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Monday, March 31, 2008

Housing/Subprime Roundup — March 31, 2008

Items of interest:

Paulson Plan: Paulson Backs Regulatory Overhaul, Broader Fed Role -- Treasury Secretary Henry Paulson proposed the broadest overhaul of U.S. financial regulation since the Great Depression, saying American capitalism needs to be better prepared for ``inevitable market disruptions.''

``Our current regulatory regime is almost solely focused above ground at the tree level,'' Paulson said in remarks at the Treasury in Washington. ``The real threat to market stability is below ground, at the root level where the health of financial firms is intertwined.''

Paulson's 218-page ``Blueprint for Regulatory Reform,'' commissioned two months before credit markets seized up in August, said more rules aren't the answer to the current period of turmoil. The former chairman of Goldman Sachs Group Inc. said the system of regulating banks, securities firms and insurance companies is outmoded, and the Federal Reserve should expand its oversight of financial services beyond banks...

David Usborne / The Independent:
USA 2008: The Great Depression
-- Food stamps are the symbol of poverty in the US. In the era of the credit crunch, a record 28 million Americans are now relying on them to survive - a sure sign the world's richest country faces economic crisis...
NY Times:
Foreclosure Machine Thrives on Woes -- NOBODY wins when a home enters foreclosure — neither the borrower, who is evicted, nor the lender, who takes a loss when the home is resold. That’s the conventional wisdom, anyway.

The reality is very different. Behind the scenes in these dramas, a small army of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These little-known firms assess legal fees and a host of other charges, calculate what the borrowers owe and draw up the documents required to remove them from their homes.

As the subprime mortgage crisis has spread, the volume of the business has soared, and firms that handle loan defaults have been the primary beneficiaries. Law firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say...
NY Times:
Homeowners’ Pleas Put G.O.P. Lawmakers in Bind on Defaults -- Senate Democrats, hoping to leverage their argument that average Americans deserve just as much help as Wall Street, on Tuesday will bring back to the floor housing legislation that the Republicans blocked on Feb. 28.

That bill includes a change in bankruptcy laws to allow judges to modify interest rates and other mortgage terms for primary homes, a provision that the White House and Senate Republicans have denounced. It would also provide $200 million for counseling struggling homeowners; authorize $10 billion in bonds to refinance bad loans; and give local governments $4 billion to buy foreclosed properties...
Gretchen Morgenson / NY Times:
If You Can’t Sell, Good Luck — WHERE’S my bailout? --That’s what thousands of individual investors, stuck with auction-rate securities that brokers had told them were “as good as cash,” might have wondered as they watched the Federal Reserve take on $29 billion of malodorous assets from the balance sheet of Bear Stearns.

Everybody knows, though, that only big guys get bailouts.

Long-suffering small investors, unable to sell these supposedly liquid securities, have to look elsewhere for satisfaction.Unfortunately, satisfaction is elusive for these investors...

Friday, March 28, 2008

Housing/Subprime Roundup — March 28, 2008

Items of Interest:

Wall Street Journal:
Subprime Politics -- Donations From Industry Workers Become a Liability

Barack Obama was still plowing through his economic speech Thursday in New York when Hillary Clinton's campaign sent an email to reporters, accusing her rival of taking more campaign cash from the main players in the subprime-mortgage industry than the other two presidential candidates.

However, several measures suggest Sen. Clinton received more from major subprime companies than Sen. Obama and probable Republican nominee John McCain...

Wall Street Journal:
Buyers' Revenge: Trash the House After Foreclosure -- Eddy Buompensiero noticed eight pairs of shoes outside the door of the modest house on Mother of Pearl Street, evidence that the former owners were still living there even though the bank had foreclosed.

