Australian (ASX) Stock Market Forum

US mortgage carnage

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dhukka said:
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.
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I think you might be misunderestimating him there Dhukka...
 
numbercruncher said:
Didnt hear this line in the news but came across it in an article.




http://www.bloomberg.com/apps/news?pid=20601081&sid=a1Kgs8G_ezH4&refer=australia

Hidden message if your in the US with a small bank, hit the withdraw button ?

:eek:
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This is much ado about nothing. If you watched the testimony, Bernanke was asked if he thought there could be some bank failures and he said yes, at the small end. How this could possibly come as a surprise to anyone paying attention boggles the mind.
 
How about whole city bankruptcies :eek:. Is this the start of a contagion to be replicated across middle class USA?

VALLEJO, Calif. (AP) — A last-minute deal between city leaders and labor unions could allow this cash-strapped Bay Area suburb to avoid becoming the first city in the state to declare bankruptcy over a budget shortfall.

The two sides reached the tentative agreement Thursday to cut labor costs just before the City Council was set to vote on whether to seek bankruptcy protection. Vallejo has grappled with spiraling employee expenses, a slowing economy and a rash of home foreclosures.

The City Council postponed the vote until Monday so that council members and the public have time to study the agreement with the unions representing Vallejo's police officers and firefighters.

City officials and labor leaders would not disclose details of the agreement, which was set to be publicly released Friday afternoon.

But Mayor Osby Davis said the deal would balance the budget for its current fiscal year and "provide a framework for solving the long-term issues."

"It's not the answer to our financial problems," said Davis, who took office in December. "The problems we face are long-standing. They're not going to be solved overnight."

Kurt Henke, president of the International Association of Firefighters, Local 1186, said the deal was "a good start to getting Vallejo on a solid economic path. I think everyone's committed to doing everything we possibly can to avoid bankruptcy."

The city faces a $9 million budget deficit for its fiscal year ending in June and is set to run out of money at the end of March, according to City Manager Joseph Tanner, who recommended the bankruptcy filing.
If the City Council approves, Vallejo would be the first California city to declare bankruptcy because its revenues can't cover expenses, experts say.

In 2001, Desert Hot Springs, a small town in Riverside County, filed for bankruptcy after it lost a lawsuit to a developer, while Orange County declared bankruptcy in 1994 after it lost money in a series of bad investments.

Vallejo, a mostly blue-collar city of 120,000 about 30 miles northeast of San Francisco, has been hit especially hard by the mortgage crisis and has one of the nation's highest foreclosure rates.

It is collecting less tax revenue than projected as retail sales and property values decline amid an economic downturn.

At the same time, Vallejo faces escalating costs for its police and firefighters, whose pay and benefits make up nearly 80 percent of its general fund budget.

Filing for bankruptcy protection would protect city officials from lawsuits and give them time to renegotiate contracts with employees, vendors and bondholders. But the move would lead to costly legal expenses and damage its credit rating and ability to sell municipal bonds.
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How about only a quarter through the carnage ? :eek:


UBS sees writedowns hitting $600 billion
The toll of the mortgage mess keeps rising. Analysts at UBS (UBS) said Friday they expect financial firms worldwide to take writedowns totaling $600 billion in the wake of the breakdown of debt markets that started in June. The comment comes a day after insurance giant AIG (AIG) took an $11 billion hit on its portfolio of credit default swaps and government-sponsored mortgage lender Freddie Mac (FRE) took $3.1 billion in writedowns on its credit guarantee and derivatives holdings. UBS itself was hit with a $14 billion writedown on mortgage-related securities earlier this month. All told, big companies have taken $160 billion in writedowns since the credit crunch took hold last summer, Bloomberg reports, and UBS analysts expect the pain to get much worse. “Leveraged risk positions are a cancer in this market, wrote UBS analyst Geraud Charpin, “and the sooner it is treated the better.”
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http://money.cnn.com/data/premarket/index.html
 
Canadian BMO is reportedlyv taking losses due to margin calls of more than C$500 mln from two of its ABCP trusts. This may see BMO pull out of the restructuring efforts of the $C33 bln ABCP market, which means... :confused:
mmmmmmm
..............Kauri
 
More MBS, CDO downgrades on the way.

S&P may downgrade 1,887 classes of Alt-A mortgage securities
Standard & Poor's said on Friday that it may downgrade 1,887 classes of mortgage securities backed by so-called Alt-A home loans. The securities, made up of mortgages originated in 2006 and the first half of 2007, were put on CreditWatch with negative implications, the rating agency said. Alt-A loans were usually offered to more creditworthy borrowers than subprime mortgages, however, they required less information such as documents verifying home buyers' incomes. There's been a persistent increase in delinquencies on the loans underlying these securities, S&P said.
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S&P may cut $14 billion of subprime debt, eyes CDOs

Standard & Poor's on Friday said it is reviewing $14 billion of subprime-related debt for a ratings cut and may act on related collateralized debt obligations within "days," the rating company said.

