by Calculated Risk on 12/19/2007 11:55:00 AM

Here is the S&P Report: Detailed Results Of Subprime Stress Test Of Financial Guarantors Some excerpts from the company specific comments:

Ambac Assurance Corp.
We affirmed the 'AAA' financial strength and financial enhancement ratings of Ambac Assurance and the 'AA' debt ratings of Ambac Financial Group, Inc. but the outlooks have been changed to negative. ...

CIFG Financial Guaranty
We have affirmed the 'AAA' financial strength rating of CIFG and the outlook remains negative. ...

Financial Guaranty Insurance Co.
The ratings of FGIC and FGIC Corp. are placed on CreditWatch with negative implications. Our most recent analysis of the company's non-prime RMBS and CDO of ABS exposure indicates a level of losses which would result in its capital position falling below our 'AAA' requirements. ...

MBIA Insurance Corporation
The outlook on MBIA and MBIA Inc.'s financial strength and debt ratings is changed to negative and their ratings affirmed. The outlook change is warranted because of the absolute size of stress scenario losses relative to the adjusted capital cushion of $2.75 billion. ...

XL Capital Assurance Inc./XL Financial Assurance Ltd.
We revised the outlook on XLCA, XLFA, and Security Capital Assurance Ltd.'s financial strength and debt ratings to negative, while affirming the respective ratings. ...

ACA Financial Guaranty Corp.
The financial strength and financial enhancement ratings on ACA are lowered to 'CCC' and placed on CreditWatch Developing. The lower rating reflects the substantial excess-of-modeled stress test losses of nearly $2.2 billion over the company's adjusted capital cushion at Dec. 31, 2007 of approximately $650 million. While ACA has been diligently working to address contingent liquidity concerns, it has not focused significantly on raising additional capital. Lower new business activity during this period of rating uncertainty is a positive from a capital adequacy standpoint but the incremental improvement is not sufficient to close the gap between stress losses and the capital cushion. The magnitude of the gap is large enough to create significant doubt that the company could possibly access sufficient hard capital resources to resolve the problem. CreditWatch Developing acknowledges the possibility that the company may be able to modify its obligations to its counterparties but reflects the real possibility that the counterparties will require the company to post significant collateral going forward.

by Calculated Risk on 12/19/2007 11:28:00 AM

Update: Only news story I could find so far from Reuters: S&P cuts ACA to "CCC" junk, acts on 6 bond insurers

Press Release: S&P Takes Rtg Actions On Six Bond Insurers (no link, hat tip Brian)

Standard & Poor's Ratings Services today announced various ratings actions on six financial guaranty insurance companies.

The rating actions were prompted by worsening expectations for the performance of insured nonprime residential mortgage backed securities and CDOs of asset backed securities. Based upon current stress test analysis, the details of which are being published simultaneously with this release, the affected companies may experience claims and/or capital consumptive negative rating transitions such that their capital resources may no longer be sufficient at their respective rating levels. Another consideration in the analysis, if there is a capital shortfall, is the magnitude of the shortfall and the extent to which the company has raised or is planning to raise new capital, and the viability of that capital plan.

Standard & Poor's will host a teleconference today at 3 p.m. EST.

... Our analysis of the impact of the ratings actions announced today is ongoing. We expect to post lists of affected structured finance issues later today. As we complete our analysis during the next few weeks, we may publish additional ratings changes.

ACA cut to CCC from A, AMBAC and MBIA outlooks revised to negative from stable. More to come ...

by Calculated Risk on 12/19/2007 10:11:00 AM

From MarketWatch: Morgan Stanley write-downs grow by $5.7 billion

Morgan Stanley said Wednesday it's writing down an additional $5.7 billion of mortgage-related assets, taking the total fourth-quarter loss to nearly $10 billion in the latest sign that the credit crunch is worsening.
...
New York-based Morgan Stanley booked the additional $5.7 billion of write-downs in November.
...
Morgan Stanley blamed the $9.4 billion total write-down on "the continued deterioration and lack of liquidity in the market for subprime and other mortgage-related securities since August."

MarketWatch has a chart of the Bankers' Writedowns ($70 Billion so far) and much more to come.

The confessional is very busy.

by Calculated Risk on 12/19/2007 01:01:00 AM

“It’s a zero-sum game. If you put trades on that worked so well that you bankrupt your counterparty, you will not collect on those trades.”
(edit, quoted wrong person) Jim Keegan, a senior vice president and portfolio manager at American Century Investments

I'm starting with Keegan's comment because that was my first reaction to a possible bailout by the banks. Since ACA currently has a negative net worth, wouldn't the bailout amount have to be equal to the amount that ACA lost (and the banks saved by buying insurance)? How does that help?

From the NY Times: Banks Study Bailing Out Struggling Bond Insurer

Officials from Merrill Lynch, Bear Stearns and other major banks are in talks to bail out a struggling bond insurance company that has guaranteed $26 billion in mortgage securities, according to two people briefed on the situation, because the insurer’s woes could force the banks to take on billions in losses they had insured against.

Worth reading.

by Calculated Risk on 12/19/2007 12:04:00 AM

Press Release: Hovnanian Enterprises Reports Fiscal 2007 Results

Sales:

... the Company delivered 13,564 homes with an aggregate sales value of $4.6 billion in fiscal 2007, down 24.4% from 17,940 home deliveries with an aggregate sales value of $5.9 billion in fiscal 2006. In the fourth quarter, the Company delivered 3,969 homes with an aggregate sales value of $1.3 billion in fiscal 2007, a decline of 22.0% in sales value from the fourth quarter in fiscal 2006.

