Unprecedented Disruptions, Continued Weakening: CEO
Some housing bubble news from Wall Street and Washington. Wall Street Journal, “Countrywide Financial Corp. posted its first quarterly loss in 25 years in the third quarter on $2.27 billion in mortgage losses and write-downs and soaring credit-loss reserves. The write-downs entailed an $830.9 million write-down in the value of mortgage servicing rights, $716.7 million in the write-down of mortgages and mortgage-backed securities and a $718.6 million loss on the sale of loans and securities.”
“In addition the company’s loan-loss reserves surged to $934 million from $38 million amid continued weakness on prime home-equity loans. Some analysts have been questioning if lenders maintained adequate underwriting standards when making such loans.”
From MarketWatch. “‘Countrywide’s results for the third quarter of 2007 reflect the impact of unprecedented disruptions in the U.S. mortgage market and the global capital markets, as well as continued weakening in the housing market,’ said CEO Angelo Mozilo in a statement.”
The Associated Press. “Some 4.41 percent of Countrywide’s conventional first mortgage loans were delinquent as of Sept. 30, up from 2.57 percent in the year-ago quarter. For prime home-equity loans, delinquencies inched up to 13.5 percent compared to 13.4 percent.”
“The number of subprime loans that were behind in payments soared to 29.08 percent, compared to 18.32 percent in the year-ago period.”
“In the subprime loan category, 12.63 percent of the loans were behind in payments by 90 days or more, more than twice the year-ago rate.”
From Bloomberg. “Late payments and defaults among subprime mortgages packaged into bonds rose last month as higher loan rates and weaker home prices pushed homeowners to the brink, according to data for loans underlying ABX derivative indexes.”
“After September mortgage payments, 21.3 percent of the loan balances from 20 deals created in the first half of 2006 were at least 60 days late, in foreclosure, subject to borrower bankruptcy or already turned into seized property, up from 19.7 percent a month earlier, according to a report yesterday from UBS AG.”
“Prepayments on mortgages also slowed, suggesting it’s more difficult for borrowers to sell their homes or refinance, UBS analysts led by Thomas Zimmerman wrote.”
“‘We also suspect that the deterioration of the housing market might also have affected owners’ psychology with respect to making timely payment’ on loans that have yet to adjust, the analysts wrote. ‘Certain borrowers may have decided that it’s time to throw in the towel.’”
From Business Week. “Big investors are increasingly concerned about the prospect of widespread defaults among U.S. companies with currently sound credit ratings. One glaring piece of evidence? The price of insuring corporate debt against default has soared, according to a new report from Credit Derivatives Research.”
“The concern is driven by several forces, according to Credit Derivatives. There’s a fear that troubles in the housing market will depress consumer spending. There’s also rising nervousness that huge, credit-related write-downs in the banking sector could force a major financial institution to go under, according to Backshall.”
“Jitters abound in the market. On Oct. 25, shares of insurance and banking giant American International Group (AIG) dipped more than 6% at one point, after a Citi Investment Research analyst estimated that AIG could face losses as high as $1.6 billion from its exposure to subprime markets. The financial-services conglomerate said those fears were unfounded.”
“Even more worrisome, the price of insurance on the supposedly safest ’super senior’ class of CDX debt is rising, too. The price of such insurance on the ’super senior’ tranche is now $140,000 a year, up 55% in just the past week, fueled by heavy demand.”
The New York Times. “Europe, which once hoped to avoid major fallout from the summer’s credit crisis, is now feeling an autumn chill of slackening economies and warnings of further market upheaval.”
“The ill tidings came in several European capitals Thursday, including a reduced growth forecast in Germany and a Bank of England report that said financial markets were still vulnerable to shocks from the crisis that originated in the American home mortgage market.”
“‘The shift in sentiment this summer was as sudden as anything I’ve seen in my 15 years in the business,’ said Jörg Krämer, the chief economist of Commerzbank. ‘It is clear that the boom is over.’”
“For those who argued that Europe could sidestep a downturn in the United States…the latest news underscores that the economic vigor of Europe remains closely linked to that of the United States.”
“‘There was only a temporary decoupling of Europe and the U.S.,’ Mr. Krämer of Commerzbank said. ‘The credit crisis has had a real-world economic impact in the U.S., and we are affected by that.’”
The Dallas Morning News. “Some 20 years ago when the housing market was in a similar foreclosure meltdown, government regulators came up with a shrewd plan for quick relief.”
“To fend off record home loan defaults in Texas, federal savings and loan regulators instructed lenders to reduce the monthly payments on thousands of home loans in the state.”
“Indeed, I heard of few cases where lenders moved to cut folks’ payments. And the foreclosure landslide continued to wipe out thousands of the state’s homeowners in the late 1980s and into the early 1990s. Along the way, our housing values got clobbered by more than 20 percent.”
“So you can understand why I wasn’t surprised to read a…study by Moody’s found that only 1 percent of subprime loan servicers had modified adjustable loans to help out strapped borrowers.”
“With everyone from consumer advocates to Washington politicos hollering for borrower forbearance in the mortgage crunch, is this surprising? It shouldn’t be. After all, mortgage companies aren’t in the business of making it easy for borrowers to get out of bad deals.”
“One big mortgage company that bragged about its high loan modification rate later fessed up that it was counting deed-backs in lieu of foreclosure as a ‘modified’ loan. Sure thing – the borrowers were modified right out of their house.”
“At the same time, wild-eyed proposals floating around for legally mandated foreclosure moratoriums and such are just plain crazy. If you declare a foreclosure moratorium, then expect a lending moratorium, too.”
“Who is going to loan money on a property that you can’t collateralize?”
From Reuters. “Standard Pacific Corp, which builds homes in the once-hottest U.S. markets, reported a steep quarterly loss on Thursday, reflecting the deepening U.S. housing slump.”
