As far as I can tell, they seem to have done some subprime, but it wasn't anything like most of their business. I always had them plugged as an Alt/Jumbo lender. I suspect they're closer to MLN, which was not exclusively a subprime lender either.
I wonder how bad things are at the larger lenders like CountryWide. They will survive the mess and hence will be able to hide the damage for some time.
Well, I have no details yet on the LoanCity thing. I will just guess that outfits like CFC own a lot of loans originated by an outfit like LoanCity. So IF LoanCity went down on repurchases--and I don't know that, it just seems likely--then someone like CFC is trying to "hide the damage." Or at least shove it back to the originator. But once again, these originators just can't take it.
I just wanted to point out this little gem from Morningstar's Ptak over at Yahoo! Finance: Four New 5-Star Stocks
"Countrywide Financial
--Economic Moat: Narrow
--Business Risk: Average
--Price/Fair Value Ratio*: 0.76
--Consider Buying: $35.50 or Below
--Consider Selling: $57.60 or Above
Like other mortgage bankers, Countrywide (NYSE:CFC - News) books large gains by originating high volumes of mortgage loans and then quickly selling the loans in the secondary market for a profit. During the mortgage boom of the past several years, the firm has grown to be one of the largest mortgage originators and servicers--which involves billing, payment processing, and related services--of mortgages in the country, with respective market shares of about 15% and 12% through the first three quarters of 2006. Additionally, the firm's banking segment has grown from a negligible size in 2001 to one of the top 20 banks in the country, based on total assets. Morningstar analyst Ryan Batchelor thinks Countrywide has sustainable competitive advantages in its servicing and banking segments; thus, he's awarded the firm a narrow moat rating."
Turbo, it's worse than that--Fannie just called breach on their servicing contract.
There will have to be a substitute servicer to step up and take that book from NEW. NEW will have to have the operational capacity (people and money) to handle that transfer of servicing. Their other investors already pulled the servicing plug last week, so if they don't all pick the same nominee replacement servicer--and I doubt they will--it will become the mortgage industry equivalent of cluster**^% quite soon. A real-time experiment to determine how good those servicing contracts were, and how good that technology is, and therefore how safe that investor interest pass-through thingie is.
"Wells Fargo is not alone. Bank of America, (NYSE: BAC) Countrywide Financial, (NYSE: CFC) Washington Mutual (NYSE: WM) and Ameriquest Mortgage have all cut jobs in Arizona in response to the housing slowdown."
This reminds me of the dotcom days when I had my tech job site. Companies would post jobs right before they went bankrupt to give an image that they were doing great.
for the sake of historical context, could folks who upload the links also clip and paste a bit of the article (as so much as the copyright laws allow) so when we look back at this whole mess years from now, we have a clearer picture, instead of dead links?
The entire MBS industry has been cut off at the knees and in their best Pythonesque Black Knight imitation all they can say is "It's only a flesh wound!"
Not to worry. Just because "Wells Fargo, Bank of America, Countrywide Financial, Washington Mutual and Ameriquest Mortgage have all cut jobs in Arizona there's a new game in town. Moretech Financial http://mortgagemadness.info/ has opened a second office in Prescott, AZ.
Housing slowdown hitting local banks
Past-due construction loans are on the rise
Slumping home sales are showing the first signs of hurting Chicago-area banks, which are reporting an increase in bad construction loans.
Problem construction and land development loans by local lenders increased 58% at the end of 2006 to $169.4 million from $107.2 million at the same point in 2005, according to Federal Deposit Insurance Corp. data.
Loans in which borrowers are late on payments by at least three months averaged 1.6% of local banks' total construction loan portfolios at the end of 2006. That was up from 0.95% in 2005 and was at the highest level in six years, according to Virginia-based SNL Financial.
The primary culprit, bankers say, is the housing-market contraction, exacerbated by an increase in mortgage defaults and foreclosures.
"It's another manifestation of the housing recession we're in," says Paul Kasriel, chief economist at Northern Trust Corp.
