US mortgage carnage

[dhukka]

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

Funniest thing I've read about this whole palava is Gordon Brown saying taxpayers will end up getting their money back for the bailout or even make money. As if that justifies it. Why doesn't the government just nationalise every bank in the country if it's such a good investment? Sounds eerily like the farcical claims of trickle down economics.

 

[chops_a_must]

Funniest thing I've read about this whole palava is Gordon Brown saying taxpayers will end up getting their money back for the bailout or even make money. As if that justifies it. Why doesn't the government just nationalise every bank in the country if it's such a good investment? Sounds eerily like the farcical claims of trickle down economics.

Fidel didn't resign, he just took up a consultancy in England!

With you on the trickle down though... utter tripe and still argued for today. Absurd...

 

[ithatheekret]

Funniest thing I've read about this whole palava is Gordon Brown saying taxpayers will end up getting their money back for the bailout or even make money. As if that justifies it. Why doesn't the government just nationalise every bank in the country if it's such a good investment? Sounds eerily like the farcical claims of trickle down economics.

I think everything he says is not funny , his IMF gold sell off plan to relieve poverty would cause more poverty . It would collapse the African mining industry , there goes the poors wages , they suffered for years with a high Rand , his plan defies logic . He defies logic !

Trickle down economics , maaaate this things got the scours , make sure you wash your hands .

The next election will be good .

What's the Mayor of Greater Londons name ? .............

 

[wayneL]

I think everything he says is not funny , his IMF gold sell off plan to relieve poverty would cause more poverty . It would collapse the African mining industry , there goes the poors wages , they suffered for years with a high Rand , his plan defies logic . He defies logic !

Trickle down economics , maaaate this things got the scours , make sure you wash your hands .

The next election will be good .

What's the Mayor of Greater Londons name ? .............

Ken Stalinstone.

UK Elections? Oh please make it soon, Gordon McBean is a dead man walking, to be replaced by Hooray Henry Cameron.

I don't know whether that's good TBH... it certainly couldn't be as bad...

... could it?

 

[ithatheekret]

Time heals everything ........ even the US economy , it just needs time .

Crash , I have no time for , he's an A grade twit , his last name should be Bennett . If Parliament was smart , they make him King of some atoll and leave him there . Preferably a sinking one !

PS... Kauri will vouch for this , in 98 / 99 I was a mega Pound Bull MOOOOOO , Blair Petroleum and Crash rolled along stuffing things up including the BoE . I'm now firmly a Pound Bear . They'll probably get knighted , that really gets me .

 

[wayneL]

Time heals everything ........ even the US economy , it just needs time .

Crash , I have no time for , he's an A grade twit , his last name should be Bennett . If Parliament was smart , they make him King of some atoll and leave him there . Preferably a sinking one !

How about one we can blow up... like Bikini Atoll.

 

[ithatheekret]

Nah , we'd have to put sailors at risk getting him there , unless we dropped him out of a plane

 

[wayneL]

Nah , we'd have to put sailors at risk getting him there , unless we dropped him out of a plane

To quote Madeleine Nottoobright - "I think this is a very hard choice, but the price ”” we think the price is worth it."

 

[wayneL]

God bless Vince Cable, the man who should be UK PM:

http://newsvote.bbc.co.uk/1/hi/uk_politics/7254451.stm

SNIP:

It comes after claims in the Commons the government was only taking over the "rubbish" from the mortgage book.

The part which takes the best mortgages and resells the debt will not be taken into public ownership, MPs were told.

Lib Dem spokesman Vince Cable said a firm called Granite had been "hived off" from Northern Rock with many of the best mortgage loans.

Mr Cable said: "The problem is that Granite is a separate institution which, as I understand it, securitises the best assets of the bank.

"The best mortgages of the bank are wrapped up in the Granite vehicle."

'Asset-stripping operation'

He said chief secretary to the Treasury Yvette Cooper appeared not to know what was happening to these mortgages.


We now need to have a very rapid and thorough explanation of exactly what's gone on here because this could be stopped in the House of Lords unless there's a proper explanation
Vince Cable
Lib Dem treasury spokesman

During an emergency Commons debate on the bill to nationalise the bank, Mr Cable said: "What we are now being told is that in some way this has now been hived off to the benefit of a person or persons unknown, apparently, to the minister.

"What is going on here appears to be not public ownership of Northern Rock but an asset-stripping operation designed to benefit whoever, we don't know. This is a very serious development."

 

[dhukka]

Those Fed rate cuts are really helping to reduce mortgage rates....not. 225 bps later and they are back to where they were almost a year ago. You can't see it on the chart but 15 year mortgages were at 5.54% 1 year ago, whilst 30 year mortgages were at 5.77%.

 

[kransky]

How and Why is this happening? Banks raising rates due to perceived riskyness of lending money?

so they think its all going to get worse..?

rising mortgage interest rates, is this the start of the end end?

 

[Kauri]

I don't know why everyone is so worried about the mortgages... and the ability to repay them... pretty soon they will be like 50c middies.. fondly remembered but non-existant...
Chars
..........Kauri :bier:

 

[ithatheekret]

I still can't figure why all our friends rushed off to buy mini theatres etc.

I remember beta and vcr , I remember how much they first cost too .

They've made the likes of Gerry Harvey filthy rich and filled up many a tip .

Disposable income took on a new meaning , maybe I am a tightrse like all my friends tell me . But the banks always send me loan offers and card offers etc. , nice hello letters ...... especially after bringing home funds .

Sharks in mermaid costumes !

Money is meant to be put to work , not to flames .


PS... or compost

 

[qmanthebarbarian]

From a larger piece on the sub-prime hurricane sweaping through markets (or about to...) by a company who has taken a pasting as a result of it. :

Apologies for the formatting...

What is subprime?
The term "subprime" is applied to the lowest of three main quality
categories – Prime, Alt-A and Subprime – used to classify home loans
in the US mortgage market. Fig. 2 shows the relative size of each segment.
The classifications are based on the size of a mortgage borrower's initial
payment, or "down payment," and credit quality.
Prime mortgages are for amounts that are relatively small compared
to the value of the property; they are granted to a borrower who
has a clean credit history and sufficient current income to meet payments.
Alt-A lies between Prime and Subprime in terms of loan quality. Basically,
three types of borrowers fall into this category: those who
have no credit history good or bad, but who may otherwise be considered
Prime; those who borrow for a house they will not themselves
occupy; and those who, for whatever reason, do not disclose
necessary data like the current income.
Subprime borrowers have a credit quality that is too low for Prime
mortgages. Reasons can include a flawed credit history or low income
levels relative to the necessary mortgage payments.

Why did banks lend to subprime borrowers?
Subprime mortgages offered access to credit to borrowers with a weak
credit record, enabling them to purchase homes, finance other forms
of spending or pay down high-interest-rate consumer debt.
As real estate prices continued to rise, subprime borrowers were able
to roll-over their mortgages after a specified number of years by repaying
the outstanding loan with funds from a new mortgage loan based
on the higher valuation of the property. Thus, borrowers realized the
gain on the property. But the frequent roll-overs prevented the buildup
of valuation reserves in outstanding mortgage contracts, leaving no
cushion for a decline in property values.
Even with soaring house prices, banks probably would not have issued
so much mortgage debt to low-quality borrowers without the one big
innovation that emerged in recent years, "securitization." Previously,
mortgages appeared directly on a bank's balance sheet and had to be
underlain by equity capital, with the amount of required equity increasing
as the credit quality of borrowers declined. Securitization has
allowed banks to bundle many loans into a single tradable security.
This simple-sounding innovation enabled banks to sell part of their
loan risks to other banks and investors. Able to transfer risk off their
books, banks were able to issue more mortgage loans per given
amount of underlying equity capital than before.
This mortgage roll-over and securitization process went well for several
years and contributed to the economic upswing in the US. Banks
earned higher yields in an environment of low credit risk premiums
and few loan defaults. As so often with innovations throughout history,
and not just financial history, the benefits were quickly clear,
whereas the drawbacks only became visible once it was too late to
change course.

What went wrong?
Real estate prices started to drop in 2007 while interest rates rose,
shutting off the easy gains from refinancing mortgages. Making matters
worse, as Fig. 2 shows, a major share of subprime mortgages had
an adjustable interest rate. This means that the mortgage contract had
a low-fixed interest rate for an initial period of two to five years. Thereafter,
the interest rate is reset to correspond to fair market rates for
the respective borrower. These reset rates are usually significantly
higher than the initial fixed "teaser rate" and proved to be beyond
what most subprime borrowers could pay. Mortgage delinquencies
and defaults followed as a matter of course.

Why are losses so difficult to assess?
To estimate losses accurately, we need to know the following details
for every single bond in a portfolio of hundreds of bonds that a bank
holds:
From which vintage are the loans that underlie a certain bond? As
Fig. 3 shows, the delinquency rates differ substantially per vintage.
Given the tranche a bank holds, how much of the tranches subordinated
to this one has already been erased by mortgage loan
losses?
In addition to this, there are bond structures that are far more complex
than the example we used above. In some cases, subordinated
tranches from several different mortgage-backed bonds have been
bundled together to form a new structured bond, itself with several
tranches. The more such bonds are repackaged, the more difficult it
gets to assign a fair value to them.

