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Housing Bubble Bursting?

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Regulators in 4 states order New Century to stop doing business

http://www.signonsandiego.com/news/business/20070314-1355-ca-newcenturyfinancial-states.html

Regulators from New York, New Hampshire, Massachusetts and New Jersey sent notices to the Irvine-based company on Tuesday, according to its filing Wednesday with the Securities and Exchange Commission.
In their letters, the state regulators claim New Century subsidiaries have failed to fund mortgages that closed and didn't notify the states in a timely manner of its financial woes.
 
Cheer up.News from Moscow..
MOSCOW (Reuters) - 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.

Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.

Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.

"When markets turn from bubble to reality, a lot of people get burned."

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.

Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.

But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."

The last stock market bubble to burst was the dot-com craze which sparked a crash from March 2000 to October 2002.

When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."
 
Accredited Home selling loans at discount

http://www.marketwatch.com/news/story/accredited-selling-loans-meet-margin/story.aspx?guid=%7B4C253047%2D8371%2D4858%2D9EF5%2D2C76FB7D1914%7D

NEW YORK (MarketWatch) -- It's fire-sale time in the subprime mortgage sector.

Troubled lender Accredited Home Lending, which has lost about 75% of its value since the beginning of the year, said on Friday that it's selling virtually all of its $2.7 billion loan portfolio at a substantial discount in order to meet margin calls.

The chief financial officers from Bear Stearns, Goldman Sachs and Lehman Bros. all said that they expected such assets to come on the market and that they would be buyers.

Hedge funds and other investors in distressed debt are also likely to be interested.

Earlier this week, Accredited Home disclosed that its available cash has been drained by margin calls under its warehouse and repurchase agreements, as well as ongoing loan repurchases. The San Diego-based company also said it had met all margin calls and has paid to buy back all the loans.

It didn't identify any buyers but said it expects to complete the sale over the next several days and to take a $150 million charge.

The company also said it won't file its annual report as planned by Friday because it needs to make adjustments related to its 2006 acquisition of Aames Investment Corp.

In addition, Accredited Home said it's seeking waivers, and extensions of waivers, of certain financial and operating covenants, including waivers relating to required levels of net income and requirements to submit a Form 10-K filing by March 16.
 
Greenspan's Subprime Comment

http://www.bloomberg.com/apps/news?pid=20601109&sid=aDU3U.9fNf0k&refer=exclusive

March 16 (Bloomberg) -- Alan Greenspan, whose comments on recession helped send stock prices reeling two weeks ago, predicted the subprime-mortgage debacle in the U.S. will worsen.

Greenspan, who left the central bank in 2006 after 18 years as chairman, said yesterday that he expects the fallout from subprime-mortgage defaults to spread to other parts of the economy, especially if home prices decline.

``If prices go down, we will have problems -- problems in the sense of spillover to other areas,'' Greenspan said. While he hasn't seen such spreading yet, ``I expect to.''
 
JPMorgan Recommends Investors Reduce CLO Holdings

http://www.bloomberg.com/apps/news?pid=20601009&sid=a97lCc8wAfok&refer=bond

March 16 (Bloomberg) -- JPMorgan Chase & Co., the biggest arranger of collateralized loan obligations, recommended investors reduce their holdings of the securities backed by high-risk, high-yield loans.

Investors are limiting their holdings of the riskiest debt as concern about defaults on U.S. subprime mortgages spreads to other markets. New York-based JPMorgan has an ``underweight'' recommendation on collateralized debt obligations that pool bonds backed by subprime mortgages and other assets.
 
From Subprime To The Ridiculous

http://www.forbes.com/home/investin...n-financials-pf-ii-in_ps_0314soapbox_inl.html

With the meltdown in the subprime 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 affected by the carnage ravaging the subprime sector. As such, the renewed stock market weakness is seen as an overreaction and a great buying opportunity. These assumptions represent wishful thinking in the extreme.
 
Me thinks Greenspan is languishing away on some grassy knoll and wishing away the problems he helped create....

http://www.newsmax.com/money/archives/st/2007/3/15/162831.cfm?s=st

"Greenspan said Thursday there was a risk that rising defaults in subprime mortgage markets could spill over into other economic sectors, but said weakness in the housing market would be quickly resolved if home prices rose by 10 percent."

Nouriel Roubini, a professor at New York University and head of Roubini Global Economics, is one of the few economists who has been predicting a recession this year. He contends that subprime loans are only the tip of the iceberg.
"We're going to have a severe banking problem that at some point is going to lead to a government bailout like the S&L scandal," he said. "The cost to the U.S. taxpayers may end up being much larger than the $200 billion we spent bailing out the S&Ls."
Roubini argues that, like the S&L scandal, lax government oversight is at least partly to blame for the subprime crisis.
"We let mortgage lenders do anything they wanted for years," he said. "Regulators were asleep at the wheel."
If the economy slips into recession, as Roubini expects will happen by summer, "then you have a systemic banking crisis like we haven't had since the 1930s. The cost could be as high as $1 trillion," he said.
 
