""I don't know that we've directly seen that yet, but I would agree with the idea that the friction caused by mortgages rubbing up against insurance policies causes flames."
For some reason that quote reminds me of a high school dance.
that takes a lotta ballz to burn a house down and risk getting caught and maybe going to jail rather than suffer the indignity of a BK and FC. I gotta believe it's gonna be a very small phenomenon. Yeah, a lot of people in a predicament right now made poor financial choices but they were legal choices. EVERYBODY knows burning a house down for insurance money is illegal.
Does burning it down work? I mean, insurance is for the replacement cost of the dwelling, not the value of the land. My fire insurance covers about 25% of the current sales value of my home, for example. So if you burn it, you still go bankrupt, but now without a house to live in.
After the sweetheart deal Dimon got from the Fed for Bear Stearns, Ken Lewis want's a do over:
May 2 (Bloomberg) -- Countrywide Financial Corp.'s credit rating was unexpectedly cut below investment grade by Standard & Poor's Corp., which cited doubt about whether Bank of America Corp. will back the home lender's debt after they merge.
Home-equity loans, as closed-end seconds are more commonly referred to outside the Street, were a huge part of the recent housing market run-up. HELs were a huge boost to consumer spending during the housing boom, and also made it possible for many homeowners to skirt private mortgage insurance by piggy-backing a second lien that covered up to 20 percent of a homes purchase price.
After reviewing and analyzing the performance data available for U.S. closed-end second-lien (CES) mortgage loans and the related residential mortgage-backed securities (RMBS), Standard & Poors Ratings Services believes that this market segment does not allow for a meaningful analysis of new issuance and securitization, the agency said in a press statement late Thursday.
No kidding. Most second lien holders finding loss severity to be at least 100 percent, if not greater. And with price declines showing no sign of letting up, S&P said that an unprecedented level of loan
performance deterioration has essentially made it impossible to rate second-lien RMBS going forward.
...
Investment Dealers Digest, which interviewed S&P spokesperson Adam Tempkin, noted that S&P is seeing borrower behavior that Tempkin characterized as anomolous and unprecendented a reference to a growing number of borrowers simply walking away from their homes.
Rational economic beings calculating their maximum utility would not burn the house down for insurance money, but of course many people considering this choice don't have a history of making utility maximizing decisions succesfully.
Or in professional economist-ese" Just 'cause its stupid doesn't mean folks won't do it."
Shnaps writes:
Not that dumbasses won't still try it.
Shnaps | Homepage | 05.02.08 - 4:30 pm | #
sdtfs writes:
Following what Shncaps said, you'll see arson increase if the arsonist makes money, not merely avoids losing some.
sdtfs | 05.02.08 - 4:31 pm | #
And as we all know, it's a money loser that both inconveniences and threatens the dumbass with prison, which for some, I'm sure who have been in before, will not be a great deterent with the 3 squares a day and all...
Shouldn't the lenders be mailing out notices to the underwater homeowners, saying something like, "If you torch your house, the bank likely gets the check from the insurance company and you go to jail???"
Well, replacement cost of dwelling and stuff in it, if you did your insurance right. The only way it would make any sense is if you had lots of very expensive stuff that you couldn't pay for and were underwater on the house. Even then, if you leave any proof at all you're hosed.
[While our preliminary calculations suggested that there may be a modest non-compliance to the minimum net assets requirement, we can now confirm that we are in compliance by approximately $65 million,]
BAC on CFC? Can someone here describe to me how CFC can be acquired without assuming its debt? I would like to go out and buy some going concern too, without assuming its debt. Makes profitability and risk a little easier to swallow.
Or is this just BAC identifying a clean way out of the deal... or better yet, angling for a Fed architected BSC-style bailout. Spoiled children. If Dimon can get one...
Its common for wholly owned subsidiaries of major corporations to be "ring fenced". Take the case of a multinational like Ford: lenders to the Brazilian operation know they only have access to that sub's capital in the absence of a specific parent company guarantee.