Mr. Buompensiero, a gray-bearded inspector for REO Asset Services-1st Realty Group, rang the bell. When no one answered, he taped a letter to the door offering the occupants $1,000 to move out. The catch: They won't get a cent if they trash the house before they leave...
Rasmussen Reports, a polling firm:
Only 29 Percent of Americans Approve of a Government-Led Mortgage Bailout

And 61 Percent of Americans Disapprove of a Government-Led Bailouts of Banks

Rasmussen Reports has conducted several polls that center on the mortgage crisis. Between March 19 and March 20, they surveyed 1,000 adults to see how many Americans think homeowners and banks should be helped out by the federal government. Here's what they found...
Seeking Alpha:
Upside to Falling Prices: Housing Affordabilty Index Reaches 4-Year High -- The chart above shows the National Association of Realtors' Housing Affordability Index [HAI] from 2005 to Feburary 2008 (annual averages for 2005 and 2006, monthly in 2007 and 2008), based on the national median-priced home, median family income, and the 30-year fixed mortgage rate.

The HAI has gone from 103.6 in July 2007 to 135.6 in February 2008. A composite HAI of 135.6 means that a family earning the median family income ($59,967) in February had 135.6% of the income necessary to qualify for a conventional loan (at 5.94%) covering 80% of a median-priced existing single-family home in February ($193,900). This increase of more than 31.6 points in the HAI in just seven months, from both falling home prices and falling mortgage rates, is already starting to have a positive effect on the housing market
The National Association of Realtors': Composite housing affordability index
Welcome to subprime's ghost town -- A year ago Irvine, Calif., was still riding high on the subprime boom; then almost overnight the industry and more than 4,000 good paying jobs vanished...
From Fat City To Crisis Mode In California - Housing Bubble blog

Thursday, March 27, 2008

The Obama Economic Plan

Items of Interest:

Sen. Barack Obama spoke about the economy at Cooper Union in New York CityNY Times:
Obama Urges Regulation in Wake of Housing Slump -- Senator Barack Obama called Thursday for tighter regulation of mortgage lenders, banks and other financial institutions, even as he spoke of pumping $30 billion into the economy to shield homeowners and local governments from the worst effects of the collapse of the housing bubble.

He laid much of the blame for the current financial difficulties on the industry lobbyists and politicians who dismantled much of the regulatory framework overseeing energy, telecommunications and financial services. . .

USA Today:
Obama: Beware 'you're on your own' society
— Presidential candidate Barack Obama, largely ignoring his Democratic rival for now, ridiculed likely Republican nominee John McCain on Wednesday for offering “not one single idea” to help hard-pressed homeowners facing foreclosure.
New York Post:
IT'S THE BLOOMY-'BAMA SHOW — Mayor Bloomberg made a surprise announcement last night that he will introduce Barack Obama when the Illinois senator makes a campaign speech today at Cooper Union. — The mayor's office took the highly unusual step of releasing information about the event late last night.
Marc Ambinder:
Obama: Bloomberg Is “Extraordinary” — Here's the first paragraph from Barack Obama's speech this a.m. in New York: … The First Read gang is all a-buzz at the Obama-Needs-A-Jew-On-The-Ticket- Angle, but I think the best way to look at an Obama-Bloomberg ticket is by noticing their complimentary traits.
discussion: Connecting.the.Dots
Editorial / New York Times:
How Not to Prevent Foreclosures — With foreclosures surging, the last thing the nation needs is another government-hosted meeting where mortgage lenders pledge once again to do their utmost to help distressed borrowers stay in their homes — and then go back to the business of foreclosure.
Patrick Healy / The Caucus:
Obama Warms to Wrapping Up Contest
Associated Press:
Obama, Clinton offer economic plans
Justin Gardner / Donklephant: Obama Talks Economic Stimulus
NY Times / CNBC:
Home-Equity Loans (HELOC) Next Round in Credit Crisis -- Little by little, millions of Americans surrendered equity in their homes in recent years. Lulled by good times, they borrowed — sometimes heavily — against the roofs over their heads. Now the bill is coming due. As the housing market spirals downward, home equity loans, which turn home sweet home into cash sweet cash, are becoming the next flash point in the mortgage crisis. Americans owe a staggering $1.1 trillion on home equity loans — and banks are increasingly worried they may not get some of that money back...
The Mess That Greenspan Made:
This stuff disgusts me - Do you think any of the regulatory agencies in Washington have any idea where the swarming locusts have recently landed, now in the process of devouring one more part of the great American ownership society?
[via financial armageddon]
Skinning the Bear
"Mortgage pool is not a pretty picture."

