by Calculated Risk on 2/15/2008 11:11:00 AM

Here are three interesting graphs on Countrywide Lending: January 2008 Operational Results

Click on Graph for larger image.

The first graph shows that delinquencies and foreclosures pending continue to rise.

Delinquencies rose to 7.47% in January (as a percent of unpaid principal balance) from 7.2% in December.

Foreclosure pending rose to 1.48% from 1.44% in December.


The second graphs shows Countrywide funding for nonprime loans and HELOCs (Home Equity Lines of Credit). Nonprime funding is now zero (this includes subprime and Alt-A).

The collapse in HELOCs probably means that MEW (Mortgage equity withdrawal) is declining rapidly - probably impacting consumer spending in 2008.

And the third graph shows CRE (Commercial Real Estate) funding. This has all but dried up.

Part of this is probably company specific, but this is further evidence of the coming slowdown in CRE investment.

by Anonymous on 2/15/2008 10:43:00 AM

This was a pretty amazing article in the Financial Times:

Homeowners are being advised that it would be cheaper to walk away from big mortgages than incur further losses on their household budgets, increasing the chances that more high-end real estate transactions will collapse.

This advice from lawyers contrasts with the conventional wisdom that homeowners would risk serious damage to their credit scores if they were to default on their loans.

But legal advisers argue that the future credit costs homeowners would incur in such cases would be far lower than the cash they would have to bring to closing if they sold their homes, given the current cataclysmic conditions in the housing markets.

“It is the tipping point argument,” said a senior partner at one of the biggest mortgage firms, who asked not to be named. “The borrowers have so many issues with their balance sheets that they are considering a new policy.”

Wow, that's pretty brazen. Of course it is. I made it up. This is what the FT actually says:

Leading banks are being advised that it would be cheaper to walk away from big buy-out deals than incur further losses on their funding commitments, increasing the chances that more high-profile private equity transactions will collapse.

This advice from lawyers contrasts with the conventional wisdom that banks would risk serious damage to their reputations if they were to drop out of deals.

But legal advisers argue that the break-up fees banks would owe in such cases would be far lower than the write-downs they would have to make on their loans, given the current cataclysmic conditions in the capital markets.

“It is the tipping point argument,” said a senior partner at one of the biggest private equity firms, who asked not to be named. “The banks have so many issues with their balance sheets that they are considering a new policy.”

(Thanks, e!)

by Calculated Risk on 2/15/2008 10:03:00 AM

From the WSJ: FGIC Will Request Break-Up

Financial Guaranty Insurance Co., a major bond insurer, has notified the New York State Insurance Department that it will request to be split into two companies.

One of the firms would likely retain much of the business of insuring structured finance bonds such as those backed by mortgages, which have come under severe pressure due to the housing market slowdown, according to a person familiar with the matter.

The other company would likely retain most of the municipal bond insurance business, which is stronger....

by Anonymous on 2/15/2008 07:39:00 AM

Washington Post sends a reporter to a home builders' trade show.

ORLANDO -- The cavernous convention center, the site of this week's International Builders Show, is lined row after row with slick display booths and polished sales reps peddling retro-style ovens, state-of-the-art foam insulation and a vegetable-oil-based product that plugs leaky ponds.

But the crowd is a bit thinner than in the past, and the mood among the gathered home builders is noticeably different as their industry drags through the worst market in years.

"A few years ago, everyone was very happy and smiley," said Douglas Jones of Keystone Builders in Richmond. "Last year it was a touch off. This year it's a little more serious. It's perceptible."

With housing sales foundering, inventory way up and the future of the industry hazy, the show, with 1,900 exhibitors and nearly 100,000 attendees, is more angst-ridden as builders look for ways to stay afloat until there's a turnaround. Attendance is expected to be down about 5 percent.

"There's a deep sense of concern about the market right now," said David Seiders, chief economist for the National Association of Home Builders, after sitting on a panel of experts who delivered a sobering talk on the state of the industry.

"This time last year, it looked like the demand side of the market was stabilizing. Our forecasts were that, yeah, 2007 will be a down year but it won't be that bad," he said.

"Then the entire subprime debacle hit, other shocks to the financial system hit. A lot of builders are frankly bewildered as to what in the world has happened. I can't go 15 feet without being grabbed by somebody trying to talk about it."

Seiders now predicts a turnaround in the latter half of this year, but other less-optimistic economists see no improvement until 2009 or later.

Frankly bewildered, huh? Wait til they're stunned and surprised. It'll be perceptible.

by Calculated Risk on 2/14/2008 09:59:00 PM

For a little evening reading, here is the 9 page Cerberus letter to investors (via the WSJ Deal Journal)

After sketching the grim state of affairs with references to the “liquidity crisis,” a “market panic” and a “widespread decline across all sectors,” Cerberus boss Steve Feinberg (pictured) and his co-founder William Richter addressed its highest-profile deals.

The bigger concern of the two: GMAC, the former lending arm of General Motors that finances billions of dollars worth of homes and cars. “We have significant concerns,” they write in this nine-page letter to their investors, which was first reported on by Bloomberg. “If the credit markets continue to decline and we find ourselves in a prolonged environment of capital market shutdown, GMAC could run into substantial difficulty.”

by Calculated Risk on 2/14/2008 05:57:00 PM

Patrick M. Parkinson, Deputy Director, Division of Research and Statistics testified today to Congress on Bond Insurance. Here are a few excerpts:

... downgrades [of bond insurers] might adversely affect financial stability through several channels. These include: (1) the potential for disruptions to municipal bond markets, (2) potential losses and liquidity pressures on banks and securities firms that have exposures to the guarantors, and (3) the potential for further erosion of investor confidence in financial markets generally.

