by Calculated Risk on 3/11/2008 09:30:00 AM

From the Federal Reserve:

Since the coordinated actions taken in December 2007, the G-10 central banks have continued to work together closely and to consult regularly on liquidity pressures in funding markets. Pressures in some of these markets have recently increased again. We all continue to work together and will take appropriate steps to address those liquidity pressures.

To that end, today the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing specific measures.

Federal Reserve Actions
The Federal Reserve announced today an expansion of its securities lending program. Under this new Term Securities Lending Facility (TSLF), the Federal Reserve will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally. As is the case with the current securities lending program, securities will be made available through an auction process. Auctions will be held on a weekly basis, beginning on March 27, 2008. The Federal Reserve will consult with primary dealers on technical design features of the TSLF.


In addition, the Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.

The actions announced today supplement the measures announced by the Federal Reserve on Friday to boost the size of the Term Auction Facility to $100 billion and to undertake a series of term repurchase transactions that will cumulate to $100 billion.

by Calculated Risk on 3/11/2008 01:30:00 AM

Toll Brothers SEC filing 10-Q:

We have investments and commitments to certain joint ventures with unrelated parties to develop land. These joint ventures usually borrow money to help finance their activities. In certain circumstances, the joint venture participants, including ourselves, are required to provide guarantees of certain obligations relating to the joint ventures. As a result of the continued downturn in the homebuilding industry, some of these joint ventures or their participants have or may become unable or unwilling to fulfill their respective obligations. In addition, we may not have a controlling interest in these joint ventures and, as a result, we may not be able to require these joint ventures or their participants to honor their obligations or renegotiate them on acceptable terms. If the joint ventures or their participants do not honor their obligations, we may be required to expend additional resources or suffer losses, which could be significant.

And on cancellatons (a key metric for inventory):

[B]ased on the high cancellation rates reported by us and by other builders, non-speculative buyer cancellations are also adding to the supply of homes in the marketplace.
...
[W]e generally do not begin construction of our single-family detached homes until we have a signed contract with the home buyer, although in fiscal 2006 and 2007, due to an extremely high cancellation rate of customer contracts and the increase in the number of attached-home communities that we were operating from, the number of speculative homes in our inventory increased significantly ...

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

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q4 2007, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

Click on graph for larger image.
For Q4 2007, Dr. Kennedy has calculated Net Equity Extraction as $76.3 billion, or 3.0% of Disposable Personal Income (DPI). Note that net equity extraction for Q3 2007 has been revised downwards to $119.3 billion.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income.

MEW was declining in Q4 2007, however, these numbers are not seasonally adjusted. MEW in Q4 2006 was $94.6 Billion, so MEW has only fallen 20% from Q4 2006.

As homeowner equity continues to decline sharply in the coming quarters, combined with tighter lending standards, equity extraction should decline significantly and impact consumer spending.

by Calculated Risk on 3/10/2008 07:04:00 PM

Here is the long version of Summers' speech.

Here is the short version video of Larry Summers' speech last week (11 minutes).

"We are in nearly unprecedented times with respect to the financial strains." Summers, March 7, 2008 at Stanford

Here is also US Treasury Secretary Henry Paulson also on March 7th at Stanford (13 minutes).

by Calculated Risk on 3/10/2008 02:46:00 PM

From Paul Jackson at Housing Wire: Fitch Downgrades National City, Wamu, Others on Home Equity Concerns

Deterioration within home equity portfolios will clearly emerge in first-quarter 2008,” the agency said in a press statement late Friday, “which is earlier than Fitch previously expected.”
...
“Home equity delinquency rates are rising at a far more rapid pace than even most bankers’ and analysts’ grim outlook for 2008 had anticipated,” it said. The agency characterized home equity loans originated by brokers, and located in a locale enduring swift price declines such as California, as “particularly toxic.”

HELOCs. Alt-As. We are all subprime now.

by Calculated Risk on 3/10/2008 02:01:00 PM

Last week, MBIA asked Fitch to withdraw ratings on several of its units.

Today Fitch responded (via MarketWatch): Fitch calls MBIA info destruction request 'disingenuous' (hat tip Charlie)

[Stephen Joynt, the chief executive of Fitch Ratings] told MBIA it was "considering" MBIA's request to withdraw IFS ratings, and that it was willing to waive rating fees.

Joynt also asked MBIA if they were asking S&P and Moody's to waive their fees.

For those with access, here is the Fitch response.

by Calculated Risk on 3/10/2008 12:31:00 PM

From CNNMoney: Moody's downgrades Alt-A deals

Moody's downgraded the ratings of 163 tranches from 15 deals issued by Bear Stearns ALT-A Trust, with 78 downgraded tranches remaining on review for possible further downgrades.

Moody's said the downgrades are based on 'higher-than-anticipated rates of delinquency, foreclosure and REO in the underlying collateral relative to credit enhancement levels.'

Also, former Bear Stearns CEO "Ace" Greenberg responded on CNBC to a rumor that Bear faced a liquidity crisis:

"It's ridiculous, totally ridiculous."

by Anonymous on 3/10/2008 11:20:00 AM

From Marketwatch:

Getting the FBI to do your due diligence doesn't seem like a particularly great business strategy.

by Anonymous on 3/10/2008 11:00:00 AM

by Calculated Risk on 3/10/2008 10:19:00 AM

From Bloomberg: Emerging-Market Bonds Rise on Speculation of Emergency Rate Cut

Emerging-market bonds rose following a Goldman Sachs Group Inc. research note suggesting that the Federal Reserve will cut rates before its scheduled meeting to shore up the U.S. economy.
...
Goldman joined several other analysts who say the Fed may lower interest rates today in ``a more aggressive response'' after the government said on March 7 that employers unexpectedly cut jobs in February for a second month.