by Calculated Risk on 2/13/2008 11:09:00 AM

From David Lazarus at the LA Times: Shadow victims of the mortgage crisis: renters

Salgado, 40, is one of many renters who have found themselves homeless after their cash-strapped landlords stopped making mortgage payments and their houses or apartment buildings were foreclosed upon.

The California Apartment Assn., the state's largest organization of rental property owners, estimates that as much as a quarter of all foreclosed single-family residences are occupied by renters. The number of renters ensnared in the foreclosure fiasco is even larger when duplexes and other multi-unit buildings are factored in.
...
State officials said that under California law, existing rental agreements are essentially wiped out when a property is foreclosed upon. All that's required is that a tenant be given at least 30 days' notice that he or she is being evicted.

Lenders are not in the business of being landlords, and they typically want a house vacant so they can sell it as quickly as possible.

The article also touches on the impact on rents:

... this can mean even steeper rents because the wave of foreclosures has spurred greater demand for rental housing

In the short term, the housing bust has probably helped push rents up in many areas.

by Calculated Risk on 2/13/2008 10:07:00 AM

From the National Retail Federation: Jan. Retail Sales Show Consumers Spending on Essentials

As expected, January retail sales demonstrated that consumers last month were focused on buying necessities more than discretionary items. According to the National Retail Federation, retail industry sales for January (which exclude automobiles, gas stations, and restaurants) rose 2.0 percent unadjusted over last year and 0.1 percent seasonally adjusted from December.

January retail sales released today by the U.S. Commerce Department show total retail sales (which include non-general merchandise categories such as autos, gasoline stations and restaurants) increased 0.3 percent seasonally adjusted from last month and 4.6 percent unadjusted year-over-year.

“The January numbers are indicative of the issues consumers are facing, including the housing slump, a sluggish employment sector and high energy prices,” said NRF Chief Economist Rosalind Wells. “We expect to see marginal improvements in the second half of the year once consumers begin to receive their rebate checks.”

That was the fairly negative take from a major retail group. Others were more positive; from the WSJ: Retail Sales Post Surprise Jump

Retail sales unexpectedly climbed in January, given a boost by demand for cars and gasoline in a positive sign for the economy. ... Retail sales increased by 0.3%, the Commerce Department said Wednesday. Sales went down an unrevised 0.4% in December.

These numbers are subject to revisions, but overall this report was stronger than expected.

by Anonymous on 2/13/2008 09:05:00 AM

MILWAUKEE, Feb 13, 2008 /PRNewswire-FirstCall via COMTEX/ -- MGIC Investment Corporation today reported a net loss for the quarter ended December 31, 2007 of $1.47 billion, including certain items described below. This compares with net income of $121.5 million for the same quarter a year ago. Diluted loss per share was $18.17 for the quarter ending December 31, 2007, compared to earnings per share of $1.47 for the same quarter a year ago.

Included in the quarterly results is the establishment of a pre-tax premium deficiency reserve of approximately $1.2 billion relating to Wall Street bulk transactions. The premium deficiency reserve reflects the present value of expected future losses and expenses that exceeded the present value of the expected future premium and already established loss reserves for these bulk transactions. Also included in the quarterly results is an after-tax charge of $33 million related to equity losses incurred by C-BASS in the fourth quarter that reduced the carrying value of the $50 million note from C-BASS to zero.

Curt S. Culver, chairman and chief executive officer of MGIC Investment Corporation and Mortgage Guaranty Insurance Corporation (MGIC), said that the low cure rates coupled with higher loss severities and higher delinquencies had a material impact on the company's financial results both in the quarter and for the year. Mr. Culver said that given the company's expectations for credit loss development, unless the cure rate and loss severity improves, the company does not foresee net income for 2008. . . .

As of December 31, 2007, the delinquency inventory is 107,120. At December 31, 2007, the percentage of loans that were delinquent, excluding bulk loans, was 4.99 percent, compared with 4.08 percent at December 31, 2006, and 4.52 percent at December 31, 2005. Including bulk loans, the percentage of loans that were delinquent at December 31, 2007 was 7.45 percent, compared to 6.13 percent at December 31, 2006, and 6.58 percent at December 31, 2005.

Losses incurred in the fourth quarter were $1.35 billion, up from $187.3 million reported for the same period last year due primarily to the increase in both the number and size of loans that are delinquent, increased loss severity, decreased cure rates in certain markets, particularly California and Florida, continued weakness in the Midwest, and increased paid losses. . . .

