US mortgage carnage

[Uncle Festivus]

Greenspan predicts a reccession, or possible reccession , or 30% percent chance of reccession, or no reccession at all!!!!!! Even the maestro doesn't know what's going on. Either that or he has been lent on from a great height

Deja moo - I've heard this bull***t before!
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March 9 (Bloomberg) -- Banks' losses from risky home loans made at low introductory rates are just beginning, U.S. Federal Reserve Governor Susan Bies said.

Bies, who has been Fed's top banking policy official in her tenure at the U.S. central bank, said today banks are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments.

``What's happening is the front end of this wave of teaser- rate loans that are coming into full pricing,'' Bies said at a risk-management forum in Charlotte, North Carolina. ``So what we're seeing in this narrow segment is the beginning of the wave -- this is not the end, this is the beginning.''

Bies's comments reflect growing attention among bank regulators to the turmoil in the so-called subprime mortgage market and its impact on consumers and U.S. lenders.

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The housing slump is taking a toll. The economy expanded at an annual rate of 2.2 percent in the fourth quarter as residential construction posted its biggest decline since 1991. Growth slowed from a 4.1 percent average rate in the first half.

Housing won't bounce back soon, recent reports suggest. Construction spending in the U.S. fell by the most in three months in January, a report last week showed, pulled lower by the biggest decline in homebuilding since July.

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March 9 (Bloomberg) -- New Century Financial Corp.'s stock fell for a second day, hitting its lowest level in more than eight years, as Merrill Lynch & Co. analyst Kenneth Bruce predicted the mortgage company will go bankrupt.

Talks with lenders to save Irvine, California-based New Century aren't likely to succeed, Bruce wrote in a report today. New Century, the second-biggest U.S. ``subprime'' mortgage company, said yesterday it won't make any more loans as it tries to replace credit lines revoked by its backers. The shares tumbled 66 cents, or 17 percent, to $3.21 as of 4:26 p.m. in New York Stock Exchange composite trading. They traded as low as $2.96, the least since October 1998.

The company's ``next disclosure is likely a bankruptcy filing,'' Bruce wrote in a report today that carried a ``sell'' rating. The company is likely to be liquidated, with little value left for shareholders, he wrote.

Loans to ``subprime'' borrowers -- people with blemished credit records or high debts -- are going sour at the highest level in at least seven years.

 

[Kauri]

And it just keeps getting better....

