Housing Bubble Bursting?

[Randolph Kinney]

Liquidity crunch? Sell anything to raise needed cash

http://www.marketwatch.com/news/story/gold-extends-losing-streak-end/story.aspx?guid=%7B95863C4C%2D03AF%2D42A9%2DBBF0%2D3F230A8E9A50%7D

SAN FRANCISCO (MarketWatch) -- Gold futures fell Wednesday to close at the lowest level in more than a week, tracking losses on Asian and European stock markets as fears over increasing mortgage defaults escalated and investors sold commodities in pursuit of liquidity.

The benchmark contract has now fallen over the last four sessions, tallying a loss of $13 an ounce, or 2%, for the period.

"Once again, gold remains tied to severe sell-offs in the general markets," said Peter Spina, chief investment strategist at GoldSeek.com, in e-mailed comments.

All the same, gold faces a "short-term dilemma," Spina said. "As we see relentless selling in the general markets, a move to raise cash occurs and gold is not immune."

"Gold has come under renewed external pressures, as a string of negative news keeps global investors and their assets in search of a quick escape route," said Jon Nadler, an analyst at Kitco Bullion Dealers.

In a research note, James Moore, analyst at TheBullionDesk.com, said continued risk reduction and the necessity to generate cash for margin calls will likely cause gold and other commodity markets to sell off further.

'Three weeks ago, it was the yen carry-trade going into full reverse that made the headlines and ostensibly dragged gold down with it. Now comes the crumbling U.S. subprime lending market and the huge shadow it is throwing on the shares of financials and home builders.'


— Jon Nadler, Kitco Bullion Dealers

 

[Randolph Kinney]

Lehman Calls Subprime Mortgage Risks "Well-Contained"

http://www.bloomberg.com/apps/news?pid=20601103&sid=acfyXogcSmvs&refer=us

A dealer and underwriter of mortgage backed bonds - tells me no problem - I think I would sell in a heart beat any of their securities.

March 14 (Bloomberg) -- Lehman Brothers Holdings Inc., the second-biggest U.S. underwriter of mortgage-backed bonds, said risks posed by rising home-loan delinquencies are "well contained'' and will have little effect on the firm's earnings.

O'Meara said about 25 percent of the new mortgage loans the firm makes are subprime. While revenue from the subprime business has declined this year, the drop was offset by other businesses, O'Meara said. A 42 percent surge in stock trading contributed to the firm's $1.15 billion in first-quarter profit.

O'Meara said he doesn't see problems in the subprime market spreading to the rest of the housing market or hurting the U.S. economy. Defaults in so-called Alt-A mortgages -- which are made to borrowers with higher credit scores than subprime yet still below prime credit -- have also increased "within expectations,'' he said.

 

[Randolph Kinney]

Mortgage Bonds at "Bargain Basement" Prices, Bear Stearns Says

http://www.bloomberg.com/apps/news?pid=20601009&sid=aDsmZU07btuc&refer=bond

Only temporary - just temporary, don't look at that man behind the curtain, pay no attention to what he is doing.

We need buyers! Hurry! Hurry! Step right up! Get your bargains right here!

Err ... who's selling?

The very same companies who warehouse them and are stuck with inventory. Bear Stearns?

March 14 (Bloomberg) -- Mortgage-bond investors are being offered "the equivalent of a bargain basement sale'' because of what will likely be an only temporary drop in demand from collateralized debt obligations, according to Bear Stearns Cos.

The spreads on the bonds and other non-guaranteed mortgage securities have surged as securities firms lend less money to managers of CDOs to buy them and other asset-backed securities that they plan to repackage. Several CDOs focused on high-rated subprime mortgage bonds have been forced to sell off their "warehouses,'' according to analysts at firms such as UBS AG.

 

[Randolph Kinney]

Fannie Mae, Freddie Mac Asked by HUD to Back Subprime Mortgage Forbearance

http://www.bloomberg.com/apps/news?pid=20601206&sid=aq9tV0nxdHF0&refer=realestate

Here it comes! The political solution to a political problem.

