by Calculated Risk on 3/12/2007 06:19:00 PM

CR Note: To put the title into context, last December during the Toll Brothers conference call, Ivy Zelman asked CEO Bob Toll:

"Which Kool-aid are you drinking?"

From Tanta:

Ivy Zelman and several colleagues at Credit Suisse have put together a very big and highly detailed equity research report called “Mortgage Liquidity du Jour: Underestimated No More,” which unfortunately is not available on the free internet. Although the title may suggest otherwise, the report is not really about mortgage credit issues; it is an attempt to look at the rapidly deteriorating conditions in the mortgage market for their impact on homebuilders, which are the equities Zelman covers. (Sure, CR basically has already done exactly this analysis, but Zelman has the advantage of access to databases and CSFB’s mortgage industry analysts.) The upshot is that Zelman is not drinking the kool aid that the problems are limited to subprime only, or entry-level housing only, or are going to be over any time soon.

First, the report looks at overall recent trends in the large categories of general credit quality (prime, Alt-A, and subprime):

See document here. Just the leads are in this post to let the reader find the text.

The overall share of prime conventional loans . . .

The report then summarizes the current situation of guideline tightening and regulatory changes that are contracting the mortgage market (a familiar list of items to CR readers). It concludes that

[T]ightening liquidity puts current builder backlogs at considerable risk ...

Moving beyond changes in the origination market, the report looks at issues of performance of the current mortgage book for its further impact on new home sales:

We estimate that there are approximately 565,000 homes in the foreclosure process...

Finally, the report turns consideration of this data into a set of projections of the effect on new and existing home sales:

In our base case, we assume that 50% of the subprime market is at risk, . . .

by Calculated Risk on 3/12/2007 03:46:00 PM

From CNNMoney (hat tip Anthony): Countrywide may feel subprime earnings drag

Countrywide told its brokers Friday to stop offering borrowers the option of taking out a mortgage without a down payment ...

UPDATE: From Reuters: Countrywide says subprime turmoil may harm results

Countrywide Financial Corp. ... said on Monday that foreclosures rose to a five-year high and turmoil in the subprime market may hurt earnings ...

The increase in foreclosures is the latest sign of stress in the mortgage lending sector, which is struggling with mounting losses and rising defaults.
...
Countrywide said the foreclosure rate rose to 0.70 percent from January's 0.69 percent and last February's 0.47 percent.

It also said 4.71 percent of loans were at least 30 days past due, the same as in January and up from 4.29 percent last February. The rate matched the second-highest level over the last five years.

And from the Broker's Grapevine (caution should be used when reading these posts): Is Countrywide subprime no longer in business?

I just looked at the matrix. Max CLTV for any score or doc type subprime is 90%.
by Kyle@CreveCor March 12, 2007
--------------------------------------------------------------------------------

my rep says they got rid of middle management. and cutting reps from 9 to 4. said a 80/20 the first will have a rate of around 10%. hang on ya´ll
by diva for loans March 12, 2007
--------------------------------------------------------------------------------

I was an AE with them....I was let go as of this morning. From what I understand, about 70% of the outside sales force was fired today. On top of that a lot of the middle management was fired as well. Next step will of course be Ops staff.

Not sure if they´ll stick around or not...but they will be much smaller than before.

by MakinDreams March 12, 2007
--------------------------------------------------------------------------------

by Calculated Risk on 3/12/2007 02:26:00 PM

For discussion, Tanta asked that I reference this chart from Credit Suisse: Segmentation of Outstanding First-Lien Residential Mortgage Debt. See page 28 (exhibit 21) here.


Note that this is First-Lien only.


Tanta will have more later today.

by Calculated Risk on 3/12/2007 12:36:00 PM

In a research note this morning, titled "Mortgage Liquidity du Jour: Underestimated No More", Ivy Zelman, et. al. at Credit Suisse wrote "it’s not just a subprime issue."

"Not just a subprime issue." More supply. Lower demand. Lower prices.

For those in the housing industry, 2007 will make 2006 look like a great year.

by Calculated Risk on 3/12/2007 11:04:00 AM

From CNNMoney: Embattled subprime lender says its lenders are cutting off financing; faces $8.4 billion in obligations.

Embattled mortgage lender New Century Financial Corp. warned Monday of a series of serious financial problems that cast its future in doubt - and cast a pall over much of the nation's financial sector.

The Irvine, Calif.-based company, No. 2 in lending to borrowers with weak credit, said that all of its own lenders are cutting off financing, that it has been found in default of many of its financial agreements, and that it does not have the funds necessary to meet its obligations under current circumstances.

New Century Financial detailed a new series of financial problems in a filing with the Securities and Exchange Commission early Monday.

In addition, the company said it does not expect to meet the March 16 extension for filing a 10-K annual financial report with the Securities and Exchange Commission.

Here is the SEC filing.