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Tuesday, September 2, 2008

Housing/Subprime/Credit Roundup — September 2, 2008

Items of Interest:

Homebuyers turn screws on sellers -- In this buyer's market, many are taking advantage of sellers' desperation, demanding major home repairs, warranties on appliances, and even tax rebates.

A rock-bottom price just isn't enough for buyers these days - it's a starting point. If the furnace is out of date, they'll demand a new one. Cracked driveways have to be repaved, and dirty carpeting torn out and replaced. All at the seller's expense.

Buyers are in the driver's seat and they know it. They're using that leverage to pry more concessions out of desperate sellers than they ever dreamed of during the bubble.

"'Now it's my turn,' is the attitude," said Mike Byrd, a real estate agent with SLO Home Store in San Luis Obispo, Calif. "Some buyers are really putting the screws on."

In New England, buyers are demanding that sellers pay to fill up a home's heating oil tank. In California, sellers are forking over closing costs. Nearly everywhere, buyers are insisting that sellers purchase a home service contract providing a one year warranty on all of a home's appliances...
How the housing crash hurts your retirement -- You can now see that real estate isn't a sure bet. But that's just one lesson of this market.

ou already know that the housing crisis has wreaked havoc with the economy and financial markets, not to mention the lives of millions who've lost or could lose their homes. But there may be a less obvious casualty too: your retirement prosperity.

According to a recent report from the Center for Economic and Policy Research, a Washington, D.C. think tank, the collapse of house prices that started in 2006 has wiped out more than $4 trillion in home equity, putting a sizable dent in the net worth of millions of baby boomers.

Among its more ominous findings: By next year, the average net worth of households headed by homeowners age 45 to 54 will be almost 25% less than it was in 2004 ....
Andrew Ross Sorkin / NY Times:
And They Could Call It Frannie -- Here’s a bold idea: Fannie Mae and Freddie Mac should merge.

Outrageous? Maybe, but given the lengthening list of suggestions about what to do with the troubled companies, it’s certainly worth considering as the value of their shares continues to wither.

The notion has actually been quietly floating around a small corner of Wall Street for weeks — and has even been tossed around internally at Fannie and Freddie, according to people close to both companies...
Barry Ritholtz / The Big Picture:
Fannie + Freddie = Frannie? -- Hmmmm . . take two poorly run, debt laden GSEs . . . Merge them . . . What do you get ?

One giant, poorly run, debt laden, GSE.

Its an idea so powerfully bad, ill conceived, and poorly thought out, it has precisely zero chance of occurring. If you think an idea this foolish, pointless, and banking fee laden could only have come from anals (sp) of Wall Street, then congratulations! You've figured out how some of the best and the brightest operate on the Street of Dreams....

Housing Wire
Fannie, Freddie See Preferred Shares Cut by Fitch
Counting Writedowns Replaces Deals Won as Wall Street's Ritual -- WDCI, the Bloomberg function introduced less than five months ago to track the writedowns, has overtaken LEAG, which ranks bond and stock underwriters, in viewers per day.

"WDCI is the new league table, or even better, the negative league table,'' said Hyde, a banking analyst at London-based European Credit Management Ltd., which oversees $27 billion for clients. "If people look at LEAG these days, it's to see who the biggest underwriter of mortgage securities was in the past. You're incriminated if you were.''

The writedowns and credit-market losses at more than 110 of the world's biggest banks and securities firms reached $514 billion last week as the credit crunch continued to wreak havoc.

Since two Bear Stearns Cos. funds invested in mortgage securities imploded in July 2007, seven bank chiefs have lost their jobs, and regulators have seized 12 U.S. banks. New York- based Bear Stearns, then the nation's fifth-largest securities firm, was forced to sell itself when faced with bankruptcy.

The tally on WDCI already surpassed the top of the range that the International Monetary Fund estimated in April banks would lose during the credit crunch. The IMF is scheduled to publish an update of its Global Financial Stability Report later this month.

As the losses build, WDCI readership has climbed. In July, an average of 4,000 users looked at the table daily, up 34 percent from the previous month, according to data compiled by Bloomberg. On some days, more than 10,000 Bloomberg users monitored WDCI. By contrast, LEAG was viewed by an average of 1,800 people daily in July, 17 percent fewer than a year earlier." ...
Lee Blum / Cornell Sun:
In Defense of Subprime -- Both Sen. Obama and Sen. McCain have attacked everybody from hedge fund managers to oil companies for the doldrums that our economy is in. The root of all evil, as many would have us believe, is the subprime mortgage market and predatory lenders. Yet I believe subprime is an instrument of financial innovation that is useful.

The theory behind subprime lending is that offering mortgages to people with poor credit and erratic earnings will increase risk exposure and thus returns if mortgage payments are made...

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