by Anonymous on 11/07/2007 08:21:00 AM

An Associated Press reporter has apparently been living in a cave for a few months:

NEW YORK - The malaise in the mortgage market is starting to spread to credit card and auto loans in what one analyst has dubbed consumer credit "contagion." It's an ominous warning signal for the economy.

"One analyst"? "Contagion" in quotes? I checked the byline; this seems to have been published this morning.

No one is calling this problem the next debt-related land mine yet, but it is important to watch what happens, especially as the holiday shopping season gets under way.

OK. Let me rectify this inexplicable failure of cliche:

This problem is the next debt-related land mine. You read it here first, kids.

We also savor the perfume of the new trend, odiferous metaphoricity:

"Firms that are now adding to the portfolio might have had a few whiffs of trouble brewing earlier this year and dragged their feet in adding to reserves because they were hoping that interest rate cuts might bail them out and give borrowers breathing room," said Jack Ciesielski, who writes the industry newsletter, The Analyst's Accounting Observer.

"Now, the odor is getting stronger, and it looks like adding reserves is the only course of action they can follow without presenting misleading financials," Ciesielski said.

by Anonymous on 11/07/2007 07:37:00 AM

Percent of refis involving cash-out rises, but amount of cash taken out falls:

McLean, VA – In the third quarter of 2007, 87 percent of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least five percent higher than the original mortgage balances, according to Freddie Mac's quarterly refinance review. The revised share for the second quarter of 2007 was 84 percent. . . .

In the third quarter of 2007, the median ratio of new-to-old interest rate was 1.11. In other words, one-half of those borrowers who paid off their original loan and took out a new one increased their mortgage coupon rate by 11 percent, or roughly five-eighths of a percentage point at today's level of 30-year fixed mortgage rates.

"This quarter we saw $60.1 billion cashed out, down from a revised $81.4 billion cashed out in the second quarter of 2007," said Amy Crews Cutts, Freddie Mac deputy chief economist. "Based on what we've been seeing in the share of mortgage applications for refinance, we are expecting the share of mortgage refinance originations to remain about the same in the fourth quarter as we saw in the third, at about 45 percent. . . .

The Cash-Out Refinance Report also revealed that properties refinanced during the third quarter of 2007 experienced a median house-price appreciation of 26 percent during the time since the original loan was made, up from a revised 24 percent in the second quarter 2007. For loans refinanced in the third quarter of 2007, the median age of the original loan was 3.9 years, 5 months older than the median age of loans refinanced during the second quarter of 2007.

by Calculated Risk on 11/07/2007 01:28:00 AM

Click on graph for larger image

This is a graph of the December U.S. Dollar Index from Barchart.com.

This reminds me of Dr. Krugman's "Will there be a Dollar Crisis?" from July. Krugman wrote:

"... there will at some point have to be a ‘Wile E. Coyote moment’ – a point at which expectations are revised, and the dollar drops sharply."

On topic, check out this funny post at Krugman's blog: Modeling the falling dollar

And from Bloomberg: Dollar Slumps to Record on China's Plans to Diversify Reserves

The dollar slumped to a record low against the euro after a Chinese official said the government will favor stronger currencies as it diversifies $1.43 trillion of foreign-exchange reserves.

... ``We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing.

by Calculated Risk on 11/06/2007 09:36:00 PM

From Bloomberg: MBIA, Ambac Losses Will Be `Massive,' Egan Jones Says

Bond insurers ... face ``massive losses'' over the next few quarters that could test their ability to raise new capital, Egan-Jones Ratings Co. said.

MBIA may lose $20.2 billion on guarantees and securities holdings, Sean Egan, managing director of Egan-Jones, said on a conference call today. ACA Capital may take losses of at least $10 billion; New York-based Ambac may reach $4.3 billion; mortgage insurers MGIC Investment Corp. and Radian Group Inc. may see losses of $7.25 billion and $7.2 billion, respectively, Egan said.

``There is little doubt that the credit and bond insurers face massive losses over the next few quarters and many will be capital challenged,'' Egan said.

