by Calculated Risk on 12/20/2007 07:23:00 PM

Press Release via MarketWatch: MBIA Further Addresses Previously Disclosed $30.6 Billion Multi-Sector CDO Exposure

MBIA Inc. has announced that in response to media and other inquiries received as a result of information the Company posted on December 19, 2007 on its Web site relating to its collateralized debt obligations ("CDO") exposure, the Company is issuing the following statement:

The information posted on December 19, 2007 discloses no additional Multi-Sector CDO exposure. The information provides detail on the composition of MBIA's $30.6 billion Multi-Sector CDO exposure that had previously been provided in its Operating Supplement. MBIA discussed its exposure to CDO transactions with inner CDOs ("CDO-Squared") during a conference call for investors on August 2, 2007.

Standard & Poor's, Moody's and Fitch have confirmed that this information was provided to them and was taken into consideration in their recent ratings analyses. The information was also made available to Warburg Pincus prior to their entering into the previously disclosed Investment Agreement, and that agreement is not affected by this information.

by Calculated Risk on 12/20/2007 05:38:00 PM

Press Release: Fitch Places 173,022 MBIA-Insured Issues on Rating Watch Negative (hat tip Mike)

Concurrent with its related rating announcement earlier today on MBIA Inc. (MBIA) and its financial guaranty subsidiaries, Fitch Ratings has placed 173,022 bond issues (172,860 municipal, 162 non-municipal) insured by MBIA on Rating Watch Negative.

Only 173,022 issues. Ho-hum.

by Calculated Risk on 12/20/2007 04:00:00 PM

Within the next couple of years, probably somewhere between 10 million and 20 million U.S. homeowners will owe more on their homes, than their homes are worth. (See Homeowners With Negative Equity)

One of the greatest fears for lenders (and investors in mortgage backed securities) is that it will become socially acceptable for upside down middle class Americans to walk away from their homes.

See these comments from Bank of America CEO Kenneth Lewis via the WSJ: Now, Even Borrowers With Good Credit Pose Risks

"There's been a change in social attitudes toward default," Mr. Lewis says. Bankers typically have believed that cash-strapped borrowers would fall behind on their credit cards, car payments and other debts -- but would regard mortgage defaults as calamities to be avoided at all costs. That isn't always so anymore, he says.

"We're seeing people who are current on their credit cards but are defaulting on their mortgages," Mr. Lewis says. "I'm astonished that people would walk away from their homes." The clear implication: At least a few cash-strapped borrowers now believe bailing out on a house is one of the easier ways to get their finances back under control.

... there is a new class of homeowners in name only. Because these people never put up much of their own money, they don't act like owners, committed to their property for the long haul.

If every upside down homeowner resorted to "jingle mail" (mailing the keys to the lender), the losses for the lenders could be staggering. Assuming a 15% total price decline, and a 50% average loss per mortgage, the losses for lenders and investors would be about $1 trillion. Assuming a 30% price decline, the losses would be over $2 trillion.

Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion (far in excess of the $70 to $80 billion in losses reported so far).

by Calculated Risk on 12/20/2007 03:21:00 PM

From MarketWatch: Fitch puts MBIA on ratings watch negative after CDO review

Fitch Ratings put several ratings of MBIA Inc. on Rating Watch Negative on Thursday because of the bond insurer's exposure to structured finance collateralized debt obligations ...

Yes, more "closing the barn door".

by Calculated Risk on 12/20/2007 03:10:00 PM

From DataQuick: Bay Area home sales stuck at two-decade low; price picture mixed

The Bay Area's housing market remained in a bit of deep freeze in November, when sluggish demand kept sales at a two-decade low for the third straight month. Prices continued to hold up best in the region's core markets, while some outlying areas posted more double-digit annual declines, a real estate information service reported.

A total of 5,127 new and resale houses and condos sold in the Bay Area in November. That was down 6.5 percent from 5,486 in October, and down 36.2 percent from 8,042 in November 2006, DataQuick Information Systems reported.

Sales have decreased on a year-over-year basis for 34 consecutive months. Last month was the slowest November in DataQuick's statistics, which go back to 1988. Until last month, the slowest November was in 1990, when 6,015 homes sold. The strongest November, in 2004, saw 11,906 sales. The average for the month is 8,367.
...
The median price paid for a Bay Area home was $629,000 last month, down 0.3 percent from $631,000 in October, and up 1.5 percent from $620,000 in November last year. Last month's median was 5.4 percent lower than the peak median of $665,000 reached last June and July.

Prices in the core metro markets close to large job centers or the coast are holding up relatively well, while areas far from the core are experiencing the most price erosion. Individual counties have seen their median prices decline from peak levels by as little as 2.4 percent in San Francisco and by as much as 21.9 percent in Solano.
...
Foreclosure activity is at record levels ...