Bail out time! Step right up, there is no problem in subprime loans. No problem at all. We just need to protect just a few subprime borrowers that can't make their mortgage payments, can't sell their home and can't refinance their home.

Solution? Lenders, please give borrowers a forbearance on part of their debt.

March 14 (Bloomberg) -- Housing and Urban Development Secretary Alphonso Jackson is calling on Fannie Mae, Freddie Mac and private banks to support forbearance to U.S. subprime mortgage borrowers who are having trouble making their payments.

"We are asking banks, we are asking others, Fannie Mae and Freddie Mac, to do forbearance,'' HUD Secretary Alphonso Jackson told members of the House Financial Services Committee at a hearing today. "We don't have the powers to dictate to them what they should do, but we are doing everything in our power.''

House Financial Services Committee Chairman Barney Frank said at the hearing that Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac should use their clout to push banks to offer forbearance to distressed subprime mortgage borrowers.

Fannie Mae and Freddie Mac own or guarantee 40 percent of the $10.5 trillion U.S. residential mortgage market. The companies mostly hold mortgage-backed securities from private banks in their portfolios, with only a small portion being the actual loans themselves. Fannie Mae has about 2 percent of its holdings in securities and loans tied to subprime mortgages.

 

[beowulf]

Sounds like Bail out time for sure! Take it off the backs of the real axis of evil - Fed, Treasury and Bush Administration. And what is ol Fed Chief Ben thinking about doing now? Lowering interest rates at their next meeting to give homeowners some relief of course. Nevermind the impact on the dollar and all of the investment money that will flee to Europe and elsewhere.

 

[Greg Bell]

If the lenders cannot collect of forclose they will not make any loans.Forbearance would drag the recession on for many more years than if you let the hammer fall..

 

[moh malekpour]

Subprime Market -- Isolated or a Tipping Point?:

http://www.bloomberg.com/apps/news?pid=20601039&sid=a2mHr9ol.GUs&refer=home

Those who fall into the subprime isolationist camp argue that when you consider the size of the subprime adjustable-rate mortgage market, even a significant amount of distress just doesn't add up to a macroeconomic event
Federal Reserve Governor Susan Bies argues that subprime ARMs make up only 7 percent to 8 percent of the $10 trillion dollar mortgage market. Doug Duncan, chief economist of the Mortgage Bankers Association, says that only 6 percent of homeowners hold subprime ARMs. By their logic, even if we saw a 20 percent default rate among subprime ARM holders -- a rate twice as high as the foreclosure peak after the 2001 recession - -that is still just over 1 percent of the full national mortgage market.
While these statistics somewhat undercount the subprime market (add in subprime fixed-rate loans and they make up closer to 13 percent of the market) the main flaw with the subprime isolationists' case is the narrowness of their inquiry. The issue isn't whether the subprime market is big enough to put a dent in an otherwise healthy housing market. The right question is in the context of a still shaky housing market, and whether subprime defaults might delay a housing recovery or presage a bigger shock due to relaxed lending standards in 2005 and 2006

The reality of risk far beyond subprime mortgages raises critical questions.
How many of the $1.5 trillion ARMS that could reset in 2007 will result in payment shock? How much should we worry that such payment shocks come at a time when we have high debt levels and negative private saving rates not seen since the 1930s? How many foreclosures due to exotic loans, combined with those in the subprime market, does it take to lead to tightening credit? And how much worse is the answer to each of these questions if the labor market weakens, and more families face the triple punch of lower home values, higher mortgage payments and shakier paychecks?

 

[Randolph Kinney]

7 out of 10 top subprime originators in California

http://www.marketwatch.com/news/story/top-10-subprime-originators-slanted/story.aspx?guid=%7B100602BA%2D13D5%2D4B8C%2DBEB6%2DD5547594D449%7D

For those harboring curiosity about which companies waded deepest into the now-stormy subprime mortgage market, a snapshot of the top 10 originators in the fourth quarter shows a heavy Westward slant.

