US mortgage carnage

[dhukka]

Great piece by Barry Ritholtz of THE BIG PICTURE on the ridiculous antics of the ratings agencies.

Moody's Warning Lables (sub-prime version)

From Tuesday's WSJ:

In an acknowledgment that the system it used to rate billions of dollars of mortgage-related securities was potentially flawed, Moody's Corp. said it is considering a new way of rating those and other sometimes-volatile structured finance vehicles.

The credit-rating firm is considering an overhaul of its rating procedures that could include new labels to help investors distinguish collateralized debt obligations and other structured-finance investments from corporate bonds and Treasury securities. . .

More broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings."

>
Let me make sure I understand this:

1. Moodys (and S&P and Fitch's) labelled a bunch of horrific junk -- RMBS, CDOs, CDS, and other stuff -- high quality AAA.

2. The banks and brokers all shoveled this crap to their clients around the world, many of whom then promptly blew up.

3. Once the music stopped, these banks and brokers got caught holding loads of this AAA rated **** paper, leading to $130 billion -- and counting -- in write downs.

4. The banks then saw their credit ratings get downgraded by the same companies that rated the original crappy paper AAA.

AND NOW THE SOLUTION PROPOSED BY THOSE SELF SAME RATING AGENCIES IS TO PUT A WARNING LABEL ON THEIR RATINGS?

Are you ****ting me? Words fail me . . .

I'm thinking waterboarding the entire staff is the way to go with these criminal idiots, and instead, they think a mattress tag is a solution?

Well that's just fine. I'll write the warning for them:

WARNING: THESE BONDS HAVE BEEN RATED AAA BY A MAJOR RATING FIRM. THESE RATING FIRMS HAVE PROVEN THEMSELVES TO BE CLUELESS, MONEY-LOSING INCOMPETENTS IN EXCESS OF A TRILLION DOLLARS IN LOSSES. THEY WERE PAID HANDSOMELY BY THE BOND UNDERWRITER, AND ARE HOPELESSLY COMPROMISED. PURCHASERS OF THESE BONDS ARE ADVISED TO IMMEDIATELY KILL THEMSELVES, THUS SPARING THEIR LOVED ONES EMBARRASSMENT IN THE FUTURE. ALSO, THESE BONDS MAY LOSE VALUE. I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. WHILE PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS, YOU SHOULD BE AWARE THAT PAST PERFORMANCE ALSO SUCKED. DONT BLAME US IF YOU LOSE ANY MONEY, AS WE HAVE NO IDEA WHAT THE F$#@ WE ARE DOING ANYWAY. REALLY, YOU ARE ON YOUR OWN.

Now thats a disclosure . . .

 

[Kauri]

I hear the Swiss Govt. has told UBS that it won't be getting bailed out by them, and to go hawk themselves to Sov. funds to raise the CHF13 bln it needs... and there I was thinking UBS was one of the banks looking to bail out the monolines..
Cheers
.........Kauri

 

[ithatheekret]

Ah that cracked me up Dhukka , but it's pretty close to it .

Years and years of exporting junk offshore , where those that bought it will be lining up with legal fights if they can still afford to open their doors .

Kauri has been posting the demise of the global finacial sectors , reading the lines in between could have us assume that the litter trail can only spread further .
Wait until the wind picks up in March , let's see them keep a lid on the bins then .

Has anyone seen a government take legal action against Banks etc., for false disclosure yet ?

The words forge and utter have taken on a whole new meaning .

Moodys , well they've been on the cusp of lunacy for years , I don't know anyone of merit that has taken them seriously , words are cheap and when they're not policed , they're worthless .

The litany of Uberstatements that has been plastered on investors has to be addressed , but first off they need to unravel the tangled mess .

How long do we think this will take ?

Myself , I'm thinking years . The spinners would like us to think that the bad news is already out , so we've sorted the birdnest out . If only ..........

Attorney Generals would be wondering where to start , finding a starting point in itself will take years .

The European dilema semaphores that we have only just started , we're one year down the track and still no arrests , except for a rogue trader who somehow managed to get past settlement . So out of the whole mess , one trader is sitting in a French lockup ......... righto that makes sense

This beats the Nigerian scams hands down and makes them look like petty theft in comparison .

The only good thing I've seen this week , is that the natives haven't offered Kennas to the volcano gods ..................... he's survived earthquakes , muggings and now a volcano , that's pretty good in my books .

I'm convinced he's a Victorian , even though I know he's not

 

[Bushman]

Ah mortgage socialism. I know, I know, the benefit of hindsight and all that. But you still have to shake your head at this Greenspan quote in 2005.

“Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country. With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers…The mortgage-backed security helped create a national and even an international market for mortgages, and market support for a wider variety of home mortgage loan products became commonplace. This led to securitization of a variety of other consumer loan products, such as auto and credit card loans.” [1]

[1] Greenspan, Alan, Consumer Finance, Remarks at the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C., April 8, 2005, in

http://www.federalreserve.gov/BoardDocs/speeches/2005/20050408/default.htm

 

[Kauri]

and now Buffett via BerkHath is offering to bail the bond insurers... apparently

 

[doctorj]

I just saw that... $800b is quite a sum.