Historically a significant portion of the mortgage insurance provided by MGIC through the bulk channel has been used as a credit enhancement for securitizations. During the fourth quarter, the performance of loans included in Wall Street bulk transactions deteriorated materially. Therefore, during the fourth quarter of 2007, we decided to stop writing that portion of our bulk business. A Wall Street bulk transaction is any bulk transaction where we had knowledge that the loans would serve as collateral in a home equity securitization. In general, these bulk transactions on average reflect lower average FICO scores and a higher percentage of ARMs, compared to our other bulk business. We plan to continue to provide mortgage insurance on bulk transactions with the GSEs or portfolio transactions where the lender will hold the loans. Wall Street bulk transactions represented approximately 41%, 66% and 89% of our new insurance written for bulk transactions during 2007, 2006 and 2005, respectively, and at December 31, 2007 included approximately 145,000 loans with insurance in force of approximately $25.5 billion and risk in force of approximately $7.6 billion (which is 74% of our total bulk risk in force).

Guess they won't be holding the bag on those "Super Duper Seniors" any more . . .

by Anonymous on 2/13/2008 08:20:00 AM

I will have you know I did not make that up.

Aside from the small trickle of deals, UBS highlighted a new structuring technique for Alt-A hybrid deals, which involves carving out ultra high-quality bonds out of the super senior triple-A classes and calling them super duper senior bonds.

"Many investors are reluctant to buy MBS backed by Alt-A collateral including super senior paper, as they fear credit losses," UBS analysts wrote.

In a hypothetical super duper triple-A deal, the bonds have twice the credit enhancement of the super senior triple-A bond and four times the credit support of the straight triple-A bond. After running the structure through hypothetical scenarios, UBS determined that the super duper senior Alt-A hybrids offer great value relative to prime jumbo super senior hybrids and agency hybrids, and virtually eliminate the credit component.

Some market participants, however, were not as delighted with the prospect of the new structure. "I don't think it will be anything big," one trader said. "I don't think anyone is overwhelmed by it."

I'd think not. "Super Duper" sounds like the kind of thing you hear at a Junior League luncheon (not that I've ever been invited to one, you know, but you hear stories). I think they need a better name for this.

Belt and Suspenders Bonds? Belt and Suspenders and Duct Tape Bonds? Belt and Suspenders and Duct Tape and Airbag Bonds? Belt and Suspenders and Duct Tape and Airbag and Flame-Retardant Jammies Bonds? If we're going to act like we found the recipe for a quintuple-A rating, we might as well be vivid.

by Calculated Risk on 2/12/2008 11:35:00 PM

From Ruth Simon and Tom McGinty at the WSJ: Earlier Subprime Rescue Falters

In the past two months, the 1-888-995-HOPE hotline received roughly 176,000 calls, according to the nonprofit Homeownership Preservation Foundation, which operates the hotline. During that time, hotline counselors recommended a workout for 9,975 borrowers -- and told an additional 4,410 people to "seriously consider selling their home," the group says. Another 12,113 borrowers were referred for in-person counseling and services such as job-placement help.

Nodoby could have known.

by Calculated Risk on 2/12/2008 08:50:00 PM

From the WSJ: Delphi's Bankruptcy Exit Hits a Snag

The $6.1 billion plan to pull auto-parts supplier Delphi Corp. out of bankruptcy protection was in jeopardy yesterday ... J.P. Morgan Chase & Co. and Citigroup Inc.'s Citigroup Global Markets, are having difficulties syndicating the loan to other lenders...

Luckily for the banks, this won't become a pier loan:

J.P. Morgan and Citigroup are bound only on a "best-efforts basis" to arrange the loan. That is a lesser commitment than the "material adverse change" clause, which binds banks to a deal barring only a steep decline in a client's performance.

And over in the Muni market from AP: Failed Bond Autions Total $6B Tuesday

These failed auctions are probably related to the problems with the monoline insurers. The Credit Crunch continues ...

by Calculated Risk on 2/12/2008 05:07:00 PM

A couple of YouTube videos from today's Press Conference (hat tip Anthony):



Q for Paulson: Is the worst over?

Paulson: The worst is just beginning.

by Anonymous on 2/12/2008 12:48:00 PM

In the beginning, there was a Plan Hope.

Now, there is a Project: toss out a lifeline to those who just dipped under the waves for the third time.

I just listened to the live webcast of the Treasury Department's big announcement. I spent 40 minutes on this. I feel obligated to blog about it.

Project Lifeline involves servicers sending letters to borrowers--prime, Alt-A, or subprime, we're past pretense on that part--who are very seriously delinquent (90 days or three payments down or more). The letter says that if the borrower contacts the servicer within ten days, agrees to homeowner counseling, and provides sufficient financial documentation that the servicer can consider a case-by-case, deep-analysis style modification of the mortgage terms, the servicer will agree to put the foreclosure process on hold for 30 days while the workout is considered. If the borrower fails to respond to the letter, foreclosure proceeds.

