Housing Bubble Bursting?

[Randolph Kinney]

What happened to all that soft landing Pollyanna scenario garbage?

2008 is an election year. I wonder if housing will become part of the presidential election campaign issues?

 

[moh malekpour]

CDOs in `6-Inch Hooker Heels' Fooled Moody's, S&P, Gross Says

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiKfKdfvG9GY&refer=home

June 26 (Bloomberg) -- Holders of some investment-grade portions of collateralized debt obligations backed by subprime mortgages will lose all of their money, according to Bill Gross, manager of the world's biggest bond fund.

Bankers and money managers bundle securities into CDOs and divide them into slices with credit ratings as high as AAA from Standard & Poor's and Aaa by Moody's Investors Service.

With subprime loan defaults at 7 percent, buyers of the BBB pieces of CDOs stand to lose their entire investment, said Gross, chief investment officer at Pacific Investment Management Co. Gross manages the $103 billion flagship PIMCO Total Return Fund in Newport Beach, California.

``AAA? You were wooed Mr. Moody's and Mr. Poor's by the makeup, those six-inch hooker heels and a `tramp stamp,''' Gross said in his monthly commentary posted on Pimco's Web site today. ``Many of these good looking girls are not high-class assets worth 100 cents on the dollar.''

Subprime mortgages are loans made to borrowers with poor or limited credit histories, or high debt burdens.

Defaults on subprime loans will ``grow and grow like a weed in your backyard tomato patch'' and if total losses reach 10 percent, CDO slices rated A may also ``face the grim reaper,'' Gross said.

At least 60 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data. Irvine, California-based New Century Financial Corp. and ResMae Mortgage Corp. of Brea, California, were forced into bankruptcy. UBS AG, Switzerland's biggest bank, shut down its Dillon Read Capital Management LLC hedge fund unit after losses linked to turmoil in the mortgage-bond market

 

[Randolph Kinney]

Subprime contagion will spread

Pimco sees subprime impact on homes, consumers

NEW YORK (MarketWatch) -- Pimco Chief Investment Officer and founder Bill Gross Tuesday predicted that the subprime mortgage crisis's impact will spread beyond the housing sector and prompt the Federal Reserve to cut rates to stir a flagging economy.

"The right places to look for contagion are therefore not in the white-washed Bear Stearns hedge funds, but in the subprime resets to come and the ultimate effect they will have on the prices of homes -- the collateral that's so critical in this asset-backed, and therefore interest-sensitive financed-based economy of 2007 and beyond," he wrote.

"The flaw, dear readers, lies in the homes that were financed with cheap and in some cases gratuitous money in 2004, 2005, and 2006," he wrote.

"Because while the Bear Stearns hedge funds are now primarily history, those millions and millions of homes are not. They're not going anywhere...except for their mortgages that is. Mortgage payments are going up, up, and up...and so are delinquencies and defaults."

 

[Randolph Kinney]

S&P/Case-Shiller index shows prices down annualized 2.7%

Home prices fall at fastest rate in 16 years

WASHINGTON (MarketWatch) -- Home prices in 10 major U.S. cities dropped at the fastest pace in 16 years during the 12 months ending in April, according to Standard & Poor's Case-Shiller home price index released Tuesday.

Home prices in the 10 cities fell 2.7% on a year-over-year basis, the largest decline since September 1991. Meanwhile, prices in 20 cities dropped a record 2.1% year over year.

As a result of falling prices, foreclosures are rising nationally, especially in regions with a weak economy, such as the Midwest, and in Sun Belt areas deemed bubble regions, such as Southern California, Florida, Nevada and Arizona.

The Case-Shiller index is considered a superior gauge of home prices compared to the median sales-price data released by the Commerce Department or the National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period.

Unlike the quarterly price index produced by the Office of Federal Housing Enterprise Oversight, the Case-Shiller index does not include refinancings. And, also unlike the OFHEO index, it includes homes with mortgages larger than the conforming limit of $417,000.

 

[Randolph Kinney]

Lennar posts loss as home prices fall

Builder swings to quarterly loss, says inventory of homes for sale growing

BOSTON (MarketWatch) -- Lennar Corp. said Tuesday it swung to a quarterly loss, blaming impairment charges and growing inventories of homes for sale which are pushing prices lower and further squeezing margins.

"The housing market has continued to deteriorate throughout the second quarter. The supply of new and existing homes has continued to increase resulting in declining home prices across our markets," said Chief Executive Stuart Miller in a statement.

For the second quarter, home deliveries fell to 8,940 from 12,506 a year earlier. The average home price dropped to $298,000 from $322,000 in the year-ago period. To attract uncertain buyers, Lennar said sales incentives averaged $43,700 a home versus $24,700 in the same quarter last year.

"These continue to be very difficult times for the home-building industry," Lennar CEO Miller said during Tuesday's conference call with analysts.

"Simply stated, the supply of homes available for purchase has continued to climb while at the same time demand has been sharply reduced," he added.