The Great Unraveling

http://www.morganstanley.com/views/gef/

From bubble to bubble – it’s a painfully familiar saga. First equities, now housing. First denial, then grudging acceptance. It’s the pattern and its repetitive character that is so striking. For the second time in seven years, asset-dependent America has gone to excess. And once again, twin bubbles in a particular asset class and the real economy are in the process of bursting – most likely with greater-than-expected consequences for the US economy, a US-centric global economy, and world financial markets.

Sub-prime is today’s dot-com – the pin that pricks a much larger bubble. Seven years ago, the optimists argued that equities as a broad asset class were in reasonably good shape – that any excesses were concentrated in about 350 of the so-called Internet pure-plays that collectively accounted for only about 6% of the total capitalization of the US equity market at year-end 1999. That view turned out to be dead wrong. The dot-com bubble burst, and over the next two and a half years, the much broader S&P 500 index fell by 49% while the asset-dependent US economy slipped into a mild recession, pulling the rest of the world down with it. Fast-forward seven years, and the actors have changed but the plot is strikingly similar. This time, it’s the US housing bubble that has burst, and the immediate repercussions have been concentrated in a relatively small segment of that market – sub-prime mortgage debt, which makes up around 10% of total securitized home debt outstanding. As was the case seven years ago, I suspect that a powerful dynamic has now been set in motion by a small mispriced portion of a major asset class that will have surprisingly broad macro consequences for the US economy as a whole.
Too much attention is being focused on the narrow story – the extent of any damage to housing and mortgage finance markets. There’s a much bigger story. Yes, the US housing market is currently in a serious recession – even the optimists concede that point. To me, the real debate is about “spillovers” – whether the housing downturn will spread to the rest of the economy. In my view, the lessons of the dot-com shakeout are key in this instance. Seven years ago, the spillover effects played out with a vengeance in the corporate sector, where the dot-com mania had prompted an unsustainable binge in capital spending and hiring. The unwinding of that binge triggered the recession of 2000-01. Today, the spillover effects are likely to be concentrated in the much large consumer sector. And the loss of that pillar of support is perfectly capable of triggering yet another post-bubble recession
It didn’t have to be this way. Were it not for a serious policy blunder by America’s central bank, I suspect the US economy could have been much more successful in avoiding the perils of a multi-bubble syndrome. Former Fed Chairman Alan Greenspan crossed the line, in my view, by encouraging reckless behavior in the midst of each of the last two asset bubbles. In early 2000, while NASDAQ was cresting toward 5000, he was unabashed in his enthusiastic endorsement of a once-in-a-generation increase in productivity growth that he argued justified seemingly lofty valuations of equity markets. This was tantamount to a green light for market speculators and legions of individual investors at just the point when the equity bubble was nearing its end. And then only four years later, he did it again – this time directing his counsel at the players of the property bubble. In early 2004, he urged homeowners to shift from fixed to floating rate mortgages, and in early 2005, he extolled the virtues of sub-prime borrowing – the extension of credit to unworthy borrowers. Far from the heartless central banker that is supposed to “take the punchbowl away just when the party is getting good,” Alan Greenspan turned into an unabashed cheerleader for the excesses of an increasingly asset-dependent US economy. I fear history will not judge the Maestro’s legacy kindly. And now he’s reinventing himself as a forecaster. Figure that
 
Mortgage Trouble Clouds Homeownership Dream

http://www.nytimes.com/2007/03/17/business/17dream.html?_r=2&th&emc=th&oref=slogin&oref=slogin

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Several large mortgage companies have stopped making new loans, and others have tightened lending standards.


Hundreds of thousands of families who bought houses in the last two years — using loans with low teaser interest rates and no down payments — are now losing them.


Their short tenure as homeowners calls into question whether the nation’s long drive to increase homeownership — pushed by both public policy and financial innovations — has overstepped some boundary of demographic and economic sense.

The nation’s homeownership rate has increased by only about 1.4 percentage points since 2000, to almost 69 percent last year.

But subprime mortgages — granted to borrowers with weak, or subprime, credit histories — played a big role in achieving those levels.

This push, however, has meant intense financial strain for many families. Subprime borrowers will spend nearly 37 percent of their after-tax income on mortgage payments, insurance and property taxes this year, according to estimates by Mark Zandi, chief economist of Moody’s Economy.com, drawn from Federal Reserve data.

This is about 20 percentage points more than prime borrowers and 10 points more than what subprime borrowers paid in 2000.

When the housing market started weakening, subprime borrowers were the first to feel the squeeze. Almost 8 percent of subprime mortgages — more than 450,000 loans — were either in foreclosure or in arrears of more than three months in the fourth quarter of last year, according to the mortgage bankers.


Their unraveling means not only a string of failed lenders. Homeownership rates have slipped, and many low-income families, who dedicated meager savings toward a stake in their first homes, are facing foreclosure.
 
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