More Financial Stress

[FTBagain]

On Bloomberg.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

And it is not just Sub-prime.

Aug. 6 (Bloomberg) -- American Home Mortgage Investment Corp. became the second-biggest residential lender to file for bankruptcy protection this year, adding to signs that late payments have spread to homeowners with good credit records.

The company sought federal court protection from creditors in Wilmington, Delaware, today, saying it had assets of more than $100 million and debts of more than $100 million, owed to more than 100,000 creditors. The filing comes after the company announced Aug. 2 it would halt operations and cut its staff of 7,400 people to just 750.

People are loosing there jobs as well.

Can anyone remember how many of the 'new' jobs in the US are tied to the housing market?

Edited August 6, 2007 by FTBagain

[?...!]

AHMIC is basically proof that all the US mortgage lenders are going to go bust. Without capital flowing down from the credit markets they have nothing to sell.

Who in their right mind would give money to US mortgage lenders to lend to people who are not paying the money back?

They are all done for. It's old news really. The only ones that can survive are the ones that are diversified and have other practices like selling insurance. Any US company that just sells mortgages is toast. Every single one.

[alabala]

On Bloomberg.

http://www.bloomberg.com/apps/news?pid=206...&refer=home

And it is not just Sub-prime.

People are loosing there jobs as well.

Can anyone remember how many of the 'new' jobs in the US are tied to the housing market?

http://www.prnewswire.com/cgi-bin/stories....9661&EDATE=

People working in mortgage-related jobs totaled 458,800 in June --

falling from a peak of 507,000 in October, according to data released from

the U.S. Department of Labor Friday.

Impacting June's mortgage employment numbers were layoffs at Washington

Mutual Inc., BNC Mortgage LLC and GreenPoint Mortgage.

Upcoming government data is likely to reflect further declines, with

last week's massive layoffs at Alt-A lender American Home Mortgage

Investment Corp., which cut more than 6,000 jobs Friday.

And activity at subprime lenders will also help fuel more declines.

First NLC Financial Services closed 23 retail branches and cut 640

jobs, a company executive told MortgageDaily.com. Accredited Home Lenders

Holding Co.'s 4,200 employees could be unemployed if a deal to acquire that

company collapses. And Fieldstone Mortgage Co. told its 900 employees

Wednesday that it would halt new business as it grapples with the potential

insolvency of its parent -- Credit-Based Asset Servicing and Securitization

LLC, or C-BASS.

The latest round of consolidation was prompted by the evaporation of

the secondary market for subprime and Alt-A business. With investor

appetite for any risky mortgage-backed debt gone, companies including

IndyMac Bank FSB, SunTrust Mortgage Inc, National City Mortgage and Wells

Fargo Home Mortgage have cut back or curtailed offerings for Alt-A

borrowers -- people with good credit who lack the ability to verify their

income, their assets or both.

The deteriorating secondary market has nonprime originators eyeing more

conforming mortgage business that can be bought by Fannie Mae and Freddie

Mac. The two government-sponsored enterprises provide liquidity to the

mortgage markets during times of turmoil, as is the case currently.

eople working in mortgage-related jobs totaled 458,800 in June --

falling from a peak of 507,000 in October, according to data released from

the U.S. Department of Labor Friday.

[ChrisM]

http://www.nytimes.com/2007/08/01/business/01leonhardt.html

I don't think this is old, the bulk of the ARM resets still hasn't happened yet so there's plenty of more pain in the pipeline. And with all these wonderful financial 'innovations' that are using this as 'source material', it wont be just people selling mortgages that go to the wall.

I'm waiting for the 'shock, we never saw it coming' headlines.

[thedebtisreal]

AHMIC is basically proof that all the US mortgage lenders are going to go bust. Without capital flowing down from the credit markets they have nothing to sell.

Who in their right mind would give money to US mortgage lenders to lend to people who are not paying the money back?

They are all done for. It's old news really. The only ones that can survive are the ones that are diversified and have other practices like selling insurance. Any US company that just sells mortgages is toast. Every single one.

How is the demand for UK RBMS?

If it is the same as in the US. Could Northern Rock be a dead company walking?

