Steve, I haven't had any time today other than to except from a few articles. Hopefully I'll have some free time later today. There wasn't much in the claims report this week - one or another.
10% in the previous bubbly markets- Iowa might drop two percent. So let's call it 7% by Ofheo- with allowances for smoothing maybe 5.5%
Foreclosures are coming, but the investors want to buy at most at 120x rent- a metric that has been ignored for far too long....so stagnation until desperation will be the order of the day.
Uglyness is approaching now.
But then markets are either seized by fear or geed- we just had the greed, now we get the fear.
Dr Doom warns of liquidity-credit blur DR Doom is back. Henry Kaufman, the legendary chief economist for Salomon Brothers in the 1970s and 1980s, earned his nickname for gloomy (and usually correct) forecasts of higher inflation and interest rates.
"Why it won't provide a 'nest egg' for retirement"
And my personal favorite:
"Why you won't be able to move someplace cheaper, like Houston"
Gee, ya gotta love the WSJ. Nothing like twisting the knife, for adding that little extra fizz to your gin and tonic. Looking forward to the editorial, "Boomers! Got dog food?"
"National City Reports MI Dispute
In a regulatory filing with the Securities and Exchange Commission, Cleveland-based National City Corp. says one of the two mortgage insurance companies covering its home equity loan portfolio has refused to make claims payments."
"Credit Quality
Credit trends in the core commercial and consumer portfolios continue to be stable. The Corporations largest nonperforming exposure at December 31, a series of residential development and construction loans totaling $46 million and involving a single developer, has been or is expected to be sold prior to the end of the first quarter at a discount slightly less than the allocated allowance. No new problem loans of significance have been identified in the commercial, commercial real estate, and residential real estate development sectors.
With respect to the run-off portfolios, National Home Equity has seen some increase in delinquency and loss rates consistent with a decreasing portfolio balance and observed stresses in the housing markets. In the nonconforming mortgage (First Franklin) portfolio, delinquency trends and losses have thus far been consistent with the expectations embodied in the year-end loan loss reserve. As previously disclosed, a sub-portfolio of second mortgages, totaling $2.2 billion at December 31, is covered under lender paid mortgage insurance written by two different carriers, and these policies are in turn subject to 50% reinsurance by a National City subsidiary. While one of the insurers has been paying submitted claims promptly, the other has been rejecting a meaningful number of claims filed for reasons that National City believes are inappropriate under the insurance contract. Should this situation not be resolved through negotiation by the end of March, National City plans to pursue all available contractual and legal remedies to achieve payment of valid claims. In this circumstance, all such loans in dispute will be fully charged off or equivalently reserved. Further, the allowance for loan losses is subject to adjustment based on changing expectations of insurance recoveries from the carrier. The exact amount of the required adjustment to the allowance for loan losses arising from these circumstances has not been determined; however, it is currently estimated to be on the order of $50 million, which could be partially offset by a reduction in reinsurance expense at the insurance subsidiary. "
It's really going to be interesting when tighter lending guidelines start to filter through the system on a large scale. Not only is supply about to increase due to foreclosures (and new builds....and houses from sales that fell through) but true buyers will hold off buying because they anticipate falling prices combined with many original "true" buyers finding out they don't have the credit standing to borrow enough.
So what we have is: (even more supply) + (buyers on hold) + (buyers fading away because they can't get enough money to pay-up) = SHIT SANDWICH
Yet the stock market remains remarkably resilient. Looks like it's going to be death by a thousand cuts for the market, instead of fireworks.
If (big if!) the market senses it is going to be death by a thousand cuts, it might not take a thousand. For instance, it seems to me it should take a thousand licks to get to the center of a Tootsie Pop. However...
Tootsie Pop Boy: Mr. Owl, how many licks does it take to get to the Tootsie Roll center of a Tootsie Pop? Mr. Owl: Let's find out. One... two-HOO... three.. Mr. Owl: Crunch! Mr. Owl: Three!
Then again, we might just muddle through. I don't claim to know.
Did anyone see Christopher Dodd saying that the gov. should make legistlation to SAVE the subprime borrowers. He said we can't have 2+million homes foreclosed.
