Asset Price Fixing, ABCP, MBS, SIV & Real Estate Crash Worsens
Housing Crash Worsens...
Toll Brothers the largest U.S. luxury-home builder, today reported its first quarterly loss in 21 years as fiscal fourth quarter revenue slid 35% from a year ago to $1.17 billion.
Net income for the full fiscal year plunged 95 percent to $35.7 million, the lowest since 1993.
Toll Bros posted a net loss of $81.8 million compared with a year ago profit of $173.8 million.
ABCP market crash worsens... The U.S. asset backed commercial paper market has shrunk $394 billion, or 33%, since August.
Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other holdings fell $23 billion, or 2.8%, to $801.2 billion for the week ended Dec. 5.
Real Estate (the underlying asset) crash worsens...
Mortgage Bankers Association reports Q3 U.S. mortgage delinquencies rose to a twenty year high and foreclosures hit an all time high.
The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.59%, the highest since 1986.
3.12% of prime borrowers made their mortgage payments at least 30 days late, up from 2.73% in Q2. The subprime share of late payments rose to 16.3% from 14.8%.
California and Florida had 36.4% of all of the nation's prime adjustable-rate loans and had 42.4% of new foreclosures during the quarter.
The two states have 28.1% of subprime adjustable mortgages and 33.7% of foreclosure starts for that type of loan.
One in every five adjustable-rate subprime loans had late payments in the quarter, a number that excludes the one of every 10 already in foreclosure.
The surge in foreclosures has expanded the inventory of unsold homes to an 11-month supply, the highest in 22 years. and contributing to the decline in housing demand.
Sales of new and previously owned homes probably will drop to 5.09 million next year, 32% below the 2005 peak of 7.46 million, according to Frank Nothaft, chief economist of Freddie Mac.
Florida Pool Frozen Over... the freeze continues as the housing, real estate & ABCP crashes spread throughout the economy and financial sector.
Places like Oakland, a town of 2,000 people just outside Orlando, are feeling the pinch.
Officials scurried this week to raise $425,000 for a bond payment, draining half the town's general fund to meet the once- a-year bill for its new charter school.
Oakland now faces police, fire and school payrolls due in the coming months, debts that may drain what's left of public money if town can't access its $1.5 million tied up in the state pool, said town manager Maureen Rischitelli.
"My hair is turning gray. I'm not sure the state understands: Money is tight for our residents. We don't have a big general fund to cushion us."
But will it be enough? B of A, the second-biggest U.S. bank...
set aside as much as $600 million last month to cushion investors whose money-market funds may have lost money on the same sorts of SIV investments as the Florida Pool.
CDO? Make it Twenty Cent...
Default events can lead to a liquidation, or faster-than- scheduled repayment of a CDO's senior portions at the expense of other classes.
According to Barclays: In a liquidation, the senior most classes of CDOs containing highly rated asset backed bonds might recoup 30% to 65%.
However, U .S. mortgage assets in CDO collateralized debt obligations have lost so much value...
that the top classes of the securities may be worth as little as 20 cents on the dollar in a liquidation.
Band Aids...
The Bush administration will unveil its methadone plan for the mortgage crisis today. Instead of going cold turkey and letting the free market take its course...
the administration reportedly has reached an agreement with lenders and mortgage investors to freeze interest rates for a select group of subprime borrowers who made bad, greedy or uninformed decisions.
Treasury Secretary Henry Paulson also has urged Congress to pass a law that would let cities and states sell tax-exempt bonds...
to refinance mortgages for borrowers who otherwise might lose their homes. If that's not a bailout, I don't know what is.
Christopher Whalen, managing partner with Institutional Risk Analytics: "You're just giving the junkie more dope."
The Nattering One muses... read between the lines. This idiotic government bailout and price fixing subsidy will not work, here's 6 reasons why:
1. The rate freeze is arbitrary at best.
Freezing rates for borrowers who took out loans they could not afford, and not freezing rates for borrowers who took out loans they could afford.
The program would reward gamblers and penalize the prudent.
2. Even if the lenders go along, what about the investors who bought the securities based on the mortgages?
Those investors need to be payed based on the increase in rates the mortgages provided for, who or what is going to make up the difference?