Sales of new Chicago-area homes fell more than 30% in 2006 from the year before, according to Schaumburg-based real estate consultant Tracy Cross & Associates Inc.
Chicago's Cole Taylor Bank, which lends to homebuilders in the city and suburbs, has seen fallout. "If there are fewer homes being sold, it reduces the demand for your developed lots and undeveloped lots," says Robin VanCastle, chief accounting officer of Taylor Capital Group Inc., holding company for $3.4-billion-asset Cole Taylor. "That's the first impact."
LA Times article detailing more layoffs in sub-prime industry. Also has potential for a new economic indicator: number of MLB baseball stadiums changing their names. Ameriquest pulled its moniker from the Texas Rangers' park.
Excerpt: "The shakeout in the sub-prime lending industry continued Monday, with more people losing their jobs and a prominent lender losing its name on a baseball stadium.
Fremont General Corp. of Santa Monica said it had told "significant numbers" of its 2,400 home-loan employees to expect pink slips in two months. Company officials declined to say how many employees would be dismissed."
arbo, do you figure that the rates will not come down because the relationship between the FF rate and mortgages was recently demonstrated to be unreliable and, with today's announcement from China that it will no longer add to its US foreign reserves, possibly even prove to be more unreliable in a few quarters?
Tis "hold" until there is blood in the streets that the MSM cannot ignore...atleast another quarter?
I thought that announcement from China was the biggest recent news. Not really much attention. My understanding was "the conundrum" ("relationship between the FF rate and mortgages was recently demonstrated to be unreliable" ) was caused by China's among other's large investments/interventions. The cessation of these actions say to me that rates are going up no matter what the FED does. That seems like a BIG BIG deal. I am not an expert on these issues. Am I wrong about this?
Consumer comfort index plunges, ABC/Post says
WASHINGTON (MarketWatch) -- A weekly gauge of consumer attitudes fell 7 points to negative 5 this past week, matching the largest one-week decline in the 21-year history of the ABC/Washington Post consumer comfort index. "Spiking gasoline prices - up 41 cents in the last seven weeks - are the likely suspect," said pollster Patrick Moynihan in a press release on Tuesday. Attitudes about personal finances remained buoyant, but consumers weren't confident about the national economy, with 49% saying the economy is getting worse, up from 42% last month. Just 15% think the economy is improving.
Those 25bp steps, Red Pill, were evidence that the Fed did not understand why mortgage rates were not moving up as well (hence AG's "conundrum"). Subsequent estimates of the role that CBs play in keeping those mortgage rates low are theories that the Fed is not eager to test at the expense of losing whatever confidence it has at this point. [ie a 50bp drop followed by another couple of the same, might not do anything to the Mortgage rates...with the discovery and recognition that the Fed is not "tightening or loosening" that money supply as previously thought.]
My unschooled feeling (see I'm not proud) is that those mortgage rates would need The Second Coming to deflate to the point where houses were once again affordable.
LEND got a $200M loan shark loan today. Their rate is 13% PLUS other giveaways. LEND claims this will allow it to make new loans? Somehow this doesn't sound like a likely money maker - Loan money at rates lower than you borrow the money for in the first place - If they elect to hold these loans. If not, where are they going to place these notes? The secondary market doesn't appear to be interested in what they have to sell, at least not without a lot of concessions.
What am I missing? Why would the HF loan them money?
Long rates in the inverted yield curve indicate an absence of risk.
Risk is back. Long rates should go up.
On the other hand, there is the pesky yen carry trade.
Watch the yen. It still hasn't moved up relative to the dollar appreciably. There are some very, very big players (who happen to have a former member of the club as Secretary of the Treasury these days) who do NOT want the yen to appreciate. They are...well, aided and abetted, shall we say, by the Japanese government.
But the Pale Rider, I believe has other ideas, as I have said.
