by Calculated Risk on 11/26/2009 02:45:00 PM

Happy Thanksgiving! Make sure to check out the previous post on Dubai.

by Calculated Risk on 11/26/2009 11:01:00 AM

No one saw this coming ...

From Bloomberg: Dubai Debt Delay Rattles Confidence in Gulf Borrowers

Dubai is shaking investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.
...
Moody’s Investors Service and Standard & Poor’s cut the ratings on state companies yesterday, saying they may consider state-controlled Dubai World’s plan to delay debt payments a default. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom ...

And a few articles from the WSJ: Dubai Starts to Untangle Dubai World Fallout

And European Banks Seen Exposed To Dubai World

Most banks on Thursday said their exposure to Dubai and Dubai World is small or declined to comment, but Credit Suisse analysts estimate European banks have about $40 billion in exposure to debt issued by various Dubai city-state entities, including Dubai World.

And from December 2008: Citi Voices Upbeat View on Dubai (ht jb)

With questions about Dubai's looming debt obligations swirling, Citigroup Inc. said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

Citigroup Chairman Win Bischoff was quoted in the bank's statement Monday as saying Citigroup continues to see Dubai as among its "most significant markets."

When there are bad loans to be made, apparently Citi never sleeps.

UPDATES: Brad DeLong suggests it might be Time to Reread the History of Austria's Creditanstalt in 1931...

Interesting time. In Europe, the Creditanstalt's bankruptcy and what followed was what turned the recession into the European Great Depression...

And DeLong excerpts from a Financial Times article by Roula Khalaf: The emirate has a lot of explaining to do

And from Izabella Kaminska at the FT Alphaville: Barclays Capital ‘change their view’ on Dubai

My, my, what a difference a few weeks make.

Earlier this month — when all still seemed relatively well in the UAE emirate of Dubai — Barclays Capital was among those touting Dubai-related debt as a decent investment for clients. The bank even confidently predicted the repayment of the now infamous Nakheel sukuk.

In fact on November 4 — the day Moody’s slashed its ratings on five Dubai government related entities — BarCap analysts wrote:

We expect several developments to act as positive catalysts for Dubai’s sovereign spreads. First, the likely repayment of the Nakheel sukuk in December. Second, Dubai’s ability to raise the second USD10bn tranche with the support of Abu Dhabi. Third, a successful conclusion of the merger between Emaar and Dubai Holding, as well as a solution allowing mortgage providers Amlak and Tamweel to resume lending.

On that basis, we recommend a long position in Dubai sovereign credit and see today’s negative price actions as an opportunity to buy.

There is much more at the link.

by Calculated Risk on 11/26/2009 08:53:00 AM

One of the keys to the housing market is the success of the modification programs. The Treasury Department is expected to release a key measurement next month: the number of permanent modifications for the Making Home Affordable program.

Scott Reckard at the LA Times has an overview: Few mortgages have been permanently modified

Loan-modification limbo is of high concern these days ... even after reporting this month that trial modifications had topped 650,000, the government still hasn't said how many of those loans have been permanently restructured. ...

"You can't claim victory at 500,000 trial modifications and then have half of them drop out," said Paul Leonard, California director for the Center for Responsible Lending, a Durham, N.C.-based advocacy group.
...
Exactly what is holding up the conversions depends on whom you talk to.

"Getting these loans to the finish line is tough" for loan servicers, Chase Home Lending Senior Vice President Douglas Potolsky said ... The main obstacle, he and other bankers said, is borrowers who don't properly complete their paperwork.
...
Getting income documentation is a major problem now that the era of "low doc" and "no doc" loans is long gone, [Sam Khater, an economist with mortgage data firm First American CoreLogic] said in an interview.

We will know more in December, but it might not have been a great idea to loan the money first, and then qualify the borrowers.

by Calculated Risk on 11/25/2009 11:42:00 PM

From the WaPo: Fannie Mae to tighten lending standards (ht Ann, Pat, Tim)

Starting Dec. 12, the automated system that Fannie Mae uses to approve loans will reject borrowers who have at least a 20 percent down payment but whose credit scores fall below 620 out of 850. Previously, the cut-off was 580.

Also, for borrowers with a 20 percent down payment, no more than 45 percent of their gross monthly income can go toward paying debts. Fannie declined to disclose the previous threshold, except to say that it was higher. ...

Brian Faith, a Fannie Mae spokesman, said ... Loans to people with credit scores below 620 fell seriously behind at a rate approximately nine times higher than other loans purchased in the same period ...

This change will only impact a small percentage of Fannie Mae loans. I'm surprised they still allow debt payments to be as high as 45% of gross income - that seems a little loose and leaves the borrowers house poor.

by Calculated Risk on 11/25/2009 10:14:00 PM

A short excerpt from the WSJ Developments: Think Twice About Cheering New Home Sales

Already, builders report weak November traffic. One private builder in Raleigh, N.C. - long considered a strong market because of tech and higher-education employers - reports no shoppers in the first week, according to John Burns Real Estate Consulting.

I've heard similar reports from real estate agents that the first two weeks of November were exceptionally weak, but that the phones started ringing again once the word spread that the tax credit had been extended.

I wouldn't be surprised by a dip in New home sales in November - although existing home sales will probably still be fairly strong from people buying in September (existing home sales are reported at the close of escrow).