Category: Housing Crash

Bank Deathwatch: Indymac

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The nation’s 7th largest mortgage lender is no longer classified as “well capitalized”, and it appears to be unable to raise additional capital. As a result regulators are pressuring them to shrink their loan business, and they have laid off half their staff

Indymac currently has a Texas ratio* of 140%, where a number at or above 100% means likely failure

Note that Indymac was cofounded by the “Tanned One” Angelo Mozilo, who also founded countrywide financial. He’s just the gift that keeps on giving.

*Quoting wiki, “The Texas ratio is a measure of a bank’s credit troubles, developed by Gerard Cassidy and others at RBC Capital Markets. It is calculated by dividing the value of the lender’s non-performing loans by the sum of its tangible equity capital and loan loss reserves.”

Fannie Mae is Doomed

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Here’s a little tidbit buried in a Washington Post story on Fannie’s recent losses:

To help homeowners caught in the market crisis, Fannie Mae said it would take the unusual step of allowing borrowers whose homes are worth less than their mortgages to refinance up to 120 percent of the property value. That option would be offered to homeowners whose loans are owned by Fannie Mae and who remain up to date on their mortgage payments.

They have just condemned themselves to death.

They will be lending on houses already underwater, and the increase in walkaways as a result will have them needing a government bailout.

Economics Update

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The first two bits are easy to understand, New home sales are the lowest since 1995, which matches with the horrid existing home sales data that I posted yeaterday, and Factory orders fell off a cliff in February.

First, things are simply getting even weirder in the never-dull world of monoliner insurers, with the Federal Home Loan Banking looking at offering bond insurance for municipal infrastructure project bonds.

It’s a dull, but very profitable racket, because there has been some sort of freaky deal between the monoliners and the rating agencies for years that has them offering artificially low ratings to muni bonds, which pretty much forces said governmental agencies to buy bond insurance.

If it works, it kills the monoliners, because this business is the only thing keeping them afloat on a sea of collateralized debt obligations (CDO).

Additionally, we have monoliner insurer FGIC notifying regulators that due to some “dodgy” dept that it is ensuring, that it is insolvent under New York State law, “FGIC in notes to its consolidated financial statements said it plans to submit a plan to the New York superintendent to reduce its risk. FGIC also said it has voluntarily ceased writing new business to preserve capital.”

This means that, theoretically at least, regulators could seize the FGIC, though they are in litigation with the borrower of the aforementioned debt, and they are filing a recovery plan.

Well, It’s Not Like USA Today is a Newspaper

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But does not mean that I’m not disappointed that USA Today declared Lawrence Yun, the chief economist at the National Association of Realtors as one of the top economic forecasters in the US.

Ummm….Covering your ears and saying, “there is no housing crash” does not make one a “top economic forecaster”. He is a paid shill of the realtors, and as such he only reflects reality to the degree that he doesn’t reveal himself as a complete and total pratt.

His record is worse than mine, though it might be better than his predecessor at paid shill for the NAR, David Lereah.

USA Today‘s Barbara Hagenbaugh and Barbara Hansen, and possibly their entire business journalism department, are my wankers of the day.

Economics Update

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Jobless claims
378,000, up 22K from the previous week, and the leading economic indicators fell for the 5th straight month by 0.3%.

Oil dropped nearly $4.00/bbl, and the dollar is up versus the Euro.

These are both driven by what is seen as reduced demand for oil, and a rate cut from the Fed which was around 25 basis points (0.25%) less than expected.

Still, it does not appear that the banks are optimistic Citi is looking to cut 2,000 jobs in their securities division (investment banking and trading). This is in addition to the 4k announced in January.

Just to remind you, it’s not just sub-prime, as Alt-A delinquencies and foreclosures are spiking too, and are trashing the related mortgage backed securities.

Finally, the Federal Reserve continues its extended bout of anilingus with the brokerage houses, making $75 billion in treasury securities available to investment banks.

Economics Update

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It’s been a busy day today, largely due to the imminent collapse of Carlyle Capital, the investment bank of the Carlyle group.

Lenders are seizing its assets:

By yesterday the fund had defaulted on $16.6 billion of debt and said it expected to default soon on its remaining debt. The fund’s $21.7 billion in assets were exclusively in AAA mortgage-backed securities issued by Fannie Mae and Freddie Mac, traditionally considered secure and conservative investments, which it was using as collateral against its loans.