Mike Mish Shedlock / Minyanville:
WaMu Alt-A Pool Revisited
-- About a month ago, in Evidence of "Walking Away" In WaMu Mortgage Pool, I wrote about a particular Washington Mutual (WM) Alt-A mortgage pool "affectionately" known as WMALT 2007-0C1.

Many inquiring minds have been asking for an update of this pool. I am pleased to present a new screen shot of the same Alt-A pool. Once again, thanks go to "CS" for the screen shot. [...]

WaMu Mortgage Pool: WMALT 2007-0C1
note: An Alt-A mortgage pool is considered riskier than "prime" and less risky than "subprime."

Wednesday, March 26, 2008

Market Madness

Items of interest:

Ben Bernankes BracketsKevin Depew / Minyanville:
Market Madness - Who is next----
Skinning the Bear

Tuesday, March 25, 2008

Housing/Subprime Roundup — March 25, 2008

Items of Interest:

US home prices fell by a record in January -- Home prices in many cities continued to plunge by record levels in January as sellers cut their asking bids and rising foreclosures took their toll, new data showed Tuesday. . .

Mortgage News:
Home Prices Continue 5-Month Decline According to New Report -- SP/Case-Shiller Index reports record home price declines in majority of its 20 survey cities. . .

Existing Home Sales, Non Seasonally Adjusted, Explained
- The Big Picture
Record Declines in Home Prices Continue
- The Big Picture
Ben Bernanke / Vladimir Lenin?Business Week:
Ben Bernanke: Reluctant Revolutionary -- In the latest moves to head off a catastrophe, Bernanke has pulled out all the stops, setting the stage for the next boom—or bubble. Business Week special report . . .

Mortgage News:
Some Good News Regarding Home Sales Comes in NAR Report -- Existing home sales increased slightly in February and inventories of unsold homes fell. Prices continued to slip nationally but there were bright spots in about half of the metro areas. . .

Monday, March 24, 2008

Housing/Subprime Roundup — March 24, 2008

Items of Interest:

NY Times:
What Created This Monster? -- LIKE Noah building his ark as thunderheads gathered, Bill Gross has spent the last two years anticipating the flood that swamped Bear Stearns about 10 days ago. As manager of the world’s biggest bond fund and custodian of nearly a trillion dollars in assets, Mr. Gross amassed a cash hoard of $50 billion in case trading partners suddenly demanded payment from his firm, Pimco. And every day for the last three weeks he has convened meetings in a war room in Pimco’s headquarters in Newport Beach, Calif., “to make sure the ark doesn’t have any leaks,” Mr. Gross said. “We come in every day at 3:30 a.m. and leave at 6 p.m. I’m not used to setting my alarm for 2:45 a.m., but these are extraordinary times.” Even though Mr. Gross, 63, is a market veteran who has lived through the collapse of other banks and brokerage firms, the 1987 stock market crash, and the near meltdown of the Long-Term Capital Management hedge fund a decade ago, he says the current crisis feels different — in both size and significance. . .

Mortgage relief proposals advance -- The Fed's offer to help rescue Bear Stearns has intensified debate over whether the government should do more to prevent homeowners from losing their homes. . .
Stricter Regulation Gains Favor - WSJ
NY Times:
JPMorgan in Negotiations to Raise Bear Stearns Bid -- JPMorgan Chase was in talks for a deal that would quintuple its offer for Bear Stearns in an effort to pacify Bear shareholders, according to people involved in the discussions. . .
J.P. Morgan May Raise Bear Bid - WSJ
The Price of Saving the Bear - Editorial, National Post
Wary banks revert to strict lending standards -- Banks and mortgage insurers, which have lost billions because of bad bets made during the housing boom, are now reverting to strict lending standards not seen in nearly 20 years.

