by Calculated Risk on 7/30/2007 07:06:00 PM

See video at HousingDoom.

Cramer is exaggerating the problems in housing. As an example, it is extremely unlikely that 100% of 2/28s will default. But I agree with him on the Inland Empire; I've been arguing that California's Inland Empire was going to get crushed for some time.

by Calculated Risk on 7/30/2007 06:21:00 PM

Press Release: MGIC Investment Provides Update on C-BASS Investment

MGIC Investment Corporation announced today that it has concluded that the value of its investment in Credit-Based Asset Servicing and Securitization LLC has been materially impaired.

The investment (including $50 million within the last 10 days):

MGIC's investment in C-BASS consists of approximately $466 million of equity as of June 30, 2007 and an additional $50 million drawn on July 20 and 23, 2007 under a $50 million unsecured credit facility that MGIC provided to C-BASS.

And the kicker:

MGIC has not determined the range of an impairment charge, although the upper boundary of the range could be MGIC's entire investment, less any associated tax benefit.

UPDATE: Radian makes the same comments: Radian Comments on C-BASS Investment

Since February 2007, the market for subprime mortgages has experienced significant turmoil, with market dislocations accelerating to unprecedented levels beginning in mid-July 2007 and further deteriorating in the last few days.

Radian's investment in C-BASS consists of approximately $468 million of equity as of June 30, 2007 and an additional $50 million drawn on July 20 and 23, 2007 under a $50 million unsecured credit facility that Radian provided to C-BASS. On a pro forma basis reflecting the amounts drawn under this credit facility, Radian's investment in C-BASS was approximately $518 million. Radian has not determined the impairment charge, although it could be Radian's entire investment, less any associated tax benefit.

by Tanta on 7/30/2007 01:04:00 PM

Marketwatch:

On July 19, American Home's stock slumped amid speculation that the company's credit lines were being pulled.

However, analysts dismissed the notion, saying the company told them that its credit lines were intact. . . . .

The following day, Mary Feder, vice president and investor relations director at American Home, told MarketWatch that none of the company's credit lines were being pulled.

But reassuring analysts and investors less than two weeks before warning about margin calls has undermined the credibility of American Home's management team, according to RBC's Ackor.

"Recent conversations with management reaffirmed to us that many of the factors negatively influencing the company's fundamentals were being effectively addressed, and that recent market rumors of liquidity concerns were completely unfounded," the analyst wrote.

"We certainly acknowledge that the recent and severe erosion in the global debt markets was rapid and unforeseen," Ackor added. "We are concerned, however, that management appears to have either been caught entirely off guard (implying they may not fully understand the implications of a difficult operating environment), has not accurately conveyed the potential impact of these operating challenges to the investment community, or both."

American Home announced its financing problems and the decision to halt dividends after 10 pm on Friday, a move that won't help, Ackor said. He added: "The company's dividend-delay confessional at 10:20 p.m. on a Friday night makes us think that both of these points may have merit."

by Tanta on 7/30/2007 12:24:00 PM

Headline is "Five Signs That Subprime Infection Is Worsening." Then:

The tremors from the subprime debacle are vibrating throughout the interconnected web of modern global financial markets.

Yep. You know your infection is worsening when your debacle starts vibrating through your web.

Free subscription to Calculated Risk for anybody who finds one with "tentacles" in it.

by Calculated Risk on 7/30/2007 10:39:00 AM

From AP: NYSE Halts Trading in AHM Shares Pending Announcement After Suspended Dividend

The New York Stock Exchange halted trading in shares of American Home Mortgage Investment Corp. Monday morning pending an announcement from the struggling mortgage lender, which on Friday froze its dividend.

An NYSE spokesman said the exchange expects ... an announcement during trading hours Monday.

by Tanta on 7/30/2007 08:29:00 AM

This lede is from the bleedin' Economist, no less:

A hedge fund stalks subprime's next potential victim

If you got the part about how the bond insurer is the "victim" of "subprime" but is being "stalked" by a hedge fund, you probably got that part of The Queen where it turns out that Diana was a buck.

I'm surprised and stunned.

by Tanta on 7/30/2007 08:07:00 AM

From Financial Times:

Investment banks are responding to rising credit concerns by imposing tougher lending terms on hedge funds, in a move that threatens to exacerbate investor unease in the financial markets.

Prime brokerage departments at several investment banks have raised their margin requirements for certain hedge fund clients as they seek to insure themselves against the possibility of new hedge fund collapses as a result of the recent market turmoil.

