by Calculated Risk on 10/03/2007 08:28:00 PM

From the Telegraph: Dollar's double blow from Vietnam and Qatar

The Saigon Times said this morning that the State Bank of Vietnam was abandoning the attempt to hold down the Vietnamese currency through heavy purchases of dollars. The policy is causing the economy to overheat, driving up inflation to 8.8pc.

Vietnam, which has mid-sized reserves of $40bn, is seen as weather vane for the bigger Asian powers.

...Separately, the gas-rich Gulf state of Qatar announced that it had cut the dollar holdings of its $50bn sovereign wealth fund from 99pc to 40pc, switching into investments in China, Japan, and emerging Asia.
..
The drastic shift by the Qatar Investment Authority is a warning that petro-dollar powers with some $3,500bn under management may pull the plug on the heavily endebted US economy.

An insightful blog to read on these issues is Brad Setser's Blog; in his own words, Brad has been "reserve-obsessed for quite some time now".

by Calculated Risk on 10/03/2007 04:25:00 PM

From Fitch Ratings: Fitch Completes U.S. 2006 Subprime RMBS Review (hat tip bacon dreamz)

Fitch Ratings-New York-03 October 2007: Fitch Ratings has completed the 're-rating' of its rated universe of 2006 vintage U.S. Subprime RMBS transactions. ...

Fitch initiated a review of subprime RMBS ratings in July 2007 due to the unprecedented reversal in home prices and the resulting impact on high-risk mortgage products. In August, Fitch began taking rating actions on some of the worst performing subprime transactions. Upon conclusion of the initial review, Fitch proactively has re-rated its entire universe of rated 2006 vintage subprime RMBS transactions. This review was completed in September.

Fitch's rated universe of 2006 vintage subprime is 228 transactions comprised of 3,231 rated classes with an outstanding balance of $173 billion.

Fitch's most severe rating actions affected a sub-sector of the subprime market, those RMBS transactions exclusively backed by closed-end second-lien loans (CES). These RMBS comprise 274 rated classes with a par balance of $6.6 billion. Fitch has downgraded 32 of 51'AAA' CES classes from this cohort. Investors should note, that Fitch has affirmed 100% of its 'AAA' ratings backed primarily by first-liens. First-lien transactions make up the largest segment of the market.

For first- and second-lien transactions combined, Fitch has affirmed 2,228 classes with a par balance of $155.1 billion and downgraded 1,003 classes with a par balance of $18.4 billion. While Fitch's reviewed all rating categories, downgrades were most heavily concentrated among classes originally rated 'BBB+' or lower. Fitch believes that those classes that have been downgraded to below-investment grade have substantial risk of principal loss. However those bonds remaining investment grade still exhibit the ability to withstand the higher projected collateral default and loss expectations without principal loss. Those classes affirmed at 'AAA' are able to withstand a substantial multiple of expected collateral performance without experiencing loss.

Fitch will continue to actively monitor the performance of the 2006 subprime RMBS as part of its normal monthly review cycle. Fitch is currently reviewing subprime RMBS ratings from the first quarter of 2007.

And from Bloomberg: Fitch Downgrades $18.4 Billion of 2006 Subprime Bonds (hat tip energyecon)

Fitch rated 51.3 percent of all subprime mortgage bonds in 2006 compared with more than 96 percent each for Moody's and S&P, according to industry newsletter Inside B&C Lending.

So Fitch only rated about half the 2006 subprime mortgage bonds.

by Calculated Risk on 10/03/2007 03:26:00 PM

From the Financial Times: Mortgage lenders face subprime ‘traffic jam’ (hat tip James)

US mortgage companies are being overwhelmed by the large numbers of homebuyers who need to renegotiate their loans to avoid default, creating a “subprime traffic jam” that could frustrate efforts by regulators to prevent foreclosures, experts say.
...
“Servicers have failed because there’s a huge resourcing issue,” said Barefoot Bankhead, managing director at Navigant Consulting. “As lenders have gone out of business, the servicing arms have been in transition without the resources to handle the enormous number of requests for loan modifications and restructuring.”

The problem could grow more severe as more than $350bn in adjustable-rate mortgages reset at higher rates in the next 18 months.

by Calculated Risk on 10/03/2007 01:23:00 PM

From the San Jose Mercury News: Home appraisers pushed to inflate values

Pushed to exaggerate home values during Silicon Valley's real estate run-up, appraisers say agents and homeowners are now pressuring them to prop up those values as prices decline.

People "are trying to refinance to get their butts out of trouble, and the values aren't there," said Mike Terry of MK Terry Appraisals, who appraises homes in San Mateo County.

... Many appraisers say they routinely feel some pressure to inflate home values. A national industry survey shows that the number reporting such pressure has grown by more than half over the past four years.
...
"Exaggerated appraisals are not the entire reason these agencies and financial institutions are in financial distress, but they are a piece of the puzzle," said John Brenan, director of research and technical issues for the Appraisal Foundation.

..."What a lot of them do is what I call dialing for dollars," said Jim Manning, a semiretired appraiser with 32 years in the business who lives in Half Moon Bay. "They get on the phone and start dialing appraisers, asking, 'Who can come up with this value,' and 'We don't want it if you can't.'

by Calculated Risk on 10/03/2007 10:56:00 AM

Professor Hamilton looks at auto sales and more.

We've been dwelling here quite a bit on the bleak incoming housing data. But I have to admit that I'm not seeing that spilling over so far into some of the other key economic indicators.

Auto sales usually fall a bit between August and September, and perhaps declined slightly more than normal this fall, with total light vehicles sold in the U.S. in September down 3% from September 2006.

...taking August and September together, I think we can safely say that the bottom did not fall out of the market in some kind of psychological reaction to events in mortgage and financial markets over the last two months.

See Hamilton's post for graphs of auto sales.