“The company reported a third-quarter loss of $119.7 million. The results included $223.5 million in charges related to inventory and joint venture impairments as well as land deposit write-offs.”
“Homebuilding revenues fell to $675.5 million from $834.1 million last year as new home deliveries fell 25 percent to 1,697. Would-be buyers canceled their orders at a rate of 34 percent.”
“‘High levels of unsold new and existing homes, decreasing home prices, tenuous homebuyer confidence and further erosion of mortgage credit liquidity during the quarter combined to undermine any stability within the markets,’ said Stephen Scarborough, Standard Pacific’s CEO.”
“Standard Pacific had an eight-month supply of unsold new homes and more than $139.2 billion of adjustable-rate mortgages that are resetting higher in the final three months of this year, raising the possibility of more foreclosures.”
“Standard Pacific gets most of its revenue from California. Home sales in the state fell 39% last month, and the median price of an existing home slumped 4.7% as the mortgage market’s problems hurt demand, the California Assn. of Realtors said.”
“The company, founded 41 years ago, said Wednesday that it was eliminating the dividend to save $10 million a year to reduce debt. It has $2.2 billion in long-term borrowings and a market value of about $380 million.”
From Builder Online. “With home orders falling 23 percent, closings sliding 28 percent, and a 41 percent cancellation rate, Meritage Homes joins the long list of big builders who faced an unstable third quarter. The Arizona-based builder is reporting a net loss of $119 million for the period ending Sept. 30.”
“‘Current market conditions are as weak as they’ve been for many years, and it’s unclear when conditions will improve. Home sellers are reducing prices to compete aggressively for fewer buyers, and buyers are looking for prices to stabilize before purchasing,’ said Meritage CEO Steven J. Hilton in a released statement.”
“‘The precipitous declines in states like Florida, California, and Nevada are well-known, and sales in Texas also slowed noticeably this quarter.’ Hilton said. ‘In order to strengthen our balance sheet and reduce debt, we liquidated over 11 percent of our spec inventory this quarter, renegotiated or opted out of about 6,000 lot purchases under option contracts, and reduced our total lot supply by 20 percent.’”
From Prime Newswire. “Meritage reported…pre-tax non-cash real estate-related and joint venture valuation adjustments totaling $172 million, and goodwill-related write-off of $45 million in the third quarter of 2007.”
“The real estate-related charges included $100 million write-downs of inventory on continuing projects, $49 million for terminated projects, and $23 million relating to joint ventures. The charges by state were as follows: California ($67 million), Arizona ($47 million), Nevada ($32 million), Florida ($15 million), Colorado ($10 million) and one terminated project in Texas ($1 million).”
“The continued weakness and expectations that the downturn of the housing market will be deeper and longer than previously anticipated caused the Company to evaluate and write off $45 million of goodwill, including all goodwill in California ($14 million) and Florida ($10 million), and portions of the goodwill in Nevada ($11 million) and Arizona ($10 million).”
“The goodwill write-offs reflect the current state of the homebuilding market and the accounting consequences of valuing divisions based on declining stock prices.”
The Intelligencer. “Local home builders looked ahead 10 years Thursday and tried to picture what their industry would be like. Their crystal balls were murky.”
“‘I see our future as very muddy, very different,’ said Scott Cannon, president of Cannon Custom Homes in Avondale, Chester County.”
“Jeffrey Orleans, CEO of Bensalem-based Orleans Homebuilders, …blasted national builders such as K. Hovnanian for their widely publicized ‘fire sales,’ in which the builder advertised deep discounts on new homes.’”
“‘Every builder has his own problems,’ Orleans said. ‘But when you see the fire sale ads, it makes people concerned. It’s a negative in the market. This market wasn’t so bad. Now it’s getting worse because the publicity is worse.’”
“Rick Buchholz, VP of Hovnanian in Pennsylvania, defended the sales. ‘The pain of this is exceptional,’ he said. ‘While I don’t write a check (giving money back) every time somebody closes a home, the company does. The need for a sale…for us, it’s a necessity. We need to sell hundreds of homes a month to continue.’”
“Some analysts have been questioning if lenders maintained adequate underwriting standards when making such loans.”
Hard to believe they would even think to question this!
Only if what you’re trying to ask is actually:
“Did ANY lenders maintain adequate standards”.
To ask the question that they pose above “Did lending get a little too loose” is just laughable at this point in the game.
Why would you need standards using the originate and distribute model? You’re rewarded for production, period. Quality is added to the product downstream, during the tranching and rating processes.
Quality is added to the entire mortgage lending sector during the mark-to-market process.
I hear Mozilo is the REIC’s new Baghdad Bob. Despite Merrill’s shock and awe, everything will be back to normal next quarter. Plus, CFC has no mortgages of mass destruction. Furthermore, BB’s B-52s are ready to rock and roll.
Somewhat OT, I cross-posted this on Calculated Risk, so sorry if that’s some blog etiquette no-no. If anybody has some insight, I’d love to hear it.
I have my eye on a property that CFC holds for Goldman Sachs… It’s priced at a point where it will just about break even, with the business part of the property paying for everything, including the decent little house that we would live in. Should we lowball CFC now, while they still exist, and while GS is claiming big profits, or should we wait for the market to turn more, and pick it up when the market has dropped into next year? They blew out 20% of the last purchase price with their original sale price (don’t know if that was a second or the down payment), and are now asking 8% off of that. I’m thinking that I should offer 50% of the last purchase price (in 2001), which would be about 65% of what they are into the property for.
Any suggestions about how to time CFC’s demise for a good deal while they are still functioning? Maybe it’s best to deal with the receiver after CFC goes under?
I’d say put in the lowball.
CFC may be in its death spiral, but who knows for how long or how long receivership will take. Vacancy and inattention quickly take their toll on structures. If CFC says no, you know you’ll have another chance soon.
