by Calculated Risk on 3/14/2007 05:32:00 PM

From Fleckenstein on Alt-A:

My friend in subprime updated me last night, as follows: "The Alt a space has deteriorated very quickly, but not yet public. $40 billion in subprime still waiting to find a home. No loans will be bought at attractive prices until May production as it will be underwritten to new guidelines. The triple bbb's are a mess. The hedge funds that bought it are all in trouble. ... warehouse guys and Alt a guys are now next. Alt a guys may be worse as less insurance on those loans to protect them. The loan sizes are bigger as well."

by Calculated Risk on 3/14/2007 04:41:00 PM

From DataQuick: Southland home sales slowest in a decade; new price peak Southern California's housing market sent out more mixed signals last month:

Sales fell to a decade low while prices inched up to a new record, a real estate information service reported.

A total of 17,680 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in February. That was down 2.5 percent from 18,128 in January, and down 19.8 percent from 22,046 in February last year, according to DataQuick Information Systems.

Last month's sales were the lowest for any February since 1997, when 15,772 homes sold. Since 1988 February sales have averaged 18,631. A decline in transactions from January to February is not unusual.

The median price paid for a Southern California home was a record $495,000 last month, up 2.1 percent from $485,000 in January and up 5.3 percent from $470,000 in February last year. The previous record was $490,000, reached in both June and December of last year.

by Calculated Risk on 3/14/2007 03:22:00 PM

From Reuters (hat tip James): Top investor sees U.S. property crash

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," [Jim] Rogers said.

"When markets turn from bubble to reality, a lot of people get burned."
...
"This is the end of the liquidity party," said Rogers.

by Calculated Risk on 3/14/2007 12:59:00 PM

I spoke with one of the top agents in San Diego last night. The housing market there is "tough". Short sales and REOs are becoming more common.

My friend told me one story of some clients that had recently moved out of state and needed to sell their condo. The clients had purchased the condo two years ago, and were able to sell for not too much less than their purchase price. Unfortunately the loan amount owed was more than the sale price.

Since the seller had a good income, solid credit, and was making the payments, the bank wouldn't agree to a short sale. So it really hurt when the escrow company (for real estate transactions in California, the money is handled by an escrow company) called and said "Bring money to the closing". The seller had to write a check for $20K.

That was two months ago. Since then no more units have sold in that complex, and some sellers are now listing comparable units for another $20K less than her client's sale price. Today her clients would have to bring $40K or more to closing, if they were lucky enough to find a buyer.

by Calculated Risk on 3/14/2007 09:50:00 AM

A couple of overlooked subprime stories (hat tip Jeff):

From Reuters: H&R Block delays filing quarterly report

H&R Block Inc. ... said on Tuesday that it expects to delay filing its quarterly results with regulators after turmoil in the subprime mortgage market forced it to write down assets at its Option One Mortgage Corp. unit.

The write-down will affect cash flows, the balance sheet and reported earnings, and the company expects to file the results by March 19.

H&R Block said in a regulatory filing it had to write down $29 million of assets, before taxes, at its Option One unit.

From Reuters: GMAC to get $1 bln from GM, cites subprime pressure

General Motors Corp. will inject $1 billion into GMAC, its former finance arm said on Tuesday, a capital infusion needed to complete the sale of the automaker's majority stake in the face of escalating defaults in the U.S. mortgage market.

GMAC, which reported results on Tuesday, said that even after the equity injection from GM, "continuing pressures in the U.S. mortgage sector" would weigh on its future earnings.

Under terms of its sale to a group led by Cerberus Capital Management, GM had guaranteed a minimum book value of $14.4 billion when the sale closed at the end of November.

However, a recalculation of GMAC's book value revealed a shortfall caused by the mortgage losses that GM is now trying to address with the $1 billion cash injection this quarter.

by Calculated Risk on 3/14/2007 09:19:00 AM

Note: With the rapid changes in the mortgage industry, this survey might be misleading. See my comments last month on MBA Purchase Applications.

The Mortgage Bankers Association (MBA) reports: Applications Increase in Latest MBA Survey

The Market Composite Index, a measure of mortgage loan application volume, was 690.5, an increase of 2.8 percent on a seasonally adjusted basis from 671.6 one week earlier. On an unadjusted basis, the Index increased 3.2 percent compared with the previous week and was up 19.1 percent compared with the same week one year earlier.

