The Mortgage Lender Implode-O-Meter

[bdc63]

I was looking for some info on a mortgage lender that I heard went under, when I stumbled onto this website.

http://ml-implode.com/ The Mortgage Lender Implode-O-Meter

The site identifies the 12 lenders that have "imploded" since Dec '06, as well as at-risk lenders. They also have links to what they call "The Top Mortgage Banking Bust News and Commentary", as well as links to blogs on the Housing and Credit Busts.

Thought some of you might find it interesting.

[bdc63]

New subprime implosion story. HSBC (this planet's 3rd largest bank) has just announced that 'loans-gone-bad' is much worse than thought just 2 months ago. They're upping their estimate by 20%. This is expected to be market-moving today (both in Europe and US).

Update: the implode-o-meter is now up to 18.

http://bloomberg.com/apps/news?pid=20601087&sid=ar.WRLz45vtA&refer=home

HSBC Says Bad-Loan Charges to Exceed Analysts' Estimates by 20%

By Christine Harper
Feb. 7 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank, said it's increasing loan-loss provisions for 2006 because mortgages to risky borrowers in the U.S. are going bad faster than the company expected only two months ago.
Provisions will be 20 percent higher than the $8.8 billion that analysts now estimate, London-based HSBC said in an e-mailed statement.
``It is clear that the level of loan-impairment provisions to be accounted for as at the end of 2006 in respect of Mortgage Services operations will be higher than is reflected in current market estimates,'' the bank said in the statement.
HSBC, the world's No. 3 bank by market value after New York- based Citigroup Inc. and Charlotte, North Carolina-based Bank of America Corp., bought Household International Inc. for $15.5 billion in 2003. The purchase of the Prospect Heights, Illinois- based company, a lender to consumers with lower-than-average credit ratings, left HSBC more vulnerable a slowdown in house price growth.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net (charper@bloomberg.net) .

[Mango]

I was looking for some info on a mortgage lender that I heard went under, when I stumbled onto this website.

http://ml-implode.com/ The Mortgage Lender Implode-O-Meter

The site identifies the 12 lenders that have "imploded" since Dec '06, as well as at-risk lenders. They also have links to what they call "The Top Mortgage Banking Bust News and Commentary", as well as links to blogs on the Housing and Credit Busts.

Thought some of you might find it interesting.

That site is put up by someone who isn't making it selling mortgages or lead generation, so now looking to get advertisers on that site. :roll:

[bdc63]

That site is put up by someone who isn't making it selling mortgages or lead generation, so now looking to get advertisers on that site. :roll:

I've been reading Aaron's blogs and posts on various sites for some time now. I seriously doubt he has ever tried to "make it selling mortgages or lead generation." (there is a link to his profile on the site).

He's been looking for the tipping point, and has identified this subprime implosion as "it". It certainly is possible, and many of the more extreme 'housing-led-financial-apocalypse' people beleive the same thing. I for one am going to watch closely.

By the way, since I posted this HSBC update a few hours ago, another subprime lender has gone "kaput", so now we're up to 19.

[bdc63]

when it rains, it pours ...

New Century Financial's stock is down 30% today on this news:

http://www.latimes.com/business/investing/la-fi-newcent8feb08,1,7264488.story?coll=la-headlines-business-invest

New Century to restate earnings

The 'sub-prime' lender says it failed to properly record losses when it was forced to buy back mortgages last year.
By E. Scott Reckard, Times Staff Writer
February 8, 2007


In another big mortgage-industry setback, New Century Financial Corp. said Wednesday that it would reduce the profit it had reported for the first nine months of 2006 and record a surprise loss for the final quarter because it had understated the damage caused by a recent rash of soured loans.

Irvine-based New Century is the second-largest lender after Wells Fargo & Co. in the so-called sub-prime mortgage market, for borrowers with credit flaws or other high-risk characteristics. It postponed release of its fourth-quarter earnings, which had been scheduled for today, to an "undetermined future date" and didn't estimate how big its loss would be.

New Century put out the news after the stock market closed. Its shares gained 13 cents to end at $30.16 in regular trading. After hours, the stock plunged nearly 16% to $25.46.

The company said it had failed to account properly for losses sustained when loan buyers forced it to buy back mortgages that quickly went into default. The rising volume of such repurchases has plagued the sub-prime industry recently and drove Ownit Mortgage Solutions Inc. of Agoura Hills, another large sub-prime lender, into bankruptcy proceedings.

New Century said it also would write down the value of the residual interests it retains in loans that have been used to create the mortgage-backed securities that have found eager buyers around the world.

As the housing market cooled over the last year and competition intensified for a shrinking number of mortgage borrowers, some lenders provided loans on overly easy terms to unqualified buyers, analysts have said. Some of these buyers, particularly those who purchased homes for the first time with low or no down payments, are believed to have stopped paying their mortgages when housing prices declined.

For the first three quarters last year, New Century had reported earnings of $268 million, or $4.72 a share, down from $297 million, or $5.10, in the comparable period of 2005. It said it hoped to file amended reports by March 1.

Wall Street analysts had expected a profit of 34 cents to $1.64 a share for the fourth quarter, with an average of $1.08, down from $2 a share a year earlier.

[Babyblue]

And the point to all of this? :confused:

[hi n dry]

Does anyone know the proportion of sub prime mortgages we have on 30A in comparison the the national average?

[destinsm]

Does anyone know the proportion of sub prime mortgages we have on 30A in comparison the the national average?


This article may give you some related data, but not exactly what you are looking for... I know it is a bit dated, but it shows how speculative this market from Pcola to Panama City is and has been...

http://www.sptimes.com/2005/06/06/Columns/New_rage_in_mortgages.shtml

From the article:

"In other parts of Florida, the boom in interest-only mortgages is even more intense. In Fort Lauderdale, a third of home buyers used interest-only mortgages last year, while 6.7 percent used them in 2001. In Panama City, 60 percent of home buyers chose interest-only loans in 2004, up from just 5 percent in 2001.
And in what may be Florida's most speculative area for real estate investing - Fort Walton Beach, located between Pensacola and Panama City - 71 percent of mortgage borrowers tapped interest-only loans in 2004. In 2001, only 1.9 percent chose them.
That's the highest percentage of interest-only loans in any market nationwide tracked by LoanPerformance."

[bdc63]

And the point to all of this? :confused:

Everybody has been trying to figure out if we are having a hard or soft landing in real estate ... have we bottomed out or is there another leg down yet to come? Important questions to ponder, whether you are a buyer or a seller (or a good RE agent wanting to provide sound information to his/her clients).

Maybe a subprime collapse has little or no direct impact in the South Walton area ... I don't know. But it is certainly a piece in the puzzle of the bigger questions ...

... will we have a recession? ... will the consumer stop spending? ... will housing prices decline in '07? ... will liquidity dry up? ... is unemployment going to rise? ... will loan standards change? ... will loan problems seep into areas other than subprime? ... is the Fed's next move to raise or lower? ... what's going to happen to the US$?

I spend a lot of time trying to connect these dots. (I know, "get a life", right?)

[SHELLY]

Maybe a subprime collapse has little or no direct impact in the South Walton area ... I don't know. But it is certainly a piece in the puzzle of the bigger questions ...


Brings to mind an old rhyme:

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.

[SHELLY]

... will we have a recession? ... will the consumer stop spending? ... will housing prices decline in '07? ... will liquidity dry up? ... is unemployment going to rise? ... will loan standards change? ... will loan problems seep into areas other than subprime? ... is the Fed's next move to raise or lower? ... what's going to happen to the US$?

I spend a lot of time trying to connect these dots. (I know, "get a life", right?)

What you should spend time pondering is WHAT is going to happen to prevent the above from happening. When you come up with an answer, I'd love to hear it.

[JoshMclean]

http://www.sowal.com/bb/attachment.php?attachmentid=3908&stc=1&d=1170993966

[SHELLY]

http://www.scumpa.com/~art/art-jun01/mick-leslie-thumb.jpg

[goofer44]

What you should spend time pondering is WHAT is going to happen to prevent the above from happening. When you come up with an answer, I'd love to hear it.

The obvious answer......THE FED.

[goofer44]

... will we have a recession? ... will the consumer stop spending? ... will housing prices decline in '07? ... will liquidity dry up? ... is unemployment going to rise? ... will loan standards change? ... will loan problems seep into areas other than subprime? ... is the Fed's next move to raise or lower? ... what's going to happen to the US$?

We won't have a recession but we will have a slowing of growth ( 1-2% GDP growth). The consumer will negligibly cut back on spending. Housing prices will continue to erode. Liquidity will not dry up, the FED will make sure of that. Unemployment will remain the same. Loan standards will change and be more stringent ( I think they already have. This is the bitter and much needed medicine). The subprime loan problem WILL seep into other areas, it has to (this will cause the FED to become aggressive in lowering rates). The US$ is going lowering because of all of the above, BUT that may be the silver lining by bringing in a large new source of demand. This is all a normal occurence in the business cycle. We have gone through this before and we will go through it again.

[Mango]

Although I am not thrilled with site layout that bcd posted which puts the top 25 lenders, but right above it says 19 have imploded and put the closed or bk businesses below (implode o-meter)

I have a feeling the mortgage companies listed are just the tip of the iceberg. The 19 defunct cos. most likely did not sell those subprime loans directly on Wall Street, but most likely sold them in bulk transactions to the top 25. Those top 25 not only made subprime loans (BBB) but also Alt A, A- loans, as well as some of them the exotic ARM programs.

We still have yet to see how the impact of defaults to the top 25 is going to trickle down to hedge funds, pension funds, and mainly derivatives (an unregulated market :shock: (almost 400 trillion dollars) and when mortgages go bad, they may not have the financial assets to withstand such a influx of defaults.
I've been in the mortgage business 22 years and I can tell you Subprime lending has never been tested by a severe downturn in house prices and the economic cycle to this extent.

We still need to see how all this plays out IMO.