I can't wait to hear of some fund getting slammed because they're stuck with crappy mortgage paper. I know there are provisions that allow holders to put the debt back but. My guess is we'll hear of some overseas bank getting smacked because they stretched for yield or some hedge fund will have to auction off its portfolio on a Sunday in order to make Monday morning margin calls. This game of passing-the risk-hot potato has to slam someone in addition to the lenders.
"My unschooled feeling (see I'm not proud) is that those mortgage rates would need The Second Coming to deflate to the point where houses were once again affordable."
Calmo, I am of the same opinion.
"This is so much like a Clint Eastwood movie."
arbogast, I have to admit I feel like I am watching something exciting and dangerous unfold. My training is in engineering but I have been educating myself in finance and macroeconomics so I can understand as best I can coming events.
I've been re-visiting some old CR posts today. Talk about noise in the system, get a load of this one! What an idiot!
Thursday, July 28, 2005
WSJ: What Housing Bubble?
Neil Barsky writes in the WSJ "What Housing Bubble?"
If you want to be scared out of your wits these days, you basically have two choices: go watch Steven Spielberg's latest, or listen to the hysterical warnings of economists and journalists about the imminent popping of our so-called housing bubble.
...
The reality is this: There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one's home, one's view of one's future earning- power, and parental contributions, all have done their part to contribute to rising home prices.
Barely -- the HF didn't loan them anything. What got filed this afternoon on EDGAR isn't even a commitment letter -- it's a letter of intent with attached term sheets so full of holes that no loan may ever be done. In particular, Farallon has made no commitment until it is saisfied that it is fully secured (presumably after taking into account current market conditions, the actions of warehouse lenders, etc.)
Given that, it's easy to see why they would lend on those conditions -- 13% interest (17% if there is a default), fully secured, with a warrant equal to 13% of the company if things turn out.
Tom, I guess I need to look at the filing. Judging by the media reports and the stock surge I thought it was done. Since LEND took a reported $150M haircut on the loans it sold last week WITH putback conditions it doesn't appear that they are in an enviable bargaining position. Sounded to me like they are burning the furniture to heat the house. Even if they get the $200M, what does it buy them besides a little operating cash that may get them through the next month if it doesn't have to buy back a lot of already soured loans?
Slightly OT, but the Financial Times is predicting that the Fed will likely go for inflation fighting over growth in the near future. In particular, the FT seems to think that the Fed sees the current economic state as a normal slow down and will ignore the housing market and sub-prime happenings.
...
"The statement will probably indicate unease about inflation numbers. This could add up to a disappointing message for investors expecting the Fed to switch to rate-cutting mode soon.
The Fed remains relatively sanguine after weeks of turbulence in world financial markets, which policymakers feel has had more to do with an overdue repricing of risk than a dramatic deterioration in the outlook for the US economy.
This puts them starkly at odds with Alan Greenspan, the former Fed chairman, who sees a one-in-three risk of recession this year.
Peter Hooper, chief economist at Deutsche Bank Securities, says: On the whole, Fed folks see the economy evolving more or less as expected."
I thought that announcement from China was the biggest recent news. Not really much attention. My understanding was "the conundrum" ("relationship between the FF rate and mortgages was recently demonstrated to be unreliable" ) was caused by China's among other's large investments/interventions. The cessation of these actions say to me that rates are going up no matter what the FED does.
I don't see any change in Chinese policy regardless of what Zhou says...
They might say the PBoC isn't adding to reserves... but that doesn't mean they haven't established other ways to recycle dollars.
Until they float the RMB vs the USD - really float - they have to intervene or stop selling us stuff... or buy as much stuff from us (either directly or via third party transfer). They can't keep sending us stuff and have the RMB stay locked to the dollar unless they either accumulate (mean more conundrum) or buy stuff in return.
I'll believe it has changed when I see it actually HAPPEN...
