by Calculated Risk on 10/17/2007 09:41:00 PM

From Bloomberg: Cheyne Finance SIV Won't Pay Debt as It Falls Due

Cheyne Finance Plc, the structured investment vehicle managed by hedge fund Cheyne Capital Management Ltd., will stop paying its debts, a receiver from Deloitte & Touche LLP said.

... Cheyne Finance's debt with different maturities will now be pooled together, rather than shorter term debt being repaid sooner, Neville Kahn, a receiver from Deloitte said today in a telephone interview.

``It doesn't mean we have to go out and fire-sell any assets, quite the opposite in fact,'' Kahn said. ``The paper that falls due today or tomorrow won't be paid as it falls due.''

Cheyne Finance appointed receivers in September to oversee the management of its assets after the SIV was forced to liquidate assets to repay maturing commercial paper.
...
Cheyne issued $8 billion of short-term debt to buy securities linked to home loans, according Moody's Investors Service.

The receivers declared an ``insolvency event,'' Deloitte said. That means the SIV is unable to pay its debts when they are due, according to its prospectus.

Borrow short, lend long, go broke; one of the oldest stories in lending, but somehow rediscovered by every generation. The new wrinkle here was to make some especially bad loans too.

by Calculated Risk on 10/17/2007 06:19:00 PM

From the WSJ: Washington Mutual Net Dives 72%

Washington Mutual Inc. third-quarter net income plummeted 72%, as the company took a bruising hit to cover home-loan losses.
...
"We're disappointed with our third quarter results but they reflect the increasingly difficult market conditions that are challenging the banking industry," said WaMu Chairman and Chief Executive Officer Kerry Killinger.
...
WaMu also had a $147 million write-down on mortgage loans it planned to sell but were instead were moved to the company's investment portfolio due to the summer's credit-market seizure that essentially dried up demand for mortgage-related securities.

In addition, the firm recorded $153 million in trading losses and losses of $104 million on investment-grade mortgage-backed securities that are available for sale.

And from Reuters: Washington Mutual CEO sees no end to housing slump

"We were going through an orderly correction in the housing market until the middle of the year, when there was a significant falloff," [Washington Mutual Chief Executive Kerry Killinger] said in an interview. "That has continued in the fourth quarter, accelerated by the lack of liquidity in the capital markets.

"We are not making projections as to when the market will stabilize," he added. "At this point, we have not seen signs of stabilization."

The losses keep piling up with no end in sight.

by Calculated Risk on 10/17/2007 05:54:00 PM

From MarketWatch: Mortgage meltdown leads E-Trade to $58 million loss

"A lot of people think that sub-prime loans is where the problems center," [Jarrett Lilien, E-Trade's president] said. "But that's not our problem. Our issue is that the value of high quality loans is underperforming."

E-Trade says its issues in the quarter were with home equity lines and home installment loans. "That's where we're seeing worse performance," Lilien said.
...
E-Trade also wrote down about $200 million in asset-backed securities. "That pretty much took the most risky types of assets off the table," Lilien said.

And from the conference call (hat tip Brian):

“ As a part of our guidance release last month, with respect to securities impairments, we forecasted we could see up to $100 million in the second half of 2007 and an additional 50 to 100 million in 2008 for a total of up to $200 million over six quarters. These impairments were primarily related to two categories within our asset backed securities portfolio which we identified to have the highest risk. Specifically, these were collateralized debt obligations or CDOs, and securities collateralized by second lien mortgages. Since the September guidance release, upon evaluation and refinement of our forecast, we determine that had certain writedowns needed to be taken in the third quarter. Additionally, we decided to accelerate the sale of the highest risk portions of these portfolios, writing down securities rated lower than double A by more than an average of $0.50 on the dollar. By changing the intent and designation to no longer hold these securities to recovery. The combined effect is that we recorded an impairment charge of approximately $197 million in the third quarter” emphasis added

Note that they haven't yet sold the CDOs and the 2nd lien RMBS'; they just moved them from "held to maturity" portfolio to "available for sale".

by Calculated Risk on 10/17/2007 01:07:00 PM

S&P: Review Of 1H07 US RMBS Yields Downgrades, Watch Placement (hat tip Brian)

Oct. 17, 2007--Standard & Poor's Ratings Services today lowered its ratings on 1,713 classes of U.S. RMBS backed by first-lien subprime mortgage loans, first-lien Alternative-A (Alt-A) mortgage loans, and closed-end second-lien mortgage loans issued from Jan. 1, 2007, through June 30, 2007. These classes are from 136 subprime transactions, 128 Alt-A transactions, and 19 closed-end second-lien transactions. The downgraded classes represent approximately $23.35 billion of original par amount, which is 6.28% of the $371.9 billion original par amount of these three types of U.S. RMBS rated by Standard & Poor's between Jan. 1, 2007, and June 30, 2007, and 4.71% of the approximately $495 billion original par amount of all
U.S. RMBS rated during this period.

