Thread: The US Housing market is in deep shit

July 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, tumbled to the lowest in 17 years in New York trading after a former Federal Reserve president said the companies may need a government bailout.

Fannie Mae tumbled as much as 20 percent and Freddie Mac slumped as much as 29 percent in New York Stock Exchange composite trading after UBS AG analysts said the company creates ``challenges'' for the company's plans to raise $5.5 billion, UBS analysts said in a report today.

Chances are increasing that the U.S. will bail out Fannie Mae and Freddie Mac because they don't have enough capital to weather the worst housing slump since the Great Depression, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington- based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.

Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of whom have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans.

`Inflection' Point

Fannie Mae slumped $2.70 to $12.61 at 10:19 a.m., extending declines for the year to 69 percent. Freddie Mac tumbled $2.96 to $7.30, taking its 2008 slide to 78 percent. UBS AG analysts led by Eric Wasserstrom in New York increased their estimates for losses at Freddie Mac and cut their price target for the stock to $10 from $28 after meeting with Freddie Mac's chief financial officer Anthony Piszel and controller David Kellerman, according to a report today.

Fannie Mae and Freddie Mac have raised a combined $20 billion since December to cover losses of more than $11 billion generated since the credit crisis began last year. Freddie Mac has yet to raise a planned $5.5 billion, scheduled for mid-year.

Paulson, Bernanke

U.S. Treasury Secretary Henry Paulson told lawmakers in Washington today that he's been assured by the regulator for Fannie Mae and Freddie Mac that the companies have enough capital.

The Office of Federal Housing Enterprise Oversight ``has made clear that they are adequately capitalized,'' Paulson said in prepared testimony for the House Financial Services Committee. Federal Reserve Chairman Ben S. Bernanke is also slated to appear.

The Treasury has been discussing what to do if Fannie Mae and Freddie Mac fail for months as part of its contingency planning, the Wall Street Journal reported today, citing three people familiar with the matter. The government doesn't expect the companies to fail and it doesn't have a rescue plan in place, the Journal said.

``At some point we're going to reach that inflection, where the government is going to have to either guarantee explicitly or Fannie and Freddie are going to have be left to fend for themselves,'' Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York, said in an interview with Bloomberg Television yesterday. ``We're getting to that point where a decision has to be made by Washington.''

`Well-Capitalized'

The government is counting on Fannie Mae and Freddie Mac, which own or guarantee about half the $12 trillion in home loans outstanding, to help revive the housing market. Congress lifted growth restrictions on the companies, eased their capital requirements and allowed them to buy bigger ``jumbo mortgages'' to spur demand for home loans as competitors fled the market.

``We are managing our business and maintaining a capital position that will allow us to fulfill our congressionally chartered mission now and in the future,'' Brian Faith, a spokesman for Fannie Mae, said.

Poole is ``a long-time critic,'' said Sharon McHale, a spokeswoman for McLean, Virginia-based Freddie Mac.

``Freddie Mac is doing exactly what Congress intended when it chartered the company and, more recently, when it passed the Economic Stimulus Act,'' McHale said. ``We are well capitalized and positioned to continue to serve our vital housing mission.''

Government Ties

While leading the St. Louis Fed, Poole roiled markets in 2003 when he said the government should consider severing its implied backing of Fannie Mae and Freddie Mac and said the companies lack the capital to weather financial market disruptions. In 2006 and 2007 he called for lawmakers to strip Fannie Mae and Freddie Mac of their charters.

Congress created Freddie Mac and expanded Fannie Mae in 1970 to promote home buying in the U.S. The companies' charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default.

The government will likely be forced to take over the companies because of the mortgage meltdown, Poole said.

``We know in a crisis the Federal Reserve tap would be open,'' said Poole, now a senior fellow at the Cato Institute.

The bailout of Bear Stearns Cos. by JPMorgan Chase & Co., arranged by the Fed, demonstrates the government's unwillingness to allow ``large, systemically important'' financial institutions to fail, he said. Bear Stearns collapsed after customers fled amid speculation the company faced a cash shortage.

``I worry about those institutions,'' retired Richmond Fed President Alfred Broaddus said. ``They are huge. They dwarf the Bear Stearns issue. In the very worst case scenario, I don't know how you do it other than extend money and the public takes the loss.''

$20 Billion Raised

The companies have access to the Fed's so-called Fedwire payments system allowing them to access funding if needed, said Vincent Reinhart, the Fed's chief monetary-policy strategist from 2001 until September 2007.

They can withstand the slump in part because most of their investments are mortgages made before 2006 when lending standards were tighter, making them less likely to default, said Eileen Fahey, a Chicago-based analyst at Fitch Ratings.