They could not meet margin calls, and their share price has fallen 90%. See also here.

Paul Krugman has a very amusing comment, that the “Carlyle Group should have stuck to what it knows. It’s great at the merchant of death thing; at investment banking, not so much“.

It’s not entirely accurate, but still really funny, I used to work for the Carlyle Group, but they sold me to buy Dunkin Donuts. Seriously. They sold United Defense, where I worked 2003-2006, to BAE Systems.

In any case, the collapse of the Carlyle Capital has the market worrying about other possible collapses, with the Times of London reporting that, “Several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve“.

This has also hit US currency with the dollar falling to a 12 year low vs the yen and an all time low vs. the Euro, see here, and here.

The Yen has fallen below ¥100:$1.00, ant the Euro hit a new record of €1.000:1.5625. We are talking big time ugly, and there is still the Yen carry trade, where people borrow low interest Yen and invest the money at higher interest elsewhere, that takes a hit when the Yen strengthened.

The falling dollar also drove the price of oil up to a new record, over $111/bbl, and is part, if not most of the reason that gold broke $1,000.00/oz as a part of the flight from the dollar and concerns about inflation.

There will be more pain.

Speaking of pain, retail sales fell in February by the largest month to month amount in 5 years, 1.1%. The preliminary numbers showing an increase that I reported a week ago were apparently just that, preliminary.

Note that this does not correct for inflation, so it’s even worse.

In it efforts to restructure, Chrysler is completely shutting down for 2 weeks in July, that’s everyone who is getting the vacation, not just the guys on the line for retooling. They are claiming that it will, “boost productivity and efficiency”, but my guess is that a lot of folks people will have their vacations extended to forever.

Finally, no monoliner insurer bad news today, or perhaps I missed in in everything else going on, but Countrywide Financial continues to see climbing foreclosures, with the Frbruary rate of 1.64% being more than twice that of a year ago of 0.80%.

I really think that the deal for Bank of America to buy them will fall through, because what looked like a decent deal a few months ago is increasingly looking like a significant overpayment.

The HELOC Trap for Banks

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It seems that banks are having a problem with 2nd mortgages and Home Equity Lines of Credit (HELOC).

Because these loans are 2nd in line after the initial mortgage, an increasing number of consumers are simply not paying. With their home under water, they know that a foreclosure on these loans will recover no money at all, so instead, they are paying the 1st mortgage and credit cards.

It is, for example, hitting JP Morgan, which did not do subprime lending to any large degree.

Economics Update

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Well, gasoline prices hit all-time high today, and oil prices hit another record too.

Interesting thing though, at the start of the day, prices were down on increased inventories.

Oil Prices are rising because the dollar is falling now.

In the ever entertaining world of monoliner insurance, MBIA and Fitch Ratings are in a pissing contest. MBIA dropped them as a ratings service, because Fitch thinks that they should be downgraded.

MBIA and AMBAC’s debt is junk in reality, no matter what S&P, Moody’s, or Fitch says.

Speaking of Moody’s, they are forecasting a big drop in earnings, down from $2.17-$2.25/share to $1.90-$2.00, which tanked their stocked.

The GSE’s stock tanked too, with Fannie Mae falling 6% and Freddie Mac falling 3%. It turns out that the relaxed lending limits has the market spooked that this will lead them into more losses, which, of course, it will.

If I had to make a bet between Fannie and Freddie, I’d go with Freddie though. their CEO has a good grasp on reality, he thinks that the housing market is only 1/3 of the way to the bottom.

I’m a bit more of a bear than he is, but I think that Richard Syron is a member of the reality based community.

Despite the rate cuts, and the talk out of the Fed about more rate cuts, mortgage rates are up, and applications are down as a result.

In the more general doom and gloom scenarios, I present the following:

Citigroup is having to pump $1 billion into six of its internal hedge funds. I guess that they have to sell another piece of themselves to some Arab sovereign wealth fund.

Finally, we have ING New Zealand suspending withdrawals from two of their CDOs.

New Zealand???? New F#$@ing Zealand? Whisken Tango Foxtrot.

The meltdown is now fully global.

Economics Update

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It looks like people are starting to notice that the cost of groceries are going through the roof. According to the article, Bush’s dumbass corn-ethanol program, increased demand from overseas because the dollar has fallen, and increased energy costs are the primary drivers.

