Housing Bubble Bursting?

[moh malekpour]

Fitch in fresh mortgage warning, commercial turn

http://news.yahoo.com/s/ft/20070403/bs_ft/fto040320071402580904;_ylt=Ao9.jMmw_X84_czzv4zh8.n2ULEF

This year's crop of commercial property mortgages could face sharply higher defaults than in previous years amid pervasive loose lending practices and overconfidence in the sector, according to Fitch Ratings.

The warning echoes the turmoil in the risky US subprime home loan market, where lax underwriting and a sharp slowdown in the housing market have resulted in a steep increase in mortgage payment problems in recent months.

Unlike the residential market, commercial property values are still rising. But Fitch said the recent downturn in the market for subprime residential mortgages "should caution investors about the dangers of mixing aggressive underwriting with reliance on continued price appreciation".

The agency said defaults on commercial mortgages originated this year could be up to 15 per cent higher than in recent years. Bonds backed by commercial property loans have become popular in recent years as investors have sought to diversify holdings and tap into rising US commercial property prices.

 

[moh malekpour]

Detroit Home Sellers Lack Buyers as Foreclosures Rise

http://www.bloomberg.com/apps/news?pid=20601170&sid=a8SsAHYoeLk8&refer=home

About 78 percent of Michigan mortgages are prime, given to the most creditworthy borrowers, just above the 77 percent national rate, the mortgage trade group in Washington said.

Even homeowners who haven't fallen behind on their mortgage payments are feeling the pain of foreclosures, said John Kilpatrick, president of Greenfield Advisors, a Seattle real estate consulting firm. Living on a block with multiple foreclosures can result in a 10 percent to 20 percent decrease in property values, he said. In some cases that can wipe out the equity of homeowners or leave them owing more on their mortgage than the house is worth.

`Auction Signs'

``If you see a neighborhood with a couple of foreclosures on the block, a couple of auction signs in the yards, that's going to be a neighborhood that's stigmatized,'' Kilpatrick said. ``The innocent houses that just happen to be sitting next to those properties are going to take a hit.''

The challenges facing homeowners in the Detroit area show what can happen in a market where prices fall and an economy dependent on a single industry falters, said Ralph Marcus Maupin Jr., a real estate investor in Highland, Michigan, a Detroit suburb, who runs a seminar called

 

[Randolph Kinney]

Subprime home loans on Fed's radar

http://www.marketwatch.com/news/story/subprime-sector-woes-have-feds/story.aspx?guid=%7BC79E9F21%2DD147%2D4B9B%2D9618%2DAA0DDC9E2F6D%7D

WASHINGTON (MarketWatch) -- The damage to the financial system from the woes in the market for riskier types of mortgages is largely contained but bears close scrutiny, said Richard Fisher, the president of the Dallas Fed bank, on Wednesday.


It is difficult for the Fed to gauge the true health of the housing sector given the recent damage in the subprime-mortgage market, Fisher commented in a speech to a mortgage-banking group in Austin, Texas.


The subprime market has fallen into crisis as several lenders specializing in mortgages to buyers with lower credit scores have gone bust.


"While the subprime damage is largely contained, I do not mean that the market will or should refrain from punishing those who neglected time-proven rules of prudence. Nor am I suggesting that the neglect of prudent practices has not bled into other types of credit -- such as the Alt-A market," Fisher said.

Fisher added that the housing markets may "feel some short-term pain" because 40% of home buyers last year were nonprime, either subprime or Alt-A loans. This pain will make it "less clear whether housing construction has bottomed and how long the housing downturn may last."

 

[moh malekpour]

Mortgage giant Fannie Mae plans to slash work force by several hundred this year

http://www.signonsandiego.com/news/business/20070403-0956-fanniemae-jobcuts.html

WASHINGTON – Mortgage giant Fannie Mae, remaking itself as it recovers from a multibillion-dollar accounting scandal, is cutting its 6,500-person work force by several hundred employees by year's end.
The planned job cuts, the company said Tuesday, are among cost-cutting measures that Fannie Mae has undertaken to reduce its operating expenses by $200 million this year compared with 2006. The company confirmed the cuts following reports by the Washington Examiner and The Washington Post newspapers

 

[moh malekpour]

Overlapping Subprime Exposure Mask Risks of CDOs, Moody's Says

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

Some collateralized debt obligations that invest in subprime mortgage bonds, related derivatives and other CDOs may be less diversified than they appear, raising investors' risks, according to Moody's Investors Service.

Greater use of credit-default swap contracts is creating more situations in which CDOs may be doubling up on exposures to the risks of specific bonds, either through multiple direct investments or purchases of other CDOs' bonds, according to a report this week by Moody's.

 

[moh malekpour]

Mortgage demand sags as rates rise

http://www.usatoday.com/money/economy/housing/2007-04-04-mort-apps_N.htm

Loan applications to purchase and refinance U.S. homes fell last week when mortgage rates increased, an industry group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications fell for the third straight week, dropping 3.2% to 649.5 in the week ended March 30.

The MBA's seasonally adjusted purchase index declined 2.0% to 402.9, while its refinancing applications index fell 4.5% to 2,098.3.