In addition, we placed the ratings on 646 other classes from 109 transactions backed by U.S. RMBS first-lien subprime mortgage loans and U.S. RMBS first-lien Alt-A mortgage loans issued during the same period on CreditWatch with negative implications.

by Calculated Risk on 10/17/2007 10:21:00 AM

Quote of the day from MGIC Investment Chief Executive Curt Culver during the conference call:

"The books of business written in 2005, 2006 and most of 2007 will be difficult books financially. These books feature weaker underwriting, and will play out in an environment of deteriorating real estate values. In fact, we modeled an approximate 10% nationwide decline impacting these books. The declines are even more extreme in various MSAs. Frankly, the loss side has hit us much harder and more quickly than we could have ever anticipated. From the loss guidance estimates, we have seen revised from our industry, as well as a number of mortgage originators who are no longer in business, it was not anticipated by many. The ramp-up of loss performance relative to delinquencies, the severity and the cure rate deterioration in California and Florida has been at speeds not seen in previous books of business.” emphasis added

From MarketWatch: MGIC posts loss on C-Bass investment

MGIC Investment Corp. Wednesday reported a third-quarter net loss of $372.5 million, or $4.60 a share, compared with net income of $130 million, or $1.55 a share the previous year. The company said its quarterly results included a $303 million write-down related to the impairment of its investment in Credit Based Asset Servicing and Securitization LLC, known as C-Bass, a joint venture owned by MGIC and Radian Group Inc. ... MGIC said "unless the cure rate and loss severity improves, the company does not foresee net income for the fourth quarter of 2007 and the full year 2008."

by Calculated Risk on 10/17/2007 08:30:00 AM

The Census Bureau reports on housing Permits, Starts and Completions.

Seasonally adjusted permits fell sharply:

Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,226,000. This is 7.3 percent below the revised August rate of 1,322,000 and is 25.9 percent below the revised September 2006 estimate of 1,654,000.

Starts declined sharply:

Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,191,000. This is 10.2 percent below the revised August estimate of 1,327,000 and is 30.8 percent below the revised September 2006 rate of 1,721,000.

And Completions declined sharply:

Privately-owned housing completions in September were at a seasonally adjusted annual rate of 1,391,000. This is 8.2 percent below the revised August estimate of 1,516,000 and is 31.1 percent below the revised September 2006 rate of 2,019,000.

Click on graph for larger image.

Here is a graph of starts and completions. Completions follow starts by about 6 to 7 months.

My forecast is for starts to fall to around the 1.1 million units per year level; a substantial decline from the current level. Goldman Sachs' forecast is for 1.1 million units, and UCLA is for 1.0 million units.

Even with the declines in permits and starts, this report shows builders are still starting too many projects. Starts will probably continue to decline in coming months.

by Calculated Risk on 10/16/2007 04:02:00 PM

Quote of the day from the Mortgage Bankers Association's (MBA) new Chairman Kieran Quinn (no link):

"We're going back to lending the way it was in the 1950s and 60s. Mortgages will be made mostly by bankers and their employees, and compensation will be based on who's making good loans and who's not."

Securitization is here to stay; Quinn is saying third party origination is mostly going away.

by Calculated Risk on 10/16/2007 03:39:00 PM

From Bloomberg: KKR Bankers Sell $2.2 Billion of First Data Bonds

Banks for Kohlberg Kravis Roberts & Co. sold $2.2 billion of First Data Corp. notes ...

The eight-year, 9.875 percent senior securities priced to yield 10.875 percent, according to data compiled by Bloomberg. The offering leaves banks led by Citigroup Inc. and Credit Suisse Group with $10.4 billion of debt on their books from Greenwood Village, Colorado-based First Data.

by Anonymous on 10/16/2007 02:00:00 PM

From the OFHEO Press Release:

Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) announced today three actions regarding the calculation of the conforming loan limit, which establishes the maximum mortgage loan value eligible for purchase by Fannie Mae and Freddie Mac.

OFHEO Director James Lockhart announced that, based on provisions in the proposed guidance, the current conforming loan limit will not be reduced for 2008. If the index used to calculate the maximum loan level should increase, the amount of the increase in 2008 would be reduced by the decline calculated in 2006 of 0.16%. Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000.

Background information on the conforming limit history and calculations from OFHEO is here.

by Calculated Risk on 10/16/2007 01:34:00 PM

From DataQuick: September Southland home sales lowest in more than 20 years

Home sales in Southern California plunged to the lowest level in more than two decades, as financing with "jumbo" mortgages dropped by half. The median price paid for a home dropped sharply as a result ...

A total of 12,455 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in September. That was down 29.9 percent from 17,755 for the previous month, and down 48.5 percent from 24,195 for September last year, according to DataQuick Information Systems.

Last month's sales were the slowest for any month in DataQuick's statistics, which go back to 1988. The previous low was in February 1995 when 12,459 homes sold. The September sales average is 25,258.
...
The number of Soouthland homes purchased with jumbo mortgages dropped from 5,359 in August to 2,681 in September, a decline of 50.0 percent. A jumbo mortgage is a home loan for $417,000 or more. For loans below that threshold, the sales decline was 19.3 percent, from 9,237 in August to 7,459 in September. Historically, sales drop by about 10 percent from August to September.

The median price paid for a Southland home was $462,000 last month, down 7.6 percent from $500,000 in August, and down 4.0 percent from $481,000 for September last year. If the jumbo-financed portion of the market had remained stable, last month's median would have been $487,000.
...
Foreclosure activity is at record levels ... emphasis added