by Anonymous on 3/07/2008 07:00:00 AM

It's official:

See AP story on Thornburg Mortgage: NEW YORK

by Anonymous on 3/07/2008 06:18:00 AM

I will have you know I did not make that up. I made up "Loans Formerly Known as Jumbo" or LFKAJ. But the OFHEO press release actually says "temporary jumbo conforming loan limits." TJC it is.

So, TJCs are here. Specifically, the loan balance limits are here. No word yet on what delightful LTV the GSEs will cap them at, or when such information will be available.

Many more MSAs are impacted than I originally predicted. I guess the time HUD put into establishing a brand-new home price model was well spent.

New limits by MSA are here.

by Anonymous on 3/07/2008 05:51:00 AM

From the Seattle Times:

WaMu has revised its bonus plan for nearly 3,000 top executives so continuing damage from the subprime-lending collapse won't crimp their annual awards.

The struggling Seattle-based lender said in a regulatory filing Monday it will exclude the cost of soured real-estate loans and foreclosure expenses when it calculates net operating profit, the biggest component of executives' 2008 bonuses.

Other changes to the bonus plan also appear to reduce the impact of troubled parts of its business, while giving a bigger role to factors that are less problematic.

The 2008 bonuses will be based on these criteria:

• Net operating profit, 30 percent — with loan losses and expenses related to foreclosed real estate excluded.

• Noninterest expense, 25 percent — again, excluding expenses related to business restructuring and foreclosed real estate.

• Fees from retail banking — a new factor, weighted at 25 percent. Many banks including WaMu have been increasing fees for services such as ATM withdrawals by noncustomers to compensate for losses in other areas.

• Customer-loyalty performance, 20 percent — an increase from 10 percent in the 2007 bonus plan.

In a prepared statement, WaMu said, "The success with which credit costs are managed will unequivocally continue to be a major part of the board's final deliberations."

Spokeswoman Libby Hutchinson said the bonus plan covers almost 3,000 people in WaMu management, many of whom are not directly involved in lending.

But Fred Whittlesey, a Bainbridge Island compensation consultant, questioned why awards for Killinger and the three other top executives named in the plan aren't tied directly to earnings.

"If (they) are not responsible for bank profitability, who is? There's no reason they should be insulated from expenses they created," he said.

The bank has said bonuses, long-term stock awards and other parts of its compensation plan are important to retaining executives.

In January, WaMu said Killinger would receive 3.2 million stock options to vest in coming years, providing him "a strong incentive to restore shareholder value."

But Cannon said WaMu's highest executives shouldn't require such incentives.

"We are somewhat surprised that top management needs extra compensation in order to be retained," he wrote.

I personally would offer these guys $500 cash for their keys. But I have been known to take a hard line with speculators. As, of course, has our Mr. Paulson. Paging Mr. Paulson!

by Calculated Risk on 3/06/2008 10:52:00 PM

Here are a couple of overview articles tonight ...

Floyd Norris at the NY Times writes: Aversion to Risk Deepens Credit Woes

And from Sudeep Reddy and Sara Murray at the WSJ: Housing, Bank Troubles Deepen

by Calculated Risk on 3/06/2008 05:24:00 PM

From Bloomberg: Agency Mortgage-Bond Spreads Rise; Markets `Utterly Unhinged'

Yields on agency mortgage-backed securities rose to a new 22-year high relative to U.S. Treasuries as banks stepped up margin calls and concerns grew that the Federal Reserve may be unable to curb the credit slump.

The difference in yields, or spread, on the Bloomberg index for Fannie Mae's current-coupon, 30-year fixed-rate mortgage bonds and 10-year government notes widened about 21 basis points, to 237 basis points, the highest since 1986 and 103 basis points higher than on Jan. 15. ...

The markets have become ``utterly unhinged,'' William O'Donnell, a UBS AG government bond strategist ...

Doesn't this feel like last February and March when the subprime market imploded? Except the problems in 2008 are more widespread.

by Calculated Risk on 3/06/2008 04:10:00 PM

UPDATE: Via Housing Wire: Citi's intent is to let their existing portfolio run off, and the $45 billion is the runoff estimate for the next 12 months.

Citi Press Release: Citi Strengthens U.S. Residential Mortgage Business

Citi today announced it intends to reduce residential mortgage assets in its U.S. mortgage business by approximately $45 billion over the next 12 months, a 20 percent decrease from December 2007 levels, and will cut the amount of new loans to be held in portfolio by more than 50 percent in the next year.

by Calculated Risk on 3/06/2008 03:52:00 PM

From Reuters: Bond insurer CIFG loses top rating from Moody's (hat tip tj & the bear)

Moody's cut CIFG's insurance financial strength rating four notches from "AAA" to "A1" ...