The Refinance Index increased 3.5 percent to 2312.2 from 2234.2 the previous week and the seasonally adjusted Purchase Index increased 2.2 percent to 414.3 from 405.3 one week earlier.

Mortgage rates were mixed:

The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.03 percent from 6.04 percent ...

The average contract interest rate for one-year ARMs increased to 5.86 from 5.79 percent ...

Click on graph for larger image.

This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is up 0.9 percent to 400.6 from 397.2 for the Purchase Index.

The refinance share of mortgage activity increased to 46.2 percent of total applications from 46.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 21.9 from 21.4 percent of total applications from the previous week.

by Calculated Risk on 3/14/2007 02:27:00 AM

From Dave Altig at Macroblog: Foreclosures And Delinquencies: Its All In The ARMs

Professor Altig presents a series of graphs based on the MBA delinquency and foreclosure data.

The problems are not just in subprime. Right now the Midwest is having the most problems, but the coasts will probably see a significant increase in prime delinquencies and foreclosures in 2007.

by Calculated Risk on 3/14/2007 12:47:00 AM

Click on graph for larger image in new window.



Not all chain reactions start with a first time buyer using a subprime loan, but the loss of a large number of subprime buyers will impact the entire chain.

by Calculated Risk on 3/13/2007 08:51:00 PM

Last week, after two years of blogging, I decided to take some advertising to defray some of the costs of this hobby. Today I'd like to welcome the first direct advertiser to CR: Zacks Investment Research.

And a special thanks to the Director of Research for Zacks, Dirk Van Dijk, who is a frequent participant in the comments.

I hope the banner advertisers receive fair value for their advertising dollars. Please visit them if you are interested in their products or services. However, just to be clear, there is no connection between the advertisers and the content on this blog. I've quoted Dirk in the past, and I probably will in the future (Tanta mentioned him today), but that is completely separate from any advertising relationship.

Second, I'm grateful to the readers for allowing me to assault their eyes with those annoying little links. I tried putting some links below the posts, but that was just too distracting. After puzzling over the payment algorithm for a few days, it is basically weighted entirely towards clicks - with little or no weighting for impressions. Hopefully some interesting Ads will show up in the sidebar for readers to check out - it's mostly been advertisements for subprime mortgages, and that hasn't generated a lot of click interest - but it has been good for some enjoyable snark in the comments!

And finally the blushing ... two of the blogs I reference frequently made some nice comments about me today. I sincerely appreciate the comments, and also the mention at CNN's Pat Reigner's blog Generation Risk.

Professor Hamilton (who literally wrote the book on Time Series Analysis) wrote at Econbrowser that Calculated Risk is "your one-stop-shop for all housing news" - an obvious exaggeration, but much appreciated.

And from Professor Roubini: Mainstream Monday Morning Quarterbacking on Subprime Mortgages..While Still Being Blind to the Spillovers and the Coming Credit Crunch

A minority of scholars and analysts - including Robert Shiller, David Rosenberg, the blogger Calculated Risk and a few others - already warned last summer about a severe housing recession ...

Roubini is too generous with his praise.

In many ways, Nouriel Roubini has been out front and taking the heat for those of us cautioning about excessive speculation in the housing market - and who now find ourselves cautioning about the probable unfortunate consequences (that hopefully won't be too severe).

Last year we jokingly calling Roubini "Eeyore" (from Winnie The Pooh). This started with a speech from Dallas Fed President Richard Fisher last August:

"I expect second-quarter GDP growth to be revised upward to closer to 3 percent. And my best guess one month and two weeks into the third quarter is that the speed at which we are now proceeding is roughly of that magnitude. From my vantage point, despite what you hear from some of the Eeyores in the analytical community, a recession is not visible on the horizon."

Of course we had some fun with Fisher's Eeyore remark. It was actually Professor Duy at EconomistsView who, after Fisher's speech, first jokingly called Dr. Roubini the "archetypical Eeyore".

It's looking more and more like Eeyore was right.

Best to all.

by Calculated Risk on 3/13/2007 05:15:00 PM

From Reuters (hat tip mp): Countrywide CEO says mortgages in liquidity crisis

Countrywide Financial Corp. Chief Executive Angelo Mozilo said on Tuesday the U.S. mortgage sector is entering a "liquidity crisis," but that investors and speculators are overreacting by punishing healthier lenders as well as marginal ones.

"This is now becoming a liquidity crisis," and "it's going to get uglier," Mozilo said on CNBC television.

UPDATE: Here is the interview (hat tip crispy&cole and R)

Part I

Part II