BofA can easily structure the Countrywide operation as a wholly owned sub. Protection for debt holders in such a case comes only in the form of: 1)covenants; or 2) "change in control" provisions. Theoretically, the debtholders could use such provisions to accelerate repayment and therefore scuttle the acquisition. Normally this threat gives them bargaining power, but in this case they have none -- Countrywide is just too far gone, so BofA knows accelerating payment would leave debtholders worse off.
DP - that sort of explains it but then why bother with the transaction at all since the CFC entity if left on its own won't get any cheaper financing nor will it produce any profits for BAC?
Whalen expects a transaction in which Bank of America will absorb the best assets, including Countrywide Bank, while the debt remains with a new company created by the merger, Red Oak Merger Corp. Red Oak may then file for bankruptcy, shielding Bank of America from liability, Whalen said.
How does this guy Whalen already know what they are going to call this bankrupt-at-birth company? And how did they come up with the name "Red Oak?"
How does this guy Whalen already know what they are going to call this bankrupt-at-birth company? And how did they come up with the name "Red Oak?"
John Stark
I recall the SEC Filing by BAC and CFC in Dec ( Jan ? ) - Red Oak was the entity created by BAC to buy up CFC - it all smelt rancid from the very beginning.
Good article!
"Prices on some of Countrywide's $97.2 billion in debt tumbled and instruments that protect investors from default posted their biggest jump in almost four months"
We might get a CDS test! I'll bet the Fed patches this up. Too big to fail.
Is S&P's downgrade of CFC the kind of material event that could let BAC escape from the buyout deal--even though BAC triggered the downgrade by announcing they may or may not pay off CFC's debt?
"In April, construction companies slashed 61,000 jobs. Manufacturers cut 46,000 and retailers got rid of 27,000. Those losses were eclipsed by job gains in education and health care, professional and business services, the government and elsewhere."
If I buy a house for rent, I am responsible for the debts incurred by the previous owner - from the taxes and mortgage down to the security deposits of tenants.
How nice it must be to be able to buy the enormous assets of a company like Countrywide and throw off the (probably much bigger) liabilities!
toobigtofail: "...government and elsewhere." The work created by the military and weapons trade, and off-shore sweatshop-cum-slave labor arbitrage for knick-knacks.
That is genius.
No evidence seen is due to -
lack of looking?
really skillful arsonists?
ohh you will, you will
OT Interesting "bounce off the red line" pattern the stock market follows... I've noticed this a lot lately, esp at near the end of doubtful session.
Dow Jones Industrial Average - Google Finance
""I don't know that we've directly seen that yet, but I would agree with the idea that the friction caused by mortgages rubbing up against insurance policies causes flames."
For some reason that quote reminds me of a high school dance.
that takes a lotta ballz to burn a house down and risk getting caught and maybe going to jail rather than suffer the indignity of a BK and FC. I gotta believe it's gonna be a very small phenomenon. Yeah, a lot of people in a predicament right now made poor financial choices but they were legal choices. EVERYBODY knows burning a house down for insurance money is illegal.
we'll see.
Just like everyone knows that lying on your stated income loan is illegal.
First clam bakes...now BBQ.
Tanta did a nice job of pointing out the futility of arson as a way out of mortgage debt the in this comment (from one of the threads last week.)
Not that dumbasses won't still try it.
Following what Shncaps said, you'll see arson increase if the arsonist makes money, not merely avoids losing some.
I've the heard the term "Fireclosure". Seems to balance the equation.
Sorry, that should be "Shcnaps".
Does burning it down work? I mean, insurance is for the replacement cost of the dwelling, not the value of the land. My fire insurance covers about 25% of the current sales value of my home, for example. So if you burn it, you still go bankrupt, but now without a house to live in.
Sort of a self eviction?
Darn- tell me again, where does the "c" in Shnaps go?
After the sweetheart deal Dimon got from the Fed for Bear Stearns, Ken Lewis want's a do over:
May 2 (Bloomberg) -- Countrywide Financial Corp.'s credit rating was unexpectedly cut below investment grade by Standard & Poor's Corp., which cited doubt about whether Bank of America Corp. will back the home lender's debt after they merge.