Just more write-downs coming ...

by Anonymous on 3/06/2008 02:55:00 PM

I feel a little vindicated by this, as I have been arguing something similar for months now. From the LAT:

A judge declined to sanction Countrywide Financial Corp. on Wednesday for its handling of a borrower's bankruptcy case, saying errors by the lender, including allegedly improper or unexplained fees, didn't reflect bad faith.

But Judge Jeff Bohm of U.S. Bankruptcy Court in Houston said he was disheartened that Countrywide and its lawyers showed "a disregard for the professional and ethical obligations of the legal profession and judicial system."

In a 72-page opinion, the judge said he did not find "clear and convincing" evidence that Countrywide's conduct "transcended from merely negligent bungling to full-blown bad faith." He urged the Calabasas-based company, however, to "reevaluate its policies and procedures" so that its actions wouldn't "undermine the integrity of the bankruptcy system."

Countrywide faces increasing pressure to clean up alleged excesses in servicing home loans, including those of borrowers in bankruptcy.

In the last week, a part of the Justice Department that oversees bankruptcy proceedings has sued Countrywide at least twice, seeking sanctions for alleged abuses.

Countrywide representatives couldn't be reached for comment, nor could a lawyer for the borrower, William Parsley, a resident of Willis,Texas.

Maybe now we can begin to take seriously the structural issues within the mortgage servicing industry that lead to this kind of negligent bungling? A girl can dream . . .

by Calculated Risk on 3/06/2008 02:20:00 PM

One of the headlines from the Fed's Flow of Funds report this morning was that household percent equity had fallen to a record low 47.9%. This is a simple calculation: divide home mortgages ($10,508.8 billion) by household real estate assets ($20,154.7 billion) gives us the percent mortgage debt (52.1%). Subtract from one gives us the percent homeowner equity (47.9%).

But what does this tell us?

What we really want to know is how much more equity can be borrowed on U.S. household real estate. According to the Census Bureau, 31.8% of all U.S. owner occupied homes had no mortgage in 2006 (most recent data). These homeowners tend to be older, or more risk adverse, and few of them will probably borrow from their home equity.

You can't do a direct subtraction because the value of these paid-off homes is, on average, lower than the mortgaged 68.2%. But we can construct a model based on data from the 2006 American Community Survey (see table here).

Click on graph for larger image.

This graph shows the distribution of U.S. households by the value of their home, with and without a mortgage. This data is for 2006.

By using the mid-points of each range, and solving for the price of the highest range to match the then Fed's estimate of household real estate assets at the end of 2006: $20.6 Trillion, we can estimate the total dollar value of houses with and without mortgages.

Using this method, the total value of U.S. houses, at the end of 2006, with mortgages was $15.27 Trillion or 74.2% of the total. The value of houses without mortgages was $5.32 Trillion or 25.8% of the total U.S. household real estate.

Assuming 74.2% of total assets is for households with mortgages ($14,954.8 billion), and since all of the mortgage debt ($10,508.8 billion) is from the households with mortgages, these homes have an average of 29.7% equity. It's important to remember this includes some homes with 90% equity, and 8.8 million homes with zero or negative equity (8.8 million estimate from Mark Zandi at economy.com).

by Calculated Risk on 3/06/2008 12:27:00 PM

The Fed released the Q4 Flow of Funds report today: Flow of Funds.

The Fed report shows that household real estate assets decreased from $20.325 Trillion in Q3 to $20.155 Trillion in Q4. That is a decline of $170.2 billion.

When we subtract out new single family structure investment and residential improvement, the value of existing household real estate assets declined by $282 Billion.

The simple math: Decrease in household assets: $20,154.7 billion minus $20,324.9 billion equals minus $170.2 billion. Now subtract investment in new single family structures ($259.7 Billion Seasonally Adjusted Annual Rate) and improvements ($187.2 Billion SAAR). Note: to make it simple, divide the SAAR by 4.

Finally negative $170.2B minus $259.7/4 minus $187.2B/4 equals a decline in existing assets of $282 Billion.

Household percent equity was at an all time low of 47.8%.

Click on graph for larger image.

This graph shows homeowner percent equity since 1952. Even though prices have risen dramatically in recent years, the percent homeowner equity has fallen significantly (because of mortgage equity extraction 'MEW'). With prices now falling - and expected to continue to fall - the percent homeowner equity will probably decline rapidly in the coming quarters.

Note: approximately 31% of household have no mortgage. So the 50+ milllion households with mortgage have far less equity than 47.8%.

The second graph shows household real estate assets and mortgage debt as a percent of GDP. Household assets as a percent of GDP is now declining, although mortgage debt as a percent of GDP still increased slightly in Q4.

This is just the beginning. If house prices fall 20%, households will lose $4 trillion in equity. If they fall 30%, households will lose $6 trillion in equity.