Cancellation rate:

The Company's contract cancellation rate, excluding unconsolidated joint ventures, for the fourth quarter of fiscal 2007 was 40%, compared with the rate of 35% reported in both the fourth quarter of 2006 and the third quarter of fiscal 2007.

The headline number will be their losses and writedowns, but for the overall housing market, I think sales and cancellations are interesting. I use changes in the cancellation rate to adjust the New Home sales number from the Census Bureau (since the Census Bureau excludes cancellations). With rising industry wide cancellation rates, the Census Bureau understates the increase in inventory.

by Calculated Risk on 12/18/2007 08:11:00 PM

Krugman speaks at Google on Dec 14th. Krugman was on book tour, but he spoke about the current economic issues instead.

Paul Krugman is a professor of economics and international affairs at Princeton University, and the author or editor of 20 books and more than 200 professional journal articles. In recognition of his work, he has received the John Bates Clark Medal from the American Economic Association, an award given every two years to the top economist under the age of 40. The Economist said he is "the most celebrated economist of his generation."

by Calculated Risk on 12/18/2007 07:19:00 PM

From the Financial Times: Second wave of SIV liquidity problems looms

January will bring the start of a second wave of liquidity problems for SIVs as the vast majority of medium-term funding starts to come due for repayment, according to a report from Dresdner Kleinwort analysts to be published on Wednesday.
...
SIVs rely on cheap, short-term debt ... [that] has come from both ...(CP) ... and from the slightly longer maturity medium-term note (MTN) markets. ... “So far SIVs have primarily felt the impact of collapsed CP issuance,” said Domenico Picone at DrK. “Outstanding MTN for the 30 SIVs currently stands at $181bn, which will be the next liquidity challenge they face.”

Luckily the SuperSIV will be ready to step in, from Bloomberg: `SuperSIV' Fund to Start Buying in Weeks, Banks Say.

by Calculated Risk on 12/18/2007 04:13:00 PM

From Bloomberg (no link yet): Macklowe Failed to Repay $500 Million Loan, Newsletter Says (hat tip Brian)

New York investor Harry Macklowe failed to pay a $495 million loan from Deutsche Bank AG to develop an office, hotel and condominium tower on the Park Avenue site of a former luxury hotel, Commercial Mortgage Alert said.
...
He also missed a payoff deadline for a $120 million loan on
510 Madison Ave. ...

In September, the WSJ reported: Macklowes On a Wire

Mr. Macklowe and his son Billy paid $6.8 billion to buy seven New York buildings from Equity Office Properties Trust. ... the sale was one the most expensive real-estate deals in U.S. history, symbolizing the skyrocketing prices paid for buildings at a time of cheap debt and demand for office buildings.

The transaction was emblematic of the lax underwriting standards of the real-estate boom. Macklowe Properties put in only $50 million of equity and borrowed $7.6 billion, according to the documents. (Mr. Macklowe borrowed more than the purchase price to cover closing costs and other fees.) The deal also had "negative debt service," meaning that the rents from the buildings weren't expected to cover the debt payments for five years ...

Talk about a high LTV: borrowing $7.6 Billion for a $6.8 Billion purchase on properties that have probably declined in value. Approximately $5.0 Billion of the debt must be paid off in February.

by Calculated Risk on 12/18/2007 03:42:00 PM

The Union Tribune has a graph of house prices in San Diego based on the DataQuick numbers released earlier today: Home prices tumble

Click on graph for larger image.

This graph from the Union Tribune article shows the median home price in San Diego has declined 15% from the peak in November 2005, and has now returned to early 2004 pricing.

From an earlier post, this graph shows the round trip for 15% and 30% nominal national price declines for the S&P/Case-Shiller U.S. National Home Price Index and the OFHEO, Purchase Only, SA index.

A 15% nominal price decline would take prices back to late 2004 for both indices. A 30% price decline for Case-Shiller would take prices back to mid-2003; 30% for OFHEO would take prices back to late 2002.

For San Diego, the Case-Shiller index through Sept 2007, shows prices have declined to below the July 2004 level (very similar to the DataQuick numbers). Not all areas will see the same price declines, but these round trip graphs will probably become common.

by Calculated Risk on 12/18/2007 01:40:00 PM

From DataQuick: Southland prices fall again; sales perk up

... Sales were the slowest for a November in at least 20 years and the median sale price posted a record 10.3 percent year-over-year decline ...

A total of 13,173 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in November. That was up 2 percent from 12,913 sales in October, and down 42.7 percent from 23,005 in November last year, according to DataQuick Information Systems.

Last month's sales were the lowest for any November in DataQuick's statistics, which go back to 1988. The previous low was in November 1992, when 15,446 homes sold. November has averaged 22,749 sales over the last 20 years.
...
The median price paid for a Southland home was $435,000 last month, down 2.2 percent from $445,000 in October, and down 10.3 percent from $485,000 in November last year. That year-over-year decline is the largest for any month in DataQuick's records. Last month's $435,000 median was the lowest since March 2005, when it was also $435,000.

Foreclosure activity is at record levels ...

Record low sales, record falling year-over-year decline in prices, record foreclosure activity - sounds like a broken record.