 

[dhukka]

and now Buffett via BerkHath is offering to bail the bond insurers... apparently

He's offering to reinsure the Muni bonds. Not interested in backing the other crap the monolines have got themselves into which is the reason they are in this mess.

 

[Uncle Festivus]

Yes, Buffetts timing is good as usual (cept maybe for that little US dollar venture, but we won't mention that ), but only to the point that this will be a short, soft landing type reccession. If it's worse then Buffett is probably not in the best position with his investments in consumer discretionary.

Now, back to the looming home builder bankruptcies -

Last week, D.R. Horton Inc. reported that net sales orders during its fiscal first quarter plunged to 4,245 homes from 8,771 a year earlier. The cancellation rate for the first quarter was 44%.

Toll Brothers Inc. reported similarly grim news last week, announcing that first quarter home-building revenue fell 22% compared with the same period last year.

 

[Uncle Festivus]

It's now getting serious - the contagion is spreading to the mainstream! So much for the Buffett bluff rally!

Defaults in the US housing market are spreading from sub-prime to the much larger stock of top-grade housing debt, threatening to set off a wave of even bigger losses for banks and investment funds.

The Mortgage Bankers Association says default rates on all outstanding home loans in the US have reached 7.3pc, the highest level since modern records began in the 1970s.

The default rate in America's 'prime' mortgage maket has hit a record 4pc, prompting fears of house prices crashing by 25pc. Arrears on "prime" mortgages have reached a record 4pc, confounding expectations that middle-class Americans with good credit records would be able to weather the storm.

While sub-prime and close kin "Alt A" total $2,000bn (£1,019bn) of debt, the prime market in all its forms is roughly $8,000bn. If prime default rates rise on their current trajectory, they could ultimately cause huge financial damage.

The grim data comes amid further wild ructions this week on credit markets.

The iTraxx Crossover index - a risk barometer that measures default insurance for Europe's low-grade bonds - rocketed to a fresh high of 575 yesterday. It is now above the extreme levels seen in August and November.

more.....http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/13/cnusa113.xml

"There are very similar problems emerging in Britain, Ireland and Spain. We know from the lending surveys by the Bank of England and the European Central Bank that conditions have tightened a great deal."

Keep watching Spain; they will take down the Euro.

 

[dhukka]

Ho Hum, another mortgage insurer on the brink of bankruptcy:

MGIC swings to $1.5 billion loss after reserve

NEW YORK (MarketWatch) -- Troubled private mortgage insurer MGIC Investment Corp. (MTG) said Wednesday its fourth quarter loss soared to $1.5 billion after it set aside more than $1 billion to cover a reserve deficiency as home values fall and clients default on their home loans. The company posted a net loss of $1.47 billion, or $18.17 a share, compared to a profit of $121.5 million, or $1.47 a share. Revenue rose to $399.1 million, from $367.2 million last year. The comp[any said it took a $1.2 billion reserve for likely losses ahead, and an additional $33 million charge related to losses at its C-Bass joint venture. The Milwaukee-based firm said it is hiring an adviser to help it evaluate it capital-raising options and added it does not expect to earn a profit in 2008.

 

[ithatheekret]

Keep watching Spain; they will take down the Euro.

I think it 1998 0r 1999 I said that too Unc , still waiting for it ...........

The latest out are only wing nut problems to date compared with some of the gasket blow outs coming . The Grand Clearing House GCL is faced with problems too . The news out of Germany shows have far astray they finally went . These were the inflation hunters of old drunk on paper creditations that were worthless , it makes the fiat theories look small in comparison .
Where have the old German stiff necks that would never have let these come into play gone ? That's it they're gone ! Those were the days , England had 90 years of solid boring consols that earned you a yield at least ..........

Now we're swerving all over the road trying to miss French and German mufflers , has to be a Swissie in the mob in there somewhere . They may as well give them all direct debit accounts and get it over and done with . Oh that's right , they need to achieve the ability to repay first . Whoops .............

Capitalization 101 will be brought back out .

I'll have to go to church on Sunday now , it's brought the heretic out in me

 

[dhukka]

Muscial Houses anyone? Check out those house price declines, down -35% from their peak in Sacramento, nasty stuff.

Sacramento region foreclosures nearly equal home sales in January

In the most ominous indicator yet of the Sacramento region's struggling housing market, January saw nearly as many people lose their homes as buy them.

January's 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties was only 33 more than the 1,782 foreclosures recorded in the same counties that month, according to statistics from La Jolla-based DataQuick Information Systems of La Jolla and Foreclosures.com. of Fair Oaks.

Sutter County sales data was not available from DataQuick.

The nearly equal number of home sales and foreclosures stems from still-rising numbers of bank repossessions and what's typically one of the slowest months on the real estate sales calendar.