I knew that these McMansion scumbags would get away with this. Live beyond ones means and then let the taxpayers bail you out. Do I have to pay for his Hummer too?
This Bloomberg article on the same topic explains why you should take Rosenberg with a boulder of salt.
Rosenberg...predicted in May 2005 that the Fed would stop lifting interest rates at 3.25 percent and be forced to reduce them by the end of 2006. The Fed paused last August with rates at 5.25 percent. In October, Rosenberg forecast the Fed would cut rates by 50 basis points before the end of March.
I think your (OFHEO measured) prediction is still very valid, given all the factors that weigh on median home pricing (e.g., remaining buyers skewing upwards). Real declines on comparable housing will be much greater, of course.
Mortgage woes: More trouble for retailers
Credit crunch could crimp spending by shoppers at Wal-Mart, Target, other chains. Will the high end get hit too?
he said retailers could see sales of big-ticket items slow. Auto sales, already weak, could slump further. Appliance and furniture will also be vulnerable. Consumers will want to postpone these purchases that they would typically make on credit, he said.
WSJ lead story on survey of economists (check Lonski quote - can't decide whether it's amusing or appalling):
"Most economic forecasters in a new WSJ.com survey believe recent turmoil in the subprime mortgage market is likely to spread to the broader mortgage market and they expect a widely followed index of home prices to fall this year. But they still think the U.S. will avoid a recession and even a significant rise in unemployment.
"The markets may have over-reacted," said John Lonski of Moody's Investors Service. "Only businesses significantly exposed to subprime will be hurt. Mortgage repayment problems aren't as widespread as we are led to believe. If most people were having trouble paying the mortgage, it would lead to declining consumer confidence and we haven't seen that."
Of the 60 economists surveyed, 32 said it is either "very" or "somewhat" likely that the intense and speedy unraveling of the market for subprime mortgages -- home loans made to people with poor credit histories - will spill over to the rest of the mortgage market.
But 26 said that's not likely. Two didn't respond."
My fear, of course, with this newfound bearishness on Merrill's part is that it is caused by the Steppenwolf Scenario (you don't know what we can see).
NCC, on the other hand, may have simply failed to re-modulate its phaser rifles after the first shot, and the MI Borgs have adapted.
Seriously, Cal, although you might of course be right, I kind of doubt that NCC would be threatening to take the MI to court if the MI had evidence of misrep at the loan level. It strikes me as more likely that they're arguing about that reinsurance arrangement. It appears that NCC's re sub is taking 50% of the loss, but it isn't clear to me which 50% that is. Possibly that's what they're arguing about: NCC thinks the contract means they take 50% of any loss, the MI thinks the contract means NCC takes the first 50% of the total coverage amount, and only then will the MI have to pay any. Or something like that. I have wondered for a while whether all those lender paid MI/reinsurance deals were as foolproof as some of the sales people on both sides liked to claim.
But higher scores in non-prime loans have double the fraud rate-since crooks aren't going to create shaky, edge-of-bankruptcy profiles to get these loans. "Intuitively, that makes sense," Grace says. "Why would a high credit score be going to a nonprime lender?"
He makes a rather basic point about CDOs: the originator packages a lot of junk debt, and turns it into products with much higher average ratings. He really indicts the rating services. He points out that all these derivatives that get ratings have been a big driver of growth fot the rating firms.
Can they call and chat and find out if they get the same reponse as this story:
"I hold four mortgages with CFC and I think it's a great company, but yesterday I called the customer service line to inquire about something and after my question was answered the rep on the phone starts asking me if I'd be interested in decreasing the term on any of my loans in order to pay them off early! That's supicious. Just a few months ago they were hitting me up to do a cash out refi. When has a lending company of any sort ever wanted their customers to pay down a loan early!? I started wondering if they're concerned with their own liquidity or if they're attempting to increase their loan loss reserves. Strange. "
Grant and a few others sometimes confuse the hell outta me. What's wrong with taking the highest-rated 70% of a BBB pool and rating it AAA? Does Grant not understand it's over-collateralized or did I miss something?
I have two loans with them and they have increased the administrative processing fees in the last month. For example, they have increased auto-payments from the customers bank from $4 to $8 per transaction. It might not be much but it shows that they are trying to scrape together every last penny.
