by Calculated Risk on 10/13/2007 12:12:00 PM

From the WaPo: Reston Builder's Cancellations Reflect Industry

Comstock Homebuilding Cos. of Reston yesterday reported that even though it sold 81 houses in the third quarter, 78 sales were canceled, a net of just three sales in three months and a striking reminder of the building industry's deepening troubles.

"Market conditions have continued to deteriorate throughout the year," Christopher Clemente, the company's chief executive, said in a statement.

Now that is a cancellation rate!

This is a small builder in the D.C. area. Emphasis added.

by Calculated Risk on 10/12/2007 10:33:00 PM

Here is more on the Citi SIV bailout plan from the WSJ: Big Banks Push $100 Billion Plan To Avert Crunch

The plan could be announced on Monday:

If the banks agree, the plan could be announced as early as Monday, people familiar with the matter said. Citigroup announces third-quarter earnings Monday. The tentative name for the fund is Master-Liquidity Enhancement Conduit, or M-LEC.

Some banks aren't happy with the plan (does this mean Treasury is trying to strong arm other banks into participating?):

The plan is encountering resistance from some big banks. They argue that Citigroup is asking others to help bail out its affiliates and an industry-wide bailout isn't needed.

Some banks are just eyeing the fees:

Two banks in the discussions with Citigroup, Bank of America Corp. and J.P. Morgan Chase & Co., would participate not because they have SIVs -- they don't -- but because they would earn fees for helping arrange the superconduit, according to people briefed on the discussions. The superconduit's debt would be fully backed by participating banks, they said.

The timing is interesting since Citi and JPMorgan are expected to sell some $5 billion of loans on Monday to help finance the TXU LBO.

by Calculated Risk on 10/12/2007 04:21:00 PM

From the WSJ: Banks Discuss Solution To Liquidity Problem

The largest U.S. banks along with financial regulators are in confidential discussions to find a solution for a lack of cash liquidity ... [for] bank-affiliated investment vehicles that issued tens of billions of dollars in short-term debt ... the plan would be to create a "super conduit" that would issue short-term debt and serve as a buyer of assets currently held by so-called SIVs. [Structured investment vehicles] ...

Citigroup Inc., the world's largest bank in terms of market value, is one leader of the proposed plan. Citigroup has some seven affiliated SIVs with nearly $100 billion in assets.

But who would fund the "super conduit"?

by Anonymous on 10/12/2007 01:42:00 PM

Hedge fund fat cats ride to the rescue of beleaguered mortgagors. I might throw up.

Some of you may remember the whoop-de-doo in June of this year, when Paulson got all over Bear Stearns, in the newspapers, for "manipulating" the market by buying delinquent loans out of securities, for the alleged sole purpose of getting out of having to pay out on credit default swaps.

Paulson, having made a fortune on its short subprime trades, is now funneling money to a non-profit which is advocating bankruptcy reform. Says BusinessWeek:

A $20 billion hedge fund may have hit on a unique investment strategy for playing the subprime mortgage bust: fund a consumer-protection group. Paulson & Co., which has seen its assets under management soar this year through fortuitous bets in the subprime market, has given $15 million to the Center for Responsible Lending, a Washington nonprofit that has been lobbying on Capitol Hill for passage of bankruptcy legislation.

Paulson, run by former Bear Stearns (BSC) investment banker John Paulson, stands to rake in a windfall if the measure passes. The key bill, introduced last month, would allow federal judges to restructure mortgage terms and lower payments on the primary homes of borrowers in bankruptcy, a significant legal change. The process, known as a "cram-down" in industry jargon, is opposed by investment banks that trade in mortgage-backed securities. . . .

I propose a moratorium on any Wall Street participant calling any other Wall Street participant a "manipulator."

(Thanks, Brian!)

by Anonymous on 10/12/2007 11:14:00 AM

Courtesy of Thomas Zimmerman of UBS, whose PowerPoint presentation is available here. There's quite a bit of interesting data for the nerds.

These charts are mini-vintages (quarterly rather than annual) of 2/28 subprime ARMs.

The first shows serious delinquency (60 or more days delinquent, FC, or REO) for first lien purchase money loans using 100% financing (CLTV greater than or equal to 100%) with less than full documentation in states with "stable" HPA. (I don't know exactly what universe of states that is.)

The second chart shows the same loan type for California properties only:

To put this into some context, the third chart shows what we might call the more "traditional" subprime loan: a 2/28 ARM cash out, with full doc and CLTV less than or equal to 80%. This third chart is California properties only.