[hi n dry]

The Clerk of Courts lists 8 Foreclosures over the next 30 days.
Below are some of them.

http://clerkofcourts.co.walton.fl.us/default.aspx?id=31

FORECLOSURE: LOT 15 BLK H FRANGISTA BEACH 2ND ADD

FORECLOSURE: UNIT 312 AMALFI COAST RESORT CONDO

FORECLOSURE: LOT 104 DRIFTWOOD ESTATES PH 1B

FORECLOSE: UNIT 3010 CIBONEY CONDO

FORECLOSURE: LOT 2 BUENA VISTA

Would this be considered a significant number of foreclosures?

[goofer44]

This is the time to be shopping on Wall st. for opportunity being created by the sub-prime sell off created by HSBC's revolation. The weak shall perish, the strong propsper. I have owned Citicorp for 4 years. If it goes below 50 I will add. Subprime is negligible to them looking at the big picture. I bought WAMU today at 43.20....I will add to it as it goes lower( 5% yield and a strategic acquisition target for the major banks as a kicker).
Wall ST. always over-reacts and throws the baby out with the bath water. Again, this is not new news about sub prime lenders. It has been discussed widely on this board as well as the media in general. Use this to buy great companies ( Wells Fargo, Citicorp, JP Morgan, Bank of America ) in case they sell off appreciably because investors panic and sell the blue chips along with the crap !!

[SHELLY]

... The subprime loan problem WILL seep into other areas, it has to (this will cause the FED to become aggressive in lowering rates).

I'm still betting that the next rate move (if there is one) will be up. The US needs all the help it can get in attracting much needed capital to keep paying off the interest on its debt. Moreover, the Fed will want to distance itself from the "easy, exotic money machine" it created that made homeOWERS out of the masses (Greenspan started the trainwreck when he touted ARMs vs Fixed as the 'way to go' just a few months before he started jacking up the rates.:cool: ). If Ben and Co. see the need to lower the rates, the U.S. will be in seriously deep do-do.

http://www.doorcountycompass.com/events/images/tin-foil-hats-02.jpg
SHELLY'S ANSWER TO GOOFER'S "STRAW HAT" THEORY


.

[Mango]

This is the time to be shopping on Wall st. for opportunity being created by the sub-prime sell off created by HSBC's revolation. The weak shall perish, the strong propsper. I have owned Citicorp for 4 years. If it goes below 50 I will add. Subprime is negligible to them looking at the big picture. I bought WAMU today at 43.20....I will add to it as it goes lower( 5% yield and a strategic acquisition target for the major banks as a kicker).
Wall ST. always over-reacts and throws the baby out with the bath water. Again, this is not new news about sub prime lenders. It has been discussed widely on this board as well as the media in general. Use this to buy great companies ( Wells Fargo, Citicorp, JP Morgan, Bank of America ) in case they sell off appreciably because investors panic and sell the blue chips along with the crap !!

Goofer, I do not think the major Banks will become defunct due to subprime loans, I think that delinquincies will rise more than HSBC's "revelation"
HSBC, as well as some of the Banks like Chase and Citicorp, tried to get into a lucrative market with subprime loans and they went to play ball without a mitt. I started in the subprime market 22 years with one of the first subprime second mortgage lenders. I also was constantly recruited by the above lenders to come and show them how to enter the business years later.
IMO, the poo is going to hit the fan with much more impact than anticipated as a trickle down effect to the hedge funds, derivatives, and every other firm these Banks lent money to who played in the sandbox with them. No. its not news about subprime lending defaults, but what no one really talks about the potential trickle down effect.
I agree Wall Street overreacts, but this time I am taking the back seat, I've played in this sandbox and know what's still buried. ;-)


I'm still betting that the next rate move (if there is one) will be up. The US needs all the help it can get in attracting much needed capital to keep paying off the interest on its debt. Moreover, the Fed will want to distance itself from the "easy, exotic money machine" it created that made homeOWERS out of the masses (Greenspan started the trainwreck when he touted ARMs vs Fixed as the 'way to go' just a few months before he started jacking up the rates.:cool: ). If Ben and Co. see the need to lower the rates, the U.S. will be in seriously deep do-do.

http://www.doorcountycompass.com/events/images/tin-foil-hats-02.jpg
SHELLY'S ANSWER TO GOOFER'S "STRAW HAT" THEORY


.

I agree on the rate increase and BTW- that looks like the hats they wore in that movie with Mel Gibson and the aliens. :razz:

[goofer44]

My playing days go back to the early 70's before the first oil embargo imposed by King Faisal. What I have learned is that 1) we ALWAYS muddle through no matter what the disaster dejour 2) it has always paid to be a buyer on these perceived "the end is near" scenarios. I see no reason to change my playbook now. BTW, Shelly...that "straw hat must be made of gold" since my theory proved very prescient last August regarding JOE and the other housing stocks I bought. :biggrin:

[SHELLY]

BTW, Shelly...that "straw hat must be made of gold" since my theory proved very prescient last August regarding JOE and the other housing stocks I bought. :biggrin:

When did you sell?

[goofer44]

SHELLY, if you go back and read my posts , you will see that info. btw, still long a few shares of JOE. did sell march 60's at 3 on this week's run up. also remember my pm to you on energy stocks ( cvx ). that was up 20% in a short time. ;-)

[redfisher]

[QUOTE=SHELLY;204998]I'm still betting that the next rate move (if there is one) will be up. The US needs all the help it can get in attracting much needed capital to keep paying off the interest on its debt.



What debt? You know Clinton had a surplus...

http://www.marketwatch.com/news/story/budget-surplus-january-pegged-cbo/story.aspx?guid=%7BA5547C6E%2DA23F%2D40A0%2D9EDA%2 D445386E50184%7D




Moreover, the Fed will want to distance itself from the "easy, exotic money machine" it created that made homeOWERS out of the masses


In your opinion, should the masses not owe/own homes? Why did the FED make money easy?


(Greenspan started the trainwreck when he touted ARMs vs Fixed as the 'way to go' just a few months before he started jacking up the rates.:cool: )


Are you suggesting he's @ fault for an individual's decisions?...


. If Ben and Co. see the need to lower the rates, the U.S. will be in seriously deep do-do.

Why?

[SHELLY]

What debt?

http://www.brillig.com/debt_clock/debtiv.gif


Are you suggesting he's @ fault for an individual's decisions?...

I suspect when Greenspan made his remarks, that were hailed by the mortgage/banking/RE industry as manna from heaven, he kinda had the idea he would start raising the interest rates pretty soon (and he did). At the time the industry was like hot,glowing grey charcoal brickettes....and Greenspan was the yahoo who squirts a full can of charcoal starter over the top.

As for the sub-prime/exotic mortgage bust....I don't believe for a minute that any banker/economist/mortgage broker with a single working brain cell couldn't see that mess coming (I can easily forgive the 70-year-old granny from Guatemala who got suckered into their schemes.)

If Ben and Co. see the need to lower the rates, the U.S. will be in seriously deep do-do.

Why?

(According to the Government)

Stock market good...........check
Unemployment rate good...check
Inflation OK.....................check
Wages raising..................check
Corporate profits good......check
Consumer sentiment good..check

(According to NAR)

Housing Market Recovering.......check
Mortgage Rates are GREAT!......check
NOW is the BEST time to Buy!...check
[The last statement reminds me of the joke-sign over the bar that reads "Free Beer Tomorrow"]


:idontno: Why on earth would the Fed consider lowering rates when everything is going along just swell? If they do, they must know of some type of ecomonic problem they haven't been telling us about.


.

[SHELLY]

IMO, the poo is going to hit the fan with much more impact than anticipated as a trickle down effect to the hedge funds, derivatives, and every other firm these Banks lent money to who played in the sandbox with them. No. its not news about subprime lending defaults, but what no one really talks about the potential trickle down effect.
I agree Wall Street overreacts, but this time I am taking the back seat, I've played in this sandbox and know what's still buried. ;-)



So is it true that soon people applying for mortgages may actually have to 'prove' they can pay the money back???:blink: I mean, they may have to provide some sort of {real} documentation that they actually have a job and salary--and that the mortgage broker and underwriter may actually 'check' to make sure they're telling the truth???:blink:

http://www1.istockphoto.com/file_thumbview_approve/320602/1/istockphoto_320602_shock_horror.jpg

[Mango]

So is it true that soon people applying for mortgages may actually have to 'prove' they can pay the money back???:blink: I mean, they may have to provide some sort of {real} documentation that they actually have a job and salary--and that the mortgage broker and underwriter may actually 'check' to make sure they're telling the truth???:blink:


http://www1.istockphoto.com/file_thumbview_approve/320602/1/istockphoto_320602_shock_horror.jpg


This may surprise you Shelly, but even people with pristine credit whose loans were run through Fannie Mae and Freddie Mac came up as not having to prove income due to good credit scores, job histories, low LTV. But, a verbal verification of employment was done by brokers, AND repeated by the Lenders and guess what? my shop even put paystubs in the file even when they were not needed. Imagine that! :roll:

[SHELLY]

my shop even put paystubs in the file even when they were not needed. Imagine that! :roll:

Good for you...that's one-in-a-row!! :clap_1:

[bdc63]

Mango - Thanks for your insider insights. I agree with your tip-of-the-iceburg analysis ... and I fear that a titanic sized ship with the words "US Economy" painted on the side is headed right for it.

I am curious what, if any, lending tightening standards that you are seeing outside of the subprime arena. I read on another site that Neg ARMS and No Doc's are gone, regardless of credit score. That doesn't seem to be true, as I still see them advertised. What are you seeing?

I also read a prediction that by year end the only loans available will be 30 year fixed with 20% down to people with high credit scores. If true, that would certainly change the affordablity position of most folks (and may be what brings the "median home" price back within reach of the "median family"). Any thoughts?

(Implode-O-Meter update: 20, or about 2 per week since the first collapse in early DEC)

[Babyblue]

Shelly wrote" Why on earth would the Fed consider lowering rates when everything is going along just swell? If they do, they must know of some type of economic problem they haven't been telling us about."


What about the war and the machine to keep our country safe?

[bdc63]

Shelly wrote" Why on earth would the Fed consider lowering rates when everything is going along just swell? If they do, they must know of some type of economic problem they haven't been telling us about."


What about the war and the machine to keep our country safe?

I suspect that Shelly was taking the other side of the arguement to make a point.


