Dec. 6 (Bloomberg) -- Rabobank Groep NV, the biggest Dutch mortgage lender, will bail out its Tango Finance Ltd. structured investment vehicle by taking on 5.2 billion-euros ($7.6 billion) of its assets to avoid a fire sale.
Rabobank has started discussions with investors and expects to complete a plan to reorganize the SIV in early 2008, according to an e-mailed statement from the Utrecht, Netherlands-based lender. The move will have ``no material impact'' on the bank's solvency, Sipko Schat, a member of Rabobank's executive board, said in the statement today.
There is no immediate prospect of the funding situation for SIVs improving in 2008,'' the bank said.To prevent a potential fire sale of high quality assets, the bank has announced that it is prepared to take the remaining assets of Tango onto its balance sheet.''
Tango is among $105 billion of SIVs that Moody's Investors Service is considering downgrading in its biggest wave of rating cuts since subprime mortgages contaminated the bond market. Moody's yesterday delayed its decision on SIV ratings, citing ``wide-ranging remedial measures'' by managers to prevent losses.
When you consider the leverage used by many of the structured finance products and the rate of change in foreclosures it is clear these overleveraged products are going to take losses they haven't anticipated. The credit quality may be "ok" now but it was supposed to be better than ok according the plan and it looks like it is going to be less than ok real soon.
As he announced his plan to ease the mortgage crisis for consumers, President Whiney McPoopyPants accidentally gave out the wrong phone number for the new Hope Now Hotline set up by his administration.
And I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE. That is 1-800-995-H-O-P-E, he said.
Anyone who dialed 1-800-995-HOPE was greeted by just a busy signal.
I think I read a delinquency rate of 16% for subprime mortgages, is that for real? One out of every six subprime borrowers not paying the mortgage . . . wow.
Great name for a band.
Marcus Aurelius | 12.06.07 - 3:06 pm | #
BTW Dow up 146 now. You can't argue with the facts, now, or can you, MA? Bush won't face the facts and...hey, I apologize for saying it in advance, and neither will you. THE MARKET DOESN'T CARE ABOUT THE HOUSING BUST.
But it's worth making comparisons to historical situations that are similar:
The market didn't care about the collapse in industrial output that occurred throughout most of 1929. The economy was meaningless to the market. It just kept on skyrocketing.
The market cares about "going up" as an idea. You know, hold the right thought and......well, as Keynes said, the market can stay irrational longer than you can stay solvent.
Dow up 146 off weak-ish volume. Gamblers only care that there's action.
Is there anybody that's gonna be happy with this freeze out clusterf*ck? This isn't even rearranging deck chairs on the titanic, this is the band playing on.
THE MARKET DOESN'T CARE ABOUT THE HOUSING BUST.
James | 12.06.07 - 3:19 pm | #
Apparently, they don't care about employment, the dollar, trade imbalances, corporate profits, manufacturing, transports, toxic securities, or the fundamentals of sound economic systems.
And smokers don't care about lung cancer.
Therein lies the insanity.
Therein lies the danger.
Therein comes the lesson.
You honestly believe there's a sane reason for the Market's reaction?
Will you feel the same way when it over-corrects in the opposite direction?
It's interesting that the delinquencies graph low point corresponds to a time when the home ownership rate (especially among the younger age cohorts) was mostly in the low end of its range for the period covered by the graph, though that period was also one of something of a slump in the housing markets.
Looks like maybe it tends to be low when people who can't really afford homes aren't trying to buy them.
Dow up 146 off weak-ish volume. Gamblers only care that there's action.
That's usually indicative of short-covering rallies. Likewise for stocks such as CFC being up over 15%.
As more of the shorts are forced to cover we should see this rally harder to sustain because there just aren't many "real" investors out there willing to sustain.
We could conceivably see this kind of up and down action between 12.5k and 14k throughout the entire rate cut cycle.
"Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
--Yoda
James, anybody with a brain saw this coming. Can't have a Xmas crash of the market, and pols have to do something.
Geez when even dead money like homebuilders soars, you have to understand that this too is a bubble.
But then I was saying that december would be hot just before turkey day.
Grow up and pay attention- what is in your abcp money market account?