S&P took the action due to rising delinquencies on higher quality mortgage loans known as "Alt-A loans," which are a step higher in quality than subprime mortgages.

The rating company placed its ratings on 1,887 classes of residential mortgage-backed securities backed by Alternative-A mortgages originated in 2006 and 2007 on review for a ratings downgrade.

Some of this debt may impact complex structures known as CDOs, asset-backed commercial paper and structured investment vehicles, which are also under review, S&P said.

"Where appropriate, we will take action on the affected CDO classes within the next several days," S&P said.

S&P also said it has completed its global review of its rated asset-backed commercial paper conduits with exposure to the related U.S. residential mortgage securities, confirming that the ratings on the ABCP conduits are not adversely affected by the rating actions on Friday.

The securities most vulnerable to rating cuts are rated "BBB," the second lowest investment grade, and lower rating categories, S&P said.
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This is from Mish's site, he is discussing a mortgage investment fund listed 8 months ago, link is here

http://globaleconomicanalysis.blogspot.com/2008/02/evidence-of-walking-away-in-wamu.html


<Let' do the math.

* The total pool size is $513,969,100.
* $476,069,000 was rated AAA.
* 92.6% of this cesspool was rated AAA.
* Yet 15% of the whole pool is in foreclosure or REO after a mere 8 months!

In addition, the data suggests that people are not even bothering to wait for delinquencies to hit 90 days. Instead they are handing over the keys right now.

Washington Mutual was the underwriter. If you bought a slice of this cesspool from WaMu, are you going to buy their next offering? One final question: Does anyone have any reason to trust any rating from Moody's, Fitch, and the S&P? >

More bad news for a while yet I am afraid to say.
 
macca said:
This is from Mish's site, he is discussing a mortgage investment fund listed 8 months ago, link is here

http://globaleconomicanalysis.blogspot.com/2008/02/evidence-of-walking-away-in-wamu.html


<Let' do the math.

* The total pool size is $513,969,100.
* $476,069,000 was rated AAA.
* 92.6% of this cesspool was rated AAA.
* Yet 15% of the whole pool is in foreclosure or REO after a mere 8 months!

In addition, the data suggests that people are not even bothering to wait for delinquencies to hit 90 days. Instead they are handing over the keys right now.

Washington Mutual was the underwriter. If you bought a slice of this cesspool from WaMu, are you going to buy their next offering? One final question: Does anyone have any reason to trust any rating from Moody's, Fitch, and the S&P? >

More bad news for a while yet I am afraid to say.
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Hi macca,

I read Mish's stuff just about everyday, he does some good research however he is drawing some conclusions here that are not necessarily substantiated by that data. Tanta of Calculated Risk points out why here. I warn you, it's a long and sometimes tedious article. Regardless of whether Wamu's stats are evidence of 'walking away' or not, they are not good news.
 
Speaking of triple A's .

I heard Ambac was trying to get the go ahead signal on one rating agency approval , instead of the usual three .

Defying logic :cautious: or gravity :eek: ?

Chit now they're juggling too .
 
Geez, even the mainstream media is taking the piss out the bond insurers. Some pretty sarcastic comments in this piece.

Why MBIA has to pay retention awards
Commentary: Troubles at bond insurer are only likely to grow

Bond insurer MBIA has moved to cut, but not eliminate, executive bonuses.

The troubled company (MBI) boasted in an SEC filing Monday that it would be making some of the lowest bonus payments in its history.

See related item. But also acknowledged that it would be "realigning" some salaries, and paying "cash retention awards" of up to $2.25 million to some executives.

One might imagine that a company teetering on the edge of a credit rating cut, with enormous negative implications for itself and the financial instruments it underwrites, would be better off looking for some new talent.

On the other hand, the signing bonus needed to convince someone to walk into such a situation -- call it the hubris premium -- would be huge. In the alternative, MBIA probably does have to pay up just to make sure there's someone around who knows where all the files are. Otherwise it'll be that much more difficult to sort out the mess.

And with the withdrawal Monday of Warren Buffett's offer to take on MBIA's and other bond insurers municipal business, the problems are only likely to get bigger.
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Wait till the Dow sees in 11600's again , then they'll know the markets wobbling .

But hey there's no recession out there .........:cautious:
 
US mortgage sector woes are adding to USD bearishness with Thornburg Mortgage earlier today reporting $270 mln in new margin calls, following $300 mln in margin calls last week.
 
