Subprime Market

[Birchtree]

That reminds me, investors need to remember what might be the most important consideration when it comes to employing leverage. The underlying asset that is being leveraged should be undervalued. Using leverage to purchase overvalued assets has rarely been a successful strategy. It certainly looks like a secular correction in residential real estate prices is slowly unfolding. Maybe I can find someone to give me a summer home in the Blue Ridge Mountains if I pay the electric bill.

 

[nnuut]

How did a strawberry picker earning $15,000 a year qualify for a loan of $720,000? The answer, say the experts, lies in a lending industry that got too innovative for its own good.

http://sfgate.com/cgi-bin/article.cgi?f=/g/a/2007/04/13/carollloyd.DTL

And by the way, the Strawberry Picker isn't the sharpest tool in the shed!!:blink:

 

[Oldcoin]

H&R Block to sell subprime unit

NEW YORK (Reuters) - H&R Block Inc. (NYSE:HRB - news) said on Friday it will sell its subprime lender Option One Mortgage Corp. to private equity firm Cerberus Capital Management L.P., sending the tax preparer's shares up nearly 9 percent.

The final price H&R Block will receive for Option One, which has been buffeted by a crisis sweeping providers of mortgages to less credit-worthy home buyers, remained unclear.

It will depend on the value of Option One's tangible net assets when the deal closes, expected to happen in H&R Block's quarter ended October 31. Cerberus will pay the value of those assets -- $1.27 billion as of January 31 -- less $300 million, H&R Block said.

http://news.yahoo.com/s/nm/20070420/bs_nm/handrblock_takeover_dc_4

 

[robo]

April 23, 2007

Mod Squad Containment
by Mike Shedlock


I recently talked about some of the bailout plans in The Fatal Flaw in Housing Bailout Plans. But somehow I missed the "Bear Stearns/EMC Mod Squad" to Help Keep Customers in Their Homes.



Should we bailout anyone?

The San Francisco Chronicle headline reads Why we shouldn't be bailing out subprime lenders or borrowers.

Dumb: Buying a house you can't afford with no down payment and a loan whose monthly payments will explode in a few years.

Dumber: Lending money to people who can't afford a traditional mortgage, especially when they have lousy credit ratings and don't substantiate their income.

Dumbest: Bailing out dumb and dumber, especially with taxpayer money.

State and federal lawmakers, community groups and housing advocates are proposing schemes to prevent the victims of the subprime loan crisis from losing their homes. I hate to sound callous, but it's hard for me to know who the victims are in this mess.

If mortgage brokers or lenders used inflated appraisals or made false or misleading statements, they should be prosecuted or at least forced to restructure the loans. If borrowers lied about their income or assets to get a bigger loan, they too should be prosecuted.

But many people got into the subprime mess because they were willing to believe a fast-talking broker who told them they could buy a home, or a bigger home, or take more cash out of their home than they could with a conventional mortgage.

Keeping people in homes they had no business buying is wrong in many ways.

For starters, there's no easy way to bail out homeowners without bailing out the lenders and investors who were largely responsible for the subprime mess.

Many experts say we are in the early innings of the foreclosure cycle. If we bail out people today, will we be willing and able to help people who fail later in the game?

Propping up borrowers who took a gamble on a house and lost reinforces gambling.

"If people think they can take out a bad mortgage and they get bailed out, that's called moral hazard in social insurance and it's a very bad thing," says Thomas Davidoff, an assistant professor in the Haas Real Estate Group at UC Berkeley.

Bailout advocates say they want to help people who were duped, not gamblers. But even if you could separate the swindled from the speculators, there's no guarantee that people who get a bailout will keep their homes. It could be an expensive form of life support.

Nobody offered to bail out investors who bought tech stocks in 1999. Nobody bailed out Enron employees who lost their jobs and chunks of their 401(k) plans because the company was a fraud. Nobody offers to bail out credit card abusers.

http://www.safehaven.com/article-7415.htm

 

[Birchtree]

Will some kind souls bail me out when I'm buying high on a Dow of 15,000? I think not - we all take our own risks - and the subprimer will actually help this bull market by not being able to participate. That's the best deal of all.