“Financing terms for hedge funds are being tightened and this is forcing a further deleveraging of risk across global markets,” said Gerald Lucas, senior investment adviser at Deutsche Bank.

One prime broker said his bank had started examining its lending criteria in the wake of the much publicised problems at two hedge funds run by Bear Stearns.

“Recently we have broadened our stricter standards to funds beyond those with exposure to US mortgage market. I’d say this is now a pretty broad-based retreat from leverage.”

Now, if they just get rid of that "stated returns" product. . . .

by Calculated Risk on 7/29/2007 07:03:00 PM

From the Financial Times: US subprime crisis shows signs of spreading

AHM said it is delaying paying dividends ...

The move represents one of the first indications that the crisis facing sub-prime mortgage lenders in the US is expanding to affect lenders like American Home Mortgage whose borrowers tend to have higher 'prime' ore 'near prime' credit ratings.

"First indications"? Are they joking?

by Calculated Risk on 7/29/2007 05:35:00 PM

This is an update to my 2007 housing forecast.

Probably the most important housing numbers are sales (new and existing homes), prices, and housing starts.

Starting with Existing Homes, my original forecast was for sales of 5.6 to 5.8 million units in 2007. To date, through June, the NAR has reported sales of 2.929 million units.

Lending standards are being tightened again, and this will most likely impact sales in the 2nd half of 2007. Since existing home sales are reported at the close of escrow, many of the July and August sales were in process before the most recent round of tightening - so I've assumed only a minor impact on reported sales for July and August (as compared to 2005 and 2006). I've assumed a greater impact on sales for the last four months of the year.

Click on graph for larger image.

This graph shows my current month by month forecast for existing home sales this year (red is actual for 2007). It is possible that sales will fall off a cliff later this year, but that kind of decline is extremely difficult to predict, and I think a more gradual decline is likely.

My current forecast is for 5.6 million units; at the bottom end of my original forecast range.

For anyone interested, you can enter our contest: Forecast 2007 Existing Home Sales. PLEASE enter your forecast in the comments to the contest thread (not in the comments here) so I know where to look in January. Thank you!

For New Home sales, my original forecast was that sales would "surprise to the downside" compared to Fannie Mae's forecast of 975 thousand units. Through June, the Census Bureau has reported sales of 458 thousand units.

Sales are reported for New Homes when the contract is signed, so the recent tightening of lending standards will probably impact reported New Home activity sooner than reported existing home activity. My current forecast for New Home sales is for a total of 830 to 850 thousand units.

For existing home prices, my forecast was for prices to decline "nominally by 1% to 3% nationwide by all measures (OFHEO, NAR)." So far prices are up slightly according to the NAR:

The national median existing-home price for all housing types was $230,100 in June, up 0.3 percent from June 2006 when the median was $229,300.

Down slightly according to the FHFB.

The FHFB reported the decline in the average price was $501, or 0.16 percent, from $306,759 in October 2005 to $306,258 in October 2006. This is the first decline in the MIRS since 1992-93.

And up in the first quarter according to the OFHEO (the second quarter OFHEO House Price Index is scheduled to be released on August 30).

The OFHEO House Price Index (HPI), which is based on data from sales and refinance transactions, was 0.5 percent higher in the first quarter than in the fourth quarter of 2006.

All of these methods have flaws and are based on nationwide price changes. I'll stick with my forecast of a 1% to 3% price decline nationwide in 2007.

Housing Starts. In my 2007 housing forecast, I didn't forecast starts. However, last year I calculated that completions might fall to 1.2 million units per year, and starts might fall even further to 1.1 million units per year. It now appears starts will be in the 1.4+ million range for 2007. What I overlooked was that the builders would get caught in a self destructive Nash equilibrium: the homebuilders have to keep building, because they can't sell the land. And they builders can't gain by changing their own behavior, because the industry is very fragmented and the other builders will keep on building. In the aggregate, this behavior is self destructive, but it makes sense for each individual builder.

I still think starts will decline significantly from the current level to work off the record levels of inventory. And it's the total inventory (new and existing homes) that matters: as an example, see this story from the WaPo yesterday: Glut of Condos Pits Private Sellers Against Developers.

I'll have more on starts, inventory levels, and the excess housing stock in the near future.

by Tanta on 7/28/2007 10:10:00 AM

American Home Mortgage Edition.