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Monday, August 4, 2008

Housing/Subprime/Credit Roundup — August 4, 2008

Items of Interest:

NY Times:
Housing Lenders Fear Bigger Wave of Loan Defaults -- The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime, credit are showing their first, tentative signs of leveling off after two years of spiraling defaults.

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time...

Mortgage Troubles Spread

Global Economic Analysis blog:
WCI Files For Chapter 11 Bankruptcy -- The South Florida Business Journal is reporting WCI files for Chapter 11.
WCI Communities (WCI), a Bonita Springs-based developer and homebuilder, along with about 130 of its subsidiaries, has filed for Chapter 11 bankruptcy reorganization.

President and CEO Jerry Starkey has resigned from his posts, effective immediately, after agreeing to a “mutually satisfactory severance package.”
My Comment: A severance package? Starkey should not get a dime. He was offered $22 a share for WCI in April 2007 by Carl Icahn but the WCI board rejected his offer as "opportunistic and inadequate." ...
The Big Picture:
Roubini: $2 Trillion in Debt Losses -- Nouriel Roubini:
Barron's: Unfortunately for the rest of us, you have a pretty good track record. How much more misery lies ahead?

Roubini: We are in the second inning of a severe, protracted recession, which started in the first quarter of this year and is going to last at least 18 months, through the middle of next year. A systemic banking crisis will go on for awhile, with hundreds of banks going belly up.

Which banks, specifically, will fail?

I don't want to name names, but many, given the housing bust, will become insolvent. Their losses are mounting because they have written down only their subprime loans so far. They haven't started writing down most of their consumer-credit losses, and reserves for losses are much less than they should have been. The banks are playing all sorts of accounting gimmicks not to recognize them. There are hundreds of millions of dollars outstanding in home-equity loans that eventually could be worth zero, too.

Which forces [on the consumer} for instance?

The U.S. consumer is shopped out and saving less. Debt to disposable income has risen to 140% from 100% in 2000. Hit by falling home prices, the consumer no longer can use his house as an ATM machine. The stock market is falling and (issuance of) home-equity loans (has) collapsed. We have a credit crunch in mortgages, and gas is around $4 a gallon. Everyone says, 'yeah, that's true, but as long as there is job generation there is going to be income generation and people are going to spend.' But for seven months in a row, employment in the private sector has fallen...

Barron's video: Nouriel Roubini's Outlook for the Economy
The Credit Crisis Turns One -- It was a year ago August that the real estate slump turned into a global economic disaster—and it's still growing

Happy birthday, credit crisis. It was a year ago August that the world began to suspect the economy was heading into something worse than a slump. Now as another August heaves into view, the credit crisis is a year bigger and—like many 1-year-olds—indiscriminate about where it makes its messes. The real concern is how much bigger it will get.

The crisis has transformed the housing market from weak to downright disastrous. Home prices are tumbling, foreclosures are spiking, and the bottom of the market seems more distant than ever. Gone are the loose lending standards that helped millions of people buy houses they couldn't afford otherwise. Today, securing a loan can be tough, even for buyers with decent credit...
Matthew Yeomans, Slate:
Happy Birthday, Credit Crisis
NY Times:
Subprime Loans’ Wide Reach -- While subprime loans deeply penetrated low-income and minority groups, a new study suggests that more upper-income borrowers and more whites took out such loans than any other groups.

Compliance Technologies, a lending-industry consultancy, last month analyzed more than 1.9 million subprime loans originated in 2006, the height of the subprime lending frenzy, and found that roughly 56 percent went to non-Hispanic whites. Affluent borrowers, those with annual income at least 120 percent of their given area’s median income, meanwhile, took out more than 39 percent of the loans.

“I was surprised to see that non-Hispanic whites received more subprime loans than all minority groups combined,” said Maurice Jourdain-Earl, a founder and managing director of Compliance Technologies...
There goes the neighborhood...

LA Weekly:
Pacific Palisades Rathouse: Unchallenged by Health Officials, Elderly Twins Fed Local Vermin Population -- Old ladies lovingly nurtured rats, turning a home in one of the nation's priciest enclaves into Willard...
TimesOnline [UK]:
Nassim Nicholas Taleb: the prophet of boom and doom -- When this man said the world’s economy was heading for disaster, he was scorned. Now traders, economists, even NASA, are clamouring to hear him speak...

Last May, Taleb published The Black Swan: The Impact of the Highly Improbable. It said, among many other things, that most economists, and almost all bankers, are subhuman and very, very dangerous. They live in a fantasy world in which the future can be controlled by sophisticated mathematical models and elaborate risk-management systems. Bankers and economists scorned and raged at Taleb. He didn’t understand, they said. A few months later, the full global implications of the sub-prime-driven credit crunch became clear. The world banking system still teeters on the edge of meltdown. Taleb had been vindicated. “It was my greatest vindication. But to me that wasn’t a black swan; it was a white swan. I knew it would happen and I said so. It was a black swan to Ben Bernanke [the chairman of the Federal Reserve]. I wouldn’t use him to drive my car. These guys are dangerous. They’re not qualified in their own field.” ...
The Big Picture:
Rules for Living from Nassim Taleb -- . . . 3. It’s not a good idea to take a forecast from someone wearing a tie. If possible, tease people who take themselves and their knowledge too seriously.

4. Wear your best for your execution and stand dignified. Your last recourse against randomness is how you act — if you can’t control outcomes, you can control the elegance of your behaviour. You will always have the last word....

Johnsville News:
Has the Black Swan Landed on U.S. Financial System?
[Jan '08]
The Black Swan visits Duke University [Nov. '07]

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