``We do not believe they are technically insolvent,'' Fahey said. ``People seem to lose sight of the fact that a majority of the mortgages that they are holding and are guaranteeing were originated pre-2006.''

Comments by the companies' regulator this week that they are adequately capitalized also eased concern, said Lawrence Yun, chief economist of the National Association of Realtors in Washington. The companies have about $80 billion of regulatory capital supporting $5.2 trillion of mortgages.

``Just given the size of the two companies, surely the government would not stand aside'' and let them fail, Yun said.

Record Spreads

Fannie Mae sold $3 billion of two-year notes yesterday to yield 74 basis points more than Treasuries. A basis point is 0.01 percentage point. That's the widest spread since Fannie Mae first sold two-year notes in 2000 and triple what it paid in June 2006.

Fannie Mae's spreads relative to two-year interest-rate swap spreads, considered a gauge of investors' perception of credit risk, remain about 12 basis points below a four-year high that was reached in March, Bloomberg data show.

Fannie Mae debt was trading 13 basis points tighter than two-year swap spreads today compared with 2 basis points tighter on March 19, Bloomberg data show. Freddie Mac spreads are about 19 basis points tighter than swap spreads after trading at the same level as swaps on March 17. Swap spreads are the difference between interest-swap rates above Treasury yields.

Credit-Default Swaps

The price of credit-default swaps, contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac, doubled in the past two months to more than 80 basis points for the senior debt, according to London-based CMA Datavision.

The median credit-default swap on debt rated Aaa by Moody's was 36 basis points as of yesterday, data from the rating firm's strategy group show. It was 87 basis points for debt rated A3.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

From:

Bloomberg.com: Worldwide

Originally Posted by bkkandrew

July 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the two biggest providers of financing for U.S. home loans, tumbled to the lowest in 17 years in New York trading after a former Federal Reserve president said the companies may need a government bailout.

I think this reinforces the depth of the current situation. I'm not an expert, but why is the former Fed President stating this? And, even if it was a current member of the FMOC (Fed) why would the Fed be stating this instead of Congress?

Originally Posted by Milkman

I'm not an expert, but why is the former Fed President stating this?

Bloomberg will wheel out just about anyone that has a pulse to scream bad news at this time.
in a later press release the regulator of those companies said they both have enough capital to weather the storm.

Originally Posted by bkkandrew

former St. Louis Federal Reserve President William Poole said in an interview

Maybe hes short financials......

Paulson and Bernanke testified before Congress yesterday (or was it Wednesday). Both said they didn't have all the tools they would like, but will "weather the storm."

I presume you were watching too, Spin, or read the transcript.

They are going to "regulate" ratings agency, about fucking time

Originally Posted by Texpat

I presume you were watching too, Spin, or read the transcript.

I saw it live on the bloomberg channel, I really feel for Paulson and Benanke, they got the world on their shoulders now.

To make matters worse, Fannie and Freddie are both down over 40% premarket to 17 year record lows

Bloomberg.com: Worldwide

(this article quote different numbers but the live ones are worse

All that aside, theres no way the government can let these 2 fail so they may as well get Ben to go on TV and say as much.

Originally Posted by Butterfly

They are going to "regulate" ratings agency, about fucking time

Agree. A few shady ratings for clients, and investors often view a good rating from S&P or Moody's, especially, as an inxstant sign of strong financial health. But, I think only about 10 agencies are licensed to give credit ratings right now. Their ratings should only be used as a guide anyway. Most savvy analysts and investors crunch the numbers themselves to check a co's solvency.

^ they are used more than a simple guide. Investment objectives in fixed income funds use ratings as criteria for their asset selection. Everything below ABb for example can't be bought. Since credit ratings is only a measure at a given time, it lacks the forecasting ability of change in the fundamentals of the assets, hence, when ratings change, the investment funds are forced to sell, even at a loss, without waiting things to improve, because they would be in violation of their investment objectives and client expectations about the funds.

The "regulations" in question is for the "exotic" ratings. Basically, the subprime securitization funds would pay to get their ratings, not the user of the ratings (buy side) like we have for bonds, so they could sell their funds to mainstream buy side investors, except the ratings were built under a conflict of interests. Hence, the fucking mess we have now when ratings agency started to adjust their "bought out" ratings with the "real" ones and prices of assets started to crash.

2 more Bloomberg reports on the problems facing/brought about by the Freddie & Fanny Show (Ed. - which bar in Cowboy is that one in?):

Bloomberg.com: Worldwide

Bloomberg.com: Worldwide

Feds seize bank - once a leading mortgage lender. It may turn out to be most expensive collapse ever. One thing is sure: The credit crisis is still with us.


