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Sunday, December 9, 2007

Mortgage Bailout / Fallout

Japanese 1990's market crashItems of interest:

Is the US mortgage crisis following the Japanese 1990's model for handling a banking/credit crisis? Going down the primrose path of a political instead of a market solution.

Terry Savage / TheStreet.com:
The True Cost of the Mortgage Bailout -- The American economy has pulled through some tough times before. But until now, we were almost always pulling together -- even though only some of our citizens were directly affected by recession or economic transition.

This time around it's different, because we have two huge segments of the population directly opposed to each other -- and they are fully aware of the very high stakes if one gets bailed out at the expense of the other.

Homeowners are squaring off against ordinary investors in this mortgage crisis. And since both sides command a lot of votes, this is becoming more than a financial crisis. It's growing into a political divide that will be the first of many, now that we live in an era when the government has fewer and fewer resources to solve such problems.

Taking Sides
On the one side we have more than 2.64 million homeowners who are behind on their mortgage payments. We have 53,609 families who actually lost their homes in the month of October. We have another 224,451 families who received news from their lenders in October that foreclosure proceedings have started against them. And we have another 1.5 million Americans with adjustable-rate mortgages that will start resetting to higher monthly payment in January 2008. [...]

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David Ellis / CNNMoney.com:
Dark clouds gather on Wall Street -- The nation's brokerages kick off the earnings season next week. Analysts are betting that there will be plenty of bad news to go around.

When the nation's biggest brokerage firms reported disappointing quarterly earnings in October, many on Wall Street were hoping that the darkest days of the credit crisis were behind them.

Now, with less than a week before the start of the next earnings season, analysts and investors are betting that this quarter's results could be just as bleak. [...]

Last month, Morgan Stanley became the latest firm to reveal massive losses, saying it would take a $3.7 billion hit in the fourth quarter because of its subprime mortgage exposure. One week later, Bear Stearns said it would take a $1.2 billion writedown due to its subprime assets and collateralized debt obligations.

Investors will again be paying close attention to how they value these so-called "level three" assets like mortgage-backed securities, which aren't highly liquid, said Lehman Brothers analyst Roger Freeman.

So far this year, banks have booked or announced more than $36 billion in writedowns as they try to value these securities.

"Just as in the third quarter, the markdowns will be very closely watched," said Freeman. "The question is are those marks going to be worse, the same or better." [...]
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Newsday:
Editorial: Bush's subpar subprime rescue plan -- There won't be many cheers from embattled homeowners about the Bush administration's new plan to rescue holders of subprime mortgages by freezing interest rates for five years.

Those already in foreclosure are out of luck. Most of those facing imminent default are unlikely to qualify. And it's too late for those frugal souls who had already scraped and sweated to meet rates that have reset already.

Still, for all its limitations, it's not a bad plan - even if it comes a bit too late and does too little. It's a voluntary measure that relies on enlightened self-interest. [...]
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Justin Fox / Time.com:
Whom Will the Subprime Plan Help? -- Don't be fooled. The Bush Administration's deal with lenders to get them to freeze interest rates on some adjustable-rate subprime loans isn't really about rescuing lots of homeowners. It's mainly about buying some time for mortgage servicers, Wall Street firms and investors around the world who face a chaotic couple of years as foreclosures rise and a couple million subprime loans reset at higher rates.

Treasury Secretary Henry Paulson made that very clear Thursday afternoon. "This is a private sector initiative to deal with the volume of resets," Paulson said at a press conference following the unveiling of the plan. "You get approximately the same result as if you did it on a case-by-case basis."

Paulson was responding to criticism that the rate freeze is a bailout for the irresponsible — borrowers and lenders alike. "In the normal case this is how markets work," he said. "There are workouts, and there are modifications."
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Predatory LendingKenneth Andrews / California attorney / San Diego Predatory Lending blog:
The California Foreclosure Rules or “So What Happens If I Let My California House Go Back To The Bank?” -- I get this question a lot. The answer is, IT DEPENDS. That’s a slippery lawyer’s response (someone called me that yesterday) but the outcome in your situation could be
  1. You still owe the bank a big slug of money;
  2. You have a big income tax bill with no cash to pay it;
  3. You owe the bank a big slug of money and you have a big tax bill ; or
  4. You owe the bank nothing and you do not have a tax bill.
Everyone wants to be the last case. A lot of my clients show up to my office as the third case. The good news is most people can be the last case, but only IF THEY PLAN CAREFULLY!!! [...]
discussion:
Barry Ritholtz / The Big Picture blog:
More Trouble for Mortgage Securitizers? -- Looks like the Bankruptcy Courts in San Diego are challenging parties far removed from the original mortgage to provide actual proof that they own the mortgage, and have standing to engage with the homeowners. [...]
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related:
Kenneth Andrews / California attorney / San Diego Predatory Lending blog:

SECURITIZED MORTGAGE LENDING EXPLAINED --

Securitized Mortgage Leading chart-----

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia