by Calculated Risk on 7/17/2007 06:27:00 PM

On Bear Stearns:

New York, July 17, 2007 -- Moody's Investors Service has placed under review for possible downgrade thirteen tranches from eight deals issued by Bear Stearns in 2006. The collateral backing these classes consists of primarily first lien, fixed and adjustable-rate, Alt-A mortgage loans.

The ratings were placed under review for downgrade based on higher than anticipated rates of delinquency in the underlying collateral compared to current credit enhancement levels.

On IndyMac:

New York, July 17, 2007 -- Moody's Investors Service has placed under review for possible downgrade two tranches from two deals issued by IndyMac INDX Mortgage Loan Trust in 2006. The collateral backing these classes consists of primarily first lien, fixed and adjustable-rate, Alt-A mortgage loans.

The ratings were placed under review for downgrade based on higher than anticipated rates of delinquency in the underlying collateral compared to current credit enhancement levels.

It is worth repeating: the collateral consists primarily of Alt-A, first lien mortgage loans.

UPDATE: Reuters story: Moody's may cut Bear Stearns, IndyMac ABS (hat tip AllenM)

In addition, Moody's also said it may cut the ratings of eight tranches from three deals issued by Nomura Asset Acceptance Corporation in 2006. The collateral backing these classes consists of primarily first lien, fixed and adjustable-rate, Alt-A mortgage loans.

UPDATE2: More from Moody's (hat tip Brian)

Moody's has noted a negative trend in delinquencies for first-lien, Alt-A mortgage loans originated in late 2005 and 2006. Recent data shows that these first-lien, Alt-A mortgage loans have delinquency rates that are higher than original expectations, and a number of transactions may, in light of their current rating levels, be insufficiently protected against the greater than anticipated losses implied by such high delinquency levels. These loans were originated in an environment of aggressive underwriting, which combined with prolonged home price pressure has caused significant loan performance deterioration and is the primary factor in these reviews.

During the course of these reviews, Moody's will seek to identify the underlying cause of delinquency within each of the 33 transactions, as well as to assess the overall impact these early delinquencies will have on each transaction's projected lifetime losses. It is anticipated that the current rating reviews will be resolved over the next two months as more information becomes available and Moody's completes its analysis.
emphasis added

by Calculated Risk on 7/17/2007 06:02:00 PM

DataQuick reports: Southland home sales slowest since 1993

Southern California's real estate market slowed to its lowest sales pace in 14 years last month, led by steep sales drop-offs in the Inland Empire and other affordable markets, a real estate information service reported.

A total of 20,166 new and resale homes sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 1.5 percent from 19,874 for the month before, and down 36.2 percent from 31,602 for June last year, according to DataQuick Information Systems.

Last month's sales were the slowest for any June since 1993, when 19,947 homes sold, the lowest for any June in DataQuick's statistics, which go back to 1988. The strongest June was in 2005, when 40,156 homes sold. The June sales average is 29,041.

Sales in June 2007 were almost exactly 50% of June 2005. In '93 (a similar June for SoCal), existing home sales were 3.74 million nationwide. Activity in California has probably fallen much more than other areas of the country, but this suggests that nationwide existing home sales have declined significantly, and might have fallen below the 5 million level (SAAR).

by Calculated Risk on 7/17/2007 05:31:00 PM

From the WSJ: Two Bear Funds Nearly Worthless, Investors Told

The assets in Bear's more levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing, according to people familiar with the matter. The assets in the other larger, less-levered fund are worth roughly 9% of the value since the end of April, these people said. The April valuations weren't immediately available but in March, before their sharp losses, the enhanced leverage fund had $638 million in investor money, while the other fund had $925 million.
...
Bear disclosed this information to investors earlier Tuesday and is expected to make a statement Tuesday evening, these people said.

by Calculated Risk on 7/17/2007 03:58:00 PM

From the WSJ: Banks May Sweeten Terms Of Loans for Chrysler Deal

Wall Street banks that are arranging financing for Cerberus Capital Management LP's acquisition of the Chrysler Group are looking to sweeten the terms on loans ...

