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Thursday, December 13, 2007

Mortgage/Credit Crisis: Biting the Bullet

Items of interest - updated:

Sorry, our bad.

Chris Isidore / CNNMoney.com:
Builders' lobbyist: We made too many homes -- Chief of National Association of Home Builders says overbuilding by some members was one factor in the housing meltdown.

Builders deserve some blame for the nation's housing and mortgage problems because some overbuilt, flooding the market with new properties, according to leading advocate for the homebuilders.

Jerry Howard, chief executive of the National Association of Home Builders, told CNNMoney.com that numerous problems caused the sharp slump in the housing and mortgage markets, but he added that overbuilding during the boom years was a contributing factor.

"There were some builders [who] were probably overly aggressive. There's no question about that," Howard said. "Economists were starting to say this is a cyclical business and we are going to get into a downturn. But some guys were chasing the gold and pursuing the brass ring, and they didn't heed the market warnings as quickly as they should have."

Government figures show that 6.2 million new single-family homes were completed between 2003 and 2006 - hitting record levels year after year during the boom.

Ben Bernanke speaks after receiving The Citizens of the Carolinas award from the Charlotte Chamber, Nov. 29, 2007Mike Peacock/ Reuters:
Crisis unabated despite central bank assault -- Investor delight at a concerted central bank attempt to relieve jammed money markets fizzled out on Thursday with experts saying the credit crisis would only end when commercial banks trusted each other again.

The Federal Reserve and counterparts in Europe, Canada and Britain banded together on Wednesday to cough up funds to boost liquidity in their first coordinated action since terror attacks shut U.S. financial markets on September 11, 2001.

The Fed said it would launch a "temporary term auction facility", expanding the number of banks allowed to borrow money at favorable rates.

The deal, hammered out in Cape Town at a meeting of the Group of Twenty last month, also catered for affected foreign investors -- the Fed will open foreign exchange swaps for up to $20 billion with the European Central Bank and up to $4 billion with the Swiss National Bank (SNB).

Welcome but not enough was the verdict on Thursday. [...]
A NY stock trader on Wed., Dec. 12th, as the central banks action lifted shares.Floyd Norrisand & Carter Dougherty / Int'l Herald Tribune:
Central banks pumping billions into world financial system -- Central banks in Europe and North America moved Wednesday to increase the amount of money they could lend to banks and to make it more readily available in an attempt to ease the credit squeeze.

It was the first time since the Sept. 11, 2001, terrorist attacks in New York and on the Pentagon that these central banks have coordinated their support of financial markets.

Stock markets rose in Europe and the Americas after the announcement by the U.S. Federal Reserve, the Bank of Canada, the European Central Bank, the Bank of England and the Swiss National Bank. [...]

Fed officials said the united move was an effort to improve financial markets, not a response to problems at any individual bank.

"This is not about particular financial institutions with particular problems," a senior Fed official said in a background briefing for reporters. "It is about market functioning." [...]
Ben Steverman / Business Week:
BofA Bites the Bullet -- The largest U.S. bank sees greater credit losses and writedowns of bad debt, though it still expects to post a profit this quarter -- The chief executive of the largest U.S. bank warned Dec. 12 of more pain to come.

With a few weeks still to go on 2007, Bank of America (BAC) CEO Kenneth Lewis said of end-of-the-year numbers, "I think you certainly can assume results will again be quite disappointing." [...]
AP / Motley Fool:
Bank of America Sees Bigger Writedowns -- Bank of America Expects 4th-Qtr Writedowns to Exceed $3 Billion, but Still Remain Profitable -- Bank of America Corp. said Wednesday in a regulatory filing it expects fourth-quarter writedowns of collateralized debt obligations to exceed the $3 billion it estimated a month ago, but that it expects to remain profitable in the period.

In a Securities and Exchange Commission filing, the bank said it was unsure how big the writedowns would be for the quarter.

CDOs are complex financial instruments that combine different types of loans and debt. The value of CDOs has declined rapidly as the underlying loans and debt, especially subprime mortgages given to customers with poor credit history, have increasingly defaulted in recent months. [...]
Diana Olick / Realty Check blog / cnbc.com:
Fed Cut And Your Mortgage: A Reader Makes A Good Point -- one key segment of the mortgage market as it relates to whether Fed Funds Rate cuts will help or hurt your mortgage interest rate. This is the Conforming vs. Jumbo loan market. There is a great deal of misconception in the general public as it relates to when the Fed cuts the Fed funds rate and who benefits. Conforming loan amounts seem to be the benefactor with Fed cuts, while Jumbo's either lag or see inverse effects of a Fed cut. This is in large part due to the continued risk that has been priced into the Jumbo products by secondary capital markets, as these loans are not federally insured by the GSE's … and thanks to the recent write downs and subprime portfolio exposure news from Fannie and Freddie, we all know what's in store for those GSE's on the horizon don't we?
Stick Its & Stones

Diana Olick / Realty Check blog / cnbc.com:
Builders Feeling Wrath Of Buyers: Do They Deserve It? -- [...]

One mid-sized private builder told a friend of mine that potential customers coming through their model-home doors are openly hostile. They’re not just looking for good deals; they’re looking for payback.

Apparently some of today’s new homebuyers blame the builders outright for the current housing predicament. They are telling unwitting sales reps that they are to blame for running up prices and foisting untenable loans on clients during the latest housing boom. Buyers are telling the sales people stories of how rudely they were treated during the boom, how they were told that if they didn’t want to take the deal they could stick it, because there was a line of buyers right behind them. [...]
'Closing the California Dream'

Closing the California Dream
Tag Line Irony From Alliance Title: “Closing The California Dream” -- A reader notes that Alliance Title seems to have suddenly closed its doors in San Francisco and wonders what’s going on. And while we can’t confirm a why, we can confirm a what: it appears as though Alliance Title is shuttering their Escrow Services in San Francisco and San Mateo but continuing to operate their Default Services (in both cities).

... we do have to note the irony (considering the “Closing the California Dream” tag line).

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