The shots been put across the bow , boarding parties at the ready .....

The mellee begins .





JPMorgan, Bear Stearns, Ex-UBS Bankers Targeted in Muni Probe


By Martin Z. Braun and William Selway

March 3 (Bloomberg) -- The criminal investigation of U.S. municipal bond firms is spreading as current or former bankers at Bear Stearns Cos., UBS AG, JPMorgan Chase & Co. and Deutsche Bank AG disclosed they are targets of the probe.

Peter Ghavami, the former co-head of municipal derivatives at Zurich-based UBS, Europe's biggest bank by assets, is part of the Justice Department's investigation, employment records with the Financial Industry Regulatory Authority show. Charlotte, North Carolina-based Wachovia Corp. and Piper Jaffray Cos. in Minneapolis disclosed last week that their employees were targeted.

U.S. prosecutors and the Securities and Exchange Commission spent more than a year searching for evidence of rigged bidding by banks that sell investments and interest-rate swaps to local governments. JPMorgan, in its annual report filed with the SEC Feb. 29, said the investigations focus on ``possible antitrust and securities violations,'' mostly between 2001 and 2005.

``It certainly indicates that the investigation is toward the end,'' John Markey, a former state and federal prosecutor, said of the disclosures. Markey is an attorney with Mintz Levin Cohn Ferris Glovsky and Popeo PC in Boston.

The Justice Department sends letters notifying those under investigation that they are the targets before charges are filed. The probe is separate from the sudden jump in yields on auction-rate municipal bonds.

IRS Probes

The Justice Department investigation follows Internal Revenue Service audits into whether banks overcharged state and local governments for investment contracts and derivatives, much as they did with Treasury bonds during the ``yield burning'' scandal of the 1990s.

Lawyers in the municipal bond industry said the criminal probe is the biggest in the history of the almost 200-year-old market, where states, cities and towns have $2.6 trillion of debt outstanding. The Federal Bureau of Investigation has raided three brokers that advise local governments and ran the bidding as part of the probe, which may involve transactions as far back as 1992.

Interest-rate swaps are financial contracts used to guard against swings in borrowing costs or to lock in current interest rates for bond sales they might not make for years.

Investment Contracts

Investigators are also looking into bidding practices for guaranteed investment contracts, where governments place bond money until it is needed. IRS rules require the contracts be awarded by competitive bidding.

Ghavami, a former co-head of the municipal derivatives group at UBS who later became head of one of the bank's commodities divisions, was among the bankers who received letters saying they are targets of the investigation, Finra records show. Ghavami quit UBS in November and started at New York-based Lehman Brothers Holdings Inc. as head of capital markets for Russia in January.

Bear Stearns's Stephen Salvadore and former JPMorgan banker James Hertz said they are targets, according to Finra records. Goldman Sachs Group Inc.'s Shlomi Raz, who worked at JPMorgan until 2003, disclosed to Finra that he is being investigated, without saying whether he is a target. All of the firms are based in New York.

A voicemail left for Ghavami at his office in London wasn't immediately returned. Spokesmen at Bear Stearns, Goldman, JPMorgan and UBS declined to comment. Hertz was fired by JPMorgan in December, according to records with Finra.

`Grand Jury'

``Mr. Hertz has been advised that he is a target of a grand jury investigation regarding municipal securities business,'' his record states. A telephone call to Hertz wasn't immediately returned.

Goldman's Raz, who worked at JPMorgan until 2003, disclosed the investigation to Finra, without specifically saying whether he is a target. Bear Stearns's Salvadore received a letter notifying him that he is a target of an investigation ``concerning antitrust and other violations involving contracts related to municipal bonds,'' his record states.

``Mr. Salvadore responds that he has at all times acted lawfully and believes that he has not done anything that justifies issuance of the Department of Justice letter,'' his record states.

Patrick Marsh, the head of municipal structuring at Frankfurt-based Deutsche Bank, Germany's biggest bank, disclosed in November he was a target of the probe. Samuel Gruer, who works for Marsh at Deutsche Bank, also received a ``target letter'' from the Department of Justice in November, according to regulatory filings.

The Deutsche Bank bankers, in identical statements in their records, both said they are targets and ``deny any wrong doing in this investigation.''

A person familiar with the probe said prosecutors were focusing on alleged conduct by Marsh and Gruer at their former employers. Marsh, who joined Deutsche Bank in April 2005, formerly worked at Bear Stearns. Gruer was employed by JPMorgan until June 2006. Ted Meyer, a Deutsche Bank spokesman, declined to comment.

http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=apYN75r16Yzw
 
Home Foreclosures Hit Record High

Industry Group Says Home Foreclosures at Record High Last Quarter

WASHINGTON (AP) -- Home foreclosures soared to an all-time high in the final three months of 2007 and probably will keep rising, evidence of homeowners' suffering and the economic danger from the meltdown.