Then we have experts saying that Banks face a “systemic margin call” to the tune of nearly half a trillion dollars, according to analysts at JP Morgan.

“Systemic Margin Call” is a nice way of saying that the credit markets are imploding.

Thornburg Mortgage is teetering on the edge of liquidation as a result of more specific margin calls. They do not have the capital to repay their loans, and this will lead to more of their loans becoming non-conforming, resulting in more capital.

Thornburg is not the first, and it’s nowhere near the last.

Economics Update

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Well, we don’t need to feel so alone any more, U.K. house prices Fell 0.3% in February. What the French call “Anglo-Saxon” capitalism seems to be working wonderfully.

Back in the US, the housing market is not looking up, with Foreclosures hitting an all time high:

Over 900,000 households are in the foreclosure process, up 71% from a year ago, according to a survey by the Mortgage Bankers Association. That figure represents 2.04% of all mortgages, the highest rate in the report’s quarterly, 36-year history.

Even if you are paying your mortgage, you are probably still losing home equity. Total home equity is below 50% for the first time ever. It was 49.7% in Q2 2007, and 47.9% in Q3 2007, and the total equity dropped from $9.65 trillion from $9.93 trillion, or about $1000 for every man woman and child in the united states.

There is not a whole bunch of confidence in real estate now, so the spread on mortgage backed bonds is at its highest level in 22 years, and S&P has downgraded WaMu to BBB from BBB+.

We don’t have a stampede out of mortgages and real estate yet, but there are now rumors that UBS dumped $24 billion in Alt-A residential mortgage backed securities (RMBS). If this is reality, we could very see a stampede for the door, and Alt-A, which is for people with credit ratings above 700, will go the way of subprime.

So it’s no wonder that Fannie has dropped to a 12 year low.

It looks like the world is noticing this because the Dollar hit another record low, and oil hit another high.

This may have been driven by the European Central Bank and Bank of England not lowering rates, when it is expected that the Fed will.

We do have some mildly positive news retail sales were good in February, and new unemployment claims have fallen, though continuing claims are still going up.

It seems that Ambac is going to be a laugh a minute, see here, here,
and here. Basically, they have a plan to raise much needed capital, but no one thinks that it will work, and the markets halted trading at one point due to volatility over rumors.

Finally, in a case of the weak helping the even weaker, GM will provide $3 billion in loans to Delphi in an attempt to help them emerge from bankruptcy.

If that ain’t good money after bad, I don’t know what is.

Economics Update

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Let’s lead off with the dollar on it’s way down, it’s at a 3-year low vs. the Yen, and a new record low vs. the Euro, which is one of the things that has oil breaking another all time record, $104/bbl.

The value of the dollar is dropping, so the price of oil, which is sold in dollars, is increasing. One wonders how many countries are considering a Euro oil bourse other than Iran.

In real estate, we have the largest drop in residential and commercial construction in 14 years.

So much for commercial real estate being “immune” from this contagion.

The poster child for the real estate meltdown, Countrywide, is still hemorrhaging on its mortgages, with 90 day delinquencies at 5.6% (up 900% from a year ago), and this is threatening to torpedo the deal with Bank of America to buy them out.

FWIW, there are more foreclosures than sales in a number of the states in the West, and Florida.

On the macro level, we have Warren Buffett saying that the recession is pretty much all ready here, and the president of the Philadelphia Federal Reserve saying that inflation is not important, and that the first priority is keeping the economy on track.

When a central banker says, “Inflation, no big deal”, you know that you are up a certain creek sans paddle.

Further evidence of a slowdown is the fact that Ford and Toyota sales declined in February. Ford having declines is not a shocker, but when Toyota is not selling cars, no one is selling cars.

The happy news is that the FDIC doesn’t see there being a surge in bank failures, though it does make one wonder why they are calling back retirees and generally staffing up.

They expect to be as busy as a one legged man in an ass-kicking contest.

In the world of municipal bonds, which should be safe-havens in a time like this, it appears that the costs are increasing, and the ratings falling, for municipal bonds, because of the collapse of the auction security markets.

In bond insurance, we have a new, or at least new to me, bond insurer bleeding, Security Capital’s to the tune of $1.5 billion on various complex investments.

It’s already been downgraded.

Finally, Buffet is now saying that his offer to buy the muni business of bond insurers is no longer operative.

Berkshire Hathaway is aggressively bidding on municipal bond portfolios, and as other insurers are downgraded, their position can only get stronger.