[alabala]

Risk and Diversification, what is that ?

http://www.bakersfield.com/hourly_news/story/205712.html

Crisp & Cole defaults: Nightmare on Ordsall Street

As of Thursday, at least 80 homes tied to Crisp & Cole's former employees, their families, business associates and customers have defaulted since the beginning of the year, an ongoing Californian tally has found. Some have already foreclosed.

More than $40 million in primary loans and another $8.8 million in secondary loans are at risk of failure.

[Nationalist]

House price crashes are self-fuelling. As transactions dry up so people who make their business from house sales (including painting, decorating, carpets, furniture, not just EAs) can't meet their own debt payments despite having borrowed prudently and so another domino falls.

Then as price falls cut in people with $500k loans on $300k houses think to themselves, i) spend the next 20 years paying off the loan, or ii) declare bankrupt and get clear in a year or so and start again. Many will pay their dues but enough will take the easy out to have an effect on the market. At least, that's how it worked in GC1.

[alabala]

House price crashes are self-fuelling. As transactions dry up so people who make their business from house sales (including painting, decorating, carpets, furniture, not just EAs) can't meet their own debt payments despite having borrowed prudently and so another domino falls.

Nice one... So they have pushed the prices up , and they are going to push them down (self-fuelling).

http://www.msnbc.msn.com/id/20145724/

Bonfire of the homebuilders

By rushing into lending, homebuilders helped fuel the housing crisis

"Homebuilders really started to push these more aggressive mortgages down the throats of potential buyers to boost sales," says G. Hunter Haas IV, who as head of mortgage research and trading for Opteum Financial Services had an insider's perspective on the proceedings.

[FTBagain]

http://www.nytimes.com/2007/08/01/business/01leonhardt.html

I don't think this is old, the bulk of the ARM resets still hasn't happened yet so there's plenty of more pain in the pipeline. And with all these wonderful financial 'innovations' that are using this as 'source material', it wont be just people selling mortgages that go to the wall.

I'm waiting for the 'shock, we never saw it coming' headlines.

This really puts it into perspective.

The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt — a few billion dollars — was resetting each month.

This is truely just getting underway. The credit tightening is likely to get very severe. The big banks are already causing the US mortgage companies serious pain by limiting or with holding their credit lines.

The question is just how much damage to global credit will this do?

[FTBagain]

http://www.prnewswire.com/cgi-bin/stories....9661&EDATE=

Thanks to the info, alabala. 48,000 jobs lost since October and this is probably only the start. One of the reasons the markets are so jittery at the moment is that the US economy is not generating the new jobs as fast at it was just a few months ago. This could give a clue as to why. Job losses in housing related industries.

Just goes to show that one market can impact on another simply by changing sentiment.

[alabala]

Thanks to the info, alabala. 48,000 jobs lost since October and this is probably only the start. One of the reasons the markets are so jittery at the moment is that the US economy is not generating the new jobs as fast at it was just a few months ago. This could give a clue as to why. Job losses in housing related industries.

Just goes to show that one market can impact on another simply by changing sentiment.

History Repeating itself or what?

May you live in interesting times & May all your wishes be granted

Goldfinger

http://www.aci.net/kalliste/creditcr.htm

John "Liar's Poker" Meriwether's Long-Term Capital Management (LTCM) was down 44 percent in August 1998. The former Salomon bond trader had as partners option gurus (and Nobel-prize winners) Robert Merton and Myron Scholes helping him run the fund, along with other trading stars who even took out personal loans to increase their own exposure to the firm. Three LTCM partners took out personal loans of $34 million from the hapless Credit Lyonnais to plow back into LTCM (Credit Lyonnais proving once again the Dylan dictum that just when you think you've lost everything, you find you can always lose a little more).

As for the three partners, finance theory says don't invest in the stock of the company where you work. For the obvious reason that if the company falls on hard times, the stock will likely be taking a hit just as you are being fired. But True Masters of the Universe don't bother with such trivial notions of diversification. They prefer a Texas Hedge: go long two call options and buy the underlying asset.

Edited August 6, 2007 by alabala

[Jekyll]

How is the demand for UK RBMS?