Here are some excerpts from the Farallon/LEND "commitment" letter:
¨
Except as disclosed in press releases of Parent attached in a schedule, there has been no material adverse change in the business, financial performance, assets, operations, prospects, or condition (financial or otherwise) of Parent and its subsidiaries shall have occurred since December 31, 2006.
¨
Bear Stearns shall have entered into a participation agreement, on terms and conditions satisfactory to the Agent, pursuant to which (i) the Lenders will have the right to buy participations in the repo facility provided to the REIT by Bear Stearns, (ii) Bear Stearns will agree to cap such repo facility to $30,000,000 and shall have waived all defaults under its repo facility, and (iii) the Lenders shall have a buyout right at par.
¨
JPMorgan shall have consented to a second lien by the Agent on the JPMorgan servicing rights and servicing advance reimbursements, shall agree to cap the outstanding amount under the servicing rights financing to $50,000,000, and shall have waived all defaults under its facilities.
¨
Agent shall be satisfied that the Borrowers have at least $750,000,000 in availability either under existing warehouse facilities with default waivers (satisfactory to the Agent) in place or under new warehouse facilities (satisfactory to the Agent).
¨
Agent shall be satisfied that the value of the residuals of the REIT that the Agent has a first priority perfected lien on is not less than $150,000,000 as set forth in a discounted cash flow model using a 15% discount rate and good faith assumptions as provided by the Borrowers and attached as a schedule.
More derivatives, that's just what hungry people in Bangladesh need. Either that or more angels on pinheads... like the ones dancing on the pinhead on top of Mauldin's shoulders.
So is skinning cats worth doing? I guess we'll learn that too in our infinite derivative world.
Aorry for not being able to put this up yesterday, but this Forbes article on CNN is exactly what was scaring me about the issue of MBS and agency ratings.
according to Countrywide's quarterly report. About 2/3rd of their loans orginated in the past couple of years have been ARM's. They also state they have a low exposure to nonprime.
IMO, the real problem isn't likely in prime. The real problem is in ARMs. I would think it's safe to assume almost everyone who's subprime got an ARM with likely usury rates after adjustment, so the problem first shows up in subprime. Plus, Countrywide is the biggest lender in California. Bubble central. Me thinks, something stinks at CFC. No wonder their insiders have been dumping shares lately.
I would guess that other large subprime lenders, like Wells Fargo, have a portfolio of 'likely to default' ARMs that they are trying to hide by stating they are 'nonprime'.
KROWNE!
To the Implode-o-meter, stat!
So is Loancity the first non-subprime lender to go under or did they do subprime too?
As far as I can tell, they seem to have done some subprime, but it wasn't anything like most of their business. I always had them plugged as an Alt/Jumbo lender. I suspect they're closer to MLN, which was not exclusively a subprime lender either.
I wonder how bad things are at the larger lenders like CountryWide. They will survive the mess and hence will be able to hide the damage for some time.
Well, I have no details yet on the LoanCity thing. I will just guess that outfits like CFC own a lot of loans originated by an outfit like LoanCity. So IF LoanCity went down on repurchases--and I don't know that, it just seems likely--then someone like CFC is trying to "hide the damage." Or at least shove it back to the originator. But once again, these originators just can't take it.
You can also stick a fork in what's left of New Century as Fannie just announced they won't be buying any more of their loans.
I just wanted to point out this little gem from Morningstar's Ptak over at Yahoo! Finance: Four New 5-Star Stocks
"Countrywide Financial
--Economic Moat: Narrow
--Business Risk: Average
--Price/Fair Value Ratio*: 0.76
--Consider Buying: $35.50 or Below
--Consider Selling: $57.60 or Above
Like other mortgage bankers, Countrywide (NYSE:CFC - News) books large gains by originating high volumes of mortgage loans and then quickly selling the loans in the secondary market for a profit. During the mortgage boom of the past several years, the firm has grown to be one of the largest mortgage originators and servicers--which involves billing, payment processing, and related services--of mortgages in the country, with respective market shares of about 15% and 12% through the first three quarters of 2006. Additionally, the firm's banking segment has grown from a negligible size in 2001 to one of the top 20 banks in the country, based on total assets. Morningstar analyst Ryan Batchelor thinks Countrywide has sustainable competitive advantages in its servicing and banking segments; thus, he's awarded the firm a narrow moat rating."
