by Calculated Risk on 12/20/2007 10:27:00 AM

Update: Housing Wire has more news stories, and recommends this Nomura piece to understand CDOs squared.

From Bloomberg: MBIA Bond Risk Soars on $8.1 Billion CDO Disclosure

MBIA Inc. tumbled ... after the world's biggest bond insurer revealed that it guarantees $8.1 billion of collateralized debt obligations repackaging other CDOs and securities linked to subprime mortgages.
...
MBIA posted a document on its Web site late yesterday showing it insured the so-called CDOs-squared, a potentially riskier form of security than what the company typically guarantees. Rising defaults on subprime mortgages packaged into securities have led to bond downgrades and threatened MBIA's AAA guaranty rating.

``We are shocked management withheld this information for as long as it did,'' Ken Zerbe, an analyst with Morgan Stanley in New York, wrote in a report yesterday. ``MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors.''

by Calculated Risk on 12/20/2007 09:46:00 AM

From the WSJ: Mortgage Bets Bite Bear Stearns

Bear Stearns Cos. posted its first quarterly loss in its 84-year history on higher-than-projected $1.9 billion in mortgage write-downs.

A billion here, a billion there ...

by Anonymous on 12/20/2007 09:23:00 AM

From the New York Times:

The Federal Reserve said on Wednesday that it had collected bids from 93 financial institutions in its first auction of short-term credit, a turnout that suggested banks might be more inclined to borrow from the Fed under its auction-based system.

Banks have typically feared negative reactions from investors when borrowing directly from the Fed, which some interpret as a sign of weakness. The auction, announced last week, tries to combat that stigma by offering banks the opportunity to borrow directly from the central bank in an anonymous forum and at a lower-than-usual interest rate.

God, grant me the capital to accept the things I cannot change; the reserves to change the things I can; and the Fed Auction when all that blows up. Amen.

by Calculated Risk on 12/19/2007 06:29:00 PM

From Bloomberg: S&P Cuts Alt-A Mortgage Bonds; Analysts Warn on Prime

Standard & Poor's reduced its ratings on about $7 billion of Alt-A mortgage securities, citing a sustained surge in delinquencies during the past five months on loans considered a step above subprime.
...
Since July, late payments on Alt-A loans in bonds issued in 2005 have increased 37.3 percent to 8.62 percent, while delinquencies for such mortgages in 2006 securities rose 62.1 percent to 11.64 percent, S&P said.

The article also has some analyst comments on prime loans:

Prime ``jumbo'' mortgages from recent years packaged into securities also have rising delinquencies that may create losses among some bonds with investment-grade ratings, according to reports yesterday by New York-based securities analysts at Credit Suisse Group and UBS AG. ...

``It's not just a subprime problem,'' Joshua Rosner, managing director at New York-based research firm Graham Fisher & Co., said ...

We are all subprime now.

by Calculated Risk on 12/19/2007 04:18:00 PM

From Bloomberg: D.R. Horton Credit Ratings Cut to Junk Status by Moody's (hat tip Matt)

D.R. Horton Inc., the fourth-largest U.S. homebuilder ... ratings were lowered to Ba1 on concern that a housing recovery won't begin before 2009 ...

The public builder BKs are coming. I'm not saying Horton will go BK, but more of the public builders probably will (like Levitt & Sons). There is simply too much capacity in the industry, plus too much debt, too much inventory, and poor demographics for housing in general. The next few years will be very difficult for the homebuilders, and I suspect 2008 will make 2007 look like a good year.