by Calculated Risk on 9/18/2007 01:00:00 PM

Click on graph for larger image. The NAHB reports that builder confidence fell to 20 in September, from 22 in August. This ties the record low of 20 in January 1991.

NAHB Press Release: Builder Confidence Continues Downward In September

Concerns about the substantial inventory of new homes for sale and the effects that deepening mortgage market problems are having on buyer demand caused builder confidence to decline for a seventh consecutive month in September, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI dropped two points to 20, tying its record low reached in January of 1991 (the series began in January 1985).
...
Two out of three component indexes declined in September. The index gauging current single-family home sales declined two points to 20, while the index gauging sales expectations for the next six months fell five points to 26. The index gauging traffic of prospective buyers held steady at 16 for the month.

All four regions of the country reported declines in their September HMI readings. The Northeast posted a three-point decline to 26, while the Midwest posted a single-point decline to 13, the South posted a two-point decline to 22, and the West posted a four-point decline to 18.

by Anonymous on 9/18/2007 12:13:00 PM

We take a brief break from the failure to air the financial sector dirty laundry in order to report on one of my favorite bits of Total Insanity. Thanks, Yves, for the link. The WSJ reporteth:

BEND, Ore. -- It was a sunny, 70-degree day here in Awbrey Butte, an exclusive neighborhood of big, modern houses surrounded by native pines.

To Susan Taylor, it was a perfect time to hang her laundry out to dry. The 55-year-old mother and part-time nurse strung a clothesline to a tree in her backyard, pinned up some freshly washed flannel sheets -- and, with that, became a renegade.

The regulations of the subdivision in which Ms. Taylor lives effectively prohibit outdoor clotheslines. In a move that has torn apart this otherwise tranquil community, the development's managers have threatened legal action. To the developer and many residents, clotheslines evoke the urban blight they sought to avoid by settling in the Oregon mountains.

"This bombards the senses," interior designer Joan Grundeman says of her neighbor's clothesline. "It can't possibly increase property values and make people think this is a nice neighborhood." . . .

Brooks Resources repeated its threat of legal action, and then advised Ms. Taylor to "develop a plan to screen your outdoor laundry and submit the plan to the ARC for review." It also suggested the possibility of formal proceedings to get the rules amended, which would require 51% of homeowners' support in writing.

The following month, Ms. Taylor constructed a fabric screen to conceal her clothesline. The committee, which included Brooks Resources Chairman Michael P. Hollern, gave it a thumbs down. "It doesn't blend with the home or the native surroundings," says Ms. Haworth.

Mr. Hollern says, "Personally, I think people probably ought to screen their laundry from other people's view. If you feel differently, you should probably be living somewhere else."

Many neighbors agree. When Ms. Grundeman first noticed the Taylor clothesline, she assumed it was temporary. "My first thought was, 'Oh gosh, her dryer must have broken,' " says the interior designer.

In the 70s, we burnt our bras to teach you pigs a lesson. Thirty years later, we're hanging them out right in front of you! It's Laundry Liberation Front in the burbs. Out of the way, Stepford Wives! And take your "property values" with you when you go!

by Calculated Risk on 9/18/2007 11:05:00 AM

"A greater percentage of homes entering foreclosure are going back to the banks."
James Saccacio, chief executive for RealtyTrac

From MarketWatch: Foreclosures more than double in past year

Nearly a quarter of a million foreclosure filings were reported in August, up 115% from a year ago and up 36% from July. Each home in foreclosure can have multiple filings as it moves from default status to bank repossession....

"The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable-rate loans are beginning to reset," said James Saccacio, chief executive for RealtyTrac.

See MarketWatch story for audio of full interview with a RealtyTrac executive.

by Anonymous on 9/18/2007 09:47:00 AM

Thanks to Clyde, we see that Morgan Keegan is having a wee bit of a problem filing a report. Oh, Mommy, will those subprime bonds ever stop being so hard to price?

This, however, is classic:

The lack of liquidity in the fund's securities could result in the fund incurring greater losses on the sale of some its securities than under more stable market conditions, Morgan Keegan said in the supplement filing.

How true. Back when the market was "stable" enough to let us all lever up twenty times, this kind of thing didn't happen.

by Anonymous on 9/18/2007 09:25:00 AM

LEND finally got around to filing a 10-Q today for Q01. It's jam-packed with exciting self-serving revisionist history masquerading as opening the kimono. I recommend it to connoisseurs of first-rate HorseHockey™.