... bankers marketed a $10 billion loan for Chrysler's auto business at 3.75 percentage points above the London Interbank Offered Rate, compared to the 3.25 percentage points discussed when the road show kicked off about three weeks ago, Standard & Poor's said.

And another $2 billion in financing for the auto company is now being marketed at seven percentage points above the London interbank offered rate, compared to the original six percentage points. The banks are also offering to sell those loans at less than 100 cents on the dollar in a bid to further entice investors to the deal.
...
Pricing for $8 billion in loans for Chrysler Financial is also expected to change...

J.P. Morgan Chase & Co., Bear Stearns Cos., Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley have committed to raising money for the deal that will require Cerberus to raise about $62 billion in debt.

by Calculated Risk on 7/17/2007 03:05:00 PM

From Dow Jones: Credit Markets Brace For Expected Bear Hedge Fund Disclosure (hat tip Yal)

Credit markets braced Tuesday afternoon for an expected disclosure of valuations later in the afternoon from two Bear Stearns Cos. (BSC) hedge funds that nearly collapsed in June.

Investors in the two funds, which invested heavily in complex collateralized debt obligations with exposure to the subprime mortgage market, are expected to recover a minimal amount, if anything at all, of their stakes, according to market participants.

A conference call for investors is scheduled for 4 p.m, these participants said.

by Calculated Risk on 7/17/2007 12:53:00 PM

Click on graph for larger image.

The NAHB reports that builder confidence fell to 24 in July.

NAHB Press Release: Builder Confidence Falls Further In July

A surplus of unsold homes on the market, combined with ongoing concerns in the subprime mortgage arena and affordability issues associated with tightened lending standards and higher interest rates, continue to take a significant toll on builder confidence, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI declined four points to 24 this month, which is its lowest level since January of 1991.

“The bottom line is that the single-family housing market is still in a correction process following the historic and unsustainable highs of the 2003-2005 period,” noted NAHB Chief Economist David Seiders. “Builders are actively trimming prices and offering buyer incentives to work down their inventories, but meanwhile there is a large supply of vacant existing homes on the market, and affordability problems persist despite efforts to attract buyers.

“In spite of these challenges, we expect to see home sales get back on an upward path late this year and we expect housing starts to begin a gradual recovery process by early next year. At that point, this market will be operating well below its long-term potential, providing plenty of room to grow in 2008 and beyond.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes declined in July. The index gauging current single-family sales and the index gauging sales expectations in the next six months each declined five points to 24 and 34, respectively, while the index gauging traffic of prospective buyers declined three points to 19.

Likewise, all four regions of the country posted declines in the July HMI. The Northeast and South each saw five-point declines, to 31 and 26, respectively, while the Midwest slipped a single point to 19 and the West declined three points to 25.

by Calculated Risk on 7/17/2007 12:40:00 PM

Jon Lansner at the O.C. Register has the DataQuick data for June: O.C. home price a record high, sales a record June low

Sales fell to 2,641 homes sold, or 31.6% below a year ago. It's the slowest-selling June in the 20 years DataQuick has tracked the market, and it follows the worst May on their books as well. The old bottom was 3,364 in June 1995.

The price data is skewed (see story) and probably doesn't reflect the reality of prices in Orange County. But the decline in sales is stunning. Note: DataQuick will release sales data for all of California over the next couple of days.

by Calculated Risk on 7/17/2007 11:07:00 AM

From the Conference of State Bank Supervisors (CSBS): State Financial Regulators Issue Joint Statement On Sub-prime Lending For State-Licensed Mortgage Lenders (hat tip James)

The Conference of State Bank Supervisors (CSBS), the American Association of Residential Mortgage Regulators (AARMR), and the National Association of Consumer Credit Administrators (NACCA) today issued a Statement on Sub-prime Lending to state agencies that regulate residential mortgage brokers and companies.

The Statement was developed in response to the federal financial regulatory agencies' Statement on Sub-prime Mortgage Lending that was released June 29. At that time, state regulators endorsed the statement and announced plans to issue a similar statement to cover lenders not regulated by the federal financial regulatory agencies.