Three things will have to happen before the market stabilizes and recovers, Miller said. First, inventories of both new and existing homes will have to level off and be absorbed.

Also, mortgage markets and particularly the subprime and first-time sectors will need to settle. Finally, "consumer confidence is going to have to be restored so that purchasers once again believe in the ultimate value of their home," he said.

 

[Terrel L. Shields]

those six-inch hooker heels and a `tramp stamp,''' Gross said in his monthly commentary posted on Pimco's Web site today. ``Many of these good looking girls are not high-class assets worth 100 cents on the dollar.''

Lipstick on a pig? As the ARM's reset and many more will reset in 2008 than in 2007...prices are weak so borrowers have no cushion and banks will be much tighter next year....those go belly up. Politically, lowering the interest rate will be considered economic suicide and fodder for the politicos.. Gotta get thru politician season before there is a change to the better.

 

[moh malekpour]

Alt A Loans `Disconcerting,' Jumbos Weaker, S&P Says

http://www.bloomberg.com/apps/news?pid=20601009&refer=bond&sid=aXDYv12DZNcc

U.S. homeowners with good credit are increasingly falling behind on mortgage payments, a sign lenders have been offering ``higher risk'' loans outside the so-called subprime market, Standard & Poor's Corp. said today.

Rising late payments and defaults on so-called Alt A mortgages made last year are ``disconcerting'' and delinquent borrowers appear to be ``finding it increasingly difficult to refinance'' or catch up on their payments, S&P analysts said today in a statement. ``Serious'' delinquencies, foreclosures and seized property among ``prime jumbo'' mortgages in bonds from 2006 reached the highest among loans of less than 13 months since at least before 2000, S&P said in a separate report.

Alt A home loans are granted to borrowers with generally good credit scores who opt for unusual loan terms or underwriting standards, such as reduced proof of their pay, without enough offsetting positive attributes.

S&P, one of the two largest ratings firms, is now ``examining how the risk profile clearly increased'' in the Alt A market, it said in a statement sent by e-mail today. ``We will communicate our findings to the market,'' S&P said, in language it typically uses ahead of adjusting its rating methodology

 

[Randolph Kinney]

Bear Sterns fallout - SEC says it will investigate

SEC opens 12 investigations into collateralized securities

WASHINGTON (MarketWatch) -- The Securities and Exchange Commission has opened 12 investigations into "issues such as" collateralized loans, Chairman Christopher Cox told lawmakers Tuesday without providing any further details. Last week, Bear Stearns Cos. said it would inject as much as $3.2 billion into an internal hedge fund that found the value of its assets -- including collateralized debt obligations based on subprime mortgages -- was much less than it had believed. Cox said the SEC doesn't have direct jurisdiction over these kinds of securities, but has found a "commonality of interest" with banking regulators who are obligated to protect the safety and soundness of the banking system. Cox revealed in an interview last week that the SEC was tracking the fallout of the Bear Stearns funds.

 

[moh malekpour]

Banks 'set to call in a swathe of loans'

http://www.telegraph.co.uk/money/ma...7/06/26/cnusecon126.xml&CMP=ILC-mostviewedbox

The United States faces a severe credit crunch as mounting losses on risky forms of debt catch up with the banks and force them to curb lending and call in existing loans, according to a report by Lombard Street Research.

The group said the fast-moving crisis at two Bear Stearns hedge funds had exposed the underlying rot in the US sub-prime mortgage market, and the vast nexus of collateralised debt obligations known as CDOs.

"Excess liquidity in the global system will be slashed," it said. "Banks' capital is about to be decimated, which will require calling in a swathe of loans. This is going to aggravate the US hard landing."

Charles Dumas, the group's global strategist, said the failed auction of assets seized from one of the Bear Stearns funds by Merrill Lynch had revealed the dark secret of the CDO debt market. The sale had to be called off after buyers took just $200m of the $850m mix.

"The banks were not prepared to bid over 85pc of face value for CDOs rated "A" or better," he said.

"God knows how low the price would have dropped if they had kept on going. We hear buyers were lobbing bids at just 30pc.

"We don't know what the value of this debt is because the investment banks shut down the market in a cover-up so that nobody would know. There is $750bn of dubious paper out there in the form of CDOs held by banks that have a total capitalisation of $850bn."

Much-trumpeted claims that banks had shifted off the riskiest credit exposure on to the asset markets was “largely a fiction”, said Mr Dumas

. The worst of the US property crisis has yet to hit since there is an overhang of $2,000bn of mortgages with adjustable rates which have yet to be reset. Many borrowers could see payments jump by half, or even double

 

[Randolph Kinney]

Lots of press trying to convince everyone that the subprime problems are contained, they are not spreading, the Bear Sterns problem is not related or hedge funds are isolated from CDO problems.

If the hedge funds and investors lose confidence in the make up of CDOs that include subprime debt and start dumping en masse, the melt down of the housing market will be horrific along with panic selling of securities.