The new tax exempt bonds Ol'Hanky wants to sell? Excuse me, but it sounds like the government is artificially subsidizing unrealistically high asset prices.
Oh, that's right, as inflation is his friend, deflation is the central bankers worst nightmare.
3. The type of borrower who would qualify is probably better off defaulting now.
If they paid an unrealistic inflated price, and can barely make the payments and now owe more than their house is worth.
What makes you think they won't default again? The redefault rate for mortgages that are changed or modified is 30 to 40%.
4. Speaking of defaulting, freezing the rates or refi forces the lenders to keep these already bad loans on their books.
Isn't' this the anathema of Adam Smith's free market capitalism? Bad loans must go bad.
Just ask the Japanese banks who kept bad loans on the books after the 1989 crash.
This kind of "cover up" action, prevented them from making new loans and drove the economy and real estate market into an 18 year deflationary spiral.
Dick Bove at Punk Ziegel:
5. Fixing subprime won't cure the cancer, the problem has spread to prime loans as well.
Subprime ARM loans account for 6.8% of outstanding loans and 43% of foreclosures. Subprime accounts for 13.1% of all loans and 55% of all foreclosures.
More disturbing, Prime & FHA account for 86.9% of all loans, and 45% of foreclosures
6. The value of the debentures is directly tied to the value of the underlying assets.
Those "values" and the risk premiums initially taken were unsupportable and economically unsustainable.
Short term ABCP based on long term MBS mortgage backed securities are tied to leveraged derivative CDO collateralized debt obligations and off book SIV structured investment vehicles.
If the highest rated senior class might recoup 30% to 65% and the US mortgage assets in CDO in off book SIV might be worth only 20% of their initial "value",
what does that mean for the price of the real market "value" of the underlying asset, real estate, itself?
There is only one remedy for this situation, a natural market correction to sustainable levels.
Toll Brothers the largest U.S. luxury-home builder, today reported its first quarterly loss in 21 years as fiscal fourth quarter revenue slid 35% from a year ago to $1.17 billion.
Net income for the full fiscal year plunged 95 percent to $35.7 million, the lowest since 1993.
Toll Bros posted a net loss of $81.8 million compared with a year ago profit of $173.8 million.
ABCP market crash worsens... The U.S. asset backed commercial paper market has shrunk $394 billion, or 33%, since August.
Debt maturing in 270 days or less and backed by mortgages, credit-card loans and other holdings fell $23 billion, or 2.8%, to $801.2 billion for the week ended Dec. 5.
Real Estate (the underlying asset) crash worsens...
Mortgage Bankers Association reports Q3 U.S. mortgage delinquencies rose to a twenty year high and foreclosures hit an all time high.
The share of all home loans with payments more than 30 days late, including prime and fixed-rate loans, rose to a seasonally adjusted 5.59%, the highest since 1986.
3.12% of prime borrowers made their mortgage payments at least 30 days late, up from 2.73% in Q2. The subprime share of late payments rose to 16.3% from 14.8%.
California and Florida had 36.4% of all of the nation's prime adjustable-rate loans and had 42.4% of new foreclosures during the quarter.
The two states have 28.1% of subprime adjustable mortgages and 33.7% of foreclosure starts for that type of loan.
One in every five adjustable-rate subprime loans had late payments in the quarter, a number that excludes the one of every 10 already in foreclosure.
The surge in foreclosures has expanded the inventory of unsold homes to an 11-month supply, the highest in 22 years. and contributing to the decline in housing demand.
Sales of new and previously owned homes probably will drop to 5.09 million next year, 32% below the 2005 peak of 7.46 million, according to Frank Nothaft, chief economist of Freddie Mac.
Florida Pool Frozen Over... the freeze continues as the housing, real estate & ABCP crashes spread throughout the economy and financial sector.
Places like Oakland, a town of 2,000 people just outside Orlando, are feeling the pinch.
Officials scurried this week to raise $425,000 for a bond payment, draining half the town's general fund to meet the once- a-year bill for its new charter school.