As for mortgage delinquency rates, this is just the beginning- consider our current d rate is with high employment- what will happen when employment starts taking hits?
I do not foresee a great reversal based on today's edition of the solution de jour. Wait until after xmas and the bernanke 50 point cut to short. Better still buy long and take some money home, but sell first;_]
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
It's amazing to think we've stacked another 11 years of "undue escalations" on top of that.
He details what CR has been saying for ages in one long sweeping indictment of the dire situation, especially in california. In particular the summary that flatly states there are 5 times as homes hoping for million dollar prices chasing 10% of the buyers as exotics have vanished. Either incomes must double, or exotics return, or prices halve. Which is it? obvious answer..
"Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and Bush also urged people to call a new hot line: 1-888-995-HOPE. The announcement followed the news earlier Thursday that home foreclosures surged to an all-time high in the July-September period."
"Wal-Mart Stores, the world's largest retailer, and warehouse club operators Costco Wholesale and BJ's Wholesale were among those retailers that managed to report stronger-than-expected sales."
Should the Plan reward those borrowers committing fraud? Here's what they have to say:
"In issuing this Statement, the ASF notes that fraud in connection with loan origination was a
contributing factor to the wave of defaults to date on subprime loans. This Statement is designed
to avoid rewarding borrowers who may have participated in fraud. Consistent with this intent, the
fast track loan modification procedures outlined in this Statement are targeted to borrowers who
occupy their homes as primary residences and who have established a track record of being
willing and able to make their loan payments at the current interest rate. In addition, the ASF
recommends that all existing contractual obligations and remedies related to fraudulent mortgage
origination activity should be strictly enforced."
So overstating income is not an important source of fraud!
And here's the smoking gun that this is not in the interest of investors, or anyone else for that matter:
"If the current FICO score is less than 660 and is less than a score 10% higher
than the FICO score at origination, the borrower is considered to have met the
FICO test. If the borrower meets the FICO test, the servicer will generally
Even with all the mess with mortgages, credit and defaults, I would be less bearish if oil were still $60.
17 months ago, the market absolutely freaked over $75 oil because that market knew the U.S. economy couldn't avoid a recession with oil that high.
Today, we have $90 oil, up $3 in one day, and the market doesn't even notice.
Even if everything else were fine, $90 oil would ruin the U.S. economy, until consumption slowed enough to bring it down.
Front-page article in today's NY Times, OPEC is happy with things where they are and the new oil range (given weak dollar and supply/demand) will be around $90-110.
Two days ago, same source, Maine economy is collapsing because truckers who transport logs can no longer afford diesel. They are a big part of a small, fragile economy.
All you bearish market timers, watch out. $90 oil is lethal to the status quo.
"Prime delinquency increased to 3.12% from 2.73% in Q2." Some might wonder why such a seemingly small increase is already having such a big impact on GSE earnings and MBS valuations. Think triple leverage inflection point. 1. $ Delinquent up c. 15% 2. Loss per $ delinquent up c. 100% (10% versus 20%)3. Credit reserve coverage c. 1.15 to .50. Hence quarterly earnings go from +$2b to -$2b with just a 40bp swing in delinquency rate. 3% capital surplus for a GSE is a little thin for this taxpayer's taste.
Does it bother anyone else that the delinquency rate is so high at a time when interest rates are still near historical lows? When the default rate peaked in 1985, real mortgage rates were around 10 percent, compared with 4 percent today.
Present cyclical concerns aside, given the collapse of the dollar and long-term fiscal imbalance, it would seem that interest rates need to rise. That can't be good.
How could this be? The increase in loss rates on mortgages originated in 2006 and 2007 are 2 to 4 times, respectively, historical levels? I don't see how that jibes with this chart.
Rabobank to Take on $7.6 Billion of Tango SIV Assets (Update3)
By Pierre Paulden
By Neil Unmack
Dec. 6 (Bloomberg) -- Rabobank Groep NV, the biggest Dutch mortgage lender, will bail out its Tango Finance Ltd. structured investment vehicle by taking on 5.2 billion-euros ($7.6 billion) of its assets to avoid a fire sale.
Rabobank has started discussions with investors and expects to complete a plan to reorganize the SIV in early 2008, according to an e-mailed statement from the Utrecht, Netherlands-based lender. The move will have ``no material impact'' on the bank's solvency, Sipko Schat, a member of Rabobank's executive board, said in the statement today.