Lowlights:

In the third quarter of 2006, the non-prime mortgage market in which the Company operates was characterized by increased competition for loans and customers which simultaneously lowered profit margins on loans and caused lenders to be more aggressive in making loans to relatively less qualified customers. By the end of 2006, the non-prime mortgage industry was clearly being negatively impacted. The sustained pricing competition and higher risk portfolios of loans reduced the appetite for loans among whole loan buyers, who offered increasingly lower prices for loans, thereby shrinking profit margins for non-prime lenders. In addition, the higher levels of credit risk taken on by non-prime lenders resulted in higher rates of delinquency in the loans held for investment and in increasing frequency of early payment defaults and repurchase demands on loans that had been sold. These trends accelerated during the first quarter of 2007, and the industry experienced a period of turmoil which has continued into the second and third quarters of 2007. As of August 31 2007, more than 55 mortgage companies operating in the non-prime mortgage industry had failed and many others faced serious operating and financial challenges. The most notable of these failures is New Century Mortgage Corporation (“New Century”), one of the largest non-prime originators in recent years, which filed for bankruptcy protection in April 2007.

It now appears that an underlying reason for the deterioration of industry conditions was the relatively poor performance of loans originated in 2006 in comparison to loans originated in 2004 and 2005. While real estate markets were booming during 2004 and 2005, and some areas experienced significant home price appreciation, many originators extended credit and underwriting standards to meet market demands. When home price appreciation leveled off, or in some areas declined, many of the loans originated in 2006 did not perform up to expectations. This decline in performance led to increases in the cost of securitizing non-prime loans as the rating agencies which rate non-prime securitizations increased loss coverage levels, requiring higher credit support for non-prime securitizations.

Yeah, the funny business just happened to happen in Q04 06, which made it visible in Q01 07, which just happens to be the point at which LEND suddenly discovered that it could no longer prepare financial statements. Funny how that works.

At minimum, may we remind everyone that the 2005 subprime mortgage vintage was on track to become the Worst Ever until . . . you know . . . we had data on 2006?

by Anonymous on 9/18/2007 08:18:00 AM

Daytraders and global stuffees bail out real estate specuvestors! Or something. (Hat tip Turbo, who observes that the TEOTWAWKI has been postponed another quarter):

Sept. 18 (Bloomberg) -- Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds, said profit fell less than expected as fees from equities trading and investment banking offset some losses from subprime home loans.

Net income fell 3 percent to $887 million, or $1.54 a share, in the third quarter from $916 million, or $1.57, a year earlier, the New York-based company said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was $1.48 a share.

Chief Executive Officer Richard Fuld's efforts to reduce the reliance on fixed income by expanding stock trading and merger advice solidified earnings as contagion in the credit markets spread, led by defaults among home-loan borrowers with poor credit histories. Lehman is cutting about 2,000 mortgage-related jobs. Revenue from equities jumped 64 percent to $1.37 billion.

by Anonymous on 9/18/2007 07:38:00 AM

Bloomberg reports:

MT. LAUREL, N.J. - PHH Corp., the mortgage lender that agreed to be bought by General Electric Co. and Blackstone Group LP, said the $1.8 billion sale could unravel as lenders back away from some leveraged buyouts.

JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. told Blackstone they might fall $750 million short in funding its part of the deal, PHH said Monday. GE, which plans to keep the company's vehicle-leasing unit, might pull out if Blackstone can't get financing. . . .

PHH is the second company in a week to warn that an LBO could be derailed as banks seek to renege on lending commitments for smaller buyouts while sticking with big deals such as Kohlberg Kravis Roberts & Co.'s $26 billion takeover of First Data Corp. Reddy Ice Holdings Inc. said last week that Morgan Stanley might back out of selling debt for GSO Capital Partners LP's purchase of the company.

"There will be some deals that won't get done, but it won't be the big names," said billionaire financier Wilbur Ross, whose New York-based WL Ross & Co. invests in distressed companies. "Some of the smaller deals have better escape hatches." . . .

"We continue to hope that Blackstone will succeed in arranging its financing so the merger can be completed," said Stephen White, a spokesman for Fairfield, Conn.-based GE. "But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger."

In March, GE agreed to buy PHH and resell the mortgage unit to New York-based Blackstone, manager of the biggest buyout fund. PHH said Monday it told GE that it expects the company to "fulfill its obligations under the merger agreement."

In case you happen to be curious about it, PHH was once an independent company that got sucked into the Cendant conglomeration of "affiliated businesses," mixing mortgages and real estate sales and all kinds of other stuff. Then after the spectacular accounting fraud at Cendant, PHH got "spun back" to being an independent company, until GE saw a flip an investment opportunity early in the year.

PHH is a big mortgage originator, although you might not realize that because a huge chunk of its business is "private label outsourcing" of one kind or another. Lots of smaller banks and credit unions, for instance, and a few larger financial firms like AmEx use PHH to originate and service loans under a "private label" arrangement that is opaque to the consumer. PHH will, for instance, issue a separate phone number to Little Dog Bank's "mortgage department," which will be given to Little Dog's customers. When they call, the PHH reps answer "Little Dog Bank, how may I help you?" or words to that effect. So a lot of what goes on that looks like "retail" lending is actually running through PHH's fee-for-service outsourcing operations. So is a lot of "direct lending," insofar as PHH's private label clients offer their own customers a "loan by phone" option that involves calling PHH-in-drag. There can be loans brokered to Little Dog that are really closed by PHH pretending to be Little Dog Wholesale. You would need Visio more than you would need Excel.

