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Tuesday, February 5, 2008

Housing/Subprime Roundup — Feb. 5, 2008

Items of interest:

US News:
Bond Guru Bill Gross on the Housing Crisis -- Bill Gross, founder and chief investment officer of PIMCO, the world's largest family of bond funds with $746 billion in assets under management, believes that without government intervention, home prices could drop as much as 20 percent over the next two years. [...]
Why do you think housing prices are declining?
The simplest explanation is because they went up too much.... It's hard for a home to go down in price significantly unless there's been a bubble. The reason for a significant bubble is not only low interest rates back in the 2003-2004 time period but a significant amount of near-fraudulent behavior in the mortgage market with no-documentation loans and—[as] I call them—"funny money" mortgages. [...]

The Big Picture:
Shiller: "Historic Housing Bust" [video] -- Shiller warns about the extent of the Housing collapse [...]
Prime Mortgages’ Surprising Victims [slide show]-- Subprime defaults have been a big issue, but foreclosures on home-buyers with good credit are growing in a scary way in many states

How scary? We looked at states with the biggest increase in foreclosure (FC) actions relating to prime adjustable rate mortgages (ARMs) for the third quarter of 2007 compared to the third quarter of 2006. U.S. foreclosure starts involving prime ARMs increased 253% to 61,557 during the 12 months ending in the third quarter of 2007. The hardest hit? Arizona—which hasn't seen things this bad since the gunfight at the O.K. Corral [...]
Fleecing the Asian Rubes: Sell them US cheap goods and then buy worthless US subprime mortgage bonds - a recipe for helping the US balance of payments deficit. Suckers.

Watchdog says S Korea lose $563 mln from subprime hit -- South Korean local banks lost 563 million U.S. dollars as of the end of December after investing in U.S. subprime mortgage-related instruments, said the Financial Supervisory Service on Tuesday.

Seven local banks, including Woori Bank, the country's No. 2 lender, invested 682.5 million dollars in U.S. collateralized debt obligations (CDOs) derived from subprime mortgages and lost 83 percent of their total CDO investments, the financial watchdog said.

Among the seven lenders, Woori Bank posted the biggest losses with 445 million dollars, followed by the National Agricultural Cooperative Federation with 107 million dollars, the watchdog said. [...]
Moody's May Cut A$83 Billion of Australian Mortgage-Backed Bonds -- Moody's Investors Service may cut the ratings on A$83 billion ($75 billion) of Australian mortgage- backed bonds linked to PMI Group Inc. on concern the U.S. home- loan insurer will find it harder to pay claims.

Moody's is reviewing the ratings on bonds tied to loans insured by the local unit of PMI, it said today in a statement. They account for about 45 percent of the A$180 billion mortgage- backed bonds issued in Australia, making for the biggest review Moody's has done in the nation, said Henry Charpentier, structured finance analyst at the ratings company in Sydney. [...]
National Journal:
Sweeping Away Success -- The surging tide of housing foreclosures is threatening to sweep away one of the most encouraging, if little-noticed, social success stories of the past 15 years.

Starting under President Clinton and continuing under President Bush, African-Americans and Latinos made dramatic advances in homeownership from the mid-1990s through the first part of this decade [...]
Seeking Alpha:
Housing Market Tracker - Despite Efforts, Subprime Fallout Spreads --
Quote of the Day "Increasing Fannie's limit is like going on a spending spree with your credit cards because you know you are going to file for bankruptcy in a few months."– Op-Ed piece, San Francisco Chronicle. (San Francisco Chronicle, Feb. 3rd)
Wall Street Journal:
Credit Cards Are Playing Harder to Get. -- Big card issuers such as Citigroup Inc. are requiring higher credit scores before issuing new cards, particularly in states that have been hit hard by the housing downturn, including California, Arizona and Florida. Some lenders, including Bank of America Corp., are offering lower initial credit lines...Capital One Financial [is] limiting credit-line increases or reducing credit lines for existing customers if they see signs that they are suddenly applying for more credit or are having trouble paying down their balances. And many card issuers are raising late fees... to offset higher risk... Credit-card approval rates have dropped to 32% of applicants from 40% a year ago.
Washington Times:
Banks Impose Severe Lending Standards. -- A Federal Reserve survey found that homeowners with good credit scores seeking conventional 30-year loans are encountering stricter terms at 55% of banks, up from 40% last fall, while those seeking "nontraditional" mortgages, including interest-only and payment-option loans, are having to clear higher hurdles at 85% of banks. Only [seven] banks surveyed continue to offer subprime mortgages, and five of them have ratcheted up their standards. More than 32% of banks also are making it more difficult to get consumer-installment loans, while nearly 10% have increased restrictions on credit cards.

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