MarketWatch
Last Update: 4:49 PM ET Mar 9, 2007

SAN FRANCISCO (MarketWatch) - Problems in the subprime mortgage business may be spreading to other parts of the home loan market.
Losses are creeping up on so-called Alt-A loans, which are considered less risky than subprime mortgages, but may have lower credit quality than "prime" loans.
That's sparked concern among investors in companies such as IndyMac Bancorp : Subprime mortgages are offered to lower-income borrowers with spotty credit records. The sector has descended into crisis recently as rising interest rates and stagnant home prices have left more borrowers struggling to meet monthly payments.
Alt-A loans were originally designed for borrowers with clean credit records, but with other issues that often meant they provided fewer documents or even no documents showing what they earned. These loans were attractive to mortgage investors because they offered higher yields than traditional "prime" home loans, but were underpinned by the cleaner credit records of the borrowers.
The popularity of Alt-A mortgages exploded in recent years. A record $400 billion of these loans were originated in 2006. They accounted for 13.4% of all mortgages offered last year, up from 2.1% in 2003, according to industry publisher Inside Mortgage Finance.
But as the Alt-A business grew, more of these loans were offered to less creditworthy borrowers, creating what Mark Adelson, head of structured finance research at Nomura Securities International, calls "Alt-B" products.
"The Alt-A market has absorbed and disguised a portion of the subprime space," he said. "You can debate how to define these loans, but many have ended up being an Alt-A product with subprime deficiencies."
Surging house prices earlier this decade are partly to blame, Adelson said.
When buyers realized they couldn't afford the home they wanted, they took out alternative mortgages that helped them pay the higher price. Alt-A mortgages requiring few documents - often called stated-income loans -- allowed buyers to inflate their earnings and get a bigger loan, he explained.
"In the past few years, Alt-A loans were made to weaker and weaker borrowers and the sector expanded downward along credit spectrum," he said. "In doing that, you draw up into the Alt-A space some of the problems that are affecting the subprime space."
Indeed, losses on Alt-A loans were already creeping up at the end of last year: 2.38% of Alt-A loans were at least 60-day delinquent in December, according to First American LoanPerformance, a unit of real estate data specialist First American : . That's the highest level since February 2004 and up from 0.93% in August 2005.
Data on Alt-A mortgages that have been packaged up and sold as mortgage-backed securities show the growing popularity of low-documentation and stated-income loans.
More than 80% of Alt-A mortgages that were securitized in 2006 were low-documentation, stated-income loans, according to Inside Mortgage Finance. That's up from 68% in 2005.
Data from LoanPerformance tell a similar story: 58% of all mortgages originated in the fourth quarter of 2006 were low-documentation loans. That was up from 21% at the start of 2000.
In California, which has seen some of the biggest gains in home prices this decade, 86% of all mortgages offered in the fourth quarter were low-documentation loans. That's up from 29% in early 2000, LoanPerformance data show.
Stocks hit
Concerns like these have hit the shares of Alt-A specialists.
IndyMac, the largest Alt-A mortgage lender, has slumped 32% so far this year. Impac, a smaller rival, is down almost 40%.
Michael Perry, chief executive of IndyMac, said earlier this month that the company's stricter underwriting standards have helped it avoid the heavy losses experienced in the subprime sector.
Still, he said he was disappointment with the outlook for 2007 and noted that IndyMac would keep costs under control to compensate.
Countrywide Financial shares have fallen 14% this year. About 15% of the company's mortgage origination in 2006 was Alt-A loans, lower than some rivals, according to Inside Mortgage Finance.
More than three quarters of the loans IndyMac originated last year were Alt-A mortgages. Over 90% of Impac's loans were Alt-A in 2006, Inside Mortgage Finance reported recently.
Even General Motors, the largest carmaker in the world, has been hit by Alt-A concerns. The company's mortgage finance business, Residential Capital Group, was the third-largest Alt-A originator in 2006. Almost half of all the mortgages the business originated last year were Alt-A loans, according to Inside Mortgage Finance.
GM Chief Executive Rick Wagoner admitted at the Geneva auto show on Wednesday that loans to high-risk customers have hurt the automaker's former financing unit, according to the Wall Street Journal.
GM shares are up more than 5% so far this year. However, the stock has dropped more than 15% since the middle of February.

Alistair Barr is a reporter for MarketWatch in San Francisco.

 

[Smurf1976]

I don't believe it. Can't be true. The bulls with a vested interest told us all that property only goes up... : : :

 

[noirua]

I don't believe it. Can't be true. The bulls with a vested interest told us all that property only goes up... : : :

It seems that Australia and the United States are countries out of line. Others seem to be continuing their boom. UK property prices rose 1.8% last month and are up 10% over the last 12 months.

 

[tech/a]

Loans to ``subprime'' borrowers -- people with blemished credit records or high debts -- are going sour at the highest level in at least seven years.

What a suprise!
The ever increasing levels of stupidity just never cease.
If stupidity were charted it would make the latest bullrun look flat!

I don't believe it. Can't be true. The bulls with a vested interest told us all that property only goes up...

The stupidity factor sells on panic---panic has to create its demand so prices plummet to create demand.

Typical crowd behaviour,many will take advantage of these situations.

On the flip side there will be those in the "subprime" borrowers catagory who were either smart enough or fortunate enough to get in in the early period of the last property bullrun---I'll bet they are NO LONGER subprime borrowers!!

I really cant understand why there are not more balanced veiws on the whole economic landscape---from micro to macro.

Seems polarised to Full on BULL or Full on BEAR.
When in fact its just economics doing what it does!!

 

[theasxgorilla]

I really cant understand why there are not more balanced veiws on the whole economic landscape---from micro to macro.

Some widespread desire to see those that we think deserve it get their comeuppance. Or maybe perceiving someone elses misery makes us feel alright after all...a la "Today Tonight".

 

[Smurf1976]

Some widespread desire to see those that we think deserve it get their comeuppance. Or maybe perceiving someone elses misery makes us feel alright after all...a la "Today Tonight".

Not for me. I'd just rather see investment in real productive industry instead of seeing people borrowing a fortune to pay double or triple for the exact same house.

The former is ultimately what builds a nation's economy. The latter is nothing more than the effects of inflation - it produces no real wealth whilst diverting investment from things that do.

 

[tech/a]

Not for me. I'd just rather see investment in real productive industry instead of seeing people borrowing a fortune to pay double or triple for the exact same house.

The former is ultimately what builds a nation's economy. The latter is nothing more than the effects of inflation - it produces no real wealth whilst diverting investment from things that do.

Really!

In my own microcosm of Industry,my "Good fortune" of investments in property gave me the confidence to expand into areas which were previously beyond my reach due to under capitalisiation.
The confidence of having asset (While un realised) as a security blanket and a strong base for lenders to underpin infrastructure expansion,lead to the employment of 5 more staff and growing.

Now multiply that by a few 1000 capitalists!
Smurf---I'm suprised that you have such a narrow veiw given your vocation.

 

[Smurf1976]

Really!

In my own microcosm of Industry,my "Good fortune" of investments in property gave me the confidence to expand into areas which were previously beyond my reach due to under capitalisiation.
The confidence of having asset (While un realised) as a security blanket and a strong base for lenders to underpin infrastructure expansion,lead to the employment of 5 more staff and growing.

Now multiply that by a few 1000 capitalists!
Smurf---I'm suprised that you have such a narrow veiw given your vocation.

Tech, I can certainly agree that in your situation investment in property has benefited you personally and ultimately others through business expansion.

But I'm thinking in terms of society as a whole rather than individuals.

Fundamentally, I view the financial wealth of any society as being dependent on physical production. Food grown, buildings built, goods manufactured and so on.

I don't believe in the notion that simple inflation actually creates wealth. Apart from burning it or using it as toilet paper, there's nothing useful that paper money itself can do. It won't feed you, transport or house you. Nor does it make good clothing.

If oil company XYZ has 10% less oil in the ground and is extracting it at a rate 10% less than 5 years ago then I contend the company has less real wealth. But with the oil price having risen it has more paper wealth. A profitable investment even though it's actual contribution to society's real wealth has gone down rather than up.

Same with a house that has depreciated in a physical sense over the past 5 years. The building won't last forever and it's now 5 years closer to falling down. The carpet is thinner, pipes have corroded slightly, insulation on the wiring has aged, perhaps some rust in the hot water cylinder too. In a physical sense it is worth less than it was 5 years ago. But due to inflation it is worth far more on paper.

It comes down to one word IMO - "inflation". Inflation doesn't increase wealth but rather transfers it. Make the right decisions and you'll benefit personally but society as a whole doesn't gain. Speculators gain as do debtors. Savers and others lose. No increase in real wealth, just a change in the distribution.

I say that as someone whose investments are very heavily skewed towards things that benefit from inflation. But somehow I don't think we'll see the masses celebrating if oil hits $200 a barrel simply because, unlike housing, the vast majority are net short oil.

As for the original point of this thread, one word - opportunity!

 

[Uncle Festivus]

Smurf & Tech/a, I hope we don't get bogged down in the old investing in property debate here, but rather a discussion of the housing market in the US & the effects it could have on the oz market. (Although I have to agree with Smurf here, 'past returns are not indicative of future returns'?, the 'crowd' has changed sentiment Tech/a )

Now I assume one of the first challenges is to debate the concept of whether or not there will be any effect on our markets. In fact, I'm thinking this is shaping up to be the unknown factor that just may tip the balance to the negative eg reccession, starting in the US & spreading around the globe.

From the weekend AFR -

US foreclosure up 42% from 2005
Delinquency rates highest in 4 years

I think the word 'contagion' is particularly apt in describing what's going on here. The doubters are saying that it will be confined to the subprime market.

But.....

Goldman Sachs is a major player in the US financial system, if not THE US financial system (with all it's tentacles into high places). It is apparently a major player in the ABX Subprime Index. The index is down some magnitude so far this year. It is due to report on March 13, Tuesday night night our time.
Could be interesting

Other capital funds going under

New century ->Greenlight Capital ->Carrington Capital
The list grows, & getting closer to the established, 'respectable' institutions.
Expect more big companies to allow for mortgage debt right-offs?.

 

[Atomic5]

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=OBR&Date=20070309&ID=6596706

On Friday, stocks finished mixed as concerns about the subprime mortgage market took a toll and offset some of the optimism created by data showing the U.S. economy added 97,000 jobs in February.

SUBPRIME TIME

Next week could give Wall Street more insight into the extent of the subprime lending woes as Goldman Sachs Group Inc. , Lehman Brothers Holdings Inc. and Bear Stearns Cos. Inc. are due to kick off the quarterly earnings reporting season for big investment banks next week.

I can't see that it looks good, but then I'm of the opinion that if it isn't convenient for the market to 'crash' next week, that the US will fake it until it is. It sems that the US Fed. would rather it doesn't happen this week.