There is no immediate prospect of the funding situation for SIVs improving in 2008,'' the bank said.To prevent a potential fire sale of high quality assets, the bank has announced that it is prepared to take the remaining assets of Tango onto its balance sheet.''
Tango is among $105 billion of SIVs that Moody's Investors Service is considering downgrading in its biggest wave of rating cuts since subprime mortgages contaminated the bond market. Moody's yesterday delayed its decision on SIV ratings, citing ``wide-ranging remedial measures'' by managers to prevent losses.
[snip]
It is 24 minutes to show time: TANTA AT 2:00 PM !!!!
Which timezone that is ?
I think Bernanke would make a nice Dean of some business school. He seems like a polite and affable person.
Goddamn it. How many times do they have to say it? IT'S CONTAINED!
Realistic people are so dense. Sheesh.
Perhaps Bernanke says things he doesn't believe just to keep the markets calm?
What is scarier that he lies or that he doesn't know?
David,
No dichotomy required, what frightens me is if he lies AND doesn't know!
The past-due rate on prime FRMs has gone up to 2.54%. Prime ARMs up to 5.14%.
But come on, 97-95% are current. That is still incredibly good credit quality.
When the delinquency rate finally surpasses that 1986 mark, have we then entered the 'Not-So-Great Depression' ?
.
unsilentmajority,
When you consider the leverage used by many of the structured finance products and the rate of change in foreclosures it is clear these overleveraged products are going to take losses they haven't anticipated. The credit quality may be "ok" now but it was supposed to be better than ok according the plan and it looks like it is going to be less than ok real soon.
At least that is my read of the situation.
Yen falling like a rock. Stocks go up. Old habits die hard.
gia,
Yes the yen levered pump monkeys are going to asset inflate until the whole thing blows...
pump monkeys
Great name for a band.
heh where is Dave Barry when ya need him!
From CNN:
As he announced his plan to ease the mortgage crisis for consumers, President Whiney McPoopyPants accidentally gave out the wrong phone number for the new Hope Now Hotline set up by his administration.
And I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE. That is 1-800-995-H-O-P-E, he said.
Anyone who dialed 1-800-995-HOPE was greeted by just a busy signal.
"Marcus Aurelius" - great name for the leader of a band - but you can not beat Faroud(Fradun) Marduk (Freddy Mercury)
before, it was pump and pump.
now, it's pump and dump.
I think I read a delinquency rate of 16% for subprime mortgages, is that for real? One out of every six subprime borrowers not paying the mortgage . . . wow.
What about this band name: 'Pump Monkey and the Bagholders!
Must not have missed much with the freeze plan... no one is talking about it?
It's Madness!
, Madness!
I tell ya!
Must not have missed much with the freeze plan... no one is talking about it?
Average Citizen,
I think a lot of folks are frozen like deer in the headlights watching the market shoot up.
"The market has to go down.. it has to right now. How could it not go down?"
Personally, I'm getting excited to watch what I hope will be a market returning to VIX ~ 40+
Yes the yen levered pump monkeys are going to asset inflate until the whole thing blows...
Well we've got a long way until we get to ZIRP.
Before then we could see the DOW hit 30000, nevermind the pet rock bubble.
pump monkeys
Great name for a band.
Marcus Aurelius | 12.06.07 - 3:06 pm | #
BTW Dow up 146 now. You can't argue with the facts, now, or can you, MA? Bush won't face the facts and...hey, I apologize for saying it in advance, and neither will you. THE MARKET DOESN'T CARE ABOUT THE HOUSING BUST.
"The market has to go down.. it has to right now. How could it not go down?"
Haha, I think the right question is:
"With the kind of support it's getting from central banks, how could the market not go up?"
THE MARKET DOESN'T CARE ABOUT THE HOUSING BUST.
Nor about earnings apparently.
So enlighten us, James.
What DOES the market care about?
mortgage-mess-from-an-insider
Straight Talk on the Mortgage Mess from an Insider - Herb Greenberg - MarketWatch
THE MARKET DOESN'T CARE ABOUT THE HOUSING BUST.
I come here and make that argument every day.
