ahm still t1

Trade Halts - Current

"The Company has received and paid very significant margin calls in the last three weeks and has substantial unpaid margin calls pending."

So, I'm guessing that substantial>significant.

Or something. This must be Karl Rove math. Ya know, "THE MATH". I'm unfortunately only entitled to my own math.

"the orderly liquidation of its assets."

Did I read that right? Did somebody finally figure out that "liquidity" means having assets to reduce to cash, not talking the bank into upping your credit limit again?

Too bad it's a little late for the "orderly" part.

Slide started about the time that ahm news released

Just FYI -- early price indication on AHM (for when it re-opens trading) was between $1 and $4. Now seeing $1-$2.50.

Consumer Confidence at an all time high, the effect of all this stuff seems limited.

Cal,

Consumer confidence tends to reach a high just prior to the onset of bear markets according to the data in Ahead of the Curve:

Ahead of the Curve by Joseph H. Ellis

Yes, barely, I need to do that. The short version for today is that so called "external enhancement" (letters of credit, bond insurance, etc.) really went out of fashion in the great Alt-A/Subprime Party. All these securities were going to "enhance" via structure & spread. We seem to be discovering a slight flaw in that plan.

ahm t2

Bob, I think part of the problem is that AHM originated OAs at a much higher LTV/CLTV than a lot of the competition did. So if you happen to have nothing better to do with your money than buy a bunch of seasoned OAs, there's better product to buy. And anybody buying OAs right now knows that it's buying a Q107 problem, so there's been a discount on that which AHM apparently thought was going to to away if they just held on long enough.

Your first loss is your best loss. This is still true.

So AHM bemoans its 'issue' with liquidity. Yet it was only a few months ago that we were told that everything would remain hunky-dory and groovy due to this magic stuff, "liquidity", which seemed to be everywhere, to do everthing, and was in aboundant, endless supply.

So, let me try some mixed-metaphoration:

The subprime train, that had left the station and had jumped its tracks on its way to stalk its prey, AHM, and using one of its vibrating tentacles, stabbed it in the back with the double-edged sword of liquidity.

Whew. Need a lemonade after that one. And I couldn't find a way to mention 'contained', dog-nabit!

Revealing myself as a true Star Trek nerd, isn't this the part where the engineering crew starts screaming about "breach in warp core containment" and then "man the escape pods!"

you don't make 1 billion in one year
without a LOT of leverage...
if were in a race for cash, then any additional levering , at any px, should , naturally , be a bad trade.
(and there's not a chance i'm going toe-to toe with you, banker)
No , I don't think all 9800 fail... but the majority of the 9800 are prime brokered in the top five moeny center banks...

As for one ultimate owner, what, you think the other 9800 hedgies are all going to fail?

Naw, only 4900 of them, according to Grantham...

Cramer says "just walk away," even if you have 20% equity.

YouTube -

Let's look at the common thread in AHM and NEW here - it's the whole loan sales. Both companies did a massive volume of whole loan sales and then had a liquidity crunch on the buybacks. I think NovaStar and Impac have been luckier in they used securitization much more extensively - and NFI, at least, structured most of its securitizations as sales to prevent eating loan loss provisions on balance sheet and limiting capital investment to the equity tranches.

Patrick,

To follow your logic isn't CFC next ?

CR & Tanta,

Thanks. I guess the last chart I remember seeing showed subprime delinquencies up steeply, non-option Alt-A ARMs beginning to rise, though less steeply, and Alt-A option ARMs still pretty flat, not a whole lot worse then real prime. That was probably at loanperformance.com, which probably means I was seeing old data (since I can only look at the free stuff.)

Downey and FirstFed looked to me like the the lenders with the highest proportion of option ARMs, while Indymac and AHM did a higher proportion of other Alt-A ARMs, all did plenty of no-doc, low-doc.

Indymac and AHM took their hits first, with Downey and FirstFed just getting going (to the downside.)

Is there a chart that shows the recent relative performance of option vs. non-option Alt-A?

Thanks again,

Bob

So AHM bemoans its 'issue' with liquidity. Yet it was only a few months ago that we were told that everything would remain hunky-dory and groovy due to this magic stuff, "liquidity", which seemed to be everywhere, to do everthing, and was in aboundant, endless supply.