Egan-Jones (not included in article) also expressed concern about possible major writedowns coming at Lehman and Bear Stearns. They commented that ResCap probably isn't sustainable without a capital injection. And for the homebuilders:

"Watch for some failures over the next couple of quarters."

UPDATE: From the WSJ: Morgan Stanley May Take Hit From Subprime

Two analysts are projecting the firm may take a fourth-quarter write-down of $3 billion to $6 billion. The estimates by analysts David Trone of Fox-Pitt, Kelton and Mike Mayo of Deutsche Bank AG ...
...
Another research firm, CreditSights, yesterday estimated potential fourth-quarter CDO hits at $9.4 billion for Merrill, $5.1 billion for Goldman, $3.9 billion for Lehman, $3.8 billion for Morgan Stanley and $3.2 billion for Bear Stearns.

by Calculated Risk on 11/06/2007 06:06:00 PM

From MarketWatch: GM taking $39 bln non-cash charge in third quarter

General Motors Corp. said late Tuesday it will record a third-quarter non-cash charge of $39 billion because of accounting standards related to its deferred tax assets in the U.S., Canada and Germany. The company said the money is needed to establish a valuation allowance in part to compansate for unanticipated losses at GMAC Financial Services.

Here is the press release: GM to Record Non-Cash Charge for a Deferred Tax Valuation Allowance in its Third Quarter Financial Results

"SFAS No. 109 guidelines require that a valuation allowance should now be established due to more recent events and developments during the 2007 third quarter. A significant negative factor was the company's three-year historical cumulative loss in the third quarter of 2007 in the U.S., Canada and Germany on an adjusted basis. Another significant factor was the ongoing weakness at GMAC Financial Services related to its Residential Capital, LLC (ResCap) mortgage business, including substantial U.S. losses incurred in 2007. Finally, the company faces more challenging near-term automotive market conditions in the U.S. and Germany."

by Calculated Risk on 11/06/2007 05:24:00 PM

Quote of the day from Bloomberg: Citigroup Writedowns May Be as Much as $13.7 Billion

Rescuing the bank's subprime holdings may be a harder challenge than Long-Term Capital, said Lawrence White, professor of economics at New York University's Stern School of Business.

``The opaqueness as well as the stinkiness are greater,'' White said.

Perhaps "stinkiness" explains the short comment from CNBC's Erin Burnett (hat tip Nemo) in the video at the bottom of the posts.

by Calculated Risk on 11/06/2007 04:26:00 PM

Mathew Padilla at the O.C. Register posts this ResMae email: ResMae stops funding loans

“... the current unprecedented market conditions have forced us to change course. Effective immediately we are temporarily suspending new loan originations. ... Our National Operations Center in Brea, CA will continue to support existing loans in the ResMAE pipeline and will continue to fund loans through their commitment expiration dates. Commitment dates will not be extended.“

See Matt's blog for more.

by Anonymous on 11/06/2007 04:00:00 PM

That's "Republican in Home Prices Only."

Never underestimate the "values voters."

by Calculated Risk on 11/06/2007 03:36:00 PM

From Reuters: Hovnanian says net contracts and sales fall (hat tip Barley)

Orders and sales for new homes fell and cancellations rose at upscale U.S. home builder Hovnanian Enterprises Inc during the company's fiscal fourth quarter.

The ... October sales pace in most of its markets "significantly deteriorated" when compared with recent months ... Hovnanian ... was the first major builder to include October results in its preliminary accounts.

Another month, another down turn for housing.

by Calculated Risk on 11/06/2007 01:19:00 PM

From MarketWatch: Fitch cuts rating outlook of Wells Fargo, WaMu, Capital One

Fitch Ratings ... revised down Wells Fargo Co. and Capital One Financial Corp.'s outlook to stable from positive, and lowered Washington Mutual Inc.'s outlook to negative from stable. Fitch also removed Countrywide Financial Corp. from rating watch and assigned it a negative outlook.

Too many rating cuts, not enough time.