 

[Oldcoin]

Senators urge Fed to protect subprime borrowers

WASHINGTON (MarketWatch) -- Senators including presidential hopeful Christopher Dodd urged the Federal Reserve on Monday to protect borrowers in the subprime mortgage market by toughening rules on both bank and nonbank lenders and restricting some loans.

Joined by nine other Senate Banking Committee Democrats, Dodd, D-Conn., said that the Fed should require all mortgage originators to evaluate a borrower's ability to repay a loan before making a mortgage loan

Dodd and the other members also wrote to Fed Chairman Ben Bernanke that the central bank should use existing authority to restrict the use of low- and no-documentation loans and should designate the failure to escrow taxes and insurance as "unfair and deceptive."

"Quick action on these items by the Federal Reserve Board under its [legal] authority would be extremely helpful in extending important consumer protections to homeowners and buyers," wrote Dodd and the other senators.

The letter to Bernanke said the senators are concerned that the Fed hasn't exercised its obligations under the Home Ownership and Equity Protection Act of 1994 to combat predatory lending.
Dodd, who chairs the Senate Banking Committee, said that action by the Fed under this statute is "crucial" since it applies to both bank and non-bank lenders. Neither recently proposed subprime guidance nor nontraditional mortgage guidance apply to nonbank lenders.

Subprime mortgages are offered to borrowers with below-average credit. They generally carry higher interest rates and higher fees than loans made to prime borrowers. This corner of the home-loan business descended into crisis this year as delinquencies have risen sharply and several subprime lenders have been forced to close their doors.

"The board is reviewing these issues as the chairman said in his March 28 testimony to the Joint Economic Committee" of Congress, said Fed spokeswoman Susan Stawick.

Late last month, a Fed official said borrowers with recently originated adjustable-rate mortgages are likely to experience more delinquencies and foreclosures. But Sandra Braunstein, the director of the Fed's division of consumer and community affairs, also told a congressional committee that existing laws are adequate to clamp down on problems in the subprime market.

The letter was signed by Sens. Dodd, Charles Schumer of New York, Thomas Carper of Delaware, Daniel Akaka of Hawaii, Robert Casey of Pennsylvania, Jack Reed of Rhode Island, Evan Bayh of Indiana, Robert Menendez of New Jersey, Sherrod Brown of Ohio and Jon Tester of Montana.

http://tinyurl.com/24g868

Doesn’t look like anyone is being bailed out just yet; Although I was irked by the headline.

 

[Show-me]

How about expanding it to the credit card industry. LOL

 

[Oldcoin]

Subprime `Liar Loans' Fuel Housing Bust With $1 Billion Fraud
By Bob Ivry

April 25 (Bloomberg) -- Cheating on mortgage applications is so widespread and so seldom punished that it's fueling an increase in foreclosures that will prolong the housing slump, said Robert W. Russell, counsel to the director of the Office of Thrift Supervision, which oversees savings and loans.

Borrowers and brokers commit fraud when they exaggerate the applicant's income, qualifying the borrower for a home he otherwise couldn't afford. Such fraud robbed lenders of an estimated $1 billion last year, according to data collected by the Washington-based Mortgage Bankers Association and the Federal Bureau of Investigation.

``Misstatements about employment and income are being made every day,'' Russell said. ``The brokers are just putting down on paper what the underwriters would require. There are borrowers providing false information as well.''

http://www.bloomberg.com/apps/news?pid=20601109&sid=aonxuz3OYwLg&refer=home

Isn’t this bank fraud?

 

[Oldcoin]

U.S. Foreclosures Jumped 35 Percent in First Quarter (Update1)
By Bob Ivry


April 25 (Bloomberg) -- Late payments on subprime mortgages drove up U.S. foreclosure filings in the first quarter of 2007 by more than a third over the same period last year, according to research company RealtyTrac Inc.