Parkinson provides a discussion of what is happening in the muni bond market:

If guarantors are downgraded to below AA-, many money funds will be required to put tender option bonds and variable demand obligations back to the liquidity providers. Investors may also choose to put securities back in advance of potential downgrades. Indeed, some money market funds reportedly have already exercised this option with respect to securities insured by those guarantors with significant exposure to CDOs of subprime RMBS.

And on the banks:

Of greater concern is the potential for losses at banks that have hedged their holdings of super senior tranches of CDOs of ABS with credit protection purchased from the guarantors. These hedges lose value when the financial condition of the guarantors deteriorates. In fact, many banks already have written down the value of their hedges significantly to reflect the market view that some guarantors may not meet their obligations on the protection they sold to the banks. Thus, further downgrades of the guarantors may not necessarily require those banks to write down the value of their hedges significantly further. However, as long as the concerns about the ability of some guarantors to meet their obligations persist, any further declines in the value of the banks' holdings of CDOs of ABS will not be fully offset by increases in the value of their hedges.

Even if banks' losses from exposures to the guarantors are moderate relative to capital, banks could experience significant balance sheet and liquidity pressures if they take significant volumes of tender option bonds, variable-rate demand obligations, or ARS onto their balance sheets. The banks that have these exposures are currently well capitalized. However, if these banks take on significant-enough volumes of such securities, the resulting downward pressure on capital ratios might prompt some of them to raise additional capital or constrain somewhat the growth of their balance sheets to ensure that they remain well capitalized. Efforts to constrain the growth of their balance sheets could be reflected in somewhat tighter credit standards and terms for a variety of bank borrowers, including households and businesses. Many banks already have tightened lending standards and terms, likely in part because of balance sheet pressures associated with recent turmoil in financial markets. Further tightening would add to the financial headwinds that the economy already is encountering.

Part of the problem is no one knows how large the losses will be. As Parkinson notes, even moderate losses for the banks can result in further tightening and exacerbate the credit crunch.

by Calculated Risk on 2/14/2008 05:38:00 PM

From Jim Wasserman and Phillip Reese at the SacBee: Sacramento region foreclosures nearly equal home sales in January (hat tip Jesse)

In the most ominous indicator yet of the Sacramento region's struggling housing market, January saw nearly as many people lose their homes as buy them.

January's 1,815 closed escrows in Amador, El Dorado, Nevada, Placer, Sacramento, Yolo and Yuba counties was only 33 more than the 1,782 foreclosures recorded in the same counties that month, according to statistics from La Jolla-based DataQuick Information Systems of La Jolla and Foreclosures.com. of Fair Oaks.
...
The foreclosures -- more than 10,000 last year in the eight-county capital region -- are fast pushing down home sales prices.
...
Sacramento County's median sales prices for all new and existing homes are down a record 26.8 percent from January 2007, the firm reported. The county's $253,000 median sales price is down now 34.6 percent from an August 2005 high of $387,000.

We have to be a little careful using median home prices, since the mix of homes matters. But clearly foreclosures are impacting prices in the Sacramento region.

by Calculated Risk on 2/14/2008 03:15:00 PM

From Bloomberg: FGIC Insurance Credit Ratings Cut to A3 From Aaa By Moody's (hat tip John)

FGIC Corp.'s bond insurance units had their credit ratings cut six levels to A3 from Aaa by Moody's Investors Service.

``These rating actions reflect Moody's assessment of FGIC's meaningfully weakened capitalization and business profile resulting, in part, from its exposures to the U.S. residential mortgage market,'' Moody's said in a statement today.

by Calculated Risk on 2/14/2008 03:02:00 PM

From MarketWatch: Bond insurers have days to re-capitalize, Spitzer says

Bond insurers have four to five business days to re-capitalize themselves enough to keep their crucial AAA credit ratings, New York Governor Eliot Spitzer said during a Congressional hearing ... If that doesn't happen, regulators will have to step in and separate bond insurers' municipal businesses from their more troubled structured finance units.

The next few days should be interesting.

by Calculated Risk on 2/14/2008 01:59:00 PM

From DataQuick: Bay Area home sales lowest for any month in two decades

Bay Area home sales plunged below 4,000 transactions for the first time in over 20 years last month as the market remained hamstrung by the credit crunch and uncertainty among buyers, sellers and lenders. Price declines steepened, especially in inland markets hit hard by foreclosures, a real estate information service reported.

A total of 3,586 new and resale houses and condos sold in the Bay Area in January. That was down 29.2 percent from 5,065 in December, and down 41.9 percent from 6,168 in January 2007, DataQuick Information Systems reported.

Last month's sales were the lowest for any month in DataQuick's statistics, which go back to 1988. Sales have decreased on a year-over-year basis for 36 consecutive months. Prior to last month the slowest January was in 1995, when 4,326 homes sold. The strongest January, in 2005, posted 8,298 sales. The average for the month is 6,319 sales.

The median price paid for a Bay Area home was $550,000 last month, down 6.4 percent from $587,500 in December, and down 8.5 percent from $601,000 in January last year. Last month's median was 17.3 percent lower than the peak $665,000 median, last reached in July, and was the lowest since February 2005, when the median was $549,000.

... Foreclosure activity is at record levels, financing with adjustable-rate mortgages or with multiple mortgages has dropped sharply.
emphasis added