IMO, liquidity has dried up faster than they had expected and they are scrambling to find any kind of solution.
Oh dear God, I just listened to the Hillary interview. Have FHA step in and refinance the subprime loans to get them better rates so they can pay on time???? FHA/VA may be our staple products going forward unless we dump the non-paying subprimes in.
Surely the answer to all of this will come from a politician.
What mortgage woes? Last night got a call offering me 2 1/2% minimum for 10 years, although she suggested I not always pay the minimum (how thoughtful!). Underlying (or max?) rate was 7 1/2%
Then this afternoon got an email from "Wholesale Lending" at Everbank offering a whole steaming pile of mortgage options including stated income ARMS, IO seconds. https://www.everbankwholesale.com/ProductInformation.asp#
Lots of detail on features, quals, eligible/ ineligible properties, buyers, states, etc. (The EXECUTIVE MONTHLY LIBOR ARM - STATED INCOME has a note showing that as of 3/1/07 Ohio is ineligible and also that cash out not allowed in Texas)
But one wonders just how long the HFs can keep manufacturing these opportunities.
Clearly if Merrill is pushing the game with lines like "House prices could tumble 10 percent this year ..." this is marketing that helps some HFs and not others.
Probert, You are right structure really improves the credit. However, I agree with Grant. AAA means to me virtually no chance of loss of principal in the next 10 years.
The 30% first loss buffer makes the security very high quality.
IMO a normal but housing focussed recession, given the poor quality underwriting, declining real estate prices and ARM resets puts the top 70% at risk. This is not AAA.(AA or A but still very unlikely to incurr losses.
My assumption is it's hard but at the top of a boom you can assemble a group of BBB mortgages, diversified by location, that will eventually lose over 30% of principal.
Would appreciate any comments by more knowledgeable posters on whether this is possible.
"by more knowledgeable posters" is your un-doing vicjim --already rating your readers and perhaps intimidating those who may be shy (imagine, in today's world being shy!)[Ok, "conservative" in their estimates of their self-assessments] (Imagine under-estimating your knowledge and intelligence in today's world!)
Ok, please skip the problematic and possibly self-deprecating if not intimidating "by more knowledgeable posters" next time.
About the only Bloomberg journalist I read anymore has a related bit here about ratings. It B on topic, not as it might appear to you: Moody's, Stupid or Greedy, Flip-Flops on Banks: Mark Gilbert - Bloomberg.com
David Rosenberg strikes again!
First!
Oh shoot...
Second!
No jobless claims update today?
Steve, I haven't had any time today other than to except from a few articles. Hopefully I'll have some free time later today. There wasn't much in the claims report this week - one or another.
Best Wishes.
10% in the previous bubbly markets- Iowa might drop two percent. So let's call it 7% by Ofheo- with allowances for smoothing maybe 5.5%
Foreclosures are coming, but the investors want to buy at most at 120x rent- a metric that has been ignored for far too long....so stagnation until desperation will be the order of the day.
Uglyness is approaching now.
But then markets are either seized by fear or geed- we just had the greed, now we get the fear.
Dr Doom warns of liquidity-credit blur
DR Doom is back. Henry Kaufman, the legendary chief economist for Salomon Brothers in the 1970s and 1980s, earned his nickname for gloomy (and usually correct) forecasts of higher inflation and interest rates.
From WSJ online (by way of Yahoo!):
Why your home is not the (great) investment you thought it was
good
Short version:
Dear Suckers,
Thanks for your cash! (Have a nice retirement!)
Including such tidbits of wisdom as:
"Why it isn't necessarily better than renting",
"Why it won't provide a 'nest egg' for retirement"
And my personal favorite:
"Why you won't be able to move someplace cheaper, like Houston"
Gee, ya gotta love the WSJ. Nothing like twisting the knife, for adding that little extra fizz to your gin and tonic. Looking forward to the editorial, "Boomers! Got dog food?"
From national mortgage news email:
"National City Reports MI Dispute
In a regulatory filing with the Securities and Exchange Commission, Cleveland-based National City Corp. says one of the two mortgage insurance companies covering its home equity loan portfolio has refused to make claims payments."
Juicy!
