountering stricter terms at 55% of banks, up from 40% last fall, while those seeking "nontraditional" mortgages, including interest-only and payment-option loans, are having to clear higher hurdles at 85% of banks. Only [seven] banks surveyed continue to offer subprime mortgages, and five of them have ratcheted up their standards. More than 32% of banks also are making it more difficult to get consumer-installment loans, while nearly 10% have increased restrictions on credit cards."
Home Equity Loan Defaults Soar. "Countrywide Financial Corp.'s (CFC) recent earnings release [stated] its $32.4 billion portfolio of prime HELOCs - home equity lines of credit - had begun to rapidly deteriorate. The lender was forced to take a $704 million-related charge. Moody's Investors Service: Once a certain threshold of losses is achieved in a HELOC securitization pool, the bond holder is paid off ahead of the lender... Known as rapid amortization, this risk is treated as a contingent liability for... HELOC lenders and is carried off balance sheet, until deterioration occurs... Countrywide is the nation's biggest home equity lender, with around 9% of the market."
Bond Guru Bill Gross on the Housing Crisis. "The housing decline is really a function of people not buying homes as well as people trying to get out. The old ARM is basically being shunned, so affordability rests on the 30-year mortgage. So what [Fed Chairman Ben] Bernanke is doing is helping, but the fact is, the 30-year mortgage hasn't come down like the fed funds rate. So the Fed has a problem. They can lower short-term rates, but they don't have any control over the 30-year mortgage. That's controlled by us, the Chinese, and anybody else that wants to buy them."
Moody's Considers Substituting Numbers for Ratings. "Moody's Investors Service is considering a new ratings system based on numbers for structured- finance securities that would abandon the letter grades created... a century ago. Moody's is reviewing [options] to improve ratings including a numerical scale and a designation of ``.sf'' to differentiate a structured finance ranking from a corporate credit grade. The ratings company is also [considering] designations indicating higher risk that a security may be downgraded by more than one level... Moody's Monday raised its loss assumptions to as much as 17.8% on 2006 subprime bonds packaged into collateralized debt obligations."
Rates Luring Homeowners To Refinance, But For Better Deals, Not To Tap Equity. "Brokers have seen interest in refinancing surge among city homeowners — especially those with good credit who can count on easy loan approval amid a newly strict environment. The rush started in late December, when the 30-year fixed rate fell below 6% for the first time in more than a year. The two interest rate cuts by the Fed in the past two weeks further fueled the surge."
Private Equity Firms Snub Monoline Rescue. "Financial Times: "Leading private equity firms... including Bain Capital, Carlyle Group, Kohlberg Kravis Roberts and TPG, have looked at investing in [bond insurers MBIA and Ambac,] which guarantee the value of everything from municipal bonds to the most complicated mortgage securities. These investors have all concluded that the risks are far too great... increasing the pressure on banks to come up with a rescue package for the monolines... Warburg Pincus committed $1bn to MBIA in early December [and has since] seen MBIA’s share go into freefall... Blackstone (NYSE:BX) has so far declined to add to a minority stake in FGIC."
Freddie Looks to Grow in Apartment Financing. "Freddie Mac, looking to expand its role in financing apartment buildings, is working on a proposal that would allow it to create and sell bonds backed by multifamily mortgages. The move, if approved by Freddie's management and regulators, would allow the government-sponsored provider of home funding to be more competitive with Wall Street. Freddie Mac, together with its bigger rival Fannie Mae, has grabbed a much bigger share of the market for financing home mortgages as other investors have retreated in the face of rising defaults. Now they are also gaining market share in commercial mortgages for apartment buildings."
Pinnacle Financial Corp. (Impac) Retail is Gone. "With the announcement of their Q3'07 results on 2007-12-21, lender Impac said "the Company has closed substantially all of its mortgage operations, with the exception of a small retail platform." That, too, is now gone. Pinnacle Financial Corporation, the last remaining vestige of Impac's retail operations, closed its doors as of 2008-01-31."
