by Calculated Risk on 7/10/2008 03:00:00 PM

Peter Viles at LA Times brings us another of his series on foreclosed properties in the LA area.

Peter features one on his blog L.A. Land: In Fontana, foreclosure discounts hit 50%. Check it out.

Here is another example - this one is in Lake Elsinore, an exurb of Los Angeles. This is one of the areas getting hit hard by the housing bust and high gas prices (because of the commute).

3313 Banyon Circle, Lake Elsinore 92530

Agent's description: "This 5 Bdrm, 4 BA gem is located in the Alberhill Ranch community. Boasts granite countertops, upgraded cabinets & stainless steel appliances. Travertine tile throughout downstairs, bathrooms & laundry room."

• Sales history from Redfin.com: Sold for $570,000 in August 2006

• Current listing price: $349,500

• Discount from sales price: 38.6%

by Calculated Risk on 7/10/2008 01:38:00 PM

From the WSJ: Senate Housing Rescue Bill Edges Closer to Passage

The Senate voted resoundingly Thursday to push closer to passage a massive mortgage rescue to help hundreds of thousands of stressed homeowners, even as the bill faced new obstacles in the House.

By a vote of 84-12, the Senate cleared away the last procedural hurdle hindering the measure, putting the election-year aid package on track for approval as early as Thursday afternoon.

by Calculated Risk on 7/10/2008 12:04:00 PM

From Nemo, CNBC's David Faber reacts to the decline in the Freddie Mac share price (37 seconds):

by Calculated Risk on 7/10/2008 10:38:00 AM

From MarketWatch: Lehman shares dive on fresh credit, mortgage fears

Click on graph for larger image in new window.

Cliff diving from Yahoo Charts.

This isn't a stock blog, but these are three critical companies right now in the credit and mortgage crisis.

by Calculated Risk on 7/10/2008 10:06:00 AM

From the WSJ: Bernanke, Paulson Push For New Regulatory Powers

Treasury Secretary Henry Paulson ... made a point to address the issue of Fannie Mae and Freddie Mac.
...
They play an important role in our housing markets today and need to continue to play an important role in the future," Mr. Paulson said. He noted that the firms' regulator, the Office of Federal Housing Enterprise Oversight, stressed earlier this week that "they are adequately capitalized."

Mr. Paulson also said the collapse of Bear Stearns and the ongoing market turmoil have "convinced me that we must move much more quickly to update our regulatory structure and improve both market oversight and market discipline."
...
"For market discipline to be effective, market participants must not expect that lending from the Fed, or any other government support, is readily available," Paulson said. Added Mr. Paulson, "For market discipline to effectively constrain risk, financial institutions must be allowed to fail."

Here is Bernanke's testimony (just a repeat of earlier comments)

Note: the collapse in Fannie (off 15%) and Freddie (off 23%) stock prices continues this morning.

by Calculated Risk on 7/10/2008 09:10:00 AM

From Bloomberg: U.S. Foreclosures Rose 53% in June, Bank Seizures Almost Triple

U.S. foreclosure filings rose 53 percent in June from a year earlier and bank repossessions almost tripled ... More than 252,000 properties, or one in every 501 U.S. households, were in some stage of foreclosure, [said] RealtyTrac Inc. ... Filings fell 3 percent from May.
...
``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in ... said in an interview.

by Calculated Risk on 7/10/2008 12:23:00 AM

From Bloomberg: Fannie Mae, Freddie Losses Make Them `Insolvent,' Poole Says (hat tip Dwight)

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in an interview.

And Fannie and Freddie are on page 1 of the WSJ: U.S. Mulls Future of Fannie, Freddie

The Bush administration has held talks about what to do in the event mortgage giants Fannie Mae and Freddie Mac falter ... The government doesn't expect the entities to fail and no rescue plan is imminent ... Treasury officials are nonetheless talking about what the government could -- or should -- do if Fannie and Freddie become so pressed that they are unable to borrow money and continue operating.

It seems like everyone is piling on ...

by Calculated Risk on 7/09/2008 09:20:00 PM

A conversation with Jamie Dimon (Part I): (hat tip Dave)

Note: this is long but worth the time.



A continued conversation with Jamie Dimon (Part II) NOTE: Dimon starts at 43+ minutes into the 2nd video:

by Calculated Risk on 7/09/2008 06:42:00 PM

Yesterday we focused on strip malls, and the probable impact on malls of the imminent Steve & Barry's BK (now official). For more on the impacts on malls, see this story from MarketWatch: Steve & Barry bankruptcy further pressures malls

Lets look at lodging today. A Goldman Sachs research note out this afternoon mentioned that the average US hotel occupancy rate over the last four weeks was 65.9%, down three percentage points from the same period one year ago. Goldman further noted that YoY comparisons of vacancy rates have been deteriorating all year.

This is more bad news for commercial real estate construction. Based on the recent building boom, lodging was even more of a bubble than multimerchandise shopping!

Click on graph for larger image in new window.

This graph shows the investment in office buildings, multimerchandise shopping, and lodging over the last ten years (as a percent of GDP). Note: data from the BEA. The BEA started breaking out office and multimerchandise shopping in 1997.

Lodging and multimerchandise shopping saw the largest percentage booms, while office space was less than the office boom in the late '90s. These are the three categories of commercial construction that are probably the most overbuilt - and will probably see the biggest declines in investment.

This data fits with the forecast from American Institute of Architects chief economist Kermit Baker:

"On the commercial side, best I can tell the problems are in all of it - offices, retail, hotels. I think we will see a prolonged decline."
Kermit Baker, CNNMoney May 17, 2008

"[W]e’ve seen a dramatic contraction in design activity in recent months. ... This weakness in design activity can be expected to produce a contraction in [commercial and multifamily] construction sectors later this year and into 2009.”Kermit Baker, June 18, 2008

by Calculated Risk on 7/09/2008 04:52:00 PM

From Fortune: The Fannie and Freddie doomsday scenario

Here's a scary, and relevant, question to ponder as the housing market continues to slide: What would it take for the government to step in and help Fannie Mae and Freddie Mac, and how would a rescue affect you, the taxpayer?

Although S&P argues it is unlikely that either Fannie or Freddie will fail, one thing is pretty certain - there is no way politically that Fannie and Freddie would be allowed to fail.

So what might it look like if the government had to lend a hand? Outright nationalization is an unlikely option given that neither the current administration nor the presidential candidates could afford to support such a move in an election year.

More likely, the Treasury Department or the Federal Reserve would come in and provide a liquidity backstop, in the form of a loan or guarantee to bondholders that they will be paid.

Some investors apparently don't think the government will guarantee Fannie and Freddie debt since the (link fixed) spreads to treasuries on Fannie two year notes are at record levels. An explicit loan guarantee would reduce the borrowing costs for Fannie and Freddie, and reduce mortgage rates. Of course this would probably mean the end of the dividend (both companies pay hefty dividends) until the loan guarantees are lifted, possibly a change in management, and would still require raising more dilutive capital. No wonder Fannie and Freddie equity investors are scared.

Mish argues that the Nationalization of Fannie and Freddie is unavoidable.