Almost 437,500 foreclosure filings were reported, a jump of 35 percent from the first three months of 2006, Irvine, California-based RealtyTrac said.

``We estimate that more than 50 percent of the foreclosure activity we charted in the first quarter was from subprime loans,'' RealtyTrac Chief Executive Officer James Saccacio said in a statement.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_O6BkA4vBMA&refer=home

 

[Oldcoin]

Opinion
Subprime home loans: don't panic

By Milton Ezrati, Thu Apr 26, 4:00 AM ET

While it's tempting to amplify these understandable concerns, as so many did during last month's panic, investors can gain much from a look beyond the river of fearful adjectives and innuendo that has flowed so freely over this subject.

It might help, for instance, to note that few delinquent mortgages ever see foreclosure. According to the National Association of Realtors, a mortgage is delinquent if it is 30 days overdue. History shows that most of those whose payments are 30, 60, or even 90 days overdue will eventually pay up and never see foreclosure.

What is more, mortgage bankers are more reluctant to foreclose than ever before. They claim to have learned their lesson during the last real estate crunch in the early 1990s. Back then, they found themselves stuck with properties on which the best they could do was break even. Better, they say today, to rewrite terms so that the original borrower can stay in the property and keep making payments – at least of a sort.

What is more, subprime mortgages remain a relatively small part of the overall mortgage market. To be sure, subprime lending amounted to more than 13 percent of all new mortgages issued in 2005 and 2006, but still, even according to the most pessimistic of calculations, these lesser credits fall short of 10 percent of the dollar value of all outstanding mortgages in the United States.

http://news.yahoo.com/s/csm/20070426/cm_csm/yezrati

 

[Oldcoin]

Countrywide Financial earnings down 22%
By Steve Gelsi, MarketWatch
Last Update: 11:22 AM ET Apr 26, 2007


NEW YORK (MarketWatch) --Woes in the subprime market amid the overall housing slowdown subtracted 22% from Countrywide Financial Corp.'s first-quarter earnings, the mortgage giant said Thursday.

Countrywide Financial (CFC

CFC ) said earnings drooped to $434 million, or 72 cents a share in the three months ended March 31, from $684 million, or $1.10 a share in the year-ago period.
Revenue fell to $2.4 billion from $2.8 billion.

Analysts surveyed by Thomson Financial forecast earnings of 77 cents a share and revenue of $2.58 billion, on average.

Shares fell 25 to $36.96 in Thursday trades.

The Calabasas, Calif. lender cited adverse subprime and housing market conditions.
"While the company's core operations delivered what was otherwise a strong quarter, earnings were impacted by charges relating to our subprime activities as well as increases to our loss reserves and related asset valuation adjustments stemming from higher delinquencies and softer housing markets" Chairman and Chief Executive Officer Angelo Mozilo said.

http://tinyurl.com/2kkzoo

 

[Oldcoin]

GMAC posts loss, hurt by mortgage unit

DETROIT (Reuters) - General Motors Corp.'s former finance arm, GMAC, posted a first-quarter loss on Wednesday as pressure on the U.S. mortgage market forced the company to take charges at its housing finance unit.

GMAC, in which GM retains a 49 percent stake, posted a net loss of $305 million, compared with a profit of $495 million a year earlier.
GMAC's mortgage unit, ResCap, posted a quarterly loss of $910 million, more than offsetting gains from its insurance and auto finance divisions, which earned $605 million.

GMAC said it had taken steps to lower the risks for ResCap by selling off subprime mortgages at a loss, marking down the value of its remaining portfolio and curtailing new loans to borrowers with weaker credit.

http://news.yahoo.com/s/nm/20070502/bs_nm/gmac_results_dc_4

 

[Show-me]

Buffett sees no threat in subprimes

Monday, May 07, 2007

Berkshire Hathaway chairman Warren Buffett said problems in the US subprime lending industry were unlikely to pose a major threat to the overall US economy.

