Tuesday, December 05, 2006

Sub-Prime Problems

Today's Wall Street Journal had a front page, top-of-column "A" article about the rise of delinquency rates of sub-prime mortages. Here is an excerpt. You need a WSJ subscription to read the whole article but it looks like the Grim's site has more info too.

More Borrowers
With Risky Loans
Are Falling Behind
Subprime Mortgages Surged
As Housing Market Soared;
Now, Delinquencies Mount
December 5, 2006; Page A1

Americans who have stretched themselves financially to buy a home or refinance a mortgage have been falling behind on their loan payments at an unexpectedly rapid pace.

The surge in mortgage delinquencies in the past few months is squeezing lenders and unsettling investors world-wide in the $10 trillion U.S. mortgage market. The pain is most apparent in subprime mortgages, though there are signs it is spreading to other parts of the mortgage market.

Subprime mortgages are loans made to borrowers who are considered to be higher credit risks because of past payment problems, high debt relative to income or other factors. Lenders typically charge them higher interest rates -- as much as four percentage points more than more-credit-worthy borrowers pay -- one reason subprime mortgages are among the most profitable segments of the industry.


Anonymous rbyzell said...

an even better article is in today's business section of the ny times 12/06 : "what statistics on home sales aren't saying" by; david leonhardt. an absolutely fantastic article.

Wednesday, December 06, 2006 8:01:00 PM  
Anonymous rbyzell said...

just a thought on yesterday's blog. there is a little known federal law that states that municipalities must allow easy access to beaches. (i forget the name of the law) but beaches as far as i understand are all federal property and are to be enjoyed by All!!! citizens. not just the rich! C.R.A.B. (citizens right to access beaches) is an organization located in n.j. that has a lot of info on this. contact them and get involved. (sorry for all of the exlamation points silver) :)

Wednesday, December 06, 2006 8:07:00 PM  
Anonymous Anonymous said...

I believe that in some instances the beach is only considered "public" up to the mean tide line. Most beaches in Jersey are completely public but in sections of towns like Pt. Pleasant, where some of the beaches are "private," homeowners are trying to dispute that. The purpose of the mean tide line rule is so that the public can at least walk the beach.

Thursday, December 07, 2006 8:50:00 AM  
Anonymous rbyzell said...

i'm going to contact crab and look into it. i even think that they won a case having to do with point pleasant.

Thursday, December 07, 2006 12:33:00 PM  
Anonymous Anonymous said...

Well, it sort of looks like we have a Sub-Prime Lender that is to the mortgage business what Kara Homes is to the builder industry. See:

Subprime lender Ownit Mortgage shuts down

NEW YORK (MarketWatch) -- Ownit Mortgage Solutions, a California company that described itself as one of the top 15 lenders to homeowners with weak or no credit histories, has shut down, citing "the current unfavorable conditions of the mortgage industry."
Merrill Lynch & Co. (MER) and private equity firm CIVC Partners hold stakes in Ownit, which built its book of new loans to $8.3 billion in 2005 from $1.1 billion in 2003, in part by introducing products like 45-year mortgages, according to its Web site. Ownit's demise comes as subprime mortgage lenders are being squeezed by higher funding costs, weakening loan demand and rising delinquencies.
"Effective Dec. 5, Ownit closed its doors, and we are no longer able to fund or process your loans," the company said on a recorded telephone message. "We apologize for any inconvenience."
Ownit ran out of cash needed to meet its obligations to repurchase loans from investment banks and others who bought them in the secondary market, people in the industry said. The banks, which convert the loan payments into mortgage-backed securities for sale to investors, can force the original lenders to repurchase loans if the mortgage borrowers default.
Bruce Dickinson, Ownit's chief operating officer, said he couldn't immediately comment pending discussions with lawyers.
In a letter to mortgage bankers and other business associates emailed Dec. 5, Ownit said, "For the past three years, we have pursued a mission to influence the mortgage industry toward increased affordability options for a changing market of home buyers. Change takes time, and we are saddened that the current unfavorable conditions of the mortgage industry did not afford us sufficient time to see our mission through."
Worsening conditions have pushed many owners of subprime mortgage firms to try to sell the businesses. Morgan Stanley (MS) bought Saxon Capital Inc. for $706 million earlier this month and Merrill plans to complete its $1.3 billion purchase of First Franklin Financial Corp., a large subprime lender that is owned by Cleveland-based National City Corp. (NCC) in the next few weeks.
National City bought First Franklin, which together with affiliates has $29 billion of mortgage loans, from its founder Bill Dallas, who went on to become chief executive of Ownit. Dallas didn't return a call for comment.
Merrill is believed to own about 20% of Ownit. A Merrill Lynch spokeswoman declined to comment. CIVC Partners, a Chicago-based private equity firm, also has a stake in Ownit and was an investor in First Franklin before Dallas sold it to National City. CIVC's Dan Helly, who oversees the Ownit investment, didn't return a call for comment.
The end came quickly for Ownit.
"We were all working yesterday, assuming we were fine," Dave Hanthorn, a New Jersey-based employee who sells the firm's loans to mortgage brokers, said Wednesday evening. "At 5:15 last night we got the call that we were ceasing operations." He said the company gave no explanation for its funding problems.
Ownit was formed in 2003 when Merrill Lynch, Interthinx, Mindbox, C-BASS, Litton Loan Services and other "key industry vendors" formed a strategic alliance with Dallas to buy a wholesale mortgage company called Oakmont Mortgage, according to the firm's Web site. The company took down the site - ownitmortgage.com - Wednesday afternoon so as "not to confuse" clients, said Dickinson.
Ownit laid off all its staff, according to a headhunter, who received an email that was reviewed by Dow Jones from a friend who worked at the firm.
A voicemail message at the number of LesLee Delaney, a representative of Ownit in California, said the company will help mortgage brokers and other wholesale customers try to get their loans transferred to other lenders.

Thursday, December 07, 2006 3:01:00 PM  
Anonymous Anonymous said...

It took the Federal Reserve five weeks to ask Bank of America to retract or justify its September 8 demand that basic fair lending information be withheld. Then BofA took a full two weeks to answer the Fed’s questions. Finally the following disclosures:

“Bank of America indirectly owns 24.9% of the voting common equity of Ownit... In August 2005, Bank of America, N.A. transferred the Ownit residential mortgage loan portfolio purchased during March 2005 to Asset Backed Funding Corporation (‘ABFC’). ABFC is an affiliate of Bank of America Corporation that is a limited purpose corporation that securitizes residential mortgage loans... ABFC securitized these Ownit loans, along with similar loans from another loan originator, in its approximately $1.2 billion ABFC Asset-Backed Certificates, Series 2005-HE2 transaction. Banc of America Securities LLC served as the underwriter in that transaction.... In two separate transactions on March 9 and March 14, 2005 Bank of America N.A. purchased Ownit residential mortgage loans in an aggregate amount of approximately $265 million. These loans were held for the account of Bank of America, N.A. until they became part of the August 2005 securitization described at Item 2.b above. These loans were purchased in a competitive, arms-length process at fair market terms” -- followed by more than half a page blacked out.

Bank of America’s attempt to hide its argument may be understandable -- it is simply not credible that BofA bought “in an arms-length process” subprime loans from a subprime lender of which it owns 24.9% (to fall just below 25%). Similarly, Bank of America still blacks-out its answer about servicing for subprime lenders, and the terms of its dealings with the subprime lenders it now publicly admits it does business with, including: Ameriquest Mortgage Corporation (including “whole loan trading”); Option One, Centex, New Century, Saxon, Metris (the subprime card lender HSBC is trying to acquire), Delta Financial, First Franklin, WMC (subprime lender now owned by GE), Fremont Investment & Loan (rogue subprime lender which claimed it would only give its HMDA data if one signed a confidentiality agreement), Capital One, CIT, WFS -- and Ownit, regarding which BofA blacks-out the column labeled “ABS/MBS Underwriting,” after elsewhere publicly admitting it performs those functions for Ownit’s loans. For shame...