Yet the stock market remains remarkably resilient. Looks like it's going to be death by a thousand cuts for the market, instead of fireworks.
Mrs. Brooklynite and I are looking to buy a country house around November 2008 or so. Might be a little early, but I'm keeping a close eye on things.
Tomorrow should be an interesting day . . . who wants to go into the weekend wiuth all this noise hanging over the market?
More on the NCC from the filing:
"Credit Quality
Credit trends in the core commercial and consumer portfolios continue to be stable. The Corporations largest nonperforming exposure at December 31, a series of residential development and construction loans totaling $46 million and involving a single developer, has been or is expected to be sold prior to the end of the first quarter at a discount slightly less than the allocated allowance. No new problem loans of significance have been identified in the commercial, commercial real estate, and residential real estate development sectors.
With respect to the run-off portfolios, National Home Equity has seen some increase in delinquency and loss rates consistent with a decreasing portfolio balance and observed stresses in the housing markets. In the nonconforming mortgage (First Franklin) portfolio, delinquency trends and losses have thus far been consistent with the expectations embodied in the year-end loan loss reserve. As previously disclosed, a sub-portfolio of second mortgages, totaling $2.2 billion at December 31, is covered under lender paid mortgage insurance written by two different carriers, and these policies are in turn subject to 50% reinsurance by a National City subsidiary. While one of the insurers has been paying submitted claims promptly, the other has been rejecting a meaningful number of claims filed for reasons that National City believes are inappropriate under the insurance contract. Should this situation not be resolved through negotiation by the end of March, National City plans to pursue all available contractual and legal remedies to achieve payment of valid claims. In this circumstance, all such loans in dispute will be fully charged off or equivalently reserved. Further, the allowance for loan losses is subject to adjustment based on changing expectations of insurance recoveries from the carrier. The exact amount of the required adjustment to the allowance for loan losses arising from these circumstances has not been determined; however, it is currently estimated to be on the order of $50 million, which could be partially offset by a reduction in reinsurance expense at the insurance subsidiary. "
EX-99.1
Want to bet they are saying NCC misrepresented the loans?
It's really going to be interesting when tighter lending guidelines start to filter through the system on a large scale. Not only is supply about to increase due to foreclosures (and new builds....and houses from sales that fell through) but true buyers will hold off buying because they anticipate falling prices combined with many original "true" buyers finding out they don't have the credit standing to borrow enough.
So what we have is: (even more supply) + (buyers on hold) + (buyers fading away because they can't get enough money to pay-up) = SHIT SANDWICH
I'm a bear, and thats way too bearish...
If the market was liquid, yeah, it could drop that fast. But even with a "raft" of forclosures, the market isn't liquid enough IMO
Sorry if this has already been posted, but Ameriquest is reportedly laying off quite a few workers.
Layoffs at Ameriquest parent | acc, ameriquest, orange - Business - The Orange County Register
Roubini
RGE - The Ten Faulty Consensus Views about Sub-prime and Soft-Landing…and the Ten Ugly Truths about the Coming Economic and Financial Hard Landing
Yet the stock market remains remarkably resilient. Looks like it's going to be death by a thousand cuts for the market, instead of fireworks.
If (big if!) the market senses it is going to be death by a thousand cuts, it might not take a thousand. For instance, it seems to me it should take a thousand licks to get to the center of a Tootsie Pop. However...
Tootsie Pop
Boy: Mr. Owl, how many licks does it take to get to the Tootsie Roll center of a Tootsie Pop?
Mr. Owl: Let's find out. One... two-HOO... three..
Mr. Owl: Crunch!
Mr. Owl: Three!
Then again, we might just muddle through. I don't claim to know.
Nice! I'm old enough (and young enough) to remember that.
Did anyone see Christopher Dodd saying that the gov. should make legistlation to SAVE the subprime borrowers. He said we can't have 2+million homes foreclosed.
I knew that these McMansion scumbags would get away with this. Live beyond ones means and then let the taxpayers bail you out. Do I have to pay for his Hummer too?
Will the gov. really step in?
This Bloomberg article on the same topic explains why you should take Rosenberg with a boulder of salt.
