Housing Bubble Bursting?

[Randolph Kinney]

How bad is it going to get?

The real magnitude of risk

Now delinquencies in the subprime market are at 14% of total, up from 10% in 2004 and 2005. We are ultimately looking for 1/3 to ½. The damage inflicted will vary from $750 billion to $1.3 trillion, not the $100 billion the CNBC barkers are talking about. No one is talking about factoring in the contagion of quality mortgage loans, home equity loans and the damage it is causing in commercial paper and in the ability of hedge funds to procure credit. All the players are having big problems, but not the major banks who have the strongest balance sheets and are able to refinance their operations most easily thanks to the extra liquidity that central banks have put into the market in the past two weeks.

The problems from this mortgage fiasco will be felt for the next few years. Inflation, real inflation, not government lies and worst of all, recession with a big fall in consumption.

S&P is probably going to downgrade several issuers of commercial paper, especially where the paper is backed by residential mortgages. Commercial paper in the US has grown to $2.2 trillion with about $1.2 trillion backed by residential mortgages, credit card receivables, car loans and other bonds. The major buyers include pension funds, insurance companies, hedge funds and short-term money market funds.

We have seen a massive move out of stocks into money market funds. Last week, more than $36 billion moved into those funds, the 5th largest shift since December 2005. In all, some $2.6 trillion is in money market funds.

Surreptitiously the Fed has been buying mortgage backed securities for weeks and in quantity, almost as much as they have been buying and monetizing treasuries. We will give you the numbers when we have them all. As you can see the elitists are trapped as we said they were six years ago. We see no way they can avoid a financial, monetary and economic implosion worldwide. All of Wall Street still doesn’t get it. The game is over and systemic problems daily grow exponentially. These people are about to find out they are not in the masters of the universe.

 

[Randolph Kinney]

FED has to do more to grease commercial paper market

Fed Rate Cut Fails to Revive Asset-Backed Commerical Paper, Mortgage Bonds

The cut ``may help add confidence that action will be taken when it's necessary, but further action is needed to actually offset the credit contraction we have had,'' Ashish Shah, global head of credit strategy at Lehman Brothers Holdings Inc. said in interview from New York.

Trading in mortgage bonds not guaranteed by government-chartered companies had seized up as investors struggled to determine the true value of the underlying loans.

Top-rated asset-backed commercial paper maturing Aug. 20 yielded 5.99 percent, up 39 basis points since yesterday and the most since a 45 basis point increase on Sept. 20 in the wake of the terrorist attacks in New York City and Washington.

Issuers are offering the highest rates in almost seven years to entice lenders who balked at taking mortgage-backed securities as collateral to avoid exposure to losses from U.S. subprime mortgage delinquencies.

Almost $44 billion in market value has already been lost on Merrill Lynch's broadest index of floating-rate securities backed by home-equity loans. The index shrank to $632 billion in face value today from $679 billion.

The Fed lending ``has yet to penetrate primary or secondary mortgage markets.''

Banks that receive the loans from the Fed are unlikely to use the funds to originate single-family mortgage loans because they are long-term loans, Youngblood said.

``Depository institutions are not disseminating the liquidity they are receiving from the Fed to non-agency mortgage markets,'' he wrote in the report.

The Fed is trying to help find buyers for commercial paper after the market seized up this week for Countrywide Financial Corp., the biggest U.S. mortgage lender. Countrywide borrowed its entire $11.5 billion available in bank credit.

Commercial paper is bought by money market funds, mutual funds that invest in short-term debt securities. In asset-backed commercial paper, the cash is used to buy mortgages, bonds, credit card and trade receivables as well as car loans. Some of the programs are backed by subprime loans.

The irony of all the selling is to be in cash. Money market funds and mutual funds buy commercial paper to pay interest on cash deposits. If some of these money market funds that are holding commercial paper backed by mortgages can't redeem the commercial paper when due, the net asset value must be adjusted for the loss. That is really going to set off panic.

 

[concerned]

How come "bubble" is being used when it's really more like a balloon ?

leakage (in a balloon) results in the balloon comming back down to earff

similarily, the housing market has been in the high winds for some time now and me thinks the balloon has sprung a leak.....fizzle fazizle

Yeah, that's the term being used in Europe for the whole US economy...

 

[Randolph Kinney]

Household debt a problem? Could be said the FED

The Fed: Home prices boosting U.S. household debt: Kohn

In their paper, Kohn and Dynan noted that the personal savings rate in the U.S. has fallen from an average of 9.1% in the 1980s to an average of 1.7% so far this decade. In the same period, the ratio of total household debt to aggregate personal income has risen from 0.6 to 1.0.

They said household spending is now probably more sensitive to unexpected movements in asset prices than it used to be. Kohn and Dynan also wrote that some households are prone to become very highly indebted relative to income and wealth.

 

[Randolph Kinney]

Herb Greenberg: IndyMac: Blind optimism?

"Based on an objective analysis of the facts," Perry said in the same statement that contained the geography lesson, "talk of the 'subprime contagion' spreading to the Alt-A sector of the mortgage market is, in our view, overblown."

 

[Randolph Kinney]

Mortgage demand waning

CORRECT: Fannie Mae to skip August debt offering

WASHINGTON (MarketWatch) -- Giant mortgage-buyer Fannie Mae will skip a benchmark debt offering for the first time since May 2006, the company said Monday, prompting an analyst to declare that demand for high-rated mortgage paper is "scant" amid an investor boycott of mortgage-backed securities.


"Though mortgage lending via the quasi-governmental agency appears to be the only game in town amid [a mortgage-backed security] investor boycott, this news suggests that demand [for] even high-rated mortgage paper is scant at the moment and impacting funding plans at the agency," wrote Action Economics on its Web site.

 

[Randolph Kinney]

Another one bites the dust

Capital One to close wholesale mortgage unit and cut 1,900 jobs

 

[concerned]

Capital One to close wholesale mortgage unit and cut 1,900 jobs

Holy ***t! I have a savings account with them and sent an e-mail yesterday to FDIC just to doublecheck... Surprisingly enough, they responded this morning and reassured me that indeed any deposit up to 100K is insured. And I have a transfer in progress from my checking account. Should've transferred everything in the opposite direction! But who do you believe anymore...?! I've seen banks closing doors (not in this country), which means no access to a safe deposit box, either. Should we keep cash under our pillows nowadays ...?!

 

[Midwest Guy]

Chill,

These FDIC banks are safe! Mortgage lending unit closing means little to the overall bank!

Holy ***t! I have a savings account with them and sent an e-mail yesterday to FDIC just to doublecheck... Surprisingly enough, they responded this morning and reassured me that indeed any deposit up to 100K is insured. And I have a transfer in progress from my checking account. Should've transferred everything in the opposite direction! But who do you believe anymore...?! I've seen banks closing doors (not in this country), which means no access to a safe deposit box, either. Should we keep cash under our pillows nowadays ...?!

 

[concerned]

Chill,

These FDIC banks are safe! Mortgage lending unit closing means little to the overall bank!

Then why was everybody running to get their money out of Countrywide? As some guy was saying online, has anybody ever tested FDIC insurance? Who knows whether the savings unit is not "helping out" the mortgage unit... It seems to me we're approaching unprecedented and uncharted territories. And I came here to improve my life... Wrong train at the wrong time again - the story of my life. Sorry for the personal rant, but it really ****es me off.