Oakland now faces police, fire and school payrolls due in the coming months, debts that may drain what's left of public money if town can't access its $1.5 million tied up in the state pool, said town manager Maureen Rischitelli.
"My hair is turning gray. I'm not sure the state understands: Money is tight for our residents. We don't have a big general fund to cushion us."
But will it be enough? B of A, the second-biggest U.S. bank...
set aside as much as $600 million last month to cushion investors whose money-market funds may have lost money on the same sorts of SIV investments as the Florida Pool.
CDO? Make it Twenty Cent...
Default events can lead to a liquidation, or faster-than- scheduled repayment of a CDO's senior portions at the expense of other classes.
According to Barclays: In a liquidation, the senior most classes of CDOs containing highly rated asset backed bonds might recoup 30% to 65%.
However, U .S. mortgage assets in CDO collateralized debt obligations have lost so much value...
that the top classes of the securities may be worth as little as 20 cents on the dollar in a liquidation.
Band Aids...
The Bush administration will unveil its methadone plan for the mortgage crisis today. Instead of going cold turkey and letting the free market take its course...
the administration reportedly has reached an agreement with lenders and mortgage investors to freeze interest rates for a select group of subprime borrowers who made bad, greedy or uninformed decisions.
Treasury Secretary Henry Paulson also has urged Congress to pass a law that would let cities and states sell tax-exempt bonds...
to refinance mortgages for borrowers who otherwise might lose their homes. If that's not a bailout, I don't know what is.
Christopher Whalen, managing partner with Institutional Risk Analytics: "You're just giving the junkie more dope."
The Nattering One muses... read between the lines. This idiotic government bailout and price fixing subsidy will not work, here's 6 reasons why:
1. The rate freeze is arbitrary at best.
Freezing rates for borrowers who took out loans they could not afford, and not freezing rates for borrowers who took out loans they could afford.
The program would reward gamblers and penalize the prudent.
2. Even if the lenders go along, what about the investors who bought the securities based on the mortgages?
Those investors need to be payed based on the increase in rates the mortgages provided for, who or what is going to make up the difference?
The new tax exempt bonds Ol'Hanky wants to sell? Excuse me, but it sounds like the government is artificially subsidizing unrealistically high asset prices.
Oh, that's right, as inflation is his friend, deflation is the central bankers worst nightmare.
3. The type of borrower who would qualify is probably better off defaulting now.
If they paid an unrealistic inflated price, and can barely make the payments and now owe more than their house is worth.
What makes you think they won't default again? The redefault rate for mortgages that are changed or modified is 30 to 40%.
4. Speaking of defaulting, freezing the rates or refi forces the lenders to keep these already bad loans on their books.
Isn't' this the anathema of Adam Smith's free market capitalism? Bad loans must go bad.
Just ask the Japanese banks who kept bad loans on the books after the 1989 crash.
This kind of "cover up" action, prevented them from making new loans and drove the economy and real estate market into an 18 year deflationary spiral.
Dick Bove at Punk Ziegel:
"The concept of forcing (U.S.) banks to keep bad loans on their books violates every precept of regulation in American banking..
Bad loans must be taken off the books to allow good loans to be made. Forcing banks to keep bad, low-return loans on the books is something that the banking regulators have never done"
5. Fixing subprime won't cure the cancer, the problem has spread to prime loans as well.
Subprime ARM loans account for 6.8% of outstanding loans and 43% of foreclosures. Subprime accounts for 13.1% of all loans and 55% of all foreclosures.
More disturbing, Prime & FHA account for 86.9% of all loans, and 45% of foreclosures
6. The value of the debentures is directly tied to the value of the underlying assets.
Those "values" and the risk premiums initially taken were unsupportable and economically unsustainable.
Short term ABCP based on long term MBS mortgage backed securities are tied to leveraged derivative CDO collateralized debt obligations and off book SIV structured investment vehicles.
If the highest rated senior class might recoup 30% to 65% and the US mortgage assets in CDO in off book SIV might be worth only 20% of their initial "value",
what does that mean for the price of the real market "value" of the underlying asset, real estate, itself?
There is only one remedy for this situation, a natural market correction to sustainable levels.
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