The difference between this and the way the loss mitigation process has always worked is . . . the letter part.

What is implied here is that servicers are, in fact, staffed up to do these time- and labor-intensive modifications that include real examination of the borrower's circumstances, real counseling, and loan changes that are much harder to process than just a teaser freeze. They're just waiting by the phone for borrowers to call. Why am I skeptical about that?

Highlight of the whole thing:

Q to Paulson: "Is the worst over?"

Paulson: "The worst is just beginning."

Lowlight: Alphonso Jackson, whose soporific discourse leads the viewer's mind to abandon the struggle to pick content out of the bromides and focus instead on that oddly expressionless, smooth, unwrinkled, ageless baby face of his. What, you wonder, would it take to make this man look a little troubled? Armageddon?

Anyway, Jackson repeated the claim that over 200,000 (I think he said 228,000) applications for refinance have been received by HUD "since the President announced" the FHASecure plan in October. Once again, this statement implies, but does not exactly say, that all 200,000-odd applications were under the FHASecure program, as opposed to being all refinance applications, including those under standard FHA programs that would have been made anyway. And it says nothing about how many cases actually got endorsed.

(Civilians: FHA isn't a lender, so what it really gets "applications" for is insurance of a loan. It calls these "cases." When it insures a loan, it calls that an "endorsement." You need to know the lingo if you are enterprising enough to go root through HUD reports looking to see how many FHASecure loans actually have been endorsed. Good luck to you if you do: I'm having a hard time finding this information.)

Jackson did say that of the 200,000 and some "applications," "over 5,000" involved original loans that were already in default. I'm guessing that the true FHASecure caseload is about, um, 5,000. Anyone with better data is hereby invited to share. Jackson keeps repeating these numbers--which have been questioned before--and nodoby's calling him on it.

(I'll post a link to the transcript whenever it is available.)

by Calculated Risk on 2/12/2008 11:46:00 AM

From Brett Arends at the WSJ: Homes in Bubble Regions Remain Wildly Overvalued

... the really bad news is that, even after a year of misery and falling prices, homes ... remain wildly overvalued compared to average personal incomes.

There is a strong long-term correlation between the two figures. And in many regions, house prices would still have to fall a very long way to get back into line.

How far?

Try around a third in Florida and Arizona -- and closer to 40% in California.

Price to income isn't a perfect tool, but it does provide a gross estimate of how far house prices are still above "normal".

This points out the mistake many homebuyers made during the boom - they only looked at the monthly payment, and not the price. With low teaser rates, optional negative amortizing payments, and other mortgage innovations, it was easy for a homebuyer to get into a home at 13 or 14 times income.

Imagine a home purchased at 13 times income, with a 10% down payment. Say the homeowner switches to a 30 year fixed rate loan with a 6% interest rate. Just the P&I (principal and interest) would equal 84% of the homebuyers gross income!

This is called being "house poor". (Owning a home, but not exactly enjoying life).

by Anonymous on 2/12/2008 09:32:00 AM

Buffett offers to separate the sheep from the goats. The goats are not happy:

Feb. 12 (Bloomberg) -- Billionaire investor Warren Buffett said he offered to assume responsibility for $800 billion of municipal bonds guaranteed by MBIA Inc., Ambac Financial Group Inc. and FGIC Corp.

Buffett's Berkshire Hathaway Inc. would put up $5 billion as part of the plan that would exclude subprime-related obligations. One company has already rebuffed the proposal and the two others haven't responded, Buffett told CNBC television.

Buffett is attempting to take advantage of the distress among bond insurers by picking off the profitable municipal guaranty business and leaving MBIA, Ambac and FGIC with debt that has caused more than $5 billion in losses. The three companies are struggling to maintain their AAA ratings after writedowns on the value of mortgage guarantees.

``If you gave up your entire municipal business, that's the book of business where the value in the companies is right now,'' said CreditSights Inc. analyst Robert Haines. ``You'd essentially be ceding that whole book to Buffett and what you'd be left with would be the book of business where all the troubles are.'' . . . .

If the municipal debt was reinsured by AAA rated Omaha, Nebraska-based Berkshire, the municipalities would also retain the top rating, Buffett said.

``The insurance in the market is not doing bondholders any good and is in some cases penalizing bond investors,'' Buffett said. ``Our proposal puts the municipals at the front of the line.''

The downgrade of a large bond insurer would force some insurers to sell any municipal debt that didn't have an underlying AAA rating.

``It would solve it in one stroke of a pen,'' Buffett said of the plan.

*Everything But Subprime