- Bloomberg.com
Instead of burning the house down, maybe people really ARE walking way; this from HousingWire:
S&P Stops Rating Home Equity RMBS; Cites “Anomalous” Borrower Behavior : HousingWire || financial news for the mortgage market
Standard & Poors Rating Services on Thursday did something that very few market participants expected: the agency said it would stop rating RMBS backed by so-called closed-end seconds altogether, whether prime or subprime.
Home-equity loans, as closed-end seconds are more commonly referred to outside the Street, were a huge part of the recent housing market run-up. HELs were a huge boost to consumer spending during the housing boom, and also made it possible for many homeowners to skirt private mortgage insurance by piggy-backing a second lien that covered up to 20 percent of a homes purchase price.
After reviewing and analyzing the performance data available for U.S. closed-end second-lien (CES) mortgage loans and the related residential mortgage-backed securities (RMBS), Standard & Poors Ratings Services believes that this market segment does not allow for a meaningful analysis of new issuance and securitization, the agency said in a press statement late Thursday.
No kidding. Most second lien holders finding loss severity to be at least 100 percent, if not greater. And with price declines showing no sign of letting up, S&P said that an unprecedented level of loan
performance deterioration has essentially made it impossible to rate second-lien RMBS going forward.
...
Investment Dealers Digest, which interviewed S&P spokesperson Adam Tempkin, noted that S&P is seeing borrower behavior that Tempkin characterized as anomolous and unprecendented a reference to a growing number of borrowers simply walking away from their homes.
-K
Arson is such a harsh word. Down here we prefer to think of it as a Southern gentleman selling out to Northern interests.
"Darn- tell me again, where does the "c" in Shnaps go?"
scdtfs I think
where does the "c" in Shnaps go?
Down the hatch. It's an apéritif, you know...
"After the sweetheart deal Dimon got from the Fed for Bear Stearns..."
Just wait.
Would be interesting to see a plot of arson/housefires by recessions.
Rational economic beings calculating their maximum utility would not burn the house down for insurance money, but of course many people considering this choice don't have a history of making utility maximizing decisions succesfully.
Or in professional economist-ese" Just 'cause its stupid doesn't mean folks won't do it."
Shnaps writes:
Not that dumbasses won't still try it.
Shnaps | Homepage | 05.02.08 - 4:30 pm | #
sdtfs writes:
Following what Shncaps said, you'll see arson increase if the arsonist makes money, not merely avoids losing some.
sdtfs | 05.02.08 - 4:31 pm | #
And as we all know, it's a money loser that both inconveniences and threatens the dumbass with prison, which for some, I'm sure who have been in before, will not be a great deterent with the 3 squares a day and all...
Funny line, probably not that true. As Tanta points out, fire insurance doesn't cover the land. And the land is generally what's losing value.
1% of Americans in jail now.
One per cent of Americans now in jail -
Americas, World - The Independent
B4 this is over.....what....2%
1% of Americans in jail now.
B4 this is over.....what....2%
Nah, a different 1% is all.
Just depends which class takes up the McBBQs. Kinda like crack v. cocaine.
I wish those fargin alt-a and io loans would reset quicker. I can't take all this bottom calling security write-up talk any more.
Perhaps S&P just torched Countrywide.
(If that metaphor seems too extreme, it is just my attempt to stay on topic.)
Read about the impact of CFC's new junk rating:
404 Page not found
Shouldn't the lenders be mailing out notices to the underwater homeowners, saying something like, "If you torch your house, the bank likely gets the check from the insurance company and you go to jail???"
Canadian watching with popcorn writes:
1% of Americans in jail now.
B4 this is over.....what....2%
Yet another way to keep the unemployment rate down.
Didn't Countrywide borrow several billion from the Fed?
Well, replacement cost of dwelling and stuff in it, if you did your insurance right. The only way it would make any sense is if you had lots of very expensive stuff that you couldn't pay for and were underwater on the house. Even then, if you leave any proof at all you're hosed.
OK, stop, just a sec, we're actually now discussing semi-rationally how underwater houses are burning. How can you not. love. English?
ABK == AAA? tick tock tick tock
[While our preliminary calculations suggested that there may be a modest non-compliance to the minimum net assets requirement, we can now confirm that we are in compliance by approximately $65 million,]
""Tranches of Like""
""Would be interesting to see a plot of arson/housefires by recessions.""
