by Calculated Risk on 7/06/2009 11:54:00 AM

Just a quick update on the Term Asset-Backed Securities Loan Facility (TALF) for Commercial Mortgage Backed Securities (CMBS).

At the end of last week, the NY Fed announced a TALF CMBS auction on July 16th. The details are here.

Many market participants expected the Fed to include CMBS "originally rated AAA" because S&P has recently placed a large number of CMBS on watch for downgrade. This did not happen and is apparently a shock to many participants.

The Fed updated the terms and conditions. The Fed is really restricting legacy eligibility:

TALF loans for legacy CMBS will be usedrequired to fund recent secondary market transactions between unaffiliated parties that are executed on an arm’s length basis.

One participant told me that all potential trades are being heavily scrutinized too:

"[Y]ou cannot leverage a bond you already own, and you can't sell and buyback a bond you already own to create a trade. That's an interesting twist."

Clarification: July 16 is the first operation for Legacy TALF, which provides loans against Legacy CMBS securities. Legacy securities were issued before January 1 2009.

The new issue CMBS program, for securities issued after January 1 2009, started in June.

The first TALF CMBS auction on June 16th attracted no interest.

by Calculated Risk on 7/06/2009 10:03:00 AM

From the Institute for Supply Management: June 2009 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector contracted in June, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

"The NMI (Non-Manufacturing Index) registered 47 percent in June, 3 percentage points higher than the 44 percent registered in May, indicating contraction in the non-manufacturing sector for the ninth consecutive month, but at a slower rate. The Non-Manufacturing Business Activity Index increased 7.4 percentage points to 49.8 percent. The New Orders Index increased 4.2 percentage points to 48.6 percent, and the Employment Index increased 4.4 percentage points to 43.4 percent. The Prices Index increased 6.8 percentage points to 53.7 percent in June, indicating an increase in prices paid from May. This is the first time the index has registered above 50 percent since October 2008. According to the NMI, six non-manufacturing industries reported growth in June. Respondents' comments continue to be mixed and tend to be industry- and company-specific about business conditions."

The service sector is still contracting but at a slightly slower pace than in May. Not exactly a green shoot.

by Calculated Risk on 7/06/2009 09:03:00 AM

From the NY Times: Court Ruling Clears Path for G.M. to Restructure

A federal judge approved a plan by General Motors late on Sunday to sell its best assets to a new, government-backed company ...

In his 95-page opinion, Judge Gerber wrote that he agreed with G.M.’s main contention: that the asset sale was needed to preserve its business in the face of steep losses and government financing that is scheduled to run out by the end of the week.

“Bankruptcy courts have the power to authorize sales of assets at a time when there still is value to preserve — to prevent the death of the patient on the operating table,” Judge Gerber wrote.
...
Other groups, including those representing product liability claims and asbestos litigants, ... fought against G.M.’s plan. Under the terms of the sale, most of those claims would remain with the remnants of G.M. in bankruptcy, meaning they were likely to recover little, if anything.

The ruling is being appealed.

This was quick - GM filed for bankruptcy on June 1st.

by Calculated Risk on 7/06/2009 12:27:00 AM

The scamsters are thriving ...

From Jessica Garrison at the LA Times: In California, mortgage scammers find easy pickings

Maricela Castellanos sat at her desk, the telephone pressed to her ear, a chill running through her body.

A representative from her mortgage company was on the line with troubling information about the loan on Castellanos' Hesperia home.

No one at the company had previously been in contact with her, Castellanos recalled the man saying. The bank had no record of a new loan agreement with her, he said, nor had it received cashier's checks for $2,260 and $1,408.23 she said she had sent.

Castellanos had been a victim of an alleged loan modification swindle -- a financial crime in which scammers pretend to help distressed borrowers renegotiate their mortgages with their banks but instead pocket the money and leave the homeowners in worse straits than before.

Law enforcement officials say the scams are becoming increasingly prevalent, especially in California, where the Department of Real Estate has reported an explosion from 10 open cases a year ago to more than 750 this spring. Nationally, U.S. Atty. Gen. Eric Holder has said that the FBI's "rescue scam" caseload is up 400% from five years ago.

These scamsters pretended to be from Castellanos bank. They offered her an attractive loan modification that lowered her monthly payments, and instructed her to send the payments to a "Payment Processing Department" at a P.O. Box. They even had a 1-800 number. Amazing.

by Calculated Risk on 7/05/2009 10:13:00 PM

"There are many voices saying that the worst of the downturn is over, but there is no room for complacency."
...
If we do not take the necessary action now to strengthen the world economy and put in place the conditions for sustainable world growth, we will be confronted with avoidable unemployment for years to come."

Gordon Brown, July 6, 2009

From The Times: Recession may get worse, Gordon Brown warns world leaders

The worst of the recession may be yet to come and world leaders are in danger of hampering the recovery, Gordon Brown will say today.

As he begins a week of meetings with world leaders, the Prime Minister will strike an unexpectedly gloomy note about the prospects of an upturn and will demand that fellow heads of government “sound a second-wake up call for the world economy”.
...
Mr Brown will also say that although public finances need to be sustainable in the long term, “now is not the time for fiscal contraction”.

Maybe Brown was reading Roubini!