"I don't think there's going to be any huge danger to the economy," although the crisis is a "very big problem" to many in the industry, Buffett said at the annual meeting of his insurance and investment company in Omaha.
As long as unemployment and interest rates did not rise significantly, Buffett said "it's unlikely that that factor triggers anything of a massive nature in the general economy."
Buffett said the US housing downturn was hurting results at Berkshire's residential construction businesses.
Buffet also said he envisioned an acquisition so big that he would have to sell some stocks to free up funds. "We're as prepared as we've ever been to buy a big business outright."
The tycoon added trains have become more competitive against trucks with fuel prices high.
Berkshire recently disclosed a 10.9 percent stake in Burlington Northern Santa Fe Corp.
"As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four," Buffett said.
The stake in Burlington Northern Santa Fe Corp, the second-largest US railroad, is valued at US$3.5 billion (HK$27.3 billion).
Rails have become a better business because of deregulation, Buffett said.
Burlington Northern, based in Fort Worth, Texas, enables Buffett to benefit from increases in Asian imports to the United States, which surged 67 percent from 2001 through 2006. Burlington Northern and larger rival Union Pacific Corp are the biggest railroads serving the US West Coast ports where most of those goods arrive by sea.
Burlington Northern shares have gained 9.3 percent since Berkshire disclosed its holding, and 23 percent this year.
Buffett also said he might hire up to four people to succeed him as chief investment officer of Berkshire, and cautioned that recent strong results from the company's insurance operations were unsustainable. He said he has received 600 to 700 inquiries for the job.
REUTERS, BLOOMBERG

 

[Oldcoin]

U.S. Foreclosure Filings Rise 62% in April, RealtyTrac Says
By Hui-yong Yu

May 15 (Bloomberg) -- U.S. foreclosure filings jumped 62 percent in April from a year earlier and the number of households falling behind on mortgages probably will climb further this year as home prices fall and lending standards rise, RealtyTrac Inc. said.

California, Florida and Ohio led the U.S. in filings. There were 147,708 default notices, auction sale letters and bank repossessions last month as declining prices made it harder to refinance, particularly for borrowers with poor or limited credit, the Irvine, California-based seller of foreclosure data said today. April's total compares with 91,168 filings a year earlier.

Foreclosures are being ``fueled by a combustible mix of risky loans taken out in the last few years -- many in the subprime market -- and slowing home price appreciation,'' said James Saccacio, chief executive officer of RealtyTrac, in a statement.

Mortgage lenders are raising credit standards after the number of loans entering foreclosure rose to an all-time high in the fourth quarter. The 2007 median price for an existing home likely will decline 1 percent to $219,800, the National Association of Realtors said last month, the first drop since the real estate group began keeping records in 1968 and probably the first decline since the Great Depression.

More than 50 subprime lenders have folded, filed for bankruptcy protection or sought a buyer since January 2006.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a8IPzXdjD06o&refer=home

 

[Oldcoin]

THE FED

Bernanke sees limited impact from subprime

Fed looking at new rules, but favors market forces to fix problems

By Rex Nutting, MarketWatch
Last Update: 9:43 AM ET May 17, 2007


WASHINGTON (MarketWatch) -- The slowdown in the housing market probably has further to run, but it won't have a significant impact on the rest of the economy, Federal Reserve Chairman Ben Bernanke said Thursday.

Addressing a conference on bank structure at the Chicago Federal Reserve Bank, Bernanke promised that the Fed and other federal bank regulators have been actively looking at tightening up the rules for mortgage lending to prevent the kinds of abuses that have been seen in the past few years.
"Combating bad lending practices, including deliberate fraud or abuse, may require additional measures," he said.

"Markets can overshoot, but, ultimately, market forces also work to rein in excesses," the top central banker said. "In the long run, markets are better than regulators at allocating credit."

A copy of his remarks was made available in Washington.

Bernanke said the cooling in the housing markets has been an "important source" of the slowdown in the economy. And he gave no assurances that housing has hit the bottom.

