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Wednesday, September 10, 2008

Housing/Subprime/Credit Roundup — September 10, 2008

Items of Interest:

Richard S. Fuld Jr.: Lehman CEONew York Times:
Tough Fight for Chief at Lehman -- Richard S. Fuld Jr. was fed up being Wall Street’s punching bag.

It was early August, and Lehman Brothers, the venerable investment bank he has run for the past decade and a half, was once again under siege in the stock market.

“In the 28 years you’ve known me, do you know anyone who bleeds more for Lehman’s shareholders, clients and employees?” Mr. Fuld complained to a friend.

Mr. Fuld, 62, likes to say he bleeds green — Lehman’s corporate color (and, as it happens, the color of money).

But now it is Lehman itself that is hemorrhaging, as its stock price spirals down day after day...
Lehman sets asset sales plan, posts $4 billion loss - Reuters
Lehman to Sell Neuberger Stake, Spin Off Real Estate - Bloomberg
Lehman still exposed to real estate, leveraged loans - MarketWatch
Mortgage rates plummet, but borrowers beware -- The takeover of Fannie and Freddie may make mortgage borrowing cheaper - but it won't make getting a loan any easier.

Mortgage rates have plummeted after the government takeover of Fannie Mae and Freddie Mac. But that hasn't made getting a home loan any easier for most borrowers.

Since last Friday, the 30-year fixed rate has dropped to 5.79% from 6.26%. But only buyers with a credit score of 740 of above - and a 20% down payment - can qualify for such a low rate. During the boom, borrowers only needed scores of 640 to land the lowest rates available. Even a 580 score would get them very close to the best rate.

During the credit crisis, Fannie Mae and Freddie Mac have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to lend is crucial to the housing market. To that end, the Treasury will buy mortgage-backed securities from the two firms, and lend them money if necessary, all in an effort to make credit more available to home buyers...
comment: Who knew the CBO director had a blog?

Peter Orszag, director of CBOPeter R. Orszag / Congressional Budget Office / Director’s Blog:
Update ...Budget deficit... Fannie Mae and Freddie Mac --
  • CBO estimates that the deficit for 2008 will be $407 billion, substantially higher than last year’s $161 billion. As a share of the economy, the deficit is projected to rise to 2.9 percent of GDP this year, up from 1.2 percent of GDP in 2007. That 1.7 percentage point increase as a share of GDP is roughly evenly split between a 0.9 percentage point decline in revenue relative to GDP (reflecting the impact of lower corporate tax revenue and the rebates enacted as part of stimulus legislation this year) and a 0.8 percentage point increase in spending relative to GDP. ...
  • In a letter issued on the topic in July, CBO noted that “a strong argument can be made that if the Treasury used the proposed authority, the GSEs’ operations should be incorporated directly into the federal budget.” CBO concluded that the proposal at that time, especially to the extent it would result in any government acquisition of an equity stake in the GSEs, raised a significant budgetary question. Currently, data on the GSEs are reported along with federal budget information each year, but the activity of those entities is not encompassed within the budget. As CBO noted at the time, “That treatment could change if the federal government’s financial stake or control changes in a significant way.”
  • Given the steps announced by the Treasury Department and the Federal Housing Finance Agency on September 7, it is CBO’s view that the operations of Fannie Mae and Freddie Mac should be directly incorporated into the federal budget. The GSEs’ revenue would be treated as federal revenue and their expenditures as federal outlays, with appropriate adjustments for the manner in which credit transactions (like a mortgage guarantee) are reflected in the federal budget...
Housing Wire:
Congressional Budget Office: GSEs Should Be Directly on Treasury’s Books -- For all of the press the Treasury/Federal Housing Finance Agency bailout of (FNM: 0.74 -25.25%) and Freddie Mac (FRE: 0.66 -25.00%) has received, it’s the nuances that are now starting to come into clearer view that will determine the future course of mortgage lending in the United States. The Congressional Budget Office opened up the latest can of worms on Tuesday by suggesting that the Treasury needs to take the full operations of each GSE directly onto its balance sheet.,,

“It is CBO’s view that the operations of Fannie Mae and Freddie Mac should be directly incorporated into the federal budget,” said Peter Orszag, CBO director, in a post on his own blog...

The Financial Times’ Krishna Guha in Washington reported that the White House was caught off guard by Orzag’s recommendation. They shouldn’t have been; the CBO said on July 22 that “a strong argument can be made that if the Treasury used the proposed authority, the GSEs’ operations should be incorporated directly into the federal budget.”
Thinking the Unthinkable: U.S. Default - Infectious Greed
Mr. Practical / Minyanville:
Death of Fannie, Freddie Only the Beginning -- As the world celebrates the US government's takeover of Fannie Mae (FNM) and Freddie Mac (FRE), a few thoughts from someone who told you 2 years ago that this would happen. For those few who dare to see past the market's immediate positive reactions, this is all a very long-term negative for the U.S. and the world in general.

The following 3 bullet points were written by Alex Barron of Agency Trading Group:

"1. From a philosophical economic standpoint, what the government has done is the biggest move yet in the direction of socialism, and has prevented the free market from working itself out.

What was needed was not a conservatorship, but a restructuring...
Dow Jones / CNNMoney:
Washington Mutual Fails To Calm Investors' Concerns -- In the three days since Washington Mutual Inc. (WM) installed new leadership, its stock has sunk more than 50%.

The Seattle thrift's challenges to fixing its loan book are monumental and Wall Street reacted with much skepticism to the appointment of Alan Fishman as chief executive on Monday...

... it becomes more and more clear to Wall Street that a deal to rescue shareholders might be far off. Asked whether he will keep WaMu independent, Fishman answered with a simple "Yes," and added: "Shame on us if we can't figure out how to make this a really value accretive, important company.

WaMu might not have much of an option but to go it alone. With $310 billion of assets, its sheer size makes an acquisition difficult, particularly since all of WaMu's illiquid mortgage assets would have to be marked to market rates, requiring the buyer to take a huge charge...
Housing Doom blog:
Attack Of The Killer Tumbleweeds - [tumbleweeds takeover Stratland Estates, a development in Gilbert, AZ]

... it appeared that only two families remained in the neighborhood, although I counted 28 "real owners" out of 468 parcels in here

tumbleweeds takeover Stratland Estates, a development in Gilbert, AZ

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