Just MHO - Please DYOR

 

[Uncle Festivus]

I agree Atomic. The mechanisms to protect against a market collapse are deep and comprehensive, virtually unlimited, eg Plunge Protection Team. The 500 points correction was deemed acceptable/manageable these days. The Titanic was considered unsinkable too in it's day; maybe it's a mortgage iceberg heading for USS Unsinkable?.

 

[theasxgorilla]

It comes down to one word IMO - "inflation". Inflation doesn't increase wealth but rather transfers it. Make the right decisions and you'll benefit personally but society as a whole doesn't gain. Speculators gain as do debtors. Savers and others lose. No increase in real wealth, just a change in the distribution.

Smurf, that was a very profound post. It overlaps with my own investment philosophy of bringing value. At least this is how I approach my real estate investments. My girlfriend is an architect and I'm an Excel nerd and between the two of us we figure out how to create something (for a profit) that the people who buy our properties otherwise could not have done themselves...not to the same quality, not to the same price. I believe that we bring value as we create something tangible that previously did not exist. Naturally we should be paid for this.

I agree with what you describe which makes me think that I'm a lefty somewhere underneath my right-wing exterior.

Does anybody know what value we are adding to the sharemarket as traders? I was once told that we provide liquidity. I might start another thread, as I digress.

 

[Atomic5]

Gorilla, there's nothing to say you cannot have ethics and also have a rightist political tendency. Ethics isnt reserved for either the left or right.

ie: I don't mind makng a profit, I just don't think you have to screw people over to do it - I'll leave that to the hippies in power.

 

[Uncle Festivus]

The contagion reaches further - this will be big news - GM bail out by the fed maybe?

SAN FRANCISCO (MarketWatch) -- The subprime mortgage fiasco is taking a bite out of yet another victim. And this time it's not some fly-by-night lender but General Motors Corp.
The world's biggest carmaker and previously one of the top loan originators in the country will pay $1 billion in common equity to its former lending division to close the gap opened by losses at its residential mortgage business.
GM, which sold off a controlling stake in GMAC last year, is slated to talk more about the payout when it hands in its delayed annual report Wednesday,
Investors got an initial glimpse of the carnage on Tuesday, when GMAC reported that its 2006 operating income fell 26% to $2 billion from $2.7 billion a year ago. Residential Capital LLC, its home mortgages business, posted a fourth-quarter operating loss of $651 million, a swift reversal from a profit of $118 million a year ago.

 

[wayneL]

The contagion reaches further - this will be big news - GM bail out by the fed maybe?

Ben is fueling up the helicopter as we speak.


Mish's Global Economic Trend Analysis
http://globaleconomicanalysis.blogspot.com/2007/03/1st-helicopter-drop-now-being-organized.html

 

[Uncle Festivus]

GM still have (supposedly?) some $26B in the kitty, is this enough after future liabilities?. Time will tell.

I'm thinking the Goldman Sachs report might be hiding a few things...

...........Goldman Sachs reported first quarter 2007 earnings Tuesday that showed little fallout from the subprime free-fall. But Honold credited that to the firm's strategy of hedging their exposure to those markets.
"Their focus on risk-management seems to have left them relatively unscathed so far," he said.
But he added: "They could still wind up holding more exposure to subprime markets than what has been disclosed up to this point. We're going to be watching closely in coming quarters to see if there are any new developments."

 

[lesm]

This article is from the Wall Street News Forum on ET:

"Hold on to your assets is right...

Foreclosures May Hit 1.5 Million as U.S. Housing Bust Deepens

By Bob Ivry

http://www.bloomberg.com/apps/news?...NaII&refer=home

March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse.

As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania.

A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.

Last Housing Slump

If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors.

This time around, new-home sales have declined 28 percent since September 2005, hitting a low in January, the last month for which data is available. And though the national jobless rate is near a five-year low this month, mortgage-related jobs fell by almost 2,000 in January alone. At least two dozen of the more than 8,000 mortgage lenders have been forced to close or sell operations since the start of 2006.

Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp. in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year."

 

[Uncle Festivus]

Mmmm....... the exodus has started .

Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.

"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.

http://www.reuters.com/article/newsOne/idUSL1470530620070314?pageNumber=1

 

[Kimosabi]

http://ml-implode.com/ has it at 41, the number of US mortgage lenders that have croaked it since late 2006:

The count was 36 early last week...