How do banks determine write-downs?
Accounting standards force banks to ensure that the value of any asset
on a bank's balance sheet is never higher than the asset's fair value,
which is usually derived from its current value in the market. For traded
assets, like stocks, a market value can easily be observed on a stock
exchange.
However, subprime bonds are illiquid and in most cases there is no
price available for them. In this case, accounting rules require using
observable prices for similar assets as an indication. There are a series
of indexes, called ABX, where each reflects a basket of mortgagebacked
bonds of a certain rating and vintage. Most banks use those
indexes to determine the current market value of their positions. However,
those indexes reflect less liquid instruments and their power to
predict fair asset values is questionable.
Complex financial instruments for which no market indication is available
tend to be valued based on complex models. The accuracy of
those models is very difficult to assess.
In this context, it is important to mention that most of the defaults of
subprime borrowers, and the losses that would result from them, have
not yet occurred. Banks do not write-down after a loss occurred, but
rather when lower market prices for an asset indicate that a loss is
likely to occur.
Market prices should reflect expected losses for a bond and are therefore
chosen as a reference for write-downs. In liquid markets with rational
participants, this is most probably the case. However, the market
for subprime bonds is rather illiquid and market participants are extremely
nervous. It is therefore difficult to judge whether ABX index
values are a good predictor of future losses in subprime mortgages.

Why do banks write down positions over and over again?
Based on the accounting rules explained in response to the previous
question, banks can only write down positions to the level indicated by
a reference price or model. Should the index fall further over time,
more write-downs have to be made.
Are write-ups possible?
Positions that have been written down may not be written up again.
Gains in value can only be realized by selling the asset, or if the asset
has a higher pay-off at maturity.
If the current market valuation of subprime bonds turns out to be too
low, banks may realize gains in the future. This would require US
house prices to stabilize rather soon.
Are write-downs really losses?
The quick answer is, yes, they are. Usually, most write-downs flow
through the profit and loss statement of a bank and reduce the bank's
current earnings.

Why do banks need fresh capital?
If a bank incurs a quarterly or annual loss, its equity capital position
decreases. Consequently, the relation between a bank's capital and
the value of its assets decreases. In most markets there is a minimum
required level of capital relative to assets to ensure that a bank is able
to meet its obligations and to absorb future losses. In addition, credit
rating agencies put much emphasis on capital ratios and banks need to
rebuild capital quickly in order to maintain their credit quality.

I haven't seen anything on any oz boards about Credit Suisse's writedown of 2.85bln after last week bragging about averting major sub-prime related losses. Are people desentised to sub-prime?

I think negative gearing is what makes real estate attractive in Australia - hedge against the regressive and high taxation. I don't think that BB can fly enough money into the US - a real structural change in the ownership of titles in the US. ie. turn sub-primes to primes by tightening credit control and making real estate investment attractive to people with necessary income will stave off some serious turmoil.

Does the US have negative gearing?

 

[BentRod]

Not sure if this has been posted before, couldn't see it.

It's good, worth a watch.

http://docs.google.com/TeamPresent?revision=_latest&fs=true&docID=ddv7hj34_03774hsc7&skipauth=true

 

[dhukka]

I still can't figure why all our friends rushed off to buy mini theatres etc.

I remember beta and vcr , I remember how much they first cost too .

They've made the likes of Gerry Harvey filthy rich and filled up many a tip .

Disposable income took on a new meaning , maybe I am a tightrse like all my friends tell me . But the banks always send me loan offers and card offers etc. , nice hello letters ...... especially after bringing home funds .

Sharks in mermaid costumes !

Money is meant to be put to work , not to flames .


PS... or compost

You and me both mate, I don't even know what a mini-theater is but I do like compost heaps.

 

[BradK]

Cool... found a thread.

Thanks tech/a and explod

Brad

 

[dhukka]

Anyone remember these guys? The interesting thing about Thornburg is that they specialise in jumbo loans and of very high quality, and traditionally very low default rates, they didn't go anywhere near subprime.

Thornburg got margin calls on troubled mortgage debt

Thornburg Mortgage Inc. (TMA) in a regulatory filing Thursday said since Feb. 14, it has met margin calls in excess of $300 million related to securities backed by about $2.9 billion of mortgage debt. The company said there was "once again a sudden adverse change in mortgage market conditions." Thornburg said it has not realized any losses on the mortgage securities, but it has "observed deterioration in the liquidity for these securities and increased difficulty in obtaining market prices." Market valuations on the securities have decreased between 10% and 15% since the end of January, which triggered the margin calls on the collateral. "In the event that we cannot meet future margin calls from our available cash position, we might need to selectively sell assets in order to raise cash," Thornburg said. "To date, no such sales have been required to meet margin calls."

 

[Stormin_Norman]

Kauri over at the forex forum was saying that bush is talking about homeowners this arvo US time.

 

[dhukka]

Kauri over at the forex forum was saying that bush is talking about homeowners this arvo US time.

Actually 10a.m New York time. It baffles me why people listen to this semi-literate moron. He'll just be reading something off a sheet that he doesn't understand.