Turbo, it's worse than that--Fannie just called breach on their servicing contract.
There will have to be a substitute servicer to step up and take that book from NEW. NEW will have to have the operational capacity (people and money) to handle that transfer of servicing. Their other investors already pulled the servicing plug last week, so if they don't all pick the same nominee replacement servicer--and I doubt they will--it will become the mortgage industry equivalent of cluster**^% quite soon. A real-time experiment to determine how good those servicing contracts were, and how good that technology is, and therefore how safe that investor interest pass-through thingie is.
Wells Fargo lets 191 go in AZ mortgage ops.
full story
"Wells Fargo is not alone. Bank of America, (NYSE: BAC) Countrywide Financial, (NYSE: CFC) Washington Mutual (NYSE: WM) and Ameriquest Mortgage have all cut jobs in Arizona in response to the housing slowdown."
Loancity: Prime, Alt-A, Jumbo according to this report -which hinted at some trouble in feb:
Sorry. Page not found.
Intersting how Loancity posted 62 jobs on March 16
Yahoo! HotJobs - Thousands of jobs. Find the right one.
This reminds me of the dotcom days when I had my tech job site. Companies would post jobs right before they went bankrupt to give an image that they were doing great.
a suggestion:
for the sake of historical context, could folks who upload the links also clip and paste a bit of the article (as so much as the copyright laws allow) so when we look back at this whole mess years from now, we have a clearer picture, instead of dead links?
The entire MBS industry has been cut off at the knees and in their best Pythonesque Black Knight imitation all they can say is "It's only a flesh wound!"
Not to worry. Just because "Wells Fargo, Bank of America, Countrywide Financial, Washington Mutual and Ameriquest Mortgage have all cut jobs in Arizona there's a new game in town. Moretech Financial http://mortgagemadness.info/ has opened a second office in Prescott, AZ.
TOA in big trouble today!
Banks up next:
Housing slowdown hitting local banks
Past-due construction loans are on the rise
Slumping home sales are showing the first signs of hurting Chicago-area banks, which are reporting an increase in bad construction loans.
Problem construction and land development loans by local lenders increased 58% at the end of 2006 to $169.4 million from $107.2 million at the same point in 2005, according to Federal Deposit Insurance Corp. data.
Loans in which borrowers are late on payments by at least three months averaged 1.6% of local banks' total construction loan portfolios at the end of 2006. That was up from 0.95% in 2005 and was at the highest level in six years, according to Virginia-based SNL Financial.
The primary culprit, bankers say, is the housing-market contraction, exacerbated by an increase in mortgage defaults and foreclosures.
"It's another manifestation of the housing recession we're in," says Paul Kasriel, chief economist at Northern Trust Corp.
Sales of new Chicago-area homes fell more than 30% in 2006 from the year before, according to Schaumburg-based real estate consultant Tracy Cross & Associates Inc.
Chicago's Cole Taylor Bank, which lends to homebuilders in the city and suburbs, has seen fallout. "If there are fewer homes being sold, it reduces the demand for your developed lots and undeveloped lots," says Robin VanCastle, chief accounting officer of Taylor Capital Group Inc., holding company for $3.4-billion-asset Cole Taylor. "That's the first impact."
http://chicagobusiness.com/cgi-bin/mag/article.pl?article_id=27431&bt=Housing+Slowdown+Hitting+Local+Banks&arc=n&searchType=all
LA Times article detailing more layoffs in sub-prime industry. Also has potential for a new economic indicator: number of MLB baseball stadiums changing their names. Ameriquest pulled its moniker from the Texas Rangers' park.