The three state regulatory groups encourage the state regulatory agencies to adopt the guidance and issue it for use by their regulated entities.

The state regulatory organizations will be orchestrating a campaign to implement the guidance in all states. The following 26 mortgage regulators have stated they intend to expedite implementation: Alabama, California, Connecticut, Delaware, District of Columbia, Georgia, Hawaii, Idaho, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New York, North Carolina, North Dakota, Pennsylvania, Rhode Island, South Dakota, Vermont, Washington, and Wyoming.

Meanwhile, the CSBS reports that 35 agencies have adopted the Guidance on Nontraditional Mortgage Product Risks issued last year.

by Anonymous on 7/17/2007 07:32:00 AM

From the Wall Street Journal:

A record low on a closely watched derivative index that measures risk of home loans made to borrowers with patchy credit histories pushed U.S. Treasurys sharply higher as investors sought a haven for their funds.

A lack of economic data meant there was little to distract investors, but concerns continue to deepen that subprime woes will spread further to the far corners of the credit markets. . . .

The decline in the BBB-minus portion of the index encouraged some investors to snap up U.S. Treasurys, pushing the 10-year benchmark note back toward the key psychological level of 5%.

Some investors fear the drag of subprime mortgages will eventually hurt the broader economy and other asset classes not directly linked to such loans. Those concerns have boosted Treasurys on and off for the past month.

Treasurys yesterday were "at the feet of subprime," said William O'Donnell, rates strategist at UBS. The market's reaction is surprising, however, said Mr. O'Donnell, who thought investors had already "come to grips" with a declining index. "But I guess people are still on tenterhooks" about anything subprime related, he said.

Does the WSJ's style manual really say that the plural of Treasury is "Treasurys"?

I know that there are so many barbarians at the gate right about now (stunning, but not surprising; having come to grips but still on tenterhooks) that it may seem a bit precious to get worked up over elementary school topics like spelling. But in my little far corner of the credit markets Treasuries are still Treasuries, at the feet of subprime or anywhere else.

by Calculated Risk on 7/17/2007 12:39:00 AM

Earlier today, Brian and I were discussing the cancelled debt syndication for the KKR acquisition of Dutch retailer Maxeda BV.

Kohlberg Kravis Roberts & Co. canceled plans to raise 1 billion euros ($1.4 billion) of loans for Dutch retailer Maxeda BV as investors shun high-yield debt.

More than 20 financing deals have been postponed or restructured in the past three weeks as losses from the U.S. subprime mortgage rout rattled investor confidence.

The key point is that the acquisition is still going forward, but the bridge loan from Citigroup and ABN Amro is now a "pier" loan; i.e. a bridge to nowhere.

Bloomberg expands on this point: Goldman, JPMorgan Stuck With Debt They Can't Sell to Investors (hat tip PC)

Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11 billion of loans and bonds they can't readily sell.

The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month ... The cost of tying up their own capital may curb earnings and stem the flood of LBOs ... the five largest U.S. investment banks more than tripled their lending commitments to non-investment grade borrowers during the past year to $174 billion, according to their regulatory filings.

Just three of the 40 biggest pending LBOs have an escape clause that lets the buyer back out if funding can't be arranged, said Mike Belin, U.S. head of equity derivatives strategy at Deutsche Bank AG in New York. A couple of years ago, a majority of deals included a financing contingency ...

This reminds us of the Burning Bed incident mentioned in the Bloomberg article, and also in the WSJ in May:

In a famous event dubbed the "Burning Bed," First Boston Corp. in 1989 made a $457 million bridge loan to the purchasers of Ohio Mattress. When the junk-bond market collapsed soon afterward, First Boston couldn't refinance the loan and ended up owning most of Ohio Mattress. Credit Suisse had to inject additional capital into First Boston, culminating in a full takeover.

Even adjusted for inflation, $457 Million is chump change compared to the current commitments of the five largest U.S. investment banks.