I really do wonder what the Fed's next move will be though. Like Shelly, I believe the logical move would be up ... that is if the Fed is interested in propping up the precarious dollar and keeping China interested in buying our debt. Yes, it will create difficult times that American's aren't used to, but to use Goofer44's words, maybe it's the bitter medicine we need. And, the Dem's have had control of congress long enough now that Bush should be able to figure out a way to blame it all on them .

But, the Fed has shown time and time again that the only number they care about is GDP (they pretend to care about inflation, but anyone that has been to the grocery store lately knows the reported number has no basis in reality). So, if GDP starts to show recession (I believe that it already has, based on the "import/export" component of the last GDP#, but that discussion is for another time), will the Fed cut, dollar be damned? And, if the dollar devalues, causing China to stop buying our debt, under the umbrella of a sliding GDP (ie. lower revenues), is America even capable of servicing its debt, let alone funding all the other crap?

I know that the Fed has shown great capacity to blow bubble after bubble in the past, but this time it would appear that the stakes are higher. I don't see how they could possibly lower rates -- and if they do, I'm taking every penny I have and putting it into Euro's and gold.

I would be very interested in hearing other views on this.

[Mango]

Mango - Thanks for your insider insights. I agree with your tip-of-the-iceburg analysis ... and I fear that a titanic sized ship with the words "US Economy" painted on the side is headed right for it.

I am curious what, if any, lending tightening standards that you are seeing outside of the subprime arena. I read on another site that Neg ARMS and No Doc's are gone, regardless of credit score. That doesn't seem to be true, as I still see them advertised. What are you seeing?

I also read a prediction that by year end the only loans available will be 30 year fixed with 20% down to people with high credit scores. If true, that would certainly change the affordablity position of most folks (and may be what brings the "median home" price back within reach of the "median family"). Any thoughts?

(Implode-O-Meter update: 20, or about 2 per week since the first collapse in early DEC)

and I heard a prediction that Aliens from the planet Rylos will descend upon the planet and reveal that they gave Nintendo the technology for the Wii so they could train and recruit young people to fight in their desperate interplanetary battle for freedom. :razz:

bdc, mortgage products will not disappear, and we won't revert to the depression era where folks had to put 50% down and only could get a 5 yr mortgage, there will just be more disclosures regarding an adjustable rate loans offered. Also, appraisals are being scrutinized more- some Banks in lieu of underwriters reviewing them are giving them to review appraisers.

What you're seeing is an over reaction to The Office of the Comptroller and other federal bank regulators issued new guidelines late last month directing banks to tighten underwriting and disclosure standards for nontraditional mortgages. The guidelines instruct banks to use the fully indexed rate when analyzing a borrower’s ability to repay interest-only mortgages and payment-option, negative-amortization loans.
Additionally, the Division of Banks also released proposed guidance on non-traditional mortgage product risks, intended to apply to licensed mortgage brokers and lenders paralleling recently issued federal guidance for banks and credit unions on the risks of non-traditional mortgage products, such as interest-only loans. The guide states that brokers who offer non-traditional mortgage products must clearly disclose the risks that borrowers may assume. Many borrowers of these non-traditional products have found themselves in trouble.

So from now on in addition to what we have already been doing, we will be giving out a disclosure something like this:
If you take an adjustable rate mortgage and rates go up, your rate will go up, if rates go down, your rate will go up. Please sign here 10 times. :rofl:
But you will always see an array of products available to consumers.

[bdc63]

Mango - thanks for you insights and humor ... both are appreciated

[Bob]

When I look at Bernanke's resume, I am relatively calmed by his obvious intellectual background. When I consider the fiscal corner Ben is being backed into by the actions Of GW and Greenspan, and our inability to influence trickle down OPEC inflation, I see no good outcome. Bernanke may be subject to the same misplaced vitriol that Jimmy Carter suffered through, because he recommended we simultaneously be fiscally responsible and independent of foreign oil 30 years ago. This was just about the same time blue collar folks started to declare they were Republicans, and The Gipper showed us the miracle of deficit spending combined with unregulated banking. We been moving steadily toward a financial day of reckoning. All we need is 3 aircraft carriers in the Persian Gulf, a nice 'crisis' and the dominoes start falling.

[redfisher]

When I look at Bernanke's resume, I am relatively calmed by his obvious intellectual background. When I consider the fiscal corner Ben is being backed into by the actions Of GW and Greenspan, and our inability to influence trickle down OPEC inflation, I see no good outcome. Bernanke may be subject to the same misplaced vitriol that Jimmy Carter suffered through, because he recommended we simultaneously be fiscally responsible and independent of foreign oil 30 years ago. This was just about the same time blue collar folks started to declare they were Republicans, and The Gipper showed us the miracle of deficit spending combined with unregulated banking. We been moving steadily toward a financial day of reckoning. All we need is 3 aircraft carriers in the Persian Gulf, a nice 'crisis' and the dominoes start falling.


Just like $100/oil and the deficit?...

[redfisher]

Oh I forgot, what was that stock market message again?...

I love these imminent economic meltdowns!...

[Bob]

Just like $100/oil and the deficit?...Yeah, T. Boone Pickens is an idiot too with his mutant son, Jim Cramer. They're calling for oil to be 100+ range.

[Bob]

Oh I forgot, what was that stock market message again?...

I love these imminent economic meltdowns!...The lemmings ran from real estate to Wall street. What's next?

[SHELLY]

The lemmings ran from real estate to Wall street. What's next?

I think you've got that backwards.

My guess is Private Equity/Hedge Fund IPOs....these guys are itching to cash in some chips and the masses are just about ready to throw their money at the "next big thing."

[goofer44]

SHELLY

Again I agree with you !! This is scary. I totally agree the masses will run after hedge fund and private equity ipo's. And the masses will lose their asses !!

[bdc63]

the seepage out of just the subprime area is beginning, according to standard & poor's ........

(impode-o-meter update: 22)



NEW YORK, Feb 15 (Reuters) - Rising delinquencies on U.S. home loans are hitting higher-quality mortgages for the first time, Standard & Poor's said on Thursday, as it put some of the bonds backed by the largest U.S. mortgage lender's loans on review.
The rating company said that it placed a Countrywide Financial Corp. (CFC.N: Quote (http://www.reuters.com/stocks/quote?symbol=CFC.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=CFC.N), Research (http://www.reuters.com/stocks/researchReports?symbol=CFC.N)) mortgage-backed bond issue under review for downgrade. It was the only so-called "Alt-A" loan from 2006 to be placed on such a review based on poor performance of underlying loans.
S&P on Wednesday also put 10 subprime issues on CreditWatch negative.

Representing one of the fastest growing segments of the $10 trillion U.S. mortgage market, Alt-A loans are typically given to borrowers with better credit than subprime but still fall short of the most stringent requirements, such as proof of income.
FICO credit scores below 620 in a range from 350 to 850 usually put borrowers in the subprime category.
A spokeswoman for Calabasas, Calif.-based Countrywide, the biggest U.S. mortgage lender, declined immediate comment.
The reviews follow others in the subprime sector where the riskiest home buyers have run into credit problems in the aftermath of the housing boom.
Before Wednesday's announcement, there were at least seven subprime issues already flirting with downgrades based on the rapid increase in loan delinquencies, including some in the first month of the loan's life. The top driver of delinquencies were second-lien "piggyback" loans taken by borrowers that are often used as a downpayment, S&P analyst Ernestine Warner said on a Thursday conference call.
The Countrywide loans backed its Asset-Backed Certificates Trust 2006-IM1 mortgage bond issue, S&P said. The other deals placed on CreditWatch were sold by units of companies including Goldman Sachs Group Inc. (GS.N: Quote (http://www.reuters.com/stocks/quote?symbol=GS.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=GS.N), Research (http://www.reuters.com/stocks/researchReports?symbol=GS.N)), Lehman Brothers Holdings Inc. (LEH.N: Quote (http://www.reuters.com/stocks/quote?symbol=LEH.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=LEH.N), Research (http://www.reuters.com/stocks/researchReports?symbol=LEH.N)) and New Century Financial Corp. (NEW.N: Quote (http://www.reuters.com/stocks/quote?symbol=NEW.N), Profile (http://www.reuters.com/stocks/companyProfile?symbol=NEW.N), Research (http://www.reuters.com/stocks/researchReports?symbol=NEW.N)).

[redfisher]

The lemmings ran from real estate to Wall street. What's next?

Oh Bob, don't lament the rats... The market will snap back 10% or so by end of summer and you and Shelly will feel much better about yourselves...

BTW, thanks for votin' for W


Shelly, I'd like to know a little more about this theory of private equity ipo business for the masses

[SHELLY]

Shelly, I'd like to know a little more about this theory of private equity ipo business for the masses

In simple terms, for the past several years, Private Equity groups (largely unregulated groups of folks with cash) were buying up public companies, real estate, and other "stuff," fixing them up, and selling them back and reportedly making outstanding returns on their investments. Soon, more and more PE groups were jumping on the bandwagon and lately they find themselves all chasing after the same "stuff." As a result, Private Equity groups and Hedge Funds are looking for alternative ways to generate cash and juice returns (in order to buy even more and bigger stuff and, more importantly, fatten the wallets of the original members of the group)...so they have started selling shares of their groups to the public. Now "Joe 6-Pack" has the opportunity to run with the big boys, like when he was given the opportunity to be a Trump Mini-Me by buying up pre-sale condo contracts to flip for fun and profit.

Last week Fortress Investment Group (http://www.marketwatch.com/news/story/fortress-investment-soars-first-us/story.aspx?guid=%7B3FA68487-0F7A-4C13-9CE2-9F29A40F193F%7D&dist=MostReadHome) went public with much fanfare under the watchful eyes of other PE & Hedge Fund Groups who are considering the same.

[Bob]

Oh Bob, don't lament the rats... The market will snap back 10% or so by end of summer and you and Shelly will feel much better about yourselves...

BTW, thanks for votin' for W


Shelly, I'd like to know a little more about this theory of private equity ipo business for the massesWhich market? Ameritrade or Remax?? Voted for W...Pavlovian vote when the flag wavin' commences. Winning strategy is, wave flag, cut taxes, start war, borrow like hell, repeat.