Ponzi finance schemes always look great so long as new money is coming into the system, asset values are increasing, and interest payments can be made by borrowing money against the rising asset prices. Any disruption in liquidity or lender confidence can result in a sudden crisis where interest payments can't be made and the whole thing rapidly falls apart.

That's what makes this situation so offensive to me -- there are no mysteries here. Books have been written about these things by respectable authors. We always knew how this would end, yet we did it anyway.

NEW YORK (Standard & Poor's) July 31, 2007--Standard & Poor's Ratings Services today placed its AVERAGE residential prime and subordinate-lien servicer rankings on American Home Mortgage on CreditWatch with negative implications.

The rankings formerly had stable outlooks. Additionally, we have removed the company from our Select Servicer List in these two categories.

The negative CreditWatch placements follow the company's July 30, 2007,
announcement that its board of directors has decided to delay payment of its quarterly cash dividend on the company's common stock, and it expects to delay paying its quarterly cash dividends on its Series A cumulative redeemable preferred stock and Series B cumulative redeemable preferred stock. The company stated that it is delaying these payments in order to preserve cash until it obtains a better understanding of the impact that current industry
conditions in the mortgage industry and the broader credit market will have on the company's balance sheet and overall liquidity. Standard & Poor's believes the current financial pressures facing the company may have a detrimental
impact on American Home Mortgage's servicing operation, as they may result in elevated turnover. The financial uncertainty of the company may also negatively affect servicing performance. Standard & Poor's will continue to monitor the situation and will adjust the ranking as necessary.

We are approaching peak metaphor?

I think the metaphor bubble has crossed the Rubicon.

Tomorrow is another day...

And to quote arbo, watch the Yen!

CR,

I didn't mean to sound nit-picky, just curious as to latest developments.

The thing about an option ARM with a 110% cap is that it gives the borrower a lot of time. Say it's a $300,000 loan, a borrower using $500/mo of equity wouldn't hit the cap for 5 years, though, as Tanta has explained, there are usually other rate resets, etc., along the way.

Bob, unless that equity evaporates due to falling prices . . . then that borrower can end up in trouble right quick.

Depends on whether the lender tracks the value of the collateral.

Yen rallying again. No escape if this keeps up:

Yen sharply higher as stocks reverse course

Mr. Market does not look too happy. The Dow appears ready to break through its support at the June low. S&P doesn't look good either, as it's going throught the February high of 1460. I'm sure the technicians are watching this closely.

We're getting close to a real decision point.

Hong Kong Fuey, I didn't say that.

I said, "Pearl Harbor is overflowing."

Note to Bloomberg editors: Now you can change the headline on this story

U.S. Stocks Retreat on Subprime Concern; Bank, Tech Shares Fall - Bloomberg.com

uhhhh - 'Subprime' concern??

Yes if the Yen goes south in a big way then hang on for the ride kids, its about to get BUMPY!

Last test that got pushed back was around 118, just at 118.5 now...

Banker,

I will concede to your point that the drop in 87 was the real deal and what happened last week is tiny by comparison.

But, the country in '87 didn't have crazy hedge fund positions, our currency wasn't on the ropes and the trade imbalances between us and the rest of the world were not so out of line as today.

I remember many many years ago reading about a conversation that happened late one Saturday night between a man named Jerry Corrigan who was the president of the Federal Reserve Bank of New York and a man named Richard Phealan (spelling) who was I think on the board of the N.Y. stock eschange. The coversation was reported by a journalist for the NYT, and he indicated that these men and some other bankers created the assurances that were necessary to enable the "specialists" to keep the market from collapse the day after the crash of 87.

I'm not an economist and I follow this great blog and others to learn. But it seems to me that a PPT must exist, or at least it should.

I respect your point that I am putting to much emphasis into last weeks looses compared to the percentage drops that have occurred historically.

Dirk van Dijk, you may be right, or you may be getting ready to catch a falling spider-pig...

The difference with the 90's is just how much debt has built up since then. I haven't gone off to look at the figures, but the relative answer is..."a lot".

Now what? Unable to fund commitments made? How on God's green earth does this play? I always thought once committed, funds were set aside as a reserve to pay the obligation. Have reserves been used to pay immediate margin calls? GGEEZZE this troubling, indeed.