The Mortgage Bankers Association said Thursday the proportion of all mortgages that slipped into foreclosure set a record, 0.83 percent, from October through December. The previous high, 0.78 percent, came in the July-through-September period.

"Clearly it's the worst it's been," the association's chief economist, Doug Duncan, said in an interview with The Associated Press.

At the same time, more homeowners fell behind on their monthly payments.

The delinquency rate -- when payments are at least 30 days past due -- for all mortgages climbed to 5.82 percent, the higher since 1985. The rate was 5.59 percent in the third quarter last year.

Homeowners with tarnished credit who have subprime adjustable-rate loans took the hardest hits. Foreclosures and late payments for these borrowers swelled to all-time highs, too, in the fourth quarter.

The portion of subprime adjustable-rate mortgages that entered the foreclosure process set a record, 5.29 percent. The previous high, 4.72 percent, came only three months earlier.

Late payments skyrocketed to a record, 20.02 percent, compared with the mark of 18.81 percent from July through September.

The association's quarterly snapshot of the mortgage market covers almost 46 million home loans.
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Click on the link for the full article. The MBA has only been keeping statistics since 1985 so who knows when things were this bad previously, probably not since the great depression. Also remember the peak of Alt-A resets are just getting underway this month so how's 1Q and 2Q08 going to look?

Homeowner Equity Is Lowest Since 1945

Federal Reserve Report Shows Homeowner Equity Dipping Below 50 Percent, the Lowest on Record

NEW YORK (AP) -- Americans' percentage of equity in their homes fell below 50 percent for the first time on record since 1945, the Federal Reserve said Thursday.
Homeowners' portion of equity slipped to downwardly revised 49.6 percent in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9 percent in the fourth quarter -- the third straight quarter it was under 50 percent.

Home equity, which is equal to the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices jumped earlier this decade due to a surge in cash-out refinances, home equity loans and lines of credit and an increase in 100 percent or more home financing.

Economists expect this figure to drop even further as declining home prices eat into the value of most Americans' single largest asset.

Moody's Economy.com estimates that 8.8 million homeowners, or about 10.3 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9 percent, will be "upside down" if prices fall 20 percent from their peak.

The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year ago, the steepest decline in the 20-year history of the index.

The news follows a report from the Mortgage Bankers Association on Thursday that home foreclosures skyrocketed to an all-time high in the final quarter of last year. The proportion of all mortgages nationwide that fell into foreclosure surged to a record of 0.83 percent, while the percentage of adjustable-rate mortgages to borrowers with risky credit that entered the foreclosure process soared to a record of 5.29 percent.

Experts expect foreclosures to rise as more homeowners struggle with adjusting rates on their mortgages, making their monthly payments unaffordable. Problems in the credit markets and eroding home values are making it harder to refinance out of unmanageable loans.

The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of this.

On Tuesday, Fed Chairman Ben Bernanke suggested lenders reduce loan amounts to provide relief to beleaguered homeowners.
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Home equity is the lowest since 1945 and is headed lower, HELOC's are basically non-existent and with the spectre of higher food and energy costs how is the US consumer expected to continue the consumption patterns of recent years? And following on, how does this not lead to a protracted recession?
 
Things not looking good for the US government's property subsidiaries, or lenders of last resort?

BOSTON (MarketWatch) -- Shares of mortgage buyers Fannie Mae and Freddie Mac fell Monday, retreating following a weekend report in Barron's saying that woes in the housing and credit markets could ultimately result in a government bailout at Fannie Mae.

As federally chartered government-sponsored enterprises or GSEs, Fannie Mae and Freddie Mac buy home loans and package them into tradable securities. Late last week, the problems in the credit markets had spread into Fannie debt, Barron's reported.

With mortgage companies feeling the pinch of margin calls from their own lenders as home prices decline, yields on guaranteed mortgage securities issued by Fannie and Freddie hit their highest point over U.S. Treasury bonds in 22 years, according to the report. Fannie's credit default swaps have also stretched out in recent months.

Expected credit losses in coming years could seriously test Fannie's ability to continue as a going concern, Barron's said, adding that recent lending practices could prove to be more damaging than the company's accounting scandal.

Shares of Fannie Mae closed Monday down 13%, while Freddie Mac shed 11.5%.
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http://www.marketwatch.com/news/sto...x?guid={10EE2B9D-7A7A-4880-8DD0-6A84052B979A}
 

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