–
“Some 20 years ago when the housing market was in a similar foreclosure meltdown, government regulators came up with a shrewd plan for quick relief.”
“To fend off record home loan defaults in Texas, federal savings and loan regulators instructed lenders to reduce the monthly payments on thousands of home loans in the state.”
And it didn’t prevent the S&L fiasco.
It is all about the price declines, folks, and nothing more than that. For every 2% drop in price 1M more home debtors get under the water. Massive drowning due to excess “liquidity?” A hundred year flood??
Jas
Jas:
Just for clarification, does your M mean million or thousand? I get confused by the M.
Modern notation takes its cues from the computer we are all writing on:
K = 10^3
M = 10^6
G = 10^9
T = 10^12
E = 10^15
That clears it up for me! Anyone else got a question?
augur made a funny.
Dr. Bruner: Raymond, wouldn’t you feel more relaxed in your favorite K-Mart clothes?
Charlie: Tell him, Ray.
Raymond: K-Mart sucks.
Dr. Bruner: Oh, I see.
Charlie: You made a joke, Ray.
Raymond: Yeaaaah.
But, Countrywide says all is fine now, and it expects to be making profits from this point forward. Guess what, it’s stock is up, supposedly because of this happy forecast!!!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFyv1Oxjrq04&refer=home
Step right up to the tan man’s kool-aid stand. CFC is still an under reserved POS, with questionable earnings quality due to neg-am.
Is it therefore a no-brainer to short this stock?? Why wouldn’t it be??
I’d stay away from it for about 2 months. Revisit the issue in late December.
Very interesting. Thank you.
It sure does look like CFC got hit by a short squeeze today. I was holding off because it did look oversold, and now that it jumped 33%, i am going right in for the short.
There will be another CFC spike after BB raises the Fed rate next week. If I was to start a short position, that would be the time instead of today. But I have a feeling txchick57 is right in staying away from this one.
I’m way short and have been for a while, so I have plenty of room overhead in my position. I’m looking for a bumper sticker that says “I [heart] Countrywide.” I think there’s even a chance I’ll get to ride this to zero.
“Countrywide says all is fine now, and it expects to be making profits from this point forward. “
Mozilo must have some more stock options coming up and he wants to boost stock prices so he will make a profit. The lizard man needs more money to pay for all those heat lamps he lives under.
Yes- I read that same report. Apparently, their stock ” shot way up” because Countrywide said that they expect to be profitable again by 2008. Ford did exactly the same in 2005 when they said that they would also be profitable… by 2008. We see how that is going aren’t we?
Sometimes investors are real morons.
Businesses are all the same. I remember how the president of my former company reported how great the company was doing about 6 months before they closed the doors. A few of us on the inside knew the truth and bolted out of there beforehand. But, it’s easy to understand why these messages are reported when the company’s future depends on its people sticking around and investor money. It is funny that the employees and investors seem to fall for it every time.
And it’s curious that those who blatantly lied for their own profit aren’t sued or physically dismantled.
as the CFO of a company I can ditto that. We try to keep our problems under wraps and put a good spin on things. Behind the scenes it gets pretty sweaty trying to make payroll and such.
I think it’s hard to distinguish lies from unwarranted optimism. I think many execs genuinely believe that they can re-float a sinking ship - and some are indeed successful (although my former execs were optimistic and stupid). In the meantime, as with amy sinking ship, you have to keep order and calm and not create a panic.
I’m shocked that no one has gone postal on the hedge fund guys who socked away millions levering up on the CDO’s. I can’t imagine the money lost by these clowns and how they have managed to escape accountability to date. Not that I’m condoning violence mind you.
condoning jumpsuits?
You know what would be fun? A “let’s look back in time segment.” What was being said a year ago or two years ago on this date? Ben has a nice archive. Ben, you can really write a nice piece of history on this mess. This will be the best documented crisis in history.
I wonder what all was going on in the years leading up to the Great Depression?
That would be very fun! And links to all the idjits who were then still spouting nonsense and assorted deceitful drivel, links to their contact info so that those of us who happen to be vindictive, spiteful, and emotionally immature can call up those REtards and shout ‘Real estate only goes up!’ and then laugh heartily into the phone before hanging up with a bang! Yeah!
That’s a great idea, red pill!
I thought I was the only one who used the word “idjit.” I love that word (but I hate that rabbit).
“Idjit” is the word I use in mixed company, when I really want to say is “Stupid Rat-b@#tard”…
If you’d really like to know, a couple books I can recommend (which I found about from here, by the way) are “The Day the Bubble Burst” and “Rainbow’s End” (authors names escape me at the moment). They both go into more detail of what was going on socially before the Crash. For me RE was a bit of a slow read; “Bubble” gets into how the how cycle of materialism really got rolling during the 1920’s. Just my .02, both are good.
Thanks Blano. It sounds like “The Day the Bubble Burst” is exactly what I am looking for.
I just got a copy from Amazon (well, from a reseller actually), for $1.50
Oh, I just came up with something.
REIC =
real estate investment communityrainbow’s end is crack“…To hear Greenspan tell it in 1999, post-bubble damage control was as simple as cutting interest rates. He passed lightly over the possible consequences of the rates he cut.
The list so far includes a bubble-like housing market (geographically localized but ferocious), an overheated debt market (this one spans the globe) and a steady depreciation in the foreign exchange value of the dollar.
Consuming much more than it produces, the United States emits hundreds of billions of greenbacks into the world’s payment stream every year - about $600 billion in 2004. The recipients of these dollars willingly invest them in American assets if the price is right. On the evidence of the dollar’s decline, the price - the available rate of return - is too low.
Ultra-low interest rates not only serve to inflate the value of bonds, stocks and real estate. They also entice investors in those assets to employ the elixir called “leverage.” Leverage means debt. Borrowing at 2.5 percent, a speculator can invest at 3 percent and still make a handsome living - if he or she can be sure when 2.5 percent might be raised to 2.75 percent or 3 percent.
