by Tanta on 6/19/2007 09:12:00 AM

It's 6:00 am. Do you know where your webmaster is?

From Dow Jones Newswire, via Brian (no link):

The Web site that takes in mortgage payments for New Century Financial Corp. was down for five days last week because the company didn't have staff capable of running it, according to a hedge fund that agreed to buy the mortgage provider's loan-servicing business.

The hedge fund, Carrington Capital Management, is set to complete its $188 million purchase of the loan-servicing business on June 29. . . .

Carrington said the Web site was out of service from June 9 through June 13 because the bankrupt company "did not have the appropriate personnel."

Among the thousands who lost or left their jobs when New Century filed for Chapter 11 protection April 2 were the people who designed system security, the hedge fund says.

A collapse of the loan servicing platform, Carrington said, could cost it $300,000 to $500,000 each day it can't use the technology to track troubled borrowers and collect on their loans.

Of course, I'm sure it's just the "people who designed system security" who walked out on the place. No reason to worry about the accounting department . . . or the file room . . .

by Calculated Risk on 6/19/2007 12:02:00 AM

From the WSJ: Bear-Led Fund Gets Reprieve

Lenders granted a beleaguered Bear Stearns Cos. hedge fund an additional day to finalize a last-ditch rescue plan ...

During a meeting at Bear's Madison Avenue headquarters that lasted nearly three hours, creditors were presented with a bailout plan that included $1.5 billion in new loans from Bear, backed by the fund's assets. The plan also would bring an infusion of $500 million in new equity capital from a group of other banks, and will allow some lender's to reduce their exposure by 15%, said people briefed on the meeting.

The soap opera continues ... This fund started last August with $600 million in equity and $6 Billion in borrowed capital (talk about leverage).

According to the article the fund lost 23% from the beginning of the year through the end of April. Add: Perhaps the 23% is referring to losses on the equity, but then the fund must have suffered more losses since that time based on the size of the bailout. If the 23% refers to the entire fund, then 23% of $6.6 Billion is about $1.5 Billion - not only wiping out all the equity in the fund, but almost $1 Billion in debt too.

UPDATE: From the NY Times: Mortgages Give Wall St. New Worries. This article covers the Bear Stearns hedge fund, but also wonders about the impact on mortgage lending:

After the first cracks in the subprime mortgage business appeared late last year, several large lenders were forced into bankruptcy.

Now, the stress is sending tremors down Wall Street, as investment funds that bought a stake in those loans are starting to wobble.

Industry officials say they expect this second act to be longer and slower, unwinding over the next 12 to 18 months. The fallout could further constrict consumers with weak, or subprime, credit while helping to prolong the housing downturn.

On Wall Street, the impact could be far more significant: It could force banks, hedge funds and pension funds to acknowledge substantial losses, which had been tucked away in complex investment vehicles that are hard to evaluate. In turn, that could limit the money available for mortgage lending.

by Calculated Risk on 6/18/2007 07:50:00 PM

Click on graph for larger image.

NAHB Press Release: Builder Confidence Slips Again in June

Ongoing concerns about subprime-related problems in the mortgage market and newfound concerns about rising prime mortgage rates caused builder confidence to decline two more points in June, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released today. With a reading of 28, the HMI now is at the lowest level in its current cycle and has reached the lowest point since February 1991.

“Builders continue to report serious impacts of tighter lending standards on current home sales as well as cancellations, and they continue to trim prices and offer a variety of nonprice incentives to work down sizeable inventory positions,” said NAHB President Brian Catalde, a home builder from El Segundo, California.

“It’s clear that the crisis in the subprime sector has prompted tighter lending standards in much of the mortgage market, and interest rates on prime-quality home mortgages have moved up considerably during the past month along with long-term Treasury rates,” added NAHB Chief Economist David Seiders. “Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as either “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as either “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes declined in June. The index gauging current single-family sales slipped two points to 29, the index gauging sales expectations for the next six months fell two points to 39, and the index gauging traffic of prospective buyers fell one point to 21.