Thursday, December 07, 2006 3:48:00 PM  
Anonymous Anonymous said...

Interesting reading I would like to share with the group. On a national level we may be near or at some kind of bottom with builder confidence improving ever so slightly. Please read on and hope...

Many of this month's indicators were flat in comparison to the prior month, leading many to believe that the market is bottoming out. Sales and traffic may have flattened from their recent downward trends, but we believe heavy incentives and advertising are more responsible for this than some sort of "market stabilization."

Builders have responded to the slowdown in home sales by slowing annual housing starts and permits by 27% from near-peak levels. This is the largest year-over-year decline since early 1991.

Builder confidence, which has historically trended very close to construction activity and shown even greater decline in this down cycle, has shown slight signs of improvement in the last two months – but remains at very low levels. A separate NAHB survey of consumers shows that consumers have not lost confidence in housing as a worthy investment.

Economic Growth.............C
The U.S. economy continues to move along at a normal, steady pace, with most of our indicators trailing their historical averages and showing slightly declining trends from the previous month. The third-quarter preliminary estimate of GDP growth was revised upward to 2.2% from its advance estimate of 1.6%. Retail sales, productivity and personal income growth all declined during the month, while the core CPI inflation declined to 2.7%.

Leading Indicators.........C-
The Super Homebuilding Index has shown steady gains over the last four months, but remains 21% below year-ago values. Interest rates declined again this month, and the spread on the inverted yield curve widened. At month-end, the 10-year Treasury rate was 17 basis points lower than the 2-year rate, which is the widest negative spread since late 2000. Current interest rate spreads are a drag on the leading economic indicator index, which improved slightly this month, but has declined -0.4% on an annual basis. The low level of building permits nationally remains the largest drag on the index over the past several months.

Mortgage Rates............B
Mortgage rates continued to drop this month, with the 30-year fixed rate at its lowest value since January and the one-year adjustable rate at a level just above rates in March. Adjustable-rate loans are decreasing as a percentage of total loans. In November, ARMs fell to 24.5% of total loan activity, which is the lowest percentage in more than three years. The next meeting of the Federal Open Market Committee is December 12, and signs are pointing to the Fed Funds rate holding at 5.25%.

Consumer Behavior..........C+
Consumer behavior was a mixed bag during November, but overall remains healthy and points to future economic growth. The Consumer Confidence Index declined for the month due to concern over short-term conditions and a tighter job market, but has remained over 100 for the last 12 months. The Consumer Comfort Index, which polls consumers on the state of the national economy, personal finances and the buying climate, posted its most positive results since April 2002. The Consumer Sentiment Index decreased slightly to 92.1, but remains above its historical average.

Existing Home Market.......C+
Although the price of the median home remained unchanged from September, October marked the largest year-over-year national price decline on record at -3.4%. Monthly declines are common, but a decline in prices compared to the previous year is rare. The previous record for a year-over-year decline was in November 1990 with a drop of 2.1%. However, sales of existing homes held steady this past month. Total existing annual home sales in October rose 0.5% to 6.24 million, and remain down 11.5% from October last year.

New Home Market.........C
Though sales continue to decline, builder confidence appears to be showing signs of improvement. Annual new home sales decreased slightly to 1.0 million from a revised 1.04 million last month. Although very low in relation to historical levels, the slight increases in the Housing Market Index in the last two months suggest builder confidence may be stabilizing. The index is currently at 33, up from 30 in September. The total unsold new home inventory rose to 7 months of supply, and the completed homes for sale component – standing inventory – increased slightly to 2 months of supply.