[TooFarTampa]

SHELLY very nice explanation for those not in the know. Thanks. I'll be calling my broker in the morning. ;-)


SHELLY

Again I agree with you !! This is scary. I totally agree the masses will run after hedge fund and private equity ipo's. And the masses will lose their asses !!

What I can't help but wonder is how many people will continue to chase the next big thing instead of getting smart and going back to basics. We've seen two historic boom/bust cycles in a little more than a decade. Who out there hasn't learned a little bit about irrational exuberance?

[SHELLY]

What I can't help but wonder is how many people will continue to chase the next big thing instead of getting smart and going back to basics. We've seen two historic boom/bust cycles in a little more than a decade. Who out there hasn't learned a little bit about irrational exuberance?

The masses will always chase the "next big thing" because there's a new sucker born every minute...to add to the population of born-again suckers.



.

[spinDrAtl]

BDC, no docs are not gone. I just did one for a customer with 750+ credit score. Conforming lenders will do them to 90-95% on purchases depending on exactly where the score falls.

Option ARMS with neg am are very available as well. However, they are for customers who understand how they work and what purpose they serve. It's the broker's responsibility to help determine if the product is a good fit and is understood.

The main things we are seeing is the tighter scrutiny of appraisals everywhere and changes in the subprime market on credit score tiers. For example, a program that 6 months ago was available to a 580 score might require a 620 now.

[Bob]

BDC, no docs are not gone. I just did one for a customer with 750+ credit score. Conforming lenders will do them to 90-95% on purchases depending on exactly where the score falls.

Option ARMS with neg am are very available as well. However, they are for customers who understand how they work and what purpose they serve. It's the broker's responsibility to help determine if the product is a good fit and is understood.

The main things we are seeing is the tighter scrutiny of appraisals everywhere and changes in the subprime market on credit score tiers. For example, a program that 6 months ago was available to a 580 score might require a 620 now.Do you believe 620 is a subprime score?

[spinDrAtl]

620 is right on the border, IMO. As I said, some subprime lenders are requiring 620 for some programs. There are other mid-level, alt-a type lenders that have 620 as a minimum for some programs and lend up to 680.

I also have had borrowers approved conforming with less than 620 with other factors - low ltv's, substantial reserves, very low dti's etc.

[bdc63]

spinDrAtl

Thanks for your posts. Very interesting information. As you see other changes, I hope you'll post here in this thread and keep us all up-to-date.

Thanks again.

(Implode-o-Meter update: 23)

[redfisher]

The masses will always chase the "next big thing" because there's a new sucker born every minute...to add to the population of born-again suckers.



.


Your explanation is somewhat correct...Its an alternative and very cheap way to generate capital..I think its bad move on their part because they loose their autonomy and it completely changes the way they have to account and report...But once again why is it a sucker bet......Have you ever done PE?...The returns are quite good (typically 1.5-2.25 multiple invested)...You certainly seem to be anti-establishment...Why shouldn't you be able to participate in something you have been precluded from previously...

Oh Bob, that patriotism can be a real hindrance...I guess if you knew then what you know now, you wouldn't have voted for him...Sounds familiar...Anyway, thanks again for votin' W

[bdc63]

Another terrific article on the subprime debacle.

This one, from Morningstar, is about the role the big banks/warehouses are playing in the subprime implosion. Its a long article, but has lots of good details and is a worthwhile read.


http://news.morningstar.com/news/ViewNews.asp?article=/DJ/200702161211DOWJONESDJONLINE000642_univ.xml

UPDATE: Big Banks Deciding The Fates Of Troubled Subprime Lenders2-16-07 12:11 PM EST | E-mail Article (javascript:winOpen('emailFriendEdit.asp?id=/DJ/200702161211DOWJONESDJONLINE000642_univ.xml',468,5 10)) | Print Article (http://news.morningstar.com/news/printNews.asp?id=/News/DJ/200702161211DOWJONESDJONLINE000642_univ.xml) SAN FRANCISCO (Dow Jones) -- A credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big banks like Merrill Lynch & Co. (http://quote.morningstar.com/Switch.html?ticker=MER) and J.P. Morgan Chase (http://quote.morningstar.com/Switch.html?ticker=JPM).
Several private subprime lenders, such as Ownit Mortgage Solutions, Mortgage Lenders Network USA and ResMAE Mortgage Corp., have already filed for bankruptcy protection after having financial lifelines cut by Merrill (MER) and other big banks.
The fate of other publicly traded subprime specialists, such as New Century ( NEW) and Novastar Financial (http://quote.morningstar.com/Switch.html?ticker=NFI) (NFI) , may also rest in the hands of big banks that have helped finance their recent rapid expansion, analysts said.
Others, such as Fieldstone Investment (http://quote.morningstar.com/Switch.html?ticker=FICC) (FICC) , are being acquired by stronger financial-services companies.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. While these loans remain a small part of the home lending industry, they've helped more people buy homes who previously couldn't afford it, helping to fuel a surge in housing prices in 2004 and 2005.
That's why the credit crunch in the subprime market is being so closely watched by investors, economists and policymakers. By cutting off access to credit for these extra buyers, demand for homes may fall further, depressing prices and fueling a broader slowdown in the U.S. housing market.
"This distress in the subprime area is a significant concern," Ben Bernanke said on Wednesday. While noting that the contraction has yet to reach a point where it will affect overall economic expansion, the Federal Reserve chairman said he's monitoring developments.
"There are some loans that have been made that are not turning out well, and to the detriment of both the lenders and the borrowers," he said. "We will certainly be watching that carefully and trying to provide guidance and oversight to minimize that risk going forward."

Lifelines

Most subprime specialists sell the loans they've originated to big banks, which then package them up and sell them on again as mortgage-backed securities to hedge funds and other institutional investors.
It usually takes at least several weeks for subprime specialists to sell their loans. During that time, big banks provide a "warehouse" in which to store them. In return for passing the loan onto these warehouse lenders, the originators get cash equal to the value of the asset, minus a fee, called a "haircut", which provides a cushion against late payments and delinquencies.
The warehouse banks, such as Merrill. J.P. Morgan Chase (http://quote.morningstar.com/Switch.html?ticker=JPM) (JPM) , Citigroup (C) and Bank of America (http://quote.morningstar.com/Switch.html?ticker=BAC) (BAC) , are crucial to this process because they keep subprime lenders supplied with enough cash to help them make more loans immediately.
But as more subprime borrowers struggle to meet their monthly mortgage payments, cracks have begun to form in this system.
Warehouse lenders have started worrying about the quality of subprime loans that have been originated in recent years. Some are now asking subprime specialists for bigger haircuts, putting the originators in financial peril and forcing some into bankruptcy.
"Warehouse lenders are the lifelines for a lot of these subprime originators because they don't have the financial capacity to fund these loans by themselves," Ernie Napier, head of the specialty finance team at rating agency Standard & Poor's, said. "To the extent that these warehouse lenders go away, the whole process starts to unravel."

Pulling the plug

Mortgage Lenders Network USA, the 15th largest subprime company in the U.S., filed for bankruptcy protection this month.
As more borrowers defaulted early on the company's loans at the end of 2006, it tightened lending standards. It also introduced a new product, but mispriced it. After making at least $600 million in new loans with this product, Mortgage Lenders Network had to sell them at a loss in the secondary market.
Some of the company's warehouse lenders, which included Merrill and Goldman Sachs (http://quote.morningstar.com/Switch.html?ticker=GS) (GS) , cut back their financing, forcing Mortgage Lenders Network to post more collateral. When it couldn't come up with the extra cash, some of these lenders refused to advance any more money and the company had to shut down, according to its bankruptcy filing.
"The impression was that the warehouse lenders put them up against the wall and then pulled the plug," S&P's Napier said.
Ownit, one of the fastest growing subprime originators which was partly owned by Merrill, filed for bankruptcy on Dec. 28.
In November, J.P. Morgan Chase (http://quote.morningstar.com/Switch.html?ticker=JPM), which had provided warehouse financing since late 2003, said it planned to shut down the facility by the middle of December. Merrill then made a margin call, sweeping up about $15 million of the company's cash, leaving it with roughly $7.4 million in liquid funds, according to Ownit's filing.
Later that month, J.P. Morgan Chase (http://quote.morningstar.com/Switch.html?ticker=JPM) decided not to fund loans Ownit had recently made and froze the rest of its money, Ownit said. By Dec. 5, Ownit said it had to lay off most of its employees.

Mystery margin caller

In recent weeks, warnings from banking giant HSBC Holdings (http://quote.morningstar.com/Switch.html?ticker=HBC) (HBC) and New Century have shaken subprime confidence further, sparking speculation that a major bank is aggressively making margin calls.
Accredited Home Lenders (http://quote.morningstar.com/Switch.html?ticker=LEND) (LEND) has had to come up with more cash after getting margin calls from some of its warehouse lenders, Stuart Marvin, executive vice president at the subprime specialist told analysts during a conference call on Wednesday.
"We have eight different warehouse lenders; I would say the majority of them are acting very rationally," Marvin said. "There is one that is acting somewhat irrationally, although I won't mention them by name. We have migrated the fundings away from that warehouse lender to one of the other seven until they begin to act more rationally again."
Industry publication National Mortgage News said this week that Merrill Lynch (http://quote.morningstar.com/Switch.html?ticker=MER) has been making margins calls. A Merrill spokesman declined to comment.
In late January, J.P. Morgan Chief Executive Jamie Dimon noted rising defaults in some of its riskiest home loans and said the bank had largely exited the subprime business.