NEW YORK (CNNMoney.com) -- In what could turn out to be the most expensive bank failure ever, troubled mortgage lender IndyMac Bancorp Inc. was taken over by federal regulators on Friday.

The operations of the Pasadena, Calif.-based thrift - once one of the nation's largest home lenders - were shut down at 3 p.m. PDT by the Office of Thrift Supervision and transferred to the Federal Deposit Insurance Corp.

About 95% of the $19 billion in deposits in the bank are insured, but that leaves $1 billion that was not covered by FDIC guarantees. According to the agency, 10,000 IndyMac customers could lose as much as half of that amount, or $500 million. The agency says the failure will cost the Deposit Insurance Fund between $4 billion and $8 billion, based on preliminary estimates.

"This will certainly be a costly failure. Whether it's the costliest, we just don't know at this point," FDIC Chairman Sheila Bair said on a conference call late Friday night. The failure could also affect premiums paid by all banks for deposit insurance, she added.

The rise and fall of IndyMac - Jul. 12, 2008

It's Grim out there.

Meanwhile-

Lehman shares plunge again

Investors send shares of Wall Street firm 17% lower, a day after it releases more details about quarterly loss.

NEW YORK (CNNMoney.com) -- Shares of Lehman Brothers got socked yet again Friday, ending sharply lower just a day after the Wall Street firm provided more details about last quarter's nearly $3 billion loss.

Lehman shares finished nearly 17% lower. So far this year, Lehman shares are down 78%.

Rose Grant, a managing director at Eastern Investment Advisors in Boston, blamed the decline on broader fears about the underlying health of mortgage buyers Fannie Mae and Freddie Mac and an increase in the cost to insure Lehman's debt.

Lehman shares endure another tough session - Jul. 11, 2008

Getting grimmer and grimmer.

Banks have pretty much stopped lending, even to creditworthy businesses. Some perfectly good businesses here in Thailand are haemorrhaging, because they can't get Capital. This must be happening everywhere.

We are either in, or on the brink of, a Crisis of Confidence. The Fed is not able to bail out everyone, and I think a bad precedent was set by bailing out lowly Bear Sterns.

^Already posted yesterday on my continuing thread about bank collapses:

https://teakdoor.com/us-domestic-issu...tml#post687979

^Yes, IndyMac set off the warning bells on Freddie Mac and Fanny Mae. This is serious shit. Obama has latched onto this as a central Presidential campaign platform issue.

Originally Posted by sabang

We are either in, or on the brink of, a Crisis of Confidence. The Fed is not able to bail out everyone, and I think a bad precedent was set by bailing out lowly Bear Sterns.

IMO, we are now entering the complete collapse of the Western Financial system as we know it. This is why I started the threads on the subject 6-months ago.

Back in business: IndyMac reopens Monday

Customers who found locked doors and armed guards Friday afternoon could use ATM cards over the weekend to get to their money, but an estimated 5 percent of the $19 billion deposited in the bank was not insured by the Federal Deposit Insurance Corporation (FDIC).

Indymac's failure, which the FDIC chairman said could add up to be the most expensive U.S. bank failure ever, came as the FDIC's list of "problem" institutions is on the rise.

The FDIC disclosed last month that it was closely watching 90 financial institutions on its "problem list," up from 76 in the first quarter of 2008. The total assets of "problem" institutions rose from $22.2 billion to $26.3 billion, the FDIC said.

The number of troubled institutions monitored by the FDIC has grown in each of the last six quarters, starting in the fall of 2006 when there were just 47 on the list, the agency said. The last time it approached this level was in the fall of 2004 when the number was 95.

The FDIC does not publish a list of trouble banks out of concern it could spur a bank run, which is what the Office of Thrift Supervision (OTS) said happened to Indymac in recent weeks.

Back in business: IndyMac reopens Monday - CNN.com

Bloomberg News
July 22, 2008

U.S. home prices fell 4.8 percent in May from a year earlier, according to the Office of Federal Housing Enterprise Oversight, as banks restricted lending in the second year of a worldwide credit crunch.

The monthly house price index is down 4.9 percent from its peak in April 2007, Washington-based Ofheo said Tuesday in a report.

The worst U.S. housing slump in more than a quarter of a century is deepening as banks rein in mortgage lending after recording more than $400 billion in home loan-related losses and writedowns.

Sales of previously owned homes probably will drop to 5.39 million in the U.S. this year, 24 percent below the 2005 all-time high of 7.08 million, the National Association of Realtors said in a July 8 forecast.