Rosenberg...predicted in May 2005 that the Fed would stop lifting interest rates at 3.25 percent and be forced to reduce them by the end of 2006. The Fed paused last August with rates at 5.25 percent. In October, Rosenberg forecast the Fed would cut rates by 50 basis points before the end of March.
CR,
I think your (OFHEO measured) prediction is still very valid, given all the factors that weigh on median home pricing (e.g., remaining buyers skewing upwards). Real declines on comparable housing will be much greater, of course.
First person to bring up "Senior Vittles" gets a "Pet Rock" to back of their head.
Mortgage woes: More trouble for retailers
Credit crunch could crimp spending by shoppers at Wal-Mart, Target, other chains. Will the high end get hit too?
Mortgage turmoil: Another problem for retailers - Mar. 15, 2007
he said retailers could see sales of big-ticket items slow. Auto sales, already weak, could slump further. Appliance and furniture will also be vulnerable. Consumers will want to postpone these purchases that they would typically make on credit, he said.
Ugh, don't get me started on Chris Dodd. The guys just another shill.
Given the Empire State survey, the ISM index may surprise to the downside. This "growth recession" may be closer than Merrill thinks it is.
WSJ lead story on survey of economists (check Lonski quote - can't decide whether it's amusing or appalling):
"Most economic forecasters in a new WSJ.com survey believe recent turmoil in the subprime mortgage market is likely to spread to the broader mortgage market and they expect a widely followed index of home prices to fall this year. But they still think the U.S. will avoid a recession and even a significant rise in unemployment.
"The markets may have over-reacted," said John Lonski of Moody's Investors Service. "Only businesses significantly exposed to subprime will be hurt. Mortgage repayment problems aren't as widespread as we are led to believe. If most people were having trouble paying the mortgage, it would lead to declining consumer confidence and we haven't seen that."
Of the 60 economists surveyed, 32 said it is either "very" or "somewhat" likely that the intense and speedy unraveling of the market for subprime mortgages -- home loans made to people with poor credit histories - will spill over to the rest of the mortgage market.
But 26 said that's not likely. Two didn't respond."
My fear, of course, with this newfound bearishness on Merrill's part is that it is caused by the Steppenwolf Scenario (you don't know what we can see).
NCC, on the other hand, may have simply failed to re-modulate its phaser rifles after the first shot, and the MI Borgs have adapted.
Seriously, Cal, although you might of course be right, I kind of doubt that NCC would be threatening to take the MI to court if the MI had evidence of misrep at the loan level. It strikes me as more likely that they're arguing about that reinsurance arrangement. It appears that NCC's re sub is taking 50% of the loss, but it isn't clear to me which 50% that is. Possibly that's what they're arguing about: NCC thinks the contract means they take 50% of any loss, the MI thinks the contract means NCC takes the first 50% of the total coverage amount, and only then will the MI have to pay any. Or something like that. I have wondered for a while whether all those lender paid MI/reinsurance deals were as foolproof as some of the sales people on both sides liked to claim.
anyone in the R/E industry can confirm this story:
Blogger: Blog not found
"Boomers! Got dog food?"
LOL
at least they can live in their hummers!
But higher scores in non-prime loans have double the fraud rate-since crooks aren't going to create shaky, edge-of-bankruptcy profiles to get these loans. "Intuitively, that makes sense," Grace says. "Why would a high credit score be going to a nonprime lender?"
Mortgage Securities: Slow MBS Market Hikes Fraud Risk - Bank Technology News Article
This guy is going to get a lot of hits on his page in the near future. Dog food over ramen might be good, who knows?
The Official Ramen Homepage
The Official Ramen Homepage
Evidence of lender tightening:
Mortgage Grapevine: Fieldstone just announced they are limiting YSP to 0.5%! Anyone else doing that?
Not a good day for lenders
Investaid Corp. closing its doors!!
Mortgage Grapevine: Investaid Corp. closing its doors!!
Argent, nationstar and southstar laid off Ops this morning
Mortgage Grapevine: Argent laid off Ops this morning
ex-New Century underwater in 8 month old house
Mortgage Grapevine: Soon to be ex-New Century manager needs advice
There's an interesting interview with James Grant at Bloomberg TV.