Repurchase redux

Big banks are clamping down on subprime specialists in other ways too.
When originators sell loans on to big banks, the buyers have the right to send them back in certain circumstances, including when borrowers fail to make payments during the first month or two. In those cases, the originator is forced to repurchase the loans.
Early payment defaults have jumped for subprime loans made in recent years, forcing higher-than-expected repurchases by originators like New Century, Fremont and Accredited.
Big repurchases can threaten the survival of subprime originators because they can struggle to come up with the extra cash needed to buy the loans back.
ResMAE Mortgage Corp., which had quickly become the 20th largest subprime specialist in the U.S., filed for bankruptcy this week and said it plans to sell most of its assets to Credit Suisse (http://quote.morningstar.com/Switch.html?ticker=CS) (CS) for $19 million.
By early 2005, loan originations began to wane, knocking ResMAE's profitability. By cutting costs and lifting the interest rates it charged on loans, the company said it was able to make a small profit last year "despite the industry collapsing around it."
But then Merrill Lynch (http://quote.morningstar.com/Switch.html?ticker=MER), which had become the largest buyer of ResMAE's loans, asked the company to repurchase more than $300 million worth of loans. That " enormous" repurchase request, which ResMAE disputes, triggered a liquidity crisis and forced the company to put itself up for sale.
The repurchase demands "crippled ResMAE's operations by requiring the company to post enormous reserves, which dramatically reduced its capital and operating liquidity," the company said in its filing.

New Century, new problems

New Century shares lost more than a third of their value last week after the mortgage services provider slashed its forecast for loan production this year because early-payment defaults and loan repurchases have led to tighter underwriting guidelines.
The company said it has to restate most of its results from 2006 because of mistakes in how it accounted for losses on repurchased loans.
New Century got into trouble because its systems didn't predict the level of repurchases accurately enough, said Zack Gast, a financial sector analyst at the Center for Financial Research and Analysis (CFRA), a research firm.
The company was particularly aggressive in how it accounted for the cost of buying back loans, Gast explained.
The conservative approach is to set aside money based on the assumption that if forced to repurchase problem loans, originators will likely have to resell again them at a lower price, Gast said.
Instead, New Century only provisioned for the cost of repurchasing the loans. Once those assets were back on its balance sheet, the company recorded 100% of their value, Gast noted.
"The pool of loans sitting on their balance sheet has been valued at the wrong price," he concluded.
New Century's problems have sparked concern that the company could be next on warehouse lenders' hit list.
"Investors and warehouse lenders could lose confidence in New Century," Merrill Lynch (http://quote.morningstar.com/Switch.html?ticker=MER) analyst Kenneth Bruce wrote in a note to clients on Feb. 8. "New Century's business model is highly reliant on liquidity, so if investor confidence deteriorates and credit facilities are constrained, a liquidity event could ensue."
"Finance companies that go out of business usually do so because of a lack of liquidity," Bruce reminded his clients ominously.
New Century has financing agreements with lots of large banks including Bear Stearns (http://quote.morningstar.com/Switch.html?ticker=BSC) (BSC) , Citigroup (http://quote.morningstar.com/Switch.html?ticker=C), Credit Suisse, Deutsche Bank (http://quote.morningstar.com/Switch.html?ticker=DB) (DB) , Morgan Stanley (http://quote.morningstar.com/Switch.html?ticker=MS) ( MS) , UBS AG (http://quote.morningstar.com/Switch.html?ticker=UBS) (UBS) and Goldman.
The contracts include covenants requiring New Century to maintain minimum levels of liquidity and debt levels. If those are breached, the lenders can terminate the agreements and demand their money back immediately.
New Century is currently required to keep liquidity levels to at least $134.4 million, according to its latest quarterly results filing with the Securities and Exchange Commission. The company said last week that it had cash and liquidity in excess of $350 million at the end of 2006.
S&P cut its credit rating on New Century last week to BB- from BB and warned of further downgrades, partly because the company might breach its main warehouse loan covenants, triggering a liquidity crisis.

Who's next?

After the warnings from New Century and HSBC (http://quote.morningstar.com/Switch.html?ticker=HBC), warehouse lenders are probably now deciding which subprime originators to continue backing and which ones to drop, CFRA's Gast said.
"If all lenders increase their margin requirements that would probably result in bankruptcy," he said. "If you can't come up with the extra cash, then the warehouse lenders will step in and shut you down."
But which other subprime specialists are in peril?
Gast said that depends partly on companies' liquidity and how aggressive they've been in accounting for repurchased loans.
Accredited Home Lenders (http://quote.morningstar.com/Switch.html?ticker=LEND) has taken the most conservative in its accounting, setting aside money to cover the cost of reselling loans at lower prices, Gast said. That approach knocked its shares last year, but now investors are rewarding the company, he noted.
"Their stock had been punished, but it turns out that they were the ones taking an appropriately conservative approach," Gast said.
Accredited shares are down less than 10% so far this year, while New Century stock has lost 40%. Last year though, Accredited shares tumbled 44% while New Century fell less than 20%.
Gast wouldn't comment specifically on other subprime lenders. But in a Dec. 19 report on the subprime shakeout, the analyst ranked originators based on accounting and liquidity risk.
New Century was the riskiest, followed by Novastar, Fieldstone, Fremont and Accredited.
"In the current liquidity environment, CFRA does not believe any lender is at low risk," he wrote. "All lenders are showing signs of credit quality deterioration."

A way out

Selling to a stronger financial-services company is one way out for subprime specialists.
Fieldstone agreed on Friday to be acquired by an affiliate of mortgage insurers MGIC Investment (MTG) and Radian Group (http://quote.morningstar.com/Switch.html?ticker=RDN) (RDN) for $5.53 a share, or roughly $260 million.
The purchase price is almost double where Fieldstone's shares were trading yesterday and the stock surged 96% on Friday. However, the offer is roughly half where Fieldstone's shares were trading a year ago.
In August, Morgan Stanley (http://quote.morningstar.com/Switch.html?ticker=MS) bought Saxon Capital, a subprime mortgage servicer and lender, for $706 million. A month later Merrill acquired First Franklin for more than $1 billion.
But this type of exit may be more difficult for some subprime originators like New Century.
"The fluidity problems at New Century could undermine or prolong a sale," Merrill's Bruce said. "Only a limited number of buyers may seriously consider a take-out."

Meltdown underway

CFRA's Gast was reluctant to say whether things will get worse for the subprime industry, or estimate when the situation might improve. However, other experts are concerned about the immediate future.
While most of Accredited's warehouse lenders have remained rational, Marvin suggested these big banks could take a tougher approach to rival subprime specialists with less liquidity.
"The long-awaited meltdown in subprime mortgage lending is now underway, and it likely has further to go," Richard Berner, chief U.S. economist at Morgan Stanley (http://quote.morningstar.com/Switch.html?ticker=MS), wrote in a note to clients this week. "More subprime lenders may fold, and the supply of subprime credit likely will tighten further."

[Bob]

Your explanation is somewhat correct...Its an alternative and very cheap way to generate capital..I think its bad move on their part because they loose their autonomy and it completely changes the way they have to account and report...But once again why is it a sucker bet......Have you ever done PE?...The returns are quite good (typically 1.5-2.25 multiple invested)...You certainly seem to be anti-establishment...Why shouldn't you be able to participate in something you have been precluded from previously...

Oh Bob, that patriotism can be a real hindrance...I guess if you knew then what you know now, you wouldn't have voted for him...Sounds familiar...Anyway, thanks again for votin' WDid my vote help you, or your taxes?

[SHELLY]

Your explanation is somewhat correct...Its an alternative and very cheap way to generate capital..I think its bad move on their part because they loose their autonomy and it completely changes the way they have to account and report...But once again why is it a sucker bet......Have you ever done PE?...The returns are quite good (typically 1.5-2.25 multiple invested)...You certainly seem to be anti-establishment...Why shouldn't you be able to participate in something you have been precluded from previously...

You most certainly can throw money at anything...and, as in the past, you'll find the big guys have already eaten the choicest cuts before throwing open the doors to the scavengers to pick the bones--for a fee, of course ;-) .

[redfisher]

You most certainly can throw money at anything...and, as in the past, you'll find the big guys have already eaten the choicest cuts before throwing open the doors to the scavengers to pick the bones--for a fee, of course ;-) .

Once again, your class envy and inexperience cloud your judgement...If you knew anything about the structures, YOU'D find that there are no extra choice cuts to take...Typically structured as partnerships (both general and limited) % participation is realized and distributed anytime a trans. is realized...The "big guys" take their cut as a % of profits with add'l payouts for the amt of their own personal capital invested (typically 5% of the fund) + maint. fees usually less than 2%..

It must be a shame to feel your being dumped on "by the man" at every turn and then be forced to invest in that same market at some perceived disadvantage due to position in the system...Red

[bdc63]

Once again, your class envy and inexperience cloud your judgement...Red

People WITH "class" don't spend nearly as much time talking about "class" as you do.

[Bob]

Red, I hope you're not one of those Repubs who can't get past the country club security gate. It's embarrassing to be alone.

[redfisher]

People WITH "class" don't spend nearly as much time talking about "class" as you do.


bdc63, Wrong kinda "class", but apologies if I was offensive...

Bob, I wouldn't worry 'bout me...this is one lemming that's ok...How 'bout you?..Red

[Bob]

bdc63, Wrong kinda "class", but apologies if I was offensive...

Bob, I wouldn't worry 'bout me...this is one lemming that's ok...How 'bout you?..RedI would need an aquaintance for any tee time at Country Club of Orlando. Jesus himself would need strong financials to become a member. He would also have to lie about his religion.

[robertsondavies]

NovaStar Financial just reported earnings after hours tonight..

The bottom apparently is not in... we're just getting to that point when the band is still playing on the deck of the ship, as the last lifeboat is being unloaded.

Stock, symbol NFI, which is one of the largest subprime players, the other being New Century Financial (symbol NEW) and other being Accredited Home Lenders (LEND)... stock was $17 and change 10 minutes ago

last trade in after hours, was in the $12 range...

We're at the point where the music is about to stop, and the sharks begin to circle from afar...

a stock that has dropped 70% in the last 12 months, drops another 50% in after hours trading tonight..

makes granite countertops a tough punching bag if you threw in a few bucks hoping to "find the bottom" down only 70% at $17 yesterday... or today before market closed for that matter

yikes

[Babyblue]

Yeah, T. Boone Pickens is an idiot too with his mutant son, Jim Cramer. They're calling for oil to be 100+ range.

Oil was 10 bucks a barrel in 98. :eek:

[bdc63]

NovaStar Financial just reported earnings after hours tonight..

yikes

Yikes, is right!

NovaStar has/had(?) REIT status, and paid out a whopping 30% dividend. With their anouncement last night, they stated that they would have virtually no "taxable income" through 2011 ... NO taxable income equals NO dividend.