More layoffs in sub-prime loan sector - Los Angeles Times
Excerpt: "The shakeout in the sub-prime lending industry continued Monday, with more people losing their jobs and a prominent lender losing its name on a baseball stadium.
Fremont General Corp. of Santa Monica said it had told "significant numbers" of its 2,400 home-loan employees to expect pink slips in two months. Company officials declined to say how many employees would be dismissed."
My first post to CR. Thanks for your great work.
New Century ordered to stop loans in California
Bakersfield Bubble
TOA in big trouble today!
Toadbones of America is in trouble? Oh, no. Did anyone tell mp?
Stock market strong: check.
Dollar strong: ch...wait...not so much.
The euro is really climbing.
Everything one sees is predicated on the Fed coming to the rescue with lower rates.
Ben "Pale Rider" Bernanke will stand tall. Don't count on rates coming down.
arbo, do you figure that the rates will not come down because the relationship between the FF rate and mortgages was recently demonstrated to be unreliable and, with today's announcement from China that it will no longer add to its US foreign reserves, possibly even prove to be more unreliable in a few quarters?
Tis "hold" until there is blood in the streets that the MSM cannot ignore...atleast another quarter?
I thought that announcement from China was the biggest recent news. Not really much attention. My understanding was "the conundrum" ("relationship between the FF rate and mortgages was recently demonstrated to be unreliable" ) was caused by China's among other's large investments/interventions. The cessation of these actions say to me that rates are going up no matter what the FED does. That seems like a BIG BIG deal. I am not an expert on these issues. Am I wrong about this?
TOA in big trouble today!
Due to the lack of visibility into the remainder of 2007, TOUSA did not provide 2007 earnings guidance
Consumer comfort index plunges, ABC/Post says
WASHINGTON (MarketWatch) -- A weekly gauge of consumer attitudes fell 7 points to negative 5 this past week, matching the largest one-week decline in the 21-year history of the ABC/Washington Post consumer comfort index. "Spiking gasoline prices - up 41 cents in the last seven weeks - are the likely suspect," said pollster Patrick Moynihan in a press release on Tuesday. Attitudes about personal finances remained buoyant, but consumers weren't confident about the national economy, with 49% saying the economy is getting worse, up from 42% last month. Just 15% think the economy is improving.
Those 25bp steps, Red Pill, were evidence that the Fed did not understand why mortgage rates were not moving up as well (hence AG's "conundrum"). Subsequent estimates of the role that CBs play in keeping those mortgage rates low are theories that the Fed is not eager to test at the expense of losing whatever confidence it has at this point. [ie a 50bp drop followed by another couple of the same, might not do anything to the Mortgage rates...with the discovery and recognition that the Fed is not "tightening or loosening" that money supply as previously thought.]
My unschooled feeling (see I'm not proud) is that those mortgage rates would need The Second Coming to deflate to the point where houses were once again affordable.
The yield curve can un-invert in two ways.
Long rates can get higher, or short rates can get lower.
The long rates going higher.
If I were really, really, really brave, I would say, "Short the euro," but I'm not even close to that brave.
LEND got a $200M loan shark loan today. Their rate is 13% PLUS other giveaways. LEND claims this will allow it to make new loans? Somehow this doesn't sound like a likely money maker - Loan money at rates lower than you borrow the money for in the first place - If they elect to hold these loans. If not, where are they going to place these notes? The secondary market doesn't appear to be interested in what they have to sell, at least not without a lot of concessions.
What am I missing? Why would the HF loan them money?
Long rates in the inverted yield curve indicate an absence of risk.
Risk is back. Long rates should go up.
On the other hand, there is the pesky yen carry trade.
Watch the yen. It still hasn't moved up relative to the dollar appreciably. There are some very, very big players (who happen to have a former member of the club as Secretary of the Treasury these days) who do NOT want the yen to appreciate. They are...well, aided and abetted, shall we say, by the Japanese government.
But the Pale Rider, I believe has other ideas, as I have said.
This is so much like a Clint Eastwood movie.
