Sanguine on Ex Sanguination Part V
Tidbits from Bloomberg with a sprinkle of Nattering love... the credit crunch continues.
Remember? in late 05 we speculated on the 10 year note at 5.40 and a 30 year fixed rate mortgage at 6.95%. Both nearly came to pass recently.
Remember? in Part III we commented on the rise in risk premium for the high yield market?
The change to a 4% point premium from 2.5% points was like the Fed raising 150+ basis points in 45 days. What would happen?
Heres the fallout, SO FAR! Today credit default swap spreads widened by another 100 basis points.
About $11.2 billion of "non-agency'' mortgage bonds, as in non GSE FNMA, FHLMC or GNMA were sold in July.
That's down from $41.6 billion in June and a monthly average of $86.6 billion this year.
Spreading to high yield: Sales of high yield bonds dropped to $2.4 billion last month, as of July 27, compared with $23 billion in June.
The Wall Street pipeline still holds about $200 billion in junk bond deals.
The MEW (mortgage equity withdrawal; $400 Billion lite this year) spigot is closed and consumer spending in the U.S. which accounts for about 70% of the economy, is slowing.
MSN's Jubak is on this like white on rice (a must read) as he queries:
"Now the big question is whether this contraction in credit and the rising cost of debt in the buyout and corporate high-yield sectors will spill over into the consumer economy."
The answer my friend is blowin in the wind and sooner than you think, as in TODAY....
S&P500 Thrifts & Mortgage Finance Index that includes Countrywide and WaMu the third largest U.S. mortgage lender, fell 6.4% in the last three days to a two year low after dropping 11% in July.
Credit Suisse Switzerland's second largest bank, today told lenders that "until further notice," it no longer wants any subprime loans, second mortgages, adjustable-rate mortgages whose minimum payments increase a loan's principal, or ARMs with only two or three years of an introductory fixed rate.
Wells Fargo, the 2nd biggest U.S. home lender, curbed its funding of Alt-A loans. Wachovia, the 4th largest U.S. bank, also stopped making Alt-A loans through brokers and smaller lenders and curtailed some adjustable rate mortgages.
AmTrust Financial which makes more than $2 billion a month in mortgages, today stopped making loans that exceed 95% of a home's value.
The change applies to jumbo mortgages, above the $417,000 conventional FNMA limit. "Borrowers have to have skin in the game," said Robert Eisendrath, an SVP for AmTrust.
And the big news.... Today, many lenders took the "skin in the game" clue and also ended 90% stated income programs while raising rates on Jumbo loans.
Effectively mitigating their risk by curtailing volume through price as opposed to pulling out of wholesale Alt-A completely.
Price you say? Yes folks, the effective rate for a stated income jumbo with 20% down just went from drum roll please...6.75 to 8%.
That should do wonders for all those high priced homes in the bubble markets, don't ya think?
Why? Almost ALL mortgages in some of the U.S.'s most expensive markets are Jumbo. Now who is walkin around with 20% down and what will they be willing to offer at 8%?
As stated before: POP goes the debt market weasels and get ready because Mr. Toad's wild ride is just starting...
Remember? in late 05 we speculated on the 10 year note at 5.40 and a 30 year fixed rate mortgage at 6.95%. Both nearly came to pass recently.
Remember? in Part III we commented on the rise in risk premium for the high yield market?
The change to a 4% point premium from 2.5% points was like the Fed raising 150+ basis points in 45 days. What would happen?
Heres the fallout, SO FAR! Today credit default swap spreads widened by another 100 basis points.
About $11.2 billion of "non-agency'' mortgage bonds, as in non GSE FNMA, FHLMC or GNMA were sold in July.
That's down from $41.6 billion in June and a monthly average of $86.6 billion this year.
Spreading to high yield: Sales of high yield bonds dropped to $2.4 billion last month, as of July 27, compared with $23 billion in June.
The Wall Street pipeline still holds about $200 billion in junk bond deals.
The MEW (mortgage equity withdrawal; $400 Billion lite this year) spigot is closed and consumer spending in the U.S. which accounts for about 70% of the economy, is slowing.
MSN's Jubak is on this like white on rice (a must read) as he queries:
"Now the big question is whether this contraction in credit and the rising cost of debt in the buyout and corporate high-yield sectors will spill over into the consumer economy."
The answer my friend is blowin in the wind and sooner than you think, as in TODAY....
S&P500 Thrifts & Mortgage Finance Index that includes Countrywide and WaMu the third largest U.S. mortgage lender, fell 6.4% in the last three days to a two year low after dropping 11% in July.
Credit Suisse Switzerland's second largest bank, today told lenders that "until further notice," it no longer wants any subprime loans, second mortgages, adjustable-rate mortgages whose minimum payments increase a loan's principal, or ARMs with only two or three years of an introductory fixed rate.
Wells Fargo, the 2nd biggest U.S. home lender, curbed its funding of Alt-A loans. Wachovia, the 4th largest U.S. bank, also stopped making Alt-A loans through brokers and smaller lenders and curtailed some adjustable rate mortgages.
AmTrust Financial which makes more than $2 billion a month in mortgages, today stopped making loans that exceed 95% of a home's value.
The change applies to jumbo mortgages, above the $417,000 conventional FNMA limit. "Borrowers have to have skin in the game," said Robert Eisendrath, an SVP for AmTrust.
And the big news.... Today, many lenders took the "skin in the game" clue and also ended 90% stated income programs while raising rates on Jumbo loans.
Effectively mitigating their risk by curtailing volume through price as opposed to pulling out of wholesale Alt-A completely.
Price you say? Yes folks, the effective rate for a stated income jumbo with 20% down just went from drum roll please...6.75 to 8%.
That should do wonders for all those high priced homes in the bubble markets, don't ya think?
Why? Almost ALL mortgages in some of the U.S.'s most expensive markets are Jumbo. Now who is walkin around with 20% down and what will they be willing to offer at 8%?
As stated before: POP goes the debt market weasels and get ready because Mr. Toad's wild ride is just starting...
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