The median U.S. home price probably will tumble 6.2 percent in 2008 to $205,300, the realtors group said in its forecast. Last year's 1.4 percent drop was the first national decline in the U.S. median since the Great Depression, according to Lawrence Yun, chief economist of the housing group.

New foreclosures rose to a seasonally adjusted 0.99 percent of all U.S. home loans in the first quarter, up from 0.83 percent in the prior period, the Mortgage Bankers Association said on June 5. The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest in a series that goes back to 1979, the Washington-based trade group said.

U.S. home prices plunge - International Herald Tribune

***

OK, someone define the word plunge. Is a 4.8 percent loss in one year considered a plunge? Maybe if it happened all in the last week of the year. But it didn't. In '08 it's expected to drop 6.2 percent. Ten percent is a fairly hefty loss, but not catastrophic -- assuming the market corrects itself and starts rising again.

New foreclosures rose to under 1 percent. Total homes in foreclosure is less than 2.5% That's the fringe of the margin.

Maybe I'm missing something, but it sounds like a housing correction much more than a crisis.

Then again, I don't currently own a home in the US (west). I've held stocks that have dropped more than 10 percent in a year. I would think a house is less liquid, more personal and easier to stomach a 10 percent drop -- especially in light of the 30 percent rise over the past 5-10 years.

^ I saw on CNN some developers are throwing in free cars with houses. One developer had a site where if you bought one of his stonking big places you got a free small house at the "cheap end" of the community. Sorted for a mia noi

Originally Posted by chinthee

^Milkman, this is not fun to watch. Many of our families are affected.

I have difficulty in understanding why the crash is a bad thing.

What has passed is one of the biggest pyramid selling scams to hit since the dot.com fiasco and the bursting of the pus ridden bubble is particularly welcome to the next generation of property buyers who now are not required to mortgage themselves to the hilt in order to provide for a basic need. Disposible income is thus released into the economy and eventually the whole cycle will repeat itself although the profligate and reckless lending by irresponsible banks should be a thing of the past.

The casualties of the scam have only themselves to blame but should at least benefit from their experience to the extent that even the stupidest of them now realises the trees don't grow all the way to the sky.

Originally Posted by thegent

the whole cycle will repeat itself although the profligate and reckless lending by irresponsible banks should be a thing of the past.

Prpoer regulation is the way forward, the FED are indicating that they should have more power too, although I belive the FED are responsible for most of Americas troubles today. You only have to read Greenspans famous quote that "nobody could have foreseen the housing crisis" to realise it.

U.S. Foreclosures Double as House Prices Decline (Update2)


By Bob Ivry




July 25 (Bloomberg) -- U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

``Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,'' said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. ``That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.''

Continued here:

Bloomberg.com: Worldwide

I am too busy to be on the forum much at the moment, due to massive impending calamaties in the financial sector that I am trying to deal with. I will try and keep posting some pertinent articles when I have time though...

And more doom:

Bloomberg.com: Worldwide

Bloomberg.com: Worldwide

As previously warned, the US financial system is broken, unsustainable and bankrupt. Any Expats with funds they may need that are tied to US banks or currency should make exit plans now.

WASHINGTON - Mortgage finance company Fannie Mae swung to a second-quarter loss that was more than triple what Wall Street expected as conditions in the housing market continued to deteriorate.

The Washington-based company, the largest U.S. buyer and backer of home loans, said today that it lost $2.3 billion, or $2.54 a share, for the quarter that ended June 30. The loss compares with profit of $1.95 billion, or $1.86 a share, in the period last year.

Analysts surveyed by Thomson Financial had expected a loss of just 68 cents a share. And it appears that more bad news is ahead.

Continued at:

Fannie Mae posts $2.3B loss as defaults rise | Philadelphia Inquirer | 08/08/2008

House in Detroit Sells for $1


In what might be considered a new low for the housing market, a home in Detroit sold for $1.

The home, located at 8111 Traverse Street, close to the Detroit City Airport, was foreclosed upon last summer, after it was purchased for $65,000 in 2006, according to an article in The Detroit News.

The bank was so eager to sell the foreclosed property, it lowered the price to $1 in a final attempt to find a buyer. According to the newspaper, 14 days after the property was listed for $1, a local woman purchased the house as “an investment property." The property taxes will run the new owner $3,900, in 2009.

At the time of sale, the home had been stripped of its siding, fence, light fixtures, copper plumbing—even the kitchen sink had been taken. Boards that were used to board up the windows were also stolen and used to board up a house down the street, according to The Detroit News.

House in Detroit Sells for $1 - FOXBusiness.com

Originally Posted by bkkandrew

Boards that were used to board up the windows were also stolen and used to board up a house down the street,