I'm surpized that the stock price is only down 30%ish this morning. People own this stock for the dividend, and that just went to zero ... for the next five years!

I wonder what kind of trickle down affect this will have on the overall REIT market ....

[SHELLY]

Yikes, is right!

NovaStar has/had(?) REIT status, and paid out a whopping 30% dividend. With their anouncement last night, they stated that they would have virtually no "taxable income" through 2011 ... NO taxable income equals NO dividend.

I'm surpized that the stock price is only down 30%ish this morning. People own this stock for the dividend, and that just went to zero ... for the next five years!

I wonder what kind of trickle down affect this will have on the overall REIT market ....


Wouldn't surprise me if "NovaStar" becomes a 'Black Hole' soon.


.

[fisher]

Yikes, is right!

NovaStar has/had(?) REIT status, and paid out a whopping 30% dividend. With their anouncement last night, they stated that they would have virtually no "taxable income" through 2011 ... NO taxable income equals NO dividend.

I'm surpized that the stock price is only down 30%ish this morning. People own this stock for the dividend, and that just went to zero ... for the next five years!

I wonder what kind of trickle down affect this will have on the overall REIT market ....

Just FYI--Taxable income does not equate to cash flows. So, no taxable income does not necessarily equate to no dividend. You can have no taxable income due to high deductible expenses such as depreciation that still leaves you with plenty of cash flow available to pay a dividend. On the other hand, you can have plenty of taxable income but no cash available to pay a dividend (if you had significant capital expenditures, for instance).

[SHELLY]

From theStreet.com:

"NovaStar is also considering whether it should retain the company's real estate investment trust status, it says. As a REIT, NovaStar is required to pay 90% of its taxable income as dividends to shareholders. NovaStar says it expects to "recognize little if any taxable income" through 2011. "


So....90% of 0 = 0.

Stock down from $18 - $10 in 2 days....It's a buyer's market!


.

[fisher]

From theStreet.com:

" NovaStar is required to pay 90% of its taxable income as dividends to shareholders. NovaStar says it expects to "recognize little if any taxable income" through 2011. "


So....90% of 0 = 0.

Stock down from $18 - $10 in 2 days....It's a buyer's market!


.

It says they are REQUIRED to pay 90% of taxable income as a dividend. It does not say that they cannot pay a dividend if they have no taxable income, but they do have positive cash flows.

I'm not saying they will pay a dividend, just that $0 taxable income does not mean that there is no cash flow available to pay a dividend.

[fisher]

Just FYI--Taxable income does not equate to cash flows. So, no taxable income does not necessarily equate to no dividend. You can have no taxable income due to high deductible expenses such as depreciation that still leaves you with plenty of cash flow available to pay a dividend. On the other hand, you can have plenty of taxable income but no cash available to pay a dividend (if you had significant capital expenditures, for instance).

In fact, in looking at Novastars financial statements from 2005, they paid $202 million in dividends even though it appears that they had a taxable loss (as indicated by the $10 million tax refund they received). I am not saying Nova is healthy or a good stock buy. Simply stating that taxable income and ability to pay dividends do not necessarily equate.

[SHELLY]

It says they are REQUIRED to pay 90% of taxable income as a dividend. It does not say that they cannot pay a dividend if they have no taxable income, but they do have positive cash flows.

I'm not saying they will pay a dividend, just that $0 taxable income does not mean that there is no cash flow available to pay a dividend.

In order to qualify as a Real Estate Investment Trust, the entity is required to distribute at least 90% of its taxable income to shareholders--by passing the money along, the REIT does not have to pay corporate federal or state income tax...the lucky recipients of the dividend do that heavy lifting (unless the shareholders hold them in tax-deferred retirement accounts).

If the REIT receives no taxable income, they can always borrow money or sell stock to get cash to make dividend payments, but the total dividend payout cannot exceed retained earnings....additionally, dividend payouts can also be influenced by debt contract restrictions (i.e., lenders will say, Lookie here, we'll lend you $50m to buy that Tattoo Parlor in SoWal, but we don't want you to fork over any of this money to pay dividends to your shareholders....Capisce??)

From what I've read, NovaStar has a pretty decent pile of cash, but how much of this money will be needed to buy back bad loans still remains to be seen. Since the stock price and the yield are inversely related, as the stock price continues to fall, the yield of course will rise--and the high yield will surely attract the devil-may-care speculators like moths to the flame. Another interesting story to watch and learn.

.

[bdc63]

CNBC Faber Report video:
http://www.cnbc.com/id/15840232?video=186844242

"The market in which subprime mortgages are bought and sold is in collapse with spreads having exploded by 300 basis points over the last few days."

[bdc63]

CNBC is becoming the "all-'subprime disaster' all-the-time" network.

The Faber report again today was on the subprime meltdown impact.

"This is a market in true meltdown."

"The increase in spreads for BBB- has blown out this week. Another 94 basis pts. has been added to that spread this morning alone."

See the video here:
http://www.cnbc.com/id/15840232?video=187495599 (http://www.cnbc.com/id/15840232?video=187495599)

[Bob]

Underwriting guidlines are tightening more than Dick Cheney's belt. The subprime world is changing quickly.

[Babyblue]

Underwriting guidlines are tightening more than Dick Cheney's belt. The subprime world is changing quickly.

I hate that.

[bdc63]

Freddie Mac finally jumps onboard the loan standard tightening train ...

(Implode O Meter update: 27)

http://www.marketwatch.com/news/story/freddie-mac-toughens-subprime-standards/story.aspx?guid=%7B3F839423-9407-4ED0-9351-4999979A647C%7D

Freddie Mac toughens subprime standards
By Greg Morcroft (http://www.marketwatch.com/news/mailto.asp?x=103+109+111+114+99+114+111+102+116&y=Greg+Morcroft&z=marketwatch.com&guid=%7B3f839423-9407-4ed0-9351-4999979a647c%7D&siteid=mktw), MarketWatch
Last Update: 9:32 AM ET Feb 27, 2007

NEW YORK (MarketWatch) -- Government-sponsored mortgage marketer Freddie Mac is the latest company to weigh in on the growing concern over lending to unqualified homebuyers, saying Tuesday it's tightening its standards for buying mortgages held by such borrowers.

Freddie Mac said it would start enforcing the new standards after Sept. 1, 2007.

Shockwaves have been rippling through financial markets as more signs emerge that relaxed lending standards during the housing boom of recent years are leading to escalating defaults and rising losses for lenders and owners of securities backed by such loans.

The latest concern was sparked a few weeks ago, when banking giant HSBC Holdings (HBC (http://www.marketwatch.com/tools/quotes/quotes.asp?symb=HBC&dist=mktwstoryquote)) said its bad-debt charges will be 20% higher than forecast, primarily reflecting deterioration for U.S. lender Household.

Among smaller lenders, the credit crunch in the market for low-end mortgages has left companies specializing in these subprime loans at the mercy of big financial institutions. Several have already filed for bankruptcy.

For its part, Freddie Mac said Tuesday that it would stop buying those mortgages that have "a high likelihood of excessive payment shock and possible foreclosure." Instead, the company plans to buy only subprime adjustable-rate mortgages, and securities backed by such loans, that have been qualified at the fully indexed and fully amortizing rate.

Freddie Mac also said it would limit the use of loans that don't require income verification or other documentation, and will recommend that lenders collect adequate escrow for taxes and insurance payments.
Moreover, the company said it's developing new fixed-rate and hybrid adjustable-rate mortgages with the aim of giving lenders "more choices to offer subprime borrowers."
http://www.marketwatch.com/charts/gifquotes/story-med-ss.img?symb=FRE&time=10&freq=2&compidx=aaaaa:0&comp=&uf=0&lf=1&lf2=0&lf3=0&state=0&sid=5744&startdate=&enddate=39140&nosettings=1&style=1012&size=2&mocktick=1&rand= (http://www.marketwatch.com/tools/quotes/intchart.asp?symb=FRE)
The firm said its new requirements cover mortgages known as 2/28 and 3/27 hybrid ARMs, which currently make up about three-quarters of the subprime market.

Specifically, Freddie Mac said it will require that borrowers applying for these products be underwritten at the fully indexed and amortizing rate, as opposed to the initial "teaser" rate -- often several percentage points below the actual rate for most of the life of the loan.

The company also will limit use of low-documentation loans, so-called "no income verification" products in combination with the 2/28 and 3/27 hybrid arms.

In addition, the company won't purchase "no income, no asset" documentation loans and will limit so-called "stated income, stated assets" products to borrowers whose incomes derive from hard-to-verify sources, such as self-employed persons and those who participate in the cash economy, the firm said in a press release.

"There will be a reasonableness standard for stated incomes," Freddie Mac concluded.

Shares of Freddie Mac ended Monday's trading at $64.93, off 7 cents.
Separately, Freddie's sister company Fannie Mae, said Tuesday it will delay filing its annual report for 2006. In a regulatory filing, the company also said it risks being de-listed from the New York Stock Exchange if it doesn't turn in its 2005 financials report by Dec. 31 and its 2006 report by Feb. 29, 2008. http://i.mktw.net/mw3/News/greendot.gif
Greg Morcroft is MarketWatch's financial editor in New York.

[bdc63]

Friday was a big day for the Subprime lenders ...

Fremont (5th largest subprime lender) recieved a cease-and-desist order from the FDIC and the company decided to "quit sub-prime lending entirely."

New Century (3rd largest subprime lender) disclosed Friday that it is under criminal investigation on how it accounted for losses when it was forced to buy back soured loans last year, and whether its executives profited by selling stock while misleading other shareholders. Nationwide layoffs were announced on Friday.

Accredited Home (13th largest subprime lender) announced Friday that it would be delaying in 10k filing (usually not a good sign).

Federal regulators on Friday proposed stricter guidelines for government-insured banks and thrifts that make subprime loans, to ensure that they go only to people who can afford them for the long haul (nothing like closing the barn door after the cows got out).

Mortgage Lender Implode-O-Meter is now up to 30.