The Federal Reserve is happy to oblige. Forswearing the element of surprise in its policy actions, it has told the market exactly what it proposes to do. Paying close attention, professional investors, including thousands of hedge funds, have borrowed fearlessly. A little fear would help to improve the quality of financial stewardship.
“A stock well bought is half sold,” said the Wall Street ancients. What they meant is that success in investing depends on one’s entry price.
As Congress debates an overhaul of Social Security to permit tax-advantaged saving by millions …
“We don’t enjoy sitting on $43 billion of cash equivalents that are earning paltry returns,” writes Warren Buffett, Berkshire’s chairman. “Instead, we yearn to buy more fractional interests similar to those we now own or - better still - more large businesses outright. We will do either, however, only when purchases can be made at prices that offer us the prospect of a reasonable return on our investment.”
Five years later, the bubble is still unpopped.
FRIDAY, MARCH 11, 2005
International Herald Tribune
and the tech bubble was reformed.
it really isnt that simple, if you have money thats already spent, your broke.
someone’s already compiled that info in the Chart of Pompous Prognosticators:
http://www.gold-eagle.com/editorials_01/seymour062001.html
The parallelism among the repeat bubbles predicated by the extremes of capatilism evoke the collective subconcious as proposed by Jung. Across populations and through generations, human beings react to similar stimuli with similar emotions (and similar variation of emotions), taking said emotions to reflect “truth”, “God”, or “nature”. Whatever they reflect, we benefit from knowing that they can be expected to persist.
If Countrywide is hold $30 billion in option arms that are 91% stated, mostly in Cali and Florida, could anyone explain how $2 billion in write offs is sufficient, especially when Merrill and others are taking a 20 point hit on their AAA paper. Let’s not even get into the REO that Countrywide may or may not have. Sheeez.
I may be overly cynical, but to me these results are shouting that Countrywide absolutely HAD to maintain their dividend to hold everything together.
So maybe the write off was the largest possible amount that they could dare apply and still pay the dividend.
In respect of our bankers and banking system it is impossible to be over cynical. Although even I -an ex Goldman guy mind you 20 years ago - would not have believed that GS was selling half a billion $ instruments based on secondary loans with no equity of which 60% were no doc or low doc!
If I recall, the banks were also reporting the phantom income from borrowers with neg-am loans using accrual accounting. If the borrower goes into foreclosure, do they have to restate prior-year earnings? Or is that unrealized income part of their writedown on the loan?
Angelo says, “I made my stock trades based on public information”. . .right - he will probably cite Bubble Blog and other Blogs during the SEC investigation, saying, “it was public information all over the internet that the housing crash was coming.”. . . hmmmm
Mozillo has been out for the past two years…the dog and pony show is to put the focus on him as the bad guy…i remember him stating 2 years ago he was selling since he is retiring soon (he is 67 now) and once he announces he will retire…all will have their pound of flesh. The garbage products were invented by WallStreet. CY came to the party late in the game with these 1% option arms. Bear, Duetche, Lehman and the rest are the true culprits.
He’s 67?! He doesn’t look a day over 500. Must be all the living right.
How about all the REO’s on Countrywide’s books?
they all have them on and off their books. its those that can withstand the acid test that will be around. if your hiding it….your in real trouble.
lol
He definitely gives us tanners a bad name…
If he uses this blog as defense for “knowing” that he should sell his CFC stock, then how will he defend his reassurances that “CFC will not be hurt by this”?
Either way, the man is toasted carrot.
For sale: 2 million empty homes
http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm?postversion=2007102612
Plus another 15 million vacant ones not for sale!
What about all of those homes that couldn’t be sold and are now sporting “for rent” signs? Seeing quite a few here in Tucson. My mom reports similar things in eastern Pennsylvania.
Plus another 15 million vacant ones not for sale!
And another 10 million for sale by owner!
My mom used to work at Indymac and there are definately foreclosed places that are not for sale just yet. I remember looking at one before it was known. It was a partially redone condo. Didn’t have knobs on any doors inside and parts of the floor were still being redone. So I bet that CFC error list was a real list of what is going to end up for sale.
What the best guess as to the number under construction?
What the best guess as to the number under construction?
Just one home under construction too many!
CNN got the number wrong - it’s not 2.07 million, it’s 2.7 million. If it were 2.07 million, it would be down from last year since last year it was 2.5.
http://www.census.gov/hhes/www/housing/hvs/qtr307/q307tab1.html
The census numbers at the link above show 2.7 PERCENT.
Would that be 2.07 million? I dunno.
Ah you’re right - I missed that.
I wonder what percentage of households that is?
How many households are there in the USA? I know there are around 300 million people, but does anyone know what the household # is?
There are somewhere around 115 million households in the USA plus or minus a million or two. (Latest figures from 2005 are 113.3 million, with a slow upward trend. See http://www.census.gov/population/socdemo/hh-fam/hh1.pdf )
Strangely, this would indicate 3.1 million homes empty, based on 2.7 percent empty out of 115 million, at least it seems to me with 30 seconds of research. OK, what am I doing wrong here?
OK, never mind my math above. I was taking homeowner vacancy rates and applying to total households. Not very appropriate.
Key item of note is that homeowner vacancy rates have headed up from 1.6-1.9% range into the upper 2’s. That’s significant. Poking around the various numbers on that website, though, makes it seems like xxxx hasn’t really hit the fan yet, since most of the reported numbers are not too far off 2006’s.
Our country and homeowners are being held hostage by
investors refuse to modify these loans because they stand to lose more by working with a borrower or agreeing to some type of short sale.
This situation is complicated by the fact that these Mortgage Back Security (MBS) holders (INVESTORS) have insured against defaults, and the insurance payout on a default is a better result for the investor than accepting reduced returns. So the investor may actually be better off with a default as opposed to a mod.