Banks Reduce Bonuses Only Slightly. "The grim toll that the U.S. mortgage crisis has taken on financial markets has been felt worldwide, from traders in Hong Kong to small-town mayors in Europe... But largely spared have been financiers on Wall Street... New York state comptroller’s office: Wall Street bonuses totaled $33.2 billion in 2007, down just 2%. Equilar, an executive-compensation research firm: Seven of Wall Street’s biggest firms boosted their total compensation and benefits to a combined $122B, up 10% since 2006, despite seeing their net revenue collectively fall 6%. Mortgage-related losses reported by the seven firms totaled $55B and wiped out more than $200B in shareholder value."
Stimulus Plan A Scam To Benefit The Rich. "Now, thanks to Congress, junk bond investors will be able to pawn off their bad debt to Fannie and Freddie, instead of suing the big investment houses for ripping them off. This shift will certainly doom (FNM) and (FRE)... We taxpayers [may] have to bail [them] out [for] more than $1 trillion... If Goldman Sachs [is accurate] that home prices in California are going to drop 35%-40%, the state's losses alone would top $2T, because California has a disproportionate number of jumbo loans. Ironically, the collapse in housing prices could make Fannie insolvent even without raising the loan limit."
Bush Subprime Plan Undermined, States Shun Borrowers. "President George W. Bush's proposal to help 1 million subprime borrowers avoid foreclosure with tax- exempt bonds has a [problem] The state housing agencies that are already offering mortgage refinancing options are turning away so many applicants that they've had no need to raise funds. Since New York said it would commit $100 million in July, three of the 500 loans envisioned have been made. Massachusetts extended four loans under a $250 million program started in August, and Ohio made just 36 of the thousands anticipated...MGIC mortgage insurer: More than 50% of subprime borrowers are being rejected by state programs."
Moody's Reviewing Mortgage Insurers. "Credit rating agency Moody's Investors Service [has] placed the ratings of mortgage insurance subsidiaries of the PMI Group Inc. (PMI) and Triad Guaranty Insurance Corp. (OTC:TGIC) on review for a possible downgrade. The rating on both Genworth Financial Inc. (NYSE:GNW) and Republic Mortgage Insurance Co. were both affirmed, but their outlooks were changed to negative. Insurance subsidiaries at MGIC Investment Corp. (NYSE:MBI) and Radian Group Inc. (NYSE:RDN) remain on review for a possible downgrade. The rating of United Guaranty Corp., a subsidiary of American International Group Inc. (NYSE:AIG), was affirmed with a stable outlook."
Defaults on Insured Mortgages Rise 37%, Report Shows. "Mortgage Insurance Companies of America: Defaults on privately insured U.S. mortgages rose 37% in December from December 2006... The number of insured borrowers falling more than 60 days late on payments jumped to a record 64,384 last month from 46,921 in December 2006. Defaults increased 5.5% from November, the prior high... Banks have reported $146 billion in asset writedowns and credit losses on U.S. mortgage securities... since the beginning of 2007. MGIC Investment Corp., the largest U.S. mortgage insurer, said fourth-quarter claims rose sevenfold to $1.3B."
Fannie Mae CEO Pay Cut 15 Pct to $12.2 Mln in 2007. "As the No. 1 mortgage finance company struggled with soaring credit expenses, Fannie Mae CEO Daniel Mudd received $12.2 million in total compensation last year, down 15% from 2006... Mudd's pay included his $990,000 salary, a $2.23M bonus and a $9M "long-term incentive" award, the company said. In 2006, Mudd received a $3.5M bonus and a long-term incentive award of about $10M... Total pay for 2006 was $14.45M... Shares of Fannie Mae lost a third of their value in 2007, and continued to decline in January."
Merrill Executives Received No Bonuses for 2007. "Merrill Lynch & Co Inc (MER) said on Wednesday top executives did not receive bonuses for 2007 after the world's largest brokerage posted $12.1 billion in net losses during H2'07. Merrill's compensation committee made the decision on Monday, according to a U.S. SEC filing. The committee also determined, however, that three senior executives will receive large awards of stock options to keep them at the company... Merrill President Greg Fleming will receive 1.19 million retention stock options. Robert McCann, president of global wealth management, and General Counsel Rosemary Berkery, will receive 971,346 and 593,600 retention stock options, respectively."
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