The whole point of this, besides making it less expensive for a Little Dog or a financial services company like AmEx that doesn't primarily originate mortgages to "originate" mortgages, is the "branding" part, which involves either "seamless customer service" or "endless opportunities to sell you more stuff," depending on which PR you are reading. For a lot of outfits, the mortgage loan itself isn't the "profit center": it's the other accounts or insurance policies or what have you that can be "cross-sold" to people with mortgage loans. Alternately, the ability to offer these "private label" mortgages is a way to hang onto depositors or other account-holders who want all their accounts, including their mortgage, at one place. Of course they aren't all at one place; they look like they're all at one place. Which is why putting it all at GE, which once apparently made lightbulbs and has been in and out of the mortgage business more times than the set changes at Phantom of the Opera, makes perfect sense. If only the credit markets saw it that way.

by Calculated Risk on 9/17/2007 05:29:00 PM

From Bloomberg: Bank of America Sees `Meaningful Impact' From Turmoil (hat tip ShortCourage)

Bank of America Corp., the second- biggest U.S. bank, said ``unprecedented dislocations'' in credit markets will have a ``meaningful impact'' on third-quarter results at its corporate and investment bank.

Trading and other areas of Bank of America's capital markets and advisory services unit are ``being adversely affected by all of these conditions,'' Chief Financial Officer Joe Price told investors at a conference in San Francisco today. He cited stress on subprime mortgages and in the commercial paper market as being especially severe.

``These are quite challenging financial times, and I cannot remember when credit markets in particular have been as volatile and unpredictable as they have been for the last few months,'' Price said.

The confessional is now open.

by Calculated Risk on 9/17/2007 04:57:00 PM

From the WSJ: E*Trade Warns of Mortgage Fallout (hat tip Mike - he has more specifics)

E*Trade Financial Corp. ... this afternoon warned investors that it has been badly stung by the recent fallout in the mortgage market.

The company says it expects profits to come in 31% below the most recent guidance it had given analysts -- partly due to its exposure to the mortgage business.

The news, weeks ahead of its scheduled third-quarter earnings report, provided Wall Street with a glimpse of what may be in store tomorrow when the country's biggest brokerages, beginning with Lehman Brothers Holdings Inc., start reporting third quarter earnings.

This will be an interesting week. Heck, tomorrow alone will be an interesting day: the Fed meeting, Lehman reports, and the homebuilders index will be released.

by Calculated Risk on 9/17/2007 02:37:00 PM

Note: Video of the Day (bottom of posts) is an interview with customers in a Northern Rock queue this morning.

From the Guardian: Government guarantees Northern Rock deposits

The chancellor of the exchequer, Alistair Darling, this evening promised that the government will guarantee all savings deposits at Northern Rock amid concern that Britain is plunging into its worst banking crisis in decades.

The move follows a dramatic last-minute collapse in the share price of Alliance & Leicester, which fell 32% in late trading this afternoon, and sparked fears of "contagion" from Northern Rock to other financial institutions.

Mr Darling said: "I can announce today that following the discussions with the Governor (of the Bank of England) and the Chairman of the FSA, should it be necessary, we, with the Bank of England would put in place arrangements that would guarantee all the existing deposits in Northern Rock during the current instability."

This evening queues were still stretching out of the door at branches of Northern Rock across the country, with more than £2bn already taken out by anxious savers. The value of Northern Rock shares fell sharply again today, down by 35%, but in late trading it was overtaken by a startling drop in the share price of Alliance & Leicester, Britain's seventh largest bank.
...
Northern Rock, in a formal statement issued after the Mr Darlling spoke, said that "The Chancellor's statement makes it clear beyond any doubt that all savings in Northern Rock are safe and secure. Consequently anybody who is in a queue outside a branch, or who is trying to access an online account can be fully reassured that there is no cause for concern whatsoever."

It also promised to refund any penalties that savers may have paid when they withdrew their funds from the bank - so long as they put the money back in by October 5. "Any customer who paid a penalty to withdraw their funds from Northern Rock, due to concern over the current situation, will have the penalty refunded if they reinvest those funds in the same type of account with Northern Rock by 5 October 2007," it said.

These are stunning developments in the UK. Clearly there is concern that the run at Northern Rock will spread to other institutions (like Alliance & Leicester).

The UK version of FDIC insurance actually motivates many depositors to remove their bank deposits. Only the first 2000 pounds is 100% guaranteed, and the next 30,000 (or so) is 90% guaranteed. No one wants a 10% haircut, so it makes sense to remove any deposits over 2000 pounds.

This new guarantee should calm depositor's fears.