But it's worth making comparisons to historical situations that are similar:
The market didn't care about the collapse in industrial output that occurred throughout most of 1929. The economy was meaningless to the market. It just kept on skyrocketing.
We all know how turned out though.
The market cares about "going up" as an idea. You know, hold the right thought and......well, as Keynes said, the market can stay irrational longer than you can stay solvent.
I love the smell of exuberance in the morning. Smells like, victory.
Dow up 146 off weak-ish volume. Gamblers only care that there's action.
Is there anybody that's gonna be happy with this freeze out clusterf*ck? This isn't even rearranging deck chairs on the titanic, this is the band playing on.
Oh ye of little faith. Your pessimism will lead you nowhere. While money is being made you will sit desolately on the sidelines.
THE MARKET DOESN'T CARE ABOUT THE HOUSING BUST.
James | 12.06.07 - 3:19 pm | #
Apparently, they don't care about employment, the dollar, trade imbalances, corporate profits, manufacturing, transports, toxic securities, or the fundamentals of sound economic systems.
And smokers don't care about lung cancer.
Therein lies the insanity.
Therein lies the danger.
Therein comes the lesson.
You honestly believe there's a sane reason for the Market's reaction?
Will you feel the same way when it over-corrects in the opposite direction?
Like I said this morning, drink up!
James,
Thanks for the ID with that last statement.
It's interesting that the delinquencies graph low point corresponds to a time when the home ownership rate (especially among the younger age cohorts) was mostly in the low end of its range for the period covered by the graph, though that period was also one of something of a slump in the housing markets.
Looks like maybe it tends to be low when people who can't really afford homes aren't trying to buy them.
Dow up 146 off weak-ish volume. Gamblers only care that there's action.
That's usually indicative of short-covering rallies. Likewise for stocks such as CFC being up over 15%.
As more of the shorts are forced to cover we should see this rally harder to sustain because there just aren't many "real" investors out there willing to sustain.
We could conceivably see this kind of up and down action between 12.5k and 14k throughout the entire rate cut cycle.
... though that period was ...
should have been
... though that time of low delinquencies was ...
Houston we have a problem AGAIN
Dozens indicted in Houston mortgage fraud - obtained $5.6 million in loans...Houston Chronicle front pg:
404 Error, No such article | Chron.com - Houston Chronicle
Hey
Paul Krugman at the NY Times just linked to this blog on his post this morning. Congrats to CR and Tanta.
Great read on securitization issues from one of the sidebar blogs, housingwire:
More on the Bailout: Tripping on the Trigger
By Paul Jackson - housingwire
It is hard for me to imagine that our fearless leaders have produced a proposal that requires this much Tanta-thinking.
Maybe I need more and better imagination.
Or maybe we are in for a snark tsunami.
Paul Krugman at the NY Times just linked to this blog on his post this morning. Congrats to CR and Tanta.
CR,
You need to get on this guy's case to back off and stop taking all your material.
"Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
--Yoda
James, anybody with a brain saw this coming. Can't have a Xmas crash of the market, and pols have to do something.
Geez when even dead money like homebuilders soars, you have to understand that this too is a bubble.
But then I was saying that december would be hot just before turkey day.
Grow up and pay attention- what is in your abcp money market account?
As for mortgage delinquency rates, this is just the beginning- consider our current d rate is with high employment- what will happen when employment starts taking hits?
I do not foresee a great reversal based on today's edition of the solution de jour. Wait until after xmas and the bernanke 50 point cut to short. Better still buy long and take some money home, but sell first;_]
Someday this war's gonna end...
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
It's amazing to think we've stacked another 11 years of "undue escalations" on top of that.
James, anybody with a brain saw this coming. Can't have a Xmas crash of the market, and pols have to do something.
I had a suspicion when Richard Russell announced the beginning of a bear market that stocks were going to go straight up.
dead money
Great name for a band.
The Krugman link:
Economics and Politics - Paul Krugman Blog - NYTimes.com
"Bernanke couldn't have been more wrong."
Yet. Records are made to be broken.