Housing Supply.........D+
Builders continue to slow construction in an attempt to decrease inventory levels. Total permit activity fell to 1.65 million units, which continues a long downward trend, and has decreased 27% from year-ago values. Annual housing starts fell below 1.5 million this month, which is the lowest total in nine years. Single-family starts dropped below 1.2 million.
Data Library

Data Current Through November 30, 2006

Overall Grade C+

Statistic Grade*
Economic Growth C
These are the best indicators of how the economy is currently performing.
Real GDP (annual rate) 2.2% C
Employment Growth (1-year Change)
- Non-ag Payroll, NSA 1,921,000 C
Employment Growth Rate
- Non-ag Payroll, NSA 1.4% C
Unemployment Rate 4.4% B-
Productivity 0.2% C-
Retail Sales 4.7% C
Inflation (core CPI) 2.7% B
Personal Income Growth, nominal 5.8% D+
Federal Deficit (last 12 mos., $mil curr.) -$253,193 C

Statistic Grade*
Leading Indicators C-
These have all proven to be predictable early indicators of the direction of economic growth.
Leading Indicators Annual Growth Rate over Last Six Months
Leading Econ. Index -0.4% C
ECRI Leading Index -0.4% C
Manpower Net Employment Outlook 20% B-
Corporate Profits (pre-tax) 30.9% B
Interest Rate Spread
10-year Treasury 4.58%
2-year Treasury 4.75%
Interest Rate Spread -0.17% D+
Stock Market (Return over last 12 months)
Dow Jones 13% C
S&P 500 12% C
Wilshire 5000 13% C
S&P Super Homebuilding -21% D-
Crude Oil Price (Current $) $59.37 D
Inst. of Supply Managers Index 49.5 C

Statistic Grade*
Mortgage Rates B
These statistics are probably the most important indicators of short-term housing market performance.
Conforming Mortgage Rates (contract rate; an additional 0.6 - 1.0 points are also paid up front by the borrower)
Mortgage Rates, fixed 6.14% A-
Mortgage Rates, adjustable 5.46% B-
Fixed/Adjustable Spread 0.68% F
Fixed/10-year Spread 1.56% C
Fed Funds Rate 5.25%
Percentage of Adjust. Loans 24.5% D+

Statistic Grade*
Consumer Behavior C+
Consumer attitudes correlate well with short-term housing sales performance. Consumer income growth, debt levels and job prospects affect the long-term outlook for housing sales.
Consumer Confidence Index 102.9 C
Consumer Sentiment Index 92.1 C+
Consumer Comfort Index -0.25 C+
Equity/Owned Home (2003$) $145,137 A+
Median Household Income $46,326
- Growth Rate, nominal 4.5% C
Revolving Cons. Credit per Household $7,399
- Growth Rate 4.3% B

Statistic Grade*
Existing Home Market C+
Sales volumes correlate well with the Housing Cycle calculations, and boost the trade up New Home sales market.
NAR Median Home Price $221,300 A+
NAR Annual Price Appreciation -3.4% F
Freddie Mac Annual Price Appreciation 7.9% C+
Annual Sales Volume, SA 6,240,000 A-
Months Supply of Unsold Homes, SA 7.4 C
Purchase Mort. App. Index, SA 406.7 B
Pending Home Sales Index, SA 107.2 C-
Homeownership Rate 69.0% A+

Statistic Grade*
New Home Market C
High appreciation and low inventory would mean an excellent short-term outlook for the new home industry.
Housing Market Index 33 D-
Median Price, NSA $248,500 A+
Annual Appreciation Rate 1.9% C-
Sales Volume, SA 1,004,000 B
Months Supply of Unsold Homes, SA 7.0 C-
Months of Homes Completed, SA 2.0 C
Months of Homes Under Const., SA 3.6 C
Months of Homes Not Started, SA 1.1 C-

Statistic Grade*
Housing Supply D+
High construction levels are good for the economy. However, if new supply exceeds demand, prices could fall.
Housing Starts, SA 1,486,000 C
Single-family Permits, SA 1,173,000 B-
Multifamily Permits, SA 362,000 D
Total Permits, SA 1,535,000 C
Manuf. Housing Placements, SA 111,000 F
Total Supply, SA 1,646,000 C

Thursday, December 07, 2006 9:10:00 PM  

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