Seven of the 10 are based in California, according to a ranking published by trade publication National Mortgage News. One, Washington Mutual Inc., is based in Seattle.

 

[moh malekpour]

From the Sub-Prime to the Ridiculous.

http://www.europac.net/externalframeset.asp?from=home&id=8016

With the meltdown in the sub-prime mortgage sector now laid bare, many on Wall Street desperately cling to the notion that the pain will be localized. The prevalent delusion is that the overall mortgage, housing and stock markets will be little impacted by the carnage ravaging the sub-prime sector. As such, renewed stock market weakness is seen as an over-reaction and a great buying opportunity. These assumptions represent wishful thinking in the extreme.

Those who think that the sub-prime market is unrelated to the broader economy do not understand that the problem is not just the fiscal responsibility of marginal borrowers, but the inherent weakness of the entire U.S. economy. It’s just that the sub-prime sector, being one of the most vulnerable spots, is where the problems are first surfacing.

Think of the U.S. economy as an unstable dam. The first leaks will be seen in the dam’s most vulnerable spot. But there will be many more leaks to follow. Before long the entire dam will collapse. It would be a fatal mistake for those living downstream to assume a leak is an isolated event, unrelated to the integrity of the dam itself. But that is exactly what those on Wall Street are doing with respect the horrific data emanating from the sub-prime market.

On the other side, home builders, real estate agents, appraisers, mortgage brokers, mortgage originators, Wall Street brokerages that securitized the loans and the hedge fund clients who bought them, were all getting rich as a result of booming credit. For the charade to continue, borrowers pretended they could pay and lenders pretended that they would be paid.

This is me:
I didn't know that appraisers were getting rich too. I was not, were you?

The fix now being suggested by some members of the U.S. Congress demonstrates how Washington completely misunderstands market dynamics. Their legislative proposals will require that lenders make potential borrowers verify their incomes and restrict credit only to those who can afford the payments after the teaser periods end. Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels. There is just no way to crack down on lenders without causing a crash in the real estate market. However, continuing to look the other way is no panacea either as the real estate market is already in the process of collapsing under its own weight.

It is also typical and very disingenuous for lawmakers to feign outrage, or to have waited until a collapse occurs before taking action. Just like with the Internet bubble of the late 1990’s, the government refused to act in advance of the crisis. Had the government taken preemptive action with regard to mortgage lending, the real estate bubble never would have been inflated to the degree that it has. However, a slower housing market would have resulted in a much weaker U.S. economy. More modest home valuations would not have allowed consumers to cash-out phony real estate wealth. Instead, home owners would have been forced to make higher mortgage payments and had even less money to spend on consumption. They might have actually considered saving some money for the future as their homes would not have been doing the “saving” for them.

In reality, the problem goes way beyond housing. Nearly every big ticket item that Americans consume is paid for with borrowed money, with foreign lenders supplying the credit. Without access to low cost credit, the spending stops. When the spending stops the service sector jobs associated with robust spending will disappear as well. Without paychecks, even those with low fixed-rate mortgages and high credit scores will not make their payments.

 

[Randolph Kinney]

Option One Mortgage Breach Covenants

http://www.canada.com/nationalpost/financialpost/story.html?id=dfe7b3cd-0cd0-4890-86bb-7d8ec081c552&k=79939


Option One did not meet the minimum $1 million quarterly net income for four consecutive quarters as required in covenants in eight of its committed warehouse facilities.

Production for the fiscal third quarter ended Jan. 31 was $6.0 billion at Option One Mortgage Corp., according to a filing with the SEC Wednesday by its parent company.

The company had net losses that were $60 million after delayed filings.

The company also disclosed in a regulatory filing that it does not expect Option One to meet covenant terms for eight warehouse credit facilities when its waivers expire at the end of April. The unit did not meet net income requirements as of January 31, but obtained waivers from lenders through April 27.

Without the waivers, warehouse facility providers would have the right to terminate future funding obligations, Block said. The company expects it can get waivers from enough lenders to continue certain activities.