He makes a rather basic point about CDOs: the originator packages a lot of junk debt, and turns it into products with much higher average ratings. He really indicts the rating services. He points out that all these derivatives that get ratings have been a big driver of growth fot the rating firms.
Does anyone has a CFC loan ?
Can they call and chat and find out if they get the same reponse as this story:
"I hold four mortgages with CFC and I think it's a great company, but yesterday I called the customer service line to inquire about something and after my question was answered the rep on the phone starts asking me if I'd be interested in decreasing the term on any of my loans in order to pay them off early! That's supicious. Just a few months ago they were hitting me up to do a cash out refi. When has a lending company of any sort ever wanted their customers to pay down a loan early!? I started wondering if they're concerned with their own liquidity or if they're attempting to increase their loan loss reserves. Strange. "
Re: Grant
Grant and a few others sometimes confuse the hell outta me. What's wrong with taking the highest-rated 70% of a BBB pool and rating it AAA? Does Grant not understand it's over-collateralized or did I miss something?
As for CFC:
I have two loans with them and they have increased the administrative processing fees in the last month. For example, they have increased auto-payments from the customers bank from $4 to $8 per transaction. It might not be much but it shows that they are trying to scrape together every last penny.
IMO, liquidity has dried up faster than they had expected and they are scrambling to find any kind of solution.
Yes sir, it is the AAA of the BBB world...
Oh dear God, I just listened to the Hillary interview. Have FHA step in and refinance the subprime loans to get them better rates so they can pay on time???? FHA/VA may be our staple products going forward unless we dump the non-paying subprimes in.
Surely the answer to all of this will come from a politician.
I think a better gauge than the averages for the stock market is an individual stock that is much beloved by the guys who sell stocks:
HTR
It is wall to wall MBS. And they have issued a presser saying that they have 2% subprime exposure...not to worry.
And they were actually up at the beginning of the day.
But not at the end. They've fallen quite a bit, and I wonder whether they'll survive to tell the truth.
Keep an eye on HTR. A lot of traders are.
Thirty eight!
What mortgage woes? Last night got a call offering me 2 1/2% minimum for 10 years, although she suggested I not always pay the minimum (how thoughtful!). Underlying (or max?) rate was 7 1/2%
Then this afternoon got an email from "Wholesale Lending" at Everbank offering a whole steaming pile of mortgage options including stated income ARMS, IO seconds.
https://www.everbankwholesale.com/ProductInformation.asp#
Lots of detail on features, quals, eligible/ ineligible properties, buyers, states, etc. (The EXECUTIVE MONTHLY LIBOR ARM - STATED INCOME has a note showing that as of 3/1/07 Ohio is ineligible and also that cash out not allowed in Texas)
I guess nobody reads the papers anymore?
Not everybody is losing money it appears:
Subprime Defaults to Soar, Hurt Lenders, Funds Say (Update1) - Bloomberg.com
But one wonders just how long the HFs can keep manufacturing these opportunities.
Clearly if Merrill is pushing the game with lines like "House prices could tumble 10 percent this year ..." this is marketing that helps some HFs and not others.
Probert, You are right structure really improves the credit. However, I agree with Grant. AAA means to me virtually no chance of loss of principal in the next 10 years.
The 30% first loss buffer makes the security very high quality.
IMO a normal but housing focussed recession, given the poor quality underwriting, declining real estate prices and ARM resets puts the top 70% at risk. This is not AAA.(AA or A but still very unlikely to incurr losses.
My assumption is it's hard but at the top of a boom you can assemble a group of BBB mortgages, diversified by location, that will eventually lose over 30% of principal.
Would appreciate any comments by more knowledgeable posters on whether this is possible.
"by more knowledgeable posters" is your un-doing vicjim --already rating your readers and perhaps intimidating those who may be shy (imagine, in today's world being shy!)[Ok, "conservative" in their estimates of their self-assessments] (Imagine under-estimating your knowledge and intelligence in today's world!)
Ok, please skip the problematic and possibly self-deprecating if not intimidating "by more knowledgeable posters" next time.
About the only Bloomberg journalist I read anymore has a related bit here about ratings. It B on topic, not as it might appear to you:
Moody's, Stupid or Greedy, Flip-Flops on Banks: Mark Gilbert - Bloomberg.com