Credit Suisse: "not just a subprime issue"
Submitted by
CalculatedRisk on Mon, 03/12/2007 - 8:36am (32 comments)
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My brother has 15 years in the mortgage business and 10 years as a RE broker. He told me 6 months ago that if defaults go into the alt a loans watch out!
Keep your hands inside the car at all times!
40% of the market at risk!!!
Sell now or be locked in forever.
I'm expecting to be in the market for a standard 20% down mortgage perhaps next year, but I won't buy until I get a 40-60% discount off Spring 2007 prices.
It'll happen!
Ivy Zellman is tops.
I call a top on the S&P 500.
Definition: nothing greater than a 0.5% gain from here on in. 20% loss over the next 12 months.
Hey! A Wall St analyst who can connect the dots!
Remember new homes are 1/7th of all home sales and the 40% of those "at risk" aren't worth zero. This might make the HB -stocks- worth sh!t but it isn't some death knell for the economy. We've got a massive overhang in inventory so fewer new homes built is a relief valve for the general economy.
An underlying question still remains: what percentage of the risk-derivative market is recursive?
I've said before and say again: did investor A buy the risk of bank B and fund it by borrowing from bank B which then sold the risk to investor A who then borrowed from bank B who...
Pull out one pin and what happens?
--
CR,
Bears like myself have known for quite some time that 2007 will be lot worse than 2006 for housing as well as the US economy. It was based on looking at the true supply-demand rather than the propaganda version of the supply-demand for housing.
2008 would be worse than 2007 and 2009 worse than 2008. Sadly, this decade will end on a horrible note for morally bankrupt America. The Twin Bubbles over the past dozen years are the best evidence of widespread moral bankruptcy among American leaders and the led. A sordid tale of Bankrupters' deeds can be read at:
Quiggleme.com
The real story of America overt the past dozen years is one of rise in moral corruption and moral bankruptcy. The coming economic bankruptcy of America will follow directly from this moral bankruptcy. And all this will happen within this decade.
Not just a subprime issue." More supply. Lower demand. Lower prices.
Going forward the real demand for SFH RE may fall significantly below the 6.5% average turnover rates. Common belief says that a significant price decline in SFH prices will lead to a increase in sales, but housing demand above the 6.5% rate seems to be more wishful thinking,when one factors in the large % of current households that allready have a mortgage. Maybe hedge funds will buy up large number of REO homes or other REIT investor funds but that's not going to eat up the supply. This large oversupply of homes created by the credit bubble cannot be absorbded by middle class families that are living paycheck to paycheck with a negative saving rate.
I call a top on the S&P 500. ... Definition: nothing greater than a 0.5% gain from here on in. 20% loss over the next 12 months.
I went to cash in September, and second guessed the wisdom of it until early February. I've been amazed to watch the speed with which the events of the past relatively few weeks unfold. In this context, very little would surprise me now.
We believe that 40% of the market ... is at risk of significant fallout from tightening credit and increased regulatory scrutiny. In particular, we believe the most pressing areas of concern should be stated income (49% of originations), high CLTV/piggyback (39%), and interest only/negative amortizing loans (23%)....
CR is full post on this somewhere? wondering how she derived 40 percent from the percentage figs she listed below...
PS - Do you all find it interesting that bear stearns took a beatin' from the Times top of front page Sunday over its overly optimistic picture of the mortgage market --but late last week offered that very sobering "1.1 million" homeowners potentially out of mkt figure. A bit of damage control perhaps, instead of returning the Times's phone calls?
Glad the piece ran by the way, but sure wish the Times had it last year (like this blog).
Zellman is at the top of the list of HB analysts. I recall distinctly her line of questioning on the last KB Home conference call seeking guidance from their management about their exposure to the sub-prime, high LTV and alt-A buyers.
Needless to say, management was not prepared to answer her questions.
Contrast the integrity of Zelmman to the unctuous Steven Kim of Citigroup, who has been uncritically bullish on these stocks throughout this downturn.
Ivy Zelman has always been the best at no B.S. analyzing.
Zelman had me at:
"I'm wondering which Kool-Aid you're drinking because I want some. No one else in the industry is willing to stick their neck out."
I'm looking for the whole report. Anyone know where we can find it?