See the story here:
http://www.latimes.com/business/la-fi-loans3mar03,1,4146026.story?coll=la-headlines-business

[bdc63]

This is the time to be shopping on Wall st. for opportunity being created by the sub-prime sell off created by HSBC's revolation. The weak shall perish, the strong propsper. I have owned Citicorp for 4 years. If it goes below 50 I will add. Subprime is negligible to them looking at the big picture. I bought WAMU today at 43.20....I will add to it as it goes lower( 5% yield and a strategic acquisition target for the major banks as a kicker).
Wall ST. always over-reacts and throws the baby out with the bath water. Again, this is not new news about sub prime lenders. It has been discussed widely on this board as well as the media in general. Use this to buy great companies ( Wells Fargo, Citicorp, JP Morgan, Bank of America ) in case they sell off appreciably because investors panic and sell the blue chips along with the crap !!

Hey Goofer44 --

Just curious if your view has changed at all since you wrote this on 2/09 ...

Are you "backing up the truck" or "bailing water from the boat?"

[Mango]

Funny, I got yet another flyer for Brokers on Friday in the mail, advertising all the funky loans they can do with a bright red intro:
The Subprime market is changing, but we're still going strong"

I don't do these loans, but I read the list of "niches" and :eek: couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages.

Then I heard the news. :funn:

[goofer44]

Hey BDC63

Added to C and BAC at 50, Bidding 40 for more WM. Also bought MO PG JNJ CVX INTC PEP . I Will contine to buy into this correction. THIS IS PRECISELY THE TIME YOU BUY GREAT COMPANIES WHEN THEY THROW THE BABY OUT WITH THE BATH WATER. Each year there are 2 or 3 great opportunities to buy stocks. This is the first opportunity. C and BAC have an infintessimal exposure to subprime. Re-read the "message of the stock market" thread. Last August I said to buy housing stocks and everyone threw rocks. They are all up more than 30% since. ( I took my profits up 20%) All the above companies I mentioned raise their dividends EVERY YEAR and grow their earnings. JNJ PG MO CVX C BAC PEP are all the best of the best. This sell off is a gift if you are a serious investor. I have been investing for 30 years. I have experienced the oil embaro of the 70's the crash of 87 and the Asian Contasian of the late 90's. What is ocurring now with sub prime is a good thing in the longer run. The strong companies will get stronger. The excesses will be eliminated. I ALWAYS BUY THE PANIC SELL OFFS. I LOVE BLOOD IN THE STREETS. BRING IT ON, MR. MARKET !!!!!!

[SHELLY]

Funny, I got yet another flyer for Brokers on Friday in the mail, advertising all the funky loans they can do with a bright red intro:
The Subprime market is changing, but we're still going strong"

I don't do these loans, but I read the list of "niches" and :eek: couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages.

Then I heard the news. :funn:

I suspect these "strip mall lenders" are still blissfully unaware of the rapidly dwindling number of organizations and speculators willing to buy their garbage. They'll get the picture when they show up for work one morning to find their office supplies in a box on the curb and that the strip mall manager changed the locks on the door.


.

[bdc63]

So much for all the talking heads on CNBC claiming this subprime mess is "contained" and will affect a relatively small number of small lenders ... it doesn't get much bigger than Goldman, Merrill Lynch, and Morgan Stanley ...

This, from Bloomberg:

Goldman, Merrill Almost `Junk,' Their Own Traders SayGoldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley, which earned a record $24.5 billion in 2006, suddenly have become so speculative that their own traders are valuing the three biggest securities firms as barely more creditworthy than junk bonds.

Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2, according to Moody's Investors Service. For Goldman, Morgan Stanley and Merrill that's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk.

Traders of credit derivatives are more alarmed than stock and bond investors that a slowdown in housing and the global equity market rout have hurt the firms. Merrill since 2005 has financed two mortgage lenders that subsequently failed and bought a third, First Franklin Financial Corp., for $1.3 billion.

``These guys have made a lot of money securitizing mortgages over the years in a mortgage boom time,'' said Richard Hofmann, an analyst at bond research firm CreditSights Inc. in New York. ``The question now is what is the exposure to credit risk and what are the potential revenue headwinds if they're not able to keep that securitization machine humming along.''

Credit-default swaps on the debt of Goldman, the world's biggest securities firm, have risen to $32,775 per $10 million in bonds, up from $21,500 at the start of the year, according to prices compiled by London-based CMA Datavision. The price touched $35,000 on Feb. 28, the highest since June 2005.

Spokesmen and spokeswomen for Goldman, Lehman, Merrill and Morgan Stanley declined to comment. A spokeswoman for Bear Stearns didn't immediately return calls for comment.

[Sandcastle]

For what it's worth I bought JOE on Friday. Time will tell.

[Mango]

Funny, I got yet another flyer for Brokers on Friday in the mail, advertising all the funky loans they can do with a bright red intro:
The Subprime market is changing, but we're still going strong"

I don't do these loans, but I read the list of "niches" and :eek: couldn't believe they were still offering such high LTV on investment properties with low credit scores and lates on mortgages.

Then I heard the news. :funn:

I suspect these "strip mall lenders" are still blissfully unaware of the rapidly dwindling number of organizations and speculators willing to buy their garbage. They'll get the picture when they show up for work one morning to find their office supplies in a box on the curb and that the strip mall manager changed the locks on the door.


.

I forgot and didn't mention that it was Fremont Investment and Loan that I got the flyer from. :eek: That is the division of Fremont Bank. They were huge. They started subprime lending in California about 15 years ago. I recall them having difficulty geting licensed in New York, because the FDIC wanted them to open Banking branches here, but eventually they did get a license from the Banking Dept.

[goofer44]

http://online.barrons.com/article/SB117288185598325465.html?mod=9_0002_b_this_weeks_ magazine_home


Interesting cover story in this week's Barrons.

[SHELLY]

I forgot and didn't mention that it was Fremont Investment and Loan that I got the flyer from. :eek: That is the division of Fremont Bank. They were huge. They started subprime lending in California about 15 years ago. I recall them having difficulty geting licensed in New York, because the FDIC wanted them to open Banking branches here, but eventually they did get a license from the Banking Dept.

Fremont's Tampa staffers are in jeopardy of losing their jobs.
By SCOTT BARANCIK
Published March 6, 2007

As the stocks of subprime mortgage lenders melted down Monday on Wall Street, one struggling bank put several hundred of its Tampa employees on ice.

Fremont Investment & Loan, the country's eighth-biggest subprime lender, told most of its Tampa staff to stay home Monday on paid leave. The move followed news that Fremont General Corp., its California-based parent company, had decided to quit lending money to home buyers who have bad credit and to try to sell that business line. Tampa staff were told to expect an update on their status Wednesday. Their future will depend in part on whether the residential mortgage business is sold, and to whom.

"As far as how individual offices will be affected by this, it's really too early to say," said Dan Hilley, a company spokesman.

Fremont's stock, which began the year at $16.21 per share, dropped 32 percent Monday to close at $5.89. It had plenty of company. New Century Financial Corp., ranked No. 2 on National Mortgage News' list of the largest subprime mortgage lenders, saw its stock fall 69 percent to $4.56 amid fears it might file for bankruptcy protection. Higher-than-expected default rates are causing most of the hand-wringing.

[Mango]

I am still leery of buying these stocks yet. IMO we still haven't seen bottom, and I am not a day trader, but here's today's news..

BLOOMBERG:

Fremont, New Century Advance as Report Shows More Refinancing

By Rick Green
March 7 (Bloomberg) -- Fremont General Corp. and New Century Financial Corp. shares rose as mortgage-lending stocks rebounded for a second day, buoyed by a report showing an increase in home- loan refinancing and rising prospects for takeovers.
The Mortgage Bankers Association said loan applications rose last week to the highest level in almost three months, paced by a 15 percent surge in refinancings. The perceived risk of owning low-rated subprime mortgage bonds held steady after declining for four consecutive days.
Fremont, based in Santa Monica, California, told employees on a conference call that five or six prospective buyers are in talks to buy its residential mortgage business. The company's shares surged $1.83, or 27 percent, to $8.60 in 1:07 p.m. composite trading on the New York Stock Exchange. New Century gained 44 cents, or 8.8 percent. NovaStar Financial Inc. added 13 percent. Countrywide Financial Corp., the largest U.S. mortgage lender, rose 0.7 percent.
``The market has been chaotic, but we think it has been overdone,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``People kind of sell and ask questions later.''
The shares of home lenders to the riskiest borrowers, led by New Century, plummeted on March 5 as concerns mounted that rising default rates would push them into bankruptcy. More than two dozen mortgage companies have gone out of business, ceased operations or sought buyers since the start of 2006.
New Century shares remain about 60 percent below their March 2 close and almost 90 percent off their 52-week high last May.
Refinancing Index
Subprime borrowers, typically people with poor credit or heavy debt loads, pay 2 to 3 percentage points more for a mortgage than less-risky customers. Many such loans are made at adjustable rates, leaving them prone to default if borrowing costs rise or lenders tighten standards.
The Mortgage Bankers Association's index of refinancing applications jumped 15 percent last week. It's now up 38 percent from a year earlier and has risen in five of the past six weeks. Total loan applications, which include those for new mortgages, rose 7.3 percent, according to the Washington-based trade group.
``We'll see more refinancing because of problem loans,'' David Lereah, chief economist for the National Association of Realtors, said in an interview yesterday. ``Refinancing may go up artificially.''
Subprime lenders are backed by financing from larger banks and financial institutions. Some of those stocks are smart buys now because the concerns that they'll be hurt by subprime defaults are overblown, Fox-Pitt, Kelton analysts led by David Trone said in a report today. They recommended shares of securities firms including Morgan Stanley, Merrill Lynch & Co. and Bear Stearns Cos., all based in New York.
`Fully Punished'
Trone's team raised U.S. investment banks and brokers to ``overweight'' from ``market-weight,'' and elevated Morgan Stanley, Merrill and Bear Stearns to ``outperform'' from ``in- line.''.
``The market has already fully punished the bulge names for their involvement in subprime,'' the Fox-Pitt analysts wrote.
New Century, based in Irvine, California, disclosed March 2 that it faces a criminal probe and may need waivers from its own lenders to stay in business. The same day, Fremont said it would stop making loans to people who can't pay and announced plans to get out of the subprime business.
HSBC Holdings Plc, the U.K.'s biggest bank, was the No. 1 subprime lender in the U.S. last year. New Century ranked second, according to Inside B&C Lending, a trade journal.
Shares of Impac Mortgage Holdings Inc., which specializes in less-risky mortgages known as ``Alt-A'' loans, added 11 percent today. IndyMac Bancorp, the second-largest independent U.S. mortgage lender after Countrywide, gained 6.2 percent. Accredited Home Lenders Holding Co. fell 4.3 percent.