Thursday, March 20, 2008

Save the Broker, Save the Maseratis

Items of Interest:

Maserati GrandTurismoSeeking Alpha:
Jim Rogers on the Bear Stearns Bailout -- On why Bear Stearns was bailed out:

You know the reason they did it this way was because, if Bear Stearns had to declare bankruptcy, you'd realize that Bear Stearns paid out billions of dollars in bonuses in January - six weeks ago. If he let them go into bankruptcy, they all would have had to send back their bonuses.

MaseratiThis is what they're doing, they're doing it so they don't have to give back their bonuses. That's why they didn't put them into bankruptcy. Jamie Dimon has gotten a great deal because the Federal Reserve is paying for it. The Federal Reserve is using taxpayer money to buy a bunch of Bear Stearns traders' Maseratis. [...]

In 1966, the entire Japanese financial community went bankrupt. Every broker in Japan was in bankruptcy. Japan came out of that and became one of the great powerhouses of the world.

In 1907, everbody on Wall Street was bankrupt. Everybody was bankrupt in 1907. America recovered from that and had a very nice future. Are you telling me that we're never going to have bankruptcies in the financial community again?
On Alan Greenspan's role in this mess:
The first two central banks in America failed. Between Greenspan and Bernanke - I've written this, it's in my book, long before this happened - they're setting up the failure of the central bank. The demise of the Federal Reserve.

The first two failed, this one is going to fail too - because of Greenspan and Bernanke. Greenspan laid the perfect foundation for Bernanke.
NY Times:
The Affluent, Too, Couldn’t Resist Adjustable Rates -- They took out adjustable-rate mortgages at the peak of the housing bubble to buy homes they would otherwise not be able to afford. Or they refinanced existing mortgages to take cash out. And now, two or three years later, the day of reckoning is here.

These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis. [...]

Wednesday, March 19, 2008

Housing/Subprime Roundup — March 19, 2008

Items of interest:

The crunch bites deeper in the US -- The credit crunch has hit the US economy hard. From Wall Street to Main Street, loans that looked rock-solid a year ago now look shaky.

And the US central bank, the Federal Reserve, is throwing away the rule book to contain the effects.

Kevin Logan of Dresdner Kleinwort, one of the less gloomy New York economists, summarises the state of play as the credit crunch has spread to different types of assets as follows: "We're all sub-prime now". . .

NY Times:
Can’t Grasp Credit Crisis? Join the Club -- Raise your hand if you don’t quite understand this whole financial crisis.

It has been going on for seven months now, and many people probably feel as if they should understand it. But they don’t, not really. The part about the housing crash seems simple enough. With banks whispering sweet encouragement, people bought homes they couldn’t afford, and now they are falling behind on their mortgages.

But the overwhelming majority of homeowners are doing just fine. So how is it that a mess concentrated in one part of the mortgage business — subprime loans — has frozen the credit markets, sent stock markets gyrating, caused the collapse of Bear Stearns, left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression? [...]

Tuesday, March 18, 2008

Welfare for Wall Street

Items of interest:

Jonathan Hoenig / SmartMoney:
Bailout is Capitalism at its Frailest -- WE'D LIKE TO think that the Federal Reserve, or government in general, is some sort of genie with the magical ability to save stocks, rescue real estate and avert recession all with a wave of the hand. But after several rate cuts from the Fed, a "stimulus" program from the president and promises of more regulation from Congress, markets are in chaos. Stocks are down double digits for the year, and currencies, bonds and commodities are all extremely volatile.

No free market goes up forever without interruption. But it's my belief that the government's escalating intervention, including the Fed's latest moves on Sunday, isn't helping matters, but rather making them far worse.