If it is the same as in the US. Could Northern Rock be a dead company walking?

Not much activity from the high street lenders recently and none expected until September after the Summer break. Northern Rock usually go first with their Granite programme, and the other big originators are skittish -- if NR have a bad time of it, it could set a bad tone for everyone else.

Word is that NR upset their US investors (capital and covered bonds) by roadshowing and pricing deals just days ahead of the announcement they had taken a bath on their unhedged pipeline of fixed rate loans - spreads widened landing investors with an instant marked-to-market capital loss -- not great when covered bonds are marketed as a rate rather than a credit product. If NR are forced to fund outside the US that's not good for them (and potential the other UK originators with US programmes) -- approximately a quarter to a third of their RMBS issuance is into the US and overall about 75% of their funding is from RMBS.

Spreads for UK "non-conforming" securitisations have widened significantly with originators srtuggling to place paper at the bottom of the capital structure at all. The economics of "originate to securitise" are rapidly breaking down for non-conforming lenders (mostly operated by investment banks as it happens). As with LBO debt, there is probably a large and growing pipeline of mortgage loans sitting on IB balance sheets waiting to be securitised -- only unlike LBO debt its harder to turn the tap off.

[Guest nosugarbaby]

How is the demand for UK RBMS?

If it is the same as in the US. Could Northern Rock be a dead company walking?

cam the value of tsterling actualy hold up the UK mortgage market or reduceb the severity being seen in the US mort lemnders? what surpirses me is why the US was first in thsi unwind? surely europe has seen the bigger HPi appreciations hence greater specualtion? is the US unwind related in anyway to teh fraigilituy of the dollar?

Edited August 6, 2007 by nosugarbaby

[FTBagain]

History Repeating itself or what?

May you live in interesting times & May all your wishes be granted

Goldfinger

http://www.aci.net/kalliste/creditcr.htm

John "Liar's Poker" Meriwether's Long-Term Capital Management (LTCM) was down 44 percent in August 1998. The former Salomon bond trader had as partners option gurus (and Nobel-prize winners) Robert Merton and Myron Scholes helping him run the fund, along with other trading stars who even took out personal loans to increase their own exposure to the firm. Three LTCM partners took out personal loans of $34 million from the hapless Credit Lyonnais to plow back into LTCM (Credit Lyonnais proving once again the Dylan dictum that just when you think you've lost everything, you find you can always lose a little more).

As for the three partners, finance theory says don't invest in the stock of the company where you work. For the obvious reason that if the company falls on hard times, the stock will likely be taking a hit just as you are being fired. But True Masters of the Universe don't bother with such trivial notions of diversification. They prefer a Texas Hedge: go long two call options and buy the underlying asset.

That artical could have been written today.

A credit crunch happens when the collateral posted in a loan or trade transaction suddenly drops in value, so that more collateral must be posted. When this is not possible, the collateral must be sold at its new low price in order to help repay the loan. Done in sufficient volume, this further depresses the value of the collateral.

For collateral read house.

[SeenItAllBefore]

Spreads for UK "non-conforming" securitisations have widened significantly with originators srtuggling to place paper at the bottom of the capital structure at all. The economics of "originate to securitise" are rapidly breaking down for non-conforming lenders (mostly operated by investment banks as it happens). As with LBO debt, there is probably a large and growing pipeline of mortgage loans sitting on IB balance sheets waiting to be securitised -- only unlike LBO debt its harder to turn the tap off.

Wouldn't their reserve requirements force them to turn the tap off at some point?

Or would they just make the terms more attractive, i.e. put up mortgage rates, well before this stage?

[Walton Goggins]

The credit tightening is likely to get very severe. The big banks are already causing the US mortgage companies serious pain by limiting or with holding their credit lines.

Maybe somebody here has spotted this already - but a post on housingbubbleblog informs that Option One Mortgage has just stated it will now not lend on Florida condos - at all. In addition they have massively tightened their procedure for agreeing the loan - including a verbal conversation to verify facts with each and every borrower prior to releasing funds.

http://www.oomc.com/post/_marketing/phaseVII/phase7pg.html

Apologies if this has been posted already.