Still, the tallies reveal an unprecedented phenomenon in a region where sales and home values have been declining since summer 2005. Every business day during January in the region, an average of 85 people lost their homes to lenders, almost double the number of foreclosures from September, according to Foreclosures.com, a Web site for real estate investors.

The foreclosures -- more than 10,000 last year in the eight-county capital region -- are fast pushing down home sales prices. As banks heavily discount their growing foreclosure inventories, and more buyers and investors gravitate toward houses in the $200,000 price range, median prices in Sacramento and Placer counties have fallen the fastest in California, according to DataQuick.

Though that's increasingly stressful for people who have to sell their homes, it's proving a growing advantage for people who until now have been shut out of home buying.

Median sales prices for all new and existing homes combined -- where half the homes sell for more and half sell for less -- have returned to June 2003 levels in Sacramento and to December 2003 levels in Placer County, according to DataQuick statistics.

• Sacramento County's median sales prices for all new and existing homes are down a record 26.8 percent from January 2007, the firm reported. The county's $253,000 median sales price is down now 34.6 percent from an August 2005 high of $387,000.

• Placer County's $360,500 median sales price for new and existing homes combined is down 14.9 percent from a year ago, and 31.4 percent off its August 2005 peak of $525,000, DataQuick reported.

Solano, Riverside and San Bernardino counties -- inland urban California counties that experienced the same housing boom that swept over the capital region from 2001 through 2005 -- have also seen their median sales prices decline 20 percent in the past year.

Meanwhile, as home sales also reached 20-year lows for a January in the Bay Area and Southern California, the Sacramento region fared slightly better.

Sacramento County's 1,077 closed escrows for new and existing homes were the lowest for January since 1996. The 354 home sales in Placer County were the lowest since 1995 for a January.

Sales typically rise in February and March, but foreclosures are rising, too, experts say.

"We could see that number continue to go up," said Fred Arnold, president-elect of the California Association of Mortgage Brokers. He ascribes the continued increases to "the enormous run-up of (home) values and the enormous number of loans that went out where many people weren't giving thought to whether they could afford the home."

 

[ithatheekret]

Hmmm ... Merrills takes a lovely plunge too , oil fighting back .

Eek Chinas Trade Surplus up 23%

 

[ithatheekret]

They can have them back at 50.13 , need the money to rescue Skippy , she's being dragged off for soup .

 

[wayneL]

Northern cRock of sh!te has been officially nationalized.

Crash Gordon and Alistair Daaaaaahling officially painted into a corner.

 

[dhukka]

Only a matter of time before this phenomenon started showing up in the mainstream media. People underwater on mortgages that are worth more than the house they bought. Solution - just walk away.

A boom in bankruptcies

A total of 47 cases were scheduled for hearings Thursday in his Santa Rosa bankruptcy court, each involving a creditor seeking permission to seize a debtor's property.

While a few cases dealt with debts on cars or commercial properties, the vast majority involved lenders attempting to foreclose on homeowners who had sought safe haven in the courts from the fallout of the subprime mortgage crisis.

Instead of fighting for their homes, however, most didn't even bother. In case after case, homeowners simply let lenders begin foreclosing on homes that are now worth less than the mortgages owed on them.

So instead of an arduous morning filled with adversarial hearings, most cases flew by.

"I've never seen anything like this before," Jaroslovsky said before the hearing. "I've never seen so many people care so little about losing their homes."

Click on the link for the full article.

 

[Judd]

Northern cRock of sh!te has been officially nationalized.

Crash Gordon and Alistair Daaaaaahling officially painted into a corner.

Why on earth didn't they just put into run off instead of taking over the bloody entire liability and allowing to operate as if nothing had happened. Really weird.

 

[wayneL]

Why on earth didn't they just put into run off instead of taking over the bloody entire liability and allowing to operate as if nothing had happened. Really weird.

The reeeeeeally really weird thing is that they continue to offer the same type of high risk loans that makes their loan book a crock of sh!te in the first place... like 125% loans?

Mission prop up house prices perhaps?

FFS!

 

[ithatheekret]

Mission prop up house prices perhaps?

TAAADAAAAA .

Round of applause Waynes figured it out .

The mission is to hold up realestate value .

Why ?

Because Banks own most of it now or soon will .

The care factor for eveything else is ZERO

 

[numbercruncher]

Subprime loans defaulting even before resets

It turns out that massive interest rate spikes aren't the problem -- many borrowers couldn't afford these mortgages even at the low, introductory interest rates.

NEW YORK (CNNMoney.com) -- For months, we've fretted about the Armageddon that will hit when subprime adjustable rate mortgages start resetting to much higher interest rates.

What's happening is even worse: Many of these loans are defaulting well before their rates increase.

Defaults for subprime loans issued in 2007 - none of which have reset yet - hit 11.2 percent in November. That represents perhaps 300,000 households, and is twice the default rate that 2006 loans had 10 months after being issued, according to Friedman, Billings Ramsey analyst Michael Youngblood.

http://money.cnn.com/2008/02/20/real_estate/loans_failing_pre_resets/index.htm

Its all just so crazy