by Tanta on 4/05/2007 09:33:00 PM

From AP:

UBS Real Estate Securities Inc. sued New Century Financial Corp. on Thursday, claiming the subprime lender misappropriated millions of dollars from mortgage payments made on loans owned by the investment firm.

In the 14-page filing with the U.S. Bankruptcy Court for the District of Delaware, UBS claims New Century breached the terms of a contract that called for the subprime lender to buy back home loans sold to UBS under certain conditions, such as when borrowers default soon after taking on the loans.

UBS claims New Century and its subsidiaries had agreed to collect borrowers' mortgage payments and deposit them into a third-party account, pending New Century complying with its obligation to buy back some of its loans.

But New Century failed to deposit more than $3.8 million in mortgage payments that the company received from borrowers on loans purchased and owned by UBS, according to the complaint.

UBS also claims New Century has failed to account for missing escrow payments made by borrowers.

Interesting. The dog ate the escrow payments, and UBS is telling it to the bankruptcy judge. And these loans are owned outright by UBS? It does make you wonder what's going on with the loans backing the securities, doesn't it? I guess we're officially past "this isn't going to end well" and well into "this isn't going to end." (Hat tip HVH!)

by Calculated Risk on 4/05/2007 12:47:00 PM

From Roger Vincent at the LA Times: Offices go up in earnest as long space glut ends

... office developers are beginning to build again in earnest. More than a dozen major office towers and complexes in the region are being built or are to start construction shortly.

To old-timers, however, the burst of construction activity in recent months raises the nagging question of whether the office market will once again overheat and tumble.

"Will it be a repeat of 1990 to '92? Absolutely not," said John Cushman, chairman of giant real estate brokerage Cushman & Wakefield.

Earlier this week, the WSJ reported: Office Space Demand "Sluggish"

by Tanta on 4/05/2007 07:04:00 AM

LoanPerformance’s December 2006 issue of its newsletter, “The Market Pulse,” is now available online. (You must subscribe (free) in order to download a copy.) It features an article by UBS’s David Liu and Shumin Li which you might not want to read if you are both 1) an owner of certain Alt-A mortgage-backed bond tranches and 2) eating.

I recommend the entire newsletter, which is full of charts and maps and things for those of you who are graphically minded. The Liu and Li article, however, is a must-read for bond geeks. The conclusion:

If [prepayment] speeds slow 20-25% as we predicted . . . [Alt-A] cumulative losses could rise an additional 25-30%, which will be ~200 bps under the weak HPA [less than 5%] scenario.

By comparison, BBB- bonds backed by Alt-A hybrids are generally designed to have credit enhancement of ~200 bps. . . On average, credit support of BBB- bonds will be erased over the life of the deal, although the losses will not hit the BBB- bonds. The bonds will most likely be downgraded due to the serious erosion of credit support. . . .

If the housing market remains flat or turns negative for a prolonged period of time (e.g., [less than] 1% annual HPA for the next 3-5 years), then we expect cumulative losses on these deals to rise another 20% (based on the limited data we have observed in the subprime ARM sector), which will wipe out the credit support of BBB bonds on these deals even without considering the distribution of losses. . . .

In summary--we project baseline prepayment speeds of low 20 CPR (for 5/1s), and therefore cumulative default rates of 12-13%, applying a loss severity of 15% on all defaulted loans - - would result in a cumulative loss of ~200 bps, which could potentially wipe out most of the credit support [of] BBB- rated bonds backed by Alt-A hybrids. And yet - we have not seen any spread movements that suggest investors are taking this into consideration. [emphasis in original]

by Calculated Risk on 4/05/2007 01:39:00 AM

From the WSJ: Housing Inventory Surges in March

Using data from ZipRealty, the WSJ reports that housing inventories in 18 major U.S. metropolitan areas increased 6.5% from the end of February to the end of March. The typical increase in inventory is 1.7% from the end of February to the end of March according to the article, citing Credit Suisse.

The National Association of Realtors previously reported inventories were 3.748 million nationwide at the end of February. This ZipRealty report suggests inventories will be close to 4 million units at the end of March.

In Housing: Supply Demand Imbalance, I estimated inventories might reach 4.5 million units this summer, or approximately 9.5 months of supply.

by Calculated Risk on 4/04/2007 04:11:00 PM

I'd like to focus on the content and the incredible comments - thank you all - however the blog layout needs some attention. Please bear with me.

Unfortunately my internet security software is blocking Haloscan right now, and the Blogger comments are apparently blocked by some corporate sites. Also, the Blogger comments allow very little configuration (my only choice is whether or not to use a pop-up).