Three out of four regions posted declines in the June HMI. The Midwest posted a three- point decline to 19, the South posted a one-point decline to 32 and the West posted a five- point decline to 27. The Northeast recorded a three-point gain to 35 following a six-point loss in May.

by Tanta on 6/18/2007 04:34:00 PM

Hey! Calculated Risk got an honorable mention by the Associated Press, for which we apparently have Barry Ritholtz to thank (don't worry, Barry, I don't think this is your fault). Here we are:

Calculated Risk -- A philosophical blog on finance and economics. No stock tips or fancy charts -- just an anonymous business executive seeking the truth about the market. Some of it is worrisome, and blunt. Investment banks have been selling the riskiest slices of debt to pension funds, he says, which are entrusted with providing for the retirement of public workers. He calls these debt offerings, called unrated collateralized debt obligations "a pig of a pig, distilled essence of pig, ur-pig, Total Ultimate X-Treme Mega Pig" and says that buying them is "playing with matches."

"No fancy charts?" What does it take to get recognition for CR's excellent and legendary charts? Animated recession bars?

We will pass over in silence the true authorship of the cascade of pig jokes. Ahem.

We may now resume being philosophical.

by Tanta on 6/18/2007 11:39:00 AM

Everybody's all fired up about this report this morning from Fannie Mae's Berson's Weekly Commentary. I'm not, frankly, sure why; the insight about prepayments (specifically, refinance options) and subprime loan performance is not exactly news. But it does include a nice chart, helpful for those who don't tend to think in terms of mortgage flows.




The pie on the left represents 2/28s closed in late 2003 to late 2004 (which gives them a first payment adjustment date in calendar year 2006). The pie on the right represents 2/28s closed in late 2004 to late 2005. The clear implication is that delinquency and default in the earlier vintage was mitigated by refinance (or home sale) opportunities that are sorely lacking in the later vintage.

One has to remember, though, that separating the vintages like this does not mean the two pie charts include two mutually-exclusive groups of borrowers. Because these are two sequential years and the loan type in question is a 2/28, it is likely that most of the refinances of the earlier vintage do not appear as new loans in the later vintage; they would appear in a "future" pie with a reset in 2008 (or later). The point, though, is that what you see in the left-hand pie, for instance, is a very big pile of refinances that were originated in 2006, a year notorious for wretched underwriting guidelines. The slowing of the prepayments in the right-hand pie suggests that that party's over, but it also clearly means that we still have a lot of loans that "rolled" to a new loan in 2006 and 2007 and that may or may not have an escape route in 2008 or 2009 when the next reset problem arises.

by Tanta on 6/18/2007 10:32:00 AM

I don't often find myself making confident predictions these days--the market can stay irrational longer than I can--but I will do so on this subject: some hedge funds are about to discover what is Different about home mortgage lending, with unfortunate results for the hedgies.

Bloomberg, via John M. (thanks!):

June 18 (Bloomberg) -- James E. ``Jimmy'' Cayne helped make Bear Stearns Cos. the mortgage king of the securities industry by packaging home loans into bonds and selling them to clients like Michael Vranos. Now Vranos, who manages $29 billion at Ellington Management Group LLC, is cutting Cayne out of the middle and buying mortgages on his own.

On Wall Street, they call that disintermediation, and it's eating into almost $9 billion of fees that firms including New York-based Bear Stearns earn from securitizing mortgages. Instead of buying such bonds at markups of 1 percent or more, hedge funds expect to make better returns by taking over bad debts and pressing borrowers to pay up.

Well, guys, welcome to the most-regulated lending industry in history, with the biggest middle-class political constituency imaginable, and some major honkin' participants who happen to be giant financial institutions whose calls are taken by the Federal Reserve.

Hope you find enough "inefficiencies" to make it fun while it lasts.