[alabala]

http://ftalphaville.ft.com/blog/2007/08/06...-way-as-the-us/

Is UK subprime going the same way as the US?

Monday Aug 6 2007

In the current climate, it is hard to imagine a more terrifying top line for a piece of research. Subprime is now well-established as finance’s big, bad wolf of 2007.

But analysts at Dresdner Kleinwort raise just that prospect, on the back of the latest half year figures from the UK’s Council of Mortgage Lenders, published on Friday.

For those that missed the hysterical headlines in the weekend papers, DK explain that the problem is not the absolute number of repossessions. That is rising, but at 0.12 per cent of all mortgages outstanding in the first half is still at a low level.

But the CML’s latest data was revised to better reflect the growth of subprime lending in recent years. And as a proportion of mortgage arrears, repossessions have been rising dramatically. It is by this measure that the situation stands at a historically unprecedented level (see chart from DK right.)

Analyst David Owen points out that the greater risk inherent in subprime lending means arrears are more likely to lead to repossessions, and that this is likely to happen earlier. So, as the CML itself argues, this rise reflects the increasing amount of subprime in the overall mortgage market.

Standard and Poor’s has been among those to argue previously that the UK is less susceptible to the kind of subprime meltdown felt stateside, with generally more conservative lending practices.

But since that report was published back in April, the FSA has flagged up its concerns that the kind of unverified, blank chequebook lending that has been widespread in the US has also been on offer in the UK.

So what do we learn from the US experience? That this problem doesn’t become a problem until the house price inflation slows, and then reverses, exposing all those over-stretched borrowers.

“Think what could happen if house prices fell,” says DK’s Owen, adding:

Complicating analysis is the fact that even following the CML revisions, we still do not know with certainty the size, growth and performance of the sub-prime sector in the UK.

[alabala]

Some of Ireland stats.

Ireland — Population: 4,109,086 est.

What do you think guys, is this a big number?

"500 jobs every week" for Irleland.

http://www.sfa.ie/Sectors/SFA/SFADoclib4.n...A2?OpenDocument

Redundancy Figures 2007 - 06/08/2007

- 12,813 redundancies in the first six months of 2007 show no room for complacency.

- Economy losing on average 500 jobs every week.

- Services Industry hardest hit with 4,616 redundancies to date.

- 41% of all jobs lost are in Dublin.

- 61% of all job losses suffered by males.

with redundancies currently running 10.4% higher than 2006

Edited August 6, 2007 by alabala

[BandWagon]

Standard and Poor’s has been among those to argue previously that the UK is less susceptible to the kind of subprime meltdown felt stateside, with generally more conservative lending practices.

But since that report was published back in April, the FSA has flagged up its concerns that the kind of unverified, blank chequebook lending that has been widespread in the US has also been on offer in the UK.

So what do we learn from the US experience? That this problem doesn’t become a problem until the house price inflation slows, and then reverses, exposing all those over-stretched borrowers.

“Think what could happen if house prices fell,” says DK’s Owen, adding:

Complicating analysis is the fact that even following the CML revisions, we still do not know with certainty the size, growth and performance of the sub-prime sector in the UK.

I keep reading this in the UK press, apparently over here these isn't a subprime problem, because all the lenders are much more careful.

Yeah right. The valuations over here are more stretched than the US.

If you're some muppet who's lied on your application to buy a property because you believe it's going to double in price every 5 years, of course you're not going to default on the payments, even if it means subsidising your lifestyle on credit.

But as soon as you realise that those price rises won't happen, there's nothing to stop you walking away from the loan.

Then suddenly, whoops, all these lenders have people defaulting on their mortgages.

It's just a matter of time...