 

[Terrel L. Shields]

Some collateralized debt obligations that invest in subprime mortgage bonds, related derivatives and other CDOs may be less diversified than they appear, raising investors' risks

A broker once put an elderly widow into a portfolio of mutual funds claiming she had a "diversified" portfolio and need not worry. This was in 1999ish. Pre-dot com. Guess how 'diversified' it was? Her CPA (also a cert. financial advisor) told her that she wasn't diversified enough, tried to get her to change up the funds she was in. She held steady. She came back the next year in a panic..wanted him to take over the account. She was told its too late. You've already lost...
The broker had put her into high tech funds, utility funds (that were in Duke, CalPine & Enron), growth funds (with many of the same companies) and put her into the 'high flyers' who made a lot of money the previous year....All of them crashed and burned basically because they were all weighted with things like Enron, Tyco, and WorldCom. There was no diversification and a single mutual fund would not have been a riskier bet. That was a tale told to me by the CPA himself.

 

[moh malekpour]

The collapse of New Century and other lenders will be widely felt

http://www.ocregister.com/ocregister/money/article_1641565.php

The words "New Century" used to flash several times a day on caller ID at Taleo Mexican Grillin Irvine, where diners wash down salmon Veracruz with $7 hand-shaken margaritas. Reservations were often for 10 or more.

Not anymore, said Nic Villarreal, the owner of the restaurant, two blocks from New Century Financial Corp.'s headquarters. "We don't get any."

In Irvine, where just nine months ago office vacancies approached a three-year low, home prices were at an all-time high and unemployment was less than the national average, at just 3.6 percent, the unraveling subprime mortgage market is dampening the recent prosperity.

Hometown lenders including New Century, which filed for bankruptcy protection Monday, and Ameriquest Mortgage Co. already have fired more than 3,500 people, house and condominium prices are down 17 percent since June and office vacancy rates are poised to double this year, said John McDermott, regional manager for Orange County at commercial real estate broker Sperry Van Ness.

"It's a huge engine that has been shut off," McDermott said. "I don't know where the new influx of jobs are if you take the lending market out of the equation."

Half of the 20 biggest U.S. subprime lenders are in California, including three in Irvine, and about 13 percent of the nation's subprime loans are in the state, according to the Mortgage Bankers Association and industry newsletter Inside Mortgage Finance of Bethesda, Md.

More than two dozen mortgage lenders have closed or sought buyers since the beginning of the year. Irvine-based People's Choice Home Loan Inc. filed for bankruptcy protection last month. H&R Block Inc. is trying to sell its Irvine-based Option One Mortgage Corp. unit. Accredited Home Lenders Holding Co., based in San Diego, has offices in Irvine, and Ameriquest is based in Orange.

Increasing delinquencies in the subprime market may be hardest on Irvine's biggest office owners, including the Irvine Co. and Los Angeles-based Maguire Properties, which recently agreed to pay $2.88 billion for 22 office complexes in Orange County and two in downtown Los Angeles that Blackstone Group LP acquired in its February takeover of Equity Office Properties Trust, Sperry Van Ness's McDermott said

 

[moh malekpour]

NovaStar Plans to Cut Off Credit for Subprime Mortgage Bankers

http://www.bloomberg.com/apps/news?pid=20601170&sid=aRG0CQLYIRyM&refer=home

NovaStar Financial Inc., the subprime home lender whose stock has plunged 80 percent this year, will stop financing independent mortgage bankers.

WarehouseUSA Capital Corp., a unit of NovaStar, said on its Web site that as of March 30, it's no longer accepting applications from mortgage bankers for credit lines and that the so-called warehouse lending business will close. New loans under existing agreements are scheduled to end April 27, the notice said. The shutdown won't affect lending by NovaStar itself, said Roswell, Georgia-based WarehouseUSA.

Independent mortgage lenders including NovaStar rely on ``warehouse'' credit lines from larger institutions to provide money for loans and keep them in business. Bankers have become reluctant to extend those credit lines after late payments and defaults on subprime mortgages surged to four-year highs in 2006. The pullback helped send at least five rival subprime lenders including New Century Financial Corp. into bankruptcy

 

[moh malekpour]

warning of loss, discloses 26% drop in homes sold in quarter

http://www.latimes.com/business/la-fi-ryland5apr05,1,2542088.story?coll=la-headlines-business

the biggest U.S. home builder for first-time buyers, forecast a loss of 50 cents to 60 cents a share for the first quarter as preliminary estimates show the number of homes sold fell 26%.

Ryland expects to take a charge of about $65 million to reflect declining values of residential communities in Fort Myers, Fla., Phoenix, Southern California and Washington, D.C., the Calabasas-based company said Wednesday.

Profits at U.S. home builders have fallen during the last year as the industry faces the biggest housing slump in 15 years. Companies have been offering incentives to attract buyers, reducing profits. Rising interest rates and job losses in manufacturing have taken a further toll on first-time home buyers, causing defaults to rise and pushing sub-prime mortgage lenders such as New Century Financial Corp. into bankruptcy protection.

"We are disappointed by the continued reduction in sales and closings," Ryland Chief Executive Chad Dreier said. "As the first quarter progressed, it became clear that aggressive pricing strategies persisted in several markets, requiring us to write down the value of some of our assets this quarter."

The company said it also expected to write off the $15 million in remaining goodwill associated with the 1986 acquisition of California home builder M.J. Brock & Sons. Mainly because the goodwill charge isn't deductible, Ryland said, its annual tax rate in effect rose to 39% from 37.5%.

Excluding the impairment charge, the goodwill write-off and the tax rate change, Ryland expects first-quarter earnings of 63 cents to 73 cents a share.

Preliminary sales for the quarter fell 26% to 2,989 units from 4,021 units a year earlier, and the cancellation rate was 28% of gross sales, Ryland said. The company closed on 2,302 units, down from 3,554 a year earlier, a decline of 35%.