The latest readings on home sales "indicate a further stepdown in the first quarter."

http://tinyurl.com/2l38qw

 

[Oldcoin]

Foreclosures Spur States to Rescue Homes From Default (Update1)
By Brian Louis

May 17 (Bloomberg) -- Willis Blackshear combs through Ohio mortgage filings looking for time bombs to defuse.

The Montgomery County recorder, who oversees real estate filings in Dayton, is searching for loans with balloon payments, or interest rates that may soon rise to unaffordable levels. He has found more than 3,100 in Montgomery where 540,000 residents possessed the state's second-highest foreclosure rate last year.

``It's crazy,'' said the 46-year-old Blackshear. ``I knew it was bad, but I didn't know it was this bad.''

The worst housing slump since the Great Depression is driving Ohio and 20 other states to propose consumer protection laws and bond sales that would help homeowners stem the escalating defaults. Ohio, with the third-highest foreclosure total in the U.S. last month, is raising $100 million to help homeowners refinance risky mortgages. New York, New Jersey and Pennsylvania are planning similar sales.

``We don't have much time to lose,'' said Ohio Governor Ted Strickland, in an interview. The foreclosure rate has ``escalated rather dramatically.''
Strickland, the former Democratic congressman from Lisbon, Ohio, who became governor in January, created a task force of public and private officials to keep borrowers solvent.

Foreclosures Rise

Mortgages in foreclosure across the country rose 62 percent to 147,708 in April from a year earlier, according to a May 15 report by Irvine, California-based RealtyTrac Inc., which sells information on defaults. The median U.S. home price fell 1.8 percent in the first quarter, according to the Chicago-based National Association of Realtors.

As many as 2.2 million Americans are at risk of losing their homes, the Center for Responsible Lending in Durham, North Carolina, said in a December study.

http://www.bloomberg.com/apps/news?pid=20601109&sid=agJcJoWYtKEM&refer=home

 

[Oldcoin]

Fremont Sells Commercial Lending Unit, Replaces CEO (Update2)
By Bradley Keoun

May 22 (Bloomberg) -- Fremont General Corp., barred by U.S. regulators from offering mortgages to borrowers with poor credit, agreed to sell its commercial real-estate unit for $1.9 billion and replaced its top three executives.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayLx3HI0QiGs&refer=home

Looks like another one for the Implode-O-Meter.

 

[Oldcoin]

Pershing's Ackman knocks MBIA, Ambac
Bond guarantors exposed to subprime fallout, hedge fund manager says

By Alistair Barr, MarketWatch
Last Update: 4:52 PM ET May 24, 2007

SAN FRANCISCO (MarketWatch) -- MBIA Inc. and Ambac Financial Group are exposed to the fallout in the subprime mortgage sector and that may prove costly for the bond guarantors' policyholders who are probably holding the ultimate risk and could end up with big losses, Bill Ackman, president of hedge fund firm Pershing Square Capital Management, said during a presentation this week.

Ackman spoke on Wednesday at a conference organized by the Ira Sohn Research Conference Foundation, which funds the treatment and cure of pediatric cancer and other childhood diseases.
Now in its 12th year, the annual conference brings together some of the leading investors in the world. This year, other speakers included Jim Chanos, managing partner of short selling giant Kynikos Associates, Steve Mandel, founder of Lone Pine Capital, Peter Briger, co-president of Fortress Investment Group

In a presentation entitled "Who's Holding the Bag?" Pershing's Ackman focused on the shakeout in the subprime mortgage sector and which companies and investors might be hurt most by the trend. MarketWatch obtained a copy of the presentation on Thursday.

Subprime mortgages are offered to poorer home buyers with blemished credit records. Rising interest rates and flat house prices have sparked a jump in delinquencies and foreclosures.

http://tinyurl.com/ytjub8

 

[robo]

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around [the banks], will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."


"I place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt."

--Thomas Jefferson

 

[Spaf]

Maybe, maybe one should see:

http://www.realityzone.com/creature.html