I found the full note here:
National Association of Residential Real Estate Investment Advisors
The entire report is 67 pages, and I am currently on page 28.
I like page 28 so much that I am about to email CR and ask him if he can post it.
I will work on exerpting some of the other Good Stuff in this report, but unfortunately it came to me on the same day that spring weather came to my part of the country, so I may not get further than page 28 until after dark . . .
Alo, I have the research report (it is fairly long), and unfortunately no link.
James Bednar, Zelman is great. I enjoyed her little snark at the expense of Bob Toll (who was selling his stock while talking up his company):
Zelman to Toll: "I think a lot of people, if they ever follow you Bob, and your buying and selling personally, they made a lot of money."
Best to all
Yes, good to hear Ivy's take...and some here too.
Still warming to wally who, like the rest of us, is not a HF manager who can devote a few minutes of his (much more precious) time to painting the picture of the financial deterioration.
It is the nature of fleecing: the sheep must not know (so the sheep are free to fabricate reasonable approximations).
And ron who notes:
This large oversupply of homes created by the credit bubble cannot be absorbed by middle class families that are living paycheck to paycheck with a negative saving rate.
The pasture the sheep are in is getting over-grazed and some measures will need to be taken ...by our vigilant, wise and far-sighted keepers.
Last thing, about that fleecing metaphor:
Fleecing is good for sheep, but the conversion to lamb chops...not so much.
Tanta, it is gorgeous here today! We're looking at the 70's on Wednesday, but of course back to the 40's this weekend...
Mortgage Defaults May Reach $225 Billion, Lehman Says
Mortgage Defaults May Reach $225 Billion, Lehman Says (Update2) - Bloomberg.com
https://www.rescapholdings.com/investor/presentations_03_12_2007.htm
GMAC LLC (GMAC) has scheduled a conference call to review and discuss its 2006 full year and fourth quarter financial results on Tuesday, March 13, 2007 at 3:30 p.m. EDT. The conference call will be hosted by Sanjiv Khattri, GMAC Executive Vice President and Chief Financial Officer. Sanjiv will be accompanied by senior management from both GMAC and Residential Capital, LLC (ResCap). The call will include a review of the results followed by a question and answer session for securities analysts and media. The conference call is expected to last approximately 90 minutes.
Gotta love Ivy.
Wasn't she the analyst who during a TOLL conference call point-blank asked Bob Toll what flavor Kool-Aide he was drinking?
Har!
Zelman to Toll: "I think a lot of people, if they ever follow you Bob, and your buying and selling personally, they made a lot of money."
CR,
I think the best part of this Zelman snark is that it went completely over Toll's head during the call.
jb
Thanks CR anyhoo, and thanks Tanta, I eagerly await your parsing -- I did a kind of superalert prairie-dog pose as I read the posting because it's the first time someone seems to have taken into account all of these bum loans (especially cltv/piggyback) in drawing a picture of the market. Just not fully understanding breakdown...
This whole debacle, and the internet stock bubble fiasco,makes me realize how really worthless many highly educated, well paid analysts are. Heck, all I had to do was drive around this country last year, see all of the excessive construction, read stories about frenzied home buying,learn that many of my friends were starting jobs as mortgage brokers to make me say hmmmm.A light went off in my head one day and I have been calling for this mess since last spring.
CFC to massively downsize their subprime division?
hm. My guess was that tanta=ivy. Guess I was wrong. I listened to that whole Toll conference call with the famous kool-aid quote, and another thing that struck me as odd was the very deep-voiced male analyst who insisted on calling Bob Toll "Bobby." "Can you give me more COLOUR on that... Bobby?" Weirded me out.
49% of which originations are stated? All originations?
My bearish call on housing for this year
880K new,
5.8M to 6.1M is beginning to look awfully bullish.
Call made at Bednar's Blog, the njrereport.com
Ok now that the Year 2k problem has been resolved, and the internet stock bubble popped, and the housing bubble is now deflating, will someone explain to me why the American economy will grow. We have shipped out the means of production. All we have left is capacity for finance scam. The problem is the easy credit necesary to fuel this game has been curtailed. We export nothing tangible, why would anyone want to live in AMerica anymore????
Can somebody send me the article or post it?