I can't wait to hear of some fund getting slammed because they're stuck with crappy mortgage paper. I know there are provisions that allow holders to put the debt back but. My guess is we'll hear of some overseas bank getting smacked because they stretched for yield or some hedge fund will have to auction off its portfolio on a Sunday in order to make Monday morning margin calls. This game of passing-the risk-hot potato has to slam someone in addition to the lenders.
"My unschooled feeling (see I'm not proud) is that those mortgage rates would need The Second Coming to deflate to the point where houses were once again affordable."
Calmo, I am of the same opinion.
"This is so much like a Clint Eastwood movie."
arbogast, I have to admit I feel like I am watching something exciting and dangerous unfold. My training is in engineering but I have been educating myself in finance and macroeconomics so I can understand as best I can coming events.
I've been re-visiting some old CR posts today. Talk about noise in the system, get a load of this one! What an idiot!
Thursday, July 28, 2005
WSJ: What Housing Bubble?
Neil Barsky writes in the WSJ "What Housing Bubble?"
If you want to be scared out of your wits these days, you basically have two choices: go watch Steven Spielberg's latest, or listen to the hysterical warnings of economists and journalists about the imminent popping of our so-called housing bubble.
...
The reality is this: There is no housing bubble in this country. Our strong housing market is a function of myriad factors with real economic underpinnings: low interest rates, local job growth, the emotional attachment one has for one's home, one's view of one's future earning- power, and parental contributions, all have done their part to contribute to rising home prices.
CR, I envy you. Your stuff gets better with age.
Toadbones in trouble!? I'd better get out the ground-up dog balls. And quick!
calmo: setser has another excellent post regarding the China currency issue:
Dr. Setser
Barely -- the HF didn't loan them anything. What got filed this afternoon on EDGAR isn't even a commitment letter -- it's a letter of intent with attached term sheets so full of holes that no loan may ever be done. In particular, Farallon has made no commitment until it is saisfied that it is fully secured (presumably after taking into account current market conditions, the actions of warehouse lenders, etc.)
Given that, it's easy to see why they would lend on those conditions -- 13% interest (17% if there is a default), fully secured, with a warrant equal to 13% of the company if things turn out.
Tom, I guess I need to look at the filing. Judging by the media reports and the stock surge I thought it was done. Since LEND took a reported $150M haircut on the loans it sold last week WITH putback conditions it doesn't appear that they are in an enviable bargaining position. Sounded to me like they are burning the furniture to heat the house. Even if they get the $200M, what does it buy them besides a little operating cash that may get them through the next month if it doesn't have to buy back a lot of already soured loans?
Slightly OT, but the Financial Times is predicting that the Fed will likely go for inflation fighting over growth in the near future. In particular, the FT seems to think that the Fed sees the current economic state as a normal slow down and will ignore the housing market and sub-prime happenings.
...
"The statement will probably indicate unease about inflation numbers. This could add up to a disappointing message for investors expecting the Fed to switch to rate-cutting mode soon.
The Fed remains relatively sanguine after weeks of turbulence in world financial markets, which policymakers feel has had more to do with an overdue repricing of risk than a dramatic deterioration in the outlook for the US economy.
This puts them starkly at odds with Alan Greenspan, the former Fed chairman, who sees a one-in-three risk of recession this year.
Peter Hooper, chief economist at Deutsche Bank Securities, says: On the whole, Fed folks see the economy evolving more or less as expected."
FT.com / US / Economy & Fed - Fed likely to put inflation before growth
Accredited downgrade;
MarketWatch.com
I thought that announcement from China was the biggest recent news. Not really much attention. My understanding was "the conundrum" ("relationship between the FF rate and mortgages was recently demonstrated to be unreliable" ) was caused by China's among other's large investments/interventions. The cessation of these actions say to me that rates are going up no matter what the FED does.
I don't see any change in Chinese policy regardless of what Zhou says...