In this circumstance, the investor can take the position that a mod goes against their best interests and threaten suit against the servicer if mods are undertaken.
Investors are screaming bloody murder about potential mods that will wreck their insurance payout.
When they bough these MBS’s they immediately insured them, so they will win either way. They stand to lose nothing. Unless the insurance companies don’t pay up.
Insured municipal bonds favored by retail investors are unlikely to lose their value even though financial guarantors face credit risks related to the faltering U.S. subprime mortgage sector.
The same companies that guarantee repayment of interest and principal if a city or county defaults have also been insuring mortgage bonds or collateralized debt obligations backed by home loans to consumers with subprime or poor credit.
Also lenders and servicers are not working with borrowers because this means they would have to report MASS losses to their investors and in turn cause panic in the market. Making their stock worthless. So, they stalling and making homeowners lives hell to protect what little value you they have left.
Hedge funds by nature do not need to disclose their losses or net asset value. There are HUGE losses that have not been disclosed, including cities, counties, pension funds, and bank money market funds that are NOT FDIC insured.
“Our country and homeowners are being held hostage by investors refuse to modify these loans because they stand to lose more by working with a borrower or agreeing to some type of short sale.”
WTF are babbling about? Speak for yourself… No one is holding my wife and I “hostage” to anything. We’ve always been prudent with our finances and investments, including purchasing our current house with 25% down on a 15-year mortgage. I say let the J6P specuvestors burn in financial hell, and they won’t pull this crap again in their lifetimes nor will their pestilent offspring.
Sorry for the attitude, folks, but this kind of somebody-save-us-from-ourselves, we’re-owed-something b.s. really frickin’ pisses me off.
Rally,
I’m with you…were all these “homeowners” being held hostage while they sat on their fat behinds during the bubble years, spending their HELOC cash and counting their phantom appreciation? I think not.
And they’re not “homeowners” anyway. If they still have a mortgage, they’re just mortgage owners. Let’s try to be truthful here, not hustle some democratic political agenda.
To be fair, despite that questionable lead-in, I think the parent post makes a lot of good points about why forcing workouts is pretty much impossible. Too many people are involved and too many contracts would have to be amended by the courts.
No kidding. It sounds like the “investors” are making prudent business decisions, which by and large, they ARE REQUIRED TO DO.
Should the pension fund that invested in the MBS take a financial loss VOLUNTARILY for the benefit of some downstream homeowner who made a poor personal financial decision?
They’re going to fight tooth and nail for their pensioners, which they should.
Right on…who would we like to see lose out - FBs or pensioners?
I’d rather see some UFC watching J6P doofus get his plasma kicked to the curb than a widow or vet lose what they worked and paid for - and so should anyone else who acknowledges their own mortality.
This thing is going to end very badly for many longtime financial institutions. The $1.2B is just the start for CFC, I’m sure.
Countrywide Gets Credit For Not Performing Quite As Horribly As Expected
Despite a quarterly loss of $1.2 billion, compared to a profit of $647.6 million last year, Countrywide’s shares rose the most since May 2000 on the wishful thinking that the company will be profitable in the fourth quarter.
http://www.dealbreaker.com/2007/10/post_570.php
Yeah, cause I and so amny others are going to rush right out in this market and sign up for one of their sh!t mortgages. Then they can have a better Q4. Riiiiiiiiiiight.
Anyone have an update on the status of tens of billions of Euros the ECB loaned out last August? As I recall the last rollover was for 90 days which should be expiring sometime this November. The ABX index is hitting all time lows and the USD has cratered so it’s not like the situation has improved dramatically.
A hundred billion Euros maturing in November might put a wrinkle in the Santa Claus rally.
I smell many, many, MANY Enrons…
Pardon me. I had the subprime rib for lunch.
“Standard Pacific had an eight-month supply of unsold new homes and more than $139.2 billion of adjustable-rate mortgages that are resetting higher in the final three months of this year, raising the possibility of more foreclosures.”
This can’t possibly be right, can it? $139 billion? They must have replaced an “m” with a “b.”
I think they meant $139.2 Billion resetting in the whole country not for Standard Pacific.
“Homebuilding revenues fell to $675.5 million from $834.1 million last year as new home deliveries fell 25 percent to 1,697. Would-be buyers canceled their orders at a rate of 34 percent.”
this is what i dont understand, how can someone cancel an order? did they sign contracts? did they put down a deposit? and if so, do they lose it?
You cancel by canceling. Yes, you sign a contract. Yes, you put down a deposit. Yes, you forfeit the deposit if you cancel. Simple answers, but, the contracts often allow builders to go after the customer and force closure of the sale. Not typically done, but possible. There are also boat loads of cry baby buyers hiring two dollar lawyers to try and get their deposits back from cancelled orders.
“We were tricked!”
“The condo is 3/4 of an inch smaller than specified!”
“The paint is not the color promised!”
You get the picture.
lol!!!!! thanks for the info. we might just see them holding the contract signers feet to the fire!
Actually, they are, in some instances. Ben has posted Florida articles about developers doing just that.
Don’t forget
“I am shocked, shocked, to discover that the developer sold most of their inventory to flippers and speculators.”
‘Home sales bad, and worse than they seem’.
http://tinyurl.com/253zve
David Seiders, chief economist for the builders’ trade group, said Thursday that the latest report has some questionable readings, including a 38 percent rise in sales in the West, which he expects will be revised significantly lower in subsequent months. …also pointed out that the report does not capture cancellations by buyers who were unable to get financing or had to pull out of sales because they couldn’t sell their homes.
“We saw an upsurge in cancellations in August and September, according to all the builders,” he said. “The net sales, if we could get that number, would clearly be weaker than this. It’s too early to get hopes up on this report.”