So I guess this means I need to find another solution for comments. Right now I'm looking at Typepad and I'm open to suggestion. I've received several requests for a left sidebar, so I'll give that a try too.

Thank you all for your patience. Best Wishes, CR.

by Calculated Risk on 4/04/2007 03:50:00 PM

Dallas Fed President Fisher: Risk Is a Many Splendored Thing: Lessons Learned. Excerpt on subprime and Alt-A:

Thus far, the damage from the subprime market has been largely contained, as many of my Federal Reserve counterparts have been saying. Why do we say so? To begin with, quality problems have risen primarily for adjustable-rate subprime loans, which are only about 8.5 percent of home mortgage debt outstanding. Also, much of this debt was packaged into private-label mortgage-backed securities with the downside risk spread out over a diverse group of investors. Nevertheless, because 40 percent of homebuyers last year were nonprime (subprime and Alt-A) borrowers, housing markets may feel some short-term pain, making it less clear whether housing construction has bottomed and how long the housing downturn may last. Fortunately, the financial system and the economy are strong enough to weather this storm.

While the subprime damage is largely contained, I do not mean that the market will or should refrain from punishing those who neglected time-proven rules of prudence. Nor am I suggesting that the neglect of prudent practices has not bled into other types of credit—such as the Alt-A market. Indeed, it would be atypical for lax lending standards in one area of credit not to lead to laxity in others. Nor am I placing excessive faith in models that have yet to be tested by real developments.

The subprime situation may well be a blessing in disguise. It reminds us that history does have the capacity to repeat itself. The old financial axioms—levelheaded notions such as “know your customer” (or your counterparty) and “there is a difference between price and value”—remain valid. I expect market discipline to reassert itself, swiftly punishing those who pressed the limits of imprudence or suffered selective amnesia, hopefully doing so in a way that staves off the impulse for lawmakers and regulators to interfere disproportionately.

by Calculated Risk on 4/04/2007 09:41:00 AM

The Mortgage Bankers Association (MBA) reports: Mortgage Applications Decrease in Latest MBA Survey

The Market Composite Index, a measure of mortgage loan application volume, was 649.5, a decrease of 3.2 percent on a seasonally adjusted basis from 671 one week earlier. On an unadjusted basis, the Index decreased 3.2 percent compared with the previous week and was up 5.3 percent compared with the same week one year earlier.

The Refinance Index decreased 4.5 percent to 2098.3 from 2197.7 the previous week and the seasonally adjusted Purchase Index decreased 2 percent to 402.9 from 411.1 one week earlier.

Mortgage rates increased:

The average contract interest rate for 30-year fixed-rate mortgages increased to 6.13 percent from 6.04 percent ...

The average contract interest rate for one-year ARMs increased to 5.87 from 5.84 percent ...

Click on graph for larger image.

This graph shows the Purchase Index and the 4 and 12 week moving averages since January 2002. The four week moving average is down 0.1 percent to 409.7 from 410.3 for the Purchase Index.

The refinance share of mortgage activity decreased to 44.5 percent of total applications from 45.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 19.2 from 20.2 percent of total applications from the previous week.

by Calculated Risk on 4/04/2007 09:06:00 AM

According to ADP:

Private nonfarm employment grew 106,000 from February to March of 2007 on a seasonally adjusted basis

After changing their methodology, ADP was very close to the BLS last month (57K vs 56K for the BLS). Remember ADP reports private sector jobs only, so this report doesn't include government jobs.

by Calculated Risk on 4/04/2007 02:42:00 AM

From the WSJ: Payment Woes Worsen On Riskiest Mortgages (hat tip Jim R). A short excerpt:

For Alt-A loans -- a category between prime and subprime that includes many loans that don't require full documentation of the borrower's income or assets -- the late-payment figure rose to 2.6% in January from 2.3% in December and 1.3% in January 2006.

It's not just a subprime problem.

by Calculated Risk on 4/03/2007 04:49:00 PM

EDIT: I am unable to respond to questions in the comments. Hopefully I'll change the layout tonight. Best to all.

All: I'm about to make some changes to the layout. This will include a wider main area, a new archive, some site feeds, and a few other changes.

Blog Rolls: I've ignored the blog roll for some time. I've decided to have two blog rolls: one for housing sites, and one for economics sites. If you want to be included, please send me an email and specify which blog roll you'd like to be listed under. All I ask is that your site be relevant (housing or economics) and that you link to my blog.

Also, I'll also be switching from Haloscan to the Blogger comments. Unfortunately I've had far too many problems with Haloscan and I'm willing to give blogger a try.

And finally, since I can't access the comments: the most useless release is the NAR pending home sales. IMO that news wasn't "bullish", and it wasn't bearish either - it was worthless.

Best to all.