by Anonymous on 7/31/2007 08:20:00 AM

I post this with some trepidation. Our general interest in these matters on this blog involves the effects on housing, credit markets, and the general economy of deteriorations in the residential mortgage book and the availability of residential mortgage credit. In other words, we aren't trading IMB. You know.

What I got from IndyMac's report: things are not good in Alt-A land. Indy's Non-Performing Assets were up 342%, from 0.46% to 1.63%. Repurchases of loans are slowing down, but are still winding their way through the food chain:

A positive to note is that loan repurchases, while high at $219 million for the quarter, declined from $224 million last quarter. Importantly, repurchase demands received, which peaked at $527 million in the first quarter, fell to $221 million for all of Q207, with May and June coming in at $44 million and $43 million, respectively. This indicates that the guideline tightening we did earlier this year has had the desired impact of improving the credit quality of our loan production, which should materially improve our credit costs in this segment of our business in the second half of the year.

Credit guideline tightening is slowing new production; on the other hand, slower prepayments are helping with income for servicers (like IndyMac). My own sense of this report is that if Indy weren't a thrift, it would be in the middle of a serious "liquidity crisis" like C-BASS or AHM. Certainly nothing I've seen suggests that the worst is over for anyone in the Alt-A space who hasn't already "deleveraged."

by Anonymous on 7/31/2007 07:00:00 AM

This is what a credit crunch looks like:

At the beginning of 2007, we had $302 million of liquidity, representing greater than 30% of our capital of $926 million. During the first 6 months of 2007, a very tumultuous time in the subprime mortgage market, C-BASS' disciplined liquidity strategy enabled the company to meet $290 million in lender margin calls. During the first 24 days of July alone, C-BASS met an additional $260 million of margin calls, representing greater than a 20% decline in the lender's value. We believe that nothing justifies this substantial amount of margin calls received in such a short period of time, particularly as there has been no change in the underlying fundamentals of our portfolio.

by Calculated Risk on 7/30/2007 08:28:00 PM

From MarketWatch: Sowood hedge funds lose more than half their value

The Sowood Alpha Fund Ltd. and the Sowood Alpha Fund LP are down roughly 57% and 53% in July, respectively, and about 56% and 51% so far this year ...

According to the letter from Sowood posted at the WSJ, Sowood has shut down both funds, sold the assets to Citadel Investment Group and will distribute the remaining assets to shareholders soon. A 50%+ haircut is better than a total loss (like for the Bear Stearns hedge funds).

UPDATE: Apparently the loss was $1.5+ Billion (from just over $3 Billion).

by Calculated Risk on 7/30/2007 07:06:00 PM

See video at HousingDoom.

Cramer is exaggerating the problems in housing. As an example, it is extremely unlikely that 100% of 2/28s will default. But I agree with him on the Inland Empire; I've been arguing that California's Inland Empire was going to get crushed for some time.

by Calculated Risk on 7/30/2007 06:21:00 PM

Press Release: MGIC Investment Provides Update on C-BASS Investment

MGIC Investment Corporation announced today that it has concluded that the value of its investment in Credit-Based Asset Servicing and Securitization LLC has been materially impaired.

The investment (including $50 million within the last 10 days):

MGIC's investment in C-BASS consists of approximately $466 million of equity as of June 30, 2007 and an additional $50 million drawn on July 20 and 23, 2007 under a $50 million unsecured credit facility that MGIC provided to C-BASS.

And the kicker:

MGIC has not determined the range of an impairment charge, although the upper boundary of the range could be MGIC's entire investment, less any associated tax benefit.

UPDATE: Radian makes the same comments: Radian Comments on C-BASS Investment

Since February 2007, the market for subprime mortgages has experienced significant turmoil, with market dislocations accelerating to unprecedented levels beginning in mid-July 2007 and further deteriorating in the last few days.

Radian's investment in C-BASS consists of approximately $468 million of equity as of June 30, 2007 and an additional $50 million drawn on July 20 and 23, 2007 under a $50 million unsecured credit facility that Radian provided to C-BASS. On a pro forma basis reflecting the amounts drawn under this credit facility, Radian's investment in C-BASS was approximately $518 million. Radian has not determined the impairment charge, although it could be Radian's entire investment, less any associated tax benefit.

by Anonymous on 7/30/2007 01:04:00 PM

Marketwatch:

On July 19, American Home's stock slumped amid speculation that the company's credit lines were being pulled.

However, analysts dismissed the notion, saying the company told them that its credit lines were intact. . . . .

The following day, Mary Feder, vice president and investor relations director at American Home, told MarketWatch that none of the company's credit lines were being pulled.

But reassuring analysts and investors less than two weeks before warning about margin calls has undermined the credibility of American Home's management team, according to RBC's Ackor.

"Recent conversations with management reaffirmed to us that many of the factors negatively influencing the company's fundamentals were being effectively addressed, and that recent market rumors of liquidity concerns were completely unfounded," the analyst wrote.

"We certainly acknowledge that the recent and severe erosion in the global debt markets was rapid and unforeseen," Ackor added. "We are concerned, however, that management appears to have either been caught entirely off guard (implying they may not fully understand the implications of a difficult operating environment), has not accurately conveyed the potential impact of these operating challenges to the investment community, or both."

American Home announced its financing problems and the decision to halt dividends after 10 pm on Friday, a move that won't help, Ackor said. He added: "The company's dividend-delay confessional at 10:20 p.m. on a Friday night makes us think that both of these points may have merit."

by Anonymous on 7/30/2007 12:24:00 PM

Headline is "Five Signs That Subprime Infection Is Worsening." Then:

The tremors from the subprime debacle are vibrating throughout the interconnected web of modern global financial markets.

Yep. You know your infection is worsening when your debacle starts vibrating through your web.

Free subscription to Calculated Risk for anybody who finds one with "tentacles" in it.

by Calculated Risk on 7/30/2007 10:39:00 AM

From AP: NYSE Halts Trading in AHM Shares Pending Announcement After Suspended Dividend

The New York Stock Exchange halted trading in shares of American Home Mortgage Investment Corp. Monday morning pending an announcement from the struggling mortgage lender, which on Friday froze its dividend.

An NYSE spokesman said the exchange expects ... an announcement during trading hours Monday.

by Anonymous on 7/30/2007 08:29:00 AM

This lede is from the bleedin' Economist, no less:

A hedge fund stalks subprime's next potential victim

If you got the part about how the bond insurer is the "victim" of "subprime" but is being "stalked" by a hedge fund, you probably got that part of The Queen where it turns out that Diana was a buck.

I'm surprised and stunned.

by Anonymous on 7/30/2007 08:07:00 AM

From Financial Times:

Investment banks are responding to rising credit concerns by imposing tougher lending terms on hedge funds, in a move that threatens to exacerbate investor unease in the financial markets.

Prime brokerage departments at several investment banks have raised their margin requirements for certain hedge fund clients as they seek to insure themselves against the possibility of new hedge fund collapses as a result of the recent market turmoil.

“Financing terms for hedge funds are being tightened and this is forcing a further deleveraging of risk across global markets,” said Gerald Lucas, senior investment adviser at Deutsche Bank.

One prime broker said his bank had started examining its lending criteria in the wake of the much publicised problems at two hedge funds run by Bear Stearns.

“Recently we have broadened our stricter standards to funds beyond those with exposure to US mortgage market. I’d say this is now a pretty broad-based retreat from leverage.”

Now, if they just get rid of that "stated returns" product. . . .