Monday, November 3, 2008

Credit Crisis Roundup — November 3, 2008

Items of Interest:

Andrew Jeffery / Minyanville:
Crisis in Prime Mortgages on Horizon -- What's less well-understood is the storm that’s brewing on the horizon: Trouble in the prime mortgage market -- where borrowers with good credit are starting to miss payments with alarming frequency -- is looming on the horizon...

Recent delinquency data indicates that while defaults on subprime loans are occurring at a less frenetic pace than in recent months, prime borrowers are starting to feel the pinch. In early September -- before the financial crisis accelerated in October -- the Mortgage Bankers Association released its quarterly delinquency data, concluding,

"The increase in prime ARMs foreclosure starts was greater than the combined increase in fixed-rate and ARM subprime loans. Thus the foreclosure start numbers will likely be increasingly dominated by prime ARM loans."

There is still a vast misconception that only “subprime” people maxed out credit cards, took out loans they couldn’t afford, and were generally reckless with their personal finances.

This couldn’t be further from the truth...

Housing Wire:
Foreclosures Driving Price Declines, Sales Volume: Report -- Foreclosure sales continued to drive price declines and fueled an increase in sale transactions in key local markets across the nation during August, according to data released Friday by Radar Logic Inc., a New York-based real estate data and analytics company.

A monthly report released by the company showed a month-over-month increase in so-called “motivated sales” — or foreclosure sales — as a percentage of total sales in 19 of the 25 Metropolitan Statistical Areas (MSAs) studied, as well as a year-over-year percentage increase in all areas compared to August 2007. Motivated sales accounted for 22.8 percent of all transactions in August, compared to 6.6 percent last year...
Daily Chart /
Still no end in sight -- House prices in America fall yet again

THOSE looking for an end to America's housing bust will have to wait a little longer. Although sales of new homes rose slightly in September, prices are continuing to fall fast...

S&P/Case-Shiller Housing Index through end of Oct. 2008
Seeking Alpha:
Housing Data Shows Downturn Could Be Prolonged -- it took about eight years for housing prices to stabilize during the last downturn, and that even during a housing boom there can be periods of decline. Aside from laying to rest the idea that housing prices simply always increase in 'straight line' fashion, it also indicates that it will likely take several years for housing prices to stabilize as opposed to the near imminent bottom that many are always predicting...
Diana Olick / CNBC Realty Check:
Homeowners "Lying" Their Way To A Better Mortgage? -- The rumblings in the blogosphere have gone from anger at the borrowers who are getting bailed out without any punishment to a “if you can’t beat ‘em, join ‘em!” mentality. More and more people are suggesting that even if you can afford your loan, you should just stop paying on it, so as to take advantage of a better interest rate that might be offered through a bailout...
Greenspan Slept as Off-Books Debt Escaped Scrutiny -- Today, a road snakes from the foreclosed homes of California and Ohio to the capital cities of Europe, where politicians and bankers have struggled to contain a widening credit crisis by pumping hundreds of billions of euros into the financial system. The road was paved with decisions like ones by FASB that allowed banks to keep shifting assets into blind spots outside the view of shareholders and industry overseers.

`Magic Trick'

``I've always regarded it as a bit of a magic trick,'' Pauline Wallace, a partner at PriceWaterhouseCoopers LLP and team leader in London for financial instruments, said of off-balance- sheet accounting. ``Magicians come to parties, and they make things seem to disappear. The risk is somewhere, but you never knew where.'' ...
Barry Ritholtz / The Big Picture: While Greenspan Slept
Barry Ritholtz / The Big Picture:
Propping Up Home Prices, Stopping Foreclosures -- There seems to be this idea going around — both parties, both candidates, lots of economists — that the way to “fix” the economy is to stabilize home prices.

This is incredibly misguided. Prices are still terribly elevated, and until they revert back to levels that are affordable and clear out the massive excess inventory of new and existing homes, there can be no stabilization.

Of all the wrong lessons to take from the mortgage, housing and credit crises, this remains the very worst one. If you remotely believe in a free market — even one where players are regulated to prevent their own worst instincts from getting the best of the them — the last thing one should be doing is targeting asset prices. That is what Greenspan did throughout the 1990s and in the early 2000s, and it one of the primary causes of our present woes...
Anthony Effinger / Bloomberg:
Fear & Foreclosure in Las Vegas -- The gambling capital of the world was also the fastest-growing housing market in the U.S. -- until it all came crashing down in a frenzy of ``liar loans'' and fraud...

[Nevada is the] most- foreclosed state in the nation. One in every 82 Nevada housing units got a foreclosure notice in September, according to RealtyTrac Inc., putting the state at the top of the list for the 21st straight month. Florida was second with one in every 178 housing units in some stage of foreclosure...
Inside Mortage Finance:
Non-Prime MBS Issuance Hits Record Low in Third Quarter of 2008: Zero [sub. req.] -- There was no issuance of subprime, Alt A or “other” non-prime mortgage backed securities in the third quarter of 2008, the first blank quarter since the creation of the non-prime MBS market, according to the Inside Mortgage Finance MBS Database. The sector is not expected to rebound anytime soon, and analysts suggest that the non-prime market is unlikely to...
Paul Gallagher /
How Venice Rigged The First, and Worst, Global Financial Collapse 660 Years Ago -- Six hundred and fifty years ago came the climax of the worst financial collapse in history to date. The 1930’s Great Depression was a mild and brief episode, compared to the bank crash of the 1340’s, which decimated the human population.

The crash, which peaked in A.C.E. 1345 when the world’s biggest banks went under, “led” by the Bardi and Peruzzi companies of Florence, Italy, was more than a bank crash—it was a financial disintegration. Like the disaster which looms now, projected in Lyndon LaRouche’s “Ninth Economic Forecast” of July 1994, that one was a blowup of all major banks and markets in Europe, in which, chroniclers reported, “all credit vanished together,” most trade and exchange stopped, and a catastrophic drop of the world’s population by famine and disease loomed...
NY Times:
From Midwest to M.T.A., Pain From Global Gamble -- During the go-go investing years, school districts, transit agencies and other government entities were quick to jump into the global economy, hoping for fast gains to cover growing pension costs and budgets without raising taxes. Deals were arranged by armies of persuasive financiers who received big paydays.

But now, hundreds of cities and government agencies are facing economic turmoil. Far from being isolated examples, the Wisconsin schools and New York’s transportation system are among the many players in a financial fiasco that has ricocheted globally...

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