The seeds of financial crisis have been sown by the various government backstops and bailout programs that encourage banks, brokerages and other financial institutions to take on unsustainably high levels of risk. Instead of having to accept the consequences of bad judgment, as businesses should, the message is being sent that the American taxpayer stands by to save financial institutions that, in a truly free market, would otherwise be brushed aside into insolvency. That's precisely what we've seen in recent days.

The Federal Reserve Bank of New York's bailout of Bear Stearns has unwillingly exposed innocent taxpayers to precisely the risk the smart ones have sought to avoid. The collectivist underpinning of such maneuvers is that, although many of us didn't invest in Bear Stearns — or leveraged hedge funds or speculative real estate for that matter — somehow "we're all in it together." As such we share the cost and responsibility for keeping many of these fundamentally unsound institutions and markets afloat. . .

comment: Here we go again with a bailout somewhat like the "Savings & Loan crisis."

The US Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time." The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government -- that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts-- , which contributed to the large budget deficits of the early 1990s. The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system’s losses.

A taxpayer-funded government bailout related to mortgages during the S&L crisis may have created a moral hazard and acted as encouragement to lenders to make similar higher-risk loans during the 2007 subprime mortgage financial crisis.

The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession. Between 1986 and 1991, the number of new homes constructed dropped from 1.8 million to 1 million, the lowest rate since World War II ...
J. Pethokoukis / US News:
Congress Will Force a Housing Bailout -- Will President Bush go for a housing bailout? In both his speech to the Economic Club of New York on Friday and, later that day, a televised interview with CNBC's Lawrence Kudlow, the president stopped short of ruling out such a move, though he was critical of the idea. Yet the more folks I talk to in Washington, the more likely it seems to me that the White House will, in the end, support a proposal quite similar to the one being pushed by Democrat Barney Frank in the House. As one former member of the Bush economic team put it: "I do think the odds of enactment have increased and will continue to increase as the economy worsens." Republicans in Congress, up for re-election unlike Bush, may force his hand. . .
The Fed Gave JPM a Big Present - Cactus, Angry Bear
Was Bear Stearns the Sacrificial Lamb? - Larry Kudlow
Government Bailout Necessary to Prevent Furthur Deterioration - Hemanth Kumar
How subprime killed Bear Stearns - CNNMoney
Felix Salmon / Portfolio.com:
Explaining the Bear Stearns Share Price -- why Bear Stearns shares are trading in the $5-$7 range. [when the price is $2] . . .

The main thing that needs to happen for the deal to go through is that shareholders vote in favor. And the only way that bondholders can ensure yes votes for the deal is to own those shares and vote them themselves. Says Neubert: "They will eat the difference between where they buy the equity and $2.00 in order to protect much higher numbers in debt." . . .

people aren't buying Bear stock at these levels because they think it's going to go up: rather, they're buying stock because they hope it's going to go down. Ain't finance wonderful?

Monday, March 17, 2008

Housing/Subprime Roundup — March 17, 2008

Items of interest:

The Economist:
Bear’s pits -- JPMorgan Chase takes over stricken Bear Stearns. Panic is in the air

THE credit crunch is a man-made disaster and, like its counterparts in nature, where and when devastation and chaos will strike is hard to predict. Few could have expected the speed and severity with which Bear Stearns collapsed. On Sunday March 16th, two days after the announcement of an emergency funding package made its predicament clear, the bank succumbed to its rescuer: JPMorgan Chase, again with backing from the Federal Reserve. The vast universal bank agreed to buy Bear Stearns for $236m, a fifth of the value of its shiny headquarters office block. The world’s markets plunged on Monday morning as the quake on Wall Street reverberated around the globe. [...]

The Mess That Greenspan Made:
Bushvilles? Greenspanvilles? -- Reports of tent cities in Southern California due to foreclosures have been circulating for some time now, but this one from the BBC looks like the real deal. . .
See Hoovervilles — just down the road from Johnsville