Edited August 6, 2007 by BandWagon

[Walton Goggins]

IMPAC now stopping all Alt-A loans.

http://biz.yahoo.com/prnews/070807/cltu062.html?.v=96

Edited August 7, 2007 by Walton Goggins

[FTBagain]

IMPAC now stopping all Alt-A loans.

http://biz.yahoo.com/prnews/070807/cltu062.html?.v=96

In light of the continued and widely publicized volatility in the secondary and securitization markets, we have suspended funding on loans previously referred to as Alt-A loans. The Company will continue to fund loans through our wholesale and retail platforms that are eligible to be sold to government sponsored agencies. Further, in response to lower loan volumes, we have over the last three months significantly decreased our expenses with the reduction of our nationwide workforce and will continue to make additional adjustments as necessary. While this is a difficult and painful decision, we believe that it's a prudent strategy in light of the current business environment.

Credit tightening and jobs cuts in the same statement. So much for containing the melt down to the Sub-prime mortgage market.

[Walton Goggins]

Credit tightening and jobs cuts in the same statement. So much for containing the melt down to the Sub-prime mortgage market.

Home Banc Mortgage have announced they have stopped lending completely. Giving 5 of their branches to Countrywide and closing others.

Home Banc state 99% of their lending was not sub-prime.

http://www.bizjournals.com/triangle/storie...06/daily16.html

[South Lorne]

http://ftalphaville.ft.com/blog/2007/08/06...-way-as-the-us/

Is UK subprime going the same way as the US?

Monday Aug 6 2007

In the current climate, it is hard to imagine a more terrifying top line for a piece of research. Subprime is now well-established as finance’s big, bad wolf of 2007.

But analysts at Dresdner Kleinwort raise just that prospect, on the back of the latest half year figures from the UK’s Council of Mortgage Lenders, published on Friday.

For those that missed the hysterical headlines in the weekend papers, DK explain that the problem is not the absolute number of repossessions. That is rising, but at 0.12 per cent of all mortgages outstanding in the first half is still at a low level.

But the CML’s latest data was revised to better reflect the growth of subprime lending in recent years. And as a proportion of mortgage arrears, repossessions have been rising dramatically. It is by this measure that the situation stands at a historically unprecedented level (see chart from DK right.)

Analyst David Owen points out that the greater risk inherent in subprime lending means arrears are more likely to lead to repossessions, and that this is likely to happen earlier. So, as the CML itself argues, this rise reflects the increasing amount of subprime in the overall mortgage market.

Standard and Poor’s has been among those to argue previously that the UK is less susceptible to the kind of subprime meltdown felt stateside, with generally more conservative lending practices.

But since that report was published back in April, the FSA has flagged up its concerns that the kind of unverified, blank chequebook lending that has been widespread in the US has also been on offer in the UK.

So what do we learn from the US experience? That this problem doesn’t become a problem until the house price inflation slows, and then reverses, exposing all those over-stretched borrowers.

“Think what could happen if house prices fell,” says DK’s Owen, adding:

Complicating analysis is the fact that even following the CML revisions, we still do not know with certainty the size, growth and performance of the sub-prime sector in the UK.

...the CML are always making headlines ...they were I believe the industry's self regulating body before the regulators the FSA took over end of 2004.....what is not mentioned are all the prime in low rate fixeds which may not be prime when they mature over the next few years...what about self certs ..how do they fit into the equation ...and where do our equivalent of Alt A fit into the party......surely CML can provide us with a guide for comparison between the US and UK....?.....

[FTBagain]

Home Banc Mortgage have announced they have stopped lending completely. Giving 5 of their branches to Countrywide and closing others.

Home Banc state 99% of their lending was not sub-prime.

http://www.bizjournals.com/triangle/storie...06/daily16.html

They are a small company so will not have much impact as such, but this tells the whole story really;

HomeBanc, which also does loan servicing, said Tuesday that the recent downturn in the housing and credit markets has made it impossible for the company to borrow more money. In turn, HomeBanc can no longer fund its loan obligations.

Edited August 7, 2007 by FTBagain

[FTBagain]

...the CML are always making headlines ...they were I believe the industry's self regulating body before the regulators the FSA took over end of 2004.....what is not mentioned are all the prime in low rate fixeds which may not be prime when they mature over the next few years...what about self certs ..how do they fit into the equation ...and where do our equivalent of Alt A fit into the party......surely CML can provide us with a guide for comparison between the US and UK....?.....

Probably not. I remember reading an artical sometime ago that stated that that type of information was not being kept.