I think I've said this before, but it bears repeating: I have never, in my hundreds* of years in this business, worked with any mortgage model--pricing, credit analysis, due diligence sampling--that did not consider cash-out an additional risk factor. That is, historically speaking, cash-out refinances always performed worse than purchase money or rate/term refinances, and the models therefore would give a worse risk-weighting to a pool with a majority of cash-outs than a purchase-heavy pool. There were two main reasons for this: cash-out does correlate with heavy debt use (obviously), and also, historically speaking, cash-out refi appraisals were the least reliable, most subject to "hit the number" pressures. This was true even when lenders allowed substantially lower LTVs on cash-outs than recently has been the case.

In my view, a whole lot of the failure of the rating models to adequately account for the risk of these recent pools is that they used "historical" assumptions about the risk of purchase transactions.

*Mortgage years are like dog years, only worse.

by Calculated Risk on 10/12/2007 10:05:00 AM

From Bloomberg: Centex to Take $1 Billion in Charges as Slump Worsens

Net sales slumped 13 percent to 5,953 units and the Dallas- based company said home closings were off 14 percent.

Centex will write down $850 million for land, have a $40 million write off for property held by joint ventures and record $65 million in impairment expenses. The total charges are more than four times higher than those taken in the first quarter and come a day after Centex's credit ratings were cut to junk status by Moody's Investors Service.

``The housing market continues to be extremely difficult,'' Chief Executive Officer Timothy Eller said today in a statement. ``These adjustments reflect the market's further deterioration over the quarter and the significant effects of the mortgage- market disruptions.''

by Calculated Risk on 10/12/2007 09:56:00 AM

From the WSJ: Retail Sales Rose in September; PPI Rebounds on Energy Prices

U.S. retail sales climbed vigorously in September, rising at double the rate expected despite weak demand for housing-related goods as consumers spent strongly on cars.

U.S. wholesale prices rebounded last month, fueled by gains in the cost of food and energy, while pipeline pressures intensified modestly, a government report showed. Still, core inflation was lower than expected, so the report alone won't dissuade the Federal Reserve from lowering rates again when it meets later this month.

Retail sales increased by 0.6%, the Commerce Department said Friday. Sales went up an unrevised 0.3% in August.

This is definitely unexpected.

by Calculated Risk on 10/11/2007 10:31:00 PM

On EBay: Countrywide "PROTECT OUR HOUSE" Wrist Band (hat tip wall street pharmacist)

Click on photo for larger image.

The band says "Countrywide" and "Protect Our House".

Yes, it also says "Made in China".

Here is the text:

Employee Wrist Band
This wrist band was recently given out to all employees of Countrywide who signed a pledge to "tell the company's story" during the tough times that the mortgage industry is currently going through. There has been an overwhelming request online for these wristbands by collectors, as well as members of the mortgage industry OUTSIDE of Countrywide.

Some people believe that I am risking my job by selling this on Ebay. My thoughts are that I show my support to the company by working hard every day. I am happy with my job, I wish the best for my fellow employees who have lost their jobs, and I ask that you bid like crazy, just in case I need it!!! :)

Experts like blaming Countrywide for the current condition of the Mortgage industry, but that is just because we are the largest, who else are you going to blame? Once the dust settles and Countrywide regains the image that existed prior to this mess, this wrist band will be a collectible!

This wrist band is new!

The current bid is $152.50.

by Calculated Risk on 10/11/2007 09:23:00 PM

From the WSJ: Beazer Homes Reports Surge In Cancellations of Orders

Beazer reported that 68% of its prospective home buyers canceled their orders in the company's fiscal fourth quarter, which ended Sept. 30. The cancellation rate was almost double the 36% of customers who canceled orders and gave up deposits in the prior quarter.

Beazer is one of the first large builders to detail results from September ...

With rising cancellation rates, the monthly New Home sales number from the Census Bureau is probably too high, and their estimate of the increase in inventory is too low. My current estimate is the Census Bureau underestimated new home inventory by 77K at the end of Q2, based on cancellations rates at several of the largest public homebuilders. Cancellations rates climbed again in Q3 because of tighter lending requirements (68% cancellations is probably the high end because of special problems at Beazer).

by Calculated Risk on 10/11/2007 04:20:00 PM

From MarketWatch: Moody's downgrades $33 bln of subprime mortgage securities (hat tip REBear)

Moody's Investors Service said on Thursday that it cut ratings on $33.4 billion of securities backed by subprime residential mortgages because the underlying home loans are steadily deteriorating in the face of falling home prices and a tight lending environment. The downgraded securities are backed by subprime first-lien mortgages originated in 2006 and represent 7.8% of the original dollar volume of securities that Moody's rated from that year. A further $3.8 billion may be downgraded later. Moody's also said that another $23.8 billion of first-lien residential mortgage-backed securities were put on review for possible downgrades. ...