Nah, too many variables, too many definition problems.
It's like trying to plot stupidity vs. time.
BAC on CFC? Can someone here describe to me how CFC can be acquired without assuming its debt? I would like to go out and buy some going concern too, without assuming its debt. Makes profitability and risk a little easier to swallow.
Or is this just BAC identifying a clean way out of the deal... or better yet, angling for a Fed architected BSC-style bailout. Spoiled children. If Dimon can get one...
Perfect - A way to delay or deny claims - "We are investigating the fire, and reserve that right"
Barely,
Its common for wholly owned subsidiaries of major corporations to be "ring fenced". Take the case of a multinational like Ford: lenders to the Brazilian operation know they only have access to that sub's capital in the absence of a specific parent company guarantee.
BofA can easily structure the Countrywide operation as a wholly owned sub. Protection for debt holders in such a case comes only in the form of: 1)covenants; or 2) "change in control" provisions. Theoretically, the debtholders could use such provisions to accelerate repayment and therefore scuttle the acquisition. Normally this threat gives them bargaining power, but in this case they have none -- Countrywide is just too far gone, so BofA knows accelerating payment would leave debtholders worse off.
DP - that sort of explains it but then why bother with the transaction at all since the CFC entity if left on its own won't get any cheaper financing nor will it produce any profits for BAC?
To those wondering how BAC could buy CFC but not its debts:
Countrywide Rating Cut to `Junk' By Standard & Poor's (Update4) - Bloomberg.com
Key excerpt:
Whalen expects a transaction in which Bank of America will absorb the best assets, including Countrywide Bank, while the debt remains with a new company created by the merger, Red Oak Merger Corp. Red Oak may then file for bankruptcy, shielding Bank of America from liability, Whalen said.
How does this guy Whalen already know what they are going to call this bankrupt-at-birth company? And how did they come up with the name "Red Oak?"
How does this guy Whalen already know what they are going to call this bankrupt-at-birth company? And how did they come up with the name "Red Oak?"
John Stark
I recall the SEC Filing by BAC and CFC in Dec ( Jan ? ) - Red Oak was the entity created by BAC to buy up CFC - it all smelt rancid from the very beginning.
-K
Stark - If I held the debt that was going to be left to fail I would try to accelerate to prevent the transaction, no?
Bac will just set fire to Countrywide's debt papers and walk away!
Good article!
"Prices on some of Countrywide's $97.2 billion in debt tumbled and instruments that protect investors from default posted their biggest jump in almost four months"
We might get a CDS test! I'll bet the Fed patches this up. Too big to fail.
Is S&P's downgrade of CFC the kind of material event that could let BAC escape from the buyout deal--even though BAC triggered the downgrade by announcing they may or may not pay off CFC's debt?
The great thing about SoCal is that one arsonist can torch a whole neighborhood when the Santa Anas are blowing.
Somehow, the idea of passing the hat to pay Guido's "fee" doesn't seem all that far-fetched anymore.
cd
I'd like to see a graph of the correlation between 90 days behind on payments and house burns to ground.
U.S. Economy Gets Jolt Of Good News - CBS News
"In April, construction companies slashed 61,000 jobs. Manufacturers cut 46,000 and retailers got rid of 27,000. Those losses were eclipsed by job gains in education and health care, professional and business services, the government and elsewhere."
elsewhere
i love this country
If I buy a house for rent, I am responsible for the debts incurred by the previous owner - from the taxes and mortgage down to the security deposits of tenants.
How nice it must be to be able to buy the enormous assets of a company like Countrywide and throw off the (probably much bigger) liabilities!
Great deal if you can get it.
toobigtofail: "...government and elsewhere." The work created by the military and weapons trade, and off-shore sweatshop-cum-slave labor arbitrage for knick-knacks.
Now if we see lenders lighting up, we will know things are really serious.
Arson was pretty frequent in the midwest rust belt days of the 70's and 80's so I wouldn't be surprised to see the incidence increase.
Just get a neighbor in the same boat to reciprocate and you can both be out of town when in happens.