See Setser's latest entry... $1.5 trillion, not $1.1 trillion and rising fast
They might say the PBoC isn't adding to reserves... but that doesn't mean they haven't established other ways to recycle dollars.
Until they float the RMB vs the USD - really float - they have to intervene or stop selling us stuff... or buy as much stuff from us (either directly or via third party transfer). They can't keep sending us stuff and have the RMB stay locked to the dollar unless they either accumulate (mean more conundrum) or buy stuff in return.
I'll believe it has changed when I see it actually HAPPEN...
Here are some excerpts from the Farallon/LEND "commitment" letter:
¨
Except as disclosed in press releases of Parent attached in a schedule, there has been no material adverse change in the business, financial performance, assets, operations, prospects, or condition (financial or otherwise) of Parent and its subsidiaries shall have occurred since December 31, 2006.
¨
Bear Stearns shall have entered into a participation agreement, on terms and conditions satisfactory to the Agent, pursuant to which (i) the Lenders will have the right to buy participations in the repo facility provided to the REIT by Bear Stearns, (ii) Bear Stearns will agree to cap such repo facility to $30,000,000 and shall have waived all defaults under its repo facility, and (iii) the Lenders shall have a buyout right at par.
¨
JPMorgan shall have consented to a second lien by the Agent on the JPMorgan servicing rights and servicing advance reimbursements, shall agree to cap the outstanding amount under the servicing rights financing to $50,000,000, and shall have waived all defaults under its facilities.
¨
Agent shall be satisfied that the Borrowers have at least $750,000,000 in availability either under existing warehouse facilities with default waivers (satisfactory to the Agent) in place or under new warehouse facilities (satisfactory to the Agent).
¨
Agent shall be satisfied that the value of the residuals of the REIT that the Agent has a first priority perfected lien on is not less than $150,000,000 as set forth in a discounted cash flow model using a 15% discount rate and good faith assumptions as provided by the Borrowers and attached as a schedule.
To be clearer about the foregoing post, each of those sentences is a condition that must be satisfied before Accredited can borrow.
You may see the PBOC use $ to fuel some electrical generation plant in the ultimate recycling effort rather than let the RMB drift up.
You may see the PBOC use $ to fuel some electrical generation plant in the ultimate recycling effort rather than let the RMB drift up.
Lotsa ways to skin that cat. Point is until the USD-JPY and USD-RMB realign the dollar hasn't really 'fallen'.
Point taken.
I finished a email from John Mauldin.
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where I learned according to economic theory that derivatives can increase to infinity and it is a 'good thing'.
In such an universe, anything is possible. Lotsa ways to skin a cat.
More derivatives, that's just what hungry people in Bangladesh need. Either that or more angels on pinheads... like the ones dancing on the pinhead on top of Mauldin's shoulders.
So is skinning cats worth doing? I guess we'll learn that too in our infinite derivative world.
Aorry for not being able to put this up yesterday, but this Forbes article on CNN is exactly what was scaring me about the issue of MBS and agency ratings.
http://money.cnn.com/magazines/fortune/fortune_archive/2007/04/02/8403416/index.htm?postversion=2007031909
It really seems this whole economy hinges on house prices stabilizing, and I just cannot see that happening.
according to Countrywide's quarterly report. About 2/3rd of their loans orginated in the past couple of years have been ARM's. They also state they have a low exposure to nonprime.
IMO, the real problem isn't likely in prime. The real problem is in ARMs. I would think it's safe to assume almost everyone who's subprime got an ARM with likely usury rates after adjustment, so the problem first shows up in subprime. Plus, Countrywide is the biggest lender in California. Bubble central. Me thinks, something stinks at CFC. No wonder their insiders have been dumping shares lately.
I would guess that other large subprime lenders, like Wells Fargo, have a portfolio of 'likely to default' ARMs that they are trying to hide by stating they are 'nonprime'.
oops
IMO, the real problem isn't likely in prime
should be...
IMO, the real problem isn't likely in subprime.