[SHELLY]

New Century, based in Irvine, California, disclosed March 2 that it faces a criminal probe and may need waivers from its own lenders to stay in business. The same day, Fremont said it would stop making loans to people who can't pay and announced plans to get out of the subprime business.

So let me get this straight....going forward they're only going to make loans to people who can pay??? :confused:

What kind of a zany business plan is that for a mortgage company?
<sarcasm off>.

[Mango]

So let me get this straight....going forward they're only going to make loans to people who can pay??? :confused:

What kind of a zany business plan is that for a mortgage company?
<sarcasm off>.

I know. I was soooo tempted to e-mail the writer of the article and ask if that was a quote directly from Fremont. :funn:

[bdc63]

New Century (the 3rd largest US subprime lender) bites the dust!

Bankruptcy rumors on all the blogs (even CNBC is talking about this one). The stock is down to $4 (was in the $40's a few weeks back).

Headline:
New Century Halts New Loans as Lenders Cut Off Credit
http://www.bloomberg.com/apps/news?pid=email_en&refer=home&sid=aItk2fsczSGI

"The refusal by several lenders to let New Century tap other credit lines has prevented the mortgage company from delivering all the loans it promised to customers, said a company statement. While New Century hopes to resume accepting applications as soon as possible, the statement said there's no assurance this will happen. "


Impode o meter update: 34

[SHELLY]

New Century (the 3rd largest US subprime lender) bites the dust!



And this excerpt from MarketWatch.....

Lenders specializing in such loans, like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
On Friday, New Century said it had breached one of those requirements, or covenants, and also disclosed that it's the subject of a federal criminal investigation.

"Once you get hit with one of these crunches, warehouse lenders don't want to lend to you, so you're really done," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business and a visiting scholar at the Federal Deposit Insurance Corp.

New Century said late Thursday that one of its financial backers forced the company to repurchase some loans. It didn't identify the lender.

The company said it's talking with lenders and other third parties about getting more access to financing, but warned that its efforts might fail.

"These firms that rely on funding mechanisms like securitizations are like sharks -- if they stop moving they die," Mason added.

(A hat-tip to Mason's simile.)

[sberry123]

And this excerpt from MarketWatch.....

Lenders specializing in such loans, like New Century, rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
On Friday, New Century said it had breached one of those requirements, or covenants, and also disclosed that it's the subject of a federal criminal investigation.

"Once you get hit with one of these crunches, warehouse lenders don't want to lend to you, so you're really done," said Joseph Mason, associate professor of finance at Drexel University's LeBow College of Business and a visiting scholar at the Federal Deposit Insurance Corp.

New Century said late Thursday that one of its financial backers forced the company to repurchase some loans. It didn't identify the lender.

The company said it's talking with lenders and other third parties about getting more access to financing, but warned that its efforts might fail.

"These firms that rely on funding mechanisms like securitizations are like sharks -- if they stop moving they die," Mason added.

(A hat-tip to Mason's simile.)



Here is another one, Countrywide is pulling back on 100% financing!

Countrywide stops no-money-down lending
The mortgage lender tells brokers to end offering the option of no down payment as delinquencies increase.
March 9 2007: 5:28 PM EST


NEW YORK (Reuters) -- Countrywide Financial Corp., the largest U.S. mortgage lender, Friday told its brokers to stop offering borrowers the option of a no-money-down home loan, according to a document obtained by Reuters.

Loans financing 100 percent of a home's value are among those leading to a sharp rise in delinquencies at U.S. mortgage lenders. Such mortgages below "prime" quality have resulted in the closure, sale or losses at more than two dozen mortgage lenders, analysts said.

"Please get in any deals over 95 LTV [loan-to-value] today!" Countrywide said late Friday in an urgent e-mail. "Countrywide BC will no longer be offering any 100 LTV products as of Monday, March 12."

Countrywide (Charts), along with lenders ranging from HSBC Holdings Plc (Charts), Europe's biggest bank, to NovaStar Financial Inc. (Charts) to New Century Financial Corp. (Charts) have reported rising delinquencies lately. :eek:

[bdc63]

Aaron Krowne, the guy that runs the impode-o-meter website, has a 30 minute podcast interview on Wall Street Examiner Radio with Lee Adler (March 11),

http://podcast.streetiq.com/streetiq?ChannelID=3135&GUID=1382931&Page=MediaViewer

It's definately worth listening to when you have a half hour to spare ... a great counterbalance to the "mainstream financial informercial media", as Lee Adler calls them.

[goofer44]

Listened to the interview with Lee and AAron. If they both expect inflation or hyper inflation, it seems to me that real estate is a good hedge :idontno:
It is always good to listen to the contra arguement. My conclusion is they are a bit too pessemistic. Sub prime is a big problem for the marginal consumer. I do not think it is cataclysmic as some are thinking. The free market economy is ALWAYS full of excesses in certain areas, but they always work themselves out to the detriment of the ones affected or participating in those excesses. This pales (sub prime) in comparison to the oil shock of the early 70's. The economy ALWAYS muddles through. I stick with my game plan of buying the solid banks ( C, BAC, JPM, WFC, WB ) and the great growth and predictable earners like jnj pg cvx xom pep gis on any market corrections.

[SHELLY]

Interesting day for New Century--all lenders cut off the money and are demanding New Century buy back $8 Billion (with a "B") in junk mortgages. Stock's price got down to pocket change before NYSE closed down trading.

Like the Soup Nazi might say...."No money for you.....NEXT!"

The subprime market is pretty much toast for now (there were over $600 Billion in subprime loans written last year).

[bdc63]

Big day for lender implosions ... Accredited and BNC (Lehman Brothers) BOTH today.

The Implode-O-Meter is now up to 133.

They also started a HedgeFund-Imoplode-O-Meter, here:
http://hf-implode.com/

23 so far.

[SHELLY]

.
Don't you just love these "flashback" threads?


.

[bdc63]

.
Don't you just love these "flashback" threads?


.

I just read back over the whole thing ... I enjoyed it as well. Though, I suspect some others may not be so interested in seeing what they were thinking (and posting) a mere 5 months ago.

[scooterbug44]

I find them very educational!

Quick question I have (as a caveat, I know VERY little about mortgages etc):

Is the higher percentage of interest only loans in this area because there are so many lot loans & construction loans for all the new construction as compared to more standard mortgages in an area that is selling/buying homes instead of building new?

[Mango]

Although I am not thrilled with site layout that bcd posted which puts the top 25 lenders, but right above it says 19 have imploded and put the closed or bk businesses below (implode o-meter)

I have a feeling the mortgage companies listed are just the tip of the iceberg. The 19 defunct cos. most likely did not sell those subprime loans directly on Wall Street, but most likely sold them in bulk transactions to the top 25. Those top 25 not only made subprime loans (BBB) but also Alt A, A- loans, as well as some of them the exotic ARM programs.

We still have yet to see how the impact of defaults to the top 25 is going to trickle down to hedge funds, pension funds, and mainly derivatives (an unregulated market :shock: (almost 400 trillion dollars) and when mortgages go bad, they may not have the financial assets to withstand such a influx of defaults.
I've been in the mortgage business 22 years and I can tell you Subprime lending has never been tested by a severe downturn in house prices and the economic cycle to this extent.

We still need to see how all this plays out IMO.

I just read back over the whole thing ... I enjoyed it as well. Though, I suspect some others may not be so interested in seeing what they were thinking (and posting) a mere 5 months ago.


Sounds like we almost had a crystal ball. ;-)

[bdc63]

I find them very educational!

Quick question I have (as a caveat, I know VERY little about mortgages etc):

Is the higher percentage of interest only loans in this area because there are so many lot loans & construction loans for all the new construction as compared to more standard mortgages in an area that is selling/buying homes instead of building new?

I suspect it is mainly the following:

1). high concentration of speculators, who are notorious for using OPM and tying up as little cash as possible

2). high cost of the area made affordability for many only possible through interest only loans (and since everyone was told "real estate only goes up" & "they aren't making any more waterfront" & "you better get in now or you will be priced out forever" ... people didn't (or didn't want to) recognize those loans as toxic waste).

[goofer44]

It looks like Country Wide has dodged a bullet. Bank of America is making a $2 billion investment in a convertible preferred issued to them by CFC. It will give BofA a 15% equity interest in CountryWide. Both stocks traded up on the news after the close. I would buy Washington Mutual ( WM ) on this development. Bigger and better company than CFC. Citicorp ( C ) has been runored in the past as interested in buying WAMU.

[Sandcastle]

It looks like Country Wide has dodged a bullet. Bank of America is making a $2 billion investment in a convertible preferred issued to them by CFC. It will give BofA a 15% equity interest in CountryWide. Both stocks traded up on the news after the close. I would buy Washington Mutual ( WM ) on this development. Bigger and better company than CFC. Citicorp ( C ) has been runored in the past as interested in buying WAMU.

I bought WM and NLY on Tuesday. Both have since moved lower. I also bought C a few weeks ago – that’s lower too. I’ll just sit on all of them, as I usually do.:idontno:

[goofer44]

Be patient ...you will be rewarded in C and WM. They both increase their dividends, Citicorp does it annually (each February) and WM each quarter, usually by a penny. I know nothing about NLY.

[Sandcastle]

Be patient ...you will be rewarded in C and WM. They both increase their dividends, Citicorp does it annually (each February) and WM each quarter, usually by a penny. I know nothing about NLY.

I know, Goofer. I only buy companies that pay high dividends with a good chance of annual increases. I hold them into perpetuity. So far, a diverse portfolio of these has paid the bills.

I believe that NLY has a good chance of scooping up troubled mortgages from weaker firms at bargain prices. This is a real speculation.