It’s quite a game, isn’t it? Announce an August number, wait 3 weeks and revise it lower. Announce September slightly above the revision and trumpet the ‘increase over August’. Rinse and repeat forever, which in the time horizon of realtors is apparently 3 weeks.
This game is actually hurting all concerned with it’s
dis-information effects, but fear is in the saddle.
Fear is not only in the saddle, fear is also wearing its prettiest cowboy hat and shouting ‘Giddyup’.
Note to stock market apologists: for all the hype over Microsoft, nobody who has bought today is up a dime; however there has been $1.50 and counting available on the short side.
Good girl!
A nice gap fade, unsolicited advice - close before 3:pm EST
Already have.
So, just for my own edification, is a ‘gap fade’ when a stock gaps up (or down) perhaps at the open, and then recedes to a price inside its band? E.g. MSFT opens a 36.01, but by 3PM it is trading at 34.76; if you short the stock at the open, then you could actually pull some change out by closing your position before the close?
I’m just guessing, but would look forward to being corrected!
I googled the heck out of “gap fade” and couldn’t come up with much beside worn-out designer jeans!
So, for my edification, does a “gap fade” occur when a stock gaps up (for example, at the open) but then its price recedes to some level intra-gap? For example, MSFT opened at $36.01, and, predictably, dropped to around $34.76 at the tail end of trading.
I tried to google the definition but didn’t find many useful hits.
Found it!
http://www.investopedia.com/articles/trading/05/playinggaps.asp
“Jeffrey Orleans, CEO of Bensalem-based Orleans Homebuilders, …blasted national builders such as K. Hovnanian for their widely publicized ‘fire sales,’ in which the builder advertised deep discounts on new homes.’”
Suck it up, Jeffrey. Thanks again, Ara.
CFC is up on the outlook they gave about returning to profitability next quarter. They better hope to God they turn a profit.
Just lay off half of there employees and dump all of there properties. Profit?
Fast forward to the last chapter…the bad crap will be stripped out in a bail out and someone will acquire them for the servicing rights.
WHo in their right mind would acquire them if they keep pumping the stock up?
This is classic pump and dump. Mozillo is hanging on by a thread. This company made $2 Billion last year by committing fraud. I wouldn’t touch them with a 10 foot pole and the massive investigations that are about to happen to it. Especially when they don’t hit their numbers next quarter and Mozillo says, I didn’t expect this. We thought we would have returned to profitability. I wonder how much more stock he dumps on today’s news?
Who is their right mind? Wilbur Ross, for one. But he will wait for the final capitulation to strike….
Oooh, look, Peter Schiff is gonna be on tonight:
Fox News
Your World with Neil Cavuto
Fri 10/26/2007
4:20:00 PM EDT
Peter Schiff, the smarty pants man! I recall one t.v. interview he gave a year ago, I wish I could recall the network, with a bunch of REtards who were patronizingly laughing and shaking their heads when he said ‘Prices will fall.’ Yeah?! Yeah?! Huh! Who’s laughing NOW! Me! And Peter Schiff!
Oh, and there was one realtor guy who fascinated me with his singularly repulsive hair, which looked like ramen noodles attached to his pasty head. Now, I adore ramen noodles, but not like that. Who’s that guy? Anyone know who I mean? Because I want to send him a note to be sure to watch Schiff tonight.
Donald Trump?
No, different horrible hair guy.
that was a fox business report, it’s still on youtube somewhere. The one guy looked like a cross between ron jeremy (minus the stache) and Sam kinison. Can’t recall his name. If anyone finds the video, it’s worthwhile linking–all these boobs insinuating that Schiff had no idea what he was talking about. It was awful.
Yeah, yeah! That horrible hair guy! And an excellent description, Steve W.
I’m going to go look for it.
It was awful, then. Fast forward to today, though—I imagine I will quite enjoy watching it.
Enjoy watching Ron Jeremy?
Sorry couldn’t resist lol
Ewww! Icky! Nope. Amateur is best.
I think someone posted those videos in Bits and Buckets this morning, or maybe last night’s Cali thread. It all runs together after a while. So much reading, so little time.
They are in last night’s Cali thread.
discrediting-usual tactic employed by the manipulators…play the game? i don’t think so!
I’m sure if you search Youtube.com you can find the excellent videos.
They were also posted yesterday, I believe in the last thread.
Funny stuff!
“Oh, and there was one realtor guy who fascinated me with his singularly repulsive hair, which looked like ramen noodles attached to his pasty head.”
YES! I remember that show well, including the Michael Bolton lookalike clown. I’ve always wondered if they ever did a followup…..
HEre is a page on Peter’s site with lots-o-video links. Seem to recall seeing the “bad hair guy” interview here
http://www.europac.net/video.asp
Found it (= Bad hair guy raving about Real Estate)
http://www.europac.net/Schiff-Fox-12-31-06_lg.asp
Oh Oh I am going to miss this. I hope it makes YOUTUBE!
I wonder what he has to say about CFC popping today.
Schiff- I am on their Euro Pacific e-mail list.
August 2007
http://www.youtube.com/watch?v=6XtQoZAqjc8
December 2006
http://www.youtube.com/watch?v=yoZV5jt9puc
All those bafoons trying to berate Schiff look worse than stupid now. Fun to revisit, and of course be on the right side
Ramen noodle hair sounds so-bad-it’s-good.
I just watched it, oh man that realtor was annoying she was shouting its great time to buy but the buyers are scarred cause of the bad news.
Schiff pointed out that prices will drop 50% the host seemed surprised. he said no one can afford these prices, and we are no where near the bottom.
That fake tan shouing realtor said you never know when the bottom comes, (though i could swear she just said we had bottomed and its good time to buy)
He asked she knew anyone who could buy at these prices who is currently renting, she sais she knew lots, he laughted and said he didnt know any.
“The number of subprime loans that were behind in payments soared to 29.08 percent, compared to 18.32 percent in the year-ago period.”
Is that bad?
Pithy response fails me. Yes, it is very bad.
But not as bad as it’s going to get.
Here’s an interesting reflection of the economy:
Illegal Mexican workers are sending fewer and fewer dollars home.
http://tinyurl.com/yuhwpx
no subscript to the NYT article but i see this page from TheLedger.com.. wondering if it’s the same.
Interesting to see from the Mexico point of view..
Three months ago, Mónica Núñez closed her tortilla shop in the village of San Lucas. “Most people went to the United States and sales went down,” she said.
Meaning that illegal immigration to the USA hurts mexico’s local economies?
But he expects to go back again. “To tell the truth, it really is worth the trouble,” he said, recounting a terrifying crossing getting lost in the Arizona desert.
Mrs. Rivera’s husband is not so sure. “It’s really tough to go back,” he said. “Now they lock you up. Before, they grabbed you and sent you back. The laws were never this tough.”
Seems that whatever is going on to curtail illegals certainly is having an effect..
http://tinyurl.com/2m6trj
yes, I hear from my roomie that her illegal BF has been sent to a detention center in York, PA. It’s some kind of round-up hub for illegals on their way to deportation.
He sees illegals from every nation there, not just his countrymen. China and Russia have the next largest representation.
When he was initially jailed (for repeat DUI) he intended to come right back across the border. Lately I hear that many illegals’ intentions have changed. Word is getting out about tougher enforcement.
I am stunned to learn that ICE is actually doing its job.
WASHINGTON (AP) — If you want to see a Democratic or Republican congressman squirm, mention a multibillion-dollar bailout for the housing market crisis. The apparent discomfort contrasts with reality: most risky home loans made near the end of the housing boom can’t be salvaged.
Lawmakers Limited in Mortgage Mess Fixes
http://biz.yahoo.com/ap/071026/risky_mortgages_reality_check.html?.v=1
This looks just like Social Secruity, Medicare, and any number of ways in which America is living a lifestyle we just can’t afford in the long run. Congress is used to looking bankruptcy in the face, I haven’t seen too many of them squirm with discomfort yet. Until they see pitchforks they’re laughing at us.
“‘We also suspect that the deterioration of the housing market might also have affected owners’ psychology with respect to making timely payment’ on loans that have yet to adjust, the analysts wrote. ‘Certain borrowers may have decided that it’s time to throw in the towel.’”
They ’suspect’ certain borrowers are throwing in the towel?
That was a fox news report. the guy looked like a cross between sam kinison and roger daltrey. It’s still on youtube somewhere, it was real maddening to watch–the boobs really made Schiff seem like he was a chicken little and anyone listening to him was an idiot.
guess they were wrong.
Here’s the link:
http://www.youtube.com/watch?v=yoZV5jt9puc
At least I think that’s the one we are all talking about. And yes, I really love the Ron Jermemy guy calling for 10% increase in home prices this year.
sorry if this double posts
Lawmakers Limited in Mortgage Mess Fixes
http://biz.yahoo.com/ap/071026/risky_mortgages_reality_check.html?.v=1
Oil at record high, dollar at record low, financials in trouble and the Dow is up 120! WTF??
Breaking NEWS — Henry Paulson just proposed BAILED OUT PLAN for BANKS and MORTGAGE LENDERS!
I am totally sickened by this.
This just seal the name of Henry Paulson as the most Financial EVIL of all Time, at the same level as Greenspan and Bernanke.
Truely, I think we should make at least 1 prayer for Henry Paulson to go to HELL! To HELL!
==================================================
http://business.timesonline.co.uk/tol/business/economics/article2741522.ece
From The Times October 26, 2007
Henry Paulson presses for aid to sub-prime lenders
Suzy Jagger in New York
Henry Paulson, the US Treasury Secretary, is seeking to persuade the White House to offer financial compensation to American mortgage lenders that try to help troubled homeowners by renegotiating the terms of their loans.
The Times has learnt that Mr Paulson is lobbying President Bush to provide funds so that mortgage lenders can reduce the loss that they would incur from either reducing the rate of an adjustable home loan or extending the life of the mortgage to make it cheaper for the property owner.
It is understood that Mr Paulson’s proposals are meeting significant resistance within Washington, where it is perceived that such a move would be a bank bail-out scheme.
Washington is nervous about being seen to be preventing Wall Street companies from having to face the financial implications of their own lax lending practices and ill-judged investment decisions.
America is suffering its worst housing recession for 16 years. Mortgage arrears and foreclosures have soared as homeowners have struggled to keep up with their mortgage repayments.
A number of those homeowners — who typically have low incomes and poor credit histories — took out sub-prime mortgages that begin with a low introductory interest rate but which increase in their cost throughout the life of the loan.
Sub-prime borrowers bet that by the time the interest rate rises, the value of their home will have appreciated sufficiently to allow them to remortgage. Unfortunately, the housing slowdown has seen some states suffer house price falls of 40 per cent.
In the summer, President Bush sought to avert a deepening mortgage crisis and reduce the number of Americans who faced losing their homes. He urged mortgage lenders to contact borrowers and try to renegotiate the terms of their mortgages.
Earlier this week, Countrywide, America’s biggest mortgage lender, said it would begin contacting borrowers and modify $16 billion (£7.8 billion) worth of home loans whose interest rate will reset by the end of 2008.
David Sambol, Countrywide president and chief operating officer, said: “We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes but need a little help to do it.”
It is expected that other mortgage lenders will follow suit, even though the cost of negotiating the terms of sub-prime mortgages will eat into their profits.
It is understood that Mr Paulson wants to offer the lenders compensation to offset these losses.
Chris Whalen, of Institutional Risk Analytics, said: “Paulson can’t go there. Paulson wouldn’t just be trying to help the banks, he would be trying to help the dealers, Wall Street as a whole. Ultimately, it’s the investors who take the hit.”
Mr Whalen added: “It is wrong for the Government to try to mandate loan modification. It sounds brutal, but a lot of these families should not have got mortgages in the first place. They couldn’t afford them. Modifying the loan in a number of cases won’t work. Historically, 30 to 40 per cent of borrowers whose loans are modified default again.”
The US Treasury and Countrywide failed to return calls yesterday.
Breaking NEWS — Henry Paulson just proposed BAILED OUT PLAN for BANKS and MORTGAGE LENDERS!
I am totally sickened by this.
This just seal the name of Henry Paulson as the most Financial EVIL of all Time, at the same level as Greenspan and Bernanke.
Truely, I think we should make at least 1 prayer for Henry Paulson to go to HELL! To HELL!
==================================================
http://business.timesonline.co.uk/tol/business/economics/article2741522.ece
From The Times October 26, 2007
Henry Paulson presses for aid to sub-prime lenders
Suzy Jagger in New York
Henry Paulson, the US Treasury Secretary, is seeking to persuade the White House to offer financial compensation to American mortgage lenders that try to help troubled homeowners by renegotiating the terms of their loans.
The Times has learnt that Mr Paulson is lobbying President Bush to provide funds so that mortgage lenders can reduce the loss that they would incur from either reducing the rate of an adjustable home loan or extending the life of the mortgage to make it cheaper for the property owner.
It is understood that Mr Paulson’s proposals are meeting significant resistance within Washington, where it is perceived that such a move would be a bank bail-out scheme.
Washington is nervous about being seen to be preventing Wall Street companies from having to face the financial implications of their own lax lending practices and ill-judged investment decisions.
America is suffering its worst housing recession for 16 years. Mortgage arrears and foreclosures have soared as homeowners have struggled to keep up with their mortgage repayments.
A number of those homeowners — who typically have low incomes and poor credit histories — took out sub-prime mortgages that begin with a low introductory interest rate but which increase in their cost throughout the life of the loan.
Sub-prime borrowers bet that by the time the interest rate rises, the value of their home will have appreciated sufficiently to allow them to remortgage. Unfortunately, the housing slowdown has seen some states suffer house price falls of 40 per cent.
In the summer, President Bush sought to avert a deepening mortgage crisis and reduce the number of Americans who faced losing their homes. He urged mortgage lenders to contact borrowers and try to renegotiate the terms of their mortgages.
Earlier this week, Countrywide, America’s biggest mortgage lender, said it would begin contacting borrowers and modify $16 billion (£7.8 billion) worth of home loans whose interest rate will reset by the end of 2008.
David Sambol, Countrywide president and chief operating officer, said: “We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes but need a little help to do it.”
It is expected that other mortgage lenders will follow suit, even though the cost of negotiating the terms of sub-prime mortgages will eat into their profits.
It is understood that Mr Paulson wants to offer the lenders compensation to offset these losses.
Chris Whalen, of Institutional Risk Analytics, said: “Paulson can’t go there. Paulson wouldn’t just be trying to help the banks, he would be trying to help the dealers, Wall Street as a whole. Ultimately, it’s the investors who take the hit.”
Mr Whalen added: “It is wrong for the Government to try to mandate loan modification. It sounds brutal, but a lot of these families should not have got mortgages in the first place. They couldn’t afford them. Modifying the loan in a number of cases won’t work. Historically, 30 to 40 per cent of borrowers whose loans are modified default again.”
The US Treasury and Countrywide failed to return calls yesterday..
What happened to FrankenSIV?
These are the signs of a very desperate market place in housing:
The house across the street from you has been finished and a car pulls up, two people get out frown on their faces and a pad and pencil, sure as shooting these two are trying get out of the deal, look for a vacant home across from you for some time.
Then their is the builder, they have balloons everywhere and a smile on their face they ask if you want coffee and cookies or bottled water like every thing is only bad at the other home builder in the area. You can shoot a cannon off and nobody would get hurt the models are so empty.
The Sat and Sunday ads proclaim free car in the garage, free landscaping, free dream kitchen and if you live in the southwest free pool, 100k off etc.
Yes everything is fine and dandy in the housing industry, and they want you to swallow that hook, line, and sinker?
Sounds good to me. What is so bad about this scenario?
Maybe it’s bad if you are a builder.
Merrill Lynch might get bought out is the latest rumor. I hear Stanley O’Neal might be out after trying to get Wachovia to buy them out. Merrill analysts and investment bankers will be the worst paid on Wall Street this year.
If Merrill does get bought out then Stanley O’Neal will get around $220 million dollars. No wonder he is trying to get them bought out by someone else.
A long time ago here at the HBB, I offered to do Stan O’Neal’s job, with much better results and for a lot less money.
That offer still stands.
So the mortgage holders are “insured” against losses, but what if the insurance companies are in the same shape? Do they pay, or do they stall and take their sweet time to pay out, and in the end it is still a smoke and mirrors type of situation? Do the insurance companies have the reserves to pay the amount that will be necessary to bail out those holders of underwater mortgages and derivatives? Just wondering how this all works.
Don’t forget, some of the financial instruments sold to investors were “backwards insurance”. The companies kept paying dividends unless there was a default. Spin the wheel, you might be a winner.
When people say they are “insured,” they don’t really mean that in the way most people think of insurance. The entities on the other side of credit default swaps tend to be investment banks, hedge funds, etc., so there is definitely a lot of counterparty risk. In the financial guaranty space (such as for municipal bonds), the main players are more like insurance companies, but they’re still not the companies most people think of when they think of insurance. One exception is XL Capital, an insurance company that does municipal bond guarantees. Then there are those like AMBAC and MBIA. It’s not like calling up State Farm with a claim on your auto policy. Even the insurers that do more commercial stuff (like Hartford, Travelers, AIG, etc.) weren’t really into this stuff.