Herb Greenburg delivers the goods!
wow what a good summary of the mortgage mess, straight from an insider:
marketwatch blog post
He details what CR has been saying for ages in one long sweeping indictment of the dire situation, especially in california. In particular the summary that flatly states there are 5 times as homes hoping for million dollar prices chasing 10% of the buyers as exotics have vanished. Either incomes must double, or exotics return, or prices halve. Which is it? obvious answer..
Conjure wants to know if the Pump Monkeys are looking for a bass player.
"Thousands of borrowers who are falling behind on their payments have been sent letters about the options, and Bush also urged people to call a new hot line: 1-888-995-HOPE. The announcement followed the news earlier Thursday that home foreclosures surged to an all-time high in the July-September period."
"Wal-Mart Stores, the world's largest retailer, and warehouse club operators Costco Wholesale and BJ's Wholesale were among those retailers that managed to report stronger-than-expected sales."
It's a Christmas miracle!
Default rate on junk bonds seen spiking in '08 - Dec. 6, 2007
Containment is expending.....
Should the Plan reward those borrowers committing fraud? Here's what they have to say:
"In issuing this Statement, the ASF notes that fraud in connection with loan origination was a
contributing factor to the wave of defaults to date on subprime loans. This Statement is designed
to avoid rewarding borrowers who may have participated in fraud. Consistent with this intent, the
fast track loan modification procedures outlined in this Statement are targeted to borrowers who
occupy their homes as primary residences and who have established a track record of being
willing and able to make their loan payments at the current interest rate. In addition, the ASF
recommends that all existing contractual obligations and remedies related to fraudulent mortgage
origination activity should be strictly enforced."
So overstating income is not an important source of fraud!
And here's the smoking gun that this is not in the interest of investors, or anyone else for that matter:
"If the current FICO score is less than 660 and is less than a score 10% higher
than the FICO score at origination, the borrower is considered to have met the
FICO test. If the borrower meets the FICO test, the servicer will generally
not determine the borrowers current income."
Lurker,
Well that was informative....AND REALLY FRICKIN' SCARY!
Thanks though,
Cheers,
Even with all the mess with mortgages, credit and defaults, I would be less bearish if oil were still $60.
17 months ago, the market absolutely freaked over $75 oil because that market knew the U.S. economy couldn't avoid a recession with oil that high.
Today, we have $90 oil, up $3 in one day, and the market doesn't even notice.
Even if everything else were fine, $90 oil would ruin the U.S. economy, until consumption slowed enough to bring it down.
Front-page article in today's NY Times, OPEC is happy with things where they are and the new oil range (given weak dollar and supply/demand) will be around $90-110.
Two days ago, same source, Maine economy is collapsing because truckers who transport logs can no longer afford diesel. They are a big part of a small, fragile economy.
All you bearish market timers, watch out. $90 oil is lethal to the status quo.
can't wait to see james in the port authority bus station with his "will pump equities for food" sig
"Prime delinquency increased to 3.12% from 2.73% in Q2." Some might wonder why such a seemingly small increase is already having such a big impact on GSE earnings and MBS valuations. Think triple leverage inflection point. 1. $ Delinquent up c. 15% 2. Loss per $ delinquent up c. 100% (10% versus 20%)3. Credit reserve coverage c. 1.15 to .50. Hence quarterly earnings go from +$2b to -$2b with just a 40bp swing in delinquency rate. 3% capital surplus for a GSE is a little thin for this taxpayer's taste.
Does it bother anyone else that the delinquency rate is so high at a time when interest rates are still near historical lows? When the default rate peaked in 1985, real mortgage rates were around 10 percent, compared with 4 percent today.
Present cyclical concerns aside, given the collapse of the dollar and long-term fiscal imbalance, it would seem that interest rates need to rise. That can't be good.
Yes, but higher interest rates will not hurt as much as higher other costs, in part because mortgage interest is tax-deductible.
It bothers me that CPI is so greatly understating price increases felt by the average household. And rising costs are feeding foreclosures.
My family health insurance just went up 10% for 2008. That might not sound so bad. But 10% for me is an increase of just over $200 per month.
--
High delinq rate is one thing and the dollars involved, as a % of GDP, is another thing that makes the problem much worse than 1980s.
Jas
How could this be? The increase in loss rates on mortgages originated in 2006 and 2007 are 2 to 4 times, respectively, historical levels? I don't see how that jibes with this chart.