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Monday, July 21, 2008

Housing/Subprime/Credit Roundup — July 21, 2008

Items of Interest:

Housing Wire:
Concerns Subside Over Fannie, Freddie -- After two weeks that saw investor concerns over dual housing finance giants Fannie Mae and Freddie Mac veer wildly from serial dilution to outright insolvency, and shares in both quasi-governmental firms punished to historic lows as a result, both companies started out Monday strongly, continuing a rebound that began on Friday. Fannie Mae was trading at $15.70, up 17.16 percent, while Freddie was trading at $9.72, up 5.9 percent, when this story was published.

Freddie’s long-awaited filing with the Securities and Exchange Commission on Friday served to cool some investor nerves in the equity and debt markets, as it puts the company in a situation to offer shares in the private market and suggested that the company wasn’t likely to go after any direct investment from the federal government.

Fannie CEO Daniel Mudd went on the NewsHour with Jim Lehrer late last week as well, reiterating that the GSE he helms wouldn’t be looking to tap into government assistance any time soon.

“Fannie Mae has never taken a penny from the federal government,” Mudd said. “I don’t think we’re ever going to get there.” ...

Freddie Mac Chairman and Chief Executive Richard Syron makes $20 Million per year as stock crashesCNNMoney:
Freddie Mac CEO paid almost $20 million last year -- Richard Syron could take home another $20 million in stock awards this year.

Freddie Mac Chairman and Chief Executive Richard Syron pocketed nearly $19.8 million in compensation last year, according to a Securities and Exchange Commission filing Friday, even though the mortgage company's stock lost half its value in 2007.

If Syron stays at the helm of Freddie Mac (FRE, Fortune 500) through the end of next year, he will receive nearly $20 million in stock awards if the board says he has met certain goals. This year, he is guaranteed to get $8.8 million in stock grants regardless of performance...

Freddie Mac CEO got $19.8 million in 2007

Freddie Mac May Slow Purchases of Mortgages, Bonds

William L. Anderson / LewRockwell.com:
Fannie, Freddie, and a Primer in Finance -- The party really is over. We are going to be facing hard times no matter what the government does. If it continues to prop up the sick markets, it only delays the inevitable and then will make the economic downturn even worse. This country cannot avoid the financial and economic day of reckoning, but if the political classes and their allies continue to push events in the direction we now are seeing, what would have been a steep but brief recession will turn out to be an economic calamity that will drag everyone down with it.

Kevin Depew / Minyanville:
Real Estate Isn't Dead, It's Just Different -- Two important things happened last night that are deeply interconnected. One, during an interview on CNN, Treasury Secretary Henry Paulson suggested U.S. lawmakers had better pass his rescue plan for Fannie Mae (FNM) and Freddie Mac (FRE) or, he intimated, face embarrassing and ultimately confidence shattering personal probes. Two, although indicating he didn't want to "speculate about a second stimulus package," he speculated that a second stimulus package would be necessary since the first one had very clearly stimulated consumer spending.

The reason these two things are deeply interconnected is very simple: Fannie Mae and Freddie Mac are going to be nationalized (and there is nothing anyone can do about it), but that act - as capitulatory as it may seem - is in and of itself not enough to resurrect the housing market or stave off the ongoing economic decline. Like a gnat hitting a buffalo, it's just not enough to move the thing...
Daniel Gross / Slate:
Can the FDIC Prevent a Banking Meltdown? -- In ordinary times, a public discussion on deposit insurance would hold all the drama of a seminar on Canadian land use. But these are no ordinary times. Last Wednesday at the Chicago Mercantile Exchange, a bank of television cameras, several reporters, and about 100 people picking at their lunch—arugula salad, stuffed chicken, a strange fruit/cream confection—paid close attention when a fiftysomething woman with a professorial mien took the podium. Sheila Bair, chairman of the Federal Deposit Insurance Corp., stood under a large banner reading, "CONFIDENCE AND STABILITY"—an unsubtle attempt to bolster flagging confidence in the nation's financial sector. The panel discussion, featuring Terry Savage, the Suze Orman of the Windy City, was part of a $5 million public education campaign marking the FDIC's 75th anniversary. As Bair told me before the excitement began: "We're bringing in local experts, and banks, and talking about deposit insurance." Par-TAY!

After several years on the D-list, deposit insurance is hot. The FDIC's Web site last Monday tallied a record 9 million hits, with nary a mention of Brangelina's twins. Traffic was driven by concerns about IndyMac, the big California lender taken over by the FDIC on July 11, and by general concerns about banks' health...
NY Times:
Given a Shovel, Americans Dig Deeper Into Debt -- The collection agencies call at least 20 times a day. For a little quiet, Diane McLeod stashes her phone in the dishwasher.

But right up until she hit the wall financially, Ms. McLeod was a dream customer for lenders. She juggled not one but two mortgages, both with interest rates that rose over time, and a car loan and high-cost credit card debt. Separated and living with her 20-year-old son, she worked two jobs so she could afford her small, two-bedroom ranch house in suburban Philadelphia, the Kia she drove to work, and the handbags and knickknacks she liked.

Then last year, back-to-back medical emergencies helped push her over the edge. She could no longer afford either her home payments or her credit card bills. Then she lost her job. Now her home is in foreclosure and her credit profile in ruins...
Seeking Alpha:
  • Foreclosures Will Moderate as Home Prices Continue to Fall -- There will come a time when most of the homeowners that intend to walk away from their mortgages have done so. True, whether defaulting by choice or by the lack of the ability to pay. As the 2005, 6 and 7 vintages mature, their default rates will be more tied to the local economies than bad underwriting. Unrealized losses related to the fluctuations in housing prices will become less relevant.

  • Historic Financial Collapse Underway? -- I tend to be in hotel rooms when bubbles burst...

    Recently, I was at the Four Seasons Hotel, looking down over the Las Vegas strip. Fannie Mae (FNM) and Freddie Mac (FRE) have finally cracked. While the stocks haven't gone to zero yet, it's clear the market woke up to the obvious fact equity holders of these companies are holding worthless pieces of paper. From my hotel room, I could see many of the reasons why...

    Las Vegas may end up being the single-largest source of mortgage defaults. Upscale home prices here have fallen nearly 40%. The $2 billion Cosmopolitan hotel development is in default. The $6 billion Las Vegas Plaza is being delayed. Even Donald Trump has put his second tower on hold. It's a bloody mess...

  • Foreclosure Contagion -- How badly does a foreclosed home hurt its neighbors?

    The Center for Responsible Lending says this effect is quite sizable and that all told, 41 million properties across the country are vulnerable to the foreclosure contagion. The resulting devaluation would be in the $200 billion range.

    For this reason, Congress has been trying to pass a bill that would stem the tide of foreclosures, expected to be somewhere in the one to two million range. It doesn't make sense that households which can afford their mortgage payments -- or already fully own their homes -- should be punished for their